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, 1996

                                       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: (201) 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  10,  1997,   there  were  4,820,720   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 Subsidiary
Consolidated Statements of Financial Condition
                                                                       December 31,      June 30,
                                                                           1996            1996
                                                                      -----------    -----------
                                                                           (dollars in 000's)
<S>                                                                   <C>            <C>
Assets
Cash and cash equivalents .........................................   $     9,495    $    11,629
Investment securities held to maturity, at amortized cost, market
   value of $8,428 and $21,502 at December 31, 1996 and
   June 30, 1996 ..................................................         8,289         21,288
Mortgage-backed securities held to maturity, at amortized cost,
   market value of $319,853 and $344,331 at
   December 31, 1996 and June 30, 1996 ............................       316,796        346,068
Loans held for sale ...............................................           121             88
Loans receivable, net of allowance for loan losses of $2,732 and
  $2,630 at December 31, 1996 and June 30, 1996 ...................       824,953        652,483
Premises and equipment, net .......................................        15,641         16,035
Real estate owned, net ............................................           795          1,083
Federal Home Loan Bank of New York stock, at cost .................         9,636          8,052
Accrued interest receivable, net ..................................         6,553          6,742
Goodwill and other intangibles ....................................        17,164         18,430
Other assets ......................................................         4,236          4,626
                                                                      -----------    -----------
                                                                      $ 1,213,679    $ 1,086,524
                                                                      ===========    ===========
Liabilities and Stockholders' Equity
Liabilities:
  Deposits ........................................................   $   875,026    $   836,416
  Federal Home Loan Bank of New York advances .....................       145,465        105,000
  Other borrowings ................................................        86,755         41,700
  Mortgage escrow funds ...........................................         7,015          5,930
  Due to banks ....................................................         7,106          5,989
  Accounts payable and other liabilities ..........................           563            925
                                                                      -----------    -----------
  Total liabilities ...............................................     1,121,930        995,960
                                                                      -----------    -----------
<PAGE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiary
Consolidated Statements of Financial Condition (continued)
                                                                       December 31,      June 30,
                                                                           1996            1996
                                                                      -----------    -----------
                                                                           (dollars in 000's)
<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 4,820,720 and 4,823,665
    shares  outstanding at December  31, 1996 and
    June 30, 1996  (excluding  shares held in treasury of 1,129,280
    and 1,126,335 at December 31, 1996 and June 30,1996) ..........            60             60
  Additional paid-in capital ......................................        57,259         57,057
  Restricted stock - Management Recognition Plan ..................        (1,593)        (1,316)
  Employee Stock Ownership Plan Trust debt ........................        (3,866)        (4,061)
  Retained earnings, substantially restricted .....................        56,459         55,172
  Treasury stock, at cost, 1,129,280 and 1,126,335 shares at
    December 31, 1996 and June 30, 1996 ...........................       (16,570)       (16,348)
                                                                      -----------    -----------
  Total stockholders' equity ......................................        91,749         90,564
                                                                      -----------    -----------
                                                                       $1,213,679     $1,086,524
                                                                       ==========     ==========


See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiary
Consolidated Statements of Income

                                                                Three months ended                 Six months ended
                                                                    December 31,                     December 31,
                                                          ----------------------------     ----------------------------
                                                               1996             1995            1996             1995
                                                                    (dollars in 000's, except per share amounts)
<S>                                                       <C>              <C>             <C>              <C>
Interest and Dividend Income:
  Interest and fees on loans ........................     $    14,970      $    10,456     $    28,314      $    20,038
  Interest and dividends on investment securities ...             369              617             870            1,178
  Interest on mortgage-backed securities ............           5,640            5,539          11,511           10,765
                                                          -----------      -----------     -----------      -----------
                                                               20,979           16,612          40,695           31,981
                                                          -----------      -----------     -----------      -----------
Interest Expense:
  Deposits ..........................................           9,968            8,298          19,443           16,218
  Borrowed funds ....................................           3,003            1,179           5,358            2,027
                                                          -----------      -----------     -----------      -----------
                                                               12,971            9,477          24,801           18,245
                                                          -----------      -----------     -----------      -----------
Net Interest and Dividend Income Before Provision
  for Loan Losses ...................................           8,008            7,135          15,894           13,736
Provision for Loan Losses ...........................             152              150             327              260
                                                          -----------      -----------     -----------      -----------
Net Interest and Dividend Income After
  Provision for Loan Losses .........................           7,856            6,985          15,567           13,476
                                                          -----------      -----------     -----------      -----------

Non-Interest Income:
  Service charges ...................................             406              396             846              819
  Net gain (loss) from real estate operations .......             (55)              34            (170)             114
  Other .............................................              54              154             138              215
                                                          -----------      -----------     -----------      -----------
                                                                  405              584             814            1,148
                                                          -----------      -----------     -----------      -----------
Non-Interest Expenses:
  Compensation and employee benefits ................           1,910            1,924           3,829            3,826
  Net occupancy expense .............................             277              276             550              553
  Equipment .........................................             384              393             769              787
  Advertising .......................................              65               57             178              107
  Amortization of intangibles .......................             630              661           1,266            1,329
  Federal deposit insurance premium .................             375              411             833              832
  SAIF recapitalization assessment ..................            --               --             4,813             --
  Other .............................................             740              689           1,378            1,314
                                                          -----------      -----------     -----------      -----------
                                                                4,381            4,411          13,616            8,748
                                                          -----------      -----------     -----------      -----------
<PAGE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiary
Consolidated Statements of Income (continued)

                                                                Three months ended                 Six months ended
                                                                    December 31,                     December 31,
                                                          ----------------------------     ----------------------------
                                                               1996             1995            1996             1995
                                                                    (dollars in 000's, except per share amounts)
<S>                                                       <C>              <C>             <C>              <C>
Income Before Income Taxes ..........................           3,880            3,158           2,765            5,876
Income Tax Expense ..................................           1,482            1,242           1,136            2,312
                                                          -----------      -----------     -----------      -----------

Net Income ..........................................     $     2,398      $     1,916     $     1,629      $     3,564
                                                          ===========      ===========     ===========      ===========

Weighted average number of common shares outstanding:
  Primary ...........................................       4,713,577        5,131,286       4,703,161        5,228,495
                                                          ===========      ===========     ===========      ===========
  Fully diluted .....................................       4,720,804        5,133,615       4,710,239        5,236,245
                                                          ===========      ===========     ===========      ===========

Net income per common share:
  Primary ...........................................     $      0.51      $      0.37     $      0.35      $      0.68
                                                          ===========      ===========     ===========      ===========
  Fully diluted .....................................     $      0.51      $      0.37     $      0.35      $      0.68
                                                          ===========      ===========     ===========      ===========


See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows
                                                            Six months ended December 31,
                                                                  1996           1995
                                                              ---------      ---------
                                                                  (dollars in 000's)
<S>                                                           <C>            <C>
Cash Flows From Operating Activities:
  Net income ............................................     $   1,629      $   3,564
  Adjustments to reconcile net income to net cash
    provided by operating activities:
  Proceeds from sales of loans available for sale .......           464           --
  Originations of loans available for sale ..............          (497)          --
  Gain (loss) on sales of real estate owned .............            33           (134)
  Amortization of investment and mortgage-backed
    securities premiums, net ............................           140            264
  Depreciation and amortization .........................           630            664
  Provision for losses on loans and real estate owned ...           412            241
  Amortization of cost of stock plans ...................           727            475
  Amortization of intangibles ...........................         1,266          1,329
  Amortization of premiums on loans and loan fees .......           143            154
  Increase in accrued interest receivable, net of accrued
    interest payable ....................................        (1,429)        (1,986)
  Decrease in other assets ..............................           390            192
  Decrease in accounts payable and other liabilities ....          (547)          (638)
  Increase (decrease) in mortgage escrow funds ..........         1,085           (441)
  Increase in due to banks ..............................         1,117            106
  Other, net ............................................             4            (73)
                                                              ---------      ---------
  Net cash provided by operating activities .............         5,567          3,717
                                                              ---------      ---------

Cash Flows From Investing Activities:
  Proceeds from maturities of investment securities .....        13,000            200
  Purchases of investment securities ....................          --          (10,000)
  Proceeds from sale of premises and equipment ..........          --              326
  Net outflow from loan originations net of principal
    repayments of loans .................................       (54,375)        (9,711)
  Purchases of loans ....................................      (119,175)       (60,052)
  Proceeds from principal repayments of
    mortgage-backed securities ..........................        29,131         31,854
  Purchases of mortgage-backed securities ...............          --          (20,915)
  Purchases of premises and equipment ...................          (235)          (404)
  Proceeds from sales of real estate owned ..............           779          1,257
  Purchases of Federal Home Loan Bank of New York stock .        (1,583)          --
                                                              ---------      ---------
  Net cash used in investing activities .................      (132,458)       (67,445)
                                                              ---------      ---------
<PAGE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(continued)
                                                            Six months ended December 31,
                                                                  1996           1995
                                                              ---------      ---------
                                                                  (dollars in 000's)
<S>                                                           <C>            <C>
Cash Flows From Financing Activities:
  Net increase in deposits ..............................        40,228         39,923
  Advances from the Federal Home Loan Bank of
    New York and other borrowings .......................        85,520         28,470
  Cash dividends paid ...................................          (340)          --
  Purchases of treasury stock ...........................          (651)        (4,166)
                                                              ---------      ---------
  Net cash provided by financing activities .............       124,757         64,227
                                                              ---------      ---------
Net Increase (Decrease) in Cash and Cash Equivalents ....        (2,134)           499
Cash and Cash Equivalents, Beginning of Period ..........        11,629          9,736
                                                              ---------      ---------
Cash and Cash Equivalents, End of Period ................     $   9,495      $  10,235
                                                              =========      =========
Supplemental Disclosures of Cash Flow Information:
  Cash paid during the period for:
  Interest...............................................     $  26,384      $  19,159
                                                              =========      =========
  Income taxes...........................................     $   1,364      $   2,683
                                                              =========      ========= 

Supplemental Schedule of Non-Cash Activities:
  Transfer of loans receivable to real estate owned, net.     $     519      $     337
                                                              =========      =========
  Unrealized gain on investment securities available
    for sale.............................................     $     ---      $      29
                                                              =========      =========

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


1. Basis of Presentation

The interim  consolidated  financial  statements of PennFed Financial  Services,
Inc. ("PennFed") and subsidiary (with its subsidiary, the "Company") include the
accounts of PennFed and Penn Federal Savings Bank (the "Bank"), its wholly-owned
subsidiary.  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,  1996.  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, 1996 and 1995. 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, 1996, the Company  adopted  Statement of Financial  Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS 122"). SFAS
122 amends Statement of Financial  Accounting  Standards No. 65, "Accounting for
Certain  Mortgage  Banking  Activities,"  to  require  that a  mortgage  banking
enterprise  recognize as separate  assets rights to service  mortgage  loans for
others,  regardless of how those servicing rights are acquired.  The adoption of
SFAS 122 did not  have an  effect  on the  financial  condition  or  results  of
operations of the Company.

Also  effective  July 1,  1996,  the  Company  adopted  Statement  of  Financial
Accounting Standards No. 123,  "Accounting for Stock-Based  Compensation" ("SFAS
123"). SFAS 123 requires  companies to measure employee stock compensation plans
based on the fair value  method of  accounting  or continue to apply  Accounting
Principles Board No. 25,  "Accounting for Stock Issued to Employees,"  ("APB25")
and provide pro forma footnote  disclosures  under the fair value method in SFAS
123. The Company will continue to account for employee stock  compensation under
APB 25, and,  therefore,  the adoption of SFAS 123 did not have an effect on the
Company's financial condition or results of operations.
<PAGE>
3. Stockholders' Equity and Regulatory Capital

The following is a reconciliation of the Bank's capital under generally accepted
accounting principles ("GAAP") and its tangible,  core and risk-based capital at
December 31, 1996:
<TABLE>
<CAPTION>

                                                   Tangible                     Core                      Risk-Based
                                                   Capital     Percentage      Capital    Percentage        Capital    Percentage
                                                   -------     ----------      -------    ----------        -------    ----------
                                                                           (dollars in 000's)
<S>                                               <C>             <C>         <C>             <C>         <C>             <C>

GAAP capital................................      $ 84,079        6.90%       $  84,079       6.90%       $  84,079        6.90%
Goodwill....................................        (1,659)                      (1,659)                     (1,659)
Deposit premium intangible..................       (15,505)                     (15,505)                    (15,505)
Qualifying intangible assets................           ---                          538                         538
Allowances for loan and lease
  losses....................................           ---                          ---                       2,353
Equity investments and investments in
  real estate required to be deducted.......           ---                          ---                         (50)
                                                  ---------                   ----------                  ----------
Regulatory capital..........................        66,915        5.57           67,453       5.61           69,756       12.35
Minimum capital requirement.................        18,019        1.50           48,073       4.00           45,199        8.00
                                                   -------        ----          -------       ----        ----------      ----- 

Regulatory capital-excess...................      $ 48,896        4.07%       $  19,380       1.61%       $  24,557        4.35%
                                                  ========        ====        =========       ====        ==========      =====
</TABLE>
4. Dividends

On October 25, 1996,  the Company  announced  that a quarterly  cash dividend of
$0.07 per share would be paid on November 29, 1996 to  stockholders of record on
November 14, 1996. On January 27, 1997,  the Company  declared a quarterly  cash
dividend of $0.07 per share  payable on February  28,  1997 to  stockholders  of
record on February 14, 1997.
<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 the net gain (loss) from
real  estate   operations.   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.

The deposits of savings associations, such as the Bank, are presently insured by
the Savings Association Insurance Fund (the "SAIF"),  which, along with the Bank
Insurance  Fund (the "BIF"),  are the two insurance  funds  administered  by the
Federal Deposit Insurance Corporation ("FDIC"). Financial institutions which are
members of the BIF have been experiencing  substantially lower deposit insurance
premiums  because the BIF has achieved its required  level of reserves while the
SAIF has not yet  achieved  its required  reserves.  As a result of  legislation
signed into law on September 30, 1996, the SAIF  recapitalization  plan provides
for a  one-time  assessment  of 0.657% of  deposits  to be  imposed  on all SAIF
insured  institutions  to  enable  the SAIF to  achieve  its  required  level of
reserves.  The  assessment  was based on deposits as of March 31, 1995,  and the
Bank's  special  assessment  amounts  to  approximately  $4.8  million,  or $3.1
million, net of taxes. Accordingly,  this special one-time SAIF recapitalization
assessment  significantly increased non-interest expenses and adversely effected
the Company's  results of operations for the six months ended December 31, 1996.
Following the  recapitalization  assessment,  future deposit insurance  premiums
have  been  decreased  significantly,  to  0.0648%  from the  0.23% of  deposits
previously  paid by the Bank, and will have the effect of reducing  non-interest
expenses for future periods.

Financial Condition

Total assets increased  $127.2 million,  or 11.7%, to $1.214 billion at December
31, 1996 from total assets of $1.087  billion at June 30, 1996. The increase was
primarily  attributable  to a $172.5 million  increase in net loans  receivable,
particularly in the Company's one- to four-family first mortgage loan portfolio.
At December 31,  1996,  net loans  receivable  were $825.0  million  compared to
$652.5 million at June 30, 1996. The increase in loans  receivable was funded by
retail deposit growth, additional medium-term Federal Home Loan Bank of New York
("FHLB  of New  York")  advances  and  increased  other  borrowings  as  well as
maturities on investment  securities and principal  payments on  mortgage-backed
securities.

Non-performing  assets at December 31, 1996 totaled $7.2  million,  representing
0.59% of total assets,  compared to $7.3 million,  or 0.67% of total assets,  at
June 30, 1996.  Non-performing  loans  increased to $6.4 million,  however,  the
ratio of non-performing  loans to total loans decreased to 0.77% of total loans,
at December 31, 1996 as compared to $6.2  million,  or 0.94% of total loans,  at
June 30, 1996. Real estate owned decreased to $795,000 at December 31, 1996 from
$1.1 million at June 30, 1996.

Deposits  increased  $38.6  million to $875.0  million at December 31, 1996 from
$836.4  million at June 30, 1996.  FHLB of New York advances were $145.5 million
<PAGE>
at December 31, 1996, a $40.5 million  increase from $105.0  million at June 30,
1996.  In addition,  at December 31, 1996 the Company had $86.8 million of other
borrowings,  consisting of $76.8 million of short-term and overnight  borrowings
and $10.0 million of a reverse  repurchase  agreement maturing in December 2001.
Other  borrowings  at June 30,  1996  totaled  $41.7  million and  consisted  of
short-term and overnight borrowings.

Stockholders'  equity at December 31, 1996  totaled  $91.7  million  compared to
$90.6 million at June 30, 1996. The increase  primarily  reflects the net income
recorded for the six months ended December 31, 1996, including the effect of the
one-time SAIF  recapitalization  assessment,  offset by the repurchase of 32,500
shares of the outstanding  stock at an average price of $20.04 per share and the
declaration of dividends.

Results of Operations

General.  For the three  months  ended  December  31,  1996 net  income was $2.4
million,  or $0.51  per  share.  These  results  compare  to net  income of $1.9
million,  or $0.37 per share for the three months ended  December 31, 1995.  For
the six months ended  December 31, 1996,  net income was $1.6 million,  or $0.35
per  share,   including  the  effects  of  the  one-time  SAIF  recapitalization
assessment.  The SAIF  recapitalization  assessment for the Company totaled $4.8
million,  or an after-tax cost of $3.1 million,  or $0.66 per share. The results
for the six months ended  December 31, 1996,  excluding  the effects of the SAIF
assessment,  would have  compared  favorably to net income of $3.5  million,  or
$0.68 per share, for the six months ended December 31, 1995.

Interest and Dividend Income. Interest and dividend income for the three and six
months ended  December 31, 1996  increased to $21.0  million and $40.7  million,
respectively,  from $16.6 million and $32.0 million for the three and six months
ended December 31, 1995, respectively. The increases 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 $1.12 billion and
$1.09   billion  for  the  three  and  six  months  ended   December  31,  1996,
respectively,  versus $863.2 million and $844.0 million for the comparable prior
year periods.  The average yield on  interest-earning  assets decreased to 7.49%
for both the three and six month periods ended  December 31, 1996 from 7.70% and
7.58% for the three and six months ended December 31, 1995, respectively.

Interest income on residential one- to four-family  mortgage loans for the three
and six months ended  December 31, 1996 increased  $4.5 million,  or 53.3%,  and
$8.3 million, or 51.7%,  respectively,  when compared to the prior year periods.
The increase in interest  income on  residential  one- to  four-family  mortgage
loans was due to increases of $253.7  million and $229.5  million in the average
balance  outstanding  for the three and six  months  ended  December  31,  1996,
respectively,  over the prior year periods.  The increase in the average balance
on  residential  one- to  four-family  mortgage  loans was  partially  offset by
decreases of 0.26% and 0.19% in the average yield earned on this loan  portfolio
for the three and six months ended  December 31,  1996,  respectively,  from the
comparable prior year periods.

Interest  income on the  mortgage-backed  securities  portfolio  increased  $0.1
million,  or 1.9%,  for the three months ended  December 31, 1996 and  increased
$0.7 million,  or 6.9%,  for the six months ended December 31, 1996, as compared
to the prior year periods.  The increase in interest  income on  mortgage-backed
securities  primarily reflects  increases in the average balance  outstanding of
$9.2 million and $13.7  million for the three and six months ended  December 31,
1996, respectively, over the comparable prior year periods.
<PAGE>
Interest Expense.  Interest expense increased to $13.0 million and $24.8 million
for the three and six months ended  December 31, 1996,  respectively,  from $9.5
million and $18.2  million for the  comparable  1995  periods.  The increase was
attributable  to an increase in total average  deposits and  borrowings  coupled
with an increase in the Company's cost of funds. Average deposits and borrowings
increased  $247.6  million and $236.5 million for the three and six months ended
December 31, 1996, respectively,  compared to the 1995 periods. The average rate
paid on deposits and  borrowings  increased to 4.84% and 4.77% for the three and
six months ended December 31, 1996,  respectively,  from 4.62% and 4.56% for the
comparable prior year periods.

Net Interest and Dividend Income. Net interest and dividend income for the three
and six months  ended  December  31, 1996 was $8.0  million  and $15.9  million,
respectively,  reflecting  an  increase  from $7.1  million  and  $13.7  million
recorded  in the  comparable  prior year  periods.  The  increase  reflects  the
Company's  growth  in  assets,  primarily  in  residential  one- to  four-family
mortgage  loans.  The net interest  rate spread and net interest  margin for the
current  three months were 2.65% and 2.86%,  respectively,  a decline from 3.08%
and 3.31%,  respectively,  during the comparable 1995 quarter. Net interest rate
spread and net interest margin were 2.72% and 2.93%,  respectively,  for the six
months ended  December 31, 1996,  compared to 3.02% and 3.26% for the comparable
prior year  period.  While the  interest  rate  environment  of recent years has
proven  beneficial  to  most  financial  institutions,  including  the  Company,
increases  in  market  rates of  interest  generally  adversely  affect  the net
interest income of most financial institutions.  Since the Company's liabilities
generally  reprice more quickly  than its assets,  interest  margins will likely
decrease if interest rates rise.

Provision  for Loan Losses.  The provision for loan losses for the three and six
months ended December 31, 1996 was $152,000 and $327,000, respectively, compared
to $150,000 and  $260,000 for the prior year  periods.  The  allowance  for loan
losses at December 31, 1996 of $2.7 million  reflects a $102,000  increase  from
the June 30, 1996  level.  The  allowance  for loan  losses as a  percentage  of
non-performing loans was 42.66% at December 31, 1996, compared to 42.52% at June
30, 1996.

Non-Interest  Income.  For the three and six  months  ended  December  31,  1996
non-interest  income  was  $405,000  and  $814,000,  respectively,  compared  to
$584,000  and $1.1  million  for the prior  year  periods.  The  decreases  were
primarily due to a net loss from real estate  operations of $55,000 and $170,000
for the three and six months ended  December 31, 1996 compared to net gains from
real estate  operations of $34,000 and $114,000 for the prior year periods.  The
decrease in net gains from real estate  operations  is partially  reflective  of
additional  reserves  established  in  accordance  with  internal  policies  and
guidelines  on  real  estate   properties   currently   owned  by  the  Company.
Non-interest  income  for the three  and six  months  ended  December  31,  1995
included a $62,000 gain on sale of a property, no longer used in operations.

Non-Interest  Expenses.  The Company's non-interest expenses of $4.4 million for
the three months ended December 31, 1996 were  comparable to total  non-interest
expenses for the three months ended December 31, 1995. Non-interest expenses for
the six months ended  December 31, 1996 of $13.6  million  included $4.8 million
for  the  one-time  SAIF  recapitalization   assessment.   Excluding  this  SAIF
assessment,  non-interest  expenses for the six months  ended  December 31, 1996
would have been relatively  unchanged from the $8.7 million reported for the six
months ended December 31, 1995. The Company's non-interest  expenses,  excluding
the SAIF assessment,  as a percent of average assets declined to 1.49% and 1.54%
for the three and six months ended December 31, 1996,  respectively,  from 1.92%
and 1.95% for the comparable prior year periods.
<PAGE>
As noted  above,  beginning  January 1, 1997  deposit  insurance  premiums  have
decreased  significantly,  to 0.0648% from the 0.23% of deposits previously paid
by the Bank,  which will have the effect of reducing  non-interest  expenses for
future periods.

Income Tax  Expense.  Income  tax  expense  for the three and six  months  ended
December 31, 1996 was $1.5 million and $1.1 million,  respectively,  compared to
$1.2 million and $2.3 million for the prior year periods.  Excluding the effects
of the one-time  SAIF  recapitalization  assessment,  income tax expense of $2.9
million was recorded for the 1996 six month  period.  The effective tax rate was
38.2% for the three  months ended  December  31, 1996  compared to 39.8% for the
prior year period.  Excluding the effect of the one-time  SAIF  recapitalization
assessment,  the  effective  tax rate was 38.2% for the six month  period  ended
December 31, 1996 and 39.9% for the six months ended December 31, 1995.

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, 1996 and 1995,  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,
                                                         -------------------------------------------------------------------------
                                                                           1996                                    1995
                                                         -----------------------------------     ---------------------------------
                                                           Average       Interest                  Average       Interest
                                                         Outstanding      Earned/    Yield/      Outstanding     Earned/   Yield/
                                                           Balance         Paid      Rate(1)       Balance        Paid     Rate(1)
                                                           -------         ----      -------       -------        ----     -------
                                                                                       (dollars in 000's)
<S>                                                      <C>              <C>         <C>          <C>           <C>        <C>
Interest-earning assets:
  One- to four-family mortgage loans.................    $  686,203       $12,887     7.51%        $432,481      $ 8,405     7.77%
  Commercial and multi-family real
    estate loans.....................................        53,569         1,235     9.22           48,528        1,233    10.16
  Consumer loans.....................................        35,241           848     9.55           33,006          818     9.82
                                                         ----------       -------                  --------      ------- 
    Total loans receivable...........................       775,013        14,970     7.73          514,015       10,456     8.14
  Mortgage-backed securities.........................       324,664         5,640     6.95          315,428        5,539     7.02
  Investment securities and other....................        20,382           369     7.24           33,739          617     7.31
                                                         ----------       -------                  --------      ------- 
    Total interest-earning assets....................     1,120,059       $20,979     7.49          863,182      $16,612     7.70
                                                                          =======                                =======
  Non-interest earning assets........................        53,730                                  56,725
                                                         ----------                                -------- 
    Total assets.....................................    $1,173,789                                $919,907
                                                         ==========                                ========
Deposits and borrowings:
 Money market and demand deposits....................    $   80,445       $   250     1.23%       $  78,739      $   345     1.74%
 Savings deposits....................................       176,918           999     2.24          182,225        1,041     2.27
 Certificate of deposit accounts.....................       603,071         8,719     5.74          474,324        6,912     5.78
                                                         ----------       -------                  --------      ------- 
   Total deposits....................................       860,434         9,968     4.60          735,288        8,298     4.48
 FHLB of New York advances...........................       125,393         1,941     6.14           54,111          807     5.91
 Other borrowings....................................        76,372         1,062     5.44           25,179          372     5.79
                                                         ----------       -------                  --------      ------- 
   Total deposits and borrowings.....................     1,062,199       $12,971     4.84          814,578      $ 9,477     4.62
                                                                          =======                                ======= 
 Other liabilities...................................        20,354                                  11,320
                                                         ----------                                --------- 
   Total liabilities.................................     1,082,553                                 825,898
 Stockholders' equity................................        91,236                                  94,009
                                                         ----------                                 --------- 
   Total liabilities and stockholders' equity........    $1,173,789                                $919,907
                                                         ==========                                ========

Net interest income and net interest rate
    spread...........................................                     $ 8,008     2.65%                      $ 7,135     3.08%
                                                                          =======     ====                       =======     ====
Net interest-earning assets and interest
    margin...........................................     $  57,860                   2.86%       $  48,604                  3.31%
                                                          =========                   ====        =========                  ====
Ratio of interest-earning assets to
    deposits and borrowings..........................        105.45%                                 105.97%
                                                         ==========                              ==========

(1)  Annualized.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                Six Months Ended December 31,
                                                         --------------------------------------------------------------------------
                                                                          1996                                   1995
                                                         --------------------------------------------------------------------------
                                                           Average       Interest                  Average      Interest
                                                         Outstanding      Earned/    Yield/      Outstanding     Earned/    Yield/
                                                           Balance         Paid      Rate(1)       Balance        Paid      Rate(1)
                                                           -------         ----      -------       -------        ----      -------
                                                                                    (dollars in 000's)
<S>                                                      <C>              <C>         <C>          <C>           <C>        <C>
Interest-earning assets:
  One- to four-family mortgage loans.................    $  642,572       $24,204     7.53%        $413,041      $15,953     7.72%
  Commercial and multi-family real
    estate loans.....................................        52,937         2,447     9.24           48,738        2,442    10.02
  Consumer loans.....................................        34,720         1,663     9.50           32,893        1,643     9.91
                                                         ----------       -------                  --------      -------  
    Total loans receivable...........................       730,229        28,314     7.75          494,672       20,038     8.10
  Mortgage-backed securities.........................       331,718        11,511     6.94          318,042       10,765     6.77
  Investment securities and other....................        24,190           870     7.19           31,303        1,178     7.53
                                                         ----------       -------                  --------      -------  
    Total interest-earning assets....................     1,086,137       $40,695     7.49          844,017      $31,981     7.58
                                                                          =======                                =======
  Non-interest earning assets........................        53,841                                  55,358
                                                         ----------                                -------- 
    Total assets.....................................    $1,139,978                                $899,375
                                                         ==========                                ========
Deposits and borrowings:
 Money market and demand deposits....................    $   79,690       $   486     1.21%        $ 79,608      $   710     1.77%
 Savings deposits....................................       176,856         1,997     2.24          184,563        2,113     2.27
 Certificate of deposit accounts.....................       593,447        16,960     5.67          461,532       13,395     5.76
                                                         ----------       -------                  --------      -------  
   Total deposits....................................       849,993        19,443     4.54          725,703       16,218     4.43
 FHLB of New York advances...........................       115,893         3,570     6.11           45,833        1,361     5.89
 Other borrowings....................................        64,434         1,788     5.43           22,284          666     5.85
                                                         ----------       -------                  --------      -------  
   Total deposits and borrowings.....................     1,030,320       $24,801     4.77          793,820      $18,245     4.56
                                                                          =======                                =======
 Other liabilities...................................        18,021                                  11,017
                                                         ----------                                -------- 
   Total liabilities.................................     1,048,341                                 804,837
 Stockholders' equity................................        91,637                                  94,538
                                                         ----------                                -------- 
   Total liabilities and stockholders' equity........    $1,139,978                                $899,375
                                                         ==========                                ========

Net interest income and net interest rate
    spread...........................................                     $15,894     2.72%                      $13,736     3.02%
                                                                          =======     ====                       =======     ====
Net interest-earning assets and interest
    margin...........................................    $   55,817                    2.93%       $ 50,197                  3.26%
                                                         ==========                    ====        ========                  ====
Ratio of interest-earning assets to
    deposits and borrowings..........................        105.42%                                 106.32%
                                                         ==========                                ======== 

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

The  table  below  sets  forth  the   Company's   amounts  and   categories   of
non-performing  assets and troubled debt restructured loans. Loans are placed on
non-accrual  status when the  collection  of principal  and/or  interest  become
delinquent  more than 90 days.  Foreclosed  assets  include  assets  acquired in
settlement  of loans  and are  shown  net of  valuation  allowances.  All of the
Company's  troubled debt  restructured  loans are performing  according to their
modified terms.
<TABLE>
<CAPTION>
                                                          December 31,  June 30,
                                                              1996        1996
                                                             ------      ------
                                                             (dollars in 000's)
<S>                                                          <C>         <C>
Non-performing loans:
  One- to four-family ..................................     $4,230      $4,009
  Commercial and multi-family real estate ..............      1,254         913
  Consumer .............................................        920       1,264
                                                             ------      ------
    Total non-performing loans .........................      6,404       6,186
                                                             ------      ------

Real estate owned, net .................................        795       1,083
                                                             ------      ------
    Total non-performing assets ........................      7,199       7,269

Troubled debt restructured loans .......................      2,325       2,340
                                                             ------      ------
    Total risk elements ................................     $9,524      $9,609
                                                             ======      ======

Non-performing loans as a percentage of total  loans ...       0.77%       0.94%
                                                             ======      ======
Non-performing assets as a percentage of  total assets .       0.59%       0.67%
                                                             ======      ======
Total risk elements as a percentage of  total assets ...       0.78%       0.88%
                                                             ======      ======
</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 judgement of the information  available to them
at the time of their examination.  At December 31, 1996, the Company had a total
allowance  for  loan  losses  of  $2.7  million  representing  42.66%  of  total
non-performing loans.

Interest Rate Sensitivity Analysis

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.  In an attempt to manage its  exposure  to changes in interest
rates, management closely monitors the Company's exposure to interest rate risk.

At December 31, 1996, 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 $134.6  million,  representing a one year negative
gap of 11.09% of total assets.  At June 30, 1996,  the one year negative gap was
13.97% of total  assets.  As a result of having a negative gap, the yield on the
Company's  interest-earning  assets may adjust to changes in interest rates at a
slower rate than the cost of its  deposits  and  borrowings.  During a period of
rising  interest rates, a negative gap would tend to result in a decrease in net
interest  income.  The opposite  tendency  would be expected  during a period of
declining interest rates.

In evaluating the Company's exposure to interest rate risk, certain shortcomings
inherent in the method of analysis  must be  considered.  For example,  although
certain  assets  and  liabilities  may have  similar  maturities  or  periods to
repricing,  they may react in  different  degrees to changes in market  interest
rates.  Also, the interest rates on certain types of assets and  liabilities may
fluctuate in advance of changes in market interest  rates,  while interest rates
on other types may lag behind changes in market  interest  rates.  Additionally,
certain assets, such as adjustable rate mortgages,  have features which restrict
changes  in  interest  rates in the  short-term  and over the life of the asset.
Further,  in the  event of a change  in  interest  rates,  prepayment  and early
withdrawal  levels may deviate  significantly  from those assumed in calculating
the gap position.  Finally,  the ability of many borrowers to service their debt
may decrease in the event of an interest rate  increase.  The Company  considers
all of these factors in monitoring its exposure to interest rate risk.
<PAGE>
Net Portfolio Value.  The Company's  interest rate sensitivity is also monitored
by management  through selected  interest rate risk ("IRR") measures produced by
the Office of Thrift Supervision  ("OTS").  Using data from the Bank's quarterly
Thrift  Financial  Reports,  the OTS measures the  Company's IRR by modeling 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.

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.

As of September 30, 1996 (the latest date for which  information  is available),
the Company's initial NPV ratio, as measured by the OTS, was 6.81%.  Following a
2% increase in interest rates,  the Company's  "Post-Shock" NPV ratio was 2.56%.
The change in the NPV ratio or the Company's  Sensitivity Measure was 4.25%. Had
the OTS final rule with respect to interest rate risk  exposure been  effective,
the increased capital  requirement  necessary to compensate for the greater than
2% change in the NPV would  have had no effect on the  Bank's  ability to comply
with its risk-based capital requirement.

Management   reviews  the  quarterly  OTS  measurements  and  compares  them  to
evaluations   produced  on  a  quarterly  basis  through  internally   generated
simulation  models.  In  addition  to  monitoring   selected  measures  on  NPV,
management also monitors  effects on net interest income resulting from parallel
and  non-parallel  increases or decreases in rates.  These  measures are used in
conjunction with NPV measures to identify excessive IRR.

At December 31, 1996, based on its internally  generated  simulation models, the
Company's  consolidated  net  interest  income  projected  for one year  forward
decreased  $5.0  million or 14.2% from the base case,  or current  market,  as a
result of an immediate and sustained 2% increase in interest rates.

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 and is currently 5% of net  withdrawable  deposits
and  borrowings  payable on demand or in one year or less  during the  preceding
calendar month.  Liquid assets for purposes of this ratio include cash,  accrued
interest  receivable,  certain  time  deposits,  U.S.  Treasury  and  Government
<PAGE>
agencies  and  other  securities  and  obligations  generally  having  remaining
maturities of less than five years.  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, 1996 and June
30, 1996, the Bank's liquidity ratios were 9.09% and 15.17%, respectively,  both
in excess of the 5% minimum regulatory requirement.

The Company uses its liquid resources  principally to meet ongoing  commitments,
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, 1996 and 1995 were principally provided by
increased  deposits  and an increase  in advances  from the FHLB of New York and
other borrowings.  For the six months ended December 31, 1996 and 1995, the cash
provided was  principally  used 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,
1996, the Bank substantially exceeded all regulatory capital standards (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 25, 1996.

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

             (c) At the  Annual  Meeting  the  stockholders  considered  the (i)
             election of two directors and (ii)  ratification of the appointment
             of Deloitte & Touche LLP as auditors for the Company for the fiscal
             year ending June 30, 1997.

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

                                                     FOR          WITHHELD
                                                     ---          --------
                 
                    Patrick D. McTernan           4,169,987        45,407
                    Marvin D. Schoonover          4,169,035        46,359

                    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, 1997 was as follows:

                              FOR              AGAINST           ABSTAIN
                              ---              -------           -------

                           4,185,787            4,500             25,107

                    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
             None.
<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 13, 1997                      By:/s/ Joseph L. LaMonica
                                                ----------------------
                                                Joseph L. LaMonica
                                                President and Chief
                                                Executive Officer




Date: February 13, 1997                      By:/s/ Lucy T. Tinker
                                                ------------------
                                                Lucy T. Tinker
                                                Executive Vice President and
                                                Chief Operating Officer
                                                (Principal Financial Officer)





Date: February 13, 1997                      By:/s/ Jeffrey J. Carfora
                                                ----------------------
                                                Jeffrey J. Carfora
                                                Senior Vice President and
                                                Chief Financial Officer
                                                (Principal Accounting Officer)