<TABLE>

Interchange Financial Services Corporation
-------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<CAPTION>

                                                                                          March 31,        December 31,
                                                                                            1999               1998
                                                                                        --------------     --------------
                                                                                        (unaudited)
<S>                                                                                     <C>                <C>
Assets
Cash and due from banks                                                                      $ 15,961           $ 20,109
Federal funds sold                                                                             15,950             23,175
                                                                                        --------------     --------------
Total cash and cash equivalents                                                                31,911             43,284
                                                                                        --------------     --------------

Securities held to maturity at amortized cost (estimated market value of
      $49,313 and $54,761 at March 31, 1999 and December 31, 1998, respectively)               48,935             54,159
                                                                                        --------------     --------------
Securities available for sale at estimated market value (amortized cost of
     $101,751 and $93,872 at March 31, 1999 and December 31, 1998, respectively)              102,975             95,771
                                                                                        --------------     --------------
Loans                                                                                         479,481            478,717
Less:  Allowance for loan losses                                                                5,853              5,645
                                                                                        --------------     --------------
Net loans                                                                                     473,628            473,072
                                                                                        --------------     --------------
Premises and equipment, net                                                                     9,754              9,871
Foreclosed real estate                                                                             84                 84
Accrued interest receivable and other assets                                                    8,499              9,123
                                                                                        ==============     ==============
Total assets                                                                                 $675,786           $685,364
                                                                                        ==============     ==============


Liabilities
Deposits
    Non-interest bearing                                                                     $100,751           $107,408
    Interest bearing                                                                          488,649            491,324
                                                                                        --------------     --------------
Total deposits                                                                                589,400            598,732
                                                                                        --------------     --------------
Securities sold under agreements to repurchase                                                  7,250              8,780
Short-term borrowings                                                                           9,739              9,768
Accrued interest payable and other liabilities                                                  5,779              5,712
                                                                                        --------------     --------------
Total liabilities                                                                             612,168            622,992
                                                                                        --------------     --------------

Commitments and contingent liabilities
Stockholders' equity:
Common stock, without par value; 15,000,000 shares authorized;
    7,214,002 and 7,200,133 shares issued and outstanding at March 31, 1999
    and December 31, 1998, respectively                                                         5,397              5,397
Capital surplus                                                                                21,316             21,256
Retained earnings                                                                              36,902             35,482
Accumulated other comprehensive income                                                            782              1,192
                                                                                        --------------     --------------
                                                                                               64,397             63,327
Less:  Treasury stock                                                                             779                955
                                                                                        --------------     --------------
Total stockholders' equity                                                                     63,618             62,372
                                                                                        ==============     ==============
Total liabilities and stockholders' equity                                                   $675,786           $685,364
                                                                                        ==============     ==============

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

<TABLE>
Interchange Financial Services Corporation
----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31,
----------------------------------------------------------------------------------------------------------------------
(in thousands except per share data)
(unaudited)
<CAPTION>
                                                                                          1999               1998
                                                                                      -------------      -------------
<S>                                                                                   <C>                <C>    
Interest income
Interest and fees on loans                                                                 $ 9,507            $ 9,448
Interest on federal funds sold                                                                 219                381
Interest on deposits                                                                             -                 24
Interest and dividends on securities
    Taxable interest income                                                                  1,944              1,978
    Interest income exempt from federal income taxes                                           109                 29
    Dividends                                                                                   71                 63
                                                                                      -------------      -------------
Total interest income                                                                       11,850             11,923
                                                                                      -------------      -------------

Interest expense
Interest on deposits                                                                         4,275              4,560
Interest on securities sold under agreements to repurchase                                      92                208
Interest on short-term borrowings                                                              145                  -
Interest on long-term borrowings                                                                 -                147
                                                                                      -------------      -------------
Total interest expense                                                                       4,512              4,915
                                                                                      -------------      -------------

Net interest income                                                                          7,338              7,008
Provision for loan losses                                                                      300                219
                                                                                      -------------      -------------
Net interest income after provision for loan losses                                          7,038              6,789
                                                                                      -------------      -------------

Non-interest income
Service fees on deposit accounts                                                               569                625
Net gain on sale of securities                                                                 527                  -
Other                                                                                          251                333
                                                                                      -------------      -------------
Total non-interest income                                                                    1,347                958
                                                                                      -------------      -------------

Non-interest expenses
Salaries and benefits                                                                        2,540              2,484
Occupancy                                                                                      659                564
Furniture and equipment                                                                        250                258
Advertising and promotion                                                                      246                199
Federal Deposit Insurance Corporation assessment                                                20                 18
Foreclosed real estate                                                                           1                  -
Acquisition                                                                                      -                111
Other                                                                                        1,209              1,044
                                                                                      -------------      -------------
Total non-interest expenses                                                                  4,925              4,678
                                                                                      -------------      -------------

Income before income taxes                                                                   3,460              3,069
Income taxes                                                                                 1,174              1,091
                                                                                      -------------      -------------
Net income                                                                                 $ 2,286            $ 1,978
                                                                                      =============      =============

Basic earnings per common share                                                             $0.32              $0.28
                                                                                             ====               ====

Diluted earnings per common share                                                           $0.32              $0.27
                                                                                             ====               ====

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

<TABLE>

Interchange Financial Services Corporation
------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
(in thousands except share data)
<CAPTION>

                                                                             Accumulated
                                                                                Other
                                                     ComprehensiveRetained   Comprehensive Common     Capital   Treasury
                                                       Income     Earnings     Income      Stock      Surplus    Stock     Total
                                                     -----------  ---------  ------------ ---------  ---------- -------- ----------
<S>                                                  <C>          <C>        <C>          <C>        <C>        <C>      <C> 

Balance at January 1, 1998                                         $29,698        $1,185    $5,396     $21,557  $(1,706)   $56,130
Comprehensive income
  Net Income                                             $1,978      1,978                                                   1,978
  Other comprehensive income, net of taxes
     Unrealized  losses on equity securities               (124)
     Unrealized gains on debt securities                     10
                                                     -----------
  Other comprehensive loss                                 (114)                    (114)                                     (114)
                                                     -----------
                                                     ===========
Comprehensive income                                     $1,864
                                                     ===========
Dividends on common stock                                             (665)                                                   (665)
Issued 12,769 shares of common stock in connection with
  Executive Compensation Plan                                                                               70      162        232
Exercise of 36,605 option shares                                                                          (272)     454        182
                                                                  ---------  ------------ ---------  ---------- -------- ----------

Balance at March 31, 1998                                           31,011         1,071     5,396      21,355   (1,090)    57,743
Comprehensive income
  Net Income                                             $6,631      6,631                                                   6,631
  Other comprehensive income, net of taxes
     Unrealized gains on debt securities                    197
     Unrealized losses securities transferred from held to
       maturity to available for sale - Acquisition         (17)
     Unrealized gains on equity securities                  467
     Less:  gains on disposition of equity securities      (526)
                                                     -----------
  Other comprehensive income                                121                      121                                       121
                                                     -----------
                                                     ===========
Comprehensive income                                     $6,752
                                                     ===========
Dividends on common stock                                           (2,160)                                                 (2,160)
Fractional shares on 3 for 2 stock split and merger shares                                                  (5)                 (5)
Forfeiture of bonus stock                                                                                           (49)       (49)
Exercised 13,789 option shares                                                                   1         (94)     184         91

                                                                  ---------  ------------ ---------  ---------- -------- ----------
Balance at December 31, 1998                                        35,482         1,192     5,397      21,256     (955)    62,372
Comprehensive income
  Net Income                                             $2,286      2,286                                                   2,286
  Other comprehensive income, net of taxes
     Unrealized losses on debt securities                   (97)
     Unrealized gains securities transferred from held to
        maturity to available to sale - Acquisition          32
     Unrealized loss on equity securities                   (29)
     Less:  gains on disposition of equity securities      (316)
                                                     -----------
    Other comprehensive loss                               (410)                    (410)                                     (410)
                                                     -----------
                                                     ===========
Comprehensive income                                     $1,876
                                                     ===========

Dividends on common stock                                             (866)                                                   (866)
Issued 14,489 shares of common stock in connection
  with Executive Compensation Plan                                                                          60      176        236
                                                                  ---------  ------------ ---------  ---------- -------- ----------
Balance at March 31, 1999                                          $36,902        $  782    $5,397     $21,316  $  (779)   $63,618
                                                                  =========  ============ =========  ========== ======== ==========

-----------------------------------------------------------------------------------------------------------------------------------
All share data has been  adjusted  for the  effects  of the 3 for 2 stock  split
issued on April 17, 1998 to shareholders of record on March 20, 1998.
</TABLE>
<PAGE>

<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
-----------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
-----------------------------------------------------------------------------------------------------------------
(in thousands)
(unaudited)
<CAPTION>
                                                                                         1999           1998
                                                                                      ------------   ------------
<S>                                                                                   <C>            <C>           
Cash flows from operating activities
Net income                                                                                $ 2,286        $ 1,978
Adjustments to reconcile net income to net cash provided by operating activities
    Depreciation and amortization                                                             366            338
    Amortization of securities premiums                                                       244            220
    Accretion of securities discounts                                                         (40)           (46)
    Amortization of premiums in connection with acquisition                                    78            111
    Provision for loan losses                                                                 300            219
    Net gain on sale of securities                                                           (527)             -
    Net loss on disposal of fixed assets                                                        2              -
Decrease in operating assets
    Accrued interest receivable                                                               151             76
    Deferred taxes                                                                              -            243
    Other                                                                                     624          1,015
(Decrease) increase in operating liabilities
    Accrued interest payable                                                                  (45)           (19)
    Other                                                                                     112            461
                                                                                      ------------   ------------
Cash provided by operating activities                                                       3,551          4,596
                                                                                      ------------   ------------

Cash flows from investing activities
(Payments for) proceeds from
    Net originations of loans                                                              (5,856)        (6,603)
    Purchase of loans                                                                           -         (3,626)
    Purchase of term federal funds                                                              -         (7,500)
    Repayment of term federal funds                                                         5,000              -
    Purchase of securities available for sale                                             (13,812)          (322)
    Maturities of securities available for sale                                             5,331          2,216
    Sale of securities available for sale                                                     955              -
    Purchase of securities held to maturity                                                  (622)        (4,260)
    Maturities of securities held to maturity                                               5,816          4,260
    Purchase of fixed assets                                                                 (217)          (390)
    Sale of fixed assets                                                                        2              -
                                                                                      ------------   ------------
Cash used in investing activities                                                          (3,403)       (16,225)
                                                                                      ------------   ------------

Cash flows from financing activities
Proceeds from (payments for)
    Deposits less than/in excess of withdrawals                                            (9,332)        27,267
    Securities sold under agreements to repurchase and other borrowings                     6,250          6,600
    Retirement of securities sold under agreement to repurchase and
       other borrowings                                                                    (7,809)        (2,325)
    Repayment of long-term borrowings                                                           -            (27)
    Dividends                                                                                (866)          (665)
    Common stock issued from treasury                                                         236            232
    Exercise of option shares                                                                   -            182
                                                                                      ------------   ------------
Cash (used in) provided by financing activities                                           (11,521)        31,264
                                                                                      ------------   ------------

(Decrease) increase in cash and cash equivalents                                          (11,373)        19,635
Cash and cash equivalents, beginning of year                                               43,284         36,583
                                                                                      ============   ============
Cash and cash equivalents, end of year                                                    $31,911        $56,218
                                                                                      ============   ============

Supplemental disclosure of cash flow information:
Cash paid for:
    Interest                                                                              $ 4,557        $ 4,934
    Income taxes                                                                            1,335            423

Supplemental disclosure of non-cash investing activities:
    Decrease - market valuation of securities available for sale                              675            195

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

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  
                    FOR THE THREE MONTHS ENDED MARCH 31, 1999
                                   (Unaudited)

1.       Basis of Presentation

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in conformity  with  generally  accepted  accounting  principles and in
accordance  with the  rules  and  regulations  of the  Securities  and  Exchange
Commission.  Pursuant  to such  rules and  regulations  certain  information  or
footnotes necessary for a complete presentation of financial condition,  results
of operations and cash flows in conformity  with generally  accepted  accounting
principles  have  been  condensed  or  omitted.   These  consolidated  financial
statements  should be read in  conjunction  with the  financial  statements  and
schedules  thereto  included  in the annual  report on Form 10-K of  Interchange
Financial  Services  Corporation (the "Company") for the year ended December 31,
1998.

     The  consolidated  financial data for the three months ended March 31, 1999
and 1998,  are unaudited but reflect all  adjustments  consisting of only normal
recurring  adjustments  which  are,  in the  opinion of  management,  considered
necessary  for a fair  presentation  of the  financial  condition and results of
operations  for the  interim  periods.  The  results of  operations  for interim
periods are not  necessarily  indicative of results to be expected for any other
period or the full year.

     Effective  May 31, 1998,  the Company  acquired The Jersey Bank for Savings
("Jersey").    The    acquisition    has   been    accounted   for   under   the
pooling-of-interests method of accounting, accordingly, the financial statements
have been retroactively  restated to include the consolidated accounts of Jersey
for all periods presented.  The transaction  resulted in the issuance of 780,198
shares of the Company's common stock.

2.       Earnings Per Common Share

     Basic  earnings  per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding.  Diluted earnings
per common  share is similar to the  computation  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 the  dilutive
potential common shares had been issued.

<PAGE>


3.  Legal Proceedings

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

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The  following  discussion  is an  analysis of the  consolidated  financial
condition  and results of  operations  of the Company for the three months ended
March 31, 1999 and 1998, and should be read in conjunction with the consolidated
financial statements and notes thereto included in Item 1 hereof.

     Effective  May 31, 1998,  the Company  acquired The Jersey Bank for Savings
("Jersey").  The  acquisition  has been  accounted  for  under  the  pooling  of
interests method of accounting,  accordingly the financial  statements have been
retroactively  restated to include the  consolidated  accounts of Jersey for all
periods presented.

Forward Looking  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."  These "forward
looking  statements"  include,  but are not  limited  to,  estimates  of capital
expenditures,  costs of remediation and testing,  the timetable for implementing
the remediation and testing phases of Year 2000 planning, 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 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. We are not promising to
make any public  announcement when we think "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.

<PAGE>

             THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998

Earnings Summary

     For the first  quarter of 1999,  the  Company  reported  net income of $2.3
million or $0.32  diluted  earnings  per common  share,  as  compared  with $2.0
million or $0.28 diluted  earnings per common share for the same period of 1998,
an increase of $308 thousand or 15.6%.  The increase was due, in part, to a $330
thousand  improvement  in net interest  income  resulting  from a 6.6% growth in
average loans  outstanding for the first quarter of 1999 as compared to the same
period  in 1998.  Further  contributing  to the  growth  in net  income  was the
recognition  of $317  thousand  of gains  (after  tax)  from the sale of  equity
securities.  The improvements in net income were partially offset by an increase
of $247 thousand or 5.3% in non-interest  expenses for the first quarter of 1999
as compared to the same period in 1998.

                              RESULTS OF OPERATIONS

Net Interest Income

     Net  interest  income  is the  most  significant  source  of the  Company's
operating  income.  Net interest income on a tax equivalent basis increased $356
thousand to $7.4 million for the quarter ended March 31, 1999 as compared to the
same  quarter of 1998.  The  increase  in net  interest  income is due to higher
levels of interest  earning assets and increased loan production  coupled with a
decrease in interest expense  resulting from a shift in the deposit  composition
("mix").

     The loan  growth was funded  largely by a $35.1  million or 6.4%  growth in
average  deposits  for the first  quarter 1999 as compared to the same period in
1998.  Non-interest bearing and interest-bearing demand deposits increased $11.6
million or 13.2% and $33.5 million or 21.4%, respectively, while higher yielding
certificates  of deposits  greater than $100 thousand  decreased $5.6 million or
17.7%. The favorable change in the retail deposit mix served to reduce the yield
on total deposits,  resulting in a favorable impact on net interest income.  The
increase in net  interest  income was partly  offset by lower  average  rates on
interest earning assets, particularly loans.

<PAGE>

Non-interest Income

     For the quarter ended March 31, 1999, non-interest income amounted to $1.3
million,  an increase  of $389  thousand as compared to the same period in 1998.
The increase was  principally  due to the  recognition of $527 thousand of gains
(pre-tax)  from the sale of  equity  securities.  The  Company  sold the  equity
securities to eliminate the market-risk  exposure  following the announcement by
the  underlying  company that it had agreed to merge with another  organization.
Offsetting these gains was a decrease in service fees on deposit accounts of $56
thousand or 9.0% from the first  quarter of 1999  compared to the same period in
1998 and the  recognition  in the first quarter of 1998 of $53 thousand from the
sale of reverse mortgage  servicing,  which did not reoccur in the first quarter
of 1999.

Non-interest Expenses

     For the quarter  ended March 31, 1999,  non-interest  expenses  amounted to
$4.9  million,  an  increase  of $247  thousand  or 5.3% as compared to the same
period  in  1998.  The  increase  was due in part to  occupancy  expense,  which
increased  $95 thousand  resulting  from the opening of a new branch in Paramus,
New Jersey  during the fourth  quarter of 1998.  In  addition,  an  increase  in
salaries and  benefits,  the largest  component of  non-interest  expenses,  was
partly  responsible  for the  growth  in  non-interest  expenses.  Salaries  and
benefits   expense   increased  $56  thousand  or  2.2%  resulting  from  normal
promotions,  salary increases and the additions to staff associated with the new
branch  opening.  At March  31,  1999,  full-time  equivalent  staff  was 203 as
compared to 199 at March 31, 1998.  Further,  expenses associated with modifying
computer  systems to address  issues  relating to Year 2000 totaled $57 thousand
for the three months  ended,  March 31, 1999.  There were no Year 2000  expenses
during the same period in 1998.

     Offsetting the increases in  non-interest  expenses in the first quarter of
1998, were certain merger-related charges totaling $111 thousand associated with
the Jersey Bank for Savings  acquisition.  The  merger-related  charges were not
repeated in the first quarter of 1999.

     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 gross
operating expenses,  excluding the amortization of intangibles,  net expenses of
foreclosed real estate, Year 2000 expenses and acquisition costs, expressed as a
percentage  of net interest  income (on a fully  taxable  equivalent  basis) and
other noninterest income,  excluding gains. Generally,  the lower the efficiency
ratio the more  effective  the Company is in utilizing  its resources to produce
income. The Company's efficiency ratio for the quarter ended March 31, 1999, was
58.4% as compared to 55.9% for the year 1998. The change in the efficiency ratio
was primarily due to expenses associated with the opening of the new branch. The
national peer group average  (published by SNL Securities) for the year 1998 was
60.1%.

Income Taxes

     Income tax  expense  as a  percentage  of pre-tax  income was 33.9% for the
three months ended March 31, 1999 as compared to 35.5% for the first  quarter of
1998.  The  decrease  is  attributable  to the  establishment  of a Real  Estate
Investment  Trust ("REIT") in the second half of 1998.  The REIT,  which manages
certain real estate assets of the Company,  was established in an effort to take
advantage of certain tax benefits.

Nonperforming Assets

     Nonperforming assets are comprised of nonaccrual loans,  restructured loans
and foreclosed real estate. At March 31, 1999,  nonperforming assets amounted to
$2.9  million,  an increase of $1.1  million or 59.9% from $1.8 million at March
31, 1998. The increase  consisted almost solely of one commercial loan amounting
to $1.2 million,  which was placed on nonaccrual status during the first quarter
of 1999. The ratio of  nonperforming  assets to total loans and foreclosed  real
estate  increased to 0.60% at March 31, 1999 from 0.38% at December 31, 1998 and
0.40% at March 31, 1998.

Provision for Loan Losses and Loan Loss Experience

     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 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,  the condition of borrowers
facing  financial  pressure,  the  relationship  of  the  current  level  of the
allowance  to the  credit  portfolio  and to  nonperforming  loans and  existing
economic  conditions.  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.

     The allowance for loan losses was $5.9 million at March 31, 1999,  and $5.6
million at December 31, 1998,  representing  208.2% and 300.2% of  nonperforming
loans at those dates, respectively.  In the first quarter of 1999, the Company's
provision  for loan losses was $300  thousand,  an increase of $81 thousand from
the same period a year ago.  The  increase  was largely  due to  continued  loan
growth and an increase in nonperforming loans.

Market Risk

     The Company's primary source of market risk exposure arises from changes in
market interest rates ("interest rate risk").  The Company's  success is largely
dependent upon its ability to manage interest rate risk.  Interest rate risk can
be defined as the  exposure  of the  Company's  net  interest  income to adverse
movements in interest  rates.  Although the Company  manages other risks,  as in
credit and liquidity  risk,  in the normal  course of its  business,  management
considers  interest rate risk to be its most  significant  market risk and could
potentially  have  the  largest  material  effect  on  the  Company's  financial
condition. The primary objective of the asset/liability management process is to
measure the effect of changing  interest rates on net interest income and market
value and adjust the balance sheet (if  necessary) to minimize the inherent risk
and maximize  income.  The  Company's  exposure to market risk and interest rate
risk is reviewed on a regular basis by the  [Asset/Liability  Committee].  Tools
used by management to evaluate risk include an asset/liability simulation model.
At March 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,  the results did not materially
change from December 31, 1998. At March 31, 1999,  the Company was within policy
limits  established by the Board of Directors for changes in net interest income
and future economic value.

     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 the first
quarter of 1999.

     The Company is, however,  party to financial  instruments  with off-balance
sheet risk in the normal course of business to meet the  financing  needs of its
customers.  These  instruments,  which include  commitments to extend credit and
standby  letters of credit,  involve to varying  degrees  elements of credit and
interest  rate risk in  excess  of the  amount  recognized  in the  consolidated
statement of condition. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any  condition  established  in the
contract.  Commitments  generally  have fixed  expiration  dates and may require
collateral from the borrower if deemed necessary by the Company. Standby letters
of credit are conditional commitments issued by the Company's subsidiary bank to
guarantee  the  performance  of a customer to a third  party up to a  stipulated
amount and with specified terms and conditions. Commitments to extend credit and
standby letters of credit are not recorded on the Company's consolidated balance
sheet until the instrument is exercised.

                               FINANCIAL CONDITION

     At March 31,  1999,  the  Company's  total  assets were $675.8  million,  a
decrease  of $9.6  million  or 1.4% to from  total  assets of $685.4  million at
December 31, 1998. At March 31, 1999, cash and cash equivalents  decreased $11.4
million as compared to December  31,  1998.  This is  principally  the result of
financing activities (reflecting  principally deposit withdrawals and repayments
of borrowings) and investing  activities  (funding loans and investment  growth)
utilizing cash more rapidly than the operating activities (reflecting net income
and changes in other assets) can provide it. This can be seen more completely on
the accompanying Statements of Cash Flows.
<PAGE>


<TABLE>

Securities

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

                                                                --------------------------------------------------------------------
                                                                                          March 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                                     $ 13,994            $   95                -          $ 14,089
     Mortgage-backed securities                                         17,536               218             $ 15            17,739
     Obligations of U.S. agencies                                        7,987               104                6             8,085
     Obligations of states & political subdivisions                      9,294                18               37             9,275
     Other debt securities                                                 124                 1                -               125
                                                                ---------------   ---------------   --------------   ---------------
                                                                         48,935               436               58            49,313
                                                                ---------------   ---------------   --------------   ---------------

Securities available for sale
     Obligations of U.S. Treasury                                       31,719               536                1            32,254
     Mortgage-backed securities                                         49,262               408               72            49,598
     Obligations of U.S. agencies                                       13,695               221                8            13,908
     Obligations of states & political subdivisions                      3,154                 -               29             3,125
     Equity securities                                                   3,921               169                -             4,090
                                                                ---------------   ---------------   --------------   ---------------
                                                                       101,751             1,334              110           102,975
                                                                ---------------   ---------------   --------------   ---------------

        Total securities                                              $150,686            $1,770             $168          $152,288
                                                                ===============   ===============   ==============   ===============


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

<PAGE>

<TABLE>
<CAPTION>

                                                         Securities                            Securities
                                                      Held to Maturity                     Available for Sale
                                               --------------------------------      -------------------------------
                                                 Amortized          Market             Amortized          Market
                                                    Cost             Value                Cost            Value
                                               ---------------   --------------      ---------------   -------------
<S>                                            <C>               <C>                 <C>               <C>         
Within 1 year                                        $  8,270          $ 8,281             $ 15,592       $  15,636
After 1 but within 5 years                             19,671           19,864               28,212          28,853
After 5 but within 10 years                            10,276           10,326               15,658          15,818
After 10 years                                         10,718           10,842               38,368          38,578
Equity securities                                           -                -                3,921           4,090
                                               ---------------   --------------      ---------------   -------------

                        Total                        $ 48,935          $49,313             $101,751       $ 102,975
                                               ===============   ==============      ===============   =============


</TABLE>

<TABLE>

Capital Adequacy

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

<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 March 31, 1999:
     Total Capital (to Risk Weighted Assets):
       The Company                                $67,983        15.54 %      $35,009        8.00 %           N/A         N/A
       The Bank                                    65,837        15.09         34,950        8.00         $43,687       10.00 %
     Tier 1 Capital (to Risk Weighted Assets):
       The Company                                 62,436        14.27         17,505        4.00             N/A         N/A
       The Bank                                    60,376        13.84         17,475        4.00          26,212        6.00
     Tier 1 Capital (to Average Assets):
       The Company                                 62,436         9.32         20,106        3.00             N/A         N/A
       The Bank                                    60,376         9.04         20,063        3.00          33,438        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>
<PAGE>

Liquidity

     Liquidity  is the  ability  to  provide  sufficient  resources  to meet all
financial obligations and finance prospective business opportunities.  Liquidity
levels over any given period of time are a product of the  Company's  operating,
financing  and investing  activities.  The extent of such  activities  are often
shaped by such  external  factors as  competition  for  deposits  and demand for
loans.

     Financing for the Company's loans and investments is derived primarily from
deposits,  along with interest and principal  payments on loans and investments.
At March 31, 1999, total deposits amounted to $589.4 million, a decrease of $9.3
million or 1.6% from  December 31, 1998. In addition,  the Company  supplemented
the more traditional  funding sources with borrowings from the Federal Home Loan
Bank  of New  York  ("FHLB")  and  with  securities  sold  under  agreements  to
repurchase  ("REPOS").  At March  31,  1999,  advances  from the FHLB and  REPOS
amounted to $9.7  million and $7.2  million,  respectively,  as compared to $9.8
million and $8.8 million, respectively, at December 31, 1998.

     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 March 31, 1999 amounted to $473.6  million,  up slightly
from $473.1  million at December  31,  1998.  Net loans at  December  31,  1998,
included  $5.0  million in term  federal  funds which  matured  during the first
quarter  of 1999.  Adjusting  for the  matured  term  federal  funds,  net loans
increased $5.5 million at March 31, 1999 as compared to December 31, 1998.

     The  Company's  most liquid  assets are cash and due from banks and federal
funds  sold.  At March 31,  1999,  the total of such  assets  amounted  to $31.9
million  or 4.7% of total  assets,  compared  to $43.3  million or 6.3% of total
assets at year-end 1998.

     Another  significant  liquidity source is the Company's  available-for-sale
("AFS") securities. At March 31, 1999, AFS securities amounted to $103.0 million
or 67.8% 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
$57.8  million line of credit  available  through its  membership in the Federal
Home Loan Bank of New York.

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

Preparation for the Year 2000

     The issue  surrounding  many of the world's  computers is principally  that
years are currently  recorded in a two-digit  format.  The Company realizes that
many of the world's  information  systems and/or computer programs  currently do
not have the ability to recognize four digit date code fields and,  accordingly,
they do not have the ability to distinguish a year that begins with "20" instead
of the familiar "19". If not  corrected,  this problem will render many computer
applications  incapable of interpreting  dates beyond the year 1999, which could
significantly  disrupt  business.  Hereinafter,  this issue will collectively be
referred to as the "Year 2000 issue". A company's  exposure to uncertainties and
costs  associated  with the Year 2000  issue  depends  on a number  of  factors,
including  software,  hardware,  the  industry in which it  operates,  and other
entities with which it electronically interacts.

     The Company has  developed  and  adopted a Year 2000  Compliance  Plan (the
"Plan") and has established a Year 2000 Compliance  Committee (the "Committee").
The objectives of the Plan and the Committee are to address the Year 2000 issues
and prepare the Company for the new  millennium.  As  recommended by the Federal
Financial  Institutions  Examination Council, the Plan encompasses the following
phases: Awareness, Assessment, Renovation, Validation and Implementation.  These
phases will enable the Company to identify  risks,  develop an action plan,  and
perform adequate testing and complete  certification that its processing systems
will be Year 2000 ready.  In the Awareness  phase,  the Company defined the Year
2000 issues,  informed management and staff and obtained executive level support
and funding.  In addition,  the Company  compiled a comprehensive  list of items
that may be  affected by the Year 2000  compliance  issues.  Such items  include
facilities and related non-information technology systems (embedded technology),
computer systems, hardware, and services and products provided by third parties.
In the  Assessment  phase,  the Company  evaluated  the items  identified in the
Awareness  phase to assess  whether the items will  function  properly  with the
century date  change.  The items were ranked in the order that they will need to
be remediated based on their mission critical nature and the potential impact to
the Company.  The  Renovation  phase  includes an analysis of the items that are
affected by Year 2000,  the  identification  of problem  areas and the repair of
non-compliant  items. The Validation (testing) phase includes a thorough testing
and  verification  of systems,  databases and utilities,  including  present and
forward date testing which  consists of simulating  data  conditions in the Year
2000. The  Implementation  phase consists of placing all the systems,  databases
and utilities that have been renovated  into  production.  As of March 31, 1999,
the Company has completed the Awareness and Assessment phases. In addition,  the
Company has completed the Validation  and Renovation  phases with respect to its
mission critical  applications.  As of March 31, 1999, the Company  continues to
conduct procedures associated with the Renovation, Validation and Implementation
phases.  The Company  expects to complete the  Implementation  phase by June 30,
1999.

     The  Company  continues  to survey  and  communicate  with  counterparties,
intermediaries  and  vendors  ("Third  Parties")  with  whom  it  has  important
financial and  operational  relationships  to determine the extent to which they
are  vulnerable to Year 2000 issues and what impact,  if any, their efforts will
have on the Company's business and operations. In the event that a Third Party's
system will not be year 2000  compliant,  the Company will assess the  potential
risk and, to the extent it is  feasible,  transfer  its business to an alternate
vendor.  As of March 31, 1999, the Company has received  sufficient  information
from its Third Parties to conclude that they are in the  Renovation,  Validation
and Implementation  phases of their respective plans.  However,  as of March 31,
1999,  the Company has not yet received  conclusive  information  from all Third
Parties  related to the  Renovation,  Validation  and  Implementation  phases to
predict the outcome of their efforts.

     There are many risks  associated  with the Year 2000 issue,  including  the
possible failure of the Company's computer and non-financial technology systems.
Such failures could have a material  adverse effect on the Company and may cause
system malfunctions, incorrect or incomplete transaction processing resulting in
the inability to reconcile  accounting books and records.  In addition,  even if
the Company  successfully  remediates its Year 2000 issues,  it can be adversely
affected by failures of Third  Parties  with which the Company has  financial or
operational  relationships to remediate their own Year 2000 issues.  The failure
of Third  Parties 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  or  shutdown,   financial  loss,   regulatory  actions  and  legal
liability.  The Company is developing a Year 2000 specific  contingency  plan as
part of its overall Year 2000 plan in an effort to mitigate Year 2000 risk.

     Based on current  information,  the Company  does not  anticipate  that the
overall costs related to the implementation of the Year 2000 Plan to be material
in any single  year.  The  Company  estimates  that the total  external  cost of
implementing its Year 2000 plan will amount to approximately $170 thousand.  The
Year 2000 costs include all activities  undertaken on Year 2000 related matters,
including,  but not limited to, renovation,  validation,  third party review and
contingency  planning.  However,  costs for  compensation  and  benefits  of the
Company's internal employees have not yet been determined. The cost of Year 2000
compliance and the estimated date of completion of necessary  modifications  are
based  on  the  Company's  best  estimates,  which  were  derived  from  various
assumptions of future events,  including the continued  availability  of certain
resources,  third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved,  and actual results could
differ  materially from those  anticipated.  Through March 31, 1999, the Company
has expended  approximately $77 thousand on the Year 2000 project. All Year 2000
costs are expensed in the period incurred.
<PAGE>


                          PART II - OTHER INFORMATION

Item 1.  Legal Proceedings
         Reference is made to Note 3 of the Company's Consolidated Financial
         Statements of this Form 10-Q.

Item 2.  Changes in Securities
         None

Item 3.  Defaults upon Senior Securities
         None

Item 4.  Submission of Matters to a Vote of Security Holdings
         None

Item 5.  Other Information
         On October 13, 1998, the Company hired Nicholas G. Verdi as Senior
         Vice President of Retail Banking to replace Richard N. Latrenta who 
         resigned effective October 23, 1998 to pursue other interests. 
         Mr. Verdi has since resigned from his position with the Company
         effective May 4, 1999.

Item 6.  Exhibits and Reports on Form 8-K

         (a)      The following exhibits are furnished herewith:
                  Exhibit No.

                  11       Statement Re:  Computation of Per Share Earnings
                  27       Financial Data Schedule

         (b)      Reports on Form 8-K
                  None filed for the quarter ended March 31, 1999

<PAGE>

                                   SIGNATURES

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Interchange Financial Services Corporation

By:      /s/ Anthony Labozzetta
         ______________________             
         Anthony Labozzetta
         Executive Vice President & CFO
         (Duly Authorized Officer and Principal
         Financial and Accounting Officer)

Dated: May 14, 1999