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

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



[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED, June 30, 2001

                                       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)


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

                                      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 July 31, 2001, was 6,526,142 shares.
<PAGE>


                   INTERCHANGE FINANCIAL SERVICES CORPORATION


                                      INDEX


PART I            FINANCIAL INFORMATION
                                                                        Page No.
    Item 1   Financial Statements

             Consolidated Balance Sheets as of
             June 30, 2001 and December 31, 2000 . . . . . . . . . . . . . .1

             Consolidated Statements of Income for the three
             and six-month periods ended June 30, 2001 and 2000 . . . . . . 2

             Consolidated Statements of Changes in
             Stockholders' Equity for the six months ended
             June 30, 2001 and 2000 . . . . . . . . . . . . . . . . . . . . 3

             Consolidated Statements of Cash Flows for the
             six months ended June 30, 2001 and 2000 . . . . . . . . . . .  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 . . . . . . . . . . . . . . . . . . . . . . . . .  23

<PAGE>

<TABLE>

Item 1: Financial Statements

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

                                                                         June 30,    December 31,
                                                                          2001          2000
                                                                       ___________   ____________
                                                                       (unaudited)
<S>                                                                    <C>           <C>
Assets
Cash and due from banks                                                 $ 21,206      $ 22,100
Federal funds sold                                                             -        11,050
                                                                       ___________   ____________
Total cash and cash equivalents                                           21,206        33,150
                                                                       ___________   ____________

Securities held to maturity at amortized cost (estimated market value
   of $47,024 and $41,400 for June 30, 2001 and December 31, 2000,
   respectively)                                                          46,523        41,042
                                                                       ___________   ____________
Securities available for sale at estimated market value (amortized cost
   of $144,887 and $119,306 for June 30, 2001 and December 31, 2000,
   respectively)                                                         146,735       120,312
                                                                       ___________   ____________
Loans                                                                    584,908       560,879
Less:  Allowance for loan and lease losses                                 6,524         6,154
                                                                       ___________   ____________
Net loans                                                                578,384       554,725
                                                                       ___________   ____________

Premises and equipment, net                                               11,164        11,239
Foreclosed real estate and other repossesed assets                           250           250
Accrued interest receivable and other assets                               8,485         9,526
                                                                       ___________   ____________
Total assets                                                            $812,747      $770,244
                                                                       ===========   ============

Liabilities
Deposits
  Non-interest bearing                                                  $110,224      $107,702
  Interest bearing                                                       599,591       561,158
                                                                       ___________   ____________
Total deposits                                                           709,815       668,860
                                                                       ___________   ____________


Securities sold under agreements to repurchase                            12,000        18,500
Short-term borrowings                                                     17,760        13,000
Accrued interest payable and other liabilities                             7,648         7,900
                                                                       ___________   ____________
Total liabilities                                                        747,223       708,260
                                                                       ___________   ____________

Commitments and contingent liabilities

Stockholders' equity:

Common stock, without par value; 15,000,000 shares authorized;
  6,533,042 and 6,530,498 shares issued and outstanding at
  June 30, 2001 and December 31, 2000, respectively                        5,397         5,397
Capital surplus                                                           21,041        21,077
Retained earnings                                                         50,774        47,735
Accumulated other comprehensive income                                     1,007           526
                                                                       ___________   ____________
                                                                          78,219        74,735
Less:  Treasury stock                                                     12,695        12,751
                                                                       ___________   ____________
Total stockholders' equity                                                65,524        61,984
                                                                       ___________   ____________
Total liabilities and stockholders' equity                              $812,747      $770,244
                                                                       ===========   ============

_________________________________________________________________________________________________
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,
                                                                   ----------------------------       -----------------------------
                                                                          2001           2000                2001            2000
                                                                   -------------  -------------       --------------  -------------
<S>                                                                <C>            <C>                 <C>             <C>
Interest income
Interest and fees on loans                                              $11,644        $10,827              $23,329        $21,191
Interest on federal funds sold                                              131            170                  436            270
Interest and dividends on securities
    Taxable interest income                                               2,575          2,396                4,970          4,618
    Interest income exempt from federal income taxes                        137            165                  282            324
    Dividends                                                                64             64                  136            125
                                                                   -------------  -------------       --------------  -------------
Total interest income                                                    14,551         13,622               29,153         26,528
                                                                   -------------  -------------       --------------  -------------

Interest expense
Interest on deposits                                                      5,796          5,206               11,862         10,028
Interest on short-term borrowings                                           344            360                  764            657
Interest on long-term borrowings                                              -            206                    -            413
                                                                   -------------  -------------       --------------  -------------
Total interest expense                                                    6,140          5,772               12,626         11,098
                                                                   -------------  -------------       --------------  -------------

Net interest income                                                       8,411          7,850               16,527         15,430
Provision for loan and lease losses                                         200            300                  380            600
                                                                   -------------  -------------       --------------  -------------
Net interest income after provision
 for loan losses                                                          8,211          7,550               16,147         14,830
                                                                   -------------  -------------       --------------  -------------

Non-interest income
Service fees on deposit accounts                                            627            601                1,225          1,148
Net gain on sale of securities                                               53              -                  118             97
Other                                                                       474            372                1,035            695
                                                                   -------------  -------------       --------------  -------------
Total non-interest income                                                 1,154            973                2,378          1,940
                                                                   -------------  -------------       --------------  -------------

Non-interest expenses
Salaries and benefits                                                     3,005          2,692                6,077          5,451
Net occupancy                                                               838            716                1,680          1,456
Furniture and equipment                                                     265            266                  544            548
Advertising and promotion                                                   394            311                  572            606
Federal Deposit Insurance Corporation assessment                             32             32                   65             64
Other                                                                     1,198          1,101                2,480          2,407
                                                                   -------------  -------------       --------------  -------------
Total non-interest expenses                                               5,732          5,118               11,418         10,532
                                                                   -------------  -------------       --------------  -------------

Income before  income taxes                                               3,633          3,405                7,107          6,238

Income taxes                                                              1,159          1,113                2,302          2,056
                                                                   -------------  -------------       --------------  -------------

Net income                                                              $ 2,474        $ 2,292              $ 4,805        $ 4,182
                                                                   =============  =============       ==============  =============

Basic earnings per common share                                           $0.38          $0.35                $0.73          $0.64
                                                                   =============  =============       ==============  =============

Diluted earnings per common share                                         $0.38          $0.35                $0.73          $0.64
                                                                   =============  =============       ==============  =============

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

</TABLE>

                                       2
<PAGE>

<TABLE>

Interchange Financial Services Corporation
-----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30,
-----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
(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, 2000                                             $41,741   $ (675)       $5,397   $21,244   $(9,431)  $58,276
Comprehensive income
    Net Income                                               $4,182      4,182                                                4,182
    Other comprehensive income, net of taxes
       Unrealized  losses on debt securities                   (215)
       Less: gains on disposition of equity 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
Issued 11,406 shares of common stock in connection with
    Executive Compensation Plan                                                                             (37)       67        30
Exercise of 4,134 option shares
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

Comprehensive income
    Net Income                                               $5,074      5,074                                                5,074
    Other comprehensive income, net of taxes
       Unrealized gains on AFS debt securities                1,477
                                                         ----------
    Other comprehensive income                                1,477               1,477                                       1,477
                                                         ----------
Comprehensive income                                         $6,551
                                                         ==========

Dividends on common stock                                              (1,633)                                               (1,633)
Exercised 12,500 option shares                                                                             (124)      214        90

                                                                       --------  ------------- -------  -------   --------   -------
Balance at December 31, 2000                                           47,735       526         5,397    21,077   (12,751)   61,984


  Net Income                                                 $4,805     4,805                                                 4,805
    Other comprehensive income, net of taxes
      Unrealized gains on AFS debt securities                   481
                                                         -----------
    Other comprehensive income                                  481                 481                                         481
                                                         -----------
Comprehensive income                                         $5,286
                                                         ===========

Dividends on common stock                                              (1,766)                                               (1,766)
Issued 14,880 shares of common stock in connection
    with Executive Compensation Plan                                                                        (14)        255     241
Exercised 2,364 option shares                                                                               (22)         40      18
Purchased 13,200 shares of common stock                                                                             (239)      (239)
                                                                       --------  ------------- -------  -------   --------  -------
Balance at June 30, 2001                                               $50,774   $1,007        $5,397   $21,041  $(12,695)  $65,524
                                                                       ========  ============= =======  =======   ========  =======


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

</TABLE>
                                       3

<PAGE>

<TABLE>

INTERCHANGE FINANCIAL SERVICES CORPORATION
---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------------------------------
(dollars in thousands) (unaudited)
<CAPTION>

                                                                                              For the Six Months
                                                                                                Ended June 30,
                                                                                         ----------------------------
                                                                                             2001            2000
                                                                                         -------------   ------------
<S>                                                                                      <C>             <C>
Cash flows from operating activities
Net income                                                                                  $ 4,805        $ 4,182
Adjustments to reconcile net income to net cash provided
by operating activities:
    Depreciation and amortization                                                               736            677
    Amortization of securities premiums                                                         409            170
    Accretion of securities discounts                                                          (174)          (127)
    Amortization of premiums in connection with acquisition                                      74            157
    Provision for loan losses                                                                   380            600
    Net gain on sale of securities                                                             (118)           (97)
    Net gain on sale of loans and leases                                                       (105)             -
Decrease (increase) in operating assets
    Accrued interest receivable                                                                 144           (453)
    Other                                                                                       420         (3,068)
(Decrease) increase in operating liabilities
    Accrued interest payable                                                                   (148)           415
    Other                                                                                      (104)           589
                                                                                         -------------   ------------
Cash provided by operating activities                                                         6,319          3,045
                                                                                         -------------   ------------
Cash flows from investing activities
(Payments for) proceeds from
    Net originations of loans                                                               (13,010)       (27,707)
    Purchase of loans                                                                       (12,758)        (9,961)
    Sale of loans                                                                             1,824          1,356
    Purchase of securities available for sale                                               (55,811)       (32,262)
    Maturities of securities available for sale                                              24,119          3,311
    Sale of securities available for sale                                                     6,050         17,696
    Purchase of securities held to maturity                                                 (18,458)        (7,333)
    Maturities of securities held to maturity                                                12,920         11,829
    Sale of securities held to maturity                                                           -          2,002
    Purchase of fixed assets                                                                   (608)        (1,046)
    Sale of fixed assets                                                                          -              -
                                                                                         -------------   ------------
Cash used in investing activities                                                           (55,732)       (42,115)
                                                                                         -------------   ------------


Cash flows from financing activities
Proceeds from (payments for)
    Deposits in excess of withdrawals                                                        40,955         68,361
    Securities sold under agreements to repurchase and
       other borrowings                                                                      31,760          7,576
    Retirement of securities sold under agreement to
       repurchase and other borrowings                                                      (33,500)       (13,975)
    Dividends                                                                                (1,766)        (1,629)
    Common stock issued from treasury                                                           295            190
    Treasury stock acquired                                                                    (239)        (3,797)
    Exercise of option shares                                                                   (36)            30
                                                                                         -------------   ------------
Cash provided by financing activities                                                        37,469         56,756
                                                                                         -------------   ------------


(Decrease) increase in cash and cash equivalents                                            (11,944)        17,686
Cash and cash equivalents, beginning of period                                               33,150         17,669
                                                                                         -------------   ------------
Cash and cash equivalents, end of period                                                    $21,206        $35,355
                                                                                         =============   ============

Supplemental disclosure of cash flow information:
Cash paid for:
    Interest                                                                                $12,037        $10,683
    Income taxes                                                                                795          2,275

Supplemental disclosure of non-cash investing activities:
    Decrease (increase) - market valuation of securities available for sale                    (481)           447

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

                                       4
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE THREE AND SIX-MONTH PERIODS ENDED JUNE 30, 2001
                                   (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
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, 2000.

     The consolidated  financial data for the three and six-month  periods ended
June 30, 2001 and 2000, 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

     On January 1, 2001, the Company adopted  Statement of Financial  Accounting
Standards (SFAS) No. 133,  "Accounting for Derivative  Instruments,  and Hedging
Activities".  SFAS  133  established  accounting  and  reporting  standards  for
derivative  instruments,  including certain derivative  instruments  embedded in
other contracts and for hedging  activities.  Under SFAS 133, certain  contracts
that were not formerly  considered  derivatives may now meet the definition of a
derivative.  The adoption of SFAS 133 did not have a  significant  impact on the
financial  position or results of operations of the Company  because the Company
does not have any derivative activity.

     The Company  adopted SFAS No. 140,  "Accounting for Transfers and Servicing
of  Financial  Assets  and  Extinguishments  of  Liabilities."  SFAS No.  140 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities  occurring  after  March 31,  2001 and for  disclosures  relating to
securitization  transactions  and collateral for fiscal years after December 15,
2000.  The  Company's  pledged  assets  to  secured  parties  cannot  be sold or
repledged by those parties,  therefore, no reclassification of pledged assets on
the  consolidated  balance  sheet  was  necessary  for  such  transactions.  The
Company's  adoption  of this  Statement  did not have a  material  effect on its
financial statements.

     On June 29, 2001,  the Financial  Accounting  Standards  Board approved for
issuance Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations"  and  No.  142  "Goodwill  and  Other  Intangible  Assets".   Both
statements were issued on July 20, 2001. SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations  initiated after June
30,  2001  and  that  the use of the  pooling-of-interest  method  is no  longer
allowed. SFAS No. 142 requires that upon adoption, amortization of goodwill will
cease  and  instead,  the  carrying  value of  goodwill  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 No. 121  "Accounting  for the Impairment of Long-Lived  Assets and for
Long-Lived Assets to be Disposed Of". SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. The Company is required to implement SFAS No.
142 on January 1, 2002 and it has not determined  the impact,  if any, that this
statement  will  have on its  consolidated  financial  position  or  results  of
operations.

5.   Cash Dividend

     The Company  declared a cash dividend of $0.135 per share,  payable on July
20, 2001 to shareholders of record as of June 15, 2001.

                                       6

<PAGE>

Item 2.

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

General

     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, 2001 and 2000, and should be read in conjunction with the
consolidated financial statements and notes thereto included in Item 1 hereof.

Company

     The Company is a bank holding company  headquartered in Bergen County,  New
Jersey.  The Company's  principal  operating  subsidiary is Interchange Bank. In
addition to the Bank, the Company has a wholly-owned  direct subsidiary:  Clover
Leaf Mortgage Company, a New Jersey Corporation,  which is not currently engaged
in any business activity.

     Subsidiaries of the Bank include:  Clover Leaf Investment  Corporation,  an
investment  company  pursuant to New Jersey law;  Clover Leaf Insurance  Agency,
Inc., engaged in the sale of tax-deferred  annuities and insurance;  Clover Leaf
Management Realty  Corporation,  a Real Estate Investment Trust ("REIT"),  which
manages  certain real estate  assets of the  Company;  and  Interchange  Capital
Company,  L.L.C., which engages in equipment lease financing.  All of the Bank's
subsidiaries are New Jersey  corporations or a Limited Liability Company and are
100% owned by the Bank, except for the REIT, which is 99% owned by the Bank.
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

                                       7


<PAGE>

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;    (iii)    deterioration   in   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 to be no longer accurate,
whether as a result of new  information,  what actually happens in the future or
for any other reason.


                                       8
<PAGE>

               THREE MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000

                              RESULTS OF OPERATIONS

Earnings Summary

     For the second  quarter of 2001,  the Company  reported  net income of $2.5
million,  an increase of $182 thousand over the same period last year.  Earnings
per diluted common share  increased 8.6% to $0.38 from $0.35 for the same period
in 2000.  The advance in earnings  was driven  largely by growth in net interest
income on a taxable  equivalent basis,  which increased $610 thousand,  or 7.7%.
The  improvement in net interest  income was  attributable to the Company's loan
and lease production,  which generated $47.8 million of growth in average loans.
In addition,  non-interest income, which increased $181 thousand, or 18.6%, over
the same period last year also  contributed to the improvement in earnings.  The
growth in revenues was partly offset by a $614 thousand,  or 12.0%,  increase in
non-interest  expenses,  which  largely  reflect the costs  associated  with the
opening  of two new  branches  within the past  twelve  months and the growth of
Interchange Capital Company,  LLC ("ICC"),  the Bank's equipment lease financing
subsidiary.

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 $610
thousand,  or 7.7%,  to $8.5  million  for the  quarter  ended June 30,  2001 as
compared to the same quarter in 2000. The increase in net interest income is due
primarily to an 8.7% growth in average  interest  earning  assets,  particularly
loans. This asset growth was funded by deposit  liabilities,  which grew 9.8% on
average for the second  quarter of 2001 as compared to the same quarter in 2000.
The net  interest  margin  ("margin")  declined 4 basis  points to 4.42% for the
second  quarter of 2001 as compared to the same  quarter in 2000 and offset some
of the growth in interest income.

     Interest income, on a tax-equivalent  basis,  totaled $14.6 million for the
second quarter of 2001, an increase of $1.0 million, or 7.2%, as compared to the
same quarter in 2000.  The  increase in interest  income  resulted  from a $61.2
million, or 8.7%, growth in average interest-earning  assets,  principally loans
and securities,  which increased $47.8 million,  or 9.0%, and $12.4 million,  or
7.5%,  respectively.  The average yield on interest-earning  assets decreased 10
basis  points to 7.62% for the second  quarter of 2001 as  compared  to the same
period in 2000 and served to offset some of the benefits  derived from the asset
growth.

     Interest  expense,  which  totaled $6.1  million for the second  quarter of
2001, increased $368 thousand,  or 6.4%, as compared to the same period in 2000.
The increase is  attributable  mostly to the growth in average  interest-bearing
liabilities of $49.6 million for the second quarter of 2001 as


                                       9
<PAGE>

compared to the second  quarter of 2000. A decrease in the average rates paid on
interest-bearing  liabilities  of  9  basis  points  to  3.97%  over  the  prior
comparable period served to offset some of the growth in interest expense.

Non-interest Income

     For the quarter ended June 30, 2001,  non-interest  income amounted to $1.2
million, an increase of $181 thousand,  or 18.6%, as compared to the same period
in 2000. Fees collected on loans and net gains on the sale of securities,  which
increased $58 thousand and $53 thousand, respectively, when compared to the same
period in 2000, were largely  responsible for the increase.  In addition,  a $26
thousand,  or 4.3%  increase  in  service  fees on  deposit  accounts  and a $14
thousand,  or 23.3%  increase in lease  syndication  income  contributed  to the
growth  in  non-interest  income.   Miscellaneous  other  income  comprised  the
remainder of the change in non-interest income.

Non-interest Expenses

     For the quarter  ended June 30, 2001,  non-interest  expenses  totaled $5.7
million, an increase of $614 thousand,  or 12.0%, as compared to the same period
in 2000.  The increase in  non-interest  expenses was mostly  attributed  to the
opening of two branches in the second half of 2000 and growth in the  operations
of ICC, which  accounted for $184 thousand and $117 thousand,  respectively,  of
the increase.  An increase in salaries and  benefits,  excluding the above noted
expansion  items,  and  advertising  expenses of $153 thousand and $83 thousand,
respectively,  for the second quarter of 2001 as compared to the same quarter in
2000  contributed  to  the  increase  in  non-interest   expenses.  The  expense
comparison was affected by a credit of $165 thousand  arising from an adjustment
to an actuarial assumption related to the outside directors retirement plan that
is reflected in other non-interest expenses in the second quarter of 2000.

Income Taxes

     Income tax  expense  as a  percentage  of pre-tax  income was 31.9% for the
three months ended June 30, 2001 as compared to 32.7% for the second  quarter of
2000. The improvement was largely due to increased  investment in loans that are
exempt from federal income tax.

                                       10

<PAGE>
                SIX MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000

                              RESULTS OF OPERATIONS

Earnings Summary

     For the first six months of 2001,  the Company  reported net income of $4.8
million,  or $0.73  diluted  earnings per common  share,  as compared  with $4.2
million,  or $0.64  diluted  earnings  per common share for the same period last
year.  The  advance in  earnings  was driven  largely by growth in net  interest
income on a taxable equivalent basis, which increased $1.2 million, or 7.6%. The
improvement in net interest  income was  attributable  to the Company's loan and
lease  production,  which generated $48.4 million of growth in average loans. In
addition, non-interest income, which increased $438 thousand, or 22.6%, over the
same period last year also  contributed  to the  improvement  in  earnings.  The
growth in revenues was partly offset by a $886  thousand,  or 8.4%,  increase in
non-interest  expenses,  which  largely  reflect the costs  associated  with the
opening of two branches within the past twelve months and the growth of ICC.

Net Interest Income

     Net interest  income on a tax  equivalent  basis  increased $1.2 million to
$16.7  million  for the six months  ended June 30,  2001 as compared to the same
period in 2000.  The increase in net interest  income is due primarily to a 9.3%
growth in average interest earning assets,  particularly loans. The asset growth
was funded by  deposit  liabilities,  which  grew  10.5% on average  for the six
months ended June 30, 2001, as compared to the same period last year. The margin
declined 7 basis  points to 4.40% for the six months  ended  June 30,  2001,  as
compared  to the same period last year and offset some of the growth in interest
income.

     Interest income, on a tax-equivalent  basis,  totaled $29.3 million for the
first six months of 2001, an increase of $2.7 million,  or 10.1%, as compared to
the same period in 2000.  The growth in interest  income  resulted  from a $64.5
million, or 9.3%, growth in average interest-earning assets,  principally loans,
which grew $48.4 million, or 9.3%. Furthermore,  interest income was aided by an
increase in the average  yield on  interest-earning  assets of 6 basis points to
7.72% for the first six months of 2001 as compared to the same period in 2000.

     Interest  expense,  which totaled $12.6 million for the first six months of
2001,  increased $1.5 million, or 13.8%, as compared to the same period in 2000.
The increase is  attributable  mostly to the growth in average  interest-bearing
liabilities  of $53.3  million  for first six months of 2001 as  compared to the
same period in 2000. An increase in the average  rates paid on  interest-bearing
liabilities  of 16 basis  points  to  4.12%  over the  prior  comparable  period
contributed to the increase in interest expense.


                                       11
<PAGE>

Non-interest Income

     For the six months ended June 30,  2001,  non-interest  income  amounted to
$2.4 million,  an increase of $438 thousand,  or 22.6%,  as compared to the same
period in 2000. An increase of $151  thousand in fees  collected on loans was in
part  responsible for the increase.  Further,  fees on deposit  accounts,  lease
syndication income and net gains on the sale of securities,  which increased $77
thousand,  $33  thousand  and $21  thousand,  respectively,  contributed  to the
increase.  Miscellaneous  other income  comprised the remainder of the change in
non-interest income.

Non-interest Expenses

    For the six months ended June 30, 2001, non-interest expenses totaled $11.4
million,  an increase of $886 thousand,  or 8.4%, as compared to the same period
in 2000.  The increase in  non-interest  expenses was mostly  attributed  to the
opening of two branches in the second half of 2000 and growth in the  operations
of ICC, which  accounted for $378 thousand and $240 thousand,  respectively,  of
the increase.  After  adjusting  for the above noted  expansion  related  costs,
non-interest expenses increased $268 thousand, or 2.5%.

Income Taxes

     Income tax expense as a percentage of pre-tax  income was 32.4% for the six
months ended June 30, 2001 as compared to 33.0% for the same period of 2000. The
improvement  was largely due to  increased  investment  in loans that are exempt
from federal income tax.

                                       12
<PAGE>


                               FINANCIAL CONDITION


     At June 30,  2001,  the  Company's  total  assets were $812.7  million,  an
increase of $42.5  million,  or 5.5%,  from $770.2 million at December 31, 2000.
The growth was largely in  securities  and loans,  which grew $31.9  million and
$24.0 million, respectively, for June 30, 2001 as compared to December 31, 2000.
The asset growth was funded principally by growth in deposit liabilities,  which
occurred mostly in time deposits and interest bearing demand deposits.

Cash and Cash Equivalents

     At June 30, 2001,  cash and cash  equivalents  decreased  $11.9  million to
$21.2  million as compared to December 31,  2000.  This is largely the result of
investing  activities  (funding loans and investment growth) investing cash more
rapidly than financing  activities  (reflecting  principally deposit growth less
repayments of borrowings)  and operating  activities  (reflecting net income and
changes in other assets) could generate 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 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 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, 2001, investment securities totaled $193.3
million and represented 23.8% of total assets, as compared to $161.4 million and
20.9%, respectively, at December 31, 2000. AFS securities comprised 75.9% of the
total securities portfolio at June 30, 2001 as compared to 74.6% at December 31,
2000. During the second quarter of 2001, the Company sold securities with a book
value of approximately $6 million and recognized $53 thousand in gains.

                                       13

<PAGE>

<TABLE>

         The following table reflects the composition of the securities portfolio: (dollars in thousands)
<CAPTION>

                                                            -----------------------------------------------------------------
                                                                                     June 30, 2001
                                                            -----------------------------------------------------------------
                                                                                  Gross           Gross         Estimated
                                                               Amortized       Unrealized       Unrealized        Market
                                                                 Cost             Gains           Losses          Value
                                                            ----------------  --------------   -------------  ---------------
<S>                                                         <C>               <C>              <C>            <C>
Securities held to maturity
    Mortgage-backed securities                                   $25,585            $127            $120         $ 25,592
    Obligations of U.S. agencies                                   9,234             251               -            9,485
    Obligations of states & political subdivisions                11,345             260              22           11,583
    Other debt securities                                            359               5               -              364
                                                            ----------------  --------------   -------------  ---------------
                                                                  46,523             643             142           47,024
                                                            ----------------  --------------   -------------  ---------------

Securities available for sale
    Obligations of U.S. Treasury                                   1,998              35               -            2,033
    Mortgage-backed securities                                    97,732           1,269              90           98,911
    Obligations of U.S. agencies                                  24,526             223              75           24,674
    Obligations of states & political subdivisions                14,114             453               -           14,567
    Other debt securities                                          2,519              12               1            2,530
    Equity securities                                              3,998              22               -            4,020
                                                            ----------------  --------------   -------------  ---------------
                                                                 144,887           2,014             166          146,735
                                                            ----------------  --------------   -------------  ---------------

      Total securities                                          $191,410          $2,657            $308         $193,759
                                                            ================  ==============   =============  ===============

                                                            -----------------------------------------------------------------
                                                                                   December 31, 2000
                                                            -----------------------------------------------------------------
                                                                                  Gross           Gross         Estimated
                                                               Amortized       Unrealized       Unrealized        Market
                                                                 Cost             Gains           Losses          Value
                                                            ----------------  --------------   -------------  ---------------
Securities held to maturity
    Mortgage-backed securities                                  $ 12,646            $ 96            $ 48         $ 12,694
    Obligations of U.S. agencies                                  15,161             244               8           15,397
    Obligations of states & political subdivisions                12,813             137              64           12,886
    Other debt securities                                            422               1               -              423
                                                            ----------------  --------------   -------------  ---------------
                                                                  41,042             478             120           41,400
                                                            ----------------  --------------   -------------  ---------------

Securities available for sale
    Obligations of U.S. Treasury                                   1,996              26               -            2,022
    Mortgage-backed securities                                    79,242             758             155           79,845
    Obligations of U.S. agencies                                  19,924             194               4           20,114
    Obligations of states & political subdivisions                13,562             237              58           13,741
    Other debt securities                                            612               8               -              620
    Equity securities                                              3,970               -               -            3,970
                                                            ----------------  --------------   -------------  ---------------
                                                                 119,306           1,223             217          120,312
                                                            ----------------  --------------   -------------  ---------------

      Total securities                                          $160,348          $1,701            $337         $161,712
                                                            ================  ==============   =============  ===============


</TABLE>

                                       14

<PAGE>

<TABLE>

         At June 30, 2001, 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                        $ 5,669       $ 5,709            $ 8,373         $ 8,424
After 1 but within 5 years             9,313         9,570             57,408          58,394
After 5 but within 10 years           15,014        15,120             21,878          21,986
After 10 years                        16,527        16,625             53,230          53,911
Equity securities                          -             -              3,998           4,020
                                   ____________   ___________       ____________   ___________
                           Total    $ 46,523       $47,024           $144,887       $ 146,735
                                   ============  ============       ============   ===========

</TABLE>

Loans

     Total loans  amounted to $584.9  million at June 30,  2001,  an increase of
$24.0  million  from  $560.9  million  at  December  31,  2000.  The  growth was
predominately in commercial mortgage loans and lease financing,  which increased
$15.4  million and $13.3  million,  respectively.  A decline in  commercial  and
financial loans of $3.2 million served to offset some of this growth. During the
first six months of 2001, the Company  purchased  $12.6 million of consumer auto
leases. These leases were subjected to the Company's independent credit analysis
prior to purchase and were,  in some cases,  purchased  with a limited  buy-back
obligation from the sellers.

<TABLE>

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

                                                      --------------------   -------------------
                                                           June 30,             December 31,
                                                             2001                   2000
                                                      --------------------   -------------------
<S>                                                   <C>                    <C>
Amount of loans by type
     Real estate-mortgage
         Commercial                                          $197,095              $181,722
         1-4 family residential
               First liens                                    116,556               110,369
               Junior liens                                     9,404                11,195
               Home equity                                    138,662               142,610
     Commercial and financial                                  73,462                76,702
     Real estate-construction                                   2,278                 3,755
     Installment                                                5,736                 6,108
     Lease financing
         Commercial                                            25,163                23,499
         Consumer                                              16,552                 4,919
                                                      --------------------   -------------------
               Total                                         $584,908              $560,879
                                                      ====================   ===================
</TABLE>

                                       15

<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  by offering a variety of products  designed to meet the financial
needs of the customers based on their identifiable "life stages".

     At June 30, 2001,  total  deposits  increased  $41.0  million,  or 6.1%, to
$709.8  million from $668.9 million at December 31, 2000. The growth in deposits
occurred mostly in time deposits and  interest-bearing  demand  deposits,  which
increased  $23.7 million and $12.9  million,  respectively,  at June 30, 2001 as
compared to December 31, 2000. For the three and six months ended June 30, 2001,
the Company's overall yield on deposits increased by 5 basis points and 23 basis
points, respectively, as compared to the same periods last year. The increase is
attributed predominately to changes in market interest rates and a change in the
composition of deposit liabilities.

     Time deposits  amounted to $232.2  million at June 30, 2001, an increase of
$14.7 million, or 7.0%, from December 31, 2000. Time deposits  represented 32.7%
of total deposits at June 30, 2001 compared to 31.2% at December 31, 2000. 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 June 30,  2001,  such  deposits  amounted  to $367.4  million,  an
increase of $14.7 million, or 4.2%, from December 31, 2000. Non-interest bearing
demand,  which  increased  $2.5 million,  or 2.3%, to $110.2 million at June 30,
2001 as compared to December 31, 2000  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
and foreclosed real estate. At June 30, 2001,  nonperforming  assets amounted to
$3.7  million,  an increase of $2.0  million,  or 124.0%,  from $1.6  million at
December 31, 2000. The increase in nonperforming  assets is partly due to a $1.0
million increase in nonaccrual  leases in the Company's  equipment lease finance
portfolio  and a  commercial  mortgage  loan  amounting to $1.0 million that was
classified  as  nonaccrual  during  the  second  quarter  of 2001.  The ratio of
nonperforming  assets to total loans and  foreclosed  real estate  increased  to
0.63% at June 30, 2001 from 0.29% at December 31, 2000.

                                       16

<PAGE>


Provision for Loan and Lease Losses and Loan Loss Experience

     The   provision   for  loan  and  lease  losses   represents   management's
determination  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 future losses inherent in the Company's loan portfolio as of the balance
sheet date. In its evaluation of the adequacy of the ALLL,  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 ALLL is necessarily  subjective and affected by
changes in external  conditions.  Accordingly,  there can be no  assurance  that
existing levels of the ALLL will ultimately  prove adequate to cover actual loan
losses.

     The ALLL was $6.5  million at June 30,  2001,  and $6.2 million at December
31, 2000,  representing 190.0% and 441.2% of nonperforming loans at those dates,
respectively. For the first six months of 2001 and 2000, the Company's provision
for loan and lease losses was $380 thousand and $600 thousand, respectively.


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.  On a  weekly  basis,  the  Company's
Asset/Liability  Committee ("ALCO") meets to review matters pertaining to market
and interest rate risk. On a quarterly basis,  management  through the use of an
asset/liability   simulation  model  produces  a  report,  which  estimates  the
potential  impact on net interest  income and future  economic  value of equity.
This report is reviewed by ALCO and the Board of  Directors.  At June 30,  2001,
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 results did not significantly change from December
31, 2000. At June 30, 2001, the Company was within policy limits  established by
the Board of Directors  for changes in net interest  income and future  economic
value of equity.

                                       17
<PAGE>

     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 2001.


     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 Company to guarantee  the
performance  of a customer to a third party up to a  stipulated  amount and with
specified terms and conditions. Commitments to extend credit and standby letters
of credit are not recorded on the Company's 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.  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,  certain other capital instruments and term subordinated debt. Total
capital is the sum of core and supplementary capital.

                                       18
<PAGE>

     At June  30,  2001,  the  minimum  risk-based  capital  requirements  to be
considered  adequately  capitalized  were 4% for Tier 1 capital and 8% for total
capital.

     Federal banking regulators have also adopted leverage capital guidelines to
supplement the risk-based measures. The leverage ratio is determined by dividing
Tier 1 capital as  defined  under the  risk-based  guidelines  by average  total
assets (non  risk-adjusted)  for the preceding  quarter.  At June 30, 2001,  the
minimum leverage ratio requirement to be considered  adequately  capitalized was
4%.

     The capital  levels of the Company and the Bank at June 30,  2001,  and the
two highest capital adequacy levels recognized under the guidelines  established
by the Federal banking agencies are included in the following table. The Company
and the Bank exceeded all the minimum capital ratios established by the Federal
banking  agencies  to be  considered  "well-capitalized".  The  minimum  capital
guidelines are detailed in the table below.

<TABLE>

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

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

As of June 30, 2001:
     Total Capital (to Risk Weighted Assets):
       The Company                               $71,102        12.92 %        $44,018        8.00 %       $55,023       10.00 %
       The Bank                                   70,667        12.88           43,901        8.00          54,876       10.00
     Tier 1 Capital (to Risk Weighted Assets):
       The Company                                64,578        11.74           22,009        4.00          33,014        6.00
       The Bank                                   64,143        11.69           21,950        4.00          32,925        6.00
     Tier 1 Capital (to Average Assets):
       The Company                                64,578         8.13           31,786        4.00             N/A         N/A
       The Bank                                   64,143         8.03           31,943        4.00          39,929        5.00

As of December 31, 2000:
     Total Capital (to Risk Weighted Assets):
       The Company                                $67,632        12.92 %        $41,864       8.00 %       $52,331       10.00 %
       The Bank                                    67,165        12.83           41,865       8.00          52,331       10.00
     Tier 1 Capital (to Risk Weighted Assets):
       The Company                                 61,478        11.75           20,932       4.00          31,398        6.00
       The Bank                                    61,011        11.66           20,932       4.00          31,398        6.00
     Tier 1 Capital (to Average Assets):
       The Company                                 61,478         8.02           30,656       4.00             N/A         N/A
       The Bank                                    61,011         7.99           30,556       4.00          38,196        5.00

</TABLE>

                                       19

<PAGE>


Liquidity


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

     The  Company's  most liquid  assets are cash and due from banks and federal
funds  sold.  At June 30,  2001,  the  total of such  assets  amounted  to $21.2
million, or 2.6%, of total assets,  compared to $33.1 million, or 4.3%, of total
assets at December 31, 2000. The decrease in cash and cash  equivalents  was due
largely to growth in investments and loans. At June 30, 2001, total  investments
amounted to $193.3 million, an increase of $31.9 million or 19.8% as compared to
December 31, 2000. The growth in investments  occurred mostly in AFS securities,
which is also  another  significant  liquidity  source.  At June 30,  2001,  AFS
securities amounted to $146.7 million,  or 75.9%, of total securities,  compared
to $120.3 million, or 74.6%, of total securities at December 31, 2000.

     In  2001,  despite  heightened   competition  for  loans,  loan  production
continued to be the Company's principal  investing  activity.  Net loans at June
30, 2001 amounted to $578.4 million, an increase of $23.7 million, or 4.3%, from
$554.7 million at December 31, 2000.

     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, 2001,  total  deposits  amounted to $709.8  million,  an increase of
$41.0  million,  or 6.1%,  from  December  31, 2000.  In  addition,  the Company
supplements  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, 2001, advances from the FHLB and
REPOS amounted to $17.8 million and $12.0 million,  respectively, as compared to
$13.0 million and $18.5 million, respectively, at December 31, 2000. At June 30,
2001,  total  borrowings  amounted to 3.7% of total assets,  which was a decline
from 4.1% at December 31,  2000.  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.

                                       20
<PAGE>


                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings
        Reference is 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
       (a)The company held its Annual Meeting of Shareholders on April 26, 2001.

       (b)Each of the persons nominated for director was elected and the
          selection of Deloitte & Touche,  LLP as the Company's  independent
          auditors for 2001 was ratified.  The  following  are the voting
          results on each of these matters:
                                                    Against
                                                      Or
                                          For       Withheld      Abstentions
                                          ---       --------      -----------
(1)  ELECTION OF DIRECTORS
     Anthony D. Andora                 4,955,459    103,320          0
     David R. Ficca                    4,959,862     36,917          0
     Nicholas R. Marcalus              4,959,709     99,070          0
     Benjamin Rosenzweig               4,958,010    100,769          0

(2)  Ratification of the selection of
     Deloitte & Touche, LLP as the
     Company's independent Auditors
     for 2001.                         5,011,540      7,221     40,018

Item 5. Other Information
        None

Item 6.  Exhibits and Reports on Form 8-K
         (a)      The following exhibits are furnished herewith:
                  Exhibit.
                  ________
                  11       Statement re computation of per share earnings

         (b)      Reports on Form 8-K
                  None

                                       21

<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: August 14, 2001


                                       22