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

                                                                                      MARCH 31,        December 31,
                                                                                        1997              1996
                                                                                   -------------       -----------


<S>                                                                                   <C>                  <C>
 ASSETS
 Cash and due from banks ....................................................         $ 27,555             $ 24,322
 Federal funds sold .........................................................           13,900                 --
                                                                                      --------             --------

 Total cash and cash equivalents ............................................           41,455               24,322
                                                                                      --------             --------

 Investment securities at amortized cost  (approximate
      market value of $46,383 and $63,619) ..................................           46,574               63,376
                                                                                      --------             --------
 Securities available for sale at estimated  market value
      (amortized cost of $56,578 and $54,871) ...............................           56,606               55,252
                                                                                      --------             --------

 Loans ......................................................................          356,650              351,793
 Less:  Allowance for loan losses ...........................................            3,965                3,653
                                                                                      --------             --------
 Net loans ..................................................................          352,685              348,140
                                                                                      --------             --------

 Premises and equipment, net ................................................            5,504                5,151
 Foreclosed real estate .....................................................              282                  610
 Accrued interest receivable and other assets ...............................            7,870                7,838
                                                                                      --------             --------

 TOTAL ASSETS ...............................................................         $510,976             $504,689
                                                                                      ========             ========

 LIABILITIES

 Deposits

      Noninterest bearing ...................................................         $ 77,428             $ 76,340
      Interest bearing ......................................................          360,710              353,673
                                                                                      --------             --------

 Total deposits .............................................................          438,138              430,013

 Securities sold under agreements to repurchase .............................           11,700               11,050
 Short-term borrowings ......................................................             --                  5,200
 Accrued interest payable and other liabilities .............................            5,418                4,082
 Long-term borrowings. ......................................................            9,958                9,983
                                                                                      --------             --------

 TOTAL LIABILITIES ..........................................................          465,214              460,328
                                                                                      --------             --------

 COMMITMENTS AND CONTINGENT LIABILITIES

 STOCKHOLDERS' EQUITY

 Common stock ...............................................................            4,762                4,733
 Capital surplus ............................................................           15,233               14,931
 Retained earnings ..........................................................           25,908               24,429
 Unrealized gain - securities available for sale, net of taxes ..............               22                  268
                                                                                      --------             --------
                                                                                        45,925               44,361
  Less:  Treasury Stock (5,422 common shares) ...............................              163                 --
                                                                                      --------             --------
      Total stockholders' equity ............................................           45,762               44,361
                                                                                      --------             --------

 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................         $510,976             $504,689
                                                                                      ========             ========


--------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
                INTERCHANGE FINANCIAL SERVICES CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands except per share data)
<CAPTION>

                                                                                Three months ended
                                                                                    March 31,
                                                                               --------------------
                                                                               1997           1996
                                                                               ----           ----
<S>                                                                           <C>             <C>
INTEREST INCOME
Interest and fees on loans ..........................................         $7,812          $7,066
Interest on federal funds sold ......................................             34             228
Interest and dividends on securities
      Taxable interest income .......................................          1,702           1,861
      Interest income exempt from federal income taxes ..............             15              14
      Dividends .....................................................             53              38
                                                                              ------          ------

TOTAL INTEREST INCOME ...............................................          9,616           9,207
                                                                              ------          ------

INTEREST EXPENSE
Interest on deposits ................................................          3,292           3,598
Interest on short-term borrowings ...................................            197             150
Interest on long-term borrowings ....................................            149            --
                                                                              ------          ------

TOTAL INTEREST EXPENSE ..............................................          3,638           3,748
                                                                              ------          ------

NET INTEREST INCOME .................................................          5,978           5,459
Provision for loan losses ...........................................            610             250
                                                                              ------          ------
NET INTEREST INCOME AFTER PROVISION
 FOR LOAN LOSSES ....................................................          5,368           5,209
                                                                              ------          ------

NONINTEREST INCOME
Service fees on deposit accounts ....................................            428             369
Net gain on sale of loans ...........................................          1,067            --
Net gain on sale of securities available for sale ...................           --               235
Accretion of discount in connection with acquisition ................           --               190
Other ...............................................................            212             426
                                                                              ------          ------

TOTAL NONINTEREST INCOME ............................................          1,707           1,220
                                                                              ------          ------

NONINTEREST EXPENSES
Salaries and benefits ...............................................          2,011           1,902
Net occupancy .......................................................            486             545
Furniture and equipment .............................................            168             178
Advertising and promotion ...........................................            152             158
Other ...............................................................          1,098           1,166
                                                                              ------          ------

TOTAL NONINTEREST EXPENSES ..........................................          3,915           3,949
                                                                              ------          ------

Income before  income taxes .........................................          3,160           2,480

Income taxes ........................................................          1,106             868
                                                                              ------          ------

NET INCOME ..........................................................         $2,054          $1,612
                                                                              ======          ======

NET INCOME PER COMMON SHARE .........................................         $ 0.48          $ 0.38
                                                                              ======          ======

--------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
                             INTERCHANGE STATE BANK
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (in thousands)
<CAPTION>

                                                                                                  Unrealized
                                                                                                  Gain/(Loss)
                                                                                                      on
                                                                                                   Securities
                                                               Common     Capital     Retained     Available    Treasury
                                                                Stock     Surplus     Earnings     for Sale      Stock      Total
                                                                -----     -------     --------     --------      -----      -----


<S>                                                           <C>        <C>         <C>           <C>      <C>          <C>
Balance at January 1, 1996 ...............................     $4,495     $12,110     $22,990       $ 646    $   --       $40,241

Net income ...............................................                              1,612                               1,612
Dividends on common stock at $0.117 per share (1) ........                               (500)                               (500)
5% common stock dividend .................................        225       2,678      (2,903)                                 --
Issued 7,498 shares of common stock in connection
    with incentive plan ..................................         13         148                                             161
Increase in market valuation-securities available for
    sale, net of taxes ...................................                                             63                      63
                                                             --------    --------    --------     --------   ---------    --------
Balance at March 31, 1996 ................................      4,733      14,936      21,199         709        --        41,577

Net Income ...............................................                              4,807                               4,807
Dividends on common stock at $0.487 per share (1) ........                             (1,577)                             (1,577)
Fractional shares of 5% common stock dividend ............                     (5)                                             (5)
Decrease in market valuation-securities available for
    sale, net of taxes ...................................                                           (441)                   (441)
                                                             --------    --------    --------     --------   ---------    --------
Balance at December 31, 1996 .............................      4,733      14,931      24,429         268        --        44,361

Net income ...............................................                              2,054                               2,054
Dividends on common stock at $0.135 per share (1) ........                               (575)                               (575)
Issued 5,701 shares of common stock in connection
    with incentive plans .................................          9         159                                             168
Exercise of 12,086 option shares .........................         20         143                                             163
Retirement of 5,422 shares in exchange for option shares .                                                       (163)       (163)
Decrease in market valuation - securities available
    for sale, net of taxes ...............................                                           (246)                   (246)
                                                             --------    --------    --------     --------   ---------    --------

Balance at March 31, 1997 ................................     $4,762     $15,233     $25,908        $ 22      $ (163)    $45,762
                                                             ========    ========    ========     ========   =========    ========
--------------------------------------------------------------------------------
(1)  Adjusted for the effects of the 3 for 2 stock split to be issued on April 17, 1997 to shareholders of record on March 20, 1997.

See notes to consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>
                   INTERCHANGE FINANCIAL SERVICES CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<CAPTION>
                                                                                                         For the Three Months Ended
                                                                                                         --------------------------
                                                                                                                   March 31,
                                                                                                         --------------------------
                                                                                                            1997              1996
                                                                                                            ----              ----
<S>                                                                                                      <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .....................................................................................         $  2,054          $  1,612
Non-cash items included in earnings
     Depreciation and amortization of fixed assets .............................................              227               254
     Amortization of securities premiums .......................................................              202               285
     Accretion of securities discounts .........................................................              (17)              (12)
     Amortization of premiums in connection with acquisition ...................................              111               111
     Accretion of discount in connection with acquisition ......................................             --                (190)
     Provision for loan losses .................................................................              610               250
     Net gain on sale of securities available for sale .........................................             --                (235)
     Net gain on sale of  loans ................................................................           (1,067)             --
     Net gain on sale of foreclosed real estate ................................................               (3)              (17)
     Decrease in carrying value of loans available for sale ....................................               26                23
(Increase) decrease in operating assets
     Net origination of loans available for sale ...............................................                6              (119)
     Accrued interest receivable ...............................................................              364               408
     Other .....................................................................................             (367)              374
Increase in operating liabilities
     Accrued interest payable ..................................................................               67               107
     Other .....................................................................................            1,269               592
                                                                                                         --------          --------
CASH PROVIDED BY OPERATING ACTIVITIES ..........................................................            3,482             3,443
                                                                                                         --------          --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from (payments for)
     Net (originations) repayment of loans .....................................................          (10,065)           (4,378)
     Purchase of loans .........................................................................             --                (870)
     Sale of loans .............................................................................            5,945              --
     Purchase of securities available for sale .................................................           (1,985)           (8,087)
     Maturities of securities available for sale ...............................................              221               195
     Sale of securities available for sale .....................................................             --              38,349
     Sale of foreclosed real estate ............................................................              329                78
     Purchase of investment securities .........................................................             --              (4,563)
     Maturities of investment securities .......................................................           16,672             6,000
     Net payments on foreclosed real estate ....................................................                2                 7
     Purchase of fixed assets ..................................................................             (624)             (135)
     Sale of fixed assets ......................................................................               13              --
                                                                                                         --------          --------
CASH PROVIDED BY INVESTING ACTIVITIES ..........................................................           10,508            26,596
                                                                                                         --------          --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (payments for)
     Deposits more (less) than withdrawals .....................................................            8,125            (3,214)
     Securities sold under agreements to repurchase ............................................            1,650             5,778
     Other borrowings ..........................................................................           (5,225)           (4,200)
     Retirement of securities sold under agreement to repurchase ...............................           (1,000)           (1,250)
     Dividends .................................................................................             (575)             (500)
     Common stock issued .......................................................................              168               161
     Exercise of option shares .................................................................              163              --
     Treasury stock ............................................................................             (163)             --
                                                                                                         --------          --------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES ...............................................            3,143            (3,225)
                                                                                                         --------          --------
INCREASE IN CASH AND CASH EQUIVALENTS ..........................................................           17,133            26,814
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ...................................................           24,322            25,151
                                                                                                         --------          --------
CASH AND CASH EQUIVALENTS, END OF PERIOD .......................................................         $ 41,455          $ 51,965
                                                                                                         ========          ========
Supplemental disclosure of cash flow information:
     Cash paid for:
          Interest .............................................................................         $  3,571          $  3,641
          Income taxes .........................................................................              110               208

Supplemental disclosure of non-cash investing activities:
          Loans transferred to foreclosed real estate ..........................................         $   --            $    179
          Decrease (increase) - market valuation of securities available for sale ..............              353              (102)
          Amortization of valuation allowance-securities transferred from
             available to sale to held to maturity ..............................................               2                 4
--------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    FOR THE THREE MONTHS ENDED MARCH 31, 1997

1.   FINANCIAL STATEMENTS

          The consolidated  financial  statements  should be read in conjunction
with the financial statements and schedules as presented in the Annual Report on
Form 10-K of Interchange  Financial Services Corporation (the "Company") for the
year ended December 31, 1996.

          Consolidated  financial data for the three months ended March 31, 1997
and 1996,  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.  Results  for  interim  periods  are not
necessarily  indicative  of results to be expected  for any other  period or the
full year.

2.  LEGAL PROCEEDINGS

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


<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The following discussion is an analysis of the consolidated  financial
condition  and results of  operations  of the Company for the three months ended
March 31, 1997 and 1996, and should be read in conjunction with the consolidated
financial  statements  and notes thereto  included in Item 1 hereof.  

RESULTS OF OPERATIONS

         EARNINGS SUMMARY

          For the first quarter of 1997, the Company reported net income of $2.1
million or $0.48 per share, as compared with $1.6 million or $0.38 per share for
the comparable 1996 period, an increase of $442 thousand or $0.10 per share. The
growth in  earnings  was a product of a strong net  interest  margin  that had a
positive influence on net interest income and increased noninterest income.

          Net interest income increased $519 thousand or 9.5% largely because of
a $16.5 million increase in interest earning assets and an improved net interest
margin.  The  greatest  growth in  interest  earning  assets  occurred in loans;
specifically commercial loans which generally carry higher yields. For the first
quarter of 1997,  loans on average  increased $42.5 million or 13.7% as compared
to the same period a year ago. The loan growth was  internally  generated.  Such
assets were funded mostly with demand and savings deposits which typically carry
lower yields,  thereby having a positive effect on the net interest margin.  The
net  interest  margin for the first  quarter 1997 was 5.11% as compared to 4.84%
for the prior year.

          Noninterest  income  increased  $487 or 39.9% for the first quarter of
1997,  as compared to the same period in 1996.  The increase was the result of a
$1.1 million  gain from the sale of two  commercial  mortgage  loans with a book
value of $4.8  million.  These  loans  were part of a  commercial  loan  package
acquired in 1994 at a discount. The sale was consummated based upon management's
assessment of the risk associated with such loans as they neared their maturity.
However,  the benefit resulting from the gain was partly offset by $621 thousand
in gains and discount  accretion  that was realized in the first quarter of 1996
and did not reoccur in 1997.  The gain was also partly  offset by an increase in
the provision for loan losses described below.

         NONPERFORMING ASSETS

          Nonperforming  assets,  consisting of nonaccrual  loans,  restructured
loans and  foreclosed  real estate,  decreased $2.9 million from $5.8 million at
March 31, 1996, to $2.9 million at March 31, 1997. The decrease in nonperforming
assets is partly attributable to the sale of $1.4 million in nonperforming loans
in the third  quarter of 1996.  During the past 12 months,  $1.1 million of real
estate owned was sold and further  contributed  to the  decrease.  For the first
quarter 1997, nonperforming assets decreased $529 thousand from $3.4 million for
the quarter ended December 31, 1996. The ratio of nonperforming  assets to total
loans and foreclosed  real estate  decreased from 1.8% at March 31, 1996, to .8%
at March 31, 1997. The ratio at March 31, 1997,  decreased by .2% as compared to
1.0% at December 31, 1996.

         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 $4.0 million at March 31, 1997,  and
$3.7  million  at  December  31,  1996,   representing   143.7%  and  130.0%  of
nonperforming loans at those dates, respectively.  In the first quarter of 1997,
the Bank's  provision  for loan  losses was $610  thousand,  an increase of $360
thousand from the same period a year ago. The increase in the provision for loan
losses was necessitated based upon certain changes in the characteristics of the
Bank's  loan  portfolio.  The Bank's  lending  focus and growth  continue  to be
largely in its commercial and commercial  mortgage loan portfolio.  As a result,
the Bank has modified its method of computing  the  allowance for loan losses to
capture  the  potential  increase in inherent  credit risk  associated  with the
increased concentration in commercial and commercial mortgage loans.


<PAGE>
<TABLE>

SECURITIES

          Investment securities and securities available for sale consist of the
following: (in thousands)
<CAPTION>



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

<S>                                                                         <C>                <C>             <C>          <C>
INVESTMENT SECURITIES
      OBLIGATIONS OF U.S. TREASURY .................................        $ 30,396           $  46           $  17        $ 30,425
      OBLIGATIONS OF U.S. AGENCIES .................................          11,069            --               104          10,965
      OBLIGATIONS OF STATE AND POLITICAL SUBDIVISION ...............             180            --                 9             171
      OTHER DEBT SECURITIES ........................................           4,929            --               107           4,822
                                                                            --------        --------        --------        --------
                                                                              46,574              46             237          46,383
                                                                            --------        --------        --------        --------

SECURITIES AVAILABLE FOR SALE
      OBLIGATIONS OF U.S. TREASURY .................................          33,581             311             444          33,448
      OBLIGATIONS OF U.S. AGENCIES .................................          17,199            --               241          16,958
      OTHER DEBT SECURITIES ........................................           1,886            --                10           1,876
      EQUITY SECURITIES ............................................           3,912             412            --             4,324
                                                                            --------        --------        --------        --------
                                                                              56,578             723             695          56,606
                                                                            --------        --------        --------        --------

           TOTAL SECURITIES ........................................        $103,152           $ 769           $ 932        $102,989
                                                                            ========        ========        ========        ========



                                                                                               December 31, 1996
                                                                            ------------------------------------------------------
                                                                                              Gross            Gross      Estimated
                                                                             Amortized     Unrealized       Unrealized      Market
                                                                               Cost           Gains          Losses          Value
                                                                               ----           -----          ------          -----


Investment securities
      Obligations of U.S. Treasury .................................        $ 43,517           $ 248            --          $ 43,765
      Obligations of U.S. agencies .................................          11,077              74           $  22          11,129
      Obligations of states & political subdivisions ...............           3,581               1               9           3,573
      Other debt securities ........................................           5,201            --                49           5,152
                                                                            --------        --------        --------        --------
                                                                              63,376             323              80          63,619
                                                                            --------        --------        --------        --------
Securities available for sale
      Obligations of U.S. Treasury .................................          31,640             453             246          31,847
      Obligations of U.S. agencies .................................          17,321             124              12          17,433
      Other debt securities ........................................           1,998              11            --             2,009
      Equity securities ............................................           3,912              51            --             3,963
                                                                            --------        --------        --------        --------
                                                                              54,871             639             258          55,252
                                                                            --------        --------        --------        --------

           Total securities ........................................        $118,247           $ 962           $ 338        $118,871
                                                                            ========        ========        ========        ========
</TABLE>




<PAGE>

<TABLE>
At March 31, 1997, the contractual maturities of investment securities and securities available
for sale are as follows: (in thousands)
<CAPTION>

                                                                                                             SECURITIES
                                                                       INVESTMENT SECURITIES              AVAILABLE FOR SALE
                                                                   ---------------------------          ----------------------
                                                                   AMORTIZED           MARKET            AMORTIZED       MARKET
                                                                      COST             VALUE               COST          VALUE
                                                                   ---------------------------          ----------------------

<S>                                                                 <C>                <C>                <C>          <C>
WITHIN 1 YEAR ..........................................            $18,163            $18,193               --            --
AFTER 1 BUT WITHIN 5 YEARS .............................             18,346             18,277            $37,526       $37,358
AFTER 5 BUT WITHIN 10 YEARS ............................              4,182              4,157              7,665         7,515
AFTER 10 YEARS .........................................              5,883              5,756              7,475         7,409
EQUITY SECURITIES ......................................               --                 --                3,912         4,324
                                                                    -------            -------            -------       -------

                        TOTAL ..........................            $46,574            $46,383            $56,578       $56,606
                                                                    =======            =======            =======       =======
</TABLE>


<TABLE>

CAPITAL ADEQUACY

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

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

AS OF MARCH 31, 1997:
       TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
            THE COMPANY .....................................      $48,740     14.76%    $26,411     8.00%          N/A    N/A
            THE BANK ........................................       47,402     14.42      26,304     8.00       $32,880    10.00%
       TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
            THE COMPANY .....................................       44,775     13.56      13,205     4.00           N/A    N/A
            THE BANK ........................................       43,437     13.21      13,152     4.00        19,728     6.00
       TIER 1 CAPITAL (TO AVERAGE ASSETS):
            THE COMPANY .....................................       44,775      8.94      15,032     3.00           N/A    N/A
            THE BANK ........................................       43,437      8.69      14,991     3.00        24,985     5.00

As of December 31, 1996:
       Total Capital (to Risk Weighted Assets):
            The Company .....................................      $46,720     14.42%    $25,918     8.00%          N/A    N/A
            The Bank ........................................       45,391     14.07      25,813     8.00       $32,266    10.00%
       Tier 1 Capital (to Risk Weighted Assets):
            The Company .....................................       43,067     13.29      12,959     4.00           N/A    N/A
            The Bank ........................................       41,738     12.94      12,906     4.00        19,359     6.00
       Tier 1 Capital (to Average Assets):
            The Company .....................................       43,067      8.66      14,925     3.00           N/A     N/A
            The Bank ........................................       41,738      8.39      14,925     3.00        24,875     5.00

</TABLE>



<PAGE>


         LIQUIDITY

         Liquidity  is the ability to provide  sufficient  resources to meet all
financial obligations and finance prospective business opportunities.  Liquidity
levels over any given period of time are a product of the  Company's  operating,
financing  and investing  activities.  The extent of such  activities  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 March 31, 1997, total deposits  amounted to $438.1 million,  an
increase of $8.1 million or 1.9% from December 31, 1996.  The Company  continues
to supplement the more  traditional  funding  sources with  borrowings  from the
Federal  Home Loan Bank of New York  ("FHLB")  and with  securities  sold  under
agreements to repurchase  ("REPOS").  At March 31, 1997,  advances from the FHLB
and REPOS amounted to $10.0 million and $11.7 million, respectively, as compared
to $15.2 million and $11.1 million, respectively, at December 31, 1996.

         In the first  quarter  of 1997,  loan  production  continued  to be the
Company's principal investing activity.  Net loans at March 31, 1997 amounted to
$352.7  million,  compared to $348.1  million at the end of 1996, an increase of
$4.6 million or 1.32%.

         The  Company's  most  liquid  assets  are cash and due from  banks  and
federal  funds sold.  At March 31,  1997,  the total of such assets  amounted to
$41.5  million or 8.1% of total  assets,  compared  to $24.3  million or 4.8% of
total assets at year-end 1996.

         Another    significant    liquidity    source    is    the    Company's
available-for-sale  ("AFS")  securities.  At  March  31,  1997,  AFS  securities
amounted  to $56.6  million  or 54.9% of  total  securities.  compared  to $55.3
million or 46.6% of total securities at year-end 1996.

         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
$49.1  million line of credit  available  through its  membership in the Federal
Home Loan Bank of New York.

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


<PAGE>


                            PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

          Reference  is made to Form 10-K filed for the year ended  December 31,
1996.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      The following exhibits are furnished herewith:

                  EXHIBIT NO.
                  10

                    (a)  Change in  Control  Agreement  for  Anthony  Labozzetta
                         dated  January  2, 1997

                    (b)  Separation Agreement for Robert N. Harris dated January
                         2, 1997

                  11     Statement Re:  Computation of Per Share Earnings

          (b)  Form 8-K filed  January 22, 1997  announcing  the  retirement  of
               Robert N. Harris and the  promotion to Senior Vice  President and
               Treasurer of Anthony Labozzetta.






                                   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
         Senior Vice President & Treasurer