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

                                                                                                       JUNE 30,         December 31,
                                                                                                         1997                1996
                                                                                                       --------           --------
<S>                                                                                                    <C>                  <C>   
 ASSETS
  
 Cash and due from banks .................................................................             $ 32,579             $ 24,322
                                                                                                       --------             --------

 Investment securities at amortized cost  (approximate
       market value of $53,085  and $63,619 ) ............................................               52,883               63,376
                                                                                                       --------             --------
 Securities available for sale at estimated  market value
       (amortized cost of $58,291 and $54,871 ) ..........................................               59,114               55,252
                                                                                                       --------             --------

 Loans ...................................................................................              369,869              351,793
 Less:  Allowance for loan losses ........................................................                4,515                3,653
                                                                                                       --------             --------
 Net loans ...............................................................................              365,354              348,140
                                                                                                       --------             --------

 Premises and equipment, net .............................................................                6,168                5,151
 Foreclosed real estate ..................................................................                 --                    610
 Accrued interest receivable and other assets ............................................                7,305                7,838
                                                                                                       --------             --------

 TOTAL ASSETS ............................................................................             $523,403             $504,689
                                                                                                       ========             ========

 LIABILITIES

 Deposits

       Noninterest bearing ...............................................................             $ 84,680             $ 76,340
       Interest bearing ..................................................................              366,516              353,673
                                                                                                       --------             --------

 Total deposits ..........................................................................              451,196              430,013

 Securities sold under agreements to repurchase ..........................................               11,800               11,050
 Short-term borrowings ...................................................................                 --                  5,200
 Accrued interest payable and other liabilities ..........................................                3,865                4,082
 Long-term borrowings ....................................................................                9,932                9,983
                                                                                                       --------             --------

 TOTAL LIABILITIES .......................................................................              476,793              460,328
                                                                                                       --------             --------

 COMMITMENTS AND CONTINGENT LIABILITIES

 STOCKHOLDERS' EQUITY

 Common stock ............................................................................                4,794                4,733
 Capital surplus .........................................................................               15,739               14,931
 Retained earnings .......................................................................               27,251               24,429
 Unrealized gain - securities available for sale, net of taxes ...........................                  532                  268
                                                                                                       --------             --------
                                                                                                         48,316               44,361
  Less:  Treasury Stock (89,350 common shares) ...........................................                1,706                 --
                                                                                                       --------             --------
       Total stockholders' equity ........................................................               46,610               44,361
                                                                                                       --------             --------

 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..............................................             $523,403             $504,689
                                                                                                       ========             ========

 --------
 See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
                   INTERCHANGE FINANCIAL SERVICES CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands except per share data)
<CAPTION>

                                                                                Three Months Ended             Six Months Ended
                                                                               -----------------------        ---------------------
                                                                                     June 30,                       June 30,
                                                                               -----------------------        ----------------------
                                                                                 1997           1996           1997           1996
                                                                               -------         -------        -------        -------
<S>                                                                            <C>             <C>            <C>            <C>    
INTEREST INCOME
Interest and fees on loans ............................................        $ 7,983         $ 7,107        $15,795        $14,173
Interest on federal funds sold ........................................            161             142            195            370
Interest and dividends on securities
      Taxable interest income .........................................          1,675           1,929          3,377          3,790
      Interest income exempt from federal income taxes ................              9              16             24             30
      Dividends .......................................................             48              38            101             76
                                                                               -------         -------        -------        -------

TOTAL INTEREST INCOME .................................................          9,876           9,232         19,492         18,439
                                                                               -------         -------        -------        -------

INTEREST EXPENSE
Interest on deposits ..................................................          3,531           3,540          6,823          7,138
Interest on short-term borrowings .....................................            168             105            365            255
Interest on long-term borrowings ......................................            149            --              298           --
                                                                               -------         -------        -------        -------

TOTAL INTEREST EXPENSE ................................................          3,848           3,645          7,486          7,393
                                                                               -------         -------        -------        -------

NET INTEREST INCOME ...................................................          6,028           5,587         12,006         11,046
Provision for loan losses .............................................            510             150          1,120            400
                                                                               -------         -------        -------        -------
NET INTEREST INCOME AFTER PROVISION

 FOR LOAN LOSSES ......................................................          5,518           5,437         10,886         10,646
                                                                               -------         -------        -------        -------

NONINTEREST INCOME
Service fees on deposit accounts ......................................            465             395            893            764
Net gain on sale of loans .............................................           --              --            1,067           --
Net gain on sale of securities available for sale .....................           --              --             --              235
Accretion of discount in connection with acquisition ..................           --               190           --              380
Other .................................................................          1,103             346          1,315            772
                                                                               -------         -------        -------        -------

TOTAL NONINTEREST INCOME ..............................................          1,568             931          3,275          2,151
                                                                               -------         -------        -------        -------

NONINTEREST EXPENSES
Salaries and benefits .................................................          2,036           1,901          4,047          3,803
Net occupancy .........................................................            477             553            963          1,098
Furniture and equipment ...............................................            196             185            364            363
Advertising and promotion .............................................            209             190            361            348
Federal Deposit Insurance Corporation assessment ......................             16              13             19             25
Foreclosed real estate expense, net ...................................             (3)             54              5             98
Other .................................................................          1,200           1,198          2,287          2,308
                                                                               -------         -------        -------        -------

TOTAL NONINTEREST EXPENSES ............................................          4,131           4,094          8,046          8,043
                                                                               -------         -------        -------        -------

Income before  income taxes ...........................................          2,955           2,274          6,115          4,754

Income taxes ..........................................................          1,034             796          2,140          1,664
                                                                               -------         -------        -------        -------

NET INCOME ............................................................        $ 1,921         $ 1,478        $ 3,975        $ 3,090
                                                                               =======         =======        =======        =======

PER COMMON SHARE ......................................................        $  0.44         $  0.35        $  0.93        $  0.73
                                                                               =======         =======        =======        =======

-----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
                   INTERCHANGE FINANCIAL SERVICES CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (in thousands)
<CAPTION>

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

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


Net income ..................................................                              3,090                             3,090
Dividends on common stock at $0.24 per share (1) ............                             (1,025)                           (1,025)
5% common stock dividend ....................................        225       2,678      (2,903)                               --
Fractional shares of 5% common stock dividend ...............                     (5)                                           (5)
Issued 7,498 shares of common stock in connection
      with incentive plan ...................................         13         148                                           161
Decrease in market valuation-securities available for
      sale, net of taxes ....................................                                           (805)                 (805)
                                                                --------    --------    --------    --------    --------  --------
Balance at June 30, 1996 ....................................      4,733      14,931      22,152        (159)       --      41,657

Net Income ..................................................                              3,329                             3,329
Dividends on common stock at $0.247 per share (1) ...........                             (1,052)                           (1,052)
Increase in market valuation-securities available for
      sale, net of taxes ....................................                                             427                  427
                                                                --------    --------    --------    --------    --------  --------
Balance at December 31, 1996 ................................      4,733      14,931      24,429         268        --      44,361

Net income ..................................................                              3,975                             3,975
Dividends on common stock at $0.27 per share (1) ............                             (1,153)                           (1,153)
Fractional shares on 3 for 2 stock split ....................                     (3)                                           (3)
Issued 8,549 shares of common stock in connection
      with incentive plans (1) ..............................          9         159                                           168
Exercise of 18,293 option shares (1) ........................         20         143                                           163
Purchase of 8,133 shares in exchange for option shares (1) ..                                                       (163)     (163)
Purchase 81,217 shares of common stock at $19 per share .....                                                     (1,543)   (1,543)
Issuance of 153,041 shares of common stock in merger
      with Washington Interchange Corporation ...............        170       2,765                                         2,935
Retirement of 124,855 shares of common stock held by
      Washington Interchange Corporation at  time of merger .       (138)     (2,256)                                       (2,394)
Increase in market valuation - securities available
      for sale, net of taxes ................................                                            264                   264
                                                                --------    --------    --------    --------    --------  --------

Balance at June 30, 1997 ....................................   $  4,794    $ 15,739    $ 27,251    $    532    $ (1,706) $ 46,610
                                                                ========    ========    ========    ========    ========  ========
<FN>
------------------------------------------------------------------------------------------------------------------------------------
(1)   Adjusted for the effects of the 3 for 2 stock split issued on April 17, 1997 to shareholders of record on March 20, 1997
</FN>

See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
                   INTERCHANGE FINANCIAL SERVICES CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<CAPTION>

                                                                                                          For the six months ended
                                                                                                                  June 30,
                                                                                                          --------------------------
                                                                                                            1997              1996
                                                                                                          --------          --------
<S>                                                                                                      <C>               <C>     
CASH FLOWS FROM OPERATING ACTIVITIES

Net income .....................................................................................         $  3,975          $  3,090
Non-cash items included in earnings
     Depreciation and amortization of fixed assets .............................................              483               511
     Amortization of securities premiums .......................................................              388               550
     Accretion of securities discounts .........................................................              (46)              (31)
     Amortization of premiums in connection with acquisition ...................................              222               222
     Accretion of discount in connection with acquisition ......................................             --                (380)
     Provision for loan losses .................................................................            1,120               400
     Net gain on sale of securities available for sale .........................................             --                (235)
     Net gain on sale of  loans ................................................................           (1,067)             --
     Net gain on sale of foreclosed real estate ................................................               (6)               (7)
     Decrease in carrying value of loans available for sale ....................................                2                42
Decrease (increase) in operating assets
     Net repayment (origination) of loans available for sale ...................................               13              (114)
     Accrued interest receivable ...............................................................              398               178
     Deferred income taxes .....................................................................             --                 (84)
     Other .....................................................................................             (198)           (1,171)
Increase (decrease) in operating liabilities
     Accrued interest payable ..................................................................              172                51
     Other .....................................................................................             (389)             (145)
                                                                                                         --------          --------
CASH PROVIDED BY OPERATING ACTIVITIES ..........................................................            5,067             2,877
                                                                                                         --------          --------
CASH FLOWS FROM INVESTING ACTIVITIES
(Payments for) proceeds from
     Net originations of loans .................................................................          (23,227)          (12,451)
     Purchase of loans .........................................................................             --              (1,798)
     Sale of loans .............................................................................            5,945              --
     Purchase of securities available for sale .................................................           (3,990)          (21,527)
     Maturities of securities available for sale ...............................................              453               365
     Sale of securities available for sale .....................................................             --              38,349
     Sale of foreclosed real estate ............................................................              616               251
     Purchase of investment securities .........................................................          (14,806)          (16,215)
     Maturities of investment securities .......................................................           25,068            14,059
     Net payments on foreclosed real estate ....................................................             --                   8
     Washington Interchange merger .............................................................               37              --
     Purchase of fixed assets ..................................................................           (1,070)             (402)
     Sale of fixed assets ......................................................................               13              --
                                                                                                         --------          --------
CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES ...............................................          (10,961)              639
                                                                                                         --------          --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (payments for)
     Deposits more than withdrawals ............................................................           21,183             1,432
     Securities sold under agreements to repurchase ............................................            1,750             5,778
     Other borrowings ..........................................................................           (5,251)           (1,300)
     Retirement of securities sold under agreement to repurchase ...............................           (1,000)           (7,382)
     Dividends .................................................................................           (1,153)           (1,025)
     Common stock issued .......................................................................              165               156
     Treasury stock ............................................................................           (1,543)             --
                                                                                                         --------          --------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES ...............................................           14,151            (2,341)
                                                                                                         --------          --------
INCREASE IN CASH AND CASH EQUIVALENTS ..........................................................            8,257             1,175
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ...................................................           24,322            25,151
                                                                                                         --------          --------
CASH AND CASH EQUIVALENTS, END OF PERIOD .......................................................         $ 32,579          $ 26,326
                                                                                                         ========          ========
--------------------------------------------------------------------------------

Supplemental disclosure of cash flow information: Cash paid for:
          Interest .............................................................................         $  7,313          $  7,341
          Income taxes .........................................................................            2,486             1,872

Supplemental disclosure of non-cash investing activities:
          Loans transferred to foreclosed real estate ..........................................         $   --            $    179
          Increase (decrease) - market valuation of securities available for sale ..............             (441)            1,231
          Amortization of valuation allowance-securities transferred from
             available to sale to held to maturity .............................................                5                17

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


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     FOR THE SIX MONTHS ENDED JUNE 30, 1997

1.   FINANCIAL STATEMENTS

         The  consolidated  financial  statements  should be read in conjunction
with the financial statements and schedules as presented in the Annual Report on
Form 10-K of Interchange  Financial Services Corporation (the "Company") for the
year ended December 31, 1996.

         Consolidated  financial  data for the three months and six months ended
June 30, 1997 and 1996, are unaudited but reflect all adjustments  consisting of
only normal  recurring  adjustments  which are,  in the  opinion of  management,
considered  necessary for a fair  presentation  of the  financial  condition and
results of operations for the interim  periods.  Results for interim periods are
not necessarily indicative of results to be expected for any other period or the
full year.

2.  LEGAL PROCEEDINGS

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


<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         The following  discussion is an analysis of the consolidated  financial
condition  and results of operations of the Company for the three months and six
months ended June 30, 1997 and 1996, and should be read in conjunction  with the
consolidated financial statements and notes thereto included in Item 1 hereof.

RESULTS OF OPERATIONS

EARNINGS SUMMARY -- SIX MONTHS

         Net Income for the six months ended June 30, 1997,  was $4.0 million or
$.93 per  share,  as  compared  to $3.1  million  or $.73 per share for the same
period a year ago. The increase was attributable to several components which are
described in detail in the following paragraphs.

         Earnings  for the six  month  period  improved  as a  result  of a $960
thousand or 8.7% growth in net interest  income from the same period a year ago.
Contributing  to the  growth in net  interest  income was an  increase  of $20.5
million  in  average  interest  earning  assets  for the  1997  period  over the
comparable 1996 period. The growth occurred mostly in loans which had an average
balance of $357.4 million for the six months ended June 30, 1997, an increase of
$42.4 million or 13.5% over the  comparable  1996 period.  The earnings  benefit
derived  from the growth in earning  assets was  augmented by an increase in the
net yield on average earning assets to 5.07% for the 1997 period, as compared to
4.87% for the same period in 1996.  The  improved  net yield on average  earning
assets  was a product  of the  Company's  effort to change  the  composition  of
deposit  liabilities  from higher costing  single  transaction  certificates  of
deposit to lower costing demand and savings deposits.  In addition, a portion of
the higher costing single transaction certificates of deposit were replaced with
less  expensive   alternative  funding  sources,  such  as,  reverse  repurchase
agreements.  The change in the composition of deposit liabilities  combined with
the growth in earning assets was principally  responsible for the improvement in
net interest income.

         Earnings  for  the  1997  period  also  benefited  from a $1.1  million
increase in noninterest income. The increase resulted from the following: a gain
of $775 thousand  resulting from the early payoff of a commercial  loan that was
purchased  at a  discount;  and,  a gain of $1.1  million  from  the sale of two
commercial  mortgage  loans in the first quarter of 1997.  However,  the benefit
derived from the gains was partly offset by approximately $889 thousand in gains
and discount accretion that was realized in the first six months of 1996 and did
not reoccur in 1997.

         Earnings for the six month period ended June 30, 1997, were unfavorably
affected  by a $720  thousand  increase  in the  provision  for loan  losses  as
compared to the same period in 1996.  The  increase is  described in the section
titled "Provision for Loan Losses and Loan Loss Experience."

         Noninterest  expenses for the 1997 period are approximately the same as
the 1996  period  despite  the  Company's  growth and  continued  investment  in
technology.

EARNINGS SUMMARY -- THREE  MONTHS

         For the second quarter of 1997, the Company reported net income of $1.9
million or $0.44 per share, as compared with $1.5 million or $0.35 per share for
the comparable 1996 period, an increase of $443 thousand or $0.09 per share. The
growth in earnings was a product of a strong net interest  margin and  increased
noninterest income.

         Net interest income  increased $441 thousand or 7.9% largely because of
a $24.5 million  increase in average interest earning assets and an improved net
interest  margin.  The greatest growth in interest  earning assets  continues to
occur in loans;  specifically  commercial  loans which  generally  carry  higher
yields. For the second quarter of 1997, loans on average increased $42.2 million
or 13.2% as  compared  to the same  period a year  ago.  The loan  growth  was a
product of internal  loan  originations.  Such  assets  were funded  mostly with
demand and savings deposits which typically carry lower yields, thereby having a
positive  effect on the net interest  margin.  The net  interest  margin for the
second  quarter  1997 was 5.02% as  compared  to 4.90% for the prior  comparable
period.

         Noninterest  income  increased  $637  thousand  or 68.4% for the second
quarter of 1997,  as  compared  to the same  period in 1996.  The  increase  was
principally due to a gain of $775 thousand  resulting from the early payoff of a
commercial loan that was purchased at a discount.

         Earnings for the quarter ended June 30, 1997, were unfavorably affected
by a $360 thousand  increase in the provision for loan losses as compared to the
same period in 1996. The increase is described in the section titled  "Provision
for Loan Losses and Loan Loss Experience."
<PAGE>

         Noninterest  expenses for the 1997 period increased $37 thousand or .9%
as the 1996 period  despite the  Company's  growth and  continued  investment in
technology.

NONPERFORMING ASSETS

         Nonperforming  assets,  consisting  of nonaccrual  loans,  restructured
loans and foreclosed  real estate,  decreased $814 thousand from $3.4 million at
December 31, 1996,  to $2.6 million at June 30, 1997.  The sale of $616 thousand
of real estate owned was primarily  responsible  for the  decrease.  At June 30,
1997,  nonperforming assets decreased $3.7 million from $6.3 million at June 30,
1996. The sale of $1.4 million in nonperforming loans that occurred in the third
quarter  of 1996 was partly  attributable  to the  decrease.  During the past 12
months,  $1.1 million of real estate owned was sold and further  contributed  to
the decrease.  The ratio of  nonperforming  assets to total loans and foreclosed
real estate decreased from 1.0% at December 31, 1996, to .7% at June 30, 1997.

PROVISION FOR LOAN LOSSES AND LOAN LOSS EXPERIENCE

         The provision for loan losses represents management's  determination of
the amount  necessary  to bring the  allowance  for loan  losses to a level that
management  considers  adequate to reflect the risk of future losses inherent in
the Company's loan portfolio. In its evaluation of the adequacy of the allowance
for loan losses, management considers past loan loss experience,  changes in the
composition of performing and  nonperforming  loans,  the condition of borrowers
facing  financial  pressure,  the  relationship  of  the  current  level  of the
allowance  to the  credit  portfolio  and to  nonperforming  loans and  existing
economic  conditions.  However,  the process of determining  the adequacy of the
allowance  is  necessarily   judgmental  and  subject  to  changes  in  external
conditions.  Accordingly,  there can be no assurance that existing levels of the
allowance will ultimately prove adequate to cover actual loan losses.


         The  allowance  for loan losses was $4.5 million at June 30, 1997,  and
$3.7  million  at  December  31,  1996,   representing   173.3%  and  130.0%  of
nonperforming loans at those dates, respectively. In the second quarter of 1997,
the Company's  provision for loan losses was $510 thousand,  an increase of $360
thousand  from the  same  period  a year  ago.  For the six  month  period,  the
Company's  provision  for loan  losses was $1.1  million,  an  increase  of $720
thousand from the same period a year ago. The Company's lending focus and growth
continue to be largely in its commercial and commercial mortgage loan portfolio.
Such growth can change the characteristics and potentially increase the inherent
credit  risk of the  Company's  loan  portfolio.  As a result,  the  Company has
modified its method of computing  the  allowance for loan losses to capture such
risk which resulted in the increase in the provision for loan losses.


<PAGE>


<TABLE>
SECURITIES

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

                                                                                                  JUNE 30, 1997
                                                                            -------------------------------------------------------
                                                                                            GROSS             GROSS        ESTIMATED
                                                                             AMORTIZED     UNREALIZED       UNREALIZED       MARKET
                                                                              COST          GAINS            LOSSES           VALUE
                                                                            -------------------------    --------------   ---------
<S>                                                                          <C>            <C>             <C>             <C>     
INVESTMENT SECURITIES

      OBLIGATIONS OF U.S. TREASURY ...................................       $ 28,299       $    141        $   --         $ 28,440
      OBLIGATIONS OF U.S. AGENCIES ...................................         19,022            114              28         19,108
      OBLIGATIONS OF STATES & POLITICAL SUBDIVISIONS .................            980           --                 9            971
      OTHER DEBT SECURITIES ..........................................          4,582           --                16          4,566
                                                                             --------        --------        --------      --------
                                                                               52,883            255              53         53,085
                                                                             --------        --------        --------      --------

SECURITIES AVAILABLE FOR SALE

      OBLIGATIONS OF U.S. TREASURY ...................................         35,542            471             192         35,821
      OBLIGATIONS OF U.S. AGENCIES ...................................         17,061            101              26         17,136
      OTHER DEBT SECURITIES ..........................................          1,776             39            --            1,815
      EQUITY SECURITIES ..............................................          3,912            430            --            4,342
                                                                             --------        --------        --------      --------
                                                                               58,291           1,041            218         59,114
                                                                             --------        --------        --------      --------

           TOTAL SECURITIES ..........................................       $111,174       $  1,296        $    271       $112,199
                                                                             ========        ========        ========      ========




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

Investment securities

      Obligations of U.S. Treasury .................................        $ 43,517        $    248            --         $ 43,765
      Obligations of U.S. agencies .................................          11,077              74        $     22         11,129
      Obligations of states & political subdivisions ...............           3,581               1               9          3,573
      Other debt securities ........................................           5,201            --                49          5,152
                                                                            --------        --------        --------       --------
                                                                              63,376             323              80         63,619
                                                                            --------        --------        --------       --------
Securities available for sale

      Obligations of U.S. Treasury .................................          31,640             453             246         31,847
      Obligations of U.S. agencies .................................          17,321             124              12         17,433
      Other debt securities ........................................           1,998              11            --            2,009
      Equity securities ............................................           3,912              51            --            3,963
                                                                            --------        --------        --------       --------
                                                                              54,871             639             258         55,252
                                                                            --------        --------        --------       --------

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

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

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

<S>                                                                <C>                <C>                                        
WITHIN 1 YEAR ..........................................            $14,990            $15,033               --                 --
AFTER 1 BUT WITHIN 5 YEARS .............................             20,221             20,337            $39,489            $39,800
AFTER 5 BUT WITHIN 10 YEARS ............................              6,898              6,948              8,896              8,949
AFTER 10 YEARS .........................................             10,774             10,767              5,994              6,024
EQUITY SECURITIES ......................................               --                 --                3,912              4,341
                                                                    -------            -------            -------            -------

                        TOTAL ..........................            $52,883            $53,085            $58,291            $59,114
                                                                    =======            =======            =======            =======
</TABLE>


<TABLE>


CAPITAL ADEQUACY

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

<CAPTION>


                                                                                                                     To Be Well
                                                                                                                  Capitalized Under
                                                                                             For Capital          Prompt Corrective
                                                                         Actual           Adequacy Purposes       Action Provisions
                                                                  -------------------     --------------------    -----------------
                                                                  Amount        Ratio     Amount         Ratio     Amount    Ratio
                                                                  ------        -----     ------         -----     ------    -----

 <S>                                                              <C>             <C>      <C>             <C>     <C>       <C>    
AS OF JUNE 30, 1997:
   TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
        THE COMPANY .......................................      $49,426         14.53%   $27,207         8.00%       N/A      N/A
        THE BANK ..........................................       47,590         14.07     27,061         8.00    $33,826     10.00%

   TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
        THE COMPANY .......................................       45,175         13.28     13,604         4.00        N/A      N/A
        THE BANK ..........................................       43,362         12.82     13,530         4.00     20,296      6.00
   TIER 1 CAPITAL (TO AVERAGE ASSETS):
        THE COMPANY .......................................       45,175          8.78     15,437         3.00        N/A      N/A
        THE BANK ..........................................       43,362          8.44     15,404         3.00     25,673      5.00

As of December 31, 1996:
   Total Capital (to Risk Weighted Assets):
        The Company .......................................      $46,720         14.42%   $25,918         8.00%       N/A      N/A
        The Bank ..........................................       45,391         14.07     25,813         8.00    $32,266     10.00%
   Tier 1 Capital (to Risk Weighted Assets):
        The Company .......................................       43,067         13.29     12,959         4.00        N/A      N/A
        The Bank ..........................................       41,738         12.94     12,906         4.00     19,359      6.00
   Tier 1 Capital (to Average Assets):
        The Company .......................................       43,067          8.66     14,925         3.00        N/A      N/A
        The Bank ..........................................       41,738          8.39     14,925         3.00     24,875      5.00

</TABLE>



<PAGE>



LIQUIDITY

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

         Financing for the Company's loans and investments is derived  primarily
from  deposits,  along  with  interest  and  principal  payments  on  loans  and
investments.  At June 30, 1997,  total deposits  amounted to $451.2 million,  an
increase of $21.2 million or 4.9% from December 31, 1996. The Company  continues
to supplement the more  traditional  funding  sources with  borrowings  from the
Federal  Home Loan Bank of New York  ("FHLB")  and with  securities  sold  under
agreements to repurchase ("REPOS"). At June 30, 1997, advances from the FHLB and
REPOS amounted to $9.9 million and $11.8 million,  respectively,  as compared to
$15.2 million and $11.1 million, respectively, at December 31, 1996.

         In the second  quarter of 1997,  loan  production  continued  to be the
Company's principal investing activity.  Net loans at June 30, 1997, amounted to
$365.4  million,  compared to $348.1  million at the end of 1996, an increase of
$17.3 million or 5.0%.

         The  Company's  most  liquid  assets  are cash and due from  banks  and
federal funds sold. At June 30, 1997, the total of such assets amounted to $32.6
million  or 6.2% of total  assets,  compared  to $24.3  million or 4.8% of total
assets at December 31, 1996.

         Another    significant    liquidity    source    is    the    Company's
available-for-sale ("AFS") securities. At June 30, 1997, AFS securities amounted
to $59.1  million or 52.8% of total  securities,  compared  to $55.3  million or
46.6% of total securities at December 31, 1996.

         In addition to the aforementioned sources of liquidity, the Company has
available various other sources of liquidity,  including federal funds purchased
from other banks and the Federal Reserve discount window. The Company also has a
$50.9  million line of credit  available  through its  membership in the Federal
Home Loan Bank of New York.

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


<PAGE>



                            PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         On May 22, 1997,  at the annual  meeting,  the  following  matters were
submitted to a vote of security holders:

     (a) Election of directors:  Donald L. Correll, James E. Healey, Jeremiah F.
O'Connor  and Robert P.  Rittereiser  were  reelected  and Anthony R. Coscia and
Nicholas R. Marcalus were elected, by the common  shareholders,  as directors of
Interchange Financial Services Corporation. The votes were as follows:

                                            FOR                        AGAINST

         Donald L. Correll                 3,099,785                   253,205
         Anthony R. Coscia                 3,346,531                     6,459
         James E. Healey                   3,347,794                     5,196
         Nicholas R. Marcalus              3,346,726                     6,264
         Jeremiah F. O'Connor              3,302,945                    50,045
         Robert P. Rittereiser             3,102,461                   250,529

         (b) Approval of Amendment to  Certificate of  Incorporation  increasing
the number of authorized  shares of common stock,  without nominal or par value,
from five million shares to ten million shares.

      FOR               AGAINST                   ABSTAIN           (NOT VOTED)
      ---               -------                   -------           -----------

    3,256,390           42,647                    14,884              37,928

     (c)  Approval  of  Amendment  of  Company's  Stock  Option Plan of 1989 (as
amended in 1995) to incorporate incentive stock awards:

      FOR               AGAINST                   ABSTAIN           (NOT VOTED)
      ---               -------                   -------           -----------

    3,172,027          116,857                    26,178              37,928

     (d) Ratification of Appointment of Independent Auditors, Deloitte & Touche:

                  FOR               AGAINST                   ABSTAIN
                  ---               -------                   -------

              3,346,866              2,153                    3,971


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      The following exhibits are furnished herewith:

                  EXHIBIT NO.

                    2    WIC Transaction Agreement dated April 30, 1997

                    10   Legal  Agreement with Andora,  Palmisano & Geaney dated
                         April 24, 1997

                    11   Statement Re: Computation of Per Share Earnings






                                   SIGNATURES

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

INTERCHANGE FINANCIAL SERVICES CORPORATION

by:      /s/Anthony Labozzetta
        -----------------------
         Anthony Labozzetta
         Senior Vice President & Treasurer