19




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

                                    FORM 10-Q


[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934
                 For the quarterly period ended March 31, 2002.

                                       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 ____

     The number of outstanding  shares of the Registrant's  common stock, no par
value per share, as of April 30, 2002, was 6,543,088 shares.

<PAGE>
                   INTERCHANGE FINANCIAL SERVICES CORPORATION


                                      INDEX


PART I      FINANCIAL INFORMATION
                                                                        Page No.
     Item 1 Financial Statements

                 Consolidated Balance Sheets as of
                 March 31, 2002 and December 31, 2001 . . . . . . . .         1

                 Consolidated Statements of Income for the three months
                 ended March 31, 2002 and March 31, 2001 . . . . . .          2

                 Consolidated Statements of Changes in
                 Stockholders' Equity for the three months ended
                 March 31, 2002 and March 31, 2001 . . . . . . . . . . .      3

                 Consolidated Statements of Cash Flows for the
                 three months ended March 31, 2002 and March 31, 2001 . .     4

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

     Item 2      Management's Discussion and Analysis of Financial
                 Condition and Results of Operations . . . . . . . . . . .    7

     Item 3      Quantitative and Qualitative Disclosures About Market Risk
                 (Disclosures about quantitative and qualitative market risk
                 are located in Management's Discussion and Analysis of
                 Financial Condition and Results of Operation in the section
                 on Market Risk). . . . . . . . . . . . . . . . . . . . . .  17


PART II   OTHER INFORMATION

     Item 1   Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .  22

     Item 2   Changes in Securities and Use of Proceeds.  . . . . . . . .  . 22

     Item 3   Defaults upon Senior Securities . . . . . . . . . . . . . . .  22

     Item 4   Submission of Matters to a Vote of Security Holders . . . . .  22

     Item 5   Other Information . . . . . . . . . . . . . . . . . . . . . .  22

     Item 6   Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 22

              Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 24


<PAGE>
<TABLE>
<CAPTION>

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

                                                                         March 31,  December 31,
                                                                           2002          2001
                                                                       -----------  ------------
                                                                       (unaudited)
<S>                                                                    <C>          <C>

Assets
Cash and due from banks                                                  $ 16,720       $ 22,211
Federal funds sold                                                          7,325              -
                                                                         --------   ------------
Total cash and cash equivalents                                            24,045         22,211
                                                                         --------   ------------

Securities held to maturity at amortized cost (estimated market value
  of $35,511 and $39,580 for March 31, 2002 and December 31, 2001,
  respectively)                                                            34,907         38,872
                                                                         --------   ------------
Securities available for sale at estimated market value (amortized cost
  of $169,774 and $152,935 for March 31, 2002 and December 31, 2001,
  respectively)                                                           170,700        155,030
                                                                         --------   ------------

Loans                                                                     600,841        581,323
Less:  Allowance for loan and lease losses                                  6,299          6,569
                                                                         --------   ------------
Net loans                                                                 594,542        574,754
                                                                         --------   ------------
Bank owned life insurance                                                  15,599         15,378
Premises and equipment, net                                                10,412         10,235
Foreclosed real estate and other repossesed assets                            470            492
Accrued interest receivable and other assets                               12,337         13,977
                                                                         --------   ------------
Total assets                                                             $863,012       $830,949
                                                                         ========   ============

Liabilities
Deposits
  Non-interest bearing                                                   $110,585       $109,416
  Interest bearing                                                        644,320        617,067
                                                                         --------   ------------
Total deposits                                                            754,905        726,483
                                                                         --------   ------------
Securities sold under agreements to repurchase                              6,700          6,700
Short-term borrowings                                                       7,000         18,100
Long-term borrowings                                                       10,000              -
Accrued interest payable and other liabilities                             13,371         11,433
                                                                         --------   ------------
Total liabilities                                                         791,976        762,716
                                                                         --------   ------------


Commitments and contingent liabilities

Stockholders' equity:
Common stock, without par value; 15,000,000 shares authorized;
  6,541,380 and 6,460,433 shares issued and outstanding at
  March 31, 2002 and December 31, 2001, respectively                        5,397          5,397
Capital surplus                                                            21,127         20,993
Retained earnings                                                          56,719         54,758
Accumulated other comprehensive income                                        488          1,156
                                                                         --------   ------------
                                                                           83,731         82,304
Less:  Treasury stock                                                      12,695         14,071
                                                                         --------   ------------
Total stockholders' equity                                                 71,036         68,233
                                                                         --------   ------------
Total liabilities and stockholders' equity                               $863,012       $830,949
                                                                         ========   ============
------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
                                        1
<PAGE>
<TABLE>
<CAPTION>

Interchange Financial Services Corporation
---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31,
---------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
(unaudited)
                                                                    2002             2001
                                                                 ---------        ---------
<S>                                                            <C>                <C>
Interest income
Interest and fees on loans                                        $ 11,014         $ 11,685
Interest on federal funds sold                                          53              305
Interest and dividends on securities
    Taxable interest income                                          2,504            2,395
    Interest income exempt from federal income taxes                   126              145
    Dividends                                                           47               72
                                                                 ---------        ---------
Total interest income                                               13,744           14,602
                                                                 ---------        ---------

Interest expense
Interest on deposits                                                 4,384            6,066
Interest on securities sold under agreements to repurchase              49              215
Interest on short-term borrowings                                      140              205
Interest on long-term borrowings                                       103                -
                                                                 ---------        ---------
Total interest expense                                               4,676            6,486
                                                                 ---------        ---------
Net interest income                                                  9,068            8,116
Provision for loan and lease losses                                    225              180
                                                                 ---------        ---------
Net interest income after provision for loan losses                  8,843            7,936
                                                                 ---------        ---------
Non-interest income
Service fees on deposit accounts                                       614              598
Net gain on sale of securities                                         187               65
Other                                                                  760              561
                                                                 ---------        ---------
Total non-interest income                                            1,561            1,224
                                                                 ---------        ---------
Non-interest expenses
Salaries and benefits                                                3,259            3,072
Occupancy                                                              864              842
Furniture and equipment                                                285              279
Advertising and promotion                                              425              178
Federal Deposit Insurance Corporation assessment                        32               33
Foreclosed real estate                                                   6                9
Other                                                                1,261            1,273
                                                                 ---------        ---------
Total non-interest expenses                                          6,132            5,686
                                                                 ---------        ---------

Income before income taxes                                           4,272            3,474
Income taxes                                                         1,332            1,143
                                                                 ---------        ---------
Net income                                                         $ 2,940          $ 2,331
                                                                 =========        =========

Basic earnings per common share                                      $0.45            $0.36
                                                                     =====            =====
Diluted earnings per common share                                    $0.45            $0.36
                                                                     =====            =====

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

</TABLE>
                                       2
<PAGE>
<TABLE>
<CAPTION>

Interchange Financial Services Corporation
---------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended Ended March 31,
---------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)

                                                                                Accumulated
                                                                                   Other
                                                     Comprehensive  Retained   Comprehensive  Common  Capital   Treasury
                                                         Income     Earnings     Income       Stock   Surplus    Stock     Total
                                                     -------------  ---------  -------------  ------  -------  ---------  -------
<S>                                                  <C>            <C>        <C>            <C>     <C>      <C>        <C>
Balance at January 1, 2001                                            $47,735           $526  $5,397  $21,077  $ (12,751) $61,984
Comprehensive income
   Net Income                                               $2,331      2,331                                               2,331
   Other comprehensive income, net of taxes
      Unrealized gains on AFS debt securities                  515
                                                     -------------
   Other comprehensive income, net of taxes                    515                       515                                  515
                                                     -------------
Comprehensive income                                        $2,846
                                                     =============

Dividends on common stock                                                (883)                                               (883)
 Issued 14,880 shares of common stock in connection
    with Executive Compensation Plan                                                                      (14)       255      241

                                                                    ---------  -------------  ------  -------  ---------  -------
 Balance at March 31, 2001                                             49,183          1,041   5,397   21,063    (12,496)  64,188

  Comprehensive income
       Net Income                                           $8,209      8,209                                               8,209
      Other comprehensive income, net of taxes
          Unrealized  gains on AFS debt securities              87
          Add: losses on disposition of securities              28
                                                     -------------
       Other comprehensive income                              115                       115                                  115
                                                     -------------
    Comprehensive income                                    $8,324
                                                     =============
    Dividends on common stock                                          (2,634)                                             (2,634)
    Exercised 8,817 option shares                                                                         (70)       152       82
    Purchased 93,762 shares of common stock                                                                       (1,727)  (1,727)
                                                                    ---------  -------------  ------   ------  ---------  -------
    Balance at December 31, 2001                                       54,758          1,156   5,397   20,993    (14,071)  68,233

    Comprehensive income
       Net Income                                           $2,940      2,940                                               2,940
       Other comprehensive income, net of taxes
          Unrealized losses on AFS debt securities            (551)
          Less: gains on disposition of securities            (117)
                                                     -------------
       Other comprehensive income                             (668)                     (668)                                (668)
                                                     -------------
    Comprehensive income                                    $2,272
                                                     =============

    Dividends on common stock                                            (979)                                               (979)
    Issued 14,046 shares of common stock in connection
       with Executive Compensation Plan                                                                    66        244      310
    Exercised 7,083 option shares                                                                         (63)       123       60
    Issued 71,918 shares of common stock in connection with
       the acquisition of certain assets and assumption of
          certain liabilities of Monarch Capital Corporation                                              131      1,244    1,375
    Purchased 12,100 shares of common stock                                                                         (235)    (235)
                                                                   ----------  -------------  ------  --------  -------- --------
    Balance at March 31, 2002                                         $56,719           $488  $5,397  $21,127   $(12,695) $71,036
                                                                   ==========  =============  ======  ========  ======== ========


---------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
                                       3
<PAGE>
<TABLE>
<CAPTION>

Interchange Financial Services Corporation
-------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
-------------------------------------------------------------------------------------------------------------
(dollars in thousands)
(unaudited)
                                                                                           2002        2001
                                                                                         --------    --------
<S>                                                                                      <C>         <C>

Cash flows from operating activities
Net income                                                                                $ 2,940     $ 2,331
Adjustments to reconcile net income to net cash provided by operating activities
  Depreciation and amortization                                                               367         368
  Amortization of securities premiums                                                         407         148
  Accretion of securities discounts                                                           (71)        (83)
  Amortization of premiums in connection with acquisition                                      13          58
  Provision for loan losses                                                                   225         180
  Increase in cash surrender value of Bank Owned Life Insurance                              (221)          -
  Net gain on sale of securities                                                             (187)        (65)
  Net gain on sale of loans                                                                   (30)        (23)
Decrease (increase) in operating assets
  Accrued interest receivable                                                                (289)        307
  Accounts receivable- leases sold                                                          4,921           -
  Other                                                                                      (665)        281
(Decrease) increase in operating liabilities
  Accrued interest payable                                                                   (135)        (13)
  Other                                                                                     2,074           3
                                                                                         --------    --------
Cash provided by operating activities                                                       9,349       3,492
                                                                                         --------    --------

Cash flows from investing activities
(Payments for) proceeds from
  Purchase of loans                                                                       (14,930)     (9,658)
  Net originations of loans                                                                (5,467)       (354)
  Sale of loans                                                                               345         574
  Purchase of securities available for sale                                               (31,796)    (10,805)
  Maturities of securities available for sale                                              11,708       5,846
  Sale of securities available for sale                                                     3,159           -
  Purchase of securities held to maturity                                                       -      (9,367)
  Maturities of securities held to maturity                                                 3,908       6,789
  Purchase of fixed assets                                                                   (525)       (199)
  Sale of reposessed assets                                                                    91           -
  Premium in connection with acquisition                                                   (1,861)          -
                                                                                         --------    --------
Cash used in investing activities                                                         (35,368)    (17,174)
                                                                                         --------    --------

Cash flows from financing activities
Proceeds from (payments for)
  Deposits in excess of withdrawals                                                        28,422      31,206
  Securities sold under agreements to repurchase and other borrowings                      22,656      15,000
  Retirement of securities sold under agreement to repurchase and
     other borrowings                                                                     (23,756)    (19,500)
  Dividends                                                                                  (979)       (883)
  Treasury stock                                                                             (235)          -
  Common stock issued                                                                       1,685         255
  Exercise of option shares                                                                    60         (14)
                                                                                         --------    --------
Cash provided by financing activities                                                      27,853      26,064
                                                                                         --------    --------

Increase in cash and cash equivalents                                                       1,834      12,382
Cash and cash equivalents, beginning of year                                               22,211      33,150
                                                                                         --------    --------
Cash and cash equivalents, end of period                                                  $24,045     $45,532
                                                                                         ========    ========

Supplemental disclosure of cash flow information:
Cash paid for:
 Interest                                                                                  $6,410      $5,761
 Income taxes                                                                                   -          82

Supplemental disclosure of non-cash investing activities:
  Loans transferred to foreclosed real estated and other
   repossessed assets                                                                          69          10
  Decrease(increase)- market valuation of securities available for sale, net of taxes         668        (515)


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


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    FOR THE THREE MONTHS ENDED MARCH 31, 2002
                                   (Unaudited)

1.   Basis of Presentation

     The accompanying  unaudited  consolidated  financial statements include the
accounts of  Interchange  Financial  Services  Corporation  and its wholly owned
subsidiaries (on a consolidated  basis,  the "Company")  including its principal
operating  subsidiary,  Interchange Bank (the "Bank"), and have been prepared in
conformity with accounting principles generally accepted in the United States of
America  within  the  banking  industry  and in  accordance  with the  rules and
regulations of the Securities  and Exchange  Commission.  Pursuant to such rules
and  regulations,  certain  information  or footnotes  necessary  for a complete
presentation  of financial  condition,  results of operations  and cash flows in
conformity with accounting principles generally accepted in the United States of
America  within the banking  industry  have been  condensed  or  omitted.  These
consolidated  financial  statements  should  be read  in  conjunction  with  the
financial statements and schedules thereto included in the annual report on Form
10-K of the Company  for the year ended  December  31,  2001.

     The  consolidated  financial data for the three months ended March 31, 2002
and 2001,  are unaudited but reflect all  adjustments  consisting of only normal
recurring  adjustments  which  are,  in the  opinion of  management,  considered
necessary  for a fair  presentation  of the  financial  condition and results of
operations  for the  interim  periods.  The  results of  operations  for interim
periods are not  necessarily  indicative of results to be expected for any other
period or the full year.

2.   Earnings Per Common Share

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

3.  Legal Proceedings

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

                                       5
<PAGE>


4.  New Accounting Pronouncement

     In July 2001 the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  No. 141  "Business  Combinations"
("SFAS 141"),  which provides guidance on accounting for a business  combination
at the date a business  combination  is completed.  SFAS 141 requires the use of
the purchase method of accounting for all business combinations  initiated after
June 30, 2001,  thereby  eliminating the use of the pooling of interest  method.
Also, it provides new criteria  that  determine  whether an acquired  intangible
asset should be recognized  separately  from goodwill.  The adoption of SFAS 141
did not have any impact on the  financial  position or results of  operations of
the Company.

     In July 2001, the FASB issued Statement of Financial  Accounting  Standards
No. 142  "Goodwill  and Other  Intangible  Assets"  ("SFAS 142") which  provides
guidance  on how to  account  for  goodwill  and  intangible  assets  after  the
acquisition is complete.  The most substantive change represented by SFAS 142 is
that  goodwill will no longer be  amortized;  instead,  it will be evaluated for
impairment on an annual basis.  Identifiable  intangible assets will continue to
be amortized  over their useful lives and reviewed for  impairment in accordance
with SFAS 121  "Accounting  for the  Impairment  of  Long-Lived  Assets  and for
Long-Lived  Assets to be Disposed of." SFAS 142 will apply to existing  goodwill
and intangible  assets,  beginning with fiscal years starting after December 15,
2001.  The adoption of this  standard  did not have any impact on the  financial
position or results of operations of the Company.

     In  August  2001,  the FASB  released  SFAS No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets"  ("SFAS 144").  The  provisions of
SFAS 144 are  effective  for  financial  statements  issued for  fiscal  periods
beginning  after  December 15,  2001.  The adoption of SFAS 144 did not have any
impact on the financial position or results of operations of the Company.

5.  Cash Dividend

     The Company  declared a cash dividend of $0.15 per share,  payable on April
12, 2002 to shareholders of record as of March 18, 2002.

                                       6
<PAGE>


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

     The  following  discussion  is an  analysis of the  consolidated  financial
condition  and results of  operations  of the Company for the three months ended
March 31, 2002 and 2001, and should be read in conjunction with the consolidated
financial statements and notes thereto included in Item 1 hereof.

Forward Looking Information

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

                                       7
<PAGE>

              THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001

Earnings Summary

     For the first quarter of 2002,  the Company  reported  earnings per diluted
common  share of $0.45,  an increase of 25% over the $0.36  reported in the same
period in 2001.  Net income for the three months ended March 31, 2002  increased
26.1% to $2.9  million,  up $609  thousand  over the same period last year.  The
increase in earnings was driven largely by growth in net interest income,  which
increased $959 thousand for the three-month  period.  The growth in net interest
income was fueled mostly by an improved net interest  margin  ("margin"),  which
increased 21 basis points to 4.58% for the  three-month  period ending March 31,
2002 as compared to the same period in 2001. The improved margin resulted from a
favorable  change in the cost of funding of approximately  119 basis points.  In
addition,  a 6.6% growth in average interest  earning assets  contributed to the
improvement  in net  interest  income.  The  earning  asset  growth  was  funded
primarily by an increase in core  deposits,  which  represent  an essential  and
cost-effective  funding source for the Bank. In addition,  a $337  thousand,  or
27.5%, increase in non-interest income favorably affected revenue.

     The growth in  revenues  was  partly  offset by a $446  thousand,  or 7.8%,
increase in  non-interest  expenses.  This increase  largely  reflects the costs
associated  with a branch  opened  in the first  quarter  of 2002 as well as the
acquisition of certain  assets and assumption of certain  liabilities of Monarch
Capital Corporation  ("MCC") by the Company. As part of that transaction,  MCC's
staff joined Interchange Capital Corporation ("ICC").

     For the  three  months  ended  March 31,  2002,  two of the  Company's  key
performance  ratios,  Return on  Average  Assets  ("ROA")  and Return on Average
Equity ("ROE"), improved. ROA increased to 1.38% from 1.19% and ROE increased to
16.98% from 14.94% when compared to the same period last year.

                                       8
<PAGE>

                              RESULTS OF OPERATIONS

Net Interest Income

     Net  interest  income  is the  most  significant  source  of the  Company's
operating income.  Net interest income on a tax-equivalent  basis increased $959
thousand,  or 11.7%,  to $9.2  million for the  quarter  ended March 31, 2002 as
compared to the same period in 2001. Net interest  income  improved  principally
because of an increase in the margin of 21 basis points for the first quarter of
2002 as compared to the same period  last year.  The margin  improved  primarily
because of a decline in the  Company's  funding cost for the period of about 119
basis  points.  Furthermore,  the growth in  average  interest  earning  assets,
particularly loans, also contributed to the growth in interest income.

     Interest income, on a tax-equivalent  basis,  totaled $13.8 million for the
first quarter of 2002, a decrease of $850 thousand,  or 5.8%, as compared to the
same quarter in 2001.  The decrease  was mostly  attributed  to a 91 basis point
decline  in  interest  earning  asset  yields  for the first  quarter of 2002 as
compared to the same  quarter in 2001.  The decline in  interest  earning  asset
yields was largely attributed to a decrease in market interest rates. The impact
on interest income due to the lower interest rate  environment was partly offset
by an increase in the volume of interest-earning  assets,  which grew on average
$49.2  million,  or 6.6%,  for the first quarter of 2002 as compared to the same
period  last year.  The growth in  interest-earning  assets  occurred  mostly in
investments  and loans,  which  increased  $32.5  million,  or 20.0%,  and $26.1
million, or 4.6%, respectively.

     Interest  expense  totaled  $4.7  million for the first  quarter of 2002, a
decrease of $1.8 million,  or 27.9%, as compared to the same period in 2001. The
improvement to interest expense is a byproduct of the decline in interest rates,
particularly  short-term rates, during 2001. In addition,  a beneficial shift in
the  composition of the Company's  deposits,  which is discussed  further in the
analysis of financial  condition,  also had a favorable  impact on the Company's
interest  expense.  The  improved  deposit mix  combined  with lower  short-term
interest rates reduced the average rate paid on interest bearing  liabilities by
143 basis  points to 2.84% at March  31,  2002.  The  magnitude  of the  benefit
derived  from the  decrease in rates paid on interest  bearing  liabilities  was
partially reduced by the positive growth of deposits.  Interest bearing deposits
grew on  average  $54.0  million,  or 9.3%,  for the  first  quarter  of 2002 as
compared to the first quarter of 2001.

                                     9
<PAGE>
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
Analysis of Net Interest Income
------------------------------------------------------------------------------------------------------------------------------------
for the Quarter ended March 31,
(dollars in thousands)                                               2002                                             2001
                                                          --------------------------------------------------------------------------
(unaudited)                                                Average                   Average      Average      Average      Average
                                                           Balance     Interest       Rate        Balance      Interest      Rate
                                                          ---------    ---------    ---------    ---------    ---------    ---------
<S>                                                       <C>          <C>          <C>          <C>          <C>          <C>

                         Assets
Interest earning assets
Loans (1)                                                  $591,674      $11,054         7.47 %   $565,569      $11,722       8.29 %
Taxable securities                                          184,534        2,551         5.53 %    150,485        2,467       6.56 %
Tax-exempt securities (2)                                    10,774          176         6.53 %     12,279          190       6.19 %
Federal funds sold                                           12,668           53         1.67 %     22,099          305       5.52 %
                                                          ---------    ---------                 ---------    ---------
Total interest-earning assets                               799,650       13,834         6.92 %    750,432       14,684       7.83 %
                                                                       ---------                              ---------

Non-interest earning assets
Cash and due from banks                                      21,052                                 20,545
Allownace for loan and lease lossses                         (6,568)                                (6,254)
Other assets                                                 36,869                                 21,722
                                                          ---------                              ---------
  Total assets                                             $851,003                               $786,445
                                                          =========                              =========

           Liabilities and stockholders' equity
Interest-bearing liabilities
Interest bearing deposits                                  $632,697        4,384         2.77 %   $578,648        6,066       4.19 %
Borrowings                                                   25,880          292         4.51 %     29,168          420       5.75 %
                                                          ---------    ---------                 ---------    ---------
Total interest-bearing liabilities                          658,577        4,676         2.84 %    607,816        6,486       4.27 %
                                                                       ---------                              ---------

Non-interest bearing liabilities
Demand deposits                                             112,135                                108,800
Other liabilities                                            11,025                                  7,398
                                                          ---------                              ---------
  Total liabilities (3)                                     781,737                                724,014
Stockholders' equity                                         69,266                                 62,431
                                                          ---------                              ---------
  Total liabilities and stockholders' equity               $851,003                               $786,445
                                                          =========                              =========
Net interest income (tax-equivalent basis)                                 9,158         4.08 %                   8,198       3.56 %
Tax-equivalent basis adjustment                                              (90)                                   (82)
                                                                       ---------                              ---------
  Net interest income                                                     $9,068                                 $8,116
                                                                       =========                              =========
Net interest income as a percent of interest-earning
assets (tax-equivalent basis)                                                            4.58 %                               4.37 %
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(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.
</FN>
</TABLE>

Provision for Loan and Lease Losses

     The provision for loan and lease losses represents management's calculation
of the  amount  necessary  to bring  the  allowance  for loan and  lease  losses
("ALLL") to a level that  management  considers  adequate to reflect the risk of
estimated  losses  inherent in the  Company's  loan  portfolio as of the balance
sheet date. A more  detailed  discussion  of the  evaluation  of the ALLL can be
found in the section titled "Significant  Accounting Policy:  Allowance for loan
and  lease  losses".  In the  first  quarter  of 2002 and  2001,  the  Company's
provision  for loan  and  lease  losses  was $225  thousand  and $180  thousand,
respectively.

Non-interest Income

     For the quarter ended March 31, 2002, non-interest income increased by $337
thousand,  or 27.5%,  to $1.6  million from $1.2 million for the same period one
year ago.  The largest  component of the  increase is  attributable  to the Bank
Owned Life Insurance ("BOLI") contracts, which had an aggregate increase in cash
surrender  value of $221 thousand.  The increase in the cash surrender  value is
reported as other  non-interest  income.  Net gains on the sales of  securities,
which increased $122 thousand, also contributed to the increase.

                                       10
<PAGE>

Non-interest Expenses

     For the quarter  ended March 31, 2002,  non-interest  expenses  amounted to
$6.1  million,  an increase of $446  thousand,  or 7.8%, as compared to the same
period in 2001. The increase in  non-interest  expenses was due in large part to
the  Company's  expansion  program and  additional  advertising.  The purpose of
expansion program as well as the advertising is to increase the Company's market
penetration  and franchise  value. In January 2002, the Bank opened a new branch
location in Hackensack, New Jersey, which brings the total number of branches of
the Bank to eighteen.  The costs related to the new branch totaled $134 thousand
and were partly  responsible  for the  increase  in  non-interest  expenses.  In
addition,  in January 2002, the Bank acquired certain assets and assumed certain
liabilities of MCC. As part of the acquisition, the staff of MCC joined ICC. The
expansion  of ICC's  operation  resulted in an increase  of  approximately  $136
thousand in non-interest expenses. Advertising expense for the quarter increased
$247 thousand as compared to the same quarter in 2001. The increased advertising
costs were related to more  aggressive  marketing  campaigns aimed at increasing
the Company's market penetration. In addition,  advertising costs for the period
included  expenses  related  to the  introduction  of the  Company's  new  brand
positioning in the marketplace as "The Bank For People Like You" and promotional
expenses  related to the grand opening of the Hackensack  office.  The quarterly
comparison of non-interest expenses was affected by a non-recurring entrance fee
paid in the first quarter of 2001 of $59 thousand for the  Company's  listing on
the NASDAQ National Market System.

Income Taxes

     Income tax  expense  as a  percentage  of pre-tax  income was 31.2% for the
three months ended March 31, 2002 as compared to 32.9% for the first  quarter of
2001. The improvement was largely due to the  appreciation in the cash surrender
value of the BOLI contracts, which is exempt from federal income tax.

                                       11
<PAGE>

                               FINANCIAL CONDITION

     At March 31,  2002,  the  Company's  total assets were $863.0  million,  an
increase of $32.1  million,  or 3.9%,  from $830.9 million at December 31, 2001.
The growth was largely in loans and  investments,  which grew $19.8  million and
$11.7  million,  respectively,  as of March 31, 2002 as compared to December 31,
2001. The asset growth was funded principally by growth in deposit  liabilities,
which occurred mostly in interest bearing demand deposits.

Cash and Cash Equivalents

     At March 31,  2002,  cash and cash  equivalents  increased  $1.8 million to
$24.0 million as compared to $22.2 million at December 31, 2001. This is largely
the result of financing activities  (reflecting  principally deposit growth less
repayments of borrowings)  and operating  activities  (reflecting net income and
changes in other  assets)  generating  cash more rapidly than can be utilized by
the investing activities (funding loans and investment growth). This can be seen
more completely on the accompanying unaudited Statements of Cash Flows.

Securities Portfolio

     Under Statement of Financial  Accounting  Standards No. 115 "Accounting for
Certain  Investments in Debt and Equity  Securities" ("SFAS 115"), each security
is classified as either trading, available for sale ("AFS"), or held to maturity
("HTM").  The  Company  has no  securities  held in a trading  account.  The AFS
securities are recorded at their fair value.  The after-tax  difference  between
amortized  cost and fair value of AFS  securities  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 HTM securities 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, HTM securities,  with some exceptions,
may only be sold within three months of maturity.

     The Company uses its securities portfolio to provide a source of income, to
ensure  liquidity for cash flow  requirements,  to manage interest rate risk, to
ensure  collateral  is available for pledging  requirements  and to manage asset
quality diversification. At March 31, 2002, investment securities totaled $205.6
million and represented 23.8% of total assets, as compared to $193.9 million and
23.3%, respectively, at December 31, 2001. AFS securities comprised 83.0% of the
total  securities  portfolio  at March 31, 2002 as compared to 80.0% at December
31, 2001. During the first quarter of 2002, the Company recognized $187 thousand
in security gains from the sale of two securities and the call of two securities
before their  maturity.  The securities had a book value of  approximately  $3.6
million.

                                       12
<PAGE>

     The following table reflects the  composition of the securities  portfolio:
(dollars in thousands)
<TABLE>
<CAPTION>
                                                         ---------------------------------------------------------------------------
                                                                                       March 31, 2002
                                                         ---------------------------------------------------------------------------
                                                                                       (unaudited)
                                                                           Gross          Gross        Estimated
                                                           Amortized     Unrealized     Unrealized       Market
                                                              Cost         Gains          Losses          Value
                                                         -----------    -----------    -----------    -----------
<S>                                                      <C>            <C>            <C>            <C>

Securities held to maturity
 Mortgage-backed securities                                  $20,640           $317            $11       $ 20,946
 Obligations of U.S. agencies                                  3,981            125              -          4,106
 Obligations of states & political subdivisions               10,186            210             37         10,359
 Other debt securities                                           100              -              -            100
                                                         -----------    -----------    -----------    -----------
                                                              34,907            652             48         35,511
                                                         -----------    -----------    -----------    -----------

Securities available for sale
 Mortgage-backed securities                                  $99,031         $1,860           $451      $ 100,440
 Obligations of U.S. agencies                                 52,339            220            955         51,604
 Obligations of states & political subdivisions               14,427            386            134         14,679
 Equity securities                                             3,977              -              -          3,977
                                                         -----------    -----------    -----------    -----------
                                                             169,774          2,466          1,540        170,700
                                                         -----------    -----------    -----------    -----------
  Total securities                                          $204,681         $3,118         $1,588       $206,211
                                                         ===========    ===========    ===========    ===========

                                                         ---------------------------------------------------------------------------
                                                                               December 31, 2001
                                                         ---------------------------------------------------------------------------
                                                                           Gross          Gross        Estimated
                                                           Amortized     Unrealized     Unrealized       Market
                                                              Cost          Gains         Losses         Value
                                                         -----------    -----------    -----------    -----------
Securities held to maturity
 Mortgage-backed securities                                  $22,201           $300             $9       $ 22,492
 Obligations of U.S. agencies                                  5,977            181              -          6,158
 Obligations of states & political subdivisions                9,855            244             23         10,076
 Other debt securities                                           839             15              -            854
                                                         -----------    -----------    -----------    -----------
                                                              38,872            740             32         39,580
                                                         -----------    -----------    -----------    -----------

Securities available for sale
 Obligations of U.S. Treasury                                  1,999             18              -          2,017
 Mortgage-backed securities                                   97,022          1,808            313         98,517
 Obligations of U.S. agencies                                 39,944            529            409         40,064
 Obligations of states & political subdivisions                9,993            462              -         10,455
 Equity securities                                             3,977              -              -          3,977
                                                         -----------    -----------    -----------    -----------
                                                             152,935          2,817            722        155,030
                                                         -----------    -----------    -----------    -----------
   Total securities                                         $191,807         $3,557           $754       $194,610
                                                         ===========    ===========    ===========    ===========
</TABLE>
                                       13
<PAGE>


     At March  31,  2002,  the  contractual  maturities  of  securities  held to
maturity  and  securities  available  for  sale  are  as  follows:  (dollars  in
thousands)
<TABLE>
<CAPTION>


                                      Securities               Securities
                                    Held to Maturity        Available for Sale
                                  ---------------------   ---------------------
                                  Amortized    Market     Amortized    Market
                                    Cost       Value        Cost       Value
                                  ---------   ---------   ---------   ---------
<S>                               <C>         <C>         <C>         <C>

Within 1 year                       $ 3,296     $ 3,342     $ 4,433     $ 4,513
After 1 but within 5 years            5,068       5,255      93,720      93,578
After 5 but within 10 years          17,204      17,433      28,637      28,737
After 10 years                        9,339       9,481      39,007      39,895
Equity securities                         -           -       3,977       3,977
                                  ---------   ---------   ---------   ---------
                    Total          $ 34,907    $ 35,511   $ 169,774   $ 170,700
                                  =========   =========   =========   =========
</TABLE>

Loans

     Total loans  amounted to $600.8  million at March 31, 2002,  an increase of
$19.5  million  from  $581.3  million  at  December  31,  2001.  The  growth was
predominately in commercial loans, which increased $20.0 million.  The growth in
commercial loans was mostly attributed to the acquisition of approximately $14.0
million of  commercial  loans and leases from MCC in the first  quarter of 2002.
The acquisition  was part of the Company's  strategy of shifting the emphasis of
its leasing  subsidiary,  ICC, more towards the middle-market  leasing business.

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

<TABLE>
<CAPTION>
                                     -------------   -------------
                                       March 31,     December 31,
                                         2002            2001
                                     -------------   -------------
                                      (unaudited)
<S>                                  <C>             <C>
Real estate-mortgage
     1-4 family residential
         First liens                      $111,804        $113,703
         Junior liens                        9,025           8,384
         Home equity                       126,076         130,658
     Commercial                            204,497         198,319
     Construction                            5,296           5,265
                                     -------------   -------------
                                           456,698         456,329
                                     -------------   -------------
Commercial loans
     Commercial and financial               94,553          85,801
     Lease financing                        27,059          15,850
                                     -------------   -------------
                                           121,612         101,651
                                     -------------   -------------
Consumer loans
     Lease financing                        17,959          18,822
     Installment                             4,572           4,521
                                     -------------   -------------
                                            22,531          23,343
                                     -------------   -------------
            Total                         $600,841        $581,323
                                     =============   =============
</TABLE>
                                       14
<PAGE>

Deposits

     Deposits,    which   include    non-interest-bearing    demand    deposits,
interest-bearing  demand deposits,  savings and time deposits,  are an essential
and  cost-effective  funding source for the Company.  The Company attributes its
success in growing  deposits to the emphasis it places on building core customer
relationships.

     At March 31, 2002,  total deposits  increased  $28.4  million,  or 3.9%, to
$754.9  million from $726.5 million at December 31, 2001. The growth in deposits
occurred mostly in interest-bearing demand deposits and savings deposits,  which
increased  $15.4  million and $7.2 million,  respectively,  at March 31, 2002 as
compared to December 31, 2001. For the first quarter 2002, the Company's overall
yield on deposits  decreased by 118 basis points from the same period last year.
The  Company  attributes  this  decrease  principally  to the  decline in market
interest rates and a positive  shift in the  composition of deposits from higher
costing deposits towards lower costing deposits.

     Time deposits  amounted to $219.9 million at March 31, 2002, an increase of
$4.6 million,  or 2.1%, from December 31, 2001. Time deposits  represented 29.1%
of total  deposits at March 31, 2002  compared  to 29.6% at December  31,  2001.
Other interest-bearing  deposits,  which include  interest-bearing demand, money
market and savings accounts, comprise the largest segment of the Company's total
deposits.  At March 31,  2002,  such  deposits  amounted to $424.5  million,  an
increase of $22.6 million, or 5.6%, from December 31, 2001. Non-interest bearing
demand,  which  increased $1.2 million,  or 1.1%, to $110.6 million at March 31,
2002 as compared to December 31, 2001, contributed to the growth in deposits and
had a positive impact on the overall yield on deposit liabilities.

Nonperforming Assets

     Nonperforming assets are comprised of nonaccrual loans, restructured loans,
foreclosed  real estate and repossessed  assets.  Loans are placed on nonaccrual
status when, in the opinion of management,  the future collection of interest or
principal  according to  contractual  terms may be doubtful or when principal or
interest  payments are in arrears 90 days or more.  Restructured  loans  include
loans in which the Company, based on the borrower's financial difficulties,  has
granted a concession to the borrower that it would not otherwise  consider.  The
Company's nonperforming assets at March 31, 2002 decreased $434 thousand to $2.4
million  from  $2.8  million  at  December  31,  2001,  due  principally  to the
charge-off of $479 thousand in  nonperforming  commercial  leases.  At March 31,
2002,  commercial leases and other repossessed assets comprised $870 thousand or
36.7%  of the  nonperforming  assets.  Management  continues  to work  with  the
equipment  vendors  and
                                       15
<PAGE>

other entities to resolve the delinquencies. The resolution includes, but is not
limited, to obtaining possession of the equipment,  which will be re-marketed by
the vendors to new customers.

         The following table lists nonaccrual loans, restructured loans and
foreclosed real estate and other repossessed assets at March 31, 2002, and
December 31, 2001. (dollars in thousands)
<TABLE>
<CAPTION>

                                                         ------------  ------------
                                                          March 31,    December 31,
                                                             2002           2001
                                                         ------------  ------------
<S>                                                      <C>           <C>

Nonperforming loans                                            $1,748        $2,160
Restuctured Loans                                                 150           150
Foreclosed real estate and other repossessed assets               470           492
                                                         ------------  ------------
     Total nonperforming assets                                $2,368        $2,802
                                                         ============  ============
</TABLE>

Significant Accounting Policy

Allowance for loan and lease losses:  The 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 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 portoflio,  then the provision
for loan and lease losses is increased.

     The Company's  ALLL is an amount  considered  adequate to absorb  estimated
losses on  existing  loans and  leases  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.

     While the ALLL is management's  best estimate of loan losses incurred as of
the balance sheet date, the process of  determining  the adequacy of the ALLL is
essentially   judgmental   and  subject  to  changes  in  external   conditions.
Accordingly,  there can be no assurance  that  existing  levels of the ALLL will
ultimtely prove adequate to cover actual loan losses.  The ALLL was $6.3 million
at March 31, 2002,  and $6.6 million at December 31, 2001,  representing  331.9%
and 284.4% of nonperforming loans at those dates, respectively.

                                       16
<PAGE>

         The following table presents the provisions for loan and lease losses,
loans charged off and recoveries on loans previously charged off, the amount of
the allowance, the average loans outstanding and certain pertinent ratios for
the quarters ended March 31, 2002 and 2001. (dollars in thousands)
<TABLE>
<CAPTION>
                                                  ---------------------------
                                                            March 31,
                                                  ---------------------------
                                                    2002               2001
                                                  --------           --------
<S>                                               <C>                <C>

Average loans outstanding                         $591,674            565,569
                                                  ========           ========

Allowance at beginning of year                       6,569              6,154
                                                  --------           --------
Loans charged off
  Commercial and financial                              22                  -
  Commercial lease financing                           479                160
  Consumer loans                                         -                  2
                                                  --------           --------
    Total                                              501                162
                                                  --------           --------

Recoveries of loans previously charged off
  Real estate                                            -                  3
  Commercial and financial                               -                190
  Commercial lease financing                             5                  5
  Consumer loans                                         1                  5
                                                  --------           --------
    Total                                                6                203
                                                  --------           --------

Additions to allowance charged to expense              225                180
Allowance at end of period                          $6,299             $6,375
                                                  ========           ========

Allowance to total loans                              1.05  %            1.12  %
Ratio of net charge-offs to average loans             0.08  %           (0.01) %

</TABLE>

Market Risk

     The Company's primary exposure to market risk arises from changes in market
interest rates  ("interest rate risk").  The Company's  profitability is largely
dependent upon its ability to manage interest rate risk.  Interest rate risk can
be defined as the  exposure  of the  Company's  net  interest  income to adverse
movements in interest  rates.  Although the Company  manages other risks,  as in
credit and liquidity  risk,  in the normal  course of its  business,  management
considers  interest rate risk to be its most  significant  market risk and could
potentially  have  the  largest  material  effect  on  the  Company's  financial
condition. The primary objective of the asset/liability management process is to
measure  the  effect of  changing  interest  rates on net  interest  income  and
economic value of equity and adjust the balance sheet, if necessary, to minimize
the inherent risk and maximize income. The Company's exposure to market risk and
interest  rate  risk is  reviewed  on a  regular  basis  by the  Asset/Liability
Committee and the Board of Directors.  Tools used by management to evaluate risk
include an  asset/liability  simulation  model.  At March 31, 2002,  the Company
simulated the effects on

                                       17
<PAGE>

net interest income given an instantaneous and parallel shift in the yield curve
of up to 200 basis points in either direction.  Based on the simulation,  it was
estimated  that net interest  income,  over a  twelve-month  horizon,  would not
decrease by more than 10%.  At March 31,  2002,  the  Company was within  policy
limits  established for changes in net interest income and future economic value
of equity.

     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.

     In addition,  the Company utilizes  sensitivity gap analysis as an interest
rate risk measurement. Sensitivity gap is determined by analyzing the difference
between the amount of  interest-earning  assets  maturing or repricing  within a
specific time period and the amount of interest bearing liabilities  maturing or
repricing within that same period of time.  Sensitivity gap analysis provides an
indication  of the  extent to which the  Company's  net  interest  income may be
affected by future changes in market interest rates. The cumulative gap position
expressed as a percentage of total assets  provides one relative  measure of the
Company's interest rate exposure.

     The cumulative gap between the Company's interest-rate-sensitive assets and
its  interest-rate-sensitive  liabilities repricing within a one-year period was
-14.00%  at March 31,  2002 and is within the policy  limit  established  by the
Board of Directors of -15.00%.

     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
hedging transactions utilizing derivative financial instruments during the first
quarter of 2002.

     The Company is, however, a 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  consolidated
statement of condition. 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
                                       18
<PAGE>

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 consolidated balance
sheet until the instrument is exercised.

Capital Adequacy

     The  Company is subject to  capital  adequacy  requirements  imposed by the
Board of Governors of the Federal  Reserve System (the "Federal  Reserve");  and
the Bank is subject  to similar  capital  adequacy  requirements  imposed by the
Federal Deposit Insurance  Corporation (the "FDIC"). The Federal Reserve and the
FDIC have adopted  risk-based  capital  requirements  for assessing bank holding
company and bank capital adequacy.  These standards define capital and establish
minimum  capital  requirements  in  relation  to assets  and  off-balance  sheet
exposure,  adjusted for credit risk. The risk-based capital standards  currently
in effect are designed to make regulatory capital requirements more sensitive to
differences in risk profiles among bank holding  companies and banks, to account
for off-balance sheet exposure and to minimize  disincentives for holding liquid
assets.   Assets  and  off-balance  sheet  items  are  assigned  to  broad  risk
categories,  each with appropriate  relative risk weights. The resulting capital
ratios  represent  capital as a  percentage  of total  risk-weighted  assets and
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.  Supplementary capital includes the allowance for loan losses (subject
to certain  limitations),  other  perpetual  preferred  stock,  trust  preferred
securities that exceed Tier 1 limits, certain other capital instruments and term
subordinated debt. Total capital is the sum of core and supplementary capital.

     At March 31,  2002,  the  minimum  risk-based  capital  requirements  to be
considered  adequately  capitalized  were 4% for Tier 1 capital and 8% for total
capital.

     Federal banking regulators have also adopted leverage capital guidelines to
supplement the risk-based measures. The leverage ratio is determined by dividing
Tier 1 capital as  defined  under the  risk-based  guidelines  by average  total
assets (non  risk-adjusted)  for the preceding  quarter.  At March 31, 2002, the
minimum leverage ratio requirement to be considered  adequately  capitalized was
3%.

     The capital  levels of the Company and the Bank at March 31, 2002,  and the
two highest capital adequacy levels recognized under the guidelines  established
by the federal  banking  agencies  are  included  in the  following  table.

                                       19
<PAGE>

The Company's and the Bank's ratios all exceeded the well-capitalized guidelines
shown in the table.

<TABLE>
<CAPTION>
                                                                                                          To Be "Well
                                                                                                       Capitalized" Under
                                                                               For Capital              Prompt Corrective
                                                           Actual            Adequacy Purposes          Action Provisions
                                                    --------------------    --------------------      -------------------
                                                     Amount       Ratio      Amount       Ratio        Amount      Ratio
                                                    -------      -------    --------     -------      --------    -------
<S>                                                 <C>          <C>        <C>          <C>          <C>         <C>

As of March 31, 2002:
     Total Capital (to Risk Weighted Assets):
       The Company                                  $75,053        12.65 %   $47,468        8.00 %        N/A         N/A
       The Bank                                      72,772        12.26      47,467        8.00      $59,334       10.00 %
     Tier 1 Capital (to Risk Weighted Assets):
       The Company                                   68,754        11.59      23,734        4.00          N/A         N/A
       The Bank                                      66,473        11.20      23,734        4.00       35,600        6.00
     Tier 1 Capital (to Average Assets):
       The Company                                   68,754         8.10      25,460        3.00          N/A         N/A
       The Bank                                      66,473         7.83      25,460        3.00       42,433        5.00

As of December 31, 2001:
     Total Capital (to Risk Weighted Assets):
       The Company                                  $73,700        12.89 %   $45,727        8.00 %        N/A         N/A
       The Bank                                      71,916        12.58      45,733        8.00      $57,166       10.00 %
     Tier 1 Capital (to Risk Weighted Assets):
       The Company                                   67,131        11.74      22,864        4.00          N/A         N/A
       The Bank                                      65,347        11.43      22,866        4.00       34,299        6.00
     Tier 1 Capital (to Average Assets):
       The Company                                   67,131         8.09      24,901        3.00          N/A         N/A
       The Bank                                      65,347         7.93      24,727        3.00       41,212        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.

     Financing for the Company's loans and investments is derived primarily from
deposits,  along with interest and principal  payments on loans and investments.
At March 31, 2002,  total deposits  amounted to $754.9  million,  an increase of
$28.4  million,  or 3.91%,  from  December  31, 2001.  In addition,  the Company
supplemented  the more  traditional  funding  sources with  borrowings  from the
Federal  Home Loan Bank of New York  ("FHLB")  and with  securities  sold  under
agreements to repurchase  ("REPOS").  At March 31, 2002,  advances from the FHLB
and REPOS amounted to $17.0 million and $6.7 million,  respectively, as compared
to $18.1 million and $6.7 million, respectively, at December 31, 2001.

     In  2002,  despite  heightened   competition  for  loans,  loan  production
continued to be the Company's principal  investing activity.  Net loans at March
31, 2002 amounted to $594.5  million,  an increase of $19.8  million,  or 3.44%,
from $574.8 million at December 31, 2001.

     The  Company's  most liquid  assets are cash and due from banks and federal
funds  sold.  At March 31,  2002,  the total of such  assets  amounted  to $24.0
million, or 2.8%, of total assets,  compared to $22.2 million, or 2.7%, of total
assets at December 31, 2001. The increase in cash and

                                       20
<PAGE>

cash  equivalents was due largely to deposit  growth,  which produced funds that
were placed in temporary investments pending investment in loans and securities.

     Another  significant  liquidity source is the Company's AFS securities.  At
March 31, 2002, AFS securities  amounted to $170.7  million,  or 83.0%, of total
securities,  compared  to $155.0  million,  or  80.0%,  of total  securities  at
December 31, 2001.

     In addition to the  aforementioned  sources of  liquidity,  the Company has
available various other sources of liquidity,  including federal funds purchased
from other banks and the Federal Reserve  discount  window.  The Bank also has a
$79.9 million line of credit available through its membership in the FHLB.

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

                                       21
<PAGE>


                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings

     In November  1999,  Michael C.  Guttuso (the  "Plaintiff")  filed a lawsuit
against the Bank, Anthony D. Andora, Esq., the Company's Chairman and a director
of the Bank, and others  seeking  damages as a result of a failed attempt by the
Plaintiff to obtain  financing from the Bank to develop a parcel of real estate.
The Plaintiff asserts that the Bank breached the financing  commitment letter by
failing to close on the loan.  In its defense,  the Bank takes the position that
it was not  obligated to close on the loan as Plaintiff had failed to obtain all
necessary  county and  municipal  planning  board  approvals  as required by the
commitment  letter.  The Plaintiff  also asserts that Mr.  Andora,  who acted as
Plaintiff's  legal  counsel  with  regard to the  transaction,  committed  legal
malpractice.

     In March 2001, the Plaintiff's  complaint was dismissed with prejudice as a
result of actions of Plaintiff's counsel. The Plaintiff was allowed to reinstate
his complaint in June 2001,  and was  permitted to file an amended  complaint in
July 2001. In his amended complaint,  the Plaintiff asserted that Mr. Andora was
liable as an agent of the Bank.

     In  August  2001,  Mr.  Andora  filed a  cross-claim  against  the Bank for
indemnification  as well as for legal costs and fees in the event the  Plaintiff
received  a damage  award  following  trial.  In August  2001,  the Bank filed a
cross-claim against Mr. Andora in response to his filing.

     The parties to this lawsuit are currently  negotiating  a  settlement,  the
outcome  of which is not  expected  to have a material  effect on the  financial
condition or results of operation of the Company.

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

Item 2.  Change in Securities and Use of Proceeds
         None

Item 3.  Defaults Upon Senior Securities
         None

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

Item 5. Other Information
         None

Item 6.  Exhibits and Reports on Form 8-K
         (a)      The following exhibits are furnished herewith:


                                       22
<PAGE>
                  Exhibit.
                  _______
                  11       Statement re computation of per share earnings

         (b)      Reports on Form 8-K

                  During the quarter ended March 31, 2002, the Company filed the
                  following Current Report on Form 8-K:


                           Form 8-K filed January 30, 2002, as amended by Form
                           8-K/A filed February 4, 2002, announcing that
                           Interchange Financial Services Corporation had
                           completed the purchase of substantially all of the
                           assets and liabilities of Monarch Capital
                           Corporation.






                                       23
<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/ Anthony Labozzetta
         ______________________
         Anthony Labozzetta
         Executive Vice President & CFO
         (Duly Authorized Officer and Principal
         Financial and Accounting Officer)

Dated: May 15, 2002

                                       24
<PAGE>
<TABLE>

Exhibit 11. Statement re computation of per share earnings
(dollars in thousands, except per share amounts)
(unaudited)


                                 ---------------------------------------------------------
                                                Three Months Ended,
                                 ---------------------------------------------------------
                                       March 31, 2002               March 31, 2001
                                 ---------------------------------------------------------
                                          Weighted     Per              Weighted    Per
                                           Average    Share              Average    Share
                                 Income    Shares     Amount   Income    Shares     Amount
                                 ------   --------   -------   ------   --------   -------
<S>                              <C>      <C>        <C>       <C>      <C>        <C>


Basic Earnings per
   Common Share
Income available to
   common shareholders           $2,940      6,518     $0.45   $2,331      6,540     $0.36
                                                     =======                       =======

Effect of Dilutive Shares
Options issued to
   management                         -         60                  -         22
                                 ------   --------             ------   --------

Diluted Earnings per
   Common Share                  $2,940      6,578     $0.45   $2,331      6,562     $0.36
                                 ======   ========   =======   ======   ========   =======

</TABLE>