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, 2004

                                       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 30, 2004, was 12,740,782 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, 2004 and December 31, 2003 ........................1

                  Condensed Consolidated Statements of Income for
                  the three months ended March 31, 2004 and 2003 ..............2

                  Condensed Consolidated Statements of Changes in
                  Stockholders' Equity for the three months ended
                  March 31, 2004 and 2003 .....................................3

                  Condensed Consolidated Statements of Cash Flows
                  for the three months ended March 31, 2004 and
                  2003 ........................................................4

                  Notes to Condensed Consolidated Financial
                  Statements ..................................................5

      Item 2      Management's Discussion and Analysis of
                  Financial Condition and Results of Operations ..............16

      Item 3      Quantitative and Qualitative Disclosures About
                  Market Risk (Disclosures about quantitative and
                  qualitative market risk are located in
                  Management's Discussion and Analysis of
                  Financial Condition and Results of Operation in
                  the section on Market Risk) ................................29

      Item 4      Controls and Procedures ....................................34

PART II     OTHER INFORMATION

      Item 1      Legal Proceedings ..........................................35

      Item 2      Changes in Securities and Use of Proceeds ..................35

      Item 3      Defaults upon Senior Securities ............................35

      Item 4      Submission of Matters to a Vote of Security
                  Holders ....................................................35

      Item 5      Other Information ..........................................35

      Item 6      Exhibits and Reports on Form 8-K ...........................35

                  Signatures .................................................36

<PAGE>

Item 1: Financial Statements

Interchange Financial Services Corporation
--------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                              March 31,      December 31,
                                                                                2004             2003
                                                                             ----------      ------------
                                                                            (unaudited)
<S>                                                                          <C>              <C>
Assets
Cash and due from banks                                                      $   35,488       $   31,423
Interest earning deposits                                                            11               12
Federal funds sold                                                               20,700               --
                                                                             ----------       ----------
Total cash and cash equivalents                                                  56,199           31,435
                                                                             ----------       ----------
Securities held to maturity at amortized cost (estimated market value
  of $19,088 and $20,223 for March 31, 2004 and December 31, 2003,
  respectively)                                                                  17,916           19,107
                                                                             ----------       ----------
Securities available for sale at estimated market value (amortized
  cost of $363,655 and $428,597 for March 31, 2004 and
  December 31, 2003, respectively)                                              370,239          432,953
                                                                             ----------       ----------
Loans and leases (net of unearned income and deferred fees of $5,809
  and $6,057 for March 31, 2004 and December 31, 2003,
  respectively)                                                                 831,286          796,581

  Less:  Allowance for loan and lease losses                                      9,635            9,641
                                                                             ----------       ----------
Net loans and leases                                                            821,651          786,940
                                                                             ----------       ----------
Bank owned life insurance                                                        22,114           21,853
Premises and equipment, net                                                      20,217           20,343
Foreclosed real estate and other repossesed assets                                  219              230
Goodwill                                                                         55,952           55,924
Intangible assets                                                                 4,039            4,165
Accrued interest receivable and other assets                                     10,219           12,922
                                                                             ----------       ----------
Total assets                                                                 $1,378,765       $1,385,872
                                                                             ==========       ==========
Liabilities
Deposits
  Non-interest bearing                                                       $  228,547       $  223,745
  Interest bearing                                                              937,579          933,053
                                                                             ----------       ----------
Total deposits                                                                1,166,126        1,156,798
                                                                             ----------       ----------
Securities sold under agreements to repurchase                                   13,242           15,618
Short-term borrowings                                                            10,000           46,491
Long-term borrowings                                                             30,000           10,000
Accrued interest payable and other liabilities                                   14,579           13,772
                                                                             ----------       ----------
Total liabilities                                                             1,233,947        1,242,679
                                                                             ----------       ----------

Commitments and contingent liabilities

Stockholders' equity:
Common stock, without par value; 22,500,000 shares authorized;
  12,740,407 and 12,810,193 shares issued and outstanding at
  March 31, 2004 and December 31, 2003, respectively                              5,397            5,397
Capital surplus                                                                  73,325           73,231
Retained earnings                                                                77,094           74,710
Accumulated other comprehensive income                                            3,549            2,434
                                                                             ----------       ----------
                                                                                159,365          155,772
Less: Treasury stock                                                             14,547           12,579
                                                                             ----------       ----------
Total stockholders' equity                                                      144,818          143,193
                                                                             ----------       ----------
Total liabilities and stockholders' equity                                   $1,378,765       $1,385,872
                                                                             ==========       ==========
</TABLE>

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

                                                                               3
<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>
                                                                   2004        2003
                                                                  -------     -------
<S>                                                               <C>         <C>
Interest income
Interest and fees on loans                                        $12,707     $10,857
Interest on federal funds sold                                          6          63
Interest on interest earning deposits                                  --          12
Interest and dividends on securities
  Taxable interest income                                           2,650       2,283
  Interest income exempt from federal income taxes                    269         179
  Dividends                                                            39          56
                                                                  -------     -------
Total interest income                                              15,671      13,450
                                                                  -------     -------
Interest expense
Interest on deposits                                                2,827       3,407
Interest on securities sold under agreements to repurchase             42          86
Interest on short-term borrowings                                      70          --
Interest on long-term borrowings                                      198         105
                                                                  -------     -------
Total interest expense                                              3,137       3,598
                                                                  -------     -------
Net interest income                                                12,534       9,852
Provision for loan and lease losses                                   375         265
                                                                  -------     -------
Net interest income after provision for loan and lease losses      12,159       9,587
                                                                  -------     -------
Non-interest income
Service fees on deposit accounts                                      842         653
Net gain on sale of securities                                        514          --
Net gain on sale of loans and leases                                   76         198
Bank owned life insurance                                             261         278
Commissions on sale of annuities and mutual funds                     212         213
Other                                                                 610         502
                                                                  -------     -------
Total non-interest income                                           2,515       1,844
                                                                  -------     -------
Non-interest expense
Salaries and benefits                                               4,848       3,628
Occupancy                                                           1,365         928
Furniture and equipment                                               334         253
Advertising and promotion                                             393         315
Amortization of intangible assets                                     126          19
Other                                                               1,851       1,384
                                                                  -------     -------
Total non-interest expense                                          8,917       6,527
                                                                  -------     -------
Income before income taxes                                          5,757       4,904
Income taxes                                                        1,771       1,548
                                                                  -------     -------
Net income                                                        $ 3,986     $ 3,356
                                                                  =======     =======

Basic earnings per common share                                   $  0.31     $  0.34
                                                                  =======     =======
Diluted earnings per common share                                 $  0.31     $  0.34
                                                                  =======     =======
</TABLE>

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

                                                                               4
<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
                                                                  Income        Earnings        Income          Stock
                                                                 --------       --------     -------------    --------
<S>                                                              <C>            <C>            <C>            <C>
Balance at January 1, 2003                                                      $ 63,314       $  3,596       $  5,397
Comprehensive income
  Net Income                                                     $  3,356          3,356
  Other comprehensive income, net of taxes
     Unrealized gains on AFS debt securities                          143
  Minimum pension liability adjustment                                (19)
                                                                 --------
  Other comprehensive income                                          124                           124
                                                                 --------
Comprehensive income                                             $  3,480
                                                                 ========
Dividends on common stock                                                         (1,082)
Issued 20,833 shares of common stock in connection
  with Executive Compensation Plan
Exercised 3,740 option shares
                                                                                --------       --------       --------
Balance at March 31, 2003                                                         65,588          3,720          5,397

Comprehensive income
  Net Income                                                     $ 13,010         13,010
  Other comprehensive income, net of taxes
     Unrealized  gains on AFS debt securities                        (617)
     Less: realized gains on disposition of securities               (820)
     Unrealized  gains on equity securities                           137
  Minimum pension liability adjustment                                 14
                                                                 --------
  Other comprehensive income                                       (1,286)                       (1,286)
                                                                 --------
Comprehensive income                                             $ 11,724
                                                                 ========
Dividends on common stock                                                         (3,888)
Exercised 55,955 option shares
Issued 2,949,719 shares of common stock in connection with
  the acquisition of Bridge View Bancorp
Reacquired 35,959 shares in lieu of non-performing asset
                                                                                --------       --------       --------
Balance at December 31, 2003                                                      74,710          2,434          5,397

Comprehensive income
  Net Income                                                     $  3,986          3,986
  Other comprehensive income, net of taxes
     Unrealized gains on AFS debt securities                        1,402
     Less: realized gains on disposition of securities               (287)
                                                                 --------
  Other comprehensive income                                        1,115                         1,115
                                                                 --------
Comprehensive income                                             $  5,101
                                                                 ========
Dividends on common stock                                                         (1,602)
Issued 7,793 shares of common stock in connection
       with Executive Compensation Plan
Exercised 7,207 option shares
Purchased 84,786 shares of common stock
                                                                                --------       --------       --------
Balance at March 31, 2004                                                       $ 77,094       $  3,549       $  5,397
                                                                                ========       ========       ========

<CAPTION>
                                                                  Capital       Treasury
                                                                  Surplus        Stock          Total
                                                                 ---------      --------       --------
<S>                                                              <C>            <C>            <C>
Balance at January 1, 2003                                       $ 21,097       $(12,724)      $ 80,680
Comprehensive income
  Net Income                                                                                      3,356
  Other comprehensive income, net of taxes
     Unrealized gains on AFS debt securities
  Minimum pension liability adjustment
  Other comprehensive income                                                                        124
Comprehensive income
Dividends on common stock                                                                        (1,082)
Issued 20,833 shares of common stock in connection
  with Executive Compensation Plan                                    109            245            354
Exercised 3,740 option shares                                         (28)            38             10
                                                                 --------       --------       --------
Balance at March 31, 2003                                          21,178        (12,441)        83,442

Comprehensive income
  Net Income                                                                                     13,010
  Other comprehensive income, net of taxes
     Unrealized  gains on AFS debt securities
     Less: realized gains on disposition of securities
     Unrealized  gains on equity securities
  Minimum pension liability adjustment
  Other comprehensive income                                                                     (1,286)
Comprehensive income
Dividends on common stock
Exercised 55,955 option shares                                       (127)           555            428
Issued 2,949,719 shares of common stock in connection with
  the acquisition of Bridge View Bancorp                           52,180                        52,180
Reacquired 35,959 shares in lieu of non-performing asset                            (693)          (693)

                                                                 --------       --------       --------
Balance at December 31, 2003                                       73,231        (12,579)       143,193

Comprehensive income
  Net Income                                                                                      3,986
  Other comprehensive income, net of taxes
     Unrealized gains on AFS debt securities
     Less: realized gains on disposition of securities
  Other comprehensive income                                                                      1,115
Comprehensive income

Dividends on common stock                                                                        (1,602)
Issued 7,793 shares of common stock in connection
  with Executive Compensation Plan                                    103            102            205
Exercised 7,207 option shares                                          (9)            84             75
Purchased 84,786 shares of common stock                                           (2,154)        (2,154)
                                                                 --------       --------       -------
Balance at March 31, 2004                                        $ 73,325       $(14,547)      $144,818
                                                                 ========       ========       =======
</TABLE>

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

                                                                               5
<PAGE>

Interchange Financial Services Corporation
--------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
--------------------------------------------------------------------------------
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
                                                                             2004         2003
                                                                          --------      --------
<S>                                                                       <C>           <C>
Cash flows from operating activities
Net income                                                                $  3,986      $  3,356
Adjustments to reconcile net income to net cash provided by operating
   activities
       Depreciation and amortization                                           498           357
       Amortization of securities premiums                                   1,590           776
       Accretion of securities discounts                                       (58)          (77)
       Amortization of premiums in connection with acquisition                 375            18
       Provision for loan losses                                               375           265
       Increase in cash surrender value of Bank Owned Life Insurance          (261)         (277)
       Origination of Loans available for sale                                (880)       (4,068)
       Sale of loans available for sale                                        941         4,173
       Net gain on sale of securities                                         (514)           --
       Net gain on sale of loans                                               (76)         (198)
       Net gain on sale of fixed assets                                         --            10
       Net gain on sale of foreclosed assets                                   (14)           --
Decrease (increase) in operating assets
       Accrued interest receivable                                             425          (209)
       Other                                                                 1,074          (725)
(Decrease) increase in operating liabilities
       Accrued interest payable                                                (29)           12
       Other                                                                   836           (49)
                                                                          --------      --------
Cash provided by operating activities                                        8,268         3,364
                                                                          --------      --------
Cash flows from investing activities
(Payments for) proceeds from
       Purchase of loans                                                   (20,608)           --
       Net repayments (originations) of loans                              (15,005)        7,499
       Sale of loans                                                           282         1,196
       Purchase of securities available-for-sale                            (2,799)      (12,947)
       Maturities of securities available-for-sale                          21,990        13,893
       Sale of securities available-for-sale                                44,793            --
       Maturities of securities held-to-maturity                             1,119         1,311
       Purchase of fixed assets                                               (328)         (413)
       Sale of reposessed assets                                                59            33
                                                                          --------      --------
Cash used in investing activities                                           29,503        10,572
                                                                          --------      --------
Cash flows from financing activities
Proceeds from (payments for)
       Deposits in excess of withdrawals                                     9,336        25,243
       Decrease in short-term debt                                         (18,867)       (1,433)
       Minimum pension liability, net of taxes                                  --           (19)
       Dividends                                                            (1,602)       (1,082)
       Treasury stock                                                       (2,154)           --
       Common stock issued                                                     205           354
       Exercise of option shares                                                75            10
                                                                          --------      --------
Cash provided by financing activities                                      (13,007)       23,073
                                                                          --------      --------
Increase in cash and cash equivalents                                       24,764        37,009
Cash and cash equivalents, beginning of year                                31,435        33,916
                                                                          --------      --------
Cash and cash equivalents, end of period                                  $ 56,199      $ 70,925
                                                                          ========      ========
Supplemental disclosure of cash flow information: Cash paid for:
       Interest                                                           $  3,168      $  3,586
       Income taxes                                                             --            45

Supplemental disclosure of non-cash investing activities:
       Loans transferred to foreclosed real estate and other
         repossessed assets                                                     34            54

</TABLE>

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

                                                                               6
<PAGE>

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                    FOR THE THREE MONTHS ENDED MARCH 31, 2004

                                   (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
financial statements and schedules thereto included in the annual report on Form
10-K of the Company for the year ended December 31, 2003.

     The consolidated financial data for the three month periods ended March 31,
2004 and 2003,  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  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 and retirement benefits.

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.  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, 2004 and 2003: (in thousands, except share data) (unaudited)

                                                                               7
<PAGE>

                                             --------------------------
                                             For the three months ended
                                                      March 31,
                                                 2004           2003
                                             -----------     ----------
Net Income
   As reported                                $    3,986     $    3,356

   Less: Total stock-based
   compensation expense determined
   under the fair value method for all
   rewards, net of related tax effects               128             84
                                              ----------     ----------
   Pro-forma                                  $    3,858     $    3,272
                                              ==========     ==========
Earnings per share:
Basic:
   As reported                                      0.31           0.34
   Pro forma                                        0.30           0.33
Diluted:
   As reported                                      0.31           0.34
   Pro forma                                        0.30           0.33

      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,  2004:  dividend  yield of  2.22%;  expected  volatility  of  24.92%;
risk-free  interest rate of 3.34%;  and expected lives of 7 years.  Prior period
assumptions  are described in Note 13 "Stock  Option and Incentive  Plan" in the
Notes to Condensed  Consolidated  Financial  Statements  in the  Company's  2003
Annual  Report on Form  10-K.  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. Acquisition and Pro Forma Disclosure

      On April 30, 2003 the Company  completed  its  acquisition  of 100% of the
common stock of Bridge View Bancorp ("Bridge View"), a Bergen  County-based bank
holding  company with eleven  locations,  which expanded the Company's  presence
into eastern Bergen County.  The results of Bridge View's  operations  have been
included in the consolidated  financial statements since that date. At April 30,
2003, Bridge View had approximately  $291 million of total assets,  $184 million
of loans and $259  million of deposits.  The  aggregate  purchase  price paid to
Bridge View  shareholders  was  approximately  $85.7  million and  consisted  of
approximately  2.9  million  shares  of  the  Company's  common  stock  with  an
approximate market value of $52.2 million,  based upon the average closing price
over the periods three days prior to and after the

                                                                               8
<PAGE>

acquisition  date, and $33.5 million in cash. The  transaction was accounted for
as a purchase  and the cost in excess of net assets  acquired  of  approximately
$58.7 million was allocated to net identified  intangibles of approximately $4.3
million and goodwill of approximately $54.4 million.

      The following pro forma  condensed  consolidated  statements of income for
the three months ended March 31, 2003 give effect to the merger as if the merger
had been consummated on January 1, 2003.

      The unaudited pro forma  information is not necessarily  indicative of the
results of  operations in the future or the results of  operations,  which would
have been realized had the merger been  consummated  during the periods or as of
the dates for which the unaudited pro forma information is presented.

           Interchange Financial Services Corporation and Subsidiaries
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                     (in thousands, except per share data)
                                  (unaudited)

                                             Three Months Ended
                                                  March 31,
                                           ----------------------
                                             2004          2003
                                           -------       -------
                                                        Pro Forma

Interest income                            $15,671       $16,637
Interest expense                             3,137         4,197
                                           -------       -------
     Net interest income                    12,534        12,440
                                           -------       -------
Provision for loan and lease losses            375           280
                                           -------       -------
Net interest income after provision
  for loan and lease losses                 12,159        12,160

Non-interest income                          2,515         2,395

Non-interest expense
   Salaries and benefits                     4,848         4,644
   Occupancy and FF&E                        1,699         1,630
   Other expenses                            2,370         2,256
                                           -------       -------
                                             8,917         8,530

     Net income before taxes                 5,757         6,025

Income Taxes                                 1,771         1,991
                                           -------       -------
     Net income                            $ 3,986       $ 4,034
                                           =======       =======
Earnings per common share:
     Basic                                    0.31          0.32
     Diluted                                  0.31          0.32

3. Earnings Per Common Share

      Basic  earnings per common  share  represents  income  available to common
stockholders divided by the weighted-average number of common shares outstanding
during the period.  Diluted earnings per common share reflects additional common
shares that would have been outstanding if dilutive  potential

                                                                               9
<PAGE>

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.

4. 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, 2004,  the Company had  commitments of  approximately  $260.3
million to extend credit, of which approximately $2.5 million represents standby
letters of credit.

5. Goodwill and Other Intangibles

      With the adoption of Statement of Financial  Accounting Standards ("SFAS")
No. 142,  "Goodwill and Other  Intangible  Assets"  ("SFAS 142"),  on January 1,
2002,  goodwill  is no longer  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.  Goodwill is reviewed for impairment annually
and on an interim  basis when  conditions  require.  If necessary an  impairment
charge is recognized in the period that goodwill has been deemed to be impaired.
At the date of adoption, there was no unamortized goodwill.

      At March 31, 2004 and December 31, 2003, gross intangible  assets amounted
to $4.6  million  at the  end of  each  period  while  accumulated  amortization
amounted to $556  thousand  and $430  thousand,  respectively.  Amortization  of
intangible assets as a result of acquisitions, which is included in non-interest
expense,  amounted to $126 thousand, and $19 thousand for the three months ended
March 31, 2004 and 2003,  respectively.  During the second  quarter of 2003, the
Company  recorded a core deposit  intangible of $4.3 million in connection  with
the Bridge View merger.  The core deposit intangible has an estimated life of 10
years and the Company  amortized  $107 thousand for the three months ended March
31,  2004.  The  core  deposit  intangible  will be  periodically  reviewed  for
impairment.  In  addition,  the Company  recorded  goodwill of $54.4  million in
connection  with the  Bridge  View  merger.  The  goodwill  will be  tested  for
impairment at least annually in accordance with the provisions of SFAS No. 142.

                                                                              10
<PAGE>

The estimated aggregate annual amortization  expense for core deposit intangible
is summarized as follows: (in thousands)

2005                  $ 430
2006                    430
2007                    430
2008                    430
2009                    430
thereafter            1,429
                    --------
Total               $ 3,579
                    ========

6. 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.

7. Recent Accounting Pronouncements

      On December 23, 2003,  the FASB issued  Statement of Financial  Accounting
Standards No. 132 (revised  2003),  Employers'  Disclosures  about  Pensions and
Other  Postretirement  Benefits  ("SFAS 132").  The revised SFAS 132 retains the
disclosure  requirements  in the  original  statement  and  requires  additional
disclosures about pension plan assets,  benefit  obligations,  benefit costs and
other relevant information. The Company has included the new interim disclosures
that are required for financial statements for periods ending after December 15,
2003.

8. Cash Dividend

      The Company paid a cash  dividend of $0.125 per share on February 20, 2004
to holders of record as of January 30, 2004.

9.  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)

                                                                              11
<PAGE>

<TABLE>
<CAPTION>
                                                      ------------------------------------------------
                                                                     March 31, 2004
                                                      ------------------------------------------------
                                                                       (unaudited)
                                                                     Gross       Gross       Estimated
                                                      Amortized   Unrealized   Unrealized       Fair
                                                        Cost         Gains       Losses         Value
                                                      ---------   ----------   ----------    ---------
<S>                                                   <C>           <C>         <C>           <C>
Securities HTM
  Mortgage-backed securities                          $  8,824      $  318      $      1      $  9,141
  Obligations of states & political subdivisions         9,092         855            --         9,947
                                                      --------      ------      --------      --------
                                                      $ 17,916      $1,173      $      1      $ 19,088
                                                      --------      ------      --------      --------
Securities AFS
  Mortgage-backed securities                          $101,439      $1,752      $     23      $103,168
  Obligations of U.S. agencies                         223,768       3,716            67       227,417
  Obligations of states & political subdivisions        34,034       1,099            30        35,103
  Other debt securities                                     --          --            --            --
  Equity securities                                      4,414         137            --         4,551
                                                      --------      ------      --------      --------
                                                       363,655       6,704           120       370,239
                                                      --------      ------      --------      --------
       Total securities                               $381,571      $7,877      $    121      $389,327
                                                      ========      ======      ========      ========

<CAPTION>
                                                      ------------------------------------------------
                                                                    December 31, 2003
                                                      ------------------------------------------------
                                                                     Gross       Gross       Estimated
                                                      Amortized   Unrealized   Unrealized       Fair
                                                        Cost         Gains       Losses         Value
                                                      ---------   ----------   ----------    ---------
<S>                                                   <C>           <C>         <C>           <C>
Securities HTM
  Mortgage-backed securities                          $  9,850      $  330      $      1      $ 10,179
  Obligations of states & political subdivisions         9,257         787            --        10,044
                                                      --------      ------      --------      --------
                                                      $ 19,107      $1,117      $      1      $ 20,223
                                                      --------      ------      --------      --------
Securities AFS
  Obligations of U.S. Treasury                        $  6,032      $    5      $      2      $  6,035
  Mortgage-backed securities                           112,981       1,363           157       114,187
  Obligations of U.S. agencies                         271,339       2,583           762       273,160
  Obligations of states & political subdivisions        33,849       1,257            68        35,038
  Equity securities                                      4,396         137            --         4,533
                                                      --------      ------      --------      --------
                                                       428,597       5,345           989       432,953
                                                      --------      ------      --------      --------
       Total securities                               $447,704      $6,462      $    990      $453,176
                                                      ========      ======      ========      ========

</TABLE>

At March 31, 2004, the  contractual  maturities of securities HTM and securities
AFS are as follows: (in thousands) (unaudited)

                                                                              12
<PAGE>

                                     Securities                Securities
                                         HTM                       AFS
                                --------------------     ----------------------
                                            Estimated                  Estimated
                               Amortized       Fair      Amortized        Fair
                                  Cost        Value        Cost          Value
                               ----------------------    -----------------------
Within 1 year                   $ 1,150      $ 1,190     $ 19,474      $ 19,510
After 1 but within 5 years       10,130       10,606      296,481       301,833
After 5 but within 10 years       5,667        6,217       31,167        31,786
After 10 years                      969        1,075       12,119        12,559
Equity securities                    --           --        4,414         4,551
                                --------------------     ----------------------
                       Total    $17,916      $19,088     $363,655      $370,239
                                ====================     ======================

      Proceeds from the sale of securities AFS amounted to $44.8 million for the
three months ended March 31, 2004,  which  resulted in gross  realized  gains of
$520  thousand  and gross  realized  losses of $6  thousand.  These  amounts are
included in net gain on sale of  securities  in the  Consolidated  Statements of
Income.  There were no sales of securities  for the three months ended March 31,
2003.

      The investment  portfolio is evaluated at least  quarterly to determine if
there are any securities with losses that are other than temporary. One criteria
in assessing for an other than temporary  impairment charge is if a security has
an  unrealized  loss that exceeds one year.  At March 31, 2004,  the Company had
$2.8 million of securities  with  unrealized  losses of $8 thousand that were in
excess of one year. It is expected that the Company will recover all amounts due
under the contractual obligations of those securities and as such, no other than
temporary  impairment  charge was necessary.  The following table summarizes all
securities  that have an unrealized loss and the duration of the unrealized loss
at March 31, 2004: (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>
AVAILABLE-FOR-SALE
Obligations of U.S. agencies      $39,091     $   67           --         --        $39,091      $ 67
Mortgage-backed securities          4,467         15       $2,808     $    8          7,275        23
Obligations of states and
  political subdivisions            3,372         30           --         --          3,372        30
                                 ---------------------    ---------------------    ---------------------
                                  $46,930     $  112       $2,808     $    8        $49,738      $120
                                 =====================    =====================    =====================
HELD-TO-MATURITY

Mortgage-backed securities        $   229     $    1           --         --        $   229      $  1
                                 ---------------------    ---------------------    ---------------------
                                  $   229     $    1       $    0     $    0        $   229      $  1
                                 =====================    =====================    =====================
</TABLE>

      Securities  with  carrying  amounts of $51.1  million and $46.1 million at
March 31, 2004 and  December  31,  2003,  respectively,  were pledged for public
deposits,  Federal Home Loan Bank  advances,  securities  sold under  repurchase
agreements and other purposes required by law.

                                                                              13
<PAGE>

10. Loans

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

                                     -----------    -----------
                                      March 31,     December 31,
                                        2004           2003
                                     -----------    -----------
                                     (unaudited)
Amount of loans by type
  Real estate-mortgage
     1-4 family residential
        First liens                   $119,224       $100,286
        Junior liens                     3,722          4,138
        Home equity                    145,085        136,477
     Commercial                        333,212        330,040
     Construction                       26,253         31,077
                                      --------       --------
                                       627,496        602,018
                                      --------       --------
  Commercial loans
     Commercial and financial          160,497        149,462
     Lease financing                    29,737         28,440
                                      --------       --------
                                       190,234        177,902
                                      --------       --------
  Consumer loans
     Lease financing                     9,794         12,416
     Installment                         3,762          4,245
                                      --------       --------
                                        13,556         16,661
                                      --------       --------
           Total                      $831,286       $796,581
                                      ========       ========

Nonperforming Assets

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

                                        -----------    ------------
                                          March 31,    December 31,
                                            2004           2003
                                        -----------    ------------
                                        (unaudited)
Nonaccrual loans
  Residential real estate                  $1,502         $1,364
  Commercial real estate                    1,685          1,603
  Commercial and financial                  2,808          2,858
  Commercial lease financing                1,848          2,365
  Consumer                                    622            380
                                           ------         ------
                                           $8,465         $8,570
                                           ======         ======

                                                                              14
<PAGE>

11. 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,
                                                            2004                    2003
                                                   ---------------------   ---------------------
                                                         (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                  $2,820      $  429      $2,864      $463
           Commercial real estate                     1,685          42       1,603        40
           Residential mortgages                        824         124         816       122
           Consumer                                     205           5          --        --
    Without a related allowance for loan losses          --          --          --        --
                                                     ------      ------      ------      ----
                                                     $5,534      $  600      $5,283      $625
                                                     ======      ======      ======      ====
</TABLE>

--------------------------------------------------------------------------------
The  impairment  of the above  loans  was  measured  based on the fair  value of
collateral.

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

                                                   -----------------------------
                                                   Three months ended March 31,
                                                   -----------------------------
                                                       2004            2003
                                                   -------------   -------------
                                                            (unaudited)
Balance at beginning of period                           $9,641          $7,207
Additions (deductions)
     Provision for loan and lease losses                    375             265
     Recoveries on loans previously charged off              36               1
     Loans charged off                                     (417)           (247)
                                                   -------------   -------------
Balance at end of year                                   $9,635          $7,226
                                                   =============   =============

12.  Other Non-interest Expense

    Expenses included in other non-interest  expense which exceed one percent of
the aggregate of total interest income and  non-interest  income for the periods
noted, are as follows: (in thousands) (unaudited)

                                                                              15
<PAGE>

                                              --------------------------
                                                      Three months
                                                     ended March 31,
                                              --------------------------
                                                  2004             2003
                                              -----------         ------
                                                        (unaudited)
Professional fees                                $  317           $  204
Data processing                                     281              193
Directors's fees, retirement
  and travel                                        216              128
Legal Fees                                          210               80
Other                                               827              779
                                                 ------           ------
                                                 $1,851           $1,384
                                                 ======           ======

13. Long-term Borrowings

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

  Maturity                         March 31,     December 31,
    Date               Rate          2004            2003
---------------      -------     -----------     ------------
                                 (unaudited)
January 2006           2.09%       $10,000              --

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

January 2007           2.69         10,000              --
                     ------        -------         -------
                       3.00%       $30,000         $10,000
                     ======        =======         =======

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

14. 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)

                                                                              16
<PAGE>

                                      ------------------
                                      Three Months Ended
                                            March 31,
                                      ------------------
                                        2004       2003
                                      -------    -------
Service Cost                           $ 166      $ 151
Interest Cost                             95         79
Expected return on plan assets           (39)       (31)
Amortization of prior service cost         1          1
Amortization of net (gain) loss           --         --
                                      ------     ------
Net periodic benefit cost              $ 223      $ 200
                                      ======     ======

      For the year ended  December 31, 2004, the Bank  anticipates  contributing
approximately $775 thousand to the Pension Plan.

                                                                              17
<PAGE>

Item 2.

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

General

     The  following  discussion  is an  analysis of the  consolidated  financial
condition  and results of  operations of the Company for the three month periods
ended  March 31,  2004 and 2003,  and  should  be read in  conjunction  with the
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 2003
Annual Report on Form 10-K.

      On April 30, 2003,  the Company  completed its  acquisition of Bridge View
Bancorp  ("Bridge  View").  Accordingly  the results of operations for the three
month period ending March 31, 2004 include the results of Bridge View.

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) the
occurrence  of acts of  terrorism,  such as the events of September 11, 2001, or
acts of war; (v)  legislation or regulatory  requirements  or changes  adversely
affecting  the business of the  Company;  (vi) losses in the  Company's  leasing
subsidiary exceeding management's expectations; (vii) expected revenue synergies
from the  Company's  acquisition  of Bridge  View may not be fully  realized  or
realized within the expected time frame; (viii) revenues following the Company's
acquisition of Bridge View may be lower than expected;  (ix) deposit  attrition,
operating costs,  customer loss and business disruption  following the Company's

                                                                              18
<PAGE>

acquisition  of Bridge View,  including,  without  limitation,  difficulties  in
maintaining  relationships with employees,  may be greater than expected and (x)
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.

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  the  Management's  Discussion  and  Analysis  of  Financial
Condition  and  Results  of  Operations:   Critical   Accounting   Policies  and
Judgements"  in our 2003 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.

                                                                              19
<PAGE>

Allowance for Loan and Lease Losses: The ALLL is generally  established  through
periodic  charges  to income.  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 $9.6 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 it requires  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.

Business  Combinations:  Business  combinations  are  accounted  for  using  the
purchase  method of  accounting,  the net assets of the  companies  acquired are
recorded at their  estimated fair value at the date of  acquisition  and include
the results of operations of the acquired business 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:  With the  adoption of SFAS No. 142,  "Goodwill  and Other  Intangible
Assets"  ("SFAS 142"),  on January 1, 2002,  goodwill is no longer  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. Goodwill is reviewed for impairment annually and on an interim basis
when conditions require. If necessary, an impairment charge is recognized in the
period that  goodwill has been deemed to be  impaired.  At the date of adoption,
there was no unamortized goodwill.

                                                                              20
<PAGE>

                   THREE MONTHS ENDED MARCH 31, 2004 AND 2003
                              RESULTS OF OPERATIONS

Summary

      On April 30, 2003, the Company  completed its  acquisition of Bridge View.
Accordingly  the results of  operations  for the three month period ending March
31, 2004 include the results of Bridge View.

Net income for the three  months  ended  March 31, 2004 was  approximately  $4.0
million,  an increase of $0.6 million, or 18.8%, over the same period last year.
The increase in earnings resulted from the acquisition of Bridge View during the
second  quarter of 2003 and an increase in  non-interest  income.  For the first
quarter of 2004,  the Company  reported  earnings  per diluted  common  share of
$0.31,  as compared to $0.34 for the same period in 2003. The decline in diluted
earnings per share was a result of a compression  in the net interest  margin as
compared to the first quarter in 2003 and an increase in average  diluted shares
outstanding as a result of the Bridge View transaction.

      For the three months ended March 31, 2004 and 2003,  the Company's  Return
on Average Assets ("ROA") was 1.16% and 1.42%,  respectively.  The change in ROA
for the  quarter  was a result of a decline in net  interest  margin.  Return on
Average  Equity  ("ROE") was 11.13% a decline  from 16.38% when  compared to the
same period last year. ROE declined  principally due to an increase in equity as
a result of the acquisition of Bridge View and, to a lesser extent,  compression
in net interest margin.

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 the corporate federal tax rate of 34% for the three months ended March 31,
2004 and 2003. 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 $2.7 million,  or
27.5%,  to $12.7 million for the quarter ended March 31, 2004 as compared to the
same quarter in 2003.  The tax  equivalent  basis  adjustments  for the quarters
ended  March  31,  2004  and  2003,   were  $160  thousand  and  $108  thousand,
respectively.  The  increase  in net  interest  income was due mostly to a 40.0%
growth in interest earning assets. This interest earning asset growth was funded
primarily  by deposit  liabilities,  which  grew 40.4% on average  for the first
quarter of 2004 as compared to the same quarter in 2003.  The growth in interest
earning assets and deposits were primarily attributed to the acquisition and the
Company's   internal   growth.   The  Company's   average  deposits  grew  11.0%
organically. The margin for the first quarter of 2004 was 4.11%, a decline of 40
basis points as compared to the same quarter in 2003 due to earning

                                                                              21
<PAGE>

asset yields  declining  faster than the Company's cost of funds. The decline in
asset yields was mainly  attributable  to maturities and prepayments in the loan
and securities portfolio, while the Company's deposit pricing reached historical
lows and appears to have become inelastic.  However, we would anticipate that as
market interest rates rise we would experience assets repricing more quickly, at
least in the short-term,  as deposit pricing  typically lags increases in market
rates.

      Interest income, on a tax-equivalent  basis, totaled $15.8 million for the
first quarter of 2004, an increase of $2.3 million, or 16.8%, as compared to the
same quarter in 2003. The increase was mostly attributed to a $352.9 million, or
40.0%,  growth in interest earning assets. The growth in interest earning assets
was the result of increases in average loans and average  investments  of $192.1
million and $184.2  million,  respectively.  The increase in interest income was
partly offset by a 101 basis point decline in interest  earning asset yields for
the first  quarter of 2004 as compared to the same quarter in 2003.  The decline
in interest earning asset yields was largely  attributed to the historically low
market interest rate environment.

      Interest  expense,  which  totaled $3.1  million for the first  quarter of
2004, decreased $461 thousand, or 12.8%, as compared to the same period in 2003.
The  decrease  in  interest  expense  was a  byproduct  of the decline in market
interest  rates,  particularly  short-term  rates,  during 2003. In addition,  a
beneficial  shift  in  the  composition  of the  Company's  deposits,  which  is
discussed  further in the  analysis of  financial  condition  below,  also had a
favorable  impact on the Company's  interest  expense.  The improved deposit mix
combined with lower  short-term  interest rates reduced the average rate paid on
interest  bearing  liabilities by 71 basis points to 1.26% for the quarter ended
March 31,  2004 as compared to the same  period in 2003.  The  magnitude  of the
benefit derived from the decrease in rates paid on interest bearing  liabilities
was  partially  reduced by the  positive  growth of deposits.  Interest  bearing
deposits grew on average $227.6 million, or 32.2%, for the first quarter of 2004
as compared to the same period in 2003.

                                                                              22
<PAGE>

--------------------------------------------------------------------------------
Analysis of Net Interest Income
--------------------------------------------------------------------------------
for the quarter ended March 31,
(dollars in thousands)
(unaudited)

<TABLE>
<CAPTION>
                                                                2004                                2003
                                                 -----------------------------------    ----------------------------
                                                   Average                   Average    Average              Average
                                                   Balance        Interest     Rate     Balance    Interest   Rate
                                                 -----------     ---------   -------   --------    --------  -------
<S>                                              <C>             <C>           <C>     <C>         <C>        <C>
                     Assets
Interest earning assets:
Loans (1)                                        $   806,387     $  12,748     6.32%   $614,301    $10,897    7.10%
Taxable securities (4)                               397,591         2,689     2.71     221,386      2,339    4.23
Tax-exempt securities (2) (4)                         28,898           388     5.37      20,940        247    4.72
Interest earning deposits                                 12            --       --       4,333         12    1.11
Federal funds sold                                     2,507             6     0.96      21,585         63    1.17
                                                 -----------     ---------     ----    --------    -------    ----
  Total interest-earning assets                    1,235,395        15,831     5.13     882,545     13,558    6.14
                                                                 ---------                         -------

Non-interest earning assets:
Cash and due from banks                               35,547                             22,167
Allowance for loan and lease losses                   (9,636)                            (7,207)
Other assets                                         118,933                             47,958
                                                 -----------                           --------
  Total assets                                   $ 1,380,239                           $945,463
                                                 ===========                           ========
     Liabilities and stockholders' equity
Interest-bearing liabilities
Interest bearing deposits                        $   933,522         2,827     1.21    $705,960      3,407    1.93
Borrowings                                            65,364           310     1.90      26,229        191    2.90
                                                 -----------     ---------     ----    --------    -------    ----
  Total interest-bearing liabilities                 998,886         3,137     1.26     732,189      3,598    1.97
                                                                 ---------                         -------
Non-interest bearing liabilities
Demand deposits                                      224,100                            118,779
Other liabilities                                     14,013                             12,521
                                                 -----------                           --------
  Total liabilities (3)                            1,236,999                            863,489
Stockholders' equity                                 143,240                             81,974
                                                 -----------                           --------
  Total liabilities and stockholders' equity     $ 1,380,239                           $945,463
                                                 ===========                           ========
Net interest income (tax-equivalent basis)                          12,694     3.87                  9,960    4.17
Tax-equivalent basis adjustment                                       (160)                           (108)
                                                                 ---------                         -------
  Net interest income                                            $  12,534                         $ 9,852
                                                                 =========                         =======
Net interest income as a percent of interest-
  earning assets (tax-equivalent basis)                                        4.11%                          4.51%

</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 historical cost and do not reflect
unrealized gains or losses.

Provision for Loan and Lease Losses

      The   provision  for  loan  and  lease  losses   represents   management's
calculation  of the amount  necessary to bring the  allowance for loan and lease
losses  ("ALLL") to a level that  management  considers  adequate to reflect the
risk of estimated  losses  inherent in the  Company's  loan  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  Judgements:
Allowance  for Loan and Lease  Losses"  above.  In the first quarter of 2004 and
2003,  the  Company's  provision for loan and lease losses was $375 thousand and
$265 thousand, respectively.

                                                                              23
<PAGE>

Non-interest Income

      For the quarter  ended March 31, 2004,  non-interest  income  totaled $2.5
million, an increase of $671 thousand,  or 36.4%, as compared to the same period
in 2003. The  improvement in non-interest  income,  excluding net gains from the
sales of securities,  was mostly due to increases in service charges on deposits
and  "other"   non-interest   income  of  $189   thousand  and  $108   thousand,
respectively.  The growth in service  charges on deposits  was mostly due to the
acquisition.

      During  the  quarter,  the  Company  recognized  net  gains on the sale of
securities  of $514  thousand  while there were no gains  recorded  for the same
period in 2003.  The funds  generated  from the sales of securities  were mainly
utilized to fund loan growth.

Non-interest Expense

     For the quarter ended March 31, 2004, non-interest expense was $8.9 million
an increase of $2.4 million, or 36.6%, when compared to the same period one year
ago. The increase was due largely to the additional  operating  costs  resulting
from the merger with Bridge View. Also  contributing to the increase were normal
increases related to salaries, benefits and occupancy expense.

Income Taxes

      Income tax  expense as a  percentage  of pre-tax  income was 30.8% for the
three months ended March 31, 2004 as compared to 31.6% for the first  quarter of
2003.

                                                                              24
<PAGE>

                               FINANCIAL CONDITION

Cash and Cash Equivalents

      At March 31, 2004,  cash and cash  equivalents  increased $24.8 million to
$56.2 million as compared to December 31, 2003. This was primarily attributed to
federal  funds sold  increasing  to $20.7 million while the Company was in a net
borrowing position at December 31, 2003.

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, available for sale ("AFS"), or held to maturity
("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 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, 2004, investment securities totaled $388.2
million and represented 28.2% of total assets, as compared to $452.1 million and
32.6%, respectively, at December 31, 2003. Securities AFS comprised 95.4% of the
total  securities  portfolio  at March 31, 2004 as compared to 95.8% at December
31, 2003.  During the first quarter of 2004, the Company sold  securities with a
book value of approximately  $44.3 million and recognized $520 thousand in gross
gains and $6 thousand in gross losses.  There were no sales of securities during
the first quarter of 2003.

                                                                              25
<PAGE>

      The following table reflects the composition of the securities  portfolio:
(dollars in thousands)

<TABLE>
<CAPTION>
                                        ----------------------------------------------
                                                     March 31, 2004
                                        ----------------------------------------------
                                                        (unaudited)
                                                      Gross      Gross       Estimated
                                        Amortized  Unrealized  Unrealized      Fair
                                          Cost       Gains       Losses        Value
                                        ---------  ----------  ----------    ---------
<S>                                     <C>          <C>        <C>          <C>
Securities HTM
  Mortgage-backed securities            $  8,824     $  318     $      1     $  9,141
  Obligations of states & political
   subdivisions                            9,092        855           --        9,947
                                        --------     ------     --------     --------
                                        $ 17,916     $1,173     $      1     $ 19,088
                                        ========     ======     ========     ========
Securities AFS
  Mortgage-backed securities            $101,439     $1,752     $     23     $103,168
  Obligations of U.S. agencies           223,768      3,716           67      227,417
  Obligations of states & political
   subdivisions                           34,034      1,099           30       35,103
  Equity securities                        4,414        137           --        4,551
                                        --------     ------     --------     --------
                                         363,655      6,704          120      370,239
                                        --------     ------     --------     --------
     Total securities                   $381,571     $7,877     $    121     $389,327
                                        ========     ======     ========     ========

<CAPTION>
                                        ----------------------------------------------
                                                    December 31, 2003
                                        ----------------------------------------------
                                                        (unaudited)
                                                      Gross      Gross       Estimated
                                        Amortized  Unrealized  Unrealized      Fair
                                          Cost       Gains       Losses        Value
                                        ---------  ----------  ----------    ---------
<S>                                     <C>          <C>        <C>          <C>
Securities HTM
  Mortgage-backed securities            $  9,850     $  330     $      1     $ 10,179
  Obligations of states & political
   subdivisions                            9,257        787           --       10,044
                                        --------     ------     --------     --------
                                        $ 19,107     $1,117     $      1     $ 20,223
                                        ========     ======     ========     ========
Securities AFS
  Obligations of U.S. Treasury          $  6,032     $    5     $      2     $  6,035
  Mortgage-backed securities             112,981      1,363          157      114,187
  Obligations of U.S. agencies           271,339      2,583          762      273,160
  Obligations of states & political
   subdivisions                           33,849      1,257           68       35,038
  Equity securities                        4,396        137           --        4,533
                                        --------     ------     --------     --------
                                         428,597      5,345          989      432,953
                                        --------     ------     --------     --------
     Total securities                   $447,704     $6,462     $    990     $453,176
                                        ========     ======     ========     ========
</TABLE>

      At March 31,  2004,  the  contractual  maturities  of  securities  HTM and
securities AFS are as follows: (dollars in thousands) (unaudited)

                                                                              26
<PAGE>

                                       Securities             Securities
                                           HTM                   AFS
                                  --------------------   --------------------
                                             Estimated              Estimated
                                  Amortized     Fair     Amortized     Fair
                                     Cost      Value       Cost       Value
                                  --------------------   --------------------
Within 1 year                      $ 1,150    $ 1,190    $ 19,474    $ 19,510
After 1 but within 5 years          10,130     10,606     296,481     301,833
After 5 but within 10 years          5,667      6,217      31,167      31,786
After 10 years                         969      1,075      12,119      12,559
Equity securities                       --         --       4,414       4,551
                                   ------------------    --------------------
                          Total    $17,916    $19,088    $363,655    $370,239
                                   ==================    ====================

Loans

      Total loans  amounted to $831.3  million at March 31, 2004, an increase of
$34.7  million  from  $796.6  million  at  December  31,  2003.  The  growth was
predominately in residential mortgage loans which increased $27.1 million.  Also
contributing  to the increase were commercial and financial loans and commercial
mortgages which increased $11.0 million and $3.2 million,  respectively  for the
three month period ended March 31, 2004.  Somewhat offsetting the aforementioned
increases  were  decreases in  construction  loans and  consumer  leases of $4.8
million and $2.6 million, respectively.

      The  following  table  reflects  the  composition  of the loan  and  lease
portfolio: (dollars in thousands)

                                  -----------   ------------
                                   March 31,    December 31,
                                     2004           2003
                                  -----------   ------------
                                  (unaudited)
Amount of loans by type
  Real estate-mortgage
      Residential                  $268,031       $240,901
      Commercial                    333,212        330,040
      Construction                   26,253         31,077
                                   --------       --------
                                    627,496        602,018
                                   --------       --------
  Commercial loans
      Commercial and financial      160,497        149,462
      Lease financing                29,737         28,440
                                   --------       --------
                                    190,234        177,902
                                   --------       --------
  Consumer loans
      Lease financing                 9,794         12,416
      Installment                     3,762          4,245
                                   --------       --------
                                     13,556         16,661
                                   --------       --------
          Total                    $831,286       $796,581
                                   ========       ========

                                                                              27
<PAGE>

Nonperforming Assets

      Nonperforming  assets are  comprised  of  nonaccrual  loans,  restructured
loans,  foreclosed real estate and other repossessed assets. With the completion
of the Bridge View acquisition, the Company's, nonperforming assets at March 31,
2004  amounted to $8.7 million as compared to $8.8 million at December 31, 2003.
The ratio of nonperforming  assets to total loans and foreclosed real estate and
other  repossessed  assets  decreased  to 1.04% at March 31,  2004 from 1.10% at
December 31, 2003.

      The  following  table  lists  nonaccrual  loans,  restructured  loans  and
foreclosed  real  estate and other  repossessed  assets at March 31,  2004,  and
December 31, 2003: (dollars in thousands)

                                -----------  ------------
                                 March 31,   December 31,
                                   2004          2003
                                -----------  ------------
                                (unaudited)

Nonperforming loans               $8,465        $8,570
Foreclosed real estate and
  other repossessed assets           219           230
                                  ------        ------
                                  $8,684        $8,800
                                  ======        ======

Allowance for Loan and Lease Losses

      The ALLL is  generally  established  through  periodic  charges to income.
During the three  months  ended March 31,  2004,  the ALLL  remained  relatively
stable at $9.6 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 $9.6 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.

                                                                              28
<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,  2004 and  2003:  (dollars  in  thousands)
(unaudited)

                                                            Three months ended
                                                                 March 31,
                                                          ----------------------
                                                            2004         2003
                                                          --------     ---------
Average loans outstanding                                 $806,387     $614,301
                                                          ========     ========
Allowance at beginning of period                             9,641        7,207
                                                          --------     --------
Loans charged off
     Real estate                                                67           --
     Commercial and financial                                   55           25
     Commercial lease financing                                277          208
     Consumer loans                                             18           14
                                                          --------     --------
          Total                                                417          247
                                                          --------     --------
Recoveries of loans previously charged off
     Real Estate                                                --           --
     Commercial and financing                                   --           --
     Commercial lease financing                                 36           --
     Consumer loans                                             --            1
                                                          --------     --------
          Total                                                 36            1
                                                          --------     --------
Additions due to merger                                         --           --
Provision for loan and lease losses                            375          265
                                                          --------     --------
Allowance at end of period                                $  9,635     $  7,226
                                                          ========     ========
Allowance to total loans (end of period)                      1.16%        1.19%
Ratio of net charge-offs to average loans (annualized)        0.19%        0.16%

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.  The Company  attributes its success in growing
deposits to the emphasis it places on 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,  2004,  total  deposits  increased  $9.3  million,  or 0.8%,
remaining  relatively  stable at $1.2 billion at December 31, 2003. We benefited
from a change in the mix as we  experienced  a growth in core deposits (non time
deposits) of $14.9 million, or 1.7%, while time deposits decreased $5.6 million,
or 2.0%, respectively, at March 31, 2004 as compared to December 31, 2003. 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,  2004,  such  deposits  amounted  to  $661.2

                                                                              29
<PAGE>

million representing 56.7% of total deposits compared to 56.3% of total deposits
at December  31,  2003.  The growth in core  deposits  was due to  increases  in
interest bearing demand,  money market savings and  non-interest  demand of $8.3
million,  $4.8  million and $4.8  million,  respectively,  offset  somewhat by a
decrease in savings accounts of $3.0 million.  Time deposits  amounted to $276.4
million,  or 23.7%,  of total  deposits at March 31, 2004, as compared to $282.0
million, or 24.4%, at December 31, 2003.

      For the three months ended March 31, 2004, the Company's  overall yield on
deposits  declined by 72 basis  points  from 1.93% to 1.21%,  as compared to the
same period last year. The decrease 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,    March 31,
                               2004        2003
                           -----------   ---------
                                  (Unaudited)

Non-interest Demand        $  228,547    $118,218
Interest Bearing Demand       455,098     332,322
Savings                       117,121      83,873
Money Market Savings           88,997      65,617
Time Deposits <$100,000       260,446     221,492
Time Deposits >$100,000        15,917      19,393
                           ----------    --------
     Total                 $1,166,126    $840,915
                           ==========    ========

                                                                              30
<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") is
responsible for managing the exposure to changes in market interest rates.  ALCO
attempts to maintain stable net interest margins by periodically  evaluating the
relationship  between   interest-rate-sensitive   assets  and  liabilities.  The
evaluation,  which is performed at least  quarterly  and presented to the Board,
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, 2004, 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 5.6%.  At March 31,  2004,  the Company 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

                                                                              31
<PAGE>

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)

Net Interest Income Sensitivity Simulation

                       Percentage Change in Estimated Net Interest
                           Income over a twelve month horizon
                       -------------------------------------------
                                       March 31,
                          2004                          2003
                       ------------                  -------------
+200 basis points             -5.6%                           -1.3%
+100 basis points             -1.7                             0.7
-100 basis points             -4.8                            -6.7

      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.

      In  addition  to the  above-mentioned  techniques,  the  Company  utilizes
sensitivity gap analysis as an interest rate risk  measurement.  Sensitivity gap
is determined by analyzing the difference between the amount of interest-earning
assets  maturing or  repricing  within a specific  time period and the amount of
interest  bearing  liabilities  maturing or repricing within that same period of
time. Sensitivity gap analysis

                                                                              32
<PAGE>

provides an indication of the extent to which the Company's net interest  income
may be affected by future changes in market interest  rates.  The cumulative gap
position expressed as a percentage of total assets provides one relative measure
of the Company's interest rate exposure.

      The  cumulative gap between the Company's  interest-rate-sensitive  assets
and its  interest-rate-sensitive  liabilities repricing within a one-year period
was a negative 11.06% at March 31, 2004.  Since the cumulative gap was negative,
the Company has a "negative gap" position,  which  theoretically  will cause its
assets to reprice  more  slowly  than its  deposit  liabilities.  In a declining
interest rate  environment,  interest  costs may be expected to fall faster than
the  interest  received on earning  assets,  thus  increasing  the net  interest
spread.  If interest  rates  increase,  a negative  gap means that the  interest
received on earning  assets may be  expected  to  increase  more slowly than the
interest paid on the Company's liabilities therefore decreasing the net interest
spread.

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 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
offbalance 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,  2004,  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, 2004,
the minimum leverage ratio requirement to be considered  adequately  capitalized
was 3%.

                                                                              33
<PAGE>

      The capital  levels of the Company and the Bank at March 31, 2004, 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  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, 2004: (unaudited)
   Total Capital (to Risk Weighted Assets):
       The Company                               $92,264     10.32%     $71,522     8.00%         N/A       N/A
       The Bank                                   91,411     10.20%      71,680     8.00%      89,600     10.00%
   Tier 1 Capital (to Risk Weighted Assets):
       The Company                                82,489      9.23%     $35,761     4.00%         N/A       N/A
       The Bank                                   81,636      9.11%      35,840     4.00%      53,760      6.00%
   Tier 1 Capital (to Average Assets):
       The Company                                82,489      6.21%     $39,825     3.00%         N/A       N/A
       The Bank                                   81,636      6.20%      39,526     3.00%      65,877      5.00%

As of December 31, 2003:
   Total Capital (to Risk Weighted Assets):
       The Company                               $91,694     10.46%     $70,146     8.00%         N/A       N/A
       The Bank                                   91,358     10.35%      70,637     8.00%     $88,296     10.00%
   Tier 1 Capital (to Risk Weighted Assets):
       The Company                                81,913      9.34%      35,073     4.00%         N/A       N/A
       The Bank                                   81,576      9.24%      35,319     4.00%      52,978      6.00%
   Tier 1 Capital (to Average Assets):
       The Company                                81,913      6.24%      39,367     3.00%         N/A       N/A
       The Bank                                   81,576      6.22%      39,318     3.00%      65,530      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, 2004, the total of such assets amounted to $56.2 million,  or 4.1%, of total
assets,  compared to $31.4  million,  or 2.3%,  of total  assets at December 31,
2003. The increase in cash and cash  equivalents was due largely to the sales of
securities,  deposit growth and loan prepayments, which produced funds that were
placed in federal funds sold or interest earning deposits pending  investment in
loans and securities.

      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, 2004 and December 31, 2003, 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,
2004,  advances  from the FHLB

                                                                              34
<PAGE>

and REPOS amounted to $40.0 million and $13.2 million, respectively, as compared
to $56.5 million and $15.6 million, respectively, at December 31, 2003.

      Net loans and leases at March 31,  2004  amounted  to $821.7  million,  an
increase of $34.7  million,  from $786.9  million at December 31, 2003.  Another
significant  liquidity  source  is the  Company's  securities  portfolio.  Total
securities  at March 31, 2004  amounted to $388.2  million,  a decrease of $63.9
million,  from $452.1 million at December 31, 2003. At March 31, 2004 securities
AFS amounted to $370.2 million, or 95.4%, of total securities compared to $433.0
million, or 95.8%, of total securities at December 31, 2003.

      In addition to the  aforementioned  sources of liquidity,  the Company has
available various other sources of liquidity,  including federal funds purchased
from other banks and the Federal Reserve  discount  window.  The Bank also has a
$96.3 million line of credit available through its membership in the FHLB.

      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  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, 2004 outstanding commitments to
fund loans totaled  $260.3  million and  outstanding  standby  letters of credit
totaled $2.5 million.

      The Company  historically  paid quarterly  cash dividends and  anticipates
continuing  paying  quarterly  dividends in the future.  The Company  could,  if
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  2003 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.

                                                                              35
<PAGE>

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, 2004,  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.

      The Company maintains  internal control over financial  reporting.  During
the quarter  ended March 31,  2004,  there have been no changes in our  internal
controls  over  financial  reporting  that  have  materially  affected,  or  are
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.

                                                                              36
<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. Change in Securities and Use of Proceeds

                                                  Total Number      Maximum
                                                   of Shares       Number of
                                                  Purchased as    Shares That
                                                  Part of the      May Yet Be
                    Total Number    Average        2001 Stock      Purchased
                      of Shares    Price Paid      Repurchase      Under the
    Period            Purchased     per Share         Plan            Plan
--------------------------------------------------------------------------------
2/1/04-2/29/04         84,786        $25.41         256,104         193,896
                       =========================================================

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

      (a)   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

      (b)   Reports on Form 8-K

            During the quarter  ended  March 31,  2004,  the  Company  filed the
            following Current Report on Form 8-K:

            Form 8-K filed  January 23,  2004,  reporting  earnings for the year
            ending December 31, 2003.

                                                                              37
<PAGE>

            Form 8-K filed March 31, 2004,  reporting  expected  increase in net
            income for first  quarter 2004 versus 2003 and expected  decrease in
            diluted earnings per share for first quarter 2004 versus 2003.

                                   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, 2004

                                                                              38