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, 2004

                                       or

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

                         Commission File number 1-10518

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

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

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

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

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

Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such report) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No ___

      The number of outstanding shares of the Registrant's common stock, no par
value per share, as of July 31, 2004, was 12,744,282 shares.


<PAGE>

                   INTERCHANGE FINANCIAL SERVICES CORPORATION

INDEX

PART I       FINANCIAL INFORMATION
                                                                        Page No.
    Item 1   Financial Statements

                Consolidated Balance Sheets as of
                June 30, 2004 (unaudited) and December 31, 2003 ............   1

                Unaudited Consolidated Statements of Income for the three
                and six-month periods ended June 30, 2004 and 2003 .........   2

                Unaudited Consolidated Statements of Changes in
                Stockholders' Equity for the six months ended
                June 30, 2004 and 2003 .....................................   3

                Unaudited Consolidated Statements of Cash Flows for the
                six months ended June 30, 2004 and 2003 ....................   4

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

    Item 2      Management's Discussion and Analysis of Financial
                Condition and Results of Operations ........................  15

    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) ............................................  31

    Item 4      Controls and Procedures ....................................  36

PART II      OTHER INFORMATION

    Item 1      Legal Proceedings ..........................................  37

    Item 2      Changes in Securities and Use of Proceeds. .................  37

    Item 3      Defaults upon Senior Securities ............................  37

    Item 4      Submission of Matters to a Vote of Security Holders ........  37

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

    Item 6      Exhibits and Reports on Form 8-K ...........................  37

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


<PAGE>

Item 1: Financial Statements

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

<TABLE>
<CAPTION>
                                                                                 June 30,      December 31,
                                                                                   2004            2003
                                                                               -----------    -------------
                                                                                (unaudited)
<S>                                                                            <C>            <C>
Assets
Cash and due from banks                                                        $    32,343    $    31,423
Interest earning deposits                                                                6             12
                                                                               -----------    -----------
Total cash and cash equivalents                                                     32,349         31,435
                                                                               -----------    -----------
Securities held to maturity at amortized cost (estimated market value
      of $21,315 and $20,223 for June 30, 2004 and December 31, 2003,
      respectively)                                                                 20,569         19,107
                                                                               -----------    -----------
Securities available for sale at estimated market value (amortized cost
      of $360,751 and $428,597 for June 30, 2004 and December 31, 2003,
      respectively)                                                                359,363        432,953
                                                                               -----------    -----------
Loans and leases (net of unearned income and deferred fees of $5,116 and
     $6,057 for June 30, 2004 and December 31, 2003, respectively)                 883,266        796,581
     Less:  Allowance for loan and lease losses                                      9,788          9,641
                                                                               -----------    -----------
Net loans and leases                                                               873,478        786,940
                                                                               -----------    -----------
Bank owned life insurance                                                           22,340         21,853
Premises and equipment, net                                                         19,992         20,343
Foreclosed real estate and other repossesed assets                                     201            230
Goodwill                                                                            55,953         55,924
Intangible assets                                                                    3,913          4,165
Accrued interest receivable and other assets                                        15,532         12,922
                                                                               -----------    -----------
Total assets                                                                   $ 1,403,690    $ 1,385,872
                                                                               ===========    ===========
Liabilities
Deposits
    Non-interest bearing                                                       $   238,317    $   223,745
    Interest bearing                                                               948,521        933,053
                                                                               -----------    -----------
Total deposits                                                                   1,186,838      1,156,798
                                                                               -----------    -----------
Securities sold under agreements to repurchase                                      12,320         15,618
Short-term borrowings                                                               16,525         46,491
Long-term borrowings                                                                30,000         10,000
Accrued interest payable and other liabilities                                      14,790         13,772
                                                                               -----------    -----------
Total liabilities                                                                1,260,473      1,242,679
                                                                               -----------    -----------

Commitments and contingent liabilities

Stockholders' equity:
Common stock, without par value; 22,500,000 shares authorized;
    12,741,782 and 12,810,193 shares issued and outstanding at
    June 30, 2004 and December 31, 2003, respectively                                5,397          5,397
Capital surplus                                                                     73,324         73,231
Retained earnings                                                                   79,857         74,710
Accumulated other comprehensive income                                                (842)         2,434
                                                                               -----------    -----------
                                                                                   157,736        155,772
Less:  Treasury stock                                                               14,519         12,579
                                                                               -----------    -----------
Total stockholders' equity                                                         143,217        143,193
                                                                               -----------    -----------
Total liabilities and stockholders' equity                                     $ 1,403,690    $ 1,385,872
                                                                               ===========    ===========
</TABLE>

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


                                      -1-
<PAGE>

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

<TABLE>
<CAPTION>
                                                                Three Months Ended      Six Months Ended
                                                                     June 30,               June 30,
                                                               --------------------   --------------------
                                                                 2004       2003        2004        2003
                                                               --------   --------    --------    --------
<S>                                                            <C>        <C>          <C>        <C>
Interest income
Interest and fees on loans                                     $13,125    $12,469      $25,832    $23,326
Interest on federal funds sold                                      31        121           37        184
Interest on interest bearing deposits                                -          9            -         21
Interest and dividends on securities
     Taxable interest income                                     2,561      2,329        5,211      4,612
     Interest income exempt from federal income taxes              279        221          548        400
     Dividends                                                       2         53           41        109
                                                               -------    -------      -------    -------
Total interest income                                           15,998     15,202       31,669     28,652
                                                               -------    -------      -------    -------
Interest expense
Interest on deposits                                             2,760      3,416        5,587      6,823
Interest on securities sold under agreements to repurchase          36         79           78        165
Interest on short-term borrowings                                   41          -          111          -
Interest on long-term borrowings                                   225        107          423        212
                                                               -------    -------      -------    -------
Total interest expense                                           3,062      3,602        6,199      7,200
                                                               -------    -------      -------    -------

Net interest income                                             12,936     11,600       25,470     21,452
Provision for loan and lease losses                                300        530          675        795
                                                               -------    -------      -------    -------
Net interest income after provision
 for loan losses                                                12,636     11,070       24,795     20,657
                                                               -------    -------      -------    -------
Non-interest income
Service fees on deposit accounts                                   935        908        1,777      1,561
Net gain on sale of securities                                     305         19          819         19
Net gain on sale of loans and leases                                57        147          133        345
Bank owned life insurance                                          226        784          487      1,062
Commissions on sale of annuities and mutual funds                  256        175          468        388
Other                                                              913        611        1,523      1,113
                                                               -------    -------      -------    -------
Total non-interest income                                        2,692      2,644        5,207      4,488
                                                               -------    -------      -------    -------
Non-interest expense
Salaries and benefits                                            4,664      4,193        9,512      7,821
Net occupancy                                                    1,287      1,095        2,652      2,023
Furniture and equipment                                            326        353          660        606
Advertising and promotion                                          470        423          863        737
Federal Deposit Insurance Corporation assessment                    45         37           91         71
Foreclosed real estate                                               5          -            5          -
Amortization of intangible assets                                  126         90          252        109
Other                                                            1,875      1,505        3,680      2,856
                                                               -------    -------      -------    -------
Total non-interest expense                                       8,798      7,696       17,715     14,223
                                                               -------    -------      -------    -------
Income before  income taxes                                      6,530      6,018       12,287     10,922
Income taxes                                                     2,175      1,831        3,946      3,379
                                                               -------    -------      -------    -------
Net income                                                     $ 4,355    $ 4,187      $ 8,341    $ 7,543
                                                               =======    =======      =======    =======
Basic earnings per common share                                $  0.34    $  0.35      $  0.65    $  0.70
                                                               =======    =======      =======    =======
Diluted earnings per common share                              $  0.34    $  0.35      $  0.64    $  0.69
                                                               =======    =======      =======    =======
</TABLE>

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


                                      -2-
<PAGE>

Interchange Financial Services Corporation
--------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30,
--------------------------------------------------------------------------------
(dollars in thousands, except per share data)
(unaudited)

<TABLE>
<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, 2003                                       $63,314       $3,596     $5,397   $21,097   $ (12,724)  $ 80,680
Comprehensive income
    Net Income                                       $7,543        7,543                                                    7,543
    Other comprehensive income, net of taxes
       Unrealized gains on AFS debt securities          282
       Less: realized gains on disposition
       of securities                                   (206)
    Minimum pension liability adjustment                (19)
                                                     ------
    Other comprehensive income                           57                        57                                          57
                                                     ------
Comprehensive income                                 $7,600
                                                     ======

Dividends on common stock                                         (2,164)                                                  (2,164)
Issued 20,833 shares of common stock in
    connection with Executive Compensation Plan                                                        109         245        354
Exercised 7,141 option shares                                                                          (31)         77         46
Issued 2,949,719 shares of common stock in
    connection with the acquisition of Bridge
    View Bancorp                                                                                    52,180                 52,180
Reacquired 35,959 shares in lieu of
    non-performing asset                                                                                          (693)      (693)
                                                                 -------       ------     ------   -------   ---------   --------
Balance at June 30, 2003                                          68,693        3,653      5,397    73,355     (13,095)   138,003

Comprehensive income
    Net Income                                       $8,823        8,823                                                    8,823
    Other comprehensive income, net of taxes
       Unrealized  gains on AFS debt securities        (756)
       Less: realized gains on disposition of
          securities                                   (614)
       Unrealized  gains on equity securities           137
    Minimum pension liability adjustment                 14
                                                     ------
    Other comprehensive income                       (1,219)                   (1,219)                                     (1,219)
                                                     ------
Comprehensive income                                 $7,604
                                                     ======
Dividends on common stock                                         (2,806)                                                  (2,806)
Exercised 52,554 option shares                                                                        (124)        516        392
                                                                 -------       ------     ------   -------   ---------   --------
Balance at December 31, 2003                                      74,710        2,434      5,397    73,231     (12,579)   143,193

Comprehensive income
    Net Income                                       $8,341        8,341                                                    8,341
    Other comprehensive income, net of taxes
       Unrealized gains on AFS debt securities       (2,624)
       Less: realized gains on disposition of
          securities                                   (652)
                                                     ------
    Other comprehensive income                       (3,276)                   (3,276)                                     (3,276)
                                                     ------
Comprehensive income                                 $5,065
                                                     ======

Dividends on common stock                                         (3,194)                                                  (3,194)
Issued 7,793 shares of common stock in
    connection with Executive Compensation Plan                                                        103         102        205
Exercised 9,332 option shares                                                                          (10)        112        102
Purchased 84,786 shares of common stock                                                                         (2,154)    (2,154)
                                                                 -------       ------     ------   -------   ---------   --------
Balance at June 30, 2004                                         $79,857       $ (842)    $5,397   $73,324   $ (14,519)  $143,217
                                                                 =======       ======     ======   =======   =========   ========
</TABLE>

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


                                      -3-
<PAGE>

Interchange Financial Services Corporation
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
--------------------------------------------------------------------------------
(in thousands)
(unaudited)

<TABLE>
<CAPTION>
                                                                                     2004            2003
                                                                                   --------        --------
<S>                                                                                <C>             <C>
Cash flows from operating activities
Net income                                                                         $ 8,341         $  7,543
Adjustments to reconcile net income to net cash provided by operating activities
     Depreciation and amortization                                                     976              801
     Amortization of securities premiums                                             2,973            1,649
     Accretion of securities discounts                                                (122)            (166)
     Amortization of loan premiums                                                      23                -
     Amortization of premiums in connection with acquisition                           656              250
     Provision for loan and lease losses                                               675              795
     Increase in cash surrender value of Bank Owned Life Insurance                    (487)            (268)
     Origination of loans held for sale                                             (1,437)          (7,549)
     Sale of loans held for sale                                                     1,532            7,775
     Net gain on sale of securities available for sale                                (819)            (475)
     Net gain on sale of loans and leases                                             (130)            (345)
     Net gain on sale of fixed assets                                                    -               10
     Net gain on the sale of repossessed assets                                        (14)              (7)
     Other than temporary impairment of securities                                       -              415
Decrease (increase) in operating assets
     Accrued interest receivable                                                       864             (554)
     Other                                                                          (1,115)          (5,309)
(Decrease) increase in operating liabilities
     Accrued interest payable                                                          (74)            (319)
     Other                                                                           1,092            1,962
                                                                                   -------         --------
Cash provided by operating activities                                               12,934            6,208
                                                                                   -------         --------
Cash flows from investing activities
(Payments for) proceeds from
     Purchase of loans                                                             (36,449)             (53)
     Net repayments (originations) of loans                                        (51,898)          (6,343)
     Sale of loans                                                                     744            1,520
     Purchase of securities available for sale                                     (38,840)        (134,890)
     Maturities of securities available for sale                                    46,525           64,603
     Sale of securities available for sale                                          58,235           13,029
     Purchase of securities held to maturity                                        (6,820)               -
     Maturities of securities held to maturity                                       5,205            3,342
     Purchase of fixed assets                                                         (546)            (560)
     Sale of reposessed assets                                                          77              100
     Net cash proceeds from acquisition of Bridge View Bancorp                           -           20,191
                                                                                   -------         --------
Cash used in investing activities                                                  (23,767)         (39,061)
                                                                                   -------         --------
Cash flows from financing activities
Proceeds from (payments for)
     Deposits in excess of withdrawals                                              30,052           62,272
     Decrease in short term debt                                                   (33,264)          (5,969)
     Increase in long term debt                                                     20,000                -
     Minimum pension liability, net of taxes                                             -              (19)
     Dividends                                                                      (3,194)          (2,164)
     Treasury stock                                                                 (2,154)               -
     Common stock issued                                                               205              354
     Exercise of option shares                                                         102               46
                                                                                   -------         --------
Cash provided by financing activities                                               11,747           54,520
                                                                                   -------         --------
Increase in cash and cash equivalents                                                  914           21,667
Cash and cash equivalents, beginning of year                                        31,435           33,916
                                                                                   -------         --------
Cash and cash equivalents, end of period                                           $32,349         $ 55,583
                                                                                   =======         ========
Supplemental disclosure of cash flow information:
Cash paid for:
     Interest                                                                      $ 6,275         $  7,101
     Income taxes                                                                    4,100            4,365

Supplemental disclosure of non-cash investing activities:
     Loans transferred to foreclosed real estate and other
       repossessed assets                                                               34               89
     Stock issued related to Bridge View acquisition                                     -           52,180
</TABLE>

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


                                      -4-
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE THREE AND SIX-MONTH PERIODS ENDED JUNE 30, 2004
                                   (Unaudited)

1.    Basis of Presentation

      The accompanying  unaudited condensed  consolidated  financial  statements
include the  accounts of  Interchange  Financial  Services  Corporation  and its
wholly owned subsidiaries (on a consolidated basis, the "Company") including its
principal  operating  subsidiary,  Interchange Bank (the "Bank"),  and have been
prepared in conformity  with  accounting  principles  generally  accepted in the
United  States  of  America  ("GAAP")  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  GAAP  have  been  condensed  or  omitted.   These   condensed
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, 2003.

      The consolidated  financial data for the three and six month periods ended
June 30, 2004 and 2003, 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.

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

Stock Based Compensation:  The Company accounts for stock option plans under the
recognition and measurement  principles of Accounting  Principles  Board ("APB")
Opinion  No.  25.  "Accounting  for Stock  Issued  to  Employees,"  and  related
interpretations. No stock-based employee compensation costs are reflected in net
income,  as all options granted under those plans had an exercise price equal to
the  market  value of the  underlying  common  stock on the date of  grant.  The
following table  illustrates  the effect on net income and diluted  earnings per
common share if the Company had applied the fair value recognition provisions of
Financial  Accounting  Standards Board ("FASB")  Statement No. 123, " Accounting
for Stock-


                                      -5-
<PAGE>

Based  Compensation,"  to stock-based  compensation for the three and six months
ended June 30, 2004 and 2003: (in thousands, except share data) (unaudited)


<TABLE>
<CAPTION>
                                              --------------------------    ------------------------
                                              For the three months ended    For the six months ended
                                                       June 30,                      June 30,
                                                   2004      2003                 2004     2003
                                                  ------    ------               ------   ------
<S>                                               <C>       <C>                  <C>      <C>
Net Income
      As reported                                 $4,355    $4,187               $8,341   $7,543
      Less: Total stock-based
      compensation expense determined
      under the fair value method for all
      rewards, net of related tax effects            147        90                  273      173
                                                  ------    ------               ------   ------
      Pro-forma                                   $4,208    $4,097               $8,068   $7,370
                                                  ======    ======               ======   ======

Earnings per share:
Basic:
      As reported                                   0.34      0.35                 0.65     0.70
      Pro forma                                     0.33      0.35                 0.63     0.68
Diluted:
      As reported                                   0.34      0.35                 0.64     0.69
      Pro forma                                     0.32      0.34                 0.62     0.67
</TABLE>

      The fair  value of each  option  grant is  estimated  on the date of grant
using the  Black-Scholes  option-pricing  model. The following  weighted-average
assumptions  were used for option  grants  issued  during the three months ended
June 30,  2004 and March 31,  2004,  respectively:  dividend  yield of 2.09% and
2.22%;  expected  volatility  of 24.00% and 24.92%;  risk-free  interest rate of
3.83% and 3.34%;  and expected lives of 7 years.  Prior period  assumptions  are
described  in  Note  13  "Stock  Option  and  Incentive  Plan  in the  Notes  to
Consolidated  Financial  Statements" in the Company's 2003 Annual Report on Form
10-K. The effects of applying these assumptions in determining the pro-forma net
income may not be  representative  of the  effects on  pro-forma  net income for
future years.

2.    Acquisition and Pro Forma Disclosure

      On April 30, 2003 the Company  completed  its  acquisition  of 100% of the
common stock of Bridge View Bancorp ("Bridge View"), a Bergen  County-based bank
holding  company with eleven  locations,  which expanded the Company's  presence
into eastern Bergen County.  The results of Bridge View's  operations  have been
included in the consolidated  financial statements since that date. At April 30,
2003, Bridge View had approximately  $291 million of total assets,  $184 million
of loans and $259  million of deposits.  The  aggregate  purchase  price paid to
Bridge View  shareholders  was  approximately  $85.7  million and  consisted  of
approximately  2.9  million  shares  of  the  Company's  common  stock  with  an
approximate market value of $52.2 million,  based upon the average closing price
over the periods three days prior to and after the  acquisition  date, and $33.5
million in cash. The transaction was accounted for as a purchase and the cost


                                      -6-
<PAGE>

in excess of net assets acquired of approximately $58.7 million was allocated to
net  identified  intangibles  of  approximately  $4.3  million  and  goodwill of
approximately $54.4 million.

      The following pro forma  condensed  consolidated  statements of income for
the three and six months ended June 30, 2003 give effect to the merger as if the
merger had been consummated on January 1, 2003.

      The unaudited pro forma  information is not necessarily  indicative of the
results of  operations in the future or the results of  operations,  which would
have been realized had the merger been  consummated  during the periods or as of
the dates for which the unaudited pro forma information is presented.

           Interchange Financial Services Corporation and Subsidiaries
                   PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands, except per share data)
                                   (unaudited)

                                       Three Months Ended      Six Months Ended
                                            June 30,               June 30,
                                      ---------------------  -------------------
                                         2004       2003       2004       2003
                                                 Pro Forma             Pro Forma

Interest income                       $ 15,998    $ 16,243   $ 31,669   $ 32,912
Interest expense                         3,062       3,726      6,199      7,743
                                      --------    --------   --------   --------
      Net interest income               12,936      12,517     25,470     25,169
                                      --------    --------   --------   --------
Provision for loan and lease losses        300         530        675        810
                                      --------    --------   --------   --------
Net interest income after provision
for loan and lease losses               12,636      11,987     24,795     24,359

Non-interest income                      2,692       2,877      5,207      5,272

Non-interest expense
   Salaries and benefits                 4,664       4,619      9,512      9,315
   Occupancy and FF&E                    1,613       1,618      3,312      3,246
   Other expenses                        2,521       2,353      4,891      4,773
                                      --------    --------   --------   --------
                                         8,798       8,590     17,715     17,334

     Net income before taxes             6,530       6,274     12,287     12,297

Income Taxes                             2,175       1,936      3,946      3,931
                                      --------    --------   --------   --------
     Net income                       $  4,355    $  4,338   $  8,341   $  8,366
                                      ========    ========   ========   ========

Earnings per common share:
     Basic                            $   0.34    $   0.34   $   0.65   $   0.66
                                      ========    ========   ========   ========
     Diluted                          $   0.34    $   0.33   $   0.64   $   0.65
                                      ========    ========   ========   ========

See Accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial
Statements.

3.    Earnings Per Common Share

      Basic  earnings  per common  share  represent  income  available to common
stockholders divided by the weighted-average number of common shares outstanding
during the period.  Diluted earnings per common share reflect  additional common
shares that would have been outstanding if dilutive  potential


                                      -7-
<PAGE>

common  shares had been issued,  as well as any  adjustment to income that would
result from the assumed issuance.  Potential common shares that may be issued by
the Company relate solely to outstanding stock options, and are determined using
the treasury stock method.

4.    Commitments and Contingent Liabilities

Legal Proceedings

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

Commitments to Extend Credit

      At June 30, 2004,  the Company had  commitments  of  approximately  $277.4
million to extend credit, of which approximately $1.9 million represents standby
letters of credit.

5.    Goodwill and Other Intangibles

      With the adoption of Statement of Financial  Accounting Standards ("SFAS")
No. 142,  "Goodwill and Other  Intangible  Assets"  ("SFAS 142"),  on January 1,
2002,  goodwill  is no longer  amortized  to  expense,  but rather is tested for
impairment periodically.  Other intangible assets are amortized to expense using
straight-line  methods over their  respective  estimated  useful lives. At least
annually,  management reviews goodwill and other intangible assets and evaluates
events or changes in circumstances that may indicate  impairment in the carrying
amount of such  assets.  If the sum of the  expected  undiscounted  future  cash
flows,  excluding  interest  charges,  is less than the  carrying  amount of the
asset,  an impairment loss is recognized.  Impairment,  if any, is measured on a
discounted future cash flow basis.  Goodwill is reviewed for impairment annually
and on an interim  basis when  conditions  require.  If necessary an  impairment
charge is recognized in the period that goodwill has been deemed to be impaired.
At the date of adoption, there was no unamortized goodwill.

      At June 30, 2004 and December 31, 2003, gross  intangible  assets amounted
to $4.6  million  at the  end of  each  period  while  accumulated  amortization
amounted to $556  thousand  and $430  thousand,  respectively.  Amortization  of
intangible assets as a result of acquisitions, which is included in non-interest
expense,  amounted to $126 thousand, and $90 thousand for the three months ended
June 30, 2004 and 2003,  respectively.  During the second  quarter of 2003,  the
Company  recorded a core deposit  intangible of $4.3 million in connection  with
the Bridge View merger.  The core deposit intangible has an estimated life of 10
years and the Company  amortized  $107  thousand for the three months ended June
30,  2004.  The  core  deposit  intangible  will be  periodically  reviewed  for
impairment.  In  addition,  the Company  recorded  goodwill of $54.4  million in
connection  with the  Bridge  View  merger.  The  goodwill  will be  tested  for
impairment at least annually in accordance with the provisions of SFAS No. 142.


                                      -8-
<PAGE>

      At June 30, 2004 the scheduled amortization of the core deposit intangible
is as follows (in thousands):

2005                                     $   430
2006                                         430
2007                                         430
2008                                         430
2009 and thereafter                        1,859
                                         -------
                                         $ 3,579
                                         =======

6.    Segment Reporting

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

7.    Recent Accounting Pronouncements

      On December 23, 2003,  the FASB issued  Statement of Financial  Accounting
Standards No. 132 (revised  2003),  Employers'  Disclosures  about  Pensions and
Other  Postretirement  Benefits  ("SFAS 132").  The revised SFAS 132 retains the
disclosure  requirements  in the  original  statement  and  requires  additional
disclosures about pension plan assets,  benefit  obligations,  benefit costs and
other relevant information. The Company has included the new interim disclosures
that are required for financial statements for periods ending after December 15,
2003.

      In March 2004, the Emerging Issues Task Force (EITF) of the FASB reached a
consensus on EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments. EITF Issue 03-1 is effective for all
annual or interim  financial  statements  for periods  beginning  after June 15,
2004.  EITF Issue 03-1 addresses the  identification  of other than  temporarily
impaired  investments,  and requires that an impairment charge be recognized for
other than  temporarily  impaired  investments  for which  there is neither  the
ability nor intent to hold either  until  maturity or until the market  value of
the  investment  recovers.  Management is evaluating  what effect,  if any, EITF
Issue No. 03-1 will have on the Company's consolidated financial statements.

8.    Cash Dividend

      The  Company  paid a cash  dividend of $0.125 per share on May 21, 2004 to
holders of record as of May 3, 2004.


                                      -9-
<PAGE>

9.    Securities Held-to-Maturity and Securities Available-for-Sale

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


<TABLE>
<CAPTION>
                                                        -------------------------------------------------
                                                                          June 30, 2004
                                                        -------------------------------------------------
                                                                           (unaudited)
                                                                       Gross         Gross      Estimated
                                                        Amortized    Unrealized    Unrealized     Fair
                                                           Cost         Gains        Losses       Value
                                                        ----------   ----------    ----------   ---------
<S>                                                      <C>           <C>           <C>        <C>
Securities HTM
   Mortgage-backed securities                            $   7,643     $   234       $     -    $   7,877
   Obligations of U.S. agencies                              3,000           -             -        3,000
   Obligations of states & political subdivisions            9,926         512             -       10,438
                                                         ---------     -------       -------    ---------
                                                         $  20,569     $   746       $     -    $  21,315
                                                         ---------     -------       -------    ---------
Securities AFS
   Mortgage-backed securities                            $ 104,222     $ 1,070       $   576    $ 104,716
   Obligations of U.S. agencies                            221,304         777         2,964      219,117
   Obligations of states & political subdivisions           30,638         581           372       30,847
   Equity securities                                         4,587          96             -        4,683
                                                         ---------     -------       -------    ---------
                                                           360,751       2,524         3,912      359,363
                                                         ---------     -------       -------    ---------
     Total securities                                    $ 381,320     $ 3,270       $ 3,912    $ 380,678
                                                         =========     =======       =======    =========
</TABLE>

<TABLE>
<CAPTION>
                                                        -------------------------------------------------
                                                                        December 31, 2003
                                                        -------------------------------------------------
                                                                       Gross         Gross      Estimated
                                                        Amortized    Unrealized    Unrealized     Fair
                                                           Cost        Gains         Losses       Value
                                                        ----------   ----------    ----------   ---------
<S>                                                      <C>           <C>           <C>        <C>
Securities HTM
   Mortgage-backed securities                            $   9,850     $   330       $     1    $  10,179
   Obligations of states & political subdivisions            9,257         787             -       10,044
                                                         ---------     -------       -------    ---------
                                                         $  19,107     $ 1,117       $     1    $  20,223
                                                         ---------     -------       -------    ---------
Securities AFS
   Obligations of U.S. Treasury                          $   6,032     $     5       $     2    $   6,035
   Mortgage-backed securities                              112,981       1,363           157      114,187
   Obligations of U.S. agencies                            271,339       2,583           762      273,160
   Obligations of states & political subdivisions           33,849       1,257            68       35,038
   Equity securities                                         4,396         137             -        4,533
                                                         ---------     -------       -------    ---------
                                                           428,597       5,345           989      432,953
                                                         ---------     -------       -------    ---------
     Total securities                                    $ 447,704     $ 6,462       $   990    $ 453,176
                                                         =========     =======       =======    =========
</TABLE>


      At June  30,  2004,  the  contractual  maturities  of  securities  HTM and
securities AFS are as follows: (in thousands) (unaudited)


                                      -10-
<PAGE>

                                        Securities              Securities
                                           HTM                     AFS
                                  ----------------------   --------------------
                                               Estimated              Estimated
                                  Amortized       Fair     Amortized     Fair
                                    Cost         Value        Cost      Value
                                  ----------------------   --------------------
Within 1 year                     $ 4,307       $ 4,339    $ 29,825   $ 29,621
After 1 but within 5 years          9,679        10,005     290,761    289,510
After 5 but within 10 years         5,505         5,831      22,208     22,320
After 10 years                      1,078         1,140      13,370     13,230
Equity securities                       -             -       4,587      4,682
                                  ---------------------    -------------------
                            Total $20,569       $21,315    $360,751   $359,363
                                  =====================    ===================

      Proceeds  from the sale of  securities  AFS amounted to $58.2  million and
$13.0 million for the six months ended June 30, 2004 and 2003, which resulted in
gross  realized  gains of $913  thousand and $478  thousand  for those  periods,
respectively.  Gross realized losses from the sale of securities AFS amounted to
$94  thousand  and $44 thousand for the six months ended June 30, 2004 and 2003,
respectively.  These  amounts are included in net gain on sale of  securities in
the Consolidated Statements of Income.

      During the first half of 2003, the Company realized gross losses resulting
from an acceleration of premium amortization on certain collateralized  mortgage
obligations of $415  thousand.  The  acceleration  of premium  amortization  was
largely driven by the historically  high mortgage  prepayment  speeds due to the
low interest rate environment.

      The investment  portfolio is evaluated at least  quarterly to determine if
there are any securities with losses that are other than temporary. One criteria
in assessing for an other than temporary  impairment charge is if a security has
an  unrealized  loss that exceeds one year.  At June 30,  2004,  the Company had
$12.9 million of securities with unrealized losses of $269 thousand that were in
excess of one year. It is expected that the Company will recover all amounts due
under the contractual obligations of those securities and as such, no other than
temporary  impairment  charge  was  necessary.  The  Company  did not  have  any
unrealized  losses in its' HTM  portfolio.  The following  table  summarizes all
securities  that have an unrealized loss and the duration of the unrealized loss
at June 30, 2004: (in thousands) (unaudited)

<TABLE>
<CAPTION>
                                                     12 months or less       12 months or longer            Totals
                                                  ----------------------    ---------------------     -------------------
                                                    Fair      Unrealized     Fair      Unrealized      Fair    Unrealized
                                                    Value       Losses      Value        Losses       Value      Losses
                                                  ----------------------    ---------------------     -------------------
<S>                                                <C>            <C>        <C>           <C>        <C>          <C>
Securities AFS
Mortgage-backed securities                        $ 52,761      $  544      $ 3,216       $ 32       $ 55,977    $  576
Obligations of U.S. agencies                       187,518       2,755        9,292        209        196,810     2,964
Obligations of states & political subdivisions      10,504         344          441         28         10,945       372
                                                  --------------------      ------------------       ------------------
                                                  $250,783      $3,643      $12,949       $269       $263,732    $3,912
                                                  ====================      ==================       ==================
</TABLE>

      Securities  with  carrying  amounts of $46.6  million and $46.1 million at
June 30, 2004 and  December  31,  2003,  respectively,  were  pledged for public
deposits,  Federal Home Loan Bank  advances,  securities  sold under  repurchase
agreements and other purposes required by law.


                                      -11-
<PAGE>

10.   Loans

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

                                                      June 30,     December 31,
                                                        2004           2003
                                                     -----------   ------------
                                                     (unaudited)
Amount of loans by type
    Real estate-mortgage
       1-4 family residential
          First liens                                 $141,948       $100,286
          Junior liens                                   3,191          4,138
          Home equity                                  146,313        136,477
       Commercial                                      353,878        330,040
       Construction                                     29,557         31,077
                                                      --------       --------
                                                       674,887        602,018
                                                      --------       --------
    Commercial loans
       Commercial and financial                        174,498        149,462
       Lease financing                                  24,315         28,440
                                                      --------       --------
                                                       198,813        177,902
                                                      --------       --------
    Consumer loans
       Lease financing                                   4,624         12,416
       Installment                                       4,942          4,245
                                                      --------       --------
                                                         9,566         16,661
                                                      --------       --------
                      Total                           $883,266       $796,581
                                                      ========       ========

Nonperforming Assets

      Nonperforming  loans  include loans that are accounted for on a nonaccrual
basis and troubled debt restructurings.  Nonperforming loans are as follows: (in
thousands)


                                                      June 30,     December 31,
                                                        2004           2003
                                                     --------------------------
                                                     (unaudited)
Nonaccrual loans
     Residential real estate                           $1,469            $1,364
     Commercial real estate                               747             1,603
     Commercial and financial                           2,176             2,858
     Commercial lease financing                         1,760             2,365
     Consumer                                             421               380
                                                       ------------------------
                                                       $6,573            $8,570
                                                       ========================


                                      -12-
<PAGE>

11.   Allowance for Loan and Lease Losses

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


                                   ----------------------  ---------------------
                                          June 30,               December 31,
                                            2004                    2003
                                   ----------------------  ---------------------
                                       (unaudited)
                                   Investment    Related   Investment   Related
                                       in       Allowance      in      Allowance
                                    Impaired     for Loan   Impaired   for Loan
                                     Loans        Losses     Loans      Losses
                                   ----------   ---------  ---------   ---------
Impaired loans
   With a related allowance for
      loan losses
      Commercial and financial       $1,963        $381       $2,864     $463
      Commercial real estate            747          19        1,603       40
      Residential mortgages             821         123          816      122
      Consumer                          201           5            -        -
   Without a related allowance for
      loan losses                         -           -            -        -
                                     ------        ----       ------     ----
                                     $3,732        $528       $5,283     $625
                                     ======        ====       ======     ====

--------------------------------------------------------------------------------
The  impairment  of the above  loans was  estimated  based on the fair  value of
collateral.

Changes in the  allowance  for loan and lease losses are  summarized as follows:
(in thousands)

                                         ------------------   ----------------
                                         Three months ended   Six months ended
                                                June 30,          June 30,
                                         ------------------   ----------------
                                           2004       2003     2004      2003
                                          ------     ------   ------    ------
                                             (unaudited)        (unaudited)
Balance at beginning of period            $9,635     $7,226   $9,641    $7,207
Additions (deductions)
     Provision for loan and lease
       losses                                300        530      675       795
     Recoveries on loans previously
       charged off                            24          4       60         5
     Loans charged off                      (171)      (152)    (588)     (399)
     Additions due to merger                   -      1,929        -     1,929
                                          ------     ------   ------    ------
Balance at end of year                    $9,788     $9,537   $9,788    $9,537
                                          ======     ======   ======    ======

12.  Other Non-interest Expense

    Expenses included in other non-interest expense that exceed one percent of
the aggregate of total interest income and non-interest income for the periods
noted, are as follows: (in thousands) (unaudited)

                                       ----------------   ---------------
                                         Three months       Six months
                                        ended June 30,    ended June 30,
                                       ----------------   ---------------
                                        2004      2003     2004     2003
                                       ------    ------   ------   ------
 Professional fees                     $  361    $  329   $  677   $  533
 Data processing                          283       308      564      523
 Directors's fees, retirement
   and travel                             194       181      410      309
 Legal fees                               240        98      450      178
 All other                                797       589    1,579    1,313
                                       ------    ------   ------   ------
                                       $1,875    $1,505   $3,680   $2,856
                                       ======    ======   ======   ======


                                      -13-
<PAGE>

13. Long-term Borrowings

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


   Maturity                            June 30,    December 31,
     Date                      Rate      2004          2003
----------------               ----    --------    ------------
                                      (unaudited)
January 2006                   2.09%    $10,000             -

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

January 2007                   2.69      10,000             -
                               ----     -------       -------
                               3.00%    $30,000       $10,000
                               ====     =======       =======

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


14.  Benefit Plans
               In 1993, the Bank established a non-contributory defined benefit
     pension plan covering all eligible employees (the "Pension Plan"). In 1994,
     the Bank established a supplemental plan covering all eligible employees
     (the "Supplemental Plan") that provides for income that would have been
     paid out but for the limitation under the qualified Pension Plan. Also in
     1994, the Company established a retirement plan for all directors of the
     Bank who are not employees of Interchange or of any subsidiary or affiliate
     of Interchange (the "Directors' Plan").
               The following table shows the aggregated components of net
     periodic benefit costs for the periods noted: (in thousands) (unaudited)



                                        ------------------   -----------------
                                        Three Months Ended   Six Months Ended
                                             June 30,             June 30,
                                        ------------------   -----------------
                                          2004      2003      2004       2003
                                        -------   --------   ------     ------
Service cost                             $166      $151       $333       $302
Interest cost                              95        79        190        158
Expected return on plan assets            (39)      (31)       (79)       (62)
Amortization of prior service cost          1         1          2          2
                                         ----      ----       ----       ----
Net periodic benefit cost                $223      $200       $446       $400
                                         ====      ====       ====       ====

      For the year ended  December 31, 2004, the Bank  anticipates  contributing
approximately $775 thousand to the Pension Plan.


                                      -14-
<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, 2004 and 2003, and should be read in conjunction with the
consolidated  financial  statements and notes thereto included in Item 1 hereof.
In  addition,  you should read this  section in  conjunction  with  Management's
Discussion and Analysis and Results of Operations included in the Company's 2003
Annual Report on Form 10-K.

      On April 30, 2003,  the Company  completed its  acquisition of Bridge View
Bancorp ("Bridge View"). Accordingly the results of operations for the three and
six month periods ending June 30, 2004 include the results of Bridge View.

Forward Looking Information

      In addition  to  discussing  historical  information,  certain  statements
included  in  or  incorporated  into  this  report  relating  to  the  financial
condition,  results of  operations  and  business of the  Company  which are not
historical facts may be deemed  "forward-looking  statements" within the meaning
of the Private  Securities  Litigation Reform Act of 1995. When used herein, the
words "anticipate,"  "believe,"  "estimate,"  "expect," "will" and other similar
expressions  (including  when  preceded  or  followed  by the  word  "not")  are
generally intended to identify such forward-looking  statements. Such statements
are  intended to be covered by the safe harbor  provisions  for  forward-looking
statements  contained  in such Act,  and we are  including  this  statement  for
purposes  of  invoking  these  safe  harbor  provisions.   Such  forward-looking
statements  include,  but are not limited to, statements about the operations of
the Company,  the adequacy of the Company's allowance for losses associated with
the loan and lease portfolio,  the quality of the loan and lease portfolio,  the
prospects of continued loan and deposit growth, and improved credit quality. The
forward-looking   statements  in  this  report  involve  certain   estimates  or
assumptions, known and unknown risks and uncertainties, many of which are beyond
the control of the Company, and reflect what we currently anticipate will happen
in each  case.  What  actually  happens  could  differ  materially  from what we
currently anticipate will happen due to a variety of factors,  including,  among
others, (i) increased  competitive pressures among financial services companies;
(ii) changes in the interest  rate  environment,  reducing  interest  margins or
increasing   interest  rate  risk;  (iii)   deterioration  in  general  economic
conditions, internationally, nationally, or in the State of New Jersey; (iv) the
occurrence  of acts of  terrorism,  such as the events of September 11, 2001, or
acts of war; (v)  legislation or regulatory  requirements  or changes  adversely
affecting the business of the Company;  (vi) expected revenue synergies from the
Company's  acquisition  of Bridge  View may not be fully  realized  or  realized
within  the  expected  time  frame;   (vii)  revenues  following  the  Company's
acquisition of Bridge View may be lower than expected; (viii) deposit attrition,
operating costs,  customer loss and business disruption  following the Company's
acquisition  of Bridge View,  including,  without  limitation,  difficulties  in
maintaining  relationships


                                      -15-
<PAGE>

with  employees,  may be greater than expected and (ix) other risks  detailed in
reports  filed by the  Company  with the  Securities  and  Exchange  Commission.
Readers should not place undue expectations on any  forward-looking  statements.
We  are  not  promising  to  make  any  public  announcement  when  we  consider
forward-looking statements in this document to be no longer accurate, whether as
a result of new  information,  what  actually  happens  in the future or for any
other reason.

Company

      The Company is a bank holding company  headquartered in Bergen County, New
Jersey. The Company's principal operating  subsidiary is Interchange Bank, a New
Jersey-chartered  commercial  bank. In addition to the Bank, the Company has one
other wholly owned direct subsidiary: Clover Leaf Mortgage Company, a New Jersey
corporation,  which is not currently engaged in any business activity.  The Bank
has five direct subsidiaries:  Clover Leaf Investment Corporation, an investment
company  operating  pursuant to New Jersey law;  Clover Leaf  Insurance  Agency,
Inc., a New Jersey corporation engaged in the sale of tax-deferred annuities and
insurance;  Clover Leaf Management Realty Corporation,  a Real Estate Investment
Trust ("REIT"),  which manages certain real estate assets of the Company; Bridge
View Investment  Company, an investment company operating pursuant to New Jersey
law; and  Interchange  Capital  Company,  L.L.C.  ("ICC"),  a New Jersey limited
liability company which engages in equipment lease financing.  All of the Bank's
subsidiaries are 100% owned by the Bank, except for the REIT, which is 99% owned
by the Bank.  Bridge View  Investment  Company has one wholly owned  subsidiary,
Bridge View Delaware,  Inc.  ("BVDI").  BVDI is an investment  company operating
pursuant to Delaware law.

Critical Accounting Policies and Judgments

      The Company's  consolidated financial statements are prepared based on the
application of certain  accounting  policies,  the most significant of which are
described in Note 1 "Accounting Policies in the Notes to Consolidated  Financial
Statements  and  in  the  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations: Critical Accounting Policies and Judgments"
in our 2003  Annual  Report on Form  10-K.  Certain  of these  policies  require
numerous  estimates  and  strategic  or  economic  assumptions  that  may  prove
inaccurate or subject to variations and may  significantly  affect the Company's
reported results and financial position for the period or in future periods. The
use of estimates, assumptions, and judgments are necessary when financial assets
and  liabilities  are required to be recorded  at, or adjusted to reflect,  fair
value.  Assets and liabilities  carried at fair value inherently  result in more
financial statement  volatility.  Fair values and the information used to record
valuation  adjustments  for certain assets and  liabilities  are based on either
quoted market prices or are provided by other independent  third-party  sources,
when available.  When such  information is not available,  management  estimates
valuation  adjustments primarily by using internal cash flow and other financial
modeling techniques. Changes in underlying factors, assumptions, or estimates in
any of  these  areas  could  have a  material  impact  on the  Company's  future
financial condition and results of operations.


                                      -16-
<PAGE>

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

      The Company considers the ALLL of $9.8 million adequate to cover estimated
losses  inherent in the loan  portfolio that may become  uncollectible  based on
management's  periodic  evaluations  of the loan  portfolio  and other  relevant
factors.  The  evaluations  are  inherently  subjective as it requires  material
estimates including such factors as potential loss factors,  changes in trend of
non-performing  loans,  current  state of local and national  economy,  value of
collateral  changes in the composition and volume of the loan portfolio,  review
of specific problem loans and  management's  assessment of the inherent risk and
overall quality of the loan  portfolio.  All of these factors may be susceptible
to significant  change.  Also, the allocation of the allowance for credit losses
to  specific  loan pools is based on  historical  loss  trends and  management's
judgment concerning those trends.

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

Goodwill:  With the  adoption of SFAS No. 142,  "Goodwill  and Other  Intangible
Assets"  ("SFAS 142"),  on January 1, 2002,  goodwill is no longer  amortized to
expense,  but rather is tested for  impairment  periodically.  Other  intangible
assets  are  amortized  to  expense  using  straight-line   methods  over  their
respective  estimated  useful  lives.  At  least  annually,  management  reviews
goodwill  and  other  intangible  assets  and  evaluates  events or  changes  in
circumstances  that may  indicate  impairment  in the  carrying  amount  of such
assets.  If the sum of the expected  undiscounted  future cash flows,  excluding
interest  charges,  is less than the carrying amount of the asset, an impairment
loss is recognized.  Impairment, if any, is measured on a discounted future cash
flow basis. Goodwill is reviewed for impairment annually and on an interim basis
when conditions require. If necessary, an impairment charge is recognized in the
period that  goodwill has been deemed to be  impaired.  At the date of adoption,
there was no unamortized goodwill.


                                      -17-
<PAGE>

                    THREE MONTHS ENDED JUNE 30, 2004 AND 2003
                              RESULTS OF OPERATIONS

Summary

      Net income for the three months ended June 30, 2004 was approximately $4.4
million, an increase of $168 thousand,  or 4.0%, over the same period last year.
The  increase in earnings  resulted  from an  increase in our  interest  earning
assets  during the quarter of  approximately  $179.4  million,  which was partly
offset by an 18 basis point decline in our net interest margin.  The increase in
interest earning assets was partly  attributed to the acquisition of Bridge View
during the second  quarter of 2003.  For the second quarter of 2004, the Company
reported  earnings per diluted  common share of $0.34,  as compared to $0.35 for
the same period in 2003. The decline in diluted  earnings per share was a result
of a compression in the net interest margin as compared to the second quarter in
2003 and an increase in average  diluted  shares  outstanding as a result of the
Bridge View transaction.

      For the three months ended June 30, 2004 and 2003, the Company's Return on
Average Assets ("ROA") was 1.25% and 1.40%, respectively.  The change in ROA for
the quarter was a result of a decline in net interest margin.  Return on Average
Equity ("ROE") was 12.08% a decline from 14.03% when compared to the same period
last year. ROE declined  principally due to an increase in equity as a result of
the  acquisition  of Bridge View and,  to a lesser  extent,  compression  in net
interest margin.

Net Interest Income

      Net  interest  income  is the most  significant  source  of the  Company's
operating  income.  A portion of the Company's  total interest income is derived
from  investments  that are exempt from federal  taxation.  The amount of pretax
income realized from those investments,  due to the tax exemption,  is less than
the amount of pretax income  realizable from comparable  investments  subject to
federal  taxation.  For purposes of the following  discussion,  interest  income
exempt from federal taxation has been restated to a fully  tax-equivalent  basis
using the corporate  federal tax rate of 34% for the quarter ended June 30, 2004
and 2003.  This was  accomplished  by  adjusting  this income  upward to make it
equivalent to the level of taxable income required to earn the same amount after
taxes.

      Net interest income on a tax-equivalent  basis increased $1.4 million,  or
11.8%,  to $13.1  million for the quarter ended June 30, 2004 as compared to the
same quarter in 2003.  The tax  equivalent  basis  adjustments  for the quarters
ended June 30, 2004 and 2003 were $162 thousand and $112 thousand, respectively.
The increase in net interest income was due mostly to a 16.8% growth in interest
earning  assets.  This  interest  earning  asset growth was funded  primarily by
deposit liabilities,  which grew 14.1% on average for the second quarter of 2004
as compared to the same quarter in 2003.  The growth in interest  earning assets
and deposits were  attributed to the Company's  internal  growth and to a lesser
extent,  the Bridge View acquisition.  The margin for the second quarter of 2004
was 4.20%,  a decline of


                                      -18-
<PAGE>

18 basis  points as  compared to the same  quarter in 2003 due to earning  asset
yields  declining  faster than the Company's cost of funds. The decline in asset
yields was mainly  attributable  to maturities  and  prepayments in the loan and
securities  portfolio,  while the Company's  deposit pricing reached  historical
lows and appears to have become inelastic.  During the quarter,  the Company did
experience  expansion  in its net  interest  margin  as a  shift  in  asset  mix
benefited the overall net interest  margin.

      Interest income, on a tax-equivalent  basis, totaled $16.2 million for the
second  quarter of 2004, an increase of $846  thousand,  or 5.5%, as compared to
the same  quarter  in 2003.  The  increase  was  mostly  attributed  to a $179.4
million,  or 16.8%,  growth in interest  earning assets.  The growth in interest
earning  assets  was the  result of  increases  in  average  loans  and  average
investments of $113.2 million and $98.4 million,  respectively.  The increase in
interest  income  was partly  offset by a 55 basis  point  decline  in  interest
earning  asset  yields for the second  quarter of 2004 as  compared  to the same
quarter in 2003.

      Interest  expense,  which  totaled $3.1 million for the second  quarter of
2004, decreased $540 thousand, or 15.0%, as compared to the same period in 2003.
The  decrease  in  interest  expense  was a  byproduct  of the decline in market
interest  rates,  particularly  short-term  rates,  during 2003. In addition,  a
beneficial  shift  in  the  composition  of the  Company's  deposits,  which  is
discussed further in the analysis of financial  condition,  also had a favorable
impact on the Company's interest expense. The improved deposit mix combined with
lower  short-term  interest  rates  reduced  the  average  rate paid on interest
bearing  liabilities  by 42 basis points to 1.22% for the quarter ended June 30,
2004 as  compared  to the same  period in 2003.  The  magnitude  of the  benefit
derived  from the  decrease in rates paid on interest  bearing  liabilities  was
partially reduced by the positive growth of deposits.  Interest bearing deposits
grew on average  $91.6  million,  or 10.7%,  for the  second  quarter of 2004 as
compared to the same period in 2003.


                                      -19-
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Analysis of Net Interest Income
------------------------------------------------------------------------------------------------------------------------
for the quarter ended June 30,
(dollars in thousands)                                                  2004                            2003
(unaudited)                                              -------------------------------  ------------------------------
                                                           Average               Average    Average              Average
                                                           Balance    Interest    Rate      Balance    Interest   Rate
                                                         -----------  --------   -------  -----------  --------  -------
<S>                                                      <C>           <C>        <C>     <C>          <C>        <C>
                           Assets
Interest earning assets:
Loans (1)                                                $  845,747    $13,160    6.22%   $  732,516   $12,499    6.83%
Taxable securities (4)                                      363,281      2,563    2.82       265,753     2,381    3.58
Tax-exempt securities (2) (4)                                26,930        406    6.03        26,095       304    4.66
Interest earning deposits                                         6          -       -         3,846         9    0.94
Federal funds sold                                           12,848         31    0.97        41,180       121    1.18
                                                         ----------    -------    ----    ----------   -------    ----
     Total interest-earning assets                        1,248,812     16,160    5.18     1,069,390    15,314    5.73
                                                                       -------                         -------
Non-interest earning assets:
Cash and due from banks                                      36,326                           37,642
Allowance for loan and lease losses                          (9,818)                          (8,606)
Other assets                                                118,411                           97,087
                                                         ----------                       ----------
     Total assets                                        $1,393,731                       $1,195,513
                                                         ==========                       ==========
            Liabilities and stockholders' equity
Interest-bearing liabilities
Interest bearing deposits                                $  946,834      2,760    1.17    $  855,189     3,416    1.60
Borrowings                                                   54,862        302    2.20        25,035       186    2.96
                                                         ----------    -------    ----    ----------   -------    ----
     Total interest-bearing liabilities                   1,001,696      3,062    1.22       880,224     3,602    1.64
                                                                       -------                         -------
Non-interest bearing liabilities
Demand deposits                                             232,734                          178,434
Other liabilities                                            15,129                           17,463
                                                         ----------                       ----------
     Total liabilities (3)                                1,249,559                        1,076,121
Stockholders' equity                                        144,172                          119,392
                                                         ----------                       ----------
     Total liabilities and stockholders' equity          $1,393,731                       $1,195,513
                                                         ==========                       ==========
Net interest income (tax-equivalent basis)                              13,098    3.96                  11,712    4.09
Tax-equivalent basis adjustment                                           (162)                           (112)
                                                                       -------                         -------
     Net interest income                                               $12,936                         $11,600
                                                                       =======                         =======
Net interest income as a percent of interest-earning
   assets (tax-equivalent basis)                                                  4.20%                           4.38%
</TABLE>
--------------------------------------------------------------------------------
(1)   Nonaccrual loans and any related  interest  recorded have been included in
      computing the average rate earned on the loan portfolio.  When applicable,
      tax exempt loans are computed on a fully  taxable  equivalent  basis using
      the corporate federal tax rate of 34%.

(2)   Computed on a fully taxable  equivalent basis using the corporate  federal
      tax rate of 34%.

(3)   All deposits are in domestic bank offices.

(4)   The  average  balances  are based on  historical  cost and do not  reflect
      unrealized gains or losses.

Provision for Loan and Lease Losses

      The   provision  for  loan  and  lease  losses   represents   management's
calculation  of the amount  necessary to bring the  allowance for loan and lease
losses  ("ALLL") to a level that  management  considers  adequate to reflect the
risk of estimated  losses  inherent in the  Company's  loan  portfolio as of the
balance sheet date. A more detailed discussion of the evaluation of the ALLL can
be found in the section  titled  "Critical  Accounting  Policies and  Judgments:
Allowance for Loan and Lease Losses"  above.  In the second  quarter of 2004 and
2003,  the  Company's  provision for loan and lease losses was $300 thousand and
$530 thousand, respectively.

Non-interest Income

      For the quarter  ended June 30,  2004,  non-interest  income  totaled $2.7
million, an increase of $48 thousand, or 1.8%, as compared to the same period in
2003. The increase was largely due to growth in "other" non-interest income, net
gains on the sale of securities and  commissions on sale of annuities and mutual
funds of $302 thousand, $286 thousand and $81 thousand, respectively. The growth
in  "other"  non-interest  income  was  largely  attributed  to an  increase  in
commercial loan prepayment  penalties of $171 thousand.  The Company experienced
strong loan growth  during 2004 that was funded by deposit  growth and  security
sales,  which  contributed  to  the  improvement  in  non-interest  income.  The
improvement in non-interest income was partly offset by a decrease in Bank Owned
Life  Insurance


                                      -20-
<PAGE>

("BOLI")  income  and a decline  in net gain on sale of loans and leases of $558
thousand  and  $90  thousand,  respectively.  The  decline  in BOLI  income  was
attributed to a claim on insurance policies in 2003 of $499 thousand,  while the
decrease  in net gain on sale of loans and  leases  was due to lower  demand for
thirty-year residential mortgage loans.

Non-interest Expense

      For the  quarter  ended  June  30,  2004,  non-interest  expense  was $8.8
million, an increase of $1.1 million, or 14.3%, when compared to the same period
one year ago.  The increase was due largely to the  additional  operating  costs
resulting from the merger with Bridge View.  Also  contributing  to the increase
were higher salary and benefits, legal and advertising expenses.

Income Taxes

      Income tax  expense as a  percentage  of pre-tax  income was 33.3% for the
three  months  ended June 30,  2004 as  compared to 30.4% for the same period of
2003.  The increase in  percentage  of income tax expense was in part due to the
effect of a decline in non-taxable BOLI income.


                                      -21-
<PAGE>

                SIX MONTHS ENDED JUNE 30, 2004 AND JUNE 30, 2003
                              RESULTS OF OPERATIONS

Summary

      Net income for the six months ended June 30, 2004 was  approximately  $8.3
million, an increase of $798 thousand, or 10.6%, over the same period last year.
The increase in earnings  resulted from an increase in interest  earning  assets
from organic growth and the acquisition of Bridge View during the second quarter
of 2003.  The  improvement  in  earnings  was partly  offset by a 29 basis point
decline  in the net  interest  margin.  For the  first six  months of 2004,  the
Company  reported  earnings per diluted  common  share of $0.64,  as compared to
$0.69 for the same period in 2003. The decline in diluted earnings per share was
a result of a  compression  in the net  interest  margin as compared to the same
period in 2003 and an increase in average diluted shares outstanding as a result
of the Bridge View transaction.

      For the six months ended June 30, 2004 and 2003,  the Company's  Return on
Average Assets ("ROA") was 1.20% and 1.41%, respectively.  The change in ROA for
the period was a result of a decline in net interest  margin.  Return on Average
Equity ("ROE") was 11.61% a decline from 14.97% when compared to the same period
last year. ROE declined  principally due to an increase in equity as a result of
the  acquisition  of Bridge View and,  to a lesser  extent,  compression  in net
interest margin.

Net Interest Income

      Net interest income on a tax-equivalent  basis increased $4.1 million,  or
19%, to $25.8  million for the six months ended June 30, 2004 as compared to the
same quarter in 2003. The tax equivalent  basis  adjustments  for the six months
ended June 30, 2004 and 2003 were $322 thousand and $220 thousand, respectively.
The increase in net interest income was due mostly to a 27.2% growth in interest
earning  assets.  This  interest  earning  asset growth was funded  primarily by
deposit  liabilities,  which grew 25.7% on average for the six months of 2004 as
compared to the same period in 2003. The increase in interest earning assets and
deposits were  attributed to the Company's  internal  growth and the Bridge View
acquisition.  The  aforementioned  improvement in net interest income was partly
offset by a 29 basis point decline in the net interest margin for the six months
ended June 30, 2004 as compared to the same period in 2003.  The decrease in the
net interest  margin was due to earning asset yields  declining  faster than the
Company's cost of funds. The decline in asset yields was mainly  attributable to
maturities  and  prepayments  in the loan and  securities  portfolio,  while the
Company's  deposit  pricing  reached  historical lows and appears to have become
inelastic.

      Interest income, on a tax-equivalent  basis, totaled $32.0 million for the
six months  ended June 30,  2004,  an increase  of $3.1  million,  or 10.8%,  as
compared to the same period in 2003.  The  increase was mostly  attributed  to a
$265.6  million,  or 27.2%,  growth in interest  earning  assets.  The growth in
interest earning assets was the result of increases in average loans and average
investments of $152.3 million


                                      -22-
<PAGE>

and $141.1  million,  respectively.  The increase in interest  income was partly
offset by a 76 basis point decline in interest  earning asset yields for the six
months ended June 30, 2004 as compared to the same period in 2003.

      Interest expense, which totaled $6.2 million for the six months ended June
30,  2004,  decreased  $1 million,  or 13.9%,  as compared to the same period in
2003. The decrease in interest  expense was a byproduct of the decline in market
interest  rates,  particularly  short-term  rates,  during 2003. In addition,  a
beneficial  shift  in  the  composition  of the  Company's  deposits,  which  is
discussed  further in the  analysis of  financial  condition  below,  also had a
favorable  impact on the Company's  interest  expense.  The improved deposit mix
combined with lower  short-term  interest rates reduced the average rate paid on
interest  bearing  liabilities  by 55 basis  points to 1.24% for the six  months
ended June 30, 2004 as compared to the same period in 2003. The magnitude of the
benefit derived from the decrease in rates paid on interest bearing  liabilities
was  partially  reduced by the  positive  growth of deposits.  Interest  bearing
deposits grew on average 159.2 million, or 20.4%, for the second quarter of 2004
as compared to the same period in 2003.


<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Analysis of Net Interest Income
----------------------------------------------------------------------------------------------------------------------------
for the six months ended June 30,
(dollars in thousands)                                                    2004                             2003
(unaudited)                                                 ----------------------------------------------------------------
                                                              Average             Average      Average               Average
                                                              Balance   Interest    Rate       Balance    Interest     Rate
                                                            ----------  --------  -------      -------    --------   -------
<S>                                                         <C>         <C>          <C>       <C>         <C>         <C>
                           Assets
Interest earning assets
Loans (1)                                                   $  826,067  $25,908      6.27%     $673,735    $23,395     6.94%
Taxable securities (4)                                         383,388    5,252      2.74       240,454      4,721     3.93
Tax-exempt securities (2) (4)                                   24,964      794      6.36        26,770        551     4.12
Interest earning deposits                                            9        -         -         4,088         21     1.03
Federal funds sold                                               7,677       37      0.96        31,436        184     1.17
                                                            ----------  -------               ---------    -------
     Total interest-earning assets                           1,242,105   31,991      5.15       976,483     28,872     5.91
                                                                        -------                            -------

Non-interest earning assets
Cash and due from banks                                         35,937                           29,947
Allowance for loan and lease losses                             (9,727)                          (7,910)
Other assets                                                   118,672                           72,658
                                                            ----------                        ---------
     Total assets                                           $1,386,987                        1,071,178
                                                            ==========                        =========

              Liabilities and stockholders' equity
Interest-bearing liabilities
Interest bearing deposits                                     $940,178    5,588      1.19    $  780,986      6,823     1.75
Borrowings                                                      60,112      611      2.03        25,629        377     2.94
                                                            ----------  -------               ---------    -------
     Total interest-bearing liabilities                      1,000,290    6,199      1.24    $  806,615      7,200     1.79
                                                                        -------                            -------

Non-interest bearing liabilities
Demand deposits                                                228,417                          148,771
Other liabilities                                               14,575                           15,006
                                                            ----------                        ---------
     Total liabilities (3)                                   1,243,282                          970,392
Stockholders' equity                                           143,705                          100,786
                                                            ----------                        ---------
     Total liabilities and stockholders' equity             $1,386,987                        1,071,178
                                                            ==========                        =========

Net interest income (tax-equivalent basis)                               25,792      3.91                   21,672     4.12
Tax-equivalent basis adjustment                                            (322)                              (220)
                                                                        -------                            -------
     Net interest income                                                $25,470                             21,452
                                                                        =======                            =======

Net interest income as a percent of interest-earning
   assets (tax-equivalent basis)                                                     4.15%                             4.44%
</TABLE>
--------------------------------------------------------------------------------
(1)   Nonaccrual loans and any related  interest  recorded have been included in
      computing the average rate earned on the loan portfolio.  When applicable,
      tax exempt loans are computed on a fully  taxable  equivalent  basis using
      the corporate federal tax rate of 34%.

(2)   Computed on a fully taxable  equivalent basis using the corporate  federal
      tax rate of 34%.

(3)   All deposits are in domestic bank offices.

(4)   The  average  balances  are based on  historical  cost and do not  reflect
      unrealized gains or losses.


                                      -23-
<PAGE>

Provision for Loan and Lease Losses

      The   provision  for  loan  and  lease  losses   represents   management's
calculation  of the amount  necessary to bring the  allowance for loan and lease
losses  ("ALLL") to a level that  management  considers  adequate to reflect the
risk of estimated  losses  inherent in the  Company's  loan  portfolio as of the
balance sheet date. A more detailed discussion of the evaluation of the ALLL can
be found in the section  titled  "Critical  Accounting  Policies and  Judgments:
Allowance for Loan and Lease Losses" above.  In the first six months of 2004 and
2003,  the  Company's  provision for loan and lease losses was $675 thousand and
$795 thousand, respectively.

Non-interest Income

      For the six months ended June 30, 2004,  non-interest  income totaled $5.2
million, an increase of $719 thousand,  or 16.0%, as compared to the same period
in 2003. The improvement in  non-interest  income was mostly due to increases in
net gains on the sale of  securities,  "other"  non-interest  income and service
charges  on  deposits  of  $800  thousand,  $410  thousand  and  $216  thousand,
respectively.  Net gains on the sale of securities for the six months ended June
30,  2004 and 2003,  were $819  thousand  and $19  thousand,  respectively.  The
Company  experienced  strong loan growth  during 2004 that was funded by deposit
growth and security sales,  which contributed to the improvement in non-interest
income. The growth in "other"  non-interest  income was largely attributed to an
increase  in  commercial  loan  prepayment  penalties  of  $249  thousand.   The
improvement  in  non-interest  income  was partly  offset by a decrease  in BOLI
income and a decline  in net gain on sale of loans and  leases of $575  thousand
and $212 thousand,  respectively. The decline in BOLI income was attributed to a
claim on insurance policies in 2003 of $499 thousand,  while the decrease in net
gain on sale of  loans  and  leases  was due to  lower  demand  for  thirty-year
residential mortgage loans.

Non-interest Expense

      For the six months  ended June 30,  2004,  non-interest  expense was $17.7
million, an increase of $3.5 million, or 24.5%, when compared to the same period
one year ago.  The increase was due largely to the  additional  operating  costs
resulting from the addition of eleven branch locations and the staffing of those
branches  acquired as part of the merger with Bridge View. Also  contributing to
the increase were normal increases  related to salaries,  benefits and occupancy
expense.

Income Taxes

      Income tax expense as a percentage of pre-tax income was 32.1% for the six
months ended June 30, 2004 as compared to 30.9% for the same period of 2003. The
increase in  percentage of income tax expense was in part due to the effect of a
decline in non-taxable BOLI income.


                                      -24-
<PAGE>

                               FINANCIAL CONDITION

Cash and Cash Equivalents

      At June 30, 2004,  cash and cash  equivalents  increased  $914 thousand to
$32.3 million as compared to December 31, 2003.

Securities Portfolio

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

      The Company uses its  securities  portfolio to ensure  liquidity  for cash
flow  requirements,  to manage  interest rate risk,  provide a source of income,
ensure  collateral  is  available  for  pledging  requirements  and manage asset
quality diversification.  At June 30, 2004, investment securities totaled $379.9
million and represented 27.1% of total assets, as compared to $452.1 million and
32.6%, respectively, at December 31, 2003. Securities AFS comprised 94.6% of the
total securities portfolio at June 30, 2004 as compared to 95.8% at December 31,
2003. At June 30, 2004,  the Company had an unrealized  loss of $642 thousand as
compared to a net  unrealized  gain of $5.5 million at December  31,  2003.  The
decrease  was  attributed  to a decline in market  interest  rates  during  that
period.

      During the first half of 2004,  the Company  sold  securities  with a book
value of approximately $57.4 million and recognized $913 thousand in gross gains
and $94 thousand in gross losses.  During 2003, the Company sold securities with
a book value of  approximately  $13.0  million and  recognized  $478 thousand in
gross gains and $44 thousand in gross losses.  In addition during the first half
of 2003, the Company  realized gross losses  resulting from an  acceleration  of
premium  amortization  on certain  collateralized  mortgage  obligations of $415
thousand.  The  acceleration of premium  amortization  was largely driven by the
historically  high  mortgage  prepayment  speeds  due to the low  interest  rate
environment.

      The following table reflects the composition of the securities  portfolio:
(in thousands)


                                      -25-
<PAGE>

<TABLE>
<CAPTION>
                                                                         ----------------------------------------------
                                                                                         June 30, 2004
                                                                         ----------------------------------------------
                                                                                          (unaudited)
                                                                                       Gross       Gross     Estimated
                                                                         Amortized   Unrealized  Unrealized     Fair
                                                                            Cost       Gains       Losses       Value
                                                                         ---------   ----------  ----------  ---------
<S>                                                                      <C>             <C>           <C>      <C>
Securities HTM
   Mortgage-backed securities                                            $  7,643      $  234      $    -     $  7,877
   Obligations of U.S. agencies                                             3,000           -           -        3,000
   Obligations of states & political subdivisions                           9,926         512           -       10,438
                                                                         --------      ------      ------     --------
                                                                         $ 20,569      $  746      $    -     $ 21,315
                                                                         ========      ======      ======     ========
Securities AFS
   Mortgage-backed securities                                            $104,222      $1,070      $  576     $104,716
   Obligations of U.S. agencies                                           221,304         777       2,964      219,117
   Obligations of states & political subdivisions                          30,638         581         372       30,847
   Equity securities                                                        4,587          96           -        4,683
                                                                         --------      ------      ------     --------
                                                                          360,751       2,524       3,912      359,363
                                                                         --------      ------      ------     --------

     Total securities                                                    $381,320      $3,270      $3,912     $380,678
                                                                         ========      ======      ======     ========
</TABLE>

<TABLE>
<CAPTION>
                                                                         ----------------------------------------------
                                                                                        December 31, 2003
                                                                         ----------------------------------------------
                                                                                          (unaudited)
                                                                                       Gross       Gross     Estimated
                                                                         Amortized   Unrealized  Unrealized     Fair
                                                                            Cost       Gains       Losses       Value
                                                                         ---------   ----------  ----------  ---------
<S>                                                                      <C>           <C>           <C>      <C>
Securities HTM
   Mortgage-backed securities                                            $  9,850      $  330       $  1     $ 10,179
   Obligations of states & political subdivisions                           9,257         787          -       10,044
                                                                         --------      ------       ----     --------
                                                                         $ 19,107      $1,117       $  1     $ 20,223
                                                                         --------      ------       ----     --------
Securities AFS
   Obligations of U.S. Treasury                                          $  6,032      $    5       $  2     $  6,035
   Mortgage-backed securities                                             112,981       1,363        157      114,187
   Obligations of U.S. agencies                                           271,339       2,583        762      273,160
   Obligations of states & political subdivisions                          33,849       1,257         68       35,038
   Equity securities                                                        4,396         137          -        4,533
                                                                         --------      ------       ----     --------
                                                                          428,597       5,345        989      432,953
                                                                         --------      ------       ----     --------
     Total securities                                                    $447,704      $6,462       $990     $453,176
                                                                         ========      ======       ====     ========
</TABLE>

      At June  30,  2004,  the  contractual  maturities  of  securities  HTM and
securities AFS are as follows: (in thousands) (unaudited)



                                        Securities             Securities
                                           HTM                    AFS
                                 ----------------------  ----------------------
                                              Estimated               Estimated
                                 Amortized       Fair    Amortized       Fair
                                   Cost         Value      Cost         Value
                                 ----------------------  ----------------------
Within 1 year                    $ 4,307      $ 4,339    $ 29,825     $ 29,621
After 1 but within 5 years         9,679       10,005     290,761      289,510
After 5 but within 10 years        5,505        5,831      22,208       22,320
After 10 years                     1,078        1,140      13,370       13,230
Equity securities                      -            -       4,587        4,682
                                 --------------------    ---------------------
   Total                         $20,569      $21,315    $360,751     $359,363
                                 ====================    =====================


                                      -26-
<PAGE>

Loans

      Total loans  amounted to $883.3  million at June 30, 2004,  an increase of
$86.7  million  from  $796.6  million  at  December  31,  2003.  The  growth was
attributed  to increases in commercial  loans of $43.2  million and  residential
mortgage loans of $50.6 million. The increase in commercial loans was largely in
commercial and financial loans and commercial  mortgages,  which increased $25.0
million and $23.8 million, respectively, for the six month period ended June 30,
2004. The growth in  residential  mortgage loans was due in part to purchases of
$36.4 million.  These loans were subjected to the Company's  independent  credit
analysis prior to purchase.  Somewhat  offsetting the  aforementioned  increases
were  decreases  in  consumer  and  commercial  leases of $7.8  million and $4.1
million, respectively.

                                                       -----------  ------------
                                                        June 30,    December 31,
(in thousands)                                            2004          2003
                                                       -----------  ------------
                                                       (unaudited)
Amount of loans by type
    Real estate-mortgage
       1-4 family residential
          First liens                                   $141,948      $100,286
          Junior liens                                     3,191         4,138
          Home equity                                    146,313       136,477
       Commercial                                        353,878       330,040
       Construction                                       29,557        31,077
                                                        --------      --------
                                                         674,887       602,018
                                                        --------      --------
    Commercial loans
       Commercial and financial                          174,498       149,462
       Lease financing                                    24,315        28,440
                                                        --------      --------
                                                         198,813       177,902
                                                        --------      --------
    Consumer loans
       Lease financing                                     4,624        12,416
       Installment                                         4,942         4,245
                                                        --------      --------
                                                           9,566        16,661
                                                        --------      --------
                      Total                             $883,266      $796,581
                                                        ========      ========


                                      -27-
<PAGE>

Nonperforming Assets

      Nonperforming  assets are  comprised  of  nonaccrual  loans,  restructured
loans,  foreclosed  real estate and other  repossessed  assets.  The  Company's
nonperforming  assets at June 30, 2004  amounted to $6.8  million as compared to
$8.8 million at December 31, 2003.  The ratio of  nonperforming  assets to total
loans and foreclosed real estate and other repossessed assets decreased to 0.77%
at June 30, 2004 from 1.10% at December 31, 2003.

      The  following  table  lists  nonaccrual  loans,  restructured  loans  and
foreclosed  real  estate  and other  repossessed  assets at June 30,  2004,  and
December 31, 2003: (in thousands)

                                               -----------         ------------
                                                June 30,           December 31,
                                                  2004                 2003
                                               -----------         ------------
                                               (unaudited)
Nonperforming loans                              $6,573             $8,570
Foreclosed real estate and other
    repossessed assets                              201                230
                                                 ------             ------
    Total nonperforming assets                   $6,774             $8,800
                                                 ======             ======

Allowance for Loan and Lease Losses

      The ALLL is  generally  established  through  periodic  charges to income.
During the six months ended June 30, 2004, the ALLL remained  relatively  stable
at $9.8  million.  Loan  losses are  charged  against  the ALLL when  management
believes  that  the  probable  future   collection  of  principal  is  unlikely.
Subsequent  recoveries,  if  any,  are  credited  to the  ALLL.  If the  ALLL is
considered  inadequate to absorb future loan losses on existing loans, based on,
but not limited to,  increases in the size of the loan  portfolio,  increases in
charge-offs or changes in the risk  characteristics of the loan portfolio,  then
the provision for loan and lease losses is increased.

      The Company considers the ALLL of $9.8 million adequate to cover estimated
losses  inherent in the loan  portfolio that may become  uncollectible  based on
management's  periodic  evaluations  of the loan  portfolio  and other  relevant
factors.  The  evaluations  are inherently  subjective as they require  material
estimates including such factors as potential loss factors,  changes in trend of
non-performing  loans,  current  state of local and national  economy,  value of
collateral  changes in the composition and volume of the loan portfolio,  review
of specific problem loans and  management's  assessment of the inherent risk and
overall quality of the loan  portfolio.  All of these factors may be susceptible
to significant  change.  Also, the allocation of the allowance for credit losses
to  specific  loan pools is based on  historical  loss  trends and  management's
judgment concerning those trends.


                                      -28-
<PAGE>

      The following  table  presents the  provisions  for loan and lease losses,
loans charged off and recoveries on loans previously  charged off, the amount of
the allowance,  the average loans  outstanding and certain  pertinent ratios for
the  three  months  ended  June  30,  2004  and  2003:  (dollars  in  thousands)
(unaudited)

<TABLE>
<CAPTION>
                                                                 Three months ended          Six months ended
                                                                      June 30,                    June 30,
                                                               ---------------------      ---------------------
                                                                 2004         2003          2004         2003
                                                               --------     --------      --------     --------
<S>                                                            <C>          <C>           <C>          <C>
Average loans outstanding                                      $845,747     $732,516      $826,067     $673,735
                                                               ========     ========      ========     ========
Allowance at beginning of period                                  9,635        7,226         9,641        7,207
                                                               --------     --------      --------     --------
Loans charged off
     Real estate                                                      9            -            76            -
     Commercial and financial                                         2            -            57           25
     Commercial lease financing                                     134          147           411          355
     Consumer loans                                                  26            5            44           19
                                                               --------     --------      --------     --------
          Total                                                     171          152           588          399
                                                               --------     --------      --------     --------
Recoveries of loans previously charged off
     Real estate                                                      4            -             4            -
     Commercial and financial                                         6            -             6            -
     Commercial lease financing                                      12            2            48            2
     Consumer loans                                                   2            2             2            3
                                                               --------     --------      --------     --------
          Total                                                      24            4            60            5
                                                               --------     --------      --------     --------
Additions due to merger                                               -        1,929             -        1,929
Provision for loan and lease losses                                 300          530           675          795
                                                               --------     --------      --------     --------
Allowance at end of period                                       $9,788       $9,537        $9,788       $9,537
                                                               ========     ========      ========     ========
Allowance to total loans (end of period)                           1.11%        1.18%         1.11%        1.17%
Ratio of net charge-offs to average loans (annualized)             0.07%        0.08%         0.13%        0.12%
</TABLE>

Deposits

      Deposits,  which  include   non-interest-bearing   demand  deposits,  time
deposits   and  other   interest-bearing   deposits,   are  an   essential   and
cost-effective funding source for the Company. Other interest-bearing  deposits,
which  include  interest-bearing  demand,  money  market and  savings  accounts,
comprise the largest segment of the Company's total deposits.  At June 30, 2004,
such deposits  amounted to $666.2 million  representing  56.1% of total deposits
compared to 56.3% of total deposits at December 31, 2003. 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 its customers based on their identifiable "life stages".

      At June  30,  2004,  total  deposits  increased  $30.0  million,  or 2.5%,
remaining relatively stable at $1.2 billion. We benefited, however from a change
in the mix as we  experienced  growth in core  deposits  (non time  deposits) of
$29.7  million,  or 3.4% and time deposits  increased  $309  thousand,  or 0.1%,
respectively,  at June 30, 2004 as compared to December 31, 2003.  The growth in
core deposits was due to increases in interest  bearing demand and  non-interest
demand of $14.8 million and $14.6 million,


                                      -29-
<PAGE>

respectively.  Time  deposits  amounted to $282.3  million,  or 23.8%,  of total
deposits at June 30, 2004, as compared to $282.0 million,  or 24.4%, at December
31, 2003.

      For the six months ended June 30, 2004,  the  Company's  overall  yield on
deposits  declined by 51 basis  points  from 1.47% to 0.96%,  as compared to the
same period last year. The decrease was attributed  predominately  to changes in
market interest rates and a change in the composition of deposit liabilities.

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

                                         -----------          ------------
                                           June 30,           December 31,
                                            2004                 2003
                                         -----------          ------------
                                         (unaudited)
Non-interest Demand                      $  238,317            $  223,745
Interest Bearing Demand                     461,559               446,786
Savings                                     116,613               120,136
Money Market Savings                         88,071                84,162
Time Deposits <$100,000                     261,004               265,356
Time Deposits >$100,000                      21,274                16,613
                                         ----------            ----------
     Total                               $1,186,838            $1,156,798
                                         ==========            ==========


                                      -30-
<PAGE>

Item 3:     Quantitative and Qualitative Disclosures About Market Risk

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

      The  Company  does not have any  material  exposure  to  foreign  currency
exchange rate risk or commodity  price risk.  The Company did not enter into any
market rate sensitive  instruments for trading purposes nor did it engage in any
trading or  hedging  transactions  utilizing  derivative  financial  instruments
during the first six months of 2004. The Company's  real estate loan  portfolio,
concentrated  primarily in northern New Jersey,  is subject to risks  associated
with the local and regional  economies.  The Company's  primary source of market
risk  exposure  arises from changes in market  interest  rates  ("interest  rate
risk").

Interest Rate Risk

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

      The Company  manages  interest rate risk exposure with the  utilization of
financial modeling and simulation  techniques.  These methods assist the Company
in  determining  the effects of market rate changes on net  interest  income and
future economic value of equity. The objective of the Company is to maximize net
interest  income within  acceptable  levels of risk  established by policy.  The
techniques  utilized  for  managing  exposure to market rate  changes  involve a
variety of interest  rate,  pricing and volume  assumptions.  These  assumptions
include projections on growth, prepayment and withdrawal levels as well as other
embedded options inherently found in financial instruments.  The Company reviews
and validates these assumptions at least annually or more frequently if economic
or other conditions  change. At June 30, 2004, the Company simulated the effects
on net interest  income given an  instantaneous  and parallel shift in the yield
curve of up to a 200 basis point  rising  interest  rate  environment  and a 100
basis point declining  interest rate environment.  Based on that simulation,  it
was


                                      -31-
<PAGE>

estimated  that net interest  income,  over a  twelve-month  horizon,  would not
decrease by more than 7.1%.  At June 30,  2004,  the  Company was within  policy
limits  established by the board of directors for changes in net interest income
and future economic value of equity. The following table illustrates the effects
on net interest  income given an  instantaneous  and parallel shift in the yield
curve of up to a 200 basis point  rising  interest  rate  environment  and a 100
basis point declining interest rate environment: (unaudited)


Net Interest Income Sensitivity Simulation

                           Percentage Change in Estimated Net Interest
                               Income over a twelve month horizon
                           -------------------------------------------
                                           June 30,
                                  2004                 2003
                                  ----                 ----
     +200 basis points            -7.1 %               -1.3 %
     +100 basis points            -2.6                  0.6
     -100 basis points            -3.4                 -6.6
     -200 basis points          *                    *      %

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



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

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

      In  addition  to the  above-mentioned  techniques,  the  Company  utilizes
sensitivity gap analysis as an interest rate risk  measurement.  The sensitivity
gap analysis is  determined by analyzing  the  difference  between the amount of
interest-earning  assets maturing or repricing within a specific time period and
the amount of interest  bearing  liabilities  maturing or repricing  within that
same period of time.  Sensitivity  gap analysis  provides an  indication  of the
extent to which the  Company's  net  interest  income may be  affected


                                      -32-
<PAGE>

by  future  changes  in market  interest  rates.  The  cumulative  gap  position
expressed as a percentage of total assets  provides one relative  measure of the
Company's interest rate exposure.

      The  cumulative gap between the Company's  interest-rate-sensitive  assets
and its  interest-rate-sensitive  liabilities repricing within a one-year period
was a negative  14.8% at June 30, 2004.  Since the  cumulative gap was negative,
the Company has a "negative gap" position,  which  theoretically  will cause its
assets to reprice  more  slowly  than its  deposit  liabilities.  In a declining
interest rate  environment,  interest  costs may be expected to fall faster than
the  interest  received on earning  assets,  thus  increasing  the net  interest
spread. If interest rates increase,  theoretically a negative gap means that the
interest received on earning assets may be expected to increase more slowly than
the interest  paid on the Company's  liabilities  therefore  decreasing  the net
interest spread.

Capital Adequacy

      The  Company is subject to capital  adequacy  requirements  imposed by the
Board of Governors of the Federal  Reserve System (the "Federal  Reserve");  and
the Bank is subject  to similar  capital  adequacy  requirements  imposed by the
Federal Deposit Insurance  Corporation (the "FDIC"). The Federal Reserve and the
FDIC have adopted  risk-based  capital  requirements  for assessing bank holding
company and bank capital adequacy.  These standards define capital and establish
minimum  capital  requirements  in  relation  to assets  and  off-balance  sheet
exposure,  adjusted for credit risk. The risk-based capital standards  currently
in effect are designed to make regulatory capital requirements more sensitive to
differences in risk profiles among bank holding  companies and banks, to account
for off-balance sheet exposure and to minimize  disincentives for holding liquid
assets.   Assets  and  off-balance  sheet  items  are  assigned  to  broad  risk
categories,  each with appropriate  relative risk weights. The resulting capital
ratios represent capital as a percentage of total  risk-weighted  assets and off
balance sheet items.

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

      At June 30,  2004,  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, 2004,
the minimum leverage ratio requirement to be considered  adequately  capitalized
was 3%.


                                      -33-
<PAGE>

      The capital  levels of the Company and the Bank at June 30, 2004,  and the
two highest capital adequacy levels recognized under the guidelines  established
by the federal  banking  agencies  are  included  in the  following  table.  The
Company's  and the Bank's  ratios all exceeded the  well-capitalized  guidelines
shown in the table.

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

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

<S>                                                <C>        <C>        <C>       <C>        <C>         <C>
As of June 30, 2004: (unaudited)
  Total Capital (to Risk Weighted Assets):
   The Company                                     $95,294    10.16%     $74,998   8.00%         N/A        N/A
   The Bank                                         95,073    10.14       74,973   8.00      $93,717      10.00%
  Tier 1 Capital (to Risk Weighted Assets):
   The Company                                      85,366     9.11      $37,499   4.00          N/A        N/A
   The Bank                                         85,146     9.09       37,487   4.00       56,230       6.00
  Tier 1 Capital (to Average Assets):
   The Company                                      85,366     6.40      $40,012   3.00          N/A        N/A
   The Bank                                         85,146     6.40       39,886   3.00       66,476       5.00

As of December 31, 2003:
  Total Capital (to Risk Weighted Assets):
   The Company                                     $91,694    10.46%     $70,146   8.00%         N/A        N/A
   The Bank                                         91,358    10.35       70,637   8.00      $88,296      10.00%
  Tier 1 Capital (to Risk Weighted Assets):
   The Company                                      81,913     9.34       35,073   4.00          N/A        N/A
   The Bank                                         81,576     9.24       35,319   4.00       52,978       6.00
  Tier 1 Capital (to Average Assets):
   The Company                                      81,913     6.24       39,367   3.00          N/A        N/A
   The Bank                                         81,576     6.22       39,318   3.00       65,530       5.00
</TABLE>

Liquidity

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

      The Company's  most liquid assets are cash and cash  equivalents.  At June
30, 2004, the total of such assets amounted to $32.3 million,  or 2.3%, of total
assets,  compared to $31.4  million,  or 2.3%,  of total  assets at December 31,
2003.  Fluctuations  in cash and cash  equivalents  are  largely due to sales of
securities,  deposit growth and loan  prepayments,  which produce funds that are
placed in federal funds sold or interest earning deposits pending  investment in
loans and securities.

      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, 2004 and December 31, 2003, total deposits amounted to
$1.2 billion. In addition, the Company supplemented the more traditional funding
sources with borrowings from the Federal Home Loan Bank of New York ("FHLB") and
with securities sold under agreements to repurchase ("REPOS"). At June 30, 2004,
advances from the FHLB and REPOS  amounted to $46.5  million and $12.3  million,
respectively,  as compared to $56.5 million and $15.6 million,  respectively, at
December 31, 2003.


                                      -34-
<PAGE>

      Net loans and  leases at June 30,  2004  amounted  to $873.5  million,  an
increase of $86.6  million,  from $786.9  million at December 31, 2003.  Another
significant  liquidity  source  is the  Company's  securities  portfolio.  Total
securities  at June 30,  2004  amounted to $379.9  million,  a decrease of $72.2
million,  from $452.1 million at December 31, 2003. At June 30, 2004  securities
AFS amounted to $359.4 million, or 94.6%, of total securities compared to $433.0
million, or 95.8%, of total securities at December 31, 2003.

      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
$100.0 million line of credit available through its membership in the FHLB.

      The Company is party to financial  instruments with off-balance sheet risk
in the normal course of business to meet the financing  needs of its  customers.
These  instruments,  which  include  commitments  to extend  credit and  standby
letters of credit, involve, to a varying degree, elements of credit and interest
rate risk in excess  of the  amount  recognized  in the  Condensed  Consolidated
Balance  Sheets.  Commitments  to  extend  credit  are  agreements  to lend to a
customer as long as there is no violation of any  condition  established  in the
contract.  Commitments  generally  have fixed  expiration  dates and may require
collateral from the borrower if deemed necessary by the Company. Standby letters
of credit are  conditional  commitments  issued by the Company to guarantee  the
performance  of a customer to a third party up to a  stipulated  amount and with
specified terms and conditions. Commitments to extend credit and standby letters
of credit are not recorded on the Company's condensed consolidated balance sheet
until the instrument is exercised.  At June 30, 2004 outstanding  commitments to
fund loans totaled  $277.4  million and  outstanding  standby  letters of credit
totaled $1.9 million.

      The Company  historically  paid quarterly  cash dividends and  anticipates
continuing  paying  quarterly  dividends in the future.  The Company  could,  if
necessary,  modify the amount or frequency, of dividends as an additional source
of liquidity.  There are imposed  dividend  restrictions on the Bank,  which are
described in Note 18 "Restrictions of Subsidiary Bank Dividends" in the Notes to
Consolidated  Financial  Statements in the Company's  2003 Annual Report on Form
10-K.  Management  believes  that  the  Company  has  sufficient  cash  flow and
borrowing capacity to fund all outstanding commitments and letters of credit and
to maintain proper levels of liquidity.


                                      -35-
<PAGE>

Item 4.     Controls and Procedures

In accordance  with Rule 13a-15(b) of the  Securities  Exchange Act of 1934 (the
"Exchange  Act"),  as of the end of the quarter  ended June 30, 2004, we carried
out an  evaluation  under  the  supervision  and with the  participation  of our
management,  including our Chief Executive Officer and Chief Financial  Officer,
of the effectiveness of the design and operation of our disclosure  controls and
procedures as defined in Rule  13a-15(e)  under the Exchange Act.  Based on that
evaluation,  our Chief  Executive  Officer  and  Chief  Financial  Officer  have
concluded that our disclosure controls and procedures are effective.

The Company  maintains  internal  control over financial  reporting.  During the
quarter ended June 30, 2004, there have been no changes in our internal controls
over financial reporting that have materially affected, or are reasonably likely
to materially affect, those controls.


                                      -36-
<PAGE>

                           PART II - OTHER INFORMATION

Item 1.     Legal Proceedings

            Reference  is  also  made to  Note 4 of the  Company's  Consolidated
            Financial Statements in this Form 10-Q.

Item 2.     Change in Securities and Use of Proceeds

            Set forth below is certain information  regarding repurchases of our
            common stock during the quarter.

            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
                  22, 2004.

            (b)   Each of the persons  nominated  for director was elected;  and
                  the  selection  of  Deloitte  &  Touche  LLP as the  Company's
                  independent auditors for 2004 was ratified.  The following are
                  the voting results on each of these matters:

<TABLE>
<CAPTION>
                                                                           Against
                                                                             Or
                                                                 For       Withheld   Abstentions
                                                              ----------  ----------  -----------
            <S>                                               <C>         <C>              <C>
           (1)    ELECTION OF DIRECTORS
                  Anthony D. Andora                            9,927,737   857,088          0
                  Gerald A. Calabrese, Jr.                    10,512,611   272,214          0
                  David R. Ficca                              10,658,661   126,164          0
                  Nicholas R. Marcalus                        10,455,293   329,532          0
                  Benjamin Rosenzweig                          9,844,587   940,238          0
                  John A. Schepisi                            10,655,228   129,597          0
                  Joseph C. Parisi                            10,327,941   456,884          0

           (2)    Ratification of the selection of Deloitte &
                  Touche LLP as the Company's independent
                  Auditors for 2004.                          10,663,599    33,267     87,958
</TABLE>

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

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

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


                                      -37-
<PAGE>

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

            (b)   Reports on Form 8-K

                  During the quarter ended June 30, 2004,  the Company filed the
                  following Current Report on Form 8-K:

                  Form 8-K filed April 21,  2004,  declaring a dividend  for the
                  second quarter of 2004.

                  Form 8-K  filed  April 3,  2004,  reporting  earnings  for the
                  period ending March 31, 2004.

SIGNATURES

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

Interchange Financial Services Corporation

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

Dated: August 9, 2004

                                      -38-