UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

  (Mark One)

     (X)  ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
          EXCHANGE ACT OF 1934 (FEE REQUIRED)

          FOR THE FISCAL YEAR ENDED December 31, 1996

                              OR

     ( )  TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
          AND EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

FOR THE TRANSITION PERIOD FROM ...................TO...................

                         Commission file number 0-22186

                            PRESTIGE FINANCIAL CORP.
             (Exact name of registrant as specified in its charter)

 NEW JERSEY                                                           22-3216510
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)

1 Royal Road P.O. Box 2480 Flemington, New Jersey                          08822
(Address of principal executive offices)                              (Zip Code)

Registrant's telephone number, including area code                (908)-806-6200

Securities Registered Pursuant to Section 12(b) of the Act:  NONE

Securities Registered Pursuant to Section 12(g) of the Act:

                         Common Stock ($0.01 Par Value)
                               Title of each class

     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. YesXX No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (XX)

     The aggregate market value of the voting stock held by nonaffiliates of the
Registrant,  computed by  reference  to the  average  high and low price of such
stock on the NASDAQ  National  Market on January  31,  1997,  was  approximately
$36,098,696.

     The number of shares  outstanding of the Registrant's  Common Stock,  being
the only class of capital stock outstanding, as of March 10, 1997 was 2,669,831.

     Listed hereunder are the following documents  incorporated by reference and
the Part of the Form 10-K into which the document is incorporated: (1) pages 8 -
24 of the Annual Report to security holders of Prestige  Financial Corp. for the
year ended December 31, 1996 are  incorporated by reference into Parts I, II and
IV of the Form 10-K;  (2) the  definitive  Proxy  Statement  for the 1997 Annual
Meeting of shareholders to be filed with the Commission prior to April 30, 1997,
pursuant  to  regulation  14A  of  the  General  Rules  and  Regulations  of the
Commission is incorporated by reference into Part III of the Form 10-K.


                                       1
<PAGE>

                            PRESTIGE FINANCIAL CORP.
                                 1996 FORM 10-K

                                TABLE OF CONTENTS

                                     PART I

                                                                            Page

Item  1. Business .........................................................    3
Item  2. Properties .......................................................   12
Item  3. Legal Proceedings ................................................   13
Item  4. Submission of Matters to a Vote of
         Security Holders .................................................   13

                                     PART II

Item  5. Market for Registrant's Common Equity and
         Related Stockholder Matters ......................................   13
Item  6. Selected Financial Data ..........................................   13
Item  7. Management's Discussion and Analysis of
         Financial Condition and Results of Operations ....................   15
Item  8. Financial Statements and Supplementary Data ......................   27
Item  9. Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosures .............................   27

                                    PART III

Item 10. Directors and Executive Officers of the
         Registrant .......................................................   27
Item 11. Executive Compensation ...........................................   27
Item 12. Security Ownership of Certain Beneficial
         Owners and Management ............................................   27
Item 13. Certain Relationships and Related Transactions ...................   27

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and
         Reports on Form 8-K ..............................................   28

SIGNATURES ................................................................   31


                                       2
<PAGE>

PART I

ITEM 1 -- BUSINESS.

A.   History.

Prestige Financial Corp. (the "Corporation") is a one bank holding company which
was organized as a corporation  under New Jersey law in February,  1993. On July
31, 1993,  Prestige State Bank (the "Bank"), a New  Jersey-chartered  commercial
bank,  consummated its reorganization  into a holding company structure pursuant
to a Plan of  Acquisition  (the "Plan")  whereby the Bank became a  wholly-owned
subsidiary of the Corporation.  The  reorganization  was accounted for under the
pooling of interests method of accounting for financial reporting purposes.

The Bank's  application  and certificate of  incorporation  were accepted by the
Commissioner  on  March  13,  1989.  The  Bank  was  granted  a  charter  by the
commissioner  on September 2, 1989 and received its Certificate of Authority and
commenced  operations on March 12, 1990. The Bank is not a member of the Federal
Reserve  and  has  its  deposits  insured  by  the  Federal  Deposit   Insurance
Corporation.

B.   Narrative Description of the Current Business.

The Corporation,  through the Bank, offers a broad range of lending,  depository
and  related  financial  services  to  individual  consumers,   businesses,  and
governmental  units.  Commercial  lending services  provided by the Bank include
short and medium term loans,  Small  Business  Administration  loans,  revolving
credit  arrangements,   lines  of  credit,   asset-based  lending,  real  estate
construction loans and mortgage loans. Consumer banking services include various
types of deposit  accounts,  secured and unsecured loans,  consumer  installment
loans,  mortgage loans and other consumer  oriented  services.  The  Corporation
operates  chiefly  in its  approximately  228  square  mile  primary  trade area
surrounding  its  headquarters  facility in Raritan  Township,  New Jersey.  The
primary  trade area  consists  of all of  Hunterdon  County;  four  southwestern
townships of Warren that border on Hunterdon County;  and four western townships
of Somerset bordering on Hunterdon County. Raritan Township, the municipality in
which the Corporation is based,  is the largest and fastest  growing  population
center in Hunterdon County.  Most of the area enjoys an above-average  household
income.

The Corporation and the Bank face vigorous competition from a number of sources,
including  other bank holding  companies and  commercial  banks (some far larger
than the Corporation),  consumer finance companies,  thrift institutions,  other
financial institutions and financial  intermediaries.  Federal and state savings
and loan associations, savings banks, credit unions and industrial savings banks
also actively  compete to provide a wide variety of banking  services.  Mortgage
banking firms,  real estate  investment  trusts,  finance  companies,  insurance
companies,  leasing  companies,  brokerage  and factoring  companies,  financial
affiliates of industrial  companies and government  agencies provide  additional
competition  for  loans and for many  other  financial  services.


                                       3
<PAGE>

The Bank  also  competes  for  interest-bearing  funds  with a  number  of other
financial  intermediaries,  including  brokerage  firms and mutual funds,  which
offer a diverse range of investment alternatives.

PSB  Investment  Management,  Inc., a  wholly-owned  subsidiary of the Bank, was
organized as a corporation  under New Jersey law in July,  1996.  PSB Investment
Management,  Inc.  manages a portfolio of investments  for its own account.  The
Bank has no other  subsidiaries  and is the only subsidiary of the  Corporation.
The  Corporation  has no present  plans to engage in any  activities  other than
acting as a holding company for the Bank.

C.   Regulatory Matters.

Please refer to Note 9, on page 17 and Note 11, on page 19 of the  Corporation's
1996 Annual Report which are incorporated herein by reference.

D.   Financial Data and Statistics.

          I.  Distribution  of Assets,  Liabilities  and  Stockholders'  Equity;
          Interest Rates and Interest Differential.

          The following table contains  average balance sheet data with interest
          income and  expense as well as  interest  rate  information  for 1996,
          1995,  and 1994.  Net  interest  income here is  presented  on a fully
          tax-equivalent   basis,  which  is  a  standard  analytical  technique
          designed to adjust tax exempt income  (primarily  associated  with tax
          free municipal  securities,  loans and leases) by the amount of income
          tax which  would  have been paid had the  assets  been  taxable.  As a
          result,  net  interest  income  data  presented  here will differ from
          consolidated financial statements presented elsewhere in this report.


                                       4
<PAGE>

                             PRESTIGE FINANCIAL CORP
              AVERAGE BALANCE SHEET WITH INTEREST AND AVERAGE RATES
                             (dollars in thousands)

                            Years Ended December 31,

<TABLE>
<CAPTION>
                                                            1996                        1995                         1994
                                                ---------------------------   --------------------------  --------------------------
                                                           Interest Average            Interest  Average            Interest Average
                                                 Average   Income/  Yield/    Average   Income/  Yield/    Average   Income/  Yield/
                                                 Balance   Expense   Rate     Balance   Expense   Rate     Balance   Expense  Rate
                                                --------   -------   ----    --------   -------   ----    --------   ------   -----
<S>                                             <C>        <C>       <C>     <C>        <C>       <C>     <C>        <C>      <C>  
ASSETS
Interest-earning assets:
  Investment securities:
    Taxable                                     $ 56,731   $ 3,590   6.33%   $ 27,287   $ 1,625   5.96%   $ 21,017   $  870   4.14%
    Non-taxable                                    3,931       152   3.87%      2,885       182   6.31%      1,750       81   4.63%
  Federal funds sold and
    short-term investments                         8,110       428   5.28%      7,614       443   5.82%      6,244      257   4.12%
  Loans net of unearned                          124,778    11,947   9.57%    104,205    10,098   9.69%     80,591    7,056   8.76%
                                                --------   -------   ----    --------   -------   ----    --------   ------   -----
      Total interest-earning assets              193,550    16,117   8.33%    141,991    12,348   8.70%    109,602    8,264   7.54%
                                                --------   -------   ----    --------   -------   ----    --------   ------   -----
Noninterest-earning assets
  Cash and due from banks                          5,832                        4,199                        3,426
  Other assets                                     4,652                        3,969                        3,489
Allowance for possible loan losses               (1,453)                      (1,214)                      (1,078)
                                                --------                     --------                     --------
      Total noninterest-earning assets             9,031                        6,954                        5,837
                                                --------                     --------                     --------
      Total assets                              $202,581                     $148,945                     $115,439
                                                ========                     ========                     ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
  NOW accounts                                    10,747       257   2.39%      8,232       217   2.64%      6,218      160   2.57%
  Money Market accounts                           19,504       608   3.12%     16,259       550   3.38%     16,485      510   3.09%
  Savings accounts                                30,436     1,100   3.61%     22,179       793   3.58%     21,227      613   2.89%
  Certificates of deposit                        100,838     5,600   5.55%     73,687     4,148   5.63%     47,518    2,044   4.30%
  Short-term borrowings                               50         3   6.00%          7         1   5.96%         --       --     --
                                                --------   -------   ----    --------   -------   ----    --------   ------   -----
      Total interest-bearing liabilities         161,575     7,568   4.68%    120,364     5,709   4.74%     91,448    3,327   3.64%
                                                --------   -------   ----    --------   -------   ----    --------   ------   -----
Noninterest-bearing liabilities:
  Demand deposits                                 26,100                       17,352                       14,186
  Other liabilities                                1,059                          827                          604
                                                --------                     --------                     --------
      Total noninterest-bearing liabilities       27,159                       18,179                       14,790
                                                --------                     --------                     --------
Stockholders' equity                              13,847                       10,402                        9,201
                                                --------                     --------                     --------
      Total liabilities and
        stockholders' equity                    $202,581                     $148,945                     $115,439
                                                ========                     ========                     ========
Net interest income                                        $ 8,549                      $ 6,639                      $4,937
                                                           =======                      =======                      ======
Net interest spread                                                  3.65%                        3.96%                       3.90%
                                                                     =====                        =====                       =====
Net interest income as percent 
  of earning assets                                                  4.42%                        4.68%                       4.50%
                                                                     =====                        =====                       =====
</TABLE>


                                       5
<PAGE>

     The following  table sets forth the dollar amounts of interest income (on a
taxable  equivalent  basis) and interest  expense and changes therein  resulting
from changes in volume and changes in rate. The change in interest income due to
both rate and volume has been  allocated  to change due to volume and change due
to rate based on the percentage relationship of such variances to each other.

                   ANALYSIS OF VARIANCE IN NET INTEREST INCOME
                       DUE TO CHANGES IN VOLUME AND RATES
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                         1996/1995                              1995/1994
                                                                    Increase/(Decrease)                    Increase/(Decrease)
                                                              --------------------------------      --------------------------------
                                                              Average     Average        Net        Average      Average      Net
                                                              Volume        Rate        Change      Volume         Rate      Change
                                                              -------     -------      -------      -------      -------     -------
<S>                                                           <C>         <C>          <C>          <C>          <C>         <C>    
Interest-earning assets:
  Investment securities:
    Taxable                                                   $ 1,857     $   108      $ 1,965      $   306      $   449     $   755
    Non-taxable                                                    55         (85)         (30)          66           35         101
  Federal funds sold and short-term investments                    28         (43)         (15)          64          122         186
  Loans net of unearned                                         1,971        (122)       1,849        2,229          813       3,042
                                                              -------     -------      -------      -------      -------     -------
      Total interest-earning assets                             3,911        (142)       3,769        2,665        1,419       4,084
                                                              -------     -------      -------      -------      -------     -------

Interest-bearing liabilities:
  NOW accounts                                                     62         (22)          40           53            4          57
  Money Market accounts                                           104         (46)          58           (7)          47          40
  Savings accounts                                                298           9          307           29          151         180
  Certificates of deposit                                       1,509         (57)       1,452        1,348          756       2,104
  Short-term borrowings                                             2           0            2            1         --             1
                                                              -------     -------      -------      -------      -------     -------
     Total interest-bearing liabilities                         1,975        (116)       1,859        1,424          958       2,382
                                                              -------     -------      -------      -------      -------     -------

     Change in net interest income                            $ 1,936     ($   26)     $ 1,910      $ 1,241      $   461     $ 1,702
                                                              =======     =======      =======      =======      =======     =======
</TABLE>


                                       6
<PAGE>

II.  Investment Portfolio
          (dollars in thousands)

                             INVESTMENT COMPOSITION

                                Book Value as of
                                  December 31,

                                              1996          1995          1994
                                             -------       -------       -------
U.S. Treasury and                            $64,658       $41,200       $20,491
   U.S. Government agencies

State and political subdivisions               3,931         1,460         1,940

Other Securities                                 285           610           110
                                             -------       -------       -------
 Total investment securities                 $68,874       $43,270       $22,541
                                             =======       =======       =======


                       Book Value as of December 31, 1996

<TABLE>
<CAPTION>
                                                   Over         Over
                                                   1 year      5 years
                                     1 year         to 5        to 10        Over
Contractual maturities               or less       years        years       10 years      Total
----------------------               -------      -------      -------      -------      -------
<S>                                  <C>          <C>          <C>          <C>          <C>    
U.S. Treasury and                    $ 5,097      $16,843      $ 8,386      $34,332      $64,658
   U.S. Government agencies

State and political subdivisions       3,095          836         --           --          3,931

Other Securities                        --           --            110          175          285
                                     -------      -------      -------      -------      -------
 Total investment securities         $ 8,192      $17,679      $ 8,496      $34,507      $68,874
                                     =======      =======      =======      =======      =======
Weighted average yield on a
   tax-equivalent basis                 5.66%        6.85%        6.73%        7.05%        6.79%
                                     =======      =======      =======      =======      =======
</TABLE>


The aggregate book and market values of investment securities of a single issuer
with an  aggregate  book  value in  excess  of 10% of  stockholders'  equity  at
December 31, 1996 are as follows:

                                             Book           Market
                                            Value           Value
                                           -------         -------
U.S. Treasury                              $ 3,997         $ 3,996

FHLMC                                      $ 8,236         $ 8,322

FHLB                                       $ 7,001         $ 6,935

FNMA                                       $ 4,011         $ 4,068

GNMA                                       $22,320         $22,210

SBA                                        $19,091         $18,837

Raritan Township                           $ 1,885         $ 1,885


                                       7
<PAGE>

III. Loan Portfolio
          (dollars in thousands)

                                LOAN COMPOSITION

<TABLE>
<CAPTION>
                                                                        December 31,
                                                  1996         1995         1994         1993         1992
                                                ------------------------------------------------------------
<S>                                             <C>          <C>          <C>          <C>          <C>     
Domestic:
  Commercial                                    $ 55,676     $ 42,699     $ 27,901     $ 19,364     $ 16,771
  Real estate - construction                       7,951        5,020        6,301        5,204        1,231
  Real estate - mortgage                          47,696       39,768       35,845       33,167       26,890
  Consumer                                        27,145       26,101       23,564       17,109       13,335
                                                --------     --------     --------     --------     --------
    Net of deferred loan fees and discounts      138,468      113,588       93,611       74,844       58,227
    Less Allowance for loan losses                 1,592        1,325        1,077        1,058          654
                                                --------     --------     --------     --------     --------
Net Loans                                       $136,876     $112,263     $ 92,534     $ 73,786     $ 57,573
                                                ========     ========     ========     ========     ========
</TABLE>


THE MATURITIES OF COMMERCIAL AND REAL ESTATE - CONSTRUCTION LOANS

<TABLE>
<CAPTION>
                                                            December 31, 1996
                                        --------------------------------------------------------
                                                      Over                              Maturity
                                         1 year   1 year to 5    Over        Grand       over
                                        or less      years      5 years      total       1 year
                                        -------     -------     -------     -------     -------
<S>                                     <C>         <C>         <C>         <C>         <C>    
Fixed Rate:
  Commercial                            $ 2,198     $ 8,142     $ 4,520     $14,860     $12,662
  Real estate - construction                260        --          --           260        --
                                        -------     -------     -------     -------     -------
                                          2,458       8,142       4,520      15,120      12,662

Variable Rate:
  Commercial                              6,641       2,841      31,334      40,816      34,175
  Real estate - construction              4,476       3,215        --         7,691       3,215
                                        -------     -------     -------     -------     -------
                                         11,117       6,056      31,334      48,507      37,390
                                        -------     -------     -------     -------     -------
    Grand Total                         $13,575     $14,198     $35,854     $63,627
                                        =======     =======     =======     =======
    Total of Maturities over 1 Year                 $14,198     $35,854                 $50,052
                                                    =======     =======                 =======
</TABLE>


                      RISK ELEMENTS - NON PERFORMING LOANS

<TABLE>
<CAPTION>
                                                                   December 31,
                                               1996        1995        1994        1993        1992
                                               ----------------------------------------------------
<S>                                            <C>         <C>         <C>         <C>         <C> 
Non-accrual loans                              $454        $ 11        $637        $497        $543
Accruing loans past due 90 days or more         356          11         --          --          --
Troubled debt restructurings                    --          --          --          --          --
                                               ----------------------------------------------------
                                               $810        $ 22        $637        $497        $--
                                               ====================================================
</TABLE>


The accrual of income on loans is  generally  discontinued  when a loan  becomes
more than 90 days  delinquent  and is not  considered  well  secured  and in the
process of collection or when certain factors  indicate  reasonable  doubt as to
the  ability of the  borrower  to meet  contractual  principal  and/or  interest
obligations.  Loans on which the  accrual  of income has been  discontinued  are
designated as non-accrual loans. All previously accrued interest is reversed and
income is recognized  subsequently only in the period  collected.  A non-accrual
loan is not returned to an accrual  status  until  factors  indicating  doubtful
collection no longer exist.

The gross interest income which would have been recorded had loans classified as
non-accrual continued to accrue interest at their contractual rates for the year
ended December 31, 1996 was approximately $37,000.


                                       8
<PAGE>

IV.  Summary of Loan Loss Experience
          (dollars in thousands)

                    ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                                                          Years Ended December 31,

                                                      1996           1995           1994           1993           1992
                                                     ------         ------         ------         ------         ------
<S>                                                  <C>            <C>            <C>            <C>            <C>   
Balance at Beginning of Period                       $1,325         $1,077         $1,058         $  654         $  300
                                                     ------         ------         ------         ------         ------
Charge-offs:
    Commercial                                          227             52             75             26             --
    Real estate-construction                             --             --             --             --             --
    Real estate-mortgage                                 --             15             --             --             --
    Consumer                                             33             37             13             23             11
                                                     ------         ------         ------         ------         ------
                                                        260            104             88             49             --
                                                     ------         ------         ------         ------         ------
Recoveries:
    Commercial                                           10             --              1             --             --
    Real estate-construction                             --             --             --             --             --
    Real estate-mortgage                                 --             --             --             --             --
    Consumer                                              1              2              6              2             --
                                                     ------         ------         ------         ------         ------
                                                         11              2              7              2             --
                                                     ------         ------         ------         ------         ------
Net charge-offs                                         249            102             81             47             11
                                                     ------         ------         ------         ------         ------
Additions charged to operations                         516            350            100            451            365
                                                     ------         ------         ------         ------         ------
Balance at end of period                             $1,592         $1,325         $1,077         $1,058         $  654
                                                     ------         ------         ------         ------         ------
Ratio of net charge-offs during the period to
  average loans outstanding during the period          0.20%          0.10%          0.10%          0.07%          0.02%
                                                     ------         ------         ------         ------         ------
</TABLE>


                                       9
<PAGE>

The  following  table sets forth an  allocation of the allowance for loan losses
among certain  categories of loans as of the dates  indicated.  It should not be
interpreted as an indication of the specific amounts or the relative  proportion
of  future  changes  to the  allowance,  but may be  utilized  as a  device  for
assessing the adequacy of the allowance as a whole.

                   ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
                             (dollars in thousands)

<TABLE>
<CAPTION>
                             -------------------------------------------------------------------------------------------------------
                             December 31, 1996     December 31, 1995    December 31, 1994     December 31, 1993    December 31, 1992
                             -------------------------------------------------------------------------------------------------------
                                      Percent               Percent              Percent               Percent              Percent 
                                      of loans              of loans             of loans              of loans             of loans
                             Amount   in each      Amount   in each     Amount   in each      Amount   in each     Amount   in each 
                                      category              category             category              category             category
Balance at end of                     of total              of total             of total              of total             of total
period applicable to:                 loans                 loans                loans                 loans                loans   
                             -------------------------------------------------------------------------------------------------------
<S>                            <C>     <C>           <C>     <C>           <C>     <C>          <C>     <C>          <C>     <C>    
  Commercial                   $762    40.55%        $410    37.59%        $63     29.81%       $158    25.87%       $129    28.80% 
  Real estate-construction       79     5.74%          50     4.42%         96      6.73%         56     6.95%         15     2.11% 
  Real estate-mortgage          406    34.45%         499    35.01%        306     38.29%        372    44.32%        189    46.19% 
  Consumer                      155    19.26%         135    22.98%        104     25.17%        184    22.86%         90    22.90% 
  Unallocated                   190       N/A         231       N/A        508        N/A        288       N/A        231       N/A 
                             -------------------------------------------------------------------------------------------------------
Total                        $1,592   100.00%      $1,325   100.00%     $1,077    100.00%     $1,058   100.00%       $654   100.00% 
                             =======================================================================================================
</TABLE>


                                       10
<PAGE>

V.  Deposits

                     DEPOSIT COMPOSITION - AVERAGE BALANCES
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                  Years Ended December 31,
                               --------------------------------------------------------------------------------------------
                                                 Weighted                        Weighted                        Weighted
                                Average          Average        Average          Average       Average           Average
                                Balance       Interest Rate     Balance        Interest Rate   Balance        Interest Rate
                                 1996             1996           1995             1995           1994             1994
                               ----------------------------    -----------------------------   ----------------------------
<S>                            <C>                <C>          <C>                <C>          <C>                <C> 
Demand                         $ 26,100            --%         $ 17,352            --%         $ 14,186            --%

NOW accounts                     10,747           2.39%           8,232           2.64%           6,218           2.57%

Money Market accounts            19,504           3.12%          16,259           3.38%          16,485           3.09%

Savings accounts                 30,436           3.61%          22,179           3.58%          21,227           2.89%

Certificates of deposit         100,838           5.55%          73,687           5.63%          47,518           4.30%
                               --------                        --------                        --------
Total Deposits                 $187,625           4.03%        $137,709           4.15%        $105,634           3.15%
                               ========                        ========                        ========
</TABLE>


At December 31, 1996 the Corporation had outstanding  Certificates of Deposit in
amounts of $100,000 or greater maturing as follows:

                             (dollars in thousands)

                                                        Non
          Periods                     Negotiable     Negotiable          Total
--------------------------------------------------------------------------------
Within 3 months                         $6,688        $2,425            $9,113
Over 3 months to 6 months                1,393         2,896             4,289
Over 6 months to 12 months                 630         3,748             4,378
Over 12 months                             486         3,197             3,683
                                                                       -------
                                                                       $21,463
                                                                       =======


In the total of  $21,463,000,  $9,197,000 are  "negotiable" as to their rate and
maturity.  The remaining  $12,266,000 are under the same terms and conditions as
any other accounts in the category.

The  Bank  has no  deposits  in  foreign  banking  offices  and,  to the best of
management's knowledge,  has no material deposits in domestic offices by foreign
depositors.


                                       11
<PAGE>

ITEM 2 -- PROPERTIES.

The Corporation currently operates out of its original location at Reading Ridge
Center,  as well as the much larger  banking and office  facilities at One Royal
Road,  within  Raritan  Township,  New Jersey.  A third branch is located in the
borough of Raritan,  within neighboring  Somerset County, to service the eastern
portion of the Corporation's  trade area. A fourth location serving customers in
the  northern  section  of the trade  area  exists in  Clinton  Township.  Three
additional branches are planned for 1997 opening in Flemington and Clinton,  New
Jersey.  Applications for the proposed  branches have been reviewed and approved
by the New Jersey State Department of Banking.

The  Reading  Ridge  branch is part of a strip  shopping  center  located at the
intersection  of Reading Road and Voorhees  Corner Road. It includes about 1,800
square feet and has three inside teller  stations and two drive-ups,  as well as
an automated  teller machine  located in its vestibule.  The Royal Road location
consists of about 13,300 square feet within a new 16,500 square foot building at
the corner of Royal  Road and Church  Street and  includes  four  inside  teller
stations,  three drive-ups and an automated teller machine within its vestibule.
The  Raritan  Borough  location  is at 34  East  Somerset  Street  and  includes
approximately 5,500 square feet of banking,  office,  meeting and storage space.
It includes four inside teller  stations,  two drive-ups and an automated teller
machine  within its  vestibule.  The  Clinton  Township  branch is located at 37
Beaver Avenue and also contains four inside teller  stations,  two drive-ups and
an  automated  teller  machine  within  its  vestibule.  Parking  and access are
considered satisfactory at all locations.

Consistent with the  Corporation's  philosophy to minimize  commitments to fixed
(non-earning)  assets  that  may  also  impede  future  flexibility  as size and
business  emphasis may change,  all  properties  are leased.  The Reading  Ridge
branch is rented from Reading Ridge  Associates  under an operating  lease which
expires  in 1997 but which  contains  certain  renewal  options.  The Royal Road
location is leased from  Prestige  Quarters  LP under an  operating  lease which
commenced  in 1993 for an initial  term of 20 years with an  additional  10-year
renewal option. The Raritan Borough branch is leased from Prestige Realty Group,
LLC under an operating  lease with an initial term of 10 years which  expires in
2004 and which provides for two additional 5 year renewal  options.  The Clinton
Township branch is leased from Prestige  Clinton Realty,  LLC under an operating
lease with an initial term of ten years which expires in 2006 and which provides
for two additional 5 year renewal  options.  In addition to rent  payments,  the
Corporation is obligated to pay real estate taxes, utilities, casualty insurance
and expenses of maintaining the leased premises.

Please  also  refer to Note 6, on page  15,  and  Note  10,  on page 18,  of the
Corporation's 1996 Annual Report which are incorporated herein by reference.


                                       12
<PAGE>

ITEM 3 -- LEGAL PROCEEDINGS.

Please  see  Note 10 -  "Contingencies",  on page 19 of the  Corporation's  1996
Annual Report which is incorporated herein by reference.


ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no matters  submitted to a vote of security holders during the fourth
quarter of the fiscal year on which this report is being made.


                                     PART II

ITEM 5 -- MARKET FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
MATTERS.

Please  refer to Note 11, on page 19, and to page 24 of the  Corporation's  1996
Annual Report which are incorporated herein by reference. Further information is
also provided in the table on page 14 of this Form 10-K.

ITEM 6 -- SELECTED FINANCIAL DATA.

The following  selected  consolidated  financial data of the Corporation and the
Bank as of and for the years ended December 31, 1996, 1995, 1994, 1993, and 1992
was  derived  from  the  audited   consolidated   financial  statements  of  the
Corporation and the Bank. Such selected consolidated  financial data for each of
the years in the three year  period  ended  December  31, 1996 should be read in
conjunction with the Corporation's consolidated financial statements and related
notes  on  pages  8 - 24 of the  Corporation's  1996  Annual  Report  which  are
incorporated  herein by  reference.  All per share amounts have been adjusted to
reflect the  five-for-four  stock split  effective on April 19, 1996 and the 10%
stock dividend effective on March 31, 1995.


                                       13
<PAGE>

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                           (dollars in thousands, except per share data)

Years Ended December 31,                           1996           1995           1994           1993           1992
====================================================================================================================
<S>                                            <C>            <C>            <C>            <C>            <C>      
Summary of Income
  Interest income                                $16,039        $12,254         $8,189         $6,655         $5,467
  Interest expense                                 7,568          5,709          3,327          2,706          2,709
                                                 -------------------------------------------------------------------
  Net interest income                              8,471          6,545          4,862          3,949          2,758
  Provision for loan losses                          516            350            100            451            365
                                                 -------------------------------------------------------------------
  Income from earning assets                       7,955          6,195          4,762          3,498          2,393
  Other income                                     1,536            700            563            525            188
  Other expense                                    6,222          4,898          4,124          3,276          2,228
                                                 -------------------------------------------------------------------
  Income before income tax expense                 3,269          1,997          1,201            747            353
  Provision for income taxes                       1,226            825            491            287            154
  Extraordinary items                                 --             --             --             --            154
  Cumulative effect of accounting change              --             --             --             63             --
                                                 -------------------------------------------------------------------
  Net income                                      $2,043         $1,172           $710           $523           $353
====================================================================================================================
Balance Sheet Data
  Investments                                    $68,874        $43,270        $22,541        $22,733        $18,365
  Total loans, net                               136,876        112,263         92,534         73,786         57,572
  Total assets                                   229,517        176,382        132,572        109,636         83,247
  Total deposits                                 212,596        163,517        122,439        100,112         74,803
  Stockholders' equity                           $15,710        $12,058         $9,505         $8,951         $7,866
====================================================================================================================
Cash Dividends Declared
  Common stock cash dividends                       $620           $229           $118            $65            $60
  Preferred stock cash dividends                       0             73             45             40             11
                                                 -------------------------------------------------------------------
  Total cash dividends declared                     $620           $302           $163           $105            $71
  Cash dividends to net income                        30%            26%            23%            20%            20%
====================================================================================================================
Cash Dividends Per Common Share
  Cash dividends declared                          $0.25          $0.10          $0.06          $0.03          $0.03
====================================================================================================================
Earnings Per Common Share
  Primary                                          $0.76          $0.48          $0.31          $0.23          $0.18
  Fully diluted                                    $0.75          $0.47          $0.31          $0.23          $0.18
====================================================================================================================
Weighted Average Common Shares Outstanding
  Primary                                      2,701,269      2,293,161      2,157,603      2,072,631      1,948,879
  Fully diluted                                2,719,389      2,333,464      2,157,603      2,072,631      1,948,879
====================================================================================================================
Operating Ratios
  Return on average assets                          1.01%          0.79%          0.61%          0.55%          0.50%
  Return on average equity                         14.75%         11.27%          7.72%          6.13%          5.01%
====================================================================================================================
Book Value Per Common Share
  Book value (at year end)                         $5.90          $4.89          $3.98          $3.73          $3.37
====================================================================================================================
Non-Financial Information
  Record owners of common stock                      672            501            496            516            489
  Full-time equivalent employees                      65             51             45             35             22
====================================================================================================================
</TABLE>


                                       14
<PAGE>

ITEM 7 --  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND
RESULTS OF OPERATIONS.

     For a comprehensive  understanding of the Corporation's financial condition
and  performance,  the  following  discussion  should be  considered  within the
context of the Consolidated Financial Statements and accompanying notes on pages
8 - 24 of the Corporation's 1996 Annual Report which are incorporated  herein by
reference.

1996 compared with 1995

                               Financial Condition

As of December  31,  1996 total  assets had grown by $53.1  Million,  or 30%, to
$229.5 Million as compared to $176.4  Million at December 31, 1995.  This growth
was funded  primarily  from deposits  (mainly  "core" demand and time  accounts)
which  increased by $49.1 Million or 30% to $212.6  Million at December 31, 1996
from  $163.5  Million at December  31,  1995.  The opening of the  Corporation's
fourth location in Clinton Township in May of 1996 contributed to this growth as
did several CD promotions  run early in 1996 to insure  funding for above budget
loan  production.  In addition,  management  believes that  continuing  industry
consolidation has aided the Corporation's  growth as customers seek the personal
service of a community bank.

Total  stockholders'  equity increased by $3.6 Million, or 30%, to $15.7 Million
at  December  31, 1996 from $12.1  Million at  December  31, 1995 as a result of
earnings,   and  dividends  reinvested  and  optional  cash  purchases  made  by
shareholders  in accordance with the  Corporation's  Dividend  Reinvestment  and
Common  Stock  Purchase  Plan (the Plan)  adopted in the third  quarter of 1995,
partially  offset by cash dividends  paid totaling $620 Thousand in 1996.  Under
the  provisions  of the Plan,  shareholders  may  reinvest  dividends  free from
brokers'  commissions and may make optional cash purchases of Corporation common
stock to a maximum of $5  Thousand  per  quarter at a 5%  discount  from  market
price.

Within  the asset  composition,  this  growth  was  utilized  primarily  to fund
increases in the loan and investment portfolios. For the year ended December 31,
1996 total outstanding loans,  including loans available for sale, rose by $24.9
Million,  or 22%, to $138.5  Million  from $113.6  Million at December 31, 1995,
despite the sale of $22.9 Million in Small Business  Administration (SBA) loans,
residential  mortgage  loans  and  participations  of loans  to other  financial
institutions in 1996.

Loan growth took place primarily in the commercial and construction  categories,
where December 31, 1996 balances showed increases of  approximately  $22 Million
over December 31, 1995. A major  contributor to this growth has been our success
in SBA loan production, as the Bank continues to benefit from its "Preferred SBA
Lender"  status.  For the SBA's fiscal year ended  September 30, 1996,  the Bank
provided a total of $47.5 Million in SBA loan  accomodations  and once again led
all other  lending  institutions  in New Jersey with $40 Million in loans within
the State.  This  compared  with $23.9  Million in  approvals  within New Jersey
during  the same  period a year ago,  and earned  Prestige  State Bank the SBA's
Diamond  Award as New  Jersey's  premier  SBA lender for the second  consecutive
year. The Bank was also New Jersey's  leading SBA lender to businesses  owned by
veterans and women.


                                       15
<PAGE>

Growth  in  residential  mortgages,  second  mortgages  and  home  equity  loans
contributed another $3.7 Million to the increase in the Bank's loan portfolio at
December 31, 1996.

Loans held for sale totaled $15 Million at December 31, 1996 compared with $10.2
Million at December 31, 1995.  The loans held for sale  category is comprised of
SBA and residential  mortgage loans which provide attractive yields as well as a
ready source of liquidity and potential gains on sales.

Investment  securities (all  classified as held to maturity)  increased by $25.7
Million,  or 59%, to $68.9  Million at December  31, 1996 from $43.2  Million at
December 31, 1995.  This growth was  primarily due to the purchase of securities
issued  by  the  United   States   government   and  its   agencies,   including
mortgage-backed securities and SBA guaranteed loan pool certificates.

For the year ended  December 31, 1996,  the  allowance  for possible loan losses
increased by $267  Thousand as a result of provisions  totaling  $516  Thousand,
less net charge-offs of $249 Thousand.  The allowance amounted to 1.15% of total
outstanding  loans as of  December  31, 1996 as compared to 1.17% of loans as of
December 31, 1995.

Non-performing  loans consist of loans on which the accrual of interest has been
discontinued,  or loans on which  interest is still  being  accrued but that are
contractually  past due 90 days or more as to  interest or  principal  payments.
Non-performing  loans  totaled $810  Thousand at December 31, 1996 compared with
$22  Thousand at December  31,  1995.  Non-accrual  loans  (also  classified  as
impaired  loans)  totaled $454 Thousand (.33% of total loans) as of December 31,
1996 as compared to $11 Thousand  (.01% of total loans) as of December 31, 1995.
Of the $454 Thousand in non-accrual loans at December 31, 1996, $181 Thousand is
fully guaranteed by the SBA.

Considering  the  information  in the previous two  paragraphs  as well as other
relevant  factors,  management  believes  that the  allowance  for possible loan
losses is adequate. While management uses available information to determine the
adequacy of the allowance,  future  additions may occur based upon growth in the
loan portfolio or changes in loan quality  resulting from  circumstances  beyond
the Corporation's  control such as changes in economic  conditions in the region
in which the Corporation conducts business.

Capital Adequacy

The Federal  Reserve Board (FRB) in the case of bank holding  companies  such as
the Corporation and the Federal Deposit Insurance Corporation (FDIC) in the case
of state banks such as the Bank have adopted risk-based capital guidelines which
require a minimum ratio of 8% of total risk-based  capital to assets, as defined
in the  guidelines.  At least  one half of the  total  capital,  or 4%, is to be
comprised  of common  equity and  qualifying  perpetual  preferred  stock,  less
deductible intangibles (Tier 1 capital).

Risk-based   capital   ratios  are  expressed  as   percentages  of  capital  to
"risk-adjusted  assets"  and,  therefore,  relate  capital  to the risk  factors
inherent  within a  company's  asset  base,  including  off-balance  sheet  risk
exposure.  Various weightings are assigned to different asset categories as well
as off-balance sheet exposure depending upon the


                                       16
<PAGE>

risk associated with each category.  In general,  less capital is required for a
less risky asset composition.

At December 31, 1996, the Corporation's and the Bank's core (Tier-1)  risk-based
capital ratios were 11.69% and 10.89%, respectively,  versus 10.71% and 9.91% as
of December  31,  1995.  These  ratios  compare  favorably to a minimum of 4% as
required by the FRB and the FDIC.

At December 31, 1996, the  Corporation's  and the Bank's total (Tier-1 plus Tier
2) risk-based capital ratios were 12.87% and 12.08%, respectively, versus 11.89%
and 11.10% as of December  31, 1994.  These  ratios also compare  favorably to a
minimum of 8% as required by the FRB and the FDIC.

The FRB and the FDIC have supplemented the risk-based capital guidelines with an
additional  capital  ratio  referred to as the  leverage  ratio or core  capital
ratio.  The  regulations  require a financial  institution to maintain a minimum
leverage ratio of 4% to 5%, depending upon the condition of the institution.

At December 31, 1996,  the  Corporation's  and the Bank's  leverage  ratios were
7.01% and 6.55%,  respectively,  versus 6.81% and 6.32% as of December 31, 1995.
Again,  these ratios compare favorably with existing  guidelines  established by
the FRB and the FDIC. The Bank's ratio in both years qualifies it as being "well
capitalized" by exceeding the FDIC's 6.00% requirement for that designation.

It should be noted that additional capital raised via the Dividend  Reinvestment
and Common Stock  Purchase Plan provides the ability to downstream  capital from
the Corporation to the Bank should the Bank's capital ratios require it.

Liquidity

The  liquidity  position of the  Corporation  is dependent  upon the  successful
management of its assets and liabilities so as to meet the needs of both deposit
and credit customers.  Liquidity needs arise principally to accommodate possible
deposit  outflows and to meet customers'  requests for loans.  Such needs can be
satisfied by maturing loans and investments,  short term liquid assets,  and the
ability to raise short-term funds from external sources.

Thus far,  virtually  all  funding  needs have been met via the  acquisition  of
deposits,  and not through other,  higher costing  sources such as borrowings or
securities  sold under  repurchase  agreements.  In  addition,  the total of all
liquid assets (e.g. Federal funds, short term investments,  assets available for
sale) as measured  against what may be  considered  volatile  liabilities  (i.e.
short term $100,000  certificates of deposit) produced  liquidity ratios of 401%
and 332% at December 31, 1996 and December 31, 1995,  respectively.  Both ratios
were considered by management to be satisfactory.

Interest Rate Sensitivity

The management of interest rate risk is also important to the  profitability  of
the entity.  Interest  rate risk arises when an earning asset matures or has its
interest  rate  change in a time  period  different  from  that of a  supporting
interest bearing liability; or when an interest bearing liability matures or has
its  interest  rate  change in a time period  different  from that of an earning
asset that it supports. While the Corporation does not match specific assets and
liabilities, total earning assets and interest bearing


                                       17
<PAGE>

liabilities  are grouped to determine  the overall  interest  rate risk within a
number of specific time frames.

Interest  sensitivity  analysis  attempts to measure the  responsiveness  of net
interest  income to changes in interest  rate  levels.  The  difference  between
interest sensitive assets and interest  sensitive  liabilities is referred to as
the interest sensitivity gap. At any given point in time, the Corporation may be
in an asset-sensitive position, meaning its interest-sensitive assets exceed its
interest-sensitive  liabilities;  or in a liability-sensitive  position, whereby
its interest-sensitive  liabilities exceed its interest-sensitive  assets. These
positions  may expose the  Corporation  to  possible  future gain or loss of net
interest income, depending upon which way interest rates move.

As of December  31, 1996 there was a  cumulative  twelve month gap of a negative
$30.6  Million as compared to a negative  $18.1  Million gap as of December  31,
1995.  The   percentage  of  imbalance   from  a  perfectly   matched  100%  was
approximately 22% at December 31, 1996.  Management does not, however,  consider
this to be of  concern  as this  represents  what is known as the  "static  gap"
measure of assets to liabilities.

From this simplistic static  viewpoint,  a negative gap may be expected to cause
reductions in net interest  income in a rising rate  environment and enhance net
interest  income in a declining  rate  environment.  However,  the  repricing of
liabilities  can be, and often are,  lagged behind earning asset rate increases,
or exaggerated  when rates  decrease,  in order to offset the gap's effects.  In
addition,  rate sensitive assets may reprice at different  frequencies than rate
sensitive liabilities within the twelve month time frame, further offsetting the
gap's effects. With such considerations factored into a more meaningful "dynamic
gap" model,  the  Corporation's  December 31, 1996  position  indicated  that an
increase in average interest rates would, in fact, have a positive impact on net
interest  income.  Conversely  a drop in  rates  would  likely  have a  somewhat
negative  impact  on  net  interest  income  over  the  12  months   thereafter.
Incidentally,  the  introduction  of a flat  interest  rate  scenario  into this
dynamic gap model also projects  improvement in the net interest  margin for the
12 months thereafter,  though not as significant as the improvement projected in
a rising rate environment.


                                       18
<PAGE>

                   Interest Rate Gaps as of December 31, 1996
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                    Rate Sensitive
                                             ------------------------------------------------------------
                                             1 to 90    91 to 180     181 to 365     1 to 5       Beyond     Not Rate
                                              Days        Days           Days        Years       5 Years     Sensitive       Total
                                             ------     --------      --------      --------     --------     --------      --------
<S>                                          <C>        <C>           <C>           <C>          <C>          <C>             <C>   
Assets:
  Federal funds sold                         $8,950     $     --      $     --      $     --     $     --     $     --        $8,950
  Securities                                 29,151        3,716         3,434        26,756        5,817           --        68,874
  Loans held for sale                        15,013           --            --            --           --           --        15,013
  Loans                                      46,270        2,733         4,685        62,208        7,559           --       123,455
  Other assets, net                              --           --            --            --           --       13,225        13,225
                                            ----------------------------------------------------------------------------------------
    Total assets                            $99,384       $6,449        $8,119       $88,964      $13,376      $13,225      $229,517
                                            ----------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
  Interest-bearing deposits                  89,484       25,627        29,457        32,710           --           --       177,278
  Noninterest-bearing deposits                   --           --            --            --           --       35,318        35,318
  Other liabilities                              --           --            --            --           --        1,211         1,211
  Stockholders' equity                           --           --            --            --           --       15,710        15,710
                                            ----------------------------------------------------------------------------------------
    Total liabilities and
      stockholders' equity                  $89,484      $25,627       $29,457       $32,710     $     --      $52,239      $229,517
                                            ----------------------------------------------------------------------------------------
Interest rate sensitivity gap                 9,900      (19,178)      (21,338)       56,254       13,376      (39,014)
                                            ----------------------------------------------------------------------------------------
Cumulative interest rate
  sensitivity gap                            $9,900      ($9,278)     ($30,616)      $25,638      $39,014
                                            ----------------------------------------------------------------------------------------
</TABLE>


                                       19
<PAGE>

                              Results of Operations

Net  income  for the year ended  December  31,  1996  amounted  to $2.0  Million
compared to $1.2 Million for the year ended  December 31,  1995.  Related  fully
diluted earnings-per-common-share data were: $.75 per share for 1996 versus $.47
per share for 1995.  These  figures  reflect a 25% stock  split  distributed  in
April,  1996 and a 10% stock  dividend  issued in March of 1995.  The  return on
average  assets was 1.01% for 1996 as compared  to .79% for 1995.  The return on
average stockholders' equity was 14.75% for 1996 as compared to 11.27% for 1995.

Net Interest Income

Net interest income  increased by $2.0 Million,  or 31%, to $8.5 Million in 1996
from $6.5 Million in 1995.  This  increase was  primarily  due to an increase in
earning asset volume while interest rates paid on supporting deposit liabilities
declined. In addition, average non-interest bearing demand deposits rose by $8.7
Million  during 1996 and accounted  for 13.9% of average total  deposits in 1996
compared with 12.6% of average total deposits in 1995. As a result,  the overall
weighted average  interest rate paid on deposits  declined to 4.03% in 1996 from
4.15% in 1995. The net interest margin on a taxable  equivalent  basis was 4.42%
for the year  ended  December  31,  1996,  down from  4.68%  for the year  ended
December 31, 1995.  This decrease is  attributable  to reduced yields on earning
assets as higher rate loans and investments  matured or repriced at lower rates.
The Corporation's net interest margin may decline  moderately in 1997 due to the
effect of an  investment  in corporate  owned life  insurance in February,  1997
which,  although  increasing  non-interest  income,  will  slightly  reduce  the
Corporation's earning asset base.

Non-Interest Income

Non-interest  income for 1996  increased by $836  Thousand or 119% over 1995, to
$1.5 Million from $700  Thousand.  Gains from the sales of loans  (primarily SBA
loans) amounted to $1.2 Million during 1996 compared with $572 Thousand in 1995.
The increase in gains on loan sales was mainly  attributable  to a higher volume
of loans sold.

As discussed earlier, SBA loan production was up considerably.  In addition, the
Corporation's  recently established  residential mortgage division accounted for
$117 Thousand in gains on loan sales in 1996 versus no gains in 1995.

Partially  offsetting gains on loan sales was a loss of $50 Thousand incurred in
July, 1996 on the sale of $5.5 Million in unguaranteed  portions of SBA loans as
management  took  advantage of an  opportunity to reduce overall risk within the
Bank's portfolio.

Selling the guaranteed portions of SBA loans is a normal and recurring component
of the  Corporation's  operations,  and the Bank's "Preferred SBA Lender" status
has  allowed a buildup of SBA loans for  future  retention  or sale.  Management
believes  that gains from SBA loan sales can continue as an important  component
in the Corporation's  future profits.  However,  management is also cognizant of
the fact  that  changes  may  occur in the  government  program,  and  therefore
continues  to focus on net interest  margin as the key element in future  profit
plans.  Furthermore,  management  expects  the ongoing  origination  and sale of
residential mortgage loans to reduce reliance on sales of SBA


                                       20
<PAGE>

loans, allowing the higher yielding SBA loans to continue to accumulate and help
maintain a satisfactory net interest margin.

The  increase  in  non-interest  income  in  1996  compared  with  1995  is also
attributable in part to losses of $76 Thousand sustained on sales of investments
in 1995.  There were no sales of investments  in 1996.  Losses from the sales of
investment  securities in 1995 occurred as the  Corporation  took advantage of a
one-time  opportunity to reassess  certain  investments  formerly  classified as
"held-to-maturity"  in order to reinvest in higher  yielding  assets pursuant to
Special  Report  No.  155-B,  "A Guide to  Implementation  of  Statement  115 on
Accounting for Certain Investments in Debt and Equity Securities - Questions and
Answers" issued by the Financial Accounting Standards Board.

Non-Interest Expense

Total  non-interest  expense  rose by $1.3 Million (or 27%) to $6.2 Million from
$4.9 Million in 1995.  Most of the increase is  attributable  to the addition of
personnel and other costs related to the Corporation's continued growth.

For the year ended December 31, 1996, salaries and benefits totaled $3.1 Million
as compared to $2.3 Million for the year ended  December 31, 1995 and  accounted
for $.8 Million of the  increase in  non-interest  expense.  Fourteen  full-time
equivalent  employees  were added  during the year in order to staff the Clinton
Township   branch  which  opened  in  May,  1996  and  to  better   service  the
Corporation's growing customer base.

For the year ended December 31, 1996,  occupancy  related  expense  totaled $1.3
Million as  compared  to $1.0  Million  for the year ended  December  31,  1995,
thereby accounting for $.3 Million of the increase in non-interest expense. This
increase is primarily due to the opening of the Clinton Township location in May
of 1996 and the leasing of additional  office space in the  Corporation's  Royal
Road headquarters  building. The additional space is being utilized to house the
Corporation's  growing  residential  mortgage  operation,  increased  commercial
lending staff, and increased  operational staff necessary to manage above budget
growth in both the number and dollar volume of new business.

Data  processing  costs  contributed  another  $.1  Million to the  increase  in
non-interest expense for the year ended December 31, 1996 compared with the year
ended December 31, 1995, primarily as a result of increased volume.

Advertising and business development costs increased by $.1 Million over 1995 as
the  Corporation  continues  to expand its  presence in  Hunterdon  and Somerset
counties and surrounding environs.

Additional   increases  in  total  non-interest  expense  were  attributable  to
increases  in  printing,  stationery  and  supplies  expense  which  rose by $53
Thousand,  increases  in  checkbook  costs of $45  Thousand,  and  increases  in
postage/telecommunications  charges of $36  Thousand.  These  increases in other
non-interest expense are due to increased volume.

They were  offset to some  extent by a reduction  in Federal  deposit  insurance
premiums of $138  Thousand  resulting  from FDIC rate  reductions  instituted in
mid-1995.


                                       21
<PAGE>

The  "efficiency  ratio"  (non-interest  expense  divided  by the sum of taxable
equivalent net interest income and  non-interest  income) provides an indication
of control over  non-interest  expense combined with a measure of the ability to
generate non-interest income. The Corporation's efficiency ratio improved to 62%
for the year ended  December  31, 1996 from 67% for the year ended  December 31,
1995. More strictly  directed at  non-interest  expense  control,  the "overhead
ratio"  (non-interest  expense divided by average assets)  improved to 3.07% for
the year ended December 31, 1996 from 3.30% for the year 1995.

Provisions for Loan Losses

In 1996,  the  provision  for loan  losses  increased  by $166  Thousand to $516
Thousand from $350 Thousand in 1995.  The increase was necessary to maintain the
allowance for loan losses at targeted  levels in light of continued loan growth.
As discussed  previously,  the  Corporation's  non-accrual loans at December 31,
1996 and December 31, 1995 were .33% and .01% of total loans, respectively.

Income Tax Expense

Provisions for income tax totaled $1.2 Million in 1996, up from $825 Thousand in
1995  as  a  result  of  the  Corporation's   increased  taxable  earnings.  The
Corporation's  effective tax rate declined to 37.5% for the year ended  December
31, 1996 from 41.3% for the year ended  December  31,  1995.  This  decrease was
primarily  attributable  to the  formation  in the third  quarter of 1996 of PSB
Investment  Management,  Inc.,  a  wholly-owned  subsidiary  of the Bank,  which
manages a portfolio of investment  securities for its own account.  The earnings
of PSB  Investment  Management,  Inc.  are taxed by the State of New Jersey at a
rate of 2.25% as opposed to the 9.0% state income tax rate to which the Bank and
Corporation are subject.


                                       22
<PAGE>

1995 compared with 1994

                               Financial Condition

As of December  31,  1995 total  assets had grown by $43.8  Million,  or 33%, to
$176.4 Million as compared to $132.6  Million at December 31, 1994.  This growth
was funded  primarily  from deposits  (mainly  "core" demand and time  accounts)
which  increased by $41.1 Million or 34% to $163.5  Million at December 31, 1995
from $122.4 Million at December 31, 1994.

Capital increased by $2.6 Million, or 27%, to $12.1 Million at December 31, 1995
from $9.5  Million  at  December  31,  1994 as a result of  earnings,  dividends
reinvested and optional cash purchases made by  shareholders  in accordance with
the Plan, and a private placement of 176,000 common shares in the fourth quarter
of 1995.

Within the asset composition,  this growth was utilized to increase the loan and
investment portfolios, as well as contributing to a $2.0 Million increase in the
overnight  federal funds total pending  repositioning  into longer-term  earning
assets, primarily loans.

For the year ended December 31, 1995 total  outstanding  loans,  including loans
available for sale, rose by $20.0 Million,  or 21%, to $113.6 Million from $93.6
Million at December 31, 1994,  despite the sale of $8.9 Million in SBA loans and
participations of loans to other financial institutions in 1995.

Investment  securities  increased by $20.7 Million,  or 92%, to $43.2 Million at
December  31, 1995 from $22.5  Million at  December  31,  1994.  This growth was
primarily  due to the  purchase  of  securities  issued  by  the  United  States
government and its agencies, including mortgage-backed securities.

Other assets increased by $1.0 Million, or 111%, to $1.9 Million at December 31,
1995 from $.9 Million at December 31, 1994.  This  increase was primarily due to
receivables  from brokers in connection with securities  sales initiated at year
end.

For the year ended  December 31, 1995,  the  allowance  for possible loan losses
grew by $248 Thousand as a result of provisions  totaling $350  Thousand,  minus
net  charge-offs  of $102  Thousand.  The  allowance  amounted to 1.17% of total
outstanding  loans as of  December  31, 1995 as compared to 1.15% of loans as of
December 31, 1994.

Non-accrual  loans  (also  classified  as  impaired  loans  under  Statement  of
Financial  Accounting  Standards  No. 114) totaled $11  Thousand  (.01% of total
loans) as of  December  31, 1995 as  compared  to $637  Thousand  (.68% of total
loans) as of December 31, 1994. These are loans on which accrual of interest has
been  discontinued,  or loans on which  interest is still being accrued but that
are contractually past due 90 days or more as to interest or principal payments.


                                       23
<PAGE>

Capital Adequacy.

At December 31, 1995, the Corporation's and the Bank's core (Tier-1)  risk-based
capital ratios were 10.71% and 9.91%,  respectively,  versus 9.09% and 10.02% as
of December  31,  1994.  These  ratios  compare  favorably to a minimum of 4% as
required by the FRB and the FDIC.

At December 31, 1995, the  Corporation's  and the Bank's total (Tier-1 plus Tier
2) risk-based capital ratios were 11.89% and 11.10%, respectively, versus 10.23%
and 11.16% as of December  31, 1994.  These  ratios also compare  favorably to a
minimum of 8% as required by the FRB and the FDIC.

At December 31, 1995,  the  Corporation's  and the Bank's  leverage  ratios were
6.81% and 6.32%,  respectively,  versus 6.45% and 7.11% as of December 31, 1994.
Again,  these ratios compare favorably with existing  guidelines  established by
the FRB and the FDIC.

Liquidity.

The total of all liquid assets (e.g. Federal funds sold, short-term investments,
assets available for sale) as measured  against what may be considered  volatile
liabilities  (i.e.   short-term  $100,000   certificates  of  deposit)  produced
liquidity  ratios of 332% and 193% for  December 31, 1995 and December 31, 1994,
respectively. Both ratios were considered by management to be adequate.

Interest Rate Sensitivity.

As of December  31, 1995 there was a  cumulative  twelve month gap of a negative
$18.1  Million as compared  to a negative  $9.3  Million gap as of December  31,
1994.


                                       24
<PAGE>

                              Results of Operations

Net  income  for the year ended  December  31,  1995  amounted  to $1.2  Million
compared to $710  Thousand for the year ended  December 31, 1994.  Related fully
diluted earnings-per-common-share data were: $.47 per share for 1995 versus $.31
per share for 1994.  These  numbers  reflect a 25% stock  split  distributed  in
April,  1996 and a 10% stock  dividend  issued in March of 1995.  The  return on
average  assets was .79% for 1995 as  compared  to .61% for 1994.  The return on
average stockholders' equity was 11.27% for 1995 as compared to 7.72% for 1994.

Net Interest Income.

Net interest income  increased by $1.6 Million,  or 33%, to $6.5 Million in 1995
from $4.9 Million in 1994 even though  interest  expense rose by $2.4 Million or
73% to $5.7  Million in 1995 from $3.3  Million  in 1994.  The  increase  in net
interest income reflected in 1995 over 1994 resulted  primarily from an increase
in earning asset volume,  and, to a lesser  extent,  from improved  yields while
interest rates paid on deposits grew at a slower pace.

Non-Interest Income.

Non-interest  income for 1995  increased by $137  Thousand or 24% over 1994,  to
$700 Thousand from $563 Thousand. Gains from the sales of loans amounted to $572
Thousand during 1995 versus $406 Thousand in 1994. Most of the increase in gains
on loan sales (all SBA loans) was attributable to a higher volume of loans sold;
but a portion  of the  increase  was due to higher  premiums  being paid on sold
portions.  This  increase  was offset by losses on sales of  investments  of $76
Thousand in 1995. There were no sales of investments in 1994.

Losses  from  the  sales  of  investment  securities  in  1995  occurred  as the
Corporation  took  advantage  of a  one-time  opportunity  to  reassess  certain
investments  formerly classified as  "held-to-maturity"  in order to reinvest in
higher  yielding  assets  pursuant  to  Special  Report No.  155-B,  "A Guide to
Implementation  of Statement 115 on Accounting  for Certain  Investments in Debt
and  Equity  Securities  -  Questions  and  Answers"  issued  by  the  Financial
Accounting Standards Board.

Non-Interest Expense.

Total  non-interest  expenses  rose by $.8 Million (or 20%) to $4.9 Million from
$4.1 Million in 1994.  Most of the increase is  attributable  to the addition of
personnel and other costs related to the Corporation's growth.

For the year ended  December 31,  1995,  salaries  and  benefits  totalled  $2.3
Million as compared to $1.8  Million  for the year ended  December  31, 1994 and
accounted for $.5 Million of the increase in non-interest expense. Six full-time
equivalent  employees were added during the year in order to strengthen coverage
for the  Corporation's  growing  customer base and to enhance the  Corporation's
service offerings and operating efficiency.


                                       25
<PAGE>

For the year ended December 31, 1995,  occupancy  related  expense  totaled $1.0
Million as compared to $.9 Million for the year ended  December 31, 1994 thereby
accounting  for $.1  Million of the  increase  in  non-interest  expense.  Total
non-interest  expenses in 1995 reflect a full year of operating expenses for the
Raritan Borough location which was opened in May of 1994.

The remaining increase in total non-interest expense was primarily  attributable
to increases in data processing  expenses of $37 Thousand,  increases in postage
and  telephone  charges of $51  Thousand,  and  increases  of $123  Thousand for
holding   company  costs   including   charges   associated   with  listing  the
Corporation's common stock on the NASDAQ National Market and the creation of the
Dividend  Reinvestment  and Common Stock  Purchase  Plan.  These  increases were
offset by a reduction in FDIC premiums of $88 Thousand  resulting from FDIC rate
reductions instituted in mid-1995.

Provisions for Loan Losses.

In 1995,  the  provision  for loan  losses  increased  by $250  Thousand to $350
Thousand from $100 Thousand in 1994.  The increase was necessary to maintain the
allowance for loan losses at targeted  levels in light of continued loan growth.
As discussed  previously,  the  Corporation's  non-accrual loans at December 31,
1995 and December 31, 1994 were .01% and .68% of total loans, respectively.

Income Tax Expense.

Provisions  for income tax totaled $825  Thousand in 1995, up from $491 Thousand
in 1994 as a result of the Corporation's increased taxable earnings.


                                       26
<PAGE>

ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Please refer to pages 8 through 24 of the Corporation's 1996 Annual Report which
are incorporated herein by reference.


ITEM 9 --  CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURES.

None.


                                    PART III

ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Please refer to the Corporation's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders to be filed with the Commission prior to April 30, 1997,
which is incorporated herein by reference.


ITEM 11 -- EXECUTIVE COMPENSATION.

Please refer to the Corporation's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders to be filed with the Commission prior to April 30, 1997,
which is incorporated herein by reference.


ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Please refer to the Corporation's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders to be filed with the Commission prior to April 30, 1997,
which is incorporated herein by reference.


ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Please refer to the Corporation's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders to be filed with the Commission prior to April 30, 1997,
which is incorporated herein by reference.


                                       27
<PAGE>

                                     PART IV

ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) The following  financial  statements and schedules are filed as part of this
Form 10K :

1 -- Financial Statements included in the 1996 Annual         Page Number in the
     Report and incorporated by reference:                    1996 Annual Report
--------------------------------------------------------------------------------
Consolidated Statements of Financial Condition
  as of December 31, 1996 and 1995                                    8

Consolidated Statements of Income for the
  Years Ended December 31, 1996, 1995, and 1994                       9

Consolidated Statements of Changes in Stockholders' Equity
  for the Years Ended December 31, 1996, 1995, and 1994              10

Consolidated Statements of Cash Flows for the
  Years Ended December 31, 1996, 1995, and 1994                      11

Notes to Consolidated
  Financial Statements                                               12

Independent Auditors' Report                                         23


     With the  exception  of pages 8 through 24, the  Corporation's  1996 Annual
Report is not deemed to be filed as part of this Form 10-K.

                                                                Page in this
2 -- Financial Statement Schedules:                               Form 10-K
--------------------------------------------------------------------------------
Schedule I - Distribution of Assets, Liabilities and
  Stockholders' Equity, Interest Rates and Interest
  Differential                                                        5

Schedule II - Investment Portfolio                                    7

Schedule III - Loan Portfolio                                         8

Schedule IV - Summary of Loan Loss Experience                         9

Schedule V - Deposits                                                11


                                       28
<PAGE>

3 -- Exhibits.

Exhibit
Number                        Document

  2       Plan of Acquisition Between Prestige State Bank and Prestige Financial
          Corp. (1)

  3.1     Certificate of Incorporation of the Registrant. (1)

  3.2     Bylaws of the Registrant. (1)

 10.1     1990 Long-Term Incentive Compensation Plan for Key Employees. (2)

 10.2     1994 Stock Option Plan for Key Employees. (5)

 10.3     1994 Stock Option Plan for Senior Management. (2)

 10.4     1994 Stock Option Plan for Outside Directors. (5)

 10.5     1994  Recognition and Retention Plan for Founding  Outside  Directors.
          (2)

 10.6     Form of  Employment  Agreement  between (i) Arnold F.  Horvath and the
          Corporation and (ii) Robert J. Jablonski and the Corporation. (3)

 10.7     Form of Addendum to Executive  Employment Agreement between (i) Arnold
          F. Horvath and the  Corporation  and (ii) Robert J.  Jablonski and the
          Corporation entered into effective as of August 16, 1995. (4)

 10.8     Executive Supplemental Retirement Income Agreement.

 10.9     Directors Retirement Plan.

 13       Pages 8 to 24 of the Corporation's  1996 Annual Report to Shareholders
          which are incorporated by reference herein.

 21       Subsidiaries  of the  Corporation:  Prestige  State Bank, a New Jersey
          corporation and its wholly owned subsidiary PSB Investment Management,
          Inc., a New Jersey corporation.

 23       Consent of KPMG Peat Marwick LLP

 27       Financial Data Schedule

          (1)  Previously  filed  with  the  Corporation's  Form  S-4,  File No.
          33-59752, and incorporated herein by reference.

          (2)  Previously  filed  with  the  Corporation's  Form  S-8,  File No.
          33-83066, and incorporated herein by reference.


                                       29
<PAGE>

          (3)  Previously  filed with the  Corporation's  Form 10-K for the year
          ended December 31, 1994 and incorporated herein by reference.

          (4)  Previously  filed with the  Corporation's  Form 10-K for the year
          ended December 31, 1995 and incorporated herein by reference.

          (5)  Previously  filed  with  the  Corporation's  Form  S-8,  File No.
          333-15739, and incorporated herein by reference.

(b)  Reports on Form 8-K.

There were no reports on Form 8-K filed during the fourth quarter of 1996.


                                       30
<PAGE>

Signatures

Pursuant to the  requirements of Section 13 or 15(d) 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.

                                                  PRESTIGE FINANCIAL CORP.
                                                        (Registrant)

                                        By:  /s/  Robert J. Jablonski
                                             ---------------------------
                                             Robert J. Jablonski
                                             Chief Executive Officer,
                                             Treasurer/Principal
                                             Financial Officer/Principal
                                             Accounting Officer
                                             Date: March 28, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the date indicated above:

/s/ Robert J. Jablonski                      /s/ Arnold F. Horvath
------------------------------               -----------------------------
Robert J. Jablonski                          Arnold F. Horvath
Chief Executive Officer,                     President,Director
Treasurer/Principal
Financial Officer/Principal
Accounting Officer, Director

Date: March 28, 1997                         Date: March 28, 1997


/s/ Roland D. Boehm, Sr.                     /s/ James W. MacDonald_
------------------------------               -----------------------------
Roland D. Boehm, Sr.                         James W. MacDonald
Vice Chairman                                Director

Date: March 28, 1997                         Date:  March 28, 1997


/s/ Louis R. DeFalco                         /s/ Gerald A. Lustig
------------------------------               -----------------------------
Louis R. DeFalco                             Gerald A. Lustig
Chairman                                     Director

Date: March 28, 1997                         Date: March 28, 1997

/s/ Arthur Stryker, Jr.
------------------------------
Arthur Stryker, Jr.
Director

Date: March 28, 1997