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, SEPTEMBER 30, 2001


                                       or

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


                         Commission File number 1-10518


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


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

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


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

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


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


         The number of outstanding shares of the Registrant's common stock, no
par value per share, as of October 31, 2001, was 6,471,058 shares.


<PAGE>


                   INTERCHANGE FINANCIAL SERVICES CORPORATION


                                      INDEX


PART I    FINANCIAL INFORMATION
                                                                    Page No.
  Item 1   Financial Statements

           Consolidated Balance Sheets as of
           September 30, 2001 and December 31, 2000 ......................1
           Consolidated Statements of Income for the three
           and nine-month periods ended September 30, 2001 and 2000.......2

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

           Consolidated Statements of Cash Flows for the
           nine months ended September 30, 2001 and 2000..................4

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

  Item 2   Management's Discussion and Analysis of Financial
           Condition and Results of Operations ...........................8

  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)............................................... 18


PART II   OTHER INFORMATION

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

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

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

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

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

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

          Signatures......................................................23

<PAGE>




Item 1: Financial Statements

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

                                                                       September 30, December 31,
                                                                           2001         2000
                                                                       ____________  ___________
                                                                       (unaudited)
<S>                                                                    <C>           <C>

Assets
Cash and due from banks                                                   $ 23,148    $ 22,100
Federal funds sold                                                               -      11,050
                                                                       ____________  ___________
Total cash and cash equivalents                                             23,148      33,150
                                                                       ____________  ___________
Securities held to maturity at amortized cost (estimated market value
   of $41,355 and $41,400 for September 30, 2001 and December 31, 2000,
   respectively)                                                            40,196      41,042
                                                                       ____________  ___________
Securities available for sale at estimated market value (amortized cost
   of $126,478 and $119,306 for September 30, 2001 and December 31, 2000,
   respectively)                                                           130,274     120,312
                                                                       ____________  ___________

Loans                                                                      591,849     560,879
Less:  Allowance for loan and lease losses                                   6,339       6,154
                                                                       ____________  ___________
Net loans                                                                  585,510     554,725
                                                                       ____________  ___________

Premises and equipment, net                                                  9,887      11,239
Foreclosed real estate and other repossesed assets                             250         250
Bank owned life insurance                                                   15,170           -
Accrued interest receivable and other assets                                 7,178       9,526
                                                                       ____________  ___________
Total assets                                                              $811,613    $770,244
                                                                       ============  ===========


Liabilities
Deposits
   Non-interest bearing                                                   $107,036    $107,702
   Interest bearing                                                        598,735     561,158
                                                                       ____________  ___________
Total deposits                                                             705,771     668,860
                                                                       ____________  ___________

Securities sold under agreements to repurchase                              10,500      18,500
Short-term borrowings                                                       18,547      13,000

Accrued interest payable and other liabilities                               8,796       7,900
                                                                       ____________  ___________
Total liabilities                                                          743,614     708,260
                                                                       ____________  ___________

Commitments and contingent liabilities

Stockholders' equity:
Common stock, without par value; 15,000,000 shares authorized;
   6,503,208 and 6,530,498 shares issued and outstanding at
   September 30, 2001 and December 31, 2000, respectively                    5,397       5,397
Capital surplus                                                             21,041      21,077
Retained earnings                                                           52,687      47,735
Accumulated other comprehensive income                                       2,136         526
                                                                       ____________  ___________
                                                                            81,261      74,735
Less:  Treasury stock                                                       13,262      12,751
                                                                       ____________  ___________
Total stockholders' equity                                                  67,999      61,984
                                                                       ____________  ___________
Total liabilities and stockholders' equity                                $811,613    $770,244
                                                                       ============  ===========
------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

                                       1
<PAGE>
<TABLE>

Interchange Financial Services Corporation
----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
----------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) (unaudited)
<CAPTION>
                                                                 Three Months Ended             Nine Months Ended
                                                                    September 30,                 September 30,
                                                               ------------------------      -------------------------
                                                                   2001         2000             2001          2000
                                                               -----------  -----------      ------------  -----------
<S>                                                            <C>          <C>              <C>           <C>

Interest income
Interest and fees on loans                                        $11,560      $11,421           $34,889      $32,612
Interest on federal funds sold                                         59          258               495          528
Interest and dividends on securities
    Taxable interest income                                         2,438        2,594             7,408        7,212
    Interest income exempt from federal income taxes                  127          124               409          448
    Dividends                                                          59           65               195          190
                                                               -----------  -----------      ------------  -----------
Total interest income                                              14,243       14,462            43,396       40,990
                                                               -----------  -----------      ------------  -----------

Interest expense
Interest on deposits                                                5,349        5,974            17,211       16,002
Interest on short-term borrowings                                     319          363             1,083        1,020
Interest on long-term borrowings                                        -          209                 -          622
                                                               -----------  -----------      ------------  -----------
Total interest expense                                              5,668        6,546            18,294       17,644
                                                               -----------  -----------      ------------  -----------

Net interest income                                                 8,575        7,916            25,102       23,346
Provision for loan and lease losses                                   210          150               590          750
                                                               -----------  -----------      ------------  -----------
Net interest income after provision
 for loan losses                                                    8,365        7,766            24,512       22,596
                                                               -----------  -----------      ------------  -----------

Noninterest income
Service fees on deposit accounts                                      610          617             1,835        1,765
Net gain on sale of securities                                        129            -               247           97
Other                                                                 726          614             1,761        1,309
                                                               -----------  -----------      ------------  -----------
Total noninterest income                                            1,465        1,231             3,843        3,171
                                                               -----------  -----------      ------------  -----------

Noninterest expenses
Salaries and benefits                                               3,082        2,866             9,159        8,317
Net occupancy                                                         822          755             2,502        2,211
Furniture and equipment                                               274          247               818          795
Advertising and promotion                                             391          247               963          853
Federal Deposit Insurance Corporation assessment                       32           33                97           97
Other                                                               1,096        1,228             3,576        3,635
                                                               -----------  -----------      ------------  -----------
Total noninterest expenses                                          5,697        5,376            17,115       15,908
                                                               -----------  -----------      ------------  -----------

Income before  income taxes                                         4,133        3,621            11,240        9,859

Income taxes                                                        1,340        1,204             3,642        3,260
                                                               -----------  -----------      ------------  -----------
Net income                                                        $ 2,793      $ 2,417           $ 7,598      $ 6,599
                                                               ===========  ===========      ============  ===========
Basic earnings per common share                                     $0.43        $0.37             $1.16        $1.01
                                                               ===========  ===========      ============  ===========
Diluted earnings per common share                                   $0.43        $0.37             $1.16        $1.01
                                                               ===========  ===========      ============  ===========

----------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
                                       2
<PAGE>

<TABLE>

Interchange Financial Services Corporation
------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30,
------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
(unaudited)
<CAPTION>
                                                                              Accumulated
                                                                                Other
                                                     Comprehensive Retained   Comprehensive  Common    Capital     Treasury
                                                         Income    Earnings     Income       Stock     Surplus      Stock      Total
                                                     ------------- ---------  ------------- --------- ---------- ---------- --------
<S>                                                  <C>           <C>        <C>           <C>       <C>          <C>       <C>

Balance at January 1, 2000                                          $41,741    $ (675)      $5,397    $21,244    $(9,431)    $58,276
Comprehensive income
  Net Income                                             $6,599       6,599                                                    6,599
  Other comprehensive income, net of taxes
     Unrealized  gains on debt securities                   328
     Less: gains on disposition of equity securities        (61)
                                                     -----------
  Other comprehensive loss                                  267                   267                                            267
                                                     -----------
Comprehensive income                                     $6,866
                                                     ===========
Dividends on common stock                                            (2,446)                                                 (2,446)
Issued 11,406 shares of common stock in connection
  with Executive Compensation Plan                                                                         (6)       196         190
Exercise of 16,634 option shares                                                                         (161)       281         120
Purchased 225,640 shares of common stock                                                                          (3,797)    (3,797)
                                                     -----------  ------------ --------- ---------- ----------   ---------- --------
Balance at September 30, 2000                                        45,894      (408)       5,397     21,077     12,751)     59,209

Comprehensive income
  Net Income                                             $2,657       2,657                                                    2,657
  Other comprehensive income, net of taxes
     Unrealized gains on AFS debt securities                934
                                                     -----------
  Other comprehensive income                                934                   934                                            934
                                                     -----------
Comprehensive income                                     $3,591
                                                     ===========

Dividends on common stock                                              (816)                                                   (816)


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


  Net Income                                             $7,598       7,598                                                    7,598
  Other comprehensive income, net of taxes
     Unrealized gains on AFS debt securities              1,579
     Add: losses on disposition of securities                28
     Unrealized gains on equity securities                    3
                                                     -----------
  Other comprehensive income                              1,610                 1,610                                          1,610
                                                     -----------
Comprehensive income                                     $9,208
                                                     ===========

Dividends on common stock                                            (2,645)                                                 (2,645)
Issued 14,880 shares of common stock in connection
  with Executive Compensation Plan                                                                      (14)         255         241
Exercised 4,030 option shares                                                                           (23)          69          46
Purchased 46,200 shares of common stock                                                                             (835)      (835)
                                                                  -----------  --------- ---------- ----------   ---------  --------
Balance at September 30, 2001                                       $52,688    $2,136       $5,397    $21,040   $(13,262)    $67,999
                                                                  ===========  ========= =========  ==========   =========  ========

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

<TABLE>

Interchange Financial Services Corporation
--------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30,
--------------------------------------------------------------------------------------------------
(dollars in thousands) (unaudited)
<CAPTION>
                                                                            2001           2000
                                                                         ----------     ----------
<S>                                                                      <C>            <C>
Cash flows from operating activities
Net income                                                                $7,598         $6,599
Non-cash items included in earnings
  Depreciation and amortization                                            1,036          1,022
  Amortization of securities premiums                                        704            261
  Accretion of securities discounts                                         (250)          (211)
  Amortization of premiums in connection with acquisition                     81            234
  Provision for loan losses                                                  590            750
  Net gain on sale of securities                                            (247)           (97)
  Net gain on sale of loans                                                 (240)           (62)
Decrease (increase) in operating assets
  Accrued interest receivable                                                408            (37)
  Other                                                                      510         (1,152)
Incease (decrease) in operating liabilities
  Accrued interest payable                                                  (213)           633
  Other                                                                    1,110            820
                                                                         ----------     ----------
Cash provided by operating activities                                     11,087          8,760
                                                                         ----------     ----------

Cash flows from investing activities
(Payments for) proceeds from
  Net originations of loans                                              (19,636)       (24,949)
  Purchase of loans                                                      (15,687)       (13,544)
  Sale of loans                                                            4,178          1,357
  Purchase of securities available for sale                              (61,552)       (47,980)
  Maturities of securities available for sale                             32,816          7,293
  Sale of securities available for sale                                   21,339         17,697
  Purchase of investment securities held to maturity                     (18,548)       (11,900)
  Maturities of investment securities held to maturity                    19,411         22,259
  Sale of securities held to maturity                                          -          2,002
  Purchase of Bank Owned Life Insurance                                  (15,000)             -
  Purchase of fixed assets                                                  (944)        (1,745)
  Sale of fixed assets                                                     1,260              -
                                                                         ---------      ----------
Cash used in investing activities                                        (52,363)       (49,510)
                                                                         ---------      ----------
Cash flows from financing activities
Proceeds from (payments for)
  Deposits more than withdrawals                                          36,911         52,657
  Securities sold under agreements to repurchase and other borrowings     47,312         10,444
  Retirement of securities sold under agreements to repurchase and other
    borrowings                                                           (49,765)       (13,975)
  Dividends                                                               (2,646)        (2,446)
  Common stock issued                                                        241            190
  Treasury stock                                                            (835)        (3,797)
  Exercise of option shares from Treasury                                     46            120
                                                                         ---------      ----------
Cash provided by financing activities                                     31,264         43,193
                                                                         ---------      ----------
Increase (decrease) in cash and cash equivalents                         (10,012)         2,443
Cash and cash equivalents, beginning of year                              33,150         17,669
                                                                         ---------      ----------
Cash and cash equivalents, end of period                                 $23,138        $20,112
                                                                         =========      ==========

Supplemental disclosure of cash flow information:
Cash paid for:
    Interest                                                             $17,770        $17,011
    Income taxes                                                           1,077          3,310

Supplemental disclosure of non-cash investing activities:
   (Increase)decrease-market valuation of securities available for sale  $(1,610)        $ (470)


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



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2001
                                   (Unaudited)

1. Basis of Presentation

     The accompanying  unaudited  consolidated  financial statements include the
accounts of  Interchange  Financial  Services  Corporation  and its wholly owned
subsidiaries  (the  "Company")  including  its principal  operating  subsidiary,
Interchange  Bank  (the  "Bank"),  and have been  prepared  in  conformity  with
accounting  principles generally accepted in the United States of America within
the banking  industry and in accordance  with the rules and  regulations  of the
Securities  and  Exchange  Commission.  Pursuant  to such rules and  regulations
certain  information  or  footnotes  necessary  for a complete  presentation  of
financial  condition,  results of operations  and cash flows in conformity  with
accounting  principles generally accepted in the United States of America within
the  banking  industry  have  been  condensed  or  omitted.  These  consolidated
financial statements should be read in conjunction with the financial statements
and schedules  thereto included in the annual report on Form 10-K of the Company
for the year ended  December 31, 2000.

     The consolidated  financial data for the three and nine-month periods ended
September  30,  2001  and  2000,  are  unaudited  but  reflect  all  adjustments
consisting  of only normal  recurring  adjustments  which are, in the opinion of
management,  considered  necessary  for a fair  presentation  of  the  financial
condition  and results of  operations  for the interim  periods.  The results of
operations for interim periods are not  necessarily  indicative of results to be
expected for any other period or the full year.

2. Earnings Per Common Share

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

3. Legal Proceedings

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

                                       5
<PAGE>

4.  New Accounting Pronouncement

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

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

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

5.   Cash Dividend

     The  Company  declared a cash  dividend  of $0.135  per  share,  payable on
October 12, 2001 to shareholders of record as of September 17, 2001.

                                       6
<PAGE>

6. Stock Repurchase Program

     During the period  from  October 1, 2001  through  October  31,  2001,  the
Company  repurchased  32,150  shares  of its  common  stock on the  open  market
pursuant to its previously  announced Stock Repurchase Program.  The repurchased
shares are held as treasury stock and will be principally  used for the exercise
of stock  options,  incentive  plan  stock  awards and other  general  corporate
purposes.


                                       7

<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 nine month
periods  ended  September 30, 2001 and 2000,  and should be read in  conjunction
with the consolidated  financial statements and notes thereto included in Item 1
hereof.

Company

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

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

Forward-Looking Information

     In  addition  to  discussing  historical  information,  certain  statements
included in or incorporated into this report relate to the financial  condition,
results of  operations  and  business  of the Company  which are not  historical
facts,  but which are  "forward-looking  statements"  within the  meaning of the
Private  Securities  Litigation Reform Act of 1995. When used herein,  the words
"anticipate,"   "believe,"   "estimate,"  "expect,"  "will"  and  other  similar
expressions are generally intended to identify such forward-looking  statements.
Such  statements  are intended to be covered by the safe harbor  provisions  for
forward-looking  statements  contained  in such Act, and we are  including  this
statement for purposes of invoking these safe harbor provisions.  These forward-
looking  statements  include,  but are not  limited  to,  statements  about  the
operations of the Company,  the adequacy of the  Company's  allowance for losses
associated with the loan portfolio,  the prospects of continued loan and deposit
growth,  and improved credit  quality.  The  forward-looking  statements in this
report involve certain estimates or assumptions, known and unknown

                                       8
<PAGE>

risks and  uncertainties,  many of which are beyond the control of the  Company,
and reflect what we currently anticipate will happen in each case. What actually
happens could differ  materially  from what we currently  anticipate will happen
due to a variety of factors,  including, among others, (i) increased competitive
pressures among financial services companies;  (ii) changes in the interest rate
environment,  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,  and
(vi) 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.
                                       9

<PAGE>



          THREE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
                              RESULTS OF OPERATIONS


Earnings Summary

     For the third  quarter of 2001,  the  Company  reported  net income of $2.8
million,  an increase of $376 thousand over the same period last year.  Earnings
per diluted common share increased 16.2% to $0.43 from $0.37 for the same period
in 2000.  The advance in earnings  was driven  largely by growth in net interest
income on a tax equivalent  basis,  which increased $674 thousand,  or 8.5%. The
improvement  in net  interest  income was  attributable  to the  Company's  loan
production,  which  generated  $36.7  million  of growth in  average  loans.  In
addition, non-interest income, which increased $234 thousand, or 19.0%, over the
same period last year also  contributed  to the  improvement  in  earnings.  The
growth in revenues was partly offset by a $321  thousand,  or 6.0%,  increase in
non-interest  expenses,  which  largely  reflect the costs  associated  with the
opening of two new  branches  during  the second  half of 2000 and the growth of
ICC, the Bank's equipment lease financing subsidiary.

Net Interest Income

     Net  interest  income  is the  most  significant  source  of the  Company's
operating income.  Net interest income on a tax-equivalent  basis increased $674
thousand,  or 8.5%, to $8.7 million for the quarter ended  September 30, 2001 as
compared to the same quarter in 2000. The increase in net interest income is due
primarily  to a  $31.2  million  growth  in  average  interest  earning  assets,
particularly loans. This asset growth was funded by deposit  liabilities,  which
grew $40.5  million on average for the third  quarter of 2001 as compared to the
same quarter in 2000.  The growth in net  interest  income was also driven by an
improvement in the net interest margin  ("margin"),  which increased by 18 basis
points to 4.53% for the third quarter of 2001 as compared to the same quarter in
2000.

     Interest income, on a tax-equivalent  basis,  totaled $14.3 million for the
third quarter of 2001,  which  decreased $204 thousand,  or 1.4%, as compared to
the same quarter in 2000.  The decrease in interest  income  resulted  from a 43
basis point decline in average yield on interest-earning assets to 7.49% for the
third  quarter of 2001 as compared  to the same  period in 2000.  The decline in
average yield is attributed to a reduction in market interest rates. A growth in
average  interest-earning  assets,  principally  loans  and  securities,   which
increased  $31.2  million or 4.3%  partly  offset the  effects of the decline in
asset yields.

     Interest expense, which totaled $5.7 million for the third quarter of 2001,
decreased $878 thousand,  or 13.4%,  as compared to the same period in 2000. The
decrease is principally due to

                                       10
<PAGE>


average rates paid on interest-bearing  liabilities declining 77 basis points to
3.64%  over  the  prior   comparable   period,   despite  a  growth  in  average
interest-bearing  liabilities  of $28.6 million for the third quarter of 2001 as
compared to the third quarter of 2000.

Non-interest Income

     For the quarter ended  September 30, 2001,  non-interest  income  increased
$234  thousand,  or 19%, to $1.5  million  from $1.2  million one year ago.  The
significant  components  of the change were:  an increase to the cash  surrender
value of the Bank's newly  purchased bank owned life insurance  ("BOLI") of $170
thousand; net gains on the sales of securities of $129 thousand; and an increase
in lease  syndication  income of $123  thousand.  The change was  influenced  by
non-recurring  items in 2000  consisting  of  gains  from the  early  payoff  of
commercial  loans  purchased  at a discount and the  settlement  of an insurance
claim of $197  thousand  and $53  thousand,  respectively.  Miscellaneous  other
income comprised the remainder of the increase in non-interest income.

Non-interest Expenses

     Non-interest  expenses increases $321 thousand,  or 6%, to $5.7 million for
the quarter ended  September 30, 2001, from $5.4 million for the same period one
year ago. The increase in non-interest expenses was principally due to growth in
salaries  and  benefits  and  advertising  expenses  of $216  thousand  and $144
thousand,  respectively,  for the third  quarter of 2001 as compared to the same
quarter in 2000.  The growth in salaries and benefits was partly  attributed  to
two new branches, which were opened in the second half of 2000 and the continued
growth in the  operations  of ICC.  Directors'  expenses,  which  decreased  $36
thousand,  offset a portion of the growth in non-interest expenses. The decrease
reflects a decline in the period expense for the Directors' Retirement Plan.

Income Taxes

     Income tax  expense  as a  percentage  of pre-tax  income was 32.4% for the
three months ended September 30, 2001 as compared to 33.3% for the third quarter
of 2000. The improvement  was largely due to increased  investments in loans and
the BOLI, which are exempt from federal income tax.


                                       11
<PAGE>

           NINE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
                              RESULTS OF OPERATIONS

Earnings Summary

     For the first nine months of 2001, the Company  reported net income of $7.6
million,  or $1.16  diluted  earnings per common  share,  as compared  with $6.6
million,  or $1.01  diluted  earnings  per common share for the same period last
year.  The  advance in  earnings  was driven  largely by growth in net  interest
income on a tax equivalent  basis,  which  increased $1.8 million,  or 7.9%. The
improvement  in net  interest  income was  attributable  to the  Company's  loan
production,  which  generated  $44.5  million  of growth in  average  loans.  In
addition, non-interest income, which increased $672 thousand, or 21.2%, over the
same period last year also  contributed  to the  improvement  in  earnings.  The
growth in revenues was partly  offset by a $1.2  million,  or 7.6%,  increase in
non-interest  expenses,  which  largely  reflect the costs  associated  with the
opening of two  branches  during the second  half of 2000 and the growth of ICC.

Net Interest Income

     Net interest  income on a tax  equivalent  basis  increased $1.8 million to
$25.3  million for the nine months ended  September  30, 2001 as compared to the
same period in 2000.  The increase in net interest  income is due primarily to a
7.5% growth in average  interest earning assets,  particularly  loans. The asset
growth  was funded by deposit  liabilities,  which grew 9.0% on average  for the
nine months ended September 30, 2001, as compared to the same period last year.

     Interest income, on a tax-equivalent  basis,  totaled $43.6 million for the
first nine months of 2001, an increase of $2.5 million,  or 6.1%, as compared to
the same period in 2000.  The growth in interest  income  resulted  from a $53.3
million, or 7.5%, growth in average interest-earning assets,  principally loans,
which grew $44.5 million, or 8.4%. The average yield on interest-earning  assets
declined 11 basis  points to 7.64% for the first nine months of 2001 as compared
to the same period in 2000 served to offset some of the  benefits  derived  from
the growth in interest  earning  assets.  The  decline in average  yield was due
largely to a reduction in market interest rates.

     Interest expense,  which totaled$18.3  million for the first nine months of
2001, increased $650 thousand,  or 3.7%, as compared to the same period in 2000.
The increase is  attributable  mostly to the growth in average  interest-bearing
liabilities  of $45.0  million  for first nine months of 2001 as compared to the
same period in 2000.  A decrease in the average  rates paid on  interest-bearing
liabilities of 16 basis points to 3.96% over the prior comparable  period served
to offset some of the growth in interest bearing liabilities.

                                       12
<PAGE>

Non-interest Income

     For the nine months ended September 30, 2001,  non-interest income amounted
to $3.8 million, an increase of $672 thousand, or 21.2%, as compared to the same
period in 2000.  The  significant  components of the change were: an increase to
the cash  surrender  value of the Bank's newly  purchased BOLI of $170 thousand;
net gains on the sales of securities of $150 thousand;  and an increase in lease
syndication income of $156 thousand. Further, fees on deposit accounts increased
$70 thousand also contributing to the increase.

Non-interest Expenses

     For the nine months ended September 30, 2001, non-interest expenses totaled
$17.1  million,  an increase of $1.2  million,  or 7.6%, as compared to the same
period in 2000. The Bank's expansion program, which included adding two branches
during the last half of 2000 and also included growing the operations of ICC was
largely  responsible  for the increase in non-interest  expenses.  The increased
costs for the new branches and ICC's increased operations were $413 thousand and
$300  thousand,  respectively.  After  adjusting  for the above  noted  expenses
related to  expansion  costs,  non-interest  expenses  for the nine months ended
September 30, 2001 increased $494 thousand, or 3.1%, compared to the nine months
ended  September 30, 2000. This change occurred in salaries and benefits and net
occupancy,  which increased $458 thousand,  or 5.5%, and $120 thousand, or 5.4%,
respectively,  for the nine months  ended 2001 as compared to the same period in
2000 was due mostly to normal growth.

Income Taxes

     Income tax expense as a percentage of pre-tax income was 32.4% for the nine
months  ended  September  30,  2001 as  compared to 33.1% for the same period of
2000. The improvement was largely due to increased  investment in loans that are
exempt from federal income tax.

                                       13

<PAGE>

                               FINANCIAL CONDITION

     At September 30, 2001, the Company's total assets were $811.6  million, an
increase of $41.4  million,  or 5.4%,  from $770.2 million at December 31, 2000.
The growth was  largely in loans and  securities,  which grew $31.0  million and
$9.1 million,  respectively,  for September 30, 2001 as compared to December 31,
2000.  The asset  growth  was  funded  principally  by an  increase  in  deposit
liabilities, which occurred mostly in interest bearing demand deposits.

Cash and Cash Equivalents

     At September 30, 2001, cash and cash equivalents decreased $10.0 million to
$23.1  million as compared to December 31,  2000.  This is largely the result of
investing  activities  (funding loans and investment growth) investing cash more
rapidly than financing  activities  (reflecting  principally deposit growth less
repayments of borrowings)  and operating  activities  (reflecting net income and
changes in other assets) could generate it. This can be seen more  completely on
the accompanying unaudited Statements of Cash Flows.

Securities Portfolio

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

     The Company uses its securities portfolio to ensure liquidity for cash flow
requirements,  to manage  interest rate risk, to provide a source of income,  to
ensure  collateral  is available for pledging  requirements  and to manage asset
quality  diversification.  At September 30, 2001,  investment securities totaled
$170.5  million and  represented  21.0% of total  assets,  as compared to $161.4
million and 20.9%, respectively,  at December 31, 2000. AFS securities comprised
76.4% of the total  securities  portfolio at  September  30, 2001 as compared to
74.6% at December 31, 2000.  During the third quarter of 2001,  the Company sold
securities with a book value of approximately  $15.3 million and recognized $129
thousand in gains from the security sales. The proceeds from the securities sold
were used to fund the purchase of the BOLI.

                                       14
<PAGE>

<TABLE>

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

                                                                    ----------------------------------------------------------
                                                                                      September 30, 2001
                                                                    ----------------------------------------------------------
                                                                                         (unaudited)
                                                                                      Gross           Gross         Estimated
                                                                   Amortized       Unrealized       Unrealized        Market
                                                                     Cost             Gains           Losses          Value
                                                                   _________       __________       __________      _________
<S>                                                                <C>             <C>              <C>             <C>

Securities held to maturity
    Mortgage-backed securities                                      $23,765            $453             $ -         $ 24,218
    Obligations of U.S. agencies                                      5,974             233               -            6,207
    Obligations of states & political subdivisions                   10,126             470               2           10,594
    Other debt securities                                               331               5               -              336
                                                                   _________       __________       __________      _________
                                                                     40,196           1,161               2           41,355
                                                                   _________       __________       __________      _________

Securities available for sale
    Obligations of U.S. Treasury                                      1,998              34               -            2,032
    Mortgage-backed securities                                       90,292           2,254              19           92,527
    Obligations of U.S. agencies                                     17,011             828               -           17,839
    Obligations of states & political subdivisions                   10,783             652               -           11,435
    Other debt securities                                             2,410              42               -            2,452
    Equity securities                                                 3,984               5               -            3,989
                                                                   _________       __________       __________      _________
                                                                    126,478           3,815              19          130,274
                                                                   _________       __________       __________      _________
      Total securities                                             $166,674          $4,976             $21         $171,629
                                                                   =========       ==========       ==========      =========

                                                                   ----------------------------------------------------------
                                                                                      December 31, 2000
                                                                   ----------------------------------------------------------
                                                                                         (unaudited)
                                                                                      Gross           Gross         Estimated
                                                                   Amortized       Unrealized       Unrealized        Market
                                                                     Cost             Gains           Losses          Value
                                                                   _________       __________       __________      _________
Securities held to maturity
    Mortgage-backed securities                                     $ 12,646            $ 96            $ 48         $ 12,694
    Obligations of U.S. agencies                                     15,161             244               8           15,397
    Obligations of states & political subdivisions                   12,813             137              64           12,886
    Other debt securities                                               422               1               -              423
                                                                   _________       __________       __________      ________
                                                                     41,042             478             120           41,400
                                                                   _________       __________       __________      ________
Securities available for sale
    Obligations of U.S. Treasury                                      1,996              26               -            2,022
    Mortgage-backed securities                                       79,242             758             155           79,845
    Obligations of U.S. agencies                                     19,924             194               4           20,114
    Obligations of states & political subdivisions                   13,562             237              58           13,741
    Other debt securities                                               612               8               -              620
    Equity securities                                                 3,970               -               -            3,970
                                                                   _________       __________       __________      ________
                                                                    119,306           1,223             217          120,312
                                                                   _________       __________       __________      ________
      Total securities                                             $160,348          $1,701            $337         $161,712
                                                                   =========       ==========       ==========      ========
</TABLE>

                                       15
<PAGE>

<TABLE>


     At September 30, 2001,  the  contractual  maturities of securities  held to maturity and
securities  available  for  sale  are  as  follows:  (dollars  in thousands) (unaudited)
<CAPTION>
                                           Securities                       Securities
                                       Held to Maturity                 Available for Sale
                                  ___________________________        ____________________________
                                     Amortized        Market             Amortized       Market
                                       Cost            Value               Cost           Value
                                  ___________________________        ____________________________
<S>                               <C>              <C>               <C>                <C>

Within 1 year                        $ 4,904       $ 5,016              $ 6,050         $ 6,165
After 1 but within 5 years             6,223         6,473               50,315          52,207
After 5 but within 10 years           15,062        15,556               14,605          15,210
After 10 years                        14,007        14,310               51,524          52,704
Equity securities                        -             -                  3,984           3,988
                            Total   $ 40,196      $ 41,355            $ 126,478       $ 130,274
                                  ===========================        ============================
</TABLE>

Loans

     Total loans  amounted to $591.8  million at September 30, 2001, an increase
of $31.0  million  from $560.9  million at  December  31,  2000.  The growth was
predominately in commercial  mortgage loans and consumer lease financing,  which
increased $17.5 million and $13.9 million,  respectively.  During the first nine
months of 2001,  the Company  purchased  $15.4  million of consumer auto leases.
These leases were subjected to the Company's  independent  credit analysis prior
to  purchase  and  were,  in  some  cases,  purchased  with a  limited  buy-back
obligation from the sellers.

<TABLE>

     The  following  table  reflects  the  composition  of the  loan  and  lease portfolio: (dollars in
thousands)
<CAPTION>
                                                      --------------------   -------------------
                                                         September 30,          December 31,
                                                             2001                   2000
                                                      --------------------   -------------------
                                                          (unaudited)
<S>                                                   <C>                    <C>
Amount of loans by type
     Real estate-mortgage
         Commercial                                              $199,203              $181,722
         1-4 family residential
               First liens                                        116,246               110,369
               Junior liens                                         8,425                11,195
               Home equity                                        136,265               142,610
     Commercial and financial                                      80,511                76,702
     Real estate-construction                                       2,407                 3,755
     Installment                                                    5,478                 6,108
     Lease financing
         Commercial                                                24,527                23,499
         Consumer                                                  18,787                 4,919
                                                      --------------------   -------------------
               Total                                             $591,849              $560,879
                                                      ====================   ===================

</TABLE>

                                       16
<PAGE>

Deposits

     Deposits  are an  essential  and  cost-effective  funding  source  for  the
Company.  The Company attributes its success in growing deposits to the emphasis
it places on  building  core  customer  relationships  by  offering a variety of
products  designed to meet the financial  needs of the customers  based on their
identifiable "life stages".

     At September 30, 2001, total deposits increased $36.9 million,  or 5.5%, to
$705.8  million from $668.9 million at December 31, 2000. The growth in deposits
occurred  principally  in  other  interest-bearing   demand  deposits  and  time
deposits,  which  increased $30.4 million,  or 8.6%, and $7.1 million,  or 3.4%,
respectively,  at September  30, 2001 as compared to December  31,  2000.  Other
interest-bearing  deposits,  which include interest-bearing demand, money market
and savings  accounts,  comprise  the  largest  segment of the  Company's  total
deposits.  The average  yield on other  interest-bearing  deposits  decreased 89
basis  points to 2.50% for the third  quarter  of 2001 as  compared  to the same
period in 2000.

     For the three and nine months  ended  September  30,  2001,  the  Company's
overall  yield on  deposits  decreased  by 56 basis  points and 4 basis  points,
respectively,  as  compared  to the same  periods  last year.  The  decrease  is
attributed predominately to changes in market interest rates and a change in the
composition of deposit liabilities.

Nonperforming Assets

     Nonperforming assets are comprised of nonaccrual loans,  restructured loans
and foreclosed real estate. At September 30, 2001, nonperforming assets amounted
to $4.2  million,  an increase of $2.6 million from $1.6 million at December 31,
2000.  Included in  non-performing  loans at September  30, 2001 is a commercial
loan amounting to $971 thousand, which was paid in full (including back interest
and other  charges)  in  October  2001.  After  adjusting  for this  occurrence,
non-performing  loans would have totaled  $2.9 million at September  30, 2001, a
$1.5  million  increase  from  year-end  2000.  Part of the increase is due to a
commercial real estate loan amounting to $604 thousand,  which is 25% guaranteed
by the New Jersey Economic Development Authority. The remainder of the change is
due largely to an increase in  delinquencies in ICC's equipment lease portfolio.
Management is presently  working with its source  vendors and other  entities to
resolve  the  delinquencies.  The  resolution  includes  but is not  limited  to
obtaining possession of the equipment,  which will be re-marketed by the vendors
to new  customers.  The  ratio  of  nonperforming  assets  to  total  loans  and
foreclosed  real estate  increased to 0.54% at September 30, 2001,  adjusted for
the pay-off of the $971  thousand  commercial  loan,  from 0.29% at December 31,
2000.
                                       17
<PAGE>

Provision for Loan and Lease Losses and Loan Loss Experience

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

     The ALLL was $6.3  million  at  September  30,  2001,  and $6.2  million at
December  31, 2000,  representing  161.7% and 441.2% of  nonperforming  loans at
those  dates,  respectively.  For the first  nine  months of 2001 and 2000,  the
Company's  provision  for loan and  lease  losses  was  $590  thousand  and $750
thousand, respectively.

Market Risk

     The Company's primary exposure to market risk arises from changes in market
interest rates  ("interest rate risk").  The Company's  profitability is largely
dependent upon its ability to manage interest rate risk.  Interest rate risk can
be defined as the  exposure  of the  Company's  net  interest  income to adverse
movements in interest  rates.  Although the Company  manages other risks,  as in
credit and liquidity  risk,  in the normal  course of its  business,  management
considers  interest rate risk to be its most  significant  market risk and could
potentially  have  the  largest  material  effect  on  the  Company's  financial
condition. The primary objective of the asset/liability management process is to
measure  the  effect of  changing  interest  rates on net  interest  income  and
economic value of equity and adjust the balance sheet, if necessary, to minimize
the  inherent  risk and  maximize  income.  On a  weekly  basis,  the  Company's
Asset/Liability  Committee ("ALCO") meets to review matters pertaining to market
and interest rate risk. On a quarterly basis,  management  through the use of an
asset/liability   simulation  model  produces  a  report,  which  estimates  the
potential  impact on net interest  income and future  economic  value of equity.
ALCO and the Board of Directors  review this report.  At September 30, 2001, the
Company  simulated the effects on net interest income given an instantaneous and
parallel shift in the yield curve of 200 basis points in either direction. Based
on the simulation,  the results did not  significantly  change from December 31,
2000. At September 30, 2001,

                                       18
<PAGE>

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  Company  does not have  any  material  exposure  to  foreign  currency
exchange rate risk or commodity  price risk.  The Company did not enter into any
market rate sensitive  instruments for trading purposes nor did it engage in any
hedging transactions utilizing derivative financial instruments during the first
nine months of 2001.

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

Capital Adequacy

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

     A banking  organization's total qualifying capital includes two components:
core capital (Tier 1 capital) and supplementary  capital (Tier 2 capital).  Core
capital,  which must comprise at least half of total  capital,  includes  common
shareholders'  equity,  qualifying  perpetual  preferred stock,  trust preferred
securities  (subject  to  certain  limitations)  and  minority  interests,  less
goodwill.  Supplementary capital includes the allowance for loan losses (subject
to certain limitations), other

                                 19
<PAGE>

perpetual  preferred stock,  trust preferred  securities,  certain other capital
instruments  and term  subordinated  debt.  Total capital is the sum of core and
supplementary capital.

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

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

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

<TABLE>

The Company's and the Bank's capital amounts and ratios are as follows: (dollars in thousands)
<CAPTION>
                                                                                                                  To Be "Well
                                                                                                               Capitalized" Under
                                                                                      For Capital              Prompt Corrective
                                                          Actual                   Adequacy Purposes           Action Provisions
                                                 --------------------------    -------------------------     -----------------------
                                                    Amount        Ratio           Amount        Ratio          Amount       Ratio
                                                 ------------- ------------    ------------- -----------     ----------- -----------
<S>                                              <C>           <C>             <C>           <C>             <C>         <C>

As of September 30, 2001 (unaudited):
     Total Capital (to Risk Weighted Assets):
       The Company                                 $72,266        12.73 %        $45,403        8.00 %       $56,754       10.00 %
       The Bank                                     71,662        12.62           45,402        8.00          56,753       10.00
     Tier 1 Capital (to Risk Weighted Assets):
       The Company                                  65,927        11.62           22,702        4.00          34,052        6.00
       The Bank                                     65,323        11.51           22,701        4.00          34,052        6.00
     Tier 1 Capital (to Average Assets):
       The Company                                  65,927         8.18           32,251        4.00             N/A         N/A
       The Bank                                     65,323         8.13           32,144        4.00          40,181        5.00

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

</TABLE>
                                       20
<PAGE>

Liquidity

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

     The  Company's  most liquid  assets are cash and due from banks and federal
funds sold.  At September 30, 2001,  the total of such assets  amounted to $23.1
million, or 2.9%, of total assets,  compared to $33.1 million, or 4.3%, of total
assets at December 31, 2000. The decrease in cash and cash  equivalents  was due
largely to growth in  investments  and  loans.  At  September  30,  2001,  total
investments  amounted to $170.5 million,  an increase of $9.1 million or 5.7% as
compared to December 31, 2000. The growth in investments  occurred mostly in AFS
securities, which is also another significant liquidity source. At September 30,
2001, AFS securities  amounted to $130.3 million, or 76.4%, of total securities,
compared to $120.3 million,  or 74.6%, of total securities at December 31, 2000.

     In  2001,  despite  heightened   competition  for  loans,  loan  production
continued  to be the  Company's  principal  investing  activity.  Net  loans  at
September 30, 2001 amounted to $585.5 million,  an increase of $30.8 million, or
5.5%, from $554.7 million at December 31, 2000.

     Financing for the Company's loans and investments is derived primarily from
deposits,  along with interest and principal  payments on loans and investments.
At September 30, 2001, total deposits amounted to $705.8 million, an increase of
$36.9  million,  or 5.5%,  from  December  31, 2000.  In  addition,  the Company
supplements  the more  traditional  funding  sources  with  borrowings  from the
Federal  Home Loan Bank of New York  ("FHLB")  and with  securities  sold  under
agreements to  repurchase  ("REPOS").  At September 30, 2001,  advances from the
FHLB and REPOS  amounted to $18.5 million and $10.5  million,  respectively,  as
compared to $13.0 million and $18.5 million, respectively, at December 31, 2000.
At September 30, 2001, total borrowings amounted to 3.6% of total assets,  which
was a decline from 4.1% at December 31, 2000. In addition to the  aforementioned
sources of  liquidity,  the  Company  has  available  various  other  sources of
liquidity,  including  federal funds  purchased from other banks and the Federal
Reserve  discount  window.  The Bank  also has a $79.9  million  line of  credit
available through its membership in the FHLB.

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

                                       21
<PAGE>


                           PART II - OTHER INFORMATION

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

Item 2.   Change in Securities and Use of Proceeds
          None

Item 3.   Defaults Upon Senior Securities
          None

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

Item 5.   Other Information
          None

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

          (b) Reports on Form 8-K
              None

                                       22
<PAGE>




                                   SIGNATURES

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

Interchange Financial Services Corporation

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


Dated: November 14, 2001

                                       23
<PAGE>

<TABLE>

Exhibit 11.  Computation Re: Earnings Per Share
                       (dollars in thousands, except per share amounts)
<CAPTION>
                             --------------------------------------------------- ---------------------------------------------------
                                               Three Months Ended,                                Nine Months Ended,
                             --------------------------------------------------- ---------------------------------------------------
                                September 30, 2001         September 30, 2000        September 30, 2001         September 30, 2000
                             -------------------------  ------------------------ ------------------------    -----------------------
                                    Weighted   Per              Weighted   Per            Weighted   Per           Weighted   Per
                                    Average    Share            Average   Share           Average   Share          Average    Share
                             Income  Shares    Amount   Income   Shares   Amount  Income   Shares   Amount  Income   Shares   Amount
                             ------ --------   ------   ------  -------- -------  ------  --------  ------  ------ --------   ------
<S>                          <C>    <C>       <C>       <C>     <C>      <C>      <C>     <C>       <C>     <C>    <C>        <C>
Basic Earnings per
   Common Share
Income available to
   common shareholders       $2,793   6,521    $0.43    $2,417   6,527   $0.37    7,598   6,535   $1.16    $6,599    6,544   $1.01
                                               =====                     =====                    =====                      =====

Effect of Dilutive Shares
Options issued to
   management                            38                         16                       28                         18
                                    -------                     ------                    -----                      -----

Diluted Earnings per
   Common Share              $2,793   6,559    $0.43    $2,417   6,543   $0.37   $7,598   6,563   $1.16    $6,599    6,562   $1.01
                             ====== =======    =====    ======= ======   =====   ======   =====   =====    ======    =====   =====

</TABLE>