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

                                    FORM 10-Q

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

         For the quarterly period ended March 31, 1999

                                       OR

[ ]      TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

         For the  transition  period from           to

                         Commission file number 0-24040 

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

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

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


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


--------------------------------------------------------------------------------
(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
requirements for the past 90 days.

                                   YES  [X]   NO [ ]  

         As of May 5, 1999,  there were issued and outstanding  8,814,188 shares
of the Registrant's Common Stock.
<PAGE>
PART I - Financial Information
Item 1.  Financial Statements
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Financial Condition

                                                                                March 31,         June 30,
                                                                                 1999               1998
                                                                               -----------      -----------   
                                                                                  (Dollars in thousands)
<S>                                                                            <C>              <C>        
ASSETS
Cash and amounts due from depository institutions ........................     $     9,635      $    10,960
Federal funds sold .......................................................          46,800             --
                                                                               -----------      -----------
     Total cash and cash equivalents .....................................          56,435           10,960
Investment securities held to maturity, at amortized cost, market value of
     $236,470 and $178,743 at March 31, 1999 and June 30, 1998 ...........         239,845          178,310
Mortgage-backed securities held to maturity, at amortized cost, market
     value of $143,740 and $208,128 at March 31, 1999 and
     June 30, 1998 .......................................................         141,146          204,452
Loans held for sale ......................................................           6,310              565
Loans receivable, net of allowance for loan losses of $2,993 and $2,776
     at March 31, 1999 and June 30, 1998 .................................       1,066,163        1,095,287
Premises and equipment, net ..............................................          18,798           18,092
Real estate owned, net ...................................................             995            1,643
Federal Home Loan Bank of New York stock, at cost ........................          16,623           15,065
Accrued interest receivable, net .........................................           9,798            8,723
Goodwill and other intangible assets .....................................          11,702           13,481
Other assets .............................................................           4,955            5,360
                                                                               -----------      -----------
                                                                               $ 1,572,770      $ 1,551,938
                                                                               ===========      ===========

LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
     Deposits ............................................................     $ 1,091,500      $ 1,028,100
     Federal Home Loan Bank of New York advances .........................         264,465          230,465
     Other borrowings ....................................................          59,738          131,500
     Mortgage escrow funds ...............................................          10,175           10,534
     Due to banks ........................................................           6,398           12,069
     Accounts payable and other liabilities ..............................           3,856            2,886
                                                                               -----------      -----------
     Total liabilities ...................................................       1,436,132        1,415,554
                                                                               -----------      -----------

     Guaranteed Preferred Beneficial Interests in the Company's
         Junior Subordinated Debentures ..................................          34,500           34,500
     Unamortized issuance expenses .......................................          (1,772)          (1,819)
                                                                               -----------      -----------
     Net Trust Preferred Securities ......................................          32,728           32,681
                                                                               -----------      -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Financial Condition (continued)

                                                                                March 31,         June 30,
                                                                                 1999               1998
                                                                               -----------      -----------   
                                                                                  (Dollars in thousands)
<S>                                                                            <C>              <C>        
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,
         11,900,000 shares issued,  and 8,794,188 and 9,385,988 shares
         outstanding at March 31, 1999 and June 30, 1998 (excluding
         shares held in treasury of 3,105,812 and 2,514,012 at
         March 31, 1999 and June 30, 1998) ...............................              60               60
     Additional paid-in capital ..........................................          59,187           58,278
     Restricted stock - Management Recognition Plan ......................            (531)            (531)
     Employee Stock Ownership Plan Trust debt ............................          (2,916)          (3,253)
     Retained earnings, partially restricted .............................          78,234           70,781
     Treasury stock, at cost, 3,105,812 and 2,514,012 shares at
         March 31, 1999 and June 30, 1998 ................................         (30,124)         (21,632)
                                                                               -----------      -----------
     Total stockholders' equity ..........................................         103,910          103,703
                                                                               -----------      -----------
                                                                               $ 1,572,770      $ 1,551,938
                                                                               ===========      ===========
</TABLE>
See notes to consolidated financial statements.


<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Income
                                                              Three months ended                 Nine months ended
                                                                   March 31,                        March 31,
                                                          ---------------------------      ---------------------------
                                                             1999            1998             1999            1998
                                                          -----------     -----------      -----------     -----------
                                                                 (Dollars in thousands, except per share amounts)
<S>                                                       <C>             <C>              <C>             <C>        
Interest and Dividend Income:
     Interest and fees on loans .....................     $    19,572     $    18,713      $    59,544     $    54,909
     Interest on federal funds sold .................              33               8               59              18
     Interest and dividends on investment securities            3,992           3,080           11,664           6,396
     Interest on mortgage-backed securities .........           2,475           4,124            8,595          13,463
                                                          -----------     -----------      -----------     -----------
                                                               26,072          25,925           79,862          74,786
                                                          -----------     -----------      -----------     -----------
Interest Expense:
     Deposits .......................................          11,857          11,943           37,011          35,798
     Borrowed funds .................................           4,893           4,784           15,478          12,929
     Trust Preferred securities .....................             783             784            2,349           1,391
                                                          -----------     -----------      -----------     -----------
                                                               17,533          17,511           54,838          50,118
                                                          -----------     -----------      -----------     -----------
Net Interest and Dividend Income Before Provision
     for Loan Losses ................................           8,539           8,414           25,024          24,668
Provision for Loan Losses ...........................             210             150              570             450
                                                          -----------     -----------      -----------     -----------
Net Interest and Dividend Income After Provision
     for Loan Losses ................................           8,329           8,264           24,454          24,218
                                                          -----------     -----------      -----------     -----------

Non-Interest Income:
     Service charges ................................             531             510            1,559           1,421
     Net gain (loss) from real estate operations ....              98             (49)              52            (138)
     Net gain on sales of loans .....................             201             419              963             527
     Other ..........................................             165              69              348             228
                                                          -----------     -----------      -----------     -----------
                                                                  995             949            2,922           2,038
                                                          -----------     -----------      -----------     -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Income (continued)

                                                              Three months ended                 Nine months ended
                                                                   March 31,                        March 31,
                                                          ---------------------------      ---------------------------
                                                             1999            1998             1999            1998
                                                          -----------     -----------      -----------     -----------
                                                                 (Dollars in thousands, except per share amounts)
<S>                                                       <C>             <C>              <C>             <C>        
Non-Interest Expenses:
     Compensation and employee benefits .............           2,357           2,047            6,709           6,191
     Net occupancy expense ..........................             344             325              990             941
     Equipment ......................................             405             404            1,244           1,130
     Advertising ....................................             104             100              242             258
     Amortization of intangibles ....................             588             607            1,779           1,835
     Federal deposit insurance premium ..............             166             153              477             438
     Other ..........................................             826             867            2,565           2,196
                                                          -----------     -----------      -----------     -----------
                                                                4,790           4,503           14,006          12,989
                                                          -----------     -----------      -----------     -----------

Income Before Income Taxes ..........................           4,534           4,710           13,370          13,267
Income Tax Expense ..................................           1,626           1,662            4,793           4,791
                                                          -----------     -----------      -----------     -----------
Net Income ..........................................     $     2,908     $     3,048      $     8,577     $     8,476
                                                          ===========     ===========      ===========     ===========

Weighted average number of common shares outstanding:
     Basic ..........................................       8,210,536       8,974,642        8,462,521       8,952,790
                                                          ===========     ===========      ===========     ===========
     Diluted ........................................       8,851,358       9,767,821        9,100,235       9,689,702
                                                          ===========     ===========      ===========     ===========

Net income per common share:
     Basic ..........................................     $      0.35     $      0.34      $      1.01     $      0.95
                                                          ===========     ===========      ===========     ===========
     Diluted ........................................     $      0.33     $      0.31      $      0.94     $      0.87
                                                          ===========     ===========      ===========     ===========

</TABLE>
See notes to consolidated financial statements.


<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
                                                                                Nine months ended March 31,
                                                                                    1999            1998
                                                                                 ---------      ---------
                                                                                  (Dollars in thousands)
<S>                                                                              <C>            <C>      
Cash Flows from Operating Activities:
     Net income ............................................................     $   8,577      $   8,476
     Adjustments to reconcile net income to net cash provided by
       operating activities:
     Net gain on sales of loans ............................................          (963)          (527)
     Proceeds from sales of loans held for sale ............................       135,534          1,616
     Originations of loans held for sale ...................................          --           (1,616)
     Net gain on sales of real estate owned ................................          (123)           (72)
     Amortization of investment and mortgage-backed securities
       premium, net ........................................................           315            228
     Depreciation and amortization .........................................         1,022            965
     Provision for losses on loans and real estate owned ...................           615            589
     Amortization of cost of stock plans ...................................         1,644          1,323
     Amortization of intangibles ...........................................         1,779          1,835
     Amortization of premiums on loans and loan fees .......................         1,757          1,024
     Amortization of Trust Preferred securities issuance costs .............            47             21
     Increase in accrued interest receivable, net of accrued
       interest payable ....................................................        (1,765)        (3,328)
     (Increase) decrease in other assets ...................................           405         (2,079)
     Increase in accounts payable and other liabilities ....................           572            580
     Increase (decrease) in mortgage escrow funds ..........................          (359)           771
     Increase (decrease) in due to banks ...................................        (5,671)         6,680
     Other, net ............................................................            26           --
                                                                                 ---------      ---------
     Net cash provided by operating activities .............................       143,412         16,486
                                                                                 ---------      ---------

Cash Flows from Investing Activities:
     Proceeds from maturities of investment securities .....................       147,070         15,150
     Purchases of investment securities held to maturity ...................      (208,641)      (141,168)
     Net outflow from loan originations net of principal repayments of loans       (86,315)       (72,284)
     Purchases of loans ....................................................       (27,618)       (77,606)
     Proceeds from principal repayments of mortgage-backed securities ......        63,027         59,065
     Proceeds from sale of loans ...........................................          --           74,915
     Purchases of premises and equipment ...................................        (1,754)        (1,700)
     Proceeds from sale of real estate owned ...............................         1,140          1,026
     Purchases of Federal Home Loan Bank of New York stock .................        (1,558)        (2,652)
                                                                                 ---------      ---------
     Net cash used in investing activities .................................      (114,649)      (145,254)
                                                                                 ---------      ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)

                                                                                Nine months ended March 31,
                                                                                    1999            1998
                                                                                 ---------      ---------
                                                                                  (Dollars in thousands)
<S>                                                                              <C>            <C>      
Cash Flows from Financing Activities:
     Net increase in deposits ..............................................        64,090        103,430
     Decrease in advances from the Federal Home Loan Bank of
       New York and other borrowings .......................................       (37,762)        (5,125)
     Net proceeds from issuance of Trust Preferred securities ..............          --           32,640
     Cash dividends paid ...................................................        (1,012)          (975)
     Purchases of treasury stock, net of reissuance ........................        (8,604)          --
                                                                                 ---------      ---------
     Net cash provided by financing activities .............................        16,712        129,970
                                                                                 ---------      ---------
Net Increase in Cash and Cash Equivalents ..................................        45,475          1,202
Cash and Cash Equivalents, Beginning of Period .............................        10,960         10,729
                                                                                 ---------      ---------
Cash and Cash Equivalents, End of Period ...................................     $  56,435      $  11,931
                                                                                 =========      =========

Supplemental Disclosures of Cash Flow Information:
     Cash paid during period for:
     Interest...............................................................     $  55,211      $  49,847
                                                                                 =========      =========
     Income taxes...........................................................     $   4,226      $   5,213
                                                                                 =========      ========= 

Supplemental Schedule of Non-Cash Activities:
     Transfer of loans receivable to real estate owned, net.................     $     413      $   1,106
                                                                                 =========      =========
     Transfer of loans receivable to loans held for sale....................     $ 140,317      $     ---
                                                                                 =========      ========= 

</TABLE>
See notes to consolidated financial statements.
<PAGE>
                PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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  Penn  Federal  Savings Bank (the
"Bank")  and  PennFed  Capital  Trust I. 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,  1998.  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.  There were no adjustments of a non-recurring nature recorded
during the nine months  ended March 31,  1999 and 1998.  The interim  results of
operations presented are not necessarily  indicative of the results for the full
year.

When  necessary,  reclassifications  have been made to conform to current period
presentation.

2.  Adoption of Recently Issued Accounting Standards

Effective July 1, 1998, the Company  adopted  Statement of Financial  Accounting
Standards No. 130,  "Reporting  Comprehensive  Income"  ("SFAS  130").  SFAS 130
establishes  standards for reporting and display of comprehensive income and its
components.  SFAS 130 requires that all items that are required to be recognized
under accounting  standards as components of comprehensive income be reported in
a  financial  statement  that is  displayed  with the same  prominence  as other
financial  statements.  The  Company  is  required  to  classify  items of other
comprehensive  income by their nature in a financial  statement  and display the
accumulated  balance of other  comprehensive  income  separately  from  retained
earnings and additional  paid-in  capital in the equity section of the statement
of financial  condition.  The adoption of SFAS 130 did not have an effect on the
Company's financial condition or results of operations.
<PAGE>
3.  Computation of EPS

The computation of EPS is presented in the following table.
<TABLE>
<CAPTION>
                                                            Three months ended             Nine months ended
                                                                March 31,                       March 31,
                                                      ---------------------------     ---------------------------
                                                          1999            1998            1999            1998
                                                      -----------     -----------     -----------     -----------
                                                            (Dollars in thousands, except per share amounts)

<S>                                                   <C>             <C>             <C>             <C>        
Net income ......................................     $     2,908     $     3,048     $     8,577     $     8,476
                                                      ===========     ===========     ===========     ===========

Number of shares outstanding:
  Weighted average shares issued ................      11,900,000      11,900,000      11,900,000      11,900,000
  Less:  Weighted average shares held in treasury       3,106,278       2,253,828       2,831,653       2,254,613
  Less:  Average shares held by the ESOP ........         952,000         952,000         952,000         952,000
  Plus:  ESOP shares released or committed to be
              released during the fiscal year ...         368,814         280,470         346,174         259,403
                                                      -----------     -----------     -----------     -----------
         Average basic shares ...................       8,210,536       8,974,642       8,462,521       8,952,790
  Plus:  Average common stock equivalents .......         640,822         793,179         637,714         736,912
                                                      -----------     -----------     -----------     -----------
         Average diluted shares .................       8,851,358       9,767,821       9,100,235       9,689,702
                                                      ===========     ===========     ===========     ===========

Earnings per common share:
         Basic ..................................     $      0.35     $      0.34     $      1.01     $      0.95
                                                      ===========     ===========     ===========     ===========
         Diluted ................................     $      0.33     $      0.31     $      0.94     $      0.87
                                                      ===========     ===========     ===========     ===========

</TABLE>
<PAGE>
4. Stockholders' Equity and Regulatory Capital

The Bank's capital amounts and ratios are presented in the following table.
<TABLE>
<CAPTION>
                                                                                                                To Be Well
                                                                                                             Capitalized Under
                                                                                   For Capital               Prompt Corrective
                                                        Actual                  Adequacy Purposes            Action Provisions
                                                  ------------------           ------------------          --------------------
                                                  Amount       Ratio            Amount      Ratio          Amount         Ratio
                                                  ------       -----            ------      -----          ------         -----
                                                                             (Dollars in thousands)
<S>                                              <C>         <C>                <C>        <C>             <C>         <C>  
As of March 31, 1999
Tangible capital...........................      $119,436      7.66%            $23,399     1.50%              N/A         N/A
Core capital...............................      $119,520      7.66%            $62,401     4.00%          $78,001       5.00%
Risk-based capital.........................      $122,323     15.95%            $61,361     8.00%          $76,701      10.00%

As of June 30, 1998
Tangible capital...........................      $108,580      7.09%            $22,960     1.50%              N/A         N/A
Core capital...............................      $108,816      7.11%            $61,237     4.00%          $76,547       5.00%
Risk-based capital.........................      $111,262     15.16%            $58,705     8.00%          $73,381      10.00%
</TABLE>


The above table  reflects  information  for the Bank.  Savings and loan  holding
companies,  such as PennFed, are not 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 (the "FRB"). The following summarizes
the Company's  capital  position under the FRB's capital  requirements  for bank
holding companies.
<PAGE>
<TABLE>
<CAPTION>
                                                                                                                    To Be Well
                                                                                                                   Capitalized
                                                                                        For Minimum                Under Prompt
                                                                                      Capital Adequacy           Corrective Action
                                                                Actual                    Purposes                  Provisions
                                                        --------------------         ------------------          -----------------
                                                        Amount         Ratio         Amount       Ratio          Amount      Ratio
                                                        ------         -----         ------       -----          ------      -----
                                                                            (Dollars in thousands)
<S>                                                   <C>              <C>           <C>           <C>           <C>         <C>
Stockholders' equity.............................     $   103,910
Add:   Qualifying preferred securities...........          30,764
Less:  Goodwill..................................            (733)
       Deposit premium intangible................         (10,969)
                                                      -----------  
Tangible capital, and ratio to
       adjusted total assets.....................     $   122,972       7.88%        $23,421       1.50%
                                                      ===========                    =======

Add:   Qualifying intangible asset...............     $        84
                                                      ----------- 
Tier I (core) capital, and ratio to
       adjusted total assets.....................     $   123,056       7.88%        $46,841       3.00%         $78,069     5.00%
                                                      ===========                    =======                     =======

Tier I (core) capital, and ratio to
       risk-weighted assets......................     $   123,056      16.26%        $30,278       4.00%         $45,417     6.00%
                                                      ===========                    =======                     =======

Less:  Equity investments and
       investments in real estate................     $       (50)
Add:   Allowance for loan losses.................           2,853
                                                      ----------- 

Total risk-based capital, and ratio
       to risk-weighted assets...................     $   125,859      16.63%        $60,555       8.00%         $75,694    10.00%
                                                      ===========                    =======                     =======

Total assets.....................................     $ 1,572,770
                                                      ===========

Adjusted total assets............................     $ 1,561,379
                                                      ===========

Risk-weighted assets.............................     $   756,943
                                                      ===========
</TABLE>
<PAGE>
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

General

The  Company's  results of operations  are  dependent  primarily on net interest
income,  which  is the  difference  between  the  income  earned  on  its  loan,
securities  and investment  portfolios and its cost of funds,  consisting of the
interest  paid on  deposits  and  borrowings.  Results  of  operations  are also
affected by the  Company's  provision  for loan losses and  operating  expenses.
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  law,  regulations  or  government  policies may also have a material
impact on the Company.

When  used in this  Form  10-Q and in future  filings  by the  Company  with the
Securities and Exchange  Commission (the "SEC"), in the Company's press releases
or other public or stockholder 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. Such statements are subject to certain risks and
uncertainties,  including, among other things, changes in economic conditions in
the Company's market area,  financial or legal conditions  including  changes in
policies by regulatory  agencies,  fluctuations  in interest  rates,  demand for
loans in the  Company's  market area and  competition,  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 such  forward-looking  statements,  which speak only as of
the date made.  The Company  wishes to advise  readers  that the factors  listed
above  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
such  statements or to reflect the occurrence of  anticipated  or  unanticipated
events.

Financial Condition

Total assets  increased  slightly to $1.573 billion at March 31, 1999 from total
assets of $1.552  billion at June 30, 1998.  Increases due to loan  originations
and purchases and  purchases of  investment  securities  were offset by sales of
one- to  four-family  residential  loans  and  principal  payments  on loans and
mortgage-backed  securities.  A new strategic  initiative was implemented at the
beginning  of the fiscal  year and focuses on sales of  fixed-rate,  low coupon,
one- to  four-family  first  mortgage  loans  into the  secondary  market.  This
strategic  initiative is intended to result in an  improvement  in the Company's
interest  rate  risk  position  and  the  net  interest   margin  and  increased
non-interest income.
<PAGE>
Deposits increased $63.4 million to $1.092 billion at March 31, 1999 from $1.028
billion at June 30, 1998.  Federal Home Loan Bank of New York advances and other
borrowings  totaled $324.2  million at March 31, 1999, a $37.8 million  decrease
from $362.0 million at June 30, 1998.

Non-performing assets at March 31, 1999 totaled $4.7 million,  representing 0.30
% of total assets,  compared to $5.4 million,  or 0.35% of total assets, at June
30, 1998.  Non-accruing loans totaled $3.7 million, with a ratio of non-accruing
loans to total loans of 0.35% at March 31, 1999 as compared to $3.7 million,  or
0.34% of total  loans,  at June 30, 1998.  Real estate  owned  decreased to $1.0
million at March 31, 1999 from $1.6 million at June 30, 1998.

Stockholders' equity at March 31, 1999 totaled $103.9 million compared to $103.7
million at June 30, 1998. The increase  primarily  reflects net income  recorded
for the nine months ended March 31, 1999,  partially offset by the repurchase of
618,000 shares of the Company's  outstanding common stock at an average price of
$14.12 per share and the declaration of dividends.

Results of Operations

General.  For the three months ended March 31, 1999 net income was $2.9 million,
or $0.33 per diluted share, as compared to net income of $3.0 million,  or $0.31
per diluted  share for the  comparable  prior year  period.  For the nine months
ended March 31, 1999 net income was $8.6  million,  or $0.94 per diluted  share.
These results compare to net income of $8.5 million,  or $0.87 per diluted share
for the nine months ended March 31, 1998.

Interest and  Dividend  Income.  Interest and dividend  income for the three and
nine months ended March 31, 1999  increased to $26.1 million and $79.9  million,
respectively, from $25.9 million and $74.8 million for the three and nine months
ended March 31,  1998.  The  increases  in the current  year periods were due to
increases in average  interest-earning  assets  partially offset by decreases in
the average yield earned on interest-earning  assets.  Average  interest-earning
assets  were  $1.499  billion  and $1.509  billion for the three and nine months
ended  March 31,  1999,  respectively,  compared  to $1.418  billion  and $1.353
billion for the  comparable  prior year  periods.  The average  yield  earned on
interest-earning  assets  decreased  to 6.97%  and  7.05% for the three and nine
months  ended March 31, 1999,  respectively,  from 7.32% and 7.37% for the three
and nine months ended March 31, 1998.

Interest income on residential one- to four-family  mortgage loans for the three
and nine months ended March 31, 1999  increased  $0.5 million and $3.5  million,
respectively,  when compared to the prior year periods. The increase in interest
income  on  residential  one- to  four-family  mortgage  loans  was due to $71.7
million and $111.0 million increases in the average balance  outstanding for the
three and nine months  ended March 31, 1999,  respectively.  The increase in the
average balance on residential one- to four-family  mortgage loans was partially
offset by a decrease of 34 basis points and 35 basis points in the average yield
earned on this loan  portfolio  to 6.94% and 7.01% for the three and nine months
ended March 31, 1999, respectively, from the comparable prior year periods.
<PAGE>
Interest income on investment securities increased $0.9 million and $5.3 million
for the three and nine  months  ended  March 31,  1999,  respectively,  from the
comparable prior year periods. The increase was primarily due to a $64.8 million
and a $105.9 million  increase in the average balance  outstanding for the three
and nine months ended March 31, 1999,  respectively,  over the comparable  prior
year periods.  The increase in the average balance on investment  securities was
partially  offset  by a 50 basis  point  and a 33 basis  point  decrease  in the
average  yield  earned on these  securities  for the three and nine months ended
March 31, 1999, respectively, when compared to the prior year periods.

Interest  income on the  mortgage-backed  securities  portfolio  decreased  $1.6
million  and $4.9  million,  or 40.0% and 36.2%,  for the three and nine  months
ended March 31, 1999,  respectively,  as compared to the prior year periods. The
decrease in interest income on mortgage-backed  securities primarily reflects an
$88.1 million and an $89.0 million  decrease in the average balance  outstanding
for the three and nine months  ended March 31, 1999,  respectively,  compared to
the prior year periods.

Interest Expense. Interest expense was relatively unchanged for the three months
ended March 31, 1999 compared to the three months ended March 31, 1998.  For the
three months ended March 31, 1999, a $79.1 million increase in the total average
deposits,  borrowings  and trust  preferred  securities  (the  "Trust  Preferred
securities")  was offset by a 29 basis point  decline in the average  rate paid.
The average rate paid on deposits,  borrowings  and Trust  Preferred  securities
decreased  to 4.95% for the three months ended March 31, 1999 from 5.24% for the
comparable prior year period.  Interest  expense  increased $4.7 million for the
nine months ended March 31, 1999 from the comparable March 31, 1998 period.  The
increase  was  attributable  to a  $156.0  million  increase  in  total  average
deposits,  borrowings and Trust Preferred  securities,  partially offset by a 12
basis point  decrease in the Company's  cost of funds compared to the prior year
period.  The  average  rate paid on  deposits,  borrowings  and Trust  Preferred
securities  decreased to 5.07% for the nine months  ended March 31,  1999,  from
5.19% for the  comparable  prior year period.  The average  balance and interest
expense  for the nine  months  ended  March  31,  1998 only  included  the Trust
Preferred  securities since their issuance date in October 1997. Trust Preferred
securities  had an average  balance of $32.7  million for the nine months  ended
March 31, 1999 compared to $19.4 million for the prior year period.

Net Interest and Dividend Income. Net interest and dividend income for the three
and nine  months  ended  March 31,  1999 was $8.5  million  and  $25.0  million,
respectively,  reflecting a slight  increase from $8.4 million and $24.7 million
recorded in the comparable prior year periods.  The increase  reflects growth in
the  Company's  average  assets,  primarily in investment  securities  and loans
receivable.  The  increase in net interest  and  dividend  income was  partially
offset by a decline in the net  interest  rate  spread.  The net  interest  rate
spread and net  interest  margin for the three  months ended March 31, 1999 were
2.02% and 2.24%, respectively, a decline from 2.08% and 2.33%, respectively, for
the three months ended March 31, 1998. For the nine months ended March 31, 1999,
net  interest  rate  spread  and net  interest  margin  were  1.98%  and  2.21%,
respectively,  compared to 2.18% and 2.44% for the comparable  1998 period.  For
the nine months  ended March 31, 1999,  the  declines in the net  interest  rate
spread and net interest  margin were  partially due to the issuance of the Trust
Preferred  securities.  The  declines  in the net  interest  rate spread and net
interest  margin  were also  attributable  to the  relatively  flat yield  curve
environment  recently  experienced  in which higher  yielding  assets prepaid at
accelerated  rates  and  were  replaced  by lower  yielding  assets.  Since  the
Company's  liabilities  generally  reprice  more  quickly  than its assets,  net
interest  rate spread and net interest  margin will likely  decrease if interest
rates rise.
<PAGE>
Provision for Loan Losses.  The provision for loan losses for the three and nine
months ended March 31, 1999 was $210,000 and $570,000, respectively, compared to
$150,000 and $450,000 for the comparable  prior year periods.  The allowance for
loan losses at March 31, 1999 of $3.0 million reflects a $217,000  increase from
the June 30, 1998  level.  The  allowance  for loan  losses as a  percentage  of
non-accruing loans was 80.59% at March 31, 1999,  compared to 74.18% at June 30,
1998.

Non-Interest  Income.  For the  three  and nine  months  ended  March  31,  1999
non-interest  income was $995,000 and $2.9  million,  respectively,  compared to
$949,000  and $2.0 million for the prior year  periods.  Service  charge  income
increased to $531,000 and $1.6 million for the three and nine months ended March
31, 1999,  respectively,  versus  $510,000  and $1.4 million for the  comparable
prior year periods.  The net gain (loss) from real estate operations was $98,000
and $52,000 for the three and nine months ended March 31, 1999. This compares to
($49,000) and ($138,000) for the three and nine months ended March 31, 1998. Net
gain on sales of loans of $201,000 and $963,000  were recorded for the three and
nine months ended March 31, 1999. One- to four-family residential mortgage loans
totaling  approximately  $60 million and $135 million were sold in the secondary
market  during the three and nine months ended March 31, 1999,  respectively.  A
gain of  approximately  $403,000  on the sale of $50  million  of jumbo  one- to
four-family  mortgage  loans was reflected in the three month period ended March
31,  1998.  For the nine months  ended March 31, 1998 net gain on sales of loans
also included a $91,000 gain recorded on an approximately $20 million loan sale.
The prior year loan sales were  undertaken to manage  prepayment risk as part of
the Company's asset/liability  management strategy.  Recurring loan sales in the
current fiscal year are intended to enhance the Company's ability to improve its
interest  rate  risk  position,  maintain  its  origination  volume  profitably,
stabilize net interest margin and increase  non-interest income.  Improvement in
other  non-interest   income  reflected  increases  due  to  earnings  from  the
Investment Services at Penn Federal Savings Bank program.  Through this program,
customers  have access to financial  advisory  services and related  non-deposit
investment products.

Non-Interest Expenses. The Company's non-interest expenses were $4.8 million and
$14.0 million for the three and nine months ended March 31, 1999,  respectively,
compared  to $4.5  million  and $13.0  million  for the  comparable  prior  year
periods. Non-interest expenses have increased to support the Company's increased
lending  volumes and the new  Bayville and Toms River  branches  which opened in
October  1997 and  February  1999,  respectively.  Nevertheless,  the  Company's
non-interest  expenses as a percent of average assets remained relatively steady
at 1.23%  and  1.19%  for the  three  and nine  months  ended  March  31,  1999,
respectively, compared to 1.22% and 1.23% for the prior year periods.

Income Tax Expense. Income tax expense for the three and nine months ended March
31,  1999 was $1.6  million  and $4.8  million,  respectively,  compared to $1.7
million and $4.8  million for the three and nine  months  ended March 31,  1998,
respectively.  The  effective tax rate for the three and nine months ended March
31, 1999 was 35.9% and 35.8%, respectively. The effective tax rate was 35.3% and
36.1% for the three and nine months ended March 31, 1998, respectively.

Analysis of Net Interest Income

The  following  table sets forth certain  information  relating to the Company's
consolidated  statements of financial condition and the consolidated  statements
of income  for the three and nine  months  ended  March 31,  1999 and 1998,  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.
<PAGE>
<TABLE>
<CAPTION>
                                                                           Three Months Ended March 31,
                                                 -------------------------------------------------------------------------------
                                                                     1999                                    1998
                                                 --------------------------------------      ----------------------------------- 
                                                     Average       Interest                    Average      Interest
                                                   Outstanding      Earned/     Yield/       Outstanding     Earned/     Yield/
                                                     Balance         Paid      Rate (1)        Balance        Paid      Rate (1)
                                                    --------         ----      --------       --------        ----      --------   
                                                                              (Dollars in thousands)
<S>                                                 <C>            <C>           <C>          <C>            <C>          <C>  
Interest-earning assets:
    One- to four-family mortgage
       loans...................................     $  976,312     $16,911       6.94%        $  904,571     $16,448      7.28%
     Commercial and multi-family real
       estate loans............................         69,973       1,501       8.58             58,882       1,320      8.97
    Consumer loans.............................         65,797       1,160       7.15             47,487         945      8.07
                                                   ----------      -------                    ----------     -------     
       Total loans receivable..................      1,112,082      19,572       7.06          1,010,940      18,713      7.42

    Federal funds sold.........................          2,725          33       4.84                622           8      5.08
    Investment securities......................        233,307       3,992       6.84            167,852       3,080      7.34
    Mortgage-backed securities.................        150,993       2,475       6.56            239,053       4,124      6.90
                                                   ----------      -------                    ----------     -------     
       Total interest-earning assets...........      1,499,107     $26,072       6.97          1,418,467     $25,925      7.32
                                                                   =======                                   =======

    Non-interest earning assets................         56,169                                    56,464
                                                    ----------                                ---------- 
       Total assets ...........................     $1,555,276                                $1,474,931
                                                    ==========                                ==========

Deposits and borrowings:
    Money market and demand
       deposits (transaction accounts) ........    $   104,560     $   287       1.11%        $   84,801   $     254      1.21%
    Savings deposits...........................        162,093         659       1.65            165,103         892      2.19
    Certificates of deposit....................        795,169      10,911       5.56            747,403      10,797      5.86
                                                    ----------     -------                    ----------     -------     
       Total deposits..........................      1,061,822      11,857       4.53            997,307      11,943      4.86

    FHLB of New York advances..................        267,046       3,961       5.97            233,568       3,520      6.07
    Other borrowings...........................         69,896         932       5.33             88,832       1,264      5.69
                                                    ----------     -------                    ----------     -------     
       Total deposits and borrowings...........      1,398,764      16,750       4.84          1,319,707      16,727      5.13
    Trust Preferred securities.................         32,720         783       9.57             32,656         784      9.60
                                                    ----------     -------                    ----------     -------     
       Total deposits, borrowings and
           Trust Preferred securities..........      1,431,484     $17,533       4.95          1,352,363     $17,511      5.24
                                                                   =======                                   =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                           Three Months Ended March 31,
                                                 -------------------------------------------------------------------------------
                                                                     1999                                    1998
                                                 --------------------------------------      ----------------------------------- 
                                                     Average       Interest                    Average      Interest
                                                   Outstanding      Earned/     Yield/       Outstanding     Earned/     Yield/
                                                     Balance         Paid      Rate (1)        Balance        Paid      Rate (1)
                                                    --------         ----      --------       --------        ----      --------   
                                                                              (Dollars in thousands)
<S>                                                 <C>            <C>           <C>          <C>            <C>          <C>  
    Other liabilities..........................         21,741                                    18,674
                                                    ----------                                ---------- 
       Total liabilities.......................      1,453,225                                 1,371,037
    Stockholders' equity.......................        102,051                                   103,894
                                                    ----------                                ---------- 
       Total liabilities and stockholders'
           equity .............................     $1,555,276                                $1,474,931
                                                    ==========                                ==========

    Net interest income and net
       interest rate spread....................                   $  8,539       2.02%                      $  8,414      2.08%
                                                                  ========       ====                       ========      ====

    Net interest-earning assets and
       interest margin ........................     $   67,623                   2.24%       $    66,104                  2.33%
                                                    ==========                   ====        ===========                  ====

    Ratio of interest-earning assets to
       deposits, borrowings and Trust
       Preferred securities....................                                104.72%                                  104.89%
                                                                               ======                                   ======
</TABLE>
(1)  Annualized.
<PAGE>
<TABLE>
<CAPTION>
                                                                           Nine Months Ended March 31,
                                                 -------------------------------------------------------------------------------
                                                                     1999                                    1998
                                                 --------------------------------------      ----------------------------------- 
                                                     Average       Interest                    Average      Interest
                                                   Outstanding      Earned/     Yield/       Outstanding     Earned/     Yield/
                                                     Balance         Paid      Rate (1)        Balance        Paid      Rate (1)
                                                    --------         ----      --------       --------        ----      --------   
                                                                              (Dollars in thousands)
<S>                                                 <C>            <C>           <C>          <C>            <C>          <C>  
Interest-earning assets:
    One- to four-family mortgage
       loans...................................     $  985,959     $51,822       7.01%          $874,981     $48,301      7.36%
    Commercial and multi-family real
       estate loans............................         67,278       4,396       8.69             57,024       3,854      9.00
    Consumer loans.............................         61,255       3,326       7.23             44,018       2,754      8.33
                                                    ----------     -------                    ----------     -------     
       Total loans receivable..................      1,114,492      59,544       7.12            976,023      54,909      7.50

    Federal funds sold.........................          1,589          59       4.93                461          18      5.13
    Investment securities......................        222,344      11,664       6.99            116,494       6,396      7.32
    Mortgage-backed securities.................        170,618       8,595       6.72            259,604      13,463      6.91
                                                    ----------     -------                    ----------     -------     
       Total interest-earning assets...........      1,509,043     $79,862       7.05          1,352,582     $74,786      7.37
                                                                   =======                                   =======

    Non-interest earning assets................         57,520                                    53,556
                                                    ----------                                ---------- 
       Total assets ...........................     $1,566,563                                $1,406,138
                                                    ==========                                ==========

Deposits and borrowings:
    Money market and demand
       deposits (transaction accounts) ........     $ 100,301    $     904       1.20%       $    82,767   $     751      1.21%
    Savings deposits...........................        163,619       2,206       1.80            166,597       2,741      2.19
    Certificates of deposit....................        796,186      33,901       5.69            732,465      32,306      5.89
                                                    ----------     -------                    ----------     -------     
       Total deposits..........................      1,060,106      37,011       4.66            981,829      35,798      4.86

    FHLB of New York advances..................        270,350      12,212       5.98            214,815       9,901      6.11
    Other borrowings...........................         78,078       3,266       5.50             69,148       3,028      5.75
                                                    ----------     -------                    ----------     -------     
       Total deposits and borrowings...........      1,408,534      52,489       4.96          1,265,792      48,727      5.12
    Trust Preferred securities.................         32,704       2,349       9.58             19,439       1,391      9.54
                                                    ----------     -------                    ----------     -------     
       Total deposits, borrowings and
           Trust Preferred securities..........      1,441,238     $54,838       5.07          1,285,231     $50,118      5.19
                                                                   =======                                   =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                           Nine Months Ended March 31,
                                                 -------------------------------------------------------------------------------
                                                                     1999                                    1998
                                                 --------------------------------------      ----------------------------------- 
                                                     Average       Interest                    Average      Interest
                                                   Outstanding      Earned/     Yield/       Outstanding     Earned/     Yield/
                                                     Balance         Paid      Rate (1)        Balance        Paid      Rate (1)
                                                    --------         ----      --------       --------        ----      --------   
                                                                              (Dollars in thousands)
<S>                                                 <C>            <C>           <C>          <C>            <C>          <C>  
    Other liabilities..........................         22,086                                    20,029
                                                    ----------                                ---------- 
       Total liabilities.......................      1,463,324                                 1,305,260
    Stockholders' equity.......................        103,239                                   100,878
                                                    ----------                                ---------- 
       Total liabilities and stockholders'
           equity .............................     $1,566,563                                $1,406,138
                                                    ==========                                ==========

    Net interest income and net
       interest rate spread....................                    $25,024       1.98%                       $24,668      2.18%
                                                                   =======       ====                        =======      ====

    Net interest-earning assets and
       interest margin ........................     $   67,805                   2.21%        $   67,351                  2.44%
                                                    ==========                    ====        ==========                  ====

    Ratio of interest-earning assets to
       deposits, borrowings and Trust
       Preferred securities....................                                104.70%                                  105.24%
                                                                               ======                                   ======
</TABLE>
(1)  Annualized.
<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.  Real estate owned  represents  assets acquired in settlement of loans
and is shown net of valuation  allowances.  Restructured loans are performing in
accordance with modified terms and are, therefore, considered performing.
<TABLE>
<CAPTION>

                                                            March 31,   June 30,
                                                              1999        1998
                                                             ------      ------
<S>                                                          <C>         <C>   
Non-accruing loans:
     One- to four-family ...............................     $3,045      $2,575
     Commercial and multi-family .......................         46         414
     Consumer ..........................................        623         753
                                                             ------      ------
         Total non-accruing loans ......................      3,714       3,742

Real estate owned, net .................................        995       1,643
                                                             ------      ------

         Total non-performing assets ...................      4,709       5,385
Restructured loans .....................................      1,389       1,415
                                                             ------      ------

         Total risk elements ...........................     $6,098      $6,800
                                                             ======      ======

Non-accruing loans as a percentage of total loans ......       0.35%       0.34%
                                                             ======      ======

Non-performing assets as a percentage of total assets ..       0.30%       0.35%
                                                             ======      ======

Total risk elements as a percentage of total assets ....       0.39%       0.44%
                                                             ======      ======
</TABLE>

Allowance for Loan Losses. The allowance for loan losses is established  through
a  provision  for loan losses  based upon  management's  evaluation  of the risk
inherent in its loan  portfolio and changes in the nature and volume of its loan
activity.  Such  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,  and other factors that
warrant recognition in providing for an adequate loan loss allowance.

Real estate properties acquired through foreclosure are recorded at the lower of
cost or estimated fair value less costs to dispose of such  properties.  If fair
value at the date of  foreclosure is lower than the balance of the related loan,
the difference  will be charged-off to the allowance for loan losses at the time
of transfer.  Valuations are periodically updated by management and if the value
declines, a specific provision for losses on real estate owned is established by
a charge to operations.
<PAGE>
Although  management  believes  that it uses the best  information  available to
determine  the  allowances,   unforeseen   market  conditions  could  result  in
adjustments and net earnings could be  significantly  affected if  circumstances
differ   substantially   from  the   assumptions   used  in  making   the  final
determination.  Future additions to the Company's  allowances will be the 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.  Such  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 their  examination.  At March 31,  1999,  the Company had a total
allowance  for  loan  losses  of  $3.0  million  representing  80.59%  of  total
non-accruing loans.

Interest Rate Sensitivity

Interest Rate 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 may improve net interest  income.  For an institution
with a positive gap, the reverse would be expected.

At March 31, 1999, the Company's total deposits,  borrowings and Trust Preferred
securities   maturing  or   repricing   within  one  year   exceeded  its  total
interest-earning assets maturing or repricing within one year by $191.9 million,
representing  a one year  negative  gap of 12.20% of total  assets.  At June 30,
1998,  the one year negative gap was 7.28% of total assets.  The increase in the
negative gap position  from June 30, 1998 was  primarily  due to an extension of
the life of certain callable investment  securities.  Under the current interest
rate environment, it is assumed that these securities may not be called at their
call date.  Partially  offsetting  the increase in the negative gap position was
the  effects  of the  strategy  of  selling  fixed-rate,  low  coupon,  one-  to
four-family  first mortgage loan  production  into the secondary  market and the
Company's   efforts  to  grow   transaction   accounts  and  take  advantage  of
opportunities to increase medium-term borrowings.
<PAGE>
In evaluating the Company's exposure to interest rate risk, certain  limitations
inherent in the method of 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.  Further, 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 selected interest rate risk ("IRR") measures set
forth by the Office of Thrift Supervision  ("OTS"). The IRR measures used by the
OTS  include  an  IRR  "Exposure  Measure"  or  "Post-Shock"  NPV  ratio  and  a
"Sensitivity  Measure." A low Post-Shock NPV ratio indicates greater exposure to
IRR.  Greater  exposure  can  result  from  a low  initial  NPV  ratio  or  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. 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.

As of March 31,  1999,  the Bank's  internally  generated  initial NPV ratio was
9.83%.  Following a 2% increase in interest  rates,  the Bank's  Post-Shock  NPV
ratio was 8.27%. The change in the NPV ratio, or the Bank's Sensitivity  Measure
was 1.56%. NPV is also measured  internally on a consolidated basis. As of March
31, 1999, the Company's  initial NPV ratio was 10.21%,  the Post-Shock ratio was
8.48%, and the Sensitivity  Measure was 1.73%.  Variances between the Bank's and
the  Company's  NPV ratios are  attributable  to balance  sheet  items which are
adjusted during consolidation, such as investments,  intercompany borrowings and
capital.

Internally  generated NPV  measurements  are based on simulations  which utilize
institution  specific assumptions and, as such, generally result in lower levels
of presumed  interest  rate risk (i.e.,  higher  Post-Shock  NPV ratio and lower
Sensitivity Measure) than OTS measurements indicate.

The OTS measures the Bank's (unconsolidated) IRR on a quarterly basis using data
from the  quarterly  Thrift  Financial  Reports,  coupled  with  non-institution
specific  assumptions which are based on national  averages.  As of December 31,
1998 (the latest date for which  information is  available),  the Bank's initial
NPV ratio, as measured by the OTS, was 8.38%,  the Bank's  Post-Shock  ratio was
6.80% and the Sensitivity Measure was 1.58%.

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 March 31, 1999,  based on its internally  generated  simulation  models,  the
Company's  consolidated net interest income projected for one year forward would
decrease 7.1% from the base case, or current market, as a result of an immediate
and sustained 2% increase in interest rates.
<PAGE>
Year 2000

A formal Year 2000 Project Plan (the "Year 2000 Plan") was  previously  approved
by the  Company's  Board of  Directors.  The Board of Directors  continues to be
updated on a monthly basis as to the status of all phases,  with an  independent
verification  of progress  completed  on a quarterly  basis.  By  following  the
detailed  plan,  substantial  progress has been made and the Company  remains on
target for meeting its  commitment  to achieving  Year 2000  compliance  for its
mission-critical  systems.  The OTS is also  reviewing  all of  their  regulated
institutions for Year 2000 preparedness.

The task force,  with  representatives  from all divisions  within the Bank, has
completed  both the awareness and  assessment  phases of the Year 2000 Plan. The
vast majority of the renovation  phase has been completed.  Systems  critical to
the operation of the Company are receiving top priority,  with nearly all of the
mission-critical  software  elements now  compliant.  As of March 31, 1999,  the
Company's  primary system has been fully  renovated and  validated.  The primary
focus is now the testing of interfaces to the main systems.  All remaining tasks
are currently on schedule for completion in accordance  with the Year 2000 Plan.
Management  expects to have  renovated  and tested all  necessary  systems by no
later than June 30, 1999 and  believes  that its level of  preparedness  for the
project is appropriate.

The Company has initiated a dialogue with its larger  borrowers.  All commercial
and  multi-family  loans have been  evaluated for Year 2000 exposure  through an
independent review process. As part of the current credit approval process,  all
new and renewed  commercial and  multi-family  loans are evaluated for Year 2000
risk.  The  Company  has  requested  that each of its larger  borrowers  provide
information  regarding  the  nature of steps  being  taken by the  borrowers  to
address their own Year 2000 issues.

Contingency  planning  is an  ongoing  process.  Members  of the task force have
responsibility  for  identifying a contingency  plan for the different  areas of
software  being  tested  in the  event  the  Year  2000  Plan is not  timely  or
successfully  implemented.  For example, if vendors for certain critical systems
are  unable  to supply  Year 2000  compliant  software  upgrades,  the use of an
alternative vendor would be required to be pursued, at an additional cost to the
Company.  This type of contingency  planning is critical because,  regardless of
the validation of systems,  the potential still exists that the systems will not
operate as expected. Contingency planning also includes other factors outside of
the direct  control  of the  Company,  such as  potential  disruptions  in vital
utility services, which could negatively impact the Company's ability to service
its  customers.  The  Company is  currently  developing  a  business  resumption
contingency  plan.  This plan  focuses on and attempts to  anticipate  potential
problems that may arise, and develop alternative contingency planning strategies
to mitigate  risk.  The business  resumption  contingency  plan should  identify
actions  that could help  reduce the  likelihood  or lessen the impact of a Year
2000 problem,  as well as identify the appropriate  response actions to be taken
in the event that a problem does occur.

The  estimated  cost for the Year 2000 effort is not expected to have a material
effect on the results of  operations  and is estimated to be $75,000 - unchanged
from June 30, 1998. This estimate includes approximately $44,000 of hardware and
software  upgrades.  The  remaining  $31,000 is estimated  for software  program
consulting and remediation. Approximately $38,000 of costs have been incurred to
date.  This  estimate  does not  include  manpower  costs of  Company  personnel
<PAGE>
associated  with  the  task  force,  who  retain  their   individual   operation
responsibilities  in addition to Year 2000 duties.  The completion date and cost
are based upon management's  analysis of the information  currently available to
it. No  assurance  can be given that  issues  relating to the Year 2000 will not
have a material adverse effect on the Company's  financial  condition or results
of operations.

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 has  competitively set rates on deposit products for selected terms and,
when necessary,  has  supplemented  deposits with  longer-term or less expensive
alternative sources of funds.

Federal  regulations  require  the Bank to  maintain  minimum  levels  of liquid
assets. The required percentage has varied from time to time based upon economic
conditions  and savings  flows.  The current  required  percentage  is 4% of net
withdrawable  deposits  payable on demand or in one year or less and  borrowings
payable  on demand or in one year or less,  both as of the end of the  preceding
calendar quarter. Liquid assets for purposes of this ratio include cash, accrued
interest  receivable,  certain  time  deposits,  U.S.  Treasury  and  Government
agencies  and  other  securities  and  obligations  generally  having  remaining
maturities  of  less  than  five  years.  All  mortgage-backed   securities  are
includable in liquid assets,  as well. The Company's most liquid assets are cash
and cash equivalents,  investments 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.  At March 31, 1999 and June 30,
1998, the Bank's liquidity ratios were 19.88% and 24.50%, respectively.

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.

The  Company's  cash  needs  for the nine  months  ended  March  31,  1999  were
principally  provided  by proceeds  from sales of loans held for sale,  proceeds
from  maturities of  investment  securities,  principal  repayments on loans and
mortgage-backed  securities and an increase in deposits. During this period, the
cash provided was primarily  used for investing  activities,  which included the
origination and purchase of loans and the purchase of investment securities.  In
addition to cash provided by operating activities,  during the nine months ended
March 31,  1998 the cash  needs of the  Company  were  principally  provided  by
increased deposits, principal repayments on loans and mortgage-backed securities
and proceeds from maturities of investment securities.  Furthermore,  during the
nine months ended March 31, 1998,  proceeds from the Trust Preferred  securities
offering and sales of loans contributed to meeting the Company's cash needs. The
cash was  principally  utilized for  investing  activities,  which  included the
origination and purchase of loans and the purchase of investment securities.

Current  regulatory  standards  impose the  following  capital  requirements:  a
risk-based capital standard expressed as a percentage of risk adjusted assets; a
leverage ratio of core capital to total adjusted assets;  and a tangible capital
ratio expressed as a percentage of total adjusted assets.  As of March 31, 1999,
the Bank  exceeded  all  regulatory  capital  requirements  and  qualified  as a
"well-capitalized"   institution  (see  Note  4.  -  Stockholders'   Equity  and
Regulatory Capital, in the Notes to Consolidated Financial Statements).
<PAGE>
PART II - Other Information

Item 1.    Legal Proceedings
           None.

Item 2.    Changes in Securities
           None.

Item 3.    Defaults Upon Senior Securities
           None.

Item 4.    Submission of Matters to a Vote of Security Holders
           None.

Item 5.    Other Information
           None.

Item 6.    Exhibits and Reports on Form 8-K

          (a) Exhibit 11: Statement Regarding Computation of Per Share Earnings.
              Exhibit 27: Financial Data Schedule.

          (b) There were no reports filed on Form 8-K for the three month 
              period ended March 31, 1999.


<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: May 14, 1999                     By:   /s/ Joseph L. LaMonica
                                             -----------------------
                                             Joseph L. LaMonica
                                             President and Chief
                                             Executive Officer





Date: May 14, 1999                     By:   /s/ Lucy T. Tinker
                                             -------------------
                                             Lucy T. Tinker
                                             Senior Executive Vice President and
                                             Chief Operating Officer
                                             (Principal Financial Officer)





Date: May 14, 1999                     By:   /s/ Jeffrey J. Carfora
                                            -----------------------
                                            Jeffrey J. Carfora
                                            Executive Vice President and
                                            Chief Financial Officer
                                            (Principal Accounting Officer)