<TABLE>

                   INTERCHANGE FINANCIAL SERVICES CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<CAPTION>
                                                                                                     SEPTEMBER 30,      December 31,
                                                                                                         1996               1995
                                                                                                    --------------     -------------

<S>                                                                                                   <C>                <C>   

ASSETS

Cash and due from banks ....................................................................            $ 26,510            $ 25,151
Federal funds sold .........................................................................                 200                --
                                                                                                        --------            --------

Total cash and cash equivalents ............................................................              26,710              25,151
                                                                                                        --------            --------

Securities held to maturity at amortized cost  (approximate
      market value of $73,197 and $75,611 ) ................................................              73,096              74,688
                                                                                                        --------            --------
Securities available for sale at estimated  market value
      (amortized cost of $49,215 and $66,604 ) .............................................              49,279              67,545
                                                                                                        --------            --------

Loans ......................................................................................             333,542             311,164
Less:  Allowance for loan losses ...........................................................               3,567               3,647
                                                                                                        --------            --------
Net loans ..................................................................................             329,975             307,517
                                                                                                        --------            --------

Premises and equipment, net ................................................................               5,346               5,510
Foreclosed real estate .....................................................................                 653               1,213
Accrued interest receivable and other assets ...............................................               8,262               9,833
                                                                                                        --------            --------

TOTAL ASSETS ...............................................................................            $493,321            $491,457
                                                                                                        ========            ========

LIABILITIES

Deposits

      Noninterest bearing ..................................................................            $ 73,982            $ 69,213
      Interest bearing .....................................................................             361,668             367,239
                                                                                                        --------            --------

Total deposits .............................................................................             435,650             436,452

Securities sold under agreements to repurchase .............................................              10,150               1,704
Short-term borrowings ......................................................................               1,250               9,200
Accrued interest payable and other liabilities .............................................               3,627               3,860
                                                                                                        --------            --------

TOTAL LIABILITIES ..........................................................................             450,677             451,216
                                                                                                        --------            --------

STOCKHOLDERS' EQUITY

Common stock ...............................................................................               4,733               4,495
Capital surplus ............................................................................              14,932              12,110
Retained earnings ..........................................................................              22,913              22,990
Unrealized gain - securities available for sale, net of income taxes .......................                  66                 646
                                                                                                        --------            --------

Total stockholders' equity .................................................................              42,644              40,241
                                                                                                        --------            --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................................            $493,321            $491,457
                                                                                                        ========            ========
-----------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
                   INTERCHANGE FINANCIAL SERVICES CORPORATION

                        CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands except per share data)
<CAPTION>

                                                                                Three months ended                Nine months ended
                                                                                   September 30,                    September 30,
                                                                             ------------------------            -------------------
                                                                                 1996          1995            1996            1995
                                                                                ------        ------          -------        -------
<S>                                                                           <C>             <C>             <C>           <C>   

INTEREST INCOME

Interest and fees on loans ............................................        $ 7,295        $ 6,878         $21,468        $20,368
Interest on federal funds sold ........................................              5            179             375            368
Interest and dividends on securities
    Taxable interest income ...........................................          1,874          2,235           5,664          6,791
    Interest income exempt from federal income taxes ..................             49             12              79             41
    Dividends .........................................................             39             43             115            123
                                                                               -------        -------         -------        -------

TOTAL INTEREST INCOME .................................................          9,262          9,347          27,701         27,691
                                                                               -------        -------         -------        -------

INTEREST EXPENSE

Interest on deposits ..................................................          3,488          3,730          10,626         10,813
Interest on short-term borrowings .....................................             89             90             344            352
Interest on long-term borrowings ......................................           --               23            --              130
                                                                               -------        -------         -------        -------

TOTAL INTEREST EXPENSE ................................................          3,577          3,843          10,970         11,295
                                                                               -------        -------         -------        -------

NET INTEREST INCOME ...................................................          5,685          5,504          16,731         16,396
Provision for loan losses .............................................            150            225             550            825
                                                                               -------        -------         -------        -------
NET INTEREST INCOME AFTER PROVISION
 FOR LOAN LOSSES ......................................................          5,535          5,279          16,181         15,571
                                                                               -------        -------         -------        -------

NONINTEREST INCOME

Service fees on deposit accounts ......................................            397            375           1,161          1,110
Net gain on sale of loans available for sale ..........................           --             --              --               22
Net gain on sale of securities available for sale .....................           --             --               235             15
Accretion of discount in connection with acquisition ..................            131            190             511            570
Other .................................................................            197            256             990          1,233
                                                                               -------        -------         -------        -------

TOTAL NONINTEREST INCOME ..............................................            675            821           2,897          2,950
                                                                               -------        -------         -------        -------

NONINTEREST EXPENSES

Salaries and benefits .................................................          1,919          1,798           5,722          5,468
Net occupancy .........................................................            539            522           1,637          1,547
Furniture and equipment ...............................................            171            177             534            506
Advertising and promotion .............................................            213            201             561            580
Federal Deposit Insurance Corporation assessment ......................            129            (14)            154            451
Foreclosed real estate expense ........................................            116             46             235            156
Other .................................................................          1,191          1,193           3,499          3,155
                                                                               -------        -------         -------        -------

TOTAL NONINTEREST EXPENSES ............................................          4,228          3,923          12,342         11,863
                                                                               -------        -------         -------        -------

Income before  income taxes ...........................................          1,982          2,177           6,736          6,658

Income taxes ..........................................................            694            762           2,358          2,273
                                                                               -------        -------         -------        -------

NET INCOME ............................................................        $ 1,288        $ 1,415         $ 4,378        $ 4,385
                                                                               =======        =======         =======        =======

PER COMMON SHARE ......................................................        $  0.45        $  0.49         $  1.54        $  1.52
                                                                               =======        =======         =======        =======

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


<TABLE>
                   INTERCHANGE FINANCIAL SERVICES CORPORATION

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (in thousands)

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

Balance at January 1, 1995 .......................   $  5,000    $  4,495    $ 11,333    $ 18,737   $ (1,813)   $ (2,623)   $35,129
Net income .......................................                                          4,385                             4,385
Dividends on common stock at $0.514 per share (1)                                          (1,456)                           (1,456)
Dividends on preferred stock .....................                                            (85)                              (85)
Purchase of 32,000 preferred shares ..............                                                                (1,600)    (1,600)
Retirement of 100,000 shares of preferred stock ..     (5,000)                    777                              4,223        --
Increase in market valuation - securities
    available for sale, net of income taxes ......                                                     1,226                  1,226
                                                     --------    --------    --------    --------   --------    --------    --------

Balance at September 30, 1995 ....................       --         4,495      12,110      21,581       (587)       --       37,599

Net income .......................................                                          1,895                             1,895
Dividends on common stock at $0.172 per share (1)                                            (486)                             (486)
Dividends on preferred stock .....................                                             --                                --
Increase in market valuation - securities
    available for sale, net of income taxes ......                                                     1,233                  1,233
                                                     --------    --------    --------    --------   --------    --------    --------

Balance at December 31, 1995 .....................       --         4,495      12,110      22,990        646        --       40,241

Net income .......................................                                          4,378                             4,378
Dividends on common stock at $0.547 per share (1)                                          (1,551)                           (1,551)
5% common stock dividend .........................                    226       2,678      (2,904)                               --
Fractional shares of 5% common stock dividend ....                                 (5)                                           (5)
Issued 7,498 shares of common stock
    in connection with incentive plan ............                     12         149                                           161
Decrease in market valuation - securities
    available for sale, net of income taxes ......                                                      (580)                  (580)
                                                     --------    --------    --------    --------   --------    --------    --------

BALANCE AT SEPTEMBER 30, 1996 ....................   $   --      $  4,733    $ 14,932    $ 22,913   $     66    $   --      $42,644
                                                     ========    ========    ========    ========   ========    ========    ========

-----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Restated for retroactive effect of 5% common stock dividend issued on April 19, 1996 to shareholders of record on March 20,1996

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



<PAGE>
<TABLE>
                   INTERCHANGE FINANCIAL SERVICES CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<CAPTION>
                                                                                                         For the nine months ended
                                                                                                                September 30,
                                                                                                         ---------------------------
                                                                                                             1996             1995
                                                                                                         --------------------------
<S>                                                                                                     <C>                 <C>    
CASH FLOWS FROM OPERATING ACTIVITIES

Net income .................................................................................           $  4,378            $  4,385
Non-cash items included in earnings
   Depreciation and amortization of fixed assets ...........................................                755                 618
   Amortization of securities premiums .....................................................                801               1,106
   Accretion of securities discounts .......................................................                (48)                (40)
   Amortization of premiums in connection with acquisition .................................                333                 333
   Accretion of discount in connection with acquisition ....................................               (511)               (570)
   Provision for loan losses ...............................................................                550                 825
   Net gain on sale of securities available for sale .......................................               (235)                (15)
   Net gain on sale of  loans available for sale ...........................................               --                   (22)
   Net loss/(gain) on sale of foreclosed real estate .......................................                 87                 (13)
   Decrease/(increase) in carrying value of loans available for sale .......................                 30                 (74)
   Loss on sale of fixed assets ............................................................               --                    27
(Increase) decrease in operating assets
   Net origination of loans available for sale .............................................               (108)               (484)
   Proceeds from sale of loans available for sale ..........................................               --                   837
   Accrued interest receivable .............................................................                616                  56
   Deferred income taxes ...................................................................                (84)               --
   Other ...................................................................................              1,014               1,008
Increase/(decrease) in operating liabilities
   Accrued interest payable ................................................................                 93                 226
   Other ...................................................................................               (326)                194
                                                                                                       --------            --------
CASH PROVIDED BY OPERATING ACTIVITIES ......................................................              7,345               8,397
                                                                                                       --------            --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from (payments for)
   Net originations of loans ...............................................................            (20,482)             (4,407)
   Purchase of loans .......................................................................             (2,116)               (642)
   Purchase of securities available for sale ...............................................            (21,528)             (4,915)
   Maturities of securities available for sale .............................................                618               1,351
   Sale of securities available for sale ...................................................             38,349               2,484
   Sale of foreclosed real estate ..........................................................                644                 309
   Purchase of securities held to maturity ..................................................           (19,266)             (3,999)
   Maturities of securities held to maturity ................................................            20,270               9,000
   Proceeds from/(payments on) foreclosed real estate ......................................                  8                 (78)
   Purchase of  fixed assets ...............................................................               (582)             (1,514)
   Sale of fixed assets ....................................................................               --                     4
                                                                                                       --------            --------
CASH USED FOR INVESTING ACTIVITIES .........................................................             (4,085)             (2,407)
                                                                                                       --------            --------

CASH FLOWS FROM FINANCING ACTIVITIES
(Payments for) proceeds from
   Deposits (less) more than withdrawals ...................................................               (802)              4,111
   Securities sold under agreements to repurchase ..........................................             15,828                --
   Retirement of other borrowings ..........................................................             (7,950)             (9,750)
   Retirement of securities sold under agreement
      to repurchase ........................................................................             (7,382)               (602)
   Dividends ...............................................................................             (1,551)             (1,541)
   Preferred stock .........................................................................               --                (1,600)
   Common stock issued .....................................................................                156                --
                                                                                                       --------            --------
CASH USED FOR FINANCING ACTIVITIES .........................................................             (1,701)             (9,382)
                                                                                                       --------            --------
INCREASE IN CASH AND CASH EQUIVALENTS ......................................................              1,559              (3,392)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ...............................................             25,151              25,965
                                                                                                       --------            --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................................................           $ 26,710            $ 22,573
                                                                                                       ========            ========

Supplemental disclosure of cash flow information: 
   Cash paid for:
      Interest .............................................................................           $ 10,876            $ 11,069
      Income taxes .........................................................................              2,960               2,524

Supplemental disclosure of non-cash investing activities:
      Loans transferred to foreclosed real estate ..........................................           $    179            $    593
      Decrease/(increase)-market valuation of securities available
         for sale ..........................................................................                876              (1,901)
      Amortization of valuation allowance-securities
         transferred from availabe to sale to held to maturity .............................                 21                --

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


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996

1.   FINANCIAL STATEMENTS

     The consolidated  financial  statements  should be read in conjunction with
the financial statements and schedules as presented in the Annual Report on Form
10-K of Interchange  Financial Services Corporation (the "Company") for the year
ended December 31, 1995.

     Consolidated  financial  data for the nine months ended  September 30, 1996
and 1995,  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.  Results  for  interim  periods  are not
necessarily  indicative  of results to be expected  for any other  period or the
full year. 

2. LEGAL PROCEEDINGS

     Interchange  State Bank's (the  "Bank"),  a wholly owned  subsidiary of the
Company  was a party to a  lawsuit  commenced  in  April  1989  (Great  American
Mortgage Corp., et al, v. Robert Utter, et al.),  filed in the Superior Court of
New Jersey  alleging  that the Bank was  statutorily  liable in  conversion  for
having paid checks drawn on deposit  accounts of  plaintiffs at the Bank bearing
irregular endorsements. Various other legal proceedings related to the foregoing
were also  instituted  in which the Bank pursued  various  parties whom the Bank
alleged  were  liable  to it. On August 2,  1996,  the Bank paid  $120,000  plus
prejudgment interest to settle the final matter pertaining to these occurrences.
The remainder of a reserve,  which had been  established in 1992, was sufficient
to cover the amount of the settlement.  All legal  proceedings  related to these
occurrences have now been resolved.

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

3.  EMPLOYEES' STOCK OPTION PLAN

     In October 1995, the Financial Accounting Standards Board adopted Statement
No. 123,  "Accounting for Stock-Based  Compensation" ("SFAS No. 123"), which was
effective for the Company as of January 1, 1996. SFAS No. 123 requires  expanded
disclosures  of  stock-based   compensation   arrangements  with  employees  and
encourages,  but does not require  compensation cost to be measured based on the
fair value of the equity instrument awarded.  Companies are permitted,  however,
to  continue to apply APB Opinion No. 25,  which  recognizes  compensation  cost
based on the intrinsic value of the equity instrument awarded.  The Company will
continue to apply APB Opinion No. 25 to its stock-based  compensation  awards to
employees  and will  disclose  the  required  pro forma effect on net income and
earnings per share in its annual financial statements.


<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 and nine months
ended  September 30, 1996 and 1995, and should be read in  conjunction  with the
consolidated financial statements and notes thereto included in Item 1 hereof.

RESULTS OF OPERATIONS

     The Company's most important revenue source is net interest income which is
the difference  between interest earned on its interest earning assets,  such as
loans  and   investments,   and  the  interest  paid  on  its  interest  bearing
liabilities,  primarily deposits.  Changes in net interest income from period to
period  result from  increases or decreases in the average  balances of interest
earning assets and interest  bearing  liabilities  and increases or decreases in
the spread between the average rates earned on such assets and the average rates
paid on such liabilities.

THREE MONTHS

     Net Income for the quarter ended  September  30, 1996,  was $1.3 million or
$0.45  per share as  compared  to $1.4  million  or $0.49 per share for the same
period a year ago. The decrease was attributable to several components which are
described in the following paragraphs.

     Net income  decreased  because  noninterest  expenses for the third quarter
1996  increased  $355  thousand  or 9.0% over the same  period a year  ago.  The
increase  resulted  primarily from a $143 thousand  increase in Federal  Deposit
Insurance  Corporation ("FDIC") costs of which $114 thousand resulted from a one
time special assessment.  The assessment represents the Company's  apportionment
of an amount  necessary to recapitalize the Savings  Association  Insurance Fund
("SAIF"). In addition,  costs of $109 thousand incurred during the third quarter
of 1996 to sell nonperforming  assets also contributed to the increase.  Also, a
$121  thousand  increase in salaries and  benefits due largely to annual  salary
increases  was  partly  responsible  for the  change.  Furthermore,  noninterest
expenses were negatively  affected by costs associated with the opening of a new
branch office during the second quarter of 1996.

     Net  income  was  negatively   affected  by  a  $96  thousand  decrease  in
noninterest income for the current quarter as compared to the same period a year
ago. The decrease was mostly  attributable  to the following  components:  a $46
thousand  reduction  of servicing  fee income due to the sale of loan  servicing
rights  which  occurred  in the  fourth  quarter of 1995;  and,  a $59  thousand
decrease in the accretion of discounts in connection with an acquisition.

     Earnings for the quarter were favorably impacted by a $181 thousand or 3.3%
growth  in  net  interest  income  compared  to the  same  period  a  year  ago.
Contributing to this growth was an increase of $8.3 million in average  interest
earning assets over the comparable  1995 period.  The growth  occurred mostly in
loans which had an average aggregate  balance of $329.4 million,  an increase of
$40.7 million or 14.1% over the comparable  1995 period.  Proceeds from the sale
and maturity of investment securities funded a significant portion of the growth
in loans,  thereby,  resulting  in a positive  shift in the  composition  of the
Company's earning assets. The benefit derived from the positive trend in earning
assets was rather  offset by a 22 basis  point  decrease in net yield on average
earning  assets for the 1996  period as  compared  to the same 1995  period.  In
addition,  earnings for the period were positively  affected by a decrease of 28
basis  point  in the  Company's  funding  costs  which  provided  a boost to the
Company's  net  interest  spread  for the 1996  period as  compared  to the 1995
period.

     Earnings for the quarter ended September 30, 1996, were favorably  affected
by a $75 thousand  decrease in the provision for loan losses, as compared to the
same period a year ago.  The amount  provided  for loan  losses  during 1996 was
reduced based upon the results of the analysis  described in the section  titled
"Provision  for Loan  Losses  and  Loan  Loss  Experience"  in  which,  based on
management's opinion,  using the best available  information,  it was determined
that the allowance for loan losses was sufficient to cover future loan losses on
existing loans.



NINE MONTHS

     Net Income for the nine months ended  September 30, 1996,  was $4.4 million
or $1.54 per share,  as compared to $4.4 million or $1.52 per share for the same
period a year ago. The significant components of net income are described in the
following paragraphs.

     Earnings  for the nine month  period  were  positively  affected  by a $335
thousand or 2.0% growth in net interest  income from the same period a year ago.
Contributing  to the  growth in net  interest  income was an  increase  of $12.0
million  in  average  interest  earning  assets  for the  1996  period  over the
comparable 1995 period. The growth occurred mostly in loans which had an average
balance  of $319.8  million,  an  increase  of $32.2  million  or 11.2% over the
comparable  1995  period.  Proceeds  from the sale and  maturity  of  investment
securities  funded a  significant  portion  of the  growth  in  loans,  thereby,
generating a positive shift in the composition of the Company's  earning assets.
The Company's net yield on average  earning  assets fell 22 basis points for the
1996  period as  compared  to the same 1995  period,  while  its  funding  costs
decreased 16 basis points for the same  periods.  This  asymmetric  shift in net
yield  versus  funding  costs  served to offset  some of the  positive  benefits
attributed to the loan growth.

     Noninterest income for the first nine months of 1996 decreased $53 thousand
or 1.8% despite a $235 thousand  gain from the sale of securities  that occurred
in the first  quarter  of 1996.  The  decrease  was mostly  attributable  to the
following  components:  a $162 thousand reduction of servicing fee income due to
the sale of loan servicing  rights which occurred in the fourth quarter of 1995;
and, a $59 thousand decrease in the accretion of discounts in connection with an
acquisition.

     Noninterest  expenses for the period  increased  $479 thousand or 4.0% over
the same period a year ago. This occurred because other noninterest expenses for
the 1995  period were  favorably  affected  by the $250  thousand  reversal of a
previously  established litigation reserve resulting from the partial settlement
of a lawsuit. Adjusted for the reversal of the reserve, noninterest expenses for
the 1996 period would have  increased  $229  thousand or 1.9% as compared to the
same period a year ago. An increase of $254  thousand in salaries  and  benefits
due largely to annual salary increases contributed to the increase. Furthermore,
a one time special FDIC assessment  (discussed  previously) of $114 thousand and
costs  of $109  thousand  incurred  during  the  third  quarter  of 1996 to sell
nonperforming assets also contributed to the increase. In addition,  noninterest
expenses were negatively  affected by costs associated with the opening of a new
branch office during the second quarter of 1996.

     Earnings for the nine month period ended September 30, 1996, were favorably
affected  by a $275  thousand  decrease  in the  provision  for loan  losses  as
compared  to the same  period a year ago.  The amount  provided  for loan losses
during 1996 was reduced based upon the results of the analysis  described in the
section titled  "Provision  for Loan Losses and Loan Loss  Experience" in which,
based on  management's  opinion,  using the best available  information,  it was
determined  that the  allowance  for loan losses was  sufficient to cover future
loan losses on existing loans.

     NONPERFORMING ASSETS

     Nonperforming  assets,  consisting of nonaccrual loans,  restructured loans
and foreclosed real estate, decreased $1.2 million from $5.2 million at December
31, 1995,  to $4.0 million at September  30, 1996.  For the third  quarter 1996,
nonperforming  assets  decreased  $2.3 million from $6.3 million for the quarter
ended June 30, 1996. The reduction  resulted primarily from a third quarter sale
of $1.8 million of nonperforming  assets.  The ratio of nonperforming  assets to
total loans and  foreclosed  real estate  decreased  from 1.66% at December  31,
1995,  to 1.20% at  September  30,  1996.  The ratio,  at  September  30,  1996,
decreased from 1.93% as of the quarter ended June 30, 1996.

    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 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 $3.6 million at September 30, 1996,  and
$3.6  million  at  December  31,   1995,   representing   106.4%  and  91.7%  of
nonperforming loans at those dates, respectively.


<PAGE>


<TABLE>
SECURITIES

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

                                                                              September 30, 1996
                                                         -------------------------------------------------------------
                                                                             Gross          Gross
                                                          Amortized         Unrealized     Unrealized       Market
                                                            Cost             Gains          Losses          Value
                                                         ------------      ---------     -----------     -------------
<S>                                                       <C>              <C>            <C>             <C>   

Securities held to maturity

    Obligations of U.S. Treasury ...................        $ 50,664            $267           $   8       $  50,923
    Obligations of U.S. Agencies ...................          11,085            --                61          11,024
    Obligations of state and political
      subdivisions..................................           5,842               1              10           5,833
    Other debt securities ..........................           5,505            --                88           5,417
                                                            --------        --------        --------        --------
                                                              73,096             268             167          73,197
                                                            --------        --------        --------        --------

Securities available for sale

    Obligations of U.S. Treasury ...................          25,698             484             309          25,873
    Obligations of U.S. Agencies ...................          17,452              15             126          17,341
    Other debt securities ..........................           2,153            --                34           2,119
    Equity securities ..............................           3,912              34            --             3,946
                                                            --------        --------        --------        --------
                                                              49,215             533             469          49,279
                                                            --------        --------        --------        --------

      Total securities .............................        $122,311           $ 801           $ 636        $122,476
                                                            ========        ========        ========        ========
<CAPTION>

                                                                              December 31, 1995
                                                         -------------------------------------------------------------
                                                                              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 ...................        $ 65,223          $  942          $   26       $  66,139
    Obligations of U.S. agencies ...................           8,037               7            --             8,044
    Obligations of states & political
      subdivisions .................................           1,278            --              --             1,278
    Other debt securities ..........................             150            --              --               150
                                                            --------        --------        --------        --------
                                                              74,688             949              26          75,611
                                                            --------        --------        --------        --------
Securities available for sale

    Obligations of U.S. Treasury ...................          40,888           1,466             184          42,170
    Obligations of U.S. agencies ...................          23,282            --               341          22,941
    Equity securities ..............................           2,434            --              --             2,434
                                                            --------        --------        --------        --------
                                                              66,604           1,466             525          67,545
                                                            --------        --------        --------        --------

      Total securities .............................        $141,292          $2,415            $551        $143,156
                                                            ========        ========        ========        ========
</TABLE>



<PAGE>


<TABLE>
At September 30, 1996, the contractual maturities of investment securities and securities available
for sale are as follows: (in thousands)
<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                                   $35,852           $35,997                      -               -
After 1 but within 5 years                       26,586            26,661                 $29,636         $29,805
After 5 but within 10 years                       4,198             4,179                   7,680           7,617
After 10 years                                    6,460             6,360                   7,987           7,911
Equity securities                                     -                 -                   3,912           3,946
                                             -----------        ----------              ----------      ----------

                        Total                   $73,096           $73,197                 $49,215         $49,279
                                             ===========        ==========              ==========      ==========
</TABLE>




<TABLE>
CAPITAL ADEQUACY

The table below presents the Company's capital position as of September 30, 1996: (dollars in thousands)
<S>                                                                   <C>    

Stockholders' equity ..........................................        $ 42,644
Intangible assets .............................................          (1,088)
Unrealized gain - securities available for sale,
     net of income taxes ......................................             (66)

                                                                       --------
Tier 1 capital ................................................          41,490

Allowable portion of allowance
     for loan losses ..........................................           3,567

                                                                       --------
Total risk-based capital ......................................        $ 45,057
                                                                       ========


Risk weighted assets                                                   $310,181
                                                                      =========
<CAPTION>



                                                                             Minimum
                                                             Actual         Requirement
                                                           ------------    --------------
<S>                                                         <C>              <C>   

Risk-based ratio

     Tier 1 ...................................               13.38%           4.00%
     Total ....................................               14.53            8.00

Leverage capital ratio ........................                8.49            3.00
</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.

     Funding for the Company's loans and  investments is derived  primarily from
deposits,  along with interest and principal  payments on loans and investments.
At September  30, 1996,  average total  deposits  increased by $9.0 million from
$425.7 million at December 31, 1995.  Average total deposits  increased by $10.2
million from $424.5 million at September 30, 1995.

     In 1996, loan production  continued to be the Company's principal investing
activity. Net loans at September 30, 1996 amounted to $330.0 million compared to
$307.5  million at December  31,  1995,  an  increase  of $22.5  million for the
nine-month period. Furthermore, net loans increased $39.2 million from September
30, 1995.

     The  Company's  most liquid  assets are cash and due from banks and federal
funds sold.  At September 30, 1996,  the total of such assets  amounted to $26.7
million  compared to $25.1  million at December  31,  1995,  an increase of $1.6
million. The Company's available for sale ("AFS") securities portfolio is also a
significant  source of  liquidity.  At September  30, 1996,  the  Company's  AFS
portfolio  amounted  to $49.3  million or 40.3% of total  investments  down from
$67.5 million or 47.5% at December 31, 1995. The decline  resulted from the sale
of  securities  during the first  quarter of 1996 in which only a portion of the
proceeds were reinvested in AFS securities.

     Sales of securities under repurchase  agreements ("Repos") amounting to $10
million  were a  significant  financing  activity  for the  Company in the third
quarter of 1996. The repos were used to replace repos and Federal Home Loan Bank
borrowings that matured earlier in the year.

     In addition to the aforementioned sources of liquidity, the Company derives
liquidity from various other  sources,  including  federal funds  purchased from
other banks and sales of securities under repurchase  agreements.  The Bank also
has a $49.1  million  line of credit  available  through its  membership  in the
Federal  Home Loan Bank of New York.  Another  source of liquidity is the Bank's
ability to borrow from the Federal Reserve discount window.

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


<PAGE>



                            PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     Reference is made to Form 10-K filed for the year ended  December 31, 1995.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a)  The following exhibit is furnished herewith:

              EXHIBIT NO.

                  10 Material contracts

                    (a)  Agreement for legal services between Andora,  Palmisano
                         & Geaney and the Company dated April 25, 1996

                    (b)  Lease for Oakland, New Jersey Branch Office dated March
                         11, 1996

                    11   Statement Re: Computation of Per Share Earnings

         (b) No  reports on Form 8-K have been filed  during the  quarter  ended
September 30, 1996.






                                   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

Date:  November 14, 1996             by:       /S/ROBERT N. HARRIS

                                     Robert N. Harris, Executive Vice President
                                     and Chief Financial Officer
                                     (Principal Financial Officer and
                                     and Duly Authorized Officer)