<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    Form 10-Q

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended September 30,1998              Commission File Number 0-16637



                          BROAD NATIONAL BANCORPORATION
--------------------------------------------------------------------------------
 
             (Exact name of registrant as specified in its charter)

          NEW JERSEY                                         22-2395057
------------------------------                          -----------------------
(State or other jurisdiction of                            IRS Employer
 Incorporation or organization)                            identification No.)

 905 Broad Street, Newark NJ                                   07102
------------------------------                           -----------------------
(Address of principal executive offices)                     (Zip Code)


Registrant telephone number, including area code (973) 624-2300
                                                 --------------


                                       N/A
--------------------------------------------------------------------------------


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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

             YES  X      NO
                 ----       -----

Number of shares outstanding of Broad National Bancorporation class of Common
Stock, as of October 31, 1998:

                    Common Stock, $1.00 par value - 4,665,869
<PAGE>
 
                          BROAD NATIONAL BANCORPORATION

                   Index to Form 10-Q Financial Information
         For the Three Months and Nine Months Ended September 30,1998
             ----------------------------------------------------

                                                                           PAGE
                                                                           ----
                                                        
PART 1 - FINANCIAL INFORMATION                                              3
------------------------------

Consolidated Statements of Condition
 as of September 30, 1998 and December 31, 1997                             4

Consolidated Statements of Income for the
 Three Month and Nine Month Periods Ended September 30, 1998
 and 1997                                                                   5

Consolidated Statements of Cash Flows for the Nine
 Month Periods Ended September 30, 1998 and 1997                            7

Notes to Consolidated Financial Statements                                  8

Management's Discussion and Analysis of Financial
 Condition and Results of Operations                                       10



PART 2 - OTHER INFORMATION                                                 24
--------------------------


Items 1 to 5                               Not Applicable or Negative


Item 6                                                                     24

Signatures                                                                 25

Exhibit 1  - Computation of Net Income per Common Share                    26

Exhibit 2  - Independent Auditor's Review Report of Interim
             Financial Information                                         27

Exhibit 27 - Financial Data Schedule                                       28

                                       2
<PAGE>
 
                         BROAD NATIONAL BANCORPORATION


PART 1 - FINANCIAL INFORMATION

The following consolidated financial statements of Broad National Bancorporation
as of September 30, 1998 and December 31, 1997 as well as the three month and
nine month periods ended September 30, 1998 and 1997 have been prepared by Broad
National Bancorporation without audit, and reflect all normal, recurring
adjustments and disclosures which are, in the opinion of management, necessary
for a fair statement of results for the interim periods presented. These
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted. For further clarification and
understanding, these interim statements should be read in conjunction with the
annual report on Form 10-K of Broad National Bancorporation for the year ended
December 31, 1997.

The results of operations for the periods presented are not necessarily an
indication of the results which can be expected for 1998.

The registrant's independent public accountants, KPMG Peat Marwick LLP, have
performed a limited review of these interim statements in accordance with the
standards for such reviews promulgated by the American Institute of Certified
Public Accountants. See page 27 for their report on this limited review.

                                       3
<PAGE>
 
                 BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CONDITION
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                            SEPTEMBER 30,      DECEMBER 31,
                                                                                               1998                1997
                                                                                               ----                ----
                                                                                                     (Unaudited)
<S>                                                                                     <C>                   <C> 
ASSETS                                                                              
------                                                                              
CASH AND DUE FROM BANKS                                                                    $  19,551            $  21,933
FEDERAL FUNDS SOLD                                                                            11,955               37,300
                                                                                              ------               ------
       CASH AND CASH EQUIVALENTS                                                              31,506               59,233
SECURITIES HELD-TO-MATURITY                                                         
   (aggregate market value $39,546 and $65,203, respectively)                                 39,075               65,330
SECURITIES AVAILABLE-FOR-SALE                                                                188,769              141,077
LOANS, Net of deferred loan fees                                                             348,689              322,528
   LESS -                                                                           
         Allowance for possible loan losses                                                    7,925                6,974
-------------------------------------------------------------------------------------------------------------------------
                          NET LOANS                                                          340,764              315,554
------------------------------------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT, net                                                                   10,122                8,991
ACCRUED INTEREST RECEIVABLE                                                                    4,603                4,020
OTHER ASSETS                                                                                   7,437                7,464
-------------------------------------------------------------------------------------------------------------------------
                          TOTAL ASSETS                                                      $622,276             $601,669
-------------------------------------------------------------------------------------------------------------------------
                                                                                    
LIABILITIES AND SHAREHOLDERS' EQUITY                                                
------------------------------------                                                
DEPOSITS                                                                            
   Non-interest bearing demand                                                              $108,125             $103,054
   Savings, money market and interest bearing demand                                         231,756              230,467
   Time deposits less than $100,000                                                          108,937               94,017
   Time deposits of $100,000 or more                                                          92,172               90,700
-------------------------------------------------------------------------------------------------------------------------
                          TOTAL  DEPOSITS                                                    540,990              518,238
SHORT-TERM BORROWING                                                                          13,775               13,000
LONG-TERM DEBT                                                                                     0                9,000
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CUMULATIVE                                 
   TRUST PREFERRED SECURITIES OF A SUBSIDIARY TRUST HOLDING                                   11,500               11,500
   SOLELY JUNIOR SUBORDINATED DEBENTURES OF BANCORPORATION                          
ACCRUED TAXES, INTEREST AND OTHER LIABILITIES                                                 11,880               10,700
-------------------------------------------------------------------------------------------------------------------------
                          TOTAL LIABILITIES                                                  578,145              562,438
-------------------------------------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY:                                                               
   Common stock, $1 par value, authorized 10,000,000 shares; issued 4,960,869                  
      shares at 9/30/98 and 4,948,921 shares at 12/31/97                                       4,961                4,949
   Capital surplus                                                                            31,033               30,996
   Retained earnings                                                                          11,273                7,153
   Common Stock in treasury at cost; 267,000 shares at 9/30/98 and 242,000          
      shares at 12/31/97                                                                      (4,582)             (4,111)
   Accumulated other comprehensive income                                                      1,446                  244
-------------------------------------------------------------------------------------------------------------------------
                          TOTAL SHAREHOLDERS' EQUITY                                          44,131               39,231
-------------------------------------------------------------------------------------------------------------------------
                          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                        $622,276             $601,669
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       4
<PAGE>
 
                 BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  3 MONTH PERIOD ENDED              9 MONTH PERIOD ENDED
                                                                ------------------------          --------------------------
                                                                         SEPTEMBER 30                     SEPTEMBER 30
                                                                    1998            1997             1998             1997
                                                                        (UNAUDITED)                       (UNAUDITED)      
<S>                                                          <C>               <C>            <C>               <C> 
INTEREST INCOME:
  Interest and fees on loans                                    $  7,845          $  6,974        $ 22,457          $ 20,004
  Interest on securities held - to - maturity
  Taxable                                                            613             1,253           2,293             4,095
  Tax exempt                                                          16                17              51                43
  Interest on securities available - for -sale                     2,859             1,467           7,737             3,820
  Interest on federal funds sold                                     440               705           1,621             2,149
----------------------------------------------------------------------------------------------------------------------------
   TOTAL INTEREST INCOME                                          11,773            10,416          34,159            30,111
----------------------------------------------------------------------------------------------------------------------------

INTEREST EXPENSE:
  Interest on savings, money market  & interest
     bearing demand deposits                                       1,278             1,208           3,645             3,539
  Interest on time certificates of
     deposit of $100,000 or more                                   1,357             1,256           4,276             3,880
  Interest on other time deposits                                  1,471             1,309           4,220             3,632
  Interest on short-term borrowings                                  209                30             604                63
  Interest on long-term debt                                          31                19             231                19
  Interest on 9.5% Cumulative Trust Preferred Securities             273               273             819               273
----------------------------------------------------------------------------------------------------------------------------
   TOTAL INTEREST EXPENSE                                          4,619             4,095          13,795            11,406
----------------------------------------------------------------------------------------------------------------------------

NET INTEREST INCOME                                                7,154             6,321          20,364            18,705
----------------------------------------------------------------------------------------------------------------------------

PROVISION FOR POSSIBLE LOAN LOSSES                                   225               450             750             1,350
----------------------------------------------------------------------------------------------------------------------------

NET INTEREST INCOME AFTER PROVISION FOR
  POSSIBLE LOAN LOSSES                                             6,929             5,871          19,614            17,355
----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST  INCOME
  Service charges on deposit accounts                              1,558             1,401           4,466             4,487
  Other income                                                       409               257           1,108               790
  Gain on sale of loans held for sale                                  0                 3               2                 3
  Gain (loss) on sale of securities available-for-sale              (19)               (3)              26                54
----------------------------------------------------------------------------------------------------------------------------
   TOTAL NON-INTEREST  INCOME                                      1,948             1,658           5,602             5,334
----------------------------------------------------------------------------------------------------------------------------

NON-INTEREST EXPENSES:
  Salaries and wages                                               2,515             1,995           7,328             6,027
  Employee benefits                                                  558               547           1,692             1,784
  Occupancy expense                                                  573               516           1,595             1,506
  Furniture and equipment expense                                    363               325           1,047               840
  Data processing fees                                               259               266             718               831
  Legal fees                                                          95               195             408               582
  Professional fees                                                  157               188             491               656
  Postage, delivery and communication                                221               187             586               513
  FDIC and OCC assessments                                            49                45             145               134
  Other real estate expense (income)                                  33              (38)              77              (82)
  Other expenses                                                     735               600           2,096             1,781
----------------------------------------------------------------------------------------------------------------------------
   TOTAL NON-INTEREST  EXPENSES                                    5,558             4,826          16,183            14,572
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5
<PAGE>
 
                 BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                          3 MONTH PERIOD ENDED                       9 MONTH PERIOD ENDED
                                                      ----------------------------                -------------------------------
                                                               SEPTEMBER 30                              SEPTEMBER 30
                                                         1998                 1997                    1998             1997 
                                                               (UNAUDITED)                                  (UNAUDITED)
<S>                                                  <C>                 <C>                      <C>            <C> 
INCOME BEFORE INCOME TAXES                                3,319              2,703                    9,033           8,117
PROVISION FOR INCOME TAXES                                1,216              1,208                    3,313           3,302
                                                                                                                             
----------------------------------------------------------------------------------------------------------------------------------
NET INCOME                                            $   2,103           $  1,495                 $  5,720        $  4,815
---------------------------------------------------------------------------------------------------------------------------------- 

AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (1)
BASIC                                                 4,704,228          4,735,736  (1)           4,706,896       4,821,180  (1)
DILUTED                                               4,904,261          4,950,961  (1)           4,910,080       5,008,119  (1)

----------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE (2)

BASIC                                                     $0.45              $0.32  (1)               $1.22           $1.00  (1)

DILUTED                                                   $0.43              $0.30  (1)               $1.16           $0.96  (1)
</TABLE>


See accompanying notes to consolidated financial statements.

----------------------
(1)  1997 share and per share amounts have been restated to reflect the effect 
     of the  5% stock dividend declared December
     18, 1997.

                                       6
<PAGE>
 
                 BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                             NINE MONTH PERIOD ENDED SEPTEMBER 30
                                                                                    1998              1997
                                                                                         (Unaudited)
<S>                                                                          <C>                <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                                                      $  5,720          $  4,815
Adjustments to reconcile net income to net cash
provided by (used in ) operating activities:
  Depreciation and amortization                                                    1,100               989
  Amortization of securities premium net                                             569               508
  Amortization of deferred points and fees
   and deferral of loan origination costs                                          (212)             (304)
  Provision for possible loan losses                                                 750             1,350
  Deferred tax (benefit) provision                                                 (338)               841
  Increase (decrease) in accrued taxes
     interest, and other liabilities                                               1,180             (262)
  Gain  on sale of securities available-for-sale                                    (26)              (54)
  Gain on sale of loans                                                              (2)               (3)
  Gain on sale of other real estate owned                                           (18)             (174)
  Increase in accrued interest receivable                                          (583)             (824)
  Decrease in other assets                                                         (229)           (2,971)
----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                       $  7,911          $  3,911
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of other real estate owned                                 $  515           $  721
Net increase in loan balances                                                   (26,456)          (25,361)
Proceeds from the sale of loans                                                      182               182
Proceeds from maturities of securities held-to-maturity                           26,583            19,891
Purchase of securities held-to-maturity                                            (556)           (6,716)
Proceeds from maturities of securities available-for-sale                         36,570             8,583
Proceeds from the sale of securities available-for-sale                           36,804            19,081
Purchase of securities available-for-sale                                      (119,561)          (73,728)
Capital expenditures                                                             (2,225)             (960)
----------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                         $ (48,144)        $ (58,307)
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in certificates of deposit                                        $  16,392         $  24,191
Net increase (decrease) in demand deposit, savings, money market
  and interest bearing demand accounts                                             6,360           (4,236)
Net increase in short-term borrowings                                                775             1,706
Dividends paid                                                                   (1,600)           (1,368)
Issuance of 9.5% Cumulative Trust Preferred securities                                 0            11,500
Increase (decrease) in long-term debt                                            (9,000)            18,000
Issuance of Common Stock                                                              50                13
Purchase of Treasury Stock                                                         (471)           (4,053)
----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                     $   12,506        $   45,753
----------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS                                     $ (27,727)        $  (8,643)
CASH AND CASH EQUIVALENTS, beginning of period                                    59,233            76,857
----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period                                       $  31,506         $  68,214
----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for
Interest                                                                        $ 13,638         $  11,164
Taxes                                                                         $    3,152         $   4,703
----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.

                                       7
<PAGE>
 
                 BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1998
                                   (Unaudited)


(1)        Principles of consolidation -

           The consolidated financial statements include the accounts of Broad
           National Bancorporation, its wholly owned subsidiaries, BNB Capital
           Trust and Broad National Bank (the ?Bank?) and the Bank's wholly
           owned subsidiaries BNB Investment Corporation, Broad National Realty
           Corporation and Bronatoreo, Inc.
           All intercompany accounts and transactions have been eliminated.

           As used in this report, the term "Company" relates to Broad National
           Bancorporation and its subsidiaries on a consolidated basis; the term
           "Bancorporation" relates to Broad National Bancorporation (parent
           company only); and the term "Bank" relates to Broad National Bank and
           its subsidiaries on a consolidated basis.

(2)        Net income per share -

           Basic earnings per common share is computed by dividing net income by
           the weighted average number of common shares outstanding. Diluted
           earnings per common share includes any additional common shares as if
           all potentially dilutive common shares were issued (e. g. stock
           options).

           Share and per share amounts for 1997 have been restated to reflect
           the 5% stock dividend declared in December 1997.

(3)        Company - obligated mandatorily redeemable 9.5% Cumulative Trust
           Preferred Securities of a subsidiary trust holding solely junior
           subordinated debentures of Bancorporation (9.5% Cumulative Trust
           Preferred Securities)

           On June 30, 1997, $11.5 million of 9.5% Cumulative Trust Preferred
           Securities were issued by BNB Capital Trust, a Delaware statutory
           business trust formed and wholly - owned by Bancorporation. The net
           proceeds from this issuance were invested in Bancorporation in
           exchange for Bancorporation's junior subordinated debentures. The
           sole asset of BNB Capital Trust, the obligor on the 9.5% Cumulative
           Trust Preferred Securities, is $11,855,670 principal amount of 9.5%
           Junior Subordinated Debentures of Bancorporation due June 30, 2027.
           Bancorporation has entered into several contractual arrangements for
           the purpose of fully and unconditionally supporting BNB Capital
           Trust's payment of distributions on, payments on any redemption of,
           and any liquidation distribution with respect to, the 9.5% Cumulative
           Trust Preferred Securities. These contractual arrangements constitute
           a full and unconditional guarantee by Bancorporation of BNB Capital
           Trust's obligations under the 9.5% Cumulative Trust Preferred
           Securities.

(4)        Comprehensive Income

           Effective January 1, 1998 the Company adopted Statement of Financial
           Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
           130"). SFAS 130 establishes standards for reporting and display of
           comprehensive income and its components (revenues, expenses, gains
           and losses) in a full set of general-purpose financial statements.
           SFAS 130 requires that all items that are required to be recognized
           under accounting standards as components of comprehensive income be
           reported in a financial statement that is displayed with the same
           prominence as other financial statements. SFAS 130 does not require a
           specific format for that financial statement but requires that an
           enterprise display an amount representing total 

                                       8
<PAGE>
 
           comprehensive income for the period in that financial statement. SFAS
           130 requires that an enterprise (a) classify items of other
           comprehensive income by their nature in a financial statement and (b)
           display the accumulated balance of other comprehensive income
           separately from retained earnings and additional paid in capital in
           the equity section of a statement of financial position.

           The company will display the financial statements required by SFAS
           130 effective in its financial statements for December 31, 1998.

           For the nine month period ended September 30, 1998 and 1997, the
           Company recorded comprehensive income of $6,922,000 and $4,997,000,
           respectively, consisting of net income of $5,720,000 and other
           comprehensive gains of $1,202,000 for the nine month period ended
           September 30, 1998, and net income of $4,815,000 and other
           comprehensive gains of $182,000 for the nine month period ended
           September 30, 1997. For the three month period ended September 30,
           1998 and 1997, the Company recorded comprehensive income of
           $3,222,000 and $1,742,000, respectively, consisting of net income of
           $2,103,000 and other comprehensive gains of $1,119,000 for the three
           month period ended September 30, 1998, and net income of $1,495,000
           and other comprehensive gains of $247,000 for the three month period
           ended September 30, 1997. In each instance, the comprehensive gains
           and losses represent unrealized holding gains and losses on
           securities available for sale, net of tax.

(5)        Reclassification -

           Certain amounts in the consolidated financial statements presented 
           for  prior periods have been reclassified to conform with the 1998 
           presentation.

                                       9
<PAGE>
 
                 BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------


                                     SUMMARY
                                     -------

The Company reported net income of $2,103,000 or $0.43 per diluted common share
for the third quarter of 1998 compared to net income of $1,495,000 or $0.30 per
diluted common share for the third quarter of 1997. Basic per share earnings
were $0.45 for the third quarter of 1998 and $0.32 for the third quarter of
1997.

For the first nine months of 1998, the Company reported net income of $5,720,000
or $1.16 per diluted common share, compared to net income of $4,815,000 or $0.96
per diluted common share for the first nine months of 1997. Basic per share
earnings were $1.22 for the first nine months of 1998 and $1.00 for the first
nine months of 1997.

Per share data for 1997 has been restated to reflect the effect of a 5% stock
dividend declared December 18, 1997.

As compared to December 31, 1997, total assets increased $20.6 million or 3.4%
to $622.3 million at September 30, 1998; loans, net of deferred fees, increased
$26.2 million or 8.1% to $348.7 million; deposits increased $22.8 million or
4.4% to $541 million; and shareholders' equity increased $4.9 million or 12.5%
to $44.1 million.

The Company's annualized return on average assets and annualized return on
average shareholders' equity were 1.23% and 18.59%, respectively, for the first
nine months of 1998, compared to annualized returns of 1.16% and 16.40%,
respectively, for the comparable 1997 period.

                                       10
<PAGE>
 
RESULTS OF OPERATIONS
---------------------

Net Interest Income
-------------------


Net interest income, the primary source of earnings for the Company, is the
difference between interest and fees earned on loans and other earning assets,
and interest paid on deposits and other interest bearing liabilities. Earning
assets include loans, investment securities and federal funds sold. Interest
bearing liabilities include savings, money market, interest bearing demand and
time deposits, and short-term and long-term borrowings.

The table on the following page sets forth the Company's consolidated average
balance of assets, liabilities, and shareholders' equity as well as the amount
of interest income or interest expense and the average rate for each category of
interest-earning assets and interest-bearing liabilities. Non-accrual loans are
included in average loans, and interest on loans includes loan fees which were
not material. Non-taxable income from investment securities and loans is
presented on a tax-equivalent basis assuming a 34% tax rate.



                       NOTES TO NET INTEREST INCOME TABLE

(1) Average rates reflect the tax equivalent adjusted yields on nontaxable
    investments.

(2) Represents the difference between interest earned and interest paid, divided
    by total interest-earning assets.

(3) Annualized

                                       11
<PAGE>
 
                               NET INTEREST INCOME
                      Nine Months Ended September 30, 1998
                             (Dollars in Thousands)


<TABLE>
<CAPTION>
                                                                   1998                                       1997
                                                                   ----                                       ----

                                                    Average      Interest    Average            Average        Interest   Average
                                                     Balance    And Fees     Rate (3)           Balance       and Fees    Rate (3)
                                                   ---------    --------     --------          ---------      ---------  ----------
ASSETS
<S>                                                <C>          <C>           <C>              <C>             <C>         <C>  
Federal Funds Sold                                 $  38,897    $  1,621      5.50%            $  52,453       $  2,149    5.40%
                                                   ---------    --------                       ---------       --------
Investment Securities (1)
   Securities held - to - maturity                    52,242       2,370      6.05%               87,561          4,160    6.33%
   Securities available - for - sale                 164,074       7,737      6.29%               80,162          3,820    6.35%
                                                   ---------    --------                       ---------       --------
Total Investment Securities                          216,316      10,107      6.23%  (1)         167,723          7,980    6.34% (1)
                                                   ---------    --------                       ---------       --------

Loans
  Mortgage                                           194,031      13,043      8.99%              174,875         11,628     8.89%
  Installment                                         53,509       3,459      8.64%               42,400          2,894     9.13%
  Commercial                                          86,398       5,955      9.22%               82,387          5,482     8.90%
                                                   ---------    --------                       ---------       --------

Total Loans                                          333,938      22,457      8.99%              299,662         20,004     8.93%
                                                   ---------    --------                       ---------       --------

Total interest earning assets (2)                    589,151    $ 34,185      7.76%              519,838       $ 30,133     7.75%
                                                   ---------    --------                       ---------       --------

Less - Allowance for possible loan losses              7,102                                       8,928
All other assets                                      41,217                                      43,808
                                                   ---------                                   ---------

Total Assets                                        $623,266                                    $554,718
                                                   ---------                                   ---------

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest Bearing Deposits
   Savings, money market  and interest              
    bearing  demand deposits                        $226,512   $   3,645      2.15%             $214,033      $   3,539     2.21%
   Time Deposits
         Under $100,000                              106,680       4,220      5.29%               94,716          3,632     5.13% 
         Over $100,000                               102,359       4,276      5.59%               92,984          3,880     5.58%
                                                   ---------    --------                       ---------       --------

Total interest bearing deposits                      435,551      12,141      3.73%              401,733         11,051     3.68%
                                                   ---------    --------                       ---------       --------

Short term borrowings                                 13,630         604      5.83%                1,645             63     5.05%
Long term debt                                         4,949         231      6.16%                  429             19     5.84%
9.5% Cumulative Trust Preferred Securities            11,500         819      9.50%                3,840            273     9.50%
                                                   ---------    --------                       ---------       --------
Total Interest Bearing Liabilities                   465,630   $  13,795      3.96%              407,647      $  11,406     3.74%
                                                   ---------    --------                       ---------       --------

Other liabilities                                                            11,170                8,782
Demand deposits                                      105,318                                      99,035
Shareholders' equity                                  41,148                                      39,254
                                                   ---------                                   ---------     

Total liabilities and shareholders' equity          $623,266                                    $554,718
                                                   ---------                                   ---------   

NET INTEREST INCOME; NET INTEREST SPREAD                       $  20,390      3.80%                           $  18,727     4.01%
NET INTEREST MARGIN                                                           4.63%  (2)                                    4.82%(2)
</TABLE>

                                       12
<PAGE>
 
Rate/Volume Analysis Of Net Interest Income

The effect of changes in average balance and rate from the corresponding prior
period on interest income, interest expense and net interest income for the nine
months ended September 30, 1998 is set forth below. The effect of a change in
average balance has been determined by applying the average rate for the earlier
period to the change in average balance for the later period, as compared with
the earlier period. The effect of a change in the average rate has been
determined by applying the average balance for the earlier period to the change
in average rate for the later period, as compared with the earlier period. The
variances attributable to simultaneous balance and rate changes have been
allocated in proportion to the relationship of the dollar amount of change in
each category.

<TABLE>
<CAPTION> 
                                                                Increase (Decrease) Due to a
                                                                         Change in the
                                                      -------------------------------------------------
                                                      Average Balance   Average Rate              Total
                                                      ---------------   ------------             ------
                                                                       (Dollars in Thousands)
<S>                                                 <C>               <C>                   <C> 
Interest Earned on:                            
   Loans                                              $   2,133          $     320            $   2,453
   Investment securities                                  2,312               (185)               2,127
   Federal funds sold                                      (565)                37                (528)
                                                      ---------          ---------            ---------    
   Total interest income                              $   3,880          $     172            $   4,052
                                                      ---------          ---------            ---------    
Interest paid on:                                                                        
   Savings, money market and interest                                                    
     bearing demand deposits                          $     203          $     (97)           $     106
Certificates of deposit:                                                                 
   Under $100,000                                           473                115                  588
   Over  $100,000                                     $     392                  4                  396
Short term borrowings                                       530                 11                  541
Long term debt                                              200                 12                  212
9.5% Cumulative Trust Preferred Securities                  546                  0                  546
                                                      ---------          ---------            ---------    
Total Interest expense                                $   2,344          $      45            $   2,389
                                                      ---------          ---------            ---------    
Change in net interest income                         $   1,536          $     127            $   1,663
                                                      ---------          ---------            ---------    
Percent increase in net interest                                                         
   income over the prior period                                                                   8.88%
                                                                                              ---------
</TABLE>

Total tax equivalent interest income of $34,185,000 for the first nine months of
1998 represents an increase of $4,052,000 or 13.45% over total tax equivalent
interest income of $30,133,000 for the comparable 1997 period. This improvement
is primarily due to an increase of $69,313,000 in the average balance of total
interest earning assets for the first nine months of 1998 as compared to the
first nine months of 1997. The average balance of total investment securities
was $48,593,000 higher for the first nine months of 1998 as compared to the
first nine months of 1997, while the average balance of total loans was
$34,276,000 higher. These increases were offset by a decline of $13,556,000 in
the average balance of federal funds sold. The increase in the average balance
of interest earning assets contributed $3,880,000 to the increase of $4,052,000
in total tax equivalent interest income. The average rate earned on interest
earning assets for the first nine months of 1998 was 7.76%, as compared to 7.75%
for the first nine months of 1997.

Total tax equivalent interest income for both the three month and nine month
periods ended September 30 includes non-recurring interest income of
approximately $200,000 resulting from the workout and collection of loans
previously placed on non-accrual status.

                                       13
<PAGE>
 
Total interest expense of $13,795,000 for the first nine months of 1998 was
$2,389,000 or 20.95% higher than the comparable prior year period. An increase
of $57,983,000 in average total interest bearing liabilities is the primary
reason for this increase, resulting in an additional $2,344,000 of interest
expense for the first nine months of 1998 as compared to the first nine months
of 1997. The average cost of total interest bearing liabilities for the first
nine months of 1998 was 3.96%, an increase of 22 basis points from 3.74% for the
first nine months of 1997. Interest expense for the first nine months of 1998
was $45,000 higher than the comparable 1997 period as a result of this increase
in the cost of total interest bearing liabilities. Increases in time deposits
and short-term borrowings as well as the addition of long-term borrowings
contributed to the increase in total interest expense for the first nine months
of 1998 as compared to the first nine months of 1997.

Tax equivalent net interest income for the first nine months of 1998 was
$20,390,000, an increase of $1,663,000 or 8.88% from $18,727,000 for the
comparable 1997 period, primarily due to the average balance of interest earning
assets increasing more than the average balance of interest bearing liabilities.
The net interest spread on a tax equivalent basis declined 21 basis points to
3.80% for the first nine months of 1998, and the net interest margin, which is
tax equivalent net interest income expressed as a percentage of average interest
earning assets, declined 19 basis points to 4.63% for the first nine months of
1998. This reflects the fact that the growth of interest earning assets outpaced
the growth of net interest income, resulting from the use of higher cost time
deposits and short-term and long-term borrowings to fund the growth of average
interest earning assets.

Tax equivalent net interest income for the three-month period ended September
30, 1998 was $7,162,000 compared to $6,330,000 for the same period in 1997. This
represents an increase of $832,000 or 13.14%. The yield on interest earning
assets was 7.79% for the three-month period ended September 30, 1998, compared
to 7.75% for the same period in 1997, and the cost of interest bearing
liabilities was 3.85% for the three-month period ended September 30, 1998,
compared to 3.84% for the same period in 1997. The net interest margin for the
three-month period ended September 30, 1998 was 4.74%, compared to 4.71% for the
same period in 1997.

PROVISION FOR POSSIBLE LOAN LOSSES
----------------------------------

In determining the provision for possible loan losses, management considers
historical loan loss experience, changes in composition and volume of the loan
portfolio, the level and composition of non-performing loans, the adequacy of
the allowance for possible loan losses, and prevailing economic conditions. The
provision for possible loan losses for the three-month and nine-month periods
ended September 30, 1998 was $225,000 and $750,000, respectively, compared to
$450,000 and $1,350,000 in 1997. In each instance, the decrease in the provision
for possible loan losses from the comparable prior year period is primarily due
to the decline in non-performing loans and the improvement in the Company's
asset quality ratios. The Company recorded a net recovery of loans of $201,000
for the first nine months of 1998 as compared to net loan charge-offs of
$881,000 or 0.39% (annualized) of average total loans for the comparable 1997
period.

NON-INTEREST INCOME AND NON-INTEREST EXPENSES
---------------------------------------------

Total non-interest income for the three-month and nine-month periods ended
September 30, 1998 was $1,948,000 and $5,602,000, respectively, as compared to
$1,658,000 and $5,334,000 in 1997.

Total non-interest income for the three months ended September 30, 1998 was
$290,000 higher than the comparable prior year period, primarily due to an
increase of $152,000 in other non-interest income, primarily ATM related fees,
and an increase of $157,000 in services charges on demand deposit accounts.
These increases were partially offset by a net decline of $16,000 from the sale
of securities available-for-sale. The Company recorded a loss of $19,000 from
the sale of securities available-for-sale during the quarter ended September 30,
1998, as compared to a loss of $3,000 for 

                                       14
<PAGE>
 
the quarter ended September 30, 1997.

For the nine months ended September 30, 1998, total non-interest income was
$268,000 higher than the comparable prior year period. Service charges on
deposit accounts were $21,000 lower for 1998 as compared to 1997, while other
non-interest income was $318,000 higher, primarily attributable to ATM related
fees. The company recorded a gain of $26,000 from the sale of securities
available-for-sale during the nine month period ended September 30, 1998, a
decline of $28,000 from the gain of $54,000 recorded during the first nine
months of 1997.

For the three-month period ended September 30, 1998, total non-interest expenses
of $5,558,000 were $732,000 or 15.17% higher than total non-interest expenses of
$4,826,000 for the comparable 1997 period. For the nine- month period ended
September 30, 1998, total non-interest expenses of $16,183,000 were $1,611,000
or 11.06% higher than total non-interest expenses of $14,572,000 for the
nine-month period ended September 30, 1997. In each instance, the primary factor
for the increase is salary expense.

Comparing third quarter 1998 non-interest expenses to the third quarter of 1997,
salary expense was $520,000 or 26.07% higher, attributable to merit increases
and incentive-based compensation programs. Other expenses of $735,000 were
$135,000 higher, primarily attributable to increased contributions expense.
These increases were partially offset by reductions in legal fees and
professional fees.

Comparing the nine-month period ended September 30, 1998 to the same period in
1997, salary expense was $1,301,000 or 21.59% higher, primarily due to merit
increases and incentive-based compensation programs. Furniture and equipment
expense was $207,000 or 24.64% higher, attributable to increased depreciation
expense for computer and telephone systems, as well as increased costs
associated with ATM equipment. Other real estate expense was $159,000 or 194%
higher. Gains from the sale of properties classified as other real estate owned
resulted in the recognition of income of $82,000 for the first nine months of
1997 compared to expenses of $77,000 for the first nine months of 1998. Other
expenses were $315,000 or 17.69% higher, primarily due to increased marketing
and contributions expenses as well as the amortization of expenses associated
with the issuance in June of 1997 of the 9.5% Cumulative Trust Preferred
Securities. These increases were partially offset by reductions in data
processing fees, legal fees and professional fees.

FINANCIAL CONDITION
-------------------

Loans

Total loans, net of deferred loan fees, were $348,689,000 at September 30, 1998
which represents an increase of $26,161,000 or 8.1% from the December 31, 1997
balance of $322,528,000. The most significant components of the increase in loan
balances were an increase of $16,577,000 or 11.7% in commercial mortgages and an
increase of $19,317,000 or 60.6% in home equity fixed rate loans and adjustable
rate lines of credit. These increases were partially offset by a decline of
$10,532,000 or 11.2% in commercial loans. For the first nine months of 1998,
average loans of $333,938,000 represented 56.7% of total average interest
earning assets, as compared to 57.6% of total average interest earning assets
for the first nine months of 1997.

                                       15
<PAGE>
 
Allowance for Possible Loan Losses


The following table summarizes the activity in the allowance for possible loan
losses for the periods presented. Also presented are certain key ratios
regarding the allowance.


<TABLE>
<CAPTION> 
                                                                              Nine Months                 Nine Months
                                                                                 Ended                        Ended
                                                                           September 30,1998            September 30,1997 
                                                                          ------------------            -----------------
                                                                                        (Dollars In Thousands)
<S>                                                                      <C>                             <C> 
         Balance, beginning of period                                       $    6,974                      $     8,531
         Provision charged to operations                                           750                            1,350
         Loans charged off                                                       (890)                          (1,297)
         Recoveries of charged-off loans                                         1,091                              416
                                                                            ----------                       ---------- 
         Balance, end of period                                             $    7,925                       $    9,000
                                                                            ----------                       ----------  

         Average gross loans outstanding
          during period                                                       $333,938                         $299,662
                                                                            ----------                       ----------  
         Total gross loans at period end                                      $348,689                         $311,899
                                                                            ----------                       ----------  
         Net loans (recovered) charged-off                               $       (201)                      $       881
                                                                         -------------                      -----------
         Ratio of net loans charged-off to average loans          
           outstanding during period (annualized)                                 N/A                             0.39%
         
         Allowance for possible loan losses as
           a percentage of total gross loans                                     2.27%                            2.89%
                                                                                 -----                            -----
</TABLE>

The amount of allowance applicable to non-classified loans was $6,399,000 and
$4,770,000 at September 30, 1998 and December 31, 1997, respectively.

Asset Quality

Non-performing assets consist of (i)non-performing loans, which include
non-accrual loans and loans past due 90 days or more as to interest or principal
payments but not placed on non-accrual status; (ii) loans that have been
renegotiated due to a weakening in the financial position of the borrower
(restructured loans) and (iii) other real estate owned ("OREO"), net of
reserves.

                                       16
<PAGE>
 
The following table reflects the components of non-performing assets at
September 30, 1998 and December 31, 1997:

<TABLE>
<CAPTION>
                                                                               September 30, 1998             December 31, 1997
                                                                               ------------------             -----------------
                                                                                          (Dollars In Thousands)
<S>                                                                             <C>                            <C> 
Past due 90 days or more:
    Mortgage ...........................................................            $1,035                          $  434
    Commercial .........................................................               175                             477
    Installment ........................................................               178                              20
                                                                                    ------                          ------
    Total ..............................................................            $1,388                          $  931
                                                                                    ------                          ------

Non-accrual loans:
    Mortgage ...........................................................            $  250                          $  652
    Commercial .........................................................             2,370                           3,229
    Installment ........................................................                 8                              10
                                                                                    ------                          ------
    Total ..............................................................            $2,628                          $3,891
                                                                                    ------                          ------
Total non-performing loans .............................................            $4,016                          $4,822
Restructured loans (excluding amounts classified as non-performing              
loans)..................................................................             1,603                           1,619 
Other real estate owned,
  net of reserve........................................................               275                             648
                                                                                    ------                          ------
Total non-performing assets ............................................            $5,894                          $7,089
                                                                                    ------                          ------
Non-performing loans as a ..............................................             
   percent of total gross loans                                                      1.15%                           1.49% 
                                                                                    ------                          ------ 
Non-performing loans as a ..............................................             
   percent of total assets                                                           0.65%                           0.80% 
                                                                                    ------                          ------ 
Non-performing assets as a
  percent of loans and other
  real estate owned.....................................................             1.69%                           2.19%
Allowance for possible loan
  losses................................................................            $7,925                          $6,974
                                                                                    ------                          ------
Allowance for possible loan
  losses as a percent of
  non-performing loans..................................................           197.34%                         144.63%
                                                                                   -------                         -------
</TABLE>

In addition to the non-performing and restructured loans as of September 30,
1998 and December 31, 1997, the Company had classified an additional $3,859,000
and $4,539,000, respectively, as substandard loans. Substandard loans are
classified according to the Company's internal loan classification system. A
loan loss reserve has been allocated to such loans in accordance with the
Company's policies.

At September 30, 1998, the recorded investment in loans that are considered to
be impaired was $3,973,000 as compared to $7,334,000 at December 31, 1997. The
related allowance for credit losses was $0 as of September 30, 1998 and $0 as of
December 31, 1997. The impaired loan portfolio is primarily collateral
dependent. There was no change in the allowance for impaired loans during the
first nine months of 1998 compared to a recovery of $30,000 during the first
nine months of 1997. The average recorded investment in impaired loans during
the first nine months of 1998 was approximately $5,556,000. For the first nine
months of 1998, the Company recognized cash basis interest income on these
impaired loans of $142,398 compared to $134,447 for the first nine months of
1997.

                                       17
<PAGE>
 
The level of non-performing loans and assets is heavily dependent upon local
economic conditions. The September 30, 1998 total non-performing assets of
$5,894,000 represents a decrease of $1,195,000 or 16.6% over the total at
December 31, 1997. There can be no assurance that the level of non-performing
assets will not increase in the future.

Investment Securities and Federal Funds Sold

Federal funds sold of $11,955,000 at September 30, 1998, represent a decrease of
$25,345,000 from the balance at December 31, 1997. Average Federal Funds sold of
$38,897,000 during the first nine months of 1998 represented 6.6% of total
average interest earning assets, as compared to 10.1% during the first nine
months of 1997.

Total average investment securities of $216,316,000 for the first nine months of
1998 represent 36.7% of total average interest-earning assets, as compared to
32.3% for the comparable 1997 period.

Total investment securities, which include securities classified as
held-to-maturity and available-for-sale, of $227,844,000 at September 30, 1998
represent an increase of $21,437,000 or 10.4% over the balance at December 31,
1997. During the first nine months of 1998, securities available-for-sale of
$36,804,000 were sold and a net gain of $26,000 was realized as compared to
sales of $19,081,000 and a gain of $54,000 for the first nine months of 1997.

Deposits

The September 30, 1998 total deposit balance of $540,990,000 represents an
increase of $22,752,000 or 4.4% over total deposits of $518,238,000 at December
31, 1997. Most of this increase is attributable to non-interest bearing demand
deposits and time deposits less than $100,000. Non-interest bearing demand
deposits of $108,125,000 at September 30, 1998 represented an increase of
$5,071,000 or 4.9% from the December 31, 1997 balance of $103,054,000. Time
deposits less than $100,000 increased $14,920,000 or 15.9% during the first nine
months of 1998, with most of this growth represented by nine-month and
fifteen-month certificates of deposit.

Short Term Borrowings

Short-term borrowings represent Federal Home Loan Bank (FHLB) advances and
securities sold under agreements to repurchase, which are used to supplement the
Bank's deposit base as a source of funding. The FHLB advances have remaining
maturities of less than one year, while securities sold under agreement to
repurchase generally have terms ranging from one to ninety days.

The average balance of short-term borrowings was $13,630,000 for the first nine
months of 1998 as compared to $1,645,000 for the first nine months of 1997, and
the average cost of short-term borrowings was 5.83% for the first nine months of
1998 as compared to 5.05% for the first nine months of 1997. In each instance,
the increase is primarily attributable to FHLB advances.

                                       18
<PAGE>
 
Liquidity of the Bank


The Bank actively monitors its liquidity position to ensure that it has
sufficient funds to provide for cash outflows without incurring losses from the
premature liquidation of assets or the unexpected acquisition of costly
liabilities. The Bank's cash outflows encompass interest paid to depositors and
other creditors, deposit withdrawals, and disbursements to acquire assets and
pay general operating costs. The Bank obtains cash from customers in the form of
interest and principal payments on loans, fees paid for services, and from new
deposits. Investment maturities also provide a source of cash.

Many different measurements of liquidity are used in the banking industry. The
ratios of cash and cash equivalents (including federal funds sold) and
short-term securities to total assets and net loans to total deposits are among
some of the more commonly used indicators. These measurements are set forth
below as of September 30, 1998 and December 31, 1997.


                                      September 30, 1998      December 31, 1997
Cash and cash equivalents
  and securities maturing in
  one year to total assets                  7.03%                 11.3%
Net loans to total deposits                 63.0%                 60.9%

The change in the liquidity measurements from December 31, 1997 to September 30,
1998 is primarily attributable to management's decision to reduce its Federal
funds sold position and redirect those funds into longer-term, but higher
yielding investment securities and loans.

The Consolidated Statements of Cash Flows present the change in cash from
operating, investing and financing activities. During the first nine months of
1998, cash and cash equivalents decreased by $27,727,000.

Net cash provided by operating activities was $7,911,000 for the first nine
months of 1998, representing primarily the results of operations adjusted for
depreciation, amortization and the provision for possible loan losses, as well
as an increase in accrued taxes, interest and other liabilities.

Net cash used in investing activities was $48,144,000 which was used primarily
to fund growth in the securities portfolio and loans.

Net cash provided by financing activities was $12,506,000, reflecting a net
increase in deposits, partially offset by a decrease of long term debt and
payment of dividends to shareholders.

To assist in the management of its liquidity, the bank has available $26,318,000
in lines of credit for federal funds. However, none of these lines were in use
at September 30, 1998.

Managing the Bank's liquidity position involves a significant degree of
analytical estimation and other objective factors. Although customer demand for
funds, in the form of loans or deposit withdrawals, is largely dependent on
general economic factors outside of the Bank's control, management believes that
its present liquidity structure is adequate to meet such needs.

                                       19
<PAGE>
 
Liquidity of Bancorporation

Bancorporation's ability to meet its cash requirements, including interest and
dividend payments, is generally dependent upon the declaration and payment of
dividends by the Bank to Bancorporation. Under Federal law, the approval of the
Comptroller of the Currency is required for the payment of dividends in any
calendar year by Broad National Bank to Broad National Bancorporation if the
total of all dividends declared in any calendar year exceeds the net income for
that year combined with the retained net income for the preceding two calendar
years. As of December 31, 1997, retained earnings of the Bank of $9,765,000 were
available for payment of dividends to the parent company without regulatory
approval. Additionally, at September 30, 1998 Bancorporation had $2,445,000 of
cash for the purpose of paying operating costs, interest and dividends. However,
a change in circumstances, such as changes in regulatory requirements or in the
Bank's financial condition, could result in the Bank's inability to pay
dividends to Bancorporation or could result in Bancorporation being required by
regulatory authorities to utilize its funds to increase the Bank's capital. In
such event, Bancorporation may not have sufficient cash for operations or to
make interest and dividend payments and may be required to seek other sources of
capital and liquidity, if available.

Capital Adequacy

At September 30, 1998, the Company had total capital equal to 14.36% of
risk-based assets which included tier one capital equal to 13.10% of risk-based
assets. These compare to minimum regulatory capital requirements of 8% and 4%,
respectively. At September 30, 1998, the Company had tier one capital equal to
8.35% of adjusted total assets. This compares to a minimum regulatory capital
requirement of 4% to 5%.

At September 30, 1998, the Bank had total capital equal to 13.48% of risk-based
assets, which included tier one capital equal to 12.22% of risk-based assets.
These compare to minimum regulatory capital requirements of 8% and 4%,
respectively. At September 30, 1998, the Bank had tier one capital equal to
7.79% of adjusted total assets. This compares to a minimum regulatory capital
requirement of 4% to 5%.

Recent Accounting Pronouncements and Other Matters

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures About
Pensions and Other Post-retirement Benefits." This statement standardizes the
disclosure requirements for pension and other post- retirement benefits by
requiring additional information that will facilitate financial analysis, and
eliminating certain disclosures that are no longer considered useful. This
statement supercedes SFAS 87, 88, and 106. SFAS 132 is effective for fiscal
years beginning after December 15, 1997 and will be adopted December 31, 1998.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, and for hedging activities. SFAS
133 supercedes the disclosure requirements in SFAS 80, 105 and 119 and is
effective for periods after June 15, 1999. The adoption of SFAS No. 133 is not
expected to have a material impact on the financial position or results of
operations of the Company.

In October, 1998, the FASB issued SFAS No. 134 "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise". This statement is effective for the first fiscal
quarter beginning after December 15, 1998. Early application is permitted. The
adoption of SFAS No. 134 is not expected to have a material impact on the
financial position or results of operations of the Company.

                                       20
<PAGE>
 
Year 2000
---------

Company State of Readiness
--------------------------

Awareness Phase

In 1997, the Company conducted a review of its computer systems to determine the
systems that would be affected by the Year 2000 issue. A steering committee
comprised of senior management was formed to ensure that adequate resources are
allocated to this project and to monitor the progress and testing of the Year
2000 transition. This committee provides monthly reports to the Board of
Directors.

Assessment Phase

Management has completed an inventory of all hardware, software, network, ATM,
and other processing systems covering both information technology and
non-information technology systems. Applying the Federal Banking Regulatory
definition of "mission critical" applications, management has identified the
Company's mission critical information technology systems.

Management also evaluated customer and vendor interdependencies and non
information technology systems such as environmental systems dependent on
imbedded micro chips, including security systems, elevators and vaults. Although
not deemed to be mission critical, management will pursue remediation efforts
when necessary.

Renovation Phase

This phase includes code enhancements which are primarily the responsibility of
the Company's third party data processing company ("third party processor").
This third party processor is responsible during the renovation phase for
assuring that any such code enhancements, hardware and software upgrades, system
replacements, vendor certification, and other associated changes which impact
Broad National Bank be completed in a timely and effective manner. The third
party processor intends to achieve Year 2000 compliance through a combination of
replacement and renovation. This phase is scheduled to be completed by December
1998.

Validation Phase

This phase includes independent transactional testing by the company to verify
that the renovations and replacements made by its third party processor during
the renovation phase are year 2000 compliant. The Bank commenced the validation
phase in August, 1998, and is scheduled to complete its remaining transactional
testing by February 28, 1999. This phase also includes testing the software used
to access the Company's wide area network and its third party processor' s
applications. This testing is also scheduled to be completed by February 28,
1999.


Costs of Remediation
--------------------

Since implementing its review of the Year 2000 issue, the Company's Year 2000
remediation costs have been less than $100,000. Expected future costs relating
to fixing Year 2000 issues, such as modifying and replacing hardware and
software, are not expected to be material to the Company's financial condition
or results of operations.

                                       21
<PAGE>
 
Risks of Company's Year 2000 Issues
-----------------------------------

The Company is heavily dependant on its automated systems to process its
customers' transactions in a timely and accurate manner. If the modifications
and/or conversions required for Year 2000 compliance are not made, or are not
completed timely, the Company could be rendered unable to process transactions
for its customers, which, in turn, could have a materially adverse effect on the
Company. However, the Company believes that the Year 2000 compliance will be
achieved in accordance with the schedule outlined above, and the Company does
not anticipate that Year 2000 processing issues will have a material, negative
impact on the Company's business, financial condition, or results of operations.

Contingency Plan
----------------

 The Company has a formal contingency plan for all "mission critical"
applications.
If after the validation phase, it is determined that an application is incapable
of providing banking services in the Year 2000, the Bank has a formal
contingency plan which provides for conversion to an alternate processing
software. This conversion would take place in March 1999. The Company has
evaluated its contingency plan software and management has deemed it to be an
acceptable replacement.

Acquisition of New Branch

In August, 1998, the Company's wholly owned banking subsidiary, Broad National
Bank, completed the purchase of the operations and approximately $3,487,000 of
deposits of Panasia Bank's branch in Jersey City, New Jersey. Broad National
Bank paid a deposit premium of approximately $181,000 or 5.19% of the deposit
balances assumed in the transaction. The deposit premium is included in the
"Other Assets" category on the Statement of Condition, and is being amortized
over a five year period at the annual rate of approximately $36,200. Neither the
deposit premium nor the amortization of the deposit premium is considered to be
material to the financial position or results of operations of the Company.

Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitivity

Management of interest rate sensitivity involves matching the maturity and
repricing dates of interest-earning assets with interest-bearing liabilities in
an effort to reduce the impact of fluctuating net interest margins and to
promote consistent growth of net interest income during periods of changing
interest rates.

Interest rate risk arises from mismatches (i.e., the interest sensitivity gap)
between the dollar amount of repricing or maturing assets and liabilities, and
is measured in terms of the ratio of the interest sensitivity gap to total
assets. More assets repricing or maturing than liabilities over a given time
period is considered asset sensitive and is reflected as a positive gap, and
more liabilities repricing or maturing than assets over a given time period is
considered liability sensitive and is reflected as a negative gap. An
asset-sensitive position (i.e., a positive gap) will generally enhance earnings
in a rising interest rate environment and will negatively impact earnings in a
falling interest rate environment, while a liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and negatively impact earnings in a rising interest rate
environment.

At September 30, 1998 the Company had a one year cumulative negative gap of
21.9%. This negative one year gap position may, as noted above, have a negative
impact on earnings in a rising interest rate environment.

                                       22
<PAGE>
 
The calculation of these interest sensitivity gap positions involves certain
assumptions as to the repricing period of interest earning assets and interest
bearing liabilities. These gap positions are significantly impacted by
assumptions made as to prepayments of loans and investment securities as well as
to the repricing of deposit accounts. The impact of actual repayments,
repricings and changes in interest rates may differ from the implications
derived from the interest sensitivity gap analysis. Consequently, these static
measurements are best used as early indicators of potential interest rate
exposure.

The Company also uses a simulation model to analyze net interest income
sensitivity to movements in interest rates. The simulation model projects net
interest income based on both an immediate rise or fall of 200 basis points in
interest rates (rate shock) over a twelve month period. Based on information and
assumptions in effect at September 30, 1998, management believes that a 200
basis point rate shock over a twelve month period, up or down, would not
significantly affect the Company's annualized net interest income.

There has been no material change in the Company's market risk exposures since
December 31, 1997.


                          *       *       *         *


Except for the historical information contained herein, the matters discussed in
this Form 10-Q are forward looking statements that involve risks and
uncertainties, including risks and uncertainties associated with quarterly
fluctuations in results, the impact of changes in interest rates on the Bank's
net interest income, the quality of the Bank's loans and other assets and the
credit risk associated with lending activities, the fluctuations in the general
economic and real estate climate in the Bank's primary market area of New
Jersey, the impact of competition from other banking institutions and financial
service providers and the increasing consolidation of the banking industry, the
enforcement of federal and state bank regulations and the effect of changes in
such regulations, and other risks and uncertainties detailed from time to time
in the Company's SEC reports. Actual results may vary materially from those
expressed in any forward-looking statements herein.

                                       23
<PAGE>
 
                          BROAD NATIONAL BANCORPORATION



PART 2 - OTHER INFORMATION
--------------------------

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

      (a)  Exhibits

           Statements re: computation of per share earnings is part Of this Form
           10-Q as Exhibit I.


      (b)  Reports on Form 8-K

           No report on Form 8-K has been filed during the three month period
           ended September 30, 1998.

                                       24
<PAGE>
 
                          BROAD NATIONAL BANCORPORATION


                                   SIGNATURES




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



                          BROAD NATIONAL BANCORPORATION
                          -----------------------------
                                  (registrant)






Date:  November 12, 1998                          /s/ Donald M. Karp
                                                  ------------------

                                                  Donald M. Karp
                                                  Chairman and CEO




                                                  /s/ James Boyle
                                                  ------------------

                                                  James Boyle
                                                  Treasurer

                                       25
<PAGE>
 
                          BROAD NATIONAL BANCORPORATION
                        Computation of Earnings Per Share
                                   (Unaudited)


<TABLE>
<CAPTION> 
                                                               THREE-MONTH PERIOD                        NINE-MONTH PERIOD
                                                               ENDED SEPTEMBER 30                        ENDED SEPTEMBER 30
                                                           1998                 1997(1)             1998                   1997(1)
                                                           ----                -----                ----                   ---- 
             BASIC:
<S>                                                     <C>                 <C>                 <C>                  <C> 
Net Income available to common                           
    shareholders                                         $2,102,890         $1,494,884           $5,719,941            $4,814,571
                                                         ----------         ----------           ----------            ----------
Weighted average number of common      
    shares outstanding                                    4,704,228          4,735,736            4,706,896             4,821,180
                                                          ---------          ---------            ---------             ---------

Basic Earnings Per Common Share                          $     0.45         $     0.32            $    1.22            $     1.00
                                                         ==========         ==========           ==========            ==========
                DILUTED:

Net income available to common                           
shareholders                                             $2,102,890         $1,494,884           $5,719,941            $4,814,571
                                                         ----------         ----------           ----------            ----------
Weighted average number of common                        
shares  outstanding                                       4,704,228          4,735,736            4,706,896             4,821,180
                                                          ---------          ---------            ---------             ---------
Effects of dilutive securities                              
   Stock options                                            200,033            215,225              203,184               186,939
                                                            -------            -------              -------               -------
Adjusted average number of common                         
shares outstanding                                        4,904,261          4,950,961            4,910,080             5,008,119
                                                          ---------          ---------            ---------             ---------

Diluted Earnings Per Common Share                    $         0.43     $         0.30       $         1.16        $         0.96
                                                     ==============     ==============       ==============        ==============

</TABLE>

---------------
/1/ Restated to reflect the effect of the 5% stock dividend declared in December
    1997

                                       26
<PAGE>
 
                          Independent Auditors' Report
                          ----------------------------

The Board of Directors
Broad National Bancorporation:

We have reviewed the accompanying consolidated condensed statement of condition
of Broad National Bancorporation and subsidiaries (the Company) as of September
30, 1998, and the related consolidated condensed statements of income, and cash
flows for the three-month and nine month periods ended September 30, 1998 and
1997. These consolidated condensed financial statements are the responsibility
of the Company?s management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated condensed financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of condition of the Company as of December
31, 1997, and the related consolidated statements of income, changes in
shareholders? equity, and cash flows for the year then ended (not presented
herein); and in our report dated January 15, 1998, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated statement of condition as
of December 31, 1997, is fairly presented, in all material respects, in relation
to the consolidated statement of condition from which it has been derived.

/s/ KPMG Peat Marwick LLP



Short Hills, New Jersey
November 12, 1998
----------------------

                                       27