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, 1998

                                       OR

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

         For the  transition  period from           to

                         Commission file number 0-24040 

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

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

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


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


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

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

                                   YES  [X]   NO[  ]  


         As of February 5, 1999,  there were  issued and  outstanding  8,793,439
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,
                                                                                         1998            1998
                                                                                     -----------      -----------   
                                                                                        (Dollars in thousands)
<S>                                                                                  <C>              <C>         
ASSETS
Cash and cash equivalents ......................................................     $    13,827      $    10,960
Investment securities held to maturity, at amortized cost, market value of
     $204,825 and $178,743 at December 31, 1998 and June 30, 1998 ..............         204,818          178,310
Mortgage-backed securities held to maturity, at amortized cost, market
     value of $162,001 and $208,128 at December 31, 1998 and
     June 30, 1998 .............................................................         160,399          204,452
Loans held for sale ............................................................           7,549              565
Loans receivable, net of allowance for loan losses of $2,925 and $2,776
     at December 31, 1998 and June 30, 1998 ....................................       1,093,415        1,095,287
Premises and equipment, net ....................................................          18,604           18,092
Real estate owned, net .........................................................             972            1,643
Federal Home Loan Bank of New York stock, at cost ..............................          16,458           15,065
Accrued interest receivable, net ...............................................           8,862            8,723
Goodwill and other intangible assets ...........................................          12,290           13,481
Other assets ...................................................................           5,274            5,360
                                                                                     -----------     ------------
                                                                                     $ 1,542,468     $  1,551,938
                                                                                     ===========     ============

LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
     Deposits ..................................................................     $ 1,019,705      $ 1,028,100
     Federal Home Loan Bank of New York advances ...............................         274,465          230,465
     Other borrowings ..........................................................          93,275          131,500
     Mortgage escrow funds .....................................................           9,721           10,534
     Due to banks ..............................................................           7,811           12,069
     Accounts payable and other liabilities ....................................           3,902            2,886
                                                                                     -----------     ------------
     Total liabilities .........................................................       1,408,879        1,415,554
                                                                                     -----------     ------------

     Guaranteed Preferred Beneficial Interests in the Company's
         Junior Subordinated Debentures ........................................          34,500           34,500
     Unamortized issuance expenses .............................................          (1,788)          (1,819)
                                                                                     -----------     ------------
     Net Trust Preferred Securities ............................................          32,712           32,681
                                                                                     -----------     ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Financial Condition (continued)

                                                                                     December 31,      June 30,
                                                                                         1998            1998
                                                                                     -----------      -----------   
                                                                                        (Dollars in thousands)
<S>                                                                                  <C>              <C>         
Stockholders' Equity:
     Serial preferred stock, $.01 par value, 7,000,000 shares
         authorized, no shares issued ..........................................            --               --
     Common stock, $.01 par value, 30,000,000 shares authorized,
         11,900,000 shares issued, and  8,793,439 and  9,385,988     shares
         outstanding  at December 31, 1998 and June 30, 1998  (excluding  shares
         held in treasury of 3,106,561 and 2,514,012 at
         December 31, 1998 and June 30, 1998) ..................................              60               60
     Additional paid-in capital ................................................          58,878           58,278
     Restricted stock - Management Recognition Plan ............................            (531)            (531)
     Employee Stock Ownership Plan Trust debt ..................................          (3,074)          (3,253)
     Retained earnings, partially restricted ...................................          75,675           70,781
     Treasury stock, at cost, 3,106,561 and 2,514,012 shares at
         December 31, 1998 and June 30, 1998 ...................................         (30,131)         (21,632)
                                                                                     -----------     ------------
     Total stockholders' equity ................................................         100,877          103,703
                                                                                     -----------     ------------
                                                                                     $ 1,542,468     $  1,551,938
                                                                                     ===========     ============
</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,
                                                          ----------------------------      ----------------------------
                                                              1998             1997             1998             1997
                                                          -----------      -----------      -----------      -----------
                                                                   (Dollars in thousands, except per share amounts)
<S>                                                       <C>              <C>              <C>              <C>    
Interest and Dividend Income:
     Interest and fees on loans .....................     $    19,773      $    18,287      $    39,972      $    36,196
     Interest on federal funds sold .................              23               10               26               10
     Interest and dividends on investment securities            3,884            2,252            7,672            3,316
     Interest on mortgage-backed securities .........           2,872            4,485            6,120            9,339
                                                          -----------      -----------      -----------      -----------
                                                               26,552           25,034           53,790           48,861
                                                          -----------      -----------      -----------      -----------
Interest Expense:
     Deposits .......................................          12,506           12,179           25,154           23,855
     Borrowed funds .................................           5,072            4,156           10,585            8,145
     Trust Preferred securities .....................             783              607            1,566              607
                                                          -----------      -----------      -----------      -----------
                                                               18,361           16,942           37,305           32,607
                                                          -----------      -----------      -----------      -----------
Net Interest and Dividend Income Before Provision
     for Loan Losses ................................           8,191            8,092           16,485           16,254
Provision for Loan Losses ...........................             185              150              360              300
                                                          -----------      -----------      -----------      -----------
Net Interest and Dividend Income After Provision
     for Loan Losses ................................           8,006            7,942           16,125           15,954
                                                          -----------      -----------      -----------      -----------

Non-Interest Income:
     Service charges ................................             487              475            1,028              911
     Net gain (loss) from real estate operations ....              (9)             (50)             (46)             (89)
     Net gain on sales of loans .....................             345              108              762              108
     Other ..........................................              89               71              183              159
                                                          -----------      -----------      -----------      -----------
                                                                  912              604            1,927            1,089
                                                          -----------      -----------      -----------      -----------

Non-Interest Expenses:
     Compensation and employee benefits .............           2,117            2,071            4,352            4,144
     Net occupancy expense ..........................             319              321              646              616
     Equipment ......................................             414              368              839              726
     Advertising ....................................              62               87              138              158
     Amortization of intangibles ....................             593              612            1,191            1,228
     Federal deposit insurance premium ..............             152              145              311              285
     Other ..........................................             887              661            1,739            1,329
                                                          -----------      -----------      -----------      -----------
                                                                4,544            4,265            9,216            8,486
                                                          -----------      -----------      -----------      -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Income (continued)

                                                                 Three months ended               Six months ended
                                                                    December 31,                    December 31,
                                                          ----------------------------      ----------------------------
                                                              1998             1997             1998             1997
                                                          -----------      -----------      -----------      -----------
                                                                   (Dollars in thousands, except per share amounts)
<S>                                                       <C>              <C>              <C>              <C>    
Income Before Income Taxes ..........................           4,374            4,281            8,836            8,557
Income Tax Expense ..................................           1,556            1,539            3,167            3,129
                                                          -----------      -----------      -----------      -----------
Net Income ..........................................     $     2,818      $     2,742      $     5,669      $     5,428
                                                          ===========      ===========      ===========      ===========

Weighted average number of common shares outstanding:
     Basic ..........................................       8,508,098        8,952,994        8,585,774        8,942,102
                                                          ===========      ===========      ===========      ===========
     Diluted ........................................       9,115,202        9,705,072        9,221,548        9,671,600
                                                          ===========      ===========      ===========      ===========

Net income per common share:
     Basic ..........................................     $      0.33      $      0.31      $      0.66      $      0.61
                                                          ===========      ===========      ===========      ===========
     Diluted ........................................     $      0.31      $      0.28      $      0.62      $      0.56
                                                          ===========      ===========      ===========      ===========

</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,
                                                                               -----------------------------
                                                                                    1998           1997
                                                                                 ---------      ---------
                                                                                  (Dollars in thousands)
<S>                                                                              <C>            <C>      
Cash Flows from Operating Activities:
     Net income ............................................................     $   5,669      $   5,428
     Adjustments to reconcile net income to net cash provided by
       operating activities:
     Net gain on sales of loans ............................................          (762)          (108)
     Proceeds from sales of loans held for sale ............................        74,873          1,228
     Originations of loans held for sale ...................................          --           (1,616)
     Net gain on sales of real estate owned ................................           (13)           (23)
     Amortization of investment and mortgage-backed securities
       premium, net ........................................................           193            147
     Depreciation and amortization .........................................           679            643
     Provision for losses on loans and real estate owned ...................           401            370
     Amortization of cost of stock plans ...................................         1,044            863
     Amortization of intangibles ...........................................         1,191          1,228
     Amortization of premiums on loans and loan fees .......................         1,187            480
     Amortization of Trust Preferred securities issuance costs .............            31             10
     Increase in accrued interest receivable, net of accrued
       interest payable ....................................................        (2,241)        (3,560)
     (Increase) decrease in other assets ...................................            86           (897)
     Increase in accounts payable and other liabilities ....................           751            532
     Decrease in mortgage escrow funds .....................................          (813)          (546)
     Increase (decrease) in due to banks ...................................        (4,258)         1,071
     Other, net ............................................................            26           --
                                                                                 ---------      ---------
     Net cash provided by operating activities .............................        78,044          5,250
                                                                                 ---------      ---------

Cash Flows from Investing Activities:
     Proceeds from maturities of investment securities .....................       137,070            125
     Purchases of investment securities held to maturity ...................      (163,597)      (121,200)
     Net outflow from loan originations net of principal repayments of loans       (60,447)       (34,525)
     Purchases of loans ....................................................       (20,351)       (54,687)
     Proceeds from principal repayments of mortgage-backed securities ......        43,879         39,210
     Proceeds from sale of loans ...........................................          --           22,231
     Purchases of premises and equipment ...................................        (1,217)        (1,496)
     Proceeds from sale of real estate owned ...............................           671            454
     Purchases of Federal Home Loan Bank of New York stock .................        (1,393)        (2,652)
                                                                                 ---------      ---------
     Net cash used in investing activities .................................       (65,385)      (152,540)
                                                                                 ---------      ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)

                                                               Six months ended December 31,
                                                               -----------------------------
                                                                     1998           1997
                                                                  ---------      ---------
                                                                    (Dollars in thousands)
<S>                                                               <C>            <C>      
Cash Flows from Financing Activities:
     Net increase (decrease) in deposits ....................        (6,293)        54,897
     Increase in advances from the Federal Home Loan Bank of
       New York and other borrowings ........................         5,775         61,275
     Net proceeds from issuance of Trust Preferred securities          --           32,640
     Cash dividends paid ....................................          (671)          (649)
     Purchases of treasury stock, net of reissuance .........        (8,603)          --
                                                                  ---------      ---------
     Net cash provided by (used in) financing activities ....        (9,792)       148,163
                                                                  ---------      ---------
Net Increase in Cash and Cash Equivalents ...................         2,867            873
Cash and Cash Equivalents, Beginning of Period ..............        10,960         10,729
                                                                  ---------      ---------
Cash and Cash Equivalents, End of Period ....................     $  13,827      $  11,602
                                                                  =========      =========

Supplemental Disclosures of Cash Flow Information:
     Cash paid during period for:
     Interest ...............................................     $  38,692      $  33,856
                                                                  =========      =========
     Income taxes ...........................................     $   3,300      $   3,484
                                                                  =========      =========

Supplemental Schedule of Non-Cash Activities:
     Transfer of loans receivable to real estate owned, net .     $      28      $   1,502
                                                                  =========      =========
     Transfer of loans receivable to loans held for sale ....     $  81,095      $    --
                                                                  =========      =========

</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,  1998.  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, 1998 and 1997.  The interim  results of
operations presented are not necessarily  indicative of the results for the full
year.

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

2.  Adoption of Recently Issued Accounting Standards

Effective July 1, 1998, the Company  adopted  Statement of Financial  Accounting
Standards No. 130,  "Reporting  Comprehensive  Income"  ("SFAS  130").  SFAS 130
establishes  standards for reporting and display of comprehensive income and its
components.  SFAS 130 requires that all items that are required to be recognized
under accounting  standards as components of comprehensive income be reported in
a  financial  statement  that is  displayed  with the same  prominence  as other
financial  statements.  The  Company  is  required  to  classify  items of other
comprehensive  income by their nature in a financial  statement  and display the
accumulated  balance of other  comprehensive  income  separately  from  retained
earnings and additional  paid-in  capital in the equity section of the statement
of financial  condition.  The adoption of SFAS 130 did not have an effect on the
Company's financial condition or results of operations.
<PAGE>
3.  Computation of EPS

The computation of EPS is presented in the following table.
<TABLE>
<CAPTION>
                                                            Three months ended              Six months ended
                                                               December 31,                    December 31,
                                                      ---------------------------     ---------------------------
                                                         1998             1997            1998           1997
                                                      -----------     -----------     -----------     -----------
                                                            (Dollars in thousands, except per share amounts)

<S>                                                   <C>             <C>             <C>             <C>        
Net income ......................................     $     2,818     $     2,742     $     5,669     $     5,428
                                                      ===========     ===========     ===========     ===========

Number of shares outstanding:
  Weighted average shares issued ................      11,900,000      11,900,000      11,900,000      11,900,000
  Less:  Weighted average shares held in treasury       2,786,240       2,254,564       2,697,326       2,254,996
  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 ...         346,338         259,558         335,100         249,098
                                                      -----------     -----------     -----------     -----------
         Average basic shares ...................       8,508,098       8,952,994       8,585,774       8,942,102
  Plus:  Average common stock equivalents .......         607,104         752,078         635,774         729,498
                                                      -----------     -----------     -----------     -----------
         Average diluted shares .................       9,115,202       9,705,072       9,221,548       9,671,600
                                                      ===========     ===========     ===========     ===========

Earnings per common share:
         Basic ..................................     $      0.33     $      0.31     $      0.66     $      0.61
                                                      ===========     ===========     ===========     ===========
         Diluted ................................     $      0.31     $      0.28     $      0.62     $      0.56
                                                      ===========     ===========     ===========     ===========
</TABLE>
<PAGE>
4. Stockholders' Equity and Regulatory Capital

The Bank's capital amounts and ratios are presented in the following table.
<TABLE>
<CAPTION>
                                                                                                             To Be Well
                                                                                                          Capitalized Under
                                                                                  For Capital               Prompt Corrective
                                                        Actual                  Adequacy Purposes           Action Provisions
                                                 ------------------             -----------------          ------------------
                                                  Amount      Ratio             Amount      Ratio          Amount       Ratio
                                                  ------      -----             ------      -----          ------       -----
                                                                             (Dollars in thousands)
<S>                                              <C>           <C>              <C>         <C>            <C>         <C> 
At December 31, 1998
Tangible capital...........................      $116,235      7.60%            $22,936     1.50%              N/A       N/A
Core capital...............................      $116,369      7.61%            $61,168     4.00%          $76,460      5.00%
Risk-based capital.........................      $119,047     15.58%            $61,114     8.00%          $76,393     10.00%

As of June 30, 1998
Tangible capital...........................      $108,580      7.09%            $22,960     1.50%              N/A       N/A
Core capital...............................      $108,816      7.11%            $61,237     4.00%          $76,547      5.00%
Risk-based capital.........................      $111,262     15.16%            $58,705     8.00%          $73,381     10.00%
</TABLE>
 
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 summarizes
the Company's  capital  position under the FRB's capital  requirements  for bank
holding companies.
<PAGE>
<TABLE>
<CAPTION>
                                                                                                                To Be Well
                                                                                                                Capitalized
                                                                                      For Minimum               Under Prompt
                                                                                   Capital Adequacy          Corrective Action
                                                             Actual                     Purposes                 Provisions
                                                         ----------------          -----------------          ---------------  

                                                         Amount     Ratio          Amount     Ratio           Amount    Ratio
                                                         ------     -----          ------     -----           ------    -----
                                                                               (Dollars in thousands)
<S>                                                   <C>            <C>          <C>           <C>           <C>       <C>      
Stockholders' equity.............................     $   100,877
Add:   Qualifying preferred securities...........          29,551
Less:  Goodwill..................................            (817)
       Deposit premium intangible................         (11,473)
       Disallowed servicing assets...............             (70)
                                                      ------------ 
Tangible capital, and ratio to
       adjusted total assets.....................     $   118,068    7.71%        $22,958       1.50%                             
                                                      ===========                 =======                                        
                                                                                                                                 
Add:   Qualifying intangible asset...............     $       135                                                                
                                                      -----------                                                                
Tier I (core) capital, and ratio to                                                                                              
       adjusted total assets.....................     $   118,203    7.72%        $45,916       3.00%         $76,526   5.00%    
                                                      ===========                 =======                     =======            
                                                                                                                                 
Tier I (core) capital, and ratio to                                                                                              
       risk-weighted assets......................     $   118,203   15.68%        $30,154       4.00%         $45,231   6.00%    
                                                      ===========                 =======                     =======            
                                                                                                                                 
Less:  Equity investments and                                                                                                    
       investments in real estate................     $       (50)                                                               
Add:   Allowance for loan losses.................           2,728                                                                
                                                      -----------                                                                
                                                                                                                                 
Total risk-based capital, and ratio                                                                                              
       to risk-weighted assets...................     $   120,881   16.03%        $60,309       8.00%         $75,386  10.00%    
                                                      ===========                 =======                     =======            
                                                                                                                                 
Total assets.....................................     $ 1,542,468                                                                
                                                      ===========                                                                
                                                                                                                                 
Adjusted total assets............................     $ 1,530,523                                                                
                                                      ===========                                                                
                                                                                                                                 
Risk-weighted assets.............................     $   753,858                                                                
                                                      ===========                                                                
                                                                                               
</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 stockholder 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,  financial or legal conditions  including  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  wishes to caution  readers not to place
undue reliance on any such  forward-looking  statements,  which speak only as of
the date made.  The Company  wishes to advise  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 does 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  decreased  slightly to $1.542  billion at December  31, 1998 from
total  assets  of  $1.552  billion  at  June  30,  1998.  Increases  due to loan
originations and purchases and purchases of investment securities were offset by
sales of one- to four-family  residential loans and principal  payments on loans
and mortgage-backed  securities.  A new strategic  initiative was implemented at
the beginning of the fiscal year and focuses on sales of fixed-rate, low coupon,
one- to  four-family  first  mortgage  loans  into the  secondary  market.  This
strategic  initiative is intended to result in an  improvement  in the Company's
interest  rate  risk  position  and  the  net  interest   margin  and  increased
non-interest income.
<PAGE>
Total  deposits have remained  relatively  steady since June 30, 1998.  Deposits
decreased  $8.4  million to $1.020  billion at  December  31,  1998 from  $1.028
billion at June 30, 1998.  Federal Home Loan Bank of New York advances and other
borrowings  totaled $367.7 million at December 31, 1998, a $5.7 million increase
from $362.0 million at June 30, 1998.

Non-performing  assets at December 31, 1998 totaled $5.6  million,  representing
0.36% of total assets,  compared to $5.4 million,  or 0.35% of total assets,  at
June  30,  1998.  Non-accruing  loans  totaled  $4.6  million,  with a ratio  of
non-accruing  loans to total loans of 0.42% at December  31, 1998 as compared to
$3.7  million,  or 0.34% of total  loans,  at June 30,  1998.  Real estate owned
decreased  to $1.0  million at December  31, 1998 from $1.6  million at June 30,
1998.

Stockholders'  equity at December 31, 1998 totaled  $100.9  million  compared to
$103.7 million at June 30, 1998. The decrease  primarily reflects the repurchase
of 618,000 shares of the Company's  outstanding common stock at an average price
of $14.12 per share and the  declaration of dividends,  partially  offset by net
income recorded for the six months ended December 31, 1998.

Results of Operations

General.  For the three  months  ended  December  31,  1998 net  income was $2.8
million,  or $0.31 per diluted share, as compared to net income of $2.7 million,
or $0.28 per diluted  share for the  comparable  prior year period.  For the six
months ended December 31, 1998 net income was $5.7 million, or $0.62 per diluted
share. These results compare to net income of $5.4 million, or $0.56 per diluted
share for the six months ended December 31, 1997.

Interest and Dividend Income. Interest and dividend income for the three and six
months ended  December 31, 1998  increased to $26.6  million and $53.8  million,
respectively,  from $25.0 million and $48.9 million for the three and six months
ended  December 31, 1997.  The increases in the current year periods were due to
increases in average  interest-earning  assets  partially offset by decreases in
the average yield earned on interest-earning  assets.  Average  interest-earning
assets were $1.508 billion and $1.514 billion for the three and six months ended
December 31, 1998,  respectively,  compared to $1.355 billion and $1.320 billion
for  the   comparable   prior  year   periods.   The  average  yield  earned  on
interest-earning  assets  decreased  to 7.04%  and  7.10%  for the three and six
months ended December 31, 1998, respectively, from 7.39% and 7.40% for the three
and six months ended December 31, 1997.

Interest income on residential one- to four-family  mortgage loans for the three
and six months ended  December 31, 1998 increased $1.1 million and $3.1 million,
respectively,  when compared to the prior year periods. The increase in interest
income  on  residential  one- to  four-family  mortgage  loans was due to $115.1
million and $130.6 million increases in the average balance  outstanding for the
three and six months ended December 31, 1998, respectively.  The increase in the
average balance on residential one- to four-family  mortgage loans was partially
offset by a decrease of 42 basis points and 36 basis points in the average yield
earned on this loan  portfolio  to 6.98% and 7.05% for the three and six  months
ended December 31, 1998, respectively, from the comparable prior year periods.

Interest income on investment securities increased $1.6 million and $4.4 million
for the three and six months ended  December 31,  1998,  respectively,  from the
comparable prior year periods. The increase was primarily due to a $99.1 million
<PAGE>
and a $126.2 million  increase in the average balance  outstanding for the three
and six months ended December 31, 1998, respectively,  over the comparable prior
year periods.  The increase in the average balance on investment  securities was
partially  offset  by a 31 basis  point  and a 23 basis  point  decrease  in the
average  yield  earned on these  securities  for the three and six months  ended
December 31, 1998, respectively, when compared to the prior year periods.

Interest  income on the  mortgage-backed  securities  portfolio  decreased  $1.6
million and $3.2 million, or 36.0% and 34.5%, for the three and six months ended
December  31, 1998,  respectively,  as compared to the prior year  periods.  The
decrease in interest income on mortgage-backed  securities  primarily reflects a
$90.5 million and an $89.4 million  decrease in the average balance  outstanding
for the three and six months ended December 31, 1998, respectively,  compared to
the prior year periods.

Interest  Expense.  Interest expense increased $1.4 million and $4.7 million for
the three  and six  months  ended  December  31,  1998,  respectively,  from the
comparable  December  31, 1997  periods.  The increase  was  attributable  to an
increase  in total  average  deposits  and  borrowings,  partially  offset  by a
decrease in the Company's cost of funds.  Interest expense also increased due to
the issuance of trust preferred securities (the "Trust Preferred securities") in
October 1997.  Average  deposits and  borrowings  increased  $147.3  million and
$174.6   million  for  the  three  and  six  months  ended  December  31,  1998,
respectively, compared to the prior year periods. Trust Preferred securities had
an average  balance of $32.7  million for the current year  periods  compared to
$25.7 million and $12.8 million for the three and six months ended  December 31,
1997,  respectively.  The average  rate paid on deposits,  borrowings  and Trust
Preferred  securities  decreased to 5.06% and 5.11% for the three and six months
ended December 31, 1998,  respectively,  from 5.23% and 5.17% 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, 1998 was $8.2  million  and $16.5  million,
respectively,  reflecting a slight  increase from $8.1 million and $16.3 million
recorded in the comparable prior year periods.  The increase  reflects growth in
the Company's average assets, primarily in investment securities and residential
one- to four-family  mortgage  loans.  The increase in net interest and dividend
income was partially  offset by a decline in the net interest  rate spread.  The
net  interest  rate spread and net  interest  margin for the three  months ended
December 31, 1998 were 1.98% and 2.21%,  respectively,  a decline from 2.16% and
2.43%,  respectively,  for the three months ended December 31, 1997. For the six
months ended December 31, 1998, net interest rate spread and net interest margin
were  1.99%  and  2.22%,  respectively,  compared  to 2.23%  and  2.50%  for the
comparable  1997 period.  For the three and six months ended  December 31, 1998,
the  declines  in the net  interest  rate  spread and net  interest  margin were
partially due to the issuance of the Trust Preferred securities. The declines in
the net interest rate spread and net interest  margin were also  attributable to
the relatively flat yield curve environment recently experienced in which higher
yielding assets prepaid at accelerated rates and were replaced by lower yielding
loans. Since the Company's  liabilities  generally reprice more quickly than its
assets, net interest rate spread and net interest margin will likely decrease if
interest rates rise.
<PAGE>
Provision  for Loan Losses.  The provision for loan losses for the three and six
months ended December 31, 1998 was $185,000 and $360,000, respectively, compared
to $150,000 and $300,000 for the  comparable  prior year periods.  The allowance
for loan  losses at  December  31,  1998 of $2.9  million  reflects  a  $149,000
increase  from the June 30,  1998  level.  The  allowance  for loan  losses as a
percentage of  non-accruing  loans was 63.78% at December 31, 1998,  compared to
74.18% at June 30, 1998.

Non-Interest  Income.  For the three and six  months  ended  December  31,  1998
non-interest  income was $912,000 and $1.9  million,  respectively,  compared to
$604,000 and $1.1 million for the prior year periods. The increase was primarily
attributable  to gains on sales of loans of $345,000  and $762,000 for the three
and six months ended December 31, 1998. One- to four-family residential mortgage
loans  totaling  approximately  $48  million  and $74  million  were sold in the
secondary  market  during  the three and six months  ended  December  31,  1998,
respectively.  Included in the  December 31, 1997 periods is a total of $108,000
of net gain on sales of loans, of which $91,000 represents a gain recorded on an
approximate  $20  million  loan  sale  undertaken  to  manage  prepayment  risk.
Recurring  loan sales are intended to enhance the  Company's  ability to improve
its interest rate risk position,  maintain its  origination  volume  profitably,
stabilize net interest margin and increase non-interest income.

Non-Interest Expenses. The Company's non-interest expenses were $4.5 million and
$9.2 million for the three and six months ended December 31, 1998, respectively,
compared to $4.3 million and $8.5 million for the comparable prior year periods.
Non-interest  expenses have increased to support the Company's increased lending
volumes and the new Bayville branch which opened in October 1997.  Nevertheless,
the Company's  non-interest  expenses as a percent of average assets declined to
1.16%  and  1.17%  for the  three  and  six  months  ended  December  31,  1998,
respectively, from 1.21% and 1.24% for the prior year periods.

Income Tax  Expense.  Income  tax  expense  for the three and six  months  ended
December 31, 1998 was $1.6 million and $3.2 million,  respectively,  compared to
$1.5 million and $3.1  million for the three and six months  ended  December 31,
1997.  The  effective  tax rate for the three and six months ended  December 31,
1998 was 35.6% and 35.8%,  respectively.  The  effective  tax rate was 35.9% and
36.6% for the three and six months ended December 31, 1997, respectively.

Analysis of Net Interest Income

The  following  table sets forth certain  information  relating to the Company's
consolidated  statements of financial condition and the consolidated  statements
of income for the three and six months  ended  December  31, 1998 and 1997,  and
reflects  the average  yield on assets and average cost of  liabilities  for the
periods  indicated.  Such  yields  and  costs are  derived  from  average  daily
balances.  The average balance of loans receivable includes  non-accruing loans.
The yields and costs include fees which are considered adjustments to yields.
<PAGE>
<TABLE>
<CAPTION>
                                                                            Three Months Ended December 31,
                                                  ------------------------------------------------------------------------------
                                                                    1998                                      1997
                                                  --------------------------------------    ------------------------------------ 
                                                     Average       Interest                    Average      Interest
                                                   Outstanding      Earned/     Yield/       Outstanding     Earned/     Yield/
                                                     Balance         Paid      Rate (1)        Balance        Paid      Rate (1)
                                                  -------------   ----------   --------     -------------  ----------   --------
                                                                              (Dollars in thousands)
<S>                                                 <C>            <C>         <C>              <C>          <C>        <C>  
Interest-earning assets:
    One- to four-family mortgage
       loans...................................     $  985,837     $17,191       6.98%          $870,725     $16,101      7.40%
    Commercial and multi-family real
       estate loans............................         67,057       1,461       8.71             56,299       1,273      9.04
    Consumer loans.............................         61,516       1,121       7.23             43,991         913      8.24
                                                    ----------     -------                      --------     ------- 
       Total loans receivable..................      1,114,410      19,773       7.09            971,015      18,287      7.53

    Federal funds sold.........................          1,802          23       4.99                760          10      5.15
    Investment securities......................        222,623       3,884       6.98            123,488       2,252      7.29
    Mortgage-backed securities.................        168,829       2,872       6.80            259,310       4,485      6.92
                                                    ----------     -------                      --------     ------- 
       Total interest-earning assets...........      1,507,664     $26,552       7.04          1,354,573     $25,034      7.39
                                                                   =======                                   =======

    Non-interest earning assets................         57,558                                    53,274
                                                    ----------                                ---------- 
       Total assets ...........................     $1,565,222                                $1,407,847
                                                    ==========                                ==========

Deposits and borrowings:
    Money market and demand
       deposits (transaction accounts) ........    $   100,741     $   305       1.20%       $    82,112     $   248      1.20%
    Savings deposits...........................        163,960         716       1.73            166,532         921      2.19
    Certificates of deposit....................        801,244      11,485       5.69            740,914      11,010      5.90
                                                   -----------    --------                   -----------     ------- 
       Total deposits..........................      1,065,945      12,506       4.65            989,558      12,179      4.88

    FHLB of New York advances..................        281,590       4,245       5.98            205,411       3,190      6.16
    Other borrowings...........................         59,807         827       5.41             65,027         966      5.82
                                                   -----------    --------                   -----------     ------- 
       Total deposits and borrowings...........      1,407,342      17,578       4.95          1,259,996      16,335      5.14
    Trust Preferred securities.................         32,704         783       9.58             25,662         607      9.46
                                                   -----------    --------                   -----------      ------  
       Total deposits, borrowings and
           Trust Preferred securities..........      1,440,046     $18,361       5.06          1,285,658     $16,942      5.23
                                                                   =======                                   =======

    Other liabilities..........................         21,504                                    21,330
                                                   -----------                               ----------- 
       Total liabilities.......................      1,461,550                                 1,306,988
    Stockholders' equity.......................        103,672                                   100,859
                                                   -----------                               -----------
       Total liabilities and stockholders'
           equity .............................    $ 1,565,222                                $1,407,847
                                                   ===========                                ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                            Three Months Ended December 31,
                                                  ------------------------------------------------------------------------------
                                                                    1998                                      1997
                                                  --------------------------------------    ------------------------------------ 
                                                     Average       Interest                    Average      Interest
                                                   Outstanding      Earned/     Yield/       Outstanding     Earned/     Yield/
                                                     Balance         Paid      Rate (1)        Balance        Paid      Rate (1)
                                                  -------------   ----------   --------     -------------  ----------   --------
                                                                              (Dollars in thousands)
<S>                                                 <C>            <C>         <C>              <C>          <C>        <C>  
    Net interest income and net
       interest rate spread....................                   $  8,191       1.98%                      $  8,092      2.16%
                                                                  ========       ====                       ========      ====

    Net interest-earning assets and
       interest margin ........................    $    67,618                   2.21%       $    68,915                  2.43%
                                                   ===========                   ====        ===========                  ====

    Ratio of interest-earning assets to
       deposits, borrowings and Trust
       Preferred securities....................                                104.70%                                  105.36%
                                                                               ======                                   ======
</TABLE>

(1)  Annualized.
<PAGE>
<TABLE>
<CAPTION>
                                                                            Six Months Ended December 31,
                                                  ------------------------------------------------------------------------------
                                                                    1998                                      1997
                                                  --------------------------------------    ------------------------------------ 
                                                     Average       Interest                    Average      Interest
                                                   Outstanding      Earned/     Yield/       Outstanding     Earned/     Yield/
                                                     Balance         Paid      Rate (1)        Balance        Paid      Rate (1)
                                                  -------------   ----------   --------     -------------  ----------   --------
                                                                              (Dollars in thousands)
<S>                                                 <C>            <C>         <C>              <C>          <C>        <C>  
Interest-earning assets:
    One- to four-family mortgage
       loans...................................     $  990,783     $34,911       7.05%          $860,185     $31,853      7.41%
    Commercial and multi-family real
       estate loans............................         65,930       2,895       8.78             56,095       2,534      9.03
    Consumer loans.............................         58,984       2,166       7.29             42,283       1,809      8.49
                                                    ----------     -------                      --------     ------- 
       Total loans receivable..................      1,115,697      39,972       7.16            958,563      36,196      7.55

    Federal funds sold.........................          1,021          26       5.01                380          10      5.15
    Investment securities......................        216,862       7,672       7.08             90,690       3,316      7.31
    Mortgage-backed securities.................        180,431       6,120       6.78            269,880       9,339      6.92
                                                    ----------     -------                      --------     ------- 
       Total interest-earning assets...........      1,514,011     $53,790       7.10          1,319,513     $48,861      7.40
                                                                   =======                                   =======

    Non-interest earning assets................         57,997                                    52,040
                                                 -------------                             -------------
       Total assets ...........................     $1,572,008                                $1,371,553
                                                    ==========                                ==========

Deposits and borrowings:
    Money market and demand
       deposits (transaction accounts) ........    $    98,171   $     617       1.25%       $    81,750   $     496      1.20%
    Savings deposits...........................        164,382       1,547       1.87            167,345       1,849      2.19
    Certificates of deposit....................        796,695      22,990       5.72            724,996      21,510      5.89
                                                    ----------     -------                      --------     ------- 
       Total deposits..........................      1,059,248      25,154       4.71            974,091      23,855      4.86

    FHLB of New York advances..................        272,002       8,251       6.02            205,438       6,381      6.16
    Other borrowings...........................         82,169       2,334       5.56             59,305       1,764      5.82
                                                    ----------     -------                      --------     ------- 
       Total deposits and borrowings...........      1,413,419      35,739       5.01          1,238,834      32,000      5.12
    Trust Preferred securities.................         32,697       1,566       9.58             12,831         607      9.46
                                                    ----------     -------                      --------     ------- 
       Total deposits, borrowings and
           Trust Preferred securities..........      1,446,116     $37,305       5.11          1,251,665     $32,607      5.17
                                                                   =======                                   =======

    Other liabilities..........................         22,258                                    20,425
                                                   -----------                              ------------
       Total liabilities.......................      1,468,374                                 1,272,090
    Stockholders' equity.......................        103,634                                    99,463
                                                   -----------                              ------------
       Total liabilities and stockholders'
           equity .............................    $ 1,572,008                               $ 1,371,553
                                                   ===========                               ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                            Six Months Ended December 31,
                                                  ------------------------------------------------------------------------------
                                                                    1998                                      1997
                                                  --------------------------------------    ------------------------------------ 
                                                     Average       Interest                    Average      Interest
                                                   Outstanding      Earned/     Yield/       Outstanding     Earned/     Yield/
                                                     Balance         Paid      Rate (1)        Balance        Paid      Rate (1)
                                                  -------------   ----------   --------     -------------  ----------   --------
                                                                              (Dollars in thousands)
<S>                                                 <C>            <C>         <C>              <C>          <C>        <C>  
    Net interest income and net
       interest rate spread....................                    $16,485       1.99%                       $16,254      2.23%
                                                                   =======       ====                        =======      ====

    Net interest-earning assets and
       interest margin ........................    $    67,895                   2.22%       $    67,848                  2.50%
                                                   ===========                   ====        ===========                  ====

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

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

The  table  below  sets  forth  the   Company's   amounts  and   categories   of
non-performing  assets and restructured  loans.  Loans are 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.  Restructured loans are performing in
accordance with modified terms and are, therefore, considered performing.
<TABLE>
<CAPTION>

                                                          December 31,   June 30,
                                                             1998         1998
                                                             ------      ------
<S>                                                          <C>         <C>   
Non-accruing loans:
     One- to four-family ...............................     $3,371      $2,575
     Commercial and multi-family .......................        528         414
     Consumer ..........................................        687         753
                                                             ------      ------
         Total non-accruing loans ......................      4,586       3,742

Real estate owned, net .................................        972       1,643
                                                             ------      ------

         Total non-performing assets ...................      5,558       5,385
Restructured loans .....................................      1,397       1,415
                                                             ------      ------

         Total risk elements ...........................     $6,955      $6,800
                                                             ======      ======

Non-accruing loans as a percentage of total loans ......       0.42%       0.34%
                                                             ======      ======

Non-performing assets as a percentage of total assets ..       0.36%       0.35%
                                                             ======      ======

Total risk elements as a percentage of total assets ....       0.45%       0.44%
                                                             ======      ======
</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, 1998, the Company had a total
allowance  for  loan  losses  of  $2.9  million  representing  63.78%  of  total
non-accruing 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,  1998,  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 $24.8 million,
representing a one year negative gap of 1.61% of total assets. At June 30, 1998,
the one year  negative gap was 7.28% of total  assets.  In addition to the newly
adopted strategy of selling  fixed-rate,  low coupon,  one- to four-family first
mortgage loan production into the secondary market,  improvement in the negative
gap  position  from  June  30,  1998  reflects  the  Company's  efforts  to grow
transaction accounts and take advantage of opportunities to increase medium-term
borrowings.

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

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

As of December 31, 1998, the Bank's  internally  generated initial NPV ratio was
10.54%.  Following a 2% increase in interest  rates,  the Bank's  Post-Shock NPV
ratio was 8.74%. The change in the NPV ratio, or the Bank's Sensitivity  Measure
was 1.80%.  NPV is also  measured  internally  on a  consolidated  basis.  As of
December 31, 1998,  the Company's  initial NPV ratio was 10.92%,  the Post-Shock
ratio was 9.04%, and the Sensitivity  Measure was 1.88%.  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,
1998 (the latest date for which  information is  available),  the Bank's initial
NPV ratio, as measured by the OTS, was 7.66%,  the Bank's  Post-Shock  ratio was
6.28% and the Sensitivity Measure was 1.38%.

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

At December 31, 1998, based on its internally  generated  simulation models, the
Company's  consolidated net interest income projected for one year forward would
decrease 7.0% from the base case, or current market, as a result of an immediate
and sustained 2% increase in interest rates.
<PAGE>
Year 2000

A formal Year 2000 Project Plan (the "Year 2000 Plan") was  previously  approved
by the  Company's  Board of  Directors.  The Board of Directors  continues to be
updated on a monthly basis as to the status of all phases,  with an  independent
verification  of progress  completed  on a quarterly  basis.  By  following  the
detailed  plan,  substantial  progress has been made and the Company  remains on
target for meeting its  commitment  to achieving  Year 2000  compliance  for its
mission-critical  systems.  The OTS is also  reviewing  all of  their  regulated
institutions for Year 2000 preparedness.

The task force,  with  representatives  from all divisions  within the Bank, has
completed  both the  awareness  and  assessment  phases of the Year 2000 Plan. A
significant  portion of the renovation phase has been completed.  The validation
phase is now the primary  focus.  All remaining  tasks are currently on schedule
for completion in accordance  with the Year 2000 Plan. As the Company  primarily
runs software purchased from a few key vendors, the task force continues to meet
and work  closely  with those  vendors and  suppliers.  Systems  critical to the
operation  of the  Company  are  receiving  top  priority,  with  certain of the
mission-critical  software  elements now compliant.  Management  expects to have
renovated  and tested all  necessary  systems by no later than June 30, 1999 and
believes that its level of preparedness for the project is appropriate.

The Company has initiated a dialogue with its larger  borrowers.  All commercial
and  multi-family  loans have been  evaluated for Year 2000 exposure  through an
independent review process. As part of the current credit approval process,  all
new and renewed  commercial and  multi-family  loans are evaluated for Year 2000
risk.  The  Company  has  requested  that each of its larger  borrowers  provide
information  regarding  the  nature of steps  being  taken by the  borrowers  to
address their own Year 2000 issues.

Contingency  planning  is an  ongoing  process.  Members  of the task force have
responsibility  for  identifying a contingency  plan for the different  areas of
software  being  tested  in the  event  the  Year  2000  Plan is not  timely  or
successfully  implemented.  For example, if vendors for certain critical systems
are  unable  to supply  Year 2000  compliant  software  upgrades,  the use of an
alternative vendor would be required to be pursued, at an additional cost to the
Company.

The  estimated  cost for the Year 2000 effort of $75,000 is unchanged  from June
30, 1998. This estimate includes  approximately $44,000 of hardware and software
upgrades. The remaining $31,000 is estimated for software program consulting and
remediation.  Approximately  $13,000 of costs have been  incurred to date.  This
estimate does not include  manpower costs of Company  personnel  associated with
the task  force,  who retain  their  individual  operation  responsibilities  in
addition  to Year 2000  duties.  The  completion  date and cost are  based  upon
management's analysis of the information currently available to it. No assurance
can be given  that  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.
<PAGE>
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 include cash, accrued
interest  receivable,  certain  time  deposits,  U.S.  Treasury  and  Government
agencies  and  other  securities  and  obligations  generally  having  remaining
maturities  of  less  than  five  years.  All  mortgage-backed   securities  are
includable in liquid assets,  as well. The Company's most liquid assets are cash
and cash equivalents, short-term investments and mortgage-backed securities. The
levels of these assets are dependent on the Bank's operating, financing, lending
and investing  activities during any given period. At December 31, 1998 and June
30, 1998, the Bank's liquidity ratios were 21.39% and 24.50%, 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.

The  Company's  cash  needs for the six  months  ended  December  31,  1998 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.  During this period, the cash provided was used for
investing  activities,  which included the origination and purchase of loans and
the purchase of investment securities. In addition to cash provided by operating
activities,  during the six months ended December 31, 1997 the cash needs of the
Company were principally provided by increased deposits, an increase in advances
from the FHLB of New York and  other  borrowings  and  principal  repayments  of
mortgage-backed  securities.  Furthermore,  during the six months ended December
31, 1997,  proceeds from the Trust  Preferred  securities  offering and sales of
loans  contributed to meeting the Company's cash needs. The cash was principally
utilized 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,
1998, the Bank exceeded all regulatory  capital  requirements and qualified as a
"well-capitalized"   institution  (see  Note  4.  -  Stockholders'   Equity  and
Regulatory Capital, in the Notes to Consolidated Financial Statements).
<PAGE>
PART II - Other Information

Item 1.    Legal Proceedings
           None.

Item 2.    Changes in Securities
           None.

Item 3.    Defaults Upon Senior Securities
           None.

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

           (a)   The Annual Meeting of Stockholders (Annual Meeting) was held on
                 October 28, 1998.

           (b)   Directors elected:
                 William C. Anderson
                 Amadeu L. Carvalho

           (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  auditors  for  the Company for the fiscal
                        year ending June 30, 1999.

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

                                                      FOR              WITHHELD
                                                    ---------          --------
                  William C. Anderson               8,412,266           89,070
                  Amadeu L. Carvalho                8,406,149           95,187

                  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, 1999 was as follows:

                            FOR               AGAINST           ABSTAIN
                         ---------            -------           -------
                         8,450,513             31,688            19,135

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

                 Exhibit 27: Financial Data Schedule.

           (b)   There  were no  reports  filed on Form 8-K for the three  month
                 period ended December 31, 1998.
<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 12, 1999                     By:  /s/ Joseph L. LaMonica
                                                 -----------------------
                                                 Joseph L. LaMonica
                                                 President and Chief
                                                 Executive Officer





Date: February 12, 1999                     By:  /s/ Lucy T. Tinker
                                                 -------------------
                                                 Lucy T. Tinker
                                                 Executive Vice President and
                                                 Chief Operating Officer
                                                 (Principal Financial Officer)





Date: February 12, 1999                     By:  /s/ Jeffrey J. Carfora
                                                 -----------------------
                                                 Jeffrey J. Carfora
                                                 Senior Vice President and
                                                 Chief Financial Officer
                                                 (Principal Accounting Officer)