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 September 30, 1997

                                       OR

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

         For the  transition  period from           to

                         Commission file number 0-24040 

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

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

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


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


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

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

                                   YES  [X]   NO[  ]  

         As of November 3, 1997, there were 4,822,574 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
                                                                               September 30,      June 30,
                                                                                   1997             1997
                                                                               -----------      -----------
                                                                                   (Dollars in thousands)
<S>                                                                            <C>              <C>
Assets
Cash and cash equivalents ................................................     $     8,548      $    10,729
Investment securities held to maturity, at amortized cost, market
   value of $60,554 and $35,432 at September 30, 1997 and
   June 30, 1997 .........................................................          60,165           35,290
Mortgage-backed securities held to maturity, at amortized cost,
   market value of $273,184 and $291,125 at
   September 30, 1997 and June 30, 1997 ..................................         268,977          288,539
Loan held for sale .......................................................             571             --
Loans receivable, net of allowance for loan losses of $2,701 and
  $2,622 at September 30, 1997 and June 30, 1997 .........................         967,749          931,451
Premises and equipment, net ..............................................          17,214           16,435
Real estate owned, net ...................................................           1,534              884
Federal Home Loan Bank of New York stock, at cost ........................          12,675           12,413
Accrued interest receivable, net .........................................           7,916            7,196
Goodwill and other intangible assets .....................................          15,302           15,918
Other assets .............................................................           3,299            2,896
                                                                               -----------      -----------
                                                                               $ 1,363,950      $ 1,321,751
                                                                               ===========      -----------
Liabilities and Stockholders' Equity
Liabilities:
  Deposits ...............................................................     $   974,983      $   918,160
  Federal Home Loan Bank of New York advances ............................         205,465          205,465
  Other borrowings .......................................................          65,050           82,750
  Mortgage escrow funds ..................................................           9,158            8,855
  Due to banks ...........................................................           6,193            7,237
  Accounts payable and other liabilities .................................           3,184            2,014
                                                                               -----------      -----------
    Total liabilities ....................................................       1,264,033        1,224,481
                                                                               -----------      -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiary
Consolidated Statements of Financial Condition (continued)
                                                                               September 30,      June 30,
                                                                                   1997             1997
                                                                               -----------      -----------
                                                                                   (Dollars in thousands)
<S>                                                                            <C>              <C>
Stockholders' Equity:
  Serial preferred stock, $.01 par value, 7,000,000 shares
    authorized, no shares issued .........................................            --               --
  Common stock, $.01 par value, 15,000,000 shares authorized,
    5,950,000 shares issued and 4,822,574 and 4,822,124 shares outstanding
    at September 30, 1997 and June 30, 1997 (excluding shares
    held in treasury of 1,127,426
    and 1,127,876 at September 30, 1997 and June 30,1997) ................              60               60
  Additional paid-in capital .............................................          57,625           57,441
  Restricted stock - Management Recognition Plan .........................          (1,062)          (1,062)
  Employee Stock Ownership Plan Trust debt ...............................          (3,567)          (3,671)
  Retained earnings, partially restricted ................................          63,403           61,051
  Treasury stock, at cost, 1,127,426 and 1,127,876 shares at
    September 30, 1997 and June 30, 1997 .................................         (16,542)         (16,549)
                                                                               -----------      -----------
    Total stockholders' equity ...........................................          99,917           97,270
                                                                               -----------      -----------
                                                                               $ 1,363,950      $ 1,321,751
                                                                               ===========      ===========

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

                                                        Three months ended September 30,
                                                               1997             1996
                                                          -----------      -----------
                                                         (Dollars in thousands, except
                                                          per share amounts)
<S>                                                       <C>              <C>
Interest and Dividend Income:
  Interest and fees on loans ........................     $    17,909      $    13,344
  Interest and dividends on investment securities ...           1,064              501
  Interest on mortgage-backed securities ............           4,854            5,871
                                                          -----------      -----------
                                                               23,827           19,716
                                                          -----------      -----------
Interest Expense:
  Deposits ..........................................          11,676            9,475
  Borrowed funds ....................................           3,989            2,355
                                                          -----------      -----------
                                                               15,665           11,830
                                                          -----------      -----------
Net Interest and Dividend Income Before Provision
  for Loan Losses ...................................           8,162            7,886
Provision for Loan Losses ...........................             150              175
                                                          -----------      -----------
Net Interest and Dividend Income After
  Provision for Loan Losses .........................           8,012            7,711
                                                          -----------      -----------

Non-Interest Income:
  Service charges ...................................             436              440
  Net loss from real estate operations ..............             (39)            (115)
  Other .............................................              88               84
                                                          -----------      -----------
                                                                  485              409
                                                          -----------      -----------
Non-Interest Expenses:
  Compensation and employee benefits ................           2,073            1,919
  Net occupancy expense .............................             295              273
  Equipment .........................................             358              385
  Advertising .......................................              71              113
  Amortization of intangibles .......................             616              636
  Federal deposit insurance premium .................             140              458
  SAIF recapitalization assessment ..................            --              4,813
  Other .............................................             668              638
                                                          -----------      -----------
                                                                4,221            9,235
                                                          -----------      -----------

Income (Loss) Before Income Taxes ...................           4,276           (1,115)
Income Tax Expense (Benefit) ........................           1,590             (346)
                                                          -----------      -----------

Net Income (Loss) ...................................     $     2,686      $      (769)
                                                          ===========      ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiary
Consolidated Statements of Income (continued)

                                                        Three months ended September 30,
                                                               1997             1996
                                                          -----------      -----------
                                                         (Dollars in thousands, except
                                                          per share amounts)
<S>                                                       <C>              <C>
Weighted average number of common shares outstanding:
  Basic .............................................       4,465,605        4,444,477
                                                          ===========      ===========
  Diluted ...........................................       4,834,851        4,658,203
                                                          ===========      ===========

Net income (loss) per common share:
  Basic .............................................     $      0.60      $     (0.17)
                                                          ===========      ===========
  Diluted ...........................................     $      0.56      $     (0.17)
                                                          ===========      ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows
                                                               Three months ended September 30,
                                                                      1997          1996
                                                                    --------      --------
                                                                        (In thousands)
<S>                                                                 <C>           <C>
Cash Flows From Operating Activities:
  Net income (loss) ...........................................     $  2,686      ($   769)
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
  Proceeds from sales of loans held for sale ..................          582           348
  Originations of loans held for sale .........................       (1,153)         (260)
  (Gain) loss on sales of real estate owned ...................           (1)            8
  Amortization of investment and mortgage-backed
    securities premiums, net ..................................           69            70
  Depreciation and amortization ...............................          320           315
  Provision for losses on loans and real estate owned .........          185           260
  Amortization of cost of stock plans .........................          421           352
  Amortization of intangibles .................................          616           636
  Amortization of premiums on loans and loan fees .............          232            59
  Decrease in accrued interest receivable, net of
    accrued interest payable ..................................          779         1,091
  (Increase) decrease in other assets .........................         (405)        1,735
  Increase (decrease) in accounts payable and other liabilities        1,036         2,684
  Increase in mortgage escrow funds ...........................          303         1,083
  Increase (decrease) in due to banks .........................       (1,044)          440
  Other, net ..................................................         --               2
                                                                    --------      --------
  Net cash provided by operating activities ...................        4,626         8,054
                                                                    --------      --------

Cash Flows From Investing Activities:
  Proceeds from maturities of investment securities ...........          125         5,000
  Purchases of investment securities held to maturity .........      (25,000)         --
  Net outflow from loan originations net of principal
    repayments of loans .......................................      (10,024)      (28,935)
  Purchases of loans ..........................................      (27,554)      (49,034)
  Proceeds from principal repayments of
    mortgage-backed securities ................................       19,493        14,759
  Purchases of premises and equipment .........................       (1,098)         (104)
  Proceeds from sales of real estate owned ....................          214           112
  Purchases of Federal Home Loan Bank of New York stock .......         (262)         (278)
                                                                    --------      --------
  Net cash used in investing activities .......................      (44,106)      (58,480)
                                                                    --------      --------

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows (continued)
                                                               Three months ended September 30,
                                                                      1997          1996
                                                                    --------      --------
                                                                        (In thousands)
<S>                                                                 <C>           <C>

Cash Flows From Financing Activities:
  Net increase in deposits ....................................       55,324        16,655
  Increase (decrease) in advances from the Federal Home
    Loan Bank of New York and other borrowings ................      (17,700)       34,585
  Cash dividends paid .........................................         (325)         --
                                                                    --------      --------
  Net cash provided by financing activities ...................       37,299        51,240
                                                                    --------      --------
Net Increase (Decrease) in Cash and Cash Equivalents ..........       (2,181)          814
Cash and Cash Equivalents, Beginning of Period ................       10,729        11,629
                                                                    --------      --------
Cash and Cash Equivalents, End of Period ......................     $  8,548      $ 12,443
                                                                    ========      ========

Supplemental Disclosures of Cash Flow Information:
  Cash paid during the period for:
  Interest.....................................................     $ 13,968      $ 10,905
                                                                    ========      ========
  Income taxes.................................................     $   ---       $   ---
                                                                    ========      ======== 

Supplemental Schedule of Non-Cash Activities:
  Transfer of loans receivable to real estate owned, net.......     $    899      $     90
                                                                    ========      =========

</TABLE>
See notes to consolidated financial statements.
<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,  1997.  The interim  consolidated  financial  statements
reflect  all normal and  recurring  adjustments  which  are,  in the  opinion of
management,  considered  necessary  for a fair  presentation  of  the  financial
condition and results of  operations  for the periods  presented.  There were no
adjustments of a  non-recurring  nature  recorded  during the three months ended
September 30, 1997 and 1996. The interim results of operations presented are not
necessarily indicative of the results for the full year.

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

2.  Adoption of Recently Issued Accounting Standards

Effective July 1, 1997, the Company  adopted  Statement of Financial  Accounting
Standards  No. 128,  "Earnings Per Share"  ("SFAS  128").  SFAS 128  establishes
standards for computing and presenting  earnings per share ("EPS"),  simplifying
the standards  previously found in APB Opinion No. 15, "Earnings Per Share." The
previous  presentation  of primary EPS has been replaced with a presentation  of
basic EPS. Dual presentation of basic and diluted EPS is required on the face of
the  income  statement  as  well  as  a  reconciliation  of  the  numerator  and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares  outstanding for the period.  Diluted EPS is computed  similarly to fully
diluted EPS  pursuant  to APB  Opinion No. 15. The  adoption of SFAS 128 did not
have a  material  effect on the  Company's  financial  condition  or  results of
operations. EPS data presented for the three months ended September 30, 1996 has
been restated to conform with the provisions of SFAS 128.
<PAGE>
3.  Computation of EPS

The computation of EPS is presented in the following table.
<TABLE>
<CAPTION>
                                                                Three Months Ended
                                                                   September 30,
                                                                  1997          1996
                                                             ----------    ----------- 
                                                               (dollars per thousand,
                                                              except per share amounts)
<S>                                                          <C>           <C>
Net income (loss)                                            $    2,686    ($      769)
                                                             ==========     ==========

Number of shares outstanding
  Weighted average shares issued .......................      5,950,000      5,950,000
  Less: Weighted average shares held in treasury .......      1,127,715      1,109,190
  Less: Average shares held by the ESOP ................        476,000        476,000
  Plus: ESOP shares released or committed to be released
             during the fiscal year ....................        119,320         79,667
                                                             ----------     ----------
        Average basic shares ...........................      4,465,605      4,444,477
  Plus: Average common stock equivalents................        369,246        213,726
                                                             ----------     ----------
        Average diluted shares .........................      4,834,851      4,658,203
                                                             ==========     ==========

Earnings per common share
        Basic ..........................................     $     0.60     ($    0.17)
                                                             ==========     ==========
        Diluted ........................................     $     0.56     ($    0.17)
                                                             ==========     ==========
</TABLE>

3. Stockholders' Equity and Regulatory Capital

The Bank's capital amounts and ratios are presented in the following table.
<TABLE>
<CAPTION>
                                                                                                              To Be Well
                                                                                                           Capitalized Under
                                                                                 For Capital               Prompt Corrective
                                                      Actual                   Adequacy Purposes            Action Provisions
                                                      ------                   -----------------            -----------------
                                                   Amount      Ratio            Amount      Ratio           Amount      Ratio
                                                   ------      -----            ------      -----           ------      -----
                                                                               (dollars in 000's)
<S>                                               <C>          <C>              <C>         <C>            <C>          <C>
As of September 30, 1997
Tangible capital...........................       $76,885       5.68%           $20,301     1.50%              N/A        N/A
Core capital...............................       $77,272       5.71%           $54,153     4.00%          $67,691       5.00%
Risk-based capital.........................       $79,421      12.33%           $51,539     8.00%          $64,424      10.00%

As of June 30, 1997
Tangible capital...........................       $73,470       5.61%           $19,658     1.50%              N/A        N/A
Core capital...............................       $73,907       5.64%           $52,440     4.00%          $65,550       5.00%
Risk-based capital.........................       $75,929      12.22%           $49,702     8.00%          $62,127      10.00%
</TABLE>

Savings and loan holding companies,  such as PennFed, are not subject to capital
requirements  for  capital  adequacy  purposes or for prompt  corrective  action
requirements.
<PAGE>
4. Subsequent Event

The  Company  has  formed  a  trust  subsidiary,  PennFed  Capital  Trust I (the
"Trust").  Effective  October 21,  1997,  the Trust sold $34.5  million of 8.90%
cumulative trust preferred securities to the public. The Trust used the proceeds
from the sale of the preferred  securities to purchase 8.90% junior subordinated
deferrable  interest  debentures issued by the Company.  The junior subordinated
debentures  mature in the year 2027 and are  redeemable  at any time  after five
years. The Company will use the proceeds from the junior subordinated debentures
for general corporate purposes,  including capital  contributions to the Bank to
support future growth.
<PAGE>
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

General

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

Financial Condition

Total assets  increased  $42.2 million,  or 3.2%, to $1.364 billion at September
30, 1997 from total assets of $1.322  billion at June 30, 1997. The increase was
primarily  attributable  to a $36.8  million  increase in net loans  receivable,
particularly in the Company's one- to four-family first mortgage loan portfolio.
At September 30, 1997,  net loans  receivable  were $968.3  million  compared to
$931.5 million at June 30, 1997. The increase in loans  receivable was funded by
retail deposit growth.

Deposits  increased  $56.8 million to $975.0  million at September 30, 1997 from
$918.2  million  at June 30,  1997.  Other  borrowings  were  $65.1  million  at
September  30, 1997, a $17.7  million  decrease  from $82.8  million at June 30,
1997.

Non-performing  assets at September 30, 1997 totaled $6.9 million,  representing
0.51% of total assets,  compared to $6.4 million,  or 0.48% of total assets,  at
June  30,  1997.   Non-accruing   loans  were  $5.4  million  with  a  ratio  of
non-performing  loans to total loans of 0.56% of total loans,  at September  30,
1997 as compared to $5.5  million,  or 0.59% of total  loans,  at June 30, 1997.
Real estate owned  increased to $1.5 million at September 30, 1997 from $884,000
at June 30, 1997.

Stockholders'  equity at September 30, 1997 totaled  $99.9  million  compared to
$97.3 million at June 30, 1997. The increase  primarily  reflects the net income
recorded for the three months ended September 30, 1997.

Results of Operations

General.  For the three  months  ended  September  30,  1997 net income was $2.7
million,  or $0.56 per diluted share, as compared to a net loss of $0.8 million,
or a net loss of $0.17 per diluted share for the  comparable  prior year period.
The three months ended  September  30, 1996 included the effects of the one-time
Savings Association  Insurance Fund ("SAIF")  recapitalization  assessment which
totaled $4.8 million,  or an after-tax cost of $3.1 million,  or $0.65 per share
on a diluted basis.
<PAGE>
Interest and Dividend Income.  Interest and dividend income for the three months
ended  September 30, 1997  increased to $23.8 million from $19.7 million for the
three months ended  September 30, 1996.  The increase in the current year period
was 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 $1.3 billion for
the three  months  ended  September  30, 1997  compared to $1.1  billion for the
comparable  prior year  period.  The average  yield  earned on  interest-earning
assets  decreased to 7.42% for the three months  ended  September  30, 1997 from
7.50% for the three months ended  September 30, 1996. 

Interest income on residential one- to four-family  mortgage loans for the three
months ended  September 30, 1997  increased  $4.4 million to $15.8  million,  or
39.2%,  when compared to the prior year period.  The increase in interest income
on residential  one- to  four-family  mortgage loans was due to a $250.7 million
increase  in the average  balance  outstanding  to $849.6  million for the three
months ended  September 30, 1997  compared to $598.9  million for the prior year
period.  The increase in the average balance on residential  one- to four-family
mortgage loans was partially  offset by a decrease of 0.14% in the average yield
earned on this loan portfolio to 7.42% for the three months ended  September 30,
1997 from the comparable prior year period.

Interest  income on the  mortgage-backed  securities  portfolio  decreased  $1.0
million,  or 17.3%, for the three months ended September 30, 1997 as compared to
the prior year  period.  The  decrease  in  interest  income on  mortgage-backed
securities  primarily  reflects a $58.3 million  decrease in the average balance
outstanding  to $280.4  million for the three  months ended  September  30, 1997
compared to $338.8 million for the prior year period.

Interest on investment  securities and other  interest-earning  assets increased
$563,000 for the three months ended September 30, 1997 from the comparable prior
year period due to a $30.1 million  increase in the average balance  outstanding
for the current year period and a 0.15%  increase in the average yield earned on
these securities.

Interest  Expense.  Interest expense increased $3.8 million to $15.7 million for
the three months ended  September 30, 1997 from $11.8 million for the comparable
1996  period.  The  increase was  attributable  to an increase in total  average
deposits,  primarily  certificates  of deposit,  and borrowings  coupled with an
increase  in the  Company's  cost of  funds.  Average  deposits  and  borrowings
increased  $219.2  million to $1.2 billion for the three months ended  September
30, 1997  compared to the 1996  period.  The average  rate paid on deposits  and
borrowings increased to 5.10% for the three months ended September 30, 1997 from
4.70% for the comparable prior year period.

Net Interest and Dividend Income. Net interest and dividend income for the three
months ended  September 30, 1997 was $8.2  million,  reflecting an increase from
$7.9 million recorded in the comparable prior year period. The increase reflects
the Company's growth in assets, primarily in adjustable rate residential one- to
four-family mortgage loans. The net interest rate spread and net interest margin
for  the  three  months  ended   September   30,  1997  were  2.32%  and  2.54%,
respectively,  a  decline  from  2.80%  and  3.00%,  respectively,   during  the
comparable  prior year period.  The decline was  partially  attributable  to the
<PAGE> 
Company's  efforts to reduce its sensitivity to changes in interest rates
by extending the average life of  liabilities  and focusing on  adjustable  rate
one- to four-family  mortgage loans.  This resulted in the Company paying higher
rates to attract  longer-term  deposits and initially  receiving lower yields on
adjustable  rate loans than would  otherwise be  obtainable on fixed rate loans.
Since the Company's  liabilities generally reprice more quickly than its assets,
net  interest  rate spread and net  interest  margins  will  likely  decrease if
interest rates rise.

Provision  for Loan Losses.  The  provision for loan losses for the three months
ended  September  30, 1997 was $150,000  compared to $175,000 for the prior year
period.  The  allowance  for loan losses at  September  30, 1997 of $2.7 million
reflects a $79,000 increase from the June 30, 1997 level. The allowance for loan
losses as a percentage of non-performing loans was 49.91% at September 30, 1997,
compared to 47.80% at June 30, 1997.

Non-Interest  Income. For the three months ended September 30, 1997 non-interest
income was $485,000 compared to $409,000 for the prior year period. The increase
was  primarily  attributable  to a  decrease  in the net  loss  on  real  estate
operations.  The net loss from real estate  operations was $39,000 for the three
months  ended  September  30,  1997  compared  to a net loss  from  real  estate
operations of $115,000 for the prior year period.  The decrease in the loss from
real  estate  operations  reflects  a lower  level of  reserves  required  to be
established in accordance  with internal  policies and guidelines on real estate
properties currently owned by the Company.

Non-Interest Expenses. The Company's non-interest expenses were $4.2 million for
the three months ended September 30, 1997 compared to $9.2 million for the prior
year period. The three months ended September 30, 1997 included $4.8 million for
the one-time SAIF recapitalization assessment. Excluding the effects of the SAIF
assessment,  non-interest expenses for the three months ended September 30, 1997
are slightly lower than the comparable 1996 period.  The Company's  non-interest
expenses as a percent of average  assets  declined to 1.26% for the three months
ended  September  30,  1997 from 1.60% for the  comparable  prior  year  period,
excluding the SAIF assessment.

Income Tax Expense.  Income tax expense for the three months ended September 30,
1997 was $1.6  million  compared to an income tax  benefit of  $346,000  for the
three months ended  September  30, 1996.  Excluding  the effects of the one-time
SAIF  recapitalization  assessment,  income  tax  expense  of $1.4  million  was
recorded for the prior year period.  The effective tax rate for the three months
ended  September  30, 1997 was 37.2%.  Excluding the effect of the one-time SAIF
recapitalization  assessment,  the  effective  tax rate was  38.2% for the three
months ended September 30, 1996.
 
Analysis of Net Interest Income

The  following  table sets forth certain  information  relating to the Company's
consolidated  statements of financial condition and the consolidated  statements
of income for the three months ended  September 30, 1997 and 1996,  and reflects
the average  yield on assets and  average  cost of  liabilities  for the periods
indicated.  Such yields and costs are derived from average daily  balances.  The
average balance of loans receivable includes  non-accruing loans. The yields and
costs include fees which are considered adjustments to yields.
<PAGE>
<TABLE>
<CAPTION>
                                                                              Three Months Ended September 30,
                                                        ---------------------------------------------------------------------------
                                                                       1997                                   1996
                                                        -----------------------------------     -----------------------------------
                                                           Average      Interest                  Average      Interest
                                                         Outstanding     Earned/    Yield/      Outstanding     Earned/      Yield/
                                                           Balance        Paid      Rate(1)       Balance        Paid       Rate(1)
                                                                                    (Dollars in thousands)
<S>                                                      <C>             <C>         <C>         <C>            <C>         <C>
Interest-earning assets:
  One- to four-family mortgage loans.................    $  849,647       $15,752     7.42%        $598,942      $11,317     7.56%
  Commercial and multi-family real
    estate loans.....................................        55,892         1,261     9.02           52,305        1,212     9.27
  Consumer loans.....................................        40,576           896     8.76           34,200          815     9.45
                                                         ----------       -------                  --------      ------- 
    Total loans receivable...........................       946,115        17,909     7.57          685,447       13,344     7.79
  Mortgage-backed securities.........................       280,449         4,854     6.92          338,772        5,871     6.93
  Investment securities and other....................        58,142         1,064     7.32           27,997          501     7.17
                                                         ----------       -------                  --------      ------- 
    Total interest-earning assets....................     1,284,706       $23,827     7.42        1,052,216      $19,716     7.50
                                                                          =======                                =======
  Non-interest earning assets........................        50,931                                  53,952
                                                         ----------                              ---------- 
    Total assets.....................................    $1,335,637                              $1,106,168
                                                         ==========                              ==========

Deposits and borrowings:
 Money market and demand deposits....................   $    81,388      $    248     1.21%     $    78,935     $    236     1.19%
 Savings deposits....................................       168,158           928     2.19          176,793          998     2.24
 Certificates of deposit.............................       709,078        10,500     5.88          583,823        8,241     5.60
                                                         ----------       -------                  --------      ------- 
   Total deposits....................................       958,624        11,676     4.83          839,551        9,475     4.48
 FHLB of New York advances...........................       205,465         3,190     6.16          106,394        1,629     6.07
 Other borrowings....................................        53,583           799     5.83           52,497          726     5.41
                                                         ----------       -------                  --------      ------- 
   Total deposits and borrowings.....................     1,217,672       $15,665     5.10          998,442      $11,830     4.70
                                                                          =======                                =======
 Other liabilities...................................        20,085                                  15,687
                                                        -----------                              ---------- 
   Total liabilities.................................     1,237,757                               1,014,129
 Stockholders' equity................................        97,880                                  92,039
                                                        -----------                              ---------- 
   Total liabilities and stockholders' equity........    $1,335,637                              $1,106,168
                                                         ==========                              ==========

Net interest income and net interest rate
    spread...........................................                     $ 8,162     2.32%                     $  7,886     2.80%
                                                                          =======     ====                      ========     ====

Net interest-earning assets and interest
    margin...........................................   $    67,034                   2.54%     $    53,774                  3.00%
                                                        ===========                   ====      ===========                  ====

Ratio of interest-earning assets to
    deposits and borrowings..........................        105.51%                                 105.39%
                                                       ============                            ============
</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 become  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>

                                                         September 30,   June 30,
                                                             1997          1997
                                                             ------      ------
                                                          (Dollars in thousands)
<S>                                                          <C>         <C>
Non-accruing loans:
  One- to four-family ..................................     $3,694      $3,567
  Commercial and multi-family ..........................        839       1,053
  Consumer .............................................        879         865
                                                             ------      ------
    Total non-accruing loans ...........................      5,412       5,485
                                                             ------      ------

Real estate owned, net .................................      1,534         884
                                                             ------      ------
    Total non-performing assets ........................      6,946       6,369

Restructured loans .....................................      1,441       1,451
                                                             ------      ------
    Total risk elements ................................     $8,387      $7,820
                                                             ======      ======

Non-accruing loans as a percentage of total loans ......       0.56%       0.59%
                                                             ======      ======
Non-performing assets as a percentage of total assets ..       0.51%       0.48%
                                                             ======      ======
Total risk elements as a percentage of total assets ....       0.61%       0.59%
                                                             ======      ======
</TABLE>

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

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 September 30, 1997, the Company had a total
allowance  for  loan  losses  of  $2.7  million  representing  49.91%  of  total
non-performing loans.

Interest Rate Sensitivity

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

At September 30, 1997, the Company's  total deposits and borrowings  maturing or
repricing within one year exceeded its total interest-earning assets maturing or
repricing within one year by $85.0 million, representing a one year negative gap
of 6.31% of total assets.  At June 30, 1997, the one year negative gap was 7.44%
of total assets.

In evaluating the Company's exposure to interest rate risk, certain  limitations
inherent in the method of analysis  must be  considered.  For example,  although
certain  assets  and  liabilities  may have  similar  maturities  or  periods to
repricing,  they may react in  different  degrees to changes in market  interest
rates.  Also, the interest rates on certain types of assets and  liabilities may
fluctuate in advance of changes in market interest  rates,  while interest rates
on other types may lag behind  changes in market  rates.  Additionally,  certain
assets, such as adjustable rate mortgages,  have features which restrict changes
in interest rates in the short-term and over the life of the asset.  Further, in
the event of a change in interest rates,  prepayment and early withdrawal levels
may deviate  significantly  from those assumed in calculating  the gap position.
Finally, the ability of many borrowers to service their debt may decrease in the
event of an interest rate increase.  The Company  considers all of these factors
in monitoring its exposure to interest rate risk.
<PAGE>
Net Portfolio  Value.  The  Company's  interest  rate  sensitivity  is regularly
monitored by management through selected interest rate risk ("IRR") measures set
forth by the Office of Thrift Supervision  ("OTS"). The IRR measures used by the
OTS  include  an  IRR  "Exposure  Measure"  or  "Post-Shock"  NPV  ratio  and  a
"Sensitivity  Measure." A low Post-Shock NPV ratio indicates greater exposure to
IRR.  Greater  exposure  can  result  from  a low  initial  NPV  ratio  or  high
sensitivity to changes in interest rates. The Sensitivity Measure is the decline
in the NPV ratio, in basis points, caused by a 2% increase or decrease in rates,
whichever produces a larger decline. At least quarterly,  and generally monthly,
management  models the change in net  portfolio  value ("NPV") over a variety of
interest  rate  scenarios.  NPV is the present value of expected cash flows from
assets,  liabilities  and  off-balance  sheet  contracts.  An NPV ratio,  in any
interest rate scenario,  is defined as the NPV in that rate scenario  divided by
the market value of assets in the same scenario.

At September 30, 1997, the Bank's  internally  generated  initial NPV was 8.38%.
Following a 2% increase in interest rates, the Bank's "Post-Shock" NPV ratio was
5.93%. The change in the NPV ratio, or the Bank's Sensitivity Measure was 2.45%.
NPV is also measured  internally on a  consolidated  basis.  As of September 30,
1997, the Company's initial NPV ratio was 9.04%, the Post-Shock ratio was 6.63%,
and the  Sensitivity  Measure  was 2.41%.  Variances  between the Bank's and the
Company's NPV ratios are  attributable to balance sheet items which are adjusted
during consolidation, such as intercompany borrowings and capital.

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

The OTS  measures  the  Bank's  IRR on a  quarterly  basis  using  data from the
quarterly  Thrift  Financial  Reports,  coupled  with  non-institution  specific
assumptions  which  are based on  national  averages.  As of June 30,  1997 (the
latest date for which  information is available),  the Bank's initial NPV ratio,
as measured by the OTS, was 7.23%. The Bank's Post-Shock ratio was 4.02% and the
Sensitivity Measure was 3.21%.

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 September 30, 1997, based on its internally  generated simulation models, the
Company's  consolidated net interest income projected for one year forward would
decrease  11.4%  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.
<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 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
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 September 30, 1997 and June
30, 1997, the Bank's liquidity ratios were 9.83% and 10.36%, respectively.

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

In addition to cash provided by operating  activities,  the Company's cash needs
for the three  months  ended  September  30, 1997 were  principally  provided by
increased deposits. 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,  as well as to reduce borrowings. In addition
to cash  provided  by  operating  activities,  during  the  three  months  ended
September  30, 1996 the cash needs of the Company were  principally  provided by
increased  deposits  and an increase  in advances  from the FHLB of New York and
other borrowings.  The cash was principally  utilized for investing  activities,
which included the origination and purchase of loans.

Current  regulatory  standards  impose the  following  capital  requirements:  a
risk-based capital standard expressed as a percentage of risk adjusted assets; a
leverage ratio of core capital to total adjusted assets;  and a tangible capital
ratio  expressed as a percentage of total adjusted  assets.  As of September 30,
1997, 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
           None.

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: November 13, 1997                      By:/s/ Joseph L. LaMonica
                                                ----------------------
                                                Joseph L. LaMonica
                                                President and Chief
                                                Executive Officer




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





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