UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                   FORM 10-Q


                                   (Mark One)

( X ) Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities 
      Exchange Act of 1934
      
               For the quarterly period ended September 30, 1995
      
                                      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               0-13440
                       -------------------------------------

                             B.M.J. FINANCIAL CORP.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

         NEW JERSEY                                        22-2474875
-------------------------------                         ----------------
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                         Identification No.)

     243 ROUTE 130, BORDENTOWN, NJ                           08505
----------------------------------------                   ----------
(Address of principal executive offices)                   (Zip code)

                                 (609) 298-5500
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  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  reports),  and (2) has been  subject to such filing
requirements  for the past 90 days. 
Yes ( X )   No  (   )

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common  stock as of the  latest  practicable  date:  7,612,615  shares of common
stock, $1.00 par value, outstanding on October 31, 1995.
<PAGE>
                                     INDEX


PART 1.  FINANCIAL INFORMATION

Consolidated Balance Sheet -
         September 30, 1995 (Unaudited) and December 31, 1994

Consolidated Statement of Operations -
         Three months and nine months ended September 30,
         1995 and 1994 (Unaudited)

Consolidated Statement of Cash Flows -
         Nine months ended September 30, 1995 and 1994 (Unaudited)

Notes to Consolidated Financial Statements (Unaudited)

Management's Discussion and Analysis of Financial
         Condition and Results of Operations



PART 11. OTHER INFORMATION



SIGNATURES
<PAGE>
<TABLE>
<CAPTION>
                    B.M.J. Financial Corp. and Subsidiaries
                           Consolidated Balance Sheet
(Unaudited)
(In thousands)
                                                                                     September 30,  December 31,
                                                                                         1995           1994
                                                                                      ---------      ---------
<S>                                                                                   <C>            <C>      
ASSETS
Cash and cash equivalents:
  Cash and due from banks ......................................................      $  19,200      $  21,725
  Money market investments .....................................................          8,498         23,054
                                                                                      ---------      ---------
    Total cash and cash equivalents ............................................         27,698         44,779
                                                                                      ---------      ---------

Securities available for sale (amortized cost of $37,128 at
  September 30, 1995 and $3,006 at December 31, 1994) ..........................         37,139          2,911

Securities held to maturity  (market value of $106,759 at
  September 30, 1995 and $113,095 at December 31, 1994):
  U.S. Treasury securities .....................................................         16,239         25,308
  U.S. government agencies and corporations ....................................         84,831         89,815
  States and political subdivisions ............................................          3,925          3,080
  Other securities .............................................................          2,349            781
                                                                                      ---------      ---------
    Total securities held to maturity ..........................................        107,344        118,984
                                                                                      ---------      ---------

Loans, net of unearned income ..................................................        381,207        354,480
Less reserve for loan losses ...................................................         12,803         12,485
                                                                                      ---------      ---------
    Net loans ..................................................................        368,404        341,995
                                                                                      ---------      ---------

Premises and equipment, net ....................................................          5,889          5,598
Other real estate, net .........................................................          2,716          7,214
Other assets ...................................................................         16,749         16,951
                                                                                      ---------      ---------
    Total assets ...............................................................      $ 565,939      $ 538,432
                                                                                      =========      =========
<PAGE>
<CAPTION>
                    B.M.J. Financial Corp. and Subsidiaries
                     Consolidated Balance Sheet (Continued)
(Unaudited)
(In thousands)
                                                                                     September 30,  December 31,
                                                                                         1995           1994
                                                                                      ---------      ---------
<S>                                                                                   <C>            <C>      
LIABILITIES
Demand deposits (noninterest-bearing) ..........................................      $  76,439      $  78,446
Savings and interest checking ..................................................        255,172        271,209
Certificates of deposit of $100,000 or more ....................................         10,933          4,483
Other time deposits ............................................................        135,698        109,436
                                                                                      ---------      ---------
    Total deposits .............................................................        478,242        463,574
                                                                                      ---------      ---------

Securities sold under agreements to repurchase .................................         14,910          8,857
Other liabilities ..............................................................          5,914          4,955
Capital notes / long term debt .................................................          3,740          2,700
                                                                                      ---------      ---------
    Total liabilities ..........................................................        502,806        480,086
                                                                                      ---------      ---------

SHAREHOLDERS' EQUITY
Common stock, par value $1 per share.
Authorized 25,000,000 shares;
  issued and outstanding 7,607,943 shares at September 30, 1995
  and 7,597,513 at December 31, 1994 ...........................................          7,608          7,597
Surplus ........................................................................         36,436         36,311
Retained earnings ..............................................................         19,082         14,501
Unrealized gain (loss) on securities available for sale, net of tax ............              7            (63)
                                                                                      ---------      ---------
    Total shareholders' equity .................................................         63,133         58,346
                                                                                      ---------      ---------
    Total liabilities and shareholders' equity .................................      $ 565,939      $ 538,432
                                                                                      =========      =========
</TABLE>
                See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                    B.M.J. Financial Corp. and Subsidiaries
                      Consolidated Statement of Operations

                    (In Thousands, Except Per Share Amounts)

(Unaudited)                                                          Three months ended Sept.30,        Nine months ended Sept.30,
                                                                        1995             1994             1995              1994
                                                                    -----------      -----------       -----------      -----------
<S>                                                                 <C>              <C>               <C>              <C>        
INTEREST INCOME
Interest and fees on loans ...................................      $     8,588      $     7,507       $    24,699      $    22,729
Interest on money market investments:
  Time deposits with other banks .............................             --                129                48              271
  Interest bearing deposits with other banks .................                4               20                22               62
  Federal funds sold and repurchase agreements ...............               93              106               273              340
  Other short term investments ...............................               99              336               290              853
Interest on securities available for sale:
  U.S. Treasury securities ...................................               46               34               113              343
  U.S. government agencies and corporations ..................              257             --                 274               75
  States and political subdivisions (tax-exempt) .............               96             --                 151                5
  Other securities ...........................................                4
Interest on securities held to maturity:
  U.S. Treasury securities ...................................              240              327               790              893
  U.S. government agencies and corporations ..................            1,230            1,102             3,723            3,133
  States and political subdivisions (tax-exempt) .............               55               44               184              172
  Other securities ...........................................               43               11                67               36
                                                                    -----------      -----------       -----------      -----------
    Total interest income ....................................           10,751            9,616            30,634           28,916
                                                                    -----------      -----------       -----------      -----------
INTEREST EXPENSE
Savings and interest checking deposits .......................            1,499            1,294             4,228            4,273
Certificates of deposit of  $100,000 or more .................              177               38               340              153
Other time deposits ..........................................            1,749              960             4,332            2,857
Other debt ...................................................              261              118               712              356
                                                                    -----------      -----------       -----------      -----------
    Total interest expense ...................................            3,686            2,410             9,612            7,639
                                                                    -----------      -----------       -----------      -----------
Net interest income ..........................................            7,065            7,206            21,022           21,277
Provision for loan losses ....................................              --               --                --               --
                                                                    -----------      -----------       -----------      -----------
    Net interest income after provision for loan losses ......            7,065            7,206            21,022           21,277
                                                                    -----------      -----------       -----------      -----------
<PAGE>
<CAPTION>
                    B.M.J. Financial Corp. and Subsidiaries
                Consolidated Statement of Operations (Continued)

                    (In Thousands, Except Per Share Amounts)

(Unaudited)                                                         Three months ended Sept.30,         Nine months ended Sept.30,
                                                                       1995             1994              1995              1994
                                                                    -----------      -----------       -----------      -----------
<S>                                                                 <C>              <C>               <C>              <C>        
NONINTEREST INCOME
Service charges, commissions, and fees .......................              954            1,228             2,754            3,651
Trust income .................................................              106              129               344              281
Gain on sale of other real estate ............................               17               38               103              410
    Total noninterest income .................................            1,077            1,395             3,201            4,342
NONINTEREST EXPENSE
Salaries and employee benefits ...............................            2,284            2,607             7,182            8,181
Net occupancy ................................................              694              766             2,158            2,473
Other real estate expense ....................................              113              226               403            1,154
Other ........................................................            2,222            2,888             7,105            8,365
                                                                    -----------      -----------       -----------      -----------
    Total noninterest expense ................................            5,313            6,487            16,848           20,173
                                                                    -----------      -----------       -----------      -----------
Income before income tax expense .............................            2,829            2,114             7,375            5,446
Income tax expense:
  Provision for income tax ...................................                8             --               1,653                7
  Reversal of valuation allowance ............................             --               --                --             (3,500)
                                                                    -----------      -----------       -----------      -----------
Income before extraordinary charge ...........................            2,821            2,114             5,722            8,939
  Extraordinary charge - early redemption of
  convertible notes ..........................................             --                (87)             --                (87)
                                                                    -----------      -----------       -----------      -----------
NET INCOME ...................................................      $     2,821      $     2,027       $     5,722      $     8,852
                                                                    ===========      ===========       ===========      ===========
Earnings per share - Primary .................................      $      0.37      $      0.26       $      0.74      $      1.16
                                                                    ===========      ===========       ===========      ===========
                   - Fully diluted ...........................      $      0.36      $      0.26       $      0.74      $      1.14
                                                                    ===========      ===========       ===========      ===========
Weighted average shares outstanding - Primary ................        7,722,363        7,665,823         7,699,947        7,607,679
                                                                    ===========      ===========       ===========      ===========
                                    - Fully diluted ..........        7,918,947        7,898,084         7,911,214        7,862,475
                                                                    ===========      ===========       ===========      ===========
</TABLE>
                See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                    B.M.J. Financial Corp. and Subsidiaries
                      Consolidated Statement of Cash Flows
(unaudited)
(in thousands)
                                                                               Nine months ended September 30,
                                                                                    1995             1994
                                                                                  --------         --------
<S>                                                                               <C>              <C>     
Cash flows from operating activities:
Net income ...............................................................        $  5,722         $  8,852
Adjustments to reconcile net income to net cash from operating activities:
 Depreciation of premises and equipment ..................................             586              702
 Amortization of intangibles .............................................              86              351
 Net accretion of securities available for sale ..........................            (138)            (145)
 Net amortization (accretion) of securities held to maturity .............              52              (77)
 Provision for other real estate .........................................            --                663
 Net (increase) decrease in other real estate owned ......................             124             (393)
 Gain on sale of loans and other real estate .............................            --                (69)
 Increase (decrease) in equity from unrealized holding loss
   on securities available for sale, net of tax ..........................              69              (47)
 Decrease (increase) in other assets .....................................             117           (5,160)
 Increase in other liabilities ...........................................             959              292
                                                                                  --------         --------
Net cash provided by operating activities ................................           7,577            4,969
                                                                                  --------         --------
Cash flows from investing activities:
 Proceeds from maturities and sale of securities available for sale ......           1,517           25,926
 Purchase of securities available for sale ...............................         (35,607)          (2,749)
 Proceeds from maturities of securities held to maturity .................          15,512           67,782
 Purchase of securities held to maturity .................................          (3,924)         (71,382)
 Net increase in loans ...................................................         (26,230)         (11,481)
 Proceeds from sale of loans .............................................            --              5,033
 Proceeds from other real estate .........................................           4,194            8,232
 Proceeds from sale of bank subsidiary ...................................            --              6,846
 Property and equipment expenditures .....................................            (876)            (392)
                                                                                  --------         --------
Net cash provided by (used in) investing activities ......................         (45,414)          27,815
                                                                                  --------         --------
Cash flows from financing activities:
 Net decrease in demand deposits, savings and interest checking accounts .         (18,044)         (26,639)
 Net increase in certificates of deposit .................................          32,712            1,419
 Repayments of capital notes .............................................            --             (1,611)
 Net increase in borrowed funds ..........................................           1,050             --
 Net increase in securities sold under agreements to repurchase ..........           6,053            5,107
 Dividends paid ..........................................................          (1,140)            --
 Issuance of stock .......................................................             125             --
                                                                                  --------         --------
Net cash provided by (used in) financing activities ......................          20,756          (21,724)
                                                                                  --------         --------

<PAGE>
<CAPTION>
                    B.M.J. Financial Corp. and Subsidiaries
                Consolidated Statement of Cash Flows (Continued)
(unaudited)
(in thousands)
                                                                               Nine months ended September 30,
                                                                                    1995             1994
                                                                                  --------         --------
<S>                                                                               <C>              <C>     
Net change in cash and cash equivalents ..................................         (17,081)          11,060
Cash and cash equivalents at beginning of period .........................          44,779           56,251
                                                                                  --------         --------
Cash and cash equivalents at end of period ...............................        $ 27,698         $ 67,311
                                                                                  ========         ========

Cash paid during the period for:
Interest .................................................................        $  8,938         $  7,772
                                                                                  ========         ========
Income taxes .............................................................        $    965         $    850
                                                                                  ========         ========
Noncash investing activities:
Transfer of loans to other real estate, net ..............................        $  2,755         $    979
                                                                                  ========         ========
Transfer of insubstance foreclosures to loans upon adoption of FASB 114 ..        $  2,935             --
                                                                                  ========         ========
Transfer of securities available for sale to securities held to maturity .            --           $ 28,237
                                                                                  ========         ========
Transfer of bank subsidiary held for sale:
  Assets .................................................................            --           $  6,657
                                                                                  ========         ========
  Liabilities ............................................................            --           $ 62,826
                                                                                  ========         ========
Redemption of capital notes through issuance of stock ....................        $     10         $    502
                                                                                  ========         ========
</TABLE>
                See notes to consolidated financial statements.
<PAGE>
                    B.M.J. FINANCIAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Basis For Financial Statement Presentation

         The  information  in this report is  unaudited,  is subject to year-end
adjustments  and audit,  and is prepared in accordance  with generally  accepted
accounting  principles.  However, in the opinion of management,  the information
reflects  all  adjustments,   consisting  only  of  normal  recurring  accruals,
necessary for a fair  presentation of the consolidated  financial data as of and
for the  three-month  and nine-month  periods ended September 30, 1995 and 1994.
The results of operations for the nine-month period ended September 30, 1995 are
not  necessarily  indicative  of the results to be expected  for the entire year
ending December 31, 1995.

         The accompanying consolidated financial statements include the accounts
of  B.M.J.  Financial  Corp.  in  addition  to those  of The Bank of  Mid-Jersey
("Mid-Jersey"),  a wholly-owned  subsidiary of B.M.J. Financial Corp. Unless the
context  otherwise  indicates,  the term  "BMJ"  as used  herein  refers  to the
consolidated  B.M.J.  Financial  Corp.  and The Bank of Mid-Jersey  entity.  All
significant  intercompany  accounts and transactions  have been  eliminated.  In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance  sheet and  revenues  and  expenses  for the period.  Actual
results could differ from those estimates.

         Material  estimates  that are  particularly  susceptible to significant
change in the  near-term  relate to the  determination  of the  reserve for loan
losses and the  valuation  of other real  estate  acquired  in  connection  with
foreclosures or in  satisfaction of loans. In connection with the  determination
of the reserves for loan losses and other real estate,  management  periodically
obtains independent appraisals for significant properties.

         Management  believes  that the  reserves  for losses on loans and other
real estate are adequate in relation to the risks and uncertainties  inherent in
those portfolios.  While management uses available  information to determine the
appropriate  recognition  of  losses  on loans and  other  real  estate,  future
additions to the reserves may be necessary based on, among other things, changes
in  economic   conditions,   particularly  in  New  Jersey,   and  the  changing
circumstances of the borrowers. In addition,  various regulatory agencies, as an
integral part of their examinations, periodically review BMJ's reserves for loan
losses. Such agencies may request BMJ to consider  recognizing  additions to the
reserves based on the regulators'  judgments about information available to them
at the time of their examination.

         These  statements  should be read in conjunction  with the notes to the
consolidated  financial statements contained in B.M.J.  Financial Corp.'s Annual
Report on Form 10-K to the Securities and Exchange Commission for the year ended
December 31, 1994, to which reference is hereby made.


2. Divestitures and Merger

         Effective June 24, 1994,  having  received the required  regulatory and
shareholder  approvals,  BMJ  completed the merger of its Mount Holly State Bank
subsidiary into its lead bank  subsidiary,  The Bank of Mid-Jersey.  This merger
was consistent with the corporate-wide  restructuring program initiated in 1993,
with the objectives being to increase operating efficiency and enhance the level
of service provided to customers.

         On July 29, 1994,  BMJ completed  the sale of its Southern  Ocean State
Bank  subsidiary,  located  in  Tuckerton,  New  Jersey,  to  another  financial
institution for a total consideration of $6.8 million in cash. At June 30, 1994,
Southern  Ocean State Bank had total assets of $69.1  million and had net income
of $591 thousand for the six-month period ended June 30, 1994.

         On November 18, 1994, BMJ's Mid-Jersey  subsidiary sold the furnishings
and equipment of its Willingboro branch office to another financial  institution
which also assumed  approximately  $6.6 million of deposit  liabilities  and the
remaining  term  of the  facility  lease.  This  transaction  resulted  in a net
reduction   in  BMJ's  asset  base  of  $6.3  million  and  a  pre-tax  gain  of
approximately $104 thousand that is included in 1994 results of operations.


3. Securities

         On January 1, 1994,  BMJ  adopted  Statement  of  Financial  Accounting
Standards  No.  115,  "Accounting  for  Certain  Investments  in Debt and Equity
Securities"  ("FAS 115").  FAS 115  establishes the accounting and reporting for
investments in equity securities that have readily  determinable fair values and
for all investments in debt securities.  In accordance with FAS 115, investments
are classified into three categories: (1) held to maturity securities, which are
reported at amortized cost; (2) trading  securities,  which are reported at fair
value with unrealized  gains and losses included in earnings;  and (3) available
for sale securities,  which are reported at fair value with unrealized gains and
losses  reported as a separate  component of  shareholders'  equity and excluded
from earnings. BMJ currently has no securities classified as trading securities.

         Securities  classified as available for sale may be sold prior to their
contractual maturity in response to changing market and interest rate conditions
or as part of an overall asset/liability  strategy. These securities are carried
at their market value with unrealized  gains and losses carried,  net of tax, as
adjustments  to  shareholders'  equity.  Gains  and  losses on  disposition  are
included in earnings using the specific identification method.

         Securities  held to maturity are comprised of  securities  that BMJ has
the  positive  intent and  ability to hold to  maturity.  These  securities  are
carried at cost,  adjusted for amortization of premium or accretion of discount.
The premium or discount  adjustments  are  recognized as adjustments to interest
income, on a level yield basis.  Unrealized losses due to fluctuations in market
value are  recognized as security  losses when a decline in value is assessed as
being other than temporary.

         On October 18, 1995, The Financial  Accounting Standards Board ("FASB")
announced a one-time  amnesty on transfers  between the portfolios of securities
classified  as either  (1) held to  maturity;  (2)  trading  securities;  or (3)
available for sale.  The FASB concluded  that during an  approximately  six-week
period ending December 31, 1995, an enterprise may reassess the  appropriateness
of the  classifications  of all securities held at that time and account for any
reclassifications  at fair value in accordance  with FAS 115.  Reclassifications
from the held to maturity portfolio that result from this one- time reassessment
will not call into  question  the  intent of an  enterprise  to hold  other debt
securities  to  maturity  in the  future.  It is BMJ's  intent to  reassess  the
classification  of its  securities  portfolios  during this amnesty  period.


4. Reserve For Loan Losses

         BMJ  maintains  a  reserve  for  loan  losses  that,  in   management's
judgement,  is adequate to absorb future losses  inherent in the loan portfolio.
Management  has adopted a reserve  methodology  that requires  specific  reserve
assessment  for all  loans  including  residential  real  estate  mortgages  and
consumer loans. This methodology assigns reserves based upon credit risk ratings
for  specific  loans and  general  reserves  for all other  loans.  The  general
reserves  are based on  historical  charge-off  experience  but are  subject  to
certain   minimums  based  upon  BMJ's   assessment  of  the  current   economic
environment.

         On January 1, 1995,  BMJ adopted FAS No. 114,  "Accounting by Creditors
for  Impairment  of a Loan"  and FAS  No.  118,  "Accounting  by  Creditors  for
Impairment of a Loan--Income  Recognition and  Disclosure." FAS No. 114 provides
guidelines for measuring  impairment losses on loans. A loan is considered to be
impaired  when it is probable  that BMJ will be unable to collect all  principal
and  interest  amounts  due  according  to the  contractual  terms  of the  loan
agreement.  Under FAS No.  114,  impaired  loans  subject to the  statement  are
required to be measured  based upon the  present  value of expected  future cash
flows discounted at the loan's initial effective  interest rate or at the loan's
market  price  or  fair  value  of the  collateral  if the  loan  is  collateral
dependent. If the loan valuation is less than the recorded value of the loan, an
impairment  reserve  must be  established  for the  difference.  The  impairment
reserve is established by either an allocation of the reserve for loan losses or
by a provision  for loan  losses,  depending  on the adequacy of the reserve for
loan  losses.  FAS No. 118 permits  existing  income  recognition  practices  to
continue.

         FAS No. 114 also provides for the  reclassification  of all outstanding
insubstance  foreclosure  loans  ("ISF")  from  Other  Real  Estate  to the loan
portfolio  as  nonaccrual   loans  at  their   current   carrying   value.   The
reclassification  of ISF's to loans has been made upon  adoption  of FAS No. 114
and this  reclassification  is reflected in the schedule of BMJ's  nonperforming
assets at  September  30,  1995 on page 16.  BMJ will no longer be  required  to
identify  and isolate  future  loans that may meet the former  criteria  for ISF
classification.

         At September 30, 1995, all of BMJ's nonperforming loans were considered
to be impaired loans and totaled $6.0 million.  Included in these impaired loans
were $3.8 million  which has a related  impairment  reserve of $493 thousand and
$2.2  million  that does not have a  related  reserve  as a result  of  interest
payments applied to reduce principal or losses  previously taken on these loans.
Average  impaired  loans  during the third  quarter  of 1995 were $6.7  million.
During the quarter,  BMJ recognized $49 thousand of interest  income on impaired
loans,  all of which  was  recognized  using  the cash  basis  method  of income
recognition.


5. Other Real Estate

         Other  real  estate  acquired  through  foreclosure  or deed in lieu of
foreclosure  is carried at fair value less estimated  costs of disposal.  When a
property is acquired,  the excess of the loan balance  over the  estimated  fair
value is charged to the reserve for loan losses. A reserve for other real estate
has been established to provide for subsequent  write-downs that may be required
to the carrying value of the property or losses on the sales of properties.  The
reserve is established  through charges to other real estate expense.  Operating
results  of other real  estate  owned,  including  rental  income and  operating
expenses,  are recorded in other real estate expense.  Gains and losses realized
from the sales of other real estate are included in noninterest income. Specific
dates of disposal  cannot  realistically  be projected  without the existence of
firm  contracts  for sale.  At this  time,  contracts  for sale exist on certain
foreclosed assets representing an insignificant portion of the carrying value on
the balance sheet.


6. Income Taxes

         BMJ files a consolidated  Federal income tax return,  and the amount of
income tax expense or benefit is computed and allocated among  subsidiaries on a
separate return basis. BMJ utilizes the asset and liability method of accounting
for income taxes as required by Statement of Financial  Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). Under this method,  deferred tax
assets  and  liabilities   are  recognized  for  the  future  tax   consequences
attributable to differences  between the financial statement carrying amounts of
existing  assets and liabilities  and their  respective tax bases.  Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which temporary  differences,  which are inherent
in the tax filing  process,  are expected to be recovered or settled.  Under FAS
109,  the effect on deferred tax assets and  liabilities  of a change in the tax
rates is recognized in income in the period that includes the enacted date.  See
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations.
<PAGE>
                    B.M.J. Financial Corp. and Subsidiaries
          Management's Discussion and Analysis of Financial Condition
                           and Results of Operations



The  following  discussion  and  analysis  addresses  material  changes in BMJ's
financial  condition  between  December  31,  1994 and  September  30,  1995 and
material  changes in its results of operations  with respect to the  three-month
and nine-month periods ended September 30, 1995 and 1994.


Results of Operations

Earnings Performance

         BMJ reported net income for the third quarter ended  September 30, 1995
of $2.8  million,  compared to net income for the third  quarter of 1994 of $2.0
million.  For the nine months  ended  September  30,  1995,  net income was $5.7
million  compared  to net  income  of $8.9  million  for the nine  months  ended
September 30, 1994,  which included a one-time credit of $3.5 million  described
below.

         On a per  share  basis,  earnings  for the third  quarter  of 1995 were
$0.36,  compared to earnings of $0.26 for the comparable period of 1994. For the
nine-month  period  ended  September  30,  1995,  earnings  per share were $0.74
compared to earnings of $1.14 for the nine months ended  September  30, 1994, of
which $.45 represented the per share effect of the one-time credit.

         BMJ's pre-tax  income for the third  quarter  ended  September 30, 1995
totaled $2.8 million, an increase of 34% over the pre-tax income of $2.1 million
reported  for the  third  quarter  of  1994.  For the  nine-month  period  ended
September 30, 1995, pre-tax income amounted to $7.4 million,  an increase of 35%
over the pre-tax income of $5.4 million reported for the comparable 1994 period.

         Income tax expense for the quarter ended September 30, 1995 amounted to
$8  thousand,  compared to no income tax expense for the third  quarter of 1994.
Income tax expense for the  nine-month  period ended  September 30, 1995 to $1.7
million compared to $7 thousand for the comparable period of 1994.

         Effective   January  1,  1993,  BMJ  adopted   Statement  of  Financial
Accounting  Standards  No.  109,"  Accounting  for Income  Taxes".  During 1994,
sufficient  positive  evidence  had  accumulated  to warrant the reversal of the
valuation  allowance  originally  established  upon  adoption of the  Statement.
Therefore, income tax expense for the nine-month period ended September 30, 1994
was  reduced  by $3.5  million,  representing  a  reversal  of a portion  of the
valuation allowance.

         As a result of significant tax loss carryback refund claims  previously
filed by the Company,  BMJ has been under  examination  by the Internal  Revenue
Service  ("IRS")  for the  taxable  years 1989  through  1993.  During the third
quarter of 1995,  BMJ received the Revenue  Agent's Report ("RAR") for the years
under  audit and has agreed to the  examiner's  findings.  Although  the agent's
report  and the  related  refund  claims  are  subject  to  review  by the Joint
Committee on Taxation of the U.S.  Congress,  BMJ has evaluated its reserves for
income taxes based on acceptance of the RAR. As a result of this review,  income
tax expense for the three- month and nine-month periods ended September 30, 1995
has been  reduced by $1.0  million,  representing  the  reversal  of  previously
accrued  income taxes.  BMJ believes that the remaining  income tax reserves are
adequate to cover tax liabilities for all open years.

         Net interest  income for the third  quarter  ended  September  30, 1995
amounted to $7.1 million compared to $7.2 million for the third quarter of 1994.
For the nine-month period ended September 30, 1995, net interest income amounted
to $21.0 million versus $21.3 million for the nine-month  period ended September
30, 1994. BMJ's  taxable-equivalent net interest margin remained strong at 5.58%
for the first nine months of 1995 compared to 5.21% for the first nine months of
1994.

         The  improvement in the net interest  margin for the nine-month  period
ended September 30, 1995 versus 1994,  primarily resulted from a higher-yielding
asset  mix as lower  yielding  money  market  investments  and  securities  were
replaced with higher-yielding loans. Partially offsetting this improvement was a
higher cost of funds.

         BMJ continued to pursue its  aggressive  program to reduce the level of
total noninterest expenses while increasing operating  efficiency.  As a result,
total  noninterest  expenses  for the third  quarter  of 1995  amounted  to $5.3
million, a reduction of 18% from total noninterest  expenses of $6.5 million for
the 1994 third  quarter.  For the  nine-month  period ended  September 30, 1995,
total noninterest  expenses  amounted to $16.8 million,  a reduction of 16% from
total noninterest expenses of $20.2 million for the first nine months of 1994.

         For  the  nine-month  period  ended  September  30,  1995,  BMJ's  core
efficiency  ratio  (total  noninterest  expenses  exclusive of other real estate
expenses and certain nonrecurring charges as a percent of taxable-equivalent net
interest income plus adjusted  noninterest  income) improved to 65.8% from 74.2%
for the nine-month period ended September 30, 1994.

         Operating  results for 1994 include those of BMJ's Southern Ocean State
Bank  subsidiary  and the  Willingboro  branch of BMJF's The Bank of  Mid-Jersey
subsidiary.  Southern Ocean State Bank was sold in July 1994 and the Willingboro
branch was sold in November 1994.

         Net Interest Income

         Net   interest   income   is   interest   earned  on  loans  and  other
interest-earning  assets  minus  interest  paid on deposits  and other  borrowed
funds.  Interest rate  fluctuations  as well as changes in the volume and mix of
interest-earning  assets and interest-bearing  liabilities combine to affect net
interest income.

         Net  interest  income was $7.1  million  for the third  quarter of 1995
compared  to $7.2  million  for the third  quarter of 1994.  For the nine months
ended  September 30, 1995,  net interest  income was $21.0  million  compared to
$21.3 million for the comparable 1994 period.  The financial  summary in Table 1
details yields and rates of major  interest-earning  assets and interest-bearing
liabilities for the nine-month  periods ended September 30, 1995 and 1994. Among
other things, Table 1 shows that the cost of interest-bearing deposits increased
to 3.07% for the nine months ending September 30, 1995 compared to 2.17% for the
corresponding  period ended September 30, 1994 as BMJ endeavored to increase its
level of total deposits in the competitive retail market.  Despite this increase
in the cost of  interest-bearing  deposits,  BMJ's  net  interest  margin  which
represents the difference between yields on average  interest-earning assets and
costs of average  funding  sources,  was 5.58% for the  nine-month  period ended
September 30, 1995 compared to 5.21% for the comparable 1994 period.

         Noninterest Income

         BMJ's revenues include noninterest income,  which consists primarily of
service charges on deposit accounts and trust service fees.  Noninterest  income
was $1.1 million for the third  quarter of 1995 compared to $1.4 million for the
third quarter of 1994 and $3.2 million for the nine-month period ended September
30, 1995 compared to $4.3 million for the comparable 1994 period.

         Service charges, commissions and fees amounted to $954 thousand for the
third  quarter of 1995  compared to $1.2 million for the third  quarter of 1994.
Service  charges,  commissions  and fees totaled $2.8 million for the first nine
months of 1995 and $3.7  million for the first nine months of 1994.  The current
year  decrease in  revenues  from  service  charges,  commissions  and fees when
compared  with the prior  year is  primarily  due to the lower  level of deposit
accounts  subject to service  charges  and other fees during 1995 as a result of
the sale of BMJ's Southern Ocean State Bank subsidiary on July 29, 1994.

         Also included in BMJ's noninterest income is the gain recognized on the
sales of other  real  estate  properties.  Net gains on the sales of other  real
estate properties of $17 thousand were realized during the third quarter of 1995
versus  net  gains of $38  thousand  for the  third  quarter  of  1994.  For the
nine-month  period  ended  September  30,  1995,  BMJ realized net gains of $103
thousand compared to net gains of $410 thousand for the comparable 1994 period.

         Noninterest Expense

         Noninterest  expense for the quarter ended  September 30, 1995 was $5.3
million,  a reduction  of 18% from  noninterest  expense of $6.5 million for the
third quarter of 1994. For the nine-month period ended September 30, 1995, BMJ's
noninterest expense amounted to $16.8 million, a reduction of 16% from the $20.2
million  reported for the comparable 1994 period.  Two  significant  initiatives
completed  during 1994 which have had an impact on reducing BMJ's level of total
noninterest  expense  when  comparing  1995  results  with 1994 results were the
merger of BMJ's two principal  subsidiaries,  The Bank of  Mid-Jersey  and Mount
Holly State Bank, and the sale of BMJ's Southern Ocean State Bank subsidiary. As
previously discussed, Southern Ocean State Bank's operating results are included
in BMJ's operating results for 1994.

         For  the  nine-month  period  ended  September  30,  1995,  BMJ's  core
efficiency  ratio  (total  noninterest  expenses  exclusive of other real estate
expenses and certain nonrecurring charges as a percent of taxable-equivalent net
interest income plus adjusted  noninterest  income) improved to 65.8% from 74.2%
for the nine-month period ended September 30, 1994.

         Salaries and employee benefits amounted to $2.3 million for the quarter
ended  September  30,  1995, a reduction of 12% from the balance of $2.6 million
for the quarter ended September 30, 1994. Salaries and employee benefits for the
nine-month period ended September 30, 1995 amounted to $7.2 million, a reduction
of 12% compared to the $8.2 million for the  nine-month  period ended  September
30, 1994.  Salaries expense,  which is the largest component of this noninterest
expense  category,  amounted to $2.0 million for the 1995 third quarter and $6.1
million for the  nine-month  period  ended  September  30, 1995 which  represent
decreases  of  8%  and  12%,   respectively   from  salaries   expense  for  the
corresponding  periods  of  1994.  BMJ  has  reduced  the  number  of  full-time
equivalent  employees at September 30, 1995 to 280 employees,  a reduction of 6%
from 298 full-time equivalent employees at September 30, 1994.

         Net occupancy  expense decreased to $694 thousand for the quarter ended
September  30, 1995 from $766  thousand for the 1994 third quarter and decreased
to $2.2 million for the nine months ended  September  30, 1995 from $2.5 million
for the comparable  1994 period.  Net occupancy  expenses in 1995 were favorably
affected  by lower  repairs  and  maintenance  expenses  and lower  depreciation
expense.

         Other real estate  expense  decreased to $113  thousand for the quarter
ended  September 30, 1995,  compared to $226 thousand for the 1994 third quarter
and decreased to $403  thousand for the  nine-month  period ended  September 30,
1995  compared to $1.2  million for the 1994 period.  Other real estate  expense
includes the costs to maintain repossessed properties such as real estate taxes,
insurance and general maintenance  expenses.  During the nine-month period ended
September  30,  1995,  BMJ was able to reduce the net  balance of its other real
estate primarily through the sale of properties to a net balance of $2.7 million
at September  30, 1995  compared to the net balance of $6.7 million at September
30, 1994. As a result, BMJ was able to achieve corresponding reductions in other
real estate expense for the  three-month and nine- month periods ended September
30, 1995 of 50% and 65% respectively when compared with the three and nine-month
period ended  September  30,  1994.  Other real estate  expense also  includes a
provision to increase the valuation reserve used to adjust the carrying value of
foreclosed  properties  to their fair value.  For the  nine-month  period  ended
September 30, 1995,  there was no provision  necessary to increase this reserve.
For the nine-month period ended September 30, 1994, a provision of $663 thousand
was made to increase this valuation reserve.

         The other (or miscellaneous)  noninterest expense category totaled $2.2
million for the quarter  ended  September  30, 1995 compared to $2.9 million for
the second quarter of 1994. For the nine-month  period ended September 30, 1995,
other noninterest  expense totaled $7.1 million compared to $8.4 million for the
nine-month  period ended September 30, 1994.  Contributing to the 1995 decreases
in this  category are the  reductions  in BMJ's  premium for FDIC  insurance and
legal fees.

         In August 1995,  the Federal  Deposit  Insurance  Corporation  ("FDIC")
approved  a  reduction  in the  premium  banks pay for  deposit  insurance.  For
well-capitalized  institutions,  the  premium  is  reduced by 83% from $0.23 for
every $100 of  deposits to $0.04 for every $100 of  deposits.  BMJ's The Bank of
Mid-Jersey  subsidiary  is  qualified  as  a  well-capitalized  institution.  In
addition,  the FDIC indicated that refunds will be made to institutions  for any
third  quarter 1995 prepaid  deposit  insurance  premiums  following  the FDIC's
confirmation  that the Bank Insurance Fund has met its designated level of $1.25
per  every  $100 of  insured  deposits.  On  September  15 ,  1995,  The Bank of
Mid-Jersey  received a refund of $281 thousand from the FDIC. As a result,  FDIC
insurance  expense  for the  nine  months  ended  September  30,  1995  was $492
thousand,  which  reflects a 53% decrease from the amount for the  corresponding
1994 period.

         Legal expense for the third quarter of 1995 amounted to $332  thousand,
a reduction of 31% from the $478 thousand  reported for the 1994 third  quarter.
Legal  expenses  for the first nine  months of 1995  totaled  $783  thousand,  a
reduction  of 40% from the legal  expenses  total of $1.3  million for the first
nine  months of 1994.  The  current  year  decrease  in BMJ's  legal  expense is
primarily  a  result  of  the  lower  level  of  nonperforming  assets,  thereby
decreasing  litigation  costs in pursuing  collection of delinquent loans and in
obtaining title to properties through the foreclosure process.


         Income Tax Expense

         Income tax expense for the quarter ended September 30, 1995 amounted to
$8  thousand,  compared to no income tax expense for the third  quarter of 1994.
Income tax expense for the  nine-month  period ended  September 30, 1995 to $1.7
million compared to $7 thousand for the comparable period of 1994.

         Effective   January  1,  1993,  BMJ  adopted   Statement  of  Financial
Accounting  Standards  No.  109,"  Accounting  for Income  Taxes".  During 1994,
sufficient  positive  evidence  had  accumulated  to warrant the reversal of the
valuation  allowance  originally  established  upon  adoption of the  Statement.
Therefore, income tax expense for the nine-month period ended September 30, 1994
was  reduced  by $3.5  million,  representing  a  reversal  of a portion  of the
valuation allowance.

         As a result of significant tax loss carryback refund claims  previously
filed by the Company,  BMJ has been under  examination  by the Internal  Revenue
Service  ("IRS")  for the  taxable  years 1989  through  1993.  During the third
quarter of 1995,  BMJ received the Revenue  Agent's Report ("RAR") for the years
under  audit and has agreed to the  examiner's  findings.  Although  the agent's
report  and the  related  refund  claims  are  subject  to  review  by the Joint
Committee on Taxation of the U.S.  Congress,  BMJ has evaluated its reserves for
income taxes based on acceptance of the RAR. As a result of this review,  income
tax expense for the three month and nine-month  periods ended September 30, 1995
has been  reduced by $1.0  million,  representing  the  reversal  of  previously
accrued  income taxes.  BMJ believes that the remaining  income tax reserves are
adequate to cover tax liabilities for all open years.


         Balance Sheet Analysis

         Total assets of BMJ amounted to $565.9  million at September  30, 1995,
increasing  from $538.4 million at December 31, 1994. This increase is primarily
attributable to an increase in the level of total deposits at September 30, 1995
versus December 31, 1994. Total deposits of $478.2 million at September 30, 1995
represents a 3% increase from the $463.6 of total deposits at December 31, 1994.
This  increase was achieved  despite the high level of  competition  that exists
among  financial  institutions  in BMJ's  market  for retail  deposits.  Through
renewed  marketing  programs and competitively  priced deposit  products,  it is
BMJ's intention to increase its share of the retail deposits market.

         During  1995,  BMJ  continued  to improve  its  capital  ratios and its
balance sheet  condition.  Shareholders'  equity increased from $58.3 million at
December  31,  1994 to  $63.1  million  at  September  30,  1995.  The  ratio of
shareholders'  equity to total assets at September 30, 1995  remained  strong at
11.2% compared to 10.8% at December 31, 1994..

         In addition,  asset quality continued to improve as total nonperforming
assets at September 30, 1995 were reduced $9.0 million compared to $14.2 million
at December 31, 1994.

         The following discussion deals with the major components of the balance
sheet.

         Securities Available for Sale

         Securities  which  may be sold  in  response  to  changing  market  and
interest rate conditions or as part of BMJ's asset/liability management strategy
have been classified as securities  available for sale. The securities available
for sale  portfolio  amounted to $37.1 million at September 30, 1995 compared to
$2.9 million at December 31, 1994. The  securities  available for sale portfolio
is carried at fair market value at September 30, 1995 and December 31, 1994.

         Table 1 details the  composition of the  securities  available for sale
portfolio.  In addition,  Table 1 provides information concerning average yields
and balances of the  securities  available for sale portfolio for the nine-month
periods ended September 30, 1995 and 1994.


         Securities Held to Maturity

         Securities  held to maturity are comprised of  securities  that BMJ has
the  positive  intent and  ability to hold to  maturity.  These  securities  are
carried at cost,  adjusted for amortization of premium or accretion of discount.
The premium or discount  adjustments  are  recognized as adjustments to interest
income,  on a level yield basis.  Gains or losses on disposition are computed by
the  specific  identification  method and are  included in  noninterest  income.
Unrealized losses due to fluctuations in market value are recognized as security
losses when a decline in value is assessed as being other than temporary.

         The securities held to maturity portfolio amounted to $107.3 million at
September  30, 1995  compared to $119.0  million at December 31,  1994.  Table 1
provides  information  concerning  average yields and balances of the securities
available for sale portfolio for the nine-month periods ended September 30, 1995
and 1994.
<PAGE>
<TABLE>
<CAPTION>
                          Table 1 -- Financial Summary
  Averages Balances, Rates Paid and Yields (yields on a tax-equivalent basis)

(in thousands)                                               Nine months ended Sept. 30, 1995      Nine months ended Sept. 30, 1994
                                                             ---------------------------------     ---------------------------------
                                                             Average      Yields      Interest     Average      Yields      Interest
                                                             Balance      or          Income/      Balance      or          Income/
                                                                          Rates       Expense                   Rates       Expense
                                                             --------     ----        --------     --------     ----        --------
<S>                                                          <C>          <C>         <C>          <C>          <C>         <C>     
INTEREST-EARNING ASSETS
Money market investments:
    Time deposits with other banks .....................     $  1,094     5.87%       $     48     $  9,347     3.88%       $    271
    Interest bearing deposits with other banks .........          545     5.40              22        2,349     3.53              62
    Federal funds sold and repurchase agreements .......        6,150     5.93             273       12,629     3.60             340
    Other short term investments .......................        6,491     5.97             290       27,619     4.13             853
                                                             --------     ----        --------     --------     ----        --------
        Total money market investments .................       14,280     5.93             633       51,944     3.93           1,526

Securities available for sale:
    U.S. Treasury securities ...........................        3,253     4.64             113       12,765     3.59             343
    U.S. government agencies and corporations ..........        5,577     6.57             274        2,449     4.09              75
    States and political subdivisions ..................        4,784     6.40             229          154     6.08               7
    Other securities ...................................         --        --              --            97     5.51               4
                                                             --------     ----        --------     --------     ----        --------
        Total securities available for sale ............       13,614     6.05             616       15,465     3.71             429

Securities held to maturity:
    U.S. Treasury securities ...........................       18,584     5.68             790       26,594     4.49             893
    U.S. government agencies and corporations ..........       88,760     5.61           3,723       86,146     4.86           3,133
    States and political subdivisions ..................        4,372     8.50             278        4,526     7.71             261
    Other securities ...................................        1,322     6.78              67          819     5.88              36
                                                             --------     ----        --------     --------     ----        --------
        Total securities held to maturity ..............      113,038     5.75           4,858      118,085     4.89           4,323
Loans, net of unearned income ..........................      373,512     8.94          24,964      369,170     8.33          22,990
                                                             --------     ----        --------     --------     ----        --------
        Total interest-earning assets ..................     $514,444     8.08%       $ 31,071     $554,664     7.05%       $ 29,268
                                                             ========     ====        ========     ========     ====        ========
FUNDING SOURCES
Deposits:
    Savings and interest checking ......................     $257,393     2.20%       $  4,228     $328,363     1.74%       $  4,273
    Certificates of deposit of $100,000 or more ........        8,423     5.40             340        5,999     3.41             153
    Other time deposits ................................      121,416     4.77           4,332      115,192     3.32           2,857
                                                             --------     ----        --------     --------     ----        --------
        Total interest-bearing deposits ................      387,232     3.07           8,900      449,554     2.17           7,283

Securities sold under agreements to repurchase .........       15,118     4.86             550        4,470     2.78              93
Other borrowed funds ...................................          176     4.56               6          181     3.69               5
Other debt .............................................        2,792     7.45             156        4,205     8.20             258
                                                             --------     ----        --------     --------     ----        --------
        Total interest-bearing liabilities .............      405,318     3.17           9,612      458,410     2.23           7,639
Portion of noninterest-bearing funding sources .........      109,126      --              --        96,254      --              --
                                                             --------     ----        --------     --------     ----        --------
        Total funding sources ..........................     $514,444     2.50%       $  9,612     $554,664     1.84%       $  7,639
                                                             ========     ====        ========     ========     ====        ========
Net interest margin and net interest income                               5.58%       $ 21,459                  5.21%       $ 21,629
                                                                          ====        ========                  ====        ========
</TABLE>
<PAGE>
Loan Portfolio

      BMJ's loan  portfolio  represented  67.4% of total assets at September 30,
1995,  compared to 65.8% at December 31, 1994. BMJ's loan portfolio  amounted to
$381.2 million at September 30, 1995  increasing from $354.5 million at December
31, 1994 primarily as a result of increased loan demand in BMJ's market.

      The following table provides a comparative  analysis of the loan portfolio
composition:
<TABLE>
<CAPTION>
(in thousands)                                         September 30,   December 31,
                                                           1995           1994
                                                         --------       --------
<S>                                                      <C>            <C>     
Commercial, financial and agricultural ...........       $ 21,732       $ 22,822
Real estate - mortgage ...........................        286,133        272,878
Real estate - construction .......................         29,932         28,420
Consumer .........................................         43,410         30,360
                                                         --------       --------
                                                         $381,207       $354,480
                                                         ========       ========
</TABLE>

   Substantially  all of BMJ's lending  activity is to customers,  or secured by
property, located within Mercer, Burlington and Ocean counties in New Jersey. Of
the portfolio as a whole,  at September 30, 1995,  approximately  82.9% of BMJ's
loans are secured by real estate.


Nonperforming Assets

   Nonperforming   assets,  as  summarized  in  the  table  below,   consist  of
nonperforming loans plus net other real estate owned.
<TABLE>
<CAPTION>
(in thousands)                                      September 30,    December 31,
                                                        1995             1994
                                                     ---------        ---------
<S>                                                  <C>              <C>      
Nonperforming Loans:
Loans past due 90 days or
     more and accruing .......................       $    --          $   1,264
Nonaccrual loans .............................           6,300            5,769
                                                     ---------        ---------
    Total nonperforming loans ................           6,300            7,033
                                                     ---------        ---------
Other Real Estate:
Insubstance foreclosure ......................            --              2,935
Other real estate ............................           3,006            5,237
Loss reserve .................................            (290)            (958)
                                                     ---------        ---------
    Total other real estate, net .............           2,716            7,214
                                                     ---------        ---------
Total Nonperforming Assets ...................       $   9,016        $  14,247
                                                     =========        =========
</TABLE>
<PAGE>
   Nonperforming  loans  include  nonaccrual  loans and loans 90 days or greater
past due and still accruing.  Loans are generally reported as nonaccrual if they
are past due as to maturity or payment of  principal or interest for a period of
more than 90 days,  unless  such loans are well  secured  and in the  process of
collection.  If a loan or a portion of a loan is partially charged off, the loan
is classified as nonaccrual.  Loans that are on a current payment status or past
due less than 90 days may also be  classified as nonaccrual if repayment in full
of principal  and/or interest is determined to be in jeopardy.  Loans,  with the
exception of partially charged off loans or loans with any portion classified as
doubtful,  may be placed back on accrual  status when they become  current as to
both principal and interest and when concern as to future collectibility in full
no longer  exists.  The remaining  recorded  balance of a partially  charged off
loan, however,  may be returned to accrual status if the entire contractual loan
balance,  together  with all unpaid  contractual  interest,  is determined to be
fully collectible.  Nonperforming loans as a percentage of total loans were 1.7%
as of September 30, 1995 and 2.0% as of December 31, 1994.

   The following table illustrates the activity in BMJ's nonaccrual loans during
the nine-month period ended September 30, 1995.
<TABLE>
<CAPTION>
(in thousands)                                 Nine Months Ended September 30, 1995
                                               -------------------------------------
                                                             Nonaccrual
                                                                Loans
                                                              --------
<S>              <C>                                          <C>     
Balance, January 1, 1995 .............................        $  5,769
New defaults .........................................           4,755
Assets foreclosed upon ...............................          (2,081)
Payoffs, cures and sales .............................          (1,502)
Chargeoffs and writedowns ............................            (641)
                                                              --------
Balance, September 30, 1995 ..........................        $  6,300
                                                              ========
</TABLE>

   Potential  problem  loans  consist of loans which are included in  performing
loans at September  30, 1995,  but for which  potential  credit  problems of the
borrowers  have  caused  management  to have  concerns as to the ability of such
borrowers to comply with present  repayment  terms.  At September 30, 1995, such
potential problem loans amounted to approximately $3.7 million. Depending on the
state of the economy and the impact thereof on BMJ's borrowers, as well as other
future  events,  these loans and others not  currently  so  identified  could be
classified as nonperforming loans in the future.
<PAGE>
The following  table  illustrates the activity in BMJ's other real estate during
the nine-month period ended September 30, 1995.
<TABLE>
<CAPTION>
                                                          Nine Months Ended
(in thousands)                                            September 30, 1995
                                                          ------------------
<S>                                                           <C>    
Balance, January 1, 1994 .............................        $ 8,172
   Additions:
      Assets foreclosed upon or designated
                    as Other Real Estate .............          2,755
                                                              -------
         Total additions .............................          2,755
                                                              -------
   Deductions:
      Sales and other reductions .....................         (4,088)
      Transfer of insubstance foreclosures to loans
          upon adoption of FAS 114 ...................         (2,935)
      Writedowns to fair value/Chargeoffs ............           (898)
                                                              -------
         Total deductions ............................         (7,921)
                                                              -------
   Subtotal ..........................................          3,006
   Less loss reserve .................................           (290)
                                                              -------
Balance, September 30, 1995 ..........................        $ 2,716
                                                              =======
</TABLE>

   Other real estate consists of properties acquired through foreclosure or deed
in lieu of foreclosure.  A reserve for other real estate has been established to
maintain  the  portfolio  at the  lower  of cost or fair  value  less  estimated
disposition costs.

   On January 1, 1995,  BMJ adopted FAS No. 114,  "Accounting  by Creditors  for
Impairment of a Loan" and FAS No. 118,  "Accounting  by Creditors for Impairment
of a Loan - Income  Recognition  and  Disclosure".  See  note 4 in the  Notes to
Financial Statements for a further discussion of FAS nos. 114 and 118. A loan is
considered  impaired  when,  based upon current  information  and events,  it is
probable  that the  Corporation  will be unable to  collect  all  principal  and
interest  amounts due according to the contractual  terms of the loan agreement.
At September 30, 1995,  BMJ's  impaired  loans  totaled $6.0 million,  which was
equal to the  nonperforming  loans total.  Included in these impaired loans were
$3.8 million  which has a related  impairment  reserve of $493 thousand and $2.2
million  that does not have a related  reserve as a result of interest  payments
applied to reduce principal or losses  previously taken on these loans.  Average
impaired  loans during the third quarter of 1995 were $6.7.  During the quarter,
BMJ recognized $49 thousand of interest income on impaired  loans,  all of which
was recognized using the cash basis method of income recognition.
<PAGE>
   The following table sets forth  information  concerning the other real estate
loss reserve  activity for the nine-month  periods ended  September 30, 1995 and
1994.
<TABLE>
<CAPTION>

                                                     Nine Months Ended September 30,
   (in thousands)                                          1995           1994
                                                         -------        -------
<S>                                                      <C>            <C>    
Balance, beginning of year .......................       $   958        $ 2,614
   Add: provision charged to expense .............          --              663
                                                         -------        -------
                                                             958          3,277
   Less: writedowns ..............................          (668)        (2,298)
       : subsidiary held for sale ................        --             (125)
                                                         -------        -------
Balance, at end of period ........................       $   290        $   854
                                                         =======        =======
</TABLE>

   Reserve for Loan Losses

   At September  30, 1995,  the reserve for loan losses  totaled  $12.8  million
compared to $12.5  million at December  31,  1994.  The ratio of the reserve for
loan  losses to total loans at  September  30,  1995 was 3.36%  versus  3.52% at
December  31,  1994.  The table below  provides a summary of the activity in the
loan loss reserve plus  additional  key ratios for assessing the adequacy of the
reserve for loan losses at September 30, 1995 and 1994.
<TABLE>
<CAPTION>
                                               Nine Months Ended September 30,
(in thousands)                                    1995               1994
                                               ----------         ----------
<S>                                            <C>                <C>       
Reserve balance, beginning of year .......     $   12,485         $   14,423
   Gross charge-offs .....................         (1,142)            (1,990)
   Less: recoveries ......................          1,460              1,443
                                               ----------         ----------
Net (charge-offs) recoveries .............            318               (547)
Provision charged to operations ..........           --
Subsidiary held for sale .................           --                 (415)
                                               ----------         ----------
Reserve, at end of period ................     $   12,803         $   13,461
                                               ==========         ==========

Loans, end of period .....................     $  381,207         $  348,725
Average loans outstanding ................     $  373,512         $  369,170
Ratio of net (charge-offs) recoveries
   to average loans outstanding ..........            .09%              (.15%)

Ratio of reserve for loan losses
   to nonperforming loans ................         203.22%            142.91%
Ratio of reserve for loan losses
   to loans, end of period ...............           3.36%              3.86%
</TABLE>
<PAGE>
   Management has adopted a reserve adequacy  methodology that requires specific
reserve assessment for all loans including residential real estate mortgages and
consumer loans. This methodology  assigns reserves based upon credit risk rating
for  specific  loans and  general  reserves  for all other  loans.  The  general
reserves  are based on  historical  charge-off  experience  but are  subject  to
certain   minimums  based  upon  BMJ's   assessment  of  the  current   economic
environment.

   BMJ's gross  charge-offs  during the first nine months of 1995  totaled  $1.1
million compared with $2.0 million for the first nine months of 1994. Subsequent
to the charge-off of a loan, it is BMJ's policy to continue to vigorously pursue
the collection of principal outstanding as well as past due interest. Collection
efforts resulted in recoveries of $1.5 million on previously  charged-off  loans
during the first nine months of 1995  compared  with $1.4  million for the first
nine months of 1994.

   The  distribution  of the reserve for loan losses and the percentage of loans
in each  category to total loans at  September  30, 1995 is  illustrated  in the
following table.
<TABLE>
<CAPTION>
                   Allocation of the Reserve for Loan Losses
                               September 30, 1995
(in thousands)                                                        % of Loans
                                                       Reserve        in Each Category
                                                       Amount         to Total Loans
                                                       -------        ----------------
<S>                                                    <C>              <C>  
Domestic:
     Commercial, financial and agricultural .......    $   909          5.70%
          Real estate  -  mortgage ................      8,462         75.06
     Real estate  -  construction .................      1,961          7.85
     Consumer .....................................        552         11.39

Unallocated .......................................        919          --
                                                       -------        ------ 
                                                       $12,803        100.00%
                                                       =======        ====== 
</TABLE>

Note:  This  distribution  is made  for  analytical  purposes  only.  The  total
allowance is available to absorb losses from any segment of the portfolio.


Deposits

   BMJ's   deposit   base  is  the   principal   source   of  funds   supporting
interest-earning  assets.  Maintaining  a strong core deposit base is key to the
development  of  long-term  customer   relationships  which,  in  turn,  present
opportunities  for BMJ to cross-sell its services.  To meet the  requirements of
its  diverse  customer  base,  BMJ  offers  a full  range of  deposit  products,
including  interest-bearing  and  noninterest-bearing  demand deposits,  savings
deposits, insured retail money market accounts and certificates of deposit.

   BMJ's  total  deposits  amounted  to $478.2  million at  September  30,  1995
compared to $463.6 million at December 31, 1994.
<PAGE>
   Table 1 provides  information  concerning average rates and balances of BMJ's
interest-bearing  deposits for the nine-month  periods ended  September 30, 1995
and 1994.  Among other things,  Table 1 shows that as a result of the increasing
interest rate  environment  which existed during 1994 and mid-1995,  the average
rate paid on BMJ's average  interest-bearing deposit balances increased to 3.07%
for the nine-month period ended September 30, 1995 from 2.17% for the comparable
1994 period.


   Capital

   BMJ's level of  shareholders'  equity  continued to improve  during the first
nine months of 1995;  primarily as the result of profitable  operating  results.
The following table provides selected  shareholders'  equity ratios at September
30, 1995 and December 31, 1994.
<TABLE>
<CAPTION>
(in thousands)                                    September 30,       December 31,
                                                      1995                1994
                                                   ------------       ------------
<S>                                                <C>                  <C>    
Shareholders' equity ........................      $63,133              $58,346
Shareholders' equity to assets ratio ........        11.15%               10.84%
Book value per share ........................      $  8.30              $  7.68
</TABLE>

   The Federal Reserve Board ("FRB") has issued  risk-based  capital  guidelines
applicable  to member banks and bank holding  companies  and the FDIC has issued
comparable guidelines applicable to state nonmember banks. The guidelines, which
establish  a risk  adjusted  ratio  relating  to the total  amount of assets and
off-balance  sheet  exposures,  (as such assets and off-balance  sheet items are
weighted  to  reflect  the risk  inherent  therein,)  require  a  minimum  total
risk-based  capital  ratio of 8.00%,  with at least half of the total capital in
the form of Tier 1 capital.  The risk-based capital ratios of BMJ and Mid-Jersey
were as follows on the dates shown:
<TABLE>
<CAPTION>
                                       September 30, 1995                        December 31,1994
                              ----------------------------------         -----------------------------------
                                   Total              Tier 1                Total                Tier 1
                                Risk-Based           Risk-Based            Risk-Based            Risk-Based
                              Capital Ratio        Capital Ratio         Capital Ratio         Capital Ratio
                              -------------        -------------         -------------         -------------
<S>                                  <C>                  <C>                   <C>                   <C>   
B.M.J.Financial Corp.                17.08%               15.14%                17.03%                15.04%
The Bank of Mid-Jersey               14.97%               13.69%                14.86%                13.58%
</TABLE>

   The FRB and FDIC have also adopted leverage capital  requirements  specifying
the minimum  acceptable  ratios of Tier 1 capital to total  assets.  Under these
requirements,  the most sound,  well-run institutions engaged in the least risky
operations  are required to maintain  minimum  ratios of Tier 1 capital to total
assets  of  3%.  All  other  institutions,  as  well  as  even  extremely  sound
institutions  experiencing or anticipating  significant  growth, are expected to
operate well above this minimum level.  Most banks generally  operate at capital
levels  ranging from 100 to 200 basis points  above the stated  minimum.  Higher
capital  ratios  could  be  required  if they are  deemed  by  regulators  to be
warranted by the particular circumstances or risk profile of an individual bank.
<PAGE>
The leverage ratios of BMJ and Mid-Jersey were as follows on the dates shown:
<TABLE>
<CAPTION>
                                     Leverage Ratio at              Leverage Ratio at
                                     September 30, 1995             December 31,1994
                                     ------------------             -----------------
<S>                                         <C>                           <C>   
B.M.J.Financial Corp.                       10.84%                        10.58%
The Bank of Mid-Jersey                       9.99%                         9.49%
</TABLE>

   Failure to satisfy  any  minimum  capital  requirement  applicable  to BMJ or
Mid-Jersey  could subject BMJ or Mid- Jersey,  as the case may be, to regulatory
actions by the FRB.

   BMJ paid $380 thousand in cash dividends on its common stock during the third
quarter of 1995 and has  declared  $1,140,000  in cash  dividends  on its common
stock  through  the first  nine  months  of 1995.  These  shareholder  dividends
represent the first to be paid by BMJ since dividends were suspended in 1991.

   The primary  source of funds for  payment of  dividends  by BMJ is  dividends
received from Mid-Jersey. The amount of dividends that Mid-Jersey may declare in
any year is  subject  to  certain  regulatory  limitations.  Mid-Jersey  may not
declare dividends if such declaration  would leave it inadequately  capitalized.
Generally,  dividends  declared  by a bank are  limited  to its net  profit,  as
defined by the regulatory agencies, for that year combined with its retained net
income from the preceding two years.  At January 1, 1995, the amount of retained
earnings of Mid-Jersey  available for  declaration of dividends to BMJ was $10.7
million.


Liquidity and Asset/Liability Management

   Liquidity  refers to BMJ's  ability to maintain a cash flow  adequate to fund
operations  and meet  obligations on a timely and cost  effective  basis.  Asset
liquidity is  represented  by the ease with which  assets can be converted  into
cash.  BMJ  continually  evaluates  its funding  needs and manages its liquidity
position by maintaining  adequate levels of liquid assets, such as cash and cash
equivalents  and  securities  available for sale.  BMJ's funding needs change as
loans grow,  deposits mature and payments on obligations  are made.  Because the
characteristics of BMJ's assets and liabilities change,  liquidity management is
a dynamic  process.  Among those  factors  affecting  liquidity  management  are
pricing and maturity of loans,  deposits and other  assets and  liabilities.  In
addition,  liquidity  management  is  affected  by changes  in the  relationship
between short-term and long-term interest rates.

   At  September  30, 1995,  BMJ had a total of $64.8  million or 11.5% of total
assets in cash and cash equivalents,  short-term money market  investments,  and
securities available for sale, representing its primary sources of liquidity, as
compared to $47.4 million or 8.9% of assets at December 31, 1994. Another source
of asset  liquidity  is the cash  flows  provided  by  maturities  and  periodic
repayments of principal of both the  securities  held to maturity  portfolio and
the loan portfolio.

   Liabilities   also  provide  a  source  of  liquidity   for  BMJ.   Wholesale
certificates  of deposit (none of which were brokered  deposits) and  repurchase
agreements comprised 5.1% of total liabilities at September 30, 1995 and 2.8% of
total liabilities at December 31, 1994. Management believes there is substantial
room to increase these funding sources if necessary to meet its liquidity needs.
In addition,  Mid-Jersey  currently  has a line of $10.8  million  available for
discount window  borrowing from the Federal  Reserve  without  further  pledging
requirements  and a $2.0  million  line of credit with a  correspondent  bank to
cover short term funding  needs in the federal funds  market.  In addition,  The
Bank of Mid-Jersey  joined the Federal Home Loan Bank system during 1995 and has
established  a line of credit of  approximately  $14.0  million with the Federal
Home  Loan  Bank of New  York to  further  support  and  enhance  liquidity.  At
September 30, 1995, approximately $1.0 million was outstanding against this line
of credit.

   As  shown  in the  Consolidated  Statement  of  Cash  Flows,  cash  and  cash
equivalents  decreased by $17.1  million to $27.7 million at September 30, 1995.
This  decrease  reflected  net  cash  of  $7.6  million  provided  by  operating
activities,  $45.4  million of net cash used in investing  activities  and $20.8
million  of net  cash  provided  by  financing  activities.  Cash  generated  by
operating  activities  reflected  BMJ's net income of $5.7 million  adjusted for
noncash  charges  and  credits.  Cash  used in  investing  activities  primarily
reflected the net increases in the loan portfolio and  securities  available for
sale portfolio offset in part by the proceeds from maturities of securities held
to maturity.  Cash provided by financing  activities primarily reflected the net
decrease in demand deposit,  savings and interest checking  accounts,  offset by
the net increase in certificates of deposit and securities sold under agreements
to repurchase.

   At September 30, 1995,  B.M.J.  Financial  Corp.  (the parent  company) had a
total of $2.1  million  in cash  and  cash  equivalents,  and  $8.3  million  in
available  for sale  securities  which  serve as the  parent  company's  primary
sources of liquidity.  The parent  company does not maintain  lines of credit or
other borrowing arrangements.

   Certain  limitations of regulatory agencies exist with respect to the ability
of banking  subsidiaries  to transfer  funds as dividends to the parent  holding
company. Nevertheless, on January 1, 1995, $10.7 million of retained earnings of
Mid- Jersey was available for  declaration of dividends  from  Mid-Jersey to BMJ
without  prior  regulatory  approval.  Moreover,  BMJ has the capacity to borrow
funds from the Federal Reserve  discount window to meet liquidity needs that are
not funded through subsidiary dividends or income.

   BMJ's  principal  asset/liability  management  objectives  are to manage  the
sensitivity of net interest  spreads to potential  changes in interest rates and
to enhance  profitability  in ways that  should  provide  sufficient  reward for
understood and controlled risk. Specific  asset/liability  strategies are chosen
to achieve an appropriate  trade-off between average spreads and the variability
of spreads. The BMJ Asset/Liability Management Committee meets weekly to monitor
consolidated  risk  at the  corporate  level  and  to  monitor  compliance  with
established  liquidity  and interest  rate  sensitivity  policy  parameters on a
consolidated  and  individual  bank  basis.  Funding  positions  are kept within
established  policy  limits  designed  to  maintain  reasonable  risk levels and
adequate liquidity.

   In order to measure the effect of  interest  rate  fluctuations  on BMJ's net
interest margin, management simulates the potential effects of changing interest
rates through computer modeling.  These simulations  determine the impact on net
interest income of various  interest rate scenarios and balance sheet trends and
strategies.  These simulations  incorporate the dynamics of the balance sheet as
well as the interrelationships between various categories of short-term interest
rates and the impact the yield-curve  level has on asset and liability  pricing.
Net interest  income  sensitivity  to balance  sheet  trends and  interest  rate
movements  is  quantified   and   appropriate   strategies   are  developed  and
implemented.


Recent Accounting Pronouncements

   In March 1995, the Financial Accounting Standards Board released FAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be  Disposed  Of."  FAS  No.  121  established  guidelines  for  recognition  of
impairment losses related to long-lived assets and certain  intangibles  related
goodwill  for  both  assets  to be held  and  used as well as  assets  held  for
disposition.  This statement excludes financial instruments,  long-term customer
relationships of financial institutions, mortgage and other servicing rights and
deferred  tax  assets.  This  standard  becomes  effective  on  January 1, 1996.
Adoption of FAS No. 121 is not  expected to result in material  changes to BMJ's
financial position or results of operations.

   In May 1995, the Financial  Accounting  Standards Board released FAS No. 122,
"Accounting for Mortgage Servicing Rights." FAS No. 122 requires  recognition of
mortgage servicing rights as separate assets, whether those rights are purchased
or relate to loans  originated  for sale.  This  standard  becomes  effective on
January 1, 1996.  BMJ  estimates  that  adoption of FAS 122 will not  materially
impact BMJ's financial position or results of operations.
<PAGE>
                           PART II. OTHER INFORMATION


Item 1.     Legal Proceedings.
------------------------------
            Not Applicable


Item 2.     Changes in Securities
---------------------------------
            Not Applicable


Item 3.     Defaults Upon Senior Securities.
--------------------------------------------
            Not Applicable


Item 4.     Submission of Matters to a Vote of Security Holders.
----------------------------------------------------------------
            Not Applicable


Item 5.     Other Information.
------------------------------
            Not Applicable


Item 6.     Exhibits and Reports on Form 8-K.
---------------------------------------------
            (a) Exhibit 11. Statement Regarding Computation of
                            Per Share Earnings
<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.





Date        08/07/95                  /s/ Elmer J. Elias
     ------------------------        -------------------------------------------
                                     Elmer J. Elias, Acting President



Date        08/07/95                 /s/ Joseph M. Reardon
     ------------------------        -------------------------------------------
                                     Joseph M. Reardon, Chief Financial Officer