<TABLE>
                   INTERCHANGE FINANCIAL SERVICES CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
<CAPTION>

                                                                                          SEPTEMBER 30,        December 31,
                                                                                             1997                  1996
                                                                                         --------------     --------------

<S>                                                                                        <C>                  <C>     
 ASSETS

 Cash and due from banks .......................................................           $ 24,685             $ 24,322
                                                                                           --------             --------

 Investment securities at amortized cost  (approximate
       market value of $56,716  and $63,619 ) ..................................             56,344               63,376
                                                                                           --------             --------
 Securities available for sale at estimated  market value
       (amortized cost of $57,852 and $54,871 ) ................................             59,353               55,252
                                                                                           --------             --------

 Loans .........................................................................            378,445              351,793
 Less:  Allowance for loan losses ..............................................              4,672                3,653
                                                                                           --------             --------
 Net loans .....................................................................            373,773              348,140
                                                                                           --------             --------

 Premises and equipment, net ...................................................              7,650                5,151
 Foreclosed real estate ........................................................               --                    610
 Accrued interest receivable and other assets ..................................              6,813                7,838
                                                                                           --------             --------
 TOTAL ASSETS ..................................................................           $528,618             $504,689
                                                                                           ========             ========

 LIABILITIES

 Deposits

       Noninterest bearing .....................................................           $ 86,977             $ 76,340
       Interest bearing ........................................................            367,036              353,673
                                                                                           --------             --------
 Total deposits ................................................................            454,013              430,013

 Securities sold under agreements to repurchase ................................             12,638               11,050
 Short-term borrowings .........................................................               --                  5,200
 Accrued interest payable and other liabilities ................................              3,792                4,082
 Long-term borrowings ..........................................................              9,906                9,983
                                                                                           --------             --------
 TOTAL LIABILITIES .............................................................            480,349              460,328
                                                                                           --------             --------

 COMMITMENTS AND CONTINGENT LIABILITIES

 STOCKHOLDERS' EQUITY

 Common stock ..................................................................              4,794                4,733
 Capital surplus ...............................................................             15,739               14,931
 Retained earnings .............................................................             28,491               24,429
 Unrealized gain - securities available for sale, net of taxes .................                951                  268
                                                                                           --------             --------
                                                                                             49,975               44,361
  Less:  Treasury Stock (89,350 common shares) .................................              1,706                 --
                                                                                           --------             --------
       Total stockholders' equity ..............................................             48,269               44,361
                                                                                           --------             --------

 TOTAL liabilities and stockholders' equity ....................................           $528,618             $504,689
                                                                                           ========             ========

----------

 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,
                                                                           ------------------------           ----------------------
                                                                              1997            1996             1997            1996
                                                                           ----------    ----------          --------    -----------
<S>                                                                        <C>              <C>             <C>             <C>     
INTEREST INCOME
Interest and fees on loans ........................................        $  8,335         $  7,295        $ 24,130        $ 21,468
Interest on federal funds sold ....................................              73                5             268             375
Interest and dividends on securities
    Taxable interest income .......................................           1,704            1,874           5,081           5,664
    Interest income exempt from federal income taxes ..............              36               49              60              79
    Dividends .....................................................              47               39             148             115
                                                                           --------         --------        --------        --------
TOTAL INTEREST INCOME .............................................          10,195            9,262          29,687          27,701
                                                                           --------         --------        --------        --------

INTEREST EXPENSE
Interest on deposits ..............................................           3,660            3,488          10,483          10,626
Interest on short-term borrowings .................................             180               89             545             344
Interest on long-term borrowings ..................................             149             --               447            --
                                                                           --------         --------        --------        --------
TOTAL INTEREST EXPENSE ............................................           3,989            3,577          11,475          10,970
                                                                           --------         --------        --------        --------

NET INTEREST INCOME ...............................................           6,206            5,685          18,212          16,731
Provision for loan losses .........................................             210              150           1,330             550
                                                                           --------         --------        --------        --------
NET INTEREST INCOME AFTER PROVISION
 FOR LOAN LOSSES ..................................................           5,996            5,535          16,882          16,181
                                                                           --------         --------        --------        --------

NONINTEREST INCOME
Service fees on deposit accounts ..................................             525              397           1,418           1,161
Net gain on sale of loans .........................................            --               --             1,067            --
Net gain on sale of securities available for sale .................            --               --              --               235
Accretion of discount in connection with acquisition ..............            --                131            --               511
Other .............................................................             304              197           1,619             969
                                                                           --------         --------        --------        --------
TOTAL NONINTEREST INCOME ..........................................             829              725           4,104           2,876
                                                                           --------         --------        --------        --------

NONINTEREST EXPENSES
Salaries and benefits .............................................           2,010            1,919           6,057           5,722
Net occupancy .....................................................             468              539           1,431           1,637
Furniture and equipment ...........................................             216              171             580             534
Advertising and promotion .........................................             184              213             545             561
Federal Deposit Insurance Corporation assessment ..................              15              129              34             154
Foreclosed real estate expense, net ...............................              (5)             116            --               214
Other .............................................................           1,161            1,191           3,448           3,499
                                                                           --------         --------        --------        --------
TOTAL NONINTEREST EXPENSES ........................................           4,049            4,278          12,095          12,321
                                                                           --------         --------        --------        --------

Income before  income taxes .......................................           2,776            1,982           8,891           6,736

Income taxes ......................................................             972              694           3,112           2,358
                                                                           --------         --------        --------        --------

NET INCOME ........................................................        $  1,804         $  1,288        $  5,779        $  4,378
                                                                           ========         ========        ========        ========

PER COMMON SHARE ..................................................        $   0.43         $   0.30        $   1.35        $   1.03
                                                                           ========         ========        ========        ========

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

                   INTERCHANGE FINANCIAL SERVICES CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (in thousands)

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

<S>                                                              <C>         <C>         <C>         <C>        <C>        <C>     
Balance at January 1, 1996 ...................................   $  4,495    $ 12,110    $ 22,990    $    646   $   --     $ 40,241

Net income ...................................................                              4,378                             4,378
Dividends on common stock at $0.36 per share (1) .............                             (1,551)                           (1,551)
5% common stock dividend .....................................        225       2,678      (2,903)                              --
Fractional shares of 5% common stock dividend ................                     (5)                                           (5)
Issued 7,498 shares of common stock in connection
    with incentive plan ......................................         13         148                                           161
Decrease in market valuation-securities available for
    sale, net of taxes .......................................                                           (580)                 (580)
                                                                    ------      -----       ------      ------     -----       ---- 
                                                                 
Balance at September 30, 1996 ................................      4,733      14,931      22,914          66       --       42,644

Net Income ...................................................                              2,041                             2,041
Dividends on common stock at $0.127 per share (1) ............                               (526)                             (526)
Increase in market valuation-securities available for
    sale, net of taxes .......................................                                            202                   202
                                                                 --------    --------    --------    --------   --------    --------
Balance at December 31, 1996 .................................      4,733      14,931      24,429         268       --       44,361

Net income ...................................................                              5,779                             5,779
Dividends on common stock at $0.405 per share (1) ............                             (1,717)                           (1,717)
Fractional shares on 3 for 2 stock split .....................                     (3)                                           (3)
Issued 8,549 shares of common stock in connection
    with incentive plans (1) .................................          9         159                                           168
Exercise of 18,293 option shares (1) .........................         20         143                                           163
Purchase of 8,133 shares in exchange for option shares (1) ...                                                     (163)       (163)
Purchase 81,217 shares of common stock at $19 per share ......                                                   (1,543)     (1,543)
Issuance of 153,041 shares of common stock in merger
    with Washington Interchange Corporation ..................        170       2,765                                         2,935
Retirement of 124,855 shares of common stock held by
    Washington Interchange Corporation at  time of merger ....       (138)     (2,256)                                       (2,394)
Increase in market valuation - securities available
    for sale, net of taxes ...................................                                            683                   683
                                                                 --------    --------    --------    --------   --------    --------

Balance at September 30, 1997 ................................   $  4,794    $ 15,739    $ 28,491    $    951   $ (1,706)   $ 48,269
                                                                 ========    ========    ========    ========   ========    ========

-----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Adjusted for the effects of the 3 for 2 stock split issued on April 17, 1997
to shareholders of record on March 20, 1997
</FN>

See notes to consolidated financial statements.
</TABLE>

<PAGE>
<TABLE>
                   INTERCHANGE FINANCIAL SERVICES CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<CAPTION>
                                                                                          For the nine months ended
                                                                                                September 30,
                                                                                         ---------------------------
                                                                                            1997              1996
                                                                                          ---------------------------
<S>                                                                                    <C>                 <C>     
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................................................      $  5,779            $  4,378
Non-cash items included in earnings
   Depreciation and amortization of fixed assets ................................           775                 755
   Amortization of securities premiums ..........................................           579                 801
   Accretion of securities discounts ............................................           (81)                (48)
   Amortization of premiums in connection with acquisition ......................           333                 333
   Accretion of discount in connection with acquisition .........................          --                  (511)
   Provision for loan losses ....................................................         1,330                 550
   Net gain on sale of securities available for sale ............................          --                  (235)
   Net gain on sale of  loans ...................................................        (1,067)               --
   Net (gain) loss on sale of foreclosed real estate ............................            (5)                 87
   (Increase) decrease in carrying value of loans available for sale ............            (7)                 30
Decrease (increase) in operating assets
   Net repayment (origination) of loans available for sale ......................            19                (108)
   Accrued interest receivable ..................................................           352                 616
   Deferred income taxes ........................................................          --                   (84)
   Other ........................................................................           (39)              1,014
Increase (decrease) in operating liabilities
   Accrued interest payable .....................................................            39                  93
   Other ........................................................................          (330)               (326)
                                                                                       --------            --------
CASH PROVIDED BY OPERATING ACTIVITIES ...........................................         7,677               7,345
                                                                                       --------            --------

CASH FLOWS FROM INVESTING ACTIVITIES
(Payments for) proceeds from
   Net originations of loans ....................................................       (30,350)            (20,482)
   Purchase of loans ............................................................        (1,502)             (2,116)
   Sale of loans ................................................................         5,944                --
   Purchase of securities available for sale ....................................        (3,990)            (21,528)
   Maturities of securities available for sale ..................................           834                 618
   Sale of securities available for sale ........................................          --                38,349
   Sale of foreclosed real estate ...............................................           616                 644
   Purchase of investment securities ............................................       (21,086)            (19,266)
   Maturities of investment securities ..........................................        27,787              20,270
   Net payments on foreclosed real estate .......................................          --                     8
   Washington Interchange merger ................................................            37                --
   Purchase of fixed assets .....................................................        (2,833)               (582)
   Sale of fixed assets .........................................................            13                --
                                                                                       --------            --------
CASH USED FOR INVESTING ACTIVITIES ..............................................       (24,530)             (4,085)
                                                                                       --------            --------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (payments for)
   Deposits more (less) than withdrawals ........................................        24,000                (802)
   Securities sold under agreements to repurchase ...............................        14,388              15,828
   Retirement of other borrowings ...............................................        (5,277)             (7,950)
   Retirement of securities sold under agreement to repurchase ..................       (12,800)             (7,382)
   Dividends ....................................................................        (1,717)             (1,551)
   Common stock issued ..........................................................           165                 156
   Treasury stock ...............................................................        (1,543)               --
                                                                                       --------            --------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES ................................        17,216              (1,701)
                                                                                       --------            --------

INCREASE IN CASH AND CASH EQUIVALENTS ...........................................           363               1,559
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ....................................        24,322              25,151
                                                                                       --------            --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........................................      $ 24,685            $ 26,710
                                                                                       ========            ========
----------
Supplemental disclosure of cash flow information: 
Cash paid for:
     Interest ...................................................................       $11,436            $ 10,876
     Income taxes ...............................................................         3,822               2,960

Supplemental disclosure of non-cash investing activities:
     Loans transferred to foreclosed real estate ................................       $   --              $   179
     (Increase) decrease - market valuation of securities available
          for sale ..............................................................        (1,119)                876
 
See notes to consolidated financial statements
</TABLE>
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

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, 1996.

         Consolidated  financial data for the three months and nine months ended
September  30,  1997  and  1996,  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

         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 and nine
months ended September 30, 1997 and 1996, and should be read in conjunction with
the  consolidated  financial  statements  and notes  thereto  included in Item 1
hereof.

RESULTS OF OPERATIONS

EARNINGS SUMMARY -- THREE  MONTHS

         For the third quarter of 1997, the Company  reported net income of $1.8
million or $0.43 per share, as compared with $1.3 million or $0.30 per share for
the comparable 1996 period, an increase of $516 thousand or $0.13 per share. The
growth in earnings  was a product of improved  net  interest  income,  increased
noninterest income and a decline in noninterest expenses.

         Net interest income  increased $521 thousand or 9.2% largely because of
a $37.6  million or 8.3%  increase  in average  interest  earning  assets and an
improved net interest  margin.  The greatest  growth in interest  earning assets
continues to occur in loans; specifically commercial loans which generally carry
higher yields.  For the third quarter of 1997, loans on average  increased $43.6
million or 13.2% as  compared  to the same  period a year ago.  Such assets were
funded  mostly with  demand and savings  deposits  which  typically  carry lower
yields,  thereby having a positive  effect on the net interest  margin.  The net
interest  margin for the third  quarter  1997 was 5.05% as compared to 5.01% for
the prior comparable period.

         Noninterest  income  increased  $104  thousand for the third quarter of
1997, as compared to the same period in 1996. The change was  principally due to
an increase in service charge income.

         Noninterest  expenses for the 1997 period  decreased  $229  thousand or
5.4% as compared to the 1996 period  despite the Company's  growth and continued
investment in technology.  The decrease is attributable in the first instance to
a decrease in foreclosed real estate expense of $121 thousand resulting from the
workout and sale of the  Company's  foreclosed  real estate.  In  addition,  the
decrease is  attributable to a one time Federal  Deposit  Insurance  Corporation
("FDIC")   assessment  of  $114  thousand  in  the  third  quarter  of  1996  to
recapitalize the Savings Association Insurance Fund.

EARNINGS SUMMARY -- NINE MONTHS

         Net Income for the nine  months  ended  September  30,  1997,  was $5.8
million or $1.35 per share,  as compared to $4.4  million or $1.03 per share for
the same period a year ago. The growth in earnings was generated by improved net
interest  income,  increased  noninterest  income and a decline  in  noninterest
expenses.

         Earnings  for the nine  month  period  improved  as a result  of a $1.5
million or 8.9% growth in net  interest  income from the same period a year ago.
Contributing  to the  growth in net  interest  income was an  increase  of $26.3
million  in  average  interest  earning  assets  for the  1997  period  over the
comparable 1996 period. The growth occurred mostly in loans which had an average
balance of $362.6  million for the nine months  ended  September  30,  1997,  an
increase of $42.8 million or 13.4% over the comparable 1996 period. The earnings
benefit  derived from the growth in earning  assets was augmented by an increase
in the net interest  margin to 5.06% for the 1997  period,  as compared to 4.92%
for the same period in 1996.  The improved net interest  margin was a product of
the Company's  effort to improve the  composition of its deposit  liabilities by
moving from higher costing single  transaction  certificates of deposit to lower
costing  demand  and  savings  deposits.  In  addition,  a portion of the higher
costing  single  transaction  certificates  of deposit were  replaced  with less
expensive alternative funding sources, such as repurchase agreements. The change
in the  composition of deposit  liabilities  combined with the growth in earning
assets was principally responsible for the improvement in net interest income.

         Earnings  for  the  1997  period  also  benefited  from a $1.2  million
increase in noninterest income. The increase resulted from the following: a gain
of $775 thousand  resulting from the early payoff of a commercial  loan that was
purchased  at a  discount;  and,  a gain of $1.1  million  from  the sale of two
commercial  mortgage  loans in the first quarter of 1997.  However,  the benefit
derived from the gains was partly offset by approximately  $1.1 million in gains
and  discount  accretion  that was realized in the first nine months of 1996 and
did not reoccur in 1997.

         Earnings  for the nine month  period ended  September  30,  1997,  were
unfavorably  affected  by a $780  thousand  increase in the  provision  for loan
losses as compared to the same period in 1996.  The increase is described in the
section titled "Provision for Loan Losses and Loan Loss Experience."

         Noninterest  expenses for the 1997 period  decreased  $226  thousand or
1.8% as compared to the 1996 period  despite the Company's  growth and continued
investment  in  technology.  During 1997,  the Company  increased  investment in
technology to include a wide area network,  improved  deposit and loan software,
ACH  origination,  automated  bill payment  system and a larger  mainframe.  The
enhancements  in  technology  will allow the Company to deliver  faster and more
efficient  services to its customers.  The decrease in  noninterest  expenses is
principally  attributable to the following: a decrease in foreclosed real estate
expense of $214  thousand  resulting  from the workout and sale of the Company's
remaining  foreclosed real estate;  a decline in the Federal  Deposit  Insurance
Corporation  ("FDIC")  assessment  of $120  thousand due to a third quarter 1996
special  assessment of $114  thousand to  recapitalize  the Savings  Association
Insurance Fund; and, a decline in net occupancy of $206 thousand. An increase of
$335 thousand in salaries and benefits due primarily to annual salary  increases
and promotions partially offset the benefits described above.

NONPERFORMING ASSETS

         Nonperforming  assets are comprised of nonaccrual  loans,  restructured
loans and foreclosed real estate.  At September 30, 1997,  nonperforming  assets
amounted  to $2.1  million,  a decrease  of $1.3  million  from $3.4  million at
December  31,  1996.  The  decline  was  mostly  influenced  by the sale of $610
thousand  of real  estate  owned  during  the nine  month  period.  The ratio of
nonperforming  assets to total loans and foreclosed  real estate  decreased from
1.0% at December 31, 1996, to .6% at September 30, 1997.

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 $4.7 million at September 30, 1997,
and $3.7  million  at  December  31,  1996,  representing  217.7%  and 130.0% of
nonperforming loans at those dates, respectively.  In the third quarter of 1997,
the Company's  provision for loan losses was $210  thousand,  an increase of $60
thousand  from the same  period a year  ago.  For the  nine  month  period,  the
Company's  provision  for loan  losses was $1.3  million,  an  increase  of $780
thousand from the same period a year ago. The Company's lending focus and growth
continue to be largely in its commercial loan portfolio.  Such growth can change
the  characteristics  and  potentially  increase the inherent credit risk of the
Company's  loan  portfolio.  Accordingly,  the  Company  has  revised  the  risk
allocation  percentages  applied  to  commercial  loans  used in  computing  the
allowance for loan losses to capture such risk. This resulted in the increase in
the provision for loan losses.


<PAGE>
<TABLE>
SECURITIES

     Investment securities and securities available for sale consist of the following:  (in thousands)
<CAPTION>

                                                                                           SEPTEMBER 30, 1997
                                                                             -------------------------------------------------------
                                                                                            GROSS          GROSS          ESTIMATED
                                                                             AMORTIZED      UNREALIZED     UNREALIZED       MARKET
                                                                             COST            GAINS          LOSSES           VALUE
                                                                             ---------      ----------     ----------     ---------

<S>                                                                       <C>             <C>                               <C>     
INVESTMENT SECURITIES

    OBLIGATIONS OF U.S. TREASURY .................................        $ 28,208        $    155             --           $ 28,363
    OBLIGATIONS OF U.S. AGENCIES .................................          19,689             249         $     11           19,927
    OBLIGATIONS OF STATES & POLITICAL SUBDIVISIONS ...............           4,158            --                  9            4,149
    OTHER DEBT SECURITIES ........................................           4,289            --                 12            4,277
                                                                          --------        --------         --------         --------

                                                                            56,344             404               32           56,716
                                                                          --------        --------         --------         --------

SECURITIES AVAILABLE FOR SALE

    OBLIGATIONS OF U.S. TREASURY .................................          35,497             589              102           35,984
    OBLIGATIONS OF U.S. AGENCIES .................................          16,751             178                5           16,924
    OTHER DEBT SECURITIES ........................................           1,692              33             --              1,725
    EQUITY SECURITIES ............................................           3,912             808             --              4,720
                                                                          --------         --------         --------        --------
                                                                            57,852           1,608              107           59,353
                                                                          --------        --------         --------         --------

      TOTAL SECURITIES ...........................................        $114,196        $  2,012         $    139         $116,069
                                                                          ========        ========         ========         ========


                                                                                                  December 31, 1996
                                                                             -------------------------------------------------------
                                                                                            GROSS          GROSS          ESTIMATED
                                                                             AMORTIZED      UNREALIZED     UNREALIZED       MARKET
                                                                             COST            GAINS          LOSSES           VALUE
                                                                             ---------      ----------     ----------     ---------


Investment securities
    Obligations of U.S. Treasury ...................................        $ 43,517          $  248            --          $ 43,765
    Obligations of U.S. Agencies ...................................          11,077              74          $   22          11,129
    Obligations of states & political subdivisions .................           3,581               1               9           3,573
    Other debt securities ..........................................           5,201            --                49           5,152
                                                                            --------        --------        --------        --------
                                                                              63,376             323              80          63,619
                                                                            --------        --------        --------        --------
Securities available for sale
    Obligations of U.S. Treasury ...................................          31,640             453             246          31,847
    Obligations of U.S. Agencies ...................................          17,321             124              12          17,433
    Other debt securities ..........................................           1,998              11            --             2,009
    Equity securities ..............................................           3,912              51            --             3,963
                                                                            --------        --------        --------        --------
                                                                              54,871             639             258          55,252
                                                                            --------        --------        --------        --------

      Total securities .............................................        $118,247          $  962          $  338        $118,871
                                                                            ========        ========        ========        ========






</TABLE>

<PAGE>
<TABLE>
At September 30, 1997, the contractual maturities of investment securities and securities available
for sale are as follows: (in thousands)
<CAPTION>

                                                                                          SECURITIES
                                               INVESTMENT SECURITIES                  AVAILABLE FOR SALE
                                           -------------------------------        ----------------------------
                                            AMORTIZED           MARKET             AMORTIZED          MARKET
                                               COST             VALUE                COST             VALUE
                                           -------------     -------------        ------------    ------------

<S>                                          <C>                <C>                <C>                <C>    
WITHIN 1 YEAR ....................           $20,191            $20,242            $ 2,000            $ 2,006
AFTER 1 BUT WITHIN 5 YEARS .......            19,140             19,294             37,447             37,981
AFTER 5 BUT WITHIN 10 YEARS ......             6,887              6,996              8,705              8,821
AFTER 10 YEARS ...................            10,126             10,184              5,788              5,825
EQUITY SECURITIES ................              --                 --                3,912              4,720
                                             -------            -------            -------            -------

                        TOTAL ....           $56,344            $56,716            $57,852            $59,353
                                             =======            =======            =======            =======
</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>                       
AS OF SEPTEMBER 30, 1997:
    TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):

       THE COMPANY ....................................     $50,835      14.58%       $27,891         8.00%          N/A      N/A
       THE BANK .......................................      48,982      14.12         27,745         8.00        $34,681    10.00%
    TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
       THE COMPANY ....................................      46,477      13.33         13,946         4.00           N/A      N/A
       THE BANK .......................................      44,647      12.87         13,872         4.00         20,809     6.00
    TIER 1 CAPITAL (TO AVERAGE ASSETS):
       THE COMPANY ....................................      46,477       8.81         15,823         3.00           N/A      N/A
       THE BANK .......................................      44,647       8.50         15,756         3.00         26,259     5.00

As of December 31, 1996:
    Total Capital (to Risk Weighted Assets):
       The Company ....................................     $46,720      14.42%       $25,918         8.00%          N/A      N/A
       The Bank .......................................      45,391      14.07         25,813         8.00        $32,266    10.00%
    Tier 1 Capital (to Risk Weighted Assets):
       The Company ....................................      43,067      13.29         12,959         4.00           N/A      N/A
       The Bank .......................................      41,738      12.94         12,906         4.00         19,359     6.00
    Tier 1 Capital (to Average Assets):
       The Company ....................................      43,067       8.66         14,925         3.00           N/A      N/A
       The Bank .......................................      41,738       8.39         14,925         3.00         24,875     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  is 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 September 30, 1997, total deposits  amounted to $454.0 million,
an  increase  of $24.0  million or 5.6% from  December  31,  1996.  The  Company
continues to supplement 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 September 30, 1997, advances from
the FHLB and REPOS amounted to $9.9 million and $12.6 million,  respectively, as
compared to $15.2 million and $11.1 million, respectively, at December 31, 1996.

         In the third  quarter  of 1997,  loan  production  continued  to be the
Company's  principal  investing  activity.  Net  loans at  September  30,  1997,
amounted to $373.8  million,  compared to $348.1  million at the end of 1996, an
increase of $25.7 million or 7.4%.

         The  Company's  most  liquid  assets  are cash and due from  banks  and
federal funds sold. At September 30, 1997, the total of such assets  amounted to
$24.7  million or 4.7% of total  assets,  compared  to $24.3  million or 4.8% of
total assets at December 31, 1996.

         Another    significant    liquidity    source    is    the    Company's
available-for-sale  ("AFS")  securities.  At September 30, 1997,  AFS securities
amounted  to $59.4  million  or 51.3% of  total  securities,  compared  to $55.3
million or 46.6% of total securities at December 31, 1996.

         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 Company also has a
$50.9  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>


                            PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     Reference is made to Form 10-K filed for the year ended  December 31, 1996.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  The following exhibits are furnished herewith:

     EXHIBIT NO.
          
          10   Change in Control  Agreement  dated  August 4, 1997 for  Patricia
               Arnold

          11   Statement Re:  Computation  of Per Share  Earnings 

     (b)  No reports filed on Form 8-K for the three months ended  September 30,
          1997

     (c) Executive Compensation Plans and Arrangements

          (1)  Stock Option Plan of 1989 now  retitled  Stock Option & Incentive
               Stock Plan of 1997,  filed as part of Amendment No. 1 to Form S-8
               filed with the SEC on September 30, 1997, is incorporated  herein
               by reference to Registration Statement No. 33-82530


                                   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:      _______________________________
         Anthony Labozzetta
         Executive Vice President & Chief Financial Officer