UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                -----------------
                                    FORM 10-Q
                                -----------------


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

                                       or

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934
                   FOR THE TRANSITION PERIOD FROM____ TO ____


                         Commission File number 1-10518


                   INTERCHANGE FINANCIAL SERVICES CORPORATION
             (Exact name of registrant as specified in its charter)

       New Jersey                                             22-2553159
-------------------------------------                   ----------------------
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                           Identification No.)

Park 80 West/Plaza Two, Saddle Brook, NJ                        07663
--------------------------------------------                    -----
(Address of principal executive offices)                      (Zip Code)

                                 (201) 703-2265
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                                      None
--------------------------------------------------------------------------------
          (Former name, former address and former fiscal year,
                        if changed since last report)


Indicate by checkmark  whether the Registrant (1) has filed all reports required
to be filed by  Sections  13 or 15(d)  of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  report)  and (2) has been  subject  to such  filing
requirements for the past 90 days. Yes __X__ No ___

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes __X__ No ___

         The number of outstanding shares of the Registrant's common stock, no
par value per share, as of April 29, 2005, was 19,152,464 shares.


<PAGE>


                         INTERCHANGE FINANCIAL SERVICES CORPORATION


INDEX

PART I            FINANCIAL INFORMATION
                                                                        Page No.
    Item 1   Financial Statements

               Condensed Consolidated Balance Sheets as of
               March 31, 2005 (unaudited) and December 31, 2004................1

               Unaudited Condensed Consolidated Statements of Income for the
               three months ended March 31, 2005 and 2004......................2

               Unaudited Condensed Consolidated Statements of Changes in
               Stockholders' Equity for the three months ended
               March 31, 2005 and 2004.........................................3

               Unaudited Condensed Consolidated Statements of Cash Flows for
               the three months ended March 31, 2005 and 2004..................4

               Notes to Unaudited Condensed Consolidated Financial Statements..5


    Item 2   Management's Discussion and Analysis of Financial
             Condition and Results of Operations..............................15

    Item 3   Quantitative and Qualitative Disclosures About Market Risk.......27

    Item 4   Controls and Procedures..........................................31

PART II   OTHER INFORMATION

    Item 1   Legal Proceedings................................................33

    Item 2   Unregistered Sales of Equity Securities and Use of Proceeds......33

    Item 3   Defaults upon Senior Securities..................................33

    Item 4   Submission of Matters to a Vote of Security Holders..............33

    Item 5   Other Information................................................33

    Item 6   Exhibits and Reports on Form 8-K.................................33

              Signatures......................................................34

<PAGE>

Item 1:           FINANCIAL STATEMENTS
Interchange Financial Services Corporation
--------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
                                                               March 31    December 31,
                                                                2005           2004
                                                             -----------   -----------
                                                             (unaudited)
<S>                                                          <C>           <C>
Assets
Cash and due from banks                                         $ 31,762     $ 33,108
Interest bearing demand deposits                                       2            2
                                                             ------------   ----------
Total cash and cash equivalents                                   31,764       33,110
                                                             ------------   ----------

Securities held-to-maturity at amortized cost
   (estimated fair value of $14,087 and
   $15,276 for March 31, 2005 and December 31,
   2004, respectively)                                            13,510       14,530
                                                             ------------ ------------
Securities available-for-sale at estimated fair
   value (amortized cost of $362,257 and
   $375,241 for March 31, 2005 and December 31
   2004, respectively)                                           357,929      374,199
                                                             ------------ ------------

Loans and leases (net of unearned income and
   deferred fees of $5,674 and $5,514 for
   March 31, 2005 and December 31, 2004, respectively)           977,089      934,181
Less:  Allowance for loan and lease losses                         9,876        9,797
                                                             ------------ ------------
Net loans and leases                                             967,213      924,384
                                                             ------------ ------------

Bank owned life insurance                                         26,110       25,847
Premises and equipment, net                                       17,579       17,713
Foreclosed assets and other repossessed assets                       150          156
Goodwill                                                          55,952       55,952
Intangible assets                                                  3,534        3,660
Accrued interest receivable and other assets                      15,108       14,590
                                                             ------------ ------------
Total assets                                                  $1,488,849   $1,464,141
                                                             ============ ============

Liabilities
Deposits
    Non-interest bearing                                        $236,439     $235,036
    Interest bearing                                             994,957    1,011,102
                                                             ------------ ------------
Total deposits                                                 1,231,396    1,246,138
                                                             ------------ ------------

Securities sold under agreements to repurchase                     3,729        4,401
Short-term borrowings                                             56,857       24,600
Long-term borrowings                                              35,000       30,000
Accrued interest payable and other liabilities                    10,660        8,847
                                                             ------------ ------------
Total liabilities                                              1,337,642    1,313,986
                                                             ------------ ------------

Stockholders' equity:
Common stock, without par value; 33,750,000 shares
 authorized; 19,144,057 and 19,109,872 shares issued
 and outstanding for March 31, 2005 and December 31,
 2004, respectively                                                5,397        5,397
Capital surplus                                                   73,485       73,320
Retained earnings                                                 89,234       86,542
Accumulated other comprehensive loss, net of taxes
 of $1,719 and $408 for March 31, 2005 and December 31,
 2004, respectively                                               (2,609)        (633)
                                                             ------------ ------------
                                                                 165,507      164,626
Less:  Treasury stock                                             14,300       14,471
                                                             ------------ ------------
Total stockholders' equity                                       151,207      150,155
                                                             ------------ ------------
Total liabilities and stockholders' equity                    $1,488,849   $1,464,141
                                                             ============ ============
</TABLE>
-------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.
All share data was restated to reflect a 3-for-2 stock split declared on
January 18, 2005 and paid on February 18, 2005.

                                      -1-
<PAGE>

Interchange Financial Services Corporation
--------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31,
--------------------------------------------------------------------------------
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
                                                                           2005          2004
                                                                       ------------  ------------
<S>                                                                    <C>           <C>
Interest income
Interest and fees on loans                                                 $ 14,957      $ 12,707
Interest on federal funds sold                                                    -             6
Interest and dividends on securities
    Taxable interest income                                                   2,665         2,650
    Interest income exempt from federal income taxes                            323           269
    Dividends                                                                    60            39
                                                                       ------------  ------------
Total interest income                                                        18,005        15,671
                                                                       ------------  ------------

Interest expense
Interest on deposits                                                          3,922         2,827
Interest on securities sold under agreements to repurchase                       23            42
Interest on short-term borrowings                                               180            70
Interest on long-term borrowings                                                316           198
                                                                       ------------  ------------
Total interest expense                                                        4,441         3,137
                                                                       ------------  ------------

Net interest income                                                          13,564        12,534
Provision for loan and lease losses                                             175           375
                                                                       ------------  ------------
Net interest income after provision for loan and lease losses                13,389        12,159
                                                                       ------------  ------------

Non-interest income
Service fees on deposit accounts                                                883           842
Net gain on sale of securities                                                   67           514
Net gain on sale of loans and leases                                            156            76
Bank owned life insurance                                                       264           261
Commissions on sale of annuities and mutual funds                               182           212
Other                                                                           642           610
                                                                       ------------  ------------
Total non-interest income                                                     2,194         2,515
                                                                       ------------  ------------

Non-interest expense
Salaries and benefits                                                         4,955         4,848
Occupancy                                                                     1,463         1,365
Furniture and equipment                                                         315           334
Advertising and promotion                                                       395           393
Amortization of intangible assets                                               126           126
Other                                                                         1,900         1,851
                                                                       ------------  ------------
                                                                              9,154         8,917

Income before income taxes                                                    6,429         5,757
Income taxes                                                                  2,009         1,771
                                                                       ------------  ------------
Net income                                                                  $ 4,420       $ 3,986
                                                                       ============  ============

Basic earnings per common share                                              $0.23         $0.21
                                                                             =====         =====

Diluted earnings per common share                                            $0.23         $0.20
                                                                             =====         =====
</TABLE>
--------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.
All per share data was restated to reflect a 3-for-2 stock split declared on
January 18, 2005 and paid on February 18, 2005.

                                      -2-
<PAGE>

Interchange Financial Services Corporation
--------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31,
--------------------------------------------------------------------------------
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
                                                                            Accumulated
                                                                              Other
                                                Comprehensive   Retained   Comprehensive   Common   Capital   Treasury
                                                   Income       Earnings   Income (Loss)   Stock    Surplus     Stock      Total
                                                -------------   --------   -------------   ------   -------   --------    --------

<S>                                                <C>          <C>          <C>           <C>      <C>       <C>         <C>
Balance at January 1, 2004                                      $74,710      $ 2,434       $5,397   $73,231   $(12,579)   $143,193
Comprehensive income
   Net Income                                      $ 3,986        3,986                                                      3,986
   Other comprehensive income, net of taxes
      Unrealized gains on AFS debt securities        1,402
      Less: net gains on disposition
         of securities                                (287)
                                                   -------
   Other comprehensive income, net of taxes          1,115                     1,115                                         1,115
                                                   -------
Comprehensive income                               $ 5,101
                                                   =======

Dividends on common stock                                        (1,602)                                                    (1,602)
Issued 11,690 shares of common stock
   in connection with Executive
   Compensation Plan                                                                                    103        102         205
Exercised 10,811 option shares                                                                           (9)        84          75
Purchased 127,179 shares of common stock                                                                        (2,154)     (2,154)
                                                                -------      -------       ------   -------   --------    --------
Balance at March 31, 2004                                        77,094        3,549        5,397    73,325    (14,547)    144,818

Comprehensive income
   Net Income                                      $14,228       14,228                                                     14,228
   Other comprehensive income, net of taxes
    Unrealized losses on AFS debt securities        (3,551)
    Less: net gains on disposition of securities      (773)
    Unrealized  gains on equity securities             137
    Minimum pension liability adjustment                 5
                                                   -------
   Other comprehensive losses, net of taxes         (4,182)                   (4,182)                                       (4,182)
                                                   -------
Comprehensive income                               $10,046
                                                   =======

Dividends on common stock                                        (4,780)                                                    (4,780)
Exercised 11,254 option shares                                                                           (5)        97          92
Purcahsed 1,313 shares of common stock                                                                             (21)        (21)
                                                                -------      -------       ------   -------   --------    --------
Balance at December 31, 2004                                     86,542         (633)       5,397    73,320    (14,471)    150,155

Comprehensive income
   Net Income                                      $ 4,420        4,420                                                      4,420
   Other comprehensive income, net of taxes
    Unrealized losses on AFS debt securities        (1,890)
    Less: net gains on disposition of securities       (86)
                                                   -------
   Other comprehensive losses, net of taxes         (1,976)                   (1,976)                                       (1,976)
                                                   -------
Comprehensive income                               $ 2,444
                                                   =======
Dividends on common stock                                        (1,721)                                                    (1,721)
Issued 17,111 shares of common stock
   in connection with Executive
   Compensation Plan                                                                                    154        151         305
Exercised 11,675 option shares                                                                           11         96         107
Purchased 4,532 shares of common stock                                                                             (76)        (76)
Payout of fractional shares resulting from the
  three-for-two stock split declared January 18,
  2005 and paid on February 18, 2005                                 (7)                                                        (7)
                                                                -------      -------       ------   -------   --------    --------
Balance at March 31, 2005                                       $89,234      $(2,609)      $5,397   $73,485   $(14,300)   $151,207
                                                                =======      =======       ======   =======   ========    ========
</TABLE>
--------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.
All  share data was restated to reflect a 3-for-2 stock split declared on
January 18, 2005 and paid on February 18, 2005.

                                      -3-
<PAGE>
<TABLE>
<CAPTION>
Interchange Financial Services Corporation
-------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year to Date Periods Ended, March 31,
-------------------------------------------------------------------------------
(in thousands)
(unaudited)
                                                                                     2005        2004
                                                                                  ----------  ---------
<S>                                                                                <C>         <C>
Cash flows from operating activities
Net income                                                                          $ 4,420    $ 3,986
Adjustments to reconcile net income to net cash provided by operating activities
    Depreciation and amortization                                                       502        498
    Amortization of securities premiums                                               1,088      1,590
    Accretion of securities discounts                                                   (73)       (58)
    Amortization of loan premiums                                                        23          -
    Amortization of premiums in connection with acquisition                             203        356
    Provision for loan and lease losses                                                 175        375
    Loss on foreclosed assetsand other repossessed assets                                13          -
    Increase in cash surrender value of Bank Owned Life Insurance                      (263)      (261)
    Net gain on sale of securities                                                      (67)      (514)
    Origination of loans held for sale                                               (2,490)      (880)
    Sale of loans held for sale                                                       2,645        941
    Net gain on sale of loans and leases                                               (156)       (76)
    Net gain on sale of foreclosed real estate and repossessed assets                     -        (14)
Decrease (increase) in operating assets
    Accrued interest receivable                                                        (113)        425
    Deferred taxes                                                                     (393)      1,766
    Other Assets                                                                      1,236        (692)
Increase (decrease) in operating liabilities
    Accrued interest payable                                                            313        (29)
    Other                                                                             1,500        836
                                                                                  ----------  ---------
Cash provided by operating activities                                                 8,563      8,249
                                                                                  ----------  ---------

Cash flows from investing activities
(Payments for) proceeds from
    Net originations of loans and leases                                            (40,313)   (15,005)
    Purchase of loans and leases                                                     (2,837)   (20,608)
    Sale of loans and leases                                                             16        282
    Purchase of securities available-for-sale                                       (14,560)    (2,799)
    Maturities of securities available-for-sale                                      23,585     21,990
    Sale of securities available-for-sale                                             3,048     44,793
    Maturities of securities held-to-maturity                                           984      1,119
    Sale of foreclosed real estate and other repossessed assets                           -         59
    Purchase of fixed assets                                                           (305)      (328)
    Premium in connection with acquisition                                               19         19
                                                                                  ----------  ---------
Cash (used in) provided by investing activities                                     (30,362)    29,522
                                                                                  ----------  ---------

Cash flows from financing activities
Proceeds from (payments for)
    Net change in deposits                                                          (14,740)     9,336
    Securities sold under agreements to repurchase and other borrowings             285,314    145,363
    Retirement of securites sold under agreement to repurchase and
      other borrowings                                                             (248,729)  (164,230)
    Dividends                                                                        (1,721)    (1,602)
    Common stock issued                                                                 305        205
    Payout of fractional shares resulting from 3-for-2 stock split                       (7)         -
    Treasury stock                                                                      (76)    (2,154)
    Exercise of option shares                                                           107         75
                                                                                  ----------  ---------
Cash provided by (used in) financing activities                                      20,453    (13,007)
                                                                                  ----------  ---------

Decrease (increase) in cash and cash equivalents                                     (1,346)    24,764
Cash and cash equivalents, beginning of year                                         33,110     31,435
                                                                                  ----------  ---------
Cash and cash equivalents, end of year                                              $31,764    $56,199
                                                                                  ==========  =========

Supplemental disclosure of cash flow information:
Cash paid for:
      Interest                                                                       $4,323     $3,168
      Income taxes                                                                       38          -

Supplemental disclosure of non-cash investing and financing activities:
      Loans transferred to foreclosed real estate and other repossessed assets            7         34
</TABLE>
-------------------------------------------------------------------------------
See notes to condensed consolidated financial statements

                                      -4-
<PAGE>

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                    FOR THE THREE MONTHS ENDED MARCH 31, 2005
                                   (Unaudited)

1.   Basis of Presentation

     The accompanying  unaudited  condensed  consolidated  financial  statements
include the  accounts of  Interchange  Financial  Services  Corporation  and its
wholly owned subsidiaries (on a consolidated basis, the "Company") including its
principal  operating  subsidiary,  Interchange Bank (the "Bank"),  and have been
prepared in conformity  with  accounting  principles  generally  accepted in the
United  States  of  America  ("GAAP")  and in  accordance  with  the  rules  and
regulations of the Securities  and Exchange  Commission.  Pursuant to such rules
and  regulations,  certain  information  or footnotes  necessary  for a complete
presentation  of financial  condition,  results of operations  and cash flows in
conformity   with  GAAP  have  been  condensed  or  omitted.   These   condensed
consolidated  financial  statements  should  be read  in  conjunction  with  the
consolidated  financial  statements and schedules thereto included in the annual
report on Form 10-K of the Company for the year ended December 31, 2004.

     The condensed  consolidated financial data for the three months ended March
31, 2005 and 2004, are unaudited but reflect all adjustments  consisting of only
normal recurring adjustments which are, in the opinion of management, considered
necessary  for a fair  presentation  of the  financial  condition and results of
operations  for the  interim  periods.  The  results of  operations  for interim
periods are not  necessarily  indicative of results to be expected for any other
period or the full year.

Use of estimates:  The  preparation of financial  statements in conformity  with
GAAP requires  management  to make  estimates  and  assumptions  that affect the
reported amounts of assets and liabilities and disclosures of contingent  assets
and liabilities at the date of the condensed  consolidated  financial statements
and the reported  amount of revenues and expenses  during the reporting  period.
Actual results could differ from those estimates. The most significant estimates
pertain to the allowance for loan and lease losses,  the fair value of financial
instruments, goodwill, intangibles, taxes and retirement benefits.

New  Accounting  Pronouncements:  In December  2003,  the American  Institute of
Certified Public Accountants issued Statement of Position 03-3,  "Accounting for
Loans  and Debt  Securities  Acquired  in a  Transfer"  ("SOP  03-3").  SOP 03-3
addresses  accounting for differences  between  contractual  cash flows and cash
flows  expected  to be  collected  form an initial  investment  in loans or debt
securities acquired in a transfer if those differences relate, at least in part,
to a deterioration of credit quality. SOP 03-3 prohibits companies from carrying
over  valuation  allowances in the initial  accounting for such loans and limits
the yield that may be accreted to the excess of undiscounted expected cash flows
over the initial  investment  in the loan.  Decreases in expected cash flows are
recognized as impairment and increases are recognized  prospectively  through an
adjustment  of the  loan  yield.  SOP  03-3 is  effective  for  loans  and  debt
securities  acquired on or after January 1, 2005.  Our adoption of this guidance
did not have a  significant  effect on our  financial  condition  or  results of
operations.

                                      -5-

<PAGE>

Stock Based Compensation:  The Company accounts for stock option plans under the
recognition and measurement  principles of Accounting  Principles  Board ("APB")
Opinion  No.  25.  "Accounting  for Stock  Issued  to  Employees,"  and  related
interpretations. No stock-based employee compensation costs are reflected in net
income,  as all options granted under those plans had an exercise price equal to
the  market  value of the  underlying  common  stock on the  date of  grant.  In
December  2004, the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standard  ("SFAS") No. 123 (revised  2004),  "Share-Based
Payment,"  ("SFAS No.  123(R)").  SFAS No. 123(R)  addresses the  accounting for
share-based  payment  transactions  in which  an  enterprise  receives  employee
services  in  exchange  for (a)  equity  instruments  of the  enterprise  or (b)
liabilities  that  are  based  on the  fair  value  of the  enterprise's  equity
instruments  or that may be settled by the issuance of such equity  instruments.
SFAS No.  123(R)  requires an entity to recognize the  grant-date  fair value of
stock options and other equity-based compensation issued to employees within the
income  statement  using a  fair-value-based  method,  eliminating the intrinsic
value method of accounting  previously  permissible under Accounting  Principles
Board Opinion No. 25,  "Accounting  for Stock Issued to Employees"  (APB No. 25)
and related interpretations.

     On April 15, 2005, the Securities and Exchange  Commission ("SEC") issued a
ruling amending the date for compliance with SFAS No. 123(R).  Registrants  will
be  required  to adopt FAS  123(R)  beginning  with the first  interim or annual
reporting  period of the  registrant's  first fiscal year  beginning on or after
June 15, 2005.  For the Company,  this ruling will require  adoption of SFAS No.
123(R) by no later  than  January  1, 2006.  The  Company  is in the  process of
evaluating and determining which of the alternative methodologies under SFAS No.
123(R) will be utilized.

     Prior to the required adoption of SFAS No. 123(R),  the Company has elected
to account for its stock-based  incentive plans and awards under APB No. 25, and
has  adopted  the  disclosure  requirements  of SFAS No.  123,  "Accounting  for
Stock-Based   Compensation,"  as  amended  by  SFAS  No.  148,  "Accounting  for
Stock-Based  Compensation  - Transition  and  Disclosure."

     The  following  table  illustrates  the effect on net  income  and  diluted
earnings per common share if the Company had applied the fair value  recognition
provisions of Financial  Accounting  Standards Board ("FASB") Statement No. 123,
"Accounting for Stock-Based  Compensation," to stock-based  compensation for the
three months ended March 31, 2005 and 2004:  (in  thousands,  except share data)
(unaudited)

                                      -6-

<PAGE>

                                                   --------------------------
                                                   For the three months ended
                                                             March 31,
                                                       2005           2004
                                                   ------------   -----------
Net Income
   As reported                                          $4,420        $3,986
   Less: Total stock-based compensation
   expense determined under the fair
   method for all rewards, net of related
   tax effects                                              266          187
                                                   ------------   ----------
      Pro-forma                                          $4,154       $3,799
                                                   ============   ==========

Earnings per share:
Basic:
    As reported                                        0.23          0.21
    Pro forma                                          0.22          0.20
Diluted:
    As reported                                        0.23          0.20
    Pro forma                                          0.21          0.19


     The fair value of each option grant is estimated on the date of grant using
the   Black-Scholes   option-pricing   model.  The  following   weighted-average
assumptions  were used for option  grants  issued  during the three months ended
March  31,  2005 and 2004,  respectively:  dividend  yield of 2.01%  and  2.22%,
expected  volatility of 23.05% and 24.92%;  risk-free interest rate of 3.86% and
3.34%;  and expected  lives of  approximately  7 years.  The effects of applying
these   assumptions  in  determining   the  pro-forma  net  income  may  not  be
representative of the effects on pro-forma net income for future years.

2.   Earnings Per Common Share

     Basic  earnings  per common  share  represent  income  available  to common
stockholders divided by the weighted-average number of common shares outstanding
during the period.  Diluted earnings per common share reflect  additional common
shares that would have been outstanding if dilutive  potential common shares had
been  issued,  as well as any  adjustment  to income that would  result from the
assumed  issuance.  Potential  common  shares  that may be issued by the Company
relate  solely  to  outstanding  stock  options,  and are  determined  using the
treasury  stock method.  At March 31, 2005 and 2004 the weighted  average shares
outstanding  for the three  months  were  approximately  19.6  million  and 19.5
million, respectively.

                                      -7-

<PAGE>

3.   Commitments and Contingent Liabilities

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

Commitments to Extend Credit
     At March 31, 2005,  the Company had  commitments  of  approximately  $238.6
million to extend credit, of which approximately $3.2 million represents standby
letters of credit.

4.   Goodwill and Other Intangibles

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

                                      -----------------    --------------
                                            March 31,       December 31,
                                             2005              2004
                                      -----------------    --------------
                                         (unaudited)
Intangible Assets                               $ 4,595          $ 4,595
Accumulated Amortization                         (1,061)            (935)
                                      -----------------    --------------
  Net Intangible Asset                          $ 3,534          $ 3,660
                                      =================    ==============

     Intangible assets are a result of acquisitions and are primarily related to
core deposit  intangibles  ("CDI") which have an estimated life of 10 years. For
each of the three month  periods ended March 31, 2005 and 2004 the CDI amortized
was  $107  thousand.  The CDI  will be  periodically  reviewed  for  impairment.
Goodwill  is tested for  impairment  at least  annually in  accordance  with the
provisions of SFAS No. 142.

At March 31, 2005 the  scheduled  amortization  of the  intangible  assets is as
follows (in thousands):

2006                                       $ 436
2007                                         430
2008                                         430
2009                                         430
2010                                         430
Thereafter                                   999
                                    ------------
                                         $ 3,155
                                    ============

                                      -8-

<PAGE>

5.   Segment Reporting

     SFAS No. 131,  "Disclosures  About  Segments of an  Enterprise  and Related
Information"  ("SFAS  No.  131"),   requires  disclosures  for  each  reportable
operating segment. As a community-oriented financial institution,  substantially
all of the Company's operations entail the delivery of loan and deposit products
and various other  financial  services to customers in its primary  market area,
which is Bergen County,  New Jersey. The Company's  community-banking  operation
constitutes  the  Company's  only  operating  segment  for  financial  reporting
purposes under SFAS No. 131.

6.   Cash Dividend

     On January 18, 2005, the Company  declared a 3-for-2 stock split. The stock
split was  payable on  February  18, 2005 to holders of record as of February 2,
2005.  In  addition,  the  Company  paid a cash  dividend  of $0.09 per share on
February 18, 2005, to holders of record as of January 31, 2005.

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

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

                                      -9-

<PAGE>

<TABLE>
<CAPTION>
                                                    -------------------------------------------
                                                                    March 31, 2005
                                                    -------------------------------------------
                                                                  Gross     Gross    Estimated
                                                    Amortized  Unrealized Unrealized    Fair
                                                      Cost        Gains     Losses     Value
                                                    ----------  --------- ---------- ----------
<S>                                                 <C>         <C>       <C>        <C>
Securities held-to-maturity
   Government-Sponsored Enterprises:
     Mortgage-backed securities                     $   4,552    $    99    $     -  $   4,651
   Obligations of states & political subdivisions       8,958        478          -      9,436
                                                    ---------   --------  ---------  ---------
                                                    $  13,510    $   577    $     -  $  14,087
                                                    =========   ========  =========  =========

Securities available-for-sale
   Government-Sponsored Enterprises:
     Mortgage-backed securities                     $ 112,751    $   554    $ 1,268  $ 112,037
     Other debt                                       210,658        175      3,938    206,895
   Obligations of states & political subdivisions      33,324        422        273     33,473
   Equity securities                                    5,524          -          -      5,524
                                                    ---------   --------  ---------  ---------
                                                      362,257      1,151      5,479    357,929
                                                    ---------   --------  ---------  ---------

     Total securities                               $ 375,767    $ 1,728    $ 5,479  $ 372,016
                                                    =========   ========  =========  =========

                                                    ------------------------------------------
                                                                 December 31, 2004
                                                    ------------------------------------------
                                                                  Gross     Gross    Estimated
                                                    Amortized  Unrealized Unrealized    Fair
                                                      Cost        Gains     Losses     Value
                                                    ----------  --------- ---------- ---------
Securities held-to-maturity
   Government-Sponsored Enterprises:
     Mortgage-backed securities                     $   5,583    $   128    $     -   $  5,711
   Obligations of states & political subdivisions       8,947        618          -      9,565
                                                    ---------   --------  ---------  ---------
                                                    $  14,530    $   746    $     -   $ 15,276
                                                    =========   ========  =========  =========

Securities available-for-sale
   Obligations of U.S. Treasury                     $   5,981    $     1    $     -  $   5,982
   Government-Sponsored Enterprises:
     Mortgage-backed securities                       121,198        793        599    121,392
     Other debt                                       211,856        344      2,352    209,848
   Obligations of states & political subdivisions      31,948        815         44     32,719
   Equity securities                                    4,258          -          -      4,258
                                                    ---------   --------  ---------  ---------
                                                      375,241      1,953      2,995    374,199
                                                    ---------   --------  ---------  ---------

     Total securities                               $ 389,771    $ 2,699    $ 2,995  $ 389,475
                                                    =========   ========  =========  =========

</TABLE>

     At March  31,  2005,  the  contractual  maturities  of  securities  HTM and
securities AFS are as follows: (in thousands) (unaudited)

                                        Securities            Securities
                                      Held-to-Maturity     Available-for-Sale
                                   ---------------------- --------------------
                                               Estimated              Estimated
                                    Amortized     Fair    Amortized     Fair
                                       Cost      Value       Cost      Value
                                   ----------- ---------- ---------- ----------
Within 1 year                          $ 1,936    $ 1,984 $ 131,752  $ 131,062
After 1 but within 5 years               6,100      6,290   204,512    200,771
After 5 but within 10 years              5,017      5,335     7,132      7,110
After 10 years                             457        478    13,337     13,462
Equity securities                            -          -     5,524      5,524
                                   ----------- ---------- ---------- ----------
                           Total      $ 13,510   $ 14,087 $ 362,257  $ 357,929
                                   =========== ========== ========== ==========

     Proceeds from the sale of securities AFS amounted to $3.1 million and $44.8
million for the three  months ended March 31, 2005 and 2004,  which  resulted in
gross realized gains of $67 million and $520

                                      -10-

<PAGE>

thousand for those periods, respectively. Gross realized losses from the sale of
securities  AFS  amounted to $6 thousand  for the three  months  ended March 31,
2004. For the quarter ended March 31, 2005,  there were no gross realized losses
from the sale of  securities.  These amounts are included in net gain on sale of
securities in the Condensed Consolidated Statements of Income.

     On a quarterly basis, the Company makes an assessment to determine  whether
there have been any events or economic circumstances to indicate that a security
on which there is an  unrealized  loss is  impaired  on an  other-than-temporary
basis. The Company considers many factors including the severity and duration of
the impairment; the intent and ability of the Company to hold the security for a
period of time sufficient for a recovery in value; recent events specific to the
issuer or industry; and for debt securities,  external credit ratings and recent
downgrades. Securities on which there is an unrealized loss that is deemed to be
other-than-temporary are written down to fair value with the write-down recorded
as a realized  loss in  securities  gains  (losses).  Based  upon the  Company's
evaluation  of the  securities  portfolios  no other than  temporary  impairment
charge was necessary at March 31, 2005 and 2004.

     The following table  summarizes all securities that have an unrealized loss
and the  duration  of the  unrealized  loss at March 31,  2005:  (in  thousands)
(unaudited)

<TABLE>
<CAPTION>

                                                 ----------------------  ----------------------  -------------------------
                                                     12 months or less     12 months or longer             Totals
                                                 ----------------------  -----------------------  ------------------------
                                                    Fair     Unrealized     Fair    Unrealized        Fair     Unrealized
                                                   Value       Losses       Value     Losses          Value      Losses
                                                 ----------  ----------  ---------- ------------  ------------ -----------
<S>                                              <C>         <C>         <C>        <C>           <C>          <C>
Securities available-for-sale
Government-Sponsored Enterprises:
     Mortgage-backed securities                     $79,158      $1,215      $2,776         $53       $81,934      $1,268
     Other debt                                     162,946       3,243      31,914         695       194,860       3,938
Obligations of states & political subdivisions        4,194         177       3,315          96         7,509         273
                                                 ----------  ----------  ---------- -----------  ------------  ----------
                                                   $246,298      $4,635     $38,005        $844      $284,303      $5,479
                                                 =========== ========== ==========  ===========  ============  ==========
</Table>

The following  table  summarizes all securities that have an unrealized loss and
the  duration  of  the  unrealized  loss  at  March  31,  2005:  (in  thousands)
(unaudited)

<TABLE>
<CAPTION>
                                                    ------------------------- -------------------------  --------------------------
                                                       12 months or less          12 months or longer               Totals
                                                    ------------------------- -------------------------  --------------------------
                                                      Fair        Unrealized      Fair      Unrealized       Fair        Unrealized
                                                      Value         Losses        Value       Losses         Value         Losses
                                                    ------------- ----------- ------------- -----------  -------------- -----------
<S>                                                 <C>           <C>         <C>           <C>          <C>             <C>
Securities available-for-sale
Government-Sponsored Enterprises:
     Mortgage-backed securities                         $ 4,467         $ 15      $ 2,808          $ 8         $ 7,275        $ 23
     Other debt                                          39,091           67            -            -          39,091          67
Obligations of states and political subdivisions          3,372           30            -            -           3,372          30
                                                    ------------- ----------- ------------- -----------  --------------- ----------
                                                        $46,930         $112       $2,808           $8         $49,738        $120
                                                    ============= =========== ============= ===========  =============== ==========
Securities held-to-maturity
Government-Sponsored Enterprises:
     Mortgage-backed securities                            $229           $1            -            -            $229          $1
                                                    ------------- ----------- ------------- -----------  --------------- ----------
                                                           $229           $1           $0           $0            $229          $1
                                                    ============= =========== ============= ===========  =============== ==========
</TABLE>

                                      -11-

<PAGE>

     Securities  with  carrying  amounts of $82.5  million and $62.2  million at
March 31, 2005 and  December  31,  2004,  respectively,  were pledged for public
deposits,  Federal Home Loan Bank  advances,  securities  sold under  repurchase
agreements and other purposes required by law.

8.   Loans

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

                                               -------------  --------------
                                                 March 31,      December 31,
                                                   2005             2004
                                               -------------  --------------
                                                (unaudited)
Amount of loans by type
    Real estate-mortgage
       1-4 family residential
          First liens                              $ 140,842      $ 141,835
          Junior liens                                 2,290          2,544
          Home equity                                152,015        148,027
       Commercial                                    394,798        375,985
       Construction                                   61,822         51,162
                                               -------------  -------------
                                                     751,767        719,553
                                               -------------  -------------
    Commercial loans
       Commercial and financial                      197,521        186,386
       Lease financing                                23,871         23,535
                                               -------------  -------------
                                                     221,392        209,921
                                               -------------  -------------
    Consumer loans
       Lease financing                                   278            680
       Installment                                     3,652          4,027
                                               -------------  -------------
                                                       3,930          4,707
                                               -------------  -------------
                      Total                        $ 977,089      $ 934,181
                                               =============  =============

Nonperforming Loans
     Nonperforming  loans  include  loans that are accounted for on a nonaccrual
basis. Nonperforming loans are as follows: (in thousands)

                                   -----------------   ----------------
                                        March 31,         December 31,
                                         2005                 2004
                                   -----------------   ----------------
                                     (unaudited)
Nonaccrual loans
     Residential real estate                 $ 1,097            $ 1,660
     Commercial real estate                    1,651              2,320
     Commercial and financial                  3,063              2,981
     Commercial lease financing                1,836              1,836
     Consumer                                    127                336
                                   -----------------   ----------------
                                             $ 7,774            $ 9,133
                                   =================   ================

                                      -12-

<PAGE>

9.   Allowance for Loan and Lease Losses

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

<TABLE>
<CAPTION>
                                                 -------------------------------   ----------------------------
                                                           March 31,                       December 31,
                                                             2005                              2004
                                                 -------------------------------   ----------------------------
                                                                  (unaudited)
                                                  Investment         Related         Investment       Related
                                                      in            Allowance            in          Allowance
                                                   Impaired          for Loan         Impaired       for Loan
                                                    Loans             Losses            Loans         Losses
                                                 --------------   --------------   -------------   ------------
<S>                                              <C>              <C>              <C>             <C>
Impaired loans
  With a related allowance for loan losses
     Commercial and financial                          $ 2,946            $ 420         $ 2,981           $ 420
     Commercial real estate                              1,655               26           2,320              98
     Residential mortgages                                 978              112             822             123
  Without a related allowance for loan losses                -                -               -               -
                                                 -------------   --------------   -------------   -------------
                                                       $ 5,579            $ 558          $6,123           $ 641
                                                 =============   ==============   =============   =============

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

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

                                                   ----------------------------
                                                   Three months ended March 31,
                                                   ----------------------------
                                                      2005           2004
                                                   ------------   ------------

Balance at beginning of period                          $9,797         $9,641
Additions (deductions)
     Provision charged to operations                       175            375
     Recoveries on loans previously charged off             78             36
     Loans charged off                                    (174)          (417)
                                                   -----------    -----------
Balance at end of period                                $9,876         $9,635
                                                   ===========    ===========
10.  Other Non-interest Expense

     Expenses  included  in  other  non-interest  expense  are as  follows:  (in
thousands) (unaudited)

                                -----------------------------
                                     Three Months Ended
                                          March 31,
                                -----------------------------
                                    2005             2004
                                -------------   -------------

Professional fees                       $ 361           $ 317
Data processing                           265             281
Directors' fees, retirement
  and travel                              217             216
Legal fees                                185             210
All other                                 872             827
                                -------------   -------------
                                      $ 1,900         $ 1,851
                                =============   =============

                                      -13-

<PAGE>

11. Long-term Borrowings

Long-term borrowings consist of the following FHLB advances: (in thousands)


      Maturity                          March 31,         December 31,
        Date         Rate                 2005               2004
----------------  ------------      ----------------   ---------------

January 2006            2.09 %                   -            $10,000

January 2007 (a)        4.22               $10,000             10,000

January 2007            2.69                10,000             10,000

January 2010 (b)        3.66                15,000                  -
                  -----------      ----------------   ----------------
                        3.52 %             $35,000            $30,000
                  ===========      ================   ================

(a)  The FHLB has an option to call this advance on a quarterly basis if
the 3-month LIBOR resets above 7.50%.

(b)  The FHLB has an option to call this advance only on January 23, 2008.

12.  Benefit Plans

     In 1993, the Bank  established a  non-contributory  defined benefit pension
plan covering all eligible  employees  (the "Pension  Plan").  In 1994, the Bank
established  a   supplemental   plan  covering  all  eligible   employees   (the
"Supplemental  Plan") that provides for income that would have been paid out but
for the limitation  under the qualified  Pension Plan. Also in 1994, the Company
established  a  retirement  plan  for  all  directors  of the  Bank  who are not
employees of Interchange  or of any subsidiary or affiliate of Interchange  (the
"Directors' Plan").

     The following table shows the aggregated components of net periodic benefit
costs for the periods noted: (in thousands) (unaudited)

                                            ----------------------------
                                                  Three Months Ended
                                                       March 31,
                                            ------------   -------------
                                               2005             2004
                                            ------------   -------------

Service cost                                       $ 198           $ 166
Interest cost                                        102              95
Expected return on plan assets                       (55)            (39)
Amortization of prior service cost                     1               1
                                            ------------   -------------
Net periodic benefit cost                          $ 246           $ 223
                                            ============   =============

     During 2005, the Bank anticipates  contributing  approximately $43 thousand
to the Pension Plan of which $9 thousand has already been contributed.

                                      -14-

<PAGE>

Item 2:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

     The  following  discussion  is an  analysis of the  condensed  consolidated
financial condition and results of operations of the Company for the three month
periods ended March 31, 2005 and 2004,  and should be read in  conjunction  with
the condensed  consolidated  financial  statements and notes thereto included in
Item 1 hereof.  In addition,  you should read this section in  conjunction  with
Management's  Discussion and Analysis and Results of Operations  included in the
Company's 2004 Annual Report on Form 10-K.

Forward Looking Information

     In  addition  to  discussing  historical  information,  certain  statements
included  in  or  incorporated  into  this  report  relating  to  the  financial
condition,  results of  operations  and business of the  Company,  which are not
historical facts may be deemed  "forward-looking  statements" within the meaning
of the Private  Securities  Litigation Reform Act of 1995. When used herein, the
words "anticipate,"  "believe,"  "estimate,"  "expect," "will" and other similar
expressions  (including  when  preceded  or  followed  by the  word  "not")  are
generally intended to identify such forward-looking  statements. Such statements
are  intended to be covered by the safe harbor  provisions  for  forward-looking
statements  contained  in such Act,  and we are  including  this  statement  for
purposes  of  invoking  these  safe  harbor  provisions.   Such  forward-looking
statements  include,  but are not limited to, statements about the operations of
the Company,  the adequacy of the Company's allowance for losses associated with
the loan and lease portfolio,  the quality of the loan and lease portfolio,  the
prospects of continued loan and deposit growth, and improved credit quality. The
forward-looking   statements  in  this  report  involve  certain   estimates  or
assumptions, known and unknown risks and uncertainties, many of which are beyond
the control of the Company, and reflect what we currently anticipate will happen
in each  case.  What  actually  happens  could  differ  materially  from what we
currently anticipate will happen due to a variety of factors,  including,  among
others, (i) increased  competitive pressures among financial services companies;
(ii) changes in the interest  rate  environment,  reducing  interest  margins or
increasing   interest  rate  risk;  (iii)   deterioration  in  general  economic
conditions,  internationally,  nationally,  or in the State of New Jersey;  (iv)
disruptions  caused by  terrorism,  such as the events of September 11, 2001, or
military  actions  in the  Middle  East  or  other  areas;  (v)  legislation  or
regulatory  requirements  or changes  adversely  affecting  the  business of the
Company;  and (vi) other risks detailed in reports filed by the Company with the
Securities and Exchange Commission.  Readers should not place undue expectations
on any  forward-looking  statements.  We are not  promising  to make any  public
announcement when we consider forward-looking  statements in this document to be
no longer  accurate,  whether  as a result  of new  information,  what  actually
happens in the future or for any other reason.

                                      -15-

<PAGE>

Company

     The Company is a bank holding company  headquartered in Bergen County,  New
Jersey. The Company's principal operating  subsidiary is Interchange Bank, a New
Jersey-chartered  commercial  bank. In addition to the Bank, the Company has one
other wholly owned direct subsidiary: Clover Leaf Mortgage Company, a New Jersey
corporation,  which is not currently engaged in any business activity.  The Bank
has five direct subsidiaries:  Clover Leaf Investment Corporation, an investment
company  operating  pursuant to New Jersey law;  Clover Leaf  Insurance  Agency,
Inc., a New Jersey corporation engaged in the sale of tax-deferred annuities and
insurance;  Clover Leaf Management Realty Corporation,  a Real Estate Investment
Trust ("REIT"),  which manages certain real estate assets of the Company; Bridge
View Investment  Company, an investment company operating pursuant to New Jersey
law; and  Interchange  Capital  Company,  L.L.C.  ("ICC"),  a New Jersey limited
liability company which engages in equipment lease financing.  All of the Bank's
subsidiaries are 100% owned by the Bank, except for the REIT, which is 99% owned
by the Bank.  Bridge View  Investment  Company has one wholly owned  subsidiary,
Bridge View Delaware,  Inc.  ("BVDI").  BVDI is an investment  company operating
pursuant to Delaware law.

Critical Accounting Policies and Judgments

     The Company's  consolidated  financial statements are prepared based on the
application of certain  accounting  policies,  the most significant of which are
described in Note 1 "Accounting Policies in the Notes to Consolidated  Financial
Statements" and in Management's  Discussion and Analysis of Financial  Condition
and Results of Operations ("MDA"):  "Critical Accounting Policies and Judgments"
in our 2004  Annual  Report on Form  10-K.  Certain  of these  policies  require
numerous  estimates  and  strategic  or  economic  assumptions  that  may  prove
inaccurate or subject to variations and may  significantly  affect the Company's
reported results and financial position for the period or in future periods. The
use of estimates, assumptions, and judgments are necessary when financial assets
and  liabilities  are required to be recorded  at, or adjusted to reflect,  fair
value.  Assets and liabilities  carried at fair value inherently  result in more
financial statement  volatility.  Fair values and the information used to record
valuation  adjustments  for certain assets and  liabilities  are based on either
quoted market prices or are provided by other independent  third-party  sources,
when available.  When such  information is not available,  management  estimates
valuation  adjustments primarily by using internal cash flow and other financial
modeling techniques. Changes in underlying factors, assumptions, or estimates in
any of  these  areas  could  have a  material  impact  on the  Company's  future
financial condition and results of operations.

Allowance  for Loan and Lease  Losses:  The  allowance for loan and lease losses
("ALLL") is  established  through  periodic  charges to income.  Loan losses are
charged against the ALLL when management  believes that the future collection of
principal is unlikely.  Subsequent recoveries, if any, are credited to the ALLL.
If the ALLL is  considered  inadequate  to absorb future loan losses on existing
loans, based on, but

                                      -16-

<PAGE>

not  limited  to,  increases  in the size of the loan  portfolio,  increases  in
charge-offs or changes in the risk  characteristics of the loan portfolio,  then
the provision for loan and lease losses is increased.

     The Company  considers the ALLL of $9.9 million adequate to cover estimated
losses  inherent in the loan portfolio,  loan  commitments and standby and other
letters  of  credit  that  may  become   uncollectible   based  on  management's
evaluations of the size and current risk  characteristics  of the loan and lease
portfolio as of the balance sheet date. The evaluations consider such factors as
changes  in the  composition  and  volume of the loan  portfolio,  the impact of
changing economic  conditions on the credit worthiness of the borrowers,  review
of specific problem loans and  management's  assessment of the inherent risk and
overall  quality of the loan  portfolio.  For further  discussion  see the "Loan
Quality" and  "Allowance  for Loan and Lease Losses"  sections of the MDA, along
with Note 1 "Nature of Business and Summary of Significant Accounting Policies";
Note 6  "Allowance  for Loan and Lease  Losses";  and Note 12  "Commitments  and
Contingent  Liabilities" of the  Consolidated  Financial  Statements in our 2004
Annual Report on Form 10-K.

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

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

Securities held-to-maturity and securities  available-for-sale:  Debt securities
purchased  with the intent and ability to hold until  maturity are classified as
securities  held-to-maturity  ("HTM") and are carried at cost,  adjusted for the
amortization  of premiums and  accretion  of  discounts.  All other  securities,
including  equity  securities,  are classified as securities  available-for-sale
("AFS").  Securities classified as AFS may be sold prior to maturity in response
to, but not limited to, changes in interest rates, changes in prepayment risk or
for asset/liability management strategies.  These securities are carried at fair
value and any  unrealized  gains  and  losses  are  reported,  net of taxes,  in
accumulated  other  comprehensive  income  (loss)  included in the  consolidated
statement of stockholders'  equity.  The estimated fair value for securities are
based on quoted market prices, where available.  If quoted market prices are not
available, estimated fair values are

                                      -17-

<PAGE>

based on quoted market prices of comparable  instruments.  Gains and losses from
the sale of these  securities are determined  using the specific  identification
method and are  reported in  non-interest  income.  The Company does not acquire
securities for the purpose of engaging in trading activities.

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

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

                                      -18-

<PAGE>

                   THREE MONTHS ENDED MARCH 31, 2005 AND 2004
                              RESULTS OF OPERATIONS

Summary

     For the first quarter of 2005,  the Company  reported  earnings per diluted
common  share of $0.23,  as compared  to $0.21 for the same  period in 2004,  an
increase of approximately  9.5%. Net income for the three months ended March 31,
2005 was  approximately  $4.4 million,  an increase of $434 thousand,  or 10.9%,
over the same  period last year.  The  increase  in  earnings  resulted  from an
increase in our  interest  earning  assets  during the quarter of  approximately
$92.4 million.

     The Company's  return on average  assets  increased to 1.20% as compared to
1.16% for the three  months  ended  March 31,  2005 and 2004,  respectively.  In
addition,  the Company's  return on average  stockholders'  equity  increased to
11.70% for the first quarter 2005 versus 11.13% for the first quarter in 2004.

Net Interest Income

     Net  interest  income  is the  most  significant  source  of the  Company's
operating  income.  A portion of the Company's  total interest income is derived
from  investments  that are exempt from federal  taxation.  The amount of pretax
income realized from those investments,  due to the tax exemption,  is less than
the amount of pretax income  realizable from comparable  investments  subject to
federal  taxation.  For purposes of the following  discussion,  interest  income
exempt from federal taxation has been restated to a fully  tax-equivalent  basis
using a corporate  federal tax rate of 34% for the quarter  ended March 31, 2005
and 2004.  This was  accomplished  by  adjusting  this income  upward to make it
equivalent to the level of taxable income required to earn the same amount after
taxes.

     Net interest income on a  tax-equivalent  basis increased $1.0 million,  or
8.1%,  to $13.7  million for the quarter ended March 31, 2005 as compared to the
same quarter in 2004.  The tax  equivalent  basis  adjustments  for the quarters
ended  March  31,  2005  and  2004  were  $162   thousand  and  $160   thousand,
respectively.  The  increase  in net  interest  income  was due mostly to a 7.5%
growth in interest earning assets. This interest earning asset growth was funded
primarily by deposit  liabilities,  which grew $78.1  million or 6.7% on average
for the first  quarter of 2005 as  compared  to the same  quarter  in 2004.  The
margin for the first quarter of 2005 was 4.14%, an increase of 3 basis points as
compared to the same quarter in 2004.

     Interest income, on a tax-equivalent  basis,  totaled $18.2 million for the
first quarter of 2005, an increase of $2.3 million, or 14.8%, as compared to the
same  quarter  in 2004.  The  increase  was mostly  attributed  to the growth in
interest  earning assets and the shift in asset mix as average loans grew $140.0
million, while investments declined by $45.2 million.

     Interest  expense  totaled $4.4 million for the first  quarter of 2005,  an
increase of $1.3 million,  as compared to the same period in 2004.  The increase
in interest expense was a byproduct of the increase

                                      -19-
<PAGE>

in market interest rates,  particularly short-term rates, during the second half
of 2004 and the first quarter of 2005. The increase in short-term interest rates
increased  the average  rate paid on deposit  liabilities  by 29 basis points to
1.27% for the  quarter  ended  March 31,  2005 as compared to the same period in
2004.  Interest bearing deposits grew on average $63.6 million, or 6.8%, for the
first quarter of 2005 as compared to the same period in 2004.


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Analysis of Net Interest Income
--------------------------------------------------------------------------------
for the quarter ended March 31,
(dollars in thousands)                                            2005                                  2004
                                               -------------------------------------    ---------------------------------
(unaudited)                                       Average                   Average       Average                 Average
                                                  Balance       Interest     Rate         Balance     Interest    Rate
                                               --------------  -----------  --------    ------------  ---------  --------
<S>                                            <C>             <C>          <C>         <C>           <C>        <C>
                    Assets
Interest earning assets:
Loans (1)                                           $946,417      $14,985      6.33 %      $806,387    $12,748      6.32 %
Taxable securities (4)                               346,224        2,725      3.15         397,591      2,689      2.71
Tax-exempt securities (2) (4)                         35,076          457      5.21          28,898        388      5.37
Interest earning deposits                                  2            -         -              12          -         -
Federal funds sold                                        62            -         -           2,507          6      0.96
                                               -------------   ----------   -------     -----------   --------   -------
     Total interest-earning assets                 1,327,781       18,167      5.47       1,235,395     15,831      5.13
                                                               ----------                             --------

Non-interest earning assets:
Cash and due from banks                               34,875                                 35,547
Allowance for loan and lease losses                   (9,874)                                (9,636)
Other assets                                         115,435                                118,933
                                               -------------                            -----------
     Total assets                                 $1,468,217                             $1,380,239
                                               =============                            ===========

     Liabilities and stockholders' equity
Interest-bearing liabilities
Interest bearing deposits                           $997,141        3,922      1.57        $933,522      2,827      1.21
Borrowings                                            72,042          519      2.88          65,364        310      1.90
                                               -------------   ----------   -------     -----------   --------   -------
     Total interest-bearing liabilities            1,069,183        4,441      1.66         998,886      3,137      1.26
                                                               ----------                             --------

Non-interest bearing liabilities
Demand deposits                                      238,549                                224,100
Other liabilities                                      9,433                                 14,013
                                               -------------                            -----------
     Total liabilities (3)                         1,317,165                              1,236,999
Stockholders' equity                                 151,052                                143,240
                                               -------------                            -----------
     Total liabilities and stockholders' equity   $1,468,217                             $1,380,239
                                               =============                            ===========

Net interest income (tax-equivalent basis)                         13,726      3.81                     12,694      3.87
Tax-equivalent basis adjustment                                      (162)                                (160)
                                                               ----------                             --------
     Net interest income                                          $13,564                              $12,534
                                                               ==========                             ========
Net interest income as a percent of interest-
earning assets (tax-equivalent basis)                                          4.14 %                               4.11 %
</TABLE>
--------------------------------------------------------------------------------
(1)  Nonaccrual  loans and any related  interest  recorded have been included in
     computing the average rate earned on the loan portfolio.  When  applicable,
     tax exempt loans are computed on a fully taxable equivalent basis using the
     corporate federal tax rate of 34%.
(2)  Computed on a fully taxable  equivalent  basis using the corporate  federal
     tax rate of 34%.
(3)  All deposits are in domestic bank offices.
(4)  The  average  balances  are  based on  amortized  cost and do not  reflect
     unrealized gains or losses.

                                      -20-

<PAGE>

Provision for Loan and Lease Losses

     The provision for loan and lease losses represents management's calculation
of the amount  necessary to bring the ALLL to a level that management  considers
adequate to reflect the risk of estimated  losses inherent in the Company's loan
and lease portfolio as of the balance sheet date. A more detailed  discussion of
the  evaluation  of the  ALLL  can be  found  in the  section  titled  "Critical
Accounting  Policies and Judgments:  Allowance for Loan and Lease Losses" above.
In the first  quarter of 2005 and 2004,  the  Company's  provision  for loan and
lease losses was $175 thousand and $375 thousand,  respectively.  The decline in
the provision for loan and lease losses was primarily a result of an improvement
in our non-performing assets.

Non-interest Income

     For the quarter  ended March 31,  2005,  non-interest  income  totaled $2.2
million,  a decrease of $321 thousand,  or 12.8%, as compared to the same period
in 2004.  The  change  was  largely  due to a  decline  in net gains on sales of
securities of $447 thousand.  This was partly offset by growth in gains on sales
of loans and leases of $80  thousand  and  service  charges on  deposits  of $41
thousand.  The  increase  in gains on sales of loans arose out of an increase in
sales of Small Business Administration originated loans.

Non-interest Expense

     For the  quarter  ended  March  31,  2005,  non-interest  expense  was $9.2
million, an increase of $237 thousand, or 2.7%. Contributing to the increase was
an increase in salaries and benefits of $107  thousand,  as compared to the same
period in 2004.

Income Taxes

     Income tax  expense  as a  percentage  of pre-tax  income was 31.2% for the
three  months  ended  March 31, 2005 as compared to 30.8% for the same period of
2004.

                                      -21-

<PAGE>

                               FINANCIAL CONDITION

Cash and Cash Equivalents

     At March 31, 2005, cash and cash  equivalents was $31.8 million as compared
to $33.1 million at December 31, 2004.

Securities Portfolio

     Under Statement of Financial  Accounting  Standards No. 115 "Accounting for
Certain  Investments in Debt and Equity  Securities" ("SFAS 115"), each security
is classified as either trading, AFS, or HTM. The Company has no securities held
in a trading  account.  The securities AFS are recorded at their  estimated fair
value. The after-tax  difference between amortized cost and estimated fair value
of securities AFS is recorded as "accumulated other comprehensive income" in the
equity  section  of the  balance  sheet.  The tax impact of such  adjustment  is
recorded as an  adjustment  to the amount of the  deferred  tax  liability.  The
securities HTM are carried at cost adjusted for the amortization of premiums and
accretion of discounts,  which are recognized as an adjustment to income.  Under
SFAS No. 115,  securities  HTM,  with some  exceptions,  may only be sold within
three months of maturity.

     The Company's U.S. Government-Sponsored Enterprises securities at March 31,
2005 and 2004 are not guaranteed by the U.S. Government; however they are credit
rated AAA or Aaa by  nationally  recognized  statistical  rating  organizations.
Substantially  all obligations of states and political  subdivisions  are credit
rated AAA or Aaa due to insurance,  which  guarantees  the  obligations  against
default,  by  private  insurance   companies.   At  March  31,  2005  and  2004,
approximately  $12.2  million and $9.9 million,  respectively,  of issuances are
bond or tax anticipation notes from local municipalities, which are not rated.

     The Company uses its securities portfolio to ensure liquidity for cash flow
requirements,  to manage interest rate risk, provide a source of income,  ensure
collateral  is available  for  pledging  requirements  and manage asset  quality
diversification. At March 31, 2005, investment securities totaled $371.4 million
and represented  24.9% of total assets, as compared to $388.7 million and 26.5%,
respectively,  at December 31, 2004. Securities AFS comprised 96.4% of the total
securities  portfolio  at March 31, 2005 as  compared  to 96.3% at December  31,
2004. At March 31, 2005, the Company had a net  unrealized  loss of $3.8 million
as compared to a net unrealized  loss of $296 thousand at December 31, 2004. The
decrease  was  attributed  to an increase in market  interest  rates during that
period.

     Proceeds from the sale of securities AFS amounted to $3.1 million and $44.8
million for the three  months ended March 31, 2005 and 2004,  which  resulted in
gross  realized  gains of $67  million  and $520  thousand  for  those  periods,
respectively.  Gross realized losses from the sale of securities AFS amounted to
$6 thousand for the three months  ended March 31,  2004.  For the quarter  ended
March 31, 2005, there were no gross realized losses from the sale of securities.
These amounts are included in net gain on sale of securities in the Consolidated
Statements of Income.

                                      -22-

<PAGE>

Loans

     Total loans  amounted to $977.1  million at March 31, 2005,  an increase of
$42.9  million  from  $934.2  million  at  December  31,  2004.  The  growth was
attributable to increases in commercial mortgage loans, commercial and financial
loans,  and  construction  loans of $18.8  million,  $11.1  million,  and  $10.7
million, respectively.

                                               -------------  --------------
   (in thousands)                                March 31,      December 31,
                                                   2005             2004
                                               -------------  --------------
                                               (unaudited)
Amount of loans by type
    Real estate-mortgage
       1-4 family residential
          First liens                              $ 140,842      $ 141,835
          Junior liens                                 2,290          2,544
          Home equity                                152,015        148,027
       Commercial                                    394,798        375,985
       Construction                                   61,822         51,162
                                               -------------  -------------
                                                     751,767        719,553
                                               -------------  -------------
    Commercial loans
       Commercial and financial                      197,521        186,386
       Lease financing                                23,871         23,535
                                               -------------  -------------
                                                     221,392        209,921
                                               -------------  -------------
    Consumer loans
       Lease financing                                   278            680
       Installment                                     3,652          4,027
                                               -------------  -------------
                                                       3,930          4,707
                                               -------------  -------------
                      Total                        $ 977,089      $ 934,181
                                               =============  =============

Nonperforming Assets

     Nonperforming assets are comprised of nonaccrual loans, restructured loans,
foreclosed real estate and other repossessed assets. The Company's nonperforming
assets at March 31, 2005 amounted to $7.9 million as compared to $9.3 million at
December  31,  2004.  The  ratio of  nonperforming  assets  to total  loans  and
foreclosed real estate and other repossessed  assets decreased to 0.81% at March
31, 2005 from 0.99% at December 31, 2004.

     The following table lists  nonaccrual  loans and foreclosed real estate and
other  repossessed  assets  at March  31,  2005,  and  December  31,  2004:  (in
thousands)

                                                      March 31,   December 31,
                                                        2005          2004
                                                     -----------  ------------
                                                     (unaudited)
Nonperforming loans                                     $ 7,774        $ 9,133
Foreclosed real estate and other repossessed assets         150            156
                                                    -----------   ------------
    Total nonperforming assets                          $ 7,924        $ 9,289
                                                    ===========   ============

                                      -23-

<PAGE>

Allowance for Loan and Lease Losses

     The ALLL is  generally  established  through  periodic  charges  to  income
through the provision  for loan and lease losses.  During the three months ended
March 31, 2005, the ALLL increased $79 thousand to $9.9 million. Loan losses are
charged  against the ALLL when  management  believes  that the  probable  future
collection of principal is unlikely. Subsequent recoveries, if any, are credited
to the ALLL. If the ALLL is  considered  inadequate to absorb future loan losses
on existing  loans,  based on, but not limited to,  increases in the size of the
loan portfolio,  increases in charge-offs or changes in the risk characteristics
of the  loan  portfolio,  then  the  provision  for loan  and  lease  losses  is
increased.

     The Company  considers the ALLL of $9.9 million adequate to cover estimated
losses  inherent in the loan  portfolio that may become  uncollectible  based on
management's  periodic  evaluations  of the loan  portfolio  and other  relevant
factors.  The  evaluations  are inherently  subjective as they require  material
estimates including such factors as potential loss factors,  changes in trend of
non-performing  loans,  current  state of local and national  economy,  value of
collateral  changes in the composition and volume of the loan portfolio,  review
of specific problem loans and  management's  assessment of the inherent risk and
overall quality of the loan  portfolio.  All of these factors may be susceptible
to significant  change.  Also, the allocation of the allowance for credit losses
to  specific  loan pools is based on  historical  loss  trends and  management's
judgment concerning those trends.

                                      -24-

<PAGE>

     The  following  table  presents the  provisions  for loan and lease losses,
loans charged off and recoveries on loans previously  charged off, the amount of
the allowance,  the average loans  outstanding and certain  pertinent ratios for
the  three  months  ended  March  31,  2005 and  2004:  (dollars  in  thousands)
(unaudited)

                                                      -------------------------
                                                            Three months
                                                           ended March 31,
                                                      -------------------------
                                                          2005         2004
                                                      -----------   ----------

Average loans outstanding                                $946,417     $806,387
                                                      ===========   ==========

Allowance at beginning of period                            9,797        9,641
                                                      -----------   ----------
Loans charged off
     Real estate                                                -           67
     Commercial and financial                                  89           55
     Commercial lease financing                                81          277
     Consumer loans                                             4           18
                                                      -----------   ----------
          Total                                               174          417
                                                      -----------   ----------

Recoveries of loans previously charged off
     Real estate                                               72            -
     Commercial and financial                                   -            -
     Commercial lease financing                                 -           36
     Consumer loans                                             6            -
                                                      -----------   ----------
          Total                                                78           36
                                                      -----------   ----------

Additions due to merger                                         -            -
Provision for loan and lease losses                           175          375
                                                      -----------   ----------
Allowance at end of period                                 $9,876       $9,635
                                                      ===========   ==========

Allowance to total loans (end of period)                     1.01 %       1.16 %
Ratio of net charge-offs to average loans(annualized)        0.04 %       0.19 %

Deposits

     Deposits, which include non-interest-bearing demand deposits, time deposits
and other interest-bearing deposits, are an essential and cost-effective funding
source  for  the  Company.  Other  interest-bearing   deposits,   which  include
interest-bearing demand, money market and savings accounts, comprise the largest
segment of the  Company's  total  deposits.  At March 31,  2005,  such  deposits
amounted to $649.6  million  representing  52.8% of total  deposits  compared to
54.1% of total  deposits at December 31, 2004. The Company  emphasizes  building
core customer  relationships by offering a variety of products  designed to meet
the financial needs of its customers based on their identifiable "life stages".

     At March 31, 2005 and December 31, 2004 total  deposits were  approximately
$1.2 billion.  We saw a slight shift in our overall deposit mix as time deposits
grew $8.0  million,  while  interest  bearing  demand and money market  declined
approximately  $11.5  million  and  $12  million,  respectively.  Time

                                      -25-

<PAGE>

deposits  amounted to $345.4  million,  or 28.0%, of total deposits at March 31,
2005, as compared to $337.3 million, or 27.1%, at December 31, 2004.

     For the three months ended March 31, 2005,  the Company's  overall yield on
deposits  increased by 29 basis  points from 0.98% to 1.27%,  as compared to the
same period last year. The increase was attributed  predominately  to changes in
market interest rates and a change in the composition of deposit liabilities.

     The  following  table  reflects  the  composition  of deposit  liabilities:
(dollars in thousands)

                                     ---------------   ------------------
                                        March 31,         December 31,
                                          2005                2004
                                     ---------------   ------------------
                                       (Unaudited)
Non-interest Demand                         $236,439             $235,036
Interest Bearing Demand                      461,325              472,807
Savings                                      112,622              113,352
Money Market Savings                          75,632               87,595
Time Deposits <$100,000                      292,227              286,471
Time Deposits >$100,000                       53,151               50,877
                                     ---------------   ------------------
     Total                                $1,231,396           $1,246,138
                                     ===============   ==================

                                      -26-

<PAGE>

Item 3:   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

Interest Rate Risk

     Interest  rate risk is generally  described as the exposure to  potentially
adverse  changes in  current  and future net  interest  income  resulting  from:
fluctuations in interest rates; product spreads; and imbalances in the repricing
opportunities  of  interest-rate-sensitive  assets and  liabilities.  Therefore,
managing the Company's  interest rate sensitivity is a primary  objective of the
Company's senior management.  The Company's  Asset/Liability  Committee ("ALCO")
manages  our  exposure to changes in market  interest  rates.  ALCO  attempts to
maintain stable net interest margins by periodically evaluating the relationship
between interest-rate-sensitive assets and liabilities. The evaluation, which is
performed at least  quarterly and presented to the board of directors,  attempts
to  determine  the impact on net interest  margin from  current and  prospective
changes in market interest rates.

     The Company  manages  interest rate risk exposure with the  utilization  of
financial modeling and simulation  techniques.  These methods assist the Company
in  determining  the effects of market rate changes on net  interest  income and
future economic value of equity. The objective of the Company is to maximize net
interest  income within  acceptable  levels of risk  established by policy.  The
techniques  utilized  for  managing  exposure to market rate  changes  involve a
variety of interest  rate,  pricing and volume  assumptions.  These  assumptions
include projections on growth, prepayment and withdrawal levels as well as other
embedded options inherently found in financial instruments.  The Company reviews
and validates these assumptions at least annually or more frequently if economic
or other conditions change. At March 31, 2005, the Company simulated the effects
on net interest  income given an  instantaneous  and parallel shift in the yield
curve of up to a 200 basis point  rising  interest  rate  environment  and a 100
basis point declining  interest rate environment.  Based on that simulation,  it
was estimated that net interest income, over a twelve-month  horizon,  would not
decrease by more than 4.7%. At March 31, 2005, the Company

                                      -27-
<PAGE>

was within  policy limits  established  by the board of directors for changes in
net interest  income and future  economic value of equity.  The following  table
illustrates  the  effects on net  interest  income  given an  instantaneous  and
parallel  shift in the yield  curve of up to a 200 basis point  rising  interest
rate  environment  and a 100 basis point  declining  interest rate  environment:
(unaudited)


                                 ---------------------------------
                                  Percentage Change in Estimated
                                 Net Interest Income over a twelve
                                           month horizon
                                 ---------------------------------
                                            March 31,
                                      2005            2004
                                      ----            ----
+200 basis points                     -4.7 %          -5.6 %
+100 basis points                     -1.9            -1.7
-100 basis points                     -2.1            -4.8
-200 basis points                      *               *

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

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

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

Capital Adequacy

     The  Company is subject to  capital  adequacy  requirements  imposed by the
Board of Governors of the Federal  Reserve System (the "Federal  Reserve");  and
the Bank is subject  to similar  capital  adequacy  requirements  imposed by the
Federal Deposit Insurance  Corporation (the "FDIC"). The Federal Reserve and the
FDIC have adopted  risk-based  capital  requirements  for assessing bank holding
company and bank capital adequacy.  These standards define capital and establish
minimum  capital  requirements  in  relation  to assets  and  off-balance  sheet
exposure,  adjusted for credit risk. The risk-based capital standards  currently
in effect are designed to make regulatory capital requirements more sensitive to
differences in risk profiles

                                      -28-

<PAGE>

among bank  holding  companies  and  banks,  to account  for  off-balance  sheet
exposure and to minimize  disincentives  for holding liquid  assets.  Assets and
off-balance  sheet  items  are  assigned  to broad  risk  categories,  each with
appropriate  relative  risk  weights.  The resulting  capital  ratios  represent
capital as a  percentage  of total  risk-weighted  assets and off balance  sheet
items.

     A banking  organization's total qualifying capital includes two components:
core capital (Tier 1 capital) and supplementary  capital (Tier 2 capital).  Core
capital,  which must comprise at least half of total  capital,  includes  common
shareholders'  equity,  qualifying  perpetual  preferred stock,  trust preferred
securities  (subject  to  certain  limitations)  and  minority  interests,  less
goodwill and any unrealized gains or losses.  Supplementary capital includes the
allowance  for loan losses  (subject to certain  limitations),  other  perpetual
preferred stock, trust preferred  securities that exceed Tier 1 limits,  certain
other capital  instruments and term subordinated  debt. Total capital is the sum
of core and supplementary capital.

     At March 31,  2005,  the  minimum  risk-based  capital  requirements  to be
considered  adequately  capitalized  were 4% for Tier 1 capital and 8% for total
capital.

     Federal banking regulators have also adopted leverage capital guidelines to
supplement the risk-based measures. The leverage ratio is determined by dividing
Tier 1 capital as  defined  under the  risk-based  guidelines  by average  total
assets (non  risk-adjusted)  for the preceding  quarter.  At March 31, 2005, the
minimum leverage ratio requirement to be considered  adequately  capitalized was
3%.

     The capital  levels of the Company and the Bank at March 31, 2005,  and the
two highest capital adequacy levels recognized under the guidelines  established
by the federal  banking  agencies  are  included  in the  following  table.  The
Company's  and the Bank's  ratios all exceeded the  well-capitalized  guidelines
shown in the table.  The change in the Company's  risk weighted  capital  ratios
during the three month period  ending March 31, 2005 was primarily a result of a
shift from securities which had a lower risk rating basis into loans.

                                      -29-
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                             To Be "Well
                                                                                           Capitalized" Under
                                                                        For Capital        Prompt Corrective
                                                     Actual          Adequacy Purposes     Action Provisions
                                              --------------------  -------------------   -------------------
                                               Amount      Ratio       Amount    Ratio     Amount    Ratio
                                              ---------  ---------  ----------   ------   --------- --------
<S>                                           <C>        <C>        <C>          <C>      <C>       <C>
As of March 31, 2005:
  Total Capital (to Risk Weighted Assets):
   The Company                                 $105,353    10.20 %   $82,600     8.00 %       N/A      N/A
   The Bank                                     104,397    10.10 %    82,655     8.00 %   $98,759    10.00 %
  Tier 1 Capital (to Risk Weighted Assets):
   The Company                                   95,457     9.25 %    41,300     4.00 %       N/A      N/A
   The Bank                                      94,501     9.15 %    41,328     4.00 %    59,256     6.00 %
  Tier 1 Capital (to Average Assets):
   The Company                                   95,457     6.72 %    42,590     3.00 %       N/A      N/A
   The Bank                                      94,501     6.65 %    42,600     3.00 %    71,225     5.00 %

As of December 31, 2004:
  Total Capital (to Risk Weighted Assets):
   The Company                                 $102,175    10.35 %   $78,959     8.00 %       N/A      N/A
   The Bank                                     101,442    10.27 %    79,007     8.00 %   $98,759    10.00 %
  Tier 1 Capital (to Risk Weighted Assets):
   The Company                                   92,338     9.36 %    39,480     4.00 %       N/A      N/A
   The Bank                                      91,605     9.28 %    39,504     4.00 %    59,256     6.00 %
  Tier 1 Capital (to Average Assets):
   The Company                                   92,338     6.49 %    42,692     3.00 %       N/A      N/A
   The Bank                                      91,605     6.43 %    42,735     3.00 %    71,225     5.00 %
</TABLE>

Liquidity

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

     The Company's  most liquid assets are cash and cash  equivalents.  At March
31, 2005, the total of such assets amounted to $31.8 million,  or 2.1%, of total
assets,  compared to $33.1  million,  or 2.3%,  of total  assets at December 31,
2004.

     Financing for the Company's loans and investments is derived primarily from
deposits,  along with interest and principal  payments on loans and investments.
At March 31,  2005 and  December  31,  2004,  total  deposits  amounted  to $1.2
billion.  In addition,  the Company  supplemented the more  traditional  funding
sources with borrowings from the Federal Home Loan Bank of New York ("FHLB") and
with  securities  sold under  agreements to repurchase  ("REPOS").  At March 31,
2005,  short-term  borrowings  from the FHLB and REPOS amounted to $56.9 million
and $3.7 million,  respectively,  as compared to $24.6 million and $4.4 million,
respectively, at December 31, 2004.

     Another significant liquidity source is the Company's securities portfolio.
Total  securities  at March 31, 2005 amounted to $371.4  million,  a decrease of
$17.3  million,  from $388.7  million at December  31,  2004.  At March 31, 2005
securities  AFS  amounted  to  $357.9  million,  or 96.4%,  of total  securities
compared to $374.2 million, or 96.3%, of total securities at December 31, 2004.

     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

                                      -30-

<PAGE>

window.  The Bank also has a $100.0 million line of credit available through its
membership in the FHLB of which $39.5 million was utilized at March 31, 2005.

     The Company is party to financial  instruments with off-balance  sheet risk
in the normal course of business to meet the financing  needs of its  customers.
These  instruments,  which  include  commitments  to extend  credit and  standby
letters of credit, involve, to a varying degree, elements of credit and interest
rate  risk  in  excess  of the  amount  recognized  in the  unaudited  Condensed
Consolidated Balance Sheets. Commitments to extend credit are agreements to lend
to a customer as long as there is no violation of any condition  established  in
the contract.  Commitments generally have fixed expiration dates and may require
collateral from the borrower if deemed necessary by the Company. Standby letters
of credit are  conditional  commitments  issued by the Company to guarantee  the
performance  of a customer to a third party up to a  stipulated  amount and with
specified terms and conditions. Commitments to extend credit and standby letters
of credit are not recorded on the Company's Condensed Consolidated Balance Sheet
until the instrument is exercised.  At March 31, 2005 outstanding commitments to
fund loans totaled  $238.6  million and  outstanding  standby  letters of credit
totaled $3.2 million.

     The Company has historically  paid quarterly cash dividends and anticipates
continuing  paying  quarterly  dividends in the future.  The Company's  Board of
Directors could, if they deemed it necessary, modify the amount or frequency, of
dividends  as an  additional  source of  liquidity.  There are imposed  dividend
restrictions  on the  Bank,  which are  described  in Note 18  "Restrictions  of
Subsidiary Bank Dividends" in the Notes to Consolidated  Financial Statements in
the  Company's  2004 Annual  Report on Form 10-K.  Management  believes that the
Company has sufficient cash flow and borrowing  capacity to fund all outstanding
commitments and letters of credit and to maintain proper levels of liquidity.

Item 4:           CONTROLS AND PROCEDURES

     In accordance  with Rule 13a-15(b) of the  Securities  Exchange Act of 1934
(the  "Exchange  Act"),  as of the end of the quarter  ended March 31, 2005,  we
carried out an evaluation  under the supervision and with the  participation  of
our  management,  including  our Chief  Executive  Officer  and Chief  Financial
Officer,  of the  effectiveness  of the design and  operation of our  disclosure
controls and  procedures  as defined in Rule  13a-15(e)  under the Exchange Act.
Based on that  evaluation,  our Chief  Executive  Officer  and  Chief  Financial
Officer  have  concluded  that  our  disclosure   controls  and  procedures  are
effective  to ensure  that  information  required to be  disclosed  by us in the
reports  we file or  submit  under  the  Exchange  Act is  recorded,  processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange  Commission,  and accumulated and communicated to
our  management,  including  our chief  executive  officer  and chief  financial
officer, as appropriate to allow timely decisions regarding required disclosure.

     In designing and  evaluating the disclosure  controls and  procedures,  our
management  recognized  that any  controls  and  procedures,  no matter how well
designed and operated,  can provide only  reasonable  assurance of achieving the
desired control  objectives and in reaching a reasonable  level of assurance our

                                      -31-

<PAGE>

management  necessarily  was  required to apply its judgment in  evaluating  the
cost-benefit relationship of possible controls and procedures.

     The Company maintains internal control over financial reporting. During the
quarter  ended March 31, 2005,  there were no changes in our  internal  controls
over financial reporting that materially  affected,  or are reasonably likely to
materially affect, those controls.

                                      -32-
<PAGE>

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         Reference is also made to Note 4 of the  Company's  Consolidated
         Financial Statements in this Form 10-Q.

Item 2.  Unregistered Sales of Equity in Securities and Use of Proceeds

         Set forth below is certain information regarding repurchases of our
         common stock during the quarter.
<TABLE>
                        Total Number     Average
                         of Shares     Price Paid
            Period      Purchased(1)    per Share
         -------------- ------------   ----------
<S>                     <C>            <C>
         1/1/05-1/31/05        954         17.03
         2/1/05-2/28/05      3,578         16.57
                        ------------   ----------
                             4,532         17.00
                        ============   ==========
</TABLE>

         (1) The 4,532 shares  redeemed  were not part of a publicly  announced
         repurchase  plan or  program.  The shares  were owned and  tendered by
         employees to the Company as payment for option exercises in accordance
         with the Outside Director  Incentive  Compensation  Plan and the Stock
         Option and Incentive Plan of 1997, as amended.

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

Item 3.  Defaults Upon Senior Securities
         None

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

Item 5.  Other Information
         None

Item 6.  Exhibits and Reports on Form 8-K
         The following exhibits are furnished herewith:
              Exhibit.
              --------
              11     Statement re computation of per share earnings

              31.1   Certification of Chief Executive Officer pursuant to
                     Section 302 of the Sarbanes-Oxley Act of 2002

              31.2   Certification of Chief Financial Officer pursuant to
                     Section 302 of the Sarbanes-Oxley Act of 2002

              32     Certifications Pursuant to Section 906 of the
                     Sarbanes-Oxley Act of 2002

                                      -33-

<PAGE>


SIGNATURES

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

Interchange Financial Services Corporation


By:      /s/ Charles T. Field
         -----------------------------------

         Charles T. Field
         Senior Vice President and CFO
         (Duly Authorized Officer and Principal
         Financial and Accounting Officer)

Dated:   May 10, 2005




                                      -34-