PART I

ITEM 1.  BUSINESS

   GENERAL

     Interchange  Financial Services  Corporation (the "Company"),  a New Jersey
business corporation and bank holding company under Federal law, acquired all of
the  outstanding  stock of Interchange  State Bank, a New Jersey  chartered bank
(the "Bank" or "Interchange") in 1986.

     The  Bank,   established  in  1969,  is  a  full-service   commercial  bank
headquartered  in Saddle  Brook,  New Jersey.  It offers  banking  services  for
individuals and businesses through its thirteen banking offices, twelve of which
are located in Bergen County, New Jersey, and one of which is located in Passaic
County, New Jersey.

     In addition to its commercial  lending  activities,  the Bank offers a wide
range of consumer banking  services,  including:  checking and savings accounts,
money-market accounts,  certificates of deposit, individual retirement accounts,
residential  mortgages,  home equity lines of credit and other  second  mortgage
loans, home improvement  loans,  automobile loans,  personal loans and overdraft
protection.  The  Bank  also  offers  a VISA  TM  credit  card  and  Interchange
Bank-line--our  telephone  banking  system.  Certain  Bank  employees  are  also
licensed  insurance agents qualified to offer tax deferred annuities and related
insurance products. The Bank also offers mutual funds to its customers through a
third party vendor.  Automated  teller machines (MAC TM, PLUS TM, HONOR TM, VISA
TM and MASTERCARD TM networks) are located at nine of the banking offices and at
one supermarket.

     The Bank is  engaged  in the  financing  of local  business  and  industry,
providing  credit  facilities  and  related  services  for  smaller  businesses,
typically  those with $1 million to $5 million in annual sales.  Commercial loan
customers of the Bank are businesses ranging from light  manufacturing and local
wholesale and  distribution  companies to  medium-sized  service firms and local
retail  businesses.  Most forms of  commercial  lending are  offered,  including
working capital lines of credit, small business administration loans, term loans
for  fixed  asset  acquisitions,   commercial   mortgages  and  other  forms  of
asset-based financing.

     In recent  years,  the Bank took  advantage  of  opportunities  to purchase
packages of loans from the Resolution Trust Corporation ("RTC") and from lending
institutions  seeking to reduce  assets in order to meet  capital  requirements,
thereby  maintaining  interest  income and  fostering  asset growth in difficult
market  conditions.  These loans were subjected to the Bank's independent credit
analysis  prior to purchase and were,  in some cases,  purchased  with a limited
buy-back obligation or other financial assurance from the sellers. In the Bank's
experience,  there  are  significant  opportunities  to sell  the  Bank's  other
products and services to the borrowers whose loans are purchased.

     The Bank has  expanded  its  service  areas  from one office in 1969 to the
present  thirteen  banking  locations  by opening  new  branches  and,  in 1991,
acquiring branch locations formerly operated by other  institutions.  Management
believes  that the 1991  acquisition  of the Park  Ridge  office  of The  Howard
Savings  Bank has allowed the Bank to increase its  penetration  of the affluent
Pascack Valley area of Bergen County.  Interchange's  acquisition in 1991 of the
former  Community  Guardian Bank increased its  penetration  of existing  market
areas and resulted in its first Passaic  County banking  location.  A new branch
was opened in Little Ferry in September, 1993, and in 1994, deposits of a failed
thrift  institution  were acquired and added to the already growing  deposits in
that office.  Since 1984, the Bank's assets have grown from $135 million to $491
million.

     Deposits of the Bank are insured up to $100,000  per  depositor by the Bank
Insurance Fund administered by the FDIC.

     The  Company  had  180  full-time-equivalent  employees  during  1995.  Its
principal  executive  office is located at Park 80 West/Plaza Two, Saddle Brook,
New  Jersey  07663,  telephone  number  (201)703-2265.  As used  herein the term
"Company"  includes the Bank and wholly-owned  subsidiaries of the Bank,  unless
the context otherwise requires.

     The Bank's principal  market for its deposit  gathering  activities  covers
major portions of Bergen County and eastern Passaic County,  in the northeastern
corner of New Jersey  adjacent to New York City. The principal  service areas of
the Bank represent a diversified mix of stable residential  neighborhoods with a
wide range of per household income levels; offices, service industries and light
industrial facilities; and large shopping malls and small retail outlets.

     For many  years  Interchange  State  Bank  has  conducted  periodic  market
research to keep aware of market  trends.  Much of this  research  affirmed that
consumer  financial needs are directly related to identifiable  life stages.  In
response to these  distinctive  preferences,  the bank has designed and marketed
"packaged"  products to appeal to these  different  segments.  Product  packages
consist  of  offering  several  deposit,  credit  and other  financial  services
together as a product unit. This encourages  customers to use multiple  products
and allows the bank to establish stronger relationships.

     The four product packages introduced to date include: GROW'N UP SAVINGS --a
passbook savings account which can be opened for a child of any age that teaches
them the good habits of saving.  MONEY PLUS  ACCOUNT  --geared to the 24-34 year
age group  which  includes a mortgage  product  for first time home  buyers that
allows  them  to  finance  up to 95% of the  value  of  the  home.  MONEY  MAKER
ACCOUNT--created  for the 35-54  year age  group.  This is an  interest  bearing
checking  account  that  offers  higher  rates   automatically  as  the  balance
increases. PRIME TIME ACCOUNT--for the mature market which offers them a variety
of financial and non-financial  benefits available to them for a minimum balance
only.  Since the predominant age of the Interchange  population is between 35-54
and 55+, the Money Maker and Prime Time Accounts  offer a variety of products to
accommodate  any of their financial needs for that stage of their life. The Bank
was among the first to offer such  packaged  financial  products in its area and
management  believes  they have  been  successful  in  attracting  deposits  and
building a loyal client base.

   COMPETITION

     Competition in the banking and financial services industry in the Company's
market  area  is  intense.   The  Bank  competes   actively  with  national  and
state-chartered  commercial  banks and other financial  institutions,  including
savings and loan  associations,  mutual  savings banks,  and credit  unions.  In
addition,  the Bank faces competition from less heavily regulated  entities such
as brokerage  institutions,  money management firms, consumer finance and credit
card companies and various other types of financial services companies.  Many of
these institutions are larger than the Bank, some are better capitalized,  and a
number pursue community banking strategies similar to those of the Bank.

     Management  believes  that  opportunities  continue to exist to satisfy the
deposit and lending demands of small and middle market businesses.  Larger banks
continued to show an appetite  for only the largest  loans,  finding  themselves
ill-equipped to administer smaller loans profitably.  Interchange has the desire
and the ability to give  smaller  businesses  the  treatment  they  deserve.  We
promise  and  deliver  to this  market  the kind of  preferential,  first  class
attention that megabanks give megacompanies. Interchange meets this need through
a unique program called Rapid Response Banking.  The program provides commercial
loans  between  $5,000 and $50,000  with a  streamlined  approval  process  that
borrows liberally from standard consumer lending  practices.  Naturally,  in due
course,  many small businesses become midsize  businesses,  with a corresponding
change in their  financial  requirements.  But they  don't  outgrow  Interchange
because of our  ability to be  responsive  to both  constituencies.  To continue
serving companies throughout the various stages of their evolution,  Interchange
created Business Class Banking--a program that grows with the customer. Business
Class Banking supports a spectrum of  business-oriented  financial products with
value-added  services.  By designing  progressive  programs to  accommodate  the
changing needs of growing businesses,  Interchange is extending the longevity of
valuable customer relationships.

     In 1995,  Interchange State Bank installed a relational  database.  This is
powerful  new  technology,  designed  expressly  for the  banking  industry  and
generally  associated with only the largest and most forward thinking companies.
From a  marketing  point  of  view,  the  implications  of this  technology  are
significant. We can now analyze account relationships,  their activity and their
relative value to the Bank in great detail.

     Interchange has maintained an ambitious program of primary research to keep
abreast of customer  attitudes and preferences.  Our sales quotas and incentives
for  employees are linked  directly to bank-wide  goals and are used to motivate
employees to sell the "right" products to the "right" customers.


<PAGE>


   REGULATION AND SUPERVISION

      The Company

     The Company is a bank holding company under the Bank Holding Company Act of
1956,  as  amended  (the  "Holding  Company  Act"),  and as such,  is subject to
supervision  by the  Board of  Governors  of the  Federal  Reserve  System  (the
"Federal Reserve Board"). As a bank holding company,  the Company is required to
file an  annual  report  with the  Federal  Reserve  Board  and such  additional
information  as the Federal  Reserve  Board may require  pursuant to the Holding
Company Act. The Federal  Reserve Board may conduct  examinations of the Company
or any of its subsidiaries.  The Holding Company Act requires every bank holding
company to obtain the prior approval of the Federal  Reserve Board before it may
acquire  substantially  all of the  assets  of any bank  (although  the  Federal
Reserve  Board may not assert  jurisdiction  in certain  bank  mergers  that are
regulated  under the Bank Merger  Act),  or  ownership  or control of any voting
shares of any bank if after such acquisition it would own or control directly or
indirectly  more  than 5% of the  voting  shares  of such  bank.  Under  certain
circumstances, prior approval of the Federal Reserve Board is required under the
Holding  Company Act before a bank holding company may purchase or redeem any of
its equity securities.

     The Holding Company Act also prohibits a bank holding company, with certain
limited  exceptions,  from itself  engaging in or  acquiring  direct or indirect
interest in or control of any company that is engaged in non-banking activities.
Certain  exemptions  are  available  with  respect  to  subsidiaries  engaged in
servicing or  liquidating  activities  or  companies  acquired by a bank holding
company  in  satisfaction  of debts  previously  contracted.  Another  principal
exception to this prohibition  allows the acquisition,  following an application
or notice process,  of interests in companies whose  activities are found by the
Federal  Reserve  Board,  by order or  regulation,  to be so closely  related to
banking or managing or  controlling  banks as to be a proper  incident  thereto.
Some of the  activities  that have been  determined  by regulation to be closely
related to banking  are making or  servicing  loans,  underwriting  credit  life
insurance,  performing certain data processing services, acting as an investment
or financial advisor and providing discount securities brokerage services. Other
activities  approved by the  Federal  Reserve  Board  include  acquisition  of a
savings association,  consumer financial counseling, tax planning and tax return
preparation,  futures and options advisory  services,  check guaranty  services,
collection agency and credit bureau services, and personal property appraisals.

     The  provisions  of Section  23A of the  Federal  Reserve  Act and  related
statutes place limits on all insured banks (including the Bank) as to the amount
of loans or  extensions  of  credit  to, or  investment  in,  or  certain  other
transactions  with,  their  parent bank  holding  companies  and certain of such
holding  companies'  subsidiaries  and as to the  amount  of  advances  to third
parties  collateralized  by  the  securities  or  obligations  of  bank  holding
companies or their subsidiaries.  In addition, loans and extensions of credit to
affiliates of the Bank generally must be secured in the prescribed amounts.

     Capital Adequacy Guidelines

     The Federal Reserve Board issued guidelines establishing risk-based capital
requirements  for bank  holding  companies  and  member  banks.  The  guidelines
established  a risk-based  capital  framework  consisting of (1) a definition of
capital consisting of Tier I capital, which includes common shareholders' equity
less certain  intangibles  and a supplementary  component  called Tier II, which
includes  a  portion  of the  allowance  for loan  losses  and (2) a system  for
assigning  assets and  off-balance-sheet  items to one of the four weighted risk
categories,  with higher  levels of capital  being  required for the  categories
perceived  as  representing   the  greater  risks,  and  established  a  minimum
risk-based  capital  ratio of 8% (of  which  at  least  4% must be Tier  I).  An
institution's  risk-based capital ratio is determined by dividing its qualifying
capital by its  risk-weighted  assets.  The guidelines make  regulatory  capital
requirements  more  sensitive to  differences  in risk  profiles  among  banking
institutions,  take  off-balance  sheet items into account in assessing  capital
adequacy, and minimize disincentives to holding liquid, low-risk assets. Banking
organization are generally expected to operate with capital positions well above
the minimum rates.  Institutions with higher levels of risk, or which experience
or  anticipate  significant  growth,  are also  expected  to operate  well above
minimum capital standards.

     These  guidelines  focus  principally  on broad  categories  of credit risk
although the framework for assigning assets and off-balance  sheet items to risk
categories does  incorporate  elements of transfer risk. The risk-based  capital
ratio does not,  however,  incorporate other factors that may affect a company's
financial condition, such as overall interest rate exposure,  liquidity, funding
and  market  risks,  the  quality  and  level of  earnings,  investment  or loan
concentrations,  the quality of loans and investments, the effectiveness of loan
and  investment  policies  and  management's  ability  to  monitor  and  control
financial and operating risks.

     In addition  to the  risk-based  guidelines  discussed  above,  the Federal
Reserve  Board  requires  that a bank  holding  company  and bank which meet the
regulator's  highest  performance  and  operation  standards  and  which are not
contemplating  or experiencing  significant  growth maintain a minimum  leverage
ratio (Tier I capital as a percent of quarterly  average adjusted assets) of 3%.
For  those  financial  institutions  with  higher  levels  of risk  or that  are
experiencing or anticipating significant growth, the minimum leverage ratio will
be increased.

     The Federal Reserve Board is vested with broad enforcement powers over bank
holding  companies  to forestall  activities  that  represent  unsafe or unsound
practices or constitute violations of law. These powers may be exercised through
the issuance of cease and desist orders or other  actions.  The Federal  Reserve
Board  is  also  empowered  to  assess  civil  penalties  against  companies  or
individuals  who violate  the  Holding  Company  Act,  to order  termination  of
non-banking activities of non-banking subsidiaries of bank holding companies and
to order  termination  of ownership and control of non-banking  subsidiaries  by
bank holding  companies.  Neither the Company nor any of its affiliates has ever
been the subject of any such actions by the Federal Reserve Board.

      THE BANK

     As a New Jersey  state-chartered  member bank,  the Bank's  operations  are
subject to various requirements and restrictions of state law pertaining,  among
other things, to lending limits,  reserves,  interest rates payable on deposits,
loans, investments, mergers and acquisitions,  borrowings,  dividends, locations
of  branch  offices  and  capital  adequacy.  The  Bank is  subject  to  primary
supervision, periodic examination and regulation by the New Jersey Department of
Banking  ("NJDB").  If,  as a  result  of an  examination  of a bank,  the  NJDB
determines  that the financial  condition,  capital  resources,  asset  quality,
earnings  prospects,  management,  liquidity,  or other  aspects  of the  bank's
operations are unsatisfactory or that the bank or its management is violating or
has violated any law or regulation,  various remedies are available to the NJDB.
Such remedies  include the power to enjoin  "unsafe and unsound"  practices,  to
require  affirmative  action  to  correct  any  conditions  resulting  from  any
violation or practice,  to issue an administrative  order that can be judicially
enforced, to, among other things, direct an increase in capital, to restrict the
growth of the Bank,  to  assess  civil  penalties  and to  remove  officers  and
directors.  The Bank has never been the  subject of any  administrative  orders,
memoranda of understanding or any other regulatory  action by the NJDB. The Bank
also is subject to supervisory  examination  by the Federal  Reserve Bank of New
York.

     The Bank's deposits are insured by the Bank Insurance Fund  administered by
the FDIC up to a maximum of $100,000 per depositor.  For this  protection,  each
bank pays a semi-annual statutory assessment to, and is subject to the rules and
regulations of, the FDIC.

     The Bank's  ability to pay  dividends is subject to certain  statutory  and
regulatory  restrictions.  The New  Jersey  Banking  Act of  1948,  as  amended,
provides  that no  state-chartered  bank may pay a dividend on its capital stock
unless,  following the payment of each such  dividend,  the capital stock of the
bank will be  unimpaired,  and the bank will have a surplus of not less than 50%
of its  capital,  or, if not, the payment of such  dividend  will not reduce the
surplus of the bank.  In  addition,  the payment of  dividends is limited by the
requirement  to meet the  risk-based  capital  guidelines  issued by the Federal
Reserve Board and other regulations.

     FDIC Improvement Act of 1991

     The Federal Deposit Insurance  Corporation  Improvement of 1991, enacted in
December 1991 ("FDICIA"),  among other things,  identifies the following capital
standard  categories for financial  institutions:  well capitalized,  adequately
capitalized,  undercapitalized,  significantly  undercapitalized  and critically
undercapitalized.  The FDIC has  enacted  regulations  to  implement  the prompt
corrective  action  provisions  of  FDICIA.  These  regulations  establish  five
classifications  based on the  capital  measures  of an  institution.  Under the
guidelines,  a "well  capitalized"  institution  is one with a total  risk-based
capital ratio of 10% or above, a Tier I risk-based  capital ratio of 6% or above
and a Tier I  leverage  ratio of 5% or above,  and is not  subject  to a capital
directive  to meet a specific  level for any capital  measure;  and  "adequately
capitalized"  institution is one with a total risk-based  capital ratio of 8% or
above, a Tier I risk-based  ratio of 4% or above, and a Tier I leverage ratio of
4%  or  above   and   which   is  not  a  well   capitalized   institution;   an
"under-capitalized"  institution  is one that does not meet the  capital  levels
necessary  to  be  an  adequately  capitalized  institution;   a  "significantly
undercapitalized"  institution is one with a total  risk-based  capital ratio of
under 6%, a Tier I  risk-based  capital  ratio of under 3%, or a Tier I leverage
ratio of under 3%; and a "critically undercapitalized" institution is one with a
Tier I leverage ratio of 2% or less. The institution's primary regulator has the
discretion  to downgrade  the  institution  by one  classification  level if the
institution  is found to be unsafe and  unsound,  or to be engaged in unsafe and
unsound practices.

     FDICIA imposes  progressively more restrictive  supervisory  constraints on
operations,  management and capital  distributions  depending on the category in
which  an  institution  is  classified.  Pursuant  to  FDICIA,  undercapitalized
institutions  must submit  recapitalization  plans, and a company  controlling a
failing  institution  must  guarantee  (subject  to  certain  limitations)  such
institution's  compliance  with its plan in order for the plan to be accepted by
the regulators. In addition, FDICIA generally prohibits a depository institution
from making any capital distribution (including payment of a dividend) or paying
a management  fee to its holding  company if the depository  institution  is, or
would  thereby  become,  undercapitalized.  FDICIA  also  requires  the  various
regulatory  agencies to prescribe  within one year from the date of enactment of
FDICIA certain non-capital standards for safety and soundness relating generally
to operations  and  management,  asset quality and executive  compensation,  and
permits  regulatory  action against a financial  institution  that does not meet
such standards.

     FIRREA and FDICIA provide the federal banking  agencies with  significantly
expanded powers to take enforcement  action against  institutions  which fail to
comply with capital or other standards.  Such action may include the termination
of deposit insurance by the FDIC or the appointment of a receiver or conservator
for the institution.

     The  Bank's  deposits  are  insured  by the FDIC and the Bank is  therefore
subject to FDIC deposit insurance  assessments.  On September 15, 1992, the FDIC
approved  the   implementation  of  a  transition   risk-based  deposit  premium
assessment  system under which each  depository  institution is placed in one of
nine assessment  categories  based on certain capital and supervisory  measures.
The  assessment  rates  under the new  system  range  from 0.23  percent to 0.31
percent  depending  upon the  assessment  category  into  which  the  depository
institution is placed. In 1995, the Federal Despot Insurance Corporation reduced
the  lower  tier of the  assessment  from  0.23  percent  to 0.04  percent.  The
reduction  of the  assessment,  effective  as of the  second  quarter  of  1995,
resulted from the Bank  Insurance Fund becoming  fully  capitalized.  The Bank's
assessment  rate was 0.04  percent at December 31,  1995.  Effective  January 1,
1996,  the FDIC further  changed the rate  structure for the BIF.  Under the new
rate structure, assessment rates will be between zero and 0.27 percent. However,
institutions  that have a zero assessment will be subject to a statutory minimum
of $2,000 per year. In 1996,  the Bank will have a zero  assessment,  subject to
the statutory minimum.

ITEM 2. PROPERTIES

     The  Company  leases  nine  banking  offices,  one  mini  branch,  and  one
operations/support  facility.  It owns three banking  offices and leases land on
which it owns one bank building.

ITEM 3.  LEGAL PROCEEDINGS

     Interchange  State Bank (the  "Bank"),  a wholly  owned  subsidiary  of the
Company,  is a defendant in a lawsuit  commenced in April 1989,  (Great American
Mortgage  Corp.,  et al vs. Robert Utter, et al.) filed in Superior Court of New
Jersey  alleging that the Bank was  statutorily  liable in conversion for having
paid checks drawn on demand  deposit  accounts of plaintiffs at the Bank bearing
forged or irregular endorsements.

     On December 2, 1992, the Court directed  judgment to be entered against the
Bank in the total principal sum of $484,000 with prejudgment  interest. On April
5, 1993,  the Bank filed a Notice of Appeal of this  judgment  and, by virtue of
post-judgment  motions,  the amount was reduced to the principal sum of $311,000
plus  pre-judgment  interest.  This judgment was appealed and, by virtue of this
appeal,  the amount was  further  reduced to  $245,000.  The matter  remained on
appeal until May 8, 1995 at which time, by Court order,  the matter was settled.
Pursuant  thereto,  the Bank has paid a total of $89,000  against the  aforesaid
judgment,  which has now been discharged of record. The Bank continues to pursue
various parties for recoupment of the aforesaid  monies under which it is likely
that the  Bank's  liability  for the  payment  will  either  be  reduced  to its
proportionate  share under contribution  theories or it will be exonerated under
indemnification theories.

     In a related  matter,  on January 8, 1993,  an  interlocutory  judgment was
entered  against  the Bank in the  principal  sum of $120,000  with  prejudgment
interest.  The Bank has appealed  this judgment and a stay of execution has been
effected.

     In 1992,  the  Company  accrued  $500,000  as a  provision  for an  adverse
judgment in this  litigation.  Based on the May 8, 1995  partial  settlement  of
these matters, the Company has reduced the reserve by $250,000 to $161,000 which
the Company  and its legal  counsel  believe is adequate to cover any  remaining
liabilities related to these matters.

     The Company is also a party to routine litigation involving various aspects
of its business, none of which, in the opinion of management, after consultation
with legal  counsel,  is  expected  to have a  material,  adverse  impact on the
consolidated  financial  condition,  results of  operations  or liquidity of the
Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted  during the three months ended December 31, 1995,
to a vote of the Company's  security holders through the solicitation of proxies
or otherwise.
<PAGE>
EXECUTIVE OFFICERS

     The following  table sets forth the names,  ages, and present  positions of
the principal executive officers:

NAME                        AGE           POSITIONS HELD WITH THE COMPANY 
                                                  AND THE BANK

ANTHONY S. ABBATE           56             President and Chief Executive Officer
ROBERT N. HARRIS            63             Executive Vice President and 
                                             Chief Financial Officer
RICHARD N. LATRENTA         42             Senior Vice President--Lending
FRANK R. GIANCOLA           42             Senior Vice President--Retail Banking

BUSINESS EXPERIENCE

     ANTHONY S. ABBATE,  President and Chief Executive Officer of the Bank since
1981;  Senior Vice  President and  Controller  from October 1980;  President and
Chief  Executive  Officer of Home State Bank  1978-1980.  Engaged in the banking
industry since 1959.

     ROBERT N. HARRIS,  Executive Vice President and Chief Financial  Officer of
the Bank since 1983; Senior Vice President and Chief Financial Officer of Bergen
State Bank 1978-1983. Engaged in the banking industry since 1965.

     RICHARD N. LATRENTA,  Senior Vice President-Lending of the Bank since 1984;
Senior Loan Officer  since 1982;  Assistant  Vice  President  since 1980;  other
positions with the Bank since 1976. Engaged in the banking industry since 1972.

     FRANK R. GIANCOLA,  Senior Vice  President-Retail  Banking since January 1,
1993; Senior Vice  President-Operations of the Bank from 1984; Senior Operations
Officer from 1982; Vice President/Branch Administrator from 1981. Engaged in the
banking industry since 1971.

Officers  are  elected  annually  and  serve at the  discretion  of the board of
directors.  Management  is not  aware of any  family  relationship  between  any
director or executive officer.

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND 
          RELATED STOCKHOLDER MATTERS

     The common stock is traded on the American  Stock Exchange under the symbol
"ISB."

     A cash  dividend of $0.175,  $0.175 and $0.18 was paid on each common share
outstanding  in each  quarter  during  1993,  1994 and 1995,  respectively.  The
following table sets forth, for the periods indicated, the reported high and low
sales price:
<TABLE>
<CAPTION>

                                                                        High              Low
                                                                      ----------        ---------
             <S>                                                       <C>             <C>    

             1993

                     First quarter                                     $16.25            $13.00
                     Second quarter                                     15.50             13.75
                     Third quarter                                      18.80             13.875
                     Fourth quarter                                     17.875            14.25

             1994

                     First quarter                                     $16.50            $14.00
                     Second quarter                                     16.625            14.25
                     Third quarter                                      16.75             15.375
                     Fourth quarter                                     16.375            14.75

             1995

                     First quarter                                     $17.375           $14.625
                     Second quarter                                     20.125            16.50
                     Third quarter                                      23.00             19.00
                     Fourth quarter                                     21.625            20.25


The number of stockholders of record as of December 20, 1995, was 1,072.
</TABLE>

<PAGE>


<TABLE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>

                                                                               Y E A R S   E N D E D   D E C E M B E R 31,
                                                              ----------------------------------------------------------------------
                                                                   1995          1994           1993          1992            1991
                                                                ---------     ---------      ---------     ---------       ---------
<S>                                                            <C>              <C>           <C>            <C>            <C>    

SUMMARY EARNINGS (IN THOUSANDS)

   Interest income                                                $36,995        $32,612       $29,267        $31,258        $30,102
   Interest expense                                                15,150         11,006        10,237         14,379         16,234
                                                              -----------     -----------    ------------    -----------     -------
     Net interest income                                           21,845         21,606        19,030         16,879         13,868
   Provision for loan losses                                        1,200            944         1,065          2,237            900
                                                              -----------     -----------    ------------    -----------     -------
     Net interest income after provision for loan losses           20,645         20,662        17,965         14,642         12,968
   Non-interest income                                              4,752          3,782         4,872          5,197          2,049
   Non-interest expenses                                           15,824         15,746        14,908         13,645         11,089
                                                              -----------    -----------   ------------   -----------    -----------
     Income before cumulative effect of change in
      accounting principle and income taxes                         9,573          8,698         7,929          6,194          3,928
   Income taxes                                                     3,293          3,062         2,887          2,473          1,368
                                                              -----------    -----------    -----------   -----------    -----------
     Income before cumulative effect of
      change in accounting principle                                6,280          5,636         5,042          3,721          2,560
   Cumulative effect of change in accounting principle                  -              -          (205)             -              -
                                                              -----------    -----------    ------------   -----------    ----------
     Net income                                                   $ 6,280        $ 5,636       $ 4,837        $ 3,721        $ 2,560
                                                              ===========    ===========   ============   ===========    ===========

PER SHARE DATA

   Income before cumulative effect of change
     in accounting principle                                        $2.29          $2.05         $1.80          $1.79          $1.26
   Cumulative effect of change in accounting principle                  -              -         (0.08)             -              -
   Net income                                                        2.29           2.05          1.72           1.79           1.26
   Cash dividends declared                                           0.72           0.70          0.70           0.70           0.70
   Book value-end of year                                           14.92          12.14         11.47          10.45           8.70
   Tangible book value-end of year                                  13.95          11.92         11.06           9.97           7.83

   Weighted average shares outstanding (in thousands)               2,697          2,697         2,697          1,875          1,727

BALANCE SHEET DATA-END OF YEAR (IN THOUSANDS)

   Total assets                                                 $ 491,457      $ 479,312     $ 421,659      $ 404,064      $ 399,771
   Investment securities and securities
     available for sale                                           142,233        148,781       118,939         96,480         84,143
   Loans                                                          311,164        290,654       266,992        269,214        282,627
   Allowance for loan losses                                        3,647          3,839         3,905          4,100          3,566
   Total deposits                                                 436,452        424,170       385,430        369,327        375,567
   Long-term debt                                                       -          5,000             -              -              -
   Total stockholders' equity                                      40,241         35,129        33,305         31,555         20,018

SELECTED PERFORMANCE RATIOS

   Return on average total assets                                    1.32           1.25          1.23           0.93           0.78
   Return on average total stockholders' equity                     16.66          16.58         15.63          16.25          13.29
   Dividend payout ratio                                            32.28          35.47         41.39          46.73          62.07
   Average total stockholders' equity to average total assets        7.90           7.52          7.90           5.74           5.84
   Net yield on interest earning assets (taxable equivalent)         4.93           5.13          4.98           4.55           4.54
   Non-interest expenses to average assets                           3.32           3.48          3.65           3.42           3.36
   Non-interest income to average assets                             1.00           0.84          1.19           1.30           0.62

ASSET QUALITY RATIOS-END OF YEAR

   Nonaccrual loans to total loans                                   0.81           2.13          1.47           1.97           1.75
   Nonperforming assets to total assets                              1.06           1.58          1.25           1.79           1.72
   Allowance for loan losses to nonaccrual loans                   145.24          62.15         99.77          77.31          71.90
   Allowance for loan losses to total loans                          1.17           1.32          1.46           1.52           1.26
   Net charge-offs to average loans for the year                     0.48           0.37          0.48           0.63           0.25

LIQUIDITY AND CAPITAL RATIOS

   Average loans to average deposits                                68.60          66.69         70.34          73.78          76.04
   Total stockholders' equity to total assets                        8.19           7.33          7.90           7.81           5.01
   Tier I capital to risk-weighted assets                           12.95          12.28         12.60          11.88           6.81
   Total capital to risk-weighted assets                            14.20          13.52         13.85          13.13           8.12
   Tier I leverage ratio                                             7.84           7.39          7.71           7.59           4.65

</TABLE>

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

     This  section  presents   management's   discussion  and  analysis  of  the
consolidated  results of  operations  and  financial  condition  of  Interchange
Financial  Services  Corporation  (the  "Company").  The discussion and analysis
should be read in conjunction  with the  consolidated  financial  statements and
notes thereto on pages 35 through 62 and the summary  consolidated data included
elsewhere in this report.

OVERVIEW OF RESULTS 

In 1995,  the  Company  reported  net  income of $6.3  million or $2.29 per
common  share,  as compared  with $5.6 million or $2.05 per common share in 1994
and $4.8 million or $1.72 per common share in 1993.

     Net income for 1995 was favorably  impacted by an increase in  non-interest
income of $970  thousand,  or 25.6%,  as  compared  to 1994.  The  increase  was
attributable  to the sale of a portion of the  subsidiary  bank's loan servicing
portfolio that generated a net gain of $828 thousand.

     Net income also  increased  due to an  increase in interest  income of $4.4
million  resulting from an increase in average  interest earning assets combined
with an increase in average yields for those assets.  The positive effect on net
income derived from interest  earning assets was mostly offset by a $4.1 million
increase in interest  expense in 1995  compared to 1994. An increase in interest
bearing liabilities,  specifically certificates of deposit, compounded by rising
interest rates was primarily responsible for the increase in interest expense.

     In 1995, net income also benefited from the nominal growth in  non-interest
expenses of $78 thousand,  or .5%, as compared to 1994. The nominal increase was
due to a $712 thousand, or 4.5%, increase in operating expenses offset by a $250
thousand  reduction to a previously  established  litigation  reserve and a $384
thousand decrease in the Federal Deposit Insurance Corporation  assessment.  The
assessment  was reduced  from 23 cents per  thousand to 4 cents per  thousand on
qualified  deposits  as a  result  of the Bank  Insurance  Fund  becoming  fully
capitalized.  The  reduction in the  assessment  became  effective in the second
quarter of 1995.

     Net income in 1994  increased  $799  thousand  over 1993 due largely to the
$2.6 million increase in net interest income.  Net interest income increased due
largely  to the  increase  in average  interest  earning  assets.  The growth in
interest  earning assets stemmed from two large loan  acquisitions  amounting to
$32.6 million  during 1994,  coupled with a $38.5 million  growth in the average
balance of taxable investment securities. The loan acquisitions and purchases of
investment  securities were funded by the acquisition of the deposit liabilities
of a failed  institution  from the Resolution Trust  Corporation,  combined with
borrowings  from the  Federal  Home Loan Bank of New York.  The  increase in net
interest income was partly offset by a decrease in  non-interest  income of $1.1
million  in 1994,  compared  to 1993.  This  decrease  was due to a gain of $1.1
million from the sale of mortgage loans in 1993 that did not reoccur in 1994.

<TABLE>

Table 1 
SUMMARY OF OPERATING RESULTS 
<CAPTION>
 
                                                                     1995               1994                1993
                                                                     ----               ----                ----
<S>                                                                <C>                 <C>                 <C>    

Net income (in thousands)                                           $6,280             $5,636              $4,837
Earnings per share                                                    2.29               2.05                1.72
Return on average total assets                                        1.32%              1.25%               1.23%
Return on average total equity                                       16.66              16.58               15.63
Dividend payout ratio*                                               32.28              35.47               41.39
Average total stockholders' equity to
    average total assets                                              7.90               7.52                7.90

<FN>

         *Cash dividends declared on common and preferred shares to net income
</FN>

</TABLE>
<PAGE>

NET INTEREST INCOME

     NET INTEREST INCOME IS THE DIFFERENCE  BETWEEN THE INTEREST A COMPANY EARNS
     ON ITS ASSETS, PRINCIPALLY LOANS AND INVESTMENT SECURITIES, AND INTEREST IT
     PAYS ON ITS  DEPOSITS AND  BORROWINGS.  WHEN  EXPRESSED AS A PERCENTAGE  OF
     AVERAGE  ASSETS,  IT IS  REFERRED  TO AS NET  INTEREST  MARGIN,  OR  SIMPLY
     INTEREST  MARGIN.  TABLE 3, WHICH PRESENTS  CHANGES IN INTEREST  INCOME AND
     INTEREST  EXPENSE BY MAJOR ASSET AND LIABILITY  CATEGORY FOR 1994 AND 1995,
     ILLUSTRATES  THE IMPACT OF AVERAGE  VOLUME GROWTH  (ESTIMATED  ACCORDING TO
     PRIOR YEAR RATES) AND RATE  CHANGES  (ESTIMATED  ON THE BASIS OF PRIOR YEAR
     VOLUMES).  CHANGES  NOT DUE SOLELY TO CHANGES IN EITHER  BALANCES  OR RATES
     HAVE BEEN ALLOCATED TO SUCH CATEGORIES  BASED ON THE RESPECTIVE  PERCENTAGE
     CHANGES IN AVERAGE BALANCES AND AVERAGE RATES.
        
     Figures are adjusted to a taxable equivalent basis to recognize the income
from  tax-exempt  assets as if the  interest  was  taxable,  thereby  allowing a
uniform comparison to be made between assets yields.

<PAGE>
<TABLE>
Table 2 
ANALYSIS OF NET INTEREST INCOME for the years ended December 31,
(dollars in thousands)
<CAPTION> 
                                                                      1995                                        1994
                                                    ------------------------------------       ------------------------------------
                                                         AVERAGE               AVERAGE           Average                  Average
                                                         BALANCE   INTEREST     RATE             Balance     Interest       Rate
                                                     ------------------------------------       -----------------------------------
<S>                                                   <C>        <C>            <C>              <C>            <C>        <C>

ASSETS
   Interest earning assets
     Loans (1) (2)                                    $291,981      $27,427       9.39%         $272,399       $23,537       8.64%
     Taxable securities                                144,156        9,138       6.34           137,484         8,604       6.26
     Tax-exempt securities (2)                           1,081           74       6.85             1,561            78       4.93
     Federal funds sold                                  6,366          374       5.87            10,406           412       3.96
                                                      ---------     --------                    --------       --------

     TOTAL INTEREST EARNING ASSETS                     443,584       37,013       8.34           421,850        32,631       7.74
                                                                    --------                                   --------

   Non-interest earning assets
     Cash and due from banks                            20,781                                    20,120
     Allowance for loan losses                          (3,865)                                   (3,832)
     Other assets                                       16,518                                    13,793
                                                      ---------                                 ---------

     TOTAL ASSETS                                     $477,018                                  $451,931
                                                      =========                                 =========

LIABILITIES AND STOCKHOLDERS' EQUITY
   Interest bearing liabilities
     Demand deposits                                  $102,397        3,141       3.07          $100,309         2,612       2.60
     Savings deposits                                  111,959        3,515       3.14           122,083         3,191       2.61
     Time deposits                                     146,133        7,857       5.38           124,791         4,832       3.87
     Short-term borrowings                               7,845          506       6.45             5,361           289       5.39
     Long-term borrowings                                1,932          131       6.78             1,192            82       6.80
                                                      ---------     --------                    ---------      --------

     TOTAL INTEREST BEARING LIABILITIES                370,266       15,150       4.09           353,736        11,006       3.11
                                                                    --------                                   --------

   Non-interest bearing liabilities

     Demand deposits                                    65,164                                    61,271
     Other liabilities                                   3,903                                     2,924
                                                      ---------                                 ---------

     Total liabilities (3)                             439,333                                   417,931
     Stockholders' equity                               37,685                                    34,000
                                                      ---------                                ----------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $477,018                                  $451,931
                                                      =========                                ==========

Net interest income (tax-equivalent basis)                           21,863        4.25                         21,625       4.63
Tax-equivalent basis adjustment                                         (18)                                       (19)
                                                                    --------                                 ----------
NET INTEREST INCOME                                                 $21,845                                    $21,606
                                                                    ========                                 ==========

NET INTEREST INCOME AS A PERCENT OF
   INTEREST EARNING ASSETS (TAX-EQUIVALENT BASIS)                                  4.93%                                     5.13%
<PAGE>

Table 2 (continued)

                                                                      1993
                                                     ------------------------------------
                                                        Average                   Average
                                                        Balance      Interest      Rate 
                                                     ------------------------------------
ASSETS
   Interest earning assets
     Loans (1) (2)                                      $262,222       $22,142      8.44%
     Taxable securities                                   98,997         6,466      6.53
     Tax-exempt securities (2)                             1,081            67      6.20
     Federal funds sold                                   20,315           610      3.00
                                                        --------        -------

     TOTAL INTEREST EARNING ASSETS                       382,615        29,285      7.65
                                                                        -------

   Non-interest earning assets
     Cash and due from banks                              18,558
     Allowance for loan losses                            (4,127)
     Other assets                                         11,253
                                                        ---------

     TOTAL ASSETS                                       $408,299
                                                        =========

LIABILITIES AND STOCKHOLDERS' EQUITY
   Interest bearing liabilities
     Demand deposits                                    $ 87,037         2,194     2.52
     Savings deposits                                    109,432         2,994     2.74
     Time deposits                                       122,317         5,039     4.12
     Short-term borrowings                                   281            10     3.56
     Long-term borrowings                                      -             -        -
                                                        --------        -------

     TOTAL INTEREST BEARING LIABILITIES                  319,067        10,237     3.21
                                                                        -------

   Non-interest bearing liabilities
     Demand deposits                                      53,999
     Other liabilities                                     2,980
                                                        --------

     Total liabilities (3)                               376,046
     Stockholders' equity                                 32,253
                                                        --------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY         $408,299
                                                        ========

Net interest income (tax-equivalent basis)                             19,048      4.44
Tax-equivalent basis adjustment                                           (18)
                                                                      -------
NET INTEREST INCOME                                                   $19,030
                                                                      =======

NET INTEREST INCOME AS A PERCENT OF
   INTEREST EARNING ASSETS (TAX-EQUIVALENT BASIS)                                  4.98%
<FN>



(1)  Nonaccrual  loans and any related  interest  recorded have been included in
     computing the average rate earned on the loan portfolio.  
(2)  Computed on a fully taxable  equivalent  basis using the corporate  federal
     tax rate of 34%.
(3)  All deposits are in domestic bank offices.
</FN>
</TABLE>


<PAGE>


<TABLE>

Table 3 
EFFECT OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME 
(in thousands)

<CAPTION>

                                          YEAR ENDED DECEMBER 31,                           Year ended December 31,
                                         1995 COMPARED WITH 1994                           1994 compared with 1993
                                           INCREASE (DECREASE)                               increase (decrease)
                                            DUE TO CHANGE IN:                                 due to change in:
                                 -----------------------------------------        ------------------------------------------
                                                                 NET                                                 Net
                                 AVERAGE         AVERAGE       INCREASE           Average         Average         Increase
                                  VOLUME          RATE        (DECREASE)           Volume          Rate           (Decrease)
                                 -----------------------------------------        ------------------------------------------
<S>                               <C>            <C>           <C>                <C>            <C>              <C>

Interest income
 Loans                            $1,762          $2,128          $3,890           $  867         $  528            $1,395
 Taxable securities                  423             111             534            2,392           (254)            2,138
 Tax-exempt securities               (34)             30              (4)              20             (9)               11
 Federal funds sold                 (160)            122             (38)            (577)           379              (198)
                                 ---------       --------        ---------         --------       -------          -------- 
   TOTAL INTEREST INCOME           1,991           2,391           4,382            2,702            644             3,346
                                 ---------       --------        ---------         --------       -------          -------- 


Interest expense
     Demand deposits                  54             475             529               346            72               418
     Savings deposits               (264)            588             324               333          (136)              197
     Time deposits                   922           2,103           3,025               102          (309)             (207)
     Short-term borrowings           152              65             217               271             8               279
     Long-term borrowings             49               -              49                82             -                82
                                 ---------       --------        ---------         --------       -------          -------- 
       TOTAL INTEREST EXPENSE        913           3,231           4,144             1,134          (365)              769
                                 ---------       --------        ---------         --------       -------          -------- 

CHANGE IN NET INTEREST
     INCOME                       $1,078         $  (840)         $  238            $1,568        $1,009            $2,577
                                 =========       ========        =========         ========       =======          ======== 
</TABLE>
<PAGE>

     The Company's net interest income, on a taxable  equivalent basis,  totaled
$21.9 million in 1995, an increase of $238 thousand, or 1.1%, from $21.6 million
in 1994.  The increase was driven by a $21.7 million or 5.2% increase in average
interest  earning assets from 1994 levels of $421.9  million.  In addition,  net
interest  income was  positively  affected by an  increase  in average  yield on
interest  earning  assets from 7.74% in 1994 to 8.34% in 1995, an increase of 60
basis points.  The benefits  derived from the positive changes in average volume
and average rate on interest  earning assets were largely offset by the negative
impacts of  increases  in average  volume and average  rate on interest  bearing
liabilities.  Average interest bearing  liabilities  increased $16.5 million, or
4.7%, from 1994 levels of $353.7 million. More significantly,  as illustrated in
Table 3, the 98 basis  point  increase  in average  rate,  from 3.11% in 1994 to
4.09% in 1995, had a more adverse impact on net interest income.

     The  growth  in  average  interest  earning  assets  stemmed  largely  from
increased  loans,  particularly,  commercial  mortgages.  The average balance of
commercial  mortgages totaled $91.3 million in 1995,  compared to $78.9 in 1994,
an increase of $12.4 million or 15.7%.

     On the liability  side,  growth in the average  balance of  certificates of
deposits  ("CDs")  was largely  responsible  for the $913  thousand  increase in
interest  paid  due to  volume  growth.  In 1995,  the  average  balance  of CDs
increased  $21.3  million or 17.1% and the average  balance of savings  accounts
decreased  $10.1  million or 8.3%.  The increase in CDs was the result of higher
interest rates in the second half of 1994 and the first half of 1995, increasing
the  popularity  of CDs.  Rising  interest  rates  increased  the  costs  of the
Company's deposit liabilities,  particularly time deposits, and was responsible
for $3.2 million of the increase in interest expense.

     Overall, the improved yields on interest earning assets,  combined with the
growth in average loans and  investments  generated a rise in interest income of
$4.4  million in 1995 over 1994.  Conversely,  the  increased  costs of interest
bearing  liabilities,  along with the  increase in average  balances,  increased
interest expense by $4.1 million,  thereby,  counteracting the positive benefits
derived from interest earning assets.

     Net interest income, on a taxable  equivalent basis,  totaled $21.6 million
in 1994, an increase of $2.6 million or 13.5% over 1993. The increase was driven
mostly by a $39.2  million  increase in average  interest  earning  assets.  The
volume  increase  made up $2.7  million  of the $3.3  million  total  change  in
interest income.  Taxable investment  securities comprised the largest increase.
The average balance  increased $38.5 million in 1994 from $99.0 million in 1993
and accounted for $2.4 million of the variance in interest  income due to volume
change.  In addition,  loan  acquisitions of $25.7 million in June 1994 and $6.9
million in October  1994,  contributed  to the growth in  interest  income.  The
increase in net interest income was partially  offset by the increased volume of
interest bearing liabilities.  This increase resulted in a $1.1 million increase
in interest  expense.  In 1994,  the  increase in interest  bearing  liabilities
resulted from the acquisition of $26.5 million of deposit  liabilities  from the
Resolution Trust Corporation in February 1994 and $18.0 million of advances from
the  Federal  Home Loan Bank of New York.  These  funds were used to finance the
growth in loans and investments.

Loan  Losses  
------------

The provision for loan losses represents management's  determination of the
amount  necessary  to bring the  allowance  for losses to the level it considers
adequate to reflect  the risk of future  losses in the loan  portfolio.  Factors
considered  in the  evaluation  include:  past loss  experience;  changes in the
composition of nonperforming  loans; the condition of borrowers facing financial
pressure,  the  relationship  of  the  current  level  of the  allowance  to the
portfolio and to nonperforming loans; and existing economic conditions.

     Loan loss  provisions  for 1995  amounted to $1.2 million  representing  an
increase  of $256  thousand  from the  previous  year.  In 1994,  the loan  loss
provision amounted to $944 thousand,  a decrease of $121 thousand from 1993. The
provision  for loan  losses in 1995,  1994 and 1993  include $62  thousand,  $44
thousand and $160 thousand, respectively,  representing the aggregate decline in
the market value of real estate  collateral  applicable  to loans whose value is
dependent  solely upon the value of the underlying  collateral.  The increase in
the loan loss  provision in 1995 over 1994 mirrors the increased  loan activity,
in particular,  commercial and financial loans and commercial real estate loans.
Such loans generally carry a higher risk  than do smaller  residential
and consumer loans.

     See sections on Loan  Portfolio  and Loan  Quality  beginning on page 20 of
this report for  additional  discussions  pertaining  to the  allowance for loan
losses.


<PAGE>
<TABLE>

Table 4
LOAN LOSS EXPERIENCE for the years ended December 31,
(dollars in thousands)
<CAPTION>

                                                1995           1994             1993             1992            1991
                                              -------        --------         --------         -------         --------  
<S>                                          <C>             <C>             <C>              <C>             <C>            

Average loans outstanding                     $291,981        $272,399        $262,222         $272,002        $232,382
                                              ========       =========        ========         ========        ======== 

Allowance at beginning of year                  $3,839          $3,905          $4,100           $3,566          $2,440
Allowance recorded on acquired
     loans                                           -               -               -                -             800
                                              ---------      ---------        --------         --------        -------- 

                                                 3,839           3,905           4,100            3,566           3,240
                                              --------        --------        --------         --------        -------- 
Loans charged off
          Commercial                               399             281             138              756              72
          Installment                              108             149             613              283             320
          Real estate                              914             647             560              792             200
          Lease financing                           89              47               -                                -
                                              --------        --------        --------         --------        -------- 
     Total                                       1,510           1,124           1,311            1,831             592
                                              --------        --------        --------         --------        -------- 

Recoveries of loans
     previously charged off
          Commercial                                25               -              -                73               3
          Installment                               54              99              42               20              15
          Real estate                               32              15               9               35               -
          Lease financing                            7               -               -                -               -
                                              --------        --------        --------         --------        --------  
     Total                                         118             114              51              128              18
                                              --------        --------        --------         --------        -------- 

Net loans charged off                            1,392           1,010           1,260            1,703             574
                                              --------        --------        --------         --------        --------  
                                           
                                              
Additions to allowance charged
    to expense

                                                 1,200             944           1,065            2,237             900
                                              --------        --------        --------         --------        -------- 

Allowance at end of year                        $3,647          $3,839          $3,905           $4,100          $3,566
                                              ========        ========        ========         ========        ======== 

Allowance to total loans                          1.17%           1.32%           1.46%            1.52%           1.26%
                                                                                 

Allowance to nonaccrual loans                   145.24           62.15           99.77            77.31           71.90
                                                                                                                 

Allowance to nonaccrual loans and
     loans past due 90 days or more             145.24           62.15           95.92            71.96           49.21
                                                                                                                  

Ratio of net charge-offs to average
     loans                                        0.48            0.37            0.48             0.63            0.25
                                                                                  
</TABLE>


     The  allowance  for losses  represented  70.3% of  nonperforming  assets at
year-end up from 50.7% at the end of 1994.

     The ratio increased as a result of a $2.4 million decrease in nonperforming
assets  in 1995  compared  to  1994.  The  decrease  stemmed  largely  from  the
charge-off of  approximately  $1.2 million of loans in 1995 that were classified
as nonperforming  in 1994. In addition,  the Company received $617 thousand that
represented  a guarantee  by the New Jersey  Economic  Development  Authority to
settle part of a substantial nonperforming loan.
<PAGE>

<TABLE>

TABLE 5
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES at December 31,
(in thousands)
<CAPTION>

                                          1995            1994            1993           1992            1991
                                        --------        --------        --------       --------        --------  
<S>                                     <C>              <C>            <C>             <C>            <C>    

Commercial and financial                 $1,993          $1,985          $2,822          $1,933          $1,184
Installment                                 215             278             324             352             911
Real estate                                 813             611             592             885             471
Unallocated                                 626             965             167             930           1,000
                                         ------          ------          ------         -------         ------- 

                                         $3,647          $3,839          $3,905          $4,100          $3,566
                                         ======         =======         =======          ======         =======
</TABLE>

     The above allocation is intended for analytical purposes and may not be
indicative of the  categories  in which future loan losses  occur.  

Non-interest Income  
-------------------

Non-interest  income  consists  of all income  other than  interest  and
dividend income and is derived from fees on bank  transactions and credit cards;
commissions  on sales of  annuities  and mutual  funds;  rental of safe  deposit
space; net gains on sales of assets and the accretion of discount in connection
with an  acquisition.  In  1995,  non-interest  income  increased  $1.0  million
due mostly to the  subsidiary  bank  selling a portion  of its loan  servicing
portfolio  which  generated  a net gain of $828  thousand.  Non-interest  income
decreased  $1.1  million in 1994  compared to 1993.  This  decrease was directly
attributable to the sale of approximately  $40 million of residential  mortgages
in 1993 that resulted in a gain of $1.1 million. Other income, exclusive of gain
on sale of assets,  expressed as a percentage of average  assets was .78%,  .79%
and .85% in 1995, 1994 and 1993, respectively.


<TABLE>
Table 6
NON-INTEREST INCOME for the years ended December 31,
(in thousands)
<CAPTION>

                                                           1995           1994           1993
                                                          ------         ------         ------  
<S>                                                      <C>           <C>             <C>  

 Service fees on deposit accounts                         $1,474        $1,496          $1,300
 Service fees on loan accounts                               280           258             178
 Service fees on credit cards                                168           155             155
 Net gain/(loss) on sale of loans
      available for sale                                      22           (14)          1,070
 Net gain on sale of loans                                     -             -             284
 Income from foreclosed real estate
      operations                                             174           211              28
 Net gain/(loss) on sale of securities
      available for sale                                      15            (5)              1
 Net gain on sale of loan servicing rights                   828             -               -
 Commission on annuity sales                                  89           188             194
 Commission on mutual funds sales                             49            40              39
 Accretion of discount in
      connection with acquisition                            760           760             777
 Collection of acquired loans in
      excess of carrying value                               406           313             227
 Rental on safe deposit boxes                                142           138             134 
 All other                                                   345           242             485
                                                          ------        ------          ------ 
                                                          $4,752        $3,782          $4,872
                                                          ======        ======          ====== 
</TABLE>



<PAGE>


Non-interest Expenses
---------------------

Non-interest expenses were $15.8 million in 1995, an increase of $78 thousand or
 .5% over the previous year. Increases in non-interest  expenses were minimal due
to expenses being offset by the settlement of a 1992 lawsuit against the banking
subsidiary  which  resulted  in  a  $250  thousand  reduction  of  a  previously
established  litigation  reserve and to a $384 thousand  decrease in the Federal
Deposit  Insurance  Corporation  assessment.  The assessment was reduced from 23
cents per thousand to 4 cents per thousand on qualified  deposits as a result of
the Bank  Insurance  Fund  becoming  fully  capitalized.  The  reduction  in the
assessment became effective in the second quarter of 1995. Non-interest expenses
increased  $838  thousand in 1994 over 1993 due mainly to the  acquisition  of a
failed bank and to the additional  costs of operating a banking office opened in
September 1993 for an entire year.

<TABLE>

Table 7
NON-INTEREST EXPENSES for the  years ended December 31,
(in thousands)
<CAPTION>

                                                                   1995            1994            1993
                                                                  ------          ------          ------   
<S>                                                            <C>              <C>             <C>   

 Salaries and benefits                                           $ 7,254         $ 6,879         $ 6,383
 Net occupancy and furniture
      and equipment                                                2,777           2,540           2,528

 Other expenses

      Advertising and promotion                                      673             701             745                    
      Stationery, printing and supplies                              281             275             275
      Federal Deposit Insurance Corporation
           assessment                                                503             887             870
      Professional fees                                            1,224           1,254           1,249
      Communications                                                 217             192             176
      Postage and shipping                                           282             250             253   
      Credit card processing fees                                    156             161             160   
      Credit services                                                253             208             295
      Foreclosed real estate expenses                                227             313             411            
      Amortization of premiums in
          connection with acquisitions                               444             403             197
      Provision for litigation contingency                          (250)              -               -
      Directors' fees, travel and
          retirement                                                 536             399             236             
      Insurance premiums                                             256             332             364             
      Unrealized (gain)/loss on loans
            held for sale                                            (60)             85               -
      All other                                                    1,051             867             766
                                                                 -------         -------         ------- 
                                                                 $15,824         $15,746         $14,908
                                                                 =======         =======         ======= 

</TABLE>

<PAGE>



Income Taxes
------------

     In 1995,  income taxes amounted to $3.3 million as compared to $3.1 million
and $2.9 million for 1994 and 1993, respectively. The effective tax rate in 1995
was 34.4% as  compared  to 35.2%  and  36.4%  for 1994 and  1993,  respectively.
Detailed  information  on  income  taxes  is  shown  in  Notes  1 and  14 to the
Consolidated Financial Statements.

New Pronouncements
------------------

     In May 1995, the Financial  Accounting  Standards Board issued Statement of
Financial Accounting Standard No. 122, "Accounting for Mortgage Servicing Rights
- an  amendment  to FASB  Statement  No. 65" ("SFAS No.  122").  This  Statement
requires  that a mortgage  banking  enterprise  recognize,  as separate  assets,
rights to service mortgage loans for others,  however those servicing rights are
acquired.   Additionally,   the  Statement  requires  that  a  mortgage  banking
enterprise assess its capitalized mortgage servicing rights for impairment based
on the fair value of those  rights.  This  Statement  applies  prospectively  to
fiscal  years  beginning  after  December  15, 1995 to  transactions  in which a
mortgage banking  enterprise sells or securitizes  mortgage loans with servicing
rights  retained and to impairment  evaluations  of all amounts  capitalized  as
mortgage servicing rights, including those purchased before the adoption of this
Statement.  The  implementation  of SFAS No.  122 will  not be  material  to the
Company's financial statements.

     In October 1995, the Financial  Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  No.  123,  "Accounting  for  Stock-Based
Compensation" ("SFAS No. 123"). This Statement encourages, but does not require,
a fair value based method of accounting for stock-based  compensation  plans and
encourages  entities  to adopt  that  method in place of the  provisions  of APB
Opinion No. 25, "Accounting for Stock Issued to Employees." Under the fair value
based method, compensation cost is measured at the grant date based on the value
of the award and is  recognized  over the service  period,  which is usually the
vesting period.  The provisions of this Statement are effective for transactions
entered  into  in  fiscal  years  that  begin  after   December  15,  1995.  The
implementation  of SFAS No. 123 will not be material to the Company's  financial
statements.

Effects of Inflation and Changing Prices
----------------------------------------

The financial  statements and related  financial data presented herein have been
prepared in accordance  with  generally  accepted  accounting  principles  which
require the measurement of financial  position and operating results in terms of
historical dollars without  considering changes in the relative purchasing power
of money over time due to inflation.

     Unlike  most  industrial  companies,   virtually  all  of  the  assets  and
liabilities  of a financial  institution  are  monetary in nature.  As a result,
interest  rates  have a more  significant  impact on a  financial  institution's
performance  than  do  general  levels  of  inflation.  Interest  rates  do  not
necessarily move in the same magnitude as the prices of goods and services.

Loan Portfolio
--------------

     Total loans as of December 31, 1995,  amounted to $311.2 million,  up $20.5
million or 7.1% over the previous year. A promotional  campaign and  competitive
loan rates were  instrumental  to the $13.0 million  increase in the home equity
loan  portfolio.  During 1995,  the Company  continued to meet the demand of its
business customers by growing the commercial and commercial  mortgage portfolios
by approximately $5.6 and $9.2 million, respectively.

     In 1994,  total loans  increased  $23.7  million  from the 1993 level.  The
increase stemmed from the acquisition of commercial mortgages amounting to $25.7
million and the acquisition of $6.9 million of home equity loans combined with a
reduction in loans from the securitization and transfer to securities  available
for sale of $27.9 million of residential mortgages.


<PAGE>

<TABLE>

Table 8
LOAN PORTFOLIO at December 31,
<CAPTION>

                                                         1995              1994             1993            1992             1991
                                                        ------            ------           ------          ------           ------  

<S>                                                 <C>                <C>               <C>              <C>             <C>    

AMOUNTS OF LOANS BY TYPE (in thousands)

   Commercial and financial                           $ 42,106           $  36,512        $ 35,380          $ 39,107       $ 46,015
   Real estate-construction                              1,484               1,917             207               993          1,208
   Real estate-mortgage
     1-4 family residential
          First liens                                   42,088              43,229          55,982            54,559         57,408
          Junior liens                                  20,919              25,266          38,771            47,349         57,585 
          Available for sale                             1,106               1,086          15,751            11,392              -
          Home equity                                  101,133              88,147          50,197            59,513         70,703
     Commercial                                         96,910              87,728          60,771            44,692         35,898
   Installment
     Credit cards and related plans                      2,902               3,314           4,039             4,311          4,335
     Other                                               2,461               2,757           3,918             4,166          6,772
   Lease financing                                          55                 698           1,976             3,132          2,703
                                                      --------            --------        --------          --------       --------

          TOTAL                                       $311,164            $290,654        $266,992          $269,214       $282,627
                                                      =========           ========        ========          ========       ======== 


PERCENT OF LOANS BY TYPE

   Commercial and financial                               13.5%              12.6%            13.2%             14.4%          16.3%
   Real estate-construction                                0.5                0.7              0.1               0.4            0.4
   Real estate-mortgage
     1-4 family residential
          First liens                                     13.5               14.9             21.0              20.3           20.3
          Junior liens                                     6.7                8.7             14.5              17.6           20.4
          Available for sale                               0.4                0.4              5.9               4.2              -
          Home equity                                     32.5               30.3             18.8              22.1           25.0
     Commercial                                           31.2               30.2             22.8              16.6           12.7
   Installment
     Credit cards and related plans                        0.9                1.1              1.5               1.6            1.5
     Other                                                 0.8                0.9              1.5               1.6            2.4
   Lease financing                                           -                0.2              0.7               1.2            1.0
                                                          ----               ----             ----              ----           ----

          TOTAL                                          100.0%             100.0%           100.0%            100.0%         100.0%
                                                         ======             ======           ======            ======         ======

</TABLE>

<PAGE>
<TABLE>
Table 8a

     The following  table sets forth the maturity  distribution of the Company's
loan portfolio as of the December 31, 1995. The table excludes real estate loans
(other than  construction  loans),  lease financing and installment  loans:  (in
thousands)
<CAPTION>

                                                                          Due after
                                                      Due in              one year           Due after
                                                     one year             through              five
                                                     or less             five years            years               Total
                                                   -----------          -------------       ----------          ----------
<S>                                                 <C>                 <C>                 <C>                  <C>    

Commercial and financial                              $11,647              $29,254             $1,205              $42,106
Construction                                            1,484                    -                  -                1,484
                                                     ---------            ---------           --------            ---------

            Total                                     $13,131              $29,254             $1,205              $43,590
                                                     =========            =========           ========            =========





Table 8b

     The following table sets forth, as of December 31, 1995, the sensitivity of
the amounts due after one year to changes in interest rates: (in thousands)

                                                                         Due after
                                                                          one year          Due after
                                                                          through              five
                                                                         five years            years
                                                                       -------------       ------------

Fixed interest rate                                                        $ 9,374            $  242
Variable interest rate                                                      19,880               963
                                                                          --------          -------- 

            Total                                                          $29,254            $1,205
                                                                           ========          ======== 
</TABLE>

<PAGE>

     Commercial real estate mortgage loans amounted to $96.9 million at December
31, 1995,  and  represented  31.2% of total loans  compared to $87.7  million or
30.2% of all loans at the end of 1994.  These  loans are  secured  primarily  by
first priority mortgage liens on  owner-occupied  commercial  properties.  While
approximately  85% of all loans are  collateralized  by real  estate  located in
northern New Jersey, the Company does not have any concentration of loans in any
single industry  classified under the Standard  Industrial  Classification  Code
which exceeds 3% of its total loans.

Loan Quality
------------

The lending  activities  of the Company are guided by the basic  lending  policy
established by the Company's Board of Directors.  Loans must meet the tests of a
prudent loan,  which include  criteria  regarding  the  character,  capacity and
capital  of the  borrower,  collateral  provided  for the  loan  and  prevailing
economic conditions. An independent appraisal of real property is mandatory when
it is considered the primary collateral for a loan.

     The Company  employs a  full-time  loan review  officer who  evaluates  the
credit risk for substantially all large commercial loans. This review process is
intended to identify adverse  developments in individual credits,  regardless of
whether  such credits are also  included on the  watchlist  discussed  below and
whether  or not the  loans  are  delinquent.  The loan  review  officer  reports
directly to the President of the Company.

     Management  maintains a "watchlist"  system under which credit officers are
required to provide early  warning of possible  deteriorations  in loans.  These
loans may not be delinquent currently,  but may present indications of financial
weakness,  such as  deteriorating  financial  ratios of the borrowers,  or other
concerns at an early stage to allow early  implementation  of responsive  credit
strategies.

Nonperforming Assets
--------------------

Nonperforming  assets  consist  of  nonaccrual  loans,  restructured  loans  and
foreclosed  real  estate.  Foreclosed  real  estate,  representing  real  estate
collateral acquired by legal foreclosure procedures, is valued using independent
appraisals and the Company's policy is to review such appraisals  annually.  The
Company  intends to dispose of each  property at or near its current  valuation.
However,  there  can be no  assurance  that  disposals  will  be made as soon as
anticipated or at expected values.

     Table 9 presents the detail of  nonperforming  assets and the  aggregate of
loans whose principal and/or interest has not been paid according to contractual
terms. (See discussion of loan losses on page 16.) Other than the loans included
in  the  table,  there  were  no  material   potential  problem  loans,   either
individually or in the aggregate, at December 31, 1995.


<PAGE>

<TABLE>


Table 9 
LOAN DELINQUENCIES AND NONPERFORMING ASSETS at December 31, 
(dollars in thousands)
<CAPTION>


                                                               1995           1994            1993           1992            1991
                                                              ------         ------          ------         ------          ------  
<S>                                                           <C>            <C>            <C>             <C>             <C>

Loans delinquent and accruing interest
   Loans past due 30-89 days                                   $ 853          $ 805          $  600         $1,838          $5,600

   Loans past due 90 days or more                                  -              -             157            395           2,286
                                                              ------         ------          ------         ------          ------  

     Total loans delinquent and accruing interest             $  853          $ 805          $  757         $2,233          $7,886
                                                              ======         ======          ======         ======          ======  

Nonaccruing loans                                             $2,511         $6,177          $3,914         $5,303          $4,960

Foreclosed real estate                                         1,213            880           1,342          1,655             787

Restructured loans                                             1,465            522               -            285           1,119
                                                              ------         ------          ------         ------          ------  

     Total nonperforming assets                               $5,189         $7,579          $5,256         $7,243          $6,866
                                                              ======         ======          ======         ======          ======  

     Total nonperforming assets and loans
       past due 90 days or more                               $5,189         $7,579          $5,413         $7,638          $9,152
                                                              ======         ======          ======         ======          ======  



Nonaccrual loans to total loans                                 0.81%          2.13%           1.47%          1.97%           1.75%

Nonperforming assets to total loans and
   foreclosed real estate                                       1.66           2.60            1.96           2.67            2.42

Nonperforming assets to total assets                            1.06           1.58            1.25           1.79            1.72

Nonaccrual loans and loans past due 90 days
   or more to total loans                                       0.81           2.13            1.52           2.12            2.56

Nonperforming assets and loans past due 90 days
   or more to total loans and foreclosed real estate            1.66           2.60            2.02           2.82            3.23

Nonperforming assets and loans past due 90 days
   or more to total assets                                      1.06           1.58            1.28           1.89            2.29


</TABLE>

<PAGE>


INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE

The Company  identifies as "securities  available for sale"  securities  used as
part of its asset and liability management  strategy,  or securities that may be
sold in  response  to,  among  other  things,  changes  in  interest  rates  and
prepayment risk. See Notes 1 and 4 of Notes to Consolidated Financial Statements
for additional information concerning securities available for sale.

     Table 10  presents a summary of the  contractual  maturities  and  weighted
average yields (adjusted to a taxable equivalent basis) of investment securities
and securities available for sale at December 31, 1995.

<TABLE>
 Table 10
SECURITIES at December 31, 1995
(dollars in thousands)
<CAPTION>

                                                               After 1       After 5
                                                                 But           But                                       Weighted
                                                  Within        Within        Within          After                       Average
                                                  1 Year       5 Years       10 Years       10 Years         Total         Yield
                                                 --------     ---------     ----------      ---------       -------      ---------  
<S>                                              <C>          <C>           <C>             <C>            <C>            <C>

Investment securities at amortized cost

   Obligations of U.S. Treasury                   $21,128       $44,095             -              -         $65,223       6.17%
   Obligations of U.S. agencies                         -         8,037             -              -           8,037       6.82

   Obligations of states & political
      subdivisions                                    993           175             -           $110           1,278       6.10
   Other debt securities                                -            50          $100              -             150       6.17  
                                                  -------       -------       -------        -------         ------- 
                                                   22,121        52,357           100            110          74,688
                                                  -------       -------       -------        -------         ------- 


Securities available for sale at market
     value
   Obligations of U.S. Treasury                         -        31,063        11,107              -          42,170        6.17
   Obligations of U.S. agencies                         -             -             -         22,941          22,941        6.19  
                                                  -------       -------       -------        -------         ------- 
                                                        -        31,063        11,107         22,941          65,111         
                                                  -------       -------       -------        -------         ------- 


     Total                                        $22,121       $83,420       $11,207        $23,051        $139,799
                                                  =======       =======       =======        =======        ========
  
Weighted average yield                               5.92%         6.18%         6.98%          6.21%           6.21% 

</TABLE>


<PAGE>
DEPOSITS

The Company  traditionally  relies on its deposit base to fund its credit needs.
Core deposits,  which include  non-interest  bearing demand  deposits,  interest
bearing  demand  accounts,  savings  deposits,  money  market  accounts and time
deposits  in amounts  under  $100,000,  represented  97.3% of total  deposits at
December 31, 1995, and 98.1% at December 31, 1994.

     In 1995,  the  Company  experienced  a decline in savings  deposits  and an
increase in  certificates of deposit.  The shift in these deposit  categories is
indicative of higher interest rates during the second half of 1994 and the first
half of 1995 that  resulted  in the  increased  popularity  of  certificates  of
deposit.



<TABLE>
Table 11
DEPOSIT SUMMARY at December 31,
(dollars in thousands)
<CAPTION>
    
                                               1995               1994               1993              1992               1991
                                         ---------------     ---------------   ---------------   ----------------  -----------------

<S>                                     <C>       <C>      <C>       <C>       <C>       <C>      <C>       <C>      <C>       <C>

Non-interest bearing demand              $69,213   15.8%    $66,435   15.7%    $59,170   15.3%    $49,908   13.5%    $52,458   14.0%

Interest bearing demand                  110,813   25.4     101,873   24.0      92,115   23.9      87,253   23.7      54,332   14.4
 
Money market                              38,716    8.9      37,816    8.9      43,483   11.3      37,923   10.3      48,300   12.9

Savings                                   71,170   16.3      75,906   17.9      70,062   18.2      63,168   17.1      50,534   13.4

Time deposits less  than $100,000        134,866   30.9     134,097   31.6     110,457   28.7     121,295   32.8     151,680   40.4
 
Time deposits greater than $100,000       11,674    2.7       8,043    1.9      10,143    2.6       9,780    2.6      18,263    4.9
                                        --------  ------   --------  ------   --------  ------   --------  ------   --------  ------

                                        $436,452  100.0%   $424,170  100.0%   $385,430  100.0%   $369,327  100.0%   $375,567  100.0%
                                        ========  ======   ========  ======   ========  ======   ========  ======   ========  ======

* The following table shows the time remaining to maturity of time  certificates
of deposit of $100,000 or more as of December 31, 1995 (in thousands)

Three months or less                             $ 5,720
Over three months through six months               3,289
Over six months through twelve months              1,649
Over twelve months                                 1,016
                                                 -------
                                                 $11,674
                                                 =======

</TABLE>

<PAGE>

INTEREST RATE SENSITIVITY

         FLUCTUATIONS IN MARKET INTEREST RATES CAN HAVE A SIGNIFICANT  INFLUENCE
         ON NET INTEREST INCOME. THEREFORE, MANAGING THE COMPANY'S INTEREST RATE
         SENSITIVITY IS A PRIMARY OBJECTIVE OF THE COMPANY'S SENIOR  MANAGEMENT.
         THE COMPANY'S  ASSET/LIABILITY  COMMITTEE  ("ALCO") IS RESPONSIBLE  FOR
         MANAGING  THE  EXPOSURE  TO  CHANGES  IN MARKET  INTEREST  RATES.  ALCO
         ATTEMPTS  TO  MAINTAIN  STABLE NET  INTEREST  MARGINS  BY  PERIODICALLY
         EVALUATING THE RELATIONSHIP BETWEEN INTEREST-RATE  SENSITIVE ASSETS AND
         INTEREST-RATE   SENSITIVE  LIABILITIES.   THE  EVALUATION  ATTEMPTS  TO
         DETERMINE   THE  IMPACT  ON  NET  INTEREST   MARGIN  FROM  CURRENT  AND
         PROSPECTIVE CHANGES IN MARKET INTEREST RATES.

                  INTEREST  RATE  SENSITIVITY  IS  DETERMINED  BY ANALYZING  THE
         DIFFERENCE  BETWEEN THE AMOUNT OF  INTEREST EARNING  ASSETS MATURING OR
         REPRICING   WITHIN  A   SPECIFIC   TIME   PERIOD   AND  THE  AMOUNT  OF
         INTEREST BEARING  LIABILITIES  MATURING OR  REPRICING  WITHIN THAT SAME
         PERIOD OF TIME.  THIS  DIFFERENCE,  OR  "SENSITIVITY  GAP," PROVIDES AN
         INDICATION OF THE EXTENT TO WHICH THE COMPANY'S NET INTEREST INCOME MAY
         BE AFFECTED BY FUTURE CHANGES IN MARKET INTEREST RATES.  THE CUMULATIVE
         GAP  POSITION AS A  PERCENTAGE  OF TOTAL  ASSETS  PROVIDES ONE RELATIVE
         MEASURE OF THE COMPANY'S  INTEREST RATE  EXPOSURE.  

     The cumulative gap between the Company's interest-rate sensitive assets and
its interest-rate  sensitive  liabilities repricing within a one-year period was
(13.18%) at December  31,  1995.  Since the  cumulative  gap was  negative,  the
Company has a "negative gap" position which, theoretically will cause its assets
to reprice  more slowly than its deposit  liabilities.  In a declining  interest
rate  environment,  interest  costs  may be  expected  to fall  faster  than the
interest received on earning assets, thus increasing the net interest spread. If
interest  rates  increase,  a negative gap means that the  interest  received on
earning assets may be expected to increase more slowly than the interest paid on
the Company's liabilities therefore decreasing the net interest spread.

     Certain  shortcomings  are inherent in the method of analysis  presented in
Table 12 . Although  certain assets and liabilities may have similar  maturities
or  periods  of  repricing,  they may react in  different  degrees to changes in
market interest rates.  The rates on certain types of assets and liabilities may
fluctuate in advance of changes in market  rates,  while rates on other types of
assets and liabilities may lag behind changes in market rates. In the event of a
change in interest rates,  prepayment and early withdrawal  levels could deviate
significantly  from those  assumed in  calculating  the  table.  The  ability of
borrowers to service  their debt may  decrease in the event of an interest  rate
increase. Management considers these factors when reviewing its gap position and
establishing its ongoing asset/liability strategy.


<PAGE>

<TABLE>

Table 12
RATE SENSITIVITY ANALYSIS at December 31, 1995
(dollars in thousands)
<CAPTION>

                                                                                                               NON-
                                         3         6        6 MOS. TO      1 TO 3     3 TO 5        OVER      INTEREST
SUBJECT TO RATE CHANGE WITHIN          MONTHS    MONTHS      1 YEAR        YEAR       YEARS       5 YEARS     SENSITIVE     TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>         <C>         <C>          <C>         <C>          <C>        <C>          <C>

Assets

  Net loans                           $108,830   $18,971      $20,605       $53,057    $42,848      $62,225     $   981     $307,517
  Investment securities                 69,547     6,044       14,075        48,279      4,078          210           -      142,233
  Federal funds sold                         -         -            -             -          -            -           -            -
  Cash and amounts due from banks            -         -            -             -          -            -      25,151       25,151
  Other non-interest earning assets          -         -            -             -          -            -      16,556       16,556
                                     ---------   -------     --------      --------    --------     -------     -------      -------

    Total assets                       178,377    25,015       34,680       101,336    46,926       62,435      42,688      491,457
                                     ---------   -------     --------      --------    -------      -------     -------      -------

Liabilities and stockholders' equity

  Demand deposits                      110,813         -            -             -          -            -      69,213      180,026
  Savings deposits*                     14,234         -            -             -     56,936            -           -       71,170
  Fixed maturity certificates           66,704    27,320       34,135        12,395      5,957           29           -      146,540
   of deposits                                                                                                                  
  Money market accounts                 38,716         -            -             -          -            -           -       38,716
  Securities sold under agreements
     to repurchase                           -     1,604          100             -          -            -           -        1,704
  Other borrowings                       5,450     1,250        2,500             -          -            -           -        9,200
  Other liabilities                          -         -            -             -          -            -       3,860        3,860
  Stockholders' equity                       -         -            -             -          -            -      40,241       40,241
                                     ---------   -------       ------      --------    -------      -------    --------     --------
    Total liabilities and              235,917    30,174       36,735        12,395     62,893           29     113,314     $491,457
    stockholders' equity             ---------   -------       ------      --------    -------      -------    ---------    ========

GAP                                   $(57,540)  $(5,159)    $ (2,055)     $ 88,941   $(15,967)     $62,406    $(70,626)
                                      =========  ========      =======     ========    ========     =======    ========
GAP to total assets                     (11.71)%   (1.05)%      (0.42)%       18.10%     (3.25)%      12.70%     (14.37)%
                                                                         
Cumulative GAP                        $(57,540) $(62,699)    $(64,754)     $ 24,187    $ 8,220      $70,626                        
                                      =========  ========      =======     ========    ========     =======
Cumulative GAP to total assets          (11.71)%  (12.76)%     (13.18)%        4.92%      1.67%       14.37%
<FN>
 
*Based on past experience with these  accounts,  management  believes that these
balances are not interest rate sensitive.  Accordingly, 80% of such balances has
been  allocated  to the "3 to 5  year"  category.  However,  there  is no
assurance that these balances will actually remain insensitive to interest rate
changes in the future.

</FN>
</TABLE>

<PAGE>


LIQUIDITY

         A FUNDAMENTAL COMPONENT OF THE COMPANY'S BUSINESS STRATEGY IS TO MANAGE
         LIQUIDITY TO ENSURE THE  AVAILABILITY  OF SUFFICIENT  RESOURCES TO MEET
         ALL   FINANCIAL    OBLIGATIONS   AND   FINANCE   PROSPECTIVE   BUSINESS
         OPPORTUNITIES. LIQUIDITY MANAGEMENT IS CRITICAL TO THE STABILITY OF THE
         COMPANY.  LIQUIDITY  LEVELS OVER ANY GIVEN PERIOD OF TIME ARE A PRODUCT
         OF THE COMPANY'S  OPERATING,  FINANCING AND INVESTING  ACTIVITIES.  THE
         EXTENT OF SUCH ACTIVITIES ARE OFTEN SHAPED BY SUCH EXTERNAL  FACTORS AS
         COMPETITION  FOR DEPOSITS AND LOAN DEMAND.  

     Traditionally,  funding for the Company's  loans and investments is derived
primarily from deposits, along with interest and principal payments on loans and
investments.  The Company continued to place considerable emphasis on increasing
core  deposits,  a stable and cost  effective  source of funds.  At December 31,
1995, core deposits (which represent 97.3% of total deposits) amounted to $424.8
million  and  increased  $8.7  million or 2.1% over the prior  comparable  year.
During 1995,  total deposits  increased by $12.3  million.  In 1995, the Company
continued to supplement the more  traditional  funding  sources with  borrowings
from the Federal  Home Loan Bank of New York  ("FHLB").  At December  31,  1995,
total  advances  from the FHLB  amounted  to $9.2  million as  compared to $16.0
million at December 31, 1994.

     In 1995, loan production  continued to be the Company's principal investing
activity. Net loans at December 31, 1995 amounted to $307.5 million, compared to
$286.8 million at the end of 1994, an increase of $20.7 million or 7.2%.

     The  Company's  most liquid  assets are cash and due from banks and federal
funds sold.  At December  31, 1995,  the total of such assets  amounted to $25.2
million  or 5.1% of total  assets  compared  to $26.0  million or 5.4% of total
assets, at year-end 1994.

     Another  significant  liquidity source is the Company's  available-for-sale
("AFS")  securities.  During  December  1995, the Company  reclassified  certain
securities  between  held-to-maturity  ("HTM")  and  AFS  (see  note  1  to  the
consolidated financial statements). This reclassification improved the Company's
liquidity and interest rate  sensitivity.  At December 31, 1995,  AFS securities
amounted to $67.5 million or 47.5% of total investment  securities,  compared to
$27.3 million or 18.3% of total investment securities at year-end 1994.

     In addition to the aforementioned sources of liquidity, the Company derives
liquidity from various other  sources,  including  federal funds  purchased from
other banks,  the Federal Reserve  discount window and sales of securities under
repurchase  agreements.  The  Bank  also  has a $47.5  million  line  of  credit
available through its membership in the Federal Home Loan Bank of New York.

     Management  believes that the Company's  sources of funds are sufficient to
meet its funding requirements.

CAPITAL ADEQUACY

Stockholders'  equity totaled $40.2 million and represents 8.19% of total assets
at December  31,  1995,  compared to $35.1  million and 7.33% of total assets at
December 31, 1994.  The $5.1 million  increase was primarily  attributable  to a
$4.3  million  rise in retained  earnings  (net income of $6.3 million less cash
dividends of $2.0 million). Stockholders' equity was further increased by a $2.5
million net increase to the market value adjustment for securities available for
sale.  These  components  were  partially  offset by a reduction of $1.6 million
relating to the retirement of the Company's preferred stock.

     Guidelines  issued by the Federal  Reserve  Board and the FDIC  establish
capital  adequacy  guidelines  for bank holding  companies  and  state-chartered
non-member  banks.  The  guidelines  establish a  risk-based  capital  framework
consisting  of (1) a definition of capital  consisting of Tier 1 capital,  which
includes   common   shareholders'   equity  less  certain   intangibles   and  a
supplementary  component  called  Tier  II,  which  includes  a  portion  of the
allowance  for  loan  losses,   and  (2)  a  system  for  assigning  assets  and
off-balance-sheet items to one of the four weighted risk categories, with higher
levels of capital being  required for the categories  perceived as  representing
the greater risks. An  institution's  risk-based  capital ratio is determined by
dividing its qualifying capital by its risk-weighted assets. The guidelines make
regulatory  capital  requirements more sensitive to differences in risk profiles
among  banking  institutions,  take  off-balance-sheet  items  into  account  in
assessing  capital  adequacy,  and minimize the  disincentive to holding liquid,
low-risk assets.  Banking  organizations are generally  expected to operate with
capital positions well above the minimum rates.  Institutions with higher levels
of risk, or which experience or anticipate significant growth, are also expected
to operate well above minimum capital standards.

     These  guidelines  focus  principally  on broad  categories of credit risk,
although the framework for assigning assets and off-balance  sheet items to risk
categories does  incorporate  elements of transfer risk. The risk-based  capital
ratio does not,  however,  incorporate other factors that may affect a company's
financial condition, such as overall interest rate exposure,  liquidity, funding
and  market  risks,  the  quality  and  level of  earnings,  investment  or loan
concentrations,  the quality of loans and investments, the effectiveness of loan
and  investment  policies  and  management's  ability  to  monitor  and  control
financial and operating risks.

     In addition  to the  risk-based  guidelines  discussed  above,  the Federal
Reserve  Board and the FDIC require  that a bank holding  company and bank which
meet the regulators'  highest  performance and operation standards and which are
not contemplating or experiencing significant growth maintain a minimum leverage
ratio (Tier I capital as a percent of quarterly  average adjusted assets) of 3%.
For  those  financial  institutions  with  higher  levels  of risk  or that  are
experiencing or anticipating significant growth, the minimum leverage ratio will
be increased.



<TABLE>

Table 13
Capital Position at December 31, 1995
(dollars in thousands)
<CAPTION>

                                                                         Risk-weighted Capital Ratios
                                                           -------------------------------------------------------  

                                                                                              Ratios
                                                                                 ---------------------------------   
                                                              Amount               Actual               Minimum
                                                            ----------           ---------            -----------   
<S>                                                         <C>                   <C>                  <C>   
Stockholders' equity                                         $ 40,241
Intangible assets                                              (1,977)
Unrealized gain-securities available for sale,
  net of taxes                                                   (646)
                                                             --------   

    Tier 1 capital                                             37,618                12.95%              4.00%
                                                                

Allowable portion of allowance
    for loan losses                                             3,632
                                                             --------   

    Total risk-based capital                                 $ 41,250                14.20%              8.00%                
                                                             ========   

Risk-weighted assets                                         $290,593




                                                                           Tier 1 Leverage Ratio
                                                           ------------------------------------------------------

                                                                                              Ratios
                                                                                 --------------------------------   
                                                              Amount               Actual               Minimum
                                                            ----------            --------             ---------    

Tier 1 capital                                               $ 37,618               7.84%               3.00%
                                                                 

Average assets for the three months ended
    December 31, 1995, as adjusted                           $479,580

</TABLE>
<PAGE>

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

                                      NONE

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

     a.  Directors

     The  information  contained  in  the  Company's  1995  Proxy  Statement  is
incorporated herein by reference in response to this item.

     b.  Executive Officers

     Information  required by this item is contained in Part I of this Form 10-k
in the section entitled "Executive Officers."


ITEM 11. EXECUTIVE COMPENSATION

     Information  contained in the section entitled "Executive  Compensation" of
the Company's 1995 Proxy Statement is  incorporated  herein by reference to this
item.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  contained in the section  entitled  "Amount and Nature of
Beneficial  Ownership" of the  Company's  1995 Proxy  Statement is  incorporated
herein by reference in response to this item. 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  contained  in the  section  entitled  "Transactions  with
mangement"  of the  Company's  1995 Proxy  Statement is  incorporated  herein by
reference in response to this item.


<PAGE>


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K

         a.  Financial Statements and Schedules

              The financial  statements and schedules listed in the accompanying
              Index to Consolidated Financial Statements and Schedules are filed
              as part of this Annual Report on Form 10-K

         b.   Reports on Form 8-K

                  No reports on Form 8-K were  filed by the  Company  during the
                  quarter ended December 31, 1995.

         c.   Exhibits

              3.  (a)  Certificate of incorporation and amendments thereto
                       (incorporated herein by reference to Registration 
                       Statement No. 33-49840, exhibit 3 (a))

                  (b)  By-laws (incorporated herein by reference to Registration
                       Statement No. 33-49840, exhibit 3(b))

              10. Material contracts

                  (a) Agreement for legal services  between Andora,  Palmisano &
                      Geaney and the Company dated April 27, 1995.

                  (b)  Change in  Control  Agreement  dated  May 22,  1995 for
                       Anthony S. Abbate

                  (c)  Change in  Control  Agreement  dated  May 22,  1995 for
                       Robert N. Harris

                  (d)  Change in  Control  Agreement  dated  May 22,  1995 for
                       Richard N. Latrenta

                  (e)  Change in  Control  Agreement  dated  May 22,  1995 for
                       Frank R. Giancola

                  (f)  Lease for Washington Township, N.J., Branch Office, dated
                       April   13,   1972  and   amended   December   21,   1972
                       (incorporated   herein  by  reference   to   Registration
                       Statement No. 33-49840, exhibit 10(h)).

                  (g)  Lease for Lodi,  N.J.,  Branch Office,  dated January 25,
                       1985  (incorporated  herein by reference to  Registration
                       Statement No. 33-49840, exhibit 10(i)).

 .
                  (h)  Lease for Elmwood Park, N.J.,  Retail Lending  Processing
                       Center,  dated June 22, 1992 and amended  June 28,  1994,
                       (incorporated herein by reference to the Company's Annual
                       Report on Form 10-K  filed  with the  Commission  for the
                       year 1992).

                  (i)  Amendment to lease for Elmwood Park,  New Jersey,  Retail
                       Lending   Processing   Center,   dated   June  28,   1994
                       (incorporated herein by reference to the Company's Annual
                       Report on Form 10-K  filed  with the  Commission  for the
                       year 1994).

                  (j)  Executive Compensation Plans and Arrangements

                       (1) 1989 Stock Option Plan is incorporated herein by
                           reference to Registration Statement
                           No. 33-49840, exhibit 10(j).

                       (2) Management   Incentive   Plan  is   incorporated   by
                           reference  to Part  III,  Item 11,  of the  Company's
                           definitive   Proxy  Statement  for  its  1996  Annual
                           Meeting of Stockholders  which will be filed with the
                           Commission not later than 120 days after December 31,
                           1995

                       (3) Directors' Retirement Program (incorporated herein by
                           reference to the Company's Annual Report on Form 10-K
                           filed with the Commission for the year 1994).

                       (4) Executives'  Supplemental  Pension Plan (incorporated
                           herein by reference to the Company's Annual Report on
                           Form  10-K  filed  with the  Commission  for the year
                           1994).

                       (5) Deferred  Compensation  Plan  for  Robert  N.  Harris
                           (incorporated  herein by reference  to the  Company's
                           Annual Report on Form 10-K filed with the  Commission
                           for the year 1994).

              11. Statement of Computation of Per Share Earnings

              22.  Subsidiaries of Registrant

              23.  Independent Auditors' Consent
               
              27.  Financial Data Schedule


<PAGE>
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange  Act of 1934,  the  Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

                                     Interchange Financial Services Corporation

                                           by /s/ Robert N. Harris 
                                           -------------------------          
                                                ROBERT N. HARRIS
                                          EXECUTIVE VICE PRESIDENT AND 
                                            CHIEF FINANCIAL OFFICER

March 28, 1996

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the  following  persons on behalf of the Company
and in the capacities and on the dates indicated:

/s/ Anthony S. Abbate
---------------------------------------------         
Anthony S. Abbate       March 28, 1996        
   Director                                                    
   President and Chief Executive Officer

/s/ Anthony Amato
--------------------------------------------           
Anthony Amato           March 28, 1996                     
   Director                                                      
                                                                 
/s/Anthony D. Andora
---------------------------------------------          
Anthony D. Andora        March 28, 1996                       
   Director                                                     
   Chairman of the Board

/s/Donald L. Correll
---------------------------------------------         
Donald L. Correll        March 28, 1996                 
   Director                                                   

/s/John J. Eccleston
---------------------------------------------          
John J. Eccleston        March 28, 1996        
   Director                                                    

/s/J. Fletcher Creamer, Jr.
---------------------------------------------       
J. Fletcher Creamer, Jr. March 28, 1996                    
   Director                                                    

/s/David R. Ficca
---------------------------------------------         
David R. Ficca           March 28, 1996
   Director

/s/Robert N. Harris
---------------------------------------------
Robert N. Harris         March 28, 1996
   Executive Vice President and
   Chief Financial Officer

/s/James E. Healey
---------------------------------------------
James E. Healey          March 28, 1996
   Director

/s/Eleanore S. Nissley
---------------------------------------------
Eleanore S. Nissley      March 28, 1996
   Director

/s/Jeremiah F. O'Connor
---------------------------------------------
Jeremiah F. O'Connor    March 28, 1996
   Director

/s/Robert P. Rittereiser
---------------------------------------------
Robert P. Rittereiser    March 28, 1996
   Director

/s/Benjamin Rosenzweig
---------------------------------------------
Benjamin Rosenzweig      March 28, 1996
   Director                                                            
<PAGE>
<TABLE>
<CAPTION>
                          
            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<S>                                                                                  <C>   

                                                                                      Page No.
                                                                                   in Form 10-K

                              Financial Statements

Independent Auditors' Report relating to the Consolidated Financial
  Statements and Notes thereto.........................................                 35

Consolidated Balance Sheets at December 31, 1995 and 1994..............                 36

Consolidated Statements of Income for the Years Ended
  December 31, 1995, 1994 and 1993.....................................                 37

Consolidated Statements of Changes in Stockholders' Equity
  for the Years Ended December 31, 1995, 1994 and 1993.................                 38

Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1995, 1994 and 1993.....................................                 39

Notes to Consolidated Financial Statements.............................                 40
</TABLE>

                                    Schedules

Schedules  to the  consolidated  financial  statements  required by Article 9 of
Regulation  S-X  are  not  required  under  the  related   instructions  or  are
inapplicable and, therefore, have been omitted.

     c.  Compliance with Section 16(a)

     Information  contained in the section  entitled  "Section 16 Compliance" of
the  Company's  1995 Proxy  Statement  is  incorporated  herein by  reference in
response to this item.


<PAGE>

INDEPENDENT AUDITORS' REPORT



Board of Directors and Stockholders
Interchange Financial Services Corporation
Saddle Brook, New Jersey

We have audited the  accompanying  consolidated  balance  sheets of  Interchange
Financial  Services  Corporation and subsidiaries (the "Company") as of December
31, 1995 and 1994, and the related consolidated statements of income, changes in
stockholders'  equity,  and cash  flows for each of the years in the  three-year
period ended December 31, 1995. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the consolidated  financial  statements  present fairly, in all
material  respects,  the financial  position of Interchange  Financial  Services
Corporation  and  subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.

Deloitte & Touche LLP
Parsippany, New Jersey
January  19, 1996


<PAGE>

<TABLE>


INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(DOLLARS IN THOUSANDS)
<CAPTION>

        
                                                                            1995            1994
                                                                           ---------      ---------  
<S>                                                                       <C>             <C>    

ASSETS

Cash and due from banks                                                     $ 25,151       $ 22,865
Federal funds sold                                                                 -          3,100
                                                                            --------       --------  

Total cash and cash equivalents                                               25,151         25,965                   
                                                                            --------       --------  

Investment securities at amortized cost (estimated  
     market value of $75,611 and  $116,718)                                   74,688        121,512
                                                                             -------       --------  
Securities available for sale at estimated market value
     amortized cost of $66,604 and $30,079)                                    67,545         27,269
                                                                            --------       --------  

Loans                                                                        311,164        290,654
Less:  Allowance for loan losses                                               3,647          3,839
                                                                            --------       --------  
Net loans                                                                    307,517        286,815
                                                                            --------       --------  

Premises and equipment, net                                                    5,510          4,606
Foreclosed real estate                                                         1,213            880
Accrued interest receivable and other assets                                   9,833         12,265
                                                                            --------       --------  

TOTAL ASSETS                                                                $491,457       $479,312
                                                                            ========       ========  


LIABILITIES

Deposits
    Non-interest bearing                                                    $ 69,213       $ 66,435
    Interest bearing                                                         367,239        357,735
                                                                            --------       --------  

Total deposits                                                               436,452        424,170

Securities sold under agreements to repurchase                                 1,704            702
Short-term borrowings                                                          9,200         11,000
Accrued interest payable and other liabilities                                 3,860          3,311
Long-term borrowings                                                               -          5,000
                                                                            --------       --------  

TOTAL LIABILITIES                                                            451,216        444,183
                                                                            --------       --------  

STOCKHOLDERS' EQUITY
Preferred stock                                                                    -          5,000
Common stock, without par value; 5,000,000 shares authorized;
    2,697,100 shares issued and outstanding                                    4,495          4,495
Capital surplus                                                               12,110         11,333
Retained earnings                                                             22,990         18,737
Unrealized gain(loss)-securities available for sale, net of taxes                646         (1,813)
                                                                            --------       --------  
                                                                              40,241         37,752
Less:  Treasury stock (68,000 shares of preferred, at cost)                        -          2,623
                                                                            --------       --------  

TOTAL STOCKHOLDERS' EQUITY                                                    40,241         35,129
                                                                            --------       --------  

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  $491,457       $479,312
                                                                            ========       ========   
See notes to consolidated financial statements

</TABLE>

<PAGE>
<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>

                                                                      1995            1994           1993
                                                                   --------        --------       -------- 
<S>                                                                 <C>           <C>             <C>
INTEREST INCOME

Interest and fees on loans                                          $27,427        $23,537        $22,142
Interest on federal funds sold                                          374            412            610
Interest and dividends on securities
   Taxable interest income                                            8,969          8,469          6,348
   Interest income exempt from federal income taxes                      56             59             49
   Dividends                                                            169            135            118
                                                                    -------        -------        -------    

TOTAL INTEREST INCOME                                                36,995         32,612         29,267                
                                                                    -------        -------        -------  

INTEREST EXPENSE

Interest on deposits                                                 14,513         10,635         10,227        
Interest on short-term borrowings                                       506            289             10
Interest on long-term borrowings                                        131             82              -                    
                                                                   --------        -------        -------  

TOTAL INTEREST EXPENSE                                               15,150         11,006         10,237                   
                                                                   --------        -------        -------  

NET INTEREST INCOME                                                  21,845         21,606         19,030 
Provision for loan losses                                             1,200            944          1,065
                                                                   --------        -------        -------  
NET INTEREST INCOME AFTER PROVISION
 FOR LOAN LOSSES                                                     20,645         20,662         17,965               
                                                                   --------        -------        -------  

NON-INTEREST INCOME
Service fees on deposit accounts                                      1,474          1,496          1,300
Net gain/(loss) on sale of securities available for sale                 15             (5)             1
Net gain/(loss) on sale of loans available for sale                      22            (14)         1,070
Net gain on sale of loans                                                 -              -            284
Net gain on sale of loan servicing rights                               828              -              -
Accretion of discount in connection with acquisition                    760            760            777
Other                                                                 1,653          1,545          1,440
                                                                   --------        -------        -------  

TOTAL NON-INTEREST INCOME                                             4,752          3,782          4,872
                                                                   --------        -------        -------  

NON-INTEREST EXPENSES
Salaries and benefits                                                 7,254          6,879          6,383
Net occupancy                                                         2,080          1,887          1,799
Furniture and equipment                                                 697            653            729
Advertising and promotion                                               673            701            745
Federal Deposit Insurance Corporation assessment                        503            887            870
Foreclosed real estate expense                                          227            313            411
Other                                                                 4,390          4,426          3,971
                                                                   --------        -------        -------  

TOTAL NON-INTEREST EXPENSES                                          15,824         15,746         14,908                  
                                                                   --------        -------        -------  

Income before cumulative effect of change in
   accounting principle and income taxes                              9,573          8,698          7,929

Income taxes                                                          3,293          3,062          2,887
                                                                   --------        -------       --------  

Income before cumulative effect of
   change in accounting principle                                     6,280          5,636          5,042

Cumulative effect of change in accounting principle                       -              -           (205)
                                                                   --------       --------       --------  

NET INCOME                                                         $  6,280       $  5,636        $ 4,837                     
                                                                   ========       ========       ========  

PER COMMON SHARE
   Income before cumulative effect of change
     in accounting principle                                          $2.29          $2.05          $1.80
   Cumulative effect of change in accounting principle                   -              -           (0.08)                   
                                                                   --------       --------       --------  
   Net income                                                         $2.29          $2.05          $1.72
                                                                   ========       ========       ========  
<FN>
See notes to consolidated financial statements.
</FN>

</TABLE>




<TABLE>


INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
<CAPTION>

-------------------------------------------------------------------------------------------------------------------------------
                                                                                        Unrealized
                                                                                        Gain/(Loss)
                                                                                             on
                                                                                         Securities
                                     Preferred    Common       Capital     Retained       Available       Treasury
                                       Stock       Stock       Surplus     Earnings       for Sale        Stock         Total
                                     -------------------------------------------------------------------------------    -----
<S>                                   <C>          <C>          <C>         <C>            <C>           <C>            <C>

Balance at January 1, 1993             $5,000      $4,495       $11,333     $12,350                       $(1,623)      $31,555
Net income                                                                    4,837                                       4,837
Dividends on common stock
   at $0.70 per share                                                        (1,888)                                     (1,888)
Dividends on preferred stock                                                   (199)                                       (199)
Purchase of 25,000 preferred shares                                                                        (1,000)       (1,000)
                                       ------      ------       -------     -------                       -------        ------ 
Balance at December 31, 1993            5,000       4,495        11,333      15,100                        (2,623)       33,305
                                                                  
Net income                                                                    5,636                                       5,636
Dividends on common stock
   at $0.70 per share                                                        (1,887)                                     (1,887)
Dividends on preferred stock                                                   (112)                                       (112)
Unrealized loss on securities
   available for sale, net of 
   income taxes                                                                            $(1,813)                      (1,813)
                                       ------      ------       -------     -------        -------        -------        ------  

Balance at December 31, 1994            5,000       4,495        11,333      18,737         (1,813)        (2,623)       35,129
Net income                                                                    6,280                                       6,280
Dividends on common stock
   at $0.72 per share                                                        (1,942)                                     (1,942)
Dividends on preferred stock                                                    (85)                                        (85)
Purchase of 32,000 preferred shares                                                                        (1,600)       (1,600)
Retirement of 100,000 shares of 
   preferred stock                     (5,000)                      777                                     4,223             -
Increase in market valuation-
   securities available for sale, 
   net of income taxes                                                                       2,459                        2,459
                                       =======     ======       =======     =======        =======         ======       ======= 
Balance at December 31, 1995           $    -      $4,495       $12,110     $22,990        $   646         $    -       $40,241
                                       =======     ======       =======     =======        =======         ======       ======= 

<FN>
See notes to consolidated financial statements.
</FN>

</TABLE>

<PAGE>
<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<CAPTION>
                                                                1995         1994           1993
                                                              --------     --------       -------- 
<S>                                                            <C>          <C>           <C>    
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income . . . . . . . . . . . . . . . . . . . . .       $ 6,280       $ 5,636        $ 4,837
   Adjustments to reconcile net income to net cash
    provided by (used in) operating activities
      Depreciation and amortization of fixed assets. . .          859           831            752
      Amortization of securities premiums . . . . . . .         1,452         1,543          1,106
      Accretion of securities discounts . . . . . . . .           (53)          (11)            (7)
      Amortization of premium in connection with                  
        acquisitions . . . . . . . . . . . . . . . . . .          444           403            197
      Accretion of discount in connection with                   
        acquisition . . . . . . . . . . . . . . . . . . .        (760)         (760)          (777)
      Provision for loan losses . . . . . . . . . . . .         1,200           944          1,065
      Net (gain) loss on sale of foreclosed real estate          (127)         (209)             1
      Net (gain) loss on sale of securities available        
        for sale . . . . . . . . . . . . . . . . . . . . .        (15)            5             (1)
      Net (gain) loss on sale of loans available for                                 
        sale . . . . . . . . . . . . . . . . . . . . . . .        (22)           14         (1,070)
      Net gain on sale of loans . . . . . . . . . . . .             -             -           (284)
      Reduction in carrying value of foreclosed real              
        estate . . . . . . . . . . . . . . . . . . . . . .          -           122            203
      (Increase) decrease in carrying value of loans
        available for sale . . . . . . . . . . . . . . . .        (80)           85              -
      Loss on sale of fixed assets. . . . . . . . . . .            26             -              -
   (Increase) decrease in operating assets
      Net origination of loans available for sale . . .          (755)      (15,451)       (43,493)
      Proceeds from sale of loans available for sale . .          837         2,129         40,205
      Premium in connection with acquisition . . . . . .            -        (1,724)             -
      Accrued interest receivable . . . . . . . . . . .           144          (917)          (151)
      Deferred income taxes . . . . . . . . . . . . . .          (134)          (76)            99
      Other. . . . . . . . . . . . . . . . . . . . . . .          694        (1,898)           502
   Increase (decrease) in operating liabilities
      Accrued interest payable . . . . . . . . . . . . .          162            72           (324)
      Other . . . . . . . . . . . . . . . . . . . . . .           387           619           (137)
                                                              -------       -------        -------
       NET CASH PROVIDED BY (USED IN) OPERATING
           ACTIVITIES                                          10,539        (8,643)         2,723
                                                              -------       -------        ------- 

CASH FLOWS FROM INVESTING ACTIVITIES
    (Payments for) proceeds from
      Net origination of loans . . . . . . . . . . . . .      (20,470)        1,377          4,932
      Purchase of loans . . . . . . . . . . . . . . . .        (1,251)      (42,244)          (900)
      Sale of loans . . . . . . . . . . . . . . . . . .             -         1,809          1,271
      Purchase of securities available for sale . . . .        (5,905)       (1,895)        (3,249)
      Maturities of securities available for sale . . .         2,396         2,907             55
      Sale of securities available for sale . . . . . .         2,484           305            789
      Purchase of investment securities . . . . . . . .        (3,999)      (23,618)       (30,152)
      Maturities of investment securities . . . . . . .        14,000        16,000          9,000
      Sale of foreclosed real estate . . . . . . . . . .          678         1,136          1,455
      Advances on foreclosed real estate . . . . . . . .         (285)         (106)          (268)
      Purchase of fixed assets . . . . . . . . . . . . .       (1,862)         (667)        (1,166)
      Sale of fixed assets. . . . . . . . . . . . . . .             4             -              -
                                                              -------       -------        ------- 
       NET CASH USED IN INVESTING ACTIVITIES                  (14,210)      (44,996)       (18,233)
                                                              -------       -------        ------- 

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from (payments for)
      Deposits in excess of withdrawals . . . . . . . .        12,282        12,272         16,103
      Securities sold under agreements to repurchase . .        1,704           295            203
      Other borrowings . . . . . . . . . . . . . . . . .        4,200        18,000              -
      Retirement of securities sold under agreement to
        repurchase and other borrowings. . . . . . . . .      (11,702)       (2,000)             -
      Acquisition of deposit accounts . . . . . . . . .             -        26,468              -
      Dividends . . . . . . . . . . . . . . . . . . . .        (2,027)       (1,999)        (2,087)
      Treasury stock . . . . . . . . . . . . . . . . . .       (1,600)            -         (1,000)
                                                              -------       -------        ------- 
       NET CASH PROVIDED BY FINANCING ACTIVITIES                2,857        53,036         13,219
                                                              -------       -------        ------- 

Decrease in cash and cash equivalents . . . . . . . . .          (814)         (603)        (2,291)
Cash and cash equivalents at beginning of year . . . . .       25,965        26,568         28,859
                                                              -------       -------        ------- 

CASH AND CASH EQUIVALENTS AT END OF YEAR                      $25,151       $25,965        $26,568
                                                              =======       =======        ======= 

Supplemental disclosure of cash flow information Cash paid for:

      Income taxes. . . . . . . . . . . . . . . . . . .       $ 3,346       $ 3,527        $ 2,595
      Interest. . . . . . . . . . . . . . . . . . . . .        14,988        10,934         10,561
     
Supplemental non-cash investing activities
      Loans transferred to foreclosed real estate. . . .          599           481          1,078
      Securitization of loans reclassified to 
        securities available for sale. . . . . . . . . .            -        27,888              -
     (Increase) decrease-market valuation of securities
        available for sale. . . . . . . . . . . . . . .        (3,812)        2,810              -
      Securities transferred from available for sale to
        held to maturity. . . . . . . . . . . . . . . .         5,466             -              -
      Securities transferred from held to maturity to
        available for sale. . . . . . . . . . . . . .          40,888             -              -
<FN>
See notes to consolidated financial statements
</FN>

</TABLE>
  


<PAGE>
                                                       

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The  consolidated  financial  statements  have been prepared in accordance  with
generally  accepted  accounting  principles  and  practices  within the  banking
industry.  The  following is a  description  of the  Company's  business and its
significant accounting and reporting policies:

   Nature of Business and Significant Estimates
   --------------------------------------------

     Interchange  Financial Services  Corporation (the "Company"),  a New Jersey
business  corporation,  is a  holding  company  whose  principal  subsidiary  is
Interchange  State Bank (the  "Bank").  The Bank is  principally  engaged in the
business of attracting  business and retail  deposits and investing  those funds
into  commercial  business and commercial  mortgage loans as well as residential
mortgage and consumer  loans.  When demand for loans is low, the Bank invests in
debt securities.  Currently,  the Bank conducts  community banking operations in
the northeast region of New Jersey (primarily Bergen and Passaic counties).

     The Company uses certain  accounting  estimates in the  preparation  of its
consolidated financial statements. As a result, actual results could differ from
those estimates.

     The most  significant  estimate  pertains to the allowance for loan losses.
The borrowers  ability to meet contractual  obligations and collateral value are
the most  significant  assumptions  used to  arrive at the  estimate.  The risks
associated  with such  estimates  arise when  unforeseen  conditions  affect the
borrowers ability to meet the contractual  obligations of the loan and result in
a decline in the value of the supporting collateral. Such unforeseen changes may
have an adverse effect on the financial position of the Company.

     Additionally,  the  Company  is exposed  to  significant  changes in market
interest  rates.  Such  changes  could  have an  adverse  effect on the  earning
capacity  and  financial  position  of  the  Company,   particularly,  in  those
situations in which the maturities or repricing of assets are different than the
maturities or repricing of the supporting liabilities.

  Principles of Consolidation
  ---------------------------

     The consolidated  financial  statements include the accounts of the Company
and its subsidiaries.  Significant  intercompany  accounts and transactions have
been eliminated in consolidation.

  Cash and Cash Equivalents
  -------------------------

     For purposes of reporting  cash flows,  cash and cash  equivalents  include
cash on hand, amounts due from banks and federal funds sold.

  Investment Securities and Securities Available for Sale
  -------------------------------------------------------

     Debt  securities  which the Company has the positive  intent and ability to
hold until maturity are  classified as held to maturity  ("HTM") and are carried
at cost,  adjusted for the  amortization of premiums and accretions of discounts
on a  level-yield  method  over the  contractual  maturity  of the  instruments.
Investment securities to be held for indefinite periods of time and not intended
to be held to maturity  are  classified  as  available  for sale ("AFS") and are
carried at market value. The unrealized gains and losses on these securities are
reported,  net of  taxes,  as a  separate  component  of  stockholders'  equity.
Management  determines the appropriate  classification of securities at the time
of purchase.

     Securities  classified  as AFS  include  securities  used  as  part  of the
Company's  asset and liability  management  strategy,  or securities that may be
sold in  response  to,  among  other  things,  changes  in  interest  rates  and
prepayment  risk.  Gains  and  losses  from  the sale of  these  securities  are
determined using the specific identification method.

     During December 1995, the Company  reclassified  certain  securities in its
investment  portfolio.   The  reclassification  was  allowed  by  the  Financial
Accounting Standards Board ("FASB") in their Special Report entitled "A Guide to
Implementation  of Statement 115 on Accounting  for Certain  Investments in Debt
and Equity  Securities." The Special Report  established a one-time  reprieve of
Statement 115 that  extended  from  November 15, 1995 to December 31, 1995.  The
reprieve  provided the Company a single  opportunity  to reassess its investment
portfolio and revise the classifications.  As a result of the  reclassification,
stockholders' equity increased by $827 thousand.

  Loans
  -----

     Loans  are  stated  at  principal  amounts  outstanding,  net  of  unearned
discount.  Interest  income is accrued and credited at the  applicable  interest
rates.  Origination fees and certain direct origination costs have been deferred
and are recognized  over the life of the applicable loan as an adjustment to the
yield. At December 31, 1995,  approximately 85% of all loans are  collateralized
by real estate located in northern New Jersey, the Company's market area.

     Loans are placed on non-accrual  status when, in the opinion of management,
there  is doubt as to the  collectibility  of  interest  or  principal,  or when
principal or interest  payments are in arrears 90 days or more, or if management
considers  collection  of such  amounts  to be  doubtful.  Amounts  accrued  are
evaluated for collectibility. Interest is subsequently recognized on non-accrual
loans only to the extent that cash is received  and the  ultimate  repayment  of
principal is not in doubt.  Loans are returned to accrual status when management
deems that collection of principal and interest is reasonable.

     Mortgage loans available for sale are carried at lower of aggregate cost or
market value.

     In July 1991,  the Bank  acquired  the assets and  liabilities  of a failed
institution  from the Federal Deposit  Insurance  Corporation (the "FDIC") which
was  accounted  for  using the  purchase  method  of  accounting.  Consideration
received from the FDIC in excess of that assigned to fair value specific  loans,
recorded as an allowance for loan losses and accrued for acquisitions  costs, is
being accreted into income over a five-year period ending July 1996.

     Effective  January 1, 1995,  the Company  adopted  Statement  of  Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
("SFAS No. 114"), as amended by Statement of Financial  Accounting Standards No.
118,  "Accounting by Creditors for Impairment of a Loan-Income  Recognition  and
Disclosures"  ("SFAS No.  118").  Under SFAS No. 114, a loan is  impaired  when,
based on current  information and events, it is probable that a creditor will be
unable to collect all amounts due  according  to  contractual  terms of the loan
agreement.  The  collection  of all amounts due according to  contractual  terms
means that both the contractual  interest and principal  payments of a loan will
be  collected as scheduled  in the loan  agreement.  SFAS No. 114 requires  that
impaired  loans be measured  based on the present value of expected  future cash
flows  discounted  at the  loan's  effective  interest  rate or, as a  practical
expedient,  at the  loan's  observable  market  price or the  fair  value of the
collateral.  The fair  value of  collateral,  as  reduced  by costs to sell on a
discounted  basis, is utilized if a loan is collateral  dependent or foreclosure
is probable.  All  commercial  and  commercial  mortgage loans are evaluated for
impairment  under  SFAS No.  114.  All  non-accrual  commercial  and  commercial
mortgages  loans are  considered  impaired.  The adoption of these rules did not
have an impact on the Company's financial condition and results of operations.

  Allowance for Loan Losses
  -------------------------

     The allowance  for loan losses is  established  through  charges to income.
Loan losses are charged  against the allowance  for loan losses when  management
believes that the  collectibility  of principal is unlikely.  If, as a result of
loans charged off or increases in the size or risk  characteristics  of the loan
portfolio,  the  allowance is below the level  considered  by  management  to be
adequate to absorb future loan losses on existing loans,  the provision for loan
losses is  increased  to the level  considered  necessary to provide an adequate
allowance.  The allowance is an amount that management believes will be adequate
to absorb possible losses on existing loans that may become  uncollectible based
on evaluations of the  collectibility  of the loans.  The evaluations  take into
consideration  such  factors  as  changes  in the  nature and volume of the loan
portfolio,  overall  portfolio  quality,  review of specific  problem  loans and
economic conditions that may affect the borrowers' ability to pay.

  Premises and Equipment
  ----------------------

     Premises and equipment are stated at cost, net of accumulated  depreciation
and   amortization.   Depreciation  and  amortization  are  computed  using  the
straight-line method.  Premises and equipment are depreciated over the estimated
useful lives of the assets.  Leasehold  improvements are amortized over the term
of the lease, if shorter.  Estimated lives are 30 to 40 years for premises and 3
to 20 years for furniture and equipment.


<PAGE>


     Expenditures for maintenance and repairs are expensed as incurred. The
cost of major renewals and improvements is capitalized.

  Foreclosed Real Estate
  ----------------------

     Real estate  properties  acquired  through  foreclosure are recorded at the
lower  of cost or  estimated  fair  value  at  time of  foreclosure.  Subsequent
valuations  are performed  periodically  and the carrying value is adjusted by a
charge to foreclosed  real estate expense to reflect any subsequent  declines in
the estimated fair value.  As a result,  further  declines in real estate values
may result in increased  foreclosed real estate  expense.  Routine holding costs
are charged to expense as incurred.

  Income Taxes
  ------------

     The Company  adopted  Statement of Financial  Accounting  Standards No. 109
"Accounting for Income Taxes" (SFAS 109) in 1993.  Under the asset and liability
method of SFAS 109,  deferred tax assets and  liabilities are recognized for the
future tax  consequences  attributable  to  differences  between  the  financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their
respective  tax bases.  Deferred tax assets and  liabilities  are measured using
current  rates.  The  effect  on  deferred  taxes  of a change  in tax  rates is
recognized  in income in the period the change  occurs.  Deferred tax assets are
reduced,  through a valuation  allowance,  if  necessary,  by the amount of such
benefits  that  are not  expected  to be  realized  based on  current  available
evidence.

  Per Share Amounts
  -----------------

     Earnings  per  common  share is  computed  by  dividing  net  income,  less
dividends on the preferred stock by the weighted average number of common shares
outstanding of 2,697,100  during 1995,  1994,  and 1993. The potential  dilution
from the exercise of stock options is not material.

   2.  ACQUISITIONS

On February  25, 1994,  Interchange  State Bank (the  "Bank"),  the wholly owned
subsidiary  of  the  Company,  assumed  the  deposit  liabilities  amounting  to
$26,468,000 of  Volunteer  Federal Savings  Association of Little Ferry,  New
Jersey.  The Bank  received  $24,744,000  in cash  representing  the  difference
between the  deposits  assumed,  net of  $1,724,000  premium paid as part of the
transaction.

     The premiums paid to acquire the deposits in the Volunteer  transaction and
in a 1991 branch acquisition are being amortized over a period ranging from five
to seven years.  Amortization in 1995,  1994 and 1993,  included in non-interest
expenses, amounted to $444,000, $403,000 and $197,000, respectively.

3.   RESTRICTIONS ON CASH AND DUE FROM BANKS

The subsidiary  bank is required to maintain a reserve  balance with the Federal
Reserve Bank based upon the level of its deposit  liability.  The average amount
of this  reserve  balance  for 1995 and 1994 was  approximately  $6,803,000  and
$6,409,000, respectively.


<PAGE>

<TABLE>

4.   INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE

Investment securities and securities available for sale are summarized as follows:  (in thousands)
<CAPTION>

                                                                ------------------------------------------------------------
                                                                                     December 31, 1995
                                                                ------------------------------------------------------------
                                                                                  Gross            Gross         Estimated
                                                                Amortized      Unrealized       Unrealized         Market
                                                                   Cost           Gains           Losses           Value
                                                                ------------------------------------------------------------
<S>                                                               <C>            <C>              <C>            <C>    

INVESTMENT SECURITIES:

   OBLIGATIONS OF U.S. TREASURY                                    $65,223         $942               $26         $66,139
   OBLIGATIONS OF U.S. AGENCIES                                      8,037            7                 -           8,044
   OBLIGATIONS OF STATES & POLITICAL SUBDIVISIONS                    1,278            -                 -           1,278
   OTHER DEBT SECURITIES                                               150            -                 -             150
                                                                   -------        ------            ------        -------   
                                                                    74,688          949                26          75,611
                                                                   -------        ------            ------        -------   

SECURITIES AVAILABLE FOR SALE:

   OBLIGATIONS OF U.S. TREASURY                                     40,888        1,466               184          42,170
   OBLIGATIONS OF U.S. AGENCIES                                     23,282            -               341          22,941
   EQUITY SECURITIES                                                 2,434            -                 -           2,434
                                                                   -------        -----              -----        -------   
                                                                    66,604        1,466               525          67,545
                                                                   -------        -----              -----        -------   

       TOTAL SECURITIES                                           $141,292       $2,415              $551        $143,156
                                                                   =======        =====              =====        =======   

                                                                ------------------------------------------------------------
                                                                                     December 31, 1994
                                                                ------------------------------------------------------------
                                                                                  Gross            Gross         Estimated
                                                                Amortized      Unrealized       Unrealized         Market
                                                                   Cost           Gains           Losses           Value
                                                              --------------------------------------------------------------

Investment securities:

   Obligations of U.S. Treasury                                   $121,512          $47            $4,841        $116,718
                                                                   -------         -----           ------         -------  

Securities available for sale:

   Obligations of U.S. agencies                                     26,855            -             2,823          24,032
   Obligations of states & political subdivisions                    1,442           12                 2           1,452
   Other debt securities                                               147            3                 -             150
   Equity securities                                                 1,635            -                 -           1,635
                                                                   -------         -----           ------         -------   
                                                                    30,079           15             2,825          27,269
                                                                   -------         -----           ------         -------   

       Total securities                                           $151,591          $62            $7,666        $143,987
                                                                   =======         =====           ======         =======   

     At December 31, 1995, the contractual maturities of investment securities and securities available
for sale are as follows: (in thousands)

                                                                                                        Securities
                                                                  Investment Securities             Available for Sale
                                                                ---------------------------     ----------------------------
                                                                                Estimated                        Estimated
                                                                Amortized        Market          Amortized         Market
                                                                   Cost           Value            Cost            Value
                                                                -----------    ----------       ----------       -----------

   Within 1 year                                                   $22,121      $22,227                 -               -
   After 1 but within 5 years                                       52,357       53,174           $30,513         $31,063
   After 5 but within 10 years                                         100          100            10,375          11,107
   After 10 years                                                      110          110            23,282          22,941
   Equity securities                                                     -            -             2,434           2,434
                                                                   -------      -------           -------         =------   

                                                                   $74,688      $75,611           $66,604         $67,545
                                                                   =======      =======           =======         =======  
</TABLE>



     Proceeds from the sale of securities available for sale totaled $2,484,000,
$305,000 and $789,000  during the years ended December 31, 1995,  1994 and 1993,
respectively.  Gains of  $15,000  and  $1,000  were  realized  in 1995 and 1993,
respectively, and a loss of $5,000 was realized in 1994.

     Securities  with  carrying  amounts of $11.1  million  and $9.4  million at
December  31, 1995 and 1994,  respectively,  were  pledged for public  deposits,
securities sold under repurchase agreements and other purposes required by law.


<PAGE>


5.  LOANS

The  composition  of the loan portfolio is summarized as follows: (in thousands)
<TABLE>
<CAPTION>

                                                                       ----------------------------  
                                                                                December 31,
                                                                       ----------------------------  
                                                                          1995              1994
                                                                        ---------         ---------  


<S>                                                                   <C>             <C>    

Commercial and financial                                               $ 42,106         $ 36,512
Real Estate
   Residential                                                          164,140          156,642
   Commercial                                                            96,910           87,728
   Construction                                                           1,484            1,917
   Available for sale                                                     1,106            1,086
Installment                                                               5,363            6,071
Lease financing                                                              55              698
                                                                      ---------         --------- 
                                                                        311,164          290,654
Allowance for loan losses                                                 3,647            3,839
                                                                      ---------         --------- 
 
Net loans                                                              $307,517         $286,815
                                                                      =========         =========  
</TABLE>


     Nonperforming  loans  include loans which are accounted for on a nonaccrual
basis and troubled debt restructurings.  Nonperforming loans are as follows: (in
thousands)
<TABLE>
<CAPTION>

                                                    ------------------------------------------------
                                                                  D e c e m b e r 31,
                                                    ------------------------------------------------
                                                        1995              1994              1993
                                                    ------------      ------------      ------------
<S>                                                    <C>              <C>              <C>    

Nonaccrual loans
   Commercial and financial                             $  621          $ 3,159           $1,793
   Residential real estate                               1,646            2,430            2,115
   Commercial real estate                                  235              588                -
   Installment                                               9                -                6
                                                        ------           ------           ------    

                                                        $2,511           $6,177           $3,914
                                                        ======           ======           ======    

Troubled debt restructurings

   Commercial and financial                             $1,000             $277                -
   Commercial real estate                                  465              245                -
                                                        ------           ------           ------    

                                                        $1,465             $522                -
                                                        ======           ======           ======    

Interest  income  that would have been
  recorded  during the year on  nonaccrual
  loans outstanding at year-end in accordance 
  with original terms                                     $254             $669             $421

Interest income included in net income
   during the year on nonaccrual loans
   outstanding at year-end                                $114             $398             $134
</TABLE>

<PAGE>

     Nonaccrual loans acquired in a 1991 transaction, at an estimated fair value
of $452,000,  $1,060,000  and  $1,586,000  at December 31, 1995,  1994 and 1993,
respectively,  are not included in the preceding table. At the acquisition date,
these  loans were not  performing  according  to their  original  terms and were
discounted   from  a  face  value  of  $978,000,   $2,773,000  and   $3,648,000,
respectively.

     Loans on which interest is accruing and included in income,  but which were
contractually  past due 90 days or more as to  principal  or  interest  payments
amounted to $157,000 at December 31, 1993.  There were no such loans at December
31, 1994 and 1995.

     Officers and  directors of the Company and their  affiliated  companies are
customers  and are  engaged in  transactions  with the  Company in the  ordinary
course of  business on  substantially  the same terms as those  prevailing  with
other borrowers and suppliers.

     The following table  summarizes  activity with respect to these loans:  (in
thousands)
<TABLE>
<CAPTION>

                                                             ------------------------------------
                                                                  Years Ended December 31,
                                                             ------------------------------------
                                                                  1995                   1994
                                                                --------               --------  
             <S>                                                <C>                    <C>   

             BALANCE AT BEGINNING OF YEAR                       $3,121                  $3,725
             Additions                                             339                     359
             Reductions                                           (900)                   (963)
                                                                ------                  ------   

             BALANCE AT END OF YEAR                             $2,560                  $3,121
                                                                ======                  ======   
</TABLE>



<PAGE>


6.  ALLOWANCE FOR LOAN LOSSES (in thousands)

The  Company's  recorded  investment  in impaired  loans at  December  31, is as
follows:
<TABLE>
<CAPTION>

                                                ------------------------------       -----------------------------------
                                                            1995                                    1994
                                                ------------------------------       -----------------------------------
                                                                   Related                                   Related
                                                                  Allowance                                 Allowance
                                                                   for Loan                                  for Loan
                                                 Investment         Losses             Investment             Losses
                                                -----------      -----------          ------------         -----------  
<S>                                               <C>               <C>                  <C>                  <C>   

Impaired loans
   With a related allowance for
      loan losses . . . . . . . . . . . . . .      $2,290           $300                  $4,486               $627

   Without a related allowance
      for loan losses . . . . . . . . . . . .          18              -                     321                  -
                                                   ------           ----                  ------               ----   

                                                   $2,308           $300                  $4,807               $627
                                                   ======           ====                  ======               ====   
</TABLE>




The following table sets forth certain  information about impaired loans for the
year ended December 31, 1995:

Average recorded investment . . . . . . . .                $2,485
                                                           ======   

Interest income recognized during time period that loans were impaired:
      Recognized using cash-basis method
         of accounting . . . . . . . . . . . . . . .         $141
      Recognized by other methods . . . . . .                   -
                                                             ----   

                                                             $141
                                                             ====   
<TABLE>

Changes in the allowance  for loan losses are summarized as follows:
<CAPTION>

                                                                     ----------------------------------------------
                                                                               Years Ended December 31,
                                                                     ----------------------------------------------
                                                                         1995             1994               1993
                                                                       --------         --------           --------  
<S>                                                                    <C>              <C>                <C>


BALANCE AT BEGINNING OF YEAR                                            $3,839           $3,905            $4,100
Additions (deductions)
     Provision charged to operations                                     1,200              944             1,065
     Recoveries loans previously
          charged off                                                      118              114                51
     Loans charged off                                                  (1,510)          (1,124)           (1,311)
                                                                        ------           ------            ------  

BALANCE AT END OF YEAR                                                  $3,647           $3,839            $3,905
                                                                        ======           ======            ======  
<FN>
-------------------------------------------------------------------------------------------------------------------
For years ended  December 31, 1995,  1994 and 1993,  the  provisions  charged to
expense for federal income tax purposes  amounted to  approximately  $1,392,000,
$1,010,000 and $1,102,000, respectively.

</FN>
</TABLE>

<PAGE>

<TABLE>

7.  PREMISES AND EQUIPMENT, NET


Premises and equipment are summarized as follows:  (in thousands)
<CAPTION>

                                                     ----------------------------
                                                             December 31,
                                                     ----------------------------
                                                         1995            1994
                                                       --------        --------  
<S>                                                   <C>              <C>  
Land                                                   $    743         $  743
Buildings                                                 1,062          1,062
Furniture, fixture and equipment                          3,864          3,252
Leasehold improvements                                    4,715          4,138
                                                         ------         ------   
                                                         10,384          9,195
Less accumulated depreciation and
    amortization                                          4,874          4,589
                                                         ------         ------ 
  
                                                         $5,510         $4,606
                                                         ======         ======   
</TABLE>




<PAGE>

<TABLE>

8.  DEPOSITS

Deposits are summarized as follows:  (in thousands)
<CAPTION>

                                                                ---------------------------------
                                                                          December 31,
                                                                ---------------------------------
                                                                      1995                1994
                                                                    --------            --------  
<S>                                                               <C>                  <C>    

Non-interest bearing demand deposits                               $  69,213           $  66,435
Interest bearing demand deposits                                     110,813             101,873
Money market deposits                                                 38,716              37,816
Savings deposits                                                      71,170              75,906
Time deposits                                                        146,540             142,140
                                                                    --------            -------- 
                                                                    $436,452            $424,170
                                                                    ========            ======== 
</TABLE>

     At December 31, 1995 and 1994,  the  carrying  amounts of  certificates  of
deposit  that   individually   exceed  $100,000   amounted  to  $11,674,000  and
$8,043,000,   respectively.  Interest  expense  related  to  such  deposits  was
approximately  $568,000,   $312,000  and  $282,000  in  1995,  1994,  and  1993,
respectively.

<TABLE>

9.  SHORT-TERM BORROWINGS

Short-term borrowings are summarized as follows:  (in thousands)
<CAPTION>

                                                                 ------------------------
                                                                       December 31,
                                                                 ------------------------
                                                                     1995          1994
                                                                     -----         ----
<S>                                                                 <C>          <C>           

          Securities sold under
             repurchase agreement                                  $ 1,704       $   702
          Federal funds purchased                                    4,200             -
          Advances from the Federal
             Home Loan Bank of  New York                             5,000        11,000
                                                                     -----        ------

                                                                   $10,904       $11,702
                                                                   =======       =======
</TABLE>

     The  bank  has a  $47.5  million  line  of  credit  available  through  its
membership in the Federal Home Loan Bank of New York. 

10.  LONG-TERM  BORROWINGS

Long-term  debt amounting to $5.0 million at December 31, 1994 consisted of
an  advance  from  the  Federal  Home  Loan  Bank of New York  payable  in equal
quarterly  installments  of $1,250,000  beginning in January 1996 and continuing
through October 1996. The aggregate  average  interest rate was 6.93% and ranged
from 6.71% to 7.14%.


<PAGE>


11.  BENEFIT PLANS

     In 1993, the Company established a non-contributory defined benefit pension
plan  covering all eligible  employees.  The funding  policy is to contribute an
amount that is at least the minimum required by law.  Retirement income is based
on years of service  under the plan and,  subject to  certain  limits,  on final
average  compensation.  Effective  January 1, 1994,  the Company  established  a
supplemental  plan that provides for retirement income that would have been paid
but for the limitation under the qualified plan.

     Effective August 1, 1994, the Company established a retirement plan for all
directors of the Company or the Bank who are not  employees of the Company or of
any subsidiary or affiliate of the Company.  As a part of this Plan, the Company
contributes annually to a life insurance policy or annuity contract as follows:

                  YEARS OF SERVICE                   AMOUNT CONTRIBUTED
                  ----------------                   ------------------
                         6                                $5,000
                         7                                 6,000
                         8                                 7,000
                         9                                 8,000
                        10                                 9,000
                        11 or more                        10,000

     The life insurance  policies or annuity contracts are owned by the Company.
Retirement  income to a director who has completed five years of service through
ten  years of  service  will be based  on the cash  value of the life  insurance
policy or annuity  contract.  After ten years of service,  the retirement income
will be the  greater of the cash value of the life  insurance  policy or annuity
contract or an amount  determined by multiplying  the standard  annual  retainer
fees  (currently  $11,000) at the  director's  retirement  day by the director's
years of service.



<TABLE>

     Net pension cost of each plan consist of the following: (in thousands)
<CAPTION>

                                                                                     Supplemental
                                                 Pension Plan                            Plan                     Director's Plan
                                      ------------------------------------      -----------------------      ----------------------
                                        1995         1994          1993           1995          1994           1995           1994
                                       ------       ------        ------         ------        ------         ------         ------
<S>                                   <C>    <C>    <C>    <C>    <C>    <C>

Service cost of benefits during        
   period                               $134         $195          $181            $10           $14           $ 39           $ 17

Interest cost on projected benefit
   obligation                             22           14             -              2             1             66             26

Actual return on plan assets             (65)          (5)            -              -             -              -              -

Net amortization or deferral              39           (7)            -              -             1            147             61

                                        ----         ----          ----            ---           ---           ----           ----  
Net pension cost                        $130         $197          $181            $12           $16           $252           $104
                                        ====         ====          ====            ===           ===           ====           ====  

</TABLE>



<PAGE>
<TABLE>


     The following table sets forth the funded status, as of December 31, of the
plans and amounts  recognized in the Company's  Consolidated  Balance Sheets and
the major assumptions used to determine these amounts: (dollars in thousands)
<CAPTION>

                                                                       Supplemental
                                             Pension Plan                  Plan              Director's Plan  
                                          -------------------       ------------------     ------------------- 
                                           1995        1994          1995       1994        1995         1994
                                          ------      ------        ------     ------      ------       ------
<S>                                       <C>         <C>          <C>         <C>        <C>           <C>

Accumulated benefit obligation:

    Vested                                 $ 27        $ 19            -          -        $921          $775
    Non-vested                              275         160          $19        $ 5           -             -
                                           ----        ----          ---        ---        ----          ---- 
                                           $302        $179          $19        $ 5        $921          $775
                                           ====        ====          ===        ===        ====          ====  

Projected benefit obligation               $527        $248          $38        $17        $921          $775              
Plan assets at fair value                   488         221            -          -           -             -
                                           ----        ----          ---        ---        ----          ----  

Projected benefit obligation in
   excess of plan assets                     39          27           38         17         921           775 
Unrecognized prior service cost               7           7           (9)       (10)       (535)         (682)
Unrecognized net gain                        37         128           (1)         9         (30)           11
Adjustment for additional liability           -           -            -          -         565           671                  
                                           ----        ----          ---        ---        ----          ----  

Accrued pension cost included in
   the balance sheet                        $83        $162          $28        $16        $921          $775               
                                           ====        ====          ===        ===        ====          ====  

Major assumptions:

   Discount rate                            7.5%        8.5%         7.5%       8.5%        7.5%          8.5%     
   Expected rate of increase in 
      future compensation                   5.0         5.0          5.0        5.0         N/A           N/A
   Expected long-term rate of 
      return on assets                      8.0         8.0          N/A        N/A         N/A           N/A
                                             
</TABLE>


     Effective as of January 1, 1993, the Employees'  Stock  Ownership Plan (the
"ESOP") was renamed the Capital  Investment Plan (the "Plan").  The Plan permits
employees to make basic contributions up to 4% of base compensation and may make
additional  contributions  up to 10% of  compensation  when  coupled  with basic
contributions.  Under the Plan,  the  Company  provides a matching  contribution
equal to 50% of the basic  contribution of each  participant.  In addition,  the
Company makes a fixed  contribution on behalf of each participant equal to 1% of
such  participant's base  compensation.  The Company's  contribution to the Plan
amounted to $115,000, $98,000 and $106,000 in 1995, 1994 and 1993, respectively.


<PAGE>


12.  STOCK OPTION PLAN

In 1989, the Company adopted a stock option plan covering certain key employees.
Under this plan, as amended,  a maximum of 270,000 shares of common stock may be
granted at fair market value at the date of grant. Options granted expire if not
exercised  within ten years of date of grant and are  exercisable  starting  one
year from the date of grant.

     Changes in options outstanding during the past three years were as follows:
<TABLE>
<CAPTION>

                                                                          Price range
                                                      Shares               per share
                                                      ------             -------------
<S>                                                  <C>                <C>    

Outstanding, January 1, 1993
   (20,398 shares exercisable)                        34,001             $11.125
   Granted in 1993                                    30,250              16.875 to 17.00

Outstanding, December 31, 1993
   (27,200 shares exercisable)                        64,251              11.125 to 17.00

Outstanding, December 31, 1994
   (43,383 shares exercisable)                        64,251              11.125 to 17.00

Outstanding, December 31, 1995
   (52,767 shares exerciseable
    at $11.125 to $17.00)                             64,251              11.125 to 17.00


</TABLE>


13.  OTHER NON-INTEREST EXPENSES

Expenses included in other non-interest expenses which exceed one percent of the
aggregate of total interest  income and  non-interest  income in 1995,  1994 and
1993 are as follows:
<TABLE>
<CAPTION>

                                                1995              1994             1993
                                                ----              ----             ----
<S>                                            <C>               <C>              <C>   

Professional fees                              $1,224            $1,254           $1,249
Amortization of premiums in
   connection with acquisitions                   444               403              197
Directors' fees, travel and
   retirement                                     536               399              236
Insurance premiums                                256               332              364

</TABLE>




14.  INCOME TAXES
<TABLE>

Income tax expense for the years ended December 31,  is summarized as follows:  (in thousands)
<CAPTION>

                                                              1995              1994            1993
                                                              ----              ----            ----
               <S>                                           <C>              <C>             <C>   

               Federal:    current                           $3,168            $2,913          $2,674
                           deferred                            (122)              (62)            (81)
                                                                            

               State:      current                              259               225             319
                           deferred                             (12)              (14)            (25)
                                                              ------            -----          ------                        
                                                                           
                                                             $3,293            $3,062          $2,887
                                                              ======           ======          ======
</TABLE>
<PAGE>

          The  timing  effects  of  temporary  differences  that  give  rise  to
significant  portions of the Company's deferred tax assets and liabilities as of
December 31,  are as follows: (in thousands)
<TABLE>
<CAPTION>

                                                                                  1995           1994
                                                                                  ----           ----
               <S>                                                                <C>          <C>     
          
           Deferred tax assets

                Excess of book over tax allowance for loan losses                 $752           $835
                Excess of book over tax depreciation                               201            146
                Accrued lawsuit settlement not reflected
                     on tax return                                                  81            189
                Loan origination fees reported as taxable
                     income when received but deferred
                     for book reporting                                            192            178
                Excess of book over tax provision for
                     benefit plan expense                                          259            118
                Unrealized loss - securities available for sale                      -            997
                Unrealized loss on other assets                                    183            137
                Other                                                              126             70
                                                                                 -----         ------

                     Total deferred tax assets                                   1,794          2,670

           Deferred tax liabilities
                Accretion of bond discount not reported
                     as taxable income                                               -             13
                Unrealized gains-securites available for sale                      356              -
                                                                                ------         ------

                     Net deferred tax assets                                    $1,438         $2,657
                                                                                ======         ======
</TABLE>

<PAGE>


      Net deferred  tax assets are included in other assets on the  consolidated
balance  sheet.  It is more  likely  than not that  deferred  tax assets of $1.4
million will be  principally  realized  through  carryback to taxable  income in
prior years and future reversals of existing taxable temporary  differences and,
to a lesser extent, future taxable income and tax planning strategies.

      The  provision  for  income  taxes  differs  from the  expected  statutory
provision as follows:
<TABLE>
<CAPTION>

                                                                    ------------------------------------------------
                                                                                     December 31,
                                                                    ------------------------------------------------
                                                                        1995             1994              1993
                                                                        ----             ----              ----
<S>                                                                    <C>               <C>               <C>   

Expected provision at statutory rate                                     34%              34%               34%

Difference resulting from:

     State income tax, net of federal benefit                             1                2                 2
     Interest income exempt from federal taxes                           (1)              (1)               (1)
     Other, net                                                           -                -                 1
                                                                       ----             ----              ----

                                                                         34%              35%               36%
                                                                       ====             ====              ====

</TABLE>



15.  PREFERRED STOCK

On September  15,  1995,  the Company  exercised  its right to redeem all of its
preferred  stock, not held as Treasury Stock, at $50 per share. At the same time
the Company  elected to cancel  these  shares  together  with the shares held as
Treasury Stock.  The  cancellation  included all of the 100,000 shares issued in
1987.


<PAGE>


16.  PARENT COMPANY INFORMATION (in thousands)
<TABLE>
<CAPTION>

                                                               ----------------------------
                                                                      DECEMBER 31,
                                                               ----------------------------
CONDENSED BALANCE SHEETS                                          1995             1994
                                                               ------------      ----------
<S>                                                              <C>            <C>             <C>   

Assets
   Cash                                                           $    10        $     10
   Investment in subsidiaries
     Bank                                                          40,231          35,021
     Other                                                            142             142
   Dividends receivable                                               485             472
   Other assets                                                         -             110
                                                                  -------         -------  

       Total assets                                               $40,868         $35,755
                                                                  =======         =======  

Liabilities

   Dividends payable                                              $   485         $   472
   Other liabilities                                                  142             154
                                                                  -------         -------
                                                                      627             626
                                                                  -------         -------

Stockholders' equity
   Preferred stock                                                      -           5,000       
   Common stock                                                     4,495           4,495
   Surplus                                                         12,110          11,333
   Retained earnings                                               22,990          18,737
   Unrealized gain/(loss) - securities
     available for sale, net of taxes                                 646          (1,813)
                                                                  -------          ------  

                                                                   40,241          37,752
   Less:  Treasury stock                                                -          (2,623)
                                                                  -------          ------  
       Total liabilities and stockholders' equity                 $40,868         $35,755
                                                                  =======         =======  

                                                         --------------------------------------------------
                                                                     YEARS ENDED DECEMBER 31,
                                                         --------------------------------------------------
CONDENSED STATEMENTS OF INCOME                              1995               1994                1993
                                                          -------            -------              ------   

Dividends from subsidiary bank                             $3,627             $1,999              $2,587                    
Interest income on securities                                   -                  -                  10
Management fees                                                44                120                  40
                                                           ------             ------              ------   

       Total revenues                                       3,671              2,119               2,637
                                                           ------             ------              ------   
Operating expenses                                            142                133                 105
                                                           ------             ------              ------   


Income before equity in undistributed earnings
  of  subsidiaries                                          3,529              1,986               2,532
Equity in undistributed earnings of subsidiaries            2,751              3,650               2,305
                                                           ------             ------              ------   

       Net income                                          $6,280             $5,636              $4,837                   
                                                           ======             ======              ======  


<PAGE>


                                                         --------------------------------------------------
                                                                      YEARS ENDED DECEMBER 31,
                                                         --------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS                          1995                1994                1993
                                                           -------            -------             -------  

Cash flows from operating activities
   Net income                                              $6,280             $5,636              $4,837
                                                                                
   Adjustments to reconcile net income
     to net cash provided by operating activities
       Decrease  in other assets                               97                  1                  14
       Increase in dividends payable                           13                  -                   -                    
       (Decrease)/increase in other liabilities               (12)                12                   -
   Equity in undistributed income of subsidiaries          (2,751)            (3,650)             (2,305)                  
                                                           ------             ------              ------   

       Net Cash provided by operating activities            3,627              1,999               2,546
                                                           ------             ------              ------   


Cash flows from financing activities
   Cash dividends paid                                     (2,027)            (1,999)             (2,087)
   Treasury stock                                          (1,600)                 -              (1,000) 
                                                           ------             ------              ------   

       Net cash used in financing activities               (3,627)            (1,999)             (3,087)                     

Net decrease in cash                                            -                  -                (541)
Cash at beginning of year                                      10                 10                 551
                                                           ------            -------              ------   
Cash at end of year                                        $   10            $    10              $   10
                                                           ======            =======              ======   
</TABLE>



17.  RESTRICTIONS OF SUBSIDIARY BANK DIVIDENDS

Under New Jersey State law, the Bank may declare a dividend  only if, after
payment thereof, its capital would be unimpaired and its remaining surplus would
equal 50 percent of its capital. At December 31, 1995,  undistributed net assets
of the Bank were $40,231,000 of which  $35,913,000 was available for the payment
of dividends. In addition, payment of dividends is limited by the requirement to
meet the  capital  guidelines  issued by the Board of  Governors  of the Federal
Reserve System.


18.  COMMITMENTS AND CONTINGENT LIABILITIES

The Company has  outstanding  commitments and contingent  liabilities  including
agreements  to extend  credit  which arise in the normal  course of business and
which are not shown in the accompanying financial statements.

     Loan  commitments  are  made to  accommodate  the  financial  needs  of the
Company's  customers.  Standby  letters  of credit  commit  the  Company to make
payments on behalf of customers when certain specified future events occur. They
are issued primarily to support performance bonds. Both arrangements have credit
risks  essentially the same as that involved in extending loans to customers and
are subject to the normal credit policies.

     A summary of commitments to extend credit at December 31, are summarized as
follows: (in thousands)
<TABLE>
<CAPTION>

                                                            1995            1994
                                                            ----            ----
<S>                                                     <C>             <C>   

           Credit card loans                            $  6,985        $  7,177
           Home equity loans                              41,089          41,993
           Other loans                                    21,444          18,488
           Standby letters of credit                       1,258             914
                                                         -------          ------  

                                                         $70,776         $68,572
                                                         =======         =======
</TABLE>
<PAGE>

The minimum annual rental under non-cancelable operating leases for premises and
equipment,  exclusive  of payments  for  maintenance,  insurance  and taxes,  is
summarized as follows: (in thousands)

                           1996                                 $   771
                           1997                                     707
                           1998                                     668
                           1999                                     556
                           2000                                     471
                           thereafter                               895
                                                                    ---
                           Total minimum
                              lease payments                     $4,068
                                                                  =====



     Rent expense for all leases amounted to  approximately  $985,000,  $884,000
and $1,009,000 in 1995, 1994, and 1993, respectively. 

     The Company leases certain real estate from three companies affiliated with
directors  of the  Company.  Rental  expense  associated  with such  leases  was
$157,000, $167,000 and $165,000 for the years ended December 31, 1995, 1994, and
1993, respectively.  The aggregate minimum rental commitments through 2005 under
these leases was approximately  $904,000 at December 31, 1995. A director of the
Company also provided legal services  through his affiliated firm. Fees paid for
these services  amounted to $322,500,  $426,500 and $521,100 in 1995,  1994, and
1993,  respectively.  In 1993, certain directors  provided  insurance  brokerage
services and consulting  services  through their  affiliated firms and fees paid
for these services amounted to $513,000.

     In addition,  the Bank is a defendant in a lawsuit commenced in April 1989,
(GREAT AMERICAN  MORTGAGE CORP. ET AL VS. ROBERT UTTER ET AL.) filed in Superior
Court of New Jersey alleging that the Bank was statutorily  liable in conversion
for having paid checks drawn on demand  deposit  accounts of  plaintiffs  at the
Bank bearing forged endorsements.

     On December 2, 1992, the court directed  judgment to be entered against the
Bank in the total principal sum of $484,000 with prejudgment  interest. On April
5, 1993,  the Bank filed a Notice of Appeal of this  judgment  and, by virtue of
post-judgment  motions,  the amount was reduced to the principal sum of $311,000
plus  pre-judgment  interest.  This judgment was appealed and, by virtue of this
appeal,  the amount was  further  reduced to  $245,000.  The matter  remained on
appeal until May 8, 1995, at which time, by Court order, the matter was settled.
Pursuant  thereto,  the  Bank  has  paid a total  of $89  thousand  against  the
aforesaid judgment,  which has now been discharged of record. The Bank continues
to pursue various parties for recoupment of the aforesaid  monies under which it
is likely that the Bank's  liability  for the payment  will either be reduced to
its  proportionate  share under  contribution  theories or it will be exonerated
under indemnification theories.

     In a related  matter,  on January 8, 1993,  an  interlocutory  judgment was
entered  against  the Bank in the  principal  sum of $120,000  with  prejudgment
interest.  The Bank has appealed  this judgment and a stay of execution has been
effected.

     In 1992,  the  Company  accrued  $500,000  as a  provision  for an  adverse
judgment in this  litigation.  Based on the May 8, 1995,  partial  settlement of
these  matters,  the Company  has  reduced the reserve by $250  thousand to $161
thousand  which the Company and its legal  counsel  believe is adequate to cover
any remaining liabilities related to these matters.

     The Company is also a party to routine litigation involving various aspects
of its  business,  none of which,  in the  opinion of  management  and its legal
counsel,  is  expected  to have a material  adverse  impact on the  consolidated
financial condition, results of operations or liquidity of the Company.


<PAGE>

<TABLE>
19.  QUARTERLY FINANCIAL DATA (unaudited)(in thousands except per share data)
<CAPTION>

                                                       FIRST          SECOND            THIRD          FOURTH
                           1995                       QUARTER         QUARTER          QUARTER         QUARTER
----------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>              <C>             <C>

 INTEREST INCOME                                      $  9,094          $9,250         $  9,347         $9,304
 INTEREST EXPENSE                                        3,625           3,827            3,843          3,855
 NET INTEREST INCOME                                     5,469           5,423            5,504          5,449
 PROVISION FOR LOAN LOSSES                                 225             375              225            375
 NET GAIN ON SALE OF SECURITIES
    AVAILABLE FOR SALE                                       -              15                -              -
 INCOME BEFORE INCOME TAXES                              2,161           2,320            2,177          2,915
 NET INCOME                                              1,405           1,565            1,415          1,895

 NET INCOME PER COMMON SHARE                             $0.51           $0.57            $0.51          $0.70
 ----------------------------------------------------------------------------------------------------------------
                                                        First          Second            Third          Fourth 
1994                                                   Quarter         Quarter          Quarter         Quarter
----------------------------------------------------------------------------------------------------------------

 Interest income                                        $7,496          $7,772           $8,510         $8,834
 Interest expense                                        2,392           2,550            2,778          3,286
 Net interest income                                     5,104           5,222            5,732          5,548
 Provision for loan losses                                 225             225              225            269
 Net loss on sale of securities
   available for sale                                        -               -                -             (5)
Income before income taxes                               1,806           2,185            2,535          2,172
 Net income                                              1,171           1,409            1,630          1,426

 Net income per common share                             $0.42           $0.52            $0.59          $0.52
                                                                                                    
</TABLE>

------------------------------------------------------------------------------
20.  FAIR VALUE OF FINANCIAL INSTRUMENTS (in thousands)

Statement of Financial  Accounting  Standards  No. 107  "Disclosures  about Fair
Values of  Financial  Instruments"  ("SFAS No. 107")  requires  that the Company
disclose  estimated  fair  values  for its  financial  instruments.  Fair  value
estimates  are made at a  particular  point in time,  based on  relevant  market
information and information about the financial instrument. Fair values are most
commonly  derived from quoted market prices.  In the event market prices are not
available,  fair value is  determined  using the  present  value of  anticipated
future cash flows, as permitted by SFAS No. 107. This method is sensitive to the
various  assumptions  and estimates used and the resulting fair value  estimates
may be  significantly  affected  by minor  variations  in those  assumptions  or
estimates.  In that regard,  it is likely that amounts  different  from the fair
value estimates would be realized by the Company in immediate  settlement of the
financial instruments.
<TABLE>
<CAPTION>
                                                       1995                                         1994
                                        ----------------------------------           -----------------------------------
                                          CARRYING                FAIR                 Carrying                 Fair
                                           AMOUNT                VALUE                  Amount                 Value
                                        -------------         ------------           ------------           ------------
<S>                                        <C>                  <C>                     <C>                  <C>    
    Financial assets:
      Cash and cash equivalents             $ 25,151             $ 25,151               $ 25,965               $ 25,965
      Investment securities                   74,688               75,611                121,512                116,718           
      Securities available for sale           67,545               67,545                 27,269                 27,269
      Loans, net                             307,517              313,097                286,815                280,042
                                            --------             --------               --------               -------- 
                                            $474,901             $481,404               $461,561               $449,994
                                            ========             ========               ========               ======== 

    Financial liabilities:
      Deposits                              $436,452             $436,699                424,170                423,895 
      Short-term borrowings                   10,904               10,904                 11,702                 11,702
      Long-term borrowings                         -                    -                  5,000                  4,956
                                            --------             --------               --------               -------- 
                                            $447,356             $447,603               $440,872               $440,553
                                            ========             ========               ========               ======== 
</TABLE>

The methods and  significant  assumptions  used to determine the estimated  fair
values of the  Company's  financial  instruments  are as follows:  
<PAGE>

Cash and Cash Equivalents  
-------------------------

Cash and cash equivalents  include cash on hand, amounts due from banks and
federal funds sold.  The estimated  fair values of these  financial  instruments
approximate  their  carrying  values  since they mature  overnight or are due on
demand.

Investment Securities and Securities Available for Sale
-------------------------------------------------------

Estimated  fair values are based  principally  on quoted  market  prices,  where
available,  or  dealer  quotes.  In the  event  quoted  market  prices  are  not
available,  fair values are estimated using market prices of similar securities.

Loans
----- 

The loan  portfolio is segregated  into various  categories for purposes of
estimating fair value.  Certain homogenous loan categories have been valued on a
pool basis using quoted market prices for similar loans sold. The fair values of
certain loans that reprice  frequently and have no significant  change in credit
risk is assumed to equal their carrying values. The fair value of other types of
loans is estimated by  discounting  the future cash flows using  interest  rates
that are currently  being offered for loans with similar terms to borrowers with
similar  credit  quality.  The fair value of  non-performing  loans is estimated
using  methods  employed by  management  in  evaluating  the  allowance for loan
losses.

Deposits 
--------

The  estimated  fair values of deposits  with no stated  maturity,  such as
demand  deposits,  savings,  NOW and money market  accounts are, by  definition,
equal to the amount payable on demand at the reporting  date. The fair values of
fixed-rate  certificates  of  deposit  are based on  discounting  the  remaining
contractual   cash  flows  using  interest  rates  currently  being  offered  on
certificates of deposit with similar attributes and remaining maturities.

Short-term  Borrowings 
---------------------- 

The fair value of  short-term  borrowings  is assumed to equal the carrying
value in the financial statements, as these instruments are short-term.

Long-term  Borrowings 
---------------------

Fair value  estimates of long-term  borrowings are based on discounting the
remaining  contractual  cash flows  using rates  which are  comparable  to rates
currently being offered for borrowings with similar remaining maturities.

Off-balance-sheet Financial Instruments
--------------------------------------- 

The fair values of  commitments  to extend credit and  unadvanced  lines of
credit  are  estimated  based on an  analysis  of the  interest  rates  and fees
currently charged to enter into similar transactions,  considering the remaining
terms of the commitments and the  credit-worthiness  of the potential borrowers.
At  December   31,  1995  and  1994,   the   estimated   fair  values  of  these
off-balance-sheet financial instruments were immaterial.