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

                                    FORM 10-Q

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

         For the quarterly period ended December 31, 1997

                                       OR

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

         For the  transition  period from           to

                         Commission file number 0-24040


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

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

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


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


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

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
requirements for the past 90 days.

                                   YES  [X]   NO[  ]

         As of February 4, 1998, there were 4,822,965 shares of the Registrant's
Common Stock, par value $.01, outstanding.
<PAGE>
PART I - Financial Information
Item 1.  Financial Statements
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Financial Condition


                                                                      December 31,        June 30,
                                                                         1997              1997
                                                                      -----------      -----------
<S>                                                                   <C>              <C>                             
(Dollars in thousands)
Assets
Cash and cash equivalents .......................................     $    11,602      $    10,729
Investment securities held to maturity, at amortized cost, market
   value of $156,833 and $35,432 at December 31, 1997 and
   June 30, 1997 ................................................         156,364           35,290
Mortgage-backed securities held to maturity, at amortized cost,
   market value of $253,428 and $291,125 at
   December 31, 1997 and June 30, 1997 ..........................         249,183          288,539
Loans held for sale .............................................             388             --
Loans receivable, net of allowance for loan losses of $2,814 and
  $2,622 at December 31, 1997 and June 30, 1997 .................         996,257          931,451
Premises and equipment, net .....................................          17,288           16,435
Real estate owned, net ..........................................           1,885              884
Federal Home Loan Bank of New York stock, at cost ...............          15,065           12,413
Accrued interest receivable, net ................................           8,994            7,196
Goodwill and other intangible assets ............................          14,690           15,918
Other assets ....................................................           3,793            2,896
                                                                      -----------      -----------
                                                                      $ 1,475,509      $ 1,321,751
                                                                      ===========      ===========
Liabilities and Stockholders' Equity
Liabilities:
  Deposits ......................................................     $   971,295      $   918,160
  Federal Home Loan Bank of New York advances ...................         230,465          205,465
  Other borrowings ..............................................         119,025           82,750
  Mortgage escrow funds .........................................           8,309            8,855
  Due to banks ..................................................           8,308            7,237
  Accounts payable and other liabilities ........................           2,813            2,014
                                                                      -----------      -----------
    Total liabilities ...........................................       1,340,215        1,224,481
                                                                      -----------      -----------

Guaranteed Preferred Beneficial Interests in the Company's Junior
  Subordinated Debentures .......................................          34,500             --
Unamortized issuance expenses ...................................          (1,850)            --
                                                                      -----------      -----------
    Net Trust Preferred securities ..............................          32,650             --
                                                                      -----------      -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Financial Condition (continued)


                                                                      December 31,        June 30,
                                                                         1997              1997
                                                                      -----------      -----------
(Dollars in thousands) 

<S>                                                                   <C>              <C> 
Stockholders' Equity:
  Serial preferred stock, $.01 par value, 7,000,000 shares
    authorized, no shares issued ................................            --               --
  Common stock, $.01 par value, 15,000,000 shares authorized,
    5,950,000 shares issued and 4,822,965 and 4,822,124
    shares  outstanding at December  31, 1997 and June 30, 1997
    (excluding  shares held in treasury of 1,127,035 and
    1,127,876 at December 31, 1997 and June 30,1997) ............              60               60
  Additional paid-in capital ....................................          57,830           57,441
  Restricted stock - Management Recognition Plan ................          (1,062)          (1,062)
  Employee Stock Ownership Plan Trust debt ......................          (3,462)          (3,671)
  Retained earnings, partially restricted .......................          65,815           61,051
  Treasury stock, at cost, 1,127,035 and 1,127,876 shares at
    December 31, 1997 and June 30, 1997 .........................         (16,537)         (16,549)
                                                                      -----------      -----------
    Total stockholders' equity ..................................         102,644           97,270
                                                                      -----------      -----------
                                                                      $ 1,475,509      $ 1,321,751
                                                                      ===========      ===========

</TABLE>

See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Income
                                                                  Three months ended                Six months ended
                                                                    December 31,                      December 31,
                                                          ----------------------------      ----------------------------
                                                               1997             1996             1997             1996
                                                          -----------      -----------      -----------      -----------
                                                                      (dollars in 000's, except per share amounts)
<S>                                                       <C>              <C>              <C>              <C>
Interest and Dividend Income:
  Interest and fees on loans ........................     $    18,287      $    14,970      $    36,196      $    28,314
  Interest on federal funds sold ....................              10              --                 10             --
  Interest and dividends on investment securities ...           2,252              369            3,316              870
  Interest on mortgage-backed securities ............           4,485            5,640            9,339           11,511
                                                          -----------      -----------      -----------      -----------
                                                               25,034           20,979           48,861           40,695
                                                          -----------      -----------      -----------      -----------
Interest Expense:
  Deposits ..........................................          12,179            9,968           23,855           19,443
  Borrowed funds ....................................           4,156            3,003            8,145            5,358
  Trust Preferred securities ........................             607             --                607             --
                                                          -----------      -----------      -----------      -----------
                                                               16,942           12,971           32,607           24,801
                                                          -----------      -----------      -----------      -----------
Net Interest and Dividend Income Before Provision
  for Loan Losses ...................................           8,092            8,008           16,254           15,894
Provision for Loan Losses ...........................             150              152              300              327
                                                          -----------      -----------      -----------      -----------
Net Interest and Dividend Income After
  Provision for Loan Losses .........................           7,942            7,856           15,954           15,567
                                                          -----------      -----------      -----------      -----------

Non-Interest Income:
  Service charges ...................................             475              406              911              846
  Net loss from real estate operations ..............             (50)             (55)             (89)            (170)
  Net gain on sales of loans ........................             108             --                108             --
  Other .............................................              71               54              159              138
                                                          -----------      -----------      -----------      -----------
                                                                  604              405            1,089              814
                                                          -----------      -----------      -----------      -----------
Non-Interest Expenses:
  Compensation and employee benefits ................           2,071            1,910            4,144            3,829
  Net occupancy expense .............................             321              277              616              550
  Equipment .........................................             368              884              726              769
  Advertising .......................................              87               65              158              178
  Amortization of intangibles .......................             612              630            1,228            1,266
  Federal deposit insurance premium .................             145              375              285              833
  SAIF recapitalization assessment ..................            --               --               --              4,813
  Other .............................................             661              740            1,329            1,378
                                                          -----------      -----------      -----------      -----------
                                                                4,265            4,381            8,486           13,616
                                                          -----------      -----------      -----------      -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Income (continued)


                                                                  Three months ended                Six months ended
                                                                    December 31,                      December 31,
                                                          ----------------------------      ----------------------------
                                                               1997             1996             1997             1996
                                                          -----------      -----------      -----------      -----------
                                                                      (dollars in 000's, except per share amounts)
<S>                                                       <C>              <C>              <C>              <C>
Income Before Income Taxes ..........................           4,281            3,880            8,557            2,765
Income Tax Expense ..................................           1,539            1,482            3,129            1,136
                                                          -----------      -----------      -----------      -----------

Net Income ..........................................     $     2,742      $     2,398      $     5,428      $     1,629
                                                          ===========      ===========      ===========      ===========

Weighted average number of common shares outstanding:
  Basic .............................................       4,476,497        4,462,144        4,471,051        4,453,311
                                                          ===========      ===========      ===========      ===========
  Diluted ...........................................       4,852,536        4,713,577        4,835,800        4,703,160
                                                          ===========      ===========      ===========      ===========

Net income per common share:
  Basic .............................................     $      0.61      $      0.54      $      1.21      $      0.37
                                                          ===========      ===========      ===========      ===========
  Diluted ...........................................     $      0.57      $      0.51      $      1.12      $      0.35
                                                          ===========      ===========      ===========      ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
                                                                  Six months ended December 31,
                                                                  -----------------------------
                                                                         1997           1996
                                                                    ---------      ---------
                                                                        (In thousands)
<S>                                                                 <C>            <C>
Cash Flows From Operating Activities:
  Net income ..................................................     $   5,428      $   1,629
  Adjustments to reconcile net income to net cash provided
    by operating activities:
  Net gain on sales of loans ..................................          (108)          --
  Proceeds from sales of loans held for sale ..................         1,228            464
  Originations of loans held for sale .........................        (1,616)          (497)
  Gain (loss) on sales of real estate owned ...................           (23)            33
  Amortization of investment and mortgage-backed
    securities premiums, net ..................................           147            140
  Depreciation and amortization ...............................           643            630
  Provision for losses on loans and real estate owned .........           370            412
  Amortization of cost of stock plans .........................           863            727
  Amortization of intangibles .................................         1,228          1,266
  Amortization of premiums on loans and loan fees .............           480            143
  Amortization of Trust Preferred securities issuance costs ...            10           --
  Increase in accrued interest receivable, net of
    accrued interest payable ..................................        (3,560)        (1,429)
  (Increase) decrease in other assets .........................          (897)           390
  Increase (decrease) in accounts payable and other liabilities           532           (547)
  Increase (decrease) in mortgage escrow funds ................          (546)         1,085
  Increase in due to banks ....................................         1,071          1,117
  Other, net ..................................................          --                4
                                                                    ---------      ---------
  Net cash provided by operating activities ...................         5,250          5,567
                                                                    ---------      ---------

Cash Flows From Investing Activities:
  Proceeds from maturities of investment securities ...........           125         13,000
  Purchases of investment securities held to maturity .........      (121,200)          --
  Net outflow from loan originations net of principal
    repayments of loans .......................................       (34,525)       (54,375)
  Purchases of loans ..........................................       (54,687)      (119,175)
  Proceeds from principal repayments of
    mortgage-backed securities ................................        39,210         29,131
  Proceeds from sales of loans ................................        22,231           --
  Purchases of premises and equipment .........................        (1,496)          (235)
  Proceeds from sales of real estate owned ....................           454            779
  Purchases of Federal Home Loan Bank of New York stock .......        (2,652)        (1,583)
                                                                    ---------      ---------
  Net cash used in investing activities .......................      (152,540)      (132,458)
                                                                    ---------      ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
                                                                  Six months ended December 31,
                                                                  -----------------------------
                                                                         1997           1996
                                                                    ---------      ---------
                                                                        (In thousands)
<S>                                                                 <C>            <C>
Cash Flows From Financing Activities:
  Net increase in deposits ....................................        54,897         40,228
  Increase in advances from the Federal Home Loan Bank of
    New York and other borrowings .............................        61,275         85,520
  Net proceeds from issuance of Trust Preferred securities ....        32,640           --
  Cash dividends paid .........................................          (649)          (340)
  Purchases of treasury stock .................................          --             (651)
                                                                    ---------      ---------
  Net cash provided by financing activities ...................       148,163        124,757
                                                                    ---------      ---------
Net Increase (Decrease) in Cash and Cash Equivalents ..........           873         (2,134)
Cash and Cash Equivalents, Beginning of Period ................        10,729         11,629
                                                                    ---------      ---------
Cash and Cash Equivalents, End of Period ......................     $  11,602      $   9,495

Supplemental Disclosures of Cash Flow Information:
  Cash paid during the period for:
  Interest ....................................................     $  33,856      $  26,384
                                                                    =========      =========
  Income taxes ................................................     $   3,484      $   1,364
                                                                    =========      =========

Supplemental Schedule of Non-Cash Activities:
  Transfer of loans receivable to real estate owned, net ......     $   1,502      $     519
                                                                    =========      =========

</TABLE>

See notes to consolidated financial statements.

<PAGE>
                PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Basis of Presentation

The interim  consolidated  financial  statements of PennFed Financial  Services,
Inc. ("PennFed") and subsidiaries (with its subsidiaries, the "Company") include
the accounts of PennFed and its wholly owned  subsidiaries  Penn Federal Savings
Bank (the  "Bank")  and  PennFed  Capital  Trust I. These  interim  consolidated
financial  statements  included  herein should be read in  conjunction  with the
Company's  Annual  Report on Form 10-K for the year  ended  June 30,  1997.  The
interim  consolidated  financial  statements  reflect  all normal and  recurring
adjustments which are, in the opinion of management,  considered necessary for a
fair  presentation of the financial  condition and results of operations for the
periods presented.  There were no adjustments of a non-recurring nature recorded
during the six months ended December 31, 1997 and 1996.  The interim  results of
operations presented are not necessarily  indicative of the results for the full
year.

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

2.  Adoption of Recently Issued Accounting Standards

Effective July 1, 1997, the Company  adopted  Statement of Financial  Accounting
Standards  No. 128,  "Earnings Per Share"  ("SFAS  128").  SFAS 128  establishes
standards for computing and presenting  earnings per share ("EPS"),  simplifying
the standards  previously found in APB Opinion No. 15, "Earnings Per Share." The
previous  presentation  of primary EPS has been replaced with a presentation  of
basic EPS. Dual presentation of basic and diluted EPS is required on the face of
the  income  statement  as  well  as  a  reconciliation  of  the  numerator  and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares  outstanding for the period.  Diluted EPS is computed  similarly to fully
diluted EPS  pursuant  to APB  Opinion No. 15. The  adoption of SFAS 128 did not
have a  material  effect on the  Company's  financial  condition  or  results of
operations.  EPS data  presented for the three and six months ended December 31,
1996 has been restated to conform with the provisions of SFAS 128.
<PAGE>
3.  Computation of EPS

The computation of EPS is presented in the following table.
<TABLE>
<CAPTION>

                                                           Three months ended          Six months ended
                                                              December 31,                December 31,
                                                     -------------------------     -------------------------
                                                         1997           1996           1997           1996
                                                     ----------     ----------     ----------     ----------
                                                         (Dollars in thousands, except per share amounts)
<S>                                                  <C>            <C>            <C>            <C>
Net income .....................................     $    2,742     $    2,398     $    5,428     $    1,629
                                                     ==========     ==========     ==========     ==========

Number of shares outstanding
  Weighted average shares issued ...............      5,950,000      5,950,000      5,950,000      5,950,000
  Less: Weighted average shares held in treasury      1,127,282      1,101,255      1,127,498      1,105,222
  Less: Average shares held by the ESOP ........        476,000        476,000        476,000        476,000
  Plus: ESOP shares released or committed to be
             released during the fiscal year ...        129,779         89,399        124,549         84,533
                                                     ----------     ----------     ----------     ----------
        Average basic shares ...................      4,476,497      4,462,144      4,471,051      4,453,311
  Plus: Average common stock equivalents .......        376,039        251,433        364,749        249,849
                                                     ----------     ----------     ----------     ----------
        Average diluted shares .................      4,852,536      4,713,577      4,835,800      4,703,160
                                                     ==========     ==========     ==========     ==========

Earnings per common share
        Basic ..................................     $     0.61     $     0.54     $     1.21     $     0.37
                                                     ==========     ==========     ==========     ==========
        Diluted ................................     $     0.57     $     0.51     $     1.12     $     0.35
                                                     ==========     ==========     ==========     ==========
</TABLE>
4. Stockholders' Equity and Regulatory Capital

The Bank's capital amounts and ratios are presented in the following table.
<TABLE>
<CAPTION>

                                                                                                                To Be Well
                                                                                                             Capitalized Under
                                                                                    For Capital               Prompt Corrective
                                                           Actual                 Adequacy Purposes            Action Provisions
                                                 -----------------------        -------------------        ----------------------
                                                   Amount         Ratio         Amount        Ratio         Amount         Ratio
                                                   ------         -----         ------        -----         ------         -----
                                                                               (dollars in 000's)
<S>                                              <C>              <C>           <C>            <C>         <C>             <C>
As of December 31, 1997
Tangible capital...........................      $100,476          6.91%        $21,802        1.50%           N/A           N/A
Core capital...............................      $100,813          6.93%        $58,151        4.00%       $72,689          5.00%
Risk-based capital.........................      $103,063         15.20%        $54,237        8.00%       $67,796         10.00%

As of June 30, 1997
Tangible capital...........................       $73,470          5.61%        $19,658        1.50%           N/A           N/A
Core capital...............................       $73,907          5.64%        $52,440        4.00%       $65,550          5.00%
Risk-based capital.........................       $75,929         12.22%        $49,702        8.00%       $62,127         10.00%
</TABLE>
<PAGE>
The previous table reflects  information for the Bank.  Savings and loan holding
companies,  such as PennFed, are not subject to capital requirements for capital
adequacy  purposes or for prompt corrective  action  requirements.  Bank holding
companies, however, are subject to capital requirements established by the Board
of Governors of the Federal Reserve System (the "FRB"). The following summarizes
the Company's  capital  position under the FRB's capital  requirements  for bank
holding companies.
<TABLE>
<CAPTION>
                                                                                                                To Be Well
                                                                                                             Capitalized Under
                                                                                    For Capital               Prompt Corrective
                                                           Actual                 Adequacy Purposes            Action Provisions
                                                 -----------------------        -------------------        ----------------------
                                                   Amount         Ratio         Amount        Ratio         Amount         Ratio
                                                   ------         -----         ------        -----         ------         -----
                                                                               (dollars in 000's)
<S>                                              <C>                 <C>        <C>               <C>       <C>             <C>
Stockholders' equity.......................      $   102,644
Add: Qualifying preferred
    securities.............................           29,430
Less: Goodwill.............................           (1,201)
        Deposit premium intangible.........          (13,489)
                                                ------------
Tangible capital, and ratio to
    adjusted total assets..................      $   117,384          7.88%     $  22,353         1.50%
                                                 ===========                    =========

Add: Qualifying intangible assets..........              337
                                                 ----------- 
Tier 1 (core) capital, and ratio to
    adjusted total assets..................      $   117,721          7.90%     $  44,706         3.00%     $    74,510       5.00%
                                                 ===========                    =========                   ===========

Tier 1 (core) capital, and ratio to
    risk-weighted assets...................      $   117,721         17.47%     $  26,957         4.00%     $    40,435       6.00%
                                                 ===========                    =========                   ===========
Less: Equity investments and
    investments in real estate.............              (50)
Add: Allowance for loan losses.............            2,300
                                                 ----------- 
Total risk-based capital, and ratio
    to risk-weighted assets................      $   119,971         17.80%     $  53,914         8.00%     $    67,392      10.00%
                                                 ===========                    =========                   ===========

Total assets...............................      $ 1,475,509
                                                 ===========

Adjusted total assets......................      $ 1,490,199
                                                 ===========

Risk-weighted assets.......................      $   673,922
                                                 ===========
</TABLE>
<PAGE>
5.  Guaranteed   Preferred   Beneficial   Interests  in  the  Company's   Junior
    Subordinated Debentures

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

6.  Subsequent Event

On January 13, 1998,  the  Company's  Board of Directors  declared a two-for-one
stock split in the form of a 100% stock  dividend,  payable on February 10, 1998
to common  stockholders of record as of January 27, 1998.  Proforma earnings per
common share amounts,  after giving  retroactive  effect to the stock split, are
presented below for the per share amounts disclosed in the financial statements.
<TABLE>
<CAPTION>

                                                       Three months ended                Six months ended
                                                          December 31,                       December 31,
                                                  ---------------------------        ---------------------------
                                                     1997             1996              1997             1996
                                                  ---------        ----------        ----------       ---------- 
<S>                                               <C>              <C>               <C>              <C>
Net income per common share (as reported):
  Basic                                           $    0.61        $     0.54        $     1.21       $     0.37
                                                  =========        ==========        ==========       ========== 
  Diluted                                         $    0.57        $     0.51        $     1.12       $     0.35
                                                  =========        ==========        ==========       ========== 
Net income per common share (proforma):
  Basic                                           $    0.305       $    0.270        $    0.605       $    0.185
                                                  ==========       ==========        ==========       ==========
  Diluted                                         $    0.285       $    0.255        $    0.560       $    0.175
                                                  ==========       ==========        ==========       ==========

</TABLE>
<PAGE>
Item 2.      Management's Discussion and Analysis of Financial Condition and 
             Results of Operations

General

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

Financial Condition

Total assets increased  $153.8 million,  or 11.6%, to $1.476 billion at December
31, 1997 from total assets of $1.322  billion at June 30, 1997. The increase was
primarily attributable to a $121.1 million increase in investment securities and
a $65.2 million increase in net loans receivable,  particularly in the Company's
one- to  four-family  first mortgage loan  portfolio.  At December 31, 1997, net
loans  receivable  were $996.6  million  compared to $931.5  million at June 30,
1997. The increase in investment  securities and loans  receivable was partially
attributable  to the  leveraging  of  the  proceeds  from  the  Trust  Preferred
securities offering.  The growth was funded by the proceeds from the issuance of
the Trust  Preferred  securities,  an  increase in retail  deposits,  additional
medium-term  FHLB of New York advances and increased other borrowings as well as
principal payments on mortgage-backed securities.

Deposits  increased  $53.1  million to $971.3  million at December 31, 1997 from
$918.2  million at June 30, 1997.  FHLB of New York advances were $230.5 million
at December  31, 1997, a $25 million  increase  from $205.5  million at June 30,
1997.  In  addition,  the  Company  had $119.0  million of other  borrowings  at
December 31, 1997, a $36.3 million increase from $82.7 million at June 30, 1997.

Non-performing  assets at December 31, 1997 totaled $7.1  million,  representing
0.48% of total assets,  compared to $6.4 million,  or 0.48% of total assets,  at
June  30,  1997.  Non-performing  loans  were  $5.2  million  with  a  ratio  of
non-performing  loans to total loans of 0.52%,  at December 31, 1997 as compared
to $5.5 million,  or 0.59% of total loans,  at June 30, 1997.  Real estate owned
increased to $1.9 million at December 31, 1997 from $884,000 at June 30, 1997.

Stockholders'  equity at December 31, 1997 totaled  $102.6  million  compared to
$97.3 million at June 30, 1997. The increase  primarily  reflects the net income
recorded for the six months ended December 31, 1997.

Results of Operations

General.  For the three  months  ended  December  31,  1997 net  income was $2.7
million,  or $0.57 per diluted share, as compared to net income of $2.4 million,
or $0.51 per diluted  share for the  comparable  prior year period.  For the six
months ended December 31, 1997 net income was $5.4 million, or $1.12 per diluted
share. These results compare to net income of $1.6 million, or $0.35 per diluted
share for the six months ended  December 31, 1996. The six months ended December
31, 1996 included the effects of the one-time Savings Association Insurance Fund
("SAIF")  recapitalization  assessment  which totaled $4.8 million ($3.1 million
after-tax), or $0.65 per share on a diluted basis.
<PAGE>
Interest and Dividend Income. Interest and dividend income for the three and six
months ended  December 31, 1997  increased to $25.0  million and $48.9  million,
respectively,  from $21.0 million and $40.7 million for the three and six months
ended December 31, 1996. The increase in the current year periods were due to an
increase  in  average  interest-earning  assets,  primarily  residential  loans,
partially  offset by a decrease in the average yield earned on  interest-earning
assets. Average interest-earning assets were $1.35 billion and $1.32 billion for
the three and six months  ended  December 31,  1997,  respectively,  compared to
$1.12  billion and $1.09  billion for the  comparable  prior year  periods.  The
average yield earned on interest-earning assets decreased to 7.39% and 7.40% for
the three and six months ended December 31, 1997,  respectively,  from 7.49% for
the three and six months ended December 31, 1996.

Interest income on residential one- to four-family  mortgage loans for the three
and six months ended  December 31, 1997 increased  $3.2 million,  or 24.9%,  and
$7.6 million,  or 31.6%,  respectively,  when compared to the prior year period.
The increase in interest  income on  residential  one- to  four-family  mortgage
loans was due to $184.5  million  and $217.6  million  increases  in the average
balance  outstanding  to $870.7 million and $860.2 million for the three and six
months ended  December 31, 1997,  respectively,  compared to $686.2  million and
$642.6 million for the prior year periods.  The increase in the average  balance
on  residential  one- to four-family  mortgage  loans was partially  offset by a
decrease of 0.11% and 0.12% in the average  yield earned on this loan  portfolio
to 7.40%  and  7.41%  for the three and six  months  ended  December  31,  1997,
respectively, from the comparable prior year periods.

Interest on investment  securities and other  interest-earning  assets increased
$1.9 million and $2.5  million for the three and six months  ended  December 31,
1997,  respectively,  from the  comparable  prior year periods.  The increase is
primarily  due to a $103.9  million  and $66.9  million  increase in the average
balance outstanding and a 0.05% and a 0.11% increase in the average yield earned
on  these  assets  for the  three  and  six  months  ended  December  31,  1997,
respectively.

Interest  income on the  mortgage-backed  securities  portfolio  decreased  $1.2
million and $2.2 million, or 20.5% and 18.9%, for the three and six months ended
December  31, 1997,  respectively,  as compared to the prior year  periods.  The
decrease in interest income on mortgage-backed  securities  primarily reflects a
$65.4 million and $61.8 million  decrease in the average balance  outstanding to
$259.3  million and $269.9  million for the three and six months ended  December
31, 1997,  respectively,  compared to $324.7  million and $331.7 million for the
prior year periods.

Interest  Expense.  Interest expense increased $4.0 million and $7.8 million for
the three and six months  ended  December  31,  1997,  respectively,  from $13.0
million and $24.8  million for the  comparable  1996  periods.  The increase was
attributable to an increase in total average deposits, primarily certificates of
deposit, and borrowings coupled with an increase in the Company's cost of funds.
Interest  expense  also  increased  due to the  issuance of the Trust  Preferred
securities.  Average deposits and borrowings increased $197.8 million and $208.5
million for the three and six months  ended  December  31,  1997,  respectively,
compared to the 1996 periods. The average rate paid on deposits,  borrowings and
Trust  Preferred  securities  increased to 5.16% and 5.17% for the three and six
months  ended  December  31,  1997,  respectively,  from 4.84% and 4.77% for the
comparable prior year periods.
<PAGE>
Net Interest and Dividend Income. Net interest and dividend income for the three
and six months  ended  December  31, 1997 was $8.1  million  and $16.3  million,
respectively,  reflecting  an  increase  from $8.0  million  and  $15.9  million
recorded  in the  comparable  prior year  periods.  The  increase  reflects  the
Company's growth in assets,  primarily in investment  securities and residential
one- to four-family  mortgage  loans.  The increase in net interest and dividend
income was partially offset by the timing differences between the receipt of the
proceeds from the Trust Preferred securities offering and full implementation of
the  Company's  reinvestment  strategy.  The net  interest  rate  spread and net
interest  margin for the three  months  ended  December  31, 1997 were 2.23% and
2.39%, respectively,  a decline from 2.65% and 2.86%,  respectively,  during the
comparable  prior year period.  Net interest rate spread and net interest margin
were 2.23% and 2.46%, respectively,  for the six months ended December 31, 1997,
compared to 2.72% and 2.93% for the comparable prior year period.  For the three
months  ended  December 31,  1997,  the decline in net interest  rate spread was
partially  due to the addition of the Trust  Preferred  securities.  For the six
months ended December 31, 1997, the declines in the net interest rate spread and
margin were also attributable to the Company's efforts to reduce its sensitivity
to changes in interest  rates by extending the average life of  liabilities  and
focusing on adjustable rate one- to four-family mortgage loans. This resulted in
the Company  paying higher rates to attract  longer-term  deposits and initially
receiving  lower  yields on  adjustable  rate  loans  than  would  otherwise  be
obtainable  on fixed  rate  loans.  Since the  Company's  liabilities  generally
reprice more quickly than its assets,  net interest rate spread and net interest
margins will likely  decrease if interest rates rise. In addition,  the interest
rate environment  during the current year periods reflecting a flattening of the
yield  curve  has  contributed  to  compressed  net  interest  margins  for many
financial institutions.

Provision  for Loan Losses.  The provision for loan losses for the three and six
months ended December 31, 1997 was $150,000 and $300,000, respectively, compared
to $152,000 and  $327,000 for the prior year  periods.  The  allowance  for loan
losses at December 31, 1997 of $2.8 million  reflects a $192,000  increase  from
the June 30, 1997  level.  The  allowance  for loan  losses as a  percentage  of
non-performing loans was 54.01% at December 31, 1997, compared to 47.80% at June
30, 1997.

Non-Interest  Income.  For the three and six  months  ended  December  31,  1997
non-interest  income was $604,000 and $1.1  million,  respectively,  compared to
$405,000 and $814,000 for the prior year  periods.  Included in the 1997 periods
is a total  of  $108,000  of net  gain on  sales  of  loans,  of  which  $91,000
represents a gain recorded on an approximate $20 million loan sale undertaken to
manage  prepayment  risk.  In addition to these  gains,  growth in  non-interest
income was primarily attained through the introduction of charging non-customers
for ATM  transactions,  fees recorded for the  origination  of loans provided to
other investors and an increase in regular service charges. Furthermore, for the
six months ended December 31, 1997, the increase was partially attributable to a
decrease  in the net loss on real  estate  operations.  The net loss  from  real
estate  operations  was  $89,000  for the six months  ended  December  31,  1997
compared to a net loss from real  estate  operations  of $170,000  for the prior
year period.

Non-Interest  Expenses.  The Company's non-interest expenses of $4.3 million for
the three months ended December 31, 1997 were slightly below the $4.4 million of
non-interest expenses recorded for the three months ended December 31, 1996. For
the three  months  ended  December  31,  1997,  non-interest  expenses  included
approximately  $100,000 of various expenses associated with the opening of a new
branch in Bayville, New Jersey.  Non-interest expenses were $8.5 million for the
six months ended  December 31, 1997 compared to $13.6 million for the prior year
<PAGE>
period.  The six months ended  December 31, 1996  included  $4.8 million for the
one-time  SAIF  recapitalization  assessment.  Excluding the effects of the SAIF
assessment, non-interest expenses for the six months ended December 31, 1997 are
slightly  lower than the  comparable  1996 period.  The  Company's  non-interest
expenses  as a percent of  average  assets  declined  to 1.21% and 1.23% for the
three and six months ended December 31, 1997, respectively, from 1.49% and 1.54%
for the comparable prior year periods, excluding the SAIF assessment.

Income Tax  Expense.  Income  tax  expense  for the three and six  months  ended
December 31, 1997 was $1.5 million and $3.1 million,  respectively,  compared to
$1.5 million and $1.1  million for the three and six months  ended  December 31,
1996.  Excluding the effects of the one-time SAIF  recapitalization  assessment,
income tax  expense of $2.9  million was  recorded  for the prior year six month
period.  The effective tax rate for the three and six months ended  December 31,
1997 was 35.9% and 36.6%,  respectively.  Excluding  the effect of the  one-time
SAIF recapitalization  assessment, the effective tax rate was 38.2% for both the
three and six months ended December 31, 1996.
 
Analysis of Net Interest Income

The  following  table sets forth certain  information  relating to the Company's
consolidated  statements of financial condition and the consolidated  statements
of income for the three and six months  ended  December  31, 1997 and 1996,  and
reflects  the average  yield on assets and average cost of  liabilities  for the
periods  indicated.  Such  yields  and  costs are  derived  from  average  daily
balances.  The average balance of loans receivable includes  non-accruing loans.
The yields and costs include fees which are considered adjustments to yields.
<PAGE>
<TABLE>
<CAPTION>
                                                                                Three Months Ended December 31,
                                                        ---------------------------------------------------------------------------
                                                                         1997                                   1996
                                                        -----------------------------------    ------------------------------------
                                                          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...............     $  870,725      $16,101       7.40%    $  686,203      $12,887        7.51%
  Commercial and multi-family real
    estate loans...................................         56,299        1,273       9.04         53,569        1,235        9.22
  Consumer loans...................................         43,991          913       8.24         35,241          848        9.55
                                                        ----------      -------                ----------      -------
    Total loans receivable.........................        971,015       18,287       7.53        775,013       14,970        7.73
  Mortgage-backed securities.......................        259,310        4,485       6.92        324,664        5,640        6.95
  Investment securities and other..................        124,248        2,262       7.28         20,382          369        7.24
                                                        ----------      -------                ----------      -------   
    Total interest-earning assets..................      1,354,573      $25,034       7.39      1,120,059      $20,979        7.49
                                                                        =======                                =======
  Non-interest earning assets......................         53,274                                 53,730
                                                        ----------                             ---------- 
    Total assets...................................     $1,407,847                             $1,173,789
                                                        ==========                             ==========
Deposits and borrowings:
 Money market and demand deposits..................    $    82,112    $     248       1.20%    $   80,445      $   250        1.23%
 Savings deposits..................................        166,532          921       2.19        176,918          999        2.24
 Certificates of deposit...........................        740,914       11,010       5.90        603,071        8,719        5.74
                                                        ----------      -------                ----------      -------   
   Total deposits..................................        989,558       12,179       4.88        860,434        9,968        4.60
 FHLB of New York advances.........................        205,411        3,190       6.16        125,393        1,941        6.14
 Other borrowings..................................         65,027          966       5.82         76,372        1,062        5.44
                                                        ----------      -------                ----------      -------   
   Total deposits and borrowings...................      1,259,996       16,335       5.14      1,062,199       12,971        4.84
 Trust Preferred securities........................         25,662          607       9.26            ---          ---         ---
                                                        ----------      -------                ----------      -------  
    Total deposits, borrowings and Trust
        Preferred securities.......................      1,285,658      $16,942       5.16      1,062,199      $12,971        4.84
                                                                        =======                                =======
 Other liabilities.................................         21,330                                 20,354
                                                        ----------                             ----------  
   Total liabilities...............................      1,306,988                              1,082,553
 Stockholders' equity..............................        100,859                                 91,236
                                                        ----------                             ----------  
   Total liabilities and stockholders' equity......     $1,407,847                             $1,173,789
                                                        ==========                             ==========
Net interest income and net interest rate
    spread.........................................                     $ 8,092       2.23%                    $ 8,008        2.65%
                                                                        =======       ====                     =======        ====
Net interest-earning assets and interest
    margin.........................................    $    68,915                    2.39%    $  57,860                      2.86%
                                                       ===========                    ====     =========                      ====
Ratio of interest-earning assets to
    deposits, borrowings and Trust Preferred
        securities.................................         105.36%                               105.45%
                                                       ===========                             ========= 
</TABLE>
(1)  Annualized.
<PAGE>
<TABLE>
<CAPTION>
                                                                                Six Months Ended December 31,
                                                        ---------------------------------------------------------------------------
                                                                         1997                                   1996
                                                        -----------------------------------    ------------------------------------
                                                          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.................    $  860,185      $31,853      7.41%    $  642,572      $24,204        7.53%
  Commercial and multi-family real
    estate loans.....................................        56,095        2,534      9.03         52,937        2,447        9.24
  Consumer loans.....................................        42,283        1,809      8.49         34,720        1,663        9.50
                                                         ----------      -------               ----------      -------   
    Total loans receivable...........................       958,563       36,196      7.55        730,229       28,314        7.75
  Mortgage-backed securities.........................       269,880        9,339      6.92        331,718       11,511        6.94
  Investment securities and other....................        91,070        3,326      7.30         24,190          870        7.19
                                                         ----------      -------               ----------      -------   
    Total interest-earning assets....................     1,319,513      $48,861      7.40      1,086,137      $40,695        7.49
                                                                         =======                              =======
  Non-interest earning assets........................        52,040                                53,841
                                                         ----------                            ----------
    Total assets.....................................    $1,371,553                            $1,139,978
                                                         ==========                            ==========
Deposits and borrowings:
 Money market and demand deposits....................   $    81,750      $   496      1.20%   $    79,690      $   486        1.21%
 Savings deposits....................................       167,345        1,849      2.19        176,856        1,997        2.24
 Certificates of deposit.............................       724,996       21,510      5.89        593,447       16,960        5.67
                                                         ----------      -------              -----------      -------  
   Total deposits....................................       974,091       23,855      4.86        849,993       19,443        4.54
 FHLB of New York advances...........................       205,438        6,381      6.16        115,893        3,570        6.11
 Other borrowings....................................        59,305        1,764      5.82         64,434        1,788        5.43
                                                         ----------      -------              -----------      -------   
   Total deposits and borrowings.....................     1,238,834       32,000      5.12      1,030,320       24,801        4.77
 Trust Preferred securities..........................        12,831          607      9.39            ---          ---         ---
                                                         ----------      -------              -----------      -------   
    Total deposits, borrowings and Trust
        Preferred securities.........................     1,251,665      $32,607      5.17      1,030,320      $24,801        4.77
                                                                         =======                               =======
 Other liabilities...................................        20,425                                18,021
                                                         ----------                           ----------- 
   Total liabilities.................................     1,272,090                             1,048,341
 Stockholders' equity................................        99,463                                91,637
                                                         ----------                           -----------  
   Total liabilities and stockholders' equity........    $1,371,553                           $ 1,139,978
                                                         ==========                           ===========
Net interest income and net interest rate
    spread...........................................                    $16,254      2.23%                    $15,894        2.72%
                                                                         =======      ====                     =======        ====
Net interest-earning assets and interest
    margin...........................................   $    67,848                   2.46%   $   55,817                      2.93%
                                                        ===========                   ====    ==========                      ====
Ratio of interest-earning assets to
    deposits, borrowings and Trust Preferred
        securities...................................        105.42%                              105.42%
                                                        ===========                           ========== 
</TABLE>
(1)  Annualized.
<PAGE>
Non-Performing Assets

The  table  below  sets  forth  the   Company's   amounts  and   categories   of
non-performing  assets and  restructured  loans.  Loans are generally  placed on
non-accrual  status  when  the  collection  of  principal  or  interest  becomes
delinquent  more than 90 days.  At December 31, 1997,  there was one  commercial
loan  totaling  $345,000  which was  delinquent  more than 90 days but which was
still accruing due to  circumstances  surrounding  the payoff of the loan.  Real
estate owned represents  assets acquired in settlement of loans and is shown net
of valuation  allowances.  Restructured  loans are performing in accordance with
modified terms and are, therefore, considered performing.
<TABLE>
<CAPTION>

                                                          December 31,   June 30,
                                                             1997          1997
                                                             ------      ------
                                                           (Dollars in thousands)
<S>                                                          <C>         <C>
Non-performing loans:
  One- to four-family ..................................     $3,489      $3,567
  Commercial and multi-family ..........................        838       1,053
  Consumer .............................................        883         865
                                                             ------      ------
    Total non-performing loans .........................      5,210       5,485
                                                             ------      ------

Real estate owned, net .................................      1,885         884
                                                             ------      ------
    Total non-performing assets ........................      7,095       6,369

Restructured loans .....................................      1,432       1,451
                                                             ------      ------
    Total risk elements ................................     $8,527      $7,820
                                                             ======      ======

Non-performing loans as a percentage of total loans ....       0.52%       0.59%
                                                             ======      ======
Non-performing assets as a percentage of total assets ..       0.48%       0.48%
                                                             ======      ======
Total risk elements as a percentage of total assets ....       0.58%       0.59%
                                                             ======      ======
</TABLE>


Allowance for Loan Losses. The allowance for loan losses is established  through
a  provision  for loan losses  based upon  management's  evaluation  of the risk
inherent in its loan  portfolio and changes in the nature and volume of its loan
activity.  Such  evaluation,  which  includes  a review of loans for which  full
collectibility  may not be reasonably  assured,  considers  among other matters,
loan  classifications,  the estimated fair value of the  underlying  collateral,
economic  conditions,  historical loan loss  experience,  and other factors that
warrant recognition in providing for an adequate loan loss allowance.
<PAGE>
Real estate properties acquired through foreclosure are recorded at the lower of
cost or estimated fair value less costs to dispose of such  properties.  If fair
value at the date of  foreclosure is lower than the balance of the related loan,
the difference  will be charged-off to the allowance for loan losses at the time
of transfer.  Valuations are periodically updated by management and if the value
declines, a specific provision for losses on real estate owned is established by
a charge to operations.

Although  management  believes  that it uses the best  information  available to
determine  the  allowances,   unforeseen   market  conditions  could  result  in
adjustments and net earnings could be  significantly  affected if  circumstances
differ   substantially   from  the   assumptions   used  in  making   the  final
determination.  Future additions to the Company's  allowances will be the result
of periodic loan,  property and collateral  reviews and thus cannot be predicted
in advance. In addition, federal regulatory agencies, as an integral part of the
examination  process,  periodically  review  the  Company's  allowance  for loan
losses.  Such  agencies  may  require  the  Company to record  additions  to the
allowance level based upon their assessment of the information available to them
at the time of their examination.  At December 31, 1997, the Company had a total
allowance  for  loan  losses  of  $2.8  million  representing  54.01%  of  total
non-performing loans.

Interest Rate Sensitivity

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

At December 31, 1997, 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 $55.9 million, representing a one year negative gap
of 3.82% of total assets.  At June 30, 1997, the one year negative gap was 7.44%
of total assets.

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

Net Portfolio  Value.  The  Company's  interest  rate  sensitivity  is regularly
monitored by management through selected interest rate risk ("IRR") measures set
forth by the Office of Thrift Supervision  ("OTS"). The IRR measures used by the
OTS  include  an  IRR  "Exposure  Measure"  or  "Post-Shock"  NPV  ratio  and  a
"Sensitivity  Measure." A low Post-Shock NPV ratio indicates greater exposure to
IRR.  Greater  exposure  can  result  from  a low  initial  NPV  ratio  or  high
sensitivity to changes in interest rates. The Sensitivity Measure is the decline
in the NPV ratio, in basis points, caused by a 2% increase or decrease in rates,
whichever produces a larger decline. At least quarterly,  and generally monthly,
management  models the change in net  portfolio  value ("NPV") over a variety of
interest  rate  scenarios.  NPV is the present value of expected cash flows from
assets,  liabilities  and  off-balance  sheet  contracts.  An NPV ratio,  in any
interest rate scenario,  is defined as the NPV in that rate scenario  divided by
the market value of assets in the same scenario.

At December 31, 1997,  the Bank's  internally  generated  initial NPV was 9.71%.
Following a 2% increase in interest rates, the Bank's "Post-Shock" NPV ratio was
7.83%.  The change in the NPV  ratio,  or the Bank's  Sensitivity  Measure,  was
1.88%. NPV is also measured  internally on a consolidated  basis. As of December
31, 1997, the Company's  initial NPV ratio was 10.66%,  the Post-Shock ratio was
8.68%, and the Sensitivity  Measure was 1.98%.  Variances between the Bank's and
the  Company's  NPV ratios are  attributable  to balance  sheet  items which are
adjusted during consolidation, such as intercompany borrowings and capital.

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

The OTS  measures  the  Bank's  IRR on a  quarterly  basis  using  data from the
quarterly  Thrift  Financial  Reports,  coupled  with  non-institution  specific
assumptions which are based on national averages.  As of September 30, 1997 (the
latest date for which  information is available),  the Bank's initial NPV ratio,
as measured by the OTS, was 7.27%. The Bank's Post-Shock ratio was 4.29% and the
Sensitivity Measure was 2.98%.

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

At December 31, 1997, based on its internally  generated  simulation models, the
Company's  consolidated net interest income projected for one year forward would
decrease  14.4%  from  the base  case,  or  current  market,  as a result  of an
immediate and sustained 2% increase in interest rates.
<PAGE>
Liquidity and Capital Resources

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

Federal  regulations  require  the Bank to  maintain  minimum  levels  of liquid
assets. The required percentage has varied from time to time based upon economic
conditions  and savings flows.  Prior to November 1997, the required  percentage
was 5% of total net withdrawable deposits and borrowings payable on demand or in
one year or less during the  preceding  calendar  month.  Due to a change in the
federal regulations,  the requirement has been reduced to 4% of net withdrawable
deposits  payable  on demand or in one year or less and  borrowings  payable  on
demand  or in one  year or less  both  as of the end of the  preceding  calendar
quarter.  Liquid  assets for  purposes of these  ratios  include  cash,  accrued
interest  receivable,  certain  time  deposits,  U.S.  Treasury  and  Government
agencies  and  other  securities  and  obligations  generally  having  remaining
maturities   of  less  than  five   years.   Under  the  new   regulations   all
mortgage-backed  securities are includable in liquid assets.  The Company's most
liquid  assets  are  cash  and  cash  equivalents,  short-term  investments  and
mortgage-backed  securities.  The levels of these  assets are  dependent  on the
Bank's operating,  financing,  lending and investing activities during any given
period. At December 31, 1997 and June 30, 1997, the Bank's liquidity ratios were
20.68% and 10.36%, respectively.

The Company uses its liquid resources  principally to fund maturing certificates
of deposit and deposit  withdrawals,  to purchase loans and securities,  to fund
existing and future loan commitments, and to meet operating expenses. Management
believes  that loan  repayments  and other  sources of funds will be adequate to
meet the Company's foreseeable liquidity needs.

In addition to cash provided by operating  activities,  the Company's cash needs
for the six months ended  December 31, 1997 were provided by increased  deposits
as  well as an  increase  in  advances  from  the  FHLB of New  York  and  other
borrowings.  Furthermore, proceeds from the Trust Preferred securities offering,
principal   repayments  of   mortgage-backed   securities  and  sales  of  loans
contributed  to meeting the Company's cash needs.  During this period,  the cash
provided was used for investing  activities,  which included the origination and
purchase of loans and the purchase of investment securities. In addition to cash
provided by operating activities,  during the six months ended December 31, 1996
the cash needs of the Company were  principally  provided by increased  deposits
and an increase in advances from the FHLB of New York and other borrowings.  The
cash was  principally  utilized for  investing  activities,  which  included the
origination and purchase of loans.

Current  regulatory  standards  impose the  following  capital  requirements:  a
risk-based capital standard expressed as a percentage of risk adjusted assets; a
leverage ratio of core capital to total adjusted assets;  and a tangible capital
ratio  expressed as a percentage of total  adjusted  assets.  As of December 31,
1997, the Bank substantially exceeded all regulatory capital standards (see Note
4. - Stockholders'  Equity and Regulatory  Capital, in the Notes to Consolidated
Financial Statements).
<PAGE>

PART II - Other Information

Item 1.    Legal Proceedings
           None.

Item 2.    Changes in Securities
           None.

Item 3.    Defaults Upon Senior Securities
           None.

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

            (a)   The Annual Meeting of Stockholders  (Annual  Meeting) was held
                  on October 24, 1997.

            (b)   Directors elected: 

                  Joseph L. LaMonica 
                  Mario Teixeira, Jr.

            (c)   At the Annual Meeting the stockholders considered:

                  (i)    the election of two directors,
                  (ii)   the  amendment of the  Company's  1994 Stock Option and
                         Incentive  Plan to  increase  the  number  of shares of
                         common  stock  available  for  awards  thereunder  from
                         595,000 to 835,623 and
                  (iii)  the  ratification  of the  appointment  of  Deloitte  &
                         Touche LLP as  auditors  for the Company for the fiscal
                         year ending June 30, 1998.

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

                                                     FOR          WITHHELD
                                                     ---          --------
                  Joseph L. LaMonica               3,483,973       267,038
                  Mario Teixeira, Jr.              3,498,617       252,394

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

                  The vote on the amendment of the  Company's  1994 Stock Option
                  and Incentive  Plan to increase the number of shares of common
                  stock available for awards  thereunder from 595,000 to 835,623
                  was as follows:

                           FOR                AGAINST          ABSTAIN
                           ---                -------          -------
                         3,096,911            638,557           15,543

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

                  The vote on the  ratification of the appointment of Deloitte &
                  Touche LLP as  auditors  for the  Company  for the fiscal year
                  ending June 30, 1998 was as follows:

                          FOR                AGAINST          ABSTAIN
                          ---                -------          -------
                        3,634,715             93,823           22,473

                  There were no broker non-votes with respect to the proposal.
<PAGE>
Item 5.    Other Information
           None.

Item 6.    Exhibits and Reports on Form 8-K

           (a)    Exhibit 11: Statement Regarding Computation of Per Share 
                              Earnings.

                  Exhibit 27: Financial Data Schedule.

           (b)    A Form 8-K was filed on October  21, 1997  regarding  the sale
                  through  a  public  offering  of  cumulative  trust  preferred
                  securities  by PennFed  Capital  Trust I, a subsidiary  of the
                  Company.


<PAGE>


                                   SIGNATURES


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


                                             PENNFED FINANCIAL SERVICES, INC.



Date: February 9, 1998                       By:/s/ Joseph L. LaMonica
                                                ----------------------
                                                Joseph L. LaMonica
                                                President and Chief
                                                Executive Officer




Date: February 9, 1998                       By:/s/ Lucy T. Tinker
                                                ------------------
                                                Lucy T. Tinker
                                                Executive Vice President and
                                                Chief Operating Officer
                                                (Principal Financial Officer)





Date: February 9, 1998                       By:/s/ Jeffrey J. Carfora
                                                ----------------------
                                                Jeffrey J. Carfora
                                                Senior Vice President and
                                                Chief Financial Officer
                                                (Principal Accounting Officer)