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

                                    FORM 10-Q

(Mark one)

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

For the quarterly period ended March 31, 2005
                               -------------------------------------------------

                                       or

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

For the transition period from                       to
                              -----------------------  -------------------------

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

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

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

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

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

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

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

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES |X|. NO |_|.

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

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

      As of April 27, 2005, there were issued and outstanding 13,480,378 shares
of the Registrant's Common Stock.

                                       1
<PAGE>
<TABLE>
<CAPTION>
                                PennFed Financial Services, Inc. and Subsidiaries
                                                  Form 10-Q

                                             Contents of Report


                                                                                                               Page
                                                                                                              Number
                                                                                                              ------
<S>                                                                                                             <C>
PART I - FINANCIAL INFORMATION
------------------------------

   Item 1. - Financial Statements

        Consolidated Statements of Financial Condition - March 31, 2005 (unaudited) and June 30, 2004            3

        Consolidated Statements of Income (unaudited) - For the three and nine months ended March 31, 2005

           and 2004                                                                                              4

        Consolidated Statements of Comprehensive Income (unaudited) - For the three and nine months ended

           March 31, 2005 and 2004                                                                               5

        Consolidated Statements of Changes in Stockholders' Equity (unaudited) - For the nine months ended

           March 31, 2005 and 2004                                                                               6

        Consolidated Statements of Cash Flows (unaudited) - For the nine months ended March 31, 2005 and 2004    7

        Notes to Consolidated Financial Statements (unaudited)                                                   9

   Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations              12

   Item 3. - Quantitative and Qualitative Disclosures About Market Risk                                         23

   Item 4. - Controls and Procedures                                                                            23

PART II - OTHER INFORMATION
---------------------------

   Item 1. - Legal Proceedings                                                                                  25

   Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds                                        25

   Item 3. - Defaults Upon Senior Securities                                                                    25

   Item 4. - Submission of Matters to a Vote of Security Holders                                                25

   Item 5. - Other Information                                                                                  25

   Item 6. - Exhibits                                                                                           25

SIGNATURES                                                                                                      26
----------

EXHIBITS
--------

   Exhibit Index                                                                                                27

   Exhibit 31.1 - Certification Required by Securities Exchange Act of 1934 Rule 13a -14 (a)

       (Chief Executive Officer)                                                                                29

   Exhibit 31.2 - Certification Required by Securities Exchange Act of 1934 Rule 13a -14 (a)

       (Chief Financial Officer)                                                                                30

   Exhibit 32 - Certifications Required by Section 1350 of Title 18 of the United States Code                   31
</TABLE>


                                       2
<PAGE>

PART I - Financial Information
Item 1.  Financial Statements

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

<TABLE>
<CAPTION>
                                                                                   March 31,       June 30,
                                                                                     2005            2004
                                                                                  ----------      ----------
                                                                                  (unaudited)      (audited)
                                                                                    (Dollars in thousands,
                                                                                   except per share amounts)
<S>                                                                               <C>             <C>
ASSETS
Cash and amounts due from depository institutions ..........................      $   12,757      $   14,859
Federal funds sold .........................................................              --              --
                                                                                  ----------      ----------
      Cash and cash equivalents ............................................          12,757          14,859
Investment securities available for sale, at market value, amortized cost of
      $4,803 and $4,672 at March 31, 2005 and June 30, 2004 ................           4,863           4,720
Investment securities held to maturity, at amortized cost, market value of
      $415,703 and $413,215 at March 31, 2005 and June 30, 2004 ............         419,628         420,260
Mortgage-backed securities held to maturity, at amortized cost, market value
      of $83,432 and $100,644 at March 31, 2005 and June 30, 2004 ..........          83,079         100,079
Loans receivable, net of allowance for loan losses of $6,054 and $6,249
      at March 31, 2005 and June 30, 2004 ..................................       1,395,445       1,287,473
Premises and equipment, net ................................................          21,030          21,690
Federal Home Loan Bank of New York stock, at cost ..........................          21,733          23,773
Accrued interest receivable, net ...........................................          11,071          10,195
Other intangible assets ....................................................              --           1,361
Bank owned life insurance ("BOLI") .........................................          22,978          12,512
Other assets ...............................................................           3,780           5,364
                                                                                  ----------      ----------
                                                                                  $1,996,364      $1,902,286
                                                                                  ==========      ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
      Deposits .............................................................      $1,284,467      $1,188,100
      Federal Home Loan Bank of New York advances ..........................         425,465         475,465
      Other borrowings .....................................................         103,059          59,346
      Junior Subordinated Deferrable Interest Debentures, net of unamortized
        issuance expenses of $1,230 and $1,263 at March 31, 2005 and
        June 30, 2004 ......................................................          42,070          42,037
      Mortgage escrow funds ................................................           9,815           9,739
      Accounts payable and other liabilities ...............................           7,259           9,200
                                                                                  ----------      ----------
      Total liabilities ....................................................       1,872,135       1,783,887
                                                                                  ----------      ----------

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, 13,499,078
           and 13,576,060 shares issued and outstanding at March 31, 2005
           and June 30, 2004 ...............................................             135               9
      Additional paid-in capital ...........................................          45,611          42,839
      Retained earnings, partially restricted ..............................          78,447          75,523
      Accumulated other comprehensive income, net of taxes .................              36              28
                                                                                  ----------      ----------
      Total stockholders' equity ...........................................         124,229         118,399
                                                                                  ----------      ----------
                                                                                  $1,996,364      $1,902,286
                                                                                  ==========      ==========
</TABLE>

See notes to consolidated financial statements.


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                  Three months ended                  Nine months ended
                                                                        March 31,                          March 31,
                                                              ------------------------------    ----------------------------
                                                                  2005             2004             2005             2004
                                                              -----------      -----------      -----------      -----------
                                                                       (unaudited)                      (unaudited)
                                                                     (Dollars in thousands, except per share amounts)
<S>                                                           <C>              <C>              <C>              <C>
Interest and Dividend Income:
      Interest and fees on loans .......................      $    18,995      $    16,899      $    56,292      $    51,019
      Interest on federal funds sold ...................               --               25               --              175
      Interest and dividends on investment securities ..            6,076            6,041           18,198           16,752
      Interest on mortgage-backed securities ...........            1,096            1,361            3,481            3,779
                                                              -----------      -----------      -----------      -----------
                                                                   26,167           24,326           77,971           71,725
                                                              -----------      -----------      -----------      -----------
Interest Expense:
      Deposits .........................................            7,583            6,688           21,907           19,913
      Borrowed funds ...................................            6,939            7,239           20,961           22,083
      Junior subordinated deferrable interest debentures              778              671            2,226            2,026
                                                              -----------      -----------      -----------      -----------
                                                                   15,300           14,598           45,094           44,022
                                                              -----------      -----------      -----------      -----------
Net Interest and Dividend Income Before Provision
      for Loan Losses ..................................           10,867            9,728           32,877           27,703
Provision for Loan Losses ..............................               --               --               --               --
                                                              -----------      -----------      -----------      -----------
Net Interest and Dividend Income After Provision
      for Loan Losses ..................................           10,867            9,728           32,877           27,703
                                                              -----------      -----------      -----------      -----------

Non-Interest Income:
      Service charges ..................................              703              957            2,296            3,131
      Net gain from real estate operations .............               --               --              157                1
      Net gain on sales of loans .......................              172               57              266              754
      Other ............................................              369              360              980            1,062
                                                              -----------      -----------      -----------      -----------
                                                                    1,244            1,374            3,699            4,948
                                                              -----------      -----------      -----------      -----------
Non-Interest Expenses:
      Compensation and employee benefits ...............            3,135            3,901            9,407           10,841
      Net occupancy expense ............................              643              514            1,741            1,417
      Equipment ........................................              516              536            1,594            1,520
      Advertising ......................................              155              102              549              236
      Amortization of intangibles ......................              454              453            1,361            1,362
      Federal deposit insurance premium ................               44               41              128              126
      Other ............................................            1,196            1,090            3,663            3,091
                                                              -----------      -----------      -----------      -----------
                                                                    6,143            6,637           18,443           18,593
                                                              -----------      -----------      -----------      -----------

Income Before Income Taxes .............................            5,968            4,465           18,133           14,058
Income Tax Expense .....................................            2,114            1,499            6,511            4,838
                                                              -----------      -----------      -----------      -----------
Net Income .............................................      $     3,854      $     2,966      $    11,622      $     9,220
                                                              ===========      ===========      ===========      ===========

Weighted average number of common shares outstanding:
      Basic ............................................       13,590,180       13,525,590       13,682,105       13,558,848
                                                              ===========      ===========      ===========      ===========
      Diluted ..........................................       13,959,738       14,385,896       14,099,360       14,455,810
                                                              ===========      ===========      ===========      ===========

Net income per common share:
      Basic ............................................      $      0.28      $      0.22      $      0.85      $      0.68
                                                              ===========      ===========      ===========      ===========
      Diluted ..........................................      $      0.28      $      0.21      $      0.82      $      0.64
                                                              ===========      ===========      ===========      ===========
</TABLE>

See notes to consolidated financial statements.


                                       4
<PAGE>

PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income

<TABLE>
<CAPTION>
                                                                    Three months ended            Nine months ended
                                                                         March 31,                     March 31,
                                                                   -----------------------      ----------------------
                                                                     2005           2004          2005          2004
                                                                   --------       --------      --------      --------
                                                                         (unaudited)                  (unaudited)
                                                                                      (In thousands)
<S>                                                                <C>            <C>           <C>           <C>
Net income ..................................................      $  3,854       $  2,966      $ 11,622      $  9,220
Other comprehensive income (loss), net of tax:
   Unrealized holding gains (losses) arising during period on
    investment securities available for sale, net of tax ....           (38)            44             8           (67)
                                                                   --------       --------      --------      --------
Comprehensive income ........................................      $  3,816       $  3,010      $ 11,630      $  9,153
                                                                   ========       ========      ========      ========
</TABLE>

See notes to consolidated financial statements.


                                       5
<PAGE>

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

                For the Nine Months Ended March 31, 2005 and 2004
                -------------------------------------------------
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                   Employee
                                                                                     Stock
                                        Serial                      Additional      Ownership
                                       Preferred       Common         Paid-In      Plan Trust      Retained
                                         Stock          Stock         Capital         Debt         Earnings
                                      -----------    -----------    -----------    -----------    -----------
                                                  (Dollars in thousands, except per share amounts)
<S>                                   <C>            <C>            <C>            <C>            <C>
Balance at June 30, 2003 .........    $        --    $        60    $    65,689    $      (644)   $   124,797
Allocation of Employee Stock
  Ownership Plan ("ESOP") stock ..                                                         483
ESOP adjustment ..................                                        2,120
Purchase of 617,000 shares of
  treasury stock .................
Issuance of 346,950 shares of
  treasury stock for options
  exercised and Dividend
  Reinvestment Plan ("DRP") ......                                                                     (1,537)
Cash dividends of $0.15 per
  common share ...................                                                                     (1,994)
Decrease in unrealized gain on
  investment securities available
  for sale, net of income taxes
  of $(21) .......................
Net income for the nine months
  ended March 31, 2004 ...........                                                                      9,220
                                      -----------    -----------    -----------    -----------    -----------
Balance at March 31, 2004 ........    $        --    $        60    $    67,809    $      (161)   $   130,486
                                      ===========    ===========    ===========    ===========    ===========

Balance at June 30, 2004 .........    $        --    $         9    $    42,839    $        --    $    75,523
Repurchase of 510,300
  outstanding shares .............                            (4)        (1,271)                       (6,806)
Issuance of 433,318 shares of
  stock for options exercised and
  DRP ............................                             2          1,081                           244
Tax benefit from stock option plan                                        2,962
Cash dividends of $0.15 per
  common share ...................                                                                     (2,008)
Increase in unrealized gain on
  investment securities available
  for sale, net of income taxes
  of $5 ..........................
Two-for-one split
  in the form of a 100% stock
  dividend .......................                           128                                         (128)
Net income for the nine months
  ended March 31, 2005 ...........                                                                     11,622
                                      -----------    -----------    -----------    -----------    -----------
Balance at March 31, 2005 ........    $        --    $       135    $    45,611    $        --    $    78,447
                                      ===========    ===========    ===========    ===========    ===========

                                      Accumulated
                                          Other
                                      Comprehensive        Treasury
                                          Income            Stock            Total
                                      --------------    --------------    -----------
                                       (Dollars in thousands, except per share amounts)

Balance at June 30, 2003 .........    $          177    $      (73,244)   $   116,835
Allocation of Employee Stock
  Ownership Plan ("ESOP") stock ..                                                483
ESOP adjustment ..................                                              2,120
Purchase of 617,000 shares of
  treasury stock .................                             (10,022)       (10,022)
Issuance of 346,950 shares of
  treasury stock for options
  exercised and Dividend
  Reinvestment Plan ("DRP") ......                               2,542          1,005
Cash dividends of $0.15 per
  common share ...................                                             (1,994)
Decrease in unrealized gain on
  investment securities available
  for sale, net of income taxes
  of $(21) .......................               (67)                             (67)
Net income for the nine months
  ended March 31, 2004 ...........                                              9,220
                                      --------------    --------------    -----------
Balance at March 31, 2004 ........    $          110    $      (80,724)   $   117,580
                                      ==============    ==============    ===========

Balance at June 30, 2004 .........    $           28    $           --    $   118,399
Repurchase of 510,300
  outstanding shares .............                                             (8,081)
Issuance of 433,318 shares of
  stock for options exercised and
  DRP ............................                                              1,327
Tax benefit from stock option plan                                              2,962
Cash dividends of $0.15 per
  common share ...................                                             (2,008)
Increase in unrealized gain on
  investment securities available
  for sale, net of income taxes
  of $5 ..........................                 8                                8
Two-for-one split
  in the form of a 100% stock
  dividend .......................                                                 --
Net income for the nine months
  ended March 31, 2005 ...........                                             11,622
                                      --------------    --------------    -----------
Balance at March 31, 2005 ........    $           36    $           --    $   124,229
                                      ==============    ==============    ===========
</TABLE>

See notes to consolidated financial statements.


                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                           Nine months ended March 31,
                                                                           ---------------------------
                                                                              2005          2004
                                                                           -----------   -----------
                                                                           (unaudited)   (unaudited)
                                                                                (In thousands)
<S>                                                                         <C>           <C>
Cash Flows from Operating Activities:
      Net income .......................................................    $  11,622     $   9,220
      Adjustments to reconcile net income to net cash provided by
        operating activities:
      Net gain on sales of loans .......................................         (266)         (754)
      Proceeds from sales of loans held for sale .......................        6,013        48,667
      Originations of loans held for sale ..............................       (5,966)      (42,266)
      Net gain on sales of real estate owned ...........................         (157)           --
      Amortization of investment and mortgage-backed securities
        premium, net ...................................................          193           406
      Depreciation and amortization ....................................        1,350         1,288
      Amortization of cost of stock plans ..............................           --         2,603
      Tax benefit related to stock options .............................        2,962            --
      Amortization of intangibles ......................................        1,361         1,362
      Amortization of premiums on loans and loan fees ..................        1,324         2,251
      Amortization of junior subordinated debentures issuance costs ....           33            27
      Income on BOLI ...................................................         (466)         (359)
      Increase in accrued interest receivable, net of accrued
        interest payable ...............................................       (1,032)       (2,616)
      Decrease in other assets .........................................        1,584           666
      Decrease in accounts payable and other liabilities ...............       (1,946)      (10,951)
      Increase (decrease) in mortgage escrow funds .....................           76        (2,485)
      Other, net .......................................................            5             6
                                                                            ---------     ---------
      Net cash provided by operating activities ........................       16,690         7,065
                                                                            ---------     ---------

Cash Flows from Investing Activities:
      Proceeds from maturities of investment securities held to maturity       20,551        96,275
      Purchases of investment securities held to maturity ..............      (20,000)     (177,140)
      Purchases of investment securities available for sale ............         (130)         (164)
      Proceeds from principal repayments of mortgage-backed securities .       16,889        38,700
      Purchases of mortgage-backed securities ..........................           --       (44,884)
      Net proceeds (outflow) from principal repayments of loans and loan
          originations .................................................     (128,053)       22,105
      Proceeds from loans sold .........................................       18,503        42,304
      Purchases of loans ...............................................           --       (41,119)
      Purchases of premises and equipment ..............................         (695)       (2,187)
      Net inflow from real estate owned activity .......................          630            --
      Purchases of BOLI ................................................      (10,000)      (12,000)
      Redemptions of Federal Home Loan Bank of New York stock ..........        2,040           950
                                                                            ---------     ---------
      Net cash used in investing activities ............................     (100,265)      (77,160)
                                                                            ---------     ---------

Cash Flows from Financing Activities:
      Net increase in deposits .........................................       96,523        35,554
      Proceeds from advances from the Federal Home Loan Bank of New York
         and other borrowings ..........................................       29,475            --
       Repayment of advances from the Federal Home Loan Bank of New
        York and other borrowings ......................................      (50,000)      (19,000)
      Increase in other short term borrowings ..........................       14,238           402
      Cash dividends paid ..............................................       (2,008)       (1,993)
      Repurchases of outstanding shares, net of reissuances ............       (6,754)       (9,017)
                                                                            ---------     ---------
      Net cash provided by financing activities ........................       81,474         5,946
                                                                            ---------     ---------
Net Decrease in Cash and Cash Equivalents ..............................       (2,102)      (64,149)
Cash and Cash Equivalents, Beginning of Period .........................       14,859        83,046
                                                                            ---------     ---------
Cash and Cash Equivalents, End of Period ...............................    $  12,757     $  18,897
                                                                            =========     =========
</TABLE>


                                       7
<PAGE>

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

<TABLE>
<CAPTION>
                                                                               Nine months ended March 31,
                                                                               ---------------------------
                                                                                   2005         2004
                                                                                 ---------    ---------
                                                                                (unaudited)  (unaudited)
                                                                                    (In thousands)
<S>                                                                               <C>          <C>
Supplemental Disclosures of Cash Flow Information:
      Cash paid during the period for:
      Interest ...............................................................    $  45,020    $  44,890
                                                                                  =========    =========
      Income taxes ...........................................................    $   1,968    $   4,377
                                                                                  =========    =========

Supplemental Schedule of Non-Cash Activities:
      Transfer of loans receivable to loans held for sale, at lower of cost or
          market .............................................................    $  18,284    $  33,456
                                                                                  =========    =========
      Transfer of loans receivable to real estate owned, net .................    $     473    $      --
                                                                                  =========    =========
</TABLE>

See notes to consolidated financial statements.


                                       8
<PAGE>

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

1. Basis of Presentation

The interim consolidated financial statements of PennFed Financial Services,
Inc. ("PennFed") and subsidiaries (with its subsidiaries, the "Company") include
the accounts of PennFed and its subsidiaries (including Penn Federal Savings
Bank (the "Bank")). These 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, 2004. 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, 2005 and 2004. The interim results of operations presented are
not necessarily indicative of the results for the full year.

Stock Option Plans. All options previously granted under the Company's 1994
Stock Option and Incentive Plan were accounted for in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, no compensation expense has been recognized for the
stock options. Pro forma net income and earnings per share calculated as if the
Company had accounted for employee stock options and other stock based
compensation under the fair value method would equal the amounts presented
within the consolidated statements of income for the three and nine months ended
March 31, 2005 and 2004, as all grants had fully vested prior to the beginning
of all periods presented.

In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123 (revised 2004), "Share-Based
Payment" ("SFAS No. 123R"), which requires entities to measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award (with limited exceptions). The cost is
recognized as an expense over the period during which the employee is required
to provide service in exchange for the award, which is usually the vesting
period. As a result of SFAS No. 123R, the Company will recognize the grant-date
fair value of options as compensation expense on a straight-line basis over the
applicable vesting period. This accounting treatment differs significantly from
the previous accounting for fixed stock options under APB Opinion No. 25, which
generally required expense recognition only when the exercise price of the
option was less than the market price of the underlying stock on the grant date.
As required by SFAS No. 123R, the Company will estimate the fair value of stock
options on each grant date, using an appropriate valuation approach such as the
Black-Scholes option pricing model.

SFAS No. 123R applies to all awards granted after its effective date and to
awards modified, repurchased, or cancelled after that date. In April 2005, the
SEC deferred the adoption of SFAS No. 123R until the first fiscal year beginning
after June 15, 2005 (i.e., for the Company, the fiscal year beginning July 1,
2005). Under previous rules, SFAS No. 123R was to be adopted as of the beginning
of the first interim or annual reporting period beginning after June 15, 2005,
which, for the Company, would have been the fiscal year beginning July 1, 2005.
The standard permits different transition methods of recognizing compensation
expense. The Company expects to adopt SFAS No. 123R by recognizing compensation
expense for (i) any new awards granted after July 1, 2005 and (ii) the portion
of any outstanding awards for which the requisite service has not been rendered
as of July 1, 2005, based on the grant-date fair value of those awards
calculated for purposes of SFAS No. 123R pro forma disclosures. At March 31,
2005, the Company had no stock options outstanding for which compensation
expense would be recognized after adoption of SFAS No. 123R.

2. Supplemental Executive Retirement Plan and Director's Retirement Plan

The Company currently provides for a Supplemental Executive Retirement Plan
("SERP") and a Director's Retirement Plan ("DP") for certain key executive
employees and directors. Benefits provided are based primarily on years of
service and compensation or fees. Both plans are unfunded and at March 31, 2005,
the benefit obligation of $618,000 was included in accounts payable and other
liabilities in the Consolidated Statements of Financial Condition. The
assumptions used in calculating the benefit obligation included a 4%
compensation increase rate and a discount rate of 7%. The accounting for these
postretirement benefits is in accordance with Statement of Financial Accounting
Standards No. 87 "Employer's Accounting for Pensions." The Company has not made,
and does not expect to make, any contributions to these plans during the fiscal
year ending June 30, 2005.


                                       9
<PAGE>

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

                                                Three months ended March 31,
                                             ----------------------------------
                                                 2005                 2004
                                             --------------      --------------
                                             SERP       DP       SERP       DP
                                             ----      ----      ----      ----
                                                       (In thousands)

Service cost ...........................     $ 61      $ 11      $ 57      $ 10
Interest cost ..........................        7         1         2         1
Amortization of prior service cost .....       (2)       (1)       (1)       (1)
                                             ----      ----      ----      ----
Net periodic pension expense ...........     $ 66      $ 11      $ 58      $ 10
                                             ====      ====      ====      ====

                                                 Nine months ended March 31,
                                             ----------------------------------
                                                 2005                 2004
                                             --------------      --------------
                                             SERP       DP       SERP       DP
                                             ----      ----      ----      ----
                                                       (In thousands)

Service cost ...........................     $183      $ 33      $171      $ 30
Interest cost ..........................       21         3         6         3
Amortization of prior service cost .....       (6)       (3)       (3)       (3)
                                             ----      ----      ----      ----
Net periodic pension expense ...........     $198      $ 33      $174      $ 30
                                             ====      ====      ====      ====

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

The computation of EPS is presented in the following table. All share and share
related amounts reflect the effect of a stock dividend described in Note 5.

<TABLE>
<CAPTION>
                                                       Three months ended             Nine months ended
                                                            March 31,                      March 31,
                                                    --------------------------    --------------------------
                                                        2005           2004           2005           2004
                                                    -----------    -----------    -----------    -----------
                                                         (Dollars in thousands, except per share amounts)
<S>                                                 <C>            <C>            <C>            <C>
Net income .....................................    $     3,854    $     2,966    $    11,622    $     9,220
                                                    ===========    ===========    ===========    ===========

Number of shares outstanding:
Weighted average shares issued and outstanding .     13,590,180     13,590,004     13,682,105     13,687,912
Less: Average shares held by the ESOP ..........             --      1,904,000             --      1,904,000
Plus: ESOP shares released or committed to be
           released ............................             --      1,839,586             --      1,774,936
                                                    -----------    -----------    -----------    -----------
Average basic shares ...........................     13,590,180     13,525,590     13,682,105     13,558,848
Plus: Average common stock equivalents .........        369,558        860,306        417,255        896,962
                                                    -----------    -----------    -----------    -----------
Average diluted shares .........................     13,959,738     14,385,896     14,099,360     14,455,810
                                                    ===========    ===========    ===========    ===========

Earnings per common share:
        Basic ..................................    $      0.28    $      0.22    $      0.85    $      0.68
                                                    ===========    ===========    ===========    ===========
        Diluted ................................    $      0.28    $      0.21    $      0.82    $      0.64
                                                    ===========    ===========    ===========    ===========
</TABLE>


                                       10
<PAGE>

4. Stockholders' Equity and Regulatory Capital

During the three months ended March 31, 2005, the Company repurchased 150,900
shares of its outstanding common stock at prices ranging from $15.05 to $16.15
per share, for a total cost of $2,356,000.

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

<TABLE>
<CAPTION>
                                                                                             To Be Well
                                                                   For Minimum            Capitalized Under
                                                                 Capital Adequacy         Prompt Corrective
                                             Actual                  Purposes             Action Provisions
                                       --------------------     --------------------     --------------------
                                        Amount       Ratio       Amount       Ratio       Amount       Ratio
                                       --------    --------     --------    --------     --------    --------
                                                               (Dollars in thousands)
<S>                                    <C>            <C>       <C>             <C>      <C>            <C>
As of March 31, 2005
Tangible capital, and ratio to
   adjusted total assets ..........    $170,053        8.51%    $ 29,960        1.50%         N/A         N/A
Tier I (core) capital, and ratio to
   adjusted total assets ..........    $170,053        8.51%    $ 79,893        4.00%    $ 99,867        5.00%
Tier I (core) capital, and ratio to
   risk-weighted assets ...........    $170,053       15.86%         N/A         N/A     $ 64,237        6.00%
Risk-based capital, and ratio to
   risk-weighted assets ...........    $176,122       16.43%    $ 85,770        8.00%    $107,212       10.00%

As of June 30, 2004
Tangible capital, and ratio to
   adjusted total assets ..........    $163,676        8.61%    $ 28,509        1.50%         N/A         N/A
Tier I (core) capital, and ratio to
   adjusted total assets ..........    $163,676        8.61%    $ 76,024        4.00%    $ 95,029        5.00%
Tier I (core) capital, and ratio to
   risk-weighted assets ...........    $163,676       16.24%         N/A         N/A     $ 60,468        6.00%
Risk-based capital, and ratio to
   risk-weighted assets ...........    $169,926       16.86%    $ 80,624        8.00%    $100,781       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.

5. Stock Dividend

On September 29, 2004, the Company's Board of Directors declared a two-for-one
stock split in the form of a 100% stock dividend, payable on October 29, 2004 to
common stockholders of record as of October 15, 2004. All share and share
related amounts reflect the effect of the stock dividend.


                                       11
<PAGE>

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

Critical Accounting Policies

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

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

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

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

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

Although management believes that it uses the best information available to
determine the allowances, unforeseen market conditions could result in
adjustments and earnings could be significantly affected if circumstances differ
substantially from the assumptions used in making the final determination.
Future additions to the Company's allowance 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. These
agencies may require the Company to record additions to the allowance level
based upon their assessment of the information available to them at the time of
examination.

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


                                       12
<PAGE>

Forward-Looking Statements

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

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

Overview

The Company has been, and intends to continue to be, a community-oriented
financial institution offering a variety of financial services to meet the needs
of the communities it serves. The Company has 25 full service branch offices in
New Jersey. The Company attracts deposits from the general public and uses these
deposits, together with borrowings and other funds, to originate and purchase
one- to four-family residential mortgage loans, and, to a lesser extent, to
originate commercial and multi-family real estate and consumer loans. The
Company also invests in mortgage-backed securities secured by one- to
four-family residential mortgages and U.S. government agency obligations.
Through a relationship with an unaffiliated third party, the Company offers
insurance and uninsured non-deposit investment products to the Company's
customers and members of the general public. A wholly-owned subsidiary of the
Company participates in the ownership of a title insurance agency.

The Company's loan portfolio growth is dependent primarily on its ability to
provide the products and services that meet the needs of the customers in its
market area. The Company offers fixed rate, adjustable rate and balloon mortgage
loans for residential and commercial purposes, as well as home equity, consumer
loans and non-mortgage business loans, with a variety of terms. Residential
first mortgage loans are the largest part of the portfolio, representing
approximately 78.4% at March 31, 2005. The level of interest rates also has a
significant impact on the ability of the Company to originate loans and on the
amount of prepayment activity experienced by the Company. Since June 30, 2004,
the Company's net loans receivable increased $108.0 million. This increase was
primarily attributable to strong loan origination levels and a slowdown in
prepayments. During the nine months ended March 31, 2005, the Company sold $24.2
million of loans as a means to assist in the management of interest rate risk.

The retention and the recruitment of profitable deposit customers are vital to
the Company's ability to generate liquid funds and to support the growth of
non-interest income. The Company offers a number of different deposit products
and uses this product mix along with a strong focus on customer service to
attract customers and to build depositor relationships. The level of interest
rates also significantly affects the level of the Company's deposits. Since June
30, 2004, deposits increased $96.4 million, primarily due to a $41.2 million
increase in core deposits (checking, money market and savings accounts), a $37.4
million increase in retail certificates of deposit and the addition of $19.9
million of brokered certificates of deposit. The increase in core deposits was
accomplished through a combination of desirable product features, focused
marketing campaigns and competitive interest rates.

The Company's future loan and deposit growth is, to a large extent, directly
tied in to the level of interest rates. If long-term interest rates rise,
origination levels may be reduced from the prior periods. Growth in the loan
pipeline will depend on the Company's ability to aggressively seek out customers
in spite of the higher cost of borrowing for the customer. Loan growth driven by
borrower demand, also will depend on the strength of the economy in the
Company's market area.


                                       13
<PAGE>

With rising interest rates and/or deteriorating economic conditions, loan
origination volumes would likely be lower than recent years and a reduction in
the prepayment of loans currently in portfolio would be expected. The Company
has continued its loan sale strategy with respect to new residential loan
product in order to assist in the management of interest rate risk associated
with keeping longer-term loans on the balance sheet. With respect to deposits,
while an increase in interest rates would increase the Company's cost of funds,
it also would provide the Company with an additional opportunity for attracting
depositors, some of whom may have sought higher returns with mutual funds and
other non-deposit investment products when market rates were lower. The Company
remains confident that by offering competitively priced products and by striving
for superior service, it will be able to maintain profitable levels of loans and
deposits.

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

A slowdown in loan prepayments, growth in the loan portfolio and the repricing
of certain deposits and other borrowings contributed to an expansion in the net
interest margin for the nine months ended March 31, 2005 compared to the prior
year period. The lower level of prepayments experienced during the nine months
ended March 31, 2005 positively impacted the Company's interest income and
contributed to growth in the average balance of loans outstanding, when compared
to the prior year period. The Company's interest income is primarily driven by
interest earned on residential first mortgage loans, which increased $5.5
million in the nine months ended March 31, 2005 compared to the same period in
the prior year. The strong origination levels and the significant slowdown in
the amount of prepayments, relative to the prior year period, have contributed
to the increase in residential first mortgage interest income. Overall, net
interest income increased $5.2 million during the current year nine month period
compared to the prior year period and the net interest margin increased from
2.16% for the nine months ended March 31, 2004 to 2.32% during the nine months
ended March 31, 2005. Lower cost of funds on other borrowings due to the
interest rate environment and the maturity of FHLB of New York advances were the
primary factors responsible for a decrease of $1.1 million in interest expense
on FHLB of New York advances and other borrowings for the current year nine
month period compared to the prior year period.

With a slowdown in refinance activity, non-interest income has decreased
compared to the level seen in the prior year nine month period. Loan service
fees related to modifications and prepayments were not at the levels seen in the
nine months ended March 31, 2004, when interest rates caused many customers to
refinance their loans or modify to reduce the interest rate of their loans.

While non-interest expenses for the nine months ended March 31, 2005 reflected
the end, in fiscal 2004, of costs associated with funding the Company's Employee
Stock Ownership Plan (shares became fully allocated in the 2004 fiscal year),
current expenses included a much less expensive replacement benefit plan
(essentially an increase in the 401(k) match) as well as costs associated with
the four branches opened since September 2003. In addition, costs associated
with regulatory burden, especially compliance with Sarbanes-Oxley Section 404 on
internal control reporting, continue to require significant additional
expenditures.

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

Financial Condition

Assets. Total assets increased $94.1 million to $1.996 billion at March 31, 2005
from $1.902 billion at June 30, 2004. This increase was primarily due to a
$108.0 million increase in net loans receivable, reflecting strong loan
origination


                                       14
<PAGE>

levels and a slowdown in loan prepayment activity.

Liabilities. Deposits increased $96.4 million to $1.284 billion at March 31,
2005 from $1.188 billion at June 30, 2004. An increase in core deposits
(checking, money market and savings accounts) of $41.2 million, a $37.4 million
increase in retail certificates of deposit and the addition of $19.9 million of
wholesale certificates of deposit accounted for the increase. At March 31, 2005,
Federal Home Loan Bank ("FHLB") of New York advances and other borrowings
totaled $528.5 million, reflecting a $6.3 million decrease from the $534.8
million at June 30, 2004.

Stockholders' Equity. Stockholders' equity at March 31, 2005 totaled $124.2
million compared to $118.4 million at June 30, 2004. The increase primarily
reflects the net income recorded for the nine months ended March 31, 2005 and
the exercise of stock options, including the related tax effect, partially
offset by the repurchase of 510,300 shares of the Company's outstanding stock at
an average price of $15.84 per share and the declaration of cash dividends.

Results of Operations

General. For the three months ended March 31, 2005, net income was $3.9 million,
or $0.28 per diluted share, compared to net income of $3.0 million, or $0.21 per
diluted share, for the comparable prior year period. For the nine months ended
March 31, 2005, net income was $11.6 million, or $0.82 per diluted share. These
results compare to net income of $9.2 million, or $0.64 per diluted share, for
the nine months ended March 31, 2004. Earnings per share amounts reflect the
effect of the 100% stock dividend described in Note 5. - Stock Dividend, in the
Notes to Consolidated Financial Statements.

Interest and Dividend Income. Interest and dividend income for the three and
nine months ended March 31, 2005 increased to $26.2 million and $78.0 million,
respectively, from $24.3 million and $71.7 million for the three and nine months
ended March 31, 2004. In general, the increases in interest and dividend income
reflect a higher level of interest-earning assets due to strong loan
originations and the slowdown in prepayments in the Company's loan and
mortgage-backed securities portfolios during the current year periods. The
effect of the increases was slightly offset by a lower yield earned on assets as
a result of prepayments of higher yielding loans and the origination of loans at
lower market interest rates during the last year. Average interest-earning
assets were $1.913 billion and $1.898 billion for the three and nine months
ended March 31, 2005, compared to $1.741 billion and $1.724 billion for the
three and nine months ended March 31, 2004. The average yield earned on
interest-earning assets decreased to 5.48% and 5.47% for the three and nine
months ended March 31, 2005 from 5.59% and 5.53% for the three and nine months
ended March 31, 2004.

Interest income on residential one- to four-family mortgage loans for the three
and nine months ended March 31, 2005 increased $2.1 million and $5.5 million,
respectively, when compared to the prior year periods. The increases in interest
income on residential one- to four-family mortgage loans were due to increases
in the average balance of residential one- to four-family mortgage loans
outstanding, as the result of strong origination levels and a slowdown in
prepayments during the current year periods. For the three and nine months ended
March 31, 2005, the residential one- to four-family mortgage loan portfolio
averaged $1.089 billion and $1.069 billion, respectively, compared to $901
million and $906 million for the prior year periods. Somewhat offsetting the
increases in the average balances of residential one- to four-family mortgage
loans were decreases in the average yield earned on this loan portfolio to 5.30%
and 5.31% for the three and nine months ended March 31, 2005, respectively, from
5.47% and 5.46% for the comparable prior year periods, reflecting the payoff or
refinance of higher yielding loans and the origination of lower yielding loans
over the last twelve months.

Interest income on commercial and multi-family real estate loans decreased
$142,000 and $286,000 for the three and nine months ended March 31, 2005,
respectively, when compared to the prior year periods. The decreases in interest
income on commercial and multi-family real estate loans were attributable to
decreases in the average yield earned on these loans. The average yield
decreased to 6.86% and 6.85% for the three and nine months ended March 31, 2005,
respectively, when compared to 7.40% and 7.39% for the three and nine months
ended March 31, 2004, respectively. As with other loans, the payoff of higher
yielding loans and the origination of loans at lower market interest rates has
resulted in a decline in the yield of the commercial and multi-family real
estate loan portfolio. The decreases in interest income for this portfolio were
partially offset by increases in the average outstanding balance of commercial
and multi-family real estate loans of $5.9 million and $7.4 million for the
three and nine months ended March 31, 2005, respectively, when compared to the
prior year periods.

Interest income on consumer loans increased $164,000 and $96,000 for the three
and nine months ended March 31, 2005, respectively, when compared to the prior
year periods. The average yield earned on consumer loans remained


                                       15
<PAGE>

constant at 5.45% for the three months ended March 31, 2005 when compared to the
three months ended March 31, 2004. For the nine months ended March 31, 2005, the
average yield on consumer loans decreased to 5.32% from 5.54% for the comparable
prior year period. The effects of the lower average yield were offset by
increases of $13.4 million and $7.5 million in the average balance outstanding
for the three and nine months ended March 31, 2005, respectively, when compared
to the prior year periods.

Interest income on investment securities and other interest-earning assets
increased $35,000 and $1.4 million for the three and nine months ended March 31,
2005, respectively, when compared to the prior year periods. The increases in
interest income on investment securities and other interest-earning assets for
the three and nine months ended March 31, 2005 were due to increases in the
average yield to 5.48% and 5.43%, respectively, compared to 5.36% and 5.32% for
the three and nine months ended March 31, 2004. Partially offsetting the
increase in interest income for the three months ended March 31, 2005 was a
decrease of $7.6 million in the average balance outsnading of investment
securities and other interest-earning assets when compared to the prior year
period. For the nine months ended March 31, 2005, in addition to the increase in
the average yield, the average balance outstanding for investment securities and
other interest-earning assets increased $27.1 million when compared to the
comparable prior year period.

Interest income on the mortgage-backed securities portfolio decreased $265,000
and $298,000 for the three and nine months ended March 31, 2005, respectively,
when compared to the prior year periods. The average balance outstanding of
mortgage-backed securities decreased $16.9 million and $6.9 million for the
three and nine months ended March 31, 2005, respectively, compared to the three
and nine months ended March 31, 2004. The decrease in interest income on
mortgage-backed securities were also due to decreases in the average yield
earned to 5.14% and 5.11% for the three and nine months ended March 31, 2005,
respectively, when compared to 5.32% and 5.15% for the three and nine months
ended March 31, 2004.

Interest Expense. Interest expense increased $702,000 and $1.1 million for the
three and nine months ended March 31, 2005, respectively, when compared to the
prior year periods. While the Company's cost of funds decreased, total average
deposits and borrowings increased. The average rate on deposits and borrowings
was 3.34% and 3.27% for the three and nine months ended March 31, 2005,
respectively, down from 3.48% and 3.51% for the prior year periods, as a result
of lower market interest rates. Total average deposits and borrowings increased
$177.1 million and $173.8 million for the three and nine months ended March 31,
2005, respectively, when compared to the three and nine months ended March 31,
2004.

For the three months ended March 31, 2005, the average rate paid on deposits
increased slightly to 2.43% from 2.41% for the three months ended March 31,
2004. For the nine months ended March 31, 2005, the average rate paid on
deposits decreased to 2.36% from 2.41% for the nine months ended March 31, 2004.
Average deposit balances increased $151.1 million and $143.7 million to $1.265
billion and $1.238 billion for the three and nine months ended March 31, 2005,
respectively, from $1.114 billion and $1.095 billion for the comparable prior
year periods. The growth in deposits is partially reflective of the addition of
the four new branches opened since September 2003 and the addition of wholesale
certificates of deposit. In addition, deposit growth reflects the offering of
attractive and competitive deposit products which are promoted through various
marketing strategies.

The average cost of FHLB of New York advances for the three and nine months
ended March 31, 2005 increased to 5.72% for both periods from 5.68% and 5.67%
for the three and nine months ended March 31, 2004, respectively. However, the
average balance of FHLB of New York advances decreased $60.0 million and $63.5
million for the three and nine months ended March 31, 2005, respectively, when
compared to the prior year periods. As a funding source to replace maturing FHLB
of New York advances and the slowdown in prepayments on loans, the average
balance of other borrowings increased $86.0 million and $93.5 million for the
three and nine months ended March 31, 2005, respectively, when compared to the
three and nine months ended March 31, 2004. The average rate paid on other
borrowings decreased significantly to 3.00% and 2.60% for the three and nine
months ended March 31, 2005, respectively, from 3.91% and 4.29% for the
comparable prior year periods as a result of lower market interest rates.

Net Interest and Dividend Income. Net interest and dividend income before
provision for loan losses for the three and nine months ended March 31, 2005 was
$10.9 million and $32.9 million, respectively, compared to $9.7 million and
$27.7 million recorded in the prior year periods. For the three months ended
March 31, 2005, average net interest-earning assets decreased $4.8 million when
compared to the three months ended March 31, 2004. For the nine months ended
March 31, 2005, average net interest-earning assets increased $445,000 when
compared to the nine months ended March 31, 2004. The net interest rate spread
and net interest margin for the three months ended March 31, 2005 were 2.14% and
2.26%, respectively, an increase from 2.11% and 2.24% for the three months ended
March 31, 2004. For the nine months ended March 31, 2005, the net interest rate
spread and net interest margin were 2.20%


                                       16
<PAGE>

and 2.32%, respectively, an increase from 2.02% and 2.16% for the nine months
ended March 31, 2004. The net interest margin expanded during the current year
periods when compared to the prior year periods principally due to a slowdown in
loan prepayments, growth in the loan portfolio and the repricing of certain
deposits and other borrowings.

Provision for Loan Losses. There was no provision for loan losses recorded for
the three and nine months ended March 31, 2005, which is consistent with the
maintenance of the Company's historically low levels of non-accruing loans and
loan chargeoffs. There also was no loan loss provision recorded in the
comparable prior year periods. Management believes that the current allowance
for loan losses is adequate to absorb probable losses on existing loans that may
become uncollectible. The allowance for loan losses at March 31, 2005 was $6.1
million compared to $6.2 million at June 30, 2004. The allowance for loan losses
as a percentage of non-accruing loans was 375.79% at March 31, 2005, compared to
286.39% at June 30, 2004. Non-accruing loans were $1.6 million at March 31, 2005
compared to $2.2 million at June 30, 2004. The allowance for loan losses as a
percentage of total loans at March 31, 2005 was 0.43% compared to 0.48% at June
30, 2004, primarily due to the increase in the balance of the overall loan
portfolio. See the discussion on the allowance for loan losses in this Form 10-Q
under "Critical Accounting Policies".

Non-Interest Income. For the three and nine months ended March 31, 2005,
non-interest income was $1.2 million and $3.7 million, respectively, compared to
$1.4 million and $4.9 million for the prior year periods. The decrease in
non-interest income for the three months ended March 31, 2005 was generally due
to a decrease in service charges, while the decrease for the nine months ended
March 31, 2005 was generally due to decreases in service charges and net gain on
sales of loans, when compared to the prior year periods.

Service charge income for the three months ended March 31, 2005 was $703,000,
reflecting a decrease of $254,000 from the $957,000 recorded for the prior year
period. For the nine months ended March 31, 2005, service charge income was $2.3
million, reflecting a decrease of $835,000 from the $3.1 million recorded for
the prior year period. Service charges decreased during the three and nine
months ended March 31, 2005 principally due to a decline in fees associated with
various loan prepayments and/or modifications.

During the three and nine months ended March 31, 2005, the net gain on sales of
loans was $172,000 and $266,000, respectively, compared to $57,000 and $754,000
for the three and nine months ended March 31, 2004. Approximately $15.0 million
and $24.2 million of fixed rate one- to four-family residential mortgage loans
were sold into the secondary market and to other financial institutions during
the three and nine months ended March 31, 2005, respectively. During the three
and nine months ended March 31, 2004, approximately $6.4 million and $87.0
million of primarily fixed rate one- to four-family residential mortgage loans
were sold into the secondary market and to other financial institutions,
respectively. The reduction in loan sales for the nine month period can be
attributed to a reduction in origination of longer-term fixed rate products as
borrowers have shown increased interest in adjustable rate and bi-weekly loans,
which are retained in portfolio. In addition, during the nine months ended March
31, 2004, a $3.0 million commercial real estate loan participation was sold as a
means to reduce the Company's credit exposure on a large commercial real estate
loan relationship.

Non-Interest Expenses. Non-interest expenses for the three and nine months ended
March 31, 2005 were $6.1 million and $18.4 million, or 1.24% and 1.25% of
average assets, respectively. For the comparable prior year periods,
non-interest expenses were $6.6 million and $18.6 million, or 1.47% and 1.39% of
average assets, respectively. While current period expense levels reflect the
end of costs associated with funding the Company's Employee Stock Ownership Plan
("ESOP"), expenses in the current year periods include a much less expensive
replacement benefit plan for the ESOP, increased advertising expense and costs
associated with the four branches opened since September 2003. In addition,
costs associated with regulatory burden, especially compliance with
Sarbanes-Oxley Section 404, continue to require significant additional
expenditures and are expected to remain high through the end of fiscal 2005 and
into fiscal 2006. The opening of a new branch in February 2005 will also add to
future non-interest expense, particularly in the net occupancy and advertising
expense categories.

Income Tax Expense. Income tax expense was $2.1 million and $6.5 million for the
three and nine months ended March 31, 2005, respectively, compared to $1.5
million and $4.8 million for the three and nine months ended March 31, 2004. The
effective tax rate for the three and nine months ended March 31, 2005 was 35.4%
and 35.9%, respectively, compared to 33.6 % and 34.4% for the three and nine
months ended March 31, 2004. The higher effective tax rates in the current year
periods were primarily due to an adjustment in the first quarter of fiscal 2005
in valuation allowances established against state deferred tax assets.


                                       17
<PAGE>

Analysis of Net Interest Income

The following tables set forth certain information relating to the Company's
Consolidated Statements of Financial Condition and the Consolidated Statements
of Income for the three and nine months ended March 31, 2005 and 2004 and
reflects the average yield on assets and average cost of liabilities for the
periods indicated. Such yields and costs are derived from average daily
balances. The average balance of loans receivable includes non-accruing loans.
The yields and costs include fees which are considered adjustments to yields.

<TABLE>
<CAPTION>
                                                                     Three Months Ended March 31,
                                               -----------------------------------------------------------------------
                                                              2005                                  2004
                                               ---------------------------------     ---------------------------------
                                                 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 .............................    $ 1,088,821    $14,393       5.30%    $   901,473    $12,319       5.47%
    Commercial and multi-family real
        estate loans ......................        167,911      2,880       6.86         162,016      3,022       7.40
    Consumer loans ........................        128,064      1,722       5.45         114,700      1,558       5.45
                                               -----------    -------                -----------    -------
        Total loans receivable ............      1,384,796     18,995       5.51       1,178,189     16,899       5.73

    Federal funds sold ....................             --         --         --           9,875         25       1.00
    Investment securities and other .......        443,113      6,076       5.48         450,694      6,041       5.36
    Mortgage-backed securities ............         85,365      1,096       5.14         102,259      1,361       5.32
                                               -----------    -------                -----------    -------
        Total interest-earning assets .....      1,913,274    $26,167       5.48       1,741,017    $24,326       5.59
                                                              =======                               =======

Non-interest earning assets ...............         72,000                                61,985
                                               -----------                           -----------
        Total assets ......................    $ 1,985,274                           $ 1,803,002
                                               ===========                           ===========

Deposits and borrowings:
    Money market and demand deposits ......    $   205,417    $   388       0.77%    $   161,793    $    73       0.18%
    Savings deposits ......................        422,447      2,505       2.40         397,486      2,544       2.57
    Certificates of deposit ...............        637,283      4,690       2.98         554,789      4,071       2.94
                                               -----------    -------                -----------    -------
        Total deposits ....................      1,265,147      7,583       2.43       1,114,068      6,688       2.41

    FHLB of New York advances .............        425,465      6,081       5.72         485,465      6,957       5.68
    Other borrowings ......................        114,493        858       3.00          28,540        282       3.91
    Junior subordinated debentures ........         42,065        778       7.39          42,020        671       6.35
                                               -----------    -------                -----------    -------
        Total deposits and borrowings .....      1,847,170    $15,300       3.34       1,670,093    $14,598       3.48
                                                              =======                               =======

Other liabilities .........................         14,226                                13,972
                                               -----------                           -----------
        Total liabilities .................      1,861,396                             1,684,065
Stockholders' equity ......................        123,878                               118,937
                                               -----------                           -----------
        Total liabilities and stockholders'
            equity ........................    $ 1,985,274                           $ 1,803,002
                                               ===========                           ===========

Net interest income and net
    interest rate spread ..................                   $10,867       2.14%                   $ 9,728       2.11%
                                                              =======       ====                    =======       ====

Net interest-earning assets and
    interest margin .......................    $    66,104                  2.26%    $    70,924                  2.24%
                                               ===========                ======     ===========                ======

Ratio of interest-earning assets to
    deposits and borrowings ...............                               103.58%                               104.25%
                                                                          ======                                ======
</TABLE>

(1)   Annualized.


                                       18
<PAGE>

<TABLE>
<CAPTION>
                                                                    Nine Months Ended March 31,
                                               -----------------------------------------------------------------------
                                                              2005                                  2004
                                               ---------------------------------     ---------------------------------
                                                 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 .............................    $ 1,068,844    $42,594       5.31%    $   906,133    $37,131       5.46%
    Commercial and multi-family real
        estate loans ......................        168,786      8,790       6.85         161,398      9,076       7.39
    Consumer loans ........................        122,822      4,908       5.32         115,340      4,812       5.54
                                               -----------    -------                -----------    -------
        Total loans receivable ............      1,360,452     56,292       5.50       1,182,871     51,019       5.73

    Federal funds sold ....................             --         --         --          23,491        175       0.97
    Investment securities and other .......        447,173     18,198       5.43         420,096     16,752       5.32
    Mortgage-backed securities ............         90,837      3,481       5.11          97,774      3,779       5.15
                                               -----------    -------                -----------    -------
        Total interest-earning assets .....      1,898,462    $77,971       5.47       1,724,232    $71,725       5.53
                                                              =======                               =======

Non-interest earning assets ...............         66,569                                63,739
                                               -----------                           -----------
        Total assets ......................    $ 1,965,031                           $ 1,787,971
                                               ===========                           ===========

Deposits and borrowings:
    Money market and demand deposits ......    $   184,207    $   669       0.48%    $   167,525    $   240       0.19%
    Savings deposits ......................        427,986      7,410       2.31         380,198      7,285       2.54
    Certificates of deposit ...............        626,207     13,828       2.94         547,012     12,388       3.01
                                               -----------    -------                -----------    -------
        Total deposits ....................      1,238,400     21,907       2.36       1,094,735     19,913       2.41

    FHLB of New York advances .............        427,974     18,610       5.72         491,444     21,259       5.67
    Other borrowings ......................        118,672      2,351       2.60          25,126        824       4.29
    Junior subordinated debentures ........         42,053      2,226       7.00          42,009      2,026       6.37
                                               -----------    -------                -----------    -------
        Total deposits and borrowings .....      1,827,099    $45,094       3.27       1,653,314    $44,022       3.51
                                                              =======                               =======
Other liabilities .........................         15,745                                16,008
                                               -----------                           -----------
        Total liabilities .................      1,842,844                             1,669,322
Stockholders' equity ......................        122,187                               118,649
                                               -----------                           -----------
        Total liabilities and stockholders'
            equity ........................    $ 1,965,031                           $ 1,787,971
                                               ===========                           ===========

Net interest income and net
    interest rate spread ..................                   $32,877       2.20%                   $27,703       2.02%
                                                              =======    =======                    =======    =======

Net interest-earning assets and
    interest margin .......................    $    71,363                  2.32%    $    70,918                  2.16%
                                               ===========                ======     ===========                ======

Ratio of interest-earning assets to
    deposits and borrowings ...............                               103.91%                               104.29%
                                                                          ======                                ======
</TABLE>

(1)   Annualized.


                                       19
<PAGE>

Rate/Volume Analysis

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

<TABLE>
<CAPTION>
                                                      Nine Months Ended March 31, 2005 vs. 2004
                                                 ---------------------------------------------------
                                                             Increase (Decrease) Due to
                                                 ---------------------------------------------------
                                                                                             Total
                                                                              Rate/        Increase
                                                  Volume         Rate         Volume       (Decrease)
                                                 ---------     ---------     ---------     ---------
                                                                   (In thousands)
<S>                                              <C>           <C>           <C>           <C>
Interest-earning assets:
      One- to four-family mortgage loans ....    $   6,665     $  (1,019)    $    (183)    $   5,463
      Commercial and multi-family real
        estate loans ........................          409          (665)          (30)         (286)
      Consumer loans ........................          298          (190)          (12)           96
                                                 ---------     ---------     ---------     ---------
             Total loans receivable .........        7,372        (1,874)         (225)        5,273
      Federal funds sold ....................         (175)         (175)          175          (175)
      Investment securities and other .......        1,077           347            22         1,446
      Mortgage-backed securities ............         (271)          (29)            2          (298)
                                                 ---------     ---------     ---------     ---------
             Total interest-earning assets ..    $   8,003     $  (1,731)    $     (26)    $   6,246
                                                 =========     =========     =========     =========

Deposits and borrowings:
      Money market and demand deposits ......    $      24     $     369     $      36     $     429
      Savings deposits ......................          863          (656)          (82)          125
      Certificates of deposit ...............        1,769          (287)          (42)        1,440
                                                 ---------     ---------     ---------     ---------
             Total deposits ...............          2,656          (574)          (88)        1,994
      FHLB of New York advances .............       (2,809)          184           (24)       (2,649)
      Other borrowings ......................        3,031          (318)       (1,186)        1,527
      Junior subordinated debentures ........            2           198            --           200
                                                 ---------     ---------     ---------     ---------
             Total deposits and borrowings       $   2,880     $    (510)    $  (1,298)    $   1,072
                                                 =========     =========     =========     =========

 Net change in net interest income ..........    $   5,123     $  (1,221)    $   1,272     $   5,174
                                                 =========     =========     =========     =========
</TABLE>


                                       20
<PAGE>

Non-Performing Assets

The table below sets forth the Company's amounts and categories of
non-performing assets at the dates indicated. 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 were still
accruing. Real estate owned represents assets acquired in settlement of loans
(generally through foreclosure or a deed in lieu) and is shown net of valuation
allowances.

<TABLE>
<CAPTION>
                                                                       March 31,    June 30,
                                                                          2005        2004
                                                                       ---------    --------
                                                                       (Dollars in thousands)
<S>                                                                    <C>          <C>
Non-accruing loans:
      One- to four-family .........................................    $  1,425     $  2,158
      Commercial and multi-family .................................         180           --
      Consumer ....................................................           6           24
                                                                       --------     --------
           Total non-accruing loans ...............................       1,611        2,182

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

           Total non-performing assets/risk elements ..............    $  1,611     $  2,182
                                                                       ========     ========

Non-accruing loans as a percentage of total loans .................        0.11%        0.17%
                                                                       ========     ========

Non-performing assets/risk elements as a percentage of total assets        0.08%        0.11%
                                                                       ========     ========
</TABLE>

Interest Rate Sensitivity

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

At March 31, 2005, 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 $183.6 million, representing a one year negative
gap of 9.20% of total assets, compared to a one year negative gap of $148.6
million, or 7.81%, of total assets at June 30, 2004. The Company's gap position
changed from June 30, 2004 as the estimated short-term cash flows for the
Company's interest-bearing liabilities have exceeded the estimated cash flows
from interest-earning assets. With respect to assets, growth in loans with
faster cash flow characteristics, such as biweekly and adjustable rate loan
products, have nearly offset the effect of a decline in expected prepayments.
For liabilities, despite significant growth in medium term retail and wholesale
certificates of deposit, medium-term wholesale borrowings and core deposits,
retail certificates of deposit, money market demand deposits and short-term
wholesale borrowings, all maturing within one year, also increased.

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


                                       21
<PAGE>

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 additional interest rate risk ("IRR") measures,
including an IRR "Exposure Measure" or "Post-Shock" NPV ratio and a "Sensitivity
Measure." A low Post-Shock NPV ratio indicates greater exposure to IRR. Greater
exposure can result from a high sensitivity to changes in interest rates. The
Sensitivity Measure is the change in the NPV ratio, in basis points, caused by a
2% increase or decrease in rates, whichever produces a larger decline. At least
quarterly, and generally monthly, management models the change in net portfolio
value ("NPV") over a variety of interest rate scenarios. NPV is the present
value of expected cash flows from assets, liabilities and off-balance sheet
contracts. An NPV ratio, in any interest rate scenario, is defined as the NPV in
that rate scenario divided by the market value of assets in the same scenario.
Assumptions used in calculating interest rate sensitivity are periodically
reviewed and modified as appropriate.

As of March 31, 2005, the Bank's internally generated initial NPV ratio was
10.78%. Following a 2% increase in interest rates, the Bank's Post-Shock NPV
ratio was 8.83%. The change in the NPV ratio, or the Bank's Sensitivity Measure,
was negative 1.95%. As of March 31, 2005, the Company's internally generated
initial NPV ratio was 10.56%, the Post-Shock ratio was 8.48%, and the
Sensitivity Measure was negative 2.08%. As of June 30, 2004, the Bank's
Post-Shock NPV ratio and Sensitivity Measure were 7.87% and negative 1.72%,
respectively, and the Company's Post-Shock NPV ratio and Sensitivity Measure
were 7.30% and negative 1.91%, respectively. Both the Post-Shock NPV ratio and
the Sensitivity Measure deteriorated since June 30, 2004. The deterioration in
the Sensitivity Measure is primarily attributable to a rise in the projected
duration of assets and an increase in the sensitivity of FHLB of New York
convertible advances. Asset duration increased principally due to a decline in
prepayment estimates that resulted from a rise in longer term market rates
partially offset by growth in loan products with lower durations and faster cash
flow characteristics. Higher market rates improved retail deposit and wholesale
borrowing values. 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, including discount and decay rates, and
generally result in lower levels of presumed interest rate risk than Office of
Thrift Supervision ("OTS") measurements indicate.

The OTS measures the Bank's IRR on a quarterly basis using data from the
quarterly Thrift Financial Reports filed by the Bank with the OTS, coupled with
non-institution specific assumptions which are based on national averages. As of
December 31, 2004 (the latest date for which information is available), the
Bank's initial NPV ratio, as measured by the OTS, was 9.13%, the Bank's
Post-Shock ratio was 5.90% and the Sensitivity Measure was negative 3.23%.

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, 2005, based on its internally generated simulation models, the
Company's consolidated net interest income projected for one year forward would
decrease 5.3% from the base case, or current market, as a result of an immediate
and sustained 2% increase in interest rates. Although interest rates are not
expected to rise 2% immediately, projections over the next year assume a rise in
interest rates and a tightening of the rate spread between the 3-month U.S.
treasury bill and the 10-year U.S. treasury bond. If short term rates rise more
quickly than long term rates, interest rate risk measures would be expected to
improve, but earnings would likely be negatively affected.

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.


                                       22
<PAGE>

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

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

The Company's cash inflows for the nine months ended March 31, 2005 included
$24.5 million of proceeds from the sale of loans, a $96.5 million increase in
deposits (net of accrued interest payable), a $43.7 million increase in other
borrowings, including short term borrowings, $20.6 million from maturities of
investment secutities, and principal repayments of loans and mortgage-backed
securities. During the nine months ended March 31, 2005, the cash provided was
used to repay $50.0 million of maturing FHLB of New York advances and other
borrowings and to fund investing activities, which included the origination of
loans, the purchase of $20.0 million of investment securities and to fund a
$10.0 million investment in BOLI. In addition, the cash provided was used to
repurchase $6.8 million of outstanding shares, net of reissuances.

The Company's cash inflows for the nine months ended March 31, 2004 included
$91.0 million from the sale of loans, $96.3 million of proceeds from maturities
of investment securities, principal repayments of loans and mortgage-backed
securities and a $35.6 million increase in deposits. During the nine months
ended March 31, 2004, the cash provided was used to fund investing activities,
which included the origination and purchase of loans and the purchase of $222.0
million of investment and mortgage-backed securities, as well as for the
repayment of FHLB of New York advances and other borrowings. Additionally,
during the nine months ended March 31, 2004, the cash provided was used to fund
a $12.0 million investment in BOLI and to repurchase $9.0 million of outstanding
shares, net of reissuances.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

(a)   Evaluation of Disclosure Controls and Procedures:

An evaluation of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Act")) was
carried out as of March 31, 2005 under the supervision and with the
participation of the Company's Chief Executive Officer, Chief Financial Officer
and several other members of the Company's senior management. The Company's
Chief Executive Officer and Chief Financial Officer concluded that, as of March
31, 2005, the Company's disclosure controls and procedures were effective in
ensuring that the information required to be disclosed by the Company in the
reports it files or submits under the Act is (i) accumulated and communicated to
the Company's management (including the Chief Executive Officer and Chief
Financial Officer) in a timely manner, and (ii) recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms.

(b)   Changes in Internal Controls:

During the quarter ended March 31, 2005, no change occurred in the Company's
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.

The Company does not expect that its disclosure controls and procedures and
internal control over financial reporting will prevent all error and all fraud.
A control procedure, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control procedure
are met. Because of the inherent limitations in all control procedures, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that


                                       23
<PAGE>

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

Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate
and annually report on their systems of internal control over financial
reporting. In addition, our independent accountants must report on management's
evaluation. We are in the process of evaluating, documenting and testing our
system of internal control over financial reporting to provide the basis for our
report that will, for the first time, be a required part of our annual report on
Form 10-K for the fiscal year ending June 30, 2005. Due to the ongoing
evaluation and testing of our internal controls, there can be no assurance that
if any control deficiencies are identified they will be remediated before the
end of the 2005 fiscal year, or that there will not be significant deficiencies
or material weaknesses that would be required to be reported. As noted under
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Results of Operations - Non-Interest Expenses," the costs of
complying with Section 404 have been and are expected to continue to be
significant through the end of fiscal 2005 and into fiscal 2006. In addition,
Section 404 compliance continues to divert management resources from core
business operations.


                                       24
<PAGE>

PART II - Other Information

Item 1. Legal Proceedings

        None.

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

        The following table summarizes the Company's stock repurchase
        activity for each month during the three months ended March 31,
        2005. All shares repurchased during the three months ended March
        31, 2005 were repurchased in the open market.

<TABLE>
<CAPTION>
                                                                    Total Number         Maximum Number
                                     Total Number   Average      of Shares Purchased   of Shares that May
                                      of Shares    Price Paid   as Part of Publicly     Yet Be Purchased
                                     Repurchased   Per Share       Announced Plan        Under the Plan
                                     -----------   ---------    ---------------------  ------------------
<S>                                      <C>        <C>                  <C>                   <C>
       Repurchases for the Month
       -------------------------
       Jan. 1 - Jan. 31, 2005 .....      10,000     $  16.10              10,000                78,400
       Feb. 1 - Feb. 28, 2005 .....      78,400     $  15.81              78,400                    --
       Mar. 1 - Mar. 31, 2005 .....      62,500     $  15.30              62,500               612,500
                                       --------     --------            --------
       Total repurchases ..........     150,900     $  15.62             150,900
                                       ========     ========            ========
</TABLE>


        At March 31, 2005, the Company had one repurchase plan under which it
        had not yet completed all approved repurchases. This repurchase plan was
        publicly announced February 23, 2005 and authorized the Company to
        repurchase up to 5%, or 675,000, of its outstanding shares over the
        following 18 months. During the three months ended March 31, 2005, the
        Company completed a separate repurchase plan that was publicly announced
        February 27, 2004. This repurchase plan authorized the Company to
        repurchase up to 5%, or 670,000, of its outstanding shares over an 18
        month period.

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

        See Exhibit Index.


                                       25
<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 10, 2005             By: /s/ Joseph L. LaMonica
                                   ---------------------------------------------
                                   Joseph L. LaMonica
                                   President and Chief
                                   Executive Officer
                                   (Principal Executive Officer)


Date: May 10, 2005             By: /s/ Claire M. Chadwick
                                   ---------------------------------------------
                                   Claire M. Chadwick
                                   Executive Vice President,
                                   Chief Financial Officer and
                                   Controller
                                   (Principal Financial and Accounting Officer)


                                       26
<PAGE>
<TABLE>
<CAPTION>
                                                 EXHIBIT INDEX

   Regulation                                                                                       Reference to
      S-K                                                                                           Prior Filing
    Exhibit                                                                                          or Exhibit
     Number                                         Document                                           Number
------------------------------------------------------------------------------------------------------------------
 <S>            <C>                                                                                <C>
      2         Plan of acquisition, reorganization, arrangement, liquidation or succession             None
      3 (i)     Articles of Incorporation                                                                (a)
      3 (ii)    Bylaws                                                                                   (a)
      4         Instruments defining the rights of security holders, including indentures                (b)
      4 (i)     Stockholder Protection Rights Agreement                                                  (c)
      10        Material contracts:
                (a) Employee Stock Ownership Plan                                                        (d)
                (b) 1994 Amended and Restated Stock Option and Incentive Plan                            (e)
                (c) Employment Agreement with Joseph L. LaMonica                                         (f)
                (d) Employment Agreement with Patrick D. McTernan                                        (f)
                (e) Employment Agreement with Jeffrey J. Carfora                                         (f)
                (f) Employment Agreement with Barbara A. Flannery                                        (f)
                (g) Employment Agreement with Claire M. Chadwick                                         (f)
                (h) Employment Agreement with Maria F. Magurno                                           (f)
                (i) Supplemental Executive Retirement Plan                                               (g)
                    (a) First Amendment to the Supplemental Executive Retirement Plan                    (h)
                    (b) Second Amendment to the Supplemental Executive Retirement Plan                   (j)
                (j) Amended and Restated Supplemental Executive Death Benefit Plan                       (j)
                (k) Outside Director's Retirement Plan                                                   (g)
                (l) Form of Consulting Agreement                                                         (g)
      11        Statement re: computation of per share earnings                                          (i)
      18        Letter re: change in accounting principles                                              None
      19        Report furnished to security holders                                                    None
      22        Published report regarding matters submitted to vote of security holders                None
      23        Consents of experts and counsel                                                         None
      24        Power of Attorney                                                                       None
    31.1        Certification Required by Securities Exchange Act of 1934 Rule 13a-14(a)
                  (Chief Executive Officer)                                                             31.1
    31.2        Certification Required by Securities Exchange Act of 1934 Rule 13a-14(a)
                  (Chief Financial Officer)                                                             31.2
      32        Certifications Required by Section 1350 of Title 18 of the United States Code            32
      99        Additional Exhibits                                                                Not applicable
</TABLE>

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

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

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

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


                                       27
<PAGE>

(d) Filed as an exhibit to the Company's Registration Statement on Form S-1
    under the Securities Act of 1933, filed with the Securities and Exchange
    Commission on March 25, 1994 (Registration No. 33-76854). Such previously
    filed document is hereby incorporated by reference in accordance with Item
    601 of Regulation S-K.

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

(f) Filed as an exhibit to the Company's Current Report on Form 8-K under the
    Securities Exchange Act of 1934, filed with the Securities and Exchange
    Commission on September 15, 2004 (File No. 0-24040). Such previously filed
    document is hereby incorporated by reference in accordance with Item 601
    of Regulation S-K.

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

(h) Filed as an exhibit to the Company's Form 10-Q under the Securities
    Exchange Act of 1934, filed with the Securities and Exchange Commission on
    February 17, 2004 (File No. 0-24040). Such previously filed document is
    hereby incorporated by reference in accordance with Item 601 of Regulation
    S-K.

(i) Refer to Footnote 3., "Computation of Earnings Per Share ("EPS")" included
    in the March 31, 2005 Form 10-Q.

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


                                       28