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, 1998

                                       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 4, 1998,  there  were  9,616,589  shares of the  Registrant's
Common Stock, par value $.01, outstanding.
<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,
                                                                                       1998              1997
                                                                                   ------------      ------------
                                                                                      (Dollars in thousands)
<S>                                                                                <C>               <C>         
Assets
Cash and cash equivalents ....................................................     $     11,931      $     10,729
Investment securities held to maturity, at amortized cost, market
   value of $161,401 and $35,432 at March 31, 1998 and
   June 30, 1997 .............................................................          161,305            35,290
Mortgage-backed securities held to maturity, at amortized cost,
   market value of $233,242 and $291,125 at
   March 31, 1998 and June 30, 1997 ..........................................          229,249           288,539
Loans receivable, net of allowance for loan losses of $2,649 and
  $2,622 at March 31, 1998 and June 30, 1997 .................................        1,003,373           931,451
Premises and equipment, net ..................................................           17,170            16,435
Real estate owned, net .......................................................            1,897               884
Federal Home Loan Bank of New York stock, at cost ............................           15,065            12,413
Accrued interest receivable, net .............................................           10,016             7,196
Goodwill and other intangible assets .........................................           14,083            15,918
Other assets .................................................................            4,975             2,896
                                                                                   ------------      ------------
                                                                                   $  1,469,064      $  1,321,751
                                                                                   ============      ============
Liabilities and Stockholders' Equity
Liabilities:
  Deposits ...................................................................     $  1,021,082      $    918,160
  Federal Home Loan Bank of New York advances ................................          230,465           205,465
  Other borrowings ...........................................................           52,625            82,750
  Mortgage escrow funds ......................................................            9,626             8,855
  Due to banks ...............................................................           13,917             7,237
  Accounts payable and other liabilities .....................................            2,995             2,014
                                                                                   ------------      ------------
    Total liabilities ........................................................        1,330,710         1,224,481
                                                                                   ------------      ------------

Guaranteed Preferred Beneficial Interests in the Company's Junior
  Subordinated Debentures ....................................................           34,500              --
Unamortized issuance expenses ................................................           (1,839)             --
                                                                                   ------------      ------------
    Net Trust Preferred securities ...........................................           32,661              --
                                                                                   ------------      ------------
<PAGE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
                                                                                     March 31,         June 30,
                                                                                       1998              1997
                                                                                   ------------      ------------
                                                                                      (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 9,646,589 and 9,644,248 shares outstanding at
    March 31,  1998 and June 30, 1997 (excluding  shares  held in  treasury of
    2,253,411 and 2,255,752 at March 31, 1998 and June 30, 1997) .............               60                60
  Additional paid-in capital .................................................           58,052            57,441
  Restricted stock - Management Recognition Plan .............................           (1,062)           (1,062)
  Employee Stock Ownership Plan Trust debt ...................................           (3,358)           (3,671)
  Retained earnings, partially restricted ....................................           68,533            61,051
  Treasury stock, at cost, 2,253,411 and 2,255,752 shares at
    March 31, 1998 and June 30, 1997 .........................................          (16,532)          (16,549)
                                                                                   ------------      ------------
    Total stockholders' equity ...............................................          105,693            97,270
                                                                                   ------------      ------------
                                                                                   $  1,469,064      $  1,321,751
                                                                                   ============      ============
</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,
                                                        --------------------------    --------------------------
                                                            1998           1997           1998           1997
                                                        -----------    -----------    -----------    -----------
                                                               (dollars in 000's, except per share amounts)
<S>                                                     <C>            <C>            <C>            <C>        
Interest and Dividend Income:
  Interest and fees on loans ........................   $    18,713    $    16,312    $    54,909    $    44,626
  Interest on federal funds sold ....................             8           --               18           --
  Interest and dividends on investment securities ...         3,080            307          6,396          1,177
  Interest on mortgage-backed securities ............         4,124          5,382         13,463         16,893
                                                        -----------    -----------    -----------    -----------
                                                             25,925         22,001         74,786         62,696
                                                        -----------    -----------    -----------    -----------
Interest Expense:
  Deposits ..........................................        11,943         10,095         35,798         29,538
  Borrowed funds ....................................         4,784          3,602         12,929          8,960
  Trust Preferred securities ........................           784           --            1,391           --
                                                        -----------    -----------    -----------    -----------
                                                             17,511         13,697         50,118         38,498
                                                        -----------    -----------    -----------    -----------
Net Interest and Dividend Income Before Provision
  for Loan Losses ...................................         8,414          8,304         24,668         24,198
Provision for Loan Losses ...........................           150            154            450            481
                                                        -----------    -----------    -----------    -----------
Net Interest and Dividend Income After
  Provision for Loan Losses .........................         8,264          8,150         24,218         23,717
                                                        -----------    -----------    -----------    -----------

Non-Interest Income:
  Service charges ...................................           510            406          1,421          1,252
  Net loss from real estate operations ..............           (49)           (15)          (138)          (185)
  Net gain on sales of loans ........................           419           --              527           --
  Other .............................................            69             78            228            216
                                                        -----------    -----------    -----------    -----------
                                                                949            469          2,038          1,283
                                                        -----------    -----------    -----------    -----------

<PAGE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Income

                                                             Three months ended            Nine months ended
                                                                 March 31,                      March 31,
                                                        --------------------------    --------------------------
                                                            1998           1997           1998           1997
                                                        -----------    -----------    -----------    -----------
                                                               (dollars in 000's, except per share amounts)
<S>                                                     <C>            <C>            <C>            <C>        
Non-Interest Expenses:
  Compensation and employee benefits ................         2,047          2,114          6,191          5,943
  Net occupancy expense .............................           325            284            941            834
  Equipment .........................................           404            375          1,130          1,144
  Advertising .......................................           100             88            258            266
  Amortization of intangibles .......................           607            625          1,835          1,891
  Federal deposit insurance premium .................           153            137            438            970
  SAIF recapitalization assessment ..................          --             --             --            4,813
  Other .............................................           867            780          2,196          2,158
                                                        -----------    -----------    -----------    -----------
                                                              4,503          4,403         12,989         18,019
                                                        -----------    -----------    -----------    -----------

Income Before Income Taxes ..........................         4,710          4,216         13,267          6,981
Income Tax Expense ..................................         1,662          1,590          4,791          2,726
                                                        -----------    -----------    -----------    -----------

Net Income ..........................................   $     3,048    $     2,626    $     8,476    $     4,255
                                                        ===========    ===========    ===========    ===========

Weighted average number of common shares outstanding:
  Basic .............................................     8,974,642      8,888,080      8,952,790      8,900,530
                                                        ===========    ===========    ===========    ===========
  Diluted ...........................................     9,767,821      9,485,680      9,689,702      9,406,734
                                                        ===========    ===========    ===========    ===========

Net income per common share:
  Basic .............................................   $      0.34    $      0.30    $      0.95    $      0.48
                                                        ===========    ===========    ===========    ===========
  Diluted ...........................................   $      0.31    $      0.28    $      0.87    $      0.45
                                                        ===========    ===========    ===========    ===========
</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,
                                                             ---------------------------
                                                                  1998         1997
                                                               ---------    ---------
                                                                   (In thousands)
<S>                                                            <C>          <C>      
Cash Flows From Operating Activities:
  Net income ...............................................   $   8,476    $   4,255
  Adjustments to reconcile net income to net cash provided
    by operating activities:
  Net gain on sales of loans ...............................        (527)        --
  Proceeds from sales of loans held for sale ...............       1,616          585
  Originations of loans held for sale ......................      (1,616)        (497)
  (Gain) loss on sales of real estate owned ................         (72)           8
  Amortization of investment and mortgage-backed
    securities premiums, net ...............................         228          202
  Depreciation and amortization ............................         965          943
  Provision for losses on loans and real estate owned ......         589          580
  Amortization of cost of stock plans ......................       1,323        1,075
  Amortization of intangibles ..............................       1,835        1,891
  Amortization of premiums on loans and loan fees ..........       1,024          280
  Amortization of Trust Preferred securities issuance costs           21         --
  Increase in accrued interest receivable, net of
    accrued interest payable ...............................      (3,328)        (536)
  (Increase) decrease in other assets ......................      (2,079)         660
  Increase in accounts payable and other liabilities .......         580        1,233
  Increase in mortgage escrow funds ........................         771        1,982
  Increase (decrease) in due to banks ......................       6,680       (1,517)
  Other, net ...............................................        --              4
                                                               ---------    ---------
  Net cash provided by operating activities ................      16,486       11,148
                                                               ---------    ---------

Cash Flows From Investing Activities:
  Proceeds from maturities of investment securities ........      15,150       16,000
  Purchases of investment securities held to maturity ......    (141,168)        --
  Net outflow from loan originations net of principal
    repayments of loans ....................................     (72,284)     (73,344)
  Purchases of loans .......................................     (77,606)    (158,842)
  Proceeds from principal repayments of
    mortgage-backed securities .............................      59,065       44,416
  Proceeds from sales of loans .............................      74,915         --
  Purchases of premises and equipment ......................      (1,700)      (1,365)
  Proceeds from sales of real estate owned .................       1,026        1,133
  Purchases of Federal Home Loan Bank of New York stock ....      (2,652)      (3,376)
                                                               ---------    ---------
  Net cash used in investing activities ....................    (145,254)    (175,378)
                                                               ---------    ---------
<PAGE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
                                                             Nine months ended March 31,
                                                             ---------------------------
                                                                  1998         1997
                                                               ---------    ---------
                                                                   (In thousands)
<S>                                                            <C>          <C>      
Cash Flows From Financing Activities:
  Net increase in deposits .................................     103,430       51,626
  Increase (decrease) in advances from the Federal Home Loan
    Bank of New York and other borrowings ..................      (5,125)     109,157
  Net proceeds from issuance of Trust Preferred securities .      32,640         --
  Cash dividends paid ......................................        (975)        (664)
  Purchases of treasury stock ..............................        --           (651)
                                                               ---------    ---------
  Net cash provided by financing activities ................     129,970      159,468
                                                               ---------    ---------
Net Increase (Decrease) in Cash and Cash Equivalents .......       1,202       (4,762)
Cash and Cash Equivalents, Beginning of Period .............      10,729       11,629
                                                               ---------    ---------
Cash and Cash Equivalents, End of Period ...................   $  11,931    $   6,867
                                                               =========    =========

Supplemental Disclosures of Cash Flow Information:
  Cash paid during the period for:
  Interest..................................................   $  49,847    $  38,571
                                                               =========    =========
  Income taxes..............................................   $   5,213    $   2,075
                                                               =========    =========

Supplemental Schedule of Non-Cash Activities:
  Transfer of loans receivable to real estate owned, net....   $   2,106    $     872
                                                               =========    =========
</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,  1997.  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,  1998 and 1997.  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, 1997, the Company  adopted  Statement of Financial  Accounting
Standards  No. 128,  "Earnings Per Share"  ("SFAS  128").  SFAS 128  establishes
standards for computing and presenting  earnings per share ("EPS"),  simplifying
the standards  previously found in APB Opinion No. 15, "Earnings Per Share." The
previous  presentation  of primary EPS has been replaced with a presentation  of
basic EPS. Dual presentation of basic and diluted EPS is required on the face of
the  income  statement  as  well  as  a  reconciliation  of  the  numerator  and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares  outstanding for the period.  Diluted EPS is computed  similarly to fully
diluted EPS  pursuant  to APB  Opinion No. 15. The  adoption of SFAS 128 did not
have a  material  effect on the  Company's  financial  condition  or  results of
operations.  EPS data  presented  for the three and nine months  ended March 31,
1997 has been restated to conform with the provisions of SFAS 128.
<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,
                                                                   -----------------------------       -----------------------------
                                                                       1998              1997             1998              1997
                                                                   -----------       -----------       -----------       -----------
                                                                            (Dollars in thousands, except per share amounts)
<S>                                                                <C>               <C>               <C>               <C>        
Net income .................................................       $     3,048       $     2,626       $     8,476       $     4,255
                                                                   ===========       ===========       ===========       ===========

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 ..........         2,253,828         2,258,180         2,254,613         2,226,126
  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 ...............           280,470           198,260           259,403           178,656
                                                                   -----------       -----------       -----------       -----------
         Average basic shares ..............................         8,974,642         8,888,080         8,952,790         8,900,530
  Plus:  Average common stock equivalents ..................           793,179           597,600           736,912           506,204
                                                                   -----------       -----------       -----------       -----------
         Average diluted shares ............................         9,767,821         9,485,680         9,689,702         9,406,734
                                                                   ===========       ===========       ===========       ===========

Earnings per common share
         Basic .............................................       $      0.34       $      0.30       $      0.95       $      0.48
                                                                   ===========       ===========       ===========       ===========
         Diluted ...........................................       $      0.31       $      0.28       $      0.87       $      0.45
                                                                   ===========       ===========       ===========       ===========
</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, 1998
Tangible capital...........................      $104,747       7.24%           $21,711     1.50%              N/A        N/A
Core capital...............................      $105,033       7.26%           $57,909     4.00%          $72,386       5.00%
Risk-based capital.........................      $107,338      15.75%           $54,534     8.00%          $68,168      10.00%

As of June 30, 1997
Tangible capital...........................       $73,470       5.61%           $19,658     1.50%              N/A        N/A
Core capital...............................       $73,907       5.64%           $52,440     4.00%          $65,550       5.00%
Risk-based capital.........................       $75,929      12.22%           $49,702     8.00%          $62,127      10.00%
</TABLE>

The previous 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 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>
Stockholders' equity.......................   $   105,693
Add: Qualifying preferred
    securities.............................        30,626
Less: Goodwill.............................        (1,098)
        Disallowed servicing assets........           (17)
        Deposit premium intangible.........       (12,985)
                                             ------------
Tangible capital, and ratio to
    adjusted total assets..................   $   122,219       8.40%       $    21,829     1.50%
                                              ===========                   ===========

Add: Qualifying intangible assets..........            286
                                              ------------
Tier 1 (core) capital, and ratio to
    adjusted total assets..................   $   122,505       8.42%       $    43,659     3.00%      $    72,764       5.00%
                                              ===========                   ===========                ===========

Tier 1 (core) capital, and ratio to
    risk-weighted assets...................   $   122,505      18.07%       $    27,111     4.00%      $    40,667       6.00%
                                              ===========                   ===========                ===========
Less: Equity investments and
    investments in real estate.............           (50)
Add: Allowance for loan losses.............         2,356
                                              -----------
Total risk-based capital, and ratio
    to risk-weighted assets................   $   124,811      18.41%       $    54,222     8.00%      $    67,778      10.00%
                                              ===========                   ===========                ===========

Total assets...............................    $1,469,064
                                               ==========

Adjusted total assets......................    $1,455,287
                                               ==========

Risk-weighted assets.......................   $   677,775
                                              ===========
</TABLE>
<PAGE>
5. Guaranteed Preferred Beneficial Interests in the Company's
   Junior Subordinated Debentures

The Company formed a wholly-owned trust subsidiary, PennFed Capital Trust I (the
"Trust").  Effective  October 21,  1997,  the Trust sold $34.5  million of 8.90%
cumulative  trust preferred  securities to the public which are reflected on the
Statement of Financial Condition as Guaranteed Preferred Beneficial Interests in
the Company's Junior Subordinated Debentures (the "Trust Preferred securities").
The Trust used the proceeds from the sale of the Trust  Preferred  securities to
purchase 8.90% junior  subordinated  deferrable  interest  debentures  issued by
PennFed.  The sole  assets of the Trust are the junior  subordinated  debentures
which  mature on  October  31,  2027 and are  redeemable  at any time after five
years. The obligations of the Company related to the Trust constitute a full and
unconditional  guarantee by the Company of the Trust Issuer's  obligations under
the Trust  Preferred  securities.  The  Company has used the  proceeds  from the
junior subordinated  debentures for general corporate purposes,  including a $20
million capital contribution to the Bank to support future growth.

6. Stock Split

On January 13, 1998,  the  Company's  Board of Directors  declared a two-for-one
stock split in the form of a 100% stock  dividend,  payable on February 10, 1998
to common stockholders of record as of January 27, 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations contains forward looking statements within the meaning of the Federal
Securities  Laws.  Actual results or performance  could differ  materially  then
those  contemplated,  expressed  or implied by the forward-  looking  statements
contained herein.

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.

Financial Condition

Total assets increased $147.3 million,  or 11.1%, to $1.469 billion at March 31,
1998 from total  assets of $1.322  billion at June 30,  1997.  The  increase was
primarily attributable to a $126.0 million increase in investment securities and
a $71.9 million increase in net loans receivable,  particularly in the Company's
one- to four-family first mortgage loan portfolio.  At March 31, 1998, net loans
receivable were $1.003 billion  compared to $931.5 million at June 30, 1997. The
asset growth was funded by the proceeds from the issuance of the Trust Preferred
securities,  an increase in retail deposits and additional  medium-term  FHLB of
New York advances as well as principal payments on mortgage-backed securities.

Deposits  increased  $102.9  million to $1.021  billion  at March 31,  1998 from
$918.2  million at June 30, 1997.  FHLB of New York advances were $230.5 million
at March 31,  1998, a $25.0  million  increase  from $205.5  million at June 30,
1997. In addition,  the Company had $52.6  million of other  borrowings at March
31, 1998, a $30.1 million decrease from $82.7 million at June 30, 1997.

Non-performing assets at March 31, 1998 totaled $5.9 million, representing 0.40%
of total assets, compared to $6.4 million, or 0.48% of total assets, at June 30,
1997.  Non-performing  loans were $4.0  million  with a ratio of  non-performing
loans to total loans of 0.40% at March 31, 1998 as compared to $5.5 million,  or
0.59% of total loans, at June 30, 1997. Real estate owned increased  slightly to
$1.9 million at March 31, 1998 from $884,000 at June 30, 1997.

Stockholders'  equity at March 31, 1998 totaled $105.7 million compared to $97.3
million  at June 30,  1997.  The  increase  primarily  reflects  the net  income
recorded for the nine months ended March 31, 1998.
<PAGE>
Results of Operations

General.  For the three months ended March 31, 1998 net income was $3.0 million,
or $0.31 per diluted share, as compared to net income of $2.6 million,  or $0.28
per diluted  share for the  comparable  prior year  period.  For the nine months
ended March 31, 1998 net income was $8.5  million,  or $0.87 per diluted  share.
These results compare to net income of $4.3 million,  or $0.45 per diluted share
for the nine months ended March 31,  1997.  The nine months ended March 31, 1997
included the effects of the one-time Savings Association Insurance Fund ("SAIF")
recapitalization assessment which totaled $4.8 million ($3.1 million after-tax),
or $0.33 per share on a diluted basis.

Interest and  Dividend  Income.  Interest and dividend  income for the three and
nine months ended March 31, 1998  increased to $25.9 million and $74.8  million,
respectively, from $22.0 million and $62.7 million for the three and nine months
ended March 31,  1997,  respectively.  The  increase in the current year periods
were  due  to  an  increase  in  average   interest-earning   assets,  primarily
residential loans, partially offset by a decrease in the average yield earned on
interest-earning assets. Average interest-earning assets were $1.418 billion and
$1.353 billion for the three and nine months ended March 31, 1998, respectively,
compared to $1.180  billion and $1.117  billion  for the  comparable  prior year
periods. The average yield earned on interest-earning  assets decreased to 7.31%
and 7.37% for the three and nine months ended March 31, 1998, respectively, from
7.46%  and  7.48%  for  the  three  and  nine  months   ended  March  31,  1997,
respectively.

Interest income on residential one- to four-family  mortgage loans for the three
and nine months ended March 31, 1998 increased $2.2 million,  or 15.2%, and $9.8
million,  or 25.5%,  respectively,  when compared to the prior year period.  The
increase in interest  income on residential  one- to four-family  mortgage loans
was due to $142.7  million and $192.7 million  increases in the average  balance
outstanding  to $904.6  million and $875.0 million for the three and nine months
ended  March 31,  1998,  respectively,  compared  to $761.9  million  and $682.3
million,  respectively,  for the prior year periods. The increase in the average
balance on residential  one- to four-family  mortgage loans was partially offset
by a  decrease  of 0.22%  and  0.16% in the  average  yield  earned on this loan
portfolio to 7.27% and 7.36% for the three and nine months ended March 31, 1998,
respectively, from the comparable prior year periods.

Interest on investment  securities and other  interest-earning  assets increased
$2.8  million and $5.2  million  for the three and nine  months  ended March 31,
1998,  respectively,  from the comparable  prior year periods.  The increase was
primarily  due to a $150.8  million  and $94.9  million  increase in the average
balance outstanding and a 0.38% and a 0.18% increase in the average yield earned
on  these   assets  for  the  three  and  nine  months  ended  March  31,  1998,
respectively.

Interest  income on the  mortgage-backed  securities  portfolio  decreased  $1.3
million  and $3.4  million,  or 23.4% and 20.3%,  for the three and nine  months
ended March 31, 1998,  respectively,  as compared to the prior year periods. The
decrease in interest income on mortgage-backed  securities  primarily reflects a
$71.2 million and $65.0 million  decrease in the average balance  outstanding to
$239.1  million and $259.6 million for the three and nine months ended March 31,
1998, respectively,  compared to $310.3 million and $324.6 million for the prior
year periods.
<PAGE>
Interest Expense.  Interest expense increased $3.8 million and $11.6 million for
the three and nine months ended March 31, 1998, respectively, from $13.7 million
and $38.5 million for the  comparable  1997 periods.  The increase was primarily
attributable to an increase in total average deposits, primarily certificates of
deposit, and FHLB of New York advances coupled with an increase in the Company's
cost of funds.  Interest expense also increased due to the issuance of the Trust
Preferred  securities.  Average deposits and borrowings increased $196.0 million
and  $204.4  million  for the  three  and nine  months  ended  March  31,  1998,
respectively,  compared to the 1997 periods.  The average rate paid on deposits,
borrowings and Trust Preferred  securities  increased to 5.25% and 5.19% for the
three and nine months ended March 31, 1998,  respectively,  from 4.94% and 4.83%
for the comparable prior year periods.

Net Interest and Dividend Income. Net interest and dividend income for the three
and nine  months  ended  March 31,  1998 was $8.4  million  and  $24.7  million,
respectively,  reflecting  an  increase  from $8.3  million  and $24.2  million,
respectively,  recorded  in the  comparable  prior year  periods.  The  increase
reflects the Company's growth in assets,  primarily in investment securities and
residential one- to four-family mortgage loans. The increase in net interest and
dividend  income was  partially  offset by the timing  differences  between  the
receipt of the proceeds from the Trust  Preferred  securities  offering and full
implementation  of the  Company's  investment  strategy.  The net interest  rate
spread and net  interest  margin for the three  months ended March 31, 1998 were
2.06% and 2.37%,  respectively,  a decline  from 2.52% and 2.81%,  respectively,
during the  comparable  prior year  period.  Net  interest  rate  spread and net
interest  margin were 2.18% and 2.43%,  respectively,  for the nine months ended
March 31,  1998,  compared  to 2.65% and 2.89%  for the  comparable  prior  year
period.  For the three and nine months ended March 31, 1998,  the decline in net
interest  rate spread and net interest  margin was partially due to the addition
of the Trust Preferred securities.  The declines in the net interest rate spread
and  net  interest  margin  were  also  attributable  to the  flat  yield  curve
environment  recently  experienced  in which higher  yielding  loans pre-paid at
accelerated rates and were replaced by lower yielding loans. Since the Company's
liabilities  generally  reprice more quickly than its assets,  net interest rate
spread and net interest  margins will likely decrease if interest rates rise. In
addition,  the  interest  rate  environment  during  the  current  year  periods
reflecting a flattening of the yield curve has  contributed  to  compressed  net
interest margins for many financial institutions.

Provision for Loan Losses.  The provision for loan losses for the three and nine
months ended March 31, 1998 was $150,000 and $450,000, respectively, compared to
$154,000 and $481,000 for the prior year periods.  The allowance for loan losses
at March 31, 1998 of $2.6  million was  unchanged  from the June 30, 1997 level.
The allowance for loan losses as a percentage of non-performing loans was 66.84%
at March 31, 1998, compared to 47.80% at June 30, 1997.
<PAGE>
Non-Interest  Income.  For the  three  and nine  months  ended  March  31,  1998
non-interest  income was $949,000 and $2.0  million,  respectively,  compared to
$469,000 and $1.3 million for the prior year  periods.  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. These loan sales have
been   undertaken   to  manage   prepayment   risk  as  part  of  the  Company's
asset/liability  management  strategy.  In  addition to these  gains,  growth in
non-interest  income was primarily attained through the introduction of charging
non-customers for ATM  transactions,  fees recorded for the origination of loans
provided  to  other  investors  and an  increase  in  regular  service  charges.
Furthermore,  for the nine  months  ended  March  31,  1998,  the  increase  was
partially  attributable  to  a  decrease  in  the  net  loss  from  real  estate
operations.  The net loss from real estate  operations was $138,000 for the nine
months ended March 31, 1998  compared to a net loss from real estate  operations
of $185,000 for the prior year period.

Non-Interest  Expenses.  The Company's non-interest expenses of $4.5 million for
the three  months ended March 31, 1998 were  slightly  above the $4.4 million of
non-interest  expenses  recorded  for the three  months  ended  March 31,  1997.
Non-interest  expenses  were $13.0  million for the nine months  ended March 31,
1998 compared to $18.0 million for the prior year period.  The nine months ended
March 31, 1997  included  $4.8  million for the one-time  SAIF  recapitalization
assessment. Excluding the effects of the SAIF assessment,  non-interest expenses
for the nine months ended March 31, 1998 are slightly  lower than the comparable
1997 period. The Company's  non-interest expenses as a percent of average assets
declined to 1.22% and 1.23% for the three and nine months  ended March 31, 1998,
respectively,  from  1.43% and  1.51% for the  comparable  prior  year  periods,
excluding the SAIF assessment.

Income Tax Expense. Income tax expense for the three and nine months ended March
31,  1998 was $1.7  million  and $4.8  million,  respectively,  compared to $1.6
million and $2.7  million for the three and nine  months  ended March 31,  1997.
Excluding the effects of the one-time SAIF recapitalization  assessment,  income
tax expense of $4.5 million was  recorded for the prior year nine month  period.
The  effective  tax rate for the three and nine months  ended March 31, 1998 was
35.3%  and  36.1%,  respectively.  Excluding  the  effect of the  one-time  SAIF
recapitalization  assessment, the effective tax rate was 37.7% and 38.0% for the
three and nine months ended March 31, 1997, 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,  1998 and 1997,  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,
                                                    ------------------------------------------------------------------------------
                                                                       1998                                      1997
                                                    ---------------------------------------     ---------------------------------- 
                                                           Average      Interest                  Average      Interest
                                                         Outstanding     Earned/    Yield/      Outstanding     Earned/    Yield/
                                                           Balance        Paid      Rate(1)       Balance        Paid      Rate(1)
                                                           -------        ----      -------       -------        ----      -------
                                                                                    (Dollars in thousands)
Interest-earning assets:
<S>                                                      <C>            <C>         <C>          <C>           <C>         <C>  
  One- to four-family mortgage loans.................    $  904,571       $16,448     7.27%        $761,867      $14,272     7.49%
  Commercial and multi-family real
    estate loans.....................................        58,882         1,320     8.97           54,342        1,232     9.07
  Consumer loans.....................................        47,487           945     8.07           35,823          808     9.15
                                                         ----------       -------                ----------      -------
    Total loans receivable...........................     1,010,940        18,713     7.40          852,032       16,312     7.66
  Mortgage-backed securities.........................       239,053         4,124     6.90          310,283        5,382     6.94
  Investment securities and other....................       168,474         3,088     7.33           17,683          307     6.95
                                                         ----------       -------                ----------      -------
    Total interest-earning assets....................     1,418,467       $25,925     7.31        1,179,998      $22,001     7.46
                                                                          =======                                =======
  Non-interest earning assets........................        56,464                                  54,834
                                                         ----------                              ----------
    Total assets.....................................    $1,474,931                              $1,234,832
                                                         ==========                              ==========

Deposits and borrowings:
 Money market and demand deposits....................   $    84,801     $     254     1.22%     $    79,908    $     245     1.25%
 Savings deposits....................................       165,103           892     2.19          172,560          950     2.23
 Certificates of deposit.............................       747,403        10,797     5.86          627,389        8,900     5.75
                                                        -----------      --------               -----------    ---------
   Total deposits....................................       997,307        11,943     4.86          879,857       10,095     4.65
 FHLB of New York advances...........................       233,568         3,520     6.11          169,305        2,565     6.15
 Other borrowings....................................        88,832         1,264     5.69           74,523        1,037     5.56
                                                        -----------      --------               -----------    ---------
   Total deposits and borrowings.....................     1,319,707        16,727     5.14        1,123,685       13,697     4.94
 Trust Preferred securities..........................        32,656           784     9.59              ---          ---     ---
                                                        -----------     ---------               -----------    --------- 
    Total deposits, borrowings and Trust
        Preferred securities.........................     1,352,363       $17,511     5.25        1,123,685      $13,697     4.94
                                                                          =======                                =======
 Other liabilities...................................        18,674                                  18,194
                                                        -----------                             -----------
   Total liabilities.................................     1,371,037                               1,141,879
 Stockholders' equity................................       103,894                                  92,953
                                                        -----------                              ----------
   Total liabilities and stockholders' equity........    $1,474,931                              $1,234,832
                                                         ==========                              ==========
<PAGE>
<CAPTION>
                                                                                Three Months Ended March 31,
                                                    ------------------------------------------------------------------------------
                                                                       1998                                      1997
                                                    ---------------------------------------     ---------------------------------- 
                                                           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>  
Net interest income and net interest rate
    spread...........................................                     $ 8,414     2.06%                     $  8,304     2.52%
                                                                          =======     ====                      ========     ====

Net interest-earning assets and net interest
    margin...........................................   $    66,104                   2.37%     $    56,313                  2.81%
                                                        ===========                   ====      ===========                  ====

Ratio of interest-earning assets to
    deposits, borrowings and Trust Preferred
        securities...................................        104.89%                                 105.01%
                                                       ============                            ============
</TABLE>

(1)  Annualized.
<PAGE>
<TABLE>
<CAPTION>
                                                                                Nine Months Ended March 31,
                                                    -----------------------------------------------------------------------------
                                                                       1998                                      1997
                                                    ---------------------------------------     --------------------------------- 
                                                           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.................    $  874,981       $48,301     7.36%        $682,337      $38,475     7.52%
  Commercial and multi-family real
    estate loans.....................................        57,024         3,854     9.01           53,405        3,679     9.19
  Consumer loans.....................................        44,018         2,754     8.33           35,088        2,472     9.38
                                                         ----------      --------                 ---------      -------
    Total loans receivable...........................       976,023        54,909     7.50          770,830       44,626     7.72
  Mortgage-backed securities.........................       259,604        13,463     6.91          324,573       16,893     6.94
  Investment securities and other....................       116,955         6,414     7.31           22,021        1,177     7.13
                                                         ----------      --------                ----------      -------
    Total interest-earning assets....................     1,352,582       $74,786     7.37        1,117,424      $62,696     7.48
                                                                          =======                                =======
  Non-interest earning assets........................        53,556                                  54,172
                                                         ----------                              ----------
    Total assets.....................................    $1,406,138                              $1,171,596
                                                         ==========                              ==========

Deposits and borrowings:
 Money market and demand deposits....................   $    82,767      $    751     1.21%     $    79,763     $    732     1.22%
 Savings deposits....................................       166,597         2,741     2.19          175,424        2,947     2.24
 Certificates of deposit.............................       732,465        32,306     5.88          604,761       25,859     5.70
                                                         ----------      --------                 ---------      -------
   Total deposits....................................       981,829        35,798     4.86          859,948       29,538     4.58
 FHLB of New York advances...........................       214,815         9,901     6.14          133,697        6,136     6.11
 Other borrowings....................................        69,148         3,028     5.75           67,797        2,824     5.47
                                                         ----------      --------                 ---------      -------
   Total deposits and borrowings.....................     1,265,792        48,727     5.13        1,061,442       38,498     4.83
 Trust Preferred securities..........................        19,439         1,391     9.54              ---          ---     ---
                                                         ----------      --------                 ---------      -------
    Total deposits, borrowings and Trust
        Preferred securities.........................     1,285,231       $50,118     5.19        1,061,442      $38,498     4.83
                                                                          =======                                =======
 Other liabilities...................................        20,029                                  18,376
                                                         ----------                             -----------
   Total liabilities.................................     1,305,260                               1,079,818
 Stockholders' equity................................       100,878                                  91,778
                                                         ----------                             -----------
   Total liabilities and stockholders' equity........    $1,406,138                              $1,171,596
                                                         ==========                              ==========
<PAGE>
<CAPTION>
                                                                                Nine Months Ended March 31,
                                                    -----------------------------------------------------------------------------
                                                                       1998                                      1997
                                                    ---------------------------------------     --------------------------------- 
                                                           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>
Net interest income and net interest rate
    spread...........................................                     $24,668     2.18%                      $24,198     2.65%
                                                                          =======     ====                       =======     ====

Net interest-earning assets and net interest
    margin...........................................   $    67,351                   2.43%     $    55,982                  2.89%
                                                        ===========                   ====      ===========                  ====

Ratio of interest-earning assets to
    deposits, borrowings and Trust Preferred
        securities...................................        105.24%                                 105.27%
                                                       ============                            ============
</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 generally  placed on
non-accrual  status  when  the  collection  of  principal  or  interest  becomes
delinquent  more than 90 days. 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,
                                                               1998       1997
                                                              ------     ------
                                                            (Dollars in thousands)
<S>                                                           <C>        <C>   
Non-performing loans:
  One- to four-family ....................................    $2,790     $3,567
  Commercial and multi-family ............................       414      1,053
  Consumer ...............................................       759        865
                                                              ------     ------
    Total non-performing loans ...........................     3,963      5,485
                                                              ------     ------

Real estate owned, net ...................................     1,897        884
                                                              ------     ------
    Total non-performing assets ..........................     5,860      6,369

Restructured loans .......................................     1,424      1,451
                                                              ------     ------
    Total risk elements ..................................    $7,284     $7,820
                                                              ======     ======

Non-performing loans as a percentage of total loans ......      0.40%      0.59%
                                                              ======     ======
Non-performing assets as a percentage of total assets ....      0.40%      0.48%
                                                              ======     ======
Total risk elements as a percentage of total assets ......      0.50%      0.59%
                                                              ======     ======
</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,  1998,  the Company had a total
allowance  for  loan  losses  of  $2.6  million  representing  66.84%  of  total
non-performing 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 improve net interest income. For an institution with a
positive gap, the reverse would be expected.

At March 31, 1998,  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 $72.0 million, representing a one year negative gap
of 4.96% of total assets.  At June 30, 1997, the one year negative gap was 7.44%
of total assets.

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.
<PAGE>
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 decline
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.

At March 31,  1998,  the  Bank's  internally  generated  initial  NPV was 9.76%.
Following a 2% increase in interest rates, the Bank's "Post-Shock" NPV ratio was
7.26%.  The change in the NPV  ratio,  or the Bank's  Sensitivity  Measure,  was
2.50%. NPV is also measured  internally on a consolidated basis. As of March 31,
1998,  the  Company's  initial NPV ratio was 10.86%,  the  Post-Shock  ratio was
8.38%, and the Sensitivity  Measure was 2.48%.  Variances between the Bank's and
the  Company's  NPV ratios are  attributable  to balance  sheet  items which are
adjusted during consolidation, such as 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  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, 1997 (the
latest date for which  information is available),  the Bank's initial NPV ratio,
as measured by the OTS, was 8.26%. The Bank's Post-Shock ratio was 5.79% and the
Sensitivity Measure was 2.47%.

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, 1998,  based on its internally  generated  simulation  models,  the
Company's  consolidated net interest income projected for one year forward would
decrease  13.1%  from  the base  case,  or  current  market,  as a result  of an
immediate and  sustained 2% increase in interest  rates.  At June 30, 1997,  the
simulation models projected an 11.2% decrease in the Company's  consolidated net
interest income projected for one year forward,  as a result of a 2% increase in
interest rates.

Interest  Rate Swaps.  The Company had $100  million and $70 million in notional
amount interest rate swap agreements  outstanding at March 31, 1998 and June 30,
1997,  respectively,  on which the Company pays a fixed interest rate. The fixed
interest  rate paid ranged  from 5.44% to 6.71% at March 31, 1998  compared to a
range  from 6.25% to 6.71% at June 30,  1997.  The  Company  receives a floating
interest rate based on three-month LIBOR, from the counter parties. At March 31,
1998 and June 30, 1997 three-month LIBOR was 5.71% and 5.78%, respectively.
<PAGE>
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  includes  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, short-term 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, 1998 and June 30,
1997, the Bank's liquidity ratios were 22.91% and 10.36%, 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.

In addition to cash provided by operating  activities,  the Company's cash needs
for the nine months ended March 31, 1998 were  provided by  increased  deposits.
Furthermore,  proceeds from the Trust Preferred securities  offering,  principal
repayments  of  mortgage-backed  securities  and sales of loans  contributed  to
meeting the Company's cash needs. During this period, the cash provided was 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, 1997 the cash needs
of the Company were principally  provided by increased  deposits and an increase
in advances  from the FHLB of New York and other  borrowings.  The cash provided
was  principally   utilized  for  investing   activities,   which  included  the
origination and purchase of loans.

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, 1998,
the Bank substantially  exceeded all regulatory capital standards (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.
<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, 1998         By: /s/ Joseph L. LaMonica
                               ----------------------
                               Joseph L. LaMonica
                               President and Chief
                                Executive Officer




Date: May 14, 1998         By: /s/ Lucy T. Tinker
                               ------------------
                               Lucy T. Tinker
                               Executive Vice President and
                               Chief Operating Officer
                               (Principal Financial Officer)





Date: May 14, 1998         By: /s/ Jeffrey J. Carfora
                               ----------------------
                               Jeffrey J. Carfora
                               Senior Vice President and
                               Chief Financial Officer
                               (Principal Accounting Officer)