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

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


[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005

                                       or

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


                         Commission File number 1-10518


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

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

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

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

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


Indicate by checkmark  whether the Registrant (1) has filed all reports required
to be filed by  Sections  13 or 15(d)  of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  report)  and (2) has been  subject  to such  filing
requirements for the past 90 days. Yes__X__    No____

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes__X__    No____


         The number of outstanding shares of the Registrant's common stock, no
par value per share, as of July 29, 2005, was 19,160,765 shares.

<PAGE>

                   INTERCHANGE FINANCIAL SERVICES CORPORATION

INDEX

PART I            FINANCIAL INFORMATION
                                                                       Page No.
    Item 1   Financial Statements

             Unaudited Condensed Consolidated Balance Sheets as of
             June 30, 2005 and December 31, 2004..............................1

             Unaudited Condensed Consolidated Statements of Income for the
             three and six-month periods ended June 30, 2005 and 2004.........2

             Unaudited Condensed Consolidated Statements of Changes in
             Stockholders' Equity for the six months ended
             June 30, 2005 and 2004...........................................3

             Unaudited Condensed Consolidated Statements of Cash Flows for
             the six months ended June 30, 2005 and 2004......................4

             Notes to Unaudited Condensed Consolidated Financial Statements...5

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

    Item 3   Quantitative and Qualitative Disclosures About Market Risk......31

    Item 4   Controls and Procedures.........................................35

PART II   OTHER INFORMATION

    Item 1   Legal Proceedings...............................................36

    Item 2   Unregistered Sales of Equity Securities and Use of Proceeds.....36

    Item 3   Defaults upon Senior Securities.................................36

    Item 4   Submission of Matters to a Vote of Security Holders.............36

    Item 5   Other Information...............................................37

    Item 6   Exhibits........................................................37

               Signatures....................................................38

<PAGE>
                         PART I - FINANCIAL INFORMATION
<Table>
<Caption>
Item 1:   FINANCIAL STATEMENTS
Interchange Financial Services Corporation
--------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------------------------
(dollars in thousands, except share data)
(unaudited)                                                               June 30,    December 31,
                                                                            2005          2004
                                                                       --------------  -----------
<S>                                                                    <C>             <C>
Assets
Cash and due from banks                                                      $ 35,951     $ 33,108
Interest bearing demand deposits                                                    2            2
                                                                       --------------  -----------
Total cash and cash equivalents                                                35,953       33,110
                                                                       --------------  -----------

Securities held-to-maturity at amortized cost (estimated fair value
     of $35,519 and $15,276 for June 30, 2005 and December 31, 2004,
     respectively)                                                             34,763       14,530
                                                                       --------------  -----------
Securities available-for-sale at estimated fair value (amortized
     cost of $329,039 and $375,241  for June 30, 2005 and
     December 31, 2004 respectively)                                          326,454      374,199
                                                                       --------------  -----------

Loans and leases (net of unearned income and deferred fees of $5,829
     and $5,514 for June 30, 2005 and December 31, 2004, respectively)      1,019,987      934,181
Less:  Allowance for loan and lease losses                                      9,945        9,797
                                                                       --------------  -----------
Net loans and leases                                                        1,010,042      924,384
                                                                       --------------  -----------

Bank owned life insurance                                                      26,395       25,847
Premises and equipment, net                                                    17,343       17,713
Foreclosed assets and other repossessed assets                                    154          156
Goodwill                                                                       55,952       55,952
Intangible assets                                                               3,408        3,660
Accrued interest receivable and other assets                                   17,308       14,590
                                                                       --------------  -----------
Total assets                                                               $1,527,772   $1,464,141
                                                                       ==============  ===========
Liabilities
Deposits
    Non-interest bearing                                                     $267,225     $235,036
    Interest bearing                                                          990,929    1,011,102
                                                                       --------------  -----------
Total deposits                                                              1,258,154    1,246,138
                                                                       --------------  -----------

Securities sold under agreements to repurchase                                  4,683        4,401
Short-term borrowings                                                          43,450       24,600
Long-term borrowings                                                           35,000       30,000
Subordinated debentures                                                        20,620            -
Accrued interest payable and other liabilities                                 10,675        8,847
                                                                       --------------  -----------
Total liabilities                                                           1,372,582    1,313,986
                                                                       --------------  -----------

Commitments and contingent liabilities

Stockholders' equity:
Common stock, without par value; 33,750,000 shares authorized;
     19,157,688 and 19,119,814 shares issued and outstanding for
     June 30, 2005 and December 31, 2004, respectively                          5,397        5,397
Capital surplus                                                                73,519       73,320
Retained earnings                                                              92,025       86,542
Accumulated other comprehensive loss, net of taxes of $1,025 and
     $408 for June 30, 2005 and December 31, 2004, respectively                (1,560)        (633)
                                                                       --------------  -----------
                                                                              169,381      164,626
Less:  Treasury stock                                                          14,191       14,471
                                                                       --------------  -----------
Total stockholders' equity                                                    155,190      150,155
                                                                       --------------  -----------
Total liabilities and stockholders' equity                                 $1,527,772   $1,464,141
                                                                       ==============  ===========
--------------------------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.
All share data was restated to reflect a 3-for-2 stock split declared on January 18, 2005 and paid on February 18, 2005.
</Table>
                                      -1-
<PAGE>
<Table>
<Caption>
Interchange Financial Services Corporation
-----------------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-----------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
(unaudited)                                                        Three Months Ended               Six Months Ended
                                                                       June 30,                          June 30,
                                                              -------------------------------  ------------------------------
                                                                  2005             2004             2005            2004
                                                              --------------   --------------  ---------------- -------------
<S>                                                           <C>              <C>             <C>              <C>
Interest income
Interest on loans and leases                                    $    15,853      $    13,125      $     30,810   $    25,832
Interest on federal funds sold                                            1               31                 1            37
Interest and dividends on securities
  Taxable interest income                                             2,457            2,561             5,122         5,211
  Interest income exempt from federal income taxes                      464              279               787           548
  Dividends                                                              77                2               137            41
                                                              --------------   --------------  ---------------- -------------
Total interest income                                                18,852           15,998            36,857        31,669
                                                              --------------   --------------  ---------------- -------------

Interest expense
Interest on deposits                                                  4,595            2,760             8,517         5,587
Interest on securities sold under agreements to repurchase               33               36                56            78
Interest on short-term borrowings                                       350               41               530           111
Interest on long-term borrowings                                        389              225               705           423
                                                              --------------   --------------  ---------------- -------------
Total interest expense                                                5,367            3,062             9,808         6,199
                                                              --------------   --------------  ---------------- -------------

Net interest income                                                  13,485           12,936            27,049        25,470
Provision for loan and lease losses                                     225              300               400           675
                                                              --------------   --------------  ---------------- -------------
Net interest income after provision for loan and lease losses        13,260           12,636            26,649        24,795
                                                              --------------   --------------  ---------------- -------------

Non-interest income
Service fees on deposit accounts                                        889              935             1,772         1,777
Net gain on sale of securities                                          250              305               317           819
Net gain on sale of loans and leases                                    223               57               379           133
Bank owned life insurance                                               285              226               549           487
Commissions on sale of annuities and mutual funds                       148              256               330           468
Other                                                                   681              913             1,323         1,523
                                                              --------------   --------------  ---------------- -------------
Total non-interest income                                             2,476            2,692             4,670         5,207
                                                              --------------   --------------  ---------------- -------------

Non-interest expense
Salaries and benefits                                                 4,954            4,664             9,909         9,512
Occupancy                                                             1,343            1,287             2,806         2,652
Furniture and equipment                                                 316              326               631           660
Advertising and promotion                                               423              470               818           863
Amortization of intangible assets                                       126              126               252           252
Other                                                                 2,018            1,925             3,918         3,776
                                                              --------------   --------------  ---------------- -------------
Total non-interest expense                                            9,180            8,798            18,334        17,715
                                                              --------------   --------------  ---------------- -------------

Income before income taxes                                            6,556            6,530            12,985        12,287
Income taxes                                                          2,041            2,175             4,050         3,946
                                                              --------------   --------------  ---------------- -------------
Net income                                                      $     4,515      $     4,355       $     8,935    $    8,341
                                                              ==============   ==============  ================ =============

Basic earnings per common share                                       $0.24            $0.23             $0.47         $0.44
                                                                      =====            =====             =====         =====

Diluted earnings per common share                                     $0.23            $0.22             $0.46         $0.43
                                                                      =====            =====             =====         =====

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

All per share data was restated to reflect a 3-for-2 stock split declared on January 18, 2005 and paid on February 18, 2005.
</Table>
                                      -2-
<PAGE>
<Table>
<Caption>
Interchange Financial Services Corporation
----------------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30
----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
(unaudited)
                                                                        Accumulated
                                                                           Other
                                                Comprehensive Retained  Comprehensive Common    Capital   Treasury
                                                  Income      Earnings  Income (Loss) Stock     Surplus     Stock       Total
                                                ------------  --------- ------------ --------- ---------- ----------  -----------
<S>                                             <C>           <C>       <C>          <C>       <C>        <C>         <C>
Balance at January 1, 2004                                     $74,710      $ 2,434    $5,397   $ 73,231   $(12,579)   $ 143,193
Comprehensive income
    Net Income                                      $ 8,341      8,341                                                     8,341
    Other comprehensive income, net of taxes
       Unrealized net gains on AFS debt securities   (2,624)
       Less: net gains on disposition of
       securities                                      (652)
                                                 -----------

    Other comprehensive income, net of taxes         (3,276)                  (3,276)                                     (3,276)
                                                 -----------

Comprehensive income                                $ 5,065
                                                ===========

Dividends on common stock                                       (3,194)                                                   (3,194)
Issued 11,690 shares of common stock in connection
    with Executive Compensation Plan                                                                 103        102          205
Exercised 10,811 option shares                                                                       (10)       112          102
Purchased 127,179 shares of common stock                                                                     (2,154)      (2,154)

                                                              --------- ------------ --------- ---------- ----------  -----------
Balance at June 30, 2004                                        79,857         (842)    5,397     73,324    (14,519)     143,217

Comprehensive income
    Net Income                                     $  9,873      9,873                                                     9,873
    Other comprehensive losses, net of taxes
       Unrealized losses on AFS debt securities         612
       Less: net gains on disposition of
       securities                                      (408)
       Minimum pension liability adjustment               5
                                                 -----------
    Other comprehensive losses, net of taxes           (209)                    209                                          209
                                                 -----------
Comprehensive income                               $ 10,082
                                                 ===========

Dividends on common stock                                       (3,188)                                                   (3,188)
Exercised 11,254 option shares                                                                        (4)        48           44
                                                              --------- ------------ --------- ---------- ----------  -----------
Balance at December 31, 2004                                    86,542         (633)    5,397     73,320    (14,471)     150,155

Comprehensive income
    Net Income                                      $ 8,935      8,935                                                     8,935
    Other comprehensive losses, net of taxes
       Unrealized losses on AFS debt securities        (808)
       Less: net gains on disposition of
       securities                                      (119)
                                                 -----------
    Other comprehensive losses, net of taxes           (927)                   (927)                                        (927)
                                                 -----------
Comprehensive income                                $ 8,008
                                                 ===========

Dividends on common stock                                       (3,445)                                                   (3,445)
Issued 18,772 shares of common stock in connection
    with Executive Compensation Plan                                                                 173        162          335
Exercised 24,335 option shares                                                                        26        194          220
Purchased 4,532 shares of common stock                                                                          (76)         (76)
Payout of fractional shares resulting from the
    three-for-two stock split declared
    January 18, 2005 and paid on February 18, 2005                  (7)                                                       (7)

                                                              --------- ------------ --------- ---------- ----------  -----------
Balance at June 30, 2005                                       $92,025     $ (1,560)   $5,397   $ 73,519    (14,191)   $ 155,190
                                                              ========= ============ ========= ========== ==========  ===========

----------------------------------------------------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.
All share data was restated to reflect a 3-for-2 stock split declared on January 18, 2005 and paid on February 18, 2005.
</Table>

                                      -3-
<PAGE>
<Table>
<Caption>
INTERCHANGE FINANCIAL SERVICES CORPORATION
------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
------------------------------------------------------------------------------------------------------------
(in thousands)
(unaudited)
                                                                                         2005         2004
                                                                                   ------------- -----------
<S>                                                                                <C>           <C>
Cash flows from operating activities
Net income                                                                              $ 8,935     $ 8,341
Adjustments to reconcile net income to net cash provided by operating activities
  Depreciation and amortization                                                           1,004         976
  Amortization of securities premiums                                                     2,080       2,973
  Accretion of securities discounts                                                        (126)       (122)
  Amortization of loan premiums                                                              46          23
  Amortization of premiums in connection with acquisition                                   371         656
  Provision for loan and lease losses                                                       400         675
  Increase in cash surrender value of Bank Owned Life Insurance                            (548)       (487)
  Net gain on sale of securities                                                           (317)       (819)
  Origination of loans held for sale                                                     (7,582)     (1,437)
  Sale of loans held for sale                                                             7,056       1,532
  Net gain on sale of  loans and leases                                                    (379)       (130)
  Net loss/(gain) on sale of foreclosed assets and repossessed assets                        13         (14)
Decrease (increase) in operating assets
  Accrued interest receivable                                                              (247)        864
  Other Assets                                                                           (1,981)     (1,115)
 Increase (decrease) in operating liabilities
Accrued interest payable                                                                    145         (74)
  Other                                                                                   1,683       1,092
                                                                                   ------------- -----------
Cash provided by operating activities                                                    10,553      12,934
                                                                                   ------------- -----------

Cash flows from investing activities
(Payments for) proceeds from
  Net originations of loans and leases                                                  (81,876)    (51,898)
  Purchase of loans and leases                                                           (4,678)    (36,449)
  Sale of loans and leases                                                                1,215         744
  Purchase of securities available-for-sale                                             (49,538)    (38,840)
  Maturities of securities available-for-sale                                            17,155      46,525
  Sale of securities available-for-sale                                                  77,127      58,235
  Maturities of securities held-to-maturity                                               1,209       5,205
  Sale of securities held-to-maturity                                                       270           -
  Purchase of securities held-to-maturity                                               (21,891)     (6,820)
  Sale of foreclosed assets and other repossessed assets                                      -          77
  Purchase of fixed assets                                                                 (503)       (546)
                                                                                   ------------- -----------
Cash used in investing activities                                                       (61,510)    (23,767)
                                                                                   ------------- -----------

Cash flows from financing activities
Proceeds from (payments for)
  Net change in deposits                                                                 12,021      30,052
  Securities sold under agreements to repurchase and other borrowings                   557,077     223,418
  Retirement of securities sold under agreement to repurchase and
          other borrowings                                                             (532,945)   (236,682)
  Issuance of long term subordinated debentures                                          20,620           -
  Dividends                                                                              (3,445)     (3,194)
  Common stock issued                                                                       335         205
  Payout of fractional shares resulting from 3-for-2 stock split                             (7)          -
  Treasury stock                                                                            (76)     (2,154)
  Exercise of option shares                                                                 220         102
                                                                                   ------------- -----------
Cash provided by financing activities                                                    53,800      11,747
                                                                                   ------------- -----------
Increase  in cash and cash equivalents                                                    2,843         914
Cash and cash equivalents, beginning of period                                           33,110      31,435
                                                                                   ------------- -----------
Cash and cash equivalents, end of period                                               $ 35,953    $ 32,349
                                                                                   ============= ===========

Supplemental disclosure of cash flow information:
Cash paid for:
  Interest                                                                              $ 9,497      $6,275
  Income taxes                                                                            5,144       4,100

Supplemental disclosure of non-cash investing and financing activities:
  Loans transferred to foreclosed assets and other repossessed assets                        11          34

--------------------------------------------------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.
</Table>
                                      -4-
<PAGE>

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE THREE AND SIX-MONTH PERIODS ENDED JUNE 30, 2005

1.   Basis of Presentation

     The accompanying  unaudited  condensed  consolidated  financial  statements
include the accounts of Interchange  Financial Services  Corporation and certain
of its wholly  owned  subsidiaries  (on a  consolidated  basis,  the  "Company")
including its principal operating subsidiary,  Interchange Bank (the "Bank") and
Clover  Leaf  Mortgage  Company,  and have  been  prepared  in  conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
("GAAP") and in accordance  with the rules and regulations of the Securities and
Exchange  Commission.  The Company  has two wholly  owned  trusts  which are not
consolidated,  see  Note  12  "Subordinated  Debentures"  for  a  more  detailed
discussion  of these  subsidiaries.  Pursuant  to such  rules  and  regulations,
certain  information  or  footnotes  necessary  for a complete  presentation  of
financial  condition,  results of operations  and cash flows in conformity  with
GAAP have been  condensed or omitted.  These  condensed  consolidated  financial
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements and schedules  thereto  included in the annual report on Form 10-K of
the Company for the year ended December 31, 2004.

     The  condensed  consolidated  financial  data for the three and six  months
ended June 30, 2005 and 2004, are unaudited but reflect  adjustments  consisting
of only normal  recurring  adjustments  which are, in the opinion of management,
considered  necessary for a fair  presentation  of the  financial  condition and
results of operations  for the interim  periods.  The results of operations  for
interim periods are not necessarily indicative of results to be expected for any
other period or the full year.

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

New  Accounting  Pronouncements:  In December  2003,  the American  Institute of
Certified Public Accountants issued Statement of Position 03-3,  "Accounting for
Certain Loans or Debt Securities  Acquired in a Transfer" ("SOP 03-3"). SOP 03-3
addresses  accounting for differences  between  contractual  cash flows and cash
flows  expected  to be  collected  from an initial  investment  in loans or debt
securities acquired in a transfer if those differences relate, at least in part,
to a deterioration of credit quality. SOP 03-3 prohibits companies from carrying
over  valuation  allowances in the initial  accounting for such loans and limits
the yield that may be accreted to the excess of undiscounted expected cash flows
over the initial  investment  in the loan.  Decreases in expected cash flows are
recognized as impairment and increases are

                                      -5-

<PAGE>

recognized  prospectively  through an adjustment of the loan yield.  SOP 03-3 is
effective  for loans and debt  securities  acquired on or after January 1, 2005.
Our adoption of this guidance did not have a significant effect on our condensed
consolidated financial statements.

     On March 3, 2005, the Financial  Accounting Standards ("FASB") Staff issued
FASB Staff Position ("FSP") FIN 46(R)-5, "Implicit Variable Interests under FASB
Interpretation  No. 46" (FIN 46R-- Revised  December  2003),  "Consolidation  of
Variable Interest Entities" ("VIE"). This FSP requires a reporting enterprise to
consider the impact of implicit  variable  interests in determining  whether the
reporting  enterprise  may absorb  variability of the VIE or potential VIE. This
staff  position was effective in the second quarter of 2005 and its adoption did
not have a material impact on our condensed consolidated financial statements.

     In May 2005,  the FASB issued SFAS No. 154,  "Accounting  Changes and Error
Corrections- a replacement of APB Opinion No. 20 and FASB Statement No. 3". SFAS
No. 154 replaces APB Opinion No. 20,  "Accounting  Changes," and FASB  Statement
No. 3,  "Reporting  Accounting  Changes in Interim  Financial  Statements,"  and
changes the  accounting  and reporting  requirements  for a change in accounting
principle.  SFAS No. 154  applies  to all  voluntary  changes  in an  accounting
principle,  as well as to changes required by a new accounting  pronouncement in
the unusual instance that the pronouncement does not include specific transition
provisions.  SFAS  No.  154  is  effective  for  accounting  changes  and  error
corrections  made in fiscal years beginning after December 15, 2005 and requires
retrospective  application  to  prior  periods'  financial  statements  for most
voluntary changes in an accounting  principle,  unless it is impracticable to do
so.  The  Company  does not  anticipate  any  material  impact to its  financial
condition or results of operations as a result of the adoption of SFAS No. 154.

     At the June 29, 2005 FASB Board meeting,  the Board agreed to issue FSP FAS
115-1,  "The Meaning of  Other-Than-Temporary  Impairment and Its Application to
Certain  Investments"  which will replace the guidance  previously  set forth in
EITF 03-1, "The Meaning of  Other-Than-Temporary  Impairment and Its Application
to Certain Investments". This FSP effectively eliminates the accounting guidance
provided in EITF 03-1 in favor of existing impairment recognition guidance under
SFAS 115, Staff  Accounting  Bulletin  ("SAB") 59,  Accounting  Principles Board
("APB")  Opinion No. 18, and EITF Topic D-44.  The effective  date of the FSP is
for periods  beginning  after  September 15, 2005, but is not expected to have a
material impact on our condensed consolidated financial statements.

Stock Based Compensation:  The Company accounts for stock option plans under the
recognition  and  measurement  principles  of  "Accounting  for Stock  Issued to
Employees"  (APB No. 25) and related  interpretations.  No stock-based  employee
compensation  costs are  reflected in net income,  as all options  granted under
those plans had an exercise  price equal to the market  value of the  underlying
common stock on the date of grant.  In December 2004, the FASB issued  Statement
of Financial  Accounting Standard ("SFAS") No. 123 (revised 2004),  "Share-Based
Payment,"  ("SFAS No.  123(R)").  SFAS No. 123(R)  addresses the  accounting for
share-based  payment  transactions  in which  an  enterprise  receives  employee
services  in  exchange  for (a)  equity  instruments  of the  enterprise  or (b)
liabilities  that  are  based  on the  fair

                                      -6-

<PAGE>

value of the  enterprise's  equity  instruments  or that may be  settled  by the
issuance  of such  equity  instruments.  SFAS No.  123(R)  requires an entity to
recognize  the  grant-date  fair value of stock  options and other  equity-based
compensation   issued  to  employees   within  the  income   statement  using  a
fair-value-based  method,  eliminating  the intrinsic value method of accounting
previously permissible under APB No. 25 and related interpretations.

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

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

     The  following  table  illustrates  the effect on net  income  and  diluted
earnings per common share if the Company had applied the fair value  recognition
provisions of SFAS No. 123, to  stock-based  compensation  for the three and six
months  ended  June  30,  2005 and  2004:  (in  thousands,  except  share  data)
(unaudited)

<Table>
<Caption>
                                             For the three months ended       For the six months ended
                                                      June 30,                       June 30,
                                            -----------------------------   --------------------------
                                                 2005            2004          2005           2004
                                            -------------   -------------   -----------   ------------
<S>                                         <C>             <C>             <C>           <C>
Net Income
      As reported                                 $4,515          $4,355        $8,935         $8,341

      Less: Total stock-based
      compensation expense determined
      under the fair value method for all
      rewards, net of related tax effects            259             216           525            403
                                            -------------   -------------  ------------   ------------
      Pro-forma                                   $4,256          $4,139        $8,410         $7,938
                                            =============   =============  ============   ============

Earnings per share:
Basic:
     As reported                                    0.24            0.23          0.47           0.44
     Pro forma                                      0.22            0.22          0.44           0.41
Diluted:
     As reported                                    0.23            0.22          0.46           0.43
     Pro forma                                      0.22            0.21          0.43           0.41
</Table>

     The fair value of each option grant is estimated on the date of grant using
the   Black-Scholes   option-pricing   model.  The  following   weighted-average
assumptions  were used for option grants issued during the six months ended June
30, 2005 and 2004,  respectively:  dividend  yield of 2.00% and 2.01%;  expected

                                      -7-

<PAGE>

volatility of 23.07% and 23.05%; risk-free interest rate of 3.87% and 3.86%; and
expected lives of approximately 7 years.

2.   Earnings Per Common Share

     Basic  earnings  per common  share  represent  income  available  to common
stockholders divided by the weighted-average number of common shares outstanding
during the period.  Diluted earnings per common share reflect  additional common
shares that would have been outstanding if dilutive  potential common shares had
been  issued,  as well as any  adjustment  to income that would  result from the
assumed  issuance.  Potential  common  shares  that may be issued by the Company
relate  solely  to  outstanding  stock  options,  and are  determined  using the
treasury stock method.  At June 30, 2005 and 2004 the weighted  average  diluted
shares outstanding for the three months were approximately 19.6 million and 19.5
million, respectively. For the each of the six month periods ended June 30, 2005
and 2004 the weighted average diluted shares outstanding were approximately 19.6
million.

3.   Commitments and Contingent Liabilities

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

Commitments to Extend Credit
     At June 30,  2005,  the Company had  commitments  of  approximately  $280.5
million to extend credit, of which approximately $2.6 million represents standby
letters of credit.

4.   Goodwill and Other Intangibles

     Goodwill is not amortized to expense,  but rather is tested for  impairment
periodically.  Goodwill is tested for impairment at least annually in accordance
with the provisions of SFAS No. 142.

     Other  intangible  assets  are  amortized  to expense  using  straight-line
methods  over  their  respective  estimated  useful  lives.  At least  annually,
management  reviews goodwill and other intangible assets and evaluates events or
changes in circumstances that may indicate  impairment in the carrying amount of
such  assets.  If the  sum of  the  expected  undiscounted  future  cash  flows,
excluding  interest  charges,  is less than the carrying amount of the asset, an
impairment loss is recognized.  Impairment,  if any, is measured on a discounted
future   cash  flow  basis.   Net   intangible   assets  are  as  follows:   (in
thousands)(unaudited)

                                      -8-

<PAGE>

                                        ----------------    -----------------
                                           June 30,           December 31,
                                             2005                 2004
                                        ----------------    -----------------

Intangilbe assets                         $       4,595       $        4,595
Accumulated amortization                         (1,187)                (935)
                                        ----------------    -----------------
  Net intangible assets                   $       3,408       $        3,660
                                        ================    =================

     Intangible assets are a result of acquisitions and are primarily related to
core deposit  intangibles  ("CDI") which have an estimated life of 10 years. For
each of the three and six month  periods  ended  June 30,  2005 and 2004 the CDI
amortized was $107  thousand and $214  thousand,  respectively.  The CDI will be
periodically reviewed for impairment.

At June 30,  2005 the  scheduled  amortization  of the  intangible  assets is as
follows (in thousands) (unaudited):

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

5.   Segment Reporting

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

6.   Cash Dividend

     On July 19, 2005,  the Company  declared a cash dividend of $0.09 per share
payable on August 19, 2005, to holders of record as of August 1, 2005.

                                      -9-

<PAGE>
7.   Securities Held-to-Maturity and Securities Available-for-Sale

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

<Table>
<Caption>
                                                       --------------------------------------------------------
                                                                         June 30, 2005
                                                       --------------------------------------------------------
                                                                        Gross         Gross        Estimated
                                                        Amortized     Unrealized   Unrealized        Fair
                                                           Cost         Gains        Losses          Value
                                                       -------------  -----------  ------------  --------------
<S>                                                    <C>            <C>          <C>           <C>
Securities held-to-maturity
   Government-Sponsored Enterprises:
        Mortgage-backed securities                      $     3,907    $      57     $       1    $      3,963
   Obligations of states & political subdivisions            30,856          700             -          31,556
                                                       -------------  -----------  ------------  --------------
                                                        $    34,763    $     757     $       1    $     35,519
                                                       =============  ===========  ============  ==============

Securities available-for-sale
   Government-Sponsored Enterprises:
        Mortgage-backed securities                      $   120,567    $     237     $     937    $    119,867
        Other debt                                          172,026            3         2,383         169,646
   Obligations of states & political subdivisions            31,641          509            14          32,136
   Equity securities                                          4,805            -             -           4,805
                                                       -------------  -----------  ------------  --------------
                                                            329,039          749         3,334         326,454
                                                       -------------  -----------  ------------  --------------

     Total securities                                   $   363,802    $   1,506     $   3,335    $    361,973
                                                       =============  ===========  ============  ==============

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

Securities available-for-sale
   Obligations of U.S. Treasury                         $     5,981    $       1     $       -    $      5,982
   Government-Sponsored Enterprises:
        Mortgage-backed securities                          121,198          793           599         121,392
        Other debt                                          211,856          344         2,352         209,848
   Obligations of states & political subdivisions            31,948          815            44          32,719
   Equity securities                                          4,258            -             -           4,258
                                                       -------------  -----------  ------------  --------------
                                                            375,241        1,953         2,995         374,199
                                                       -------------  -----------  ------------  --------------
     Total securities                                   $   389,771    $   2,699     $   2,995    $    389,475
                                                       =============  ===========  ============  ==============
</Table>

     At  June  30,  2005,  the  contractual  maturities  of  securities  HTM and
securities AFS are as follows: (in thousands) (unaudited)

<Table>
<Caption>
                                              Securities                 Securities
                                           Held-to-Maturity           Available-for-Sale
                                     ----------------------------  -------------------------
                                                     Estimated                   Estimated
                                      Amortized         Fair       Amortized       Fair
                                         Cost          Value          Cost         Value
                                     -------------  -------------  -----------  ------------
<S>                                  <C>            <C>            <C>          <C>
Within 1 year                         $    15,006    $    15,055   $   98,619    $   97,912
After 1 but within 5 years                  3,789          3,952      212,780       210,493
After 5 but within 10 years                11,462         11,919        3,031         3,137
After 10 years                              4,506          4,593        9,804        10,107
Equity securities                               -              -        4,805         4,805
                                     -------------  -------------  -----------  ------------
                       Total          $    34,763    $    35,519   $  329,039    $  326,454
                                     =============  =============  ===========  ============
</Table>

                                      -10-

<PAGE>

     Proceeds  from the sale of  securities  AFS  amounted to $77.1  million and
$58.2  million for the six months  ended June 30,  2005 and 2004,  respectively,
which  resulted in gross  realized  gains of $670 thousand and $913 thousand for
those periods,  respectively.  Gross realized losses from the sale of securities
AFS amounted to $361 thousand and $94 thousand for the six months ended June 30,
2005 and 2004,  respectively.  Proceeds from the sale of securities HTM amounted
to $270  thousand  for the six months  ended June 30,  2005,  which  resulted in
realized gains of $8 thousand.  The securities  had  significantly  paid down to
less  than  85% of the  original  purchased  balance  through  normal  principal
amortization and prepayments.  There were no sales of securities HTM for the six
months  ended June 30, 2004.  These  amounts are included in net gain on sale of
securities in the unaudited condensed consolidated statements of income.

     On a quarterly basis, the Company makes an assessment to determine  whether
there have been any events or economic circumstances to indicate that a security
on which there is an  unrealized  loss is  impaired  on an  other-than-temporary
basis. The Company considers many factors including the severity and duration of
the impairment; the intent and ability of the Company to hold the security for a
period of time sufficient for a recovery in value; recent events specific to the
issuer or industry; and for debt securities,  external credit ratings and recent
downgrades. Securities on which there is an unrealized loss that is deemed to be
other-than-temporary are written down to fair value with the write-down recorded
as a realized  loss in  securities  gains  (losses).  Based  upon the  Company's
evaluation  of the  securities  portfolios  no other than  temporary  impairment
charge was necessary at June 30, 2005 and 2004.

     The following table  summarizes all securities that have an unrealized loss
and the  duration  of the  unrealized  loss at June  30,  2005:  (in  thousands)
(unaudited)

<Table>
<Caption>
                                                 -----------------------  -------------------------  ------------------------
                                                    12 months or less        12 months or longer              Totals
                                                 -----------------------  -------------------------  ------------------------
                                                     Fair     Unrealized      Fair      Unrealized       Fair     Unrealized
                                                    Value      Losses        Value        Losses        Value       Losses
                                                 ----------- -----------  -----------  ------------  ----------- ------------
<S>                                              <C>         <C>          <C>          <C>           <C>         <C>
Securities available-for-sale
Government-Sponsored Enterprises:
     Mortgage-backed securities                    $ 48,790    $    465    $  44,552     $     472    $  93,342    $     937
     Other debt                                           -           -      168,603         2,383      168,603        2,383
Obligations of states & political subdivisions          485           1        1,648            13        2,133           14
                                                 ----------- -----------  -----------  ------------  ----------- ------------
                                                   $ 49,275    $    466    $ 214,803     $   2,868    $ 264,078    $   3,334
                                                 =========== ===========  ===========  ============  =========== ============
Securities held-to-maturity
Government-Sponsored Enterprises:
     Mortgage-backed securities                    $    108    $      1    $      34     $       -    $     142    $       1
                                                 =========== ===========  ===========  ============  =========== ============
</Table>

     The following table  summarizes all securities that have an unrealized loss
and the duration of the unrealized loss at December 31, 2004: (in thousands)

                                      -11-

<PAGE>

<Table>
<Caption>
                                                  ------------------------  --------------------  ----------------------
                                                     12 months or less       12 months or longer          Totals
                                                  ------------------------  --------------------  ----------------------
                                                     Fair       Unrealized     Fair  Unrealized       Fair    Unrealized
                                                    Value         Losses      Value    Losses        Value      Losses
                                                  -----------  -----------  --------  ----------  ---------  ---------
<S>                                               <C>            <C>        <C>        <C>        <C>          <C>
Securities available-for-sale
Government-Sponsored Enterprises:
  Mortgage-backed securities                       $   54,616    $     555  $  13,966  $      44  $  68,582  $      599
  Other Debt                                           91,582          840    104,493      1,512    196,075       2,352
Obligations of states & political subdivisions            479            7      3,138         37      3,617          44
                                                  -----------    ---------  ---------  ---------  ---------  ----------
                                                   $  146,677    $   1,402  $ 121,591  $   1,593  $ 268,274  $    2,995
                                                  ===========    =========  =========  =========  =========  ==========
</Table>

     Securities  with  carrying  amounts of $125.8  million and $62.2 million at
June 30, 2005 and  December  31,  2004,  respectively,  were  pledged for public
deposits,  Federal Home Loan Bank  advances,  securities  sold under  repurchase
agreements and other purposes required by law.

8.   Loans

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

                               -----------    ------------
                                June 30,      December 31,
                                  2005            2004
                               -----------    ------------
                               (unaudited)
Real estate
  Residential                   $  296,040     $ 292,406
  Commercial                       418,413       375,985
  Construction                      73,536        51,162

Commercial
  Commercial and financial         204,476       186,386
  Lease financing                   22,877        23,535

Consumer
  Lease financing                      198           680
  Installment                        4,447         4,027
                                ----------      --------

                                 1,019,987       934,181
Allowance for loan and lease        (9,945)       (9,797)
                                ----------      --------

Net loans and leases            $1,010,042     $ 924,384
                                ==========     =========

     Loans are net of unearned income and deferred fees of $5.8 million and $5.5
     million  for the  periods  ended  June 30,  2005  and  December  31,  2004,
     respectively.

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

                                      -12-

<PAGE>

                              ---------  -----------
                              June 30,   December 31,
                                2005         2004
                              ---------  -----------
                             (unaudited)
Nonaccrual loans
  Residential real estate      $   700     $ 1,660
  Commercial real estate         1,648       2,320
  Commercial and financial       2,152       2,981
  Commercial lease financing     1,546       1,836
  Consumer                         230         336
                              ---------    --------
                               $ 6,276     $ 9,133
                              =========    ========

9.   Allowance for Loan and Lease Losses

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

<Table>
<Caption>
                                                   -------------------  ----------------------
                                                        June 30,             December 31,
                                                   -------------------  ----------------------
                                                           2005                 2004
                                                   -------------------  ----------------------
                                                   Investment  Related   Investment   Related
                                                       in     Allowance     in       Allowance
                                                    Impaired  for Loan   Impaired    for Loan
                                                      Loans    Losses      Loans       Losses
                                                    --------  --------   ---------   ---------
<S>                                                 <C>       <C>        <C>         <C>
Impaired loans
       With a related allowance for loan losses
           Commercial and financial                 $ 2,960    $  421     $ 2,981      $   420
           Commercial real estate                     1,655        26       2,320           98
           Residential real estate                      978       112         822          123
       Without a related allowance for loan loses         -         -           -            -
                                                    --------  --------   ---------     --------
                                                    $ 5,593    $  559     $ 6,123      $   641
                                                    ========  ========   =========     ========

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

Changes in the  allowance  for loan and lease losses are  summarized as follows:
(in thousands) (unaudited)
<Table>
<Caption>
                                                   --------------------------------------
                                                   Three months ended   Six months ended
                                                        June 30,           June 30,
                                                   ------------------ -------------------
                                                      2005    2004       2005     2004
                                                   ------- --------   -------- ----------
<S>                                                <C>     <C>        <C>      <C>
Balance at beginning of period                      $9,876   $9,635     $9,797    $9,641
Additions (deductions)
     Provision charged to operation                    225      300        400       675
     Recoveries on loans previously charged off          5       24         83        60
     Loans charged off                                (161)    (171)      (335)     (588)
                                                   -------- --------   --------  --------
Balance at end of period                            $9,945   $9,788     $9,945    $9,788
                                                   ======== ========   ========  ========
</Table>

                                      -13-

<PAGE>

10.  Other Non-interest Expense

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

                                       ------------------  --------------------
                                       Three months ended   Six months ended
                                            June 30,           June 30,
                                       ------------------  --------------------
                                          2005      2004       2005     2004
                                       -------   --------   -------- ----------
Professional fees                      $   232    $   361   $    778   $   677
Legal fees                                 256        240        441       450
Directors' fees, travel and retirement     205        194        422       410
Data processing                            264        283        529       564
All other                                1,061        847      1,748     1,675
                                      ---------  ---------  --------- ---------
   Total                               $ 2,018    $ 1,925    $ 3,918   $ 3,776
                                      =========  =========  ========= =========

11. Long-term Borrowings

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

        Maturity                       June 30,       December 31,
          Date           Rate           2005             2004
--------------------- ----------    --------------  --------------
                                     (unaudited)
January 2006               2.09 %               -        $ 10,000

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

January 2007               2.69            10,000          10,000

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

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

(b)  The FHLB has an option to call this advance in January 2008.

12.  Subordinated Debentures

     During June 2005,  Interchange  Statutory Trust I and Interchange Statutory
Trust II  (together  the  "Trusts")  each  issued $10  million  of pooled  trust
preferred  securities.  In conjunction  with the issuance of the trust preferred
securities the Company  issued  subordinated  debentures to the Trusts  totaling
$20.6 million. The rates of interest paid on the securities issued by the Trusts
and the Company have been fixed for 5 years, at an average rate of 6.10%,  after
which time the rates will float at the 3-month LIBOR plus 1.71%. The Company has
the right to call the notes after 5 years on any of the interest  payment dates.
The final maturity date on the pool trust preferred securities and debentures is
2035.

     The  Company  does not meet the  criteria  as primary  beneficiary  for the
Trusts  in  accordance   with  Financial   Accounting   Standards  Board  (FASB)
Interpretation  No. 46 (FIN 46) and FIN No.  46(R),  "Consolidation  of Variable
Interest Entities." As a result,  these trusts are not consolidated.  The Trusts
have no  independent  operations.  The  obligations  of the Trusts are fully and
unconditionally guaranteed by the

                                      -14-

<PAGE>

Company.  The debentures are unsecured and rank  subordinate and junior in right
of payment to all  indebtedness,  liabilities  and  obligations  of the Company.
Interest on the debentures is cumulative  and payable in arrears.  Proceeds from
any redemption of debentures would cause a mandatory  redemption of pooled trust
preferred  securities  having  an  aggregate  liquidation  amount  equal  to the
principal amount of debentures redeemed.

13.  Benefit Plans

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

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

<Table>
<Caption>
                                    -----------------------  ----------------------
                                       Three Months Ended       Six Months Ended
                                            June 30,                June 30,
                                    -----------------------  ----------------------
                                       2005        2004         2005         2004
                                    -----------  ----------  ----------  ----------
<S>                                 <C>          <C>         <C>         <C>
Service cost                             $ 198       $ 166       $ 396       $ 333
Interest cost                              102          95         204         190
Expected return on plan assets             (56)        (39)       (112)        (79)
Amortization of prior service cost           1           1           2           2
Amortization of net (gain) loss              1           -           2           -
                                    -----------  ----------  ----------  ----------

Net periodic benefit cost                $ 246       $ 223       $ 492       $ 446
                                    ===========  ==========  ==========  ==========
</Table>

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

                                      -15-

<PAGE>

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

     The  following  discussion  is an  analysis of the  condensed  consolidated
financial  condition  and results of operations of the Company for the three and
six  month  periods  ended  June  30,  2005  and  2004,  and  should  be read in
conjunction  with the  condensed  consolidated  financial  statements  and notes
thereto included in Item 1 hereof. In addition,  you should read this section in
conjunction with Management's  Discussion and Analysis and Results of Operations
included in the Company's 2004 Annual Report on Form 10-K.

Forward Looking Information

     In  addition  to  discussing  historical  information,  certain  statements
included  in  or  incorporated  into  this  report  relating  to  the  financial
condition,  results of  operations  and business of the  Company,  which are not
historical facts may be deemed  "forward-looking  statements" within the meaning
of the Private  Securities  Litigation Reform Act of 1995. When used herein, the
words   "anticipate,"   "believe,"   "estimate,"   "expect"  and  other  similar
expressions  (including  when  preceded  or  followed  by the  word  "not")  are
generally intended to identify such forward-looking  statements. Such statements
are  intended to be covered by the safe harbor  provisions  for  forward-looking
statements  contained  in such Act,  and we are  including  this  statement  for
purposes  of  invoking  these  safe  harbor  provisions.   Such  forward-looking
statements  include,  but are not limited to, statements about the operations of
the Company,  the adequacy of the Company's allowance for losses associated with
the loan and lease portfolio,  the quality of the loan and lease portfolio,  the
prospects of continued loan and deposit growth, and improved credit quality. The
forward-looking   statements  in  this  report  involve  certain   estimates  or
assumptions, known and unknown risks and uncertainties, many of which are beyond
the control of the Company, and reflect what we currently anticipate will happen
in each  case.  What  actually  happens  could  differ  materially  from what we
currently anticipate will happen due to a variety of factors,  including,  among
others, (i) increased  competitive pressures among financial services companies;
(ii) adverse changes in  Government-Sponsored  Enterprises (the "GSE") status or
financial  condition  impacting the GSE's  guarantees or ability to pay or issue
debt;  (iii) changes in the interest rate yield curve such as flat,  inverted or
steep yield curves,  or interest rate environment  which impact interest margins
and may impact prepayments on the  mortgage-backed  securities  portfolio;  (iv)
changes in consumer  spending,  borrowing and saving habits;  (v)  technological
changes,  (vi)  deterioration in general economic  conditions,  internationally,
nationally,  or in  the  State  of  New  Jersey;  (vii)  disruptions  caused  by
terrorism,  such as the events of September 11, 2001, or military actions in the
Middle East or other areas;  (viii)  legislation or regulatory  requirements  or
changes  adversely  affecting the business of the Company;  and (ix) other risks
detailed  in reports  filed by the  Company  with the  Securities  and  Exchange
Commission.  Readers should not place undue expectations on any  forward-looking
statements.  We are  not  promising  to make  any  public  announcement  when we

                                      -16-

<PAGE>

consider  forward-looking  statements in this document to be no longer accurate,
whether as a result of new  information,  what actually happens in the future or
for any other reason.

Company

     The Company is a bank holding company  headquartered in Bergen County,  New
Jersey. The Company's principal operating  subsidiary is Interchange Bank, a New
Jersey-chartered commercial bank. In addition to the Bank, the Company has three
other wholly owned direct  subsidiaries:  Clover Leaf  Mortgage  Company,  a New
Jersey corporation, which is not currently engaged in any business activity; and
Interchange  Statutory  Trust I and  Interchange  Statutory Trust II, which were
formed for the sole purpose of issuing trust preferred  securities.  The Company
does not  qualify as the  primary  beneficiary  for our  wholly-owned  trusts in
accordance with Financial Accounting  Standards Board (FASB)  Interpretation No.
46 (FIN 46) and FIN No. 46(R), "Consolidation of Variable Interest Entities." As
a  result,  these  trusts  are  not  consolidated.  The  Bank  has  five  direct
subsidiaries:   Clover  Leaf  Investment  Corporation,   an  investment  company
operating pursuant to New Jersey law; Clover Leaf Insurance Agency,  Inc., a New
Jersey corporation engaged in the sale of tax-deferred  annuities and insurance;
Clover  Leaf  Management  Realty  Corporation,  a Real Estate  Investment  Trust
("REIT"),  which manages certain real estate assets of the Company;  Bridge View
Investment  Company, an investment company operating pursuant to New Jersey law;
and Interchange Capital Company,  L.L.C. ("ICC"), a New Jersey limited liability
company  which  engages  in  equipment  lease  financing.   All  of  the  Bank's
subsidiaries are 100% owned by the Bank, except for the REIT, which is 99% owned
by the Bank.  Bridge View  Investment  Company has one wholly owned  subsidiary,
Bridge View Delaware,  Inc.  ("BVDI").  BVDI is an investment  company operating
pursuant to Delaware law.

Critical Accounting Policies and Judgments

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

                                      -17-

<PAGE>

financial modeling techniques.  Changes in underlying factors,  assumptions,  or
estimates  in any of these areas could have a material  impact on the  Company's
future financial condition and results of operations.

Allowance  for Loan and Lease  Losses:  The  allowance for loan and lease losses
("ALLL") is  established  through  periodic  charges to income.  Loan losses are
charged against the ALLL when management  believes that the future collection of
principal is unlikely.  Subsequent recoveries, if any, are credited to the ALLL.
If the ALLL is  considered  inadequate  to absorb future loan losses on existing
loans,  based  on,  but not  limited  to,  increases  in the  size  of the  loan
portfolio,  increases in charge-offs or changes in the risk  characteristics  of
the loan portfolio, then the provision for loan and lease losses is increased.

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

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

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

Securities Held-to-Maturity and Securities  Available-for-Sale:  Debt securities
purchased  with the intent and ability to hold until  maturity are classified as
securities  HTM and are  carried  at  cost,  adjusted  for



                                      -18-

<PAGE>

the amortization of premiums and accretion of discounts.  All other  securities,
including  equity  securities,  are  classified  as securities  AFS.  Securities
classified  as AFS may be sold prior to maturity in response to, but not limited
to, changes in interest rates, changes in prepayment risk or for asset/liability
management  strategies.  These  securities  are  carried  at fair  value and any
unrealized  gains and losses are reported,  net of taxes,  in accumulated  other
comprehensive   income  (loss)  included  in  the   consolidated   statement  of
stockholders'  equity.  The  estimated  fair value for  securities  are based on
quoted  market  prices,  where  available.  If  quoted  market  prices  are  not
available, estimated fair values are based on quoted market prices of comparable
instruments.  Gains and losses from the sale of these  securities are determined
using the  specific  identification  method  and are  reported  in  non-interest
income.  The Company does not acquire  securities for the purpose of engaging in
trading activities.

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

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

                                      -19-

<PAGE>

                    THREE MONTHS ENDED JUNE 30, 2005 AND 2004
                              RESULTS OF OPERATIONS

Summary

     For the second quarter of 2005, the Company  reported  earnings per diluted
common  share of $0.23,  as compared  to $0.22 for the same  period in 2004,  an
increase of  approximately  4.5%. Net income for the three months ended June 30,
2005 was approximately $4.5 million, an increase of $160 thousand, or 3.7%, over
the same period last year. The increase in earnings  resulted  primarily from an
increase in our interest earning assets during the quarter of approximately $109
million,  offset by a decline in our net interest  margin,  on a  tax-equivalent
basis, of 15 basis points.

     The Company's  return on average  assets  decreased to 1.20% as compared to
1.25% for the three  months  ended  June 30,  2005 and  2004,  respectively.  In
addition,  the Company's  return on average  stockholders'  equity  decreased to
11.83% for the second quarter 2005 versus 12.08% for the second quarter in 2004.
The changes in return on average  assets and equity were primarily the result of
the decline in the net interest margin.

Net Interest Income

     Net  interest  income  is the  most  significant  source  of the  Company's
operating  income.  A portion of the Company's  total interest income is derived
from  investments  that are exempt from federal  taxation.  The amount of pretax
income realized from those investments,  due to the tax exemption,  is less than
the amount of pretax income  realizable from comparable  investments  subject to
federal  taxation.  For purposes of the following  discussion,  interest  income
exempt from federal taxation has been restated to a fully  tax-equivalent  basis
using a corporate  federal tax rate of 34% for the quarters  ended June 30, 2005
and 2004.  This was  accomplished  by  adjusting  this income  upward to make it
equivalent to the level of taxable income required to earn the same amount after
taxes.

     Net interest income on a tax-equivalent  basis increased $644 thousand,  or
4.9%,  to $13.8  million for the quarter  ended June 30, 2005 as compared to the
same quarter in 2004.  The tax  equivalent  basis  adjustments  for the quarters
ended June 30, 2005 and 2004 were $257 thousand and $162 thousand, respectively.
The increase in net interest income was due mostly to an 8.7% growth in interest
earning  assets.  This  interest  earning  asset growth was funded  primarily by
deposit  liabilities,  which grew $62.0  million,  or 5.3% on  average,  for the
second  quarter of 2005 as compared to the same quarter in 2004.  The margin for
the second  quarter of 2005 was 4.05%, a decrease of 15 basis points as compared
to the same quarter in 2004.

     Interest income, on a tax-equivalent  basis,  totaled $19.1 million for the
second quarter of 2005, an increase of $2.9 million, or 8.7%, as compared to the
same  quarter  in 2004.  The  increase  was mostly  attributed  to the growth in
interest  earning assets and the shift in asset mix as average loans grew $145.8
million, while investments declined by $24.0 million.

                                      -20-

<PAGE>

     Interest  expense  totaled $5.4 million for the second  quarter of 2005, an
increase of $2.3 million,  as compared to the same period in 2004.  The increase
in interest  expense was a byproduct of the increase in market  interest  rates,
particularly short-term rates, during the second half of 2004 and the first half
of 2005. The increase in short-term  interest  rates  increased the average rate
paid on deposit  liabilities  by 67 basis points to 1.84% for the quarter  ended
June 30, 2005 as compared to the same period in 2004.  Interest bearing deposits
grew on  average  $49.6  million,  or 5.2%,  for the  second  quarter of 2005 as
compared to the same period in 2004.

     During  June  2005  the  Company  issued  $20.6  million  of   subordinated
debentures to unconsolidated  trust  subsidiaries.  The average rate paid on the
subordinated  debentures is 6.10% and is fixed for 5 years, after which time the
rate paid on the  subordinated  debentures will be the 3-month LIBOR plus 1.71%.
The  subordinated  debentures can be called at any of the interest payment dates
following the fifth  anniversary  of their  issuance.  The final maturity on the
subordinated   debentures  is  June  2035.  The  issuance  of  the  subordinated
debentures  did not have a  material  impact  on  interest  expense  during  the
quarter.

<Table>
<Caption>
--------------------------------------------------------------------------------------------------------------------------
Analysis of Net Interest Income
--------------------------------------------------------------------------------------------------------------------------
for the quarter ended June 30,
(dollars in thousands)                                            2005                                   2004
                                                 -------------------------------------     -------------------------------
(unaudited)                                        Average                   Average        Average                  Average
                                                   Balance       Interest      Rate         Balance    Interest     Rate
                                                 ------------  ------------- ---------     ----------- ----------  -------
<S>                                              <C>           <C>           <C>           <C>         <C>         <C>
                     Assets
Interest earning assets:
Loans (1)                                           $991,543        $15,877      6.40 %      $845,747    $13,160     6.22 %
Taxable securities (4)                               314,142          2,534      3.23         363,281      2,563     2.82
Tax-exempt securities (2) (4)                         52,069            697      5.35          26,930        406     6.03
Interest earning deposits                                  2              -         -               6          -        -
Federal funds sold                                        96              1      4.17          12,848         31     0.97
                                                 ------------  ------------- ---------     ----------- ----------  -------
     Total interest-earning assets                 1,357,852         19,109      5.63       1,248,812     16,160     5.18
                                                               -------------                           ----------

Non-interest earning assets:
Cash and due from banks                               37,098                                   36,326
Allowance for loan and lease losses                   (9,993)                                  (9,818)
Other assets                                         115,239                                  118,411
                                                 ------------                              -----------
      Total assets                                $1,500,196                               $1,393,731
                                                 ============                              ===========

      Liabilities and stockholders' equity
Interest-bearing liabilities
Interest bearing deposits                           $996,455          4,595      1.84        $946,834      2,760     1.17
Borrowings and subordinated debentures                95,446            772      3.24          54,862        302     2.20
                                                 ------------  ------------- ---------     ----------- ----------  -------
     Total interest-bearing liabilities            1,091,901          5,367      1.97       1,001,696      3,062     1.22
                                                               -------------                           ----------

Non-interest bearing liabilities
Demand deposits                                      245,157                                  232,734
Other liabilities                                     10,447                                   15,129
                                                 ------------                              -----------
     Total liabilities (3)                         1,347,505                                1,249,559
Stockholders' equity                                 152,691                                  144,172
                                                 ------------                              -----------
     Total liabilities and stockholders' equity   $1,500,196                               $1,393,731
                                                 ============                              ===========

Net interest income (tax-equivalent basis)                           13,742      3.66                     13,098     3.96
Tax-equivalent basis adjustment                                        (257)                                (162)
                                                               -------------                           ----------
     Net interest income                                            $13,485                              $12,936
                                                               =============                           ==========

Net interest income as a percent of interest-earning assets
(tax-equivalent basis)                                                           4.05 %                              4.20 %

------------------------------------------------------------------------------------------------------------------------------
(1) Nonaccrual loans and any related interest recorded have been included in computing the average rate earned on the loan
portfolio.  When applicable, tax exempt loans are computed on a fully taxable equivalent basis using the corporate federal
tax rate of 34%.
(2) Computed on a fully taxable equivalent basis using the corporate federal tax rate of 34%.
(3) All deposits are in domestic bank offices.
(4) The average balances are based on historical cost and do not reflect unrealized gains or losses.
</Table>

                                      -21-

<PAGE>

Provision for Loan and Lease Losses

     The provision for loan and lease losses represents management's estimate of
the  amount  necessary  to bring the ALLL to a level that  management  considers
adequate to reflect the risk of estimated  losses inherent in the Company's loan
and lease portfolio as of the balance sheet date. A more detailed  discussion of
the  evaluation  of the  ALLL  can be  found  in the  section  titled  "Critical
Accounting  Policies and Judgments:  Allowance for Loan and Lease Losses" above.
In the second  quarter of 2005 and 2004,  the  Company's  provision for loan and
lease losses was $225 thousand and $300 thousand,  respectively.  The decline in
the provision for loan and lease losses was primarily a result of an improvement
in our non-performing assets.

Non-interest Income

     For the quarter  ended June 30,  2005,  non-interest  income  totaled  $2.5
million, a decrease of $216 thousand, or 8.0%, as compared to the same period in
2004.  The change was largely due to a decline in "other"  non-interest  income,
commissions  on sale of  annuities  and  mutual  funds  and net gains on sale of
securities of $232 thousand, $108 thousand and $55 thousand,  respectively. This
was  partly  offset  by  growth  in gain on sale of  loans  and  leases  of $166
thousand.  The  increase  in gain on sale of loans  arose out of an  increase in
sales of Small Business Administration originated loans.

Non-interest Expense

     For the quarter ended June 30, 2005, non-interest expense was $9.2 million,
an increase of $382  thousand,  or 4.3 %.  Contributing  to the  increase was an
increase in salaries  and  benefits of $290  thousand  and "other"  non-interest
expense of $93 thousand, as compared to the same period in 2004.

Income Taxes

     Income tax  expense  as a  percentage  of pre-tax  income was 31.1% for the
three  months  ended June 30,  2005 as  compared to 33.3% for the same period of
2004.  The  decline in income tax  expense was partly a result of an increase in
income from investment securities exempt from federal income taxes.

                                      -22-

<PAGE>

                SIX MONTHS ENDED JUNE 30, 2005 AND JUNE 30, 2004
                              RESULTS OF OPERATIONS

Summary

     Net income for the six months  ended June 30, 2005 was  approximately  $8.9
million, an increase of $594 thousand,  or 7.1%, over the same period last year.
The  increase in earnings  resulted  from an increase  primarily  in the average
balance of loans outstanding of $143.0 million.  The improvement in earnings was
partly  offset by a 6 basis point  decline in the net interest  margin.  For the
first six months of 2005, the Company reported earnings per diluted common share
of $0.46 as compared to $0.43 for the same period in 2004.

     For the six months ended June 30, 2005 and 2004,  the  Company's  Return on
Average Assets  ("ROA") was 1.20%.  Return on Average Equity ("ROE") for the six
months ended Juen 30, 2005 was 11.77% an increase  from 11.61% when  compared to
the same period last year.

Net Interest Income

     Net interest income on a  tax-equivalent  basis increased $1.7 million,  or
6.5%, to $27.5 million for the six months ended June 30, 2005 as compared to the
same period in 2004. The tax  equivalent  basis  adjustments  for the six months
ended June 30, 2005 and 2004 were $419 thousand and $322 thousand, respectively.
The increase in net interest income was due mostly to an 8.1% growth in interest
earning  assets.  This  interest  earning  asset growth was funded  primarily by
deposit  liabilities,  which grew 6.0% on average  for the six months of 2005 as
compared  to the same  period in 2004.  The  aforementioned  improvement  in net
interest income was partly offset by a 6 basis point decline in the net interest
margin for the six months  ended June 30, 2005 as compared to the same period in
2004. The margin was primarily affected by a 52 basis point increase in the cost
of interest bearing deposits and borrowings.

     Interest income, on a tax-equivalent  basis,  totaled $37.3 million for the
six months  ended June 30,  2005,  an increase  of $5.3  million,  or 16.5%,  as
compared to the same period in 2004.  The  increase was mostly  attributed  to a
$100.8  million,  or 8.1%,  growth in  interest  earning  assets.  The growth in
interest  earning  assets was the result of increases in average loans of $143.0
million, while investments declined by $34.6 million.

     Interest expense,  which totaled $9.8 million for the six months ended June
30, 2005,  increased $3.6 million,  or 58.2%,  as compared to the same period in
2004. The increase in interest expense was a byproduct of the increase in market
interest rates, particularly short-term rates during the second half of 2004 and
first half of 2005.  The increase in  short-term  interest  rates  increased the
average rate paid on interest  bearing  liabilities  by 58 basis points to 1.82%
for the six months  ended June 30,  2005 as compared to the same period in 2004.
Interest bearing deposits grew on average $56.6 million, or 6.0%, for the second
quarter of 2005 as compared to the same period in 2004.  Augmenting  our deposit
growth and supporting our increase in interest earning assets was an increase of
$23.7  million  in  average  borrowings  during  the first six months of 2005 as
compared to the same period in 2004. During June 2005,

                                      -23-

<PAGE>
the Company issued $20.6 million of  subordinated  debentures to  unconsolidated
trust  subsidiaries.  The average rate paid on the  subordinated  debentures  is
6.10% and is fixed for 5 years,  after which time the rate will float at 3-month
LIBOR  plus  1.71%.  The  subordinated  debentures  can be  called at any of the
interest  payment dates following the fifth  anniversary of their issuance.  The
final maturity on the subordinated  debentures is June 2035. The issuance of the
subordinated  debentures  did not have a  material  impact on  interest  expense
during the period.

<Table>
<Caption>
------------------------------------------------------------------------------------------------------------------------------
Analysis of Net Interest Income
------------------------------------------------------------------------------------------------------------------------------
for the six months ended June 30,
(dollars in thousands)                                             2005                                   2004
                                                 ----------------------------------------  -----------------------------------
(unaudited)                                        Average                   Average        Average                  Average
                                                   Balance       Interest      Rate         Balance    Interest       Rate
                                                 ------------  ------------- ---------     ----------- ----------  -----------
<S>                                              <C>           <C>           <C>           <C>         <C>         <C>
                     Assets
Interest earning assets
Loans (1)                                           $969,104        $30,862      6.37 %      $826,067    $25,908       6.27 %
Taxable securities (4)                               330,151          5,259      3.19         383,388      5,252       2.74
Tax-exempt securities (2) (4)                         43,563          1,154      5.30          24,964        794       6.36
Interest earning deposits                                  2              -         -               9          -         -
Federal funds sold                                        79              1      2.53           7,677         37       0.96
                                                 ------------  ------------- ---------     ----------- ----------    -------
     Total interest-earning assets                 1,342,899         37,276      5.55       1,242,105     31,991       5.15
                                                               -------------                           ----------

Non-interest earning assets
Cash and due from banks                               35,992                                   35,937
Allowance for loan and lease losses                   (9,934)                                  (9,727)
Other assets                                         115,337                                  118,672
                                                 ------------                              -----------
     Total assets                                 $1,484,294                                1,386,987
                                                 ============                              ===========

     Liabilities and stockholders' equity
Interest-bearing liabilities
Interest bearing deposits                           $996,796          8,517      1.71        $940,178      5,588       1.19
Borrowings and subordinated debentures                83,808          1,291      3.08          60,112        611       2.03
                                                 ------------  ------------- ---------     ----------- ----------    -------
     Total interest-bearing liabilities            1,080,604          9,808      1.82      $1,000,290      6,199       1.24
                                                               -------------                           ----------

Non-interest bearing liabilities
Demand deposits                                      241,871                                  228,417
Other liabilities                                      9,943                                   14,575
                                                 ------------                              -----------
     Total liabilities (3)                         1,332,418                                1,243,282
Stockholders' equity                                 151,876                                  143,705
                                                 ------------                              -----------
     Total liabilities and stockholders' equity   $1,484,294                                1,386,987
                                                 ============                              ===========
Net interest income (tax-equivalent basis)                           27,468      3.73                     25,792       3.91
Tax-equivalent basis adjustment                                        (419)                                (322)
                                                               -------------                           ----------
     Net interest income                                            $27,049                               25,470
                                                               =============                           ==========
Net interest income as a percent of interest-earning assets
(tax-equivalent basis)                                                           4.09 %                                4.15 %
------------------------------------------------------------------------------------------------------------------------------
(1) Nonaccrual loans and any related interest recorded have been included in computing the average rate earned on the loan
portfolio.  When applicable, tax exempt loans are computed on a fully taxable equivalent basis using the corporate federal
tax rate of 34%.
(2) Computed on a fully taxable equivalent basis using the corporate federal tax rate of 34%.
(3) All deposits are in domestic bank offices.
(4) The average balances are based on historical cost and do not reflect unrealized gains or losses.
</Table>
Provision for Loan and Lease Losses

     The provision for loan and lease losses represents management's estimate of
the amount  necessary to bring the allowance for loan and lease losses  ("ALLL")
to a level that management  considers  adequate to reflect the risk of estimated
losses  inherent in the Company's loan portfolio as of the balance sheet date. A
more  detailed  discussion  of the  evaluation  of the  ALLL can be found in the
section titled "Critical  Accounting Policies and Judgments:  Allowance for Loan
and Lease Losses" above. In the first six months of 2005 and 2004, the Company's
provision  for loan  and  lease  losses  was $400  thousand  and $675  thousand,
respectively.

Non-interest Income

     Non-interest  income totaled $4.7 million for the six months ended June 30,
2005, a decrease of $537 thousand,  or 10.3%,  as compared to the same period in
2004.  The decline in  non-interest  income

                                      -24-
<PAGE>

was  mostly due to  decreases  in net gains on the sale of  securities,  "other"
non-interest  income and  commissions  on sale of annuities  and mutual funds of
$502  thousand,  $200 thousand and $138 thousand,  respectively.  The decline in
non-interest  income was  partly  offset by an  increase  in net gain on sale of
loans and leases and Bank Owned Life Insurance  ("BOLI") income of $246 thousand
and $138 thousand, respectively.

Non-interest Expense

     For the six months  ended June 30,  2005,  non-interest  expense  was $18.3
million, an increase of $619 thousand, or 3.5%, when compared to the same period
in 2004.  Contributing to the increase was an increase in salaries and benefits,
and occupancy  expenses of $397  thousand and $154  thousand,  respectively,  as
compared to the same period in 2004.

Income Taxes

     Income tax expense as a percentage of pre-tax  income was 31.2% for the six
months ended June 30, 2005 as compared to 32.1% for the same period of 2004.

                                      -25-

<PAGE>

                               FINANCIAL CONDITION

Cash and Cash Equivalents

     At June 30, 2005,  cash and cash  equivalents was $35.9 million as compared
to $33.1 million at December 31, 2004.

Securities Portfolio

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

     The Company's U.S. Government-Sponsored  Enterprises securities at June 30,
2005 and 2004 are not  guaranteed  by the  U.S.  Government;  however,  they are
credit  rated  AAA  or  Aaa  by   nationally   recognized   statistical   rating
organizations.   Substantially   all   obligations   of  states  and   political
subdivisions are credit rated AAA or Aaa due to insurance,  which guarantees the
obligations  against default, by private insurance  companies.  At June 30, 2005
and  2004,  approximately  $26.8  million  and $6.4  million,  respectively,  of
issuances are bond or tax anticipation  notes from local  municipalities,  which
are not rated.

     The Company uses its securities portfolio to ensure liquidity for cash flow
requirements,  to manage interest rate risk, provide a source of income,  ensure
collateral  is available  for  pledging  requirements  and manage asset  quality
diversification.  At June 30, 2005, investment securities totaled $361.2 million
and represented  23.6% of total assets, as compared to $388.7 million and 26.5%,
respectively,  at December 31, 2004. Securities AFS comprised 90.4% of the total
securities portfolio at June 30, 2005 as compared to 96.3% at December 31, 2004.
At June 30,  2005,  the Company  had a net  unrealized  loss of $1.8  million as
compared to a net  unrealized  loss of $296  thousand at December 31, 2004.  The
decrease  was  attributed  to an increase in market  interest  rates during that
period.

     Proceeds  from the sale of  securities  AFS  amounted to $77.1  million and
$58.2 million for the six months ended June 30, 2005 and 2004, which resulted in
gross  realized  gains of $670  thousand and $913  thousand  for those  periods,
respectively.  Gross realized losses from the sale of securities AFS amounted to
$361  thousand and $94 thousand for the six months ended June 30, 2005 and 2004,
respectively. Proceeds from the sale of securities HTM amounted to $270 thousand
for the six months ended June 30, 2005,  which  resulted in realized gains of $8
thousand.  The  securities had  significantly  paid down to less than 85% of the
original   purchased   balance  through  normal   principal   amortization   and
prepayments. There

                                      -26-

<PAGE>

were no sales of  securities  HTM for the six months ended June 30, 2004.  These
amounts  are  included  in net  gain  on  sale of  securities  in the  unaudited
condensed consolidated statements of income.

Loans

     Total loans amounted to $1.0 billion at June 30, 2005, an increase of $85.8
million from $934.2 million at December 31, 2004. The growth was attributable to
increases in commercial  mortgage  loans,  commercial and financial  loans,  and
construction  loans  of  $42.4  million,   $18.1  million,  and  $22.4  million,
respectively.

Nonperforming Assets

     Nonperforming assets are comprised of nonaccrual loans, restructured loans,
foreclosed real estate and other repossessed assets. The Company's nonperforming
assets at June 30, 2005  amounted to $6.4 million as compared to $9.3 million at
December  31,  2004.  The  ratio of  nonperforming  assets  to total  loans  and
foreclosed real estate and other  repossessed  assets decreased to 0.63% at June
30, 2005 from 0.99% at December 31, 2004.

     The following table lists  nonaccrual  loans and foreclosed real estate and
other repossessed assets at June 30, 2005, and December 31, 2004: (in thousands)


                                                     ---------   ------------
                                                     June 30,    December 31,
                                                       2005         2004
                                                     ---------    -----------
                                                    (unaudited)
 Nonaccrual loans                                     $ 6,276       $ 9,133
 Foreclosed assets and other repossessed assets           154           156
                                                     ---------     ---------
   Total nonperforming assets                         $ 6,430       $ 9,289
                                                     =========     =========

Allowance for Loan and Lease Losses

     The ALLL is  generally  established  through  periodic  charges  to  income
through the  provision  for loan and lease  losses.  During the six months ended
June 30, 2005, the ALLL increased $148 thousand to $9.9 million. Loan losses are
charged  against the ALLL when  management  believes  that the  probable  future
collection of principal is unlikely. Subsequent recoveries, if any, are credited
to the ALLL. If the ALLL is  considered  inadequate to absorb future loan losses
on existing  loans,  based on, but not limited to,  increases in the size of the
loan portfolio,  increases in charge-offs or changes in the risk characteristics
of the  loan  portfolio,  then  the  provision  for loan  and  lease  losses  is
increased.

     The Company  considers the ALLL of $9.9 million adequate to cover estimated
losses  inherent in the loan  portfolio that may become  uncollectible  based on
management's  periodic  evaluations  of the loan  portfolio  and other  relevant
factors.  The  evaluations  are inherently  subjective as they require  material
estimates including such factors as potential loss factors,  changes in trend of
non-performing loans, current

                                      -27-

<PAGE>

state  of  local  and  national  economy,  value of  collateral  changes  in the
composition and volume of the loan portfolio,  review of specific  problem loans
and management's assessment of the inherent risk and overall quality of the loan
portfolio.  All of these factors may be susceptible to significant change. Also,
the  allocation  of the  allowance  for credit  losses to specific loan pools is
based on  historical  loss trends and  management's  judgment  concerning  those
trends.

     The  following  table  presents the  provisions  for loan and lease losses,
loans charged off and recoveries on loans previously  charged off, the amount of
the allowance,  the average loans  outstanding and certain  pertinent ratios for
the three and six months  ended June 30, 2005 and 2004:  (dollars in  thousands)
(unaudited)

<Table>
<Caption>
                                             -------------------------  -----------------------
                                                 Three months ended         Six months ended
                                                        June 30,                 June 30,
                                             -------------------------  -----------------------
                                                  2005         2004         2005        2004
                                             -------------  ----------  -----------  ----------
<S>                                          <C>            <C>         <C>          <C>
Average loans outstanding                       $ 991,543    $845,747    $ 969,104    $826,067
                                             =============  ==========  ===========  ==========

Allowance at beginning of period                   $9,876      $9,635       $9,797      $9,641
                                             -------------  ----------  -----------  ----------
Loans charged-off:
          Real estate                                   -           9            -          76
          Commercial and financial                      -           2           89          57
          Commercial lease financing                  151         134          233         411
          Consumer loans                               10          26           13          44
                                             -------------  ----------  -----------  ----------
              Total                                   161         171          335         588
                                             -------------  ----------  -----------  ----------

Recoveries of loans previously charged-off:
          Real estate                                   -           4           72           4
          Commercial and financial                      1           6            1           6
          Commercial lease financing                    -          12            -          48
          Consumer loans                                4           2           10           2
                                             -------------  ----------  -----------  ----------
              Total                                     5          24           83          60
                                             -------------  ----------  -----------  ----------

Provision for loan and lease losses                   225         300          400         675
                                             -------------  ----------  -----------  ----------
Allowance at end of period                         $9,945      $9,788       $9,945      $9,788
                                             =============  ==========  ===========  ==========

Allowance to loans (end of period)                   0.98 %      1.11 %       0.98 %      1.11 %
Ratio of net charge-offs to average loans
                        (annualized)                 0.06 %      0.07 %       0.05 %      0.13 %
</Table>

Deposits

     Deposits, which include non-interest bearing demand deposits, time deposits
and other interest-bearing deposits, are an essential and cost-effective funding
source  for  the  Company.  Other  interest-bearing   deposits,   which  include
interest-bearing demand, money market and savings accounts, comprise the largest
segment of the Company's total deposits.  The Company  emphasizes  building core
customer  relationships  by offering a variety of products  designed to meet the
financial needs of its customers based on their identifiable "life stages".

     At June 30, 2005 total deposits grew $12.0 million, or 2.0% annualized,  to
$1.26  billion  from  December  31, 2004 and  experienced  a favorable  shift in
deposit mix. The increase was largely in non-

                                      -28-

<PAGE>

interest  bearing demand deposits,  which increased $32.2 million,  or 13.7%, to
$267.2  million at June 30, 2005 from  December  31,  2004.  The  aforementioned
increase  was offset by declines  in time  deposits  and other  interest-bearing
deposits of $16.9 million and $3.3 million, respectively.

     At June 30, 2005,  non-interest bearing deposits amounted to $267.2 million
and improved to 21.2% of total  deposits  compared to 18.9% of total deposits at
December 31, 2004. Other interest-bearing deposits amounted to $670.5 million at
June 30, 2005 and slightly declined to 53.3% of total deposits compared to 54.1%
of total  deposits  at  December  31,  2004.  Time  deposits  amounted to $320.4
million,  or 25.5%,  of total  deposits at June 30, 2005,  as compared to $337.3
million, or 27.1% of total deposits at December 31, 2004.

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

                                   June 30,        December 31,
                                     2005             2004
                                ----------------   ------------
                                  (unaudited)
Non-interest bearing demand         $   267,225    $   235,036
Interest bearing demand                 455,729        472,807
Money market                            102,273         87,595
Savings                                 112,504        113,352
Time deposits < $100,000                284,307        286,471
Time deposits > $100,000                 36,125         50,877
                                ----------------   ------------
                                    $ 1,258,163    $ 1,246,138
                                ================   ============

Subordinated Debentures

     During June of 2005 Interchange Statutory Trust I and Interchange Statutory
Trust II  (together  the  "Trusts")  each  issued $10  million  of pooled  trust
preferred  securities.  In conjunction  with the issuance of the trust preferred
securities,  the Company issued  subordinated  debentures to the Trusts totaling
$20.6 million. The rates of interest paid on the securities issued by the Trusts
and the Company have been fixed for 5 years, at an average rate of 6.10%,  after
which time the rates will float at 3-month LIBOR plus 1.71%. The Company has the
right to call the notes after 5 years on any of the interest payment dates.

     The Trusts are wholly owned unconsolidated  subsidiaries of the Company and
have no  independent  operations.  The  obligations  of the Trusts are fully and
unconditionally guaranteed by the Company. The debentures are unsecured and rank
subordinate and junior in right of payment to all indebtedness,  liabilities and
obligations of the Company. Interest on the debentures is cumulative and payable
in arrears.  Proceeds from any redemption of debentures  would cause a mandatory
redemption of pooled trust preferred  securities  issued by the Trusts having an
aggregate  liquidation  amount  equal  to the  principal  amount  of  debentures
redeemed.

                                      -29-

<PAGE>

     The trust  preferred  securities were issued as part of our overall capital
management  plan and in support of our continued loan growth.  The effect of the
issuance on net interest  income was not material during either the three or six
months ending June 30, 2005.

                                      -30-

<PAGE>

Item 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

     The  Company  does not have  any  material  exposure  to  foreign  currency
exchange rate risk or commodity  price risk.  The Company did not enter into any
market rate sensitive  instruments for trading purposes nor did it engage in any
trading or  hedging  transactions  utilizing  derivative  financial  instruments
during the first six months of 2005. The Company's  real estate loan  portfolio,
concentrated  primarily in northern New Jersey,  is subject to risks  associated
with the local and regional  economies.  The Company's  primary source of market
risk  exposure  arises from changes in market  interest  rates  ("interest  rate
risk").

Interest Rate Risk

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

     The Company  manages  interest rate risk exposure with the  utilization  of
financial modeling and simulation  techniques.  These methods assist the Company
in  determining  the effects of market rate changes on net  interest  income and
future economic value of equity. The objective of the Company is to maximize net
interest  income within  acceptable  levels of risk  established by policy.  The
techniques  utilized  for  managing  exposure to market rate  changes  involve a
variety of interest  rate,  pricing and volume  assumptions.  These  assumptions
include projections on growth, prepayment and withdrawal levels as well as other
embedded options inherently found in financial instruments.  The Company reviews
and validates these assumptions at least annually or more frequently if economic
or other conditions  change. At June 30, 2005, the Company simulated the effects
on net interest  income given an  instantaneous  and parallel shift in the yield
curve of up to a 200 basis point  rising  interest  rate  environment  and a 200
basis point declining  interest rate environment.  Based on that simulation,  it
was estimated that net interest income, over a twelve-month  horizon,  would not
decrease by more than 4.4%. At June 30, 2005, the Company was

                                      -31-

<PAGE>

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

                           -------------------------------------------
                           Percentage Change in Estimated Net Interest
                              Income over a twelve month horizon
                           -------------------------------------------
                                             June 30
                                 2005                    2004
                              ----------              ----------
+200 basis points                 -3.3 %                 -5.6 %
+100 basis points                 -1.4                   -1.7
-100 basis points                 -1.6                   -4.8
-200 basis points                 -4.4                     *

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


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

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

Capital Adequacy

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

                                      -32-

<PAGE>

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

     A banking  organization's total qualifying capital includes two components:
core capital (Tier 1 capital) and supplementary  capital (Tier 2 capital).  Core
capital,  which must comprise at least half of total  capital,  includes  common
shareholders'  equity,  qualifying  perpetual  preferred stock,  trust preferred
securities  (subject  to  certain  limitations)  and  minority  interests,  less
goodwill and any unrealized gains or losses.  Supplementary capital includes the
allowance  for loan losses  (subject to certain  limitations),  other  perpetual
preferred stock, trust preferred  securities that exceed Tier 1 limits,  certain
other capital  instruments and term subordinated  debt. Total capital is the sum
of core and supplementary  capital. The Company's $20 million of trust preferred
securities is considered Tier 1 capital by the Federal Reserve Board.

     At June  30,  2005,  the  minimum  risk-based  capital  requirements  to be
considered  adequately  capitalized  were 4% for Tier 1 capital and 8% for total
capital.

     Federal banking regulators have also adopted leverage capital guidelines to
supplement the risk-based measures. The leverage ratio is determined by dividing
Tier 1 capital as  defined  under the  risk-based  guidelines  by average  total
assets (non  risk-adjusted)  for the preceding  quarter.  At June 30, 2005,  the
minimum leverage ratio requirement to be considered  adequately  capitalized was
3%.

     The capital  levels of the Company and the Bank at June 30,  2005,  and the
two highest capital adequacy levels recognized under the guidelines  established
by the federal  banking  agencies  are  included  in the  following  table.  The
Company's  and the Bank's  ratios all exceeded the  well-capitalized  guidelines
shown in the table.

                                      -33-

<PAGE>

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

<Table>
<Caption>
                                                                                                         To Be "Well
                                                                                                     Capitalized" Under
                                                                               For Capital            Prompt Corrective
                                                      Actual                Adequacy Purposes         Action Provisions
                                            --------------------------   -----------------------   -----------------------
                                               Amount         Ratio         Amount       Ratio       Amount       Ratio
                                            ------------   -----------   -------------  --------   -----------  ----------
<S>                                         <C>            <C>           <C>            <C>        <C>          <C>
As of June 30, 2005:
  Total Capital (to Risk Weighted Assets):
   The Company                                 $128,450         12.03 %       $85,427      8.00 %         N/A         N/A
   The Bank                                     127,553         11.94 %        85,488      8.00 %     106,859       10.00 %
  Tier 1 Capital (to Risk Weighted Assets):
   The Company                                  118,485         11.10 %       $42,713      4.00 %         N/A         N/A
   The Bank                                     117,588         11.00 %        42,744      4.00 %      64,116        6.00 %
  Tier 1 Capital (to Average Assets):
   The Company                                  118,485          8.21 %        43,301      3.00 %         N/A         N/A
   The Bank                                     117,588          8.14 %        43,322      3.00 %      72,204        5.00 %

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

Liquidity

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

     The Company's most liquid assets are cash and cash equivalents. At June 30,
2005,  the total of such assets  amounted to $36.0  million,  or 2.4%,  of total
assets,  compared to $33.1  million,  or 2.3%,  of total  assets at December 31,
2004.

     Financing for the Company's loans and investments is derived primarily from
deposits,  along with interest and principal  payments on loans and investments.
At June 30, 2005 and December 31, 2004, total deposits  amounted to $1.3 billion
and $1.2 billion,  respectively.  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,  2005,  short-term  borrowings  from the FHLB and  REPOS
amounted to $43.5 million and $4.7 million,  respectively,  as compared to $24.6
million and $4.4 million, respectively, at December 31, 2004.

     Another significant liquidity source is the Company's securities portfolio.
Total  securities  at June 30, 2005  amounted to $361.2  million,  a decrease of
$27.5  million,  from $388.7  million at  December  31,  2004.  At June 30, 2005
securities  AFS  amounted  to  $326.5  million,  or 90.4%,  of total  securities
compared to $374.2 million, or 96.3%, of total securities at December 31, 2004.

     In addition to the  aforementioned  sources of  liquidity,  the Company has
available various other sources of liquidity,  including federal funds purchased
from other banks and the Federal Reserve  discount

                                      -34-

<PAGE>

window.  The Bank also has a $100.0 million line of credit available through its
membership in the FHLB of which $6.1 million was utilized at June 30, 2005.

     The Company is party to financial  instruments with off-balance  sheet risk
in the normal course of business to meet the financing  needs of its  customers.
These  instruments,  which  include  commitments  to extend  credit and  standby
letters of credit, involve, to a varying degree, elements of credit and interest
rate  risk  in  excess  of the  amount  recognized  in the  unaudited  Condensed
Consolidated Balance Sheets. Commitments to extend credit are agreements to lend
to a customer as long as there is no violation of any condition  established  in
the contract.  Commitments generally have fixed expiration dates and may require
collateral from the borrower if deemed necessary by the Company. Standby letters
of credit are  conditional  commitments  issued by the Company to guarantee  the
performance  of a customer to a third party up to a  stipulated  amount and with
specified terms and conditions. Commitments to extend credit and standby letters
of credit are not recorded on the Company's Condensed Consolidated Balance Sheet
until the instrument is exercised.  At June 30, 2005 outstanding  commitments to
fund loans totaled  $280.5  million and  outstanding  standby  letters of credit
totaled $2.6 million.

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

Item 4:   CONTROLS AND PROCEDURES

     In accordance  with Rule 13a-15(b) of the  Securities  Exchange Act of 1934
(the  "Exchange  Act"),  as of the end of the quarter  ended June 30,  2005,  we
carried out an evaluation  under the supervision and with the  participation  of
our  management,  including  our Chief  Executive  Officer  and Chief  Financial
Officer,  of the  effectiveness  of the design and  operation of our  disclosure
controls and  procedures  as defined in Rule  13a-15(e)  under the Exchange Act.
Based on that  evaluation,  our Chief  Executive  Officer  and  Chief  Financial
Officer have concluded that our disclosure controls and procedures are effective
to ensure that information required to be disclosed by us in the reports we file
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods  specified in the rules and forms of the  Securities and
Exchange  Commission,  and  accumulated  and  communicated  to  our  management,
including  our  chief  executive  officer  and  chief  financial   officer,   as
appropriate to allow timely decisions regarding required disclosure.

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

                                      -35-

<PAGE>

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

     The Company maintains internal control over financial reporting. During the
quarter ended June 30, 2005, there were no changes in our internal controls over
financial  reporting  that  materially  affected,  or are  reasonably  likely to
materially affect, those controls.

                                      -36-

<PAGE>

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         Reference  is  also  made  to  Note  3 of the  Company's  Consolidated
         Financial Statements in this Form 10-Q.

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

               During June 2005,  Interchange  Statutory Trust I and Interchange
          Statutory  Trust II (together the "Trusts") each issued $10 million of
          pooled trust preferred securities. In conjunction with the issuance of
          the Trust's  preferred  securities,  the Company  issued  subordinated
          debentures to the Trusts totaling $20.6 million. The rates of interest
          paid on the securities  issued by the Trusts and the Company have been
          fixed for 5 years,  at an average rate of 6.10%,  after which time the
          rates will float at the 3-month LIBOR plus 1.71%.  The Company has the
          right to call the notes after 5 years on any of the  interest  payment
          dates.

               The  issuance  of  the  Trust's  preferred   securities  and  the
          subordinated  debentures  was made in a private  placement in reliance
          upon the exemption from compliance with the registration  requirements
          of the  Securities Act contained in Section 4(2) of the Securities Act
          and applicable state securities law exemptions.

Item 3.  Defaults Upon Senior Securities
         None

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

         (a)  The company held its Annual Meeting of Shareholders on April 28,
              2005.
         (b)  Each of the persons nominated for director was elected; Approval
              and Adoption of the Company's 2005 Omnibus Stock and Incentive
              Plan and the selection of Deloitte & Touche LLP as the Company's
              independent auditors for 2005 was ratified. The following are the
              voting results on each of these matters:
                                                        Against or
                                              For        Withheld   Abstentions
                                              ---        --------   -----------
              (1) ELECTION OF DIRECTORS
                  Anthony S. Abbate       16,170,407      286,949        0
                  Anthony R. Coscia       16,184,527      272,829        0
                  John J. Eccleston       16,169,323      288,032        0
                  Eleanore s. Nissley     16,171,058      286,297        0
                  William P. Schuber      16,070,558      386,798        0

              (2) Approval and Adoption of the Company's 2005 Omnibus Stock and
                  Incentive Plan to Increase Shares of Common Stock Reserved for
                  Issuance:

                              For         Against    Abstain    Not Voted
                              ---         -------    -------    ---------
                              9,610,966   1,825,601  57,523     4,963,266

              (3) Ratification of the selection of Deloitte & Touche LLP as the
                  Company's independent Auditors for 2005:
                                                    Against or
                                         For         Withheld    Abstentions
                                         ---         --------    -----------
                                      15,916,008     527,905        13,443

                                      -37-
<PAGE>

Item 5.  Other Information
         None

Item 6.  Exhibits
         The following exhibits are furnished herewith:

               Exhibit
               -------

               11     Statement re computation of per share earnings

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

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

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

                                      -38-

<PAGE>

SIGNATURES

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

Interchange Financial Services Corporation

By:      /s/ Charles T. Field
         -----------------------------------
         Charles T. Field
         Senior Vice President and CFO
         (Duly Authorized Officer and Principal
         Financial and Accounting Officer)

Dated: August 9, 2005

                                      -39-