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

                                                                              JUNE 30,        December 31,
                                                                                1998             1997
                                                                           ---------------   --------------
<S>                                                                        <C>               <C>
 ASSETS
 Cash and due from banks                                                         $ 18,265         $ 19,215
 Interest bearing demand deposits                                                   1,003            1,968
 Federal funds sold                                                                22,200           15,400
                                                                           ---------------   --------------
 Total cash and cash equivalents                                                   41,468           36,583
                                                                           ---------------   --------------
 Investment securities at amortized cost  (approximate
      market value of $52,121 and $60,834)                                         51,622           60,442
 Securities available for sale at estimated  market value
      (amortized cost of $88,068 and $73,640)                                      89,441           75,556

 Loans                                                                            471,085          438,273
 Less:  Allowance for loan losses                                                   5,342            5,231
                                                                           ---------------   --------------
 Net loans                                                                        465,743          433,042
                                                                           ---------------   --------------
 Premises and equipment, net                                                        9,831            9,548
 Accrued interest receivable and other assets                                       8,687            9,879
                                                                           ---------------   --------------
 TOTAL ASSETS                                                                    $666,792         $625,050
                                                                           ===============   ==============
 LIABILITIES
 Deposits
      Noninterest bearing                                                       $ 100,819         $ 95,437
      Interest bearing                                                            475,055          445,329
                                                                           ---------------   --------------
 Total deposits                                                                   575,874          540,766

 Securities sold under agreements to repurchase                                    18,450           13,027
 Accrued interest payable and other liabilities                                     4,359            5,248
 Long-term borrowings                                                               9,824            9,879
                                                                           ---------------   --------------
 TOTAL LIABILITIES                                                                608,507          568,920
                                                                           ---------------   --------------

 COMMITMENTS AND CONTINGENT LIABILITIES                                                 -                -

 STOCKHOLDERS' EQUITY
 Common stock                                                                       5,397            5,396
 Capital surplus                                                                   21,291           21,557
 Retained earnings                                                                 31,718           29,698
 Acumulated Other Comprehensive Income                                                867            1,185
                                                                           ---------------   --------------
                                                                                   59,273           57,836
  Less:  Treasury Stock (77,302 and 134,025 common shares)                            988            1,706
                                                                           ---------------   --------------
      Total stockholders' equity                                                   58,285           56,130
                                                                           ---------------   --------------

 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                      $666,792         $625,050
                                                                           ===============   ==============

-----------------------------------------------------------------------------------------------------------
 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,
                                                                   --------------------------       --------------------------
                                                                       1998          1997              1998          1997
                                                                   -------------  -----------       ------------  ------------
<S>                                                                <C>            <C>               <C>            <C>
INTEREST INCOME
Interest and fees on loans                                               $9,731       $8,679            $19,210       $17,151
Interest on federal funds sold                                              423          264                803           386
Interest on interest bearing deposits                                        25           19                 49            39
Interest and dividends on securities
    Taxable interest income                                               2,004        2,167              3,982         4,302
    Interest income exempt from federal income taxes                         21            8                 50            24
    Dividends                                                                68           55                131           114
                                                                   -------------  -----------       ------------  ------------
TOTAL INTEREST INCOME                                                    12,272       11,192             24,225        22,016
                                                                   -------------  -----------       ------------  ------------

INTEREST EXPENSE
Interest on deposits                                                      4,655        4,305              9,213         8,310
Interest on short-term borrowings                                           249          167                457           365
Interest on long-term borrowings                                            147          150                294           298
                                                                   -------------  -----------       ------------  ------------
TOTAL INTEREST EXPENSE                                                    5,051        4,622              9,964         8,973
                                                                   -------------  -----------       ------------  ------------

NET INTEREST INCOME                                                       7,221        6,570             14,261        13,043
Provision for loan losses                                                   212          517                431         1,137
                                                                   -------------  -----------       ------------  ------------
NET INTEREST INCOME AFTER PROVISION
 FOR LOAN LOSSES                                                          7,009        6,053             13,830        11,906
                                                                   -------------  -----------       ------------  ------------
NONINTEREST INCOME
Service fees on deposit accounts                                            649          492              1,274           945
Net gain on sale of loans                                                     -            -                  -         1,067
Other                                                                       235        1,014                568         1,180
                                                                   -------------  -----------       ------------  ------------
TOTAL NONINTEREST INCOME                                                    884        1,506              1,842         3,192
                                                                   -------------  -----------       ------------  ------------

NONINTEREST EXPENSES
Salaries and benefits                                                     2,244        2,234              4,727         4,425
Net occupancy                                                               572          533              1,136         1,080
Furniture and equipment                                                     252          221                510           411
Advertising and promotion                                                   213          222                390           386
Federal Deposit Insurance Corporation assessment                             19           17                 37            22
Foreclosed real estate expense, net                                           -           (3)                 -             5
Acquisition                                                               1,278            -              1,389             -
Other                                                                     1,078        1,217              2,177         2,365
                                                                   -------------  -----------       ------------  ------------
TOTAL NONINTEREST EXPENSES                                                5,656        4,441             10,366         8,694
                                                                   -------------  -----------       ------------  ------------

Income before  income taxes                                               2,237        3,118              5,306         6,404
Income taxes                                                                810        1,095              1,901         2,247
                                                                   -------------  -----------       ------------  ------------
NET INCOME                                                              $ 1,427      $ 2,023            $ 3,405       $ 4,157
                                                                   =============  ===========       ============  ============
BASIC EARNINGS PER COMMON SHARE                                           $0.20        $0.28              $0.47         $0.58
                                                                   =============  ===========       ============  ============
DILUTED EARNINGS PER COMMON SHARE                                         $0.20        $0.28              $0.47         $0.57
                                                                   =============  ===========       ============  ============

------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
                           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                                 (in thousands)
<CAPTION>
                                                                                 Accumulated
                                                                                    Other
                                                        Comprehensive  Retained  Comprehensive  Common   Capital  Treasury
                                                        Income         Earnings  Income/(Loss)  Stock    Surplus   Stock    Total
                                                        ----------     --------  -------------  -------  -------- --------  -------
<S>                                                     <C>            <C>       <C>            <C>      <C>      <C>       <C>
Balance at January 1, 1997                                             $24,157            $256   $5,285  $20,350        -   $50,048

Comprehensive income
    Net Income                                            $4,157         4,157                                                4,157
    Other comprehensive income, net of taxes
       Unrealized losses on securities                     (264)                           264                                  264
                                                        ----------
    Other comprehensive income                             (264)
                                                        ----------
Comprehensive income                                      $3,893
                                                        ==========
Dividends on common stock                                               (1,201)                                              (1,201)
Fractional shares on 3 for 2 stock split                                                                      (3)                (3)
Issued 12,822 shares of common stock in connection
    with Executive Compensation Plan (1)                                                              9       159               168
Exercised 27,440 option shares (1)                                                                   20       143               163
Purchased 12,200 shares in exchange for option shares (1)                                                             (163)    (163)
Issued 9,024 common shares under Dividend Reinvestment Plan                                           6        62                68
Issued 229,562 shares of common stock in merger with
    Washington Interchange Corporation (1)                                                          170     2,765             2,935
Acquired 187,283 shares of common stock held by
    Washington Interchange Corporation (1)                                                                          (2,394)  (2,394)
Retired 187,283 shares of common stock held by
    Washington Interchange Corporation (1)                                                         (138)   (2,256)   2,394        -
Purchased 121,826 shares of common stock (1)                                                                        (1,543)  (1,543)
                                                        ----------     --------  -------------  -------  -------- --------  --------
Balance at June 30, 1997                                                27,113             520    5,352    21,220   (1,706)  52,499

Comprehensive income
    Net Income                                            $3,768         3,768                                                3,768
    Other comprehensive income, net of taxes
       Unrealized gains on securities                        665                           665                                  665
                                                        ----------
    Other comprehensive income                               665
                                                        ==========
Comprehensive income                                      $4,433
                                                        ==========

Dividends on common stock                                               (1,183)                                              (1,183)
Exercised 23,225 option shares (1)                                                                   18        97               115
Exercised $23,100 options                                                                            17       137               154
Issued 11,480 common shares under Dividend Reinvestment Plan                                          9       103               112
                                                                       --------  -------------  -------  -------- --------  --------
Balance at December 31, 1997                                            29,698           1,185    5,396    21,557   (1,706)  56,130

Comprehensive income

    Net Income                                            $3,405         3,405                                                3,405
    Other comprehensive income, net of taxes
       Unrealized losses on securities                      (278)                         (278)                                (278)
       Unrealized losses securities transferred from held to
           maturity to available to sale                     (40)                          (40)                                 (40)
                                                        ----------
    Other comprehensive income                              (318)
                                                        ----------

Comprehensive income                                      $3,087
                                                        ==========

Dividends on common stock                                              (1,385)                                               (1,385)
Fractional shares on 3 for 2 stock split and merger shares                                                     (6)               (6)

Issued 12,769 shares of common stock in connection
    with Executive Compensation Plan (1)                                                                       70      162      232
Exercise of 44,680 option shares (1)                                                                  1      (330)     556      227
                                                                       -------   -------------  -------  -------- --------  --------
Balance at June 30, 1998                                               $31,718            $867   $5,397   $21,291    $(988) $58,285
                                                                       ========  =============  =======  ======== ========  ========

------------------------------------------------------------------------------------------------------------------------------------
(1) Adjusted for the effects of the 3 for 2 stock split issued on April 17, 1998
    to shareholders of record on March 20, 1998

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,
                                                                        ------------------------------
                                                                               1998           1997
                                                                        ------------------------------
<S>                                                                     <C>                    <C>
Cash flows from operating activities
Net income                                                                  $ 3,405           $ 4,157
Non-cash items included in earnings
   Depreciation and amortization of fixed assets                                671               541
   Amortization of securities premiums                                          454               485
   Accretion of securities discounts                                            (91)              (51)
   Amortization of premiums in connection with acquisition                      222               222
   Provision for loan losses                                                    431             1,137
   Net gain on sale of  loans                                                     -            (1,067)
   Net gain on sale of foreclosed real estate                                     -                (6)
   Increase in carrying value of loans available for sale                         -                 2
Decrease (increase) in operating assets
   Net repayment of loans available for sale                                      -                13
   Accrued interest receivable                                                 (252)              300
   Other                                                                      1,405              (147)
Increase (decrease) in operating liabilities
   Accrued interest payable                                                     138               218
   Other                                                                     (1,027)             (391)
                                                                        ------------        ----------
Cash provided by operating activities                                         5,356             5,413
                                                                        ------------        ----------
Cash flows from investing activities
(Payments for) proceeds from
   Net originations of loans                                                (22,415)          (25,133)
   Purchase of loans                                                         (3,626)                -
   Purchase of term federal funds                                            (7,500)                -
   Sale of loans                                                                409             5,945
   Purchase of securities available for sale                                (10,546)          (12,361)
   Maturities of securities available for sale                                5,717             2,112
   Sale of foreclosed real estate                                                 -               616
   Purchase of investment securities                                        (11,716)          (14,806)
   Maturities of investment securities                                       10,574            26,408
   Washington Interchange Merger                                                  -                37
   Purchase of fixed assets                                                    (916)           (1,123)
   Sale of fixed assets                                                           4                13
                                                                        ------------        ----------
Cash used in investing activities                                           (40,015)          (18,292)
                                                                        ------------        ----------

Cash flows from financing activities
Proceeds from (payments for)
   Deposits more than withdrawals                                            35,108            28,592
   Securities sold under agreements to repurchase                             8,020             1,750
   Retirement of other borrowings                                               (55)           (5,251)
   Retirement of securities sold under agreement to repurchase               (2,597)           (1,000)
   Dividends                                                                 (1,385)           (1,201)
   Common stock issued                                                          226               236
   Treasury stock                                                                 -            (1,543)
   Exercise of option shares from Treasury                                      227                 -
                                                                        ------------        ----------
Cash provided by financing activities                                        39,544            21,583
                                                                        ------------        ----------
Increase in cash and cash equivalents                                         4,885             8,704
Cash and cash equivalents, beginning of year                                 36,583            33,189
                                                                        ============        ==========
Cash and cash equivalents, end of period                                    $41,468           $41,893
                                                                        ============        ==========
Supplemental disclosure of cash flow information:
Cash paid for:
      Interest                                                               $9,826            $8,755
      Income taxes                                                            2,826             2,549
Supplemental disclosure of non-cash investing activities:
      Decrease (increase) - market valuation of securities available for sale  $541            $ (269)
      Amortization of valuation allowance - securities transferred from
        available for sale to held to maturity                                    -                 5
      Securities transferred from held to maturity to available for sale      8,187                 -

------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          FOR THE SIX MONTHS ENDED JUNE 30, 1998


1.   Basis of Presentation

         The  accompanying  unaudited  consolidated  financial  statements
have been prepared in conformity  with  generally  accepted accounting
principles 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
generally  accepted  accounting  principles  have been  condensed  or  omitted.
These 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 Interchange Financial Services Corporation (the "Company") for
the year ended December 31, 1997.

         The  consolidated  financial data for the six months ended June 30,
1998 and 1997,  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.

         Effective May 31, 1998, the Company  acquired The Jersey Bank for
Savings  ("Jersey").  The acquisition has been accounted for under the
pooling-of-interests  method of  accounting,  accordingly,  the financial
statements  have been  retroactively  restated to include the  consolidated
accounts of Jersey for all periods  presented.  The  transaction  resulted in
the issuance of 780,198 shares of the Company's common stock.

2.    Earnings Per Common Share

         Basic  earnings per common share is computed by dividing net income
by the weighted  average  number of shares of common stock outstanding.
Diluted  earnings  per common  share is similar to the  computation  of basic
earnings  per common share except that the denominator is increased to include
the number of additional  common shares that would have been outstanding if the
dilutive  potential common shares had been issued.

3.  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 and
six months ended June 30, 1998 and 1997, and should be read in conjunction
with the  consolidated  financial  statements and notes thereto included in
Item 1 hereof.

         The Company  issued a 3 for 2 stock split on April 17, 1998 to
shareholders  of record on March 20,  1998.  All per share and share data have
been retroactively restated to include the effects of the split for all periods
presented.

         Effective May 31, 1998, the Company  acquired The Jersey Bank for
Savings  ("Jersey").  The acquisition has been accounted for under the pooling
of interests method of accounting,  accordingly the financial statements have
been retroactively  restated to include the consolidated accounts of Jersey for
all periods presented.

                 THREE MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997

Earnings Summary

         Net income for the three months ended June 30, 1998, was $1.4 million
or $.20 diluted  earnings per common share,  as compared to $2.0 million or
$.28 diluted  earnings per common share for the same period a year ago.
Excluding  the  nonrecurring  Jersey merger related charge of $824  thousand,
net of tax, the Company  reported net income of $2.3 million,  an increase of
$228 thousand or 11.3% from the prior comparable  period.  Diluted earnings per
common share,  excluding the merger related charge,  were $.31, an increase of
10.7% over the prior comparable period.

                              RESULTS OF OPERATIONS

Net Interest Income

         Net  interest  income  is the most  significant  source  of the
Company's  operating  income.  Net  interest  income on a tax equivalent  basis
increased  $654  thousand to $7.2  million for the  quarter  ended June 30,
1998 as compared to the same  quarter of 1997.  The  increase  in net  interest
income is  principally  due to higher  levels of interest  earning  assets and
increased  loan production.  The loan growth was funded largely by the growth
in deposit liabilities.

         Average  interest  earning assets increased $73.0 million or 13.2% to
$626.9 million for the quarter ended June 30, 1998, over the same period in
1997.  The growth was mainly the result of an increase in loan  volume,
particularly,  commercial  mortgages,  home equity loans and consumer auto
leases.  For the second quarter of 1998,  average loans  increased  $64.2
million or 16.3% over the same period in 1997.  The average yield on loans was
negatively  impacted by a decline in market rates and increased  competitive
factors. However,  the increased loan volume  contributed  to a $1.1 million
growth in loan income that offset the decline in yield.  The growth in loan
income was instrumental to the growth in net interest income.

         For the quarter ended June 30, 1998,  average  interest  bearing
deposits grew $40.4 million or 9.3% and noninterest  bearing demand  deposits
grew $13.4 million or 16.9%.  The total growth in average  deposits  amounted
to 10.5%.  Despite the strong growth in deposits, the Company's annualized cost
of deposits decreased 7 basis points over the second quarter of 1997.

Noninterest Income

         For the quarter ended June 30, 1998,  noninterest  income  amounted to
$884 thousand,  a decrease of $622 thousand as compared to the same period in
1997.  The  decrease  was  principally  due to a  nonrecurring  gain of $775
thousand  recognized  in the second quarter  of 1997 from the  payoff  of a
commercial  loan  that was  acquired  at a  discount.  Adjusting  for the
nonrecurring  item, noninterest  income  increased  $153  thousand and was
largely the result of a $157 thousand  increase in service  charges on deposits.
The higher levels of service charges on deposits can be attributed to the
growth of the deposit base.

Noninterest Expenses

         For the quarter ended June 30, 1998,  noninterest  expenses amounted
to $5.7 million,  an increase of $1.2 million as compared to the same period in
1997.  The increase was due to one time merger related  charges of $1.3 million
arising from the merger with The Jersey Bank for Savings.

<PAGE>

         One of the  Company's  goals is to control  expenses in order to
maximize  earnings  and  shareholder  value.  Generally,  the efficiency  ratio
is one method utilized to measure a bank's  operating  expenses.  The efficiency
ratio is gross operating  expenses, excluding the  amortization of  intangibles,
the merger related  expenses and net expenses of foreclosed  real estate,
expressed as a percentage of net interest income (on a fully taxable  equivalent
basis) and other  noninterest  income,  excluding gains.  Generally, the lower
the  efficiency  ratio the more  effective  the Company is in  utilizing  its
resources  to produce  income.  The  Company's efficiency  ratio for the quarter
ended June 30, 1998, was 52.7% as compared to 59.4% for the same period in 1997.
The  improvement was mostly  attributable to the growth in net interest income
and noninterest  income.  The improvement was partially offset by a growth in
operating expenses  resulting  from the  installation  of a new  mainframe
computer and the addition of new  equipment  and the  renovation of a branch.
The national peer group average (published by SNL Securities) for the year 1997
was 60.4%.

Income Taxes

         Income tax expense as a percentage  of pre-tax  income was 36.2% for
the quarter  ended June 30, 1998 as compared to 35.1% for the second quarter of
1997.  The increase is attributable to an increase in the effective state income
tax rate.

                 SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997

Earnings Summary

         Net income for the six months ended June 30, 1998,  was $3.4 million or
$.47 diluted  earnings per common  share,  as compared to $4.2 million or $.57
diluted  earnings per common share for the same period a year ago.  Excluding
the Jersey  nonrecurring  merger related  charge of $896  thousand,  net of tax,
the Company  reported net income of $4.3 million,  an increase of $144 thousand
or 3.5% from the prior comparable  period.  Diluted earnings per common share,
excluding the merger related charge,  were $.59, an increase of 3.5% over the
prior comparable period.

                            RESULTS OF OPERATIONS

Net Interest Income

         Net interest  income on a tax equivalent  basis increased $1.2 million
to $14.3 million for the six months ended June 30, 1998 as compared to the same
period of 1997.  The increase in net interest  income is principally  due to
higher levels of interest  earning assets and increased loan production.  The
loan growth was funded largely by the growth in deposit liabilities.

         Average  interest  earning assets  increased  $73.9 million or 13.6%
to $618.8 million for the six months ended June 30, 1998, over the same period
in 1997.  The growth was mainly the result of an  increase in loan  volume,
particularly,  commercial  mortgages, home equity loans and consumer  auto
leases.  For the first six months of 1998,  average  loans  increased  $62.1
million or 15.9% over the same period in 1997.  The average yield on loans was
negatively  impacted by a decline in market rates and  increased  competitive
factors.  However,  the increased  loan volume  contributed  to a $2.1 million
growth in loan income that offset the decline in yield.The growth in loan income
was instrumental to the growth in net interest income.

         For the six months  ended June 30,  1998,  average  interest  bearing
deposits  grew $42.7  million or 10.0% and  noninterest bearing  demand
deposits  grew $13.9  million or 18.1%.  The total growth in average  deposits
amounted to 11.3%.  Despite the strong growth in deposits,  the Company's
annualized cost of deposits remained marginally the same as it was, on an
annualized basis, for the first six months of 1997.

Noninterest Income

         For the six months ended June 30,  1998,  noninterest  income
amounted to $1.8  million,  a decrease of $1.4 million from the same period in
1997.  The decrease was  principally  due to the  recognition of  nonrecurring
gains in the first six months of 1997 of $1.1  million  from the sale of
commercial  loans and of $775  thousand  from the payoff of a  commercial  loan
that was acquired at a discount.  Adjusting  for the  nonrecurring  items,
noninterest  income  increased  $492 thousand and was largely the result of a
$329 thousand  increase in service  charges on deposits.  The higher  levels of
service  charges on deposits can be attributed to the growth of the deposit
base.

        A gain of $53 thousand from the sale of reverse mortgage servicing also
contributed to the increase in noninterest income.

<PAGE>

Noninterest Expenses

         For the six months  ended June 30,  1998,  noninterest  expenses
amounted to $10.4  million,  an increase of $1.7  million as compared to the
same period in 1997. The  predominant  factor for the increase was the one time
merger related  charges of $1.4 million resulting from the merger with The
Jersey Bank for Savings.  Increases in salaries and benefits,  the largest
component of noninterest expenses also contributed to the increase.  Salaries
and benefits  expense  increased $302 thousand mostly due to normal salary
raises, promotions and increases in staff.  At June 30, 1998, full-time
equivalent staff was 191 as compared to 190 at June 30, 1997.

         Occupancy and equipment  costs that increased $155 thousand from the
same period in 1997 were also partly  responsible for the increase.  The
increase in occupancy and equipment costs was mostly due to the installation of
a new mainframe  computer,  the addition of new equipment and the renovation of
a branch.

         The  Company's  efficiency  ratio for the six months ended June 30,
1998,  was 54.4% as compared to 58.8% for the same period in 1997. The
improvement was mostly  attributable  to the growth in net interest  income and
noninterest  income.  The improvement was partially  offset by a growth in
operating  expenses  resulting from the  installation of a new mainframe
computer and the addition of new equipment and the  renovation of a branch.
The national  peer group average  (published by SNL  Securities)  for the year
1997 was 60.4%.

Income Taxes

         Income tax expense as a  percentage  of pre-tax  income was 35.8% for
the six months  ended June 30, 1998 as compared to 35.1% for the same period in
1997.  The increase is attributable to an increase in the effective state income
tax rate.

                             FINANCIAL CONDITION

         At June 30, 1998,  the  Company's  total  assets  increased  $41.7
million or 6.7% to $666.8  million from $625.1  million at December 31,  1997.
At June 30,  1998,  cash and cash  equivalents  increased  $4.9 million as
compared to December 31, 1997.  This is principally  the result of  operating
activities  (reflecting  net  income  and  changes in other  assets)  and
financing  activities (reflecting  deposit and borrowing growth) providing cash
more rapidly than investing  activities  (funding loan and investment growth)
can utilize the cash.

Securities

         During the second quarter, securities with a book value totaling $8.2
million, which had previously been classified by The Jersey Bank for Savings as
held to maturity, were transferred to available for sale upon the consummation
of the merger. The securities were reclassified to available for sale because
they have a higher degree of interest rate sensitivity and do not conform to
the Company's investment objectives or to its policy for managing interest rate
risk.  The transfer of such securities was done in conformance with Statement
of Financial Accounting Standard No.115, "Accounting for Certain Investments in
Debt and Equity Securities".  At that date the market value of the securities
was $8.1 million.
<PAGE>
<TABLE>

     Securities held to maturity and securities available for sale consist of
the following:  (in thousands)
<CAPTION>
                                                                                       June 30, 1998
                                                              -----------------------------------------------------------------
                                                                                  Gross             Gross          Estimated
                                                               Amortized       Unrealized         Unrealized        Market
                                                                  Cost            Gains             Losses           Value
                                                              -------------    ------------      -------------   --------------
<S>                                                           <C>              <C>               <C>             <C>
Securities held to maturity
    Obligations of U.S. Treasury                                  $ 20,026           $ 112                  -         $ 20,138
    Mortgage-backed securities                                      22,709             210                $37           22,882
    Obligations of U.S. Agencies                                     6,726             213                  -            6,939
    Obligations of states & political subdivisions                   2,012               -                  -            2,012
    Other debt securities                                              149               1                  -              150
                                                              -------------    ------------      -------------   --------------
                                                                    51,622             536                 37           52,121
                                                              -------------    ------------      -------------   --------------
Securities available for sale
    Obligations of U.S. Treasury                                    35,359             587                 33           35,913
    Mortgage-backed securities                                      41,563             367                 98           41,832
    Obligations of U.S. Agencies                                     6,461             124                  3            6,582
    Equity securities                                                4,685             429                  -            5,114
                                                              -------------    ------------      -------------   --------------
                                                                    88,068           1,507                134           89,441
                                                              -------------    ------------      -------------   --------------
       Total securities                                           $139,690          $2,043               $171         $141,562
                                                              =============    ============      =============   ==============

                                                                                     December 31, 1997
                                                              -----------------------------------------------------------------
                                                                                  Gross             Gross          Estimated
                                                               Amortized       Unrealized         Unrealized        Market
                                                                  Cost            Gains             Losses           Value
                                                              -------------    ------------      -------------   --------------

Securities held to maturity
    Obligations of U.S. Treasury                                  $ 22,134           $ 122                  -         $ 22,256
    Mortgage-backed securities                                      28,398             200               $ 96           28,502
    Obligations of U.S. Agencies                                     6,711             166                  -            6,877
    Obligations of states & political subdivisions                   3,049               -                  -            3,049
    Other debt securities                                              150               -                  -              150
                                                              -------------    ------------      -------------   --------------
                                                                    60,442             488                 96           60,834
                                                              -------------    ------------      -------------   --------------
Securities available for sale
    Obligations of U.S. Treasury                                    35,452             605                 74           35,983
    Mortgage-backed securities                                      26,871             308                 30           27,149
    Obligations of U.S. Agencies                                     6,954              71                 12            7,013
    Equity securities                                                4,363           1,048                  -            5,411
                                                              -------------    ------------      -------------   --------------
                                                                    73,640           2,032                116           75,556
                                                              -------------    ------------      -------------   --------------
       Total securities                                           $134,082          $2,520               $212         $136,390
                                                              =============    ============      =============   ==============
</TABLE>

<PAGE>
<TABLE>

At June 30, 1998, the contractual maturities of securities held to maturity and
securities available for sale are as follows: (in thousands)

<CAPTION>
                                          Securities                              Securities
                                       Held to Maturity                       Available for Sale
                                  ----------------------------            ---------------------------
                                   Amortized        Market                 Amortized       Market
                                     Cost            Value                   Cost           Value
                                  ------------    ------------            ------------   ------------
<S>                               <C>             <C>                     <C>            <C>
Within 1 year                         $14,065         $14,132                 $ 7,196        $ 7,250
After 1 but within 5 years             13,436          13,578                  37,443         38,097
After 5 but within 10 years            14,215          14,366                  12,564         12,768
After 10 years                          9,906          10,045                  26,180         26,212
Equity securities                           -               -                   4,685          5,114
                                  ------------    ------------            ------------   ------------
                        Total         $51,622         $52,121                 $88,068        $89,441
                                  ============    ============            ============   ============
</TABLE>

Loans

     At June 30, 1998, total loans increased $32.8 million or 7.5% to $471.1
million from $438.3 million at December 31, 1997. The following table reflects
the composition of the loan portfolio at June

<TABLE>
<CAPTION>

                                                          June 30,          December 31,
                                                            1998               1997
                                                      _____________       _______________
<S>                                                   <C>                 <C>
Amounts of loans by type (in thousands)
      Real estate-mortgage
        Commercial                                       $146,776            $134,972
        1-4 family residential
              First liens                                  83,590              73,275
              Junior liens                                 16,336              16,795
              Available for sale                                -                   -
              Home equity                                 144,087             143,177
      Commercial and financial                             58,060              51,574
      Real estate-construction                              1,694               4,229
      Installment
        Credit cards and related plans                      2,118               2,415
        Other                                               1,423               1,736
      Lease financing                                       9,502              10,101
      Term Fed Funds                                        7,500                   -
                                                       ===============     ================
              Total                                      $471,085            $438,273
                                                       ===============     ================
</TABLE>

<PAGE>

         At June 30, 1998,  total  deposits  increased  $35.1  million or 6.5%
to $575.9  million  from $540.8  million at December 31, 1997.  The growth was
principally in interest and  noninterest  bearing  demand  deposits,  which
grew $23.6 million and $5.4 million, respectively.  Time deposits  grew $2.7
million and represent  29.6% of all deposits at June 30, 1998, as compared to
31.1% at December 31, 1997.

Nonperforming Assets

         Nonperforming assets are comprised of nonaccrual loans, restructured
loans and foreclosed real estate.  At June 30, 1998, nonperforming assets
amounted to $1.8 million, a decrease of $1.0 million from $2.8 million at 
June 30, 1997.  The sale of $409 thousand of nonperforming loans comprised part
of the decrease.  The ratio of nonperforming assets to total loans and
foreclosed real estate decreased to 0.38% at June 30, 1998 from 0.69% at 
June 30, 1997.   At June 30, 1998, nonperforming assets decreased $291 thousand
from $2.1 million at December 31, 1997.  For the second quarter of 1998, the 
ratio of nonperforming assets to total loans and foreclosed real estate
decreased 10 basis points from 0.48% at December 31, 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 $5.3 million at June 30, 1998, and
$5.2 million at December 31, 1997, representing 297.5% and 250.7% of
nonperforming loans at those dates, respectively.   In the second quarter of
1998, the Company's provision for loan losses was $212 thousand, a decrease of
$305 thousand from the same period a year ago.  In the second quarter of 1997,
the provision for loan losses was higher since, during that period, the
Company's loan growth and focus was largely in commercial lending. Such growth
and concentration can change the characteristics and potentially increase the
inherent credit risk of the Company's loan portfolio.  Accordingly, during the
second quarter of 1997, the Company revised the risk allocation percentages
applied to commercial loans used in computing the allowance for loan losses to
capture such risk.  This resulted in the increase in the provision for loan
losses during the period ended, June 30, 1997.

<PAGE>

<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, 1998:
    Total Capital (to Risk Weighted Assets):
     The Company                                    $62,104        14.35 %       $34,626         8.00 %        N/A         N/A
      The Bank                                       60,252        13.98          34,479         8.00       43,098       10.00%
    Tier 1 Capital (to Risk Weighted Assets):
      The Company                                    56,761        13.11         $17,313         4.00          N/A         N/A
      The Bank                                       54,909        12.74          17,239         4.00       25,859        6.00
    Tier 1 Capital (to Average Assets):
      The Company                                    56,761         8.65          19,679         3.00          N/A         N/A
      The Bank                                       54,909         8.40          19,599         3.00       32,665        5.00

As of December 31, 1997:
    Total Capital (to Risk Weighted Assets):
      The Company                                   $59,185        14.51 %        32,631         8.00 %        N/A         N/A
      The Bank                                       57,335        14.12          32,485         8.00       40,606       10.00%
    Tier 1 Capital (to Risk Weighted Assets):
      The Company                                    54,166        13.28          16,316         4.00          N/A         N/A
      The Bank                                       52,338        12.89          16,242         4.00       24,364        6.00
    Tier 1 Capital (to Average Assets):
      The Company                                    54,166         8.79          18,482         3.00          N/A         N/A
      The Bank                                       52,338         8.53          18,403         3.00       30,672        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, 1998, total deposits amounted to $575.9 million, an
increase of $35.1 million or 6.5% from December 31, 1997.  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 June 30, 1998, advances from the FHLB
and REPOS amounted to $9.8 million and $18.5 million, respectively, as compared
to $9.9 million and $13.0 million, respectively, at December 31, 1997.

         In the second quarter of 1998, loan production continued to be the
Company's principal investing activity.  Net loans at June 30, 1998 amounted to
$465.7 million, compared to $433.0 million at the end of 1997, an increase of
$32.7 million or 7.6%.

         The Company's most liquid assets are cash and cash equivalents and
federal funds sold.  At June 30, 1998, the total of such assets amounted to
$41.5 million or 6.2% of total assets, compared to $36.6 million or 5.9% of
total assets at year-end 1997.

         Another significant liquidity source is the Company's
available-for-sale  ("AFS") securities.  At June 30, 1998, AFS securities
amounted to $89.4 million or 63.4% of total securities, compared to $75.6
million or 55.6% of total securities at year-end 1997.

         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 $51.0 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,
         1997.

Item 6.  Exhibits and Reports on Form 8-K

         (a)    The following exhibits are furnished herewith:

                Exhibit No.
                  11       Statement Re: Computation of Per Share Earnings
                  27       Financial Data Schedule

         (b)      Form 8-K filed June 12, 1998 announcing the completion of the
                  acquisition of the Jersey Bank for Savings by merger.

         (c)      3 (a)    Certificate of Incorporation and Amendments thereto
                  are incorporated herein by reference to Form S-4,
                  Registration Statement No. 333-50065.
                  Exhibits 3 filed April 27, 1998

<PAGE>


                                      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
         Executive Vice President & CFO