Management's Discussion and Analysis of Financial Condition and Results of
Operations

      This section presents management's  discussion and analysis of the results
of  operations  and  financial  condition  of  Interchange   Financial  Services
Corporation on a consolidated basis (the "Company"). The discussion and analysis
should  be  read  in  conjunction  with  the  Company's  consolidated  financial
statements and notes thereto on pages 32 through 52 and the summary consolidated
data included elsewhere in this report.

Overview

     The Company is a community bank operating in Bergen County,  NJ, one of the
most  affluent  counties in the  country,  and  provides  diversified  financial
services  to both  consumer  and  business  customers.  Our  primary  source  of
earnings,   approximately  82%,  is  derived  from  net  interest  income  which
represents the difference  between the interest the Company earns on its assets,
principally  loans and leases  (herein  referred to  collectively  as loans) and
investment securities, and interest it pays on its deposits and borrowings. When
expressed as a percentage of average  interest-earning assets, it is referred to
as net interest margin ("margin"). We augment our primary revenue source through
other non-interest income sources that include service charges on deposits, bank
owned life insurance ("BOLI") income , commissions on mutual funds and annuities
and gains on sales of loans and leases.  In  addition,  the Company from time to
time may recognize  income on gains on sales of securities,  however,  we do not
consider this a primary source of income as we do not have a securities  trading
portfolio.

      2004 was a challenging year for financial  institutions.  During 2004, the
Federal  Reserve  Bank  raised  overnight  interest  rates by 125 basis  points.
However,  longer term rates, the ten year treasury,  remained relatively low and
actually  declined  slightly  from 4.25% to 4.22% from  December 31, 2003 versus
December 31, 2004.  The result was a flattening of the yield curve and a decline
in spreads,  which  ultimately had an adverse impact on the margin.
The challenges in this  environment are to generate  increased  volume to offset
the  decline  in  spreads  while  remaining  diligent  to  maintain  an  overall
acceptable interest rate risk exposure and credit risk. In this type of interest
rate  environment it would be anticipated  that the industry would  experience a
contraction in net interest margins.

      In addition,  to the impact of the  flattening of the yield curve faced by
financial   institutions,   public  companies  had  to  address  the  additional
regulatory and legal burdens placed upon them as a result of the  Sarbanes-Oxley
Act. Costs of implementing  the  requirements of this Act varied by industry and
complexity of operations. Many depository institutions were impacted to a lesser
extent  due  to  adherence  with  the  Federal  Deposit  Insurance   Corporation
Improvement Act dealing with the validation and testing of


<PAGE>

internal  controls.  However,  the challenges of  implementing  the new act were
still a hurdle. The consistent theme amongst all is that the direct and indirect
costs of complying  were high and the  distraction  for  managements  of smaller
companies was significant.

      We  faced  the  challenges  above  and  were  able  to  successfully  grow
the Company through the tremendous work of a dedicated employee base, leveraging
our  resources,  and  continuing to invest in Eastern  Bergen  County.  This was
evidenced  by  commercial  loan  growth of $98  million or 18.2% year over year.
Commercial  loans  have  been and  continue  to be our  strategic  focus and the
resources that were applied resulted in exemplary  growth.  Consumer loan growth
of $40 million, or 15.4%, complimented our commercial loan growth. The growth in
our loan  portfolio was funded by deposit  growth of $89 million,  or 7.7%,  and
from our securities  portfolio cash flow from normal  amortization and sales and
maturities of securities. By continually positioning our securities portfolio to
focus on total return we funded our expected loan growth  demand and  recognized
gains on sales of securities.  This  achievement  was a result of the strategies
employed in our  portfolio  over the last  several  years to meet our  strategic
plan. Our investment  strategies  require that we maintain an overall discipline
of avoiding  extension  risk while seeking to exceed our peers on a total return
basis.  Total return emphasizes that you generate more income and ending dollars
than your peers.  Recent  articles  in trade  publications  and from  regulatory
bodies have specifically addressed concerns that the regulators have on entities
taking on undue  interest rate  (forsaking  total return) and extension  risk in
chasing yields during the current interest rate cycle.

      2004   represented  the  first  full  year  of  combined  operations  for
the Company and Bridge View Bancorp ("Bridge View").  On a pro forma basis, as
if Bridge View was acquired on January 1, 2003,  EPS increased  $0.05, or 5.6%.

Earnings Summary

      Net income was a record $18.2 million for the year 2004 and increased $1.8
million,  or 11.3% when compared to 2003.  Earnings per diluted common share for
the year ended  December  31, 2004  increased  $0.03 to $0.94 from $0.91 for the
preceding  year,  an increase of 3.3%.  Earnings  per basic common share for the
year ended December 31, 2004  increased  $0.03 to $0.95 as compared to $0.92 for
the preceding  year,  an increase of 3.3%.  For 2004,  the  Company's  return on
average  assets  ("ROA") was 1.29% as compared to 1.35% in 2003.  The  Company's
return on average  equity  ("ROE")  was 12.54% in 2004 as compared to 13.54% for
the previous year. Affecting both ROA and ROE was the net interest margin. Based
on its earnings  performance,  the Company increased the quarterly dividend paid
on common stock to an


<PAGE>

annualized  rate of $0.36 for 2005 as compared  to $0.33 in 2004 and  declared a
3-for-2 stock split on January 18, 2005 which was paid on February 18, 2005.

      Net income for the year 2003  increased $3.5 million,  or 27.1%,  to $16.4
million when  compared to 2002.  Earnings per diluted  common share for the year
ended December 31, 2003 increased $0.05 to $0.91 as compared to $0.86 during the
preceding  year,  an increase of 5.8%.  Earnings  per basic common share for the
year ended December 31, 2003  increased  $0.04 to $0.92 as compared to $0.88 for
the preceding  year, an increase of 4.5%.  For 2003, the Company's ROA was 1.35%
as compared to 1.43% in 2002.  The  Company's ROE was 13.54% in 2003 as compared
to 17.35% for the previous  year.  The change in ROA was a result of prepayments
in the loan and securities  portfolio  along with core deposit growth  outpacing
deployment of those funds into higher  yielding loans and maintaining an average
life on the investment  portfolio of approximately 2.5 years, which impacted net
interest margin. ROE declined mainly due to an increase in equity as a result of
the acquisition of Bridge View

                                       13

Table 1
--------------------------------------------------------------------------------
Summary of Operating Results
--------------------------------------------------------------------------------
                                          2004       2003        2002
                                         -------    -------    -------
Net income (in thousands)                $18,214    $16,366    $12,877
Basic earnings per common share             0.95       0.92       0.88
Diluted earnings per common share           0.94       0.91       0.86
Return on average total assets              1.29%      1.35%      1.43%
Return on average total equity             12.54%     13.54%     17.35%
Dividend payout ratio*                     35.03%     30.37%     33.56%
Average total stockholders' equity to
    average total assets                   10.25%      9.95%      8.27%

*     Cash dividends declared on common shares to net income.

All per share data was restated to reflect  3-for-2 stock splits declared on May
23, 2002 and January 18, 2005 and paid on July 12, 2002 and  February  18, 2005,
respectively.

Results of Operations

Net Interest Income

      Net interest income represents the Company's primary source of income. Net
interest income, the difference between interest income and interest expense, is
the most  significant  component of the  Company's  consolidated  earnings.  Net
interest income is positively  impacted by a combination of increases in earning
assets over  interest  bearing  liabilities  and an increase in the net interest
spread between  earning assets and interest  bearing  liabilities.  Net interest
income is adversely  impacted by a combination  of a decrease in earning  assets
over  interest  bearing  liabilities  and a decrease in the net interest  spread
between earning assets and interest  bearing  liabilities.  Table 2 sets forth a
summary of average  interest-earning assets and interest-bearing  liabilities as
of December 31, 2004, 2003 and 2002,  together with the interest earned and paid
on each


<PAGE>
major type of asset and liability  account for the years then ended. The average
rates on the earning assets and the average cost of interest-bearing liabilities
during such  periods are also  summarized.  Table 3, which  presents  changes in
interest income and interest expense by each major asset and liability  category
for 2004 and 2003,  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 volume or rates have
been  allocated  based on the  relationship  of changes in volume and changes in
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 yields on assets.

                                       14

Table 2
--------------------------------------------------------------------------------
Analysis of Net Interest Income
--------------------------------------------------------------------------------
for the years ended December 31,
(dollars in thousands)

<TABLE>
<CAPTION>
                                                      2004                          2003                             2002
                                        ---------------------------- -------------------------------  ------------------------------
                                         Average             Average   Average               Average    Average              Average
                                         Balance    Interest  Rate     Balance    Interest     Rate     Balance    Interest   Rate
                                        ---------------------------- -------------------------------  ------------------------------
<S>                                     <C>         <C>       <C>    <C>           <C>        <C>     <C>         <C>         <C>
Assets
Interest earning assets
  Loans (1)                             $  872,322  $54,314   6.23%  $   729,581    $49,142    6.74%    $611,659   $45,496    7.44%
  Taxable securities (2)                   357,641   10,612   2.97       304,418     10,034    3.30      200,257    10,312    5.15
  Tax-exempt securities (2)(3)              35,438    1,666   4.70        27,737      1,287    4.64       14,545       822    5.65
  Interest earning deposits                      8        -      -         5,810         61    1.05            -         -       -
  Federal funds sold                        10,325      151   1.46        25,827        276    1.07       15,730       246    1.56
                                         ---------   ------   ----       -------     ------    ----      -------    ------    ----
  Total interest-earning assets          1,275,734   66,743   5.23%    1,093,373     60,800    5.56%     842,191    56,876    6.75%
                                                     ------                         -------                         ------

Non-interest earning assets
  Cash and due from banks                   36,181                        34,316                          20,635
  Allowance for loan and lease losses       (9,829)                       (8,762)                         (6,572)
  Other assets                             114,525                        96,646                          41,303
                                        ----------                    ----------                        --------
  Total assets                          $1,416,611                    $1,215,573                        $897,557
                                        ==========                    ==========                        ========

Liabilities and stockholders' equity
Interest-bearing liabilities
  Demand deposits                       $  471,489    4,881   1.04%   $  395,408      4,700    1.19%    $304,908     5,744    1.88
  Savings deposits                         203,451    1,136   0.56       199,127      1,408    0.71      136,527     1,952    1.43
  Time deposits                            293,609    6,373   2.17       273,382      7,053    2.58      224,931     8,661    3.85
  Short-term borrowings                     29,080      359   1.23        17,875        285    1.59       19,119       694    3.63
  Long-term borrowings                      28,863      905   3.14        10,000        428    4.28        9,945       427    4.29
                                         ---------   ------   ----       -------    -------    ----     --------    ------    ----
  Total interest-bearing liabilities     1,026,492   13,654   1.33%      895,792     13,874    1.55%     695,430    17,478    2.51%
                                                     ------                         -------             --------    ------

Non-interest bearing liabilities
  Demand deposits                          232,513                       183,451                         115,714
  Other liabilities                         12,393                        15,434                          12,176
                                        ----------                    ----------                        --------
  Total liabilities (4)                  1,271,398                     1,094,677                         823,320
  Stockholders' equity                     145,213                       120,896                          74,237
                                        ----------                    ----------                        --------
  Total liabilities and
    stockholders' equity                $1,416,611                    $1,215,573                        $897,557
                                        ==========                    ==========                        ========

Net interest income
  (tax-equivalent basis)                             53,089   3.90%                  46,926    4.01%                39,398    4.24%
Tax-equivalent basis adjustment                        (643)                           (533)                          (376)
                                                     ------                         -------                        -------
Net interest income                                 $52,446                         $46,393                        $39,022
                                                     ======                         =======                        =======

Net interest income as a percent of
 interest-earning assets
(tax-equivalent basis) (5)                   4.16%                            4.29%                          4.68%
</TABLE>

(1)   Nonaccrual loans and any related  interest  recorded have been included in
      computing the average rate earned on the loan portfolio.  When applicable,
      tax exempt loans are computed on a fully  taxable  equivalent  basis using
      the corporate federal tax rate of 34%.

(2)   The  average  balances  are  based on  amortized  cost and do not  reflect
      unrealized gains or losses.

(3)   Computed on a fully taxable  equivalent basis using the corporate  federal
      tax rate of 34%.

(4)   All deposits are in domestic bank offices.

(5)   Net interest margin

                                       15
<PAGE>

Table 3
--------------------------------------------------------------------------------
Effects of Volume and Rate Changes on Net Interest Income
--------------------------------------------------------------------------------
(dollars in thousands)

<TABLE>
<CAPTION>
                                      Year ended December 31,             Year ended December 31,
                                      2004 compared with 2003            2003 compared with 2002
                                        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)                     $  9,615    $ (4,443)   $  5,172    $  8,771    $ (5,125)   $  3,646
  Taxable securities               1,754      (1,176)        578       5,364      (5,642)       (278)
  Tax-exempt securities (2)          362          17         379         746        (281)        465
  Interest bearing deposits          (61)          -         (61)         61           -          61
  Federal funds sold                (323)        198        (125)        158        (128)         30
                                --------    --------    --------    --------    --------    --------
    Total interest income         11,347      (5,404)      5,943      15,100     (11,176)      3,924
                                --------    --------    --------    --------    --------    --------
Interest expense
  Demand deposits                    904        (723)        181       4,290      (5,334)     (1,044)
  Savings deposits                    31        (303)       (272)      5,333      (5,876)       (543)
  Time deposits                      594      (1,274)       (680)      3,023      (4,631)     (1,608)
  Short-term borrowings              179        (105)         74         (43)       (366)       (409)
  Long-term borrowings               807        (330)        477           -           1           1
                                --------    --------    --------    --------    --------    --------
    Total interest expense         2,515      (2,735)       (220)     12,603     (16,206)     (3,603)
                                --------    --------    --------    --------    --------    --------
Change in net interest income   $  8,832    $ (2,669)   $  6,163    $  2,497    $  5,030    $  7,527
                                ========    ========    ========    ========    ========    ========

-----------------------------------------------------------------------------------------------------
</TABLE>
(1)   Non-performing loans are included in interest earning assets.

(2)   Computed on a fully taxable  equivalent basis using the corporate  federal
      tax rate of 34%.

      Net interest  income,  on a taxable  equivalent  basis,  amounted to $53.1
million in 2004,  an increase of $6.2 million,  or 13.1%,  from $46.9 million in
2003.  The increase in net interest  income was largely due to growth in average
interest-earning assets of $182.4 million. The interest earning asset growth was
funded by a $149.7  million  growth in average  deposits.  The growth in average
deposits  occurred  mostly in  interest-bearing  demand and time  deposits.  The
growth in interest  earning  assets and  deposits  were partly due to the Bridge
View acquisition.  The aforementioned increase in net interest income was partly
offset by a 13 basis point  decline in the margin.  The change in the margin was
attributable  to  interest  earning  asset  yields  declining  faster  than  the
Company's  cost of funds,  which was largely due to  short-term  interest  rates
increasing faster than long-term interest rates.

      Interest  income,  on a  tax-equivalent  basis,  totaled $66.7 million for
2004,  an increase of $5.9 million,  or 9.8%, as compared to 2003.  For the year
ended  December  31, 2004 and 2003,  the tax  equivalent  basis  adjustments  to
interest income were $643 thousand and $533 thousand, respectively. The increase
was attributed to a growth in interest earning assets,  which was largely due to
increases in average loans and

<PAGE>

investments of $142.7 million and $60.9 million,  respectively.  The increase in
interest earning assets for 2004 was partly due to the Bridge View  acquisition.
The increase in interest income was partly offset by a 33 basis point decline in
interest  earning  asset  yields for 2004 as  compared  to 2003.  The decline in
interest  earning  asset  yields was largely  attributable  to the  repricing of
interest earning assets and a change in asset mix.

     Interest  expense  totaled  $13.7  million  in  2004,  a  decrease  of $220
thousand,  or 1.6%, as compared to 2003. The decrease was  principally  due to a
decline in the average rates paid on  interest-bearing  liabilities  of 22 basis
points to 1.33% in 2004 as  compared  to 1.55% in 2003 which was mostly due to a
decline in deposit rates paid.  The decline in interest  expense was largely due
to a  decrease  in  rates  paid on time  deposits  and  interest-bearing  demand
deposits  of 41 basis  points  and 15 basis  points,  respectively,  for 2004 as
compared to 2003. The benefit  derived from a decline in average rates more than
offset the increase in interest  expense  associated  with the growth of average
interest-bearing liabilities of $130.7 million for 2004 as compared to the prior
year. The growth in average  interest-bearing  liabilities occurred primarily in
interest-bearing  demand,  borrowings and time deposits,  which  increased $76.1
million, $30.1 million and $20.2 million, respectively.

      Net interest  income,  on a taxable  equivalent  basis,  amounted to $46.9
million in 2003,  an increase of $7.5 million,  or 19.1%,  from $39.4 million in
2002.  The increase in net interest  income was largely due to growth in average
interest-earning assets of $251.2 million. The interest earning asset growth was
funded by a $269.3  million growth in average  deposits.  The growth in interest
earning  assets  and  deposits  was  primarily  attributed  to the  Bridge  View
acquisition.  The change in the  margin of 39 basis  points to 4.29% for 2003 as
compared  to the same  period in 2002  partially  offset the growth in  interest
earning  assets.  The change in the margin  was  attributable  to a shift in our
asset mix due to the historically low interest rates occurring in 2003,  causing
prepayments in our loan and securities portfolios and strong deposit growth. The
funds from the prepayments and deposit growth being reinvested mainly into lower
yielding investment securities along with loan modifications  resulted in margin
contraction.

      Interest  income,  on a  tax-equivalent  basis,  totaled $60.8 million for
2003,  an increase of $3.9 million,  or 6.9%, as compared to 2002.  For the year
ended December 31, 2003 and 2002, the tax equivalent basis adjustments were $533
thousand and $376 thousand, respectively. The increase is attributed to a growth
in  interest  earning  assets.  The growth in  interest  earning  assets was
largely due to increases in average loans and  investments of $117.9 million and
$117.4  million,  respectively.  The Bridge  View  acquisition  was the  primary
contributor  to the increase in interest  earning assets and loans for 2003. The
increase in interest  income was partly  offset by a 119 basis point

                                       16

<PAGE>

decline in interest  earning  asset  yields for 2003 as  compared  to 2002.  The
decline in interest earning asset yields was largely  attributable to a decrease
in market interest rates and change in asset mix.

      Interest  expense  totaled  $13.9  million  in 2003,  a  decrease  of $3.6
million,  or 20.6%,  as compared to 2002. The decrease was  principally due to a
decline in the average rates paid on  interest-bearing  liabilities  of 96 basis
points to 1.55% in 2003 as  compared  to 2.51% in 2002 which was mostly due to a
decline in short-term  market interest.  Average rates paid on  interest-bearing
demand  and time  deposits  decreased  69 basis  points  and 127  basis  points,
respectively,  for 2003 as compared to 2002. The benefit  derived from a decline
in average  rates more than offset the increase in interest  expense  associated
with the growth of average  interest-bearing  liabilities  of $200.4 million for
2003 as  compared  to the prior  year.  The growth in  average  interest-bearing
liabilities was due mostly to the Bridge View acquisition and occurred primarily
in  interest-bearing  demand,  savings and time deposits which  increased  $90.5
million, $62.6 million and $48.5 million, respectively.

Non-interest Income

     Non-interest income consists of all income other than interest and dividend
income and is principally derived from: service charges on deposits;  loan fees;
commissions on sales of annuities and mutual funds; rental fees for safe deposit
space;  BOLI income and net gains on sale of securities  and loans.  The Company
recognizes  the  importance  of  supplementing  net  interest  income with other
sources of income  and  maintains  a  management  committee  that  explores  new
opportunities to generate non-interest income.

     Non-interest income increased $812 thousand,  or 7.6%, for 2004 as compared
to 2003. The improvement in non-interest  income was largely due to increases in
gain  on  sale  of  securities,  gain on  sale  of  loans  and  leases,  "other"
non-interest  income  of  $651  thousand,  $548  thousand,  and  $341  thousand,
respectively.  The net gains on the sale of loans and leases of $1.3  million as
compared to $769  thousand for the same period in 2003 was due to an increase in
fee income of $754  thousand  from the sale of the  guaranteed  portion of Small
Business  Administration  loans.  The increase in other  income was  primarily a
result of  realizing  $393  thousand  from the  collection  of  principal  on an
acquired  commercial loan in excess of its carrying  value.  Contributing to the
improvement  in  non-interest  income  were  service  charges  on  deposits  and
commissions on sales of mutual funds and annuities. The aforementioned increases
was  partly  offset by a decline  in BOLI  income  of $1.0  million  for 2004 as
compared  to 2003,  which  was due to a claim  received  in 2003  which  did not
reoccur in 2004.


<PAGE>

      Non-interest  income increased $4.1 million,  or 63%, for 2003 as compared
to 2002. Of the increase  approximately $3.0 million,  or 73%, resulted from the
Company's organic growth. The improvement in non-interest income was largely due
to increases in "other"  non-interest income, BOLI income and service charges on
deposits of $1.2  million,  $1.1 million and $904  thousand,  respectively.  The
increase  in BOLI income was  primarily  due to a claim on  insurance  policies,
which amounted to $921 thousand.  The growth in service  charges on deposits and
"other"  non-interest  income was largely due to the acquisition of Bridge View.
Contributing to the  improvement in non-interest  income were net gains from the
sale of loans and  commissions on sales of mutual funds and annuities.  The gain
on sales of loans were from two programs the Company commenced in 2003: Mortgage
Partnership  Financing  program  with the  Federal  Home Loan Bank,  whereby the
Company  sells  its  new  originated  conforming  20  and  30  year  residential
mortgages, and originating Small Business Administration loans and selling the
guaranteed portion into the secondary market.

Table 4
--------------------------------------------------------------------------------
Non-interest Income
--------------------------------------------------------------------------------
for the years ended December 31,
(dollars in thousands)

                                         2004      2003      2002
                                       -------   -------   -------

Service fees on deposit accounts       $ 3,753   $ 3,485   $ 2,581
Net gain on sale of securities           1,444       793       564
Net gain on sale of loans and leases     1,317       769       400
Bank owned life insurance                  993     2,019       895
Commissions on sales of
  annuities and mutual funds               913       883       603
All other                                3,037     2,696     1,471
                                       -------   -------   -------
  Total                                $11,457   $10,645   $ 6,514
                                       =======   =======   =======

                                       17

Non-interest Expense

      Non-interest  expense for 2004 increased $4.8 million,  or 15.3%, to $36.0
million as compared  to 2003.  The  increase  was  attributed  to  increases  in
salaries and benefits,  professional  fees and occupancy  fees. The increase was
due in part to  recognizing a full year of operating  costs  resulting  from the
merger  with Bridge View for 2004 as compared to only eight  months in 2003.  In
addition,  the  increase in  salaries  and  benefits  was  attributed  to normal
increases and expansion of the Company.  The increase in  professional  fees was
largely due to costs related to implementation of Sarbanes-Oxley Section 404 and
an increase in legal expenses primarily as a result of collection efforts.

      Non-interest  expense for 2003 increased $6.2 million,  or 24.6%, to $31.2
million as  compared to 2002.  The  increase  was due largely to the  additional
operating costs resulting from the merger with Bridge View. Also contributing to
the increase were normal  increases  related to salaries and benefits along with
occupancy expense. In addition, the Company incurred direct integration expenses
of approximately $357

<PAGE>

thousand  associated  with the  Bridge  View  merger,  which  included  expenses
associated with data processing,  customer  notifications  and advertising,  and
salaries.

      The largest  component of  non-interest  expense,  salaries and  benefits,
increased $3.3 million,  or 24.3%, for 2003 of which  approximately $1.7 million
of the  increase  was  related  to the Bridge  View  acquisition.  Salaries  and
benefits,  excluding amounts related to Bridge View,  increased 11.9% due mostly
to increased head count as a result of the Company's expansion, salary increases
and higher  benefit  expenses.  Bridge View also accounted for $986 thousand and
$291 thousand of the increases in occupancy and amortization of the intangibles,
respectively.  Other non-interest expense increased $1.1 million, largely due to
an  increase  of $294  thousand in data  processing  costs and $226  thousand in
printing and postage costs while all other expenses increased $585 thousand.

Table 5
--------------------------------------------------------------------------------
Non-interest Expense
--------------------------------------------------------------------------------
for the years ended December 31,
(dollars in thousands)

                                     2004      2003      2002
                                   -------   -------   -------
Salaries and benefits              $19,463   $16,994   $13,673
Occupancy                            5,283     4,577     3,438
Furniture and equipment              1,309     1,327     1,124
Advertising and promotion            1,456     1,412     1,295
Amortization of intangble assets       504       360        69
Other expenses
  Professional fees                  2,609     1,568     1,458
  Data processing                      978       933       639
  All other                          4,406     4,068     3,367
                                   -------   -------   -------
     Total                         $36,008   $31,239   $25,063
                                   =======   =======   =======

Income Taxes

      In 2004, income taxes amounted to $8.5 million as compared to $7.6 million
and $6.1 million for 2003 and 2002, respectively. The effective tax rate in 2004
was 31.8% as  compared  to 31.8%  and  32.1%  for 2003 and  2002,  respectively.
Detailed  information  on  income  taxes  is  shown  in  Notes  1 and  17 to the
Consolidated Financial Statements.

Financial Condition

Loan Portfolio

      At December 31, 2004, total loans amounted to $934.2 million,  an increase
of $137.6  million,  or 17.3%,  compared to $796.6 million at December 31, 2003.
The commercial loan growth was largely within the subsidiary  Bank's  delineated
community, which is in Bergen County, New Jersey.


                                       18
<PAGE>
Table 6
--------------------------------------------------------------------------------
Loan Portfolio
--------------------------------------------------------------------------------
at December 31,

<TABLE>
<CAPTION>
                                                            2004            2003            2002            2001            2000
                                                         ----------      ----------      ----------      ----------      ----------
<S>                                                      <C>             <C>             <C>             <C>             <C>
Amounts of loans by type (in thousands)
  Real estate-mortgage
    1-4 family residential
      First liens                                        $  141,835      $  100,286      $  100,302      $  113,703      $  110,369
      Junior liens                                            2,544           4,138           6,241           8,384          11,195
      Home equity                                           148,027         136,477         125,037         130,658         142,610
    Commercial                                              375,985         330,040         222,628         198,319         181,722
    Construction                                             51,162          31,077          11,359           5,265           3,755
                                                         ----------      ----------      ----------      ----------      ----------
                                                            719,553         602,018         465,567         456,329         449,651
                                                         ----------      ----------      ----------      ----------      ----------
  Commercial loans
    Commercial and financial                                186,386         149,462         104,542          85,801          76,702
    Lease financing                                          23,535          28,440          26,356          15,850          23,804
                                                         ----------      ----------      ----------      ----------      ----------
                                                            209,921         177,902         130,898         101,651         100,506
                                                         ----------      ----------      ----------      ----------      ----------
  Consumer loans
    Lease financing                                             680          12,416          15,969          18,822           4,919
    Installment                                               4,027           4,245           3,207           4,521           5,803
                                                         ----------      ----------      ----------      ----------      ----------
                                                              4,707          16,661          19,176          23,343          10,722
                                                         ----------      ----------      ----------      ----------      ----------
    Total                                                $  934,181      $  796,581      $  615,641      $  581,323      $  560,879
                                                         ==========      ==========      ==========      ==========      ==========

Percent of loans by type
  Real estate-mortgage
    1-4 family residential
      First liens                                              15.2%           12.6%           16.3%           19.6%           19.7%
      Junior liens                                              0.3             0.5             1.0             1.4             2.0
      Home equity                                              15.8            17.1            20.3            22.5            25.4
    Commercial                                                 40.2            41.4            36.2            34.1            32.4
    Construction                                                5.5             3.9             1.8             0.9             0.7
                                                         ----------      ----------      ----------      ----------      ----------
                                                               77.0            75.5            75.6            78.5            80.2
                                                         ----------      ----------      ----------      ----------      ----------
  Commercial loans
    Commercial and financial                                   20.0            18.8            17.0            14.8            13.7
    Lease financing                                             2.5             3.6             4.3             2.7             4.2
                                                         ----------      ----------      ----------      ----------      ----------
                                                               22.5            22.4            21.3            17.5            17.9
                                                         ----------      ----------      ----------      ----------      ----------
  Consumer loans
    Lease financing                                             0.1             1.6             2.6             3.2             0.9
    Installment                                                 0.4             0.5             0.5             0.8             1.0
                                                         ----------      ----------      ----------      ----------      ----------
                                                                0.5             2.1             3.1             4.0             1.9
                                                         ----------      ----------      ----------      ----------      ----------
    Total                                                     100.0%          100.0%          100.0%          100.0%          100.0%
                                                         ==========      ==========      ==========      ==========      ==========
</TABLE>

The following  table sets forth the maturity  distribution of the Company's loan
portfolio as of December 31, 2004.

The table  excludes  real estate  loans  (other than  construction  loans),  and
consumer loans: (in thousands)

                                               Due after
                                     Due in     one year   Due after
                                    one year    through      five
                                    or less    five years    years      Total
                                    --------   ----------   --------    --------
Commercial and financial .......    $ 64,249    $ 61,136    $ 61,001    $186,386
Lease financing ................       1,886      21,077         572      23,535
Real estate-construction .......      26,197      23,125       1,840      51,162
                                    --------    --------    --------    --------
  Total ........................    $ 92,332    $105,338    $ 63,413    $261,083
                                    ========    ========    ========    ========

The following  table sets forth the interest rate  characteristics  of loans due
after one year as of December 31, 2004: (in thousands)

                                                    Due after
                                                     one year    Due after
                                                     through       five
                                                    five years     years
                                                     --------    --------
Fixed interest rate ......................           $ 79,243    $ 22,953
Variable interest rate ...................             26,095      40,460
                                                     --------    --------
     Total ...............................           $105,338    $ 63,413
                                                     ========    ========

                                       19
<PAGE>

Loan Quality

      The  lending   activities  of  the  Company   follow  the  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.  Generally, the Company obtains an independent appraisal of
real property,  within regulatory guidelines,  when it is considered the primary
collateral   for  a  loan.   In  addition,   the  Company   maintains  a  credit
administration  function which reports directly to the Senior Vice President and
Chief Credit Officer.  The credit  administration  function performs independent
reviews  of  credits   prior  to  the   extension  of  such  credit  based  upon
pre-established  guidelines.  The independent review function allows the Company
to  effectively  price  transactions  based upon credit risk and allows  lending
officers  more time to  allocate  towards  loan  generation  rather  than credit
analysis and underwriting.

      The  Company   maintains  an  independent   loan  review   function.   The
responsibility  of this function rests with the loan review officer who oversees
the evaluation of credit risk for large commercial loans and leases as well as a
sample of smaller commercial loans and leases after the Company extended credit.
The loan review officer also monitors the integrity of the Company's credit risk
rating system. 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.  In
addition,  the loan review officer reviews  commercial leases and consumer loans
considered  homogeneous in nature,  to identify and evaluate the credit risks of
these  portfolios.  The loan review officer reports  directly to the Senior Vice
President and Chief Credit Officer of the Bank and provides quarterly reports to
the Company's Board of Directors.

      Management  maintains a "watchlist" system under which credit officers are
required  to provide  early  warning  of  possible  deterioration  in the credit
quality of loans.  These loans may not currently be delinquent,  but may present
indications of financial weakness, such as deteriorating financial ratios of the
borrowers, or other concerns.  Identification of such financial weaknesses at an
early  stage  allows  early  implementation  of  responsive  credit  strategies.
Watchlist loans are monitored and/or managed by our Special Asset Officer who is
responsible for supervising the collection of delinquent  loans. The "watchlist"
report  is  presented  to  executive  management  monthly  and to the  Board  of
Directors on a quarterly basis.


<PAGE>

Allowance for Loan and Lease Losses and Related Provision

      Credit risk  represents the possibility  that a borrower,  counterparty or
insurer may not perform in accordance  with  contractual  terms.  Credit risk is
inherent in the financial services business and results from extending credit to
customers,   purchasing   securities  and  entering  into  financial  derivative
transactions.  The  Company  seeks to manage  credit risk  through,  among other
techniques, diversification,  limiting credit exposure to any single industry or
customer, requiring collateral, and selling participations to third parties.

      The   provision  for  loan  and  lease  losses   represents   management's
determination  of the amount necessary to bring the allowance for loan and lease
losses  ("ALLL") to a level that  management  considers  adequate to reflect the
risk of future  estimated  losses inherent in the Company's loan portfolio as of
the  balance  sheet  date.  The Company  evaluates  the  adequacy of the ALLL by
performing  periodic,  systematic  reviews of the loan  portfolio.  This process
includes the  identification  and allocation of specific  reserves for loans and
leases,  which are deemed  impaired,  and the allocation of reserves to pools of
non-impaired loans.  Portions of the ALLL are allocated to cover probable losses
in each loan and lease category based on a migration  analysis (loss experience)
of the past five  years,  an  analysis  of  concentration  risk  factors  and an
analysis of the economic  environment in which the Company  operates its lending
business.  The  unallocated  portion of the ALLL is  management's  evaluation of
inherent risk in the portfolio based on changes in the composition of performing
and nonperforming  loans,  concentrations of credit,  economic  conditions,  the
condition of borrowers  facing  financial  pressure and the  relationship of the
current level of the ALLL to the credit  portfolio and to  nonperforming  loans.
While  allocations  are made to  specific  loans and  pools of loans,  the total
allowance is available for all loan losses.  While the ALLL is management's best
estimate of the inherent loan losses  incurred as of the balance sheet date, the
process of  determining  the adequacy of the ALLL is  judgmental  and subject to
changes in external  conditions.  Accordingly,  there can be no  assurance  that
existing levels of the ALLL will ultimately  prove adequate to cover actual loan
losses.

      Loan loss provisions for 2004 amounted to $1.2 million, a decrease of $615
thousand from the prior year. In 2003, the loan loss provision  amounted to $1.8
million,  an increase of $315 thousand from 2002.  The decrease in the loan loss
provision  for 2004 was partly  attributable  to an  improvement  in the overall
economic  environment  and  an  improvement  in  the  Company's  historical  net
charge-off  trend which are utilized in developing  adequacy of the ALLL.  Loans
are  charged-off  against the ALLL,  when  management  believes  that the future
collection  of  principal  is  unlikely.  In  2004,  nonperforming  loans  as  a
percentage of year end loans declined to 0.98% from 1.08%;  although in absolute
terms nonperforming loans increased $563 thousand to $9.1 million as compared to
$8.6  million in 2003.  Loans  charged-off,  net of  recoveries  decreased  $266
thousand to $1.0  million as compared to $1.3 million in 2003.  The  charge-offs
occurred principally in the


<PAGE>

commercial lease portfolio.  Management of the Company determined that the ALLL,
as set forth in Table 7, was at a level  sufficient  to cover the inherent  loan
losses in the loan portfolio as of the balance sheet date.

                                       20

Table 7
--------------------------------------------------------------------------------
Loan Loss Experience
--------------------------------------------------------------------------------
for the  years ended December 31,
(dollars in thousands)

<TABLE>
<CAPTION>
                                                2004        2003        2002        2001        2000
                                              --------    --------    --------    --------    --------
<S>                                           <C>         <C>         <C>         <C>         <C>
Average loans outstanding                     $872,322    $729,581    $611,659    $579,034    $536,971
                                              ========    ========    ========    ========    ========

Allowance at beginning of year                $  9,641    $  7,207    $  6,569    $  6,154    $  5,476
                                              --------    --------    --------    --------    --------
Loans charged-off:
  Real estate                                      357         162          17          11         186
  Commercial and financial                          89          25           -           -           -
  Commercial lease financing                       637       1,072         875         949           8
  Consumer loans                                    54          97          34           4          25
                                              --------    --------    --------    --------    --------
      Total                                      1,137       1,356         926         964         219
                                              --------    --------    --------    --------    --------

Recoveries of loans previously charged-off:
  Real estate                                       22          35          29          22          99
  Commercial and financial                           6           -           -         264          27
  Commercial lease financing                        63           8          16           8           -
  Consumer loans                                     2           3          19          10          21
                                              --------    --------    --------    --------    --------
      Total                                         93          46          64         304         147
                                              --------    --------    --------    --------    --------
Net loans charged-off                            1,044       1,310         862         660          72
                                              --------    --------    --------    --------    --------

Additions due to merger                              -       1,929           -           -           -

Provision for loan and lease losses              1,200       1,815       1,500       1,075         750
                                              --------    --------    --------    --------    --------
Allowance at end of year                      $  9,797    $  9,641    $  7,207    $  6,569    $  6,154
                                              ========    ========    ========    ========    ========

Allowance to total loans                          1.05%       1.21%       1.17%       1.13%       1.10%
Allowance to nonaccrual loans                   107.27%     112.50%     120.86%     304.12%     441.15%
Allowance to nonaccrual loans and
     loans past due 90 days or more             107.27%     112.50%     120.86%     304.12%     441.15%
Ratio of net charge-offs to average loans         0.12%       0.18%       0.14%       0.11%       0.01%
</TABLE>


<PAGE>

      At December  31,  2004,  the ratio of the ALLL to total loans was 1.05% as
compared to 1.21% at the end of the prior year. The ALLL  represented  107.3% of
nonaccrual  loans and loans past due 90 days or more at December 31, 2004,  down
from  112.5% at the end of 2003.  This  ratio was  impacted  by a $563  thousand
increase in nonaccrual and restructured  loans in 2004 as compared to the end of
the  year in 2003  offset  by a $1.9  million  increase  in the  ALLL in 2003 to
reflect  Bridge  View's  ALLL at the time of  acquisition.  Refer to the section
titled "Nonperforming  Assets" and Table 9 for more detail on loan delinquencies
and nonperforming assets.

      The  Company has the same  collateral  policy for loans  whether  they are
funded immediately or based on a commitment.  A commitment to extend credit is a
legally  binding  agreement  to lend  funds to a  customer  usually  at a stated
interest  rate  and  for  a  specified  purpose.  Such  commitments  have  fixed
expiration  dates and  generally  require a fee.  The  extension of a commitment
gives rise to credit risk. The actual liquidity requirements or credit risk that
the  Company  will  experience  will be lower  than the  contractual  amount  of
commitments to extend credit because a significant  portion of those commitments
are expected to expire without being drawn upon. Certain commitments are subject
to loan agreements  containing covenants regarding the financial  performance of
the  customer  that must be met  before  the  Company  is  required  to fund the
commitment.  The Company uses the same credit policies in making  commitments to
extend credit as it does in funding loans.

      In addition,  the Company manages the potential credit risk in commitments
to  extend  credit  by  limiting  the  total  amount  of  arrangements,  both by
individual customer and in the aggregate; by monitoring the size and maturity of
the  structure of these  portfolios;  and by applying the same credit  standards
maintained for all of its related credit activities.  The credit risk associated
with these off balance  sheet  commitments  is  recorded  as a liability  in the
Company's  balance  sheet and  management's  determination  of the liability for
these amounts were $40 thousand and $140 thousand at December 31, 2004 and 2003,
respectively.


                                       21
<PAGE>

Table 8
--------------------------------------------------------------------------------
Allocation of Allowance for Loan and Lease Losses
--------------------------------------------------------------------------------
at December 31,
(dollars in thousands)

<TABLE>
<CAPTION>
                                     2004                2003                2002                  2001                2000
                             -------------------  ------------------   ------------------   ------------------   ------------------
                                      % of Loans          % of Loans           % of Loans           % of Loans           % of Loans
                                       to Total            to Total             to Total             to Total             to Total
                             Amount    Loans (1)  Amount   Loans (1)   Amount   Loans (1)   Amount   Loans (1)   Amount   Loans (1)
                             ------   ----------  ------  ----------   ------  ----------   ------  ----------   ------  ----------
<S>                          <C>         <C>      <C>        <C>       <C>        <C>       <C>        <C>       <C>         <C>
Real estate                  $4,307      77.0%    $6,743     75.5%     $3,724     75.6%     $4,028     78.5%     $2,713      80.2%
Commercial and financial      2,987      20.0        479     18.8       1,435     17.0       1,389     14.8         931      13.6
Commercial lease financing    1,000       2.5        968      3.6         720      4.3         542      2.7         435       5.1
Consumer loans                   90       0.5        186      2.1         132      3.1           5      4.0          35       1.1
Unallocated                   1,413         -      1,265        -       1,196        -         605        -       2,040         -
                             ------     -----     ------    -----      ------    -----      ------    -----      ------     -----
                             $9,797     100.0%    $9,641    100.0%     $7,207    100.0%     $6,569    100.0%     $6,154     100.0%
                             ======     =====     ======    =====      ======    =====      ======    =====      ======     =====
</TABLE>

(1)   This column reflects each respective  class of loans as a percent of total
      loans.

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

Nonperforming Assets

      Nonperforming  assets consist of nonaccrual loans,  restructured loans and
foreclosed assets (comprised of foreclosed real estate and repossessed  assets).
Loans are placed on nonaccrual  status when, in the opinion of  management,  the
future collection of interest or principal according to contractual terms may be
doubtful or when principal or interest  payments are in arrears 90 days or more.
The  Company has a  dedicated  Special  Asset  Management  department  that also
oversees  general  collection  efforts.  The  purpose of this  department  is to
minimize any potential  losses by remediation of credits  through  collection or
disposal  efforts.  Foreclosed real estate,  representing real estate collateral
acquired  by  legal   foreclosure   procedures,   is  valued  using  independent
appraisals,  and the Company's policy is to obtain revised 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  below  presents  the  detail  of  nonperforming  assets  and the
aggregate of loans whose  principal  and/or interest has not been paid according
to contractual terms. At December 31, 2004,  nonperforming assets increased $567
thousand,  or 6.4%,  as  compared  to the end of the prior  year.  Nonperforming
assets are concentrated in one relationship of $2.4 million. Based upon the best
currently  available  information  it is believed  that this  relationship  will
resolve   itself   during  2005  and  the  Company  will   experience  no  loss.
Nonperforming  assets  increased $2.7 million,  or 43.3%, in 2003 as compared to
2002.


<PAGE>

Table 9
--------------------------------------------------------------------------------
Loan Delinquencies and Nonperforming Assets
--------------------------------------------------------------------------------
at December 31,
(dollars in thousands)

<TABLE>
<CAPTION>
                                               2004      2003      2002      2001      2000
                                              ------    ------    ------    ------    ------
<S>                                          <C>       <C>       <C>       <C>       <C>
Loans delinquent and accruing interest
  Loans past due 30-89 days                   $1,918    $1,265    $2,121    $1,938    $2,058
  Loans past due 90 days or more                   -         -         -         -         -
                                              ------    ------    ------    ------    ------
    Total loans delinquent and
      accruing interest                       $1,918    $1,265    $2,121    $1,938    $2,058
                                              ======    ======    ======    ======    ======

Nonaccrual loans                              $9,133    $8,570    $5,963    $2,160    $1,395
Foreclosed and repossessed assets                156       230       176       492       250
Restructured loans                                 -         -         -       150         -
                                              ------    ------    ------    ------    ------
  Total nonperforming assets                  $9,289    $8,800    $6,139    $2,802    $1,645
                                              ======    ======    ======    ======    ======
   Total nonperforming assets and loans
   past due 90 days or more                   $9,289    $8,800    $6,139    $2,802    $1,645
                                              ======    ======    ======    ======    ======

Nonaccrual loans to total loans                 0.98%     1.08%     0.97%     0.37%     0.25%
Nonperforming assets to total loans and
  foreclosed and repossessed assets             0.99%     1.10%     1.00%     0.48%     0.29%
Nonperforming assets to total assets            0.63%     0.63%     0.66%     0.34%     0.21%
Nonaccrual loans and loans past due 90 days
  or more to total loans                        0.98%     1.08%     0.97%     0.37%     0.25%
</TABLE>

                                       22

Securities Held-to-Maturity and Securities Available-for-Sale

     Debt  securities  purchased  with the  intent  and  ability  to hold  until
maturity  are  classified  as  "held-to-maturity".  The Company does not acquire
securities  for the purpose of engaging  in trading  activities  and as such all
other securities are classified as "securities  available-for-sale".  Securities
available-for-sale are used as part of the Company's asset/ liability management
strategy and 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.

      Table 10 presents a summary of the  contractual  maturities  and  weighted
average  yields  (adjusted  to a taxable  equivalent  basis using the  corporate
federal  tax  rate of  34%) of  "securities  held-to-maturity"  and  "securities
available-for-sale".  Historical cost was used to calculate the weighted-average
yields.

<PAGE>

Table 10
--------------------------------------------------------------------------------
Securities
--------------------------------------------------------------------------------
at December 31, 2004
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                     After 1    After 5                             Weighted
                                                         Within    But Within  But Within    After                   Average
                                                         1 Year     5 Years     10 Years    10 Years     Total      Yield (1)
                                                        --------   ----------  ----------   --------    --------    --------
<S>                                                     <C>         <C>         <C>         <C>         <C>             <C>
Securities held-to-maturity at amortized cost
  Mortgage-backed securities                            $  1,407    $  3,540    $    368    $    268    $  5,583        5.99%
  Obligations of states & political subdivisions               -       3,494       4,836         617       8,947        7.43
                                                        --------    --------    --------    --------    --------    --------
                                                           1,407       7,034       5,204         885      14,530        6.88
                                                        --------    --------    --------    --------    --------    --------

Securities available-for-sale at estimated fair value
  Mortgage-backed securities                              54,495      62,567       3,438         892     121,392        4.28
  Obligations of U.S. agencies                            23,544     186,304           -           -     209,848        3.05
  Obligations of states & political subdivisions           8,598       6,969       3,976      13,176      32,719        5.25
  Obligations of the U.S. Treasury                         5,982           -           -           -       5,982        2.13
                                                        --------    --------    --------    --------    --------    --------
                                                          92,619     255,840       7,414      14,068     369,941        3.63

  Equity securities                                            -           -           -           -       4,258        1.98
                                                        --------    --------    --------    --------    --------    --------
                                                          92,619     255,840       7,414      14,068     374,199        3.61%
                                                        --------    --------    --------    --------    --------    --------
Total                                                   $ 94,026    $262,874    $ 12,618    $ 14,953    $388,729
                                                        ========    ========    ========    ========    ========

Weighted average yield (1)                                  4.11%       3.33%       6.23%       6.79%       3.73%
</TABLE>

(1)   Computed on a fully taxable  equivalent basis using the corporate  federal
      tax rate of 34%.

The   following   table  sets  forth  the  carrying   value  of  the   Company's
held-to-maturity  and  available-for-sale  securities  portfolios  for the years
ended December 31: (dollars in thousands)

<TABLE>
<CAPTION>
                                                               2004                 2003                 2002
                                                        ------------------   -----------------    -----------------
                                                         Amount       %       Amount       %       Amount       %
                                                        --------    -----    --------    -----    --------    -----
<S>                                                     <C>          <C>     <C>          <C>     <C>          <C>
Securities held-to-maturity at amortized cost
  Mortgage-backed securities                            $  5,583     38.4%   $  9,850     51.6%   $ 16,437     58.3%
  Obligations of U.S. agencies                                 -        -           -        -       1,991      7.1
  Obligations of states & political subdivisions           8,947     61.6       9,257     48.4       9,664     34.3
  Other debt securities                                        -        -           -        -         100      0.3
                                                        --------    -----    --------    -----    --------    -----
                                                        $ 14,530    100.0%   $ 19,107    100.0%   $ 28,192    100.0%
                                                        ========    =====    ========    =====    ========    =====

Securities available-for-sale at estimated fair value
  Mortgage-backed securities                            $121,392     32.4%   $114,187     26.4%   $102,605     45.7%
  Obligations of U.S. agencies                           209,848     56.1     273,160     63.1      95,559     42.6
  Obligations of states & political subdivisions          32,719      8.8      35,038      8.1      22,219      9.9
  Obligations of U.S. Treasury                             5,982      1.6       6,035      1.4           -        -
  Equity securities                                        4,258      1.1       4,533      1.0       3,937      1.8
                                                        --------    -----    --------    -----    --------    -----
                                                        $374,199    100.0%   $432,953    100.0%   $224,320    100.0%
                                                        ========    =====    ========    =====    ========    =====
</TABLE>


                                       23
<PAGE>

      The Company's total investment  portfolio  decreased by $63.3 million,  or
14%, to $388.7  million at December 31, 2004 as compared to the prior year.  The
decrease in the  investment portfolio  was largely  attributed to cashflows from
principal  amortization,  maturities and security sales, which were used to fund
in part the strong growth in commercial loans.  Total gross unrealized gains and
total gross  unrealized  losses for the  investment  portfolio  amounted to $2.7
million and $3.0 million, respectively, at December 31, 2004.

      At December 31, 2004,  available-for-sale  ("AFS") securities  amounted to
$374.2 million,  or 96.3%, of total securities,  compared to $433.0 million,  or
95.8%,  of total  securities  at year-end  2003.  The  Company's  AFS  portfolio
decreased by $58.8  million,  or 13.6%,  at December 31, 2004 as compared to the
prior year. The composition of investment securities shifted from obligations of
U.S. Agencies to mortgage-backed  securities mostly due to market conditions and
the Company's  asset/liability  management  strategy.  Substantially  all of the
mortgage-backed  securities  held by the  Company  are  issued or backed by U.S.
federal  agencies.  At December 31, 2004,  the Company held no  securities  of a
single issuer (except U.S. federal  agencies) with a book value that exceeds 10%
of Consolidated Stockholders' Equity.

      The Company's  held-to-maturity  portfolio  decreased by $4.6 million,  or
24.0%,  to $14.5 million at December 31, 2004 as compared to the prior year. The
decrease  was  mostly  due  to  declines  in   mortgage-backed   securities  and
obligations of state & political subdivisions,  which were largely the result of
amortization and maturities.

Deposits

      Deposits,    which   include    non-interest-bearing    demand   deposits,
interest-bearing  demand deposits,  savings and time deposits,  are an essential
and  cost-effective  funding source for the Company.  The Company attributes its
long-term success in growing deposits to the emphasis it places on building core
customer  relationships.  The  Company  offers a  variety  of  deposit  products
designed to meet the  financial  needs of the  customers  based on  identifiable
"life stages".  Deposits  increased  $89.3 million,  or 7.7%, to $1.2 billion at
December 31, 2004 as compared to the prior year mainly from internal  growth and
the  acquisition  of Bridge  View.  For 2004,  the  Company's  overall  yield on
deposits decreased by 24 basis points to 1.28% due mostly to a decline in market
interest rates and change in deposit mix.

      The   growth   in  the   deposit   base   occurred   mostly  in  time  and
interest-bearing  demand  deposits.  Time deposits  increased $55.4 million,  or
19.6%,  to $337.3  million at  December  31, 2004 as compared to the prior year.
Time deposits represented 27.2% of total deposits at December 31, 2004 and 24.4%
at December 31, 2003. The Company's yield on total time deposits decreased by 41
basis points to 2.17% for 2004 as

<PAGE>

compared to 2003.  Interest-bearing demand deposits, which comprised the largest
segment of the Company's total deposits,  amounted to $472.8 million at December
31,  2004,  an increase of $26.0  million,  or 5.8%,  from  year-end  2003.  The
Company's yield on interest-bearing demand deposits decreased by 15 basis points
to 1.04% for 2004 as compared to 2003.

      Contributing  to the growth in  deposits  was an $11.3  million,  or 5.0%,
increase  in  non-interest  bearing  demand  deposits  at  December  31, 2004 as
compared to year-end  2003.  Non-interest  bearing demand  deposits  represented
18.9% of total deposits at December 31, 2004 and 19.3% at December 31, 2003.

Table 11
--------------------------------------------------------------------------------
Deposit Summary
at December 31,
--------------------------------------------------------------------------------
(dollars in thousands)
                                              2004                   2003
                                     --------------------   --------------------

Non-interest bearing demand          $  235,036     18.9%   $  223,745     19.3%
Interest bearing demand                 472,807     37.9       446,786     38.6
Money market                             87,595      7.0        84,162      7.3
Savings                                 113,352      9.1       120,136     10.4
Time deposits less  than $100,000       286,471     23.0       265,356     22.9
Time deposits greater than $100,000      50,877      4.1        16,613      1.5
                                     ----------    -----    ----------    -----
                                     $1,246,138    100.0%   $1,156,798    100.0%
                                     ==========    =====    ==========    =====

                                              2002                   2001
                                     --------------------   --------------------

Non-interest bearing demand          $  118,578     14.5%   $  109,416     15.1%
Interest bearing demand                 323,998     39.7       282,173     38.8
Money market                             55,372      6.8        47,569      6.5
Savings                                  80,300      9.8        72,092      9.9
Time deposits less  than $100,000       210,727     25.9       194,754     26.9
Time deposits greater than $100,000      26,697      3.3        20,479      2.8
                                     ----------    -----    ----------    -----
                                     $  815,672    100.0%   $  726,483    100.0%
                                     ==========    =====    ==========    =====

                                              2000
                                     --------------------

Non-interest bearing demand          $  107,702     16.1%
Interest bearing demand                 229,713     34.3
Money market                             56,646      8.5
Savings                                  66,270      9.9
Time deposits less  than $100,000       187,330     28.0
Time deposits greater than $100,000      21,199      3.2
                                     ----------    -----
                                     $  668,860    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, 2004:
(in thousands)
Three months or less                   $ 33,716
Over three months through six months     10,618
Over six months through twelve months     6,406
Over twelve months                          137
                                       --------
                                       $ 50,877
                                       ========

                                       24

Market Risk

      Market risk is generally described as the sensitivity of income to adverse
changes in interest rates,  foreign currency  exchange rates,  commodity prices,
and other relevant  market rates or prices.  Market rate  sensitive  instruments
include:  financial  instruments  such as  investments,  loans,  mortgage-backed
securities,   deposits,  borrowings  and  other  debt  obligations;   derivative
financial  instruments,  such as  futures,  forwards,  swaps  and  options;  and
derivative commodity instruments, such as commodity futures, forwards, swaps and
options  that  are  permitted  to  be  settled  in  cash  or  another  financial
instrument.

      The  Company  does not have any  material  exposure  to  foreign  currency
exchange rate risk or commodity  price risk.  The Company did not enter into any
market rate sensitive  instruments for trading purposes nor did it engage in any
trading or  hedging  transactions  utilizing  derivative  financial  instruments
during 2004. The Company's real estate loan portfolio, concentrated primarily in
northern New Jersey,  is subject to risks associated with the local and regional
economies.  The Company's  primary  source of market risk  exposure  arises from
changes in market interest rates ("interest rate risk").

<PAGE>

Interest Rate Risk

      Interest rate risk is generally  described as the exposure to  potentially
adverse  changes in  current  and future net  interest  income  resulting  from:
fluctuations in interest rates; product spreads; and imbalances in the repricing
opportunities  of  interest-rate-sensitive  assets and  liabilities.  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
is  comprised  of the  Company's  executive  and  senior  management  and  meets
regularly,  typically  weekly.  ALCO  attempts to maintain  stable net  interest
margins    by    periodically     evaluating    the     relationship     between
interest-rate-sensitive   assets  and  liabilities.  The  evaluation,  which  is
performed at least  quarterly and presented to the Board,  attempts to determine
the impact on net interest margin from current and prospective changes in market
interest rates.

      The Company  manages  interest rate risk exposure with the  utilization of
financial modeling and simulation  techniques.  These methods assist the Company
in  determining  the effects of market rate changes on net  interest  income and
future economic value of equity. The objective of the Company is to maximize net
interest  income within  acceptable  levels of risk  established by policy.  The
techniques  utilized  for  managing  exposure to market rate  changes  involve a
variety of interest  rate,  pricing and volume  assumptions.  These  assumptions
include projections on growth, prepayment and withdrawal levels as well as other
embedded options inherently found in financial instruments.  The Company reviews
and validates these assumptions at least annually or more frequently if economic
or other  conditions  change.  At December 31, 2004,  the Company  simulated the
effects on net interest income given an instantaneous  and parallel shift in the
yield curve of up to a 200 basis point rising  interest rate  environment and an
100 basis point declining interest rate environment. Based on the simulation, it
was estimated that net interest income, over a twelve-month  horizon,  would not
decrease by more than 3.0%. The Company's interest rate risk management policies
provide that net interest  income should not decrease by more than 15% or 10% if
interest rates increase from current rates given an  instantaneous  and parallel
shift in the yield  curve of a 200 basis  point rise in rates or 100 basis point
decline in rates,  respectively.  Policy exceptions,  if any are reported to the
Board of Directors.  At December 31, 2004,  the Company was within policy limits
established  for changes in net  interest  income and future  economic  value of
equity.  Economic  value of equity is defined as the market  value of its assets
less the market value of its liabilities plus (or minus) the market value of any
off-balance sheet positions.

<PAGE>

The following table sets forth the sensitivity results for the last two years.

Net Interest Income Sensitivity Simulation

                                                Percentage Change in Estimated
                                                   Net Interest Income over
                                                    a twelve month horizon
                                                 ----------         ----------
                                                    2004               2003
                                                 ----------         ----------
+200 basis points                                  -2.3 %             -3.8 %
+100 basis points                                  -0.8 %             -0.6 %
-100 basis points                                  -3.0 %             -4.5 %
-200 basis points                                  *                  *

*     Not simulated due to the historically low interest rate environment.

      The simulation  described above does not represent a Company  forecast and
should not be relied upon as being  indicative  of expected  operating  results.
These hypothetical estimates are based upon numerous assumptions including:  the
nature  and  timing  of  interest  rate  levels  including  yield  curve  shape;
prepayments on loans and securities;  deposit decay rates;  pricing decisions on
loans and deposits;  reinvestment/replacement  of asset and liability cashflows;
and others.  While  assumptions  are developed  based upon current  economic and
local  market  conditions,  the  Company  cannot make any  assurances  as to the
predictive  nature of these  assumptions  including how customer  preferences or
competitor influences might change.

      Further,  as market  conditions vary from those assumed in the simulation,
actual results will also differ due to:  prepayment/refinancing levels deviating
from those  assumed;  the  varying  impact of interest  rate  changes on caps or
floors on adjustable rate assets;  the potential effect of changing debt service
levels on customers with adjustable rate loans;  depositor early withdrawals and
product preference changes; and other internal/external variables.  Furthermore,
the  simulation  does not  reflect  actions  that ALCO might take in response to
anticipated  changes in interest rates or  competitive  conditions in the market
place.

      In  addition  to the  above-mentioned  techniques,  the  Company  utilizes
sensitivity gap analysis as an interest rate risk  measurement.  Sensitivity gap
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. Sensitivity gap analysis 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  expressed 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 a  negative  12.65% at  December  31,  2004.  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

<PAGE>

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.

                                       25

      Certain  shortcomings are inherent in the method of gap 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  debt  may  decrease  in the  event of an  interest  rate
increase.  Management considers these factors when reviewing its sensitivity gap
position and establishing its ongoing asset/liability strategy.

Table 12
--------------------------------------------------------------------------------
Interest Rate Sensitivity Analysis
at December 31, 2004
--------------------------------------------------------------------------------
(dollars in thousands)

<TABLE>
<CAPTION>
                                                       3             6         6 Mos. to       1 to 3
Subject to rate change within                        Months        Months        1 Year         Years
                                                   ----------    ----------    ----------    ----------
<S>                                                <C>           <C>           <C>           <C>
Assets
  Net loans                                        $  251,063    $   66,275    $   90,177    $  264,626
  Investment securities                                23,987        15,117        45,516       219,170
  Interest-earning deposits                                 2             -             -             -
  Cash and amounts due from banks                           -             -             -             -
  Other noninterest earning assets                          -             -        25,846             -
                                                   ----------    ----------    ----------    ----------
    Total assets                                      275,052        81,392       161,539       483,796
                                                   ----------    ----------    ----------    ----------

Liabilities and stockholders' equity
  Demand deposits                                     100,141       127,797        76,351        49,809
  Savings deposits                                      2,708        12,215        12,215        16,680
  Money market accounts                                 3,656         8,340         8,340        61,367
  Fixed maturity certificates of deposits              98,020       102,918       121,536        11,910
  Securities sold under agreements to repurchase        4,401             -             -             -
  Short-term borrowings                                24,600             -             -             -
  Long-term borrowings                                      -             -             -        30,000
  Other liabilities                                         -             -             -             -
  Stockholders' equity                                      -             -             -             -
                                                   ----------    ----------    ----------    ----------
    Total liabilities and stockholders' equity        233,526       251,270       218,442       169,766
                                                   ----------    ----------    ----------    ----------

Gap                                                $   41,526    $ (169,878)   $  (56,903)   $  314,030
                                                   ==========    ==========    ==========    ==========
Gap to total assets                                      2.84%       -11.60%        -3.89%        21.45%

Cumulative Gap                                     $   41,526    $ (128,352)   $ (185,255)   $  128,775
                                                   ==========    ==========    ==========    ==========
Cumulative Gap to total assets                           2.84%        -8.77%       -12.65%         8.80%

                                                                                 Non-
                                                     3 to 5         Over       interest
Subject to rate change within                         Years        5 Years     Sensitive        Total
                                                   ----------    ----------    ----------    ----------
Assets
  Net loans                                        $  172,162    $   82,623    $   (2,542)   $  924,384
  Investment securities                                56,063        29,917        (1,041)      388,729
  Interest-earning deposits                                 -             -             -             2
  Cash and amounts due from banks                           -             -        33,108        33,108
  Other noninterest earning assets                          -             -        92,072       117,918
                                                   ----------    ----------    ----------    ----------
    Total assets                                      228,225       112,540       121,597     1,464,141
                                                   ----------    ----------    ----------    ==========

Liabilities and stockholders' equity
  Demand deposits                                      12,521       106,188       235,036       707,843
  Savings deposits                                      9,811        59,723             -       113,352
  Money market accounts                                   939         4,953             -        87,595
  Fixed maturity certificates of deposits               2,242           722             -       337,348
  Securities sold under agreements to repurchase            -             -             -         4,401
  Short-term borrowings                                     -             -             -        24,600
  Long-term borrowings                                      -             -             -        30,000
  Other liabilities                                         -             -         8,847         8,847
  Stockholders' equity                                      -             -       150,155       150,155
                                                   ----------    ----------    ----------    ----------
    Total liabilities and stockholders' equity         25,513       171,585       394,038    $1,464,141
                                                   ----------    ----------    ----------    ==========

Gap                                                $  202,712    $  (59,046)   $ (272,441)
                                                   ==========     ==========   ==========
Gap to total assets                                     13.85%        -4.03%

Cumulative Gap                                     $  331,487    $  272,441
                                                   ==========    ==========
Cumulative Gap to total assets                          22.64%        18.61%
</TABLE>


                                       26
<PAGE>

Operational Risk

      The Company is exposed to a variety of  operational  risks that can affect
each of its business  activities,  particularly  those involving  processing and
servicing of loans.  Operational  risk is defined as the risk of loss  resulting
from  inadequate or failed internal  processes,  people or systems from external
events.  The risk of loss also  includes  losses  that may arise from  potential
legal actions that could result from  operational  deficiencies or noncompliance
with  contracts,  laws  or  regulations.  The  Company  monitors  and  evaluates
operational risk on an ongoing basis through systems of internal control, formal
corporate-wide policies and procedures, and an internal audit function.

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  to  finance  prospective  business   opportunities.
Liquidity  management is critical to the stability of the Company. The liquidity
position  of the  Company  over any given  period  of time is a  product  of its
operating,  financing and investing activities. The extent of such activities is
often  shaped by such  external  factors as  competition  for  deposits and loan
demand.

     Traditionally, financing for the Company's loans and investments is derived
primarily from deposits, along with interest and principal payments on loans and
investments.  At December 31, 2004, total deposits amounted to $1.2 billion,  an
increase of $89.3 million,  or 7.7%, over the prior comparable year. At December
31,  2004,  advances  from the  Federal  Home Loan Bank of New York  ("FHLBNY"),
overnight  borrowings and securities sold under agreements to repurchase totaled
$59.0 million and represented  4.0% of total assets as compared to $72.1 million
and 5.2% of total assets, at December 31, 2003.

      Loan  production   continued  to  be  the  Company's  principal  investing
activity. Net loans at December 31, 2004 amounted to $924.4 million, an increase
of $137.4 million, or 17.5%, compared to the same period in 2003.

      The  Company's  most liquid assets are cash and due from banks and federal
funds sold.  At December  31, 2004,  the total of such assets  amounted to $33.1
million, or 2.3%, of total assets,  compared to $31.4 million, or 2.3%, of total
assets at year-end  2003. The increase in liquid assets was driven by the growth
in deposits.

      Another significant  liquidity source is the Company's  available-for-sale
securities.  At December 31,  2004,  available-for-sale  securities  amounted to
$374.2 million,  or 96.3%, of total securities,  compared to $433.0 million,  or
95.8%, of total securities at year-end 2003.


<PAGE>

     In addition to the  aforementioned  sources of  liquidity,  the Company has
available various other sources of liquidity,  including federal funds purchased
from other banks and the Federal Reserve  discount  window.  The Bank also has a
$100 million line of credit  available  through its  membership in the FHLBNY of
which $10.6 million at December 31, 2004 was utilized.  The Company  maintains a
policy of paying regular cash dividends and anticipates  continuing that policy.
The Company could, if necessary, modify the amount or frequency, of dividends as
an additional  source of liquidity.  There are imposed dividend  restrictions on
the  Bank.  See  Note  18 of  Notes  to  Consolidated  Financial  Statement  for
additional information.

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

The following table sets forth contractual obligations and various commitments
representing required and potential cash flows as of December 31, 2004.

Table 13
--------------------------------------------------------------------------------
Contractual Obligations and Commitments
at December 31, 2004
--------------------------------------------------------------------------------
(dollars in thousands)

<TABLE>
<CAPTION>
Contractual Obligations
                                                                Payment due by Period
                                                   ----------------------------------------------     Total
                                                   Less than     One to     Four to      After       Amounts
                                                    one year  three years  five years  five years   Committed
                                                   ---------  -----------  ----------  ----------   ---------
<S>                                                 <C>         <C>         <C>         <C>         <C>
Minimum annual rental under
  non-cancelable operating leases                   $  2,565    $  4,492    $  3,079    $  6,544    $ 16,680
Remaining contractual maturities of time deposits    323,080      12,066       2,185          17     337,348
Securities sold under agreements to
  repurchase and short-term borrowings                29,001           -           -           -      29,001
Long-term borrowings                                       -      30,000           -           -      30,000
                                                    --------    --------    --------    --------    --------
     Total contractual cash obligations             $354,646    $ 46,558    $  5,264    $  6,561    $413,029
                                                    ========    ========    ========    ========    ========
</TABLE>

The amounts above exclude any related interest.

<TABLE>
<CAPTION>
Other Commitments
                                 Amount of Commitment Expiration By Period
                               ----------------------------------------------     Total
                               Less than     One to     Four to      After       Amounts
                                one year  three years  five years  five years   Committed
                               ---------  -----------  ----------  ----------   ---------
<S>                             <C>        <C>           <C>        <C>          <C>
Loan commitments                $164,192   $ 21,723      $   -      $ 89,227     $275,142
Standby letters of credit          3,193          -          -             -        3,193
                                --------   --------      -----      --------     --------
     Total other commitments    $167,385   $ 21,723      $   -      $ 89,227     $278,335
                                ========   ========      =====      ========     ========
</TABLE>

                                       27

Capital Adequacy

      Stockholders'  equity totaled $150.2 million, or 10.3%, of total assets at
December  31, 2004,  compared to $143.2  million,  or 10.3%,  of total assets at
December  31,  2003.  The $7.0  million  growth was largely  attributable  to an
increase in net income  offset in part by $6.4 million of cash  dividends  and a
decline in other comprehensive  income of $3.1 million primarily due a change in
the market value of securities available-for-sale, net of taxes, during 2004.

      Guidelines  issued by the Federal  Reserve  Board and the Federal  Deposit
Insurance  Corporation  ("FDIC") establish capital adequacy  guidelines for bank
holding  companies  and  state-chartered   banks.  The  guidelines  establish  a
risk-based capital framework consisting of (1) a definition of capital and (2) a
system

<PAGE>

for assigning risk weights.  Capital consists of Tier 1 capital,  which includes
common  stockholders'  equity  less  certain  intangibles,  and a  supplementary
component  called Tier 2 capital,  which includes a portion of the allowance for
loan and lease losses.  Effective October 1, 1998, the Federal Reserve Board and
the FDIC  adopted an  amendment  to their  risk-based  capital  guidelines  that
permits insured depository institutions to include in their Tier 2 capital up to
45% of the pre-tax net  unrealized  gains on certain  available-for-sale  equity
securities.  All assets and off-balance-sheet  items are assigned to one of four
weighted risk categories  ranging from 0% to 100%.  Higher levels of capital are
required  for  the  categories  perceived  as  representing  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.  At December 31, 2004,  the Company's and the
Bank's Tier 1 risk-based capital ratio was 9.36% and 9.28%, respectively,  well
in excess of 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 1 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.  At December 31, 2004, the Company's and the Bank's leverage ratio
was 6.49% and 6.43%, respectively.

<PAGE>

Stock Repurchase Program

     On April 26,  2001,  the Board of  Directors  of the Company  authorized  a
program to repurchase up to 450,000 shares of the Company's  outstanding  common
stock on the open market or in privately  negotiated  transactions.  During 2004
the Company  repurchased  85,661 shares and as of December 31, 2004, the Company
had purchased 255,854 shares at a total cost of approximately $4.4 million under
the authorized  program.  The repurchased  shares are held as treasury stock and
will be  principally  used for the exercise of stock options,  restricted  stock
awards under the Stock Plan and other general corporate purposes.

Effects of Inflation and Changing Prices

      The financial  statements and related financial data presented herein have
been prepared in accordance with accounting principles generally accepted in the
United  States of  America  within  the  banking  industry,  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.

Off-Balance Sheet Arrangements

      As noted in Note 1 of the  Consolidated  Financial  Statements on page 36,
the  Company's  policy is to  consolidate  majority-owned  subsidiaries  that it
controls.  The Company does not dispose of troubled  loans or problem  assets by
means of unconsolidated special purpose entities, use off-balance sheet entities
to fund its business operations nor capitalize any off-balance sheet entity with
the Company's stock. In the ordinary course of business,  the Company originates
and sells commercial leases and other financial assets,  such as mortgage loans,
to the secondary market.  Exposure to loan commitments and letters of credit can
be found in Table 13 under Liquidity.

Critical Accounting Policies and Judgments

      The Company's  consolidated financial statements are prepared based on the
application of certain  accounting  policies,  the most significant of which are
described in Note 1 Accounting  Policies in the Notes to Consolidated  Financial
Statements.  Certain of these policies require numerous  estimates and strategic
or economic  assumptions  that may prove inaccurate or subject to variations and
may significantly affect the

<PAGE>

Company's  reported  results and financial  position for the period or in future
periods.  The use of estimates,  assumptions,  and judgments are necessary  when
financial  assets and liabilities are required to be recorded at, or adjusted to
reflect,  fair value.  Assets and liabilities  carried at fair value  inherently
result in more financial statement  volatility.  Fair values and the information
used to record  valuation  adjustments  for certain assets and  liabilities  are
based on either  quoted  market  prices  or are  provided  by other  independent
third-party  sources,  when available.  When such  information is not available,
management estimates valuation adjustments primarily by using internal cash flow
and  other  financial  modeling  techniques.   Changes  in  underlying  factors,
assumptions,  or estimates in any of these areas could have a material impact on
the Company's future financial condition and results of operations.

                                       28

Allowance for Loan and Lease Losses:  The ALLL is established  through  periodic
charges to income.  Loan  losses are charged  against  the ALLL when  management
believes  that the  future  collection  of  principal  is  unlikely.  Subsequent
recoveries,  if any,  are  credited  to the  ALLL.  If the  ALLL  is  considered
inadequate  to absorb  future loan losses on existing  loans,  based on, but not
limited  to,  increases  in  the  size  of  the  loan  portfolio,  increases  in
charge-offs or changes in the risk  characteristics of the loan portfolio,  then
the provision for loan and lease losses is increased.

      The Company considers the ALLL of $9.8 million adequate to cover estimated
losses  inherent in the loan portfolio,  loan  commitments and standby and other
letters  of  credit  that  may  become   uncollectible   based  on  management's
evaluations of the size and current risk  characteristics  of the loan and lease
portfolio as of the balance sheet date. The evaluations consider such factors as
changes  in the  composition  and  volume of the loan  portfolio,  the impact of
changing economic  conditions on the credit worthiness of the borrowers,  review
of specific problem loans and  management's  assessment of the inherent risk and
overall quality of the loan portfolio.  For further discussion see the following
"Loan Quality" and "Allowance for Loan and Lease Losses"  sections below,  along
with Note 1 "Nature of Business and Summary of Significant Accounting Policies";
Note 6  "Allowance  for Loan and Lease  Losses";  and Note 19  "Commitments  And
Contingent Liabilities" of the Consolidated Financial Statements.

      Business  Combinations:  Business  combinations  are  accounted  using the
purchase  method of  accounting,  the assets and  liabilities  of the  companies
acquired are recorded at their  estimated  fair value at the date of acquisition
and include the results of operations of the acquired  business from the date of
acquisition.  The excess of the purchase  price over the estimated fair value of
the net assets acquired is recognized as goodwill.

<PAGE>

Goodwill  and  Other  Intangible  Assets:  Goodwill  is no longer  amortized  to
expense,  but rather is tested for  impairment  periodically.  Other  intangible
assets  are  amortized  to  expense  using  straight-line   methods  over  their
respective  estimated  useful lives. At least annually,  and on an interim basis
when conditions require, management reviews goodwill and other intangible assets
and evaluates events or changes in circumstances that may indicate impairment in
the  carrying  amount of such assets.  If the sum of the  expected  undiscounted
future cash flows,  excluding interest charges, is less than the carrying amount
of the asset, an impairment  loss is recognized.  An impairment is measured on a
discounted  future cash flow basis and a charge is recognized in the period that
the asset has been deemed to be impaired.

Pension Plan: The Bank maintains a qualified  defined  benefit pension plan (the
"Pension   Plan"),   which  covers  all  eligible   employees  and  an  unfunded
supplemental  pension  plan which  provides  retirement  income to all  eligible
employees who would have been paid amounts in excess of the amounts  provided by
the Pension  Plan but for  limitations  under the  qualified  Pension  Plan.  In
addition,  the Company has an unfunded  retirement plan for all directors of the
Bank who are not employees of the Company or any subsidiary or affiliate.

      Our expected long-term rate of return on plan assets is 8.0% and was based
on our  expectations of the long-term return on the balanced mutual fund that we
invest our plan assets  which has had a return for the life of the fund of 8.3%.
A 1.0%  decrease  in the  long-term  rate of return on plan  assets  would  have
increased the net periodic pension cost of the Pension Plan by approximately $21
thousand.

     The discount rates that we utilized for determining the future pension
obligations of the plans ranged between 4.5% and 5.9% and were based upon
comparing expected benefit payouts to yields on bonds available in the market
place. A 1.0% decrease in the discount rate would have increased the net
periodic pension cost by approximately $220 thousand.

Recently  Issued  Accounting  Pronouncements:  In December  2004,  the Financial
Accounting  Standards  Board  ("FASB")  issued  SFAS  No.  123  (revised  2004),
Share-Based  Payment.  SFAS 123R  requires  that  compensation  cost relating to
share-based payment transactions be recognized in the financial statements, with
measurement  based upon the fair value of the  equity or  liability  instruments
issued.  The  Statement is effective  as of the  beginning of the first  interim
reporting  period that begins  after June 15, 2005,  and replaces  SFAS No. 123,
Accounting  for  Stock-Based  Compensation,  and  supersedes APB Opinion No. 25,
Accounting  for Stock  Issued  to  Employees.  The  Company  currently  uses the
intrinsic-value method to measure

<PAGE>

compensation  cost  related  to  share-based  transactions.   We  are  currently
evaluting what effect SFAS123R will have on the Company's consolidated financial
statements.

     In March 2004, the Emerging  Issues Task Force ("EITF") of the FASB reached
a  consensus  on EITF  Issue  No.  03-1,  The  Meaning  of  Other-Than-Temporary
Impairment and Its  Application to Certain  Investments.  As originally  issued,
EITF Issue No.  03-1 was to be  effective  for all  annual or interim  financial
statements  for  periods  beginning  after  June 15,  2004,  however,  a partial
deferral  was issued in  September  2004.  EITF  Issue No.  03-1  addresses  the
identification of other-than temporarily impaired investments, and requires that
an  impairment   charge  be  recognized  for   other-than-temporarily   impaired
investments  for which  there is neither  the  ability nor intent to hold either
until  maturity or until the market value of the  investment  recovers.  We will
continue  to monitor  developments.  The  Company  has  adopted  the  disclosure
provisions of EITF 03-01.

     On  December  23,  2003,  the FASB  issued  SFAS No.  132  (revised  2003),
Employer's  Disclosures about Pensions and Other Postretirement  Benefits ("SFAS
132"). The revised SFAS 132 retains the disclosure  requirements in the original
statement and requires additonal disclsoures about pension plan assets,  benefit
obligations,  benefit  costs and other  relevant  information.  The  Company has
included the disclosures required for the current year's financial statements.

                                       29

Forward Looking Statements

      In addition  to  discussing  historical  information,  certain  statements
included  in  or  incorporated  into  this  report  relating  to  the  financial
condition,  results of  operations  and  business of the  Company  which are not
historical facts may be deemed  "forward-looking  statements" within the meaning
of the Private  Securities  Litigation Reform Act of 1995. When used herein, the
words "anticipate,"  "believe,"  "estimate,"  "expect," "will" and other similar
expressions  (including  when  preceded  or  followed  by the  word  "not")  are
generally intended to identify such forward-looking  statements. Such statements
are  intended to be covered by the safe harbor  provisions  for  forward-looking
statements  contained  in such Act,  and we are  including  this  statement  for
purposes  of  invoking  these  safe  harbor  provisions.   Such  forward-looking
statements  include,  but are not limited to, statements about the operations of
the Company,  the adequacy of the Company's allowance for losses associated with
the loan and lease portfolio,  the quality of the loan and lease portfolio,  the
prospects of continued loan and deposit growth, and improved credit quality. The
forward-looking   statements  in  this  report  involve  certain   estimates  or
assumptions, known and unknown risks and uncertainties, many of which are beyond
the control of the Company, and reflect what we currently anticipate will happen
in each  case.  What  actually  happens  could  differ  materially  from what we
currently anticipate will happen due to a variety of factors,  including,  among
others, (i) increased  competitive pressures among financial services companies;
(ii) changes in the interest  rate  environment,  reducing  interest  margins or
increasing   interest  rate  risk;  (iii)   deterioration  in  general  economic
conditions,  internationally,  nationally,  or in the State of New Jersey;  (iv)
disruptions  caused by  terrorism,  such as the events of September 11, 2001, or
military  actions  in the  Middle  East  or  other  areas;  (v)  legislation  or
regulatory

<PAGE>

requirements  or changes  adversely  affecting the business of the Company;  and
(vi) other risks  detailed in reports  filed by the Company with the  Securities
and Exchange  Commission.  Readers  should not place undue  expectations  on any
forward-looking statements. We are not promising to make any public announcement
when we consider  forward-looking  statements  in this  document to be no longer
accurate,  whether as a result of new information,  what actually happens in the
future or for any other reason.

Table 14
--------------------------------------------------------------------------------
Quarterly Common Stock Price Range
--------------------------------------------------------------------------------
for the years ended December 31,

The Company's  common stock is quoted on the Nasdaq National Market System under
the symbol "IFCJ." There are imposed dividend restrictions on the Bank. See Note
18 of Notes to Consolidated Financial Statement for additional information.


                                         High          Low          Cash
                                         Sales        Sales       Dividends
                                         Price        Price       Declared
                                         -----        -----       --------
2004
      First quarter ..............      $ 18.33      $ 14.80      $ 0.08
      Second quarter .............        16.89        14.85        0.08
      Third quarter ..............        17.15        15.33        0.08
      Fourth quarter .............        17.97        15.82        0.08

2003
      First quarter ..............      $ 12.02      $ 10.73      $ 0.07
      Second quarter .............        15.00        11.47        0.07
      Third quarter ..............        15.01        12.89        0.07
      Fourth quarter .............        17.79        13.63        0.07

The number of stockholders of record as of February 28, 2005 was 1,281.

All per share data was  restated to reflect a 3-for-2  stock  split  declared on
January 18, 2005 and paid on February 18, 2005.


                                       30
<PAGE>

Exhibit 13. Portions of the Annual Report to Shareholders for the year ended,
            December 31, 2004

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------

To the Board of Directors and Stockholders of
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, 2004 and 2003, and the related consolidated statements of income, changes in
stockholders'  equity,  and cash flows for each of the three years in the period
ended December 31, 2004. These 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 the  standards of the Public
Company Accounting Oversight Board (United States). 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,  such consolidated  financial statements present fairly, in
all material respects,  the financial position of the Company as of December 31,
2004 and 2003,  and the results of its operations and its cash flows for each of
the three years in the period  ended  December  31,  2004,  in  conformity  with
accounting principles generally accepted in the United States of America.

     We have also  audited,  in  accordance  with the  standards  of the  Public
Company  Accounting  Oversight Board (United States),  the  effectiveness of the
Company's  internal  control over  financial  reporting as of December 31, 2004,
based on the  criteria  established  in  Internal  Control-Integrated  Framework
issued by the Committee of Sponsoring  Organizations of the Treadway  Commission
and our  report  dated  March 11,  2005  expressed  an  unqualified  opinion  on
management's  assessment of the effectiveness of the Company's  internal control
over financial  reporting and an unqualified opinion on the effectiveness of the
Company's internal control over financial reporting.

/s/ Deloitte & Touche LLP

New York, New York
March 11, 2005


                                       31
<PAGE>
Interchange Financial Services Corporation
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
December 31,
(dollars in thousands)
                                                      December 31    December 31
                                                         2004           2003
                                                      -----------    -----------
Assets
Cash and due from banks                               $    33,108    $    31,423
Interest bearing demand deposits                                2             12
                                                      -----------    -----------
Total cash and cash equivalents                            33,110         31,435
                                                      -----------    -----------

Securities held-to-maturity at amortized
   cost (estimated fair value of
   $15,276 and $20,223 for 2004 and
   2003, respectively)                                     14,530         19,107
                                                      -----------    -----------
Securities available-for-sale at estimated fair
   value (amortized cost of $375,241 and $428,597
   for 2004 and 2003, respectively)                       374,199        432,953
                                                      -----------    -----------

Loans and leases (net of unearned income
and deferred fees of $5,514 and $6,057 for
2004 and 2003, respectively                               934,181        796,581
Less:  Allowance for loan and lease losses                  9,797          9,641
                                                      -----------    -----------
Net loans and leases                                      924,384        786,940
                                                      -----------    -----------

Bank owned life insurance                                  25,847         21,853
Premises and equipment, net                                17,713         20,343
Foreclosed assets and other repossessed assets                156            230
Goodwill                                                   55,952         55,924
Intangible assets                                           3,660          4,165
Accrued interest receivable and other assets               14,590         12,922
                                                      -----------    -----------
Total assets                                          $ 1,464,141    $ 1,385,872
                                                      ===========    ===========

Liabilities
Deposits
    Non-interest bearing                              $   235,036    $   223,745
    Interest bearing                                    1,011,102        933,053
                                                      -----------    -----------
Total deposits                                          1,246,138      1,156,798
                                                      -----------    -----------

Securities sold under agreements to repurchase              4,401         15,618
Short-term borrowings                                      24,600         46,491
Long-term borrowings                                       30,000         10,000
Accrued interest payable and other liabilities              8,847         13,772
                                                      -----------    -----------
Total liabilities                                       1,313,986      1,242,679
                                                      -----------    -----------

Commitments and contingent liabilities

Stockholders' equity:

Common stock, without par value; 22,500,000 shares
authorized; 12,746,535 and 12,810,193 shares issued
and outstanding for 2004 and 2003, respectively             5,397          5,397
Capital surplus                                            73,320         73,231
Retained earnings                                          86,542         74,710
Accumulated other comprehensive income, net of
taxes of $408 and $1,779 for 2004 and 2003,
respectively                                                 (633)         2,434
                                                      -----------    -----------
                                                          164,626        155,772
Less:  Treasury stock                                      14,471         12,579
                                                      -----------    -----------
Total stockholders' equity                                150,155        143,193
                                                      -----------    -----------
Total liabilities and stockholders' equity            $ 1,464,141    $ 1,385,872
                                                      ===========    ===========

--------------------------------------------------------------------------------
See notes to consolidated financial statements.

                                       32
<PAGE>

Interchange Financial Services Corporation
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
For the Years Ended December 31,
(in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                            2004             2003             2002
                                                                                           -------          -------          -------
<S>                                                                                        <C>              <C>              <C>
Interest income
Interest on loans and leases                                                               $54,173          $48,982          $45,343
Interest on federal funds sold                                                                 151              276              246
Interest on interest bearing deposits                                                            -               61                -
Interest and dividends on securities
  Taxable interest income                                                                   10,520            9,847           10,123
  Interest income exempt from federal income taxes                                           1,164              914              599
  Dividends                                                                                     92              187              189
                                                                                           -------          -------          -------
Total interest income                                                                       66,100           60,267           56,500
                                                                                           -------          -------          -------

Interest expense
Interest on deposits                                                                        12,390           13,161           16,357
Interest on securities sold under agreements to repurchase                                     145              267              291
Interest on short-term borrowings                                                              214               18              403
Interest on long-term borrowings                                                               905              428              427
                                                                                           -------          -------          -------
Total interest expense                                                                      13,654           13,874           17,478
                                                                                           -------          -------          -------

Net interest income                                                                         52,446           46,393           39,022
Provision for loan and lease losses                                                          1,200            1,815            1,500
                                                                                           -------          -------          -------
Net interest income after provision for loan and lease losses                               51,246           44,578           37,522
                                                                                           -------          -------          -------

Non-interest income
Service fees on deposit accounts                                                             3,753            3,485            2,581
Net gain on sale of securities                                                               1,444              793              564
Net gain on sale of loans and leases                                                         1,317              769              400
Bank owned life insurance                                                                      993            2,019              895
Commissions on sale of annuities and mutual funds                                              913              883              603
Other                                                                                        3,037            2,696            1,471
                                                                                           -------          -------          -------
Total non-interest income                                                                   11,457           10,645            6,514
                                                                                           -------          -------          -------

Non-interest expense
Salaries and benefits                                                                       19,463           16,994           13,673
Occupancy                                                                                    5,283            4,577            3,438
Furniture and equipment                                                                      1,309            1,327            1,124
Advertising and promotion                                                                    1,456            1,412            1,295
Amortization of intangible assets                                                              504              360               69
Other                                                                                        7,993            6,569            5,464
                                                                                           -------          -------          -------
Total non-interest expense                                                                  36,008           31,239           25,063
                                                                                           -------          -------          -------

Income before income taxes                                                                  26,695           23,984           18,973
Income taxes                                                                                 8,481            7,618            6,096
                                                                                           -------          -------          -------
Net income                                                                                 $18,214          $16,366          $12,877
                                                                                           =======          =======          =======

Basic earnings per common share                                                              $0.95            $0.92            $0.88
                                                                                           =======          =======          =======

Diluted earnings per common share                                                            $0.94            $0.91            $0.86
                                                                                           =======          =======          =======
</TABLE>

--------------------------------------------------------------------------------
See notes to consolidated financial statements.

All per share data was restated to reflect 3-for-2 stock splits declared on May
23, 2002 and January 18, 2005 and paid on July 12, 2002 and February 18, 2005,
respectively.


                                       33
<PAGE>

Interchange Financial Services Corporation
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
For the Years Ended December 31
(dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                  Accumulated
                                                                                    Other
                                                          Comprehensive Retained Comprehensive Common  Capital  Treasury
                                                             Income     Earnings    Income      Stock  Surplus    Stock      Total
                                                          ------------- -------- ------------- ------  -------  --------
<S>                                                         <C>         <C>        <C>         <C>     <C>      <C>        <C>
Balance at January 1, 2002                                              $54,758    $ 1,156     $5,397  $20,993  $(14,071)  $ 68,233
Comprehensive income
       Net Income                                           $ 12,877     12,877                                              12,877
       Other comprehensive income, net of taxes
          Unrealized gains on AFS debt securities              3,037
          Less: net gains on disposition of securities          (597)
                                                            --------
       Other comprehensive income, net of taxes                2,440                 2,440                                    2,440
                                                            --------
Comprehensive income                                        $ 15,317
                                                            ========

Dividends on common stock                                                (4,321)                                             (4,321)
Issued 21,069 shares of common stock in
       connection with Executive Compensation Plan                                                          66       244        310
Exercised 25,158 option shares                                                                             (93)      291        198
Issued 107,877 shares of common stock in connection with
      the acquisition of certain assets and assumption of
      certain liabilities of Monarch Capital Corporation                                                   131     1,244      1,375
Purchased 29,550 shares of common stock                                                                             (432)      (432)
                                                                       --------  ---------   --------  -------  --------   --------
Balance at December 31, 2002                                             63,314      3,596      5,397   21,097   (12,724)    80,680
Comprehensive income
       Net Income                                           $ 16,366     16,366                                              16,366
       Other comprehensive losses, net of taxes
          Unrealized net gains on AFS debt securities           (474)
          Less: net gains on disposition of securities          (820)
          Unrealized gains on equity securities                  137
          Minimum pension liability                               (5)
                                                            --------
       Other comprehensive losses, net of taxes               (1,162)               (1,162)                                  (1,162)
                                                            --------
Comprehensive income                                        $ 15,204
                                                            ========

Dividends on common stock                                                (4,970)                                             (4,970)
Issued 20,883 shares of common stock in connection
       with Executive Compensation Plan                                                                    109       245        354
Exercised 59,695 option shares                                                                            (155)      593        438
Issued 2,949,719 shares of common stock in connection with
       the acquisition of Bridge View Bancorp                                                           52,180               52,180
Reacquired 35,959 shares in lieu of non-performing asset                                                            (693)      (693)

                                                                       --------- ----------  --------- -------- ---------  ---------
Balance at December 31, 2003                                             74,710      2,434      5,397   73,231   (12,579)   143,193

Comprehensive income
       Net Income                                           $ 18,214     18,214                                              18,214
       Other comprehensive losses, net of taxes
          Unrealized losses on AFS debt securities            (2,012)
          Less: net gains on disposition of securities        (1,060)
          Minimum pension liability adjustment                     5
                                                            ---------
       Other comprehensive losses, net of taxes               (3,067)               (3,067)                                  (3,067)
                                                            ---------
Comprehensive income                                        $ 15,147
                                                            =========

Dividends on common stock                                                (6,382)                                             (6,382)
Issued 7,793 shares of common stock in connection
       with Executive Compensation Plan                                                                    103       102        205
Exercised 14,710 option shares                                                                             (14)      160        146
Purchased 85,661 shares of common stock                                                                           (2,154)    (2,154)
                                                                       --------- ----------  --------- -------- ---------  ---------
Balance at December 31, 2004                                            $86,542     $ (633)    $5,397  $73,320  $(14,471)  $150,155
                                                                       ========= ==========  ========= ======== =========  =========
</TABLE>
--------------------------------------------------------------------------------
See notes to consolidated financial statements.

All share data was restated to reflect a 3-for-2 stock split declared on May
23, 2002 and paid on July 12, 2002.

                                       34
<PAGE>

INTERCHANGE FINANCIAL SERVICES CORPORATION
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
For the Years Ended, December 31,
(in thousands)

<TABLE>
<CAPTION>
                                                                                              2004           2003           2002
                                                                                            ---------      ---------      ---------
<S>                                                                                         <C>            <C>            <C>
Cash flows from operating activities
Net income                                                                                  $  18,214      $  16,366      $  12,877
Adjustments to reconcile net income to net cash provided
  by operating activities
      Depreciation and amortization                                                             1,914          1,752          1,446
      Amortization of securities premiums                                                       5,237          4,643          2,039
      Accretion of securities discounts                                                          (269)          (315)          (305)
      Amortization of loan premiums                                                                61              -              -
      Amortization of premiums in connection with acquisition                                   1,023          1,033             69
      Provision for loan and lease losses                                                       1,200          1,815          1,500
      Charge off of foreclosed assets and other repossessed assets                                 62              -              -
      Increase in cash surrender value of Bank Owned Life Insurance                              (993)          (579)          (895)
      Net gain on sale of securities                                                           (1,444)        (1,208)          (564)
      Origination of loans held for sale                                                      (14,860)       (18,089)             -
      Sale of loans held for sale                                                              15,110         18,679              -
      Acceleration of premium amortization on certain collateralized
        mortgage obligations                                                                        -            415              -
      Net gain on sale of  loans and leases                                                    (1,317)          (769)          (400)
      Net (gain) loss on sale of fixed assets                                                     (16)            10              -
      Net gain on sale of foreclosed real estate and repossessed assets                           (17)            (7)           (40)
Decrease (increase) in operating assets
      Accrued interest receivable                                                                 534         (1,225)          (330)
      Accounts receivable- leases sold                                                              -              -          4,921
      Deferred taxes                                                                            1,187          1,672              -
      Other Assets                                                                             (1,282)        (4,080)          (383)
(Decrease) increase in operating liabilities
      Accrued interest payable                                                                     (2)          (322)          (308)
      Other                                                                                    (4,923)          (115)         1,467
                                                                                            ---------      ---------      ---------
Cash provided by operating activities                                                          19,419         19,676         21,094
                                                                                            ---------      ---------      ---------
</TABLE>

<TABLE>
<S>                                                                                          <C>                <C>         <C>
Cash flows from investing activities
      (Payments for) proceeds from
      Net originations of loans and leases                                                   (112,057)          (904)       (26,826)
      Purchase of loans and leases                                                            (42,531)           (53)       (14,967)
      Sale of loans and leases                                                                 16,302          3,176          6,603
      Purchase of securities available for sale                                              (109,564)      (341,335)      (131,069)
      Maturities of securities available for sale                                              90,420        122,581         43,219
      Sale of securities available for sale                                                    69,114         44,361         21,867
      Maturities of securities held to maturity                                                11,212          8,900          8,481
      Sale of securities held to maturity                                                           -              -          2,023
      Purchase of securities held to maturity                                                  (6,820)             -              -
      Sale of foreclosed real estate and other repossessed assets                                 108            141            766
      Purchase of fixed assets                                                                 (1,840)        (1,242)        (1,646)

      Premium in connection with acquisition                                                       75            (90)        (1,748)
      Net cash from acquisition of Bridge View Bancorp                                              -         19,439              -
      Purchase of Bank Owned Life Insurance                                                    (3,000)             -         (5,000)
      Sale of fixed assets                                                                      2,766              -              -
                                                                                            ---------      ---------      ---------
Cash used in investing activities                                                             (85,815)      (145,026)       (98,297)
                                                                                            ---------      ---------      ---------

Cash flows from financing activities
Proceeds from (payments for)
      Deposits in excess of withdrawals                                                        89,359         82,332         89,189
      Securities sold under agreements to repurchase and other borrowings                      20,000        147,734         64,693
      Retirement of securities sold under agreement to repurchase and
           other borrowings                                                                   (33,108)      (103,014)       (62,104)
      Minimum pension liability, net of taxes                                                       5             (5)             -
      Dividends                                                                                (6,382)        (4,970)        (4,321)
      Common stock issued                                                                         205            354          1,685
      Treasury stock                                                                           (2,154)             -           (432)
      Exercise of option shares                                                                   146            438            198
                                                                                            ---------      ---------      ---------
Cash provided by financing activities                                                          68,071        122,869         88,908
                                                                                            ---------      ---------      ---------
Increase (decrease) in cash and cash equivalents                                                1,675         (2,481)        11,705
Cash and cash equivalents, beginning of year                                                   31,435         33,916         22,211
                                                                                            ---------      ---------      ---------
Cash and cash equivalents, end of year                                                      $  33,110      $  31,435      $  33,916
                                                                                            =========      =========      =========

Supplemental disclosure of cash flow information:
Cash paid for:
      Interest                                                                              $  13,463      $  14,052      $  17,786
      Income taxes                                                                             12,053          9,003          6,701

Supplemental disclosure of non-cash investing and financing activities:
      Loans transferred to loans available for sale                                            13,340              -              -
      Loans transferred to foreclosed real estate and other repossessed assets                     79            188            410
      Stock issued for net assets purchased                                                         -              -          1,375
      Stock issued related to Bridge View acquisition                                               -         52,180              -
</TABLE>
--------------------------------------------------------------------------------
See notes to consolidated financial statements.

                                       35
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Business and Summary of Significant Accounting Policies

      The following is a description  of the business of  Interchange  Financial
Services  Corporation  ("Interchange")  and  subsidiaries   (collectively,   the
"Company") and its  significant  accounting  and reporting  policies used in the
preparation of the consolidated financial statements:

Nature of Business

      Interchange,  a New Jersey  business  corporation,  is a  registered  bank
holding  company under the Bank Holding  Company Act of 1956, as amended,  whose
principal  subsidiary is Interchange Bank (the "Bank"),  a New Jersey state bank
and member of the Federal Reserve System. The Bank is principally engaged in the
business of attracting  commercial and retail deposits and investing those funds
into  commercial  business and commercial  mortgage loans as well as residential
mortgage and consumer loans.  When available  funding  exceeds loan demand,  the
Bank  generally  invests  in  debt  securities.  Currently,  the  Bank  conducts
operations  typical of a community  bank in the  northeast  region of New Jersey
(primarily  Bergen  County).  In addition,  the Bank is engaged in providing its
customers a broad range of financial  products and  services,  such as equipment
leasing, mutual funds and annuities, brokerage services, conventional insurance,
internet banking and title insurance.

Summary of Significant Accounting Policies

Principles of Consolidation:  The accompanying consolidated financial statements
include  the  accounts  of  the  Company,  including  its  direct  and  indirect
wholly-owned  subsidiaries and its indirect  subsidiary,  Clover Leaf Management
Realty Corporation, which is 99.0% owned by the Bank. The consolidated financial
statements  have been  prepared in accordance  with  accounting  principles  and
practices   generally  accepted  in  the  United  States  of  America  ("GAAP").
Significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.  Certain prior period amounts have been  reclassified  to conform
with the financial statement presentation of 2004.

Use of  estimates:  The  preparation  of  consolidated  financial  statements in
conformity with GAAP requires  management to make estimates and assumptions that
affect the  reported  amounts  of assets  and  liabilities  and  disclosures  of
contingent  assets and  liabilities  at the date of the  consolidated  financial
statements and the reported amount of revenues and expenses during the reporting
period. Such


<PAGE>

estimates  include the allowance  for loan and lease  losses,  the fair value of
financial instruments,  goodwill,  intangibles,  and retirement benefits. Actual
results could differ from those estimates.

Cash and cash equivalents:  For the purposes of presentation in the consolidated
statements  of cash  flows,  cash and  cash  equivalents  include  cash on hand,
amounts due from banks and federal funds sold, with original maturities of three
months or less.

Securities held-to-maturity and securities  available-for-sale:  Debt securities
purchased  with the intent and ability to hold until  maturity are classified as
securities  held-to-maturity  ("HTM") and are carried at cost,  adjusted for the
amortization  of premiums and  accretion  of  discounts.  Management  determines
whether the security will be classified as HTM at the time of purchase.

      All other  securities,  including  equity  securities,  are  classified as
securities  available-for-sale ("AFS"). Securities classified as AFS may be sold
prior to maturity in response to, but not limited to, changes in interest rates,
changes in prepayment risk or for asset/liability  management strategies.  These
securities  are  carried at fair value and any  unrealized  gains and losses are
reported,  net of  taxes,  in  accumulated  other  comprehensive  income  (loss)
included in the consolidated  statement of stockholders'  equity.  The estimated
fair value for securities are based on quoted market prices, where available. If
quoted  market  prices are not  available,  estimated  fair  values are based on
quoted market prices of comparable  instruments.  Gains and losses from the sale
of these securities are determined using the specific  identification method and
are reported in non-interest income. The Company does not acquire securities for
the purpose of engaging in trading activities.

      Interest  and  dividends  are  accrued  and  credited to income as earned.
Purchase  premiums and  discounts are  recognized  in interest  income using the
effective interest method over the term of the securities.

      On a quarterly basis, the Company makes an assessment to determine whether
there have been any events or economic circumstances to indicate that a security
on which there is an  unrealized  loss is  impaired  on an  other-than-temporary
basis. The Company considers many factors including the severity and duration of
the impairment; the intent and ability of the Company to hold the security for a
period of time sufficient for a recovery in value; recent events specific to the
issuer or industry; and for debt securities,  external credit ratings and recent
downgrades. Securities on which there is an unrealized loss that is deemed to be
other-than-temporary are written down to fair value with the write-down recorded
as a realized loss in securities gains (losses).



<PAGE>

Loans and Leases:  Loans and leases (herein  referred to  collectively as loans)
are carried at the principal amounts  outstanding,  net of unearned discount and
deferred  loan  origination  fees and  costs.  Interest  income is  accrued  and
recognized  as income when  earned.  Origination  fees and  certain  direct loan
origination  costs are  deferred  and  amortized  to  interest  income  over the
estimated  life of the loan as an adjustment to the yield.  Mortgage  loans held
for sale are  carried  at lower of  aggregate  cost or market  value.  Gains and
losses on loans sold are included in noninterest income.

      Direct finance leases have terms ranging from three to seven years.  Under
direct  finance lease  accounting,  the balance sheet includes the gross minimum
lease payments receivable,  unguaranteed estimated residual values of the leased
equipment,  and capitalized  indirect  costs,  reduced by unearned lease income.
Income from leases syndicated are included in non-interest income.

      The equipment lease residual values  represent the expected  proceeds from
the  sale of  leased  equipment  at the end of the  term  of the  lease  and are
determined  on the basis of analyses  prepared by the Bank's  equipment  leasing
subsidiary,  Interchange Capital Company L.L.C. ("ICC"), based upon professional
appraisals,  historical  experience  and industry data.  Management  reviews the
estimated residual values on a periodic basis, and impairments in value, if any,
are recognized as an immediate charge to income.

      Loans are placed on nonaccrual  status when principal or interest payments
are in arrears 90 days or more  and/or in the opinion of  management  the future
collection  of interest  or  principal  according  to  contractual  terms may be
doubtful.  Amounts  previously  accrued are evaluated for  collectibility and if
necessary  previously   recognized  income  is  reversed.   Interest  income  on
nonaccrual  loans is recognized on a cash basis, to the extent there is no doubt
of the future collection of principal. Loans are returned to accrual status when
the  obligation  is brought  current and has  performed in  accordance  with the
contractual terms for a reasonable period of time and, in management's judgment,
collection of the contractual principal and interest is no longer doubtful.

      Loans are  considered  impaired  when,  based on current  information  and
events,  it is probable  that the Bank 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.  All nonaccrual commercial and commercial mortgage loans as well
as non-homogeneous  one-to-four  family residential  mortgage loans and consumer
loans are considered impaired.

      The impairment of a commercial loan is 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 underlying  collateral.  The fair value of  collateral,  reduced by
costs  to  sell

                                       36

<PAGE>

on a  discounted  basis,  is  utilized  if a loan  is  collateral  dependent  or
foreclosure  is probable.  One-to-four  family  residential  mortgage  loans and
consumer loans with small balances are pooled together as homogeneous loans and,
accordingly,  are not covered by  Statement of  Financial  Accounting  Standards
("SFAS") No. 114 "Accounting by Creditors for Impairment of a Loan."

      A loan is  categorized  as a troubled  debt  restructure  if a significant
concession to contractual  terms is granted to the borrower due to deterioration
in the financial condition of the borrower. Generally, a nonaccrual loan that is
restructured  remains on nonaccrual  until the obligation is brought current and
has performed for a period of time to demonstrate that the borrower can meet the
restructured  terms.  If the  borrower's  ability  to meet the  revised  payment
schedule is uncertain, the loan remains classified as a nonaccrual loan.

Allowance  for loan and lease  losses:  The  allowance for loan and lease losses
("ALLL") is  established  through  periodic  charges to income.  Loan losses are
charged against the ALLL when management  believes that the future collection of
principal is unlikely.  Subsequent recoveries, if any, are credited to the ALLL.
Management's  determination  of the  adequacy  of the  allowances  is  based  on
periodic  evaluations of the loan portfolio and other relevant factors including
valuations on  non-performing  loans in accordance with SFAS No. 114 "Accounting
by  Creditors  for  Impairment  of  a  Loan."  The  evaluations  are  inherently
subjective as it requires material estimates including such factors as potential
loss factors,  changes in trend of nonperforming  loans,  current state of local
and national economy, value of collateral, changes in the composition and volume
of the loan  portfolio,  review  of  specific  problem  loans  and  management's
assessment of the inherent risk and overall quality of the loan  portfolio.  All
of these factors may be susceptible to significant change.  Also, the allocation
of the allowance for credit losses to specific loan pools is based on historical
loss trends and management's  judgment  concerning  those trends.  The allowance
contains a portion which represents  management's evaluation of inherent risk in
the  portfolio   based  on  changes  in  the   composition   of  performing  and
nonperforming  loans,   concentrations  of  credit,  economic  conditions,   the
condition of borrowers  facing  financial  pressure and the  relationship of the
current level of the ALLL to the credit  portfolio and to  nonperforming  loans.
The total allowance is available for all loan losses,  although  allocations are
made to specific loans and pools of loans, and represents management's estimates
of losses in accordance with SFAS No. 5 and SFAS No. 114.



<PAGE>

      The primary risks inherent in the loan portfolio are possible increases in
interest rates, a decline in the economy,  and a possible decline in real estate
market values. Any one or a combination of these events may adversely affect our
loan portfolio  resulting in increased  delinquencies,  loan losses,  and future
levels of  provisions.  To the extent  actual  outcomes  differ from  management
estimates,  additional  provision  for credit  losses may be required that would
adversely impact earnings in future periods.

      In addition to the allowance for credit losses,  the Company  maintains an
allowance for unfunded loan  commitments  and letters of credit.  This amount is
reported as a liability on the Consolidated Balance Sheets.

Premises  and  equipment:  Premises  and  equipment  are  stated  at cost,  less
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.  Maintenance
and  repairs  are charged to expenses  as  incurred,  while  renewals  and major
improvements are capitalized.


<PAGE>

Long-lived  assets.  The carrying value of long-lived assets to be held and used
is  evaluated  for  impairment  whenever  indications  of  impairment  exist  in
accordance with the requirements of SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived  Assets."  The carrying value of long-lived  assets is
considered impaired when the projected undiscounted cash flows are less than the
carrying value. In that event, a loss would be recognized based on the amount by
which the  carrying  value  exceeds  the fair  value.  Fair value is  determined
primarily by available  market  valuations  or, if applicable,  discounted  cash
flows.

Foreclosed   assets:   Foreclosed  assets  consist  of  real  estate  and  other
repossessed assets and are carried at the lower of cost or estimated fair value,
less estimated  selling costs, at time of foreclosure or  repossession.  When an
asset is acquired, the excess of the carrying amount over fair value, if any, is
charged to the ALLL.  Subsequent  valuations are performed  periodically and the
carrying  value is adjusted by a charge to  foreclosed  asset expense to reflect
any  subsequent  declines  in the  estimated  fair value.  As a result,  further
declines in the asset values may result in increased  foreclosed  asset expense.
Routine holding costs are charged to foreclosed asset expense as incurred.

Business combinations: In business combinations accounted for using the purchase
method of accounting,  the assets and liabilities of the companies  acquired are
recorded at their  estimated fair value at the date of  acquisition  and include
the results of operations of the acquired business from the date of acquisition.
The excess of the purchase price over the estimated fair value of the net assets
acquired is recognized as goodwill.

Goodwill and other intangible assets:  Goodwill is not amortized to expense, but
rather is tested  for  impairment  periodically.  Other  intangible  assets  are
amortized to expense using straight-line methods over their respective estimated
useful  lives.  At least  annually,  and on an  interim  basis  when  conditions
require,  management  reviews goodwill and other intangible assets and evaluates
events or changes in circumstances that may indicate  impairment in the carrying
amount of such  assets.  If the sum of the  expected  undiscounted  future  cash
flows,  excluding  interest  charges,  is less than the  carrying  amount of the
asset,  an  impairment  loss is  recognized.  An  impairment  is  measured  on a
discounted  future cash flow basis and a charge is recognized in the period that
the asset has been deemed to be impaired.

Income taxes:  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



<PAGE>

liabilities and their respective tax bases.  Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply in the period(s) in which
the deferred  tax asset or liability is expected to be settled or realized.  The
effect on deferred taxes of a change in tax rates is recognized in income in the
period in which 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.

Comprehensive income:  Comprehensive income is comprised of net income and other
comprehensive   income.  Other  comprehensive  income  includes  items  such  as
unrealized  gains and losses on  securities  available-for-sale,  net of tax and
minimum pension liability. Comprehensive income is presented in the consolidated
statements of changes in stockholders' equity.

Earnings per common share:  Basic  earnings per common share  represents  income
available  to common  stockholders  divided  by the  weighted-average  number of
common shares outstanding  during the period.  Diluted earnings per common share
reflects  additional  common shares that would have been outstanding if dilutive
potential  common  shares had been issued,  as well as any  adjustment to income
that would result from the assumed issuance. Potential common shares that may be
issued by the  Company  relate  solely to  outstanding  stock  options,  and are
determined using the treasury stock method. All earnings per share data has been
adjusted to reflect a 3-for-2 stock split  declared on January 18, 2005 and paid
on February 18, 2005.

Segment  reporting:  SFAS No. 131,  "Disclosures About Segments of an Enterprise
and  Related  Information"  ("SFAS  No.  131"),  requires  disclosures  for each
reportable  operating segment. As a  community-oriented  financial  institution,


                                       37
<PAGE>

substantially  all of the Company's  operations  entail the delivery of loan and
deposit  products  and various  other  financial  services to  customers  in its
primary  market  area,  which  is  Bergen  County,  New  Jersey.  The  Company's
community-banking operation constitutes the Company's only operating segment for
financial reporting purposes under SFAS No. 131.

Treasury stock: The Company records common stock purchased for treasury at cost.
At the date of subsequent reissue,  the treasury stock account is reduced by the
average cost of such stock.

Stock-based  compensation:  At December  31, 2004,  the Company has  stock-based
employee  compensation  plans,  which are described more fully in Note 13, Stock
Option and  Incentive  Plan.  The  Company  accounts  for these  plans under APB
Opinion  No.  25,  "Accounting  for Stock  Issued  to  Employees,"  and  related
interpretations. No stock-based employee compensation expense has been reflected
in net income  for stock  options as all  rights  and  options to  purchase  the
Company's  stock  granted  under these plans had an exercise  price equal to the
market  value  of the  underlying  stock on the date of  grant.  A table,  which
illustrates the income from  continuing  operations and earnings per share as if
the Company had applied the fair value  recognition  provisions of SFAS No. 123,
"Accounting for Stock-Based  Compensation," as amended, to stock-based  employee
compensation  plans,  is  described  more  fully in Note 13,  Stock  Option  and
Incentive Plan.

Recently  issued  accounting  pronouncements:  In December  2004,  the Financial
Accounting  Standards  Board  ("FASB")  issued  SFAS  No.  123  (revised  2004),
"Share-Based  Payment".  SFAS 123R requires that  compensation  cost relating to
share-based payment transactions be recognized in the financial statements, with
measurement  based upon the fair value of the  equity or  liability  instruments
issued.  The  Statement is effective  as of the  beginning of the first  interim
reporting  period that begins  after June 15, 2005,  and replaces  SFAS No. 123,
"Accounting  for Stock-Based  Compensation",  and supersedes APB Opinion No. 25,
"Accounting  for Stock  Issued to  Employees".  The company  currently  uses the
intrinsic-value  method to measure  compensation cost related to our share-based
transactions. We are currently evaluating what effect SFAS 123R will have on the
Company's consolidated financial statements.

      In March 2004, the Emerging Issues Task Force ("EITF") of the FASB reached
a  consensus  on EITF  Issue No.  03-1,  "The  Meaning  of  Other-Than-Temporary
Impairment and Its Application to Certain  Investments".  As originally  issued,
EITF Issue No.  03-1 was to be  effective  for all  annual or interim  financial
statements  for  periods  beginning  after  June 15,  2004,  however,  a partial
deferral  was issued in  September  2004.  EITF  Issue No.  03-1  addresses  the
identification of other-than-temporarily impaired investments, and requires that
an  impairment   charge  be  recognized  for   other-than-temporarily   impaired
investments  for which  there is neither  the  ability nor intent to hold either
until  maturity or



<PAGE>

until the market value of the investment  recovers.  We will continue to monitor
developments. The Company has adopted the disclosure provisions of EITF 03-01.

     On  December  23,  2003,  the FASB  issued  SFAS No.  132  (revised  2003),
Employers'  Disclosures about Pensions and Other Postretirement  Benefits ("SFAS
132"). The revised SFAS 132 retains the disclosure  requirements in the original
statement and requires additional disclosures about pension plan assets, benefit
obligations,  benefit  costs and other  relevant  information.  The  Company has
included the disclosures required for the current year's financial statements.

Note 2. Acquisitions

      On April 30, 2003,  the Company  completed its  acquisition of Bridge View
Bancorp ("Bridge View"), a Bergen  County-based bank holding company with eleven
locations.  As of that date Bridge View had approximately  $291 million of total
assets,  $184  million of loans and $259  million  of  deposits.  The  aggregate
purchase price paid to Bridge View shareholders was approximately  $85.7 million
and consisted of approximately  2.9 million shares of the Company's common stock
with an approximate market value of $52.2 million based upon the average closing
price three days prior to and after the  acquisition  date and $33.5  million in
cash. The  transaction was accounted for as a purchase and the cost in excess of
net  assets  acquired  of  approximately  $58.7  million  was  allocated  to net
identified   intangibles   of   approximately   $4.3  million  and  goodwill  of
approximately $54.4 million.

     The following is a reconciliation of the purchase price paid by the Company
for Bridge View: (in thousands)

Cash and due from banks                                               $  49,555
Federal funds sold                                                        7,000
Investments                                                              39,907
Loans                                                                   183,845
Premises and eqipment                                                    10,222
Intangible assets                                                         4,295
Accounts receivable and other assets                                        839
Non-interest bearing accounts                                           (85,353)
Interest bearing deposits                                              (173,627)
Accounts payable and other liabilities                                   (5,338)
                                                                      ---------
Fair value of net assets acquired                                        31,345
Purchase price                                                           85,731
                                                                      ---------
Goodwill                                                              $  54,386
                                                                      =========


<PAGE>


      The following  unaudited  pro forma  condensed  consolidated  statement of
income for the year ended  December  31, 2003 give effect to the merger as if it
had been consummated on January 1, 2003. The unaudited pro forma  information is
not  necessarily  indicative  of the results of  operations in the future or the
results of  operations,  which  would  have been  realized  had the merger  been
consummated  during  the  period or as of the date for which the  unaudited  pro
forma information is presented.

           Interchange Financial Services Corporation and Subsidiaries
              UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
                      For the year ended December 31, 2003
                      (in thousands, except per share data)

Interest income                                                          $64,585
Interest expense                                                          14,491
                                                                         -------
  Net interest income                                                     50,094

Provision for loan and lease losses                                        1,830
                                                                         -------
Net interest income after provision for loan
  and lease losses                                                        48,264
                                                                         -------

Non-interest income                                                       11,429
                                                                         -------

Non-interest expense
  Salaries and benefits                                                   18,489
  Occupancy and FF&E                                                       6,521
  Other expenses                                                           9,054
                                                                         -------
                                                                          34,064
                                                                         -------

Net income before taxes                                                   25,629

Income Taxes                                                               8,254
                                                                         -------
  Net income                                                             $17,375
                                                                         =======

Earnings per common share:
  Basic                                                                   $ 0.91
  Diluted                                                                   0.89

     All per share  data has been  adjusted  to  reflect a 3-for-2  stock  split
declared January 18, 2005 and paid February 18, 2005.

                                       38


Note 3. Restrictions on Cash and Due from Banks

      The Bank is  required  to  maintain  a reserve  balance  with the  Federal
Reserve  Bank of New York based  upon the level of its  deposit  liability.  The
average amount of this reserve balance for 2004 and 2003 was approximately  $2.1
million and $1.7 million, respectively.


<PAGE>

Note 4. Securities Held-to-Maturity and Securities Available-for-Sale

      Securities  held-to-maturity and securities  available-for-sale consist of
the following: (in thousands)

<TABLE>
<CAPTION>
                                                                           ---------------------------------------------------------
                                                                                                December 31, 2004
                                                                           ---------------------------------------------------------

                                                                                             Gross            Gross        Estimated
                                                                           Amortized       Unrealized      Unrealized        Fair
                                                                             Cost            Gains           Losses          Value
                                                                           ---------       ----------      ----------      ---------
<S>                                                                         <C>             <C>             <C>             <C>
Securities held-to-maturity
    Mortgage-backed securities                                              $  5,583        $    128               -        $  5,711
    Obligations of states & political subdivisions                             8,947             618               -           9,565
                                                                            --------        --------        --------        --------
                                                                            $ 14,530        $    746               -        $ 15,276
                                                                            ========        ========        ========        ========

Securities available-for-sale
    Obligations of U.S. Treasury                                            $  5,981        $      1               -        $  5,982
    Mortgage-backed securities                                               121,198             792        $    599         121,391
    Obligations of U.S. agencies                                             211,856             345           2,352         209,849
    Obligations of states & political subdivisions                            31,948             815              44          32,719
    Equity securities                                                          4,258               -               -           4,258
                                                                            --------        --------        --------        --------
                                                                             375,241           1,953           2,995         374,199
                                                                            --------        --------        --------        --------

      Total securities                                                      $389,771        $  2,699        $  2,995        $389,475
                                                                            ========        ========        ========        ========
<CAPTION>

                                                                           ---------------------------------------------------------
                                                                                                December 31, 2003
                                                                           ---------------------------------------------------------

                                                                                             Gross            Gross        Estimated
                                                                           Amortized       Unrealized      Unrealized        Fair
                                                                             Cost            Gains           Losses          Value
                                                                           ---------       ----------      ----------      ---------
<S>                                                                         <C>             <C>             <C>             <C>
Securities held-to-maturity
    Mortgage-backed securities                                              $  9,850        $    330        $      1        $ 10,179
    Obligations of states & political subdivisions                             9,257             787               -          10,044
                                                                            --------        --------        --------        --------
                                                                            $ 19,107        $  1,117        $      1        $ 20,223
                                                                            ========        ========        ========        ========

Securities available-for-sale
    Obligations of U.S. Treasury                                            $  6,032        $      5        $      2        $  6,035
    Mortgage-backed securities                                               112,981           1,363             157         114,187
    Obligations of U.S. agencies                                             271,339           2,583             762         273,160
    Obligations of states & political subdivisions                            33,849           1,257              68          35,038
    Equity securities                                                          4,396             137               -           4,533
                                                                            --------        --------        --------        --------
                                                                             428,597           5,345             989         432,953
                                                                            --------        --------        --------        --------

      Total securities                                                      $447,704        $  6,462        $    990        $453,176
                                                                            ========        ========        ========        ========
</TABLE>


<PAGE>

      At  December  31,  2004,   the   contractual   maturities   of  securities
held-to-maturity   and  securities   available-for-sale   are  as  follows:  (in
thousands)

<TABLE>
<CAPTION>
                                                                        Securities                            Securities
                                                                     Held-to-Maturity                     Available-for-Sale
                                                               -----------------------------           -----------------------------
                                                                                   Estimated                               Estimated
                                                               Amortized             Fair              Amortized              Fair
                                                                 Cost                Value                Cost               Value
                                                               -----------------------------           -----------------------------
<S>                                                             <C>                 <C>                 <C>                 <C>
Within 1 year                                                   $  1,407            $  1,423            $ 92,924            $ 92,619
After 1 but within 5 years                                         7,034               7,309             257,103             255,840
After 5 but within 10 years                                        5,204               5,597               7,315               7,414
After 10 years                                                       885                 947              13,641              14,068
Equity securities                                                      -                   -               4,258               4,258
                                                                --------            --------            --------            --------
             Total                                              $ 14,530            $ 15,276            $375,241            $374,199
                                                                ========            ========            ========            ========
</TABLE>

                                       39

      Proceeds from the sale of securities  available-for-sale amounted to $69.1
million,  $44.4 million and $21.9 million for the years ended December 31, 2004,
2003 and 2002,  respectively,  which  resulted in gross  realized  gains of $1.5
million, $1.3 million and $573 thousand for those periods,  respectively.  Gross
realized losses from the sale of securities  available-for-sale  amounted to $94
thousand,  $71 thousand and $33 thousand in 2004,  2003 and 2002,  respectively.
These amounts are included in net gain on sale of securities in the Consolidated
Statements of Income.

     Proceeds from the sale or call of securities  held-to- maturity amounted to
$275  thousand and $2.0 million for the years ended  December 31, 2003 and 2002,
respectively.  These security transactions resulted in no gains for 2003 and $24
thousand for 2002.  The  securities  were either  scheduled  to mature  within 3
months or were called before  maturity.  During 2003, the Company  recognized an
other-than-temporary impairment charge of $415 thousand from the acceleration of
premium  amortization  on  certain  collateralized  mortgage  obligations.   The
acceleration of premium amortization was largely driven by the historically high
mortgage  prepayment  speeds due to the low  interest  rate  environment.  These
amounts  are  included  in net gain on sale of  securities  in the  Consolidated
Statements of Income.

     The  investment  portfolio is evaluated at least  quarterly to determine if
there are any securities with losses that are  other-than-temporary.  Based upon
the Company's  evaluation of the securities  portfolios no  other-than-temporary
impairment  charge was  necessary at December 31, 2004 and 2003.  The  following
table summarizes all securities that have an unrealized loss and the duration of
the unrealized loss at December 31, 2004: (in thousands)

     Securities  with  carrying  amounts of $62.2  million and $46.1  million at
December  31, 2004 and 2003,  respectively,  were  pledged for public  deposits,
Federal Home Loan Bank of New York  ("FHLBNY")  advances,  securities sold under
repurchase  agreements and other purposes  required by law. Equity securities at
December 31, 2004 and 2003  consisted  primarily of FHLBNY stock which  requires
six-months advance notice for withdrawal.

<PAGE>

<TABLE>
<CAPTION>
                                                               --------------------    --------------------    --------------------
                                                                 12 months or less      12 months or longer           Totals
                                                               --------------------    --------------------    --------------------
                                                                 Fair    Unrealized      Fair    Unrealized      Fair    Unrealized
                                                                 Value     Losses        Value     Losses       Value      Losses
                                                               --------  ----------    --------  ----------    --------  ----------
<S>                                                            <C>         <C>         <C>         <C>         <C>         <C>
Securities available-for-sale
Mortgage-backed securities                                     $ 54,616    $    555    $ 13,966    $     44    $ 68,582    $    599
Obligations of U.S. agencies                                     91,582         840     104,493       1,512     196,075       2,352
Obligations of states & political subdivisions                      479           7       3,138          37       3,617          44
Equity securities                                                     -           -           -           -           -           -
                                                               --------    --------    --------    --------    --------    --------
                                                               $146,677    $  1,402    $121,597    $  1,593    $268,274    $  2,995
                                                               ========    ========    ========    ========    ========    ========
</TABLE>

      The Company  did not have any  unrealized  losses in the  held-to-maturity
portfolio.

      The following table summarizes all securities that have an unrealized loss
and the duration of the unrealized loss at December 31, 2003: (in thousands)

<TABLE>
<CAPTION>
                                                               --------------------    --------------------    --------------------
                                                                 12 months or less      12 months or longer           Totals
                                                               --------------------    --------------------    --------------------
                                                                 Fair    Unrealized      Fair    Unrealized      Fair    Unrealized
                                                                 Value     Losses        Value     Losses       Value      Losses
                                                               --------  ----------    --------  ----------    --------  ----------
<S>                                                            <C>         <C>         <C>         <C>         <C>         <C>
Securities available-for-sale
Mortgage-backed securities                                     $ 31,230    $    135    $  4,641    $     22    $ 35,871    $    157
Obligations of U.S. agencies                                    132,335         762           -           -     132,335         762
Obligations of states & political subdivisions                    3,532          68           -           -       3,532          68
Obligations of U.S. Treasury                                      3,014           2           -           -       3,014           2
                                                               --------    --------    --------    --------    --------    --------
                                                               $170,111    $    967    $  4,641    $     22    $174,752    $    989
                                                               ========    ========    ========    ========    ========    ========

Securities held-to-maturity
Mortgage-backed securities                                     $    138    $      1           -           -    $    138    $      1
                                                               --------    --------    --------    --------    --------    --------
                                                               $    138    $      1           -           -    $    138    $      1
                                                               ========    ========    ========    ========    ========    ========
</TABLE>

                                       40

<PAGE>

Note 5. Loans

      The  composition  of the loan  portfolio  is  summarized  as follows:  (in
thousands)

                                                     --------------------------
                                                             December 31,
                                                     --------------------------
                                                       2004             2003
                                                     ---------        ---------
Real estate
   Residential                                       $ 292,406        $ 240,901
   Commercial                                          375,985          330,040
   Construction                                         51,162           31,077

Commercial
   Commercial and financial                            186,386          149,462
   Lease financing                                      23,535           28,440

Consumer
   Lease financing                                         680           12,416
   Installment                                           4,027            4,245
                                                     ---------        ---------
                                                       934,181          796,581
Allowance for loan and lease losses                     (9,797)          (9,641)
                                                     ---------        ---------
Net loans                                            $ 924,384        $ 786,940
                                                     =========        =========

     Loans are net of unearned income and deferred fees of $5.6 million and $6.1
million for 2004 and 2003, respectively.

     Nonperforming  loans  include loans which are accounted for on a nonaccrual
basis and troubled debt restructurings.  Nonperforming loans are as follows: (in
thousands)
                                                     --------------------------
                                                             December 31,
                                                     --------------------------
                                                       2004             2003
                                                     ---------        ---------
Nonaccrual loans
   Residential real estate                            $  1,660        $  1,364
   Commercial real estate                                2,320           1,603
   Commercial and financial                              2,981           2,858
   Commercial lease financing                            1,836           2,365
   Consumer                                                336             380
                                                      --------        --------
                                                         9,133           8,570
                                                      --------        --------

Troubled debt restructurings
   Commercial and financial                                  -               -
                                                      --------        --------

Total nonperforming loans                             $  9,133        $  8,570
                                                      ========        ========

      At  December  31,  2004,  2003 and 2002,  there were no loans or leases 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.  Interest income
that would have been recorded during the year on nonaccrual loans outstanding at
year end in  accordance  with original  terms  amounted to $852  thousand,  $773
thousand and $576 thousand for the years ended December 31, 2004, 2003 and 2002,
respectively.  Interest  income  included in net income during the year on loans
currently  classified as nonaccrual  loans  outstanding  at year end amounted to
$304 thousand,  $353 thousand and $321 thousand for the years ended December 31,
2004,  2003 and  2002,  respectively.  At  December  31,  2004 the  Company  had
approximately $650 thousand of loans held for sale which are carried at lower of
cost or market.

      While a significant  portion of the Company's 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  North
American Industry  Classification  System,  which exceeds 10% of its total loans
and unfunded commitments.

<PAGE>

      Certain  officers  and  directors  of the  Company  and  their  affiliated
companies are customers of, and are engaged in transactions with, the Company in
the  ordinary  course  of  business  on  substantially  the same  terms as those
prevailing  with other  nonaffiliated  borrowers and suppliers.  Interest income
recognized  with respect to these loans was  approximately  $671 thousand,  $501
thousand and $443 thousand for the years ended December 31, 2004, 2003 and 2002,
respectively.

      The following table  summarizes  activity with respect to these loans: (in
thousands)

                                                      -------------------------
                                                       Years Ended December 31,
                                                      -------------------------
                                                        2004             2003
                                                      --------         --------
Balance at beginning of year                          $  4,092         $  5,135
Additions                                                6,524                -
Reductions                                                (672)          (1,043)
                                                      --------         --------
Balance at end of year                                $  9,944         $  4,092
                                                      ========         ========

      The  Company  also  services  residential  mortgages  and  Small  Business
Administration  ("SBA") loans for others.  The Company is  compensated  for loan
administrative  services  performed  for  residential  mortgages  and SBA  loans
originated and sold to third-party investors. The approximate aggregate balances
of residential  mortgages and SBA loans serviced for others at December 31, 2004
and 2003  were  $31.8  million  and $9.5  million,  and $14.6  million  and $1.4
million,  respectively.  These  outstanding  balances  were not  included in the
consolidated  balance  sheets  of  the  Company.  The  Company  recognized  loan
servicing  fee income of $343  thousand,  and $180  thousand for the years ended
December 31, 2004, and 2003, respectively.

      Loan servicing rights totaled $456 thousand, and $166 thousand at December
31,  2004,  and 2003,  respectively,  and are  included  in other  assets in the
consolidated  balance  sheets.  Loan servicing  rights,  which are classified in
other  assets,  are  periodically  evaluated  for  impairment.  Based  upon  the
Company's evaluation no impairment was required to be recognized for the periods
ended December 31, 2004, 2003, and 2002.

                                       41

Note 6. Allowance for Loan and Lease Losses

      The Company's  recorded  investment in impaired  loans is as follows:  (in
thousands)

<PAGE>

<TABLE>
<CAPTION>
                                                                         -------------------------------------------------------
                                                                                                December 31,
                                                                         -------------------------------------------------------
                                                                                   2004                         2003
                                                                         ------------------------      -------------------------
                                                                         Investment      Related       Investment       Related
                                                                             in         Allowance          in          Allowance
                                                                          Impaired       for Loan       Impaired       for Loan
                                                                           Loans          Losses          Loans         Losses
                                                                         ----------     ---------      ----------      ---------
<S>                                                                         <C>            <C>            <C>            <C>
Impaired loans
           With a related allowance for loan losses
                  Commercial and financial                                  $2,981           $420         $2,864           $463
                  Commercial real estate                                     2,320             98          1,603             40
                  Residential real estate                                      822            123            816            122
           Without a related allowance for loan losses                           -              -              -              -
                                                                            ------         ------         ------         ------
                                                                            $6,123           $641         $5,283           $625
                                                                            ======         ======         ======         ======
</TABLE>

--------------------------------------------------------------------------------
The  impairment  of the above  loans  was  measured  based on the fair  value of
collateral.

The following table sets forth certain  information  about impaired  loans:  (in
thousands)

                                                       -------------------------
                                                       Years Ended December 31,
                                                       -------------------------
                                                         2004             2003
                                                       --------         --------
Average recorded investment                            $  6,315         $  4,711
                                                       ========         ========

Interest income recognized during time period
   that loans were impaired, using cash-basis
   method of accounting                                $    122         $    198
                                                       ========         ========

Changes in the  allowance  for loan and lease losses are  summarized as follows:
(in thousands)

                                              ---------------------------------
                                                    Year Ended December 31,
                                              ---------------------------------
                                               2004         2003         2002
                                              -------      -------      -------
Balance at beginning of year                  $ 9,641      $ 7,207      $ 6,569
Additions (deductions)
  Provision charged to operations               1,200        1,815        1,500
  Bridge View acquired allowance                    -        1,929            -
  Recoveries on loans previously
    charged off                                    93           46           64
  Loans charged off                            (1,137)      (1,356)        (926)
                                              -------      -------      -------
Balance at end of year                        $ 9,797      $ 9,641      $ 7,207
                                              =======      =======      =======

Note 7. Premises and Equipment, net

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


<PAGE>

                                                       -------------------------
                                                       Years Ended December 31,
                                                       -------------------------
                                                         2004             2003
                                                       --------         --------
Land                                                   $  4,573         $  6,028
Buildings                                                 6,441            6,880
Furniture, fixtures and equipment                         9,121            8,939
Leasehold improvements                                   11,830           11,124
                                                       --------         --------
                                                       $ 31,965         $ 32,971
Less: accumulated depreciation and amortization          14,252           12,628
                                                       --------         --------
     Net book value                                    $ 17,713         $ 20,343
                                                       ========         ========

      During  2004 the Company  sold one branch  office for  approximately  $2.8
million and  recognized a gain of $16  thousand.  The branch was relocated to an
alternative site within the municipality.

Note 8. Goodwill and Other Intangibles

      At December  31, 2004 and 2003 gross  intangible  assets  amounted to $4.6
million,  while  accumulated  amortization  amounted to $935  thousand  and $430
thousand,  respectively.  Amortization  of  intangible  assets  as a  result  of
acquisitions,  which is  included  in  non-interest  expense,  amounted  to $504
thousand, $360 thousand, and $69 thousand for the years ended December 31, 2004,
2003,  and 2002,  respectively.  During the second  quarter of 2003, the Company
recorded a core deposit intangible of $4.3 million in connection with the Bridge
View merger.  The core deposit  intangible has an estimated life of 10 years and
the  Company  amortized  $430  thousand  and $286  thousand  for the years ended
December 31, 2004 and 2003, respectively.  Intangibles are periodically reviewed
for  impairment  and estimated  useful life. In addition,  the Company  recorded
goodwill of $54.4  million in connection  with the Bridge View merger,  which is
not deductible for tax purposes.  The goodwill is tested for impairment at least
annually in accordance with the provisions of Statement of Financial  Accounting
Standards No. 142 "Goodwill and Other Intangible Assets."

<PAGE>

At December  31, 2004 the  scheduled  amortization  of  intangible  assets is as
follows: (in thousands)

            2005                                          $  505
            2006                                             436
            2007                                             430
            2008                                             430
            2009                                             430
            Thereafter                                     1,429
                                                          ------
            Total                                         $3,660
                                                          ======

Note 9. Deposits

      Deposits are summarized as follows: (in thousands)

                                                             December 31,
                                                     ---------------------------
                                                        2004             2003
                                                     ----------       ----------
Non-interest bearing demand deposits                 $  235,036       $  223,745
Interest bearing demand deposits                        472,807          446,786
Savings deposits                                        113,352          120,136
Money market deposits                                    87,595           84,162
Time deposits                                           337,348          281,969
                                                     ----------       ----------
Total                                                $1,246,138       $1,156,798
                                                     ==========       ==========

                                       42

      At December 31, 2004 and 2003,  the carrying  amounts of  certificates  of
deposit that  individually  exceed $100,000  amounted to $50.9 million and $16.6
million, respectively. Interest expense relating to certificates of deposit that
individually exceed $100,000 was approximately $701 thousand, $850 thousand, and
$1.0 million in 2004, 2003 and 2002, respectively.

At December 31, 2004, the scheduled  maturities of time deposits are as follows:
(in thousands)

              2005                                $323,080
              2006                                  10,371
              2007                                   1,695
              2008                                   1,153
              2009                                   1,032
              Thereafter                                17
                                                  --------
              Total                               $337,348
                                                  ========

      The following  table presents by various rate  categories,  the amount and
the periods to maturity of the certificate  accounts outstanding at December 31,
2004:

<PAGE>

<TABLE>
<CAPTION>
                                                             Over six        Over one        Over two          Over
                                           Six months     months through   year through    years through       three
                                            and less         one year        two years      three years        years       Totals
                                           ----------     --------------   ------------    -------------       -----       ------
<S>                                          <C>             <C>              <C>              <C>             <C>         <C>
0.00% to 0.99%                             $   2,933      $       55               -               -               -      $  2,988
1.00% to 1.99%                                56,905           5,183       $      27               -               -        62,115
2.00% to 2.99%                               145,950          65,556           5,777       $     340         $   732       218,355
3.00% to 3.99%                                 8,062          32,084           3,100           1,305           1,470        46,021
4.00% to 4.99%                                    13               1             501               -               -           515
5.00% to 5.99%                                   360               -             794               -               -         1,154
6.00% to 6.99%                                 3,111           2,867             172              50               -         6,200
                                           ---------      ----------       ---------       ---------         -------      --------
                                           $ 217,334      $  105,746       $  10,371       $   1,695         $ 2,202      $337,348
                                           =========      ==========       =========       =========         =======      ========
</TABLE>

Note 10. Securities Sold Under Agreements to Repurchase and Short-term
         Borrowings

      Securities sold under  agreements to repurchase and short-term  borrowings
are summarized as follows: (in thousands)

                                                            December 31,
                                                      -------------------------
                                                        2004             2003
                                                      --------         --------
Securities sold under agreements to repurchase        $  4,401         $ 15,618
Federal Home Loan Bank overnight advances               24,600           46,491
                                                      --------         --------
                                                      $ 29,001         $ 62,109
                                                      ========         ========

Average balance outstanding                           $ 29,080         $ 17,875
Average interest rate                                     1.23%            1.59%
Maximum amount borrowed                               $ 63,232         $ 48,110

      Securities sold under agreements to repurchase  mature within one year. In
addition,  the Bank has an additional $89.4 million  available under its line of
credit agreement through its membership in the FHLBNY.

Note 11. Long-term Borrowings

      The Bank has long-term borrowings, which have maturities of over one year,
of  $30.0  million  and  $10.0  million  as  of  December  31,  2004  and  2003,
respectively.  The long-term  borrowings  consisted of $20 million of fixed rate
FHLBNY  advances  at  December  31,  2004 and $10  million of a callable  FHLBNY
Convertible  Repurchase  Advance with a Customized  Strike Price at December 31,
2004 and 2003.  This advance has a fixed rate of 4.22%,  matures in January 2007
and is collateralized by U.S.  Treasury and U.S. agency  securities.  The FHLBNY
has an option to call the  advance on a  quarterly  basis if the  3-month  LIBOR
resets above  7.50%.  At December 31,  2004,  3-month  LIBOR was


<PAGE>

2.56%.  The $20 million in long-term  fixed rate FHLB  advances  have  remaining
maturity terms of twelve to  twenty-five  months at interest rates between 2.09%
percent to 2.69%.  The long-term  borrowings may not be repaid by the Bank prior
to the scheduled/repurchase payment dates without penalty.

Note 12. Benefit Plans

      In 1993, the Bank established a  non-contributory  defined benefit pension
plan covering all eligible employees (the "Pension Plan"). The funding policy is
to contribute  an amount that is at least the minimum  required by law. The plan
assets are invested through an unaffiliated  trust company in a fixed income and
equity  (balanced)  fund. The investment  strategy of the fund is to hold 60% to
70% in stocks and the rest in fixed income  securities.  The fund performance is
reviewed  periodically by an  administrative  committee  comprised of the Bank's
President,  Chief  Financial  Officer and Human Resources  Director.  Retirement
income is based on years of  service  under the  Pension  Plan and,  subject  to
certain limits,  on final average  compensation.  Effective January 1, 1994, the
Bank  established  a  supplemental  plan  covering all eligible  employees  (the
"Supplemental  Plan") that provides for  retirement  income that would have been
paid but for the  limitation  under the qualified  Pension Plan.  For all of the
plans,  the discount rate for  determining  the pension  benefit  obligation and
service  cost at  December  31, 2004 ranged  between  4.50% and 5.9%,  while the
expected long-term return on Pension Plan assets was 8.00 percent.  The expected
return on plan assets is based  primarily  upon the long-term  rate of return of
the fund.

      Effective  August 1, 1994, the Company  established a retirement  plan for
all  directors  of the  Bank  who are not  employees  of  Interchange  or of any
subsidiary or affiliate of Interchange  (the  "Directors'  Plan").  As a part of
this  Directors'  Plan,  the Company  contributes  annually to a life  insurance
policy or annuity contract for each director with 5 years or more of service, 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

<PAGE>

      The  Company  owns the  life  insurance  policies  or  annuity  contracts.
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 based on the greater of the cash value of the life  insurance  policy or
annuity  contract or an amount  determined by  multiplying  the Bank's  standard
annual retainer fees at the director's  retirement date by the director's  years
of service.

      Pursuant to the Directors'  Plan, as amended from time to time, a director
who has been on the  board at least  five  years is  entitled  to  receive  upon
retirement an amount equal to the standard annual retainer  (currently  $10,000)
being paid to directors  multiplied  by the  director's  years of service on the
board,  multiplied by the director's  vested  percentage.  Vesting occurs in 20%
increments  commencing  in year  six and  ending  in year  ten at  which  time a
director  becomes  fully vested.  The former  directors of Bridge View have been
credited for their prior years of service for vesting purposes and Bridge View's
director  plan was frozen and the future  obligations  have been included in the
Director's Plan.

      Notwithstanding  the foregoing,  the benefits payable to a participant who
was a  participant  on January 1, 2002 shall not be less than the greater of (i)
or (ii) below:  (i) the benefits  such  participant  had accrued as of such date
under the terms and  provision  of the  Directors'  Plan in effect  prior to the
January 1, 2002

                                       43

amendment,  or (ii)  the  cash  value  of any  life  insurance  policy  that was
purchased and owned by the Company or one of its subsidiaries  prior to the plan
amendment.  The  benefit  may be paid in a lump sum or paid  out in five  annual
installment payments at the election of the participant.

      Net pension cost of each plan consists of the following: (in thousands)

<TABLE>
<CAPTION>
                                                          Pension Plan              Supplemental Plan           Directors' Plan
                                                   -------------------------     -----------------------    ------------------------
                                                    2004      2003      2002      2004     2003     2002     2004      2003     2002
                                                   -----     -----     -----     -----    -----    -----    -----     -----    -----
<S>                                                <C>       <C>       <C>       <C>      <C>      <C>      <C>       <C>      <C>
Service cost                                       $ 565     $ 490     $ 331     $  32    $  29    $  25    $ 116     $  85    $  72
Interest cost                                        223       181       150        26       21       19      126       114       98
Expected return on plan assets                      (179)     (124)     (120)        -        -        -        -         -        -
Amortization of prior service cost                     2         2         2         3        2        3        -         -        -
Recognized net actuarial gain                          -         1         -         3        -        -       (4)        -        -
                                                   -----     -----     -----     -----    -----    -----    -----     -----    -----
Net periodic benefit cost                          $ 611     $ 550     $ 363     $  64    $  52    $  47    $ 238     $ 199    $ 170
                                                   =====     =====     =====     =====    =====    =====    =====     =====    =====
</TABLE>

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


<PAGE>

<TABLE>
<CAPTION>
                                                               Pension Plan          Supplemental Plan          Directors' Plan
                                                          --------------------      --------------------      --------------------
                                                           2004         2003         2004         2003         2004         2003
                                                          -------      -------      -------      -------      -------      -------
<S>                                                       <C>          <C>          <C>          <C>          <C>          <C>
Change in pension obligation
Pension obligation at beginning of year                   $ 3,626      $ 2,962      $   381      $   352      $ 2,101      $ 1,555
Service cost                                                  565          490           32           29          116           85
Interest cost                                                 223          181           26           21          126          114
Acquisition of Bridge View Plan                                 -            -            -            -            -          376
Actuarial (gain) loss                                         303           23           27          (21)           6          (29)
Benefits paid                                                 (25)         (30)           -            -          (28)           -
                                                          -------      -------      -------      -------      -------      -------
Pension obligation at end of year                           4,692        3,626          466          381        2,321        2,101
                                                          -------      -------      -------      -------      -------      -------

Change in plan assets
Fair value of plan assets at beginning of year              1,980        1,397            -            -            -            -
Actual gain (loss) on plan assets                             278          320            -            -            -            -
Employer contribution                                         564          293            -            -            -            -
Benefits paid                                                 (25)         (30)           -            -            -            -
                                                          -------      -------      -------      -------      -------      -------
Fair value of plan assets at end of year                    2,797        1,980            -            -            -            -
                                                          -------      -------      -------      -------      -------      -------

Funded Status                                              (1,894)      (1,646)        (466)        (381)      (2,321)      (2,100)
Unrecognized net actuarial (gain) loss                        493          289           56           32         (110)        (120)
Unrecognized amortized prior service cost                      26           28           13           16           --           --
                                                          -------      -------      -------      -------      -------      -------
Accrued pension cost                                      $(1,375)     $(1,329)     $  (397)     $  (333)     $(2,431)     $(2,220)
                                                          =======      =======      =======      =======      =======      =======


Weighted-average assumptions (1)
Discount rate for net periodic benefit cost                  6.25%        6.50%        6.25%        6.50%        6.25%        6.50%
Discount rate for benefit obligations                        5.90         6.25         5.00         6.25         5.00         6.25
Expected return on plan assets                               8.00         8.00          N/A          N/A          N/A          N/A
Rate of compensation increase                                5.00         5.00          N/A          N/A          N/A          N/A
</TABLE>
(1)   Weighted average assumptions were applied at the beginning of the period.

Other Balance Sheet Amounts

The  following  amounts are  included  in the  Consolidated  Balance  Sheets for
December 31: (in thousands)

                                                        2004             2003
                                                      --------         --------
Accrued benefit cost                                  $ (4,203)        $ (3,882)
Intangible assets                                            -               16
Accumulated other comprehensive income                       -               10
                                                      --------         --------
Net amount recognized                                 $ (4,203)        $ (3,856)

The  accumulated  benefit  obligation for all defined  benefit pension plans was
$5.7 million and $4.9 million at December 31, 2004 and 2003, respectively.

      Information  for pension plans with an accumulated  benefit  obligation in
      excess of plan assets: (in thousands)

                                                        2004             2003
                                                      --------         --------
Projected benefit obligation                           $7,479           $6,108
Accumulated benefit obligation                         $5,744           $4,899
Fair value of plan assets                              $2,797           $1,980

                                       44

During 2005 the Company  anticipates  contributing  $624 thousand to fund all of
the plans.

The following  payments,  which reflect  expected future service as appropriate,
are expected to be paid:

                                         Supplemental  Directors'
                           Pension Plan      Plan         Plan        Total
                           ------------  ------------  ----------     ------
2005                          $   47        $    3       $  578       $  628
2006                              46             4          324          374
2007                              62             5          324          391
2008                              73             5          324          402
2009                              82             7           64          153
thereafter                       943           495          374        1,812

<PAGE>

      In 1976, the Bank  established a Capital  Investment Plan (the "Investment
Plan")  which  permits  employees to make basic  contributions  up to 4% of base
compensation.  In 1998, the Investment  Plan was amended to permit  employees to
make basic contributions up to 6% of base compensation. Additional contributions
up to 10% of  compensation  may be made when coupled  with basic  contributions.
Under the Investment  Plan, the Bank provides a matching  contribution  equal to
50% of the basic contribution of each participant.  Employees become eligible to
participate  in the  Investment  Plan upon  attainment of age twenty-one and the
completion  of 1,000 hours of service.  Vesting  occurs after the  completion of
three years of service with regards to the Company match.  The  Investment  Plan
offers  employees a choice of 10 investment  funds ranging from  conservative to
aggressive.  Both employee and bank matching contributions are invested in these
funds  according  to  the  employees'  elections.  The  investment  choices  are
administered  by an  unaffiliated  trust company.  The fund options are reviewed
periodically by an administrative  committee  comprised of the Bank's President,
Chief Financial  Officer and Human  Resources  Director.  In addition,  the Bank
makes  a  fixed  contribution,  which  vests  immediately,  on  behalf  of  each
participant equal to 1% of such participant's base compensation, which is in the
form of Interchange common stock. The Bank's contribution to the Investment Plan
amounted  to  $382,000,   $347,000   and  $281,000  in  2004,   2003  and  2002,
respectively.

Note 13. Stock Option and Incentive Plan

      In 1989,  the Company  adopted a stock  option  plan,  retitled  the Stock
Option and Incentive  Plan of 1997 (the "Stock  Plan"),  that covers certain key
employees.  Under  this  plan,  as  amended,  options  to  purchase a maximum of
2,076,470 shares of Interchange 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  according to a vesting schedule,  starting
one year from the date of grant.  Pursuant  to the Stock Plan,  incentive  stock
options or non-qualified stock options may be granted to employees.

      In  2000,  the  Company  adopted  a stock  option  plan,  titled  "Outside
Director's  Incentive  Compensation  Plan" (the  "Director's  Stock  Plan") that
covers  those  members of the Board of  Directors  of the  Company  who have not
served as a full-time employee of the Company or any of its subsidiaries  during
the prior twelve-month period. Under this plan, options to purchase a maximum of
225,000 shares of  Interchange  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  according to a vesting

<PAGE>
schedule,  starting one year from the date of grant.  Only  non-qualified  stock
options are granted under the Director's Stock Plan.

      The status of options  granted under the Stock Plan and  Director's  Stock
Plan as of December 31, and changes during each of the three years then ended is
summarized below:

<TABLE>
<CAPTION>
                                                                     2004                    2003                     2002
                                                           -----------------------   --------------------   ------------------------
                                                                         Weighted-              Weighted-                  Weighted-
                                                                         Average                 Average                    Average
                                                                         Exercise               Exercise                   Exercise
                                                             Options      Price       Options     Price        Options       Price
                                                           ---------    ---------    --------   --------      --------    ----------
<S>                                                          <C>         <C>           <C>        <C>           <C>        <C>
Incentive Stock Options
Outstanding at January 1                                     834,330     $ 9.15       673,524     $ 7.83       515,988     $ 6.91
Granted                                                      262,725      17.50       258,750      11.33       200,813       9.80
Exercised                                                    (19,065)      7.44       (97,944)      5.89       (30,990)      4.89
Forfeited                                                    (16,301)     13.00             -          -       (12,287)      8.41
                                                           ---------    -------      --------    -------      --------     --------
Outstanding at December 31                                 1,061,689     $11.19       834,330     $ 9.15       673,524     $ 7.83
                                                           =========    =======      ========    =======      ========     ========

Options exercisable at December 31                           573,212       8.46       400,455     $ 7.74       498,212     $ 7.37

Weighted-average fair value of options granted
 during the year ended December 31 (per option)                          $ 4.67                   $ 2.74                   $ 2.67

<CAPTION>
                                                                     2004                    2003                     2002
                                                           -----------------------   --------------------   -----------------------
                                                                         Weighted-              Weighted-                  Weighted-
                                                                         Average                 Average                    Average
                                                                         Exercise               Exercise                   Exercise
                                                             Options      Price       Options     Price        Options       Price
                                                           ---------   -----------   --------   ---------   ----------   -----------
<S>                                                          <C>         <C>           <C>        <C>           <C>        <C>
Non-Qualified Stock Options
Incentive Stock Options
Outstanding at January 1                                      87,750     $10.02        67,500     $ 9.03        49,500     $ 7.13
Granted                                                       33,750      15.75        27,000      11.80        24,750      12.22
Exercised                                                     (3,000)      8.63        (6,750)      7.29        (6,750)      6.83
Forfeited                                                     (6,750)     14.48             -          -             -          -
                                                           ---------    -------      --------    -------     ---------     --------
Outstanding at December 31                                   111,750     $11.52        87,750     $10.02        67,500     $ 9.03
                                                           =========    =======      ========    =======     =========     ========

Options exercisable at December 31                            58,500     $ 9.22        36,000     $ 8.12        18,000     $ 6.83

Weighted-average fair value of options granted
 during the year ended December 31 (per option)                          $ 4.01                   $ 3.07                   $ 3.36
</TABLE>

All per share data and weighted averages shares were restated to reflect 3-for-2
stock splits  declared on May 23, 2002 and January 18, 2005 and paid on July 12,
2002 and February 18, 2005, respectively.

                                       45

      The following table summarizes information about options outstanding under
the Stock Plan and Director's Stock Plan at December 31, 2004:

<PAGE>

<TABLE>
<CAPTION>
                                     Options Outstanding                                                   Options Excercisable
--------------------------------------------------------------------------------------------------    ------------------------------
                                                              Weighted-Average    Weighted-Average                  Weighted-Average
                                                  Number          Remaining           Exercise                          Exercise
          Range of Exercise Prices             Outstanding    Contractual Life          Price         Exercisable         Price
--------------------------------------------------------------------------------------------------    ------------------------------
<S>        <C>            <C>                     <C>               <C>                 <C>              <C>               <C>
Incentive Stock Options
           $0      -       $5                      8,100            1.28              $ 3.72              8,100          $ 3.72
           $5      -      $10                    544,170            5.63                8.25            481,543            8.04
          $10      -      $15                    252,319            8.08               11.33             83,569           11.33
          $15      -      $20                    257,100            9.07               17.50                  -               -
                                               ---------------------------------------------          -------------------------
                                               1,061,689            7.01               11.19            573,212            8.46
                                               ---------------------------------------------          -------------------------

Non-Qualified Stock Options
           $0      -      $10                     34,500            5.92                7.25             34,500            7.25
          $10      -      $15                     48,000            7.85               12.00             24,000           12.06
          $15      -      $20                     29,250            9.31               15.75                  -               -
                                               ---------------------------------------------          -------------------------
                                                 111,750            7.64               11.52             58,500            9.22
                                               ---------------------------------------------          -------------------------
                 Totals                        1,173,439            7.07             $ 11.22            631,712          $ 8.53
                                               =============================================          =========================
</TABLE>

All per share data and averages  shares were restated to reflect a 3-for-2 stock
split  declared  on May 23,  2002 and January 18, 2005 and paid on July 12, 2002
and February 18, 2005, respectively.

      The fair value of each option  granted is  estimated  on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2004, 2003 and 2002, respectively: dividend yield
of 2.21%,  2.14%,  2.37%;  expected  volatility  of 24.83%,  24.69% and  25.12%;
risk-free  interest  rate of 3.39%,  3.39% and 4.65%;  and  expected  lives of 7
years.  The effects of applying these  assumptions in determining  the pro-forma
net income may not be  representative of the effects on pro-forma net income for
future years.

      If compensation  cost for the Stock Plan and Director's  Stock Plan awards
had been measured  based on the fair value of the stock  options  awarded at the
grant  dates,  net income and diluted  earnings per common share would have been
reduced to the  pro-forma  amounts  below for the years ended  December  31: (in
thousands, except share data)

                                               2004         2003         2002
                                            ----------   ----------   ----------
Net Income
      As reported                           $   18,214   $   16,366   $   12,877

      Less: Total stock-based
      compensation expense
      determined under the fair
      value method for all rewards,
      net of related tax effects                   834          521          334
                                            ----------   ----------   ----------
      Pro-forma                             $   17,380   $   15,845   $   12,543
                                            ==========   ==========   ==========

Earnings per share:
Basic:
      As reported                           $     0.95   $     0.92   $     0.88
      Pro forma                                   0.91         0.89         0.85
Diluted:
      As reported                                 0.94         0.91         0.86
      Pro forma                                   0.89         0.88         0.84


<PAGE>

All per share data and average shares were restated to reflect all stock splits.
The effective tax rate used for the non-qualified option expense was 35%.

Stock-based compensation

      Pursuant to the Stock Plan, key employees may be awarded restricted shares
of Interchange  common stock subject to certain  vesting and  restrictions.  The
awards are recorded at fair market value and amortized  into salary expense over
the vesting  period.  The  following  table sets forth the changes in restricted
stock awards outstanding for the years ended December 31, 2004, 2003 and 2002.

   Restricted Stock Awards                      2004         2003         2002
                                              -------      -------      -------
Outstanding at beginning of year               40,530       39,124       38,250
Granted                                         7,793       20,883       21,070
Vested                                        (22,427)     (19,477)     (20,196)
                                              -------      -------      -------
Outstanding at year end                        25,896       40,530       39,124
                                              =======      =======      =======

      The  amount of  compensation  cost  related  to  restricted  stock  awards
included in salary  expense in 2004,  2003 and 2002  amounted to $298  thousand,
$237 thousand and $196 thousand, respectively.

                                       46

Note 14. Stockholders' Equity and Regulatory Capital

      The  Company  and the Bank  are  subject  to  various  regulatory  capital
requirements  administered  by the  federal  banking  agencies.  Failure to meet
minimum  capital  requirements  can  initiate  certain  mandatory  and  possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct  material  effect on the Company's  financial  statements.  Under capital
adequacy guidelines,  the Company and the Bank must meet specific capital levels
that involve  quantitative  measures of their assets,  liabilities,  and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Company's and the Bank's capital  amounts and the Bank's  classification,  under
the  regulatory  framework  for prompt  corrective  action,  are also subject to
qualitative  judgments by the regulators about components,  risk weighting,  and
other factors.

      Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of total
and Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets.
Management  believes  that the Company and the Bank met as of December 31, 2004,
all capital adequacy requirements to which they are subject.

      As of December  31,  2004,  the Bank has met the Federal  Reserve  capital
calculation  standards  to  be  categorized  as  "well  capitalized"  under  the
regulatory  framework for prompt  corrective  action. To be categorized as "well
capitalized," the Bank must maintain minimum total risk-based, Tier 1 risk-based

<PAGE>

and Tier 1 leverage  ratios as set forth in the  following  table.  There are no
conditions or events that management believes have changed the Bank's category.

The Company's and the Bank's capital amounts and ratios are as follows: (dollars
in thousands)

<TABLE>
<CAPTION>
                                                                                                                    To Be "Well
                                                                                                                 Capitalized" Under
                                                                                           For Capital           Prompt Corrective
                                                                    Actual              Adequacy Purposes        Action Provisions
                                                              ------------------       -------------------       ------------------
                                                              Amount       Ratio       Amount        Ratio       Amount       Ratio
                                                              ------       -----       ------        -----       ------       -----
<S>                                                          <C>           <C>         <C>            <C>       <C>           <C>
As of December 31, 2004:
  Total Capital (to Risk Weighted Assets):
   The Company                                               $102,175      10.35%      $ 78,959       8.00%          N/A        N/A
   The Bank                                                   101,442      10.27%        79,007       8.00%     $ 98,759      10.00%
  Tier 1 Capital (to Risk Weighted Assets):
   The Company                                                 92,338       9.36%        39,480       4.00%          N/A        N/A
   The Bank                                                    91,605       9.28%        39,504       4.00%       59,256       6.00%
  Tier 1 Capital (to Average Assets):
   The Company                                                 92,338       6.49%        42,692       3.00%          N/A        N/A
   The Bank                                                    91,605       6.43%        42,735       3.00%       71,225       5.00%

As of December 31, 2003:
  Total Capital (to Risk Weighted Assets):
   The Company                                               $ 91,694      10.46%      $ 70,146       8.00%          N/A        N/A
   The Bank                                                    91,358      10.35%        70,637       8.00%     $ 88,296      10.00%
  Tier 1 Capital (to Risk Weighted Assets):
   The Company                                                 81,913       9.34%        35,073       4.00%          N/A        N/A
   The Bank                                                    81,576       9.24%        35,319       4.00%       52,978       6.00%
  Tier 1 Capital (to Average Assets):
   The Company                                                 81,913       6.24%        39,367       3.00%          N/A        N/A
   The Bank                                                    81,576       6.22%        39,318       3.00%       65,530       5.00%
</TABLE>

Shares of common stock

      On April 26,  2001,  the Board of Directors  of  Interchange  authorized a
program to repurchase up to 450,000 shares of Interchange's  outstanding  common
stock on the open market or in privately  negotiated  transactions.  During 2004
the Company  repurchased  85,661 shares for  approximately  $2.2 million,  while
there were no shares  repurchased  during  2003.  As of  December  31,  2004 the
Company  had  purchased  255,854  shares at a total cost of  approximately  $4.4
million  under  the  authorized  program.  The  repurchased  shares  are held as
treasury stock and will be  principally  used for the exercise of stock options,
restricted  stock  awards  under the  Stock  Plan and  other  general  corporate
purposes.

<PAGE>

The following table summarizes the activity in common shares: (in thousands)

                                                             Shares    Shares in
                                                             Issued    Treasury
                                                             ------    ---------
Balance at December 31, 2002                                  9,815      1,097
  Reacquired shares in lieu of non-performing asset             (36)        36
    Issuance of stock from treasury                              81        (81)
    Issuance of stock for Bridge View
      Bancorp acquisition                                     2,950          -
                                                            -------     ------
Balance at December 31, 2003                                 12,810      1,052
  Reacquired shares in lieu of non-performing asset             (86)        86
    Issuance of stock from treasury                              23        (23)
                                                            -------     ------
Balance at December 31, 2004                                 12,747      1,115
                                                            =======     ======

                                       47

Note 15. Earnings Per Common Share

      The  reconciliation  of the numerators and  denominators  of the basic and
diluted  earnings per common share  computations for the years ended December 31
are as follows: (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                          2004                       2003                       2002
                                            ---------------------------    ------------------------    -------------------------
                                                     Weighted      Per             Weighted    Per             Weighted    Per
                                                      Average     Share            Average    Share             Average   Share
                                            Income    Shares     Amount    Income   Shares   Amount    Income   Shares    Amount
                                            ------   --------    ------    ------  --------  ------    ------  --------   ------
<S>                                         <C>       <C>        <C>      <C>       <C>       <C>      <C>       <C>       <C>
Basic Earnings per Common Share
Net income available to common
   shareholders                             $18,214   19,124     $0.95    $16,366   17,724    $0.92    $12,877   14,714    $0.88
                                                                 =====                        =====                        =====

Effect of Dilutive Shares
Weighted average shares if converted                     352                           263                          186
                                                      ------                        ------                       ------

Diluted Earnings per Common Share
Net income available to common
   shareholders                             $18,214   19,476     $0.94    $16,366   17,987    $0.91    $12,877   14,900    $0.86
                                            =======   ======     =====    =======   ======    =====    =======   ======    =====
</TABLE>

At December 31, 2004 257,100 stock options were excluded from the calculation of
earnings per common share as they were  antidilutive.  There were no shares that
were antidilutive at December 31, 2003 and 2002.

All per share data and average  shares were  restated to reflect  3-for-2  stock
splits  declared  on May 23, 2002 and January 18, 2005 and paid on July 12, 2002
and February 18, 2005, respectively.

Note 16. Other Non-interest Expense

      Expenses included in other  non-interest  expense which exceed one percent
of the aggregate of total interest income and non-interest  income for the years
ended December 31, are as follows: (in thousands)

<PAGE>

                                                     2004       2003       2002
                                                    ------     ------     ------
Professional fees .............................     $2,609     $1,568     $1,458
Data Processing ...............................        978        933        639
Directors' fees, travel and reimbursement .....        848        690        479
All other .....................................      3,558      3,378      2,888
                                                    ------     ------     ------
                                                    $7,993     $6,569     $5,464
                                                    ======     ======     ======

Note 17. Income Taxes

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

                                          2004            2003           2002
                                         -------         -------        -------
Federal: current                         $ 8,998         $ 5,711        $ 6,586
         deferred                           (942)          1,461           (732)
State:   current                             688              34            242
         deferred                           (263)            412              -
                                         -------         -------        -------
                                         $ 8,481         $ 7,618        $ 6,096
                                         =======         =======        =======

      The  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)

                                                             2004        2003
                                                            -------     -------
Deferred tax assets
  Excess of book over tax allowance for loan
    and lease losses                                        $ 4,311     $ 4,242
  Excess of book over tax depreciation                           21          21
  Excess of book over tax provision for
    benefit plan expense                                      1,909       1,773
  Core deposit premium                                          211         261
  Unrealized losses- securities available-for-sale              408           -
  Other                                                         641         551
                                                            -------     -------
        Total deferred tax assets                             7,501       6,848
                                                            -------     -------

Deferred tax liabilities
  Unrealized gains - securities available-for-sale                -       1,779
  Dividend on REIT                                            1,228       2,456
  Excess of tax over book for lease originations                587         858
  Premium related to Bridge View acquisition                  1,726       2,238
  State taxes                                                   503         297
  Other                                                         912          66
                                                            -------     -------
  Total deferred tax liabilities                              4,956       7,694
                                                            -------     -------
  Net deferred tax asset (liability)                        $ 2,545     $  (846)
                                                            =======     =======

      The  provision  for  income  taxes  differs  from the  expected  statutory
provision as follows:

<PAGE>

                                                               December 31,
                                                         -----------------------
                                                          2004    2003    2002
                                                         ------  ------  ------
Expected provision at statutory rate                         35%     35%     35%
Difference resulting from:
        State income tax, net of federal benefit              2       2       1
Interest income exempt from federal taxes                    (2)     (2)     (2)
Bank owned life insurance                                    (2)     (3)     (2)
Other                                                        (1)      -       -
                                                         ------  ------  ------
                                                             32%     32%     32%
                                                         ======  ======  ======

                                       48

Note 18. Restrictions of Subsidiary Bank Dividends

      Under New  Jersey  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, 2004,  undistributed net assets
of the Bank were $149.4  million of which $87.3  million 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.

Note 19. Commitments and Contingent Liabilities

      The Company has contingent  liabilities and outstanding  commitments  that
include agreements to extend credit which arise in the normal course of business
and which are not shown in the accompanying consolidated 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 of the Company.  At December 31, 2004
and 2003  the  Company  had a  liability  of $40  thousand  and  $140  thousand,
respectively,   for  potential   losses   associated   with  off  balance  sheet
arrangements.

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

                                                      2004              2003
                                                   ---------        ---------
Home equity loans                                   $103,625         $ 89,249
Other loans                                          171,517          128,045
Standby letters of credit                              3,193            3,534
                                                   ---------        ---------
                                                    $278,335         $220,828
                                                   =========        =========

<PAGE>

      The  following  table  illustrates  the  Company's   accounting  for,  and
disclosure  of, the issuance of certain types of  guarantees  as required  under
FASB Interpretation No. 45, "Guarantor's  Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others".

                                                       Maximum
                                                      potential        Carrying
                                                       amount           amount
                                                      of future         of the
Nature of the guarantee                               payments         liability
--------------------------------------------------------------------------------
Standby letters of credit                              $3,193            $  -

Standby letters of credit are typically  underwritten for terms of less than one
year and are fully collateralized by either cash or indirectly secured by a line
of credit,  which is collateralized by real estate,  receivables or other liquid
collateral.


<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)

      2005                                       $ 2,565
      2006                                         2,318
      2007                                         2,174
      2008                                         1,766
      2009                                         1,313
      2010 and thereafter                          6,544
                                                 -------
      Total minimum lease payments               $16,680
                                                 =======

      Rent expense for all leases amounted to approximately  $2.6 million,  $2.3
million and $1.7  million in 2004,  2003,  and 2002,  respectively.  The Company
leases its operations  facilities from an affiliated company of a director.  The
lease  expires in October  2007 and  provides  that the annual  minimum  rent of
approximately  $84 thousand.  Rent expense paid was  approximately $76 thousand,
$62 thousand,  and $51 thousand in 2004, 2003, and 2002,  respectively.  Most of
the Company's operating leases are for its branch locations which contain one to
four  renewal  options.  Each option  allows for an extension of the lease for a
period of five years.

      Two directors of the Company  provided legal services  through  affiliated
firms.  Fees paid for these services  amounted to  approximately  $493 thousand,
$356  thousand,  and $296 thousand in 2004,  2003,  and 2002,  respectively.  In
addition,  a director provided certain real estate appraisal services through an
affiliated  firm;  fees paid for these services  amounted to  approximately  $41
thousand  and $8  thousand  in 2004 and  2003,  respectively.  Also,  this  same
director  found a tenant for space the bank had available for lease and received
a $101 thousand  commission  fee; this fee was paid through the listing  broker.
The Company also obtained  insurance  from an  affiliated  agency of a director.
Total  costs  associated  with the  policies  purchased  through the agency were
approximately $17 thousand in 2003.

      The Company believes that all of the services  obtained from directors are
at arms length. In addition,  Board approval is required to obtain services from
an affiliated party.

     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
counsels,  is expected  to have a material  adverse  impact on the  consolidated
financial condition, results of operations or liquidity of the Company.


                                       49
<PAGE>

Note 20. Fair Value of Financial Instruments

      Fair value estimates of the Company's financial  instruments 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.  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 the Company in
immediate  settlement  of  the  financial   instruments  would  realize  amounts
different from the fair value estimates.

The estimated fair values of the Company's financial instruments at December 31,
are as follows: (in thousands)

<TABLE>
<CAPTION>
                                                              ----------------------------------------------------------------------
                                                                                           December 31,
                                                              ----------------------------------------------------------------------
                                                                          2004                                    2003
                                                              ------------------------------          ------------------------------
                                                               Carrying             Fair               Carrying              Fair
                                                                Amount              Value               Amount              Value
                                                              ----------          ----------          ----------          ----------
<S>                                                           <C>                 <C>                 <C>                 <C>
Financial assets:
   Cash and cash equivalents                                  $   33,110          $   33,110          $   31,435          $   31,435
   Securities held-to-maturity                                    14,530              15,276              19,107              20,223
   Securities available-for-sale                                 374,199             374,199             432,953             432,953
   Loans, net                                                    924,384             929,492             786,940             794,042
                                                              ----------          ----------          ----------          ----------
                                                              $1,346,223          $1,352,077          $1,270,435          $1,278,653
                                                              ==========          ==========          ==========          ==========

Financial liabilities:
Deposits                                                      $1,246,138          $1,127,185          $1,156,798          $1,157,635
   Short-term borrowings                                          29,001              29,001              62,109              62,109
   Long-term borrowings                                           30,000              29,631              10,000              10,149
                                                              ----------          ----------          ----------          ----------
                                                              $1,305,139          $1,185,817          $1,228,907          $1,229,893
                                                              ==========          ==========          ==========          ==========
</TABLE>

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

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.


<PAGE>

Securities  held-to-maturity 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.  The fair value 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  nonperforming  loans is estimated using methods employed by management
in evaluating the adequacy of the ALLL.

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  approximate  the 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, 2004 and 2003, the estimated fair values of these off-balance-sheet
financial instruments were immaterial.


                                       50
<PAGE>

Note 21. Parent Company Only Information (in thousands)

                                                       -------------------------
                                                              December 31,
                                                       -------------------------
Condensed balance sheets                                 2004             2003
                                                       --------         --------
Assets
  Cash                                                 $  1,630         $  1,104
  Securities available-for-sale                               -              484
  Investment in subsidiaries
   Bank                                                 149,422          145,889
   Other                                                    142              142
  Dividends receivable                                        -                -
  Other assets                                                -                8
                                                       --------         --------
   Total assets                                        $151,194         $147,627
                                                       ========         ========

Liabilities
  Dividends payable                                           -                -
  Other liabilities                                    $  1,040            4,434
                                                       --------         --------
                                                          1,040            4,434
                                                       --------         --------

Stockholders' equity
  Common stock                                            5,396            5,396
  Capital surplus                                        73,320           73,232
  Retained earnings                                      86,542           74,710
  Accumulated other comprehensive income                   (633)           2,434
                                                       --------         --------
                                                        164,625          155,772
  Less:  Treasury stock                                  14,471           12,579
                                                       --------         --------
   Total stockholders' equity                           150,154          143,193
                                                       --------         --------
   Total liabilities and stockholders' equity          $151,194         $147,627
                                                       ========         ========

                                               ---------------------------------
                                                   Years Ended December 31,
                                               ---------------------------------
Condensed statements of income                   2004        2003         2002
                                               --------    --------     --------
Dividends from subsidiary bank                 $ 11,710    $ 20,320     $  3,107
Net gain on sale of securities                      304           -     $      -
Other income                                          -           -            1
                                               --------    --------     --------
   Total revenues                                12,014      20,320        3,108
                                               --------    --------     --------

Interest on short-term borrowings                    12           -            -
Operating expenses                                  303         225          176
                                               --------    --------     --------

Income before equity in undistributed
  earnings of subsidiaries                       11,700      20,095        2,932
Equity in undistributed earnings
  of subsidiaries                                 6,514      (3,729)       9,945
                                               --------    --------     --------
   Net income                                  $ 18,214    $ 16,366     $ 12,877
                                               ========    ========     ========

<PAGE>

<TABLE>
<CAPTION>
                                                                                           ----------------------------------------
                                                                                                    Years Ended December 31,
                                                                                           ----------------------------------------
Condensed statements of cash flows                                                           2004            2003            2002
                                                                                           --------        --------        --------
<S>                                                                                        <C>             <C>             <C>
Cash flows from operating activities:
  Net income                                                                               $ 18,214        $ 16,366        $ 12,877
  Adjustments to reconcile net income
   to net cash provided by operating activities
   Net gain on sale of securities available-for-sale                                           (304)              -               -
   Decrease in other assets                                                                       8           1,588             485
   Decrease (increase) in dividends payable                                                       -          (1,372)            501
   Decrease in other liabilities and other                                                   (3,344)           (198)           (138)
  Equity in undistributed income of subsidiaries                                             (6,514)          3,729          (9,945)
                                                                                           --------        --------        --------
   Net cash provided by operating activities                                               $  8,060          20,113           3,779
                                                                                           --------        --------        --------

Cash flows from investing activities:
  Sale of securities available-for-sale                                                         651               -               -
                                                                                           --------        --------        --------
   Net cash provided by investing activities                                                    651               -               -
                                                                                           --------        --------        --------

Cash flows from financing activities:
  Cash dividends paid                                                                        (6,382)         (4,970)         (4,321)
  Treasury stock                                                                             (2,154)           (693)           (432)
  Common stock issued                                                                           205             354           1,685
  Exercise of option shares                                                                     146             438             198
  Net cash payments for the acquisition of Bridge View Bancorp                                    -         (15,768)              -
                                                                                           --------        --------        --------
   Net cash used in financing activities                                                     (8,185)        (20,639)         (2,870)
                                                                                           --------        --------        --------

Net increase/(decrease) in cash                                                                 526            (526)            909
Cash at beginning of year                                                                     1,104           1,630             721
                                                                                           --------        --------        --------
Cash at end of year                                                                        $  1,630        $  1,104        $  1,630
                                                                                           ========        ========        ========

Supplemental disclosure of non-cash investing and financing activities:
    Stock issued for net assets purchased                                                         -               -        $  1,375
    Stock issued related to Bridge View acquisition                                               -        $ 52,180               -
</TABLE>


                                       51
<PAGE>

Note 22. Quarterly Financial Data (unaudited) (in thousands, except per share
         data)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                    First        Second         Third        Fourth
                                  2004                                             Quarter       Quarter       Quarter       Quarter
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>           <C>           <C>           <C>
Interest income                                                                    $15,671       $15,998       $16,876       $17,555
Interest expense                                                                     3,137         3,062         3,416         4,039
Net Interest income                                                                 12,534        12,636        13,460        13,516
Provision for loan losses                                                              375           300           300           225
Net gain on sale of securities                                                         514           305           163           462
Non-interest income, excluding net gain on sale of securities                        2,001         2,387         2,714         2,911
Non-interest expenses                                                                8,917         8,798         9,267         9,026
Income before income taxes                                                           5,757         6,530         6,770         7,638
Net income                                                                           3,986         4,355         4,661         5,212

Basic earnings per common share                                                    $  0.21       $  0.23       $  0.25       $  0.27
Diluted earnings per common share                                                  $  0.21       $  0.23       $  0.24       $  0.27

------------------------------------------------------------------------------------------------------------------------------------
                                                                                    First        Second         Third        Fourth
                                  2003                                             Quarter       Quarter       Quarter       Quarter
------------------------------------------------------------------------------------------------------------------------------------
Interest income                                                                    $13,450       $15,202       $15,965       $15,651
Interest expense                                                                     3,598         3,602         3,371         3,303
Net Interest income                                                                  9,852        11,600        12,594        12,348
Provision for loan losses                                                              265           530           485           535
Net gain on sale of securities                                                           -            19           501           273
Non-interest income, excluding net gain on sale of securities                        1,844         2,625         2,834         2,549
Non-interest expenses                                                                6,527         7,696         8,758         8,259
Income before income taxes                                                           4,904         6,018         6,686         6,376
Net income                                                                           3,356         4,187         4,511         4,312

Basic earnings per common share                                                    $  0.23       $  0.23       $  0.23       $  0.23
Diluted earnings per common share                                                  $  0.23       $  0.23       $  0.23       $  0.22
</TABLE>

All per share data has been restated to reflect a 3-for-2  stock split  declared
on January 18, 2005 and paid on February 18, 2005.


                                       52