Exhibit 13.  Portions of the Annual Report to  Shareholders  for the year ended,
             December 31, 1999.

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

     This  section  presents   management's   discussion  and  analysis  of  the
consolidated  results of  operations  and  financial  condition  of  Interchange
Financial  Services  Corporation  (the  "Company").  The discussion and analysis
should  be  read  in  conjunction  with  the  Company's  consolidated  financial
statements and notes thereto on pages 29 through 46 and the summary consolidated
data included  elsewhere in this report.

     On May 31, 1998, the Company  acquired The Jersey Bank for Savings ("Jersey
Bank"), which maintained two banking offices,  both located within the Company's
delineated  market  area.  At that date,  Jersey Bank had total  assets of $78.6
million and total deposits of $69.8 million.  The  transaction was accounted for
as  a  pooling-of-interests,   and  accordingly,   the  prior  period  financial
statements  presented  herein have been  restated to include  the  accounts  and
results of operations of Jersey Bank.  Each share of Jersey Bank's common stock,
including  shares  of  common  stock  that had been  converted  from  shares  of
preferred  stock,  was converted into 1.5 shares of the Company's  common stock.
Total  consideration  tendered in the transaction  amounted to 780,198 shares of
the Company's common stock.

Earnings Summary

     Net  income  for the year  ended  December  31,  1999 was $9.6  million  as
compared with $8.6 million in 1998,  an increase of 11.9%.  For the same period,
diluted earnings per share rose 14.3% to $1.36 in 1999 from $1.19 in 1998. Basic
earnings  per share in 1999 were $1.37 as compared to $1.20 in 1998.  Excluding,
the 1998 merger related charge of $898 thousand, net of tax, net income for 1999
would have increased $128 thousand or 1.3% as compared to 1998. Diluted earnings
per share  would have  increased  3.8% to $1.36 in 1999 as  compared to $1.31 in
1998. Basic earnings per share would have increased 3.8% to $1.37 as compared to
$1.32 in 1998.

     The Company's  operating  performance for 1999 reflects  favorable loan and
deposit  growth,  healthy asset  quality and a disciplined  approach in managing
non-interest  expenses.  The  Company's  returns on average  equity and  average
assets  were 15.52% and 1.39%,  respectively,  in 1999 as compared to 14.53% and
1.31%,  respectively,  in  1998.  Furthermore,  the  favorable  earnings  growth
resulted in an increase in the  quarterly  dividend  paid on common  stock to an
annualized  rate of $.48 in 1999 as  compared  to $.40 in 1998,  an  increase of
20.0%.

     The  improvement  in earnings  for 1999 as compared to 1998,  was driven by
growth  in net  interest  income,  an  increase  in  non-interest  income  and a
reduction in the Company's effective tax rate. Net interest income, on a taxable
equivalent  basis,  for 1999  increased  $1.7  million,  or 5.7% from 1998.  The
increase in net interest  income  resulted  primarily from the growth in average
interest earning assets and an improved net interest margin. Non-interest income
increased  $411  thousand or 8.3% and had a favorable  impact on  earnings.  The
Company's  effective  tax rate  decreased to 34.0% for the  year-ended  1999, as
compared  to 36.3%  for the same  period in 1998 and had a  favorable  impact on
earnings.

Table 1
----------------------------------------------------------------
Summary of Operating Results
----------------------------------------------------------------
                                     1999       1998      1997
                                   --------   --------  --------

Net income (in thousands)           $9,635    $8,609    $7,925
Basic earnings per common share       1.37      1.20      1.11
Diluted earnings per common share     1.36      1.19      1.10
Return on average total assets        1.39%     1.31%     1.33%
Return on average total equity       15.52     14.53     14.95
Dividend payout ratio*               35.04     32.81     30.08
Average total stockholders'equity to
    average total assets              8.99      9.00      8.89

* Cash dividends declared on common shares to net income.

Results of Operations

Net Interest Income

     The major  source of income for the  Company is net  interest  income.  Net
interest  income is the  difference  between the interest a company earns on its
assets, principally loans and investment securities, and interest it pays on its
deposits and  borrowings.  When  expressed as a percentage  of average  interest
earning  assets,  it is referred to as net interest  margin,  or simply interest
margin.  Table 2 sets  forth a summary of average  interest  earning  assets and
interest  bearing  liabilities for the years ended,  December 31, 1999, 1998 and
1997, together with the interest earned and paid on each major type of asset and
liability  account during such periods.  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  1999  and  1998,
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

<PAGE>
<TABLE>
<CAPTION>

Table 2
______________________________________________________________________________________________________________________________
Analysis of Net Interest Income
for the years ended December 31,
______________________________________________________________________________________________________________________________
(dollars in thousands)
                                                       1999                           1998                     1997
                                       ---------------------------------  --------------------------- ---------------------------
                                       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)                            $494,022     $39,521     8.00 % $462,296 $38,904    8.42 %  $402,799  $35,380    8.78 %
     Taxable securities (4)                142,786       8,692     6.09    132,433   8,206    6.20     137,202    8,856    6.45
     Tax-exempt securities (2)(4)           11,578         650     5.61      4,428     234    5.28       2,514      129    5.13
     Federal funds sold                     12,142         596     4.91     27,318   1,474    5.40      16,061      896    5.58
     Interest bearing demand deposits            -           -        -      1,024      55    5.37       1,721       78    4.53
                                          ---------   ---------           --------- -------           --------   ------
     Total interest earning assets         660,528      49,459     7.49    627,499  48,873    7.79     560,297   45,339    8.09
                                                      ---------                     -------                      ------
    Non-interest earning assets
     Cash and due from banks                18,386                          17,618                      24,579
     Allowance for loan losses              (5,638)                         (5,437)                     (4,636)
     Other assets                           17,682                          18,336                      16,117
                                          ---------                        --------                   --------
     Total assets                         $690,958                        $658,016                    $596,357
                                          =========                       =========                   ========
Liabilities and stockholders' equity
    Interest bearing liabilities
     Demand deposits                      $201,150      6,055      3.01   $171,546   5,573    3.25    $141,523   4,575     3.23
     Savings deposits                      128,700      2,992      2.33    132,735   3,790    2.86     123,417   3,779     3.06
     Time deposits                         172,005      8,653      5.03    171,462   9,104    5.31     169,196   8,889     5.25
     Short-term borrowings                  18,501      1,000      5.41     14,723     807    5.48      12,844     727     5.66
     Long-term borrowings                    1,302         83      6.37      9,828     590    6.00       9,935     596     6.00
                                          ---------   ---------           --------- -------           --------  ------
     Total interest bearing liabilities    521,658     18,783      3.60    500,294  19,864    3.97     456,915  18,566     4.06
                                                      ---------                     -------                     ------

    Non-interest bearing liabilities
     Demand deposits                       102,194                          94,568                      81,707
     Other liabilities                       5,012                           3,903                       4,738
                                          ---------                        --------                   --------
     Total liabilities (3)                 628,864                         598,765                     543,360
     Stockholders' equity                   62,094                          59,251                      52,997
                                          =========                       =========                   ========
     Total liabilities and                $690,958                        $658,016                    $596,357
       stockholders equity                =========                       =========                   ========

Net interest income (tax-equivalent basis)             30,676      3.89             29,009    3.82            26,773     4.03
Tax-equivalent basis adjustment                          (158)                         (53)                      (29)
                                                      ---------                     -------                   ------
Net interest income                                   $30,518                      $28,956                   $26,744
                                                      =========                    ========                   ======

Net interest income as a percent of
    interest earning assets (tax-equivalent basis)                 4.64 %                     4.62 %                     4.78 %

______________________________________________________________________________________________________________________________
<FN>

(1)  Nonaccrual  loans and any related  interest  recorded have been included in
     computing the average rate earned on the loan portfolio.
(2)  Computed on a fully taxable  equivalent  basis using the corporate  federal
     tax rate of 34%.
(3)  All deposits are in domestic  bank  offices.  (4) The average  balances are
     based on historical cost and do not reflect unrealized gains or losses.
</FN>
</TABLE>
                                       15
<PAGE>
<TABLE>
<CAPTION>

Table 3
------------------------------------------------------------------------------------------------------
Effect of Volume and Rate Changes on Net Interest Income
------------------------------------------------------------------------------------------------------
(in thousands)
                                          Year ended December 31,         Year ended December 31,
                                          1999 compared with 1998         1998 compared with 1997
                                            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                                 $2,671    $(2,054)       $ 617   $5,226   $(1,702)    $3,524
  Taxable securities                       641       (155)         486     (302)     (348)      (650)
  Tax-exempt securities                    401         15          416      101         4        105
  Federal funds sold                      (755)      (123)        (878)     628       (50)       578
  Interest bearing demand deposits         (55)         -          (55)     (37)       14        (23)
                                      ---------  ---------  ----------  --------  -------- -----------
   Total interest income                 2,903     (2,317)         586    5,616    (2,082)      3,534
                                      ---------  ---------  ----------  --------  -------- -----------
Interest expense
  Demand deposits                          962       (480)         482      975        23         998
  Savings deposits                        (112)      (686)        (798)     285      (274)         11
  Time deposits                             29       (480)        (451)     120        95         215
  Short-term borrowings                    207        (14)         193      102       (22)         80
  Long-term borrowings                    (546)        39         (507)      (6)        -          (6)
                                      ---------  ---------  ----------  --------  -------- -----------
   Total interest expense                  540     (1,621)      (1,081)   1,476      (178)      1,298
                                      ---------  ---------  ----------  --------  -------- -----------
Change in net interest income          $ 2,363     $ (696)     $ 1,667   $4,140   $(1,904)    $ 2,236
                                      =========  =========  ==========  ========  ======== ===========

-----------------------------------------------------------------------------------------------------
<FN>

Non-performing loans are included in interest earning assets.
</FN>
</TABLE>

     Net  interest  income,  on a taxable  equivalent  basis,  amounted to $30.7
million,  an increase of $1.7 million,  or 5.7%, from $29.0 million in 1998. The
increase in net  interest  income was  principally  due to the strong  growth in
interest  earning  assets of $33.0  million  that was funded  largely by a $33.7
million growth in deposits. The growth in deposits, which occurred predominantly
in interest and non-interest  bearing demand deposits,  had a positive effect on
the composition  ("mix") of retail  deposits.  Net interest income was favorably
affected by a change in the retail deposit mix, which served to reduce the yield
on total deposits. The net interest margin increased 2 basis points to 4.64% for
1999 as compared to 4.62% for 1998,  due largely to the positive  effects on the
Company's funding cost resulting from the decline in market interest rates.

     Interest income, on a taxable  equivalent  basis,  totaled $49.5 million in
1999,  an increase  of $586  thousand  or 1.2% from $48.9  million in 1998.  The
increase  was  principally  driven by the  growth in  average  interest  earning
assets.  Average yields on interest  earning assets decreased 30 basis points to
7.49% in 1999 as compared to 1998.  The  increase  in average  interest  earning
assets was  principally due to strong growth in loan  originations.  The average
balance of commercial and commercial  mortgage loans  increased by $23.1 million
or 11.6% to $223.1  million in 1999, as compared to $200.0  million in 1998. The
average  balance of  consumer  loans  (comprised  mostly of home  equity  loans)
totaled $270.2 million in 1999,  compared to $256.9 million in 1998, an increase
of $13.3 million or 5.2%.  The increase in average loans  outstanding  more than
offset the effects of the decline in yield on interest  earning assets resulting
from a decrease in market interest rates.  Interest income also benefited from a
$17.5 million growth in the securities  portfolio.  The growth was partly offset
by a decline in the average yield of the  securities  portfolio.  The decline in
average  yield was largely due to the decline in market  interest  rates  during
1999.  A decline in  Federal  funds sold of $15.2  million  negatively  impacted
interest income.

     Interest  expense totaled $18.8 million in 1999, a decrease of $1.1 million
or 5.4% as compared to 1998. The decrease was principally due to a decline of 37
basis points in the average rates paid on interest bearing  liabilities to 3.60%
in 1999 as compared to 3.97% in 1998.  This decline in average rates was largely
due to a decrease in market  interest rates and a more favorable  retail deposit
mix. The positive effects of the decline in interest rates were partly offset by
a $21.4 million growth in average  interest  bearing  liabilities,  specifically
interest bearing demand deposits. The average balance of interest bearing demand
deposits  grew $29.6  million or 17.3% to $201.2  million in 1999 as compared to
1998. Total average interest and non-interest bearing demand deposits grew $37.2
million  or 14.0%,  in 1999,  which is  largely  attributable  to the  Company's
continued  efforts  in  marketing  and  sales.  In  addition,  commercial  loans
resulting  from these  selling  efforts  generally  carry  compensating  deposit
balances in the form of demand deposits and further contributed to the growth.

     In 1998, net interest income, on a taxable  equivalent  basis,  amounted to
$29.0 million, an increase of $2.2 million, or 8.4%, from $26.8 million in 1997.
The increase in net interest  income was principally due to the strong growth in
interest  earning  assets of $67.2  million  that was funded  largely by a $54.5
million growth in deposits.  The growth, which occurred  predominantly in demand
deposits,  had a positive  effect on the mix of retail  deposits.  The favorable
change in retail deposit mix served to reduce the yield on total deposits, which
had a favorable impact on net interest income. The net interest margin decreased
16 basis points to 4.62% for 1998 as compared to 4.78% for 1997,  largely due to
the decline in market interest rates.

     In 1998,  interest income,  on a taxable  equivalent  basis,  totaled $48.9
million,  an increase of $3.5  million or 7.8% from $45.3  million in 1997.  The
increase  was  principally  driven by the  growth in  average  interest  earning
assets,  which more than  offset the  effects  of a decline in  interest  rates.
Average yields on interest  earning assets decreased 30 basis points to 7.79% in
1998 as compared to 1997. The increase in

                                       16
<PAGE>

average  interest  earning assets was  principally  due to strong growth in loan
originations.  The average  balance of commercial and commercial  mortgage loans
increased by $22.4  million or 12.6% to $200.0  million in 1998,  as compared to
1997. The average  balances of consumer loans  (comprised  mostly of home equity
loans) totaled  $256.9  million in 1998,  compared to $225.2 million in 1997, an
increase of $31.7 million or 14.1%.  The increase in average  loans  outstanding
more than offset the effects of the  decrease  in the average  yields  earned on
those loans.  Net interest  income was  negatively  affected by a decline in the
average volume and average yield earned on the securities portfolio. The decline
in average yield was largely due to the decline in market  interest rates during
1998.

     In 1998,  interest  expense  totaled  $19.9  million,  an  increase of $1.3
million or 7.0% as compared to 1997.  The  increase was largely due to the $43.4
million growth in average interest bearing  liabilities,  specifically  interest
bearing demand deposits. The average balance of interest bearing demand deposits
grew $30.0 million or 21.2% to $171.5 million in 1998 as compared to 1997. Total
average interest and non-interest  bearing demand deposits grew $42.9 million or
19.2%, in 1998, which is largely attributable to the Company's continued efforts
in marketing  and sales.  In addition,  commercial  loans  resulting  from these
selling efforts  generally carry  compensating  deposit  balances in the form of
demand  deposits and further  contributed  to the growth.  The interest  expense
associated  with the growth was  offset,  in part,  by a decrease in the average
rates paid on interest bearing liabilities of 9 basis points to 3.97% in 1998 as
compared  to 4.06% in 1997.  The  decline in average  rates was largely due to a
decline in the rates  offered on savings  deposits and a more  favorable  retail
deposit mix.


Non-interest income

     Non-interest income consists of all income other than interest and dividend
income and is principally  derived from:  fees on bank  transactions  and credit
cards; loan fees;  commissions on sales of annuities and mutual funds; rental of
safe deposit space; income from the collection of principal on acquired loans in
excess of their  carrying  value and net gains on sales of assets.  The  Company
recognizes  the  importance  of  supplementing  net  interest  income with other
sources of income and maintains a committee that explores new  opportunities  to
build non-interest income. In 1999, non-interest income totaled $5.3 million, an
increase of $411 thousand or 8.3% over 1998. The growth in  non-interest  income
was largely due to an increase in the  collection of principal on acquired loans
in excess of their carrying value and gains from the sale of the Company's VISA
(TM) and merchant credit card  portfolios.  The major components of non-interest
income are described  below. In 1998, total  non-interest  income increased $154
thousand or 3.2% over 1997.

     In 1999, net gains from the sale of securities amounted to $859 thousand, a
decrease of $162  thousand or 15.9% from $1.0  million in 1998.  Included in the
net gains is $856 thousand from the sale of available for sale securities and $3
thousand  from the sale of a held to  maturity  security  (scheduled  to  mature
within 3 months).  In 1998, the net gain included $876 thousand from the sale of
available  for sale  securities  and $145  thousand  from the call of a security
before its maturity.

     In 1999,  the Company  realized  gains  related to the sale of VISA(TM) and
merchant credit card portfolios of $86 thousand and $329 thousand, respectively.
The gain for the  VISA(TM)  portfolio  sale is  included  in net gain on sale of
loans  and the gain  from the sale of the  merchant  credit  card  portfolio  is
included in other income.  The VISA(TM) and merchant credit card portfolios were
sold  following an evaluation  of the  risk/reward  profiles of the  portfolios,
which  determined  that the risk  associated  with the  portfolios  exceeded the
levels deemed  acceptable by the Company.  During 1998, there were no gains from
the sale of VISA(TM) and merchant credit card portfolios.


     In 1999,  the  collection of principal on acquired loans in excess of their
carrying  value  increased  $508 thousand as compared to 1998.  The increase for
1999 was negatively impacted by a decrease in service fees on deposits and other
non-interest   income  in  the  amount  of  $251   thousand  and  $99  thousand,
respectively.  Other non-interest income includes, but is not limited to, income
from  servicing  fees,  commissions,  loan fees and safe  deposit  rental  fees.
Included in other income for 1998 was $53 thousand  from the sale of the reverse
mortgage-servicing portfolio.

     In 1998,  service  fees on  deposits  increased  $511  thousand or 25.0% as
compared to 1997. In 1998,  strategies  implemented  by the Company were largely
responsible  for the growth in service fees on deposits.  The overall  growth in
the deposit base also contributed to the increase.

     There were no gains from loan sales  during  1998,  whereas,  in 1997,  the
Company  realized  pre-tax gains of $1.1 million from the sale of two commercial
mortgage loans. The loans were sold based on management's assessment of the risk
associated  with such loans as they neared their maturity.  In 1998,  gains from
the sale of securities consisted of $876 thousand from the sale of available for
sale  securities  and  $145  thousand  from the call of a  security  before  its
maturity. There were no gains from the sale of securities in 1997.

     In 1998,  the  collection of principal on acquired loans in excess of their
carrying value decreased $681 thousand in 1998 as compared to 1997. The decrease
in 1998 was partially offset by an increase in other non-interest income of $370
thousand.


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

                                                   1999    1998    1997
                                                  ______  ______  ______
 Service fees on deposit accounts                 $2,300  $2,551  $2,040
 Net gain on sale of securities                      859   1,021       -
 Net gain on sale of loans                            86       -   1,067
 Net gains on sale of merchant credit
   card portfolio                                    329       -       -
 Collection of principal on acquired loans
   in excess of their carrying value                 682     174     855
 All other                                         1,083   1,182     812
                                                  ------  ------  ------
                                                  $5,339  $4,928  $4,774
                                                  ======  ======  ======


Non-interest Expenses

     Non-interest  expenses  totaled $20.1 million for 1999; an increase of $647
thousand or 3.3% from $19.4 million as compared to 1998.  Excluding the one-time
charges that occurred in 1998 associated with the acquisition of Jersey Bank and
the 1998  recognition  of $474  thousand  in cash  surrender  value  of  certain
directors'  life insurance  policies,  non-interest  expenses for 1999 increased
$1.6 million or 8.5% as compared to 1998.

     Salaries and  benefits,  the largest  component of  non-interest  expenses,
increased  $828 thousand or 8.8% when compared to the same period in 1998 due to
normal  promotions,  salary increases and the additions to staff associated with
the new branch  opening in Paramus,  New Jersey.  Occupancy  and  furniture  and
equipment  expense  increased  $303 thousand when compared to the same period in
1998 of which approximately $176 thousand of the increase can be attributed to a
full year of  operations of the Paramus  branch,  which was opened in the fourth
quarter of 1998.  Contributing to the increase in non-interest expenses for 1999
were higher advertising and promotion expenses of $168 thousand,  an increase in
Y2K  expenses  of $61  thousand,  and  approximately  $70  thousand  in expenses
associated with the establishment of Interchange Capital Company, a wholly owned
equipment


                                       17
<PAGE>

lease-financing  subsidiary.  All other  expenses  increased by $151 thousand or
3.6% for 1999 as compared to 1998.

     For 1998,  non-interest expenses totaled $19.4 million, an increase of $1.8
million or 10.0% from $17.6 million for 1997. The increase resulted  principally
from the merger-related  charges of $1.4 million associated with the acquisition
of Jersey Bank.  Excluding the  merger-related  charges,  non-interest  expenses
increased  $369  thousand  or 2.1% over  1997.  Initial  costs  associated  with
establishing a Real Estate Investment Trust ("REIT") subsidiary of $231 thousand
also  contributed  to the increase.  The REIT was  established to manage certain
real estate assets of the Company in an effort to take  advantage of certain tax
benefits.  Further contributing to the increase were occupancy and furniture and
equipment  costs,  which  increased  $409  thousand  due to the opening of a new
branch in Paramus and  investments  in technology.  Also,  salaries and benefits
increased $412 thousand (excluding costs associated with the REIT) due mostly to
salary increases,  promotions and the opening of the new branch in Paramus.  The
increases were partly offset by the  recognition of $474 thousand cash surrender
value  of  certain  directors'  life  insurance  policies,  which  had not  been
recognized  in prior  years.  The  amounts  had not been  recognized  due to the
statutory  receivership  of the insurer,  which gave rise to  significant  doubt
surrounding the collectibility of such amounts. In 1998,  management  determined
that the collectibility of the cash surrender value was probable since a solvent
insurance company had acquired the insurer.  In addition,  the Company benefited
from cost  savings  for the second  half of 1998 with  respect to the  synergies
arising from the merger with Jersey Bank.

     One of the  Company's  goals is to control  expenses  in order to  maximize
earnings and shareholder  value.  Generally,  the efficiency ratio is one method
utilized  to  measure  a bank's  operating  expenses.  The  efficiency  ratio is
non-interest expenses, excluding the amortization of intangibles, merger-related
expenses and net expenses of foreclosed  real estate,  expressed as a percentage
of net interest income (on a fully taxable  equivalent  basis) and  non-interest
income,  excluding  gains.  Generally,  the lower the efficiency  ratio the more
effective  the Company is in utilizing  its  resources to generate  income.  The
Company's  efficiency  ratio was 56.8%,  53.6% and 56.5% in 1999, 1998 and 1997,
respectively.  The  Company's  efficiency  ratio  continues  to remain below the
national  peer group  average.  The national  peer group average was 60.4% (peer
group  data as of  September  30,  1999 - based upon the most  recent  published
report by SNL Securities). The national peer group average for 1998 and 1997 was
60.0% and 59.9%, respectively (published by SNL Securities).


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

                                            1999     1998       1997
                                         ________  _______    _______
Salaries and benefits                    $ 10,265  $ 9,437    $ 8,951
Occupancy, furniture and equipment          3,743    3,440      3,031
Advertising and promotion                   1,033      865        865
Federal Deposit Insurance
  Corporation assessment                       81       75         58
Foreclosed real estate                         13        1          -
Acquisition                                     -    1,392          -
Other expenses
  Stationery, printing and supplies           307      255        304
  Professional fees                         1,101    1,184      1,216
  Communications                              404      327        289
  Postage and shipping                        397      356        313
  Credit card processing fees                  12       24         63
  Credit services                             188       74         99
  Amortization of premiums in connection
     with acquisitions                        313      384        444
  Directors' fees, travel and retirement      546       88        607
  Insurance premiums                          123      172        240
  Data Processing                             517      538        548
  Y2K                                          81       20          -
  All other                                   939      784        627
                                         ________  _______    _______
                                          $20,063  $19,416    $17,655
                                         ========  =======    =======

Income Taxes

     In 1999,  income taxes amounted to $5.0 million as compared to $4.9 million
and $4.3 million for 1998 and 1997, respectively. The effective tax rate in 1999
was 34.0% as  compared  to 36.3%  and  35.1%  for 1998 and  1997,  respectively.
Detailed  information  on  income  taxes  is  shown  in  Notes  1 and  16 to the
Consolidated Financial Statements.


Financial Condition

Loan Portfolio

     In 1999,  high levels of  prepayments  and  increased  competitive  factors
placed a great deal of pressure  on loan  production  for the banking  industry.
Despite  this,  the Company  continued to  experience  strong growth in its loan
portfolio.  At December 31, 1999,  total loans  amounted to $512.0  million and,
excluding  term federal  funds sold in 1998,  were up $38.3 million or 8.1% over
the previous year.

     Promotional  campaigns  in  conjunction  with  competitive  loan  rates and
focused sales efforts were instrumental to the loan growth,  particularly in the
1-4 family residential mortgage loan portfolio.  First lien real estate mortgage
loans  increased  $20.4  million  or 22.7% to $110.3  million in 1999 from $89.9
million in 1998.  The loan  growth was  largely  within  the  subsidiary  bank's
delineated community,  which confirms the Company's pledge of striving to be the
largest  community-based  banking  organization  in Bergen  County,  New  Jersey
dedicated to community service and helping its customers grow and prosper.

     Commercial  real  estate  mortgage  loans  amounted  to $166.4  million  at
December 31, 1999,  and  represented  32.5% of total loans as compared to $148.9
million  or 31.1%  of all  loans at the end of 1998.  These  loans  are  secured
primarily  by  first  priority  mortgage  liens  on  owner-occupied   commercial
properties.   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
Standard Industrial Classification Code, which exceeds 6% of its total loans.

                                       18
<PAGE>
<TABLE>
<CAPTION>

Table 6
________________________________________________________________________________________________________
Loan Portfolio
________________________________________________________________________________________________________
at December 31,


                                             1999       1998      1997     1996     1995
                                           ________   ________  ________ ________ ________
<S>                                        <C>        <C>       <C>      <C>      <C>

Amounts of loans by type (in thousands)
    Commercial and financial               $ 63,684   $ 64,067  $ 51,573 $ 51,908 $ 42,645
    Real estate-construction                  4,008        974     4,229    4,799    2,509
    Real estate-mortgage
     1-4 family residential
       First liens                          110,269     89,852    73,309   62,170   61,374
       Junior liens                           9,829     14,322    16,795   18,645   21,803
       Available for sale                         -          -         -    1,195    1,106
       Home equity                          144,747    142,781   143,177  121,504  102,006
     Commercial                             166,354    148,875   134,972  117,641  100,332
    Installment
     Credit cards and related plans             947      2,033     2,415    2,704    2,935
     Other                                    2,756      1,200     1,702    3,494    2,805
    Lease financing                           9,382      9,613    10,101        -       55
    Term federal funds                            -      5,000         -        -        -
                                            ________   ________  ________ ________ ________

         Total                             $511,976   $478,717  $438,273 $384,060 $337,570
                                            ========  ========   =======  =======  ========

Percent of loans by type
    Commercial and financial                   12.5 %   13.3 %    11.8 %   13.5 %    12.6 %
    Real estate-construction                    0.8      0.2       1.0      1.2       0.7
    Real estate-mortgage
     1-4 family residential
       First liens                             21.5     18.8      16.7     16.2      18.2
       Junior liens                             1.9      3.0       3.8      4.9       6.5
       Available for sale                         -        -         -      0.3       0.3
       Home equity                             28.3     29.8      32.7     31.6      30.2
     Commercial                                32.5     31.1      30.8     30.6      29.7
    Installment
     Credit cards and related plans             0.2      0.4       0.5      0.7       0.9
     Other                                      0.5      0.3       0.4      1.0       0.9
    Lease financing                             1.8      2.0       2.3        -         -
    Term federal funds                            -      1.1         -        -         -
                                            ________   ________  ________ ________ ________
         Total                                100.0 %  100.0 %   100.0 %  100.0 %   100.0 %
                                            ========  ========   =======  =======  ========


     The following  table sets forth the maturity  distribution of the Company's
loan  portfolio as of December 31, 1999.  The table  excludes  real estate loans
(other than  construction  loans),  lease financing and installment  loans:  (in
thousands)

                                       Due after
                            Due in     one year   Due after
                           one year    through      five
                            or less    five years   years    Total
                           ---------  ----------  --------  -------
Commercial and financial   $9,357      $28,061    $26,266   $63,684
Real estate-construction      302        3,706          -     4,008
                           ---------   -------    --------  -------
     Total                 $9,659      $31,767    $26,266   $67,692
                           =========   =======   =========  =======


     The following table sets forth, as of December 31, 1999, the sensitivity of
the amounts due after one year to changes in interest rates: (in thousands)

                            Due after
                            one year  Due after
                            through     five
                           five years  years
                           ----------  -------
Fixed interest rate        $19,227     $ 2,647
Variable interest rate      12,540      23,619
                           ----------  -------
     Total                 $31,767     $26,266
                           ==========  =======
</TABLE>
                                       19

<PAGE>

Loan Quality

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

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

     Management  maintains a "watchlist"  system under which credit officers are
required to provide early  warning of possible  deteriorations  in 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 at an early stage to allow early  implementation  of responsive  credit
strategies.  The "watchlist" report is presented to Executive Management monthly
and to the Board of Directors on a quarterly basis.

Loan Losses
     The provision for loan losses represents management's  determination of the
amount  necessary  to bring  the  allowance  for  loan  losses  to a level  that
management  considers  adequate to reflect the risk of future  potential  losses
inherent in the Company's loan  portfolio.  In its evaluation of the adequacy of
the allowance for loan losses,  management  considers past loan loss experience,
changes in the composition of performing and nonperforming loans, concentrations
of credit, economic conditions,  collateral coverage, the condition of borrowers
facing  financial  pressure  and the  relationship  of the current  level of the
allowance to the credit  portfolio  and to  nonperforming  loans.  However,  the
process of determining  the adequacy of the allowance is necessarily  judgmental
and  subject to changes in  external  conditions.  Accordingly,  there can be no
assurance that existing levels of the allowance will  ultimately  prove adequate
to cover actual loan losses.

     Loan loss provisions for 1999 amounted to $1.2 million, an increase of $249
thousand from the prior year. In 1998, the loan loss provision  amounted to $951
thousand,  a decrease of $702 thousand from 1997.  The increase in the loan loss
provision  for 1999 was due largely to continued  growth in the  Company's  loan
portfolio and an increase in charge-offs. The Company's loan portfolio increased
$33.3  million in 1999,  as  compared  to 1998.  The  Company's  commercial  and
commercial  mortgage  portfolios  made up $20.1  million or 60.4% of the growth.
During 1999, the Company  experienced an increase in its net charge-offs of $832
thousand.  The increase was  primarily due to the  charge-off of one  commercial
loan  amounting  to $1.1  million.  In  1999,  management  determined  that  the
allowance for loan losses was at a level  sufficient to absorb  estimated losses
in the loan portfolio.


<TABLE>
<CAPTION>

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

                                                1999      1998      1997     1996      1995
                                             _________  ________  ________ ________  ________
<S>                                         <C>         <C>       <C>      <C>       <C>

Average loans outstanding                    $494,022   $462,296  $402,799 $353,659  $318,089
                                             =========  ========  ======== ========  ========

Allowance at beginning of year                 $5,645     $5,231    $3,968   $3,926    $4,079
                                             ---------  -------   -------  --------  --------
Loans charged off
          Commercial                            1,234         15       293        8       399
          Installment                              59        135       141       78       108
          Real estate                             120        470       139      770       914
          Lease financing                           -          -         -       57        89
                                             ---------  --------   -------  --------  --------
              Total                             1,413        620       573      913     1,510
                                             ---------  --------   -------  --------  --------

Recoveries of loans previously charged off
          Commercial                               14         35        84       75        25
          Installment                              20         18        29       45        54
          Real estate                              10         30        70       88        32
          Lease financing                           -          -         -        -         7
                                             ---------  --------   -------  --------  --------
              Total                                44         83       183      208       118
                                             ---------  --------   -------  --------  --------
Net loans charged off                           1,369        537       390      705     1,392
                                             ---------  --------   -------  --------  --------

Additions to allowance charged to expense       1,200        951     1,653      747     1,239
                                             ---------  --------   -------  --------  -------
Allowance at end of year                       $5,476     $5,645    $5,231   $3,968    $3,926
                                             =========  ========   =======  ========  =======

Allowance to total loans                         1.07 %     1.18 %    1.19 %   1.03 %    1.16 %
Allowance to nonaccrual loans                  491.12     471.20    345.51   157.02    156.35
Allowance to nonaccrual loans and
     loans past due 90 days or more            491.12     471.20    316.07   155.49    156.35
Ratio of net charge-offs to average loans        0.28       0.12      0.10     0.20      0.44

</TABLE>

     The  allowance  for  loan  losses   ("allowance")   represented  491.1%  of
nonaccrual  loans and loans past due 90 days or more at the end of 1999, up from
471.2% at the end of 1998. The ratio increased principally due to a $83 thousand
decrease  in  nonaccrual  loans  and  loans  past due 90 days or more in 1999 as
compared to the end of the year in 1998.  The  increase  was partly  offset by a
$169 thousand decrease in the allowance  resulting from a $832 thousand increase
in net loans charged off.

                                       20
<PAGE>


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

                                  1999     1998    1997    1996    1995
                                -------   ------  ------  ------ --------
Commercial and financial        $  715    $1,036  $  888    $982  $  836
Installment                         82        93     147     165     228
Real estate                      2,191     2,330   2,628   2,101   2,252
Unallocated                      2,488     2,186   1,567     720     610
                                -------   ------  ------  ------ --------
                                $5,476    $5,645  $5,231  $3,968  $3,926
                                =======   ======  ======  ====== ========

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


Nonperforming Assets

     Nonperforming  assets consist of nonaccrual loans,  restructured  loans and
foreclosed  real estate.  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.  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 presents the detail of  nonperforming  assets and the  aggregate of
loans whose principal and/or interest has not been paid according to contractual
terms. Nonperforming assets decreased $223 thousand in 1999 as compared to 1998.
The decline was due largely to a $306 thousand  decrease in  restructured  loans
resulting from the pay down of the principal  balance.  In addition,  nonaccrual
loans  decreased $83 thousand in 1999, as compared to 1998, and further  reduced
nonperforming  assets. These reductions were offset by an increase in foreclosed
real estate of $166 thousand.  Nonperforming  assets  decreased $277 thousand in
1998 as  compared to 1997.  The  decline was driven  largely by the sale of $409
thousand of nonperforming loans during 1998.

     Based on the current information  available,  except for the loans included
in the table,  management believes that there were no material potential problem
loans, either individually or in the aggregate, at December 31, 1999.

<TABLE>
<CAPTION>

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

                                                           1999     1998   1997    1996    1995
                                                         -------- ------  ------  ------  -------
<S>                                                      <C>      <C>     <C>     <C>     <C>

Loans delinquent and accruing interest
  Loans past due 30-89 days                                $190     $379    $832    $838  $1,397
  Loans past due 90 days or more                              -        -     141      25       -
                                                         -------- ------  ------  ------  -------
   Total loans delinquent and accruing interest            $190     $379    $973    $863  $1,397
                                                         ======== ======  ======  ======  =======

Nonaccrual loans                                         $1,115   $1,198  $1,514  $2,527  $2,511
Foreclosed real estate                                      250       84       -     610   1,213
Restructured loans                                          222      528     573     725   1,465
                                                         -------- ------  ------  ------  -------
  Total nonperforming assets                             $1,587   $1,810  $2,087  $3,862  $5,189
                                                         ======== ====== =======  ======  =======
  Total nonperforming assets and loans
   past due 90 days or more                              $1,587   $1,810  $2,228  $3,887  $5,189
                                                         =======  ======  ======  ======  =======

Nonaccrual loans to total loans                            0.22%    0.25%   0.35%   0.66%   0.74%
Nonperforming assets to total loans and
  foreclosed real estate                                   0.31     0.38    0.48    1.00    1.53
Nonperforming assets to total assets                       0.22     0.26    0.33    0.67    0.95
Nonaccrual loans and loans past due 90 days
  or more to total loans                                   0.22     0.25    0.38    0.66    0.74
Nonperforming assets and loans past due 90 days
  or more to total loans and foreclosed real estate        0.31     0.38    0.51    1.01    1.53
Nonperforming assets and loans past due 90 days
  or more to total assets                                  0.22     0.26    0.36    0.68    0.95

</TABLE>
                                       21
<PAGE>

Securities Held to Maturity and Securities Available for Sale

     The Company  identifies as "securities  available for sale" securities used
as part of its asset/ liability management  strategy,  or securities that may be
sold in  response  to,  among  other  things,  changes  in  interest  rates  and
prepayment  risk. Debt securities  purchased with the intent and ability to hold
until maturity are classified as "held to maturity".  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) of "securities held to
maturity"  and  "securities  available  for sale".  Historical  cost was used to
calculate the weighted average yields.

<TABLE>
<CAPTION>

Table 10
____________________________________________________________________________________________________________________
Securities
____________________________________________________________________________________________________________________
at December 31, 1999
(dollars in thousands)

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

Securities held to maturity at amortized cost
  Obligations of U.S. Treasury                        $ 9,997         -           -           -   $ 9,997   5.74 %
  Mortgage-backed securities                              247   $10,758      $3,722      $5,505    20,232   6.76
  Obligations of U.S. agencies                          2,000     5,992           -           -     7,992   6.56
  Obligations of states & political subdivisions        6,987     1,803         951       6,454    16,195   6.12
  Other debt securities                                    24       100           -           -       124   6.82
                                                       ------   --------  ---------   ---------  --------
                                                       19,255    18,653       4,673      11,959    54,540
                                                       ------   --------  ---------   ---------  --------


Securities available for sale at market value
  Obligations of U.S. Treasury                              -     6,103           -           -    6,103    7.00
  Mortgage-backed securities                              154    41,868      11,897      13,534   67,453    6.53
  Obligations of U.S. agencies                          3,962    17,830       1,967       3,321   27,080    5.92
  Obligations of states & political subdivisions            -        -        2,941           -    2,941    6.19
                                                       ------   --------  ---------   ---------  --------
       Total                                            4,116    65,801      16,805      16,855  103,577
                                                       ------   --------  ---------   ---------  --------

                                                      $23,371   $84,454     $21,478     $28,814 $158,117
                                                      =======   =======     =======     ======= ========
Weighted average yield                                   5.52%     6.53%       6.63%       6.44%    6.38%



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



                                                       1999                1998           1997
                                                  -----------------  ---------------  --------------
                                                   Amount      %      Amount     %     Amount    %
                                                  --------  -------  --------  -----  --------  -----
Securities held to maturity
  Obligations of U.S. Treasury                     $ 9,997     18.3%  $15,992   29.6%  $22,134   36.7%
  Mortgage-backed securities                        20,232     37.1    18,921   34.9    28,398   47.0
  Obligations of U.S. agencies                       7,992     14.7     7,986   14.7     6,711   11.1
  Obligations of states & political subdivisions    16,195     29.7    11,111   20.5     3,049    5.0
  Other debt securities                                124      0.2       149    0.3       150    0.2
                                                  --------  -------  --------  -----  --------  -----
                                                   $54,540    100.0%  $54,159  100.0%  $60,442  100.0%
                                                  ========  =======  ========  =====  ========  ======

Securities available for sale
  Obligations of U.S. Treasury                     $ 6,103      5.7%  $34,041   35.5%  $35,983   47.6%
  Mortgage-backed securities                        67,453     62.9    43,066   45.0    27,149   35.9
  Obligations of U.S. agencies                      27,080     25.2    13,824   14.4     7,012    9.3
  Obligations of states & political subdivisions     2,941      2.7         -      -         -      -
  Equity securities                                  3,772      3.5     4,840    5.1     5,411    7.2
                                                  --------  -------  --------  -----  --------  -----
                                                  $107,349    100.0%  $95,771  100.0%  $75,555  100.0%
                                                  ========  =======  ========  =====  ========  =====

</TABLE>

     The Company's total investment portfolio increased by $12.0 million or 8.0%
to $161.9 million at December 31, 1999 as compared to the prior year. The growth
was  principally  in  U.S.   agencies,   obligations  of  states  and  political
subdivisions  and  mortgaged-backed  securities,  which includes  collateralized
mortgage  obligations ("CMO"). The growth was partly offset by a decline in U.S.
Treasury securities as a result of a limited portfolio restructuring, maturities
and the sale of equity  securities.  The U.S.  Treasury  securities were sold as
part of a limited  portfolio  restructuring  aimed at improving the  risk/reward
characteristics  of the  securities  portfolio.  The  Company  sold  the  equity
securities to eliminate the market-risk  exposure  following the announcement by
the issuing company that it had agreed to merge with another organization.

     Substantially all of the mortgage-backed securities held by the Company are
issued or backed by Federal  agencies.  At December 31, 1999,  the Company's CMO
portfolio did not include any securities

                                       22
<PAGE>


deemed  as  "high  risk"  as  defined  by  the  Federal  Financial  Institutions
Examination  Council.  Total gross  unrealized  gains and total gross unrealized
losses for the investment  portfolio amounted to $315 thousand and $2.1 million,
respectively, at December 31, 1999.

     The Company's held to maturity portfolio increased by $381 thousand or 1.0%
to $54.5  million at  December  31,  1999 as  compared  to the prior  year.  The
increase was  principally  due to growth in  obligations of states and political
subdivision  securities.  The  growth  was in part  offset by a decline  in U.S.
Treasury  securities  as a  result  of  maturities  and  the  limited  portfolio
restructuring.

     The Company's  available for sale  portfolio  increased by $11.6 million or
12.1% to $107.3  million at December 31, 1999 as compared to the prior year. The
growth was largely due to the limited  portfolio  restructuring and the purchase
of securities in 1999. The limited portfolio  restructuring involved the sale of
short-term U.S. Treasury  securities and the purchasing of short-duration  CMO's
and  Non-callable   U.S.  Agency  Medium  Term  Notes.  The  limited   portfolio
restructuring  was aimed at improving  the  risk/reward  characteristics  of the
securities portfolio.

     During 1998, The Company transferred certain securities  classified as held
to  maturity  by  Jersey  Bank  to  available  for  sale.  The  securities  were
reclassified upon consummation of the acquisition because of their higher degree
of interest rate sensitivity. Furthermore, the securities did not conform to the
Company's  investment  objectives  or to its policy for managing  interest  rate
risk.  At the date of transfer the  securities  had a book value of $8.2 million
and a market value of $8.1 million.

Deposits


     The Company  traditionally  relies on its  deposit  base to fund its credit
needs.  Core  deposits,  which include  non-interest  bearing  demand  deposits,
interest bearing demand accounts,  savings  deposits,  money market accounts and
time deposits in amounts under $100,000,  represented 96.5% of total deposits at
December 31, 1999 and 95.8% at December 31, 1998.

     Total deposits amounted to $599.0 million at December 31, 1999, an increase
of $260  thousand or 0.04% from  year-end  1998.  The growth in the deposit base
occurred in interest bearing demand  deposits,  which increased $19.8 million or
10.2% at December 31, 1999, as compared to the prior year. Time deposits,  which
represents  a higher cost of funds  decreased  by $8.0 million or 4.7% to $162.5
million at year-end 1999 as compared to year-end  1998. In addition,  the growth
in  deposits  was in part  offset by a decline in  non-interest  bearing  demand
deposits.

     During 1999, the Company had a favorable  change in the mix of deposits (on
average),  which when  combined  with  declines in interest  rates,  reduced the
overall yield on deposits by 37 basis points. The Company's emphasis of building
core  customer  relationships  has been  paramount to its success in  positively
changing the composition of its deposit mix over the last five years.

<TABLE>
<CAPTION>

Table 11
___________________________________________________________________________________________________________________________________
Deposit Summary
___________________________________________________________________________________________________________________________________
at December 31,
(dollars in thousands)
                                           1999                  1998              1997                1996             1995
                                    -----------------   ------------------  -----------------  -----------------  -----------------
                                     Amount        %     Amount        %     Amount        %    Amount        %   Amount        %
                                    --------     ----    --------     ----  --------     ----  --------     ----  --------     ----
<S>                                 <C>          <C>     <C>          <C>   <C>          <C>   <C>          <C>   <C>          <C>
Non-interest bearing demand         $102,392     17.1%   $107,408      7.9% $ 95,436     17.6% $ 78,450     16.0% $ 70,667    14.5%

Interest bearing demand              213,970     35.8     194,177     32.4   154,301     28.6   121,878     24.8   114,009    23.4

Money market                          49,256      8.2      50,665      8.5    41,815      7.7    41,372      8.4    40,728     8.4

Savings                               70,907     11.8      76,026     12.7    81,202     15.0    82,817     16.8    85,816    17.6

Time deposits less  than $100,000    141,444     23.6     145,337     24.3   134,287     24.9   139,994     28.5   158,689    32.5

Time deposits greater than $100,000   21,023      3.5      25,119      4.2    33,724      6.2    27,126      5.5    17,315     3.6
                                    --------    -----    --------    -----  --------     ----  --------    -----  --------  -------
                                    $598,992    100.0%   $598,732    100.0% $540,765    100.0% $491,637    100.0% $487,224   100.0%
                                    ========    =====    ========    =====  ========    =====   =======    =====  ========   =====
</TABLE>


The following table shows the time remaining to maturity of time certificates of
deposit of $100,000 or more as of December 31, 1999:
(in thousands)

Three months or less                    $10,443
Over three months through six months      5,067
Over six months through twelve months     3,008
Over twelve months                        2,505
                                        -------
                                        $21,023
                                        =======


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
hedging transactions utilizing derivative financial instruments during 1999. 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").

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
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,  attempts to determine  the
impact on net  interest  margin from current and  prospective  changes in market
interest rates.

                                       23
<PAGE>

     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.  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, 1999, the Company simulated
the effects on net interest income given an instantaneous  and parallel shift in
the  yield  curve  of  200  basis  points  in  either  direction.  Based  on the
simulation,  it was  estimated  that net interest  income,  over a  twelve-month
horizon,  would not  decrease by more than  11.1%.  At December  31,  1999,  the
Company was within policy limits  established for changes in net interest income
and future economic value.

     The preceding  simulation 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 responding 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  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  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
(14.5%) at December 31, 1999. Since the cumulative gap was negative, the Company
has a "negative  gap"  position,  which  theoretically  will cause its assets to
reprice more slowly than its deposit  liabilities.  In a declining interest rate
environment,  interest  costs may be expected  to fall faster than the  interest
received on earning assets, thus increasing the net interest spread. If interest
rates  increase,  a negative  gap means that the  interest  received  on earning
assets may be  expected to increase  more slowly than the  interest  paid on the
Company's liabilities therefore decreasing the net interest spread.

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

                                       24
<PAGE>

<TABLE>
<CAPTION>

Table 12
______________________________________________________________________________________________________________________________
Interest Rate Sensitivity Analysis
______________________________________________________________________________________________________________________________
at  December 31, 1999
(dollars in thousands)

                                                                                                                   Non-
                                                    3          6       6 Mos. to   1 to 3    3 to 5     Over     interest
Subject to rate change within                     Months    Months       1 Year     Years     Years   5 Years   Sensitive   Total
                                                 ---------  --------   ---------  ---------  ------- ---------  --------- --------
<S>                                              <C>        <C>        <C>        <C>        <C>     <C>        <C>       <C>
Assets
   Net loans                                     $126,696   $ 30,709   $ 52,095   $143,744   $96,212   $60,992   $(3,948) $506,500
   Investment securities                            8,264     8,291      38,899     66,895    11,508    29,091    (1,059)  161,889
   Cash and amounts due from banks                      -         -           -          -         -         -    17,669    17,669
   Other noninterest earning assets                     -         -           -          -         -         -    20,067    20,067
                                                 ---------  --------   ---------  ---------  --------  --------  --------  --------
    Total assets                                  134,960    39,000      90,994    210,639     107,720  90,083    32,729   706,125
                                                 ---------  --------   ---------  ---------  --------  --------  --------  --------

Liabilities and stockholders' equity
   Demand deposits                                 33,986    33,986      67,972     89,760    44,229    46,429         -   316,362
   Savings deposits                                 6,204     6,204      12,409     31,872     9,832     4,386         -    70,907
   Fixed maturity certificates of deposits         52,994    45,128      41,179     17,370     5,796         -         -   162,467
   Money market accounts                            7,388     7,388      14,777     10,595     4,898     4,210         -    49,256
   Securities sold under agreements to repurchase   5,750     8,181       2,500          -         -         -         -    16,431
   Short-term borrowings                           13,975         -           -          -         -         -         -    13,975
   Long-term borrowings                                 -         -       7,000      6,000         -         -         -    13,000
   Other liabilities                                    -         -           -          -         -         -     5,451     5,451
   Stockholders' equity                                 -         -           -          -         -         -    58,276    58,276
                                                 ---------  --------   ---------  ---------  --------  --------  --------  --------
    Total liabilities and stockholders' equity    120,297   100,887     145,837    155,597    64,755    55,025    63,727  $706,125
                                                 ---------  --------   ---------  ---------  --------  --------  --------  --------
GAP                                              $ 14,663  $(61,887)  $ (54,843)  $ 55,042   $42,965   $35,058  $(30,998)
                                                 =========  ========   =========  =========  ========  ========  ========
GAP to total assets                                  2.08 %   (8.76)%     (7.77)%     7.79 %    6.08 %    4.96 %
Cumulative GAP                                    $14,663  $(47,224)  $(102,067)  $(47,025)  $(4,060)  $30,998
                                                 =========  ========   =========  =========  ========  ========
Cumulative GAP to total assets                       2.08 %   (6.69)%    (14.45)%    (6.66)%   (0.57)%    4.39 %


</TABLE>

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 it's
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, 1999, total deposits amounted to $599.0 million, an
increase of $260 thousand or 0.04% over the prior comparable year.  During 1999,
the Company obtained two new term-advances totaling $13.0 million from the FHLB.
At  December  31,  1999,  advances  from  the  FHLB,  overnight  borrowings  and
securities sold under agreements to repurchase  ("REPOS")  totaled $43.4 million
and  represented  6.1% of total assets as compared to $18.5  million and 2.7% of
total assets,  at December 31, 1998.  In 1999,  the  Company's  earning  assets,
particularly  loans, grew faster than its deposit  liabilities  resulting in the
increase in borrowings.

     In 1999,  despite  heightened  competition  for  loans and  increased  loan
prepayments,  loan production  continued to be the Company's principal investing
activity. Net loans at December 31, 1999 amounted to $506.5 million, compared to
$473.1 million at the end of 1998, an increase of $33.4 million or 7.1%.

     The  Company's  most liquid  assets are cash and due from banks and federal
funds sold.  At December  31, 1999,  the total of such assets  amounted to $17.7
million  or 2.5% of total  assets,  compared  to $43.3  million or 6.3% of total
assets at year-end 1998. The decline in liquid assets, principally federal funds
sold, was used to fund investments and loan growth.

     Another  significant  liquidity source is the Company's  available for sale
securities.  At December 31, 1999,  available  for sale  securities  amounted to
$107.3 million or 66.3% of total securities,  compared to $95.8 million or 63.9%
of total securities at year-end 1998.

     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
$67.5 million line of credit available through its membership in the FHLB.

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

Capital Adequacy

     Stockholders'  equity  totaled $58.3 million and  represents  8.3% of total
assets at December 31, 1999,  compared to $62.4 million and 9.1% of total assets
at December 31,  1998.  The $5.0 million  decrease was largely  attributable  to
shares  repurchased under the Company's stock repurchase plan, which amounted to
$8.8 million. Contributing to the decrease was cash dividends and an increase in
unrealized  losses on  available  for sale  securities,  net of  taxes,  of $3.4
million and $1.9 million,  respectively.  The decrease was largely offset by net
income of $9.6 million.

     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 for assigning  risk weights.  Capital  consists of Tier 1 capital,  which
includes   common   shareholders'   equity  less  certain   intangibles   and  a
supplementary  component called Tier II capital, which includes a portion of the
allowance for loan losses.  Effective October 1, 1998, the Federal Reserve Board
and the FDIC adopted an amendment to their  risk-based  capital  guidelines that

                                       25
<PAGE>


permits insured  depository  institutions to include in their Tier II 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,  1999,  the  Company's  and
Interchange  Bank's  Tier I  risk-based  capital  ratio was 12.72%  and  12.82%,
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 I capital as a percent of quarterly  average adjusted assets) of 3%.
For  those  financial  institutions  with  higher  levels  of risk  or that  are
experiencing or anticipating significant growth, the minimum leverage ratio will
be increased.  At December 31, 1999, the Company's and the Bank's leverage ratio
was 8.32% and 8.45%, respectively.

Effects of Inflation and Changing Prices

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

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

Recent Developments

     In December 1999, the Company  announced that its  subsidiary,  Interchange
Bank,  has  formed  an  equipment  lease-financing  subsidiary  to be  known  as
Interchange  Capital Company  ("ICC").  ICC is a wholly owned  subsidiary of the
Bank. ICC will be based at 185 Garibaldi  Avenue in Lodi,  New Jersey,  and will
provide  flexible  equipment  lease  financing  programs for  businesses  in the
manufacturing, healthcare, and automotive industries.

     The  management of ICC are highly  capable  commercial  lenders.  Thomas K.
Ficca,  executive  vice  president,  has  served  for more  than 13 years in the
bank-leasing  environment and is  knowledgeable  in matters of financial and tax
accounting  issues and  regulations  relating  to leasing.  Robert M.  McFadden,
executive vice president,  has over 12 years of small ticket leasing  experience
with  some  of the  country's  largest  asset  management  and  capital  leasing
companies.  Paul J. Winkelhoff,  executive vice president,  has accumulated more
than 12 years of leasing  experience.  During his career,  he has held positions
with prominent national financial  companies in the areas of collections,  asset
management, documentation, and sales.

Recently issued accounting pronouncements

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments  and  Hedging  Activities"  ("SFAS  133").  SFAS 133  requires  that
entities  recognize  all  derivatives  as either  assets or  liabilities  in the
statement of financial condition and measure those instruments at fair value. On
July 7, 1999, the FASB issued  Statement of Financial  Accounting  Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement  No.133" ("SFAS 137").  SFAS 137 delays the
effective  date of SFAS 133 for one year, to fiscal years  beginning  after June
15, 2000.  The delay applies to quarterly and annual  financial  statements  and
SFAS No. 133 is now required for all fiscal  quarters of fiscal years  beginning
after June 15,  2000.  Adoption  of SFAS 133 is not  expected to have a material
impact  upon the  Company's  consolidated  financial  condition  or  results  of
operations.

Year 2000 Readiness Disclosure

     This Year 2000  disclosure  falls  within  the Year  2000  Information  and
Readiness  Disclosure Act of 1999.

     The  Company  has  successfully  implemented  all  phases  of its Year 2000
Compliance Plan. The plan as implemented addressed all mission critical systems.
There  were no known  adverse  effects  from  Year  2000  related  issues on the
Company, including its systems and operations.

     There remain certain risks  associated with the Year 2000 issue such as the
adverse  affects that may arise by the failures of third  parties with which the
Company has financial or operational  relationships  to remediate their own Year
2000 issues.  Third parties'  failures to remediate  their Year 2000 issues in a
timely  manner could result in a material  financial  risk to the Company.  Such
risks include business interruption

                                       26
<PAGE>

or shutdown, financial loss, regulatory actions and legal liability. The Company
has no information  that  indicates  that a significant  vendor may be unable to
sell its  products to the  Company;  a  significant  borrower or customer may be
unable to continue to conduct  business with the Company;  or that a significant
service  provider may be unable to provide  services to the Company in each case
because of Year 2000  compliance  problems.  The  Company  maintains a Year 2000
specific  contingency  in an effort to  mitigate  such risk.  For the year ended
December 31, 1999,  the Company has expended $81 thousand of direct costs and an
estimated $200 thousand of indirect costs (human resources).

Forward Looking Statements

     In  addition  to  discussing  historical  information,  we discuss  certain
matters in this report regarding the financial condition,  results of operations
and  business  of the  Company  which are not  historical  facts,  but which are
"forward  looking  statements"  within  the  meaning of the  Private  Securities
Litigation Reform Act of 1995. These "forward looking statements"  include,  but
are not limited to, statements about the operations of the Company, the adequacy
of the Company's allowance for future losses associated with the loan portfolio,
and the  possible  impact of third  parties'  Year 2000  issues on the  Company,
management's assessment of contingencies and possible scenarios in its Year 2000
planning.  The "forward  looking  statements"  in this report  involve known and
unknown risks and  uncertainties  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;   (iii)  general  economic
conditions, internationally, nationally, or in the State of New Jersey; and (iv)
legislation  or  regulatory  requirements  or changes  adversely  affecting  the
business of the  Company.  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 are
no longer  accurate,  whether  as a result  of new  information,  what  actually
happens in the future or for any other reason.


Table 13
--------------------------------------------------------------------------------
Quarterly Common Stock Price Range
--------------------------------------------------------------------------------
for the years ended December 31,

     The Company's  common stock is listed on the American  Stock Exchange under
the symbol "IFC."
                                 High          Low
                                Sales         Sales          Cash
                                Price         Price        Dividends
                             ------------- ------------- --------------
1997
   First quarter (1)(2)      $14.67        $10.61          $0.09
   Second quarter (2)         17.58         11.92           0.09
   Third quarter (2)          16.67         14.67           0.09
   Fourth quarter (2)         21.58         14.75           0.09

1998
   First quarter (2)         $21.25        $18.17          $0.10
   Second quarter             23.25         19.25           0.10
   Third quarter              20.88         15.31           0.10
   Fourth quarter             17.75         14.06           0.10

1999
   First quarter             $17.50        $16.00          $0.12
   Second quarter             17.38         15.50           0.12
   Third quarter              19.63         16.63           0.12
   Fourth quarter             18.13         16.13           0.12

The number of stockholders of record as of February 17, 2000 was 1,232.
--------------------------------------------------------------------------------
(1)  On February  27,  1997,  the  Company  declared a 3 for 2 Stock Split to be
     distributed on April 17, 1997 to  shareholders of record on March 20, 1997.
     The high and low sales prices and the cash  dividends have been restated to
     reflect the effects of the stock split.

(2)  On February  26,  1998,  the  Company  declared a 3 for 2 Stock Split to be
     distributed on April 17, 1998 to  shareholders of record on March 20, 1998.
     The high and low sales prices and the cash  dividends have been restated to
     reflect the effects of the stock split.

                                       27
<PAGE>


Independent Auditors' Report

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

     We have audited the accompanying consolidated balance sheets of Interchange
Financial  Services  Corporation and subsidiaries (the "Company") as of December
31, 1999 and 1998 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,  1999.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

     In our opinion,  the consolidated  financial  statements present fairly, in
all material respects,  the financial position of Interchange Financial Services
Corporation  and  subsidiaries as of December 31, 1999 and 1998, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.

/S/ Deloitte & Touche LLP
Deloitte & Touche LLP
Parsippany, New Jersey
January  19, 2000

                                       28
<PAGE>

<TABLE>
<CAPTION>

Interchange Financial Services Corporation
-------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------------------------
December 31,
(dollars in thousands)

                                                                               1999       1998
                                                                            ---------- ----------
<S>                                                                         <C>        <C>
Assets
Cash and due from banks                                                      $ 17,669   $ 20,109
Federal funds sold                                                                  -     23,175
                                                                            --------- ----------
Total cash and cash equivalents                                                17,669     43,284
                                                                            --------- ----------

Securities held to maturity at amortized cost (estimated market value
      of $53,784 and $54,761 for 1999 and 1998, respectively)                  54,540     54,159
                                                                            --------- ----------
Securities available for sale at estimated market value (amortized cost
     of $108,399 and $93,872 for 1999 and 1998, respectively)                 107,349     95,771
                                                                            --------- ----------

Loans                                                                         511,976    478,717
Less:  Allowance for loan losses                                                5,476      5,645
                                                                            --------- ----------
Net loans                                                                     506,500    473,072
                                                                            --------- ----------

Premises and equipment, net                                                    10,289      9,871
Foreclosed real estate                                                            250         84
Accrued interest receivable and other assets                                    9,528      9,123
                                                                            --------- ----------
Total assets                                                                 $706,125   $685,364
                                                                            ========= ==========


Liabilities
Deposits
    Non-interest bearing                                                     $102,392   $107,408
    Interest bearing                                                          496,600    491,324
                                                                            --------- ----------
Total deposits                                                                598,992    598,732
                                                                            --------- ----------

Securities sold under agreements to repurchase                                 16,431      8,780
Short-term borrowings                                                          13,975      9,768
Long-term borrowings                                                           13,000          -
Accrued interest payable and other liabilities                                  5,451      5,712
                                                                            --------- ----------
Total liabilities                                                             647,849    622,992
                                                                            --------- ----------

Commitments and contingent liabilities

Stockholders' equity:
Common stock, without par value; 15,000,000 shares authorized;
    6,728,098 and 7,200,133 shares issued and outstanding in
    1999 and 1998, respectively                                                 5,397      5,397
Capital surplus                                                                21,244     21,256
Retained earnings                                                              41,741     35,482
Accumulated other comprehensive income/(loss)                                    (675)     1,192
                                                                            --------- ----------
                                                                               67,707     63,327
Less:  Treasury stock                                                           9,431        955
                                                                            --------- ----------
Total stockholders' equity                                                     58,276     62,372
                                                                            --------- ----------
Total liabilities and stockholders' equity                                   $706,125   $685,364
                                                                            ========= ==========
<FN>

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

</FN>
</TABLE>
                                       29
<PAGE>

<TABLE>
<CAPTION>

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

                                                             1999            1998           1997
                                                          ----------       --------       --------
<S>                                                       <C>              <C>            <C>
Interest income
Interest and fees on loans                                  $39,521        $38,904        $35,380
Interest on federal funds sold                                  596          1,474            896
Interest on interest bearing deposits                             -             55             78
Interest and dividends on securities
       Taxable interest income                                8,432          7,934          8,626
       Interest income exempt from federal income taxes         492            181            100
       Dividends                                                260            272            230
                                                          ----------       --------       --------
Total interest income                                        49,301         48,820         45,310
                                                          ----------       --------       --------

Interest expense
Interest on deposits                                         17,700         18,467         17,243
Interest on securities sold under agreements to repurchase      392            806            685
Interest on short-term borrowings                               608              1             42
Interest on long-term borrowings                                 83            590            596
                                                          ----------       --------       --------
Total interest expense                                       18,783         19,864         18,566
                                                          ----------       --------       --------

Net interest income                                          30,518         28,956         26,744
Provision for loan losses                                     1,200            951          1,653
                                                          ----------       --------       --------
Net interest income after provision for loan losses          29,318         28,005         25,091
                                                          ----------       --------       --------

Non-interest income
Service fees on deposit accounts                              2,300          2,551          2,040
Net gain on sale of securities                                  859          1,021              -
Net gain on sale of loans                                        86              -          1,067
Other                                                         2,094          1,356          1,667
                                                          ----------       --------       --------
Total non-interest income                                     5,339          4,928          4,774
                                                          ----------       --------       --------

Non-interest expenses
Salaries and benefits                                        10,265          9,437          8,951
Occupancy                                                     2,698          2,405          2,152
Furniture and equipment                                       1,045          1,035            879
Advertising and promotion                                     1,033            865            865
Federal Deposit Insurance Corporation assessment                 81             75             58
Foreclosed real estate                                           13              1              -
Acquisition                                                       -          1,392              -
Other                                                         4,928          4,206          4,750
                                                          ----------       --------       --------
Total non-interest expenses                                  20,063         19,416         17,655
                                                          ----------       --------       --------

Income before income taxes                                   14,594         13,517         12,210
Income taxes                                                  4,959          4,908          4,285
                                                          ----------       --------       --------
Net income                                                  $ 9,635        $ 8,609        $ 7,925
                                                          ==========       ========       ========

Basic earnings per common share                               $1.37          $1.20          $1.11
                                                          ==========       ========       ========
Diluted earnings per common share                             $1.36          $1.19          $1.10
                                                          ==========       ========       ========
<FN>

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

</FN>
</TABLE>
                                       30
<PAGE>

<TABLE>
<CAPTION>

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

                                                                                 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, 1997                                              $24,157         $256   $5,291    $20,402    $ (58)  $50,048
Comprehensive income
  Net Income                                                   $7,925     7,925                                               7,925
  Other comprehensive income, net of taxes
     Unrealized gains on debt securities                          330
     Unrealized gains on equity securities                        599
                                                         ------------
  Other comprehensive income                                      929                    929                                    929
                                                         ------------
Comprehensive income                                           $8,854
                                                         ============
Dividends on common stock                                                (2,384)                                             (2,384)
Fractional shares on 3 for 2 stock split                                                                      (3)                (3)
Issued 12,822 shares of common stock in connection
  with Executive Compensation Plan                                                                  9        159                168
Exercised 73,519 option shares                                                                     55        377                432
Purchased 12,200 shares in exchange for option shares                                                                (163)     (163)
Purchased 390 shares of treasury stock                                                                                 (3)       (3)
Reissuance of 8,153 shares of treasury stock under the
  Dividend Reinvestment Plan (1)                                                                                       61        61
Issued 12,738 common shares under Dividend
  Reinvestment Plan (1)                                                                             9        113                122
Issued 229,562 shares of common stock in merger with
  Washington Interchange Corporation                                                              170      2,765              2,935
Acquired and retired 187,283 shares of common stock held by
  Washington Interchange Corporation                                                             (138)    (2,256)            (2,394)
Purchased 121,826 shares of common stock                                                                           (1,543)   (1,543)
                                                                       -------- ------------   ------ ---------- --------- --------

Balance at December 31, 1997                                             29,698        1,185    5,396     21,557   (1,706)   56,130
Comprehensive income
  Net Income                                                   $8,609     8,609                                               8,609
  Other comprehensive income, net of taxes
     Unrealized gains on debt securities                          207
     Unrealized losses securities transferred from held to
         maturity to available for sale - Acquisition             (17)
     Unrealized gain on equity securities                         343
     Less:  gains on disposition of equity securities            (526)
                                                         ------------
  Other comprehensive income                                        7                      7                                      7
                                                         ------------
Comprehensive income                                           $8,616
                                                         ============

Dividends on common stock                                                (2,825)                                             (2,825)
Fractional shares on 3 for 2 stock split and merger shares                                                    (5)                (5)
Forfeiture of bonus stock                                                                                             (49)      (49)
Issued 12,769 shares of common stock in connection
  with Executive Compensation Plan                                                                            70      162       232
Exercise of 50,394 option shares                                                                    1       (366)     638       273
                                                                       -------- ------------   ------ ---------- --------- --------
Balance at December 31, 1998                                             35,482        1,192    5,397     21,256     (955)   62,372
Comprehensive income
  Net Income                                                   $9,635     9,635                                               9,635
  Other comprehensive loss, net of taxes
     Unrealized losses on AFS debt securities                  (1,354)
     Less:  gains on disposition of securities (excludes equities)(90)
     Unrealized gains securities transferred from held to
         maturity to available for sale - Acquisition              23
     Unrealized loss on equity securities                         (18)
     Less:  gains on disposition of equity securities            (428)
                                                         ------------
  Other comprehensive loss                                     (1,867)                (1,867)                                 1,867)
                                                         ------------
Comprehensive income                                           $7,768
                                                         ============
Dividends on common stock                                                (3,376)                                             (3,376)
Issued 14,489 shares of common stock in connection
  with Executive Compensation Plan                                                                            62      184       246
Exercised 7,836 option shares                                                                                (74)     121        47
Purchased 494,360 shares of common stock                                                                           (8,781)   (8,781)
                                                                       -------- ------------   ------ ---------- --------- --------
Balance at December 31, 1999                                            $41,741       $ (675)  $5,397    $21,244  $(9,431)  $58,276
                                                                       ======== ============   ====== ========== ========= ========

<FN>

-----------------------------------------------------------------------------------------------------------------------------------
All share data has been adjusted for the effects of  3 for 2 stock splits issued on April 17, 1997 to shareholders of record on
March 20, 1997 and April 17, 1998 to shareholders of record on March 20, 1998.

(1)  Common shares issued as part of Jersey Bank for Savings' Dividend Reinvestment Plan.
See notes to consolidated financial statements
</FN>
</TABLE>
                                       31

<PAGE>
<TABLE>
<CAPTION>

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

                                                                                  1999     1998     1997
                                                                                -------- -------- --------
<S>                                                                             <C>      <C>      <C>
Cash flows from operating activities
Net income                                                                      $ 9,635  $ 8,609  $ 7,925
Adjustments to reconcile net income to net cash provided by operating activities
  Depreciation and amortization                                                   1,400    1,374    1,182
  Amortization of securities premiums                                               675      964      818
  Accretion of securities discounts                                                (178)    (168)    (126)
  Amortization of premiums in connection with acquisition                           312      384      444
  Provision for loan losses                                                       1,200      951    1,653
  Net gain on sale of  loans                                                        (86)       -   (1,067)
  Net gain on sale of merchant credit card portfolio                               (329)       -        -
  Net gain on sale of securities                                                   (859)  (1,021)       -
  Net gain on sale of foreclosed real estate                                        (36)       -       (6)
  Increase in carrying value of loans available for sale                              -        -      (17)
  Net loss on disposal of fixed assets                                                2        3        -
Decrease (increase) in operating assets
  Net repayment of loans available for sale                                           -        -       22
  Accrued interest receivable                                                       (72)    (270)     305
  Deferred taxes                                                                 (1,059)     228     (768)
  Other                                                                           1,442      437   (1,942)
(Decrease) increase in operating liabilities
  Accrued interest payable                                                          (32)     (88)     111
  Other                                                                            (229)     552      543
                                                                                -------- -------- --------
Cash provided by operating activities                                            11,786   11,955    9,077
                                                                                -------- -------- --------

Cash flows from investing activities
(Payments for) proceeds from
  Net originations of loans                                                     (25,751) (31,848) (40,239)
  Purchase of loans                                                             (15,196)  (4,627) (19,247)
  Purchase of term federal funds                                                      -   (7,500)       -
  Repayment of term federal funds                                                 5,000    2,500        -
  Sale of loans                                                                   1,155      409    5,945
  Sale of merchant credit card portfolio                                            329        -        -
  Purchase of securities available for sale                                     (56,347) (28,688) (15,438)
  Maturities of securities available for sale                                    16,152   16,971    4,386
  Sale of securities available for sale                                          26,193    1,622        -
  Sale of foreclosed real estate                                                    120        -      616
  Purchase of securities held to maturity                                       (18,949) (30,435) (21,948)
  Maturities of securities held to maturity                                      16,402   26,808   41,167
  Sale of securities held to maturity                                             2,003        -        -
  Washington Interchange Merger                                                       -        -       37
  Purchase of fixed assets                                                       (1,769)  (1,703)  (3,464)
  Sale of fixed assets                                                                3        4       13
                                                                                -------- -------- --------
Cash used in investing activities                                               (50,655) (56,487) (48,172)
                                                                                -------- -------- --------

Cash flows from financing activities
Proceeds from (payments for)
  Deposits in excess of withdrawals                                                 260   57,967   49,128
  Securities sold under agreements to repurchase and other borrowings            57,906   17,300   17,128
  Retirement of securities sold under agreement to repurchase and
  other borrowings                                                              (33,048) (21,659) (20,454)
  Dividends                                                                      (3,376)  (2,825)  (2,384)
  Common stock issued                                                               246      226      345
  Treasury stock                                                                 (8,781)     (49)  (1,543)
  Exercise of option shares                                                          47      273      269
                                                                                -------- -------- --------
Cash provided by financing activities                                            13,254   51,233   42,489
                                                                                -------- -------- --------

(Decrease) increase in cash and cash equivalents                                (25,615)   6,701    3,394
Cash and cash equivalents, beginning of year                                     43,284   36,583   33,189
                                                                                -------- -------- --------
Cash and cash equivalents, end of year                                          $17,669  $43,284  $36,583
                                                                                ======== ======== ========

Supplemental disclosure of cash flow information:
Cash paid for:
  Interest                                                                      $18,815  $19,953  $18,456
  Income taxes                                                                    7,028    3,844    4,985

Supplemental disclosure of non-cash investing activities:
  Loans transferred to foreclosed real estate                                       250       84        -
  Loans transferred from available for sale to held to maturity                       -        -    1,190
  Decrease (increase) - market valuation of securities available for sale         2,949       15   (1,551)
  Amortization of valuation allowance - securities transferred from available
    for sale to held to maturity                                                      -        1       36
  Washington Interchange merger                                                       -        -      504
<FN>

----------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</FN>
</TABLE>
                                       32
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

     The consolidated financial statements have been prepared in accordance with
generally  accepted  accounting  principles  and  practices  within the  banking
industry.  The  following  is a  description  of  the  business  of  Interchange
Financial  Services   Corporation  and  subsidiaries  (the  "Company")  and  its
significant  accounting  and reporting  policies used in the  preparation of the
consolidated financial statements:

   Nature of Business

     The Company, a New Jersey business corporation,  is a holding company whose
principal  subsidiary  is  Interchange  Bank  (the  "Bank"),  formerly  known as
Interchange  State  Bank.  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 demand for loans is low, the Bank invests in
debt securities.  Currently, the Bank conducts operations typical of a community
bank in the northeast region of New Jersey (primarily Bergen County).

   Principles of consolidation

     The accompanying  consolidated financial statements include the accounts of
the Company,  including its wholly owned subsidiaries.  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 1999.  These  reclassifications  have no effect on stockholders'
equity or net income as previously  reported.

     Prior  period  financial  statements  have been  restated  to  include  the
accounts  and results of  operations  of The Jersey  Bank for  Savings  ("Jersey
Bank"),  which was  acquired  by the Company in 1998 in a  transaction  that was
accounted for as a pooling-of-interests.

Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  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.  Actual results could differ from those  estimates.  The most
significant  estimates  pertain to the  allowance  for loan  losses and the fair
value of financial instruments.

 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,
interest bearing demand deposits and federal funds sold.

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 and are carried at cost,
adjusted for the amortization of premiums and accretion of discounts. Management
determines  whether the security  will be  classified as held to maturity at the
time of purchase.

     All other  securities,  including  equity  securities,  are  classified  as
securities available for sale.  Securities  classified as available for sale 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, as a separate component of stockholders'
equity.  Gains and losses from the sale of these securities are determined using
the specific identification method.

Loans

     Generally,  loans are carried at the principal amounts outstanding,  net of
unearned discount and deferred loan origination fees and costs.  Interest income
is accrued and credited to income as earned at the  applicable  interest  rates.
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  non-interest
income.

     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.  Amounts  accrued are evaluated  for  collectibility.  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
management  deems that  collection of principal  and interest is reasonable  and
probable.

     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 commercial and commercial  mortgage loans are evaluated for impairment.
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  114.  "Accounting  by
Creditors for  Impairment of a Loan." 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 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 on a discounted  basis,  is utilized if a loan is  collateral  dependent or
foreclosure is probable.

Allowance for loan losses

     The allowance  for loan losses is  established  through  charges to income.
Loan losses are charged  against the allowance  for loan losses when  management
believes  that the  future  collection  of  principal  is  unlikely.  Subsequent
recoveries,  if  any,  are  credited  to  the  allowance.  If the  allowance  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 losses is increased.

     The Company's allowance is an amount considered adequate to absorb possible
losses on existing  loans that may become  uncollectible  based on  management's
evaluations of the size and current risk  characteristics of the loan portfolio.
The evaluations consider such factors

                                       33
<PAGE>


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.

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.

Foreclosed real estate

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

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  liabilities  and their  respective tax
bases. Deferred tax assets and liabilities are measured using current tax rates.
The effect on deferred taxes of a change in tax rates is recognized in income in
the period the  change  occurs.  Deferred  tax  assets  are  reduced,  through a
valuation allowance,  if necessary,  by the amount of such benefits that are not
expected to be realized based on current available evidence.

 Per share amounts

     Basic earnings per common share is computed by dividing income available to
common  shareholders,  less  dividends on the  preferred  stock,  if any, by the
weighted  average  number of common  shares  outstanding  during  the  reporting
period.  Diluted  earnings per common share is computed similar to that of basic
earnings per common share  except that the  denominator  is increased to include
the number of additional  common shares that would have been  outstanding if all
potentially  dilutive  common  shares,  stock  options,  were issued  during the
reporting period.

Recently issued accounting pronouncements

     In June 1998, the FASB issued Statement of Financial  Accounting  Standards
No. 133,  "Accounting for Derivative  Instruments and Hedging Activities" ("SFAS
133").  SFAS 133 requires that  entities  recognize  all  derivatives  as either
assets or liabilities in the statement of financial  condition and measure those
instruments  at fair  value.  On July 7,  1999,  the FASB  issued  Statement  of
Financial Accounting  Standards No. 137, "Accounting for Derivative  Instruments
and  Hedging  Activities  - Deferral  of the  Effective  Date of FASB  Statement
No.133"  ("SFAS 137").  SFAS 137 delays the  effective  date of SFAS 133 for one
year,  to fiscal  years  beginning  after June 15,  2000.  The delay  applies to
quarterly and annual  financial  statements and SFAS No. 133 is now required for
all fiscal quarters of fiscal years  beginning after June 15, 2000.  Adoption of
SFAS  133 is  not  expected  to  have  a  material  impact  upon  the  Company's
consolidated financial condition or results of operations.

Note 2.  Acquisitions

     On May 31, 1998, the Company  completed its acquisition of Jersey Bank. The
transaction was accounted for as a pooling of interests,  and  accordingly,  all
financial  information  presented  herein  has  been  restated  to  reflect  the
acquisition of Jersey Bank to the earliest period presented.  Each of the shares
of Jersey Bank's common  stock,  including  shares of common stock that had been
converted from shares of preferred  stock,  was converted into 1.5 shares of the
Company's common stock. Total consideration tendered in the transaction amounted
to 780,198 shares of the Company's common stock.

     On April 30, 1997,  the Company  completed  its  acquisition  of Washington
Interchange  Corporation  ("WIC")  through  a  merger  transaction  involving  a
subsidiary  of the  Company.  The  merger  was  accounted  for as a  pooling  of
interests.  The purpose of the merger was to acquire WIC's real estate, which is
used as a branch office by  Interchange  Bank. The Company issued 229,562 shares
of its common stock in connection with the acquisition and subsequently  retired
187,283  shares  of  its  common  stock   previously  held  by  WIC.  Total  net
consideration  tendered  in the  transaction  amounted  to 42,279  shares of the
Company's common stock.

     In 1994,  the Bank assumed the deposit  liabilities  of  Volunteer  Federal
Savings  Association of Little Ferry,  New Jersey.  The premiums paid to acquire
the deposits in the Volunteer  transaction and in a 1991 branch  acquisition are
being  amortized over a period ranging from seven to ten years.  Amortization in
1999,  1998 and 1997,  which is included in non-interest  expenses,  amounted to
$313,000, $383,000 and $444,000, respectively.

Note 3.  Restrictions on Cash and Due from Banks

     The  subsidiary  bank is required to  maintain a reserve  balance  with the
Federal Reserve Bank based upon the level of its deposit liability.  The average
amount of this reserve balance for 1999 and 1998 was approximately  $775,000 and
$750,000, respectively.

                                       34
<PAGE>

Note 4.  Securities Held to Maturity and Securities Available for Sale
<TABLE>
<CAPTION>
    Securities held to maturity and securities available for sale consist of the following: (in thousands)


                                                     ------------------------------------------------
                                                                       December 31, 1999
                                                     ------------------------------------------------
                                                                    Gross         Gross     Estimated
                                                       Amortized   Unrealized   Unrealized   Market
                                                         Cost       Gains        Losses       Value
                                                     ------------- --------- -------------- ---------
<S>                                                  <C>           <C>       <C>            <C>

Securities held to maturity
     Obligations of U.S. Treasury                         $ 9,997       $ 5       $  8     $ 9,994
     Mortgage-backed securities                            20,232        60        289      20,003
     Obligations of U.S. agencies                           7,992         8         51       7,949
     Obligations of states & political subdivisions        16,195         -        481      15,714
     Other debt securities                                    124         -          -         124
                                                     ------------- --------- -------------- ---------
                                                           54,540        73        829      53,784
                                                     ------------- --------- -------------- ---------


Securities available for sale
     Obligations of U.S. Treasury                           6,016        87          -       6,103
     Mortgage-backed securities                            68,331       104        982      67,453
     Obligations of U.S. agencies                          27,141        51        112      27,080
     Obligations of states & political subdivisions         3,139         -        198       2,941
     Equity securities                                      3,772         -          -       3,772
                                                     ------------- --------- ------------- ----------
                                                          108,399       242      1,292     107,349

          Total securities                               $162,939      $315     $2,121    $161,133
                                                     ============= ========= ============= ==========



                                                     ------------------------------------------------
                                                                       December 31, 1998
                                                     ------------------------------------------------
                                                                    Gross         Gross     Estimated
                                                       Amortized   Unrealized   Unrealized   Market
                                                         Cost       Gains        Losses       Value
                                                     ------------- --------- -------------- ---------

Securities held to maturity
     Obligations of U.S. Treasury                        $ 15,992     $ 180          -    $ 16,172
     Mortgage-backed securities                            18,921       227       $ 23      19,125
     Obligations of U.S. agencies                           7,986       175          -       8,161
     Obligations of states & political subdivisions        11,111        48          6      11,153
     Other debt securities                                    149         1          -         150
                                                     ------------- --------- ------------- ----------
                                                           54,159       631         29      54,761
                                                     ------------- --------- ------------- ----------

Securities available for sale
     Obligations of U.S. Treasury                          33,264       777          -      34,041
     Mortgage-backed securities                            42,824       398        156      43,066
     Obligations of U.S. agencies                          13,687       190         53      13,824
     Equity securities                                      4,097       743          -       4,840
                                                     ------------- --------- ------------- ----------
                                                           93,872     2,108        209      95,771
                                                     ------------- --------- ------------- ----------
          Total securities                               $148,031    $2,739       $238    $150,532
                                                     ============= ========= ============= ==========

At December 31, 1999, the contractual maturities of securities held to maturity and securities available for sale are as follows:
(in thousands)


                                                           Securities             Securities
                                                        Held to Maturity      Available for Sale
                                                     ----------------------- ------------------------
                                                       Amortized    Market   Amortized      Market
                                                         Cost       Value      Cost          Value
                                                     ------------- --------- ------------- ----------
          Within 1 year                                   $19,255   $19,242     $4,148      $4,117
          After 1 but within 5 years                       18,653    18,474     66,224      65,800
          After 5 but within 10 years                       4,673     4,636     17,325      16,804
          After 10 years                                   11,959    11,432     16,930      16,856
          Equity securities                                     -         -      3,772       3,772
                                                     ------------- --------- ------------- ----------
                                  Total                   $54,540   $53,784   $108,399    $107,349
                                                     ============= ========= ============= ==========

</TABLE>
                                       35
<PAGE>


     Gross  realized  gains  from  the  sale of  securities  available  for sale
amounted to $860,000 and $876,000 in 1999 and 1998, respectively. Gross realized
losses  from the sale of  securities  available  for sale  amounted to $4,000 in
1999.  There  were no  gross  realized  gains in 1997  and  there  were no gross
realized losses in 1998 or 1997.  These amounts are included in net gain on sale
of  securities.  Also,  included in net gain on sale of securities for 1998 is a
gain of $145,000 realized from the call of a security before its maturity.

     Proceeds from the sale of securities held to maturity  (scheduled to mature
within 3 months)  totaled $2.0 million  during the year ended December 31, 1999,
which  resulted in realized  gains of $3,000.  There were no sales of securities
held to maturity during the years ended, December 31, 1998 and 1997.

     During 1998, securities with a book value totaling $8.2 million,  which had
previously been classified by Jersey Bank as held to maturity,  were transferred
to available for sale upon the consummation of the acquisition. These securities
were  reclassified  to available  for sale because they have a higher  degree of
interest  rate  sensitivity  and do not  conform  to  the  Company's  investment
objectives  or to its policy for managing  interest  rate risk.  The transfer of
these securities was done in conformance with Statement of Financial  Accounting
Standards  No.115,  "Accounting  for  Certain  Investments  in Debt  and  Equity
Securities".  At the date of transfer,  the market value of these securities was
$8.1 million.

     Securities  with  carrying  amounts of $48.3  million and $25.1  million at
December  31, 1999 and 1998,  respectively,  were  pledged for public  deposits,
Federal Home Loan Bank advances, securities sold under repurchase agreements and
other purposes required by law.

Note 5.  Loans

    The composition of the loan portfolio is summarized as follows:
(in thousands)
                                     ------------------------
                                          December 31,
                                     ------------------------
                                       1999           1998
                                     ----------      --------
Commercial and financial               $63,684       $64,067
Real estate
   Residential                         264,845       246,955
   Commercial                          166,354       148,875
   Construction                          4,008           974
Installment                              3,703         3,233
Lease financing                          9,382         9,613
Term federal funds                           -         5,000
                                     ----------      --------
                                       511,976       478,717
Allowance for loan losses                5,476         5,645
                                     ----------      --------
Net loans                             $506,500       $473,072
                                     ==========      ========


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

                                     ------------------------------------------
                                                D e c e m b e r 31,
                                     ------------------------------------------
                                       1999           1998           1997
                                     ----------      --------    --------------
Nonaccrual loans
   Commercial and financial              $ 308         $ 266             $ 126
   Residential real estate                 398           583               892
   Commercial real estate                  409           346               479
   Installment                               -             3                17
                                     ----------      --------    --------------
                                        $1,115        $1,198            $1,514
                                     ==========      ========    ==============

Troubled debt restructurings
   Commercial and financial               $222          $528              $573
                                     ==========      ========    ==============

Interest income that would
   have been recorded during
   the year on nonaccrual loans
   out-standing at year-end in
   accordance with original terms         $120          $147              $147

Interest income included in net
   income during the year on
   nonaccrual loans outstanding
   at year-end                             $74           $71               $81



     Loans on which interest is accruing and included in income,  but which were
contractually  past due 90 days or more as to  principal  or interest  payments,
amounted to $141,000 at December 31, 1997.  There were no such loans at December
31, 1999 and 1998.

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

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

                                     ------------------------
                                     Years Ended December 31,
                                     ------------------------
                                       1999           1998
                                     ----------      --------
   Balance at beginning of year         $7,623       $10,160
   Less:  former directors                   -        (3,574)
   Additions                             1,776         2,014
   Reductions                           (2,045)         (977)
                                     ----------      --------
   Balance at end of year               $7,354        $7,623
                                     ==========      ========



                                       36
<PAGE>

Note 6.  Allowance for Loan Losses
 The Company's recorded investment in impaired loans is as follows:
 (in thousands)
<TABLE>
<CAPTION>
                                                     -------------------------------------------
                                                                   December 31,
                                                     -------------------------------------------
                                                       1999                   1998
                                                     --------------------- ---------------------
                                                     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                     $ 272        $ 41       $748      $91
            Commercial real estate                         667          17        346       52
     Without a related allowance for loan losses
            Commercial and financial                         -           -          4        -
                                                     ----------  --------- ------------ --------
                                                          $939         $58     $1,098     $143
                                                     ==========  ========= ============ ========

<FN>
------------------------------------------------------------------------------------------------
The impairment of the above loans was measured based on the fair value of collateral.
</FN>
</TABLE>


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

                                  ------------------------
                                  Years Ended December 31,
                                  ------------------------
                                    1999          1998
                                  ---------  -------------
Average recorded investment        $1,181         $1,247
                                  =========  =============

Interest income recognized
   during time period that loans
   were impaired, using cash-basis
   method of accounting               $90            $74
                                      ===            ===

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


                                    ---------------------------------
                                        Year Ended December 31,
                                    ---------------------------------
                                      1999        1998        1997
                                    ---------  ----------  ----------
Balance at beginning of year          $5,645      $5,231      $3,968
Additions (deductions)
     Provision charged to operations   1,200         951       1,653
     Recoveries on loans previously
     charged off                          44          83         183
     Loans charged off                (1,413)       (620)       (573)
                                    ---------  ----------  ----------
Balance at end of year                $5,476      $5,645      $5,231
                                    =========  ==========  ==========

-------------------------------------------------------------------------------
For years ended  December 31, 1999,  1998 and 1997,  the  provisions  charged to
expense for federal income tax purposes  amounted to  approximately  $1,369,000,
$537,000, and $390,000, respectively.


Note 7.  Premises and Equipment, net

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

                                         -------------------------
                                                 December 31,
                                         -------------------------
                                                1999        1998
                                         -------------- ----------
Land                                            $1,588     $1,588
Buildings                                        3,325      3,187
Furniture, fixtures and equipment                6,395      5,807
Leasehold improvements                           7,734      6,813
                                         -------------- ----------
                                                19,042     17,395
Less: accumulated depreciation
  and amortization                               8,753      7,524
                                         -------------- ----------
                                               $10,289     $9,871
                                         ============== ==========

Note 8.  Deposits

    Deposits are summarized as follows: (in thousands)

                                      ----------------------------
                                             December 31,
                                      ----------------------------
                                         1999           1998
                                      -------------  -------------
Non-interest bearing demand deposits   $102,392       $107,408
Interest bearing demand deposits        213,970        194,177
Money market deposits                    49,256         50,665
Savings deposits                         70,907         76,026
Time deposits                           162,467        170,456
                                      -------------  -------------
                                       $598,992       $598,732
                                      =============  =============


     At December 31, 1999 and 1998,  the  carrying  amounts of  certificates  of
deposit that  individually  exceed $100 thousand  amounted to  $21,023,000,  and
$25,119,000, respectively. Interest expense relating to certificates of deposits
that individually exceed $100 thousand was approximately $1,371,000, $1,616,000,
and $1,627,000 in 1999, 1998, and 1997, respectively.

                                       37
<PAGE>

Note 9. 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,
                                            --------------------
                                               1999      1998
                                            ----------  --------
Securities sold under agreements
   to repurchase                               $16,431   $8,780
Federal Funds Purchased                         13,975        -
Federal Home Loan Bank advances                      -    9,768
                                            ----------  --------
                                               $30,406  $18,548
                                            ==========  ========


     The  Bank  has a  $67.5  million  line  of  credit  available  through  its
membership in the Federal Home Loan Bank of New York ("FHLB").


Note 10.  Long-term Borrowings

     In 1999,  long-term borrowings were comprised of two FHLB advances totaling
$13.0 million. One of the borrowings consists of a $7.0 million advance that has
a fixed rate of 6.28%  maturing in October  2002 and is  collateralized  by U.S.
Treasury  and U.S.  agency  securities.  The FHLB has an option to call the $7.0
million  advance on October 26,  2001.  The other  borrowing  consists of a $6.0
million  advance that has a fixed rate of 6.30% maturing in December 2001 and is
collateralized  by U.S.  Treasury and U.S.  agency  securities.  The FHLB has an
option to call the $6.0 million advance after December 2000.

Note 11.  Benefit Plans

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

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

     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 the  greater of the cash value of the life  insurance  policy or annuity
contract or an amount  determined by multiplying  the standard  annual  retainer
fees  (currently  $10,000) at the  director's  retirement  day by the director's
years of service.


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

<TABLE>
<CAPTION>

                                     Pension Plan       Supplemental Plan     Directors' Plan
                                 ---------------------- -----------------------------------------
                                  1999    1998   1997   1999   1998  1997   1999     1998   1997
                                 -------  -----  ------ -----  ----- -----  ------   -----  -----
<S>                              <C>      <C>    <C>    <C>    <C>   <C>    <C>      <C>    <C>
Service cost                        $251   $222   $195    $25    $22   $13     $61     $59    $47
Interest cost                         85     65     53     14     12     4      80      76     71
Expected return on plan assets       (85)   (71)   (51)     -      -     -       -       -      -
Amortization of prior service cost     -      -      -      8      8     1      92     147    147
Recognized net actuarial gain         (8)    (6)     -      -      -     -       -       -      -
                                 -------  ------ ------ ------ ----- -----  -------  -----  -----
Net periodic benefit cost           $243   $210   $197    $47    $42   $18    $233    $282   $265
                                 =======  ====== ====== ====== ===== ====== ======= ======  =====
</TABLE>

                                       38
<PAGE>

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

                                                       Pension Plan          Supplemental Plan          Directors' Plan
                                                  ----------------------    --------------------   -------------------------
                                                     1999         1998         1999       1998         1999           1998
                                                  ----------    --------    ---------   --------   ------------    ---------
<S>                                               <C>           <C>         <C>         <C>        <C>             <C>
Change in pension obligation
Pension obligation at beginning of year              $1,223      $1,013        $ 200       $ 70        $ 1,195      $ 1,074
Service cost                                            251         222           25         22             61           59
Interest cost                                            85          65           14         12             80           76
Actuarial (gain) loss                                  (303)        (74)         (24)        15            (85)         (15)
Benefits paid                                           (23)         (3)           -          -              -            -
Other                                                     -           -            -         81              -            -
                                                  ----------    --------    ---------   --------   ------------    ---------
Pension obligation at end of year                     1,233       1,223          215        200          1,251        1,194
                                                  ----------    --------    ---------   --------   ------------    ---------

Change in plan assets
Fair value of plan assets at beginning of year        1,064         738            -          -              -            -
Actual return on plan assets                             47         164            -          -              -            -
Employer contribution                                     -         165            -          -              -            -
Benefits paid                                           (23)         (3)           -          -              -            -
                                                  ----------    --------    ---------   --------   ------------    ---------
Fair value of plan assets at end of year              1,088       1,064            -          -              -            -
                                                  ----------    --------    ---------   --------   ------------    ---------

Funded Status                                          (145)       (159)        (215)      (200)        (1,251)      (1,194)
Unrecognized net actuarial (gain) loss                 (483)       (227)          (9)        16            (46)          39
Unrecognized prior service cost                          (5)         (5)          73         81              -           92
                                                  ----------    --------    ---------   --------   ------------    ---------
Accrued pension cost                                 $ (633)     $ (391)      $ (151)    $ (103)      $ (1,297)    $ (1,063)
                                                  ==========    ========    =========   ========   ============    =========


Weighted-average assumptions (1)
Discount rate                                          8.00  %     7.25  %      8.00  %    7.25  %        8.00  %      7.25  %
Expected return on plan assets                         8.00        8.00         8.00       8.00           8.00         8.00
Rate of compensation increase                          5.00        5.00          N/A        N/A            N/A          N/A

<FN>
----------------------------------------------------------------------------------------------------------------------------
(1)  Weighted average assumptions were applied at the beginning of the period.
</FN>
</TABLE>


     The  Company  has a Capital  Investment  Plan (the  "Plan")  which  permits
employees to make basic  contributions up to 4% of base  compensation.  In 1998,
the Plan was amended to permit  employees to make basic  contributions up to 6%.
Additional contributions up to 10% of compensation may be made when coupled with
basic   contributions.   Under  the  Plan,  the  Company   provides  a  matching
contribution  equal to 50% of the basic  contribution  of each  participant.  In
addition,  the Company makes a fixed  contribution on behalf of each participant
equal to 1% of such participant's base compensation.  The Company's contribution
to the Plan amounted to $163,000 and $167,000 in 1999 and 1998, respectively.

Note 12.  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,  a maximum of 637,875 shares of common stock may be
granted at fair market value at the date of grant. Options granted expire if not
exercised  within ten years of date of grant and are exercisable  according to a
vesting schedule, starting one year from the date of grant.

     If  compensation  cost for 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)


                                 1999     1998   1997
                               --------- ---------------
Net Income
      As reported. . . . . . . . $9,635. $8,609  $7,925
      Pro-forma. . . . . . . . .  9,572   8,572   7,919

Diluted earnings per common share
      As reported. . . . . . . .  $1.36   $1.19   $1.10
      Pro-forma. . . . . . . . .   1.36    1.18    1.10

                                       39
<PAGE>


     The fair value of each option grant is estimated on the date of grant using
the  Black-Scholes  option-pricing  model  with the  following  weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: dividend yield
of 2.76%,  2.20%,  2.25%;  expected  volatility  of 22.63%,  23.33% and  21.94%;
risk-free  interest  rate of 5.31%,  5.62% and 5.51%;  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.

     A summary of the Stock Plan's status as of December 31, and changes  during
each of the three years then ended is presented below:

<TABLE>
<CAPTION>

                                                       1999                 1998                1997
                                                --------------------  ------------------  ------------------
                                                           Weighted-            Weighted-           Weighted-
                                                            Average              Average             Average
                                                            Exercise             Exercise            Exercise
                                                 Options     Price     Options    Price    Options    Price
                                                ---------  ---------  -------   --------  --------   --------
<S>                                             <C>        <C>        <C>       <C>       <C>       <C>

Outstanding at January 1                          110,824    $ 11.91   121,935    $ 6.62   195,604    $ 6.21
Granted                                            58,750      16.97    49,875     18.17     2,250     16.00
Exercised                                          (7,836)      6.05   (50,394)     5.27   (75,919)     5.85
Forfeited                                          (8,750)     17.30   (10,592)    12.05        -          -
                                                ---------             --------            --------
Outstanding at December 31                        152,988      13.85   110,824     11.91   121,935      6.62
                                                =========             ========            ========

Options exercisable at December 31                 71,238       9.79    58,440      7.29   107,479      6.22
                                                =========             ========            ========
Weighted-average fair value of options granted
  during the year ended December 31 (per option)    $5.03               $5.98               $4.29

</TABLE>


     The following table summarizes  information about options outstanding under
the Stock Plan at December 31, 1999:

                  Options Outstanding                       Options Exercisable
----------------------------------------------------------- --------------------
                                  Weighted-
                                   Average    Weighted-              Weighted-
   Range of                       Remaining    Average                Average
 Exercise Prices        Number    Contractual Exercise   Number      Exercise
    Prices            Outstanding  Life         Price    Exercisable   Price
-------------------   ----------  ----------- --------- ------------ ---------
  $ 5 - $10             55,363       4.24       $7.45      55,363      $7.45
  $15 - $20             97,625       8.65       17.48      15,875      17.96
                      ----------                        ------------
                       152,988                             71,238
                      ==========                        ============


     Pursuant to the Stock Plan,  restricted  stock is awarded to key  employees
providing for the award of Interchange's 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,
1999, 1998 and 1997.


Restricted Stock Awards            1999       1998       1997
-----------------------          ---------- ---------- ---------
Outstanding at beginning of year  21,591     23,783    17,709
Granted                           14,489     12,769    12,822
Vested                           (11,908)   (11,320)   (6,748)
Forfeited                              -     (3,641)        -
                               ---------- ---------- ---------
Outstanding at end of year        24,172     21,591    23,783
                               ========== ========== =========



     The  amount of  compensation  costs  related  to  restricted  stock  awards
included in salary expense in 1999, 1998 and 1997 amounted to $144,908, $101,381
and $64,161, respectively.

                                       40
<PAGE>

Note 13.  Stockholders' Equity

     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 I capital to risk-weighted assets and Tier I capital to average assets.
Management believes, as of December 31, 1999, that the Company and the Bank meet
all capital adequacy requirements to which they are subject.

     As of December  31,  1999,  the most recent  notification  from the Federal
Reserve Bank  categorized  the Bank 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 I risk-based and Tier I
leverage ratios as set forth in the following table.  There are no conditions or
events  since that  notification  that  management  believes  have  changed  the
institution'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, 1999
    Total Capital (to Risk Weighted Assets):
      The Company                                 $64,209      13.91 %  $36,925    8.00 %         N/A    N/A
      The Bank                                     64,877      14.01     37,054    8.00       $46,318  10.00 %
    Tier 1 Capital (to Risk Weighted Assets):
      The Company                                  58,733      12.72    $18,463    4.00           N/A    N/A
      The Bank                                     59,401      12.82     18,527    4.00        27,791   6.00
    Tier 1 Capital (to Average Assets):
      The Company                                  58,733       8.32     21,167    3.00           N/A    N/A
      The Bank                                     59,401       8.45     21,080    3.00        35,133   5.00

As of December 31, 1998
    Total Capital (to Risk Weighted Assets):
      The Company                                 $66,474      15.12 %  $35,149    8.00 %         N/A    N/A
      The Bank                                     63,777      14.59     34,976    8.00       $43,721  10.00 %
    Tier 1 Capital (to Risk Weighted Assets):
      The Company                                  60,646      13.80     17,575    4.00           N/A    N/A
      The Bank                                     58,312      13.34     17,488    4.00        26,232   6.00
    Tier 1 Capital (to Average Assets):
      The Company                                  60,646       9.08     20,041    3.00           N/A    N/A
      The Bank                                     58,312       8.76     19,979    3.00        33,299   5.00

</TABLE>


Shares of common stock

     On June 2, 1999, the Board of Directors  authorized a program to repurchase
up to 10  percent,  or  approximately  720  thousand  shares,  of the  Company's
outstanding common stock. During 1999, the Company has repurchased approximately
494 thousand of its common shares  pursuant to this  program.  The total cost of
the purchases was approximately $8.8 million. The repurchased shares are held as
treasury stock and will be  principally  used for the exercise of stock options,
incentive plan stock awards and other general corporate purposes.


The following table summarizes the activity in common shares:

                                                 Shares     Shares in
                                                 Issued     Treasury
                                             -------------  ---------
Balance, December 31, 1997                      7,139,880    134,025
    Forfeiture of stock bonus                      (3,641)     3,641
    Issuance of  stock                                728          -
    Issuance of stock from treasury                63,166    (63,166)
                                             -------------  ---------

Balance, December 31, 1998                      7,200,133     74,500
    Purchase of treasury stock                   (494,360)   494,360
    Issuance of stock from treasury                22,325    (22,325)
                                             -------------  ---------

Balance, December 31, 1999                      6,728,098    546,535
                                             =============  =========

                                       41
<PAGE>


Note 14.  Earnings Per 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>

                                            1999                      1998                  1997
                                 ------------------------- --------------------------------------------
                                         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
Income available to common
   shareholders                   $9,635    7,031   $1.37  $8,609  7,189   $1.20 $7,925  7,132   $1.11
                                                   =======                =======               =======

Effect of Dilutive Shares
Options issued to management                   31                     48                    90
                                         ---------                -------               -------

Diluted Earnings per Common Share
Income available to common
   shareholders                   $9,635    7,062   $1.36  $8,609  7,237   $1.19 $7,925  7,222   $1.10
                                 ======= ========= ======= ====== ======= ====== ====== ======= =======

</TABLE>


Note 15.  Other Non-interest Expenses

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

                                         1999     1998    1997
                                        --------------------------

Professional fees                       $1,101  $1,184  $1,216
Data Processing                            517     538     548
Directors' fees, travel and retirement     546      88     607


Note 16.   Income Taxes

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


                          1999           1998        1997
                        ----------    ---------   --------
Federal: current        $5,114        $4,399      $4,304
         deferred         (316)         (344)       (600)
State:   current           161           315         752
         deferred            -           538        (171)
                        ----------    ---------   --------
                        $4,959        $4,908      $4,285
                        ==========    =========    ========


     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)


                                                       1999         1998
                                                     ----------    --------
   Deferred tax assets
   Excess of book over tax allowance
      for loan losses                                  $ 1,638      $1,567
   Excess of book over tax depreciation                    253         263
   Excess of book over tax provision for benefit
      plan expense                                         714         571
   Core deposit premium                                    223         179
   Other                                                   108          59
   Unrealized losses - securities available for sale       367           -
                                                     ----------    --------
    Total deferred tax assets                            3,303       2,639
                                                     ----------    --------

   Deferred tax liabilities
     Unrealized gains - securities available for sale        -         707
     Loan origination fees                                 199         294
     Other                                                 179         103
                                                     ----------    --------
       Total deferred tax liabilities                      378       1,104
                                                     ----------    --------
       Net deferred tax assets                          $2,925      $1,535
                                                     ==========    ========


     Net deferred  tax assets are  included in other assets on the  consolidated
balance  sheet.  It is more  likely  than not that  deferred  tax assets of $2.9
million  will be  principally  realized  through  future  reversals  of existing
taxable temporary differences and, to a lesser extent, future taxable income and
tax planning strategies.

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

                                          -------------------------------------
                                                      December 31,
                                          -------------------------------------
                                            1999           1998         1997
                                          ----------     ----------    --------
Expected provision at statutory rate            35%            34%         34%
Difference resulting from:
   State income tax, net of federal benefit      1              2           3
   Interest income exempt from
   federal taxes                                (1)            (1)         (2)
   Other                                        (1)             1           -
                                          ----------     ----------    --------
                                                34%            36%         35%
                                          ==========     ==========    ========


Note 17.  Restrictions of Subsidiary Bank Dividends

     Under New Jersey State law, the Bank may declare a dividend  only if, after
payment thereof, its capital would be unimpaired and its remaining surplus would
equal 50 percent of its capital. At December 31, 1999,  undistributed net assets
of the Bank were $58,944,000 of which  $54,626,000 was available for the payment
of dividends. In addition, payment of dividends is limited by the requirement to
meet the  capital  guidelines  issued by the Board of  Governors  of the Federal
Reserve System.

                                       42
<PAGE>


Note 18.   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 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.


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


                                  1999       1998
                               ----------  -------
     Credit card loans                 -   $ 6,019
     Home equity loans           $58,523    55,435
     Other loans                  43,153    55,516
     Standby letters of credit       449     1,700
                              ----------  --------
                                $102,125  $118,670
                              ==========  ========


     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)

               2000                             $1,134
               2001                                980
               2002                                757
               2003                                596
               2004                                455
               thereafter                        2,267
                                            -----------
               Total minimum lease payments     $6,189
                                            ===========


     Rent  expense  for  all  leases  amounted  to   approximately   $1,256,000,
$1,101,000 and $981,000 in 1999, 1998, and 1997, respectively.

     In 1999 and 1998, the Company did not lease real estate from affiliates. In
1997,  certain real estate was leased from one company that was affiliated  with
directors of the Company. Rental expense associated with such leases was $30,000
for the year ended  December 31,  1997. A director of the Company also  provided
legal  services  through  his  affiliated  firm.  Fees paid for  these  services
amounted to  approximately  $325,000,  $331,000 and $382,000 in 1999,  1998, and
1997, respectively.


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

                                       43

<PAGE>

Note 19.   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  following  table sets forth the carrying  amounts and  estimated  fair
values of the Company's financial instruments: (in thousands)


                                 -----------------------------------
                                          December 31,
                                 -----------------------------------
                                     1999               1998
                                 ------------------  ----------------
                                 Carrying    Fair    Carrying   Fair
                                  Amount    Value     Amount   Value
                                 --------  --------  ------- -------
 Financial assets:
   Cash and cash equivalents     $ 17,669  $ 17,669 $  43,28  $43,284
   Securities held to maturity     54,540    53,784   54,159   54,761
   Securities available for sale  107,349   107,349   95,771   95,771
   Loans, net                     506,500   495,452  473,074   75,272
                                 --------  --------  --------  ------
                                 $686,058  $674,254 $666,286 $669,088
                                 ========  ========  ======== =======

 Financial liabilities:
   Deposits                     $598,992   $597,887 $598,732 $599,375
   Short-term borrowings          30,406     30,406   18,548   18,548
   Long-term borrowings           13,000     12,906        -        -
                                 --------  --------  --------  ------
                                $642,398   $641,199 $617,280 $617,923
                                 ========  ========  ======== =======


     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.

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 values of certain loans that reprice  frequently
and have no significant change in credit risk is assumed to equal their carrying
values.  The fair value of other types of loans is estimated by discounting  the
future cash flows using  interest  rates that are  currently  being  offered for
loans with similar  terms to borrowers  with similar  credit  quality.  The fair
value of  nonperforming  loans is estimated using methods employed by management
in evaluating the allowance for loan losses.

Deposits

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

Short-term borrowings

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

Long-term borrowings

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

Off-balance-sheet financial instruments

     The fair values of  commitments  to extend credit and  unadvanced  lines of
credit   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, 1999 and 1998, the
estimated  fair values of these  off-balance-sheet  financial  instruments  were
immaterial.

                                       44
<PAGE>

Note 20. Parent Company Information
(in thousands)

<TABLE>
<CAPTION>
                                                              ------------------------------------
                                                                       December 31,
                                                              ------------------------------------
Condensed balance sheets                                         1999         1998         1997
                                                              ---------    --------   -----------
<S>                                                           <C>          <C>        <C>

Assets
     Cash                                                      $   641     $   355             -
     Securities available for sale                                  -        1,321       $ 2,372
     Investment in subsidiaries
       Bank                                                     58,944      59,591        53,673
       Other                                                       646         646           646
     Dividends receivable                                            -         720           570
     Other assets                                                    -         602          (418)
                                                              ---------    --------   -----------
       Total assets                                            $60,231     $63,235       $56,843
                                                              =========    ========   ===========

Liabilities
     Dividends payable                                          $  805      $  720        $  570
     Loans from subsidiaries                                     1,000           -             -
     Other liabilities                                             150         143           143
                                                              ---------    --------   -----------
                                                                 1,955         863           713
                                                              ---------    --------   -----------

Stockholders' equity
     Common stock                                                5,397       5,397         5,396
     Capital Surplus                                            21,244      21,256        21,557
     Retained earnings                                          41,741      35,482        29,698
     Accumulated other comprehensive income                       (675)      1,192         1,185
                                                              ---------    --------   -----------
                                                                67,707      63,327        57,836
     Less:  Treasury stock                                       9,431         955         1,706
                                                              ---------    --------   -----------
       Total stockholders' equity                               58,276      62,372        56,130
                                                              ---------    --------   -----------
       Total liabilities and stockholders' equity              $60,231     $63,235       $56,843
                                                              =========    ========   ===========

-------------------------------------------------------------------------------------------------

                                                            ------------------------------------
                                                                  Years Ended December 31,
                                                            ------------------------------------
Condensed statements of income                                  1999         1998         1997
                                                            ---------    --------   -----------
Dividends from subsidiary bank                                 $8,641      $2,556        $3,798
Dividends on equity securities                                      8          37            35
Net gain on sale of securities                                    714         876             -
Management fees                                                    39          39            40
                                                              ---------    --------   -----------
       Total revenues                                           9,402       3,508         3,873
                                                              ---------    --------   -----------

Interest on short-term borrowings                                  92           -             -
Operating expenses                                                448         643           366
                                                              ---------    --------   -----------

Income before equity in undistributed earnings of subsidiaries   8,862      2,865         3,507
Equity in undistributed earnings of subsidiaries                   773      5,744         4,418
                                                              ---------    --------   -----------
       Net income                                               $9,635     $8,609        $7,925
                                                              =========    ========   ===========

-------------------------------------------------------------------------------------------------

                                                             -----------------------------------
                                                                  Years Ended December 31,
                                                             -----------------------------------
Condensed statements of cash flows                             1999         1998         1997
                                                             ----------    --------   ----------
Cash flows from operating activities:
     Net income                                                 $9,635     $8,609        $7,925
     Adjustments to reconcile net income
       to net cash provided by operating activities
       Net gain on sale of securities                             (714)      (876)            -
       Decrease (increase) in other assets                       1,618     (1,048)          (45)
       Increase in dividends payable                                86        150            45
       Increase in other liabilities                                 7          -             1
     Equity in undistributed income of subsidiaries               (774)    (5,744)       (4,418)
                                                             ----------   --------   -----------
       Net cash provided by operating activities                 9,858      1,091         3,508
                                                             ----------   --------   -----------

Cash flows from investing activities:
     Sale of securities available for sale                      1,292       1,622             -
     Washington Interchange merger                                  -           -            37
                                                             ----------    --------   -----------
       Net cash provided by (used in) investing activities      1,292       1,622            37
                                                             ----------    --------   -----------

Cash flows from financing activities:
     Cash dividends paid                                       (3,376)     (2,801)       (2,287)
     Loan from subsidiary                                       1,000           -             -
     Treasury stock                                            (8,781)        (49)       (1,543)
     Common stock issued                                          246         226           279
     Exercise of option shares                                     47         266             -
                                                            ----------    --------   -----------
       Net cash used in financing activities                  (10,864)     (2,358)       (3,551)
                                                            ----------    --------   -----------

Net increase/(decrease) in cash                                   286         355            (6)
Cash at beginning of year                                         355           -             6
                                                            ----------    --------   -----------
Cash at end of year                                              $641        $355        $    -
                                                            ==========    ========   ===========
</TABLE>



                                       45
<PAGE>


Note 21. Quarterly Financial Data
(unaudited) (in thousands except per share data)

-------------------------------------------------------------------------------
                                        First     Second    Third     Fourth
                1999                    Quarter   Quarter   Quarter   Quarter
-------------------------------------------------------------------------------

 Interest income                       $11,850    $12,228   $12,567   $12,656
 Interest expense                        4,512      4,580     4,732     4,959
 Net interest income                     7,338      7,648     7,835     7,697
 Provision for loan losses                 300        300       300       300
 Net gain on sale of securities            527        329         3         -
 Income before income taxes              3,460      3,761     4,068     3,306
 Net income                              2,286      2,478     2,705     2,166

 Basic earnings per common share          0.32       0.34      0.38      0.32
 Diluted earnings per common share        0.32       0.34      0.38      0.32

-------------------------------------------------------------------------------
                                        First     Second    Third     Fourth
                1998                    Quarter   Quarter   Quarter   Quarter
-------------------------------------------------------------------------------

 Interest income                       $11,923    $12,242   $12,502   $12,153
 Interest expense                        4,916      5,053     5,135     4,760
 Net interest income                     7,007      7,189     7,367     7,393
 Provision for loan losses                 219        212       210       310
 Net gain on sale of securities              -          -        94       927
 Income before income taxes              3,068      2,238     3,922     4,289
 Net income                              1,977      1,428     2,547     2,657

 Basic earnings per common share          0.28       0.20      0.35      0.37
 Diluted earnings per common share        0.27       0.20      0.35      0.37


                                       46
<PAGE>