<TABLE>
Interchange Financial Services Corporation
--------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------------------
(dollars in thousands)
<CAPTION>

                                                                     June 30,    December 31,
                                                                       2000         1999
                                                                    ------------ -----------
                                                                    (unaudited)
<S>                                                                 <C>          <C>

Assets
Cash and due from banks                                                $ 23,005    $ 17,669
Federal funds sold                                                       12,350           -
                                                                    ------------ -----------
Total cash and cash equivalents                                          35,355      17,669
                                                                    ------------ -----------

Securities held to maturity at amortized cost (estimated market value
      of $47,273 and $53,784 at June 30, 2000 and December 31, 1999,
      respectively)                                                      48,031      54,540
                                                                    ------------ -----------
Securities available for sale at estimated market value (amortized cost
     of $119,719 and $108,399 at June 30, 2000 and December 31, 1999,
      respectively)                                                     118,222     107,349
                                                                    ------------ -----------

Loans                                                                   548,242     511,976
Less:  Allowance for loan losses                                          6,030       5,476
                                                                    ------------ -----------
Net loans                                                               542,212     506,500
                                                                    ------------ -----------

Premises and equipment, net                                              10,702      10,289
Foreclosed real estate                                                      250         250
Accrued interest receivable and other assets                             13,019       9,528
                                                                    ------------ -----------
Total assets                                                           $767,791    $706,125
                                                                    ============ ===========


Liabilities
Deposits
    Non-interest bearing                                               $110,777    $102,392
    Interest bearing                                                    556,576     496,600
                                                                    ------------ -----------
Total deposits                                                          667,353     598,992
                                                                    ------------ -----------

Securities sold under agreements to repurchase                           24,007      16,431
Short-term borrowings                                                         -      13,975
Long-term borrowings                                                     13,000      13,000
Accrued interest payable and other liabilities                            6,455       5,451
                                                                    ------------ -----------
Total liabilities                                                       710,815     647,849
                                                                    ------------ -----------

Commitments and contingent liabilities

Stockholders' equity:
Common stock, without par value; 15,000,000 shares authorized;
    6,517,998 and 6,728,098 shares issued and outstanding at
    June 30, 2000 and December 31, 1999, respectively                     5,397       5,397
Capital surplus                                                          21,201      21,244
Retained earnings                                                        44,294      41,741
Accumulated other comprehensive loss                                       (951)       (675)
                                                                    ------------ -----------
                                                                         69,941      67,707
Less:  Treasury stock                                                    12,965       9,431
                                                                    ------------ -----------
Total stockholders' equity                                               56,976      58,276
                                                                    ------------ -----------
Total liabilities and stockholders' equity                             $767,791    $706,125
                                                                    ============ ===========

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

</TABLE>

                                       1

<PAGE>

<TABLE>
Interchange Financial Services Corporation
-----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
-----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) (unaudited)
<CAPTION>

                                                                         Three Months Ended                 Six Months Ended
                                                                              June 30,                           June 30,
                                                                      --------------------------       ----------------------------
                                                                         2000           1999               2000           1999
                                                                      ------------   -----------       -------------  -------------
<S>                                                                   <C>            <C>               <C>            <C>

Interest income
Interest and fees on loans                                                $10,861        $9,851             $21,245        $19,358
Interest on federal funds sold                                                170           195                 270            414
Interest and dividends on securities
    Taxable interest income                                                 2,396         2,034               4,618          3,978
    Interest income exempt from federal income taxes                          165            88                 324            197
    Dividends                                                                  64            60                 125            131
                                                                      ------------   -----------       -------------  -------------
Total interest income                                                      13,656        12,228              26,582         24,078
                                                                      ------------   -----------       -------------  -------------

Interest expense
Interest on deposits                                                        5,206         4,351              10,028          8,626
Interest on short-term borrowings                                             360           229                 657            466
Interest on long-term borrowings                                              206             -                 413              -
                                                                      ------------   -----------       -------------  -------------
Total interest expense                                                      5,772         4,580              11,098          9,092
                                                                      ------------   -----------       -------------  -------------

Net interest income                                                         7,884         7,648              15,484         14,986
Provision for loan losses                                                     300           300                 600            600
                                                                      ------------   -----------       -------------  -------------
Net interest income after provision
 for loan losses                                                            7,584         7,348              14,884         14,386
                                                                      ------------   -----------       -------------  -------------

Noninterest income
Service fees on deposit accounts                                              601           571               1,148          1,141
Net gain on sale of securities                                                  -           329                  97            856
Other                                                                         338           621                 641            872
                                                                      ------------   -----------       -------------  -------------
Total noninterest income                                                      939         1,521               1,886          2,869
                                                                      ------------   -----------       -------------  -------------

Noninterest expenses
Salaries and benefits                                                       2,692         2,569               5,451          5,109
Net occupancy                                                                 716           671               1,456          1,330
Furniture and equipment                                                       266           256                 548            507
Advertising and promotion                                                     311           273                 606            519
Federal Deposit Insurance Corporation assessment                               32            20                  64             40
Other                                                                       1,101         1,319               2,407          2,529
                                                                      ------------   -----------       -------------  -------------
Total noninterest expenses                                                  5,118         5,108              10,532         10,034
                                                                      ------------   -----------       -------------  -------------

Income before  income taxes                                                 3,405         3,761               6,238          7,221

Income taxes                                                                1,113         1,283               2,056          2,457
                                                                      ------------   -----------       -------------  -------------
Net income                                                                $ 2,292       $ 2,478             $ 4,182        $ 4,764
                                                                      ============   ===========       =============  =============
Basic earnings per common share                                             $0.35         $0.34               $0.64          $0.66
                                                                      ============   ===========       =============  =============
Diluted earnings per common share                                           $0.35         $0.34               $0.64          $0.66
                                                                      ============   ===========       =============  =============

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

</TABLE>

                                       2
<PAGE>

<TABLE>

Interchange Financial Services Corporation
--------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except share data) (unaudited)
<CAPTION>

                                                                                   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, 1999                                                $35,482      $1,192    $5,397   $21,256   $(955)  $62,372
Comprehensive income
   Net Income                                                  $4,764       4,764                                             4,764
   Other comprehensive income, net of taxes
    Unrealized losses on AFS debt securities                     (764)
    Less: gains on disposition of securities (excludes equities)  (90)
    Unrealized gains securities transferred from held to
      maturity to available to sale - Acquisition                  23
    Unrealized loss on equity securities                          (18)
    Less: gains on disposition of equity securities              (428)
                                                            -------------
   Other comprehensive loss                                    (1,277)                 (1,277)                               (1,277)
                                                            -------------
Comprehensive income                                           $3,487
                                                            =============

Dividends on common stock                                                  (1,730)                                           (1,730)
Issued 14,489 shares of common stock in connection
   with Executive Compensation Plan                                                                            62      184      246
Exercised 2,954 option shares                                                                                 (14)      37       23
Purchased 38,500 shares of common stock                                                                               (642)    (642)
                                                                          --------- ------------ ------- --------- --------- -------
Balance at June 30, 1999                                                   38,516          (85)    5,397   21,304   (1,376)  63,756


   Net Income                                                  $4,871       4,871                                             4,871
   Other comprehensive income, net of taxes
    Unrealized losses on AFS debt securities                     (590)
                                                           -------------
   Other comprehensive loss                                      (590)                   (590)                                 (590)
                                                           -------------
Comprehensive income                                           $4,281
                                                           =============

Dividends on common stock                                                  (1,646)                                           (1,646)
Issued 620 shares of common stock in connection
   with Executive Compensation Plan                                                                             -        -        -
Exercised 7,836 option shares                                                                                 (60)      84       24
Purchased 455,860 shares of common stock                                                                            (8,139)  (8,139)
                                                                          --------- ------------ ------- --------- --------- -------
Balance at December 31, 1999                                               41,741        (675)     5,397   21,244   (9,431)  58,276


   Net Income                                                  $4,182       4,182                                             4,182
   Other comprehensive income, net of taxes
    Unrealized losses on AFS debt securities                     (215)
    Less:  gains on disposition of securities                     (61)
                                                           -------------
   Other comprehensive loss                                      (276)                   (276)                                 (276)
                                                           -------------
Comprehensive income                                           $3,906
                                                           =============

Dividends on common stock                                                  (1,629)                                           (1,629)
Issued 11,406 shares of common stock in connection
   with Executive Compensation Plan                                                                            (6)      196     190
Exercised 4,134 option shares                                                                                 (37)       67      30
Purchased 225,640 shares of common stock                                                                             (3,797) (3,797)
                                                                          --------- ------------ ------- --------- --------- -------
Balance at June 30, 2000                                                  $44,294      $ (951)    $5,397  $21,201  $(12,965)$56,976
                                                                          ========= ============ ======= ========= ========= =======

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

                                       3
<PAGE>
<TABLE>

INTERCHANGE FINANCIAL SERVICES CORPORATION
-------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
-------------------------------------------------------------------------------------------------------------
(dollars in thousands) (unaudited)
<CAPTION>

                                                                                       2000          1999
                                                                                    -----------   -----------
<S>                                                                                 <C>           <C>
Cash flows from operating activities
Net income                                                                             $ 4,182       $ 4,764
Adjustments to reconcile net income to net cash provided
by operating activities:
    Depreciation and amortization                                                          677           775
    Amortization of securities premiums                                                    170           447
    Accretion of securities discounts                                                     (127)          (84)
    Amortization of premiums in connection with acquisition                                157           156
    Provision for loan losses                                                              600           600
    Net gain on sale of securities                                                         (97)         (856)
    Net gain on sale of foreclosed real estate                                               -           (36)
    Net loss on disposal of fixed assets                                                     -             2
Decrease (increase) in operating assets
    Accrued interest receivable                                                           (453)          260
    Other                                                                               (3,068)           11
(Decrease) increase in operating liabilities
    Accrued interest payable                                                               415           (81)
    Other                                                                                  589           662
                                                                                    -----------   -----------
Cash provided by operating activities                                                    3,045         6,620
                                                                                    -----------   -----------

Cash flows from investing activities
(Payments for) proceeds from
    Net originations of loans                                                          (27,707)      (15,459)
    Purchase of loans                                                                   (9,961)      (13,522)
    Sale of loans                                                                        1,356             -
    Repayment of term federal funds                                                          -         5,000
    Purchase of securities available for sale                                          (32,262)      (47,530)
    Maturities of securities available for sale                                          3,311         7,116
    Sale of securities available for sale                                               17,696        25,590
    Sale of foreclosed real estate                                                           -           121
    Purchase of securities held to maturity                                             (7,333)       (6,226)
    Maturities of securities held to maturity                                           11,829        13,811
    Sale of securities held to maturity                                                  2,002         2,003
    Purchase of fixed assets                                                            (1,046)         (480)
    Sale of fixed assets                                                                     -             2
                                                                                    -----------   -----------
Cash used in investing activities                                                      (42,115)      (29,574)
                                                                                    -----------   -----------

Cash flows from financing activities
Proceeds from (payments for)
    Deposits in excess of withdrawals                                                   68,361         5,104
    Securities sold under agreements to repurchase and
       other borrowings                                                                  7,576         6,250
    Retirement of securities sold under agreement to
       repurchase and other borrowings                                                 (13,975)       (7,838)
    Dividends                                                                           (1,629)       (1,730)
    Common stock issued from treasury                                                      190           246
    Treasury stock acquired                                                             (3,797)         (642)
    Exercise of option shares                                                               30            23
                                                                                    -----------   -----------
Cash provided by financing activities                                                   56,756         1,413
                                                                                    -----------   -----------

(Decrease) increase in cash and cash equivalents                                        17,686       (21,541)
Cash and cash equivalents, beginning of period                                          17,669        43,284
                                                                                    -----------   -----------
Cash and cash equivalents, end of period                                               $35,355       $21,743
                                                                                    ===========   ===========

Supplemental disclosure of cash flow information:
Cash paid for:
    Interest                                                                           $10,683        $9,173
    Income taxes                                                                         2,275         1,663

Supplemental disclosure of non-cash investing activities:
    Decrease - market valuation of securities available for sale                           447         2,023

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

</TABLE>
                                       4
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2000
                                   (Unaudited)

1.  Basis of Presentation

     The accompanying  unaudited  consolidated  financial statements include the
accounts of  Interchange  Financial  Services  Corporation  and its wholly owned
subsidiaries  (the  "Company")  including  its principal  operating  subsidiary,
Interchange  Bank  (the  "Bank"),  and have been  prepared  in  conformity  with
generally  accepted  accounting  principles and in accordance with the rules and
regulations of the Securities  and Exchange  Commission.  Pursuant to such rules
and  regulations  certain  information  or  footnotes  necessary  for a complete
presentation  of financial  condition,  results of operations  and cash flows in
conformity with generally accepted accounting  principles have been condensed or
omitted.  These consolidated  financial statements should be read in conjunction
with the  financial  statements  and  schedules  thereto  included in the annual
report on Form 10-K of the Company for the year ended December 31, 1999.

     The  consolidated  financial data for the three and six month periods ended
June 30, 2000 and 1999, 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>


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

     The  following  discussion  is an  analysis of the  consolidated  financial
condition  and results of  operations of the Company for the three and six month
periods ended June 30, 2000 and 1999, 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 matters 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 similar expressions
are generally  intended to identify  forward looking  statements.  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 future
losses  associated  with the loan portfolio.  The forward looking  statements in
this report involve known and unknown risks and  uncertainties  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;
(iii) general economic conditions, internationally,  nationally, or in the State
of New  Jersey;  and (iv)  legislation  or  regulatory  requirements  or changes
adversely affecting the business of the Company.  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 are no longer accurate,  whether as a result of new  information,  what
actually happens in the future or for any other reason.


                                      6
<PAGE>

               THREE MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999

Earnings Summary

     For the second  quarter of 2000,  the Company  reported  net income of $2.3
million or $0.35  diluted  earnings  per common  share,  as  compared  with $2.5
million or $0.34 diluted  earnings per common share for the same period in 1999.
The earnings  comparisons were impacted by two  non-recurring  items in the 1999
period:  a gain from the sale of securities of $329 thousand and a $284 thousand
gain from the early  pay-off  of a  commercial  loan  purchased  at a  discount.
Further,  the 2000 quarterly earnings were impacted by costs associated with the
Bank's  expansion  programs.  These costs were  related to the  operation of the
Bank's lease financing subsidiary, Interchange Capital Company, LLC ("ICC"), and
its new call center,  Interchange  Bank-Line Center, an inbound calling facility
that provides  enhanced  customer service via access to a single source for bank
product and account  information.  The call center also functions as an outbound
telemarketing  resource,  contacting  prospects for new accounts in  conjunction
with product promotions.

                              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 $240
thousand to $7.9 million for the quarter  ended June 30, 2000 as compared to the
same  quarter of 1999.  The  increase  in net  interest  income is due to higher
levels of interest  earning assets,  particularly  loans.  The earnings  benefit
associated with the growth in loans was offset, in part, by a decline in the net
interest margin ("margin").

     For the quarter ended June 30, 2000,  average loans increased $39.4 million
or 8.0% over the same period in 1999, which contributed to the growth in average
earning  assets of $51.8 million or 7.9%.  The loan growth was funded largely by
deposit  liabilities,  which grew $41.9  million or 7.0%,  on  average,  for the
second  quarter  2000 as  compared to the same  period in 1999.  Furthermore,  a
portion  of the  growth  in  earning  assets  was  funded by  borrowings,  which
increased,  on average,  $21.2 million or 124.6% for the second  quarter 2000 as
compared to the same period in 1999.  Higher market  interest rates and a growth
in borrowings  resulted in an increase of 42 basis points to the Company's  cost
of funds to 3.41%

                                       7

<PAGE>

for the second  quarter of 2000 as  compared  to the same period in 1999 and was
principally  responsible for the decline in the margin. The margin was 4.48% for
the second quarter of 2000 as compared to 4.69% for the same quarter in 1999.

Non-interest Income

     For the quarter ended June 30, 2000,  non-interest  income amounted to $939
thousand, a decrease of $582 thousand or 38.3% as compared to the same period in
1999. The quarterly  comparison was affected by two  non-recurring  items in the
1999 period:  net gains on the sale of  securities  of $329  thousand and a $284
thousand gain arising from the early pay-off of a commercial loan purchased at a
discount.  Adjusting for the non-recurring items,  non-interest income increased
$31 thousand or 3.4%. The increase is attributable to lease  syndication fees of
$59  thousand  and  growth  in fee  income  from the sale of  mutual  funds  and
annuities of $55 thousand.  In addition,  non-interest income was aided by a $30
thousand or 5.3% growth in service fees on deposit accounts. Non-interest income
was adversely affected by a decline in income from foreclosed real estate of $38
thousand  and a decrease in merchant  fee income of $40  thousand.  The merchant
portfolio  was  sold in the  third  quarter  of  1999  following  a  risk/reward
evaluation,  which  determined  that the  risk  associated  with  the  portfolio
exceeded the levels deemed desirable by the Company.

Non-interest Expenses

     For the quarter ended June 30, 2000, non-interest expenses amounted to $5.1
million,  an increase of $10  thousand or 0.2% as compared to the same period in
1999. The comparison of  non-interest  expenses was impacted by operating  costs
associated  with the  bank's  expansion  programs,  which  consisted  of ICC and
Interchange  Bank-Line  Center;  each of which  began  operations  in the fourth
quarter of 1999.  Expenses  necessary  to operate ICC and the  Bank-line  Center
during the second  quarter of 2000 amounted to  approximately  $180 thousand and
$45 thousand, respectively, which approximated the Company's projections. During
the second quarter of 2000, other non-interest  expenses benefited from a credit
of $165 thousand arising from an adjustment to an actuarial  assumption  related
to the outside  directors  retirement  plan.  Excluding the  operating  expenses
associated with the bank's expansion  programs and the adjustment to the outside
directors retirement plan,  non-interest expenses decreased $50 thousand or 1.0%
as compared to the same period in 1999.


                                       8

<PAGE>

Income Taxes

     Income tax  expense  as a  percentage  of pre-tax  income was 32.7% for the
three  months  ended June 30,  2000 as  compared to 34.1% for the same period in
1999.  The  improvement  was largely due to increased  investment  in tax exempt
municipal securities and loans.

                SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999

Earnings Summary

     For the first six months of 2000,  the Company  reported net income of $4.2
million or $0.64  diluted  earnings  per common  share,  as  compared  with $4.8
million or $0.66 diluted  earnings per common share for the same period in 1999.
The earnings  comparisons were mainly impacted by two non-recurring items in the
1999 period;  net gains from the sale of  securities of $856 thousand and a $284
thousand  gain  from the early  pay-off  of a  commercial  loan  purchased  at a
discount. Further, the 2000 quarterly earnings were impacted by costs associated
with the Bank's  expansion  programs,  which  consisted of costs  related to the
operation of ICC and Interchange Bank-Line Center.

                              RESULTS OF OPERATIONS

Net Interest Income

     Net interest  income on a tax equivalent  basis  increased $523 thousand to
$15.6  million  for the six months  ended June 30,  2000 as compared to the same
period in 1999.  The increase in net interest  income is due to higher levels of
interest earning assets,  particularly  loans.  The earnings benefit  associated
with the growth in loans was offset,  in part,  by a decline in the net interest
margin ("margin").

     For the six months  ended June 30,  2000,  average  loans  increased  $39.8
million  or 8.2% over the same  period in 1999,  which  facilitated  a growth in
average  earning  assets of $46.1  million or 7.1%.  The loan  growth was funded
largely by deposit  liabilities,  which grew $35.8  million or 6.0%, on average,
for the  first  six  months  of 2000 as  compared  to the same  period  in 1999.
Furthermore, a portion of the growth in earning assets was funded by borrowings,
which increased,  on average, $20.0 million or 116.0% for the first half of 2000
as compared  to the same  period in 1999.  Higher  market  interest  rates and a
growth in  borrowings  resulted in a 34 basis points  increase in the  Company's
cost of funds to 3.35% for the first half of 2000 as

                                       9

<PAGE>


compared  to the same  period in 1999 and was  principally  responsible  for the
decline in the margin.  The margin was 4.48% for the first six months of 2000 as
compared to 4.64% for the same period in 1999.

Non-interest Income

     For the six months ended June 30,  2000,  non-interest  income  amounted to
$1.9  million,  a decrease  of $983  thousand  or 34.3% as  compared to the same
period in 1999. The earnings  comparison was affected by two non-recurring items
in the 1999 period:  net gains on the sale of  securities of $856 thousand and a
$284 thousand gain arising from the early pay-off of a commercial loan purchased
at a discount.  Net gains on the sale of securities amounted to $97 thousand for
the six months  ended June 30,  2000.  Adjusting  for the  non-recurring  items,
non-interest income increased $60 thousand or 3.3%. The increase is attributable
to lease syndication fees of $59 thousand and growth in fee income from the sale
of  mutual  funds  and  annuities  of $132  thousand.  Non-interest  income  was
adversely  affected by a decrease in income from  foreclosed  real estate of $41
thousand and a decline in merchant fee income of $90 thousand.

Non-interest Expenses

     For the six months ended June 30, 2000,  non-interest  expenses amounted to
$10.5  million,  an  increase  of $498  thousand or 5.0% as compared to the same
period in 1999 due largely to expansionary  growth.  Expenses necessary to start
and operate ICC and the  Interchange  Bank-line  Center during the first half of
2000 amounted to  approximately  $345  thousand and $90 thousand,  respectively.
Additionally, in the first quarter of 2000, the Company paid $118 thousand for a
legal settlement  relating to the interpretation of past rental adjustments on a
branch office.  Conversely, in the second quarter of 2000, non-interest expenses
benefited  from a credit  of $165  thousand  arising  from an  adjustment  to an
actuarial assumption related to the outside directors retirement plan. Excluding
the costs and operating expenses  associated with the Bank's expansion programs,
the legal  settlement  and the  adjustment to the outside  directors  retirement
plan,  non-interest  expenses increased $110 thousand or 1.1% as compared to the
same period in 1999.


                                       10

<PAGE>


Income Taxes

     Income tax expense as a percentage of pre-tax  income was 33.0% for the six
months ended June 30, 2000 as compared to 34.0% for the same period in 1999. The
improvement  was largely due to  increased  investment  in tax exempt  municipal
securities and loans.

                               FINANCIAL CONDITION

     At June 30,  2000,  the  Company's  total  assets were $767.8  million,  an
increase of $61.7  million or 8.7% from $706.1  million at December 31, 1999. At
June 30, 2000, cash and cash equivalents  increased $17.7 million as compared to
December  31,  1999.  This is  principally  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 the investing  activities  (funding loans and
investment  growth)  can utilize  it.  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 securities
available for sale are recorded at their fair value.  The  after-tax  difference
between  amortized  cost  and  fair  value  of AFS  securities  is  recorded  as
"unrealized  gain  (loss) on  securities"  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 Company uses its securities portfolio to ensure liquidity for cash flow
requirements,  to manage  interest rate risk, to provide a source of income,  to
ensure  collateral  is available for pledging  requirements  and to manage asset
quality diversification.  At June 30, 2000, investment securities totaled $166.3
million and represented 21.7% of total assets, as compared to $161.9 million and
22.9%, respectively, at December 31, 1999.


                                       11

<PAGE>
<TABLE>
The following table presents the amount of these securities and their approximate values as of June 30, 2000 and December 31, 1999:
(dollars in thousands)
<CAPTION>

                                                  ---------------------------------------------------
                                                                    June 30, 2000
                                                  ---------------------------------------------------
                                                                   Gross        Gross       Estimated
                                                      Amortized   Unrealized  Unrealized     Market
                                                        Cost       Gains       Losses        Value
                                                  --------------  --------  -----------  ------------
<S>                                               <C>             <C>       <C>          <C>
Securities held to maturity
   Obligations of U.S. Treasury                          $2,000         -           $1       $ 1,999
   Mortgage-backed securities                            17,763       $26          292        17,497
   Obligations of U.S. agencies                          11,929         -           82        11,847
   Obligations of states & political subdivisions        15,854        11          406        15,459
   Other debt securities                                    485         -           14           471
                                                  --------------  --------  -----------  ------------
                                                         48,031        37          795        47,273
                                                  --------------  --------  -----------  ------------

Securities available for sale
   Obligations of U.S. Treasury                           1,993         -            1         1,992
   Mortgage-backed securities                            69,845        56        1,168        68,733
   Obligations of U.S. agencies                          32,874         6          126        32,754
   Obligations of states & political subdivisions        10,370         -          274        10,096
   Other debt securities                                    682        10            -           692
   Equity securities                                      3,955         -            -         3,955
                                                  --------------  --------  -----------  ------------
                                                        119,719        72        1,569       118,222
                                                  --------------  --------  -----------  ------------
     Total securities                                  $167,750      $109       $2,364      $165,495
                                                  ==============  ========  ===========  ============


                                                  ---------------------------------------------------
                                                                  December 31, 1999
                                                  ---------------------------------------------------
                                                                   Gross        Gross       Estimated
                                                      Amortized   Unrealized  Unrealized     Market
                                                        Cost       Gains       Losses        Value
                                                  --------------  --------  -----------  ------------
Securities held to maturity
   Obligations of U.S. Treasury                         $ 9,997       $ 5          $ 8       $ 9,994
   Mortgage-backed securities                            20,232        60          289        20,003
   Obligations of U.S. agencies                           7,992         8           51         7,949
   Obligations of states & political subdivisions        16,195         -          481        15,714
   Other debt securities                                    124         -            -           124
                                                  --------------  --------  -----------  ------------
                                                         54,540        73          829        53,784
                                                  --------------  --------  -----------  ------------

Securities available for sale
   Obligations of U.S. Treasury                           6,016        87            -         6,103
   Mortgage-backed securities                            68,331       104          982        67,453
   Obligations of U.S. agencies                          27,141        51          112        27,080
   Obligations of states & political subdivisions         3,139         -          198         2,941
   Equity securities                                      3,772         -            -         3,772
                                                  --------------  --------  -----------  ------------
                                                        108,399       242        1,292       107,349
                                                  --------------  --------  -----------  ------------
     Total securities                                  $162,939      $315       $2,121      $161,133
                                                  ==============  ========  ===========  ============

</TABLE>


                                       12
<PAGE>

<TABLE>

         At June 30, 2000, the contractual maturities of securities held to maturity and securities available for sale are as
follows: (dollars in thousands)
<CAPTION>


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

Within 1 year                     $15,252     $15,239           $  7,978      $  7,918
After 1 but within 5 years         16,132      15,935             73,772        73,248
After 5 but within 10 years         4,329       4,251             15,264        14,557
After 10 years                     12,318      11,848             18,750        18,544
Equity securities                       -           -              3,955         3,955
                              -------------------------     ---------------------------
                   Total          $48,031     $47,273           $119,719      $118,222
                              =========================     ===========================
</TABLE>


     During the first quarter of 2000, the Company sold certain securities in an
effort to improve the risk/reward  characteristics of the securities  portfolio.
AFS  securities  with a book value of $17.6  million  were  sold.  Gains of $126
thousand  and losses of $31  thousand  were  recognized  from the sale.  One HTM
security  with a book value of $2.0  million was sold. A gain of $2 thousand was
recognized from the sale. The HTM security had a remaining maturity of less than
two  months,  therefore,  it is  considered  as a  "maturity"  for  purposes  of
classification  of  securities  under  SFAS  No.  115,  Accounting  for  Certain
Investments in Debt and Equity  Securities.  There were no security sales during
the second quarter of 2000.

Loans

     Total loans  amounted to $548.2 million and $512.0 million at June 30, 2000
and  December  31, 1999,  respectively.  Total loans at June 30, 2000  increased
$36.3  million  or 7.1% as  compared  to  December  31,  1999.  The  growth  was
predominately in commercial mortgage loans and lease financing,  which increased
$14.4  million and $12.7  million,  respectively.  During the second  quarter of
2000, the Company purchased $7.5 million of commercial  equipment leases.  These
leases were  subjected to the Company's  independent  credit  analysis  prior to
purchase.  Opportunistic purchases of loans and leases are currently a desirable
way for the  Company  to  augment  its loan and lease  originations.  During the
second  quarter of 2000,  the  Company  syndicated  $1.1  million in  commercial
equipment leases and collected $59,000 in syndication fees.

                                       13

<PAGE>
<TABLE>

The following table reflects the composition of the loan portfolio:
<CAPTION>


                                                            --------------------   ------------------
                                                                 June 30,            December 31,
                                                                   2000                   1999
                                                            --------------------   ------------------
<S>                                                         <C>                    <C>

Amount of loans by type (dollars in thousands)
     Real estate-mortgage
         Commercial                                                    $180,797             $166,354
         1-4 family residential
               First liens                                              113,237              110,269
               Junior liens                                              11,054                9,829
               Home equity                                              144,403              144,747
     Commercial and financial                                            67,341               63,684
     Real estate-construction                                             5,139                4,008
     Installment
         Credit cards and related plans                                     858                  947
         Other                                                            3,348                2,756
     Lease financing                                                     22,065                9,382
                                                            --------------------   ------------------
               Total                                                   $548,242             $511,976
                                                            ====================   ==================

</TABLE>


Deposits

     At June 30, 2000, total deposits increased $68.4 million or 11.4% to $667.4
million from $599.0 million at December 31, 1999. The growth was  principally in
time  deposits,  which  grew $41.2  million or 25.4% as a result of  promotional
campaigns.  In addition,  money market savings and non-interest bearing deposits
grew $18.5  million  and $8.4  million,  respectively.  At June 30,  2000,  time
deposits  represent 30.5% of all deposits,  as compared to 27.1% at December 31,
1999.

Nonperforming Assets

     Nonperforming assets are comprised of nonaccrual loans,  restructured loans
and foreclosed real estate. At June 30, 2000,  nonperforming  assets amounted to
$1.2 million, a decrease of $411 thousand or 25.9% from $1.6 million at December
31,  1999.  Nonperforming  assets  decreased  by $1.0 million or 46.8% from $2.2
million at June 30, 1999. The ratio of  nonperforming  assets to total loans and
foreclosed real estate  decreased to 0.21% at June 30, 2000 from 0.31% and 0.44%
at December 31, 1999 and June 30, 1999, respectively. The


                                       14

<PAGE>

decrease in  nonperforming  assets is comprised  almost entirely of a commercial
loan of which $1.1 million was charged-off  during the second and third quarters
of 1999.

Provision for Loan Losses and Loan Loss Experience

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

     The allowance  for loan losses was $6.0 million at June 30, 2000,  and $5.5
million at December 31, 1999,  representing  651.2% and 409.6% of  nonperforming
loans at those  dates,  respectively.  In the first six months of 2000 and 1999,
the Company's provision for loan losses was $600 thousand.

Market Risk

     The Company's primary source of market risk exposure arises from changes in
market interest rates ("interest rate risk").  The Company's  success 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 market
value 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  of the
Board of  Directors.  Tools  used by  management  to  evaluate  risk  include an
asset/liability  simulation  model. At June 30, 2000, the Company  simulated the
effects on net interest income given an instantaneous  and parallel shift in the
yield curve of 200 basis points in either  direction.  Based on the  simulation,
the

                                       15
<PAGE>


results did not  materially  change from March 31, 2000.  At June 30, 2000,  the
Company was within  policy  limits  established  by the Board of  Directors  for
changes in net interest income and future economic value.

     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
six months of 2000.

     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 varying  degrees  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 Bank 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 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 (the "Federal  Reserve").  The Federal
Reserve has 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.

                                       16

<PAGE>
<TABLE>
<CAPTION>

The Company's and the Bank's capital amounts and ratios are as follows: (dollars in thousands)
                                                                                                                  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, 2000:
     Total Capital (to Risk Weighted Assets):
       The Company                                   $63,861        12.56 %        $40,688        8.00 %           N/A         N/A
       The Bank                                       62,933        12.33           40,840        8.00         $51,050      10.00%
     Tier 1 Capital (to Risk Weighted Assets):
       The Company                                    57,831        11.37           20,344        4.00             N/A         N/A
       The Bank                                       56,904        11.15           20,420        4.00          30,630        6.00
     Tier 1 Capital (to Average Assets):
       The Company                                    57,831         7.80           22,256        3.00             N/A         N/A
       The Bank                                       56,904         7.72           22,112        3.00          36,853        5.00

As of December 31, 1999:
     Total Capital (to Risk Weighted Assets):
       The Company                                   $64,209        13.91 %        $36,925        8.00 %           N/A         N/A
       The Bank                                       64,877        14.01           37,054        8.00         $46,318      10.00%
     Tier 1 Capital (to Risk Weighted Assets):
       The Company                                    58,733        12.72           18,463        4.00             N/A         N/A
       The Bank                                       59,401        12.82           18,527        4.00          27,791        6.00
     Tier 1 Capital (to Average Assets):
       The Company                                    58,733         8.32           21,167        3.00             N/A         N/A
       The Bank                                       59,401         8.45           21,080        3.00          35,133        5.00

</TABLE>

                                       17
<PAGE>


Liquidity

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

     Financing for the Company's loans and investments is derived primarily from
deposits,  along with interest and principal  payments on loans and investments.
At June 30, 2000,  total  deposits  amounted to $667.4  million,  an increase of
$68.4  million or 11.4%  from  December  31,  1999.  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, 2000, advances from the FHLB and
REPOS amounted to $13.0 million and $24.0 million,  respectively, as compared to
$27.0  million and $16.4  million,  respectively,  at  December  31,  1999.  The
decrease  in  advances  from  the  FHLB was due to the  repayment  of  overnight
borrowings resulting from the growth in deposit liabilities.

     In  2000,  despite  heightened   competition  for  loans,  loan  production
continued to be the Company's principal  investing  activity.  Net loans at June
30, 2000 amounted to $542.2  million,  an increase of $35.7 million or 7.1% from
$506.5 million at December 31, 1999.

     The  Company's  most liquid  assets are cash and due from banks and federal
funds sold. At June 30, 2000, the total of such assets amounted to $35.4 million
or 4.6% of total  assets,  compared to $17.7  million or 2.5% of total assets at
year-end 1999. The increase in cash and cash  equivalents was due largely to the
deposit growth. This cash was temporarily in federal funds,  awaiting investment
in loans and securities.

     Another  significant  liquidity source is the Company's AFS securities.  At
June 30,  2000,  AFS  securities  amounted  to $118.2  million or 71.1% of total
securities,  compared to $107.3 million or 66.3% of total securities at year-end
1999.

     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
$67.5 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 funding requirements.

                                       18
<PAGE>

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings
         Reference is made to Note 3 of the Company's Consolidated Financial
         Statements of this Form 10-Q.

Item 2.  Changes in Securities
         None

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 27, 2000.
         (b)  Each of the persons nominated for director was elected, the
              Outside Director Incentive Compensation Plan was approved and
              the selection of Deloitte & Touche, LLP as the Company's
              independent auditors for 2000 was ratified. The following are
              the voting results on each of these matters:

                                                           Against
                                                             or
                                               For        Withheld   Abstentions
                                              _____       ________   ___________

         (1)  ELECTION OF DIRECTORS:
              Donald L. Correll               5,281,092   109,148            0
              James E. Healey                 5,307,102    83,138            0
              Jeremiah F. O'Connor            5,233,529   156,711            0
              Robert P. Rittereiser           5,307,411    82,829            0

         (2)  To Consider and vote upon the
              Outside Director Incentive
              Compensation Plan               4,683,974   490,747      215,519

         (3)  Ratification of the selection
              of the of Deloitte & Touche, LLP
              as the Company's independent
              auditors for 2000.              5,199,063    32,457      158,720



                                       19
<PAGE>


Item 5.  Other Information
         None

Item 6.  Exhibits and Reports on Form 8-K
         (a)  The following exhibits are furnished herewith:
              Exhibit No.
              ___________

              11  Statement re: computation of per share earnings
              27  Financial Data Schedule

         (b)  Reports on Form 8-K
              None filed for the quarter ended June 30, 2000


                                       20
<PAGE>


                                   SIGNATURES

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

Interchange Financial Services Corporation

By:      /s/ Anthony Labozzetta
         _____________________________________
         Anthony Labozzetta
         Executive Vice President & CFO
         (Duly Authorized Officer and Principal
         Financial and Accounting Officer)

Dated: August 14, 2000


                                       21