SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(x)      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

         For the quarter ended June 30, 1997

                                       OR

( )      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

         For the transition period from _______________ to ________________

                            Commission File #0-22699

                             COVENANT BANCORP, INC.
                             ----------------------
             (Exact name of registrant as specified in its charter)

         New Jersey                                22-2890624
         ----------                                ----------
 (State or other jurisdiction of          (IRS Employer Identification
  incorporation or organization)                     Number)


              18 Kings Highway West, Haddonfield, New Jersey 08033
              ----------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

                                 (609) 428-7300
                                 --------------
              (Registrant's telephone number, including area code)

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  report(s),  and (2) has  been  subject  to such  filing
requirements  for the past 90 days.  (Note:  Registrant is successor to Covenant
Bank, whose shares were previously registered with the Federal Deposit Insurance
Corporation).

                      Yes  __X__              No_____

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the last practical date.

<TABLE>
<CAPTION>
<S>                                                        <C>
         Common Stock                                                   3,057,193
         ------------                                                   ---------
        (Title of Class)                                   (No. of Shares Outstanding as of 8/11/97)

Series A Non-Cumulative Convertible Preferred Stock                       138,300
---------------------------------------------------                       -------
          (Title of Class)                                 (No. of Shares Outstanding as of 8/11/97)

Series B Non-Cumulative Convertible Preferred Stock                       161,700
---------------------------------------------------                       -------
          (Title of Class)                                 (No. of Shares Outstanding as of 8/11/97)

</TABLE>

<PAGE>


                     COVENANT BANCORP, INC. AND SUBSIDIARIES

                                Table of Contents



FINANCIAL INFORMATION                                                      Page
---------------------                                                      ----

Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Balance Sheets (Unaudited)                              3
         June 30, 1997 and December 31, 1996

         Consolidated  Statements of Income  (Unaudited)                    4-5
         Three months ended June 30, 1997 and June 30, 1996 and
         six months ended June 30, 1997 and June 30, 1996

         Consolidated  Statements of Cash Flows (Unaudited)                   6
         Six months ended June 30, 1997 and June 30, 1996

         Consolidated Statements of Changes in Stockholders' Equity           7

         Notes to Consolidated Financial Statements (Unaudited)            8-10

Item 2.  Management's Discussion and Analysis of Financial                11-23
         Condition and Results of Operations

Part II. OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders                 24

Item 6.  Exhibits and Reports on Form 8-K                                    25




<PAGE>

                     COVENANT BANCORP, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                   (unaudited)

<TABLE>
<CAPTION>

(in thousands)                                            June 30, 1997      December 31, 1996
--------------                                            -------------      -----------------

<S>                                                           <C>                <C>
Assets:
Cash and due from banks                                       $  23,989          $  12,446
Federal funds sold                                                8,500              3,100
                                                              ---------          ---------
    Cash and cash equivalents                                    32,489             15,546
                                                              ---------          ---------
Investments available for sale (cost
  1997-$132,572; 1996-$133,061)                                 131,706            132,578
Investment securities (fair value
  1997-$11,425; 1996-$11,743)                                    11,353             11,687
Loans held for sale                                                --                 --
Loans receivable                                                262,848            241,201
  Less allowance for loan losses                                  2,817              3,016
                                                              ---------          ---------
    Loans receivable, net                                       260,031            238,185
                                                              ---------          ---------
Premises and equipment, net                                       9,495              9,135
Real estate owned                                                   747                695
Accrued interest receivable                                       4,036              3,913
Other assets                                                      4,114              2,895
                                                              ---------          ---------
    Total Assets                                              $ 453,971          $ 414,634
                                                              =========          =========

Liabilities:
Non-interest bearing deposits                                    57,137             41,868
Interest bearing deposits                                        96,480             96,169
Time deposits                                                   148,166            139,428
                                                              ---------          ---------
    Total deposits                                              301,783            277,465
                                                              ---------          ---------
Advances from The Federal Home Loan Bank                         21,000             20,500
Securities sold under agreements to repurchase                   96,242             84,037
Other liabilities                                                 4,134              3,381
                                                              ---------          ---------
    Total Liabilities                                           423,159            385,383
                                                              ---------          ---------

Commitments and Contingencies

Stockholders' Equity:

Preferred stock authorized 300,000 shares;
  Series "A", $25 par value:
    issued and outstanding 138,300 and
    138,300 shares, respectively                                  3,457              3,457

   Series "B", $25 par value:
    issued and outstanding 161,700 and
    161,700 shares, respectively                                  4,043              4,043

Common stock, $5 par value:
    authorized 5,000,000 shares;
    issued and outstanding 2,936,480 and
    2,906,262 shares, respectively                               14,682             14,531

Additional paid-in capital                                       10,702             10,614

Net unrealized holding (loss) on
    investments available for sale                                 (572)              (305)

Accumulated deficit                                              (1,500)            (3,089)
                                                              ---------          ---------
    Total Stockholders' Equity                                   30,812             29,251
                                                              ---------          ---------
    Total Liabilities and Stockholders' Equity                $ 453,971          $ 414,634
                                                              =========          =========
</TABLE>

See accompanying notes to financial statements.


3
<PAGE>
                     COVENANT BANCORP, INC AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (unaudited)


<TABLE>
<CAPTION>

(In thousands except per share data)                                    Three Months Ended June 30,
------------------------------------                                    ---------------------------
                                                                            1997         1996
                                                                            ----         ----
<S>                                                                         <C>         <C>
Interest Income
 Interest and fees on loans                                                 $5,602      $5,005
 Interest on investment securities                                           2,336       2,256
 Other interest income                                                          16         106
                                                                            ------      ------
    Total interest income                                                    7,954       7,367

Interest Expense
 Interest on deposits                                                        2,612       2,360
 Interest on borrowings                                                      1,507       1,296
                                                                            ------      ------
    Total interest expense                                                   4,119       3,656
                                                                            ------      ------
Net interest income                                                          3,835       3,711
Provision for loan losses                                                        5          23
                                                                            ------      ------
Net interest income after provision for loan losses                          3,830       3,688
                                                                            ------      ------

Other Income
 Service charges on deposit accounts                                           172         165
 Loan servicing income                                                          48          64
 Other operating income                                                         51          38
 Gain on sale of assets                                                         11        --
                                                                            ------      ------
    Total other income                                                         282         267
                                                                            ------      ------

Other Expenses
 Salaries and employee benefits                                              1,600       1,584
 Net occupancy                                                                 457         395
 Data processing and other service costs                                       162         187
 Professional services                                                          76         137
 Advertising and promotion                                                      45          58
 Federal insurance premiums                                                     19          61
 Other operating expenses                                                      370         347
                                                                            ------      ------
    Total other expenses                                                     2,729       2,769
                                                                            ------      ------

Income before income taxes                                                   1,383       1,186
Income taxes                                                                   473         432
                                                                            ------      ------
Net income                                                                     910         754
Less: preferred stock dividends                                                113         113
                                                                            ------      ------
Net income applicable to common shareholders                                $  797      $  641
                                                                            ======      ======


Income per common share and common stock equivalents                        $ 0.21      $ 0.18
                                                                            ======      ======

Weighted average common stock and common stock equivalents outstanding       4,314       4,238


</TABLE>

See accompanying notes to  financial statements



4
<PAGE>
                     COVENANT BANCORP, INC AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (unaudited)


<TABLE>
<CAPTION>

(In thousands except per share data)                                       Six Months Ended June 30,
------------------------------------                                       -------------------------

                                                                             1997          1996
                                                                             ----          ----
<S>                                                                         <C>          <C>
Interest Income
 Interest and fees on loans                                                 $10,899      $ 9,850
 Interest on investment securities                                            4,663        4,220
 Other interest income                                                           47          197
                                                                            -------      -------
    Total interest income                                                    15,609       14,267

Interest Expense
 Interest on deposits                                                         5,166        4,708
 Interest on borrowings                                                       2,922        2,250
                                                                            -------      -------
    Total interest expense                                                    8,088        6,958
                                                                            -------      -------
Net interest income                                                           7,521        7,309
Provision for loan losses                                                        30           41
                                                                            -------      -------
Net interest income after provision for loan losses                           7,491        7,268
                                                                            -------      -------

Other Income
 Service charges on deposit accounts                                            311          290
 Loan servicing income                                                           91          124
 Other operating income                                                          90           84
 Gain on sale of assets                                                          11         --
                                                                            -------      -------
    Total other income                                                          503          498
                                                                            -------      -------

Other Expenses
 Salaries and employee benefits                                               3,075        3,157
 Net occupancy                                                                  918          788
 Data processing and other service costs                                        264          374
 Professional services                                                          155          271
 Advertising and promotion                                                       75           93
 Federal insurance premiums                                                      39          120
 Other operating expenses                                                       711          706
                                                                            -------      -------
    Total other expenses                                                      5,237        5,509
                                                                            -------      -------

Income before income taxes                                                    2,757        2,257
Income taxes                                                                    943          822
                                                                            -------      -------
Net income                                                                    1,814        1,435
Less: preferred stock dividends                                                 225          225
                                                                            -------      -------
Net income applicable to common shareholders                                $ 1,589      $ 1,210
                                                                            =======      =======


Income per common share and common stock equivalents                        $  0.42      $  0.34
                                                                            =======      =======

Weighted average common stock and common stock equivalents outstanding        4,283        4,239


</TABLE>

See accompanying notes to  financial statements



5
<PAGE>
                     Covenant Bancorp, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>

(in thousands)                                                            Six Months ended June 30,
--------------                                                            -------------------------
                                                                            1997           1996
                                                                            ----           ----
<S>                                                                       <C>            <C>
Cash flows from operating activities:
          Net income                                                      $  1,814       $  1,435
          Adjustments to reconcile net income to net
            cash (used) provided by operating activities:
          Provision for loan losses                                             30             41
          Depreciation and amortization                                        317            346
          Amortization of premiums and discounts, net                           36            156
          Loans originated for sale                                           --             (951)
          Proceeds from sales of loans held for sale                          --            1,887
          Decrease in unearned discounts and loan fees, net                   (247)          (106)
          Increase in accrued interest receivable
            and other assets                                                (1,342)        (2,359)
          Increase in other liabilities                                        753            991
                                                                          --------       --------
              Net cash provided by operating activities                      1,361          1,440
Cash flows from investing activities:
          Purchases of investments held to maturity                           --           (1,312)
          Purchases of investments available for sale                       (6,970)       (52,674)
          Proceeds from maturities of investments available for sale         7,500           --
          Proceeds from maturities of investments held to maturity            --           25,860
          Principal collected on mortgage backed securities                    309            498
          Net increase in loans                                            (21,958)       (23,688)
          Proceeds from sales of real estate owned                             341            357
          Purchases of premises and equipment                                 (677)          (629)
                                                                          --------       --------
              Net cash used in investing activities                        (21,455)       (51,588)
Cash flows from financing activities:
          Net increase in deposits                                          24,318         13,018
          Net increase in securities sold
            under agreements to repurchase                                  12,205         44,473
          Net increase (decrease) in advances from the
            Federal Home Loan Bank                                             500         (3,000)
          Preferred stock dividends paid                                      (225)          (225)
          Common stock issuance and other                                      239             41
                                                                          --------       --------
            Net cash provided by financing activities                       37,037         54,307

          Net increase in cash and cash equivalents                         16,943          4,159
Cash and cash equivalents at the beginning of the year                      15,546         22,777
                                                                          --------       --------
Cash and cash equivalents at the end of the period                        $ 32,489       $ 26,936
                                                                          ========       ========

Supplemental disclosures of cash flow information:
            Cash paid during the period for interest                      $  8,107       $  6,525
            Cash paid during the period for income taxes                       881            568
          Noncash investing and financing activities:
            Net transfers to real estate owned from loans receivable           393            559
            Net change in gross unrealized (loss) on
              investments available for sale                              ($   383)      ($ 1,082)


</TABLE>

See accompanying notes to financial statements



6


<PAGE>

                     COVENANT BANCORP, INC. AND SUBSIDIARIES

           Consolidated Statements of Changes in Stockholders' Equity

                      (in thousands, including share data)

<TABLE>
<CAPTION>

                                                                          Additional
                                               Preferred      Common       Paid-in      Net Unrealized   Accumulated
                                                 Stock         Stock       Capital        Gain (Loss)      Deficit       Total
                                                 -----         -----       -------        -----------      -------       -----

<S>                                             <C>           <C>           <C>           <C>            <C>            <C>     
Balance at
  January 1, 1996                               $  7,500      $ 13,559      $  9,212      $  1,157       ($ 1,519)      $ 29,909
Net income twelve months ended 
  December 31, 1996                                 --            --            --            --            1,850          1,850
Preferred stock dividend                            --            --            --            --             (450)          (450)
Adjustment to unrealized gain 
  (net of of tax)                                   --            --            --          (1,462)          --           (1,462)
Common stock dividends and other
    (194 shares)                                    --             972         1,402          --           (2,970)          (596)
                                                --------      --------      --------      --------       --------       --------
Balance at
  December 31, 1996                                7,500        14,531        10,614          (305)        (3,089)        29,251
Net income six months ended June 30, 1997           --            --            --            --            1,814          1,814
Preferred stock dividend                            --            --            --            --             (225)          (225)
Adjustment to unrealized gain (net of tax)          --            --            --            (267)          --             (267)
Common stock dividends and other
  (30 shares)                                       --             151            88          --             --              239
                                                --------      --------      --------      --------       --------       --------
Balance at
  June 30, 1997                                 $  7,500      $ 14,682      $ 10,702      ($   572)      ($ 1,500)      $ 30,812
                                                ========      ========      ========      ========       ========       ========



</TABLE>


See accompanying notes to financial statements.


7
<PAGE>



                     COVENANT BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

A.       Consolidated Financial Statements

The  financial  statements  included  herein have been  prepared  without  audit
pursuant to the rules and regulations of the Securities and Exchange  Commission
("SEC").  Certain  information  and footnote  disclosures  normally  included in
financial  statements  prepared in accordance with generally accepted accounting
principles   have  been  condensed  or  omitted   pursuant  to  such  rules  and
regulations.   The  accompanying  condensed  consolidated  financial  statements
reflect all adjustments which are, in the opinion of management,  necessary to a
fair  statement  of  the  results  for  the  interim  periods  presented.   Such
adjustments are of a normal recurring nature.

On June 13,  1997,  Covenant  Bancorp,  Inc.  (the  "Company")  was  formed  and
registered  with the SEC.  Also on that date,  Covenant  Bank (the  "Bank")  was
acquired by the  Company.  These  condensed  consolidated  financial  statements
should be read in  conjunction  with the audited  financial  statements  and the
notes thereto included in the Bank's Annual Report  (Amendment No. 2 to Form F-2
dated April 28, 1997, filed with the Federal Deposit Insurance  Corporation) for
the period ended  December 31, 1996.  The annual  report is also included in the
Registrant's  Registration  Statement  on Form S-4  dated  April 28,  1997.  The
results  for the three and six months  ended June 30,  1997 are not  necessarily
indicative  of the results that may be expected for the year ended  December 31,
1997.

The consolidated  financial statements include the accounts of Covenant Bancorp,
Inc.  and  all  of its  subsidiaries,  including  Covenant  Bank.  All  material
intercompany transactions have been eliminated.


B.       Commitments

In the normal course of business,  there are various outstanding  commitments to
extend credit, such as letters of credit and unadvanced loan commitments,  which
are  not  reflected  in  the  accompanying  consolidated  financial  statements.
Management  does  not  anticipate  any  material  losses  as a  result  of these
transactions.

C.       SFAS No. 128 - Earnings Per Share

In  February  1997,  the FASB  issued SFAS No.  128,  Earnings  Per Share.  This
statement  establishes standards for computing and presenting earnings per share
(EPS) and applies to entities  with  publicly  held  common  stock or  potential
common stock. This Statement simplifies the standards for computing earnings per
share previously found in APB Opinion No. 15, Earnings per Share, and makes them
comparable to  international  EPS  standards.  It replaces the  presentation  of
primary EPS with a presentation of basic EPS.


8
<PAGE>

                     COVENANT BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

It also requires dual  presentation  of basic and diluted EPS on the face of the
statement of operations  for all entities with complex  capital  structures  and
requires a  reconciliation  of the  numerator and  denominator  of the basic EPS
computation  to the numerator and  denominator  of the diluted EPS  computation.
This Statement is effective for financial  statements  issued for periods ending
after December 15, 1997,  including interim periods;  earlier application is not
permitted.  This Statement  requires  restatement of all  prior-period  EPS data
presented.

Had the  Company  adopted  this  Statement  as of June 30,  1997,  the pro forma
earnings per share would have been:


<TABLE>
<CAPTION>

                                                For the  three  months
                                                 ended June 30, 1997
                                                 -------------------
                                                                    Weighted               Pro forma
                                             Income              average shares           earnings per
                                           (Numerator)           (Denominator)               share
                                           -----------           -------------               -----
<S>                                           <C>                    <C>                     <C>
Basic EPS
  Net income available to
  common shareholders                         $797                   3,054                   $0.26

Effect of dilutive securities
  Convertible preferred stock                 $113                   1,059
  Stock options                                 --                     201
                                             -----                  ------

Dilutive EPS
   Income available to
   common shareholders
   plus assumed conversions                   $910                   4,314                   $0.21



                                           For the six months ended June 30, 1997
                                           --------------------------------------
                                                                    Weighted               Pro forma
                                             Income              average shares           earnings per
                                           (Numerator)           (Denominator)               share
                                           -----------           -------------               -----
Basic EPS
  Net income available to
  common shareholders                        $1,589                  3,044                   $0.52

Effect of dilutive securities
  Convertible preferred stock                  $225                  1,059
  Stock options                                  --                    180
                                             ------                 ------

Dilutive EPS
   Income available to
   common shareholders
   plus assumed conversions                  $1,814                  4,283                   $0.42



</TABLE>


9
<PAGE>

                     COVENANT BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

D.       Issuance of Common Stock

On July 14, 1997,  the Company issued a 4% stock dividend on its common stock to
shareholders  of record on June 24,  1997,  resulting in the issuance of 117,110
additional  shares of common stock and cash paid in lieu of fractional shares of
$5,957.  All  share  and per  share  data  has  been  adjusted  to  reflect  the
retroactive recognition of all stock dividends declared.

E.       Subsequent Event

On August 5,  1997,  the  Company  and First  Union  Corporation  (First  Union)
executed a definitive  merger  agreement in which First Union would  acquire the
Company.  The  Company's  shareholders  will receive .3813 shares of First Union
common stock for each share of the Company's common stock. Each share of the two
issues of the  Company's  convertible  preferred  stock will be exchanged  for a
number of shares of First Union common stock equal to the respective  conversion
ratios of the  preferred  stock times the merger  exchange  ratio of .3813.  The
acquisition,   which  will  be  accounted  for  under  the  purchase  method  of
accounting,  is subject to various  conditions  including  the  approval  of the
Company's  shareholders  and regulatory  approvals.  It is anticipated  that the
transaction will close during the first quarter of 1998.



10
<PAGE>



                     COVENANT BANCORP, INC. AND SUBSIDIARIES

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

OVERVIEW

Covenant  Bancorp,  Inc. and its  subsidiaries,  ("the  Company"),  recorded net
income of $1.8 million for the six months  ended June 30,  1997,  as compared to
$1.4  million for the six months  ended June 30,  1996.  The 26% increase in net
income  between the two  periods is the result of an  increase  in net  interest
income  coupled with  meaningful  expense  reduction  and control.  Net interest
income was  positively  impacted by a 12%  increase in average  interest-earning
assets for the six month period ended June 30, 1997,  compared to the six months
ended June 30,  1996.  Return on average  assets was 0.85% and return on average
common equity was 14.29% for the six month period ended June 30, 1997,  compared
to 0.76% and 10.79%, respectively, for the six month period ended June 30, 1996.
All prior  period  amounts  have been  restated  to reflect the  September  1996
acquisition of 1st Southern State Bank ("1st Southern").

For the three  months ended June 30,  1997,  the Company  reported net income of
$910,000,  representing an increase of 21% in earnings compared to net income of
$754,000 for the second  quarter of 1996. Net interest  income  increased 3% for
the second  quarter of 1997 when  compared to the second  quarter of 1996 due to
the  above-mentioned  increase  in average  interest-earning  assets.  Return on
average  assets and return on average  common  equity for the three months ended
June 30, 1997 were 0.84% and 14.40%, respectively, compared to 0.76% and 11.66%,
respectively, for the same period in 1996.

Total assets  amounted to $454.0  million at June 30,  1997,  compared to $414.6
million at December 31, 1996,  representing  an increase of $39.4 million or 10%
since  year-end  1996.  Net loans  totaled  $260.0  million,  representing  a 9%
increase, over the year-end 1996 balance. Total deposits increased $24.3 million
to reach $301.8 million at June 30, 1997,  from the December 31, 1996 balance of
$277.5  million.  Stockholders'  equity was $30.8 million at June 30, 1997.  The
Company's   capital   position  meets  the  definition  of  a   well-capitalized
institution,  which is evident by its leverage  ratio,  which stood at 7.30% and
its  Tier  1  and  Total  Capital  ratios,  which  equaled  11.74%  and  12.79%,
respectively.

On August 5,  1997,  the  Company  and First  Union  Corporation  (First  Union)
executed a definitive  merger  agreement in which First Union would  acquire the
Company.  The  Company's  shareholders  will receive .3813 shares of First Union
common stock for each share of the Company's common stock. Each share of the two
issues of the  Company's  convertible  preferred  stock will be exchanged  for a
number of shares of First Union common stock equal to the respective  conversion
ratios of the  preferred  stock times the merger  exchange  ratio of .3813.  The
acquisition,   which  will  be  accounted  for  under  the  purchase  method  of
accounting,  is subject to various  conditions  including  the  approval  of the
Company's  shareholders  and regulatory  approvals.  It is anticipated  that the
transaction will close during the first quarter of 1998.



11
<PAGE>


RESULTS OF OPERATIONS

Net Interest Income

Net  interest  income is the  difference  between  interest  earned on loans and
investments  and interest  incurred on deposits and other  borrowed  funds.  Net
interest income is affected by changes in both interest rates and the amounts of
interest-earning assets and interest-bearing liabilities outstanding.

Net interest income for the six months ended June 30, 1997 increased $212,000 or
3% to $7.5  million,  compared  to $7.3  million  for the  same  period  in 1996
primarily  due to an  increase  in  average  loans of $35.2  million  and a $7.8
million  or 6%  increase  in  average  investments  (see page 12 for an  average
balance  sheet and average rate  comparisons).  The increase in average loans is
concentrated  in the  commercial  and  commercial  mortgage  portfolios of $21.9
million or 16% and a $8.6 million  increase in 1-4 family  mortgage  loans.  The
increase in net interest income associated with growth in the loan portfolio has
been largely offset by a compression in the net interest margin to 3.79% for the
six months  ended  June 30,  1997 from  4.14% for the same  period in 1996.  The
decrease  in the net  interest  margin  is due to the  following  factors:  1) a
decline  in the yield on the  total  loan  portfolio  to 8.71% for the six month
period  ended June 30,  1997 from 9.18% for the same  period in 1997;  caused by
overall  market  conditions  and 2) the increase in the Company's loan portfolio
funded by  higher-priced  securities  sold under  agreements to  repurchase  and
certificates of deposit rather than the Company's core deposit base, causing the
Company's cost of funds to increase from 4.51% for the six months ended June 30,
1996 to 4.67%  for the  same  period  of  1997.  Delays  in the  opening  of the
Company's three new personal  financial  centers  resulted in the need for these
types of short-term higher-costing funding sources.

Net interest income for the three months ended June 30, 1997 increased  $124,000
or 3% to $3.8 million,  compared to $3.7 million for the same period in 1996. As
discussed in the six month results,  the improvement is directly  related to the
increase in average  interest-earning  assets during the second quarter of 1997,
as compared to the same period in 1996,  partially  offset by a narrowing in the
net interest margin.

Other Income

Other  income for the first six months of 1997  totaled  $503,000,  compared  to
$498,000  for the same  period of 1996.  Service  charges  on  deposit  accounts
increased  $21,000 or 7% to $311,000 for the six months ended June 30, 1997 when
compared to the same period in 1996, due to an increase in core deposit accounts
over the past twelve months.  Loan servicing income decreased $33,000 to $91,000
for the six months ended June 30, 1997


12

<PAGE>


                     COVENANT BANCORP, INC. AND SUBSIDIARIES

                       CONSOLIDATED AVERAGE BALANCE SHEET

                                   (unaudited)

<TABLE>
<CAPTION>

(in thousands)
                                              Six Months Ended June 30, 1997           Six Months Ended June 30, 1996
                                             --------------------------------         ---------------------------------
                                               Average                 Average         Average                   Average
                                               Balance    Interest      Rate           Balance    Interest        Rate
                                               -------    --------      ----           -------    --------        ----

<S>                                           <C>         <C>            <C>          <C>          <C>             <C>  
Assets
Loans:(1)
     Commercial                               $ 57,634    $ 2,575        8.98%        $ 55,754     $ 2,626         9.50%
     Commercial mortgage                       105,211      4,685        8.96           85,224       4,042         9.56
     Mortgage                                   53,630      2,155        8.00           45,070       1,842         8.18
     Consumer                                   35,193      1,484        8.50           30,395       1,340         8.89
                                              --------    -------      ------         --------     -------      -------
         Total loans                           251,668     10,899        8.71          216,443       9,850         9.18

Investments:
      Federal funds sold                         1,508         47        5.28            7,386         197         5.38
       Investment securities                   146,300      4,663        6.37          132,609       4,220         6.33
                                              --------    -------      ------         --------     -------      -------
          Total investments                    147,808      4,710        6.37          139,995       4,417         6.27
                                              --------    -------      ------         --------     -------      -------
           Total interest-earning assets       399,476    $15,609        7.84%         356,438     $14,267         8.07%
                                              --------    -------      ------         --------     -------      -------
Allowance for loan losses                       (2,994)                                 (3,101)
Cash and due from banks                         10,764                                   9,534
Fixed assets (net)                               9,368                                   7,861
REO                                                679                                   1,372
Other assets                                     7,268                                   5,654
                                              --------                               ---------
      Total Assets                            $424,561                               $ 377,758
                                              ========                               =========

Liabilities and Stockholders' Equity

Deposits:
      Interest-bearing demand                 $ 34,154    $   394        2.33%       $  25,527     $   254         2.01%
      Statement savings                         38,940        467        2.42           44,494         539         2.44
      Money market                              20,895        330        3.18           20,808         295         2.86
      Certificates of deposit                  148,620      3,975        5.39          136,322       3,620         5.35
                                              --------    -------      ------         --------     -------      -------
         Total interest-bearing deposits       242,609      5,166        4.29          227,151       4,708         4.18

FHLB advances and securities sold
  under agreements to repurchase               106,691      2,922        5.52           83,939       2,250         5.41
                                              --------    -------      ------         --------     -------      -------
      Total interest  bearing liabilities      349,300      8,088        4.67          311,090       6,958         4.51
                                                          -------      ------                      -------      -------
Non-interest bearing deposits                   42,204                                  34,181
Other liabilities                                3,488                                   2,792
Stockholders' equity                            29,569                                  29,695
                                              --------                                --------
      Total Liabilities and
             Stockholders' Equity             $424,561                                $377,758
                                              ========                                ========

Net Interest Income/Spread                                 $7,521       3.17%                     $  7,309        3.56%
                                                         ========      =====                      ========      ======

Net Interest Margin (2)                                                 3.79%                                     4.14%
                                                                       =====                                    ======

</TABLE>
----------

(1)  Includes  non-accruing  loans.  The  effect of  including  such loans is to
     reduce the average rate earned on Covenant's loans.

(2)  Net interest income as a percentage of average interest-earning assets.


13

<PAGE>

when compared to the same period of 1996 and is attributable to volume decreases
in investor  servicing  fees,  late fees, and credit card fees.  Other operating
income increased $6,000 for the first half of 1997,  compared to the same period
in 1996, due to an increase in MAC surcharge income and volume increases in safe
deposit box fees offset by the  discontinuance  of a fee-based  residential loan
origination  program.  The one-time gain of $11,000 on sale of assets during the
second quarter of 1997 was due to a subdivision  and subsequent  sale of a small
parcel  of land  and  building  that  had  been  previously  purchased  with the
Company's North Wildwood personal financial center.

Other income for the three month  period  ended June 30, 1997 totaled  $282,000,
compared to $267,000 for the same period of 1996,  representing  a $15,000 or 6%
increase.  The  increase  in service  charges on deposit  accounts of $7,000 was
associated  with the  above-mentioned  increase in core deposit  accounts.  Loan
servicing  income  decreased  $16,000 to $48,000 for the second  quarter of 1997
when  compared  to the same  period of 1996 and is also  attributable  to volume
decreases  in investor  servicing  fees,  late fees and credit card fees.  Other
operating  income  increased  $13,000 for the second quarter of 1997,  primarily
related to an  increase in MAC  surcharge  income and volume  increases  in safe
deposit box fees.

Other Expenses

Other  expenses for the six months  ended June 30, 1997  equaled  $5.2  million,
compared to $5.5 million for the same period of 1996. This represents a decrease
of $272,000 or 5% between the two periods.  The ratio of total other expenses to
average  assets for the six months  ended June 30,  1997  improved to 2.47% from
2.91% for the same period of 1996. Cost containment and operating efficiency are
continuing  priorities of management.  The Company's operating  efficiency ratio
(non-interest expenses, less other real estate expenses, divided by net interest
income plus non-interest income excluding  non-recurring  gains) improved to 65%
for the first half of 1997, compared to 70% for the same period of 1996.

Salaries and employee  benefits equaled $3.1 million for the first six months of
1997,  compared to $3.2  million for the same period in 1996.  The  salaries and
benefits category is the largest  component of other expenses,  encompassing 59%
of total  other  expenses as of June 30,  1997.  The  decrease  in salaries  and
employee  benefits  expense is attributable to reductions in staff in connection
with the 1st Southern acquisition  completed in September 1996, partially offset
by staffing increases  associated with the new personal financial centers opened
since March of 1996.

Net occupancy  increased  $130,000 to $918,000 for the six months ended June 30,
1997 due to additional  personal  financial  centers opened in Hammonton (3/96),
the  relocated  Linwood  center  (10/96),  Mount Laurel  (12/96) and Cherry Hill
(3/97), and the establishment of an operations center in Voorhees, NJ during the
second  quarter  of 1996.  Data  processing  and other  service  costs  declined
$110,000  to  $264,000  for the six months  ended  June 30,  1997,  compared  to
$374,000 for the same period of 1996. The Company's  acquisition of 1st Southern
and the operating  efficiencies gained due to the system conversion in September
1996 are primarily attributable for the reduction in costs.



14
<PAGE>


Professional  services expenses decreased $116,000 to $155,000 for the first six
months of 1997,  compared to $271,000 for the same period of 1996. The reduction
is related to decreases of $48,000 in legal expenses  related to the decrease in
problem  credits;  a  $25,000  decrease  in  consulting   expenses  due  to  the
discontinuance  of certain  advertising  and  promotion  programs  and a $43,000
decrease in examinations expense due to the acquisition of 1st Southern. Federal
insurance premiums declined $81,000 to $39,000 for the first half of 1997 due to
a reduction  in the Bank  Insurance  Fund  premiums.  Other  operating  expenses
increased $5,000 to $711,000 for the six months ended June 30, 1997, compared to
the same period of 1996.

Other  expenses for the three  months ended June 30, 1997 equaled $2.7  million,
compared  to $2.8  million,  representing  a decrease  of $40,000 or 1% over the
second quarter of 1996. Salaries and employee benefits increased $16,000 to $1.6
million for the second quarter of 1997 when compared to the same period in 1996.
The increase in salaries and employee  benefits  expense is directly  associated
with the new staffing  positions created for the new personal  financial centers
noted above.  Net occupancy  increased  $62,000 to $457,000 for the three months
ended  June  30,  1997,  compared  to  the  same  period  of  1996  due  to  the
above-mentioned new personal financial centers.

Data processing and service costs  decreased  $25,000 for the three months ended
June 30, 1997, compared to the same period in 1996. The Company's acquisition of
1st Southern and operating  efficiencies  gained due to the system conversion in
September  1996 are primarily  attributable  to the reduction in costs offset by
new accounts added over the last twelve months.

Professional  services expenses decreased $61,000 for the second quarter of 1997
to $76,000,  compared to the same period in 1996.  The reduction is related to a
decrease of $27,000 in legal expenses;  a $6,000 decrease in consulting expenses
due to the  discontinuance of certain  advertising and promotion  programs and a
$20,000 decrease in examination  expense due to the acquisition of 1st Southern.
Federal  insurance  premiums  declined  $42,000 to $19,000 for the three  months
ended June 30, 1997 as compared to the same period in 1996 due to a reduction in
the Bank Insurance Fund premium.  Other operating  expenses increased $23,000 to
$370,000 for the three  months ended June 30, 1997,  compared to the same period
in 1996 due to increases in postage, insurance and telephone expenses related to
the new branch facilities opened.



15
<PAGE>

FINANCIAL CONDITION

Loan Portfolio

The  lending  function  is the  Company's  principal  business  activity  and it
continues  its  policy  to serve as a  reliable  source  of  credit to a diverse
customer  base.  The Company  lends  primarily  to  commercial  borrowers in the
southern New Jersey marketplace. The loan portfolio is diversified,  with 65% of
the portfolio  comprised of commercial  and  commercial  mortgage  loans and 35%
comprised of residential mortgage loans and consumer loans at June 30, 1997.

At June 30, 1997,  the  Company's net loan  portfolio  totaled  $260.0  million,
compared to $238.2 million as of December 31, 1996. The $21.8 million or 9% (18%
annualized) in growth in net loans has been concentrated  within the commercial,
commercial  mortgage and residential  mortgage loan portfolios.  The majority of
the Company's loan  portfolio is primarily  categorized as secured by commercial
and 1-4 family residential real estate properties (including home equity loans).
It is  the  Company's  continuing  policy  to  emphasize  well-collaterized  and
properly-structured  loans and to promote long-term quality  relationships  with
financially strong borrowers.

Non-Performing Assets

Non-performing  assets  include  those  loans  that  are not  accruing  interest
(non-accruing loans), loans that have been restructured and real estate owned.

Generally,  loans that are  contractually  past-due  are  placed on  non-accrual
status when  interest on  principal  becomes 90 days  past-due,  unless,  in the
Company's  assessment,  the value of  collateral  securing  the loan  adequately
ensures the  likelihood of the ultimate  collection of all unpaid  principal and
interest and the loan is in the process of collection.

The following table sets forth information  regarding  non-performing assets and
contractually past-due loans of June 30, 1997 and 1996 and December 31, 1996:

                                          June 30,     June 30,     Dec. 31,
                                            1997         1996         1996
                                            ----         ----         ----
Non-performing assets:
Non-accruing loans:
  Commercial                               $  993       $2,500       $1,734
  Mortgage                                  1,111        1,180          931
  Consumer                                    112          232          201
                                           ------       ------       ------
Total non-performing loans                 $2,216       $3,912       $2,866
Real estate owned                             747        1,222          695
                                           ------       ------       ------
Total non-performing assets                $2,963       $5,134       $3,561
                                           ======       ======       ======
Accruing loans 90 days past-due            $1,324       $2,236       $1,753
                                           ======       ======       ======
Non-performing loans as a
  percentage of loans                        0.84%        1.71%        1.19%
                                           ======       ======       ======
Non-performing asset as a percentage
 of loans and real estate owned              1.12%        2.23%        1.47%
                                           ======       ======       ======
Non-performing assets as a percentage
  of total assets                            0.65%        1.28%        0.86%
                                           ======       ======       ======



16
<PAGE>

Non-performing  assets  totaled  $3.0  million or 1.12% of total  loans and real
estate owned at June 30, 1997,  showing marked improvement when compared to $3.6
million or 1.47% of total loans and real estate  owned at December  31, 1996 and
$5.1  million or 2.23% of total  loans and real estate  owned at June 30,  1996.
Non-performing  loans at June 30, 1997 decreased  $650,000 from the December 31,
1996  balance  of  $2.9  million  due  to a  $741,000  reduction  in  commercial
non-performing loans and a reduction in consumer non-performing loans of $89,000
offset by an increase in mortgage  non-performing loans of $180,000. The balance
of  non-performing  loans at June 30,  1996 was $3.9  million  or 1.71% of total
loans.

Real estate owned (net of reserves)  was $747,000 at June 30, 1997,  compared to
$695,000 at  December  31, 1996 and $1.2  million at June 30,  1996.  During the
first  six  months  of  1997,   additions  to  real  estate  owned  of  $393,000
(representing  three  foreclosed  properties)  were  offset  by the sale of five
properties for $341,000,  which resulted in the $52,000  increase in real estate
owned.

The  balance of accruing  loans 90 days  past-due  was $1.3  million at June 30,
1997,  $1.8 million at December 31, 1996 and $2.2 million at June 30, 1996.  The
$429,000 decrease in accruing loans 90 days past-due during the six months ended
June 30,  1997 is related  to a  decrease  of  $366,000  in various  residential
mortgage loans and a decrease in various home equity  consumer loans of $107,000
offset by an increase in well-collateralized commercial loans of $44,000.

At June 30, 1997 and December 31, 1996,  the Company had impaired loans totaling
approximately  $993,000 and  $1,734,000,  respectively.  The  allowance for loan
losses on impaired loans has a valuation allowance of $101,000,  and $199,000 at
June 30, 1997 and  December  31,  1996,  respectively.  The  average  balance of
impaired loans totaled  $1,532,000 and $1,684,000 for June 30, 1997 and December
31, 1996,  respectively.  Interest income not accrued for impaired loans for the
six months ended June 30, 1997 and for the twelve months ended December 31, 1996
was approximately $75,000 and $164,000, respectively.

Provision and Allowance for Loan Losses

The provision and  allowance  for loan losses is based on  management's  ongoing
evaluation of the loan portfolio and reflects an amount considered by management
to be adequate to absorb known and inherent losses in the portfolio.  Management
considers a variety of factors  when  establishing  the  allowance,  such as the
impact of current economic  conditions,  diversification  of the loan portfolio,
delinquency statistics, results of loan review and related classifications,  the
borrower's perceived financial and managerial strengths,  the estimated adequacy
of underlying collateral and other relevant factors. Consideration is also given
to examinations performed by regulatory authorities.


17
<PAGE>


The following table sets forth information regarding the Company's allowance for
loan losses for the six month periods ended June 30, 1997 and 1996,  and for the
year ended December 31, 1996.

Changes in Allowance for Loan Losses

<TABLE>
<CAPTION>

                                                                   Six Months Ended              Year Ended
                                                                   ----------------              ----------

                                                              6/30/97            6/30/96           12/31/96
                                                              -------            -------           --------

<S>                                                            <C>                <C>                <C>
Balance at beginning of period                                 $3,016             $3,195             $3,195

Provision charge to operating expenses                             30                 41                636

Charge-offs:
      Commercial                                                 (171)               (49)              (449)
       Mortgage                                                   (29)              (119)              (417)
       Consumer                                                   (57)              (101)              (124)
                                                               ------             ------             ------
Total Charge-offs                                                (257)              (269)              (990)
Recoveries:
        Commercial                                                 24                 85                124
         Mortgage                                                   3                  4                 --
         Consumer                                                   1                 25                 51
                                                               ------             ------             ------
Total recoveries                                                   28                114                175
                                                               ------             ------             ------
Net charge-offs                                                  (229)              (155)              (815)
                                                               ------             ------             ------
Balance at end of period                                       $2,817             $3,081             $3,016
                                                               ======             ======             ======

Net charge-offs as a percentage of
average loans                                                   0.18%              0.14%              0.36%
Allowance as a percentage of
  period-end loans                                              1.07%              1.34%              1.25%
Allowance as a percentage of
  non-performing loans                                        127.12%             78.76%            105.20%
Allowance as a percentage of
  non-performing assets                                        95.07%             60.01%             84.70%


</TABLE>

Management is consistently  informed of changes in economic indicators which may
have impact,  either  positive or adverse,  on asset quality,  the allowance for
loan losses, potential charge-offs and delinquencies.

The provision for loan losses charged against  earnings was $30,000 in the first
six months of 1997, compared to $41,000 for the first six months of 1996.

Management  believes  that the  allowance  for loan  losses at June 30,  1997 is
adequate to absorb known and inherent losses in the portfolio.



18
<PAGE>

Investment Securities

Investment  securities were $143.1 million at June 30, 1997,  compared to $144.3
million at December 31,  1996.  The decrease in  investment  securities  was the
result of purchases of $7.0 million of US Treasury Notes with maturities  beyond
one year and  classified  as  "Available  for Sale,"  offset by  maturities  and
paydowns  of $7.8  million  and a decline of  $400,000  in the gross  unrealized
holding loss on investments available for sale.

At June 30, 1997,  the fair value of  investments  available for sale was $131.7
million, and unrealized holding losses were $866,000.  At December 31, 1996, the
fair value of  investments  available for sale was $132.6 million and unrealized
holding  losses were  $483,000.  At June 30, 1997,  securities  held to maturity
totaled $11.4 million  compared to $11.7 million at December 31, 1996.  The fair
values  of these  investments  were  $11.4  million  at June 30,  1997 and $11.7
million at December 31, 1996.

The Company's  investment  portfolio is comprised of US  Government  securities,
federal  agency  mortgage-backed  securities and Federal Home Loan Bank ("FHLB")
stock. The portfolio generates  substantial interest income,  serves as a source
of  liquidity  and is used  as a tool in  managing  interest  rate  sensitivity.
Portions of the portfolio  are also used to secure public  deposits and serve as
collateral for repurchase  transactions.  The investment  portfolio also plays a
significant role in the asset/liability  management process. Among other things,
the investment  portfolio is utilized to balance the interest sensitivity of the
prime-based portion of the loan portfolio.

Deposits

The Company's  predominant  source of funds is depository  accounts comprised of
demand deposits, savings and money market accounts, time deposits and individual
retirement accounts (IRA's). Deposits are provided by individuals and businesses
located within the southern New Jersey marketplace. The Company gathers deposits
from local  municipalities  within the guidelines of the Government Unit Deposit
Protection Act (GUDPA). The Bank has no brokered deposits.

The Company  opened new personal  financial  centers in Linwood  (relocation  in
October 1996),  Mount Laurel (December 1996) and Cherry Hill (March 1997). Total
deposits at June 30, 1997 equaled $301.8 million,  compared to $277.5 million at
December 31, 1996,  representing a $24.3 million or 9% increase between December
31, 1996 and June 30, 1997.

Borrowings

Sources of funds for the Company other than  deposits  include FHLB advances and
securities sold under agreements to repurchase. FHLB advances were $21.0 million
at June 30, 1997 and $20.5 million at December 31, 1996.  Securities  sold under
agreements  to repurchase  totaled  $96.2 million at June 30, 1997,  compared to
$84.0  million at December  31,  1996.  The  increase in  securities  sold under
agreements to  repurchase  was related to the increase in loans during the first
six months of 1997.


19
<PAGE>


Asset and Liability Management

The Company  monitors its sensitivity to interest rate changes and its liquidity
and capital position  through its asset and liability  management  process.  The
Company's  objectives  include (i)  controlling  interest rate  exposures,  (ii)
ensuring  adequate  liquidity,  (iii)  maintaining a strong capital position and
(iv)  maximizing net interest  income  opportunities.  The Company manages these
objectives centrally through the Asset Liability Management Committee (ALCO).

Interest Rate Sensitivity

The Company seeks to manage its  sensitivity  position to maximize  earnings and
minimize the risk associated  with interest rate movements  through the use of a
"gap analysis" on a monthly basis.  The gap analysis  assesses the interest rate
risk that arises from  differences in the volumes of assets and liabilities that
mature or reprice within a given period.  A "positive" gap position results when
the  amount of  interest-sensitive  assets  exceeds  that of  interest-sensitive
liabilities, signifying that the net interest margin will be positively affected
by rising rates and  negatively  affected by falling  rates;  a  "negative"  gap
position results when the amount of interest-sensitive  liabilities exceeds that
of  interest-sensitive  assets,  indicating that the net interest margin will be
negatively  affected by rising rates and  positively  affected by falling rates.
However,  the Company's gap position does not necessarily  predict the impact of
changes  in  general  levels of  interest  rates or net  interest  income due to
assumptions made as to repricing and maturities of certain products.

Decisions are also based on "dynamic shock analysis," a process that entails the
application  of  different  prime rate  increase  or decrease  scenarios  to the
current  maturity/repricing  structure. This analysis measures the impact on net
interest  income of each of the  scenarios  applied  relative  to the  Company's
interest  rate  risk  management  policy  guidelines,   and  seeks  to  identify
appropriate measures to maintain the interest sensitivity of net interest income
within such policy  guidelines.  At June 30, 1997, the Company's  "dynamic shock
analysis"  indicates  an  acceptable  level of interest  rate risk and is within
policy guidelines.

In  the  event  that  the  Company's  interest  rate  risk  models  indicate  an
unacceptable level of risk, the Company could undertake a number of actions that
would reduce this risk,  including  the sale of a portion of its  Available  for
Sale portfolio or the extension of the maturities of its short-term  borrowings,
or the use of other risk  management  strategies  as determined by the Company's
ALCO Committee.


20

<PAGE>

The following  table  illustrates the gap position of the Company as of June 30,
1997.

<TABLE>
<CAPTION>

                                                                                                  Non-Interest
                                                                                       Beyond      Sensitive
Rate sensitive assets:           1-90         91-180       181-365      One - Five      Five        Assets/
Interest earning assets          Days          Days          Days            Years     Years      Liabilities     Total
                                 ----          ----          ----            -----     -----      -----------     -----

<S>                               <C>            <C>          <C>          <C>           <C>        <C>           <C>
    Loans                         $96,515        $6,859       $12,616      $82,980       $61,061           --     $260,031
    Investment securities          21,015         8,050        26,174       57,890        38,430           --      151,559
    Other short-term
      investments                      --            --            --           --            --           --           --
                               ----------    ----------     ---------     --------       -------     --------     --------
      Total interest 
       earning assets             117,530        14,909        38,790      140,870        99,491           --      412,368

Non-interest earning assets                                                                           $42,381       42,381
                               ----------    ----------     ---------     --------       -------     --------     --------
     Total assets                $117,530       $14,909       $38,790     $140,870       $99,491      $42,381     $453,971
                               ==========    ==========     =========     ========       =======     ========     ========


Rate sensitive liabilities:
    Interest bearing demand       $26,649            --            --       $4,442        $4,441           --      $35,532
    Statement Savings              29,367            --            --        4,895        $4,894           --       39,156
    Money Market                   16,344            --            --        2,724        $2,724           --       21,792
    Certificate of Deposit         56,797        27,672        32,751       30,946            --           --      148,166
    FHLB advances and
      securities sold under
      agreements to repurchase    109,242            --         3,000        5,000            --           --      117,242
                               ----------    ----------     ---------     --------       -------     --------     --------

   Total interest bearing 
     liabilities                 $238,399       $27,672       $35,751       48,007       $12,059           --     $361,888

Non-interest bearing 
   liabilities                         --            --            --           --            --      $61,271      $61,271
Stockholders' equity                   --            --            --           --            --       30,812       30,812
                               ----------    ----------     ---------     --------       -------     --------     --------
   Total liabilities and
     stockholders' equity        $238,399       $27,672       $35,751      $48,007       $12,059      $92,083     $453,971
                               ==========    ==========     =========     ========       =======     ========     ========

Interest rate 
  sensitivity GAP              ($120,869)     ($12,763)        $3,039      $92,863       $87,432     ($49,702)
                               ==========    ==========     =========     ========       =======     ========

Cumulative GAP                 ($120,869)    ($133,632)     ($130,593)    ($37,730)      $49,702
                               ==========    ==========     =========     ========       =======
Cumulative GAP as a  
  percentage of total              49.30%        49.78%        56.73%       89.47%        113.73%


</TABLE>



The  Gap  Analysis  table  is  intended  to  illustrate  the  maturity/repricing
characteristics  of  Company's   interest-earning  assets  and  interest-bearing
liabilities  as of June  30,  1997.  The  analysis  is  based  upon  contractual
maturities  and,  where  applicable,  management's  estimates  of the  repricing
characteristics  of various  assets and  liabilities  and on  assumptions  as to
customer behavior.

The Gap Analysis indicates a  liability-sensitive  position through the one-year
time period beginning June 30, 1997. The Company's  investment in U. S. Treasury
Notes  with  maturities  beyond  one year  funded  by a growth in  deposits  and
short-term (three months or less) securities sold under agreements to repurchase
and is primarily  responsible for the  liability-sensitive  position through the
one-year time period as of June 30, 1997.

Covenant's net interest income has not been subject to the degree of sensitivity
indicated by this traditional gap analysis.  In monitoring interest sensitivity,
adjustments  are made to the dynamic shock  assumptions to reflect  management's
recent experience regarding the impact of product pricing,  interest rate spread
relationships and customer behavior.

These marginal  adjustments are  necessarily  subjective and will vary over time
with loan and deposit changes and market conditions. The investment portfolio is
utilized to balance the  Company's  gap  position,  to manage the interest  rate
spread and to mitigate overall maturity risk in the portfolio.



21
<PAGE>

Liquidity

Adequate  liquidity  is  necessary  to meet  the  borrowing  needs  and  deposit
withdrawal  requirements  of customers as well as to satisfy  liabilities,  fund
operations and support asset growth.  Maintaining an appropriate level of liquid
funds through the  asset/liability  management process ensures that the needs of
the Company are met at a reasonable cost. Therefore, the management of liquidity
is coordinated  with the management of the Company's  interest  sensitivity  and
capital  position.  Major  sources of  liquidity  are core  deposits,  cash flow
generated  by the  Company's  investment  and loan  portfolios,  and  short-term
borrowings.  Earnings and funds provided by operations also serve as a source of
liquidity.

Cash and cash  equivalents  equaled $32.5 million at June 30, 1997,  compared to
$15.6  million at  December  31,  1996,  resulting  in a net  increase  of $16.9
million,  as shown on the  Consolidated  Statements  of Cash  Flows  for the six
months  ended  June  30,  1997.  The net  increase  of  $22.0  million  in loans
contributed to a net cash used in investing  activities  equaling $21.5 million.
The  Company  funded  the net  cash  used in  investing  activities  and the net
increase  in cash and  cash  equivalents  principally  through  a $24.3  million
increase in deposits,  and a $12.2  million  increase in  securities  sold under
agreements to repurchase.

The  Company  places  strong  emphasis  on the  composition  of the  investments
available for sale portfolio.  Additional  sources of liquidity are available to
the Company  through the purchase of federal  funds and  borrowings  on approved
lines of credit.  One measure of the Company's  liquidity is the FDIC  liquidity
ratio.  This ratio  measures net cash,  short-term  investments  and  marketable
assets  divided  by net  deposits  and  short-term  liabilities.  The  Company's
liquidity ratio at June 30, 1997 was 23%. Overall, based on the its core deposit
base, and its available sources of borrowed funds,  management believes that the
Company's liquidity position is satisfactory.

Capital

The maintenance of appropriate levels of capital is a management priority and an
important objective of the Company's asset and liability management process. The
Company's  principal capital planning goals are to provide an adequate return to
stockholders,  to  support  its  growth  and  expansion  activities,  to provide
stability to current operations, and to promote public confidence.

Bank  regulatory  authorities  have  issued  risk-based  capital  standards  and
leverage ratio  requirements by which all bank holding  companies and banks will
be  evaluated  in terms of capital  adequacy.  The  "Prompt  Corrective  Action"
regulations  issued  pursuant  to  the  Federal  Deposit  Insurance  Corporation
Improvement Act of 1991 established five categories of depository  institutions:
(1) well-capitalized,  (2) adequately  capitalized,  (3)  undercapitalized,  (4)
significantly  undercapitalized,  and  (5)  critically  undercapitalized.   Each
category  relates to the level of capital for the  depository  institution.  The
highest  capital ratios equate to a  "well-capitalized"  depository  institution
which is one that significantly exceeds the minimum level required by regulation
(i.e.,  total  risk-based  capital ratio of 10% or greater,  a Tier 1 risk-based
capital ratio of 6% or greater and a leverage  ratio of 5% or greater).  At June
30, 1997,  the Company and the Bank met the  definition of a  "well-capitalized"
institution.



22
<PAGE>


The following table sets forth the Company's and the Bank's  regulatory  capital
requirements and compliance therewith as of June 30, 1997:

Covenant Bancorp, Inc. and subsidiaries


                                                     Well-        Capital Excess
                                       Actual      Capitalized    (in thousands)
                                       ------      -----------    --------------

Tier 1 Risk-Based Capital Ratio (1)    11.74%         6.00%          $15,342

Total Risk-Based Capital Ratio (2)     12.79%        10.00%          $ 7,464

Tier 1 Leverage Ratio (3)               7.30%         5.00%          $ 9,896


Covenant Bank
                                                      Well-       Capital Excess
                                        Actual     Capitalized    (in thousands)
                                        ------     -----------     -------------

Tier 1 Risk-Based Capital Ratio (1)     11.74%        6.00%           $15,342

Total Risk-Based Capital Ratio (2)      12.79%       10.00%           $ 7,464

Tier 1 Leverage Ratio (3)                7.30%        5.00%           $ 9,896

----------

(1)  Tier 1 Risk-Based  Capital  Ratio is defined as the ratio of Tier 1 Capital
     to Total Risk- Weighted Assets.

(2)  Total Risk-Based Capital Ratio is defined as the ratio of Tier 1 and Tier 2
     Capital to Total Risk-Weighted Assets.

(3)  Tier 1  Leverage  Ratio is  defined as the ratio of Tier 1 Capital to Total
     Average Quarterly Assets.

Income Taxes

The  Company's  effective  tax rate for the six months  ended June 30,  1997 was
34.2%,  compared to an effective  rate of 36.4% for the same period in 1996. The
decreased  percentage  from 1996 to 1997 is attributable to a reduction in state
income taxes due to business strategies employed.


23
<PAGE>


PART II.  OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Securities Holders

The Annual Meeting of the  Registrant's  Shareholders was held on June 10, 1997.
The items of business  acted upon at the Annual  Meeting  were the  formation of
Covenant  Bancorp,  Inc. (the  Registrant) and the election of ten directors for
one year terms.  The number of votes cast for,  against and abstained as to each
proposal are as follows:

Proposal 1 - Formation of Covenant Bancorp, Inc.

       For                  Against             Abstain
       ---                  -------             -------

    2,026,595               118,123             791,762

Proposal 2 - Election of Directors

Name of Nominee                For           Against        Abstain
---------------                ---           -------        -------
Richard A. Hocker           2,418,836        119,873          1,045
John J. Gallagher, Jr.      2,419,881        118,828              0
Charles E. Sessa, Jr.       2,419,881        118,828              0
Barry M. Abelson            2,418,518        120,191          1,363
Thomas V.G. Brown           2,419,881        118,828              0
William T. Carson, Jr.      2,419,881        118,828              0
Gary E. Greenblatt          2,419,509        119,200            372
James R. Iannone            2,419,364        119,345            517
Joseph A. Maressa, Jr.      2,415,220        123,489          4,661
Kyle W. Will                2,415,220        123,489          4,661



24

<PAGE>


Item 6.  Exhibits and Reports on Form 8-K

     (a) Exhibits.

          2.   Agreement and Plan of Mergers dated August 4, 1997 by and among
               Covenant Bancorp, Inc., Covenant Bank, First Union Corporation
               and First Union National Bank, attached as Exhibit 1 to the
               registrant's Current Report on Form 8-K dated August 8, 1997 and
               incorporated herein by reference.

          10.1 Amendment No. 1 to Agreement,  dated June 10, 1997,  amending the
               Agreement  dated  November  22, 1995  between  Covenant  Bank and
               Richard A. Hocker.

          10.2 Amendment No. 1 to Agreement,  dated June 10, 1997,  amending the
               Agreement  dated  November  22, 1995  between  Covenant  Bank and
               Charles E. Sessa, Jr.

          10.3 Amendment No. 1 to Agreement,  dated June 10, 1997,  amending the
               Agreement  dated  November  22, 1995  between  Covenant  Bank and
               Kenneth R. Mancini, Jr.

          10.4 Amendment No. 1 to Agreement,  dated June 10, 1997,  amending the
               Agreement  dated  November 22, 1995 between  Covenant Bank and J.
               William Parker, Jr.

          10.5 Amendment No. 1 to Agreement,  dated June 10, 1997,  amending the
               Agreement  dated  November  22, 1995  between  Covenant  Bank and
               Eugene D. D'Orazio.

          11   Statement re Computation of Per Share Earnings

          27   Financial Data Schedule

     (b) Reports on Form 8-K.

     No reports on Form 8-K were filed during the second  quarter ended June 30,
1997.



25

<PAGE>



                     COVENANT BANCORP, INC. AND SUBSIDIARIES


                                   SIGNATURES

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



                                                 COVENANT BANCORP, INC.






August 11, 1997                                  /s/ Charles E. Sessa, Jr.
---------------                                  -------------------------
   (Date)                                            CHARLES E. SESSA, JR.
                                                     PRESIDENT


August 11, 1997                                 /s/ J. William Parker, Jr.
---------------                                 --------------------------
    (Date)                                          J. WILLIAM PARKER, JR.
                                                    SENIOR VICE PRESIDENT,
                                                    CHIEF FINANCIAL OFFICER &
                                                    TREASURER

26