UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)

     (XX) 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, 1997

                                       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. Yes _XX_ 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,  1998,  was  approximately
$50,779,359.

     The number of shares  outstanding of the Registrant's  Common Stock,  being
the only class of capital stock outstanding, as of March 10, 1998 was 3,329,794.

     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 7 -
25 of the Annual Report to security holders of Prestige  Financial Corp. for the
year ended December 31, 1997 are  incorporated by reference into Parts I, II and
IV of the Form 10-K;  (2) the  definitive  Proxy  Statement  for the 1998 Annual
Meeting of shareholders to be filed with the Commission prior to April 30, 1998,
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.


<PAGE>


                            PRESTIGE FINANCIAL CORP.
                                 1997 FORM 10-K


                                TABLE OF CONTENTS

                                     PART I

                                                                            Page
                                                                            ----

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

                                     PART II

Item  5. Market for Registrant's Common Equity and
         Related Stockholder Matters........................................ 12
Item  6. Selected Financial Data............................................ 12
Item  7. Management's Discussion and Analysis of
         Financial Condition and Results of Operations...................... 15
Item 7a. Quantitative and Qualitative Disclosures About Market Risk......... 27
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  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 New
Jersey Banking 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.  Recent census information  reveals that Somerset and Hunterdon Counties
ranked  number  one and two,  respectively,  in terms of  growth  rates  for the
1990's.

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



                                       3
<PAGE>


companies,  financial affiliates of industrial companies and government agencies
provide additional  competition for loans and for many other financial services.
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.

PFC Financial Services, Inc., a wholly-owned subsidiary of the Corporation,  was
organized as a corporation  under New Jersey law in December 1997. PFC Financial
Services,  Inc.  provides  customers  with  financial  planning  and  access  to
non-deposit   investment   products  such  as  mutual  funds,  debt  and  equity
securities,  fixed  and  variable  annuities,  etc.  through  Financial  Network
Investment  Corporation,   a  licensed   broker/dealer,   insurance  agency  and
registered investment advisor. PFC Financial Services, Inc. commenced operations
in January, 1998.

C.   Regulatory Matters.

Please refer to Note 9, on page 17 and Note 11, on page 19 of the  Corporation's
1997 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 1997, 1996, and
     1995.  Net interest  income 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>


<TABLE>
<CAPTION>
                                                       PRESTIGE FINANCIAL CORP
                                        AVERAGE BALANCE SHEET WITH INTEREST AND AVERAGE RATES
                                                       (dollars in thousands)

                                                                                 Years Ended December 31,

                                                                    1997                                     1996
                                                      -----------------------------------      ---------------------------------
                                                                  Interest        Average                  Interest      Average
                                                      Average      Income/        Yield/       Average      Income/       Yield/
                                                      Balance      Expense         Rate        Balance      Expense        Rate
                                                      -----------------------------------      ---------------------------------
<S>                                                     <C>           <C>          <C>        <C>             <C>          <C>
ASSETS

Interest-earning assets:
  Investment securities:
    Taxable                                             $77,132       $5,041       6.54%      $56,731         $3,590       6.33%
    Non-taxable                                           5,216          271       5.20%        3,931            152       3.87%
  Federal funds sold and short-term investments           8,213          446       5.43%        8,110            428       5.28%
  Loans net of unearned                                 148,631       14,075       9.47%      124,778         11,947       9.57%
                                                       --------      -------       ----      --------         ------       ----
      Total interest-earning assets                     239,192       19,833       8.29%      193,550         16,117       8.33%
                                                       --------      -------       ----      --------         ------       ----
Noninterest-earning assets
  Cash and due from banks                                 7,430                                 5,832
  Other assets                                            9,474                                 4,652
Allowance for possible loan losses                       (1,754)                               (1,453)
                                                       --------                              --------
      Total noninterest-earning assets                   15,150                                 9,031
                                                       --------                              --------
      Total assets                                     $254,342                              $202,581
                                                       ========                              ========


LIABILITIES AND STOCKHOLDERS' EQUITY

Interest-bearing liabilities:
  NOW accounts                                           18,476          431       2.33%       10,747            257       2.39%
  Money Market accounts                                  28,452        1,024       3.60%       19,504            608       3.12%
  Savings accounts                                       39,413        1,469       3.73%       30,436          1,100       3.61%
  Certificates of deposit                               111,414        6,193       5.56%      100,838          5,600       5.55%
  Short-term borrowings                                      33            2       6.06%           50              3       6.00%
                                                       --------      -------       ----      --------         ------       ----
      Total interest-bearing liabilities                197,788        9,119       4.61%      161,575          7,568       4.68%
                                                       --------      -------       ----      --------         ------       ----
Noninterest-bearing liabilities:
  Demand deposits                                        37,947                                26,100
  Other liabilities                                       1,282                                 1,059
                                                       --------                              --------
      Total noninterest-bearing liabilities              39,229                                27,159
                                                       --------                              --------
Stockholders' equity                                     17,325                                13,847
                                                       --------                              --------
      Total liabilities and stockholders' equity       $254,342                              $202,581
                                                       ========                              ========

Net interest income                                                  $10,714                                  $8,549
                                                                     =======                                  ======
Net interest spread                                                                3.68%                                   3.65%
                                                                                   ====                                    ====

Net interest income as percent of earning assets                                   4.48%                                   4.42%
                                                                                   ====                                    ====

<CAPTION>
                                                             Years Ended December 31,
                                                                      1995
                                                      -------------------------------------
                                                                    Interest        Average
                                                       Average      Income/         Yield/
                                                       Balance      Expense          Rate
                                                      -------------------------------------
<S>                                                    <C>           <C>              <C>
ASSETS

Interest-earning assets:
  Investment securities:
    Taxable                                            $27,287       $1,625           5.96%
    Non-taxable                                          2,885          182           6.31%
  Federal funds sold and short-term investments          7,614          443           5.82%
  Loans net of unearned                                104,205       10,098           9.69%
                                                      --------       ------           ----
      Total interest-earning assets                    141,991       12,348           8.70%
                                                      --------       ------           ----
Noninterest-earning assets
  Cash and due from banks                                4,199
  Other assets                                           3,969
Allowance for possible loan losses                      (1,214)
                                                      --------
      Total noninterest-earning assets                   6,954
                                                      --------
      Total assets                                    $148,945
                                                      ========


LIABILITIES AND STOCKHOLDERS' EQUITY

Interest-bearing liabilities:
  NOW accounts                                           8,232          217           2.64%
  Money Market accounts                                 16,259          550           3.38%
  Savings accounts                                      22,179          793           3.58%
  Certificates of deposit                               73,687        4,148           5.63%
  Short-term borrowings                                      7            1           5.96%
                                                      --------       ------           ----
      Total interest-bearing liabilities               120,364        5,709           4.74%
                                                      --------       ------           ----
Noninterest-bearing liabilities:
  Demand deposits                                       17,352
  Other liabilities                                        827
                                                      --------
      Total noninterest-bearing liabilities             18,179
                                                      --------
Stockholders' equity                                    10,402
                                                      --------
      Total liabilities and stockholders' equity      $148,945
                                                      ========

Net interest income                                                  $6,639
                                                                     ======
Net interest spread                                                                   3.96%
                                                                                      ====

Net interest income as percent of earning assets                                      4.68%
                                                                                      ====
</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.

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

                                                                            1997/1996                         1996/1995
                                                                       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                                                      $ 1,330     $   121     $ 1,451     $ 1,857    $   108     $ 1,965
    Non-taxable                                                       59          60         119          55        (85)        (30)
  Federal funds sold and short-term investments                        5          13          18          28        (43)        (15)
  Loans net of unearned                                            2,260        (132)      2,128       1,971       (122)      1,849
                                                                 -------     -------     -------     -------    -------     -------
      Total interest-earning assets                                3,654          62       3,716       3,911       (142)      3,769
                                                                 -------     -------     -------     -------    -------     -------



Interest-bearing liabilities:
  NOW accounts                                                       180          (6)        174          62        (22)         40
  Money Market accounts                                              311         105         416         104        (46)         58
  Savings accounts                                                   334          35         369         298          9         307
  Certificates of deposit                                            588           5         593       1,509        (57)      1,452
  Short-term borrowings                                               (1)          0          (1)          2       --             2
                                                                 -------     -------     -------     -------    -------     -------
     Total interest-bearing liabilities                            1,412         139       1,551       1,975       (116)      1,859
                                                                 -------     -------     -------     -------    -------     -------


     Change in net interest income                               $ 2,242     ($   77)    $ 2,165     $ 1,936    ($   26)    $ 1,910
                                                                 =======     =======     =======     =======    =======     =======
</TABLE>


                                       6
<PAGE>


II.  Investment Portfolio
        (dollars in thousands)
                             INVESTMENT COMPOSITION

                                                       Book Value as of
                                                         December 31,

                                                1997         1996          1995
                                               -------      -------      -------
U.S. Treasury and                              $87,815      $64,658      $41,200
  U.S. Government agencies

State and political subdivisions                 6,618        3,931        1,460

Other Securities                                   385          285          610
                                               -------      -------      -------

  Total investment securities                  $94,818      $68,874      $43,270
                                               =======      =======      =======

<TABLE>
<CAPTION>
                                                         Book Value as of December 31, 1997

                                                     Over             Over
                                     1 year       1 year to 5     5 years to 10      Over
Contractual maturities               or less         years            years        10 years        Total
--------------------------------     -------      -----------     -------------    --------        -----
<S>                                  <C>            <C>              <C>            <C>            <C>
U.S. Treasury and                    $ 1,680        $16,136          $16,859        $53,140        $87,815
  U.S. Government agencies

State and political subdivisions       5,288            281             --          $ 1,049          6,618

Other Securities                        --             --                110            275            385
                                     -------        -------          -------        -------        -------

  Total investment securities        $ 6,968        $16,417          $16,969        $54,464        $94,818
                                     =======        =======          =======        =======        =======

Weighted average yield on a
  tax-equivalent basis                  6.55%          6.50%            6.86%          6.76%          6.77%
                                     =======        =======          =======        =======        =======
</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, 1997 are as follows:

                                                       Book              Market
                                                       Value              Value
                                                      -------            -------
FHLMC                                                 $ 6,405            $ 6,481

FHLB                                                  $13,820            $13,807

FNMA                                                  $20,234            $20,346

GNMA                                                  $27,810            $27,937

SBA                                                   $17,866            $18,032

Raritan Township                                      $ 2,589            $ 2,589


                                       7
<PAGE>

III.  Loan Portfolio
       (dollars in thousands)

<TABLE>
<CAPTION>
                                                          LOAN COMPOSITION

                                                                                             December 31,
                                                                  1997           1996           1995           1994           1993
                                                                --------------------------------------------------------------------
<S>                                                             <C>            <C>            <C>            <C>            <C>
Domestic:
   Commercial                                                   $ 57,436       $ 55,676       $ 42,699       $ 27,901       $ 19,364
   Real estate - construction                                      7,836          7,951          5,020          6,301          5,204
   Real estate - mortgage                                         60,850         47,696         39,768         35,845         33,167
   Consumer                                                       31,809         27,145         26,101         23,564         17,109
                                                                --------       --------       --------       --------       --------
     Net of deferred loan fees and discounts                     157,931        138,468        113,588         93,611         74,844
     Less Allowance for loan losses                                1,838          1,592          1,325          1,077          1,058
                                                                --------       --------       --------       --------       --------
Net Loans                                                       $156,093       $136,876       $112,263       $ 92,534       $ 73,786
                                                                ========       ========       ========       ========       ========
</TABLE>

THE MATURITIES OF COMMERCIAL AND REAL ESTATE - CONSTRUCTION LOANS

<TABLE>
<CAPTION>
                                                                                           December 31, 1997
                                                                 -------------------------------------------------------------------
                                                                                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                                                    $ 1,431        $15,364        $ 7,621        $24,416       $22,985
   Real estate - construction                                         --             --             --             --            --
                                                                 -------        -------        -------        -------       -------
                                                                   1,431         15,364          7,621         24,416        22,985

Variable Rate:
   Commercial                                                      5,746          5,117         22,157         33,020        27,274
   Real estate - construction                                      5,206          2,630           --            7,836         2,630
                                                                 -------        -------        -------        -------       -------
                                                                  10,952          7,747         22,157         40,856        29,904
                                                                 -------        -------        -------        -------       -------

     Grand Total                                                 $12,383        $23,111        $29,778        $65,272
                                                                 =======        =======        =======        =======

     Total of Maturities over 1 Year                                            $23,111        $29,778                      $52,889
                                                                                =======        =======                      =======
</TABLE>


<TABLE>
<CAPTION>
                                                          RISK ELEMENTS - NON PERFORMING LOANS

                                                                                                December 31,
                                                                   1997            1996            1995          1994          1993
                                                                  ------------------------------------------------------------------
<S>                                                               <C>              <C>             <C>           <C>            <C>
Non-accrual loans                                                   $920           $454            $11           $637           $497
Accruing loans past due 90 days or more                              154            356             11             --             --
Troubled debt restructurings                                          --             --             --             --             --
                                                                  ------------------------------------------------------------------

                                                                  $1,074           $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, 1997 was approximately $73,000.


                                        8
<PAGE>

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

<TABLE>
<CAPTION>
                                                                           ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

                                                                                      Years Ended December 31,

                                                                  1997           1996           1995           1994           1993
                                                                 ------         ------         ------         ------         ------
<S>                                                              <C>            <C>            <C>            <C>            <C>
Balance at Beginning of Period                                   $1,592         $1,325         $1,077         $1,058         $  654
                                                                 ------         ------         ------         ------         ------

Charge-offs:
    Commercial                                                      393            227             52             75             26
    Real estate-construction                                         --             --             --             --             --
    Real estate-mortgage                                             --             --             15             --             --
    Consumer                                                        123             33             37             13             23
                                                                 ------         ------         ------         ------         ------

                                                                    516            260            104             88             49
                                                                 ------         ------         ------         ------         ------

Recoveries:
    Commercial                                                       12             10             --              1             --
    Real estate-construction                                         --             --             --             --             --
    Real estate-mortgage                                             --             --             --             --             --
    Consumer                                                          5              1              2              6              2
                                                                 ------         ------         ------         ------         ------

                                                                     17             11              2              7              2
                                                                 ------         ------         ------         ------         ------

Net charge-offs                                                     499            249            102             81             47
                                                                 ------         ------         ------         ------         ------

Additions charged to operations                                     745            516            350            100            451
                                                                 ------         ------         ------         ------         ------

Balance at end of period                                         $1,838         $1,592         $1,325         $1,077         $1,058
                                                                 ------         ------         ------         ------         ------

Ratio of net charge-offs during the period to
 average loans outstanding during the period                       0.34%          0.20%          0.10%          0.10%          0.07%
                                                                 ------         ------         ------         ------         ------
</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.

<TABLE>
<CAPTION>
                                             ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
                                                       (dollars in thousands)

                                       --------------------------------------------------------------------------------------------

                                       December 31, 1997   December 31, 1996  December 31, 1995 December 31, 1994  December 31, 1993
                                       --------------------------------------------------------------------------------------------
                                                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
                                                to total            to total          to total           to total           to total
Balance at end of period applicable to:         loans               loans             loans              loans              loans
                                       --------------------------------------------------------------------------------------------
<S>                                    <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>
  Commercial                           $  827    36.37%   $  762    40.55%   $  410    37.59%   $   63    29.81%   $  158    25.87%
  Real estate-construction                 78     4.96%       79     5.74%       50     4.42%       96     6.73%       56     6.95%
  Real estate-mortgage                    577    38.53%      406    34.45%      499    35.01%      306    38.29%      372    44.32%
  Consumer                                160    20.14%      155    19.26%      135    22.98%      104    25.17%      184    22.86%
  Unallocated                             196      N/A       190      N/A       231      N/A       508      N/A       288      N/A
                                       --------------------------------------------------------------------------------------------
Total                                  $1,838   100.00%   $1,592   100.00%   $1,325   100.00%   $1,077   100.00%   $1,058   100.00%
                                       ============================================================================================
</TABLE>



                                       10
<PAGE>



V.   Deposits

<TABLE>
<CAPTION>
                                               DEPOSIT COMPOSITION - AVERAGE BALANCES
                                                       (dollars in thousands)

                                                                              Years Ended December 31,
                                            ----------------------------------------------------------------------------------------
                                                           Weighted                       Weighted                       Weighted
                                             Average        Average         Average        Average         Average        Average
                                             Balance      Interest Rate     Balance      Interest Rate     Balance     Interest Rate
                                              1997           1997            1996           1996            1995           1995
                                            --------      -------------    --------      -------------    --------     -------------
<S>                                         <C>              <C>           <C>              <C>           <C>              <C>
Demand                                      $ 37,947           --%         $ 26,100           --%         $ 17,352           --%

NOW accounts                                  18,476         2.33%           10,747         2.39%            8,232         2.64%

Money Market accounts                         28,452         3.60%           19,504         3.12%           16,259         3.38%

Savings accounts                              39,413         3.73%           30,436         3.61%           22,179         3.58%

Certificates of deposit                      111,414         5.56%          100,838         5.55%           73,687         5.63%
                                            --------                       --------                       --------

Total Deposits                              $235,702         3.87%         $187,625         4.03%         $137,709         4.15%
                                            ========                       ========                       ========
</TABLE>


At December 31, 1997 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                              $ 5,614       $ 4,851       $10,465
Over 3 months to 6 months                      3,976         3,444         7,420
Over 6 months to 12 months                       605         7,243         7,848
Over 12 months                                   100         3,496         3,596
                                                                         -------

                                                                         $29,329
                                                                         =======

In the total of $29,329,000,  $10,295,000 are  "negotiable" as to their rate and
maturity.  The remaining  $19,034,000 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  operates  out of its main  office  location at One Royal Road,
within Raritan  Township,  New Jersey and six branch  locations in Hunterdon and
Somerset  counties.  An  additional  branch  is  planned  for  1998  opening  in
Somerville,  New Jersey.  Application  for the proposed branch has been reviewed
and approved by the F.D.I.C.  and the New Jersey State Department of Banking and
Insurance.

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.  Leases  expire at
various dates through 2007 but contain certain 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 1997 Annual Report which are incorporated herein by reference.

ITEM 3 -- LEGAL PROCEEDINGS.

Please  see  Note 10 -  "Contingencies",  on page 19 of the  Corporation's  1997
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 25 of the  Corporation's  1997
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 its
subsidiaries as of and for the years ended December 31, 1997,  1996, 1995, 1994,
and 1993 was derived from the audited  consolidated  financial statements of the
Corporation and its subsidiaries.  Such selected consolidated financial data for
each of the years in the three year  period  ended  December  31, 1997 should be
read in conjunction with the Corporation's consolidated financial statements



                                       12
<PAGE>


and related notes on pages 7 - 23 of the Corporation's  1997 Annual Report which
are incorporated  herein by reference.  All per share amounts have been adjusted
to reflect  the  six-for-five  stock  split  effective  on April 18,  1997,  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,                                    1997             1996            1995            1994            1993
====================================================================================================================================
<S>                                                       <C>             <C>             <C>             <C>             <C>
Summary of Income

  Interest income                                           $19,722         $16,039         $12,254          $8,189          $6,655
  Interest expense                                            9,119           7,568           5,709           3,327           2,706
                                                          --------------------------------------------------------------------------
  Net interest income                                        10,603           8,471           6,545           4,862           3,949
  Provision for loan losses                                     745             516             350             100             451
                                                          --------------------------------------------------------------------------
  Income from earning assets                                  9,858           7,955           6,195           4,762           3,498
  Other income                                                2,500           1,536             700             563             525
  Other expense                                               8,457           6,222           4,898           4,124           3,276
                                                          --------------------------------------------------------------------------
  Income before income tax expense                            3,901           3,269           1,997           1,201             747
  Provision for income taxes                                  1,197           1,226             825             491             287
  Cumulative effect of accounting change                         --              --              --              --              63
                                                          --------------------------------------------------------------------------
  Net income                                                 $2,704          $2,043          $1,172            $710            $523
====================================================================================================================================

Balance Sheet Data

  Investments                                               $94,818         $68,874         $43,270         $22,541         $22,733
  Total loans, net                                          156,093         136,876         112,263          92,534          73,786
  Total assets                                              283,587         229,517         176,382         132,572         109,636
  Total deposits                                            263,156         212,596         163,517         122,439         100,112
  Stockholders' equity                                      $18,889         $15,710         $12,058          $9,505          $8,951
====================================================================================================================================

Cash Dividends Declared

  Common stock cash dividends                                $1,016            $620            $229            $118             $65
  Preferred stock cash dividends                                 --              --              73              45              40
                                                          --------------------------------------------------------------------------
  Total cash dividends declared                              $1,016            $620            $302            $163            $105
  Cash dividends to net income                                   38%             30%             26%             23%             20%
====================================================================================================================================

Cash Dividends Per Common Share

  Cash dividends declared                                     $0.33           $0.21           $0.08           $0.05           $0.03
====================================================================================================================================

Earnings Per Common Share

  Basic                                                       $0.83           $0.66           $0.41           $0.26           $0.19
  Diluted                                                     $0.78           $0.63           $0.40           $0.26           $0.19
====================================================================================================================================

Weighted Average Common Shares Outstanding

  Basic                                                   3,242,536       3,073,968       2,651,311       2,589,123       2,487,158
  Diluted                                                 3,478,449       3,241,523       2,751,793       2,589,123       2,487,158
====================================================================================================================================

Operating Ratios

  Return on average assets                                     1.06%           1.01%           0.79%           0.61%           0.55%
  Return on average equity                                    15.60%          14.75%          11.27%           7.72%           6.13%
====================================================================================================================================

Book Value Per Common Share

<S>                                                             <C>             <C>             <C>             <C>             <C>
  Book value (at year end)                                    $5.71           $4.92           $4.08           $3.32           $3.11
====================================================================================================================================

Non-Financial Information

  Record owners of common stock                                 762             672             501             496             516
  Full-time equivalent employees                                 87              65              51              45              35
====================================================================================================================================
</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
7 - 25 of the Corporation's 1997 Annual Report which are incorporated  herein by
reference.

1997 compared with 1996

                               Financial Condition

As of December 31, 1997 total assets had grown by $54.1  Million,  or 23.6%,  to
$283.6 Million as compared to $229.5  Million at December 31, 1996.  This growth
was funded  primarily  from deposits  (mainly  "core" demand and time  accounts)
which increased by $50.6 Million or 23.8% to $263.2 Million at December 31, 1997
from $212.6 Million at December 31, 1996. Branch openings in the western portion
of Clinton  Township in August 1997, in the eastern portion of Clinton  Township
in May 1996, and the opening of free standing and supermarket  branches  located
in the  "Prestige  Plaza"  shopping  center  containing an Edwards Food Store in
Raritan  Township  in May of 1997  contributed  to this growth as did several CD
promotions.

Total stockholders' equity increased by $3.2 Million, or 20.4%, to $18.9 Million
at December  31, 1997 from $15.7  Million at December  31, 1996  primarily  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).  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.  The increase in  stockholders'
equity was achieved  despite cash dividends paid totaling $1.0 Million,  or $.31
per weighted average share outstanding in 1997, up from $.6 Million, or $.20 per
weighted average share outstanding in 1996. The Corporation has paid consecutive
quarterly cash dividends since March 31, 1995 and increased the dividend rate to
$.075 per share from $.05 per share in March 1997.

Within the asset  composition,  the above growth was primarily  utilized to fund
increases in the loan and investment portfolios. For the year ended December 31,
1997 total outstanding loans,  including loans available for sale, rose by $19.4
Million,  or 14.0%,  to $157.9 Million from $138.5 Million at December 31, 1996,
despite the sale of $36.9 Million in Small Business  Administration (SBA) loans,
residential  mortgage  loans  and  participations  of loans  to other  financial
institutions in 1997.

Loan growth took place primarily in the commercial loan and commercial  mortgage
categories,  where December 31, 1997 balances showed  increases of approximately
$14.3 Million over  December 31, 1996.  Much of this  commercial  loan growth is
attributable  to the Bank's  increased  efforts  in  meeting  the demand for tax
exempt loans in our developing  market area of Hunterdon and Somerset  counties.
Growth  in  residential  mortgages,  second  mortgages  and  home  equity  loans
contributed  another  $5.0  Million to the  increase  in the loan  portfolio  at



                                       15
<PAGE>


December 31, 1997 as the Bank's  Mortgage  Division has matured and the Bank has
added new equity loan products to satisfy its customers' requirements.

Loans held for sale totaled  $16.3  Million at December 31, 1997  compared  with
$15.0  Million  at  December  31,  1996.  The loans  held for sale  category  is
comprised  primarily of SBA loans which provide  attractive  yields as well as a
ready  source of  liquidity  and  potential  gains on sales.  Recognized  as the
leading  SBA  lender  in New  Jersey  in 1996 and  1995,  the Bank  carries  the
designation of "Preferred  Lender" in New York and  Pennsylvania  as well as New
Jersey, where it remains among the State's top lenders.  Preferred Lender status
enables the Bank to streamline the SBA loan application and approval process for
qualified borrowers.

Investment  securities (all  classified as held to maturity)  increased by $25.9
Million,  or 37.6%,  to $94.8 Million at December 31, 1997 from $68.9 Million at
December 31, 1996.  This growth was  primarily due to the purchase of securities
issued  by  the  United   States   government   and  its   agencies,   including
mortgage-backed securities, notes and SBA guaranteed loan pool certificates.

At December 31, 1997,  other assets  totaled $5.6 Million,  up $4.4 Million from
the  December  31, 1996  balance of $1.2  Million.  This  increase is  primarily
attributable  to investments in corporate owned life insurance made in February,
1997 and subsequent  increases in cash surrender value which  contributed to the
Corporation's net income.

For the year ended December 31, 1997, the allowance for loan losses increased by
$246.1  Thousand as a result of provisions  totaling $744.5  Thousand,  less net
charge-offs  of  $498.4  Thousand.  The  allowance  amounted  to  1.16% of total
outstanding  loans as of  December  31, 1997 as compared to 1.15% of loans as of
December 31, 1996.

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 $1.1 Million at December 31, 1997  compared  with
$810  Thousand at December  31,  1996.  Non-accrual  loans (also  classified  as
impaired  loans)  totaled $920 Thousand (.58% of total loans) as of December 31,
1997 as compared to $454 Thousand (.33% of total loans) as of December 31, 1996.
Of the $920 Thousand in non-accrual loans at December 31, 1997, $160 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 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.  In  addition,  various  regulatory
agencies, as an integral part of their examination process,  periodically review
the Bank's  allowance  for loan  losses.  Such  agencies may require the Bank to
recognize  additions to the allowance  based on their  judgments of  information
available to them at the time of their examination.



                                       16
<PAGE>


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

At December 31, 1997, the Corporation's and the Bank's core (Tier-1)  risk-based
capital ratios were 10.78% and 9.85%, respectively,  versus 11.69% and 10.89% as
of December  31,  1996.  These  ratios  compare  favorably to a minimum of 4% as
required by the FRB and the FDIC.

At December 31, 1997, the  Corporation's  and the Bank's total (Tier-1 plus Tier
2) risk-based capital ratios were 11.83% and 10.91%, respectively, versus 12.87%
and 12.08% as of December  31, 1996.  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, 1997,  the  Corporation's  and the Bank's  leverage  ratios were
6.75% and 6.26%,  respectively,  versus 7.01% and 6.55% as of December 31, 1996.
Again,  these ratios compare favorably with existing  guidelines  established by
the FRB and the FDIC.

The foregoing capital ratios are based in part on specific quantitative measures
of assets,  liabilities and certain  off-balance sheet items as calculated under
regulatory accounting practices. Capital amounts and classifications are subject
to qualitative judgments by the regulatory authorities about capital components,
risk weightings and other factors.

Management  believes that, as of December 31, 1997, the Corporation and the Bank
meet all capital adequacy  requirements to which they are subject.  Further, the
most  recent  FDIC  notification  characterized  the Bank as a well  capitalized
institution under the prompt corrective action  regulations.  There have been no
conditions  or events since that  notification  that  management  believes  have
changed the Bank's classification.

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.



                                       17
<PAGE>


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  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 390% and 401% at December
31, 1997 and December 31, 1996,  respectively.  Both ratios were  considered  by
management to be satisfactory.

Market Risk - Interest Rate Sensitivity

Market risk is the risk of loss from adverse changes in market prices and rates.
The Corporation's  market risk arises primarily from interest rate risk inherent
in its lending,  investment and deposit  taking  activities.  The  Corporation's
profitability  is  affected by  fluctuations  in  interest  rates.  A sudden and
substantial  change in interest  rates may  adversely  impact the  Corporation's
earnings to the extent that the interest  rates borne by assets and  liabilities
do not  change  at the same  speed,  to the same  extent  or on the same  basis.
Management  and the Bank's  Board of Directors  actively  monitor and manage the
Corporation's interest rate risk exposure by comparing each month's results with
policies that are reviewed and updated on at least an annual basis.

The Bank  employs two primary  approaches  to  interest  rate risk  measurement:
income simulation  analysis and gap analysis.  Income simulation analysis is the
more   comprehensive   tool  as  it  considers   the   maturity  and   repricing
characteristics of assets and liabilities as well as the relative sensitivity of
these balance sheet  components  to interest rate  fluctuations  and attempts to
measure  the  projected  responsiveness  of net  interest  income to  changes in
interest rate levels over several time frames.

Gap analysis  measures the  difference  between  interest  sensitive  assets and
interest sensitive liabilities in a number of time frames. 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.The  following  table  shows  the  Corporation's
interest rate gap position at December 31, 1997:



                                       18
<PAGE>


                   Interest Rate Gaps as of December 31, 1997
                             (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 and short-term investments     $11,313    $    --     $    --     $     --     $    --     $    --      $11,313
  Securities                                         35,021      8,155       9,666       24,848      17,128          --       94,818
  Loans held for sale                                16,284         --          --           --          --          --       16,284
  Loans                                              36,644      1,677       4,181       78,871      20,274          --      141,647
  Other assets, net                                      --         --          --           --          --      19,525       19,525
                                                   ---------------------------------------------------------------------------------
    Total assets                                    $99,262     $9,832     $13,847     $103,719     $37,402     $19,525     $283,587
                                                   ---------------------------------------------------------------------------------

Liabilities and Stockholders' Equity

  Interest-bearing deposits                         114,797     26,602      35,524       38,607          31          --      215,561
  Noninterest-bearing deposits                           --         --          --           --          --      47,595       47,595
  Other liabilities                                      --         --          --           --          --       1,542        1,542
  Stockholders' equity                                   --         --          --           --          --      18,889       18,889
                                                   ---------------------------------------------------------------------------------
    Total liabilities and stockholders' equity     $114,797    $26,602     $35,524      $38,607         $31     $68,026     $283,587
                                                   ---------------------------------------------------------------------------------

Interest rate sensitivity gap                       (15,535)   (16,770)    (21,677)      65,112      37,371     (48,501)
                                                   ---------------------------------------------------------------------------------

Cumulative interest rate sensitivity gap           ($15,535)  ($32,305)   ($53,982)     $11,130     $48,501
                                                   ---------------------------------------------------------------------------------
</TABLE>



                                       19
<PAGE>




As of December  31, 1997 there was a  cumulative  twelve month gap of a negative
$54.0  Million as compared to a negative  $30.6  Million gap as of December  31,
1996.  From this static gap  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.

As  alluded  to  earlier,  it is  precisely  these  "dynamics"  that are  better
addressed by income  simulation,  and whose  complexities make income simulation
the more meaningful method of measuring  interest rate risk. The following table
shows  the  Corporation's  estimated  earnings  sensitivity  for the year  ended
December 31,  1998.  All market risk  sensitive  instruments  considered  in the
following  table are held to maturity or available for sale. The Corporation has
no trading  securities.  Computation  of  prospective  effects  of  hypothetical
interest rate changes in the following table are based on numerous  assumptions,
including  relative  levels of  market  interest  rates,  loan  prepayments  and
deposits  decay,  and should not be relied upon as indicative of actual results.
Further,  the computations do not contemplate any actions the Corporation  could
undertake in response to changes in in interest rates.

Income Simulation Analysis for the Twelve Months Ended December 31, 1998
(dollars in thousands)

<TABLE>
<CAPTION>
Change in                             Projected                      Dollar Change in               Percentage Change in
Interest Rates                        Net Interest Income            Net Interest Income            Net Interest Income
--------------                        -------------------            -------------------            -------------------
<S>                                   <C>                            <C>                            <C>
300 basis point rise                  $14,483                        $ 1,320                         10.03%
200 basis point rise                   14,020                            858                          6.52%
100 basis point rise                   13,605                            442                          3.36%
Base scenario                          13,163                             --                            --
100 basis point decline                12,719                           (444)                        (3.37%)
200 basis point decline                12,116                         (1,047)                        (7.95%)
300 basis point decline                11,491                         (1,672)                       (12.70%)
</TABLE>

As of December 31, 1997 income  simulation  analysis for the next twelve  months
projects a moderate  dollar  increase in net interest  income in the event of an
increasing  interest rate  environment,  and a slightly larger,  yet acceptable,
dollar  decrease  in  net  interest  income  given  a  declining  interest  rate
environment.



                                       20
<PAGE>


                              Results of Operations

Net  income  for the year ended  December  31,  1997  amounted  to $2.7  Million
compared to $2.0 Million for the year ended December 31, 1996.  Related  diluted
earnings-per-common-share  data were:  $.78 per share for 1997  versus  $.63 per
share for 1996. These figures reflect the six-for-five  stock split  distributed
in April,  1997, and the five-for-four  stock split distributed in April,  1996.
The return on average  assets was 1.06% for 1997 as  compared to 1.01% for 1996.
The return on average  stockholders'  equity was 15.60% for 1997 as  compared to
14.75% for 1996.

Net Interest Income

Net interest income increased by $2.1 Million,  or 25%, to $10.6 Million in 1997
from $8.5 Million in 1996.  This  increase was  primarily  due to an increase in
earning asset volume. In addition,  average non-interest bearing demand deposits
rose by $11.8  Million  during  1997 and  accounted  for 16.1% of average  total
deposits in 1997  compared  with 13.9% of average  total  deposits in 1996. As a
result,  the overall weighted average interest rate paid on deposits declined to
3.87%  in 1997  from  4.03%  in  1996.  The net  interest  margin  on a  taxable
equivalent  basis was 4.48% for the year ended  December 31, 1997, up from 4.42%
for the year ended  December  31,  1996.  This  increase  is  attributable  to a
slightly  reduced  overall rate paid on interest  bearing  liabilities as higher
costing time deposits declined to 56.3% of average interest bearing  liabilities
for the year ended  December  31,  1997  compared  with  62.4% a year ago.  This
funding has been  replaced by less costly NOW and Money  Market  accounts  which
represented  23.7% of average  interest  bearing  liabilities for the year ended
December 31, 1997, up from 18.7% in 1996.

Non-Interest Income

Non-interest income for 1997 increased by $1.0 Million or 63% over 1996, to $2.5
Million  from $1.5  Million.  Net gains from the sales of loans  (primarily  SBA
loans)  amounted to $1.8 Million during 1997 compared with $1.2 Million in 1996.
The increase in gains on loan sales was mainly  attributable  to a higher volume
of loans sold. The Corporation's  residential  mortgage  division  accounted for
$254  Thousand in gains on loan sales in 1997  versus $117  Thousand in gains in
1996.

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 or  competition  may
impact future growth, and therefore continues to focus on net interest margin as
the key element in future  profit  plans.  Accordingly,  management  expects the
production  of direct  loans,  including  the  ongoing  origination  and sale of
residential  mortgage  loans,  to reduce reliance on sales of SBA loans and help
maintain a satisfactory net interest margin.

Also  contributing  to the  increase in  non-interest  income were  increases in
service charges on deposit accounts,  primarily attributable to increased volume
of business  accounts  and related  service  offerings.  These  service  charges
totaled $0.4 Million for



                                       21
<PAGE>


the year ended December 31, 1997 compared with $0.3 Million for the year ended
December 31, 1996.

Other non-interest  income increased to $0.4 Million for the year ended December
31,  1997,  up from $0.1  Million for the year ended  December  31,  1996.  This
increase is primarily  attributable  to increases in the cash surrender value of
corporate owned life insurance policies purchased in the first quarter of 1997.

Non-Interest Expense

Total  non-interest  expense rose by $2.3 Million,  or 36%, to $8.5 Million from
$6.2 Million in 1996.  Most of the increase is  attributable  to the addition of
personnel  and  other  costs  related  to  the  Corporation's  continued  growth
including additional branching.

For the year ended December 31, 1997, salaries and benefits totaled $3.9 Million
as compared to $3.1 Million for the year ended  December 31, 1996 and  accounted
for $0.8 Million of the increase in non-interest  expense.  Twenty-two full-time
equivalent  employees  were  added  during  the year in order to staff the three
branch locations opened in 1997 and to better service the Corporation's  growing
customer base.

For the year ended December 31, 1997,  occupancy  related  expense  totaled $1.8
Million as  compared  to $1.3  Million  for the year ended  December  31,  1996,
thereby  accounting  for $0.5 Million of the increase in  non-interest  expense.
This  increase is  primarily  due to the opening of a branch in western  Clinton
Township and  free-standing  and in-store  branches in the new "Prestige  Plaza"
shopping center on Route 31 in Clinton Township.

Data  processing  costs  contributed  another  $0.1  Million to the  increase in
non-interest expense for the year ended December 31, 1997 compared with the year
ended December 31, 1996, primarily as a result of increased volume.

Advertising  and business  development  costs  increased by $0.1 Million in 1997
over 1996 as the Corporation  continues to expand marketing efforts in Hunterdon
and Somerset counties and surrounding environs.

Director  compensation grew by $0.1 Million for the year ended December 31, 1997
compared  with the year ended  December 31,  1996,  primarily as a result of the
adoption  of a  non-tax  qualified  retirement  plan for  outside  directors  in
February, 1997.

Additional  increases in total non-interest expense in 1997 were attributable to
increases in consulting,  legal and other  professional  fees which grew by $178
Thousand,  increases in postage and  telecommunications  costs of $81  Thousand,
increases in printing,  stationery  and supplies  expense of $46  Thousand,  and
increases in loan operations  charges of $40 Thousand.  The foregoing  increases
are all  attributable  to growth in the  Corporation's  asset size and  customer
base. In addition,  contributions  increased by $31 Thousand in 1997 compared to
1996,  primarily as a result of the Corporation's $25 Thousand gift to Hunterdon
Medical Center toward the development of a cancer center and other improvements.



                                       22
<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 increased
slightly to 64% for the year ended December 31, 1997 from 62% for the year ended
December 31, 1996. More strictly directed at non-interest  expense control,  the
"overhead ratio" (non-interest  expense divided by average assets) grew to 3.33%
for the year  ended  December  31,  1997  from  3.07% for the year  1996.  These
increases are largely  attributable  to fixed costs due to the branch  expansion
discussed above.  Though acceptable even at current levels,  management believes
these ratios will  improve as  economies  of scale are  realized  and  increased
revenues  resulting  from growth offset the fixed costs  associated  with branch
openings.

Provisions for Loan Losses

In 1997,  the  provision  for loan  losses  increased  by $229  Thousand to $745
Thousand from $516 Thousand in 1996.  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,
1997 and December 31, 1996 were .58% and .33% of total loans, respectively.

Income Tax Expense

Provisions   for  income  tax  totaled  $1.2  Million  in  1997  and  1996.  The
Corporation's  effective tax rate declined to 30.7% for the year ended  December
31, 1997 from 37.5% for the year ended  December  31,  1996.  This  decrease was
primarily  attributable  to an increase  in tax exempt  income  associated  with
municipal  lending and an investment in corporate owned life insurance;  and 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.

Impact of Year 2000

The Corporation is conducting a comprehensive review of its computer systems and
third party  vendors to  identify  the  processes  that could be affected by the
"Year 2000"  issue.  The Year 2000  problem is the result of  computer  programs
being written using two digits rather than four to define the  applicable  year.
Programs  that have  time-sensitive  software may recognize a date using "00" as
the year 1900 rather than the year 2000.  This could result in system failure or
miscalculations. The Corporation is devoting the necessary internal and external
resources in the  development  of an  implementation  plan to address Year 2000.
Management  anticipates  that all Year  2000  initiatives  and  testing  will be
completed in a timely manner and will meet all  regulatory  milestones.  Related
expenditures  in future years are not expected to have a material  impact on the
Corporation.


                                       23
<PAGE>



1996 compared with 1995

                              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  diluted
earnings-per-common-share  data were:  $.63 per share for 1996  versus  $.40 per
share for 1995. These figures reflect the six-for-five  stock split  distributed
in April,  1997, the five-for-four  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 was  attributable to reduced yields on earning
assets as higher rate loans and investments matured or repriced at lower rates.

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.

In addition to SBA loan sales, the Corporation's  residential mortgage division,
established in 1996,  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.

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.



                                       24
<PAGE>


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  1996 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 in 1996 over
1995 as the  Corporation  continued  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.

The  Corporation's  efficiency ratio improved to 62% for the year ended December
31, 1996 from 67% for the year ended  December  31,  1995.  The  overhead  ratio
improved to 3.07% for the year ended  December  31, 1996 from 3.30% for the year
1995.



                                       25
<PAGE>


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.


                                       26
<PAGE>




ITEM 7a -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Please refer to the  information  contained  under  "Market Risk - Interest Rate
Sensitivity" beginning on page 18 of this Form 10-K.

ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Please refer to pages 7 through 25 of the Corporation's 1997 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 1998 Annual
Meeting of Stockholders to be filed with the Commission prior to April 30, 1998,
which is incorporated herein by reference.

ITEM 11 -- EXECUTIVE COMPENSATION.

Please refer to the Corporation's definitive Proxy Statement for its 1998 Annual
Meeting of Stockholders to be filed with the Commission prior to April 30, 1998,
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 1998 Annual
Meeting of Stockholders to be filed with the Commission prior to April 30, 1998,
which is incorporated herein by reference.

ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Please refer to the Corporation's definitive Proxy Statement for its 1998 Annual
Meeting of Stockholders to be filed with the Commission prior to April 30, 1998,
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 10-K :

1 --  Financial Statements included in the 1997 Annual        Page Number in the
      Report and incorporated by reference:                   1997 Annual Report
      --------------------------------------------------------------------------

Consolidated Statements of Financial Condition
   as of December 31, 1997 and 1996                                       7

Consolidated Statements of Income for the
   Years Ended December 31, 1997, 1996, and 1995                          8

Consolidated Statements of Changes in Stockholders' Equity
   for the Years Ended December 31, 1997, 1996, and 1995                  9

Consolidated Statements of Cash Flows for the
   Years Ended December 31, 1997, 1996, and 1995                          10

Notes to Consolidated
   Financial Statements                                                   11

Independent Auditors' Report                                              23

     With the  exception  of pages 7 through 25, the  Corporation's  1997 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 Form of Second 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 January 1, 1998.

10.9 Executive Supplemental Retirement Income Agreement. (6)

10.10 Directors Retirement Plan. (6)

13   Pages 7 to 25 of the Corporation's 1997 Annual Report to Shareholders which
     are incorporated by reference herein.

21   Subsidiaries of the Corporation: Prestige State Bank, a New Jersey
     corporation, and the Bank's wholly owned subsidiary PSB Investment
     Management, Inc., a New Jersey corporation, and PFC Financial Services,
     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.


                                       29
<PAGE>


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

     (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.

     (6) Previously filed with the Corporation's Form 10-K for the year ended
     December 31, 1996 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 1997.



                                       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 27, 1998
                                                  ------------------------------

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                                Date: March 27, 1998
Financial Officer/Principal                              -----------------------
Accounting Officer, Director
Date: March 27, 1998
      -----------------------

/s/ Roland D. Boehm, Sr.                           /s/ James W. MacDonald
-----------------------------                      -----------------------------
Roland D. Boehm, Sr.                               James W. MacDonald
Vice Chairman                                      Director
Date: March 27, 1998                               Date: March 27, 1998
      -----------------------                            -----------------------

/s/ Louis R. DeFalco                               /s / Gerald A. Lustig
-----------------------------                      -----------------------------
Louis R. DeFalco                                   Gerald A. Lustig
Chairman                                           Director
Date: March 27, 1998                               Date: March 27, 1998
      -----------------------                            -----------------------

/s/ Arthur Stryker, Jr.
-----------------------------
Arthur Stryker, Jr.
Director
Date: March 27, 1998
      -----------------------


                                       31