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, 1999

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
     For the transition period from ________________ to _____________________


                         Commission file number 0-24040


                        PennFed Financial Services, Inc.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


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

 622 Eagle Rock Avenue, West Orange, NJ                   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 9, 2000, there were issued and outstanding 8,563,727 shares
of the Registrant's Common Stock.
<PAGE>
PART I - Financial Information
Item 1.  Financial Statements

<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Financial Condition

                                                                                            December 31,             June 30,
                                                                                               1999                    1999
                                                                                             ----------             ----------
                                                                                                  (Dollars in thousands)
<S>                                                                                          <C>                    <C>
ASSETS
Cash and cash equivalents.............................................................     $     11,190             $    9,900
Investment securities held to maturity, at amortized cost, market value of
     $278,381 and $281,880 at December 31, 1999 and June 30, 1999.....................          303,073                293,282
Mortgage-backed securities held to maturity, at amortized cost, market value
     of $105,501 and $128,617 at December 31, 1999 and June 30, 1999..................          105,855                127,983
Loans held for sale...................................................................              ---                  5,180
Loans receivable, net of allowance for loan losses of $3,604 and $3,209
     at December 31, 1999 and June 30, 1999...........................................        1,153,490              1,061,431
Premises and equipment, net...........................................................           19,444                 19,240
Real estate owned, net................................................................              142                    936
Federal Home Loan Bank of New York stock, at cost.....................................           19,613                 16,623
Accrued interest receivable, net......................................................            9,641                  9,680
Goodwill and other intangible assets..................................................           10,031                 11,118
Other assets..........................................................................            3,618                  3,390
                                                                                             ----------             ----------
                                                                                             $1,636,097             $1,558,763
                                                                                             ==========             ==========

LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
     Deposits.........................................................................       $1,039,873             $1,063,600
     Federal Home Loan Bank of New York advances......................................          344,465                244,465
     Other borrowings.................................................................           87,075                 88,738
     Mortgage escrow funds............................................................            9,967                 10,102
     Due to banks.....................................................................            6,609                  7,385
     Accounts payable and other liabilities...........................................            5,282                  4,230
                                                                                             ----------             ----------
     Total liabilities................................................................        1,493,271              1,418,520
                                                                                             ----------             ----------

     Guaranteed Preferred Beneficial Interests in the Company's
         Junior Subordinated Debentures...............................................           34,500                 34,500
     Unamortized issuance expenses....................................................           (1,726)                (1,757)
                                                                                             ----------             ----------
     Net Trust Preferred securities...................................................           32,774                 32,743
                                                                                             ----------             ----------

Stockholders' Equity:
     Serial preferred stock, $.01 par value, 7,000,000 shares
         authorized, no shares issued.................................................              ---                    ---
     Common stock, $.01 par value, 15,000,000 shares authorized, 11,900,000
         and  11,897,858  shares  issued  and  8,568,727  and  8,813,416  shares
         outstanding  at December 31, 1999 and June 30, 1999  (excluding  shares
         held in treasury of 3,331,273 and 3,084,442 at
         December 31, 1999 and June 30, 1999).........................................               60                     59
     Additional paid-in capital.......................................................           60,074                 59,488
     Employee Stock Ownership Plan Trust debt.........................................           (2,562)                (2,804)
     Retained earnings, partially restricted..........................................           86,251                 80,673
     Treasury stock, at cost, 3,331,273 and 3,084,442 shares at
         December 31, 1999 and June 30, 1999..........................................          (33,771)               (29,916)
                                                                                             ----------             ----------
     Total stockholders' equity.......................................................          110,052                107,500
                                                                                             ----------             ----------
                                                                                             $1,636,097             $1,558,763
                                                                                             ==========             ==========
</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,
                                                                          -----------------------      -----------------------
                                                                            1999           1998          1999           1998
                                                                          --------       --------      --------       --------
                                                                           (Dollars in thousands, except per share amounts)
<S>                                                                      <C>            <C>           <C>            <C>
Interest and Dividend Income:
     Interest and fees on loans......................................      $20,073        $19,773       $39,110        $39,972
     Interest on federal funds sold..................................           14             23            14             26
     Interest and dividends on investment securities.................        5,702          3,884        11,284          7,672
     Interest on mortgage-backed securities..........................        1,853          2,872         3,869          6,120
                                                                          --------       --------      --------       --------
                                                                            27,642         26,552        54,277         53,790
                                                                          --------       --------      --------       --------
Interest Expense:
     Deposits........................................................       11,479         12,506        22,889         25,154
     Borrowed funds..................................................        5,852          5,072        11,136         10,585
     Trust Preferred securities......................................          783            783         1,566          1,566
                                                                          --------       --------      --------       --------
                                                                            18,114         18,361        35,591         37,305
                                                                          --------       --------      --------       --------
Net Interest and Dividend Income Before Provision
     for Loan Losses.................................................        9,528          8,191        18,686         16,485
Provision for Loan Losses............................................          210            185           420            360
                                                                          --------       --------      --------       --------
Net Interest and Dividend Income After Provision
     for Loan Losses.................................................        9,318          8,006        18,266         16,125
                                                                          --------       --------      --------       --------

Non-Interest Income:
     Service charges.................................................          564            487         1,120          1,028
     Net gain (loss) from real estate operations.....................           51             (9)           81            (46)
     Net gain on sales of loans......................................          ---            345            33            762
     Other...........................................................          152             89           341            183
                                                                          --------       --------      --------       --------
                                                                               767            912         1,575          1,927
                                                                          --------       --------      --------       --------

Non-Interest Expenses:
     Compensation and employee benefits..............................        2,387          2,117         4,898          4,352
     Net occupancy expense...........................................          427            319           810            646
     Equipment.......................................................          453            414           893            839
     Advertising.....................................................           80             62           162            138
     Amortization of intangibles.....................................          525            593         1,087          1,191
     Federal deposit insurance premium...............................          159            152           318            311
     Other...........................................................          898            887         1,730          1,739
                                                                          --------       --------      --------       --------
                                                                             4,929          4,544         9,898          9,216
                                                                          --------       --------      --------       --------

Income Before Income Taxes...........................................        5,156          4,374         9,943          8,836
Income Tax Expense...................................................        1,833          1,556         3,538          3,167
                                                                          --------       --------      --------       --------
Net Income...........................................................     $  3,323       $  2,818      $  6,405       $  5,669
                                                                          ========       ========      ========       ========

Weighted average number of common shares outstanding:
     Basic...........................................................    8,242,098      8,508,098     8,269,348      8,585,774
                                                                         =========      =========     =========      =========
     Diluted.........................................................    8,819,266      9,115,202     8,825,561      9,221,548
                                                                         =========      =========     =========      =========

Net income per common share:
     Basic...........................................................       $0.40           $0.33        $0.77          $0.66
                                                                            =====           =====        =====          =====
     Diluted.........................................................       $0.38           $0.31        $0.73          $0.62
                                                                            =====           =====        =====          =====
</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,
                                                                                               -------------------------------
                                                                                                 1999                   1998
                                                                                               --------              ---------
                                                                                                    (Dollars in thousands)
<S>                                                                                            <C>                   <C>
Cash Flows from Operating Activities:
     Net income.......................................................................         $  6,405              $   5,669
     Adjustments to reconcile net income to net cash provided by
       operating activities:
     Net gain on sales of loans.......................................................              (33)                  (762)
     Proceeds from sales of loans held for sale.......................................            5,324                 74,873
     Net gain on sales of real estate owned...........................................              (89)                   (13)
     Amortization of investment and mortgage-backed securities
       premium, net...................................................................              112                    193
     Depreciation and amortization....................................................              709                    679
     Provision for losses on loans and real estate owned..............................              420                    401
     Amortization of cost of stock plans..............................................              829                  1,044
     Amortization of intangibles......................................................            1,087                  1,191
     Amortization of premiums on loans and loan fees..................................              738                  1,187
     Amortization of Trust Preferred securities issuance costs........................               31                     31
     Increase in accrued interest receivable, net of accrued
       interest payable...............................................................           (2,610)                (2,241)
     (Increase) decrease in other assets..............................................             (228)                    86
     Increase in accounts payable and other liabilities...............................            1,052                    751
     Decrease in mortgage escrow funds................................................             (135)                  (813)
     Decrease in due to banks.........................................................             (776)                (4,258)
     Other, net.......................................................................              (49)                    26
                                                                                               --------              ---------
     Net cash provided by operating activities........................................           12,787                 78,044
                                                                                               --------              ---------

Cash Flows from Investing Activities:
     Proceeds from maturities of investment securities................................           10,165                137,070
     Purchases of investment securities held to maturity..............................          (19,991)              (163,597)
     Net outflow from loan originations net of principal repayments of loans..........          (41,733)               (60,447)
     Purchases of loans...............................................................          (51,710)               (20,351)
     Proceeds from principal repayments of mortgage-backed securities.................           22,271                 43,879
     Purchases of mortgage-backed securities..........................................             (220)                  ---
     Proceeds from sale of premises and equipment.....................................              250                   ---
     Purchases of premises and equipment..............................................           (1,164)                (1,217)
     Proceeds from sale of real estate owned..........................................            1,048                    671
     Purchases of Federal Home Loan Bank of New York stock............................           (2,990)                (1,393)
                                                                                               --------              ---------
     Net cash used in investing activities............................................          (84,074)               (65,385)
                                                                                               --------              ---------

Cash Flows from Financing Activities:
     Net decrease in deposits.........................................................          (21,078)                (6,293)
     Increase in advances from the Federal Home Loan Bank
       of New York and other borrowings...............................................           98,337                  5,775
     Cash dividends paid..............................................................             (683)                  (671)
     Purchases of treasury stock, net of reissuance...................................           (3,999)                (8,603)
                                                                                               --------              ---------
     Net cash provided by (used in) financing activities..............................           72,577                 (9,792)
                                                                                               --------              ---------
Net Increase in Cash and Cash Equivalents.............................................            1,290                  2,867
Cash and Cash Equivalents, Beginning of Period........................................            9,900                 10,960
                                                                                               --------              ---------
Cash and Cash Equivalents, End of Period..............................................         $ 11,190              $  13,827
                                                                                               ========              =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)

                                                                                                Six months ended December 31,
                                                                                               -------------------------------
                                                                                                 1999                   1998
                                                                                               --------               --------
                                                                                                    (Dollars in thousands)
<S>                                                                                            <C>                    <C>
Supplemental Disclosures of Cash Flow Information:
     Cash paid during period for:
     Interest.........................................................................         $ 37,095               $ 38,692
                                                                                               ========               ========
     Income taxes.....................................................................         $  3,903               $  3,300
                                                                                               ========               ========

Supplemental Schedule of Non-Cash Activities:
     Transfer of loans receivable to real estate owned, net...........................         $    114               $     28
                                                                                               ========               ========
     Transfer of loans receivable to loans held for sale, at market...................         $    111               $ 81,095
                                                                                               ========               ========
     Transfer of premises and equipment, net to real estate owned, net................         $     50               $    ---
                                                                                               ========               ========
</TABLE>

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


1. Basis of Presentation

The interim  consolidated  financial  statements of PennFed Financial  Services,
Inc. ("PennFed") and subsidiaries (with its subsidiaries, the "Company") include
the accounts of PennFed and its  subsidiaries,  Penn  Federal  Savings Bank (the
"Bank")  and  PennFed  Capital  Trust I. These  interim  consolidated  financial
statements  included  herein  should be read in  conjunction  with the Company's
Annual  Report  on Form  10-K for the year  ended  June 30,  1999.  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, 1999 and 1998.  The interim  results of
operations presented are not necessarily  indicative of the results for the full
year.

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

2.  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,
                                                    -------------------------   -------------------------
                                                        1999          1998         1999          1998
                                                    -----------   -----------   -----------   -----------
                                                       (Dollars in thousands, except per share amounts)
<S>                                                 <C>           <C>           <C>           <C>
Net income ......................................   $     3,323   $     2,818   $     6,405   $     5,669
                                                    ===========   ===========   ===========   ===========

Number of shares outstanding:
  Weighted average shares issued ................    11,900,000    11,900,000    11,899,686    11,900,000
  Less:  Weighted average shares held in treasury     3,145,498     2,786,240     3,105,858     2,697,326
  Less:  Average shares held by the ESOP ........       952,000       952,000       952,000       952,000
  Plus:  ESOP shares released or committed to be
           released during the fiscal year ......       439,596       346,338       427,520       335,100
                                                    -----------   -----------   -----------   -----------
         Average basic shares ...................     8,242,098     8,508,098     8,269,348     8,585,774
  Plus:  Average common stock equivalents .......       577,168       607,104       556,213       635,774
                                                    -----------   -----------   -----------   -----------
         Average diluted shares .................     8,819,266     9,115,202     8,825,561     9,221,548
                                                    ===========   ===========   ===========   ===========

Earnings per common share:
         Basic ..................................   $      0.40   $      0.33   $      0.77   $      0.66
                                                    ===========   ===========   ===========   ===========
         Diluted ................................   $      0.38   $      0.31   $      0.73   $      0.62
                                                    ===========   ===========   ===========   ===========
</TABLE>
<PAGE>
3. Stockholders' Equity and Regulatory Capital

The Bank's 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 December 31, 1999
Tangible capital, and ratio to
  adjusted total assets....................      $127,709      7.86%            $24,383     1.50%              N/A       N/A
Tier I (core) capital, and ratio to
  adjusted total assets....................      $127,709      7.86%            $65,021     4.00%          $81,277      5.00%
Tier I (core) capital, and ratio to
  risk-weighted assets.....................      $127,709     15.57%            $32,802     4.00%          $49,202      6.00%
Total risk-based capital, and ratio to
  risk-weighted assets.....................      $131,184     16.00%            $65,603     8.00%          $82,004     10.00%

As of June 30, 1999
Tangible capital, and ratio to
  adjusted total assets....................      $121,910      7.88%            $23,207     1.50%              N/A       N/A
Tier I (core) capital, and ratio to
  adjusted total assets....................      $121,943      7.88%            $61,888     4.00%          $77,360      5.00%
Tier I (core) capital, and ratio to
  risk-weighted assets.....................      $121,943     15.90%            $30,687     4.00%          $46,030      6.00%
Total risk-based capital, and ratio to
  risk-weighted assets.....................      $124,976     16.29%            $61,374     8.00%          $76,717     10.00%
</TABLE>
<PAGE>
The above table  reflects  information  for the Bank.  Savings and loan  holding
companies,  such as PennFed, are not subject to capital requirements for capital
adequacy  purposes or for prompt corrective  action  requirements.  Bank holding
companies, however, are subject to capital requirements established by the Board
of Governors of the Federal  Reserve  System (the "FRB").  The  following  table
summarizes  the  Company's  capital  amounts and ratios under the FRB's  capital
requirements for bank holding companies.
<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 December 31, 1999
Tangible capital, and ratio to
  adjusted total assets....................      $133,359      8.20%            $24,397     1.50%              N/A       N/A
Tier I (core) capital, and ratio to
  adjusted total assets....................      $133,359      8.20%            $65,060     4.00%          $81,325      5.00%
Tier I (core) capital, and ratio to
  risk-weighted assets.....................      $133,359     16.47%            $32,384     4.00%          $48,577      6.00%
Total risk-based capital, and ratio to
  risk-weighted assets.....................      $136,833     16.90%            $64,769     8.00%          $80,961     10.00%

As of June 30, 1999
Tangible capital, and ratio to
  adjusted total assets....................      $128,385      8.29%            $23,217     1.50%              N/A         N/A
Tier I (core) capital, and ratio to
  adjusted total assets....................      $128,419      8.30%            $61,913     4.00%          $77,391      5.00%
Tier I (core) capital, and ratio to
  risk-weighted assets.....................      $128,419     16.98%            $30,253     4.00%          $45,380      6.00%
Total risk-based capital, and ratio to
  risk-weighted assets.....................      $131,452     17.38%            $60,507     8.00%          $75,633     10.00%
</TABLE>
<PAGE>
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

General

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

When  used in this  Form  10-Q and in future  filings  by the  Company  with the
Securities and Exchange  Commission (the "SEC"), in the Company's press releases
or other public or 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. Such statements are subject to certain risks and
uncertainties,  including, among other things, changes in economic conditions in
the  Company's  market  area,  changes  in  policies  by  regulatory   agencies,
fluctuations  in interest rates,  demand for loans in the Company's  market area
and  competition,  that could cause  actual  results to differ  materially  from
historical  earnings and those presently  anticipated or projected.  The Company
cautions  readers  not to  place  undue  reliance  on any  such  forward-looking
statements,  which speak only as of the date made. The Company  advises  readers
that the factors listed above could affect the Company's  financial  performance
and could  cause the  Company's  actual  results  for  future  periods to differ
materially  from any  opinions or  statements  expressed  with respect to future
periods in any current statements.

The Company 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
such  statements or to reflect the occurrence of  anticipated  or  unanticipated
events.

Financial Condition

Total assets increased $77.3 million to $1.636 billion at December 31, 1999 from
total assets of $1.559  billion at June 30, 1999. The increase was primarily due
to the originations and purchases of loans, primarily adjustable rate, offset by
principal payments on loans and mortgage-backed securities.

Deposits  decreased  $23.7  million to $1.040  billion at December 31, 1999 from
$1.064 billion at June 30, 1999. The decrease was  principally due to an outflow
of  municipal  certificates  of  deposit,  due  primarily  to  year-end  pricing
pressures, partially offset by growth in demand deposits. Federal Home Loan Bank
("FHLB") of New York advances  increased  $100.0  million from $244.5 million at
June 30, 1999, reflecting growth in medium-term borrowings.
<PAGE>
Non-performing  assets at December 31, 1999 totaled $3.4  million,  representing
0.21% of total assets,  compared to $4.6 million,  or 0.30% of total assets,  at
June  30,  1999.  Non-accruing  loans  totaled  $3.3  million,  with a ratio  of
non-accruing  loans to total loans of 0.28% at December  31, 1999 as compared to
$3.7  million,  or 0.34% of total  loans,  at June 30,  1999.  Real estate owned
decreased to $142,000 at December 31, 1999 from $936,000 at June 30, 1999.

Stockholders'  equity at December 31, 1999 totaled  $110.1  million  compared to
$107.5 million at June 30, 1999. The increase  primarily reflects the net income
recorded for the six months ended  December  31, 1999,  partially  offset by the
repurchase  of 277,500  shares of the Company's  outstanding  common stock at an
average price of $14.96 per share and the declaration of dividends.

Results of Operations

General.  For the three  months  ended  December  31,  1999 net  income was $3.3
million, or $0.38 per diluted share,  compared to net income of $2.8 million, or
$0.31 per diluted  share,  for the  comparable  prior year  period.  For the six
months ended December 31, 1999 net income was $6.4 million, or $0.73 per diluted
share. These results compare to net income of $5.7 million, or $0.62 per diluted
share, for the six months ended December 31, 1998.

Interest and Dividend Income. Interest and dividend income for the three and six
months ended  December 31, 1999  increased to $27.6  million and $54.3  million,
respectively,  from $26.6 million and $53.8 million for the three and six months
ended  December  31,  1998.  The  increases  in the current  year  periods  were
primarily due to increases in average  interest-earning  assets. The increase in
average  interest-earning  assets for the six months ended December 31, 1999 was
partially  offset by a decrease in the average yield earned on  interest-earning
assets, when compared to the prior year period. Average  interest-earning assets
were  $1.565  billion  and $1.541  billion  for the three and six  months  ended
December 31, 1999,  respectively,  compared to $1.508 billion and $1.514 billion
for  the   comparable   prior  year   periods.   The  average  yield  earned  on
interest-earning  assets increased  slightly to 7.05% for the three months ended
December 31, 1999 from 7.04% for the three months ended  December 31, 1998.  For
the  six  months  ended   December   31,  1999  the  average   yield  earned  on
interest-earning  assets  decreased to 7.03% from 7.10% for the comparable prior
year period.

Interest income on residential one- to four-family  mortgage loans for the three
and six months ended  December  31, 1999  decreased  $241,000 and $1.8  million,
respectively,  when compared to the prior year periods. The decrease in interest
income on residential  one- to  four-family  mortgage loans was primarily due to
decreases of $16.0 million and $41.1 million in the average balance  outstanding
for the three  and six  months  ended  December  31,  1999,  respectively,  when
compared to the prior year periods. The average yield earned on residential one-
to  four-family  mortgage  loans for the three  months  ended  December 31, 1999
increased  slightly to 6.98% from 6.97% for the three months ended  December 31,
1998.  The  average  yield  earned on this  portfolio  for the six months  ended
December  31,  1999  decreased  eight  basis  points to 6.96% from 7.04% for the
comparable prior year period.
<PAGE>
Interest  income on  commercial  and  multi-family  real estate loans  increased
$188,000  and  $309,000  for the three and six months  ended  December 31, 1999,
respectively, when compared to the prior year periods. The increases in interest
income  on  the  commercial  and   multi-family   real  estate   portfolio  were
attributable  to  increases  of $10.6  million  and $9.4  million in the average
outstanding  balance  for the three and six  months  ended  December  31,  1999,
respectively,  when  compared  to the  prior  year  periods.  The  growth in the
portfolio  was  partially  offset by a decline in the  average  yield  earned on
commercial and  multi-family  real estate loans.  The average yield decreased to
8.34% for both the  current  three and six month  periods  compared to 8.69% and
8.76% for the three and six months ended December 31, 1998, respectively.

Growth in consumer  loans  contributed  to increases of $353,000 and $648,000 in
the interest  income earned on this loan  portfolio for the three and six months
ended December 31, 1999,  respectively,  compared to the prior year periods. The
average yields earned on the consumer loan portfolio only  fluctuated  slightly,
with yields of 7.27% and 7.21% for the three and six months  ended  December 31,
1999, respectively, compared to 7.23% and 7.29% for the prior year periods.

Interest  income on  investment  securities  and other  interest-earning  assets
increased  $1.8  million  and $3.6  million  for the three and six months  ended
December 31, 1999,  respectively,  from the comparable  prior year periods.  The
increase was primarily due to a $103.5 million and a $106.0 million  increase in
the average balance  outstanding for the three and six months ended December 31,
1999,  respectively,  over the comparable prior year periods.  The average yield
earned on investment securities and other interest-earning  assets for the three
months ended  December 31, 1999  increased  slightly to 6.99% from 6.98% for the
comparable  prior year period.  For the six months ended  December 31, 1999, the
average yield earned on these  securities  decreased  nine basis points to 6.99%
from 7.08% for the six months ended December 31, 1998.

Interest  income on the  mortgage-backed  securities  portfolio  decreased  $1.0
million and $2.3 million for the three and six months  ended  December 31, 1999,
respectively,  compared  to the prior year  periods.  The  decrease  in interest
income on  mortgage-backed  securities  primarily reflects a $59.2 million and a
$65.1 million decrease in the average balance  outstanding for the three and six
months  ended  December  31,  1999,  respectively,  compared  to the prior  year
periods.

Interest Expense.  Interest expense decreased  $247,000 and $1.7 million for the
three and six months ended December 31, 1999, respectively,  from the comparable
December 31, 1998 periods. The decreases in the current year periods were due to
decreases in the Company's  cost of deposits,  partially  offset by increases in
average  borrowings.  The average  rate paid on deposits,  borrowings  and Trust
Preferred securities decreased 24 basis points and 29 basis points for the three
and six months ended December 31, 1999, respectively, when compared to the prior
year  periods.  The decline was  primarily  attributable  to the average cost of
deposits,  which decreased to 4.28% and 4.30% for the three and six months ended
December  31,  1999,  respectively,  from  4.67% and  4.73%  for the  comparable
December 1998 periods.  Total average  deposits and borrowings  increased  $44.1
million and $15.7 million for the three and six months ended  December 31, 1999,
respectively,  compared to the prior year periods.  The greatest increase was in
borrowings  which  averaged  $386.8 million and $371.3 million for the three and
six months ended December 31, 1999, respectively, compared to $341.4 million and
$354.2 million for the prior year periods.
<PAGE>

Net Interest and Dividend Income. Net interest and dividend income for the three
and six months  ended  December  31, 1999 was $9.5  million  and $18.7  million,
respectively,  reflecting  a $1.3 million and $2.2  million  increase  from $8.2
million and $16.5 million  recorded in the  comparable  prior year periods.  The
increase  primarily  reflects the  Company's  improvement  in net interest  rate
spread coupled with growth in the Company's average interest-earning assets. The
net  interest  rate spread and net  interest  margin for the three  months ended
December 31, 1999 were 2.22% and 2.46%, respectively, an increase from 1.97% and
2.20%, respectively, for the comparable prior year period. The net interest rate
spread and net interest  margin for the six months ended  December 31, 1999 were
2.20% and 2.45%,  respectively,  an increase from 1.98% and 2.20%, respectively,
for the six months ended  December 31, 1998.  The current year  increases in the
net interest rate spread and net interest margin were primarily  attributable to
the  decreases  in the average  rate paid on deposits  and, to a lesser  extent,
growth  in the  commercial  and  multi-family  real  estate  and  consumer  loan
portfolios.

Provision  for Loan Losses.  The provision for loan losses for the three and six
months ended December 31, 1999 was $210,000 and $420,000, respectively, compared
to $185,000 and $360,000 for the  comparable  prior year periods.  The allowance
for loan  losses at  December  31,  1999 of $3.6  million  reflects  a  $395,000
increase  from the June 30,  1999  level.  The  allowance  for loan  losses as a
percentage of non-accruing  loans was 109.64% at December 31, 1999,  compared to
87.44% at June 30, 1999.  The allowance for loan losses was 0.31% of total loans
at December 31, 1999, compared to 0.30% at June 30, 1999.
<PAGE>

Non-Interest  Income.  For the three and six  months  ended  December  31,  1999
non-interest  income was $767,000 and $1.6  million,  respectively,  compared to
$912,000 and $1.9 million for the prior year periods. The decrease was primarily
attributable  to a $345,000 and  $729,000  reduction in the net gain on sales of
loans during the three and six months ended December 31, 1999, respectively,  as
compared to the December 1998 periods.  There were no secondary  market sales of
one- to  four-family  residential  mortgage  loans during the three months ended
December  31,  1999.   This  compares  to  a  $345,000  net  gain  on  sales  of
approximately  $48 million of one- to  four-family  residential  mortgage  loans
during the three  months  ended  December  31,  1998.  For the six months  ended
December 31,  1999,  $5.3 million of one- to  four-family  residential  mortgage
loans were sold in the secondary  market for a net gain of $33,000.  For the six
months ended December 31, 1998, approximately $74 million of one- to four-family
residential  mortgage  loans  were sold for a net gain of  $762,000.  Due to the
majority of one- to  four-family  residential  mortgage  loan  production  being
adjustable  rate and due to the higher  interest  rate and  steeper  yield curve
environment  in the current  periods,  loan sale  activity  was reduced from the
fiscal 1999 levels, as the majority of new production was retained in portfolio.
The  level  of  such  activity  will  continue  to  be  evaluated  with  primary
consideration   given  to  interest  rate  risk  and   long-term   profitability
objectives.  The decrease in net gain on sales of loans during the three and six
months  ended  December 31, 1999 was  partially  offset by a $77,000 and $92,000
increase in service  charge income,  a $60,000 and $127,000  increase in the net
gain (loss) from real estate  operations and a $63,000 and $158,000  increase in
other  non-interest  income,  respectively,  when  compared  to the  prior  year
periods.   For  the  three  and  six  months  ended  December  31,  1999,  other
non-interest income included a $43,000 and $94,000 increase in earnings from the
Investment Services at Penn Federal program, respectively,  when compared to the
prior year periods.  Through this program,  customers have convenient  access to
financial   consulting/advisory  services  and  related  non-deposit  investment
products.  In  addition,  other  non-interest  income for the six  months  ended
December  31,  1999  included  a  $48,000  gain on the sale of a  former  branch
location.

Non-Interest Expenses. The Company's non-interest expenses were $4.9 million and
$9.9 million for the three and six months ended December 31, 1999, respectively,
compared to $4.5 million and $9.2 million for the comparable prior year periods.
In February  1999 and June 1999,  the Company  opened new branches in Toms River
and  Livingston,  NJ,  respectively.  Growth  in  retail  branches  and in  loan
origination and servicing capacity, as well as investment in technology over the
last two years,  has  resulted in an increase  in  non-interest  expenses in the
current year  periods when  compared to the prior year  periods.  The  Company's
non-interest  expenses  as a percent of average  assets  increased  to 1.22% and
1.24% for the three and six months ended December 31, 1999,  respectively,  from
1.16% and 1.17% for the prior year periods.

Income Tax  Expense.  Income  tax  expense  for the three and six  months  ended
December 31, 1999 was $1.8 million and $3.5 million,  respectively,  compared to
$1.6 million and $3.2  million for the three and six months  ended  December 31,
1998.  The  effective  tax rate for the three and six months ended  December 31,
1999 was 35.6%. The effective tax rate was 35.6% and 35.8% for the three and six
months ended December 31, 1998, respectively.
<PAGE>

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, 1999 and 1998,  and
reflects  the average  yield on assets and average cost of  liabilities  for the
periods  indicated.  Such  yields  and  costs are  derived  from  average  daily
balances.  The average balance of loans receivable includes  non-accruing loans.
The yields and costs include fees which are considered adjustments to yields.
<PAGE>
<TABLE>
<CAPTION>
                                                                           Three Months Ended December 31,
                                                  ------------------------------------------------------------------------------
                                                                    1999                                      1998
                                                  -------------------------------------     ------------------------------------
                                                     Average       Interest                    Average      Interest
                                                   Outstanding      Earned/     Yield/       Outstanding     Earned/     Yield/
                                                     Balance         Paid      Rate (1)        Balance        Paid      Rate (1)
                                                  -------------   ----------   --------     -------------  ----------   --------
                                                                              (Dollars in thousands)
<S>                                                 <C>            <C>          <C>           <C>            <C>         <C>
Interest-earning assets:
    One- to four-family mortgage
       loans...................................     $  969,884     $16,950       6.98%        $  985,837     $17,191      6.97%
    Commercial and multi-family real
       estate loans............................         77,618       1,649       8.34             67,057       1,461      8.69
    Consumer loans.............................         80,426       1,474       7.27             61,516       1,121      7.23
                                                    ----------     -------                    ----------     -------
       Total loans receivable..................      1,127,928      20,073       7.09          1,114,410      19,773      7.09

    Federal funds sold.........................          1,024          14       5.35              1,802          23      4.99
    Investment securities and other............        326,112       5,702       6.99            222,623       3,884      6.98
    Mortgage-backed securities.................        109,622       1,853       6.76            168,829       2,872      6.80
                                                    ----------     -------                    ----------     -------
       Total interest-earning assets...........      1,564,686     $27,642       7.05          1,507,664     $26,552      7.04
                                                                   =======                                   =======

    Non-interest earning assets................         53,921                                    57,956
                                                    ----------                                ----------
       Total assets ...........................     $1,618,607                                $1,565,620
                                                    ==========                                ==========

Deposits, borrowings and Trust
     Preferred securities:
    Money market and demand deposits...........     $  113,438     $   308       1.08%        $  100,741     $   305      1.20%
    Savings deposits...........................        164,298         690       1.67            163,960         716      1.73
    Certificates of deposit....................        786,884      10,481       5.29            801,244      11,485      5.71
                                                    ----------     -------                    ----------     -------
       Total deposits..........................      1,064,620      11,479       4.28          1,065,945      12,506      4.67

    FHLB of New York advances..................        334,763       5,080       5.97            281,590       4,245      5.95
    Other borrowings...........................         52,068         772       5.80             59,807         827      5.41
                                                    ----------     -------                    ----------     -------
       Total deposits and borrowings...........      1,451,451      17,331       4.73          1,407,342      17,578      4.96
    Trust Preferred securities.................         32,766         783       9.56             32,704         783      9.58
                                                    ----------     -------                    ----------     -------
       Total deposits, borrowings and
           Trust Preferred securities..........      1,484,217     $18,114       4.83          1,440,046     $18,361      5.07
                                                                   =======                                   =======

Other liabilities..............................         23,653                                    21,504
                                                    ----------                                ----------
       Total liabilities.......................      1,507,870                                 1,461,550
Stockholders' equity...........................        110,737                                   104,070
                                                    ----------                                ----------
       Total liabilities and stockholders'
           equity..............................     $1,618,607                                $1,565,620
                                                    ==========                                ==========

Net interest income and net
    interest rate spread.......................                    $ 9,528       2.22%                       $ 8,191      1.97%
                                                                   =======       ====                        =======      ====

Net interest-earning assets and
    interest margin............................     $   80,469                   2.46%        $   67,618                  2.20%
                                                    ==========                   ====         ==========                  ====

Ratio of interest-earning assets to
    deposits, borrowings and Trust
      Preferred securities.....................                                105.42%                                  104.70%
                                                                               ======                                   ======
</TABLE>

(1)  Annualized.
<PAGE>
<TABLE>
<CAPTION>
                                                                            Six Months Ended December 31,
                                                  ------------------------------------------------------------------------------
                                                                    1999                                      1998
                                                  -------------------------------------     ------------------------------------
                                                     Average       Interest                    Average      Interest
                                                   Outstanding      Earned/     Yield/       Outstanding     Earned/     Yield/
                                                     Balance         Paid      Rate (1)        Balance        Paid      Rate (1)
                                                  -------------   ----------   --------     -------------  ----------   --------
                                                                              (Dollars in thousands)
<S>                                                 <C>            <C>          <C>           <C>            <C>         <C>
Interest-earning assets:
    One- to four-family mortgage
       loans...................................     $  949,704     $33,092       6.96%        $  990,783     $34,911      7.04%
    Commercial and multi-family real
       estate loans............................         75,333       3,204       8.34             65,930       2,895      8.76
    Consumer loans.............................         77,438       2,814       7.21             58,984       2,166      7.29
                                                    ----------     -------                    ----------     -------
       Total loans receivable..................      1,102,475      39,110       7.07          1,115,697      39,972      7.15

    Federal funds sold.........................            512          14       5.34              1,021          26      5.01
    Investment securities and other............        322,864      11,284       6.99            216,862       7,672      7.08
    Mortgage-backed securities.................        115,295       3,869       6.71            180,431       6,120      6.78
                                                    ----------     -------                    ----------     -------
       Total interest-earning assets...........      1,541,146     $54,277       7.03          1,514,011     $53,790      7.10
                                                                   =======                                   =======

Non-interest earning assets....................         55,029                                    58,196
                                                    ----------                                ----------
       Total assets ...........................     $1,596,175                                $1,572,207
                                                    ==========                                ==========

Deposits, borrowings and Trust
     Preferred securities:
    Money market and demand deposits...........   $    112,210     $   597       1.06%        $   98,171     $   617      1.25%
    Savings deposits...........................        164,755       1,383       1.67            164,382       1,547      1.87
    Certificates of deposit....................        780,829      20,909       5.33            796,695      22,990      5.75
                                                    ----------     -------                    ----------     -------
       Total deposits..........................      1,057,794      22,889       4.30          1,059,248      25,154      4.73

    FHLB of New York advances..................        304,334       9,202       5.95            272,002       8,251      5.99
    Other borrowings...........................         66,966       1,934       5.65             82,169       2,334      5.56
                                                    ----------     -------                    ----------     -------
       Total deposits and borrowings...........      1,429,094      34,025       4.72          1,413,419      35,739      5.02
    Trust Preferred securities.................         32,759       1,566       9.56             32,697       1,566      9.58
                                                    ----------     -------                    ----------     -------
       Total deposits, borrowings and
           Trust Preferred securities..........      1,461,853     $35,591       4.83          1,446,116     $37,305      5.12
                                                                   =======                                   =======

Other liabilities..............................         24,529                                    22,258
                                                    ----------                                ----------
       Total liabilities.......................      1,486,382                                 1,468,374
Stockholders' equity...........................        109,793                                   103,833
                                                    ----------                                ----------
       Total liabilities and stockholders'
           equity..............................     $1,596,175                                $1,572,207
                                                    ==========                                ==========

Net interest income and net
    interest rate spread.......................                    $18,686       2.20%                       $16,485      1.98%
                                                                   =======       ====                        =======      ====

Net interest-earning assets and
    interest margin............................     $   79,293                   2.45%        $   67,895                  2.20%
                                                    ==========                   ====         ==========                  ====

Ratio of interest-earning assets to
    deposits, borrowings and Trust
      Preferred securities.....................                                105.42%                                  104.70%
                                                                               ======                                   ======
</TABLE>

(1)  Annualized.
<PAGE>
Non-Performing Assets

The  table  below  sets  forth  the   Company's   amounts  and   categories   of
non-performing   assets.  Loans  are  placed  on  non-accrual  status  when  the
collection of principal or interest becomes  delinquent more than 90 days. There
are no loans delinquent more than 90 days which are still accruing.  Real estate
owned  represents  assets  acquired in  settlement  of loans and is shown net of
valuation allowances.
<TABLE>
<CAPTION>
                                                           December 31, June 30,
                                                               1999       1999
                                                              ------     ------
                                                            (Dollars in thousands)
<S>                                                           <C>        <C>
Non-accruing loans:
     One- to four-family .................................    $2,632     $2,937
     Commercial and multi-family .........................        95         46
     Consumer ............................................       560        687
                                                              ------     ------
         Total non-accruing loans ........................     3,287      3,670

Real estate owned, net ...................................       142        936
                                                              ------     ------

         Total non-performing assets .....................     3,429      4,606
                                                              ------     ------

         Total risk elements .............................    $3,429     $4,606
                                                              ======     ======

Non-accruing loans as a percentage of total loans ........      0.28%      0.34%
                                                              ======     ======

Non-performing assets as a percentage of total assets ....      0.21%      0.30%
                                                              ======     ======

Total risk elements as a percentage of total assets ......      0.21%      0.30%
                                                              ======     ======
</TABLE>

Allowance for Loan Losses. The allowance for loan losses is established  through
a  provision  for loan losses  based upon  management's  evaluation  of the risk
inherent in its loan  portfolio and changes in the nature and volume of its loan
activity.  Such  evaluation,  which  includes  a review of loans for which  full
collectibility  may not be reasonably  assured,  considers  among other matters,
loan  classifications,  the estimated fair value of the  underlying  collateral,
economic  conditions,  historical loan loss  experience,  and other factors that
warrant recognition in providing for an adequate loan loss allowance.

Real estate properties acquired through foreclosure are recorded at the lower of
cost or estimated fair value less costs to dispose of such  properties.  If fair
value at the date of  foreclosure is lower than the balance of the related loan,
the difference  will be charged-off to the allowance for loan losses at the time
of transfer.  Valuations are periodically updated by management and if the value
declines, a specific provision for losses on real estate owned is established by
a charge to operations.
<PAGE>
Although  management  believes  that it uses the best  information  available to
determine  the  allowances,   unforeseen   market  conditions  could  result  in
adjustments and net earnings could be  significantly  affected if  circumstances
differ   substantially   from  the   assumptions   used  in  making   the  final
determination.  Future additions to the Company's  allowances will be the result
of periodic loan,  property and collateral  reviews and thus cannot be predicted
in advance. In addition, federal regulatory agencies, as an integral part of the
examination  process,  periodically  review  the  Company's  allowance  for loan
losses.  Such  agencies  may  require  the  Company to record  additions  to the
allowance level based upon their assessment of the information available to them
at the time of their examination.  At December 31, 1999, the Company had a total
allowance  for  loan  losses  of $3.6  million  representing  109.64%  of  total
non-accruing loans and 0.31% of total loans.

Interest Rate Sensitivity

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

At December  31,  1999,  the  Company's  total  deposits,  borrowings  and Trust
Preferred  securities  maturing or repricing  within one year exceeded its total
interest-earning assets maturing or repricing within one year by $380.2 million,
representing  a one year  negative  gap of 23.24% of total  assets.  At June 30,
1999,  the one year  negative  gap was  13.61% of total  assets.  The  Company's
negative gap position widened from June 30, 1999 as interest rates increased and
the yield curve steepened.  Results included declining  prepayments of loans and
securities and lengthening of asset cash flows.  Under the current interest rate
environment,  it is assumed that certain callable investment  securities may not
be called at their call date,  thereby  extending the life of these  securities.
Also  contributing  to the  increase  in  the  negative  gap  position  was  the
termination of $70 million  notional  amount of interest rate swap contracts and
an increase in short-term  borrowings related to Year 2000 liquidity and deposit
pricing  pressures.  Partially  offsetting  the  increase  in the  negative  gap
position was a reduction in short-term  municipal  certificates  of deposit,  an
increase in core deposits and medium-term  certificates  of deposit,  as well as
the addition of medium-term borrowings.
<PAGE>

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

As of December 31, 1999, the Bank's  internally  generated initial NPV ratio was
9.58%.  Following a 2% increase in interest  rates,  the Bank's  Post-Shock  NPV
ratio was 6.72%. The change in the NPV ratio, or the Bank's Sensitivity Measure,
was 2.86%.  NPV is also  measured  internally  on a  consolidated  basis.  As of
December 31, 1999,  the Company's  initial NPV ratio was 9.90%,  the  Post-Shock
ratio was 6.97%, and the Sensitivity  Measure was 2.93%.  Variances  between the
Bank's and the  Company's  NPV ratios are  attributable  to balance  sheet items
which are  adjusted  during  consolidation,  such as  investments,  intercompany
borrowings and capital.

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

The OTS measures the Bank's (unconsolidated) IRR on a quarterly basis using data
from the  quarterly  Thrift  Financial  Reports,  coupled  with  non-institution
specific  assumptions which are based on national averages.  As of September 30,
1999 (the latest date for which  information is  available),  the Bank's initial
NPV ratio, as measured by the OTS, was 7.49%,  the Bank's  Post-Shock  ratio was
4.38% and the Sensitivity Measure was 3.11%.

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.
<PAGE>

At December 31, 1999, based on its internally  generated  simulation models, the
Company's  consolidated net interest income projected for one year forward would
decrease 17% from the base case, or current market,  as a result of an immediate
and sustained 2% increase in interest rates.

Year 2000

By following a carefully prescribed Year 2000 Project Plan, all mission-critical
systems, including interfaces to the main systems, were completely renovated and
tested.  To date, the Company has not  experienced  any problems with respect to
the century  rollover.  The Company  will  continue to monitor for any Year 2000
problems,  as  appropriate,  through the end of the calendar  year. The Board of
Directors  will continue to be updated on a monthly basis through the completion
of the March 2000 quarterly period with respect to any problems encountered.

The cost for the Year 2000 effort  incurred in fiscal  1999 was  $45,000.  As of
December 31, 1999,  no  additional  costs have been  incurred in fiscal 2000. No
additional  expenditures are currently  anticipated.  The actual expenditures do
not include manpower costs of Company personnel associated with this effort, who
retained their individual operational  responsibilities in addition to Year 2000
duties. No assurance can be given that any remaining issues relating to the Year
2000  will  not  have a  material  adverse  effect  on the  Company's  financial
condition or results of operations.

Liquidity and Capital Resources

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

Federal  regulations  require  the Bank to  maintain  minimum  levels  of liquid
assets. The required percentage has varied from time to time based upon economic
conditions  and savings  flows.  The current  required  percentage  is 4% of net
withdrawable  deposits  payable on demand or in one year or less and  borrowings
payable  on demand or in one year or less,  both as of the end of the  preceding
calendar  quarter.  Liquid assets for purposes of this ratio  generally  include
cash,  accrued  interest  receivable  and  U.S.  government  or  federal  agency
securities,  including  mortgage-backed  securities.  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. At December 31, 1999 and June 30, 1999, the Bank's liquidity ratios were
14.43% and 21.30%, 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.
<PAGE>

The  Company's  cash  needs for the six  months  ended  December  31,  1999 were
provided  by  operating  activities,  proceeds  from  maturities  of  investment
securities,  an  increase in  advances  from the FHLB of New York and  principal
repayments on loans and mortgage-backed securities. During this period, the cash
provided  was  primarily  used to offset a net  decrease in deposits and to fund
investing  activities,  which included the origination and purchase of loans and
the purchase of investment securities.  During the six months ended December 31,
1998, the cash needs of the Company were  principally  provided by proceeds from
sales of loans held for sale, proceeds from maturities of investment  securities
and principal  repayments on mortgage-backed  securities.  The cash provided was
used for investing  activities,  which included the  origination and purchase of
loans and the purchase of investment securities.

Current  regulatory  standards  impose the  following  capital  requirements:  a
risk-based capital standard expressed as a percentage of risk-adjusted assets; a
leverage ratio of core capital to total adjusted assets;  and a tangible capital
ratio  expressed as a percentage of total  adjusted  assets.  As of December 31,
1999, the Bank exceeded all regulatory  capital  requirements and qualified as a
"well-capitalized"   institution  (see  Note  3.  -  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 27, 1999.

           (b)    Directors elected:
                  Patrick D. McTernan
                  Marvin D. Schoonover

           (c)    At the Annual Meeting the stockholders considered:
                  (i)    the election of two directors,
                  (ii)   the  ratification  of the  appointment  of  Deloitte  &
                         Touche LLP as independent  auditors for the Company for
                         the fiscal year ending June 30, 2000.

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

                                                   FOR                  WITHHELD
                                                ---------               --------
                  Patrick D. McTernan           7,554,005                931,230
                  Marvin D. Schoonover          7,553,608                931,627

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

                  The vote on the  ratification of the appointment of Deloitte &
                  Touche LLP as  independent  auditors  for the  Company for the
                  fiscal year ending June 30, 2000 was as follows:

                     FOR                     AGAINST                     ABSTAIN
                  ---------                  -------                     -------
                  8,420,414                   56,348                       8,473

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

Item 5.    Other Information
           None.

Item 6.    Exhibits and Reports on Form 8-K

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

           (b)  Reports on Form 8-K
                  On October 27, 1999,  PennFed  Financial  Services,  Inc. (the
                  Company)  issued a press release  announcing its first quarter
                  results and a stock repurchase program.
<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 11, 2000                 By:  /s/ Joseph L. LaMonica
                                            -----------------------
                                            Joseph L. LaMonica
                                            President and Chief
                                            Executive Officer





Date: February 11, 2000                 By:  /s/ Lucy T. Tinker
                                            -------------------
                                            Lucy T. Tinker
                                            Senior Executive Vice President and
                                            Chief Operating Officer
                                            (Principal Financial Officer)





Date: February 11, 2000                 By:  /s/ Jeffrey J. Carfora
                                            -----------------------
                                            Jeffrey J. Carfora
                                            Executive Vice President and
                                            Chief Financial Officer
                                            (Principal Accounting Officer)