IN THE MATTER OF                    :
                                    :

ROBERT N. HARRIS                    :
                                    :

                  and               :             AGREEMENT
                                    :

INTERCHANGE STATE BANK and          :
INTERCHANGE FINANCIAL               :
SERVICES CORP.                      :

                                    :
                                    :

          This  Agreement is entered into this 2nd day of January,  1997, by and
between  Interchange  State  Bank  and  Interchange   Financial  Services  Corp.
(collectively the "Bank"), a corporation located at Park 80 West/Plaza 2, Saddle
Brook, New Jersey 07663, and Robert N. Harris  ("Harris"),  who now resides at 7
Brocken Drive, Mendham, New Jersey 07945.

          IN CONSIDERATION  OF THE MUTUAL PROMISES  CONTAINED IN THIS AGREEMENT,
IT IS AGREED that:

          1. Robert N.  Harris,  who now holds the  position of  Executive  Vice
President  and Chief  Financial  Officer with the Bank,  has  requested and been
granted  separation and will,  pursuant to that choice,  retire  effective on or
before  December  31,  1996.  Harris  waives any and all  entitlement  to future
employment  by the Bank,  or any of its  present  or future  affiliates,  in any
capacity whatsoever.

         2. Upon his retirement,  Harris will receive severance pay (which shall
be deemed to include all accrued  vacation pay) until he shall have attained the
age of  sixty-five  as of July 31, 1997,  in the amount of $87,370  (less normal
payroll  deductions),  payable on a bi-weekly  basis over a twelve-month  period
beginning January 1, 1997 (i.e., 26 payments of $3,360.38 every two weeks).

         3. In lieu of continued  medical and dental  insurance  coverage during
the period  beginning  with his separation and ending on July 31, 1997, the Bank
will pay Harris an amount  equal to the cost of premium  payments  that it would
make on his behalf for such  coverage  had he remained  with the Bank until July
31, 1997.  Such  payments  shall be on a bi-weekly  basis (i.e.,  15 payments of
$92.94).   All  benefits  shall  cease  effective  upon  the  date  of  Harris's
retirement.

          4. The Bank will credit  Harris with 1,000  hours'  service  under its
pension plan for the year 1997.

          5. Harris shall be  permitted to purchase the Bank vehicle  being used
by him at the Bank's depreciated  carrying value which, as of December 31, 1996,
is $13,035.28.

         6.  Harris  hereby  waives any and all  rights  which he may have to an
incentive  bonus for the year 1997.  Disposition of Harris's stock options shall
be  determined  under the terms of the Bank's  Stock  Option  Plan of 1989.  Any
restricted  stock currently held by Harris,  including stock he may receive as a
1996 bonus, shall be deemed non-forfeitable despite any provision of the plan to
the contrary.  Harris's entitlements under the Interchange Deferred Compensation
Plan for Robert N. Harris shall be determined under the provisions of that plan,
except that he shall also receive a contribution  to the Plan of $10,000 for the
year 1997.  All  rights  and  obligations  arising  from a "change  in  control"
agreement  entered  into  between  Harris  and  Interchange  Financial  Services
Corporation  dated June 8, 1995,  shall terminate upon his retirement,  and such
agreement shall upon that date become null and void and unenforceable.  However,
in the event that in the  calendar  year of 1997 the  corporation  enters into a
definitive   agreement  to  be  acquired,   that  upon  the  effective  date  of
acquisition,  Harris will be entitled to an additional payment of $147,000 which
equals one year full salary.

         7.       Harris agrees forthwith to:

          (a) sign the  attached  Release,  by which he waives and  releases the
Bank and the others  identified  therein from all claims  relating to or arising
out of his  employment  with  the  Bank,  particularly  any  and all  claims  of
employment  discrimination under the Age Discrimination in Employment Act, Title
VII of the Civil Rights  and/or the New Jersey Law Against  Discrimination,  the
Americans With Disabilities  Act, the Conscientious  Employee Act, all claims of
wrongful  or  unlawful  termination,  claims of breach of  contract,  express or
implied,  all claims growing out of any  restriction  upon the Bank to terminate
the  employment  relationship,  and such other claims cited therein which he may
have  against the Bank or such other  persons or entities  recited  therein.  He
expressly  agrees  and   acknowledges   that  this  Agreement  and  the  Release
contemplate the extinguishment of all such claims.

         (b) If Harris  executes this  Agreement at any time prior to the end of
the  twenty-one  (21) day  period  that  Interchange  gives  Harris  in which to
consider this Agreement,  such early execution is a knowing and voluntary waiver
of Harris's right to consider this Agreement for at least  twenty-one (21) days,
and is due to  Harris's  belief  that Harris had ample time in which to consider
and  understand  this  Agreement,  and in which to review this Agreement with an
attorney.

         8. The parties  expressly  agree that execution of this Agreement shall
constitute  an  absolute  bar to  any  legal  action  in  any  forum,  judicial,
administrative or arbitral,  by Harris against the Bank or any of its present or
future  affiliates,  or any other party  identified as a releasee in the Release
relating to any matter covered by the terms of the Release.

         9. Harris (and his attorneys if he consults  counsel in connection with
this Agreement) agree that Harris will keep confidential and not disclose to any
person or entity  (except  Harris's  spouse and children) the facts and terms of
this Agreement or the content of discussions leading to this Agreement except to
the extent  necessary  to comply with state or federal laws and that he will not
issue,  or  cooperate  with or  permit  the  issuance  of,  any  public  release
concerning  this  Agreement  or  discussions  regarding  this  Agreement.  It is
expressly agreed and understood that any violation of this paragraph,  including
disclosure  by Harris's  spouse,  children  or  attorney of the matters  covered
herein, shall be a material breach of the parties' agreement.

         10.  Harris  also  agrees that all  confidential  information  which he
acquired in his capacity as Executive Vice President and Chief Financial Officer
of the Bank,  and which has not become  public  knowledge,  is considered by the
parties hereto to be confidential business information and may not be disclosed,
discussed  or  utilized  by  Harris in any  manner  without  the  prior  written
permission  of the  Bank.  Harris  agrees to  cooperate  fully  with the  Bank's
management  in the handling of all business for which Harris had  responsibility
or has relevant information.

         11. Harris also agrees that he will not,  except as may be compelled by
judicial process,  cooperate in any manner or supply  information of any kind in
any  proceeding,  investigation  or inquiry related in any way to the employment
practices or procedures of the Bank.

         12. In the  event of a breach of this  Agreement  by  Harris,  the Bank
shall  be  relieved  of its  obligations  hereunder  and  shall be  entitled  to
repayment of all monies paid to Harris pursuant to this agreement.

         13. It is agreed  further that should a breach of any provision of this
Agreement occur, the non-breaching party shall be entitled by court of competent
jurisdiction to all available remedies which apply to violations hereof.

         14. In the event that the Bank or Harris is  required  to  commence  an
action,  in law or  equity,  to  enforce  rights  under  any  provision  of this
Agreement, the nonprevailing party shall be liable for the reasonable attorney's
fees and costs incurred by the other in connection with such action.

         15. It is agreed and  understood  that  neither the  execution  of this
Agreement  nor any  other  action  taken by the  Bank in  connection  with  this
Agreement  constitutes  an  admission  by the  Bank,  or  any of its  directors,
officers,  agents,  employees or representatives,  of any acts of discrimination
whatsoever  against Harris,  or of any violation of any law, duty or obligation,
and the Bank specifically  disclaims any liability to or discrimination  against
Harris, on the part of itself,  its directors,  officers,  agents,  employees or
representatives.  The parties have entered into this Agreement  voluntarily  and
solely to effectuate Harris's decision to retire from the Bank.

         16. This  Agreement  contains  the entire  Agreement of the parties and
cannot be altered or amended  except in writing duly  executed by the parties or
their authorized representatives.

         17. This Agreement shall be interpreted and enforced in accordance with
the laws and in the  courts  of the  State  of New  Jersey.  If any part of this
Agreement  shall be ruled  unenforceable,  it is  understood  that the surviving
portions of this Agreement shall remain binding on the parties.

         18. This  Agreement  shall be binding  upon the  parties,  their heirs,
successors and assigns.  The Bank shall require the assumption of this Agreement
by any purchaser of the Bank during its term.

         The foregoing terms and provisions are hereby agreed to and accepted:

                                                            Dated: 1/24/97
s/s Robert N. Harris                                        --------------
--------------------
Robert N. Harris

Sworn and subscribed to before me this 24 day of January, 1997.

s/s Carmella Tucci
------------------
Notary Public

For Interchange State Bank

By: s/s Anthony S. Abbate                                     Dated: 1/27/97
    ---------------------                                    ---------------
        Title: President & CEO

        [SEAL]

For Interchange Financial Services Corp.

By: s/s Anthony S. Abbate                                     Dated: 1/27/97
    ---------------------                                     --------------
        Title:  President & Ceo

        [SEAL]

<PAGE>

                           GENERAL RELEASE AND WAIVER

         In  consideration  of the special  severance  payments  and benefits by
Interchange State Bank, which payment/benefits are over and above those payments
and/or benefits to which I am otherwise  entitled under  Interchange  State Bank
and  Interchange  Finanical  Service Corp.'s  regular  policies and programs,  I
release and discharge  Interchange State Bank,  Interchange  Financial  Services
Corp.  and all  their  present  or future  affiliated,  related  and  subsidiary
corporations and their present, former and future directors, officers, employees
and representatives and the estates and/or heirs thereof from any and all claims
which I, my estate and/or heirs may have against any of them.  This releases all
claims,  known and unknown,  which were or could have been  asserted,  resulting
from  anything  which has happened up to now,  including  claims for  attorney's
fees.  I hereby  promise  not to  commence  or pursue,  or  authorize  anyone to
commence  or  pursue on my  behalf,  any  action,  legal or  administrative,  or
otherwise  seek to recover  any  damages,  remedy or relief of any kind from any
releasee based upon any claim covered by this General Release and Waiver.

         Without  limiting the scope of the  foregoing  provisions in any way, I
specifically  release all claims  relating to or arising out of any aspect of my
employment with Interchange  State Bank and/or  Interchange  Financial  Services
Corp. or the termination thereof including, but not limited to, all claims under
common law; the Age  Discrimination in Employment Act and specifically 29 U.S.C.
ss.626;  Title  VII of the  Civil  Rights  Act of 1964,  as  amended;  42 U.S.C.
ss.1981,  as amended by the Civil Rights Act of 1991;  the  Employee  Retirement
Income  Security Act of 1974  ("ERISA"),  29 U.S.C.  1001, et seq.; the National
Labor Relations Act, 29 U.S.C. 151 et seq.; the Americans With  Disabilities Act
of 1990,  29 U.S.C.  706 et seq.;  the New  Jersey Law  Against  Discrimination,
N.J.S.A.  10:5-1 et seq.; the New Jersey Conscientious  Employee Protection Act,
N.J.S.A.  34:19-1 et seq.; any contract of employment,  express or implied;  any
provision of the  Constitutions of the United States or the State of New Jersey;
and any other law, common or statutory, of the United States or the State of New
Jersey or any other State; and all claims growing out of any legal  restrictions
on the Interchange State Bank's right to terminate its employees.

s/s Robert N. Harris                            Dated:  1/27/97
    --------------------------
         Signature

Robert N. Harris
------------------------------
      Name (Please Print)

                                 ACKNOWLEDGMENT

         I HAVE CAREFULLY READ AND FULLY  UNDERSTAND THE TERMS AND CONDITIONS OF
THIS RELEASE. I ACKNOWLEDGE THAT THIS RELEASE WAS AVAILABLE TO ME FOR REVIEW FOR
21 DAYS BEGINNING  DECEMBER 16, 1996. I ACKNOWLEDGE  THAT I HAD THE  OPPORTUNITY
AND WAS ADVISED BY INTERCHANGE  STATE BANK AND  INTERCHANGE  FINANCIAL  SERVICES
CORP. TO REVIEW THIS RELEASE WITH MY ATTORNEY AND/OR ANYONE ELSE OF MY CHOOSING,
AND TO DISCUSS WITH SUCH PERSON THE TERMS AND  CONDITIONS OF THIS RELEASE AND MY
RIGHTS UPON EXECUTION.  I AGREE AND ACKNOWLEDGE THAT NEITHER  INTERCHANGE  STATE
BANK NOR INTERCHANGE FINANCIAL SERVICES CORP. NOR THEIR REPRESENTATIVES MADE ANY
REPRESENTATIONS CONCERNING THE TERMS OR EFFECT OF THIS RELEASE OTHER THAN AS SET
FORTH IN THE DOCUMENT, AND THAT I HAVE VOLUNTARILY SIGNED THIS RELEASE AS MY OWN
FREE ACT WITH FULL  KNOWLEDGE OF ITS TERMS AND  CONDITIONS,  WHICH ARE FINAL AND
BINDING UPON ME.


         I UNDERSTAND  THAT FOR A PERIOD OF 7 DAYS FOLLOWING THE SIGNING OF THIS
RELEASE I MAY REVOKE THE RELEASE, AND THAT THIS RELEASE WILL NOT BE EFFECTIVE OR
ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED.

Dated: 1/24/97                               s/s Robert N. Harris
----------------                             -------------------------------
                                                      Signature
                                                  Robert N. Harris
                                             ---------------------------------
                                                  Name (Please Print)

STATE OF NEW JERSEY        :

                           SS.:

COUNTY OF BERGEN           :

          I CERTIFY THAT on January 24, 1997,  Robert N. Harris  personally came
before me and acknowledged  under oath, to my satisfaction,  that he is named in
and personally signed this document.

                                                s/s Carmella Tucci
                                              ---------------------------------
                                                      Notary Public