Table of Contents





    1:  SELECTED CONSOLIDATED FINANCIAL INFORMATION

    2:  LETTER TO THE SHAREHOLDERS

    3:  CONSOLIDATED BALANCE SHEETS

    4:  CONSOLIDATED STATEMENTS OF INCOME
 
    5:  CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
        AND COMPREHENSIVE INCOME
 
    6:  CONSOLIDATED STATEMENTS OF CASH FLOW
 
    7:  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   17:  REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
   18:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS


<PAGE>
<TABLE>
<CAPTION>
                                                                                                        SVB FINANCIAL SERVICES, INC.
                                                                                         Selected Consolidated Financial Information

(in thousands except per share data)                   1998             1997             1996               1995           1994
====================================================================================================================================
<S>                                                <C>              <C>                 <C>             <C>             <C>     
INCOME STATEMENT DATA:
Interest Income                                    $  12,466        $  10,754           $  8,383        $  6,296        $  4,396
Interest Expense                                       5,665            4,880              3,813           2,871           1,765
------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income                                    6,801            5,874              4,570           3,425           2,631
Provision for Possible Loan Losses                       300              280                310             206             156
------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision

  for Possible Loan Losses                             6,501            5,594              4,260           3,219           2,475
Non-Interest Income                                      770              561                372             363             207
Non-Interest Expense                                   5,302            4,303              3,427           2,495           2,163
------------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes                             1,969            1,852              1,205           1,087             519
Income Tax Expense (Benefit)                             766              749                485             424            (308)
------------------------------------------------------------------------------------------------------------------------------------
Net Income                                          $  1,203         $  1,103             $  720          $  663          $  827
====================================================================================================================================
BALANCE SHEET DATA:
Total Assets                                       $ 185,227        $ 148,550          $ 124,995        $ 88,744        $ 74,076
Federal Funds Sold and Other
  Short Term Investments                              11,290              188              7,213           5,170           3,626
Interest Bearing Time Deposits                         4,090                -                  -               -               -
Securities Available For Sale                         21,523           11,266              8,727           4,875           3,474
Securities Held To Maturity                           15,052           22,102             13,989          14,581          18,091
Loans, Net                                           120,176          105,389             86,992          59,528          44,988
Deposits                                             169,714          133,930            112,521          79,680          67,054
Shareholders' Equity                                  14,365           13,096             11,910           8,703           6,819
====================================================================================================================================
PERFORMANCE RATIOS:
Return on Average Assets                                 .75%             .80%               .67%            .83%           1.30%
Return on Average Equity                                8.82%            8.89%              8.07%           8.16%          13.50%
Net Interest Margin                                     4.46%            4.52%              4.51%           4.53%           4.38%
====================================================================================================================================
ASSET QUALITY:
Loans Past Due Over 90 Days                             $  5             $  -              $  21            $  -            $  -
Non-Accrual Loans                                         96               63                 24               -               -
Net Charge Offs                                           71               81                 53              51              15
Allowance for Loan Losses To Total Loans                1.00%             .92%               .89%            .88%            .82%
====================================================================================================================================
PER SHARE DATA (1):
Earnings Per Share - Basic                            $  .44           $  .41             $  .31          $  .29          $  .40
Earnings Per Share - Diluted                             .42              .40                .30             .29             .40
Book Value                                              5.18             4.77               4.36            3.71            3.31
====================================================================================================================================
CAPITAL RATIOS:
Total Risked-Based Capital                             11.14%           12.81%             13.40%          14.11%          14.03%
Tier I Risked-Based Capital                            10.24%           11.89%             12.56%          13.29%          13.28%
Leverage Capital                                        8.54%            8.72%              9.58%           9.89%           9.21%
====================================================================================================================================
</TABLE>
<PAGE>
(1) Per share amounts have been retroactively  restated for the 6 for 5 exchange
of  shares  resulting  from  the  acquisition  of  Somerset  Valley  Bank by SVB
Financial  Services,  Inc. effective  September 3, 1996, and a two-for-one stock
split effective April 16, 1998.

                                       1
<PAGE>
Dear Shareholders,

   It was only seven short years ago that Somerset  Valley Bank opened its doors
for business in a Victorian style building on West End Avenue in Somerville, New
Jersey, with $5 million in capital. Today, as the wholly owned subsidiary of SVB
Financial  Services,  Inc.,  Somerset  Valley  Bank is  poised to begin the 21st
century as a  multi-branch  bank with nearly $200 million in assets,  capital of
over $14.3 million and double-digit growth rate in deposits and loans every year
since its inception.

   A  primary  goal of the  company  is to  continue  the  growth of the Bank by
increasing our market penetration  through the expansion of our delivery systems
and adding to our product mix. In 1998,  Somerset Valley Bank gained  regulatory
approval to add three  additional  branch offices to our network.  These offices
will be located  in  Manville  and  Bernards  Township  in  Somerset  County and
Aberdeen Township in northern  Monmouth County.  Our Manville office is expected
to open in the Spring of 1999,  and the other  offices in the fourth  quarter of
1999.  Since our last Report,  our  Hillsborough  office has grown an additional
$10.9 million,  ending the year at $29.1 million in deposits and our Bridgewater
office has added $10.0 million in deposits,  reaching $16.6 million in less than
eighteen  months.  In February of 1998, we opened an on-site  mini-branch in the
Arbor Glen Continuing Health Care Facility in Bridgewater and have reached close
to $3.0 million in deposits with a staff of one part-time employee and an ATM.

   The  continued  success of our new branches,  combined with a reputation  for
providing  excellent service and well designed  business and consumer  products,
has enabled  the Bank to grow  impressively.  The total  assets of the Bank grew
from  $148,550,000 as of December 31, 1997 to $185,227,000 on December 31, 1998,
or an increase of 24.7%. Deposit growth was also impressive, increasing by 26.7%
from last year's total of  $133,930,000 to $169,714,000 as of December 31, 1998.
Although  quality  growth has a tendency to suppress  earnings in the short term
with additional occupancy and personnel costs, the Bank's net earnings rose to a
record high of $1.2 million or a 9% gain over last year's record earnings. Asset
quality  remains strong with only $101,000 in  nonperforming  loans out of a net
portfolio of $120.2  million.  The company's  allowance for possible loan losses
ended the year at $1.2 million,  or 1.0% of its total loans.  The quality of our
assets  remains the  cornerstone  in  positioning  the company for solid  future
earnings growth.

   In addition to geographic  considerations,  the company continues to seek out
possibilities  in  expanding  to other lines of business  in the  financial  and
insurance  arenas.  We are  currently  exploring the  feasibility  of forming an
affiliate  company as a joint  venture  with a  significant  local  provider  of
insurance and  investment  products.  It is our hope that this will enable us to
expand our existing relationship with our sizable base of small business clients
by offering  additional,  fee based  products  and  services  designed for their
needs. The Bank is also in the process of developing an interactive web site and
selecting a vendor through which we will provide  Internet  banking  services to
businesses and  individuals.  As this technology  further develops and finds its
market,  we will be  prepared to offer the most  current  and secure  electronic
banking options to our customer base.

   There  are  many  challenges  facing  our  company,  both  philosophical  and
technological,  and we are formulating plans to deal with this dynamic financial
industry  landscape by developing strong  partnerships with quality providers of
unique financial products and services.
<PAGE>
   We have also devoted  considerable  time and effort to solving those problems
associated with the bank's  electronic data processing  applications  during the
changeover  to  the  year  2000.  The  Bank  has a  formal  plan  in  place  for
identifying,  remediating,  and testing all of our  systems,  both  internal and
external,  and has  developed  a  contingency  plan in the  event  of  unforseen
processing  glitches.  We are proud to report,  as is further  detailed  in this
document, that we finished the first two phases of this plan and the final phase
(validation  of the  contingency  plan will be completed by June 30, 1999);  our
operations staff is confident that a smooth transition will occur.

   As always, of utmost  importance to our directors,  officers and staff is the
direct effect of our operations on shareholder  value.  In an action designed to
add liquidity to our stock and to allow our shareholders to easily determine the
marketability  of their  investment,  a two-for-one  stock split was declared on
April 16, 1998, and the stock was listed on the NASDAQ  National  Market on July
6, 1998.  The stock  opened at $8.875 per share,  rose to $13.00 per share,  and
closed  year-end 1998 at $10.75 per share.  Prior to our listing on NASDAQ,  the
highest per share price was $7.50  (adjusted  for the  two-for-one  split).  The
volume of shares traded since the listing on NASDAQ was 176,589 shares and as of
year-end  1998,  the market value had increased from a previous high of $7.50 to
the year-end close at $10.75, or an increase in market value of 43.3%.

   We look forward to the  significant  challenges  before us as technology  and
legislative  changes provide more opportunities for our company to offer new and
diverse financial products to our community and the support of our directors and
shareholders in meeting those challenges is greatly appreciated.

Very truly yours,

/s/John K. Kitchen                  /s/Robert P. Corcoran
------------------                  ---------------------
John K. Kitchen                     Robert P. Corcoran
CHAIRMAN OF THE BOARD              PRESIDENT AND CHIEF EXECUTIVE OFFICER



                                       2
<PAGE>
<TABLE>
<CAPTION>
                                                                                               SVB FINANCIAL SERVICES, INC.
                                                                                                Consolidated Balance Sheets
                                                                                           AS OF DECEMBER 31, 1998 AND 1997
===========================================================================================================================
(in thousands)                                                         1998                                1997
===========================================================================================================================
<S>                                                                    <C>                                <C>     
ASSETS

Cash & Due from Banks                                                  $  8,358                           $  5,795
Federal Funds Sold                                                       10,325                                  -
Other Short Term Investments                                                965                                188
---------------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents                                          19,648                              5,983
---------------------------------------------------------------------------------------------------------------------------
Interest Bearing Time Deposits                                            4,090                                  -
Securities
  Available for Sale, at Market Value                                    21,523                             11,266
  Held to Maturity, (Market Value $15,101 in 1998
  and $22,143 in 1997)                                                   15,052                             22,102
---------------------------------------------------------------------------------------------------------------------------
Total Securities                                                        36,575                              33,368
---------------------------------------------------------------------------------------------------------------------------
Loans                                                                   121,474                            106,470
  Allowance for Possible Loan Losses                                     (1,211)                              (982)
  Unearned Income                                                           (87)                               (99)
---------------------------------------------------------------------------------------------------------------------------
Net Loans                                                               120,176                            105,389
---------------------------------------------------------------------------------------------------------------------------
Premises & Equipment, Net                                                 2,303                              1,734
Other Assets                                                              2,435                              2,076
---------------------------------------------------------------------------------------------------------------------------
Total Assets                                                          $ 185,227                          $ 148,550
===========================================================================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand
  Non-interest Bearing                                                $  27,897                          $  21,966
  NOW Accounts                                                           24,502                             13,014
Savings                                                                  13,836                              9,043
Money Market Accounts                                                    20,226                             16,227
Time
  Greater than $100,000                                                  14,088                             12,880
  Less than $100,000                                                     69,165                             60,800
---------------------------------------------------------------------------------------------------------------------------
Total Deposits                                                          169,714                            133,930
---------------------------------------------------------------------------------------------------------------------------
Federal Funds Purchased                                                       -                                500
Obligation Under Capital Lease                                              438                                444
Other Liabilities                                                           710                                580
---------------------------------------------------------------------------------------------------------------------------
Total Liabilities                                                       170,862                            135,454
===========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                               SVB FINANCIAL SERVICES, INC.
                                                                                                Consolidated Balance Sheets
                                                                                           AS OF DECEMBER 31, 1998 AND 1997
===========================================================================================================================
(in thousands)                                                         1998                                1997
===========================================================================================================================
<S>                                                                    <C>                                <C>     
SHAREHOLDERS' EQUITY
Common Stock, $2.09 Par Value: 20,000,000
  Shares Authorized; 2,772,224 Shares in 1998 and

  2,746,060 Shares in 1997 Issued and Outstanding                         5,794                              5,726
Additional Paid-in Capital                                                5,502                              5,473
Retained Earnings                                                         3,062                              1,859
Accumulated Other Comprehensive Income                                        7                                 38
---------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity                                               14,365                             13,096
---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity                            $ 185,227                          $ 148,550
===========================================================================================================================
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                       3
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
Consolidated Statements of Income
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
===========================================================================================================================
(in thousands except per share data)                                      1998                                1997
===========================================================================================================================
<S>                                                                     <C>                                <C>     
INTEREST INCOME
Loans                                                                   $ 10,210                           $  8,665
Securities Available for Sale                                                763                                755
Securities Held to Maturity                                                  966                                991
Other Short Term Investments                                                  67                                 54
Interest Bearing Time Deposits                                               69                                   -
Federal Funds Sold                                                           391                                289
---------------------------------------------------------------------------------------------------------------------------
Total Interest Income                                                     12,466                             10,754
===========================================================================================================================
INTEREST EXPENSE
Deposits                                                                   5,628                              4,867
Obligation Under Capital Lease                                                37                                 13
---------------------------------------------------------------------------------------------------------------------------
Total Interest Expense                                                     5,665                              4,880
---------------------------------------------------------------------------------------------------------------------------
Net Interest Income                                                        6,801                              5,874
PROVISION FOR POSSIBLE LOAN LOSSES                                           300                                280
---------------------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision For Possible Loan Losses               6,501                              5,594

===========================================================================================================================
OTHER INCOME
Service Charges on Deposit Accounts                                          298                                231
Gain on the Sale of Securities Available for Sale                              4                                 1
Gain on the Sale of Loans                                                    334                                215
Other Income                                                                 134                                114
---------------------------------------------------------------------------------------------------------------------------
Total Other Income                                                           770                                561
===========================================================================================================================
OTHER EXPENSE
Salaries and Employee Benefits                                             2,713                              2,180
Occupancy Expense                                                            652                                477
Equipment Expense                                                            378                                306
Other Expenses                                                             1,559                              1,340
---------------------------------------------------------------------------------------------------------------------------
Total Other Expense                                                        5,302                              4,303
---------------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes                                   1,969                              1,852
Provision for Income Taxes                                                   766                                749
---------------------------------------------------------------------------------------------------------------------------
NET INCOME                                                              $  1,203                           $  1,103
===========================================================================================================================
EARNINGS PER COMMON SHARE - BASIC (1)                                     $  .44                             $  .41
===========================================================================================================================
EARNINGS PER COMMON SHARE - DILUTED (1)                                   $  .42                             $  .40
===========================================================================================================================
</TABLE>
<PAGE>
(1) Adjusted for two-for-one stock split effective April 16, 1998.

The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                       4
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
                                                                                                        SVB FINANCIAL SERVICES, INC.
                                                                          Consolidated Statements of Changes in Shareholders' Equity
                                                                                      and Comprehensive Income
                                                                                      FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

                                                                                         ACCUMULATED
                                                            ADDITIONAL                       OTHER          TOTAL
                                               COMMON        PAID-IN      RETAINED       COMPREHENSIVE  SHAREHOLDERS'  COMPREHENSIVE
(in thousands)                                  STOCK        CAPITAL      EARNINGS           INCOME         EQUITY         INCOME
------------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>            <C>                <C>         <C>              <C>
BALANCE, JANUARY 1, 1997                      $ 5,699        $ 5,447        $  756             $   8       $ 11,910
------------------------------------------------------------------------------------------------------------------------------------
Issuance of Common Stock                           27             26                                             53
Net Income                                                                   1,103                            1,103         $ 1,103
Accumulated Other Comprehensive
Income Net of Reclassification
  Adjustments and Taxes                             -              -             -                30             30              30
------------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income                                                                                                  $ 1,133
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997                      5,726          5,473         1,859                38         13,096
------------------------------------------------------------------------------------------------------------------------------------
Issuance of Common Stock, Net                      54             43                                             97
Adjustment for Stock Split                         14            (14)                                             -
Net Income                                                                   1,203                            1,203           1,203
Accumulated Other Comprehensive
Income Net of Reclassification
  Adjustments and Taxes                             -              -             -               (31)           (31)            (31)
------------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income                                                                                                  $ 1,172
====================================================================================================================================
BALANCE, DECEMBER 31, 1998                    $ 5,794        $ 5,502       $ 3,062             $   7       $ 14,365
====================================================================================================================================
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                       5
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
===========================================================================================================================
(in thousands)                                                             1998                               1997
===========================================================================================================================
<S>                                                                     <C>                                <C>     
OPERATING ACTIVITIES
Net Income                                                              $  1,203                           $  1,103
Adjustments to Reconcile Net Income to Net
  Cash Provided By Operating Activities

Provision for Possible Loan Losses                                           300                                280
Depreciation and Amortization                                                383                                298
Accretion of Securities Discount                                              (3)                               (27)
Gains on Sales of Securities
  Available for Sale                                                          (4)                                (1)
Gains on the Sale of Loans                                                  (334)                                 -
Increase in Other Assets                                                    (370)                              (302)
Increase in Other Liabilities                                                145                                  1
(Decrease)/Increase in Unearned Income                                       (13)                               20
---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities                                  1,307                             1,372

===========================================================================================================================
INVESTING ACTIVITIES
Increase in Interest Bearing Time Deposits                                (4,090)                                -
Proceeds from Sales of Securities Available for Sale                       2,504                              1,502
Proceeds from Maturities of Securities
  Available for Sale                                                       6,633                              4,747
  Held to Maturity                                                        15,797                             11,112
Purchases of Securities

  Available for Sale                                                     (19,464)                            (8,736)
  Held to Maturity                                                        (8,717)                           (19,204)
Proceeds from the Sale of Loans                                            6,897                                  -
Increase in Loans                                                        (21,638)                           (18,697)
Proceeds from Sale of Other Real Estate                                        -                               305
Capital Expenditures                                                        (939)                              (508)
---------------------------------------------------------------------------------------------------------------------------
Net Cash Used for Investing Activities                                   (23,017)                           (29,479)

===========================================================================================================================
FINANCING ACTIVITIES
Net Increase in Demand Deposits                                           17,419                              7,120
Net Increase in Savings Deposits                                           4,793                              1,367
Net Increase in Money Market Deposits                                      3,999                                517
Net Increase in Time Deposits                                              9,572                             12,405
(Decrease)/Increase in Federal Funds Purchased                              (500)                              500
(Decrease) in Obligation Under Capital Lease                                  (5)                                 -
Proceeds from the Issuance of Common Stock, Net                               97                                 53
---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities                                 35,375                             21,962
Increase (Decrease) in Cash and Cash Equivalents                          13,665                             (6,145)
Cash and Cash Equivalents, Beginning of Year                               5,983                             12,128
---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year                                  $ 19,648                           $  5,983
===========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
===========================================================================================================================
(in thousands)                                                             1998                               1997
===========================================================================================================================
<S>                                                                     <C>                                <C>     
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year for Interest                                  $  5,640                           $  4,761
---------------------------------------------------------------------------------------------------------------------------
Cash Paid During the Year for Federal Income Taxes                      $    620                           $    738
---------------------------------------------------------------------------------------------------------------------------
Capital Expenditures Used for

  Capital Lease Obligation                                              $      -                           $    444
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                       6
<PAGE>
                                                    SVB FINANCIAL SERVICES, INC.
                                      Notes to Consolidated Financial Statements

1: ORGANIZATION AND NATURE OF OPERATIONS

   SVB Financial Services,  Inc., (the "Company"),  a bank holding company,  was
incorporated  on February 7, 1996 and owns 100 percent of the shares of Somerset
Valley Bank (the "Bank").

   The Bank was  granted a charter by the New Jersey  Department  of Banking and
commenced  operations on December 20, 1991. The Bank is a full service community
bank and operates at locations in Somerville ,  Hillsborough,  and  Bridgewater,
New  Jersey.   During  1998,  approval  was  received  from  banking  regulatory
authorities to open branches in Aberdeen,  Bernards  Township and Manville,  New
Jersey.  The  Bank's  customers  are  predominately   small  and  middle  market
businesses  and  professionals.  The Bank's  market area is  primarily  Somerset
County. The Bank competes with other banking and financial institutions in their
primary   market  area,   including   financial   institutions   with  resources
substantially  greater than their own. Commercial banks,  savings banks, savings
and loan associations, credit unions and money market funds actively compete for
deposits and for types of loans. Such institutions,  as well as consumer finance
and insurance companies,  may be considered competitors of the Bank with respect
to one or more of the  services  they  render.  In addition to being  subject to
competition  from other financial  institutions,  the Bank is subject to federal
and state laws and to regulations of certain federal agencies,  and accordingly,
it is periodically examined by those regulatory agencies.

   The consolidated  financial  statements include the accounts of the Bank. All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation and certain  reclassifications  are made when necessary to conform
the previous years' financial statements to the current year's presentation.

2: SIGNIFICANT ACCOUNTING POLICIES

BASIS  OF  FINANCIAL  STATEMENT  PRESENTATION:   The  preparation  of  financial
statements in conformity with generally accepted accounting  principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

   The principle estimate that is particularly susceptible to significant change
in the near term relates to the allowance for loan losses. The evaluation of the
adequacy of the allowance for loan losses includes an analysis of the individual
loans  and  overall  risk   characteristics  and  size  of  the  different  loan
portfolios, and takes into consideration current economic and market conditions,
the  capability  of specific  borrowers to pay specific  loan  obligations,  and
current loan collateral values.  However, actual losses on specific loans, which
are also  encompassed  in the analysis,  may vary from estimated  losses.  These
estimates are reviewed periodically,  and as adjustments become necessary,  they
are reflected in operations in the period in which they become known.
<PAGE>
SECURITIES:  The Company accounts for securities in accordance with Statement of
Financial   Accounting   Standards  (SFAS)  No.  115,  "Accounting  for  Certain
Investments  in  Debt  and  Equity  Securities."  A  portion  of  the  Company's
securities  are  carried at cost  adjusted  for  amortization  of  premiums  and
accretion of discounts using the interest  method.  These securities are carried
at  amortized  cost  because  the Company has the ability and intent to hold the
securities to maturity.  The remainder of the Company's  securities are held for
indefinite  periods  of  time  which  management  intends  to use as part of its
asset/liability strategy, or that may be sold in response to changes in interest
rates,  changes in prepayment  risk,  increased  capital  requirements  or other
similar  factors,  are  classified as available for sale.  These  securities are
carried at market value with unrealized  gains and losses excluded from earnings
and  reported  as  Other  Comprehensive   Income  in  a  separate  component  of
shareholders' equity, net of income taxes. The net effect of unrealized gains or
losses, caused by marking an available for sale portfolio to market, could cause
fluctuations in the level of shareholders'  equity and equity-related  financial
ratios as market  interest rates cause the market value of fixed rate securities
to fluctuate.  Realized gains and or losses on securities available for sale are
determined  on  a  specific   identification  basis  and  are  included  in  the
consolidated  statements  of income.  The  Company  had no  securities  held for
trading purposes at December 31, 1998 and 1997.

   In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative  Instruments and Hedging Activity." SFAS No. 133
establishes  accounting  and  reporting  standards for  derivative  instruments,
including certain derivative  instruments  imbedded in other contracts,  and for
hedging  activities.  It requires that an entity  recognize all  derivatives  as
either assets or liabilities in the statement of financial  position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be  specifically  designated as a hedge.  The accounting for changes in the fair
value of  derivative  (gains  and  losses)  depends on the  intended  use of the
derivative and resulting  designation.  SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999.  Earlier  application is
permitted  only as of the  beginning  of any  fiscal  quarter.  The  Company  is
currently reviewing the provisions of SFAS No. 133.

LOANS:  Loans,  which  management  has the  intent  and  ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
principal,  adjusted for any charge-offs, the allowance for loan losses, and any
deferred  fees or costs on originated  loans.  Loans are stated at the principal
amount  outstanding.  Net loans represent the principal loan amount  outstanding
reduced by unearned income and allowance for loan losses.

   The Company  accounts for impaired  loans under SFAS No. 114,  "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118,  "Accounting by
Creditors for Impairment of a Loan-Income  Recognition  and  Disclosures."  This
standard requires that a creditor measure  impairment based on the present value
of expected future cash flows discounted at the loan's effective  interest rate,
except that as a practical expedient, a creditor may measure impairment based on
a loan's  observable  market price,  or the fair value of the  collateral if the
loan is collateral  dependent.  Regardless of the measurement method, a creditor
must  measure  impairment  based on the fair  value of the  collateral  when the
creditor determines that foreclosure is probable.
<PAGE>
   The Company  accounts for its  transfers and  servicing  financial  assets in
accordance  with  SFAS No.  125,  "Accounting  for  Transfer  and  Servicing  of
Financial  Assets and  Extinguishments  of  Liabilities," as amended by SFAS No.
127, "Deferral of the Effective Date of Certain Provision of SFAS No. 125." This
standard  provides   accounting  guidance  on  transfers  of  financial  assets,
servicing of financial assets, and extinguishments of liabilities.

   The Company  periodically  sells certain  commercial loans to other 

                                       7
<PAGE>
SVB FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements

financial institutions without recourse to the Company. The gains and losses are
recognized in an amount which  approximates  the present value of the difference
between  the  effective  interest  rate to the  Company and the net yield to the
purchaser,  excluding normal future loan servicing fees, when  applicable,  over
the estimated remaining lives of the loans sold.

   Interest  on  loans  is  credited  to  operations  primarily  based  upon the
principal amount outstanding. When management believes there is sufficient doubt
as to the  ultimate  collectability  of  interest  on any loan,  the  accrual of
applicable interest is discontinued.

   Loan origination fees and direct loan origination  costs are deferred and are
recognized  over the estimated life of the related loans as an adjustment of the
loan yield. The net loan  origination  fees recognized as yield  adjustments are
reflected in total interest income in the consolidated statements of income, and
the  unamortized  balance of such net loan  origination  fees is reported in the
consolidated balance sheets as part of unearned income.

ALLOWANCE FOR POSSIBLE LOAN LOSSES:  The Company's  process for  evaluating  the
adequacy of the  allowance  for possible  loan losses has three basic  elements:
First,  the  identification  of  problem  loans  when they  occur;  second,  the
establishment  of  appropriate  allowance for possible loan losses once specific
problem loans are identified;  and third, a methodology for establishing general
loan loss  allowances.  The  identification  of problem loans is achieved mainly
through review of specific major loans based on  delinquency  criteria,  size of
loan and location and value of collateral  property.  Specific loss reserves are
established for identified  problem loans based on reviews of current  operating
financial  information and fair value appraisals.  A range of loss allowances is
estimated based upon  consideration  of past  experience of originated  loans by
loan  type,   year  of   origination,   location  of  collateral   property  and
loan-to-value  ratios.  Based upon this  process,  consideration  of the current
economic environment and other factors,  management determines what it considers
to be an  appropriate  allowance  for possible loan losses.  Although  Company's
management believes it has a sound basis for this estimation,  actual write-offs
incurred in the future are highly  dependent upon future  events,  including the
economy of the area in which the Company lends. In addition,  various regulatory
agencies, as an integral part of their examination process,  periodically review
the Bank's  allowance  for loan  losses.  Such  agencies may require the Bank to
recognize  additions to the  allowance  based on their  judgment of  information
available to them at the time of their examination.

PREMISES  AND  EQUIPMENT:  Premises  and  equipment  are  stated  at  cost  less
accumulated  depreciation  and  amortization.  Depreciation and amortization are
computed primarily on the straight-line method over the shorter of the estimated
useful lives of the assets or the term of the related lease.

INCOME TAXES:  The Company  accounts for income taxes under the liability method
specified by SFAS No. 109,  "Accounting  for Income  Taxes." Under SFAS No. 109,
deferred  tax  assets and  liabilities  are  measured  using  enacted  tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences  are  expected to be recovered or settled.  The  principal  types of
accounts,  resulting in differences between assets and liabilities for financial
statements and tax return purposes,  are the allowance for possible loan losses,
depreciation and accretion of securities discounts.
<PAGE>
EARNINGS PER SHARE:  On December 15, 1997, the Company adopted the provisions of
SFAS No. 128,  "Earnings per Share." SFAS No. 128  eliminates  primary and fully
diluted  earnings  per  share and  requires  presentation  of basic and  diluted
earnings per share in conjunction with the disclosure of the methodology used in
computing such earnings per share.  Basic  earnings per share excludes  dilution
and is computed by  dividing  income  available  to common  shareholders  by the
weighted-average  common shares outstanding during the period.  Diluted earnings
per share  takes  into  account  the  potential  dilution  that  could  occur if
securities or other contracts to issue common stock were exercised and converted
into common stock.

OTHER REAL ESTATE OWNED: Other real estate owned includes foreclosed real estate
which is carried at the lower of cost (lesser of carrying  value of loan or fair
value at date of acquisition) or fair value less selling costs.  Any write-down,
at or prior to the dates the real estate is considered foreclosed, is charged to
the  allowance  for loan losses.  Subsequent  write-downs  are recorded in other
expenses,  and expenses  incurred in connection with holding such assets and any
gains or losses upon their sale are included in other income and expenses.

STOCK  OPTIONS:  The  Company  accounts  for stock  options  under SFAS No. 123,
"Accounting for  Stock-Based  Compensation,"  which contains a fair  value-based
method  for  valuing  stock-based  compensation  that  entities  may use,  which
measures  compensation  cost at the grant  date  based on the fair  value of the
award. Compensation is then recognized over the service period, which is usually
the vesting period.  Alternatively,  the standard  permits  entities to continue
accounting for employee stock options and similar  instruments  under Accounting
Principles  Board  (APB)  Opinion  No.  25,  "Accounting  for  Stock  Issued  to
Employees." Entities that continue to account for stock options using APB No. 25
are required to make pro forma disclosures of net income and earnings per share,
as if the fair-value based method of accounting defined in SFAS No. 123 has been
applied.  The  Company's  stock option plans are accounted for under APB Opinion
No. 25.

ADVERTISING COSTS: The Company expenses advertising costs as incurred.

STATEMENT OF CASH FLOWS:  For purposes of the  consolidated  statements  of cash
flows, the Company considers cash,  non-interest  bearing amounts due from banks
and Federal funds sold and other short term investments to be cash  equivalents.
Generally, Federal funds are sold for a 60 day period or less.

COMPREHENSIVE  INCOME:  On January 1, 1998,  the Company  adopted  SFAS No. 130,
"Reporting  Comprehensive  Income." This standard requires entities presenting a
complete set of financial statements to include details of comprehensive income.
Comprehensive  income  consists of net income or loss for the current period and
income,  expenses,  gains,  and losses that bypass the income  statement and are
reported directly in a separate component of equity.  These financial statements
have been reclassified to reflect the provisions of SFAS No. 130.

                                       8
<PAGE>
                                                    SVB FINANCIAL SERVICES, INC.
                                      Notes to Consolidated Financial Statements

The income tax effects  allocated to comprehensive  income at December 31, is as
follows:
<TABLE>
<CAPTION>
                                                              1998                                              1997
===================================================================================================================================
                                            BEFORE             TAX              NET              BEFORE          TAX          NET
                                             TAX            (EXPENSE)          OF TAX             TAX         (EXPENSE)     OF TAX
(in thousands)                              AMOUNT           BENEFIT           AMOUNT            AMOUNT        BENEFIT       AMOUNT
===================================================================================================================================
<S>                                          <C>                 <C>            <C>                <C>           <C>            <C> 
Unrealized Gains on Securities
  Unrealized Holding Gains /
   (Losses) Arising During Period            $(52)               $18            $(34)              $45           $(16)          $29 
Less Reclassification
  Adjustment for Gains/(Losses)
  Realized in Net Income                       (4)                 1              (3)               (1)             -           (1)
-----------------------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income/
  (Loss), Net                                $(48)               $17           $(31)               $46           $(16)          $30 
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEGMENT  REPORTING:  On January 1,  1998,  the  Company  adopted  SFAS No.  131,
"Disclosures about Segments of an Enterprise and Related  Information." SFAS No.
131 redefines how operating  segments are determined and requires  disclosure of
certain  financial  and  descriptive  information  about a  Company's  operating
segments.  Management has concluded that under current  conditions,  the Company
will report one business segment, community banking.

 3: SECURITIES

   Information relative to the Company's securities portfolio are as follows:
<TABLE>
<CAPTION>
===============================================================================================================================
                                                                                   GROSS                GROSS
                                                              AMORTIZED         UNREALIZED           UNREALIZED         FAIR
(in thousands)                                                  COST               GAINS               LOSSES       MARKET VALUE
=============================================================================================================================== 
<S>                                                          <C>                     <C>                   <C>         <C>     
1998
AVAILABLE FOR SALE
U.S. Treasury Securities                                     $  3,511                $  4                  $ -         $  3,515
U.S. Government Agency Securities                               9,261                  13                   31            9,243
Mortgage-Backed Securities                                      8,491                  38                   14            8,515
Equity Securities                                                 250                   -                    -              250
-------------------------------------------------------------------------------------------------------------------------------
                                                             $ 21,513               $  55                $  45         $ 21,523
===============================================================================================================================
HELD TO MATURITY

U.S. Treasury Securities                                     $  2,001                $  7                  $ -         $  2,008
U.S. Government Agency Securities                              10,235                  40                    1           10,274
Other Securities                                                2,002                   -                    -            2,002
Mortgage-Backed Securities                                        814                   4                    1              817
-------------------------------------------------------------------------------------------------------------------------------
                                                             $ 15,052               $  51                 $  2         $ 15,101
===============================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                          <C>                     <C>                   <C>         <C>     
1997
AVAILABLE FOR SALE
U.S. Treasury Securities                                     $  2,249                $  1                  $ -         $  2,250
U.S. Government Agency Securities                               6,000                  13                    5            6,008
Mortgage-Backed Securities                                      2,960                  55                    7            3,008
-------------------------------------------------------------------------------------------------------------------------------
                                                             $ 11,209               $  69                $  12         $ 11,266

===============================================================================================================================
HELD TO MATURITY
U.S. Treasury Securities                                     $  8,754               $  16                  $ -         $  8,770
U.S. Government Agency Securities                              11,477                  26                    5           11,498
Mortgage-Backed Securities                                      1,871                   6                    2            1,875
-------------------------------------------------------------------------------------------------------------------------------
                                                             $ 22,102               $  48                 $  7         $ 22,143
===============================================================================================================================
</TABLE>
                                       9
<PAGE>
SVB FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements

   There are no significant  concentrations  of securities  (greater than 10% of
shareholders' equity) in any individual security issues.

   The  amortized  cost and fair value of  securities  at December 31, 1998,  by
contractual maturity, are shown in the following table for securities

to be held to maturity and available for sale.  Expected  maturities will differ
from  contractual  maturities  because  borrowers  may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
================================================================================
                                       AMORTIZED           FAIR
(in thousands)                             COST           VALUE
================================================================================
<S>                                    <C>             <C>     
AVAILABLE FOR SALE

Due in 1 year or less                  $  4,511        $  4,515
Due after 1 year through 5 years          8,261           8,243
Mortgage-Backed Securities                8,491           8,515
Equity Securities                           250             250
--------------------------------------------------------------------------------
                                       $ 21,513        $ 21,523
================================================================================
HELD TO MATURITY

Due in 1 year or less                  $  7,990        $  7,996
Due after 1 year through 5 years          6,248           6,288
Mortgage-Backed Securities                  814             817
--------------------------------------------------------------------------------
                                       $ 15,052        $ 15,101
================================================================================
</TABLE>

   At  December  31,  1998,  securities  having a book  value  of  approximately
$1,369,000  were pledged to secure  public  deposits  and for other  purposes as
required by law.
<PAGE>
4: LOANS

   The composition of outstanding loans is summarized as follows:
<TABLE>
<CAPTION>
================================================================================
(in thousands)                             1998           1997
================================================================================
<S>                                   <C>             <C>      
Secured by Real Estate:

  Residential Mortgage                $  30,577       $  33,249
  Commercial Mortgage                    42,703          29,793
  Construction                            6,256           4,852
Commercial & Industrial                  22,308          20,889
Loans to Individuals
  for Automobiles                        10,298          12,177
Loans to Individuals                      8,864           4,969
Other Loans                                 468             541
--------------------------------------------------------------------------------
                                      $ 121,474       $ 106,470
================================================================================
</TABLE>

   There were no loans  restructured  during 1998 or 1997.  There were $5,208 in
loans past due 90 days or more as to  principal  and  interest  and $95,860 in a
non-accrual status as of December 31, 1998. There were no loans past due 90 days
or more as to principal and interest and $62,632 on a  non-accrual  status as of
December 31, 1997.

   A loan is considered to be impaired when it is probable that the Company will
be unable to collect all amounts due according to the  contractual  terms of the
loan  agreement.  These loans  consist  primarily of  non-accrual  loans but may
include  performing loans to the extent that situations arise which would reduce
the  probability of collection in accordance  with the  contractual  terms. As a
general  rule,  a loan that is in  arrears in excess of 120 days will be charged
off unless  circumstances  exist that would make charge off unnecessary  such as
the  borrower  is in the  process of  refinancing  elsewhere  or is  liquidating
collateral within a short period of time.

   As of December 31, 1998 there were $583,000 of loans deemed to be impaired, a
valuation  reserve of $25,000 was recorded  for these loans.  As of December 31,
1997,  no loans  were  deemed to be  impaired.  Interest  payments  received  on
impaired  loans will be recorded as interest  income  unless  collection  of the
remaining  recorded  investment is doubtful at which time payments received will
be recorded as reductions of principal.

   The Company has no  concentration  of loans to  borrowers  engaged in similar
activities  which exceeded 10% of total loans at December 31, 1998 and 1997. The
Company continues to pursue new lending  opportunities while seeking to maintain
a portfolio  that is diverse as to industry  concentration,  type and geographic
distribution. The Company's geographic lending area is primarily concentrated in
Somerset County,  but also includes  Middlesex,  Hunterdon,  Mercer,  Morris and
Monmouth counties.
<PAGE>
   Loans to executive  officers are made in the ordinary  course of business and
on substantially  the same terms,  including  interest rates and collateral,  as
those prevailing at the time for comparable  transactions with others.  Loans to
executive  officers totaled $36,000 at December 31, 1998 and $12,000 at December
31, 1997,  all of which were current as to principal and interest.  There are no
loans to Directors or their affiliated interests.

5: ALLOWANCE FOR POSSIBLE LOAN LOSSES

   An analysis of the allowance for possible loan losses is as follows:
<TABLE>
<CAPTION>
================================================================================
(in thousands)                             1998            1997
================================================================================
<S>                                     <C>              <C>   
Balance at January 1,                   $  982           $ 783 
Provision Charged to Operations            300             280 
Charge Offs                                (80)            (86)
Recoveries                                   9               5 
--------------------------------------------------------------------------------
Balance at December 31,                 $1,211           $ 982 
================================================================================
</TABLE>

6: PREMISES AND EQUIPMENT

   Premises  and  equipment  consists of the  following at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
================================================================================
                           ESTIMATED
(in thousands)          USEFUL LIVES          1998         1997
================================================================================
<S>                       <C>              <C>          <C>    
Construction in Progress                   $  695       $  210 
Premises & Improvements   5-30 years        1,205        1,054 
Furniture & Equipment     3-10 years        1,441        1,219 
--------------------------------------------------------------------------------
                                            3,341        2,483 
Less: Accumulated Depreciation
  and Amortization                         (1,038)        (749)
--------------------------------------------------------------------------------
                                          $ 2,303     $ 1,734 
================================================================================ 
</TABLE>

   Depreciation and amortization charged to operations was $383,000 and $298,000
for the years ended December 31, 1998 and 1997 respectively.

                                       10
<PAGE>
                                                    SVB FINANCIAL SERVICES, INC.
                                      Notes to Consolidated Financial Statements

   7: DEPOSITS

At December 31, 1998,  scheduled  maturities of  certificates  of deposit are as
follows:
<TABLE>
<CAPTION>
                                                        OVER THREE        OVER ONE YEAR
                             THREE MONTHS OR          MONTHS THROUGH      THROUGH THREE         OVER THREE
(in thousands)                    LESS                 TWELVE MONTHS          YEARS                YEARS          TOTAL
--------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                      <C>                 <C>                  <C>           <C>    
$100,000 or more                 $10,300                  $ 2,949             $ 739                $100          $14,088
Less than $100,000                28,343                   32,103             7,804                 915           69,165
</TABLE>

8: OTHER EXPENSES

The major components of other expenses are as follows:
<TABLE>
<CAPTION>
================================================================================
(in thousands)                             1998            1997
================================================================================
<S>                                      <C>             <C>   
Data Processing Services                 $  285          $  215
Marketing & Business Development            147             144
Stationery, Forms & Supplies                175             156
Insurance                                    85              88
Legal, Examination & Accounting             125             177
Postage & Telephone                         131             105
FDIC Insurance Assessment                    16              14
Other, Net                                  595             441
--------------------------------------------------------------------------------
                                        $ 1,559         $ 1,340
================================================================================
</TABLE>

9: COMMITMENTS AND CONTINGENCIES

Based on consultation with the Company's legal counsel,  management is not aware
of any litigation that would have a material  adverse effect on the consolidated
financial position of the Company.  There are no proceedings  pending other than
the ordinary routine litigation  incident to the business of the Company and its
subsidiaries.  In addition,  no material proceedings are pending or are known to
be  threatened  or  contemplated  against  the  Company or its  subsidiaries  by
government authorities.

   The Company leases its banking facilities under operating leases which expire
at various dates through 2004, but which contain  certain renewal  options.  The
Somerville facilities are leased from a partnership consisting of all but one of
the  Company's  Directors.  As of  December  31,  1998,  future  minimum  rental
payments,  including the renewal  options under these leases for the  subsequent
five years are as follows (in thousands):
<PAGE>
<TABLE>
<CAPTION>
================================================================================
<S>                                                                       <C>   
1999                                                                      $  591
================================================================================
2000                                                                         593
================================================================================
200                                                                         1602
================================================================================
2002                                                                         605
================================================================================
2003                                                                         607
================================================================================
TOTAL                                                                    $ 2,998
================================================================================
</TABLE>

   The above amounts  represent minimum rentals not adjusted for possible future
increases due to escalation  provisions and assumes that all option periods will
be exercised by the Company.  Rent expenses aggregated $390,852 and $286,047 for
the years ended December 31, 1998 and 1997.

   The Bank has not entered into any interest rate swaps, caps or floors and are
not party to any forward or future  transactions.  However, the Bank is party to
various  other  financial  instruments  which are not included in the  financial
statements,  but are  required  in the  normal  course of  business  to meet the
financing  needs of its  customers  and to assist in  managing  its  exposure to
changes in interest  rates.  Management does not expect any material losses from
these transactions,  which include standby letters of credits and commitments to
extend credit.

   The Company had  outstanding  commitments to extend credit of $27,177,000 and
$18,585,000   at  December  31,  1998  and  December  31,  1997,   respectively.
Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee.  Since a portion of the  commitments  are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company  upon  extension  of credit,  is based on  management's
credit evaluation of the customer.  There is no material  difference between the
notional  amount and estimated  fair value of  off-balance  sheet  unfunded loan
commitments as of December 31, 1998.

10: BENEFIT PLAN

The Company has a 401(k)  Savings Plan  covering  substantially  all  employees.
Under  the  terms  of  the  Plan,  the  Company  matched  67%  of an  employee's
contribution  in 1998 and 1997, up to 6.0% of the employee's  salary.  Employees
become fully vested in the Company's  contribution  after five years of service.
The  Company  contributed  $57,000  and  $44,000  to the Plan in 1998 and  1997,
respectively.

                                       11
<PAGE>
SVB FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements

11: INCOME TAXES

   The  components  of the  provision  for income  taxes in 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
================================================================================
(in thousands)                             1998            1997
================================================================================
<S>                                      <C>             <C>   
Current
  Federal                                $ 744           $ 653 
  State                                    178             167 
Deferred                                  (156)            (71)
--------------------------------------------------------------------------------
                                         $ 766           $ 749 
================================================================================
</TABLE>
Deferred  income taxes are provided for the  differences  between the  financial
reporting  basis  and the tax basis of the  Company's  assets  and  liabilities.
Cumulative temporary differences at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
================================================================================
(in thousands)                             1998            1997
================================================================================
<S>                                       <C>           <C>    
Start-up and Organization Costs           $ (1)         $   (1)
Depreciation                                74              24 
Accretion of Securities Discount          ( 12)            (12)
Allowance for Possible Loan Losses         498             318 
--------------------------------------------------------------------------------
Deferred Tax Asset, Included in
  Other Assets                           $ 559           $ 329 
--------------------------------------------------------------------------------
</TABLE>
A reconciliation of income taxes calculated at the U.S. statutory rate of 34% to
the actual income tax provision is as follows:
<TABLE>
<CAPTION>
================================================================================
(in thousands)                             1998            1997
================================================================================
<S>                                      <C>              <C>  
Statutory Provision                      $ 669            $ 630
State Taxes on Income,
  Net of Federal Tax Benefit               117              110
Other                                      (20)               9
--------------------------------------------------------------------------------
                                         $ 766            $ 749
================================================================================
</TABLE>
<PAGE>
12: SHAREHOLDERS' EQUITY

On March 27, 1998, the Company declared a two-for-one  split on its common stock
to shareholders of record as of April 16, 1998. Accordingly, earnings per share,
options  and  weighted  average  shares of common  stock  outstanding  have been
restated to reflect the stock split.
================================================================================
13: STOCK OPTION PLANS

At December 31, 1998, the Company had two stock option plans.

   On April 24, 1997,  the  Company's  shareholders  approved the 1997  Restated
Incentive Stock Option Plan (the "Plan"), a non-qualified stock option plan. The
Plan had the effect of restating the previously existing 1994 Stock Option Plan.
Under the Plan, the Board of Directors may grant options to officers to purchase
the  Company's  stock.  Stock  options are issued at prices  equal to the market
price at the date of grant.  The stock options have a vesting period of one year
from the date of  issuance.  Shares  totaling  164,808 are reserved for issuance
under the Plan including 128,200 shares outstanding at December 31, 1998.

   On  April  24,  1997,  the  Company's  shareholders  also  approved  the 1997
Directors Stock Option Plan, a non-qualified  stock option plan. Under the plan,
stock  options are granted to  Directors at the fair value at the date of grant.
The stock  options have a vesting  period of one year from the date of issuance.
Shares  totaling  109,200 are reserved for issuance under the Plan, all of which
were outstanding at December 31, 1998.

   Had  compensation  cost for the plan year been  determined  based on the fair
value of options at the grant dates  consistent with the method of SFASNo.  123,
"Accounting for Stock-Based  Compensation," the Company's net income and diluted
earnings  per share would have been reduced to the pro forma  amounts  indicated
below:
<TABLE>
<CAPTION>
================================================================================
(in thousands except
per share data)                            1998            1997
================================================================================
<S>                                      <C>             <C>   
Net Income
  As reported                            $1,203          $1,103
  Pro forma                                 798           1,023
Basic earnings per share
  As reported                              $.44            $.41
  Pro forma                                $.29            $.37
Diluted earnings per share
  As reported                              $.42            $.40
  Pro forma                                $.28            $.36
================================================================================ 
</TABLE>
These pro forma amounts may not be representative  of future disclosure  because
they do not take into  effect  the pro forma  compensation  expense  related  to
grants before 1995.

   The fair value of each option  grant is  estimated on the date of grant using
the  Black-Scholes  option-pricing  model,  with the following  weighted average
assumptions used for grants in 1997; no dividend yield;  expected  volatility of
39.82%; risk-free interest rate of 5.85% and an expected life of five years.

                                       12
<PAGE>
                                                    SVB FINANCIAL SERVICES, INC.
                                      Notes to Consolidated Financial Statements

   A summary of the status of the  Company's  option plans as of December 31 for
the years 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
===========================================================================================================================
                                                          1998                                        1997 (1)
===========================================================================================================================
                                                                  WEIGHTED AVERAGE                         WEIGHTED AVERAGE
                                               SHARES              EXERCISE PRICE             SHARES        EXERCISE PRICE
===========================================================================================================================
<S>                                            <C>                     <C>                     <C>              <C>    
Outstanding at beginning of year               262,600                 $ 5.678                 98,400           $ 4.165
Options granted                                   -                       -                   170,200             6.500
Options exercised                               22,200                   4.480                  6,000             4.165
Options expired or canceled                      3,000                   6.500                   -                 -
---------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year                     237,400                 $ 5.780                262,600           $ 5.678
---------------------------------------------------------------------------------------------------------------------------
Options exercisable at year end                237,400                 $ 5.780                 92,400           $ 4.165
---------------------------------------------------------------------------------------------------------------------------
Weighted average fair value of
  options granted during the year                                      $     -                                  $ 2.860
===========================================================================================================================
</TABLE>
(1) Adjusted for two-for-one stock split effective April 16, 1998.

 
The following table summarizes  information about non-qualified stock options at
December 31, 1998:
<TABLE>
<CAPTION>
===========================================================================================================================
                                            OPTIONS OUTSTANDING ANDEXERCISABLE
===========================================================================================================================
                       RANGE OF                  OUTSTANDING AND             WEIGHTED AVERAGE              WEIGHTED AVERAGE
                       EXERCISE                  EXERCISABLE AT            REMAINING CONTRACTUAL               EXERCISE
                        PRICES                      12/31/98                       LIFE                          PRICE
===========================================================================================================================
<S>                <C>      <C>                       <C>                        <C>                            <C>    
                   $4.165 - $ 6.250                   73,200                     1.7 years                      $ 4.165
                   $6.500 - $10.000                  164,200                     3.9 years                      $ 6.500
                                                     237,400
</TABLE>
14: FAIR VALUE OF FINANCIAL INSTRUMENTS

   SFAS  No.  107,  "Disclosure  about  Fair  Value of  Financial  Instruments,"
requires the disclosure of fair value information  about financial  instruments,
whether or not recognized in the balance  sheet,  for which it is practicable to
estimate value.

   The  fair  value  of a  financial  instrument  is the  amount  at  which  the
instrument could be exchanged in a current  transaction between willing parties,
other than a forced or liquidation  sale. It is the Company's intent and general
practice to hold its  financial  instruments  to  maturity  and not to engage in
trading activities.  Therefore, significant estimations were used by the Company
for the purposes of this disclosure.
<PAGE>
   Changes in the assumptions or methodologies  used to estimate fair values may
materially  affect the estimated  amounts.  Also,  management is concerned  that
there may not be reasonable  comparability  between institutions due to the wide
range of  permitted  assumptions  and  methodologies  in the  absence  of active
markets.  This lack of uniformity gives rise to a high degree of subjectivity in
estimating financial instrument fair values.

   Fair values have been determined by the Company using the best available data
and  an  estimation   methodology   suitable  for  each  category  of  financial
instruments. The estimation methodology used, the estimated fair values, and the
recorded book balances at December 31, 1998 and 1997, are outlined below.

   For short term investments,  such as cash and cash equivalents,  the carrying
amount is a reasonable estimate of fair value.
<TABLE>
<CAPTION>
===========================================================================================================================
                                                       1998                                           1997
===========================================================================================================================
(in thousands)                            FAIR VALUE            CARRYING VALUE           FAIR VALUE            CARRYING VALUE
===========================================================================================================================
<S>                                         <C>                     <C>                    <C>                     <C>   
Cash and Cash Equivalents                   $19,648                 $19,648                $5,983                  $5,983
===========================================================================================================================
</TABLE>

For  securities  held in the  Company's  investment  portfolio  fair  value  was
determined by reference to quoted market prices as of December 31, 1998.
<TABLE>
<CAPTION>
===========================================================================================================================
                                                       1998                                           1997
===========================================================================================================================
(in thousands)                            FAIR VALUE            CARRYING VALUE           FAIR VALUE            CARRYING VALUE
===========================================================================================================================
<S>                                         <C>                     <C>                    <C>                     <C>    
Available for Sale Securities               $21,523                 $21,513                $11,266                 $11,209
Held to Maturity Securities                  15,101                  15,052                 22,143                  22,102
</TABLE>

                                       13
<PAGE>
SVB FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements

   For long  term  assets  and  liabilities,  such as loans  and  deposits,  the
Company's policy is to hedge its interest rate exposure on deposits with earning
assets with matching  maturities.  Fair values of loans were estimated using the
percent value of future cash flows expected to be received. Loan rates currently
offered by the Company were used in determining the  appropriate  discount rate.
Deposits  with  stated  maturities  have  been  valued  using  a  present  value
discounted  cash flow with a  discount  rate  approximating  current  market for
similar  maturities.  Deposits with no stated maturities have a fair value equal
to the amount payable on demand.
<TABLE>
<CAPTION>
===========================================================================================================================
                                                       1998                                           1997
===========================================================================================================================
(in thousands)                            FAIR VALUE            CARRYING VALUE           FAIR VALUE            CARRYING VALUE
===========================================================================================================================
<S>                                        <C>                     <C>                     <C>                    <C>     
Loans                                      $126,830                $121,474                $107,896               $106,471
Deposits                                    170,871                 169,714                134,205                 133,930
</TABLE>
The fair  values  of  Federal  funds  purchased  totaling  $0 and  $500,000  are
estimated to  approximate  their recorded book balances at December 31, 1998 and
1997, respectively.

   There was no  material  difference  between  the  notational  amount  and the
estimated fair value of  off-balance-sheet  items,  which totaled  approximately
$27,177,000 and $18,585,000,  at December 31, 1998 and 1997,  respectively,  and
primarily  comprise  unfunded loan  commitments,  which are generally  priced at
market at the time of funding.

15: REGULATORY MATTERS

The Company and its subsidiary  Bank are subject to various  regulatory  capital
requirements  administered  by the  Federal  banking  agencies.  Failure to meet
minimum  capital  requirements  can  initiate  certain  mandatory  and  possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct  material  effect on the Company's  financial  statements.  Under capital
adequacy  guidelines and the regulatory  framework for prompt corrective action,
the Company must meet  specific  capital  guidelines  that involve  quantitative
measures of the Company's  assets,  liabilities,  and certain  off-balance sheet
items as calculated under regulatory accounting practices. The Company's capital
amounts and  classification  are also  subject to  qualitative  judgments by the
regulators about components, risk weightings, and other factors.

   Quantitative  measures  established by regulation to ensure capital  adequacy
require  the Company to maintain  minimum  amounts and ratios,  set forth in the
following tables, of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as  defined).  Management  believes,  as of December 31, 1998,  that the
Company and its subsidiary Bank meets all capital adequacy requirements to which
they are subject.

   As of  December  31,  1998  the most  recent  notification  from  the  Bank's
regulatory  authority  categorized  the  Bank  as  well  capitalized  under  the
regulatory  framework  for  prompt  corrective  action.  To  be  categorized  as
<PAGE>
adequately  capitalized the Bank must maintain minimum total risk-based;  Tier I
risk-based,  and Tier I leverage ratios as set forth in the table.  There are no
conditions  or events since that  notification  that  management  believes  have
changed the institution's category. The Company and its subsidiary Bank's actual
capital amounts and ratios are presented in the table.
<TABLE>
<CAPTION>
===========================================================================================================================
SVB FINANCIAL SERVICES, INC. AND SOMERSET VALLEY BANK
                                                                           TO BE ADEQUATELY                   TO BE WELL
                                                 ACTUAL                       CAPITALIZED                    CAPITALIZED
($ in thousands)                           AMOUNT         RATIO           AMOUNT         RATIO          AMOUNT        RATIO
===========================================================================================================================
<S>                                        <C>           <C>              <C>            <C>              <C>         <C>    
SVB FINANCIAL SERVICES, INC.
As of December 31, 1998
Total Capital to Risk Weighted Assets      $14,935       11.14%          >$10,726       >8.00%            -            -
Tier I Capital to Risk Weighted Assets     $13,724       10.24%          >$ 5,363       >4.00%            -            -
Tier I Capital to Average Assets           $13,724        8.54%          >$ 6,455       >4.00%            -            -
============================================================================================================================
As of December 31, 1997
Total Capital to Risk Weighted Assets      $13,678       12.81%          >$ 8,542       >8.00%            -            -
Tier I Capital to Risk Weighted Assets     $12,696       11.89%          >$ 4,271       >4.00%            -            -
Tier I Capital to Average Assets           $12,696        8.72%          >$ 5,491       >4.00%            -            -

============================================================================================================================
SOMERSET VALLEY BANK
As of December 31, 1998
Total Capital to Risk Weighted Assets      $14,189       10.61%          >$10,698       >8.00%         >$13,374      >10.00%
Tier I Capital to Risk Weighted Assets     $12,978        9.70%          >$ 5,349       >4.00%         >$ 8,024      > 6.00%
Tier I Capital to Average Assets           $12,978        8.04%          >$ 6,455       >4.00%         >$ 8,069      > 5.00%
============================================================================================================================
As of December 31, 1997
Total Capital to Risk Weighted Assets      $13,019       12.20%          >$ 8,541       >8.00%         >$10,671      >10.00%
Tier I Capital to Risk Weighted Assets     $12,037       11.28%          >$ 4,270       >4.00%         >$ 6,406      > 6.00%
Tier I Capital to Average Assets           $12,037        8.25%          >$ 5,489       >4.00%         >$ 6,861      > 5.00%
</TABLE>

                                       14
<PAGE>
                                                    SVB FINANCIAL SERVICES, INC.
                                      Notes to Consolidated Financial Statements

16: CONDENSED FINANCIAL INFORMATION FOR

SVB FINANCIAL SERVICES, INC. (PARENT COMPANY) IS AS FOLLOWS:
<TABLE>
<CAPTION>
BALANCE SHEET (in thousands)                                                       DECEMBER 31, 1998            DECEMBER 31, 1997
=================================================================================================================================
<S>                                                                                      <C>                             <C>   
ASSETS
 Cash and Due From Banks                                                                   $  436                        $    641
 Other Assets                                                                                  99                              70
 Investment in Subsidiary                                                                  13,580                          12,385
 Equity Securities                                                                            250                               -
---------------------------------------------------------------------------------------------------------------------------------
Total Assets                                                                             $ 14,365                        $ 13,096
=================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Common Stock                                                                             $  5,794                        $  5,726
Additional Paid-in Capital                                                                  5,502                           5,473
Retained Earnings                                                                           3,062                           1,859
Accumulated Other Comprehensive Income                                                          7                              38
---------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity                                                                 14,365                          13,096
---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity                                               $ 14,365                        $ 13,096
---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                                     YEARS ENDED
STATEMENT OF INCOME (in thousands)                                                   DECEMBER 31, 1998          DECEMBER 31, 1997
=================================================================================================================================
<S>                                                                                         <C>                             <C>  
OPERATING INCOME
Interest Income                                                                             $  18                           $  21
---------------------------------------------------------------------------------------------------------------------------------
Total Income                                                                                   18                              21
=================================================================================================================================
OPERATING EXPENSE
Other Expense                                                                                  41                              33
---------------------------------------------------------------------------------------------------------------------------------
Total Expense                                                                                  41                              33
---------------------------------------------------------------------------------------------------------------------------------
(Loss) Before Equity in Undistributed Income of Subsidiary                                    (23)                            (12)
Equity in Undistributed Income of Subsidiary                                                1,226                           1,115
=================================================================================================================================
NET INCOME                                                                               $  1,203                        $  1,103
=================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                                      YEARS ENDED
STATEMENT OF CASH FLOWS (in thousands)                                             DECEMBER 31, 1998              DECEMBER 31, 1997
===================================================================================================================================
<S>                                                                                      <C>                             <C>     
OPERATING ACTIVITIES
Net Income                                                                               $  1,203                        $  1,103
Adjustments to Reconcile Net Income to Net Cash
Used In Operating Activities:

Equity in Undistributed Income of Subsidiary                                               (1,226)                         (1,115)
Amortization of Organization Costs                                                             14                              14
Increase in Other Assets                                                                      (43)                            (14)
----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Operating Activities                                                         (52)                            (12)
----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
----------------------------------------------------------------------------------------------------------------------------------
Purchase of Equity Securities                                                                (250)                              -
Purchase of Additional Common Stock in Subsidiary Bank                                          -                             (26)
----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used for Investing Activities                                                       (250)                            (26)
----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from Stock Issuance, Net                                                              97                               5
----------------------------------------------------------------------------------------------------------------------------------
(Decrease)/ Increase in Cash and Cash Equivalents                                            (205)                             15
Cash and Cash Equivalents, Beginning of Year                                                  641                             626
----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year                                                     $  436                          $  641
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       15
<PAGE>
SVB FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements

17: EARNINGS PER SHARE

The following  table  illustrates  of the  reconciliation  of the numerators and
denominators of the basic and diluted EPS computations:
<TABLE>
<CAPTION>
===================================================================================================================================
FOR THE YEAR ENDED DECEMBER 31, 1998                                                              WEIGHTED                PER SHARE
(in thousands except per share data)                                      INCOME             AVERAGE SHARES                 AMOUNT
===================================================================================================================================
<S>                                                                      <C>                         <C>                     <C>   
EPS - BASIC
Income available to Common Shareholders                                  $ 1,203                     2,762                   $ .44 

Effect of Dilutive Securities
Stock Options                                                                  -                        82                    (.02)
-----------------------------------------------------------------------------------------------------------------------------------
EPS - DILUTED
Income available to Common Shareholders plus
assumed conversions                                                      $ 1,203                     2,844                   $ .42 
<CAPTION>
===================================================================================================================================
FOR THE YEAR ENDED DECEMBER 31, 1997(1)                                                           WEIGHTED                PER SHARE
(in thousands except per share data)                                      INCOME            AVERAGE SHARES                   AMOUNT
===================================================================================================================================
<S>                                                                      <C>                         <C>                     <C>    
EPS - BASIC
Income available to Common Shareholders                                  $ 1,103                     2,740                   $ .41 

Effect of Dilutive Securities
Stock Options                                                                  -                        34                    (.01)
-----------------------------------------------------------------------------------------------------------------------------------
EPS - DILUTED
Income available to Common Shareholders plus
assumed conversions                                                      $ 1,103                     2,774                   $ .40 
===================================================================================================================================
</TABLE>
Options  to  purchase  169,200  shares  of  common  stock at $6.50 a share  were
outstanding  during 1997.  They were not included in the  computation of diluted
EPS because the options' exercise price was equal to the average market price of
the common shares for the year. The options,  which expire on November 20, 2002,
were still outstanding at December 31, 1998.

(1) Adjusted for two-for-one stock split effective April 16, 1998.

<PAGE>
                                                    SVB FINANCIAL SERVICES, INC.
                                        Report of Independent Public Accountants

                        [LETTERHEAD FOR GRANT THORNTON]


               Report of Independent Certified Public Accountants

Board of Directors and Shareholders
SVB Financial Services, Inc.

     We  have  audited  the  accompanying  consolidated  balance  sheets  of SVB
Financial Services, Inc. and subisidiaries as of December 31, 1998 and 1997, and
the related consolidated  statements of income,  changes in shareholders' equity
and  comprehensive  income  and cash  flows  for the  years  then  ended.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the consolidated  financial position of SVB Financial
Services,  INc.  and  subsidiaries  as of December  31,  1998 and 1997,  and the
consolidated  results of their operations and their  consolidated cash flows for
the  years  then  ended  in a  conformity  with  generally  accepted  accounting
principles.



/s/Grant Thornton LLP
---------------------
Grant Thornton LLP

Philadelphia, Pennsylvania
January 22, 1999



                                       17
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and 
       Results of Operations

   Management of SVB Financial  Services,  Inc. (the  "Company") is not aware of
any known  trends,  events  or  uncertainties  that will have or are  reasonably
likely to have a material effect on the Company's  liquidity,  capital resources
or results of operations.  The following  discussion and analysis should be read
in  conjunction  with  the  detailed  information  and  consolidated   financial
statements,  including  notes thereto,  included  elsewhere in this report.  The
consolidated  financial  condition  and results of operations of the Company are
essentially those of the Bank. Therefore,  the analysis that follows is directed
to the  performance  of the  Bank.  Such  financial  condition  and  results  of
operations are not intended to be indicative of future performance.

   In addition to historical information,  this discussion and analysis contains
forward-looking  statements. The forward-looking statements contained herein are
subject to certain risks and  uncertainties  that could cause actual  results to
differ  materially  from  those  projected  in the  forward-looking  statements.
Important  factors  that might  cause  such a  difference  include,  but are not
limited to, those discussed in the section entitled "Management's Discussion and
Analysis  of  Financial  Condition  and  Results  of  Operations."  Readers  are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly revise or update these  forward-looking  statements to
reflect  events or  circumstances  that arise after the date hereof.  RESULTS OF
OPERATIONS

   Net income for the year ended December 31, 1998 was $1,203,000 an increase of
$100,000 or 9% from the  previous  year and  represents  the largest  annual net
income in the Company's seven year history.

   Growth  in net  interest  income  was the  major  reason  for the net  income
increase.  Net  interest  income  increased  $927,000  or 16% as a result of the
growth in the Company's earning assets, especially its loan portfolio.

   Non-interest  income increased  $209,000 or 37% in 1998. The majority of this
increase was due to gains on the sales of loans which  improved by $119,000 over
the previous year.  Service charges on deposit accounts also improved by $67,000
or 29%.  1998 was the first  full  year for the  operation  of the  Bridgewater,
Gaston Avenue and Arbor Glen facilities.  In addition, the Company increased its
lending and back-office staff in order to generate additional loan volumes. As a
result,  non-interest  expenses  increased  $999,000 or 23.0% and offset a large
portion of the revenue gains mentioned above.

   A more detailed discussion of the major components of net income follows.

NET INTEREST INCOME

   Net interest  income is the  difference  between the  interest  earned on the
Company's  earning  assets  and  the  interest  paid  on  its   interest-bearing
liabilities. It is the Company's principal source of revenue.

   The  following  table sets forth for the periods  indicated the daily average
balances of certain  balance sheet items,  the interest earned on earning assets
and the average interest rate paid on interest bearing liabilities, net interest
income  and the net  interest  margin.  Net  interest  margin is  defined as net
interest income divided by total average earning assets.


                                       18
<PAGE>
                                                    SVB FINANCIAL SERVICES, INC.
                 Management's Discussion and Analysis of Financial Condition and
                                                           Results of Operations

   SUMMARY OF NET INTEREST INCOME
<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31,
                                                              1998                                      1997
-------------------------------------------------------------------------------     ------------------------------------- 
                                            AVERAGE         AVERAGE                                   AVERAGE     AVERAGE
($ in thousands)                            BALANCE           RATE     INTEREST       BALANCE           RATE     INTEREST
========================================================================================================================= 
<S>                                        <C>                <C>     <C>           <C>                 <C>    <C>      
ASSETS:

Federal Funds Sold                         $   7,286          5.37%   $     391     $   5,237           5.52%  $     289
Other Short Term Investments                   1,393          4.81%          67         1,060           5.09%         54
Interest Bearing Time Deposits                 1,227          5.62%          69          --               --          --
Securities Available for Sale                 13,206          5.78%         763        12,381           6.10%        755
Securities Held to Maturity                   15,786          6.12%         966        16,381           6.05%        991
------------------------------------------------------------------------------------------------------------------------
Total Securities                              28,992          5.96%       1,729        28,762           6.07%      1,746
Loans                                        113,482          9.00%      10,210        95,039           9.12%      8,665
------------------------------------------------------------------------------------------------------------------------
Total Interest Earning Assets                152,380          8.18%      12,466       130,098           8.27%     10,754
Cash and Due from Banks                        6,022                                                               4,652
Allowance for Possible Loan Losses            (1,074)                                                               (872)
Premises and Equipment                         1,854                                                               1,279
Other Real Estate Owned                         --                                                                   227
Other Assets                                   2,198                                                               1,900
------------------------------------------------------------------------------------------------------------------------
Total Assets                               $ 161,380                                                           $ 137,284
======================================================================================================================== 
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings Deposits                           $  10,992          3.17%   $     348     $   8,231           3.11%  $     256
Money Market Deposit Accounts                 18,288          3.38%         618        18,017           3.54%        637
NOW Accounts                                  14,684          2.61%         383         8,903           2.56%        228
Time Deposits                                 78,296          5.47%       4,279        68,428           5.47%      3,746
-------------------------------------------------------------------------------------------------------------------------
Total Interest Bearing Deposits              122,260          4.60%       5,628       103,579           4.70%      4,867
Federal Funds Purchased                            3           --           --              3             --          --
Obligations Under Capital Lease                  441          8.39%          37           152           8.55%         13
------------------------------------------------------------------------------------------------------------------------
Total Interest Bearing Liabilities           122,704          4.62%       5,665       103,734           4.70%      4,880
Demand Deposits                               24,416                                                              20,584
Accrued Expenses and Other Liabilities           632                                                                 559
Cost to Fund Earning Assets                                                                             3.72%       3.75%
Shareholders' Equity                          13,628                                   12,407
------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 161,380                                $ 137,284 
------------------------------------------------------------------------------------------------------------------------

Net Interest Income                                                   $  6,801                                 $   5,874
------------------------------------------------------------------------------------------------------------------------

Net Interest Margin                                           4.46%                                     4.52%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Non-accrual loans are included in the Average Loan Balances.

                                       19
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and 
       Results of Operations

The following table presents the changes in net interest income  attributable to
either a change in volume or a change in rate.
<TABLE>
<CAPTION>
===========================================================================================================================
                                                                                  YEARS ENDED DECEMBER 31,
                                                                                        1998 VS 1997
                                                                           INCREASE (DECREASE) DUE TO CHANGES IN:
                                                                VOLUME                      RATE                       TOTAL
============================================================================================================================
<S>                                                             <C>                        <C>                       <C>    
Increase (Decrease) in
Interest Income:
Federal Funds Sold                                              $  110                     $  (8)                    $  102 
Other Short Term Investments                                        16                        (3)                        13 
Interest Bearing Time Deposits                                      69                         -                         69 
Securities Available for Sale                                       38                       (30)                         8 
Securities Held to Maturity                                        (37)                       12                        (25)
---------------------------------------------------------------------------------------------------------------------------
Total Securities                                                     1                       (18)                       (17)
Loans                                                            1,658                      (113)                     1,545 
---------------------------------------------------------------------------------------------------------------------------
Total Interest Income                                            1,854                      (142)                     1,712 
---------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Savings Deposits                                                    87                         5                         92 
Money Market Deposit Accounts                                       10                       (29)                       (19)
NOW Accounts                                                       151                         4                        155 
Time Deposits                                                      539                        (6)                       533 
---------------------------------------------------------------------------------------------------------------------------
Total Interest Bearing Deposits                                    787                       (26)                       761 
Borrowed Funds                                                      24                         -                         24 
---------------------------------------------------------------------------------------------------------------------------
Total Interest Expense                                             811                       (26)                       785 
---------------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income                                  $ 1,043                    $ (116)                    $  927 
</TABLE>
   Net interest income increased  $927,000 or 16% in 1998 as a result of a $22.3
million increase in average earning assets.  The Company placed a major emphasis
on loan growth in 1998 and average  loans  accounted for $18.4 million or 83% of
the  earning  asset  growth.   Loan  volume  also  accounted  for  approximately
$1,658,000 of the $1,712,000 increase in interest income.

   Deposit  growth was the funding  source for the  increase in earning  assets.
Growth  occurred in all major  categories of deposits.  Almost 53% of the growth
occurred in  certificates  of deposits  while the  remainder was spread over the
lower cost deposits such as demand,  savings, money market and NOW deposits. The
change in deposit  growth mix was a result of the  improvement  in the Company's
retail deposit base. Retail  depositors are more likely users of savings,  money
market and NOW accounts than are small businesses.
<PAGE>
   The  level of  interest  rates  can also  have a  significant  impact  on net
interest  income.  During the second  half of 1998,  the  Federal  Reserve  Bank
decreased the Federal Funds rate on two occasions from 5.25% to 4.75%, which had
the effect of  lowering  rates on many  categories  on both sides of the balance
sheet. In addition,  intense  competition for commercial  loans has put downward
pressure on pricing for much of 1998. As a result,  the yield on earning  assets
declined  from  8.27% in 1997 to 


                                       20
<PAGE>
                                                    SVB FINANCIAL SERVICES, INC.
                 Management's Discussion and Analysis of Financial Condition and
                                                           Results of Operations

8.18% in 1998.  Although the cost of interest bearing  liabilities dropped eight
basis points to 4.62%,  the overall cost of funding earning assets declined from
3.75% to 3.72% or only three basis  points.  This was due to the  percentage  of
non-interest  bearing  sources  funding  earning assets known as the "free funds
ratio" declining from 20.3% in 1997 to 19.5% in 1998.

   The  overall  change in  interest  rates  resulted  in a  decline  in the net
interest  margin from 4.52% to 4.46% and had a negative  impact on net  interest
income of approximately $116,000, as depicted in other table.

OTHER INCOME

A  comparison  of the  major  components  of other  income  is  included  in the
following table:
<TABLE>
<CAPTION>
================================================================================
                                    YEARS ENDED DECEMBER 31,

(in thousands)                       1998             1997
================================================================================
<S>                                 <C>              <C>  
Service Charges on
  Deposit Accounts                  $ 298            $ 231
Gain on the Sale
  of Securities                         4                1
Gain on the Sale of Loans             334              215
Other Income                          134              114
--------------------------------------------------------------------------------
                                    $ 770            $ 561
--------------------------------------------------------------------------------
</TABLE>

   Other income  increased  $209,000 or 37% during 1998 in  comparison  to 1997.
Service charges on deposit  accounts  increased  $67,000 or 29% due to growth in
the number of both  commercial  and consumer  checking  accounts,  which in turn
resulted in an increase in  overdraft,  account  maintenance  and wire  transfer
fees. In addition,  the rate charged for overdraft fees was increased in October
1998. The Company also charges non-bank customers for the use of its ATMs. These
fees represented $23,000 of the increase in service charges on deposit accounts.

   Gains on the sale of loans were  $334,000  in 1998  compared  to  $215,000 in
1997,  an increase of $119,000 or 55%. The Company is a preferred SBA lender and
as such,  originates SBA loans and sells the guaranteed portion in the secondary
market while retaining the servicing. SBA loans are not the primary focus of the
Company  and  consequently,  sales of these loans can vary from period to period
depending upon the volume of SBA loans generated. The Company also sold variable
rate 1-4 family mortgage loans in 1998 resulting in a gain.

   Other income  increased  $20,000 or 18% during 1998. A major  portion of this
increase  was  related  to  the  servicing  of SBA  loans  as  described  above.
Additionally,  late in the third  quarter,  the Company was  approved by FNMA to
sell mortgage loans which resulted in $19,000 in application and processing fees
for the year.

                                       21
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and 
       Results of Operations

OTHER EXPENSE

A  comparison  of the major  components  of other  expense  is  included  in the
following table:
<TABLE>
<CAPTION>
================================================================================
                                    YEARS ENDED DECEMBER 31,

(in thousands)                         1998            1997
================================================================================
<S>                                 <C>             <C>    
Salaries and Employee
Benefits                            $ 2,713         $ 2,180
Occupancy Expense                       652             477
Equipment Expense                       378             306
Other Expenses                        1,559           1,340
--------------------------------------------------------------------------------

                                    $ 5,302         $ 4,303
--------------------------------------------------------------------------------
</TABLE>

Total other expense increased $999,000 or 23% in comparison to 1997. The Company
opened two new  branch  offices in the first  quarter  of 1998,  one  located on
Gaston  Avenue  in  Somerville  and the other  located  in the  assisted  living
facility Arbor Glen in Bridgewater.  In addition,  it was the first full year of
operation  for the  Bridgewater  office.  Expenses  were  impacted by additional
personnel,  occupancy  costs and other  expenses  related to the  opening of new
branches.

   Salaries  and  Benefits  expense  was up  $533,000  or 24% from 1997  levels.
Because  of the 25% growth in assets and the  opening  of the new  offices,  the
Company has had to hire  additional  personnel  to better  service its  customer
base,  especially in the area of lending as loan growth  received major emphasis
from management in 1998. The number of employees grew to 65 at December 31, 1998
from 52 at December 31, 1997.  The  increase in employees  combined  with normal
salary increases, accounted for the variance from 1997.

   Occupancy expense  increased  $175,000 or 37% from 1997 mainly as a result of
the increased  rent from the two branches  opened in 1998 and from costs related
to the opening of two additional branches in 1999, one to be located in Manville
and the other in Aberdeen.  Equipment  expenses  increased $72,000 or 23% during
1997. In addition to equipping the new branches and  employees,  the Company has
made an attempt to remain current with  technology and to make sure all upgrades
are in place for the Year 2000.

   Other expenses increased $219,000 or 16%. Much of the increase was related to
the growth in assets  experienced  by the Company,  which  affected  many areas,
especially data processing costs and outside services, which were up $70,000 and
$63,000, respectively.  Advertising and business development expenses as well as
stationery and supplies  included costs associated with the promotion of the new
branches as well as the  introduction of new banking products - most notably the
"Select Checking" consumer checking account.
<PAGE>
SECURITIES PORTFOLIO

The Company's  investment  portfolio is made up of securities available for sale
and securities which it has the ability and the intent to hold to maturity.  The
securities available for sale are to be used to fund increases in loan demand or
possible outflows of deposits. The securities held to maturity are to be matched
against  maturing  liabilities  in order to attempt to maintain a balance in the
repricing of the  Company's  earning  assets and interest  bearing  liabilities.
Maturing  securities  may also be used to fund increases in loan demand or allow
for the outflow of deposits with which they are matched.

                                       22
<PAGE>
                                                    SVB FINANCIAL SERVICES, INC.
                 Management's Discussion and Analysis of Financial Condition and
                                                           Results of Operations


The following table sets forth the amortized cost and estimated market values of
securities as of December 31, 1998 and 1997.
<TABLE>
<CAPTION>
=================================================================================================================================
                                                                       1998                                        1997
                                                           AMORTIZED           FAIR                    AMORTIZED           FAIR
(in thousands)                                                COST             VALUE                      COST             VALUE
==================================================================================================================================
<S>                                                         <C>              <C>                        <C>              <C>     
AVAILABLE FOR SALE:
U.S. Treasury Securities                                    $  3,511         $  3,515                   $  2,249         $  2,250
U.S. Government Agency Securities                              9,261            9,243                      6,000            6,008
Mortgage-Backed Securities                                     8,491            8,515                      2,960            3,008
Equity Securities                                                250              250                          -                -
----------------------------------------------------------------------------------------------------------------------------------
                                                            $ 21,513         $ 21,523                   $ 11,209         $ 11,266
----------------------------------------------------------------------------------------------------------------------------------
HELD TO MATURITY:
U.S. Treasury Securities                                    $  2,001         $  2,008                   $  8,754         $  8,770
U.S. Government Agency Securities                             10,235           10,274                     11,477           11,498
Other Securities                                               2,002            2,002                          -                -
Mortgage-Backed Securities                                       814              817                      1,871            1,875
----------------------------------------------------------------------------------------------------------------------------------
                                                            $ 15,052         $ 15,101                   $ 22,102         $ 22,143
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: With regard to mortgage-backed  securities,  the Company does not hold any
private issue CMOs. As of December 31, 1998,  there was not one issuer where the
aggregate  book  value  or  aggregate   market  value  exceeds  ten  percent  of
shareholders'  equity.  The maturity  distribution and weighted average yield of
the Company's securities portfolio as of December 31, 1998 is as follows:
<TABLE>
<CAPTION>
=================================================================================================================================
                                                                       DUE IN:                           DUE IN:
                                                                      ONE YEAR                    AFTER ONE YEAR
($ in thousands)                                                       OR LESS                THROUGH FIVE YEARS          TOTAL
=================================================================================================================================
<S>                                         <C>                       <C>                               <C>             <C>
AVAILABLE FOR SALE:
U.S. Treasury Securities
  Market Value                                                        $ 3,515                                 -         $  3,515 
  Yield                                                                  5.22%                                -             5.22%
U.S. Government Agency Securities
  Market Value                                                            500                           $ 8,743            9,243 
  Yield                                                                  5.28%                             5.46%            5.45%
Mortgage-Backed Securities
  Market Value                              $ 8,515                         -                                 -         $  8,515 
  Yield                                        5.79%                        -                                 -             5.79%
Equity Securities
  Market Value                              $   250                                                                       $  250 
=================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                         <C>                       <C>                               <C>             <C>
HELD TO MATURITY:
U.S. Treasury Securities
  Book Value                                                          $ 2,001                                 -         $  2,001 
  Yield                                                                  5.89%                                -             5.89%
U.S. Government Agency Securities
  Book Value                                                          $ 3,987                           $ 6,248         $ 10,235 
  Yield                                                                  5.05%                             6.25%            5.78%
Mortgage-Backed Securities
  Book Value                                $   814                         -                                 -           $  814 
  Yield                                        5.68%                        -                                 -             5.68%
Other Securities
  Book Value                                                          $ 2,002                                            $ 2,002 
  Yield                                                                  5.24%                                              5.24%
=================================================================================================================================
</TABLE>
Note:  Mortgage-backed  securities are not included because expected  maturities
will differ from contractual maturities.  Borrowers may have the right to prepay
or  call  obligations  with  or  without  call  or  prepayment  penalties.  U.S.
Government Agency Securities which are callable before their stated maturity are
included  in the  table at their  stated  maturity.  Equity  securities  are not
included because they do not have a maturity.



                                       23
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
 

LOANS

   The following  table  summarizes  the Company's loan portfolio as of December
31, 1998 and 1997.
<TABLE>
<CAPTION>
================================================================================ 
(in thousands)                              1998          1997
================================================================================ 
<S>                                     <C>           <C>      
Secured by Real Estate:

  Residential Mortgage                  $  30,577     $  33,249
  Commercial Mortgage                      42,703        29,793
  Construction                              6,256         4,852
Commercial & Industrial                    22,308        20,889
Loans to Individuals for
  Automobiles                              10,298        12,177
Other Loans to Individuals                  8,864         4,969
Other Loans                                   468           541
-------------------------------------------------------------------------------- 
                                         $121,474      $106,470
================================================================================ 
</TABLE>
Note:  The  Company's  commercial  loans  are not  concentrated  within a single
industry or group of related  industries.  The Company had strong  growth in the
loan portfolio in 1998. The loan portfolio increased by $15.0 million or 14% in
1998.

   The Company targets small to medium sized businesses and professionals in its
lending market. With the ever changing  composition of the banking  marketplace,
the Company has tried to remain  competitive  in its pricing of loans,  but will
not sacrifice loan quality to capture business. It is important to note that 29%
of the loans secured by  residential  real estate as of December 31, 1998,  were
for  commercial  purposes.  It is  common  for small  business  owners to secure
commercial loans with their personal businesses.
<PAGE>
   The  following  table sets forth the  Company's  total loans by maturity  and
interest rate sensitivity as of December 31, 1998:
<TABLE>
<CAPTION>
====================================================================================================================================
                                                      MATURITY                   AFTER
                                                       WITHIN                1 THROUGH                 AFTER
(in thousands)                                          1 YEAR                 5 YEARS               5 YEARS                  TOTAL
====================================================================================================================================
<S>                                                   <C>                     <C>                   <C>                   <C>      
Loans with fixed rates                                $ 13,857                $ 48,969              $  5,095              $  67,921
Loans with floating rates                               22,402                  10,343                20,808                 53,553
------------------------------------------------------------------------------------------------------------------------------------
Total                                                 $ 36,259                $ 59,312              $ 25,903              $ 121,474
====================================================================================================================================
</TABLE>

                                       24
<PAGE>
                                                    SVB FINANCIAL SERVICES, INC.
                 Management's Discussion and Analysis of Financial Condition and
                                                           Results of Operations
 

ASSET QUALITY

   Various  degrees  of  credit  risk  are  associated  with  substantially  all
investing activities.  The lending function,  however, carries the greatest risk
of loss. Risk elements include loans past due,  non-accrual loans,  renegotiated
loans,  other real estate  owned and loan  concentrations.  The Company  closely
monitors  its loan  portfolio to minimize  the risk of  delinquency  and problem
credits.  As a general rule a loan that is past due for principal or interest in
excess of ninety  days is placed on a  non-accrual  basis  unless  circumstances
exist that would lead management to find that non-accrual is unnecessary  (i.e.,
liquidation  of  collateral  or the  borrower  has the ability to bring the loan
current as to principal and interest).

   The  Company's  loan  portfolio  consists  of  commercial  loans,  commercial
mortgages,  real  estate  construction  loans,  residential  mortgage  loans and
consumer loans.

   The Company's  commercial  loans are primarily  made to small  businesses and
professionals in its market area with maturities between one and five years. The
majority of these loans are  collateralized  by real estate consisting of single
family homes or commercial  properties,  and/or the assets of the businesses and
further  secured by personal  guarantees.  The Company  primarily  requires that
there be a loan to value ratio not  exceeding  80% on these  loans.  The Company
also  reviews  borrowers'  cash  flows in  analyzing  loan  applications.  Risks
inherent in these loans include risks that a borrower's cash flow generated from
its business may not be sufficient to repay the loans, either because of general
economic  conditions,  downturns specific to the borrower's business or interest
rate changes  which cause  deterioration  in a  borrower's  cash flow as well as
risks  associated  with the  collateral  securing  the loans,  such as  possible
deterioration in value of the collateral or  environmental  contamination of the
collateral.

   Commercial  mortgages are made to small  businesses and  professionals in the
market area to purchase commercial real estate for use in their businesses.  The
Company  will  generally  not finance in excess of 75% of  appraised  value.  In
reviewing a borrower's qualifications,  the Company pays particular attention to
cash flow. In addition,  the Company  frequently  requires personal  guarantees.
Risk factors  associated with these loans include general  economic  performance
which will affect  vacancy rates for  commercial  properties  and the ability of
businesses  to  maintain  cash  flows as well as the resale  value  which may be
yielded on a particular property.

   The Company  originates and retains  residential  mortgages  loans.  They are
generally  written  with a three,  five or ten year  fixed  rate  which  adjusts
annually  thereafter for the life of the loan,  which may be up to 30 years. The
Company  generally does not lend in excess of 80% of the appraised value.  Risks
inherent in these loans include the employment  stability and earnings potential
of the  borrower  as  well  as  potential  resale  values  associated  with  the
collateral securing these loans.
<PAGE>
   The Company makes  construction  loans to  individuals  with expertise in the
industry or to owner occupied projects.  The loans are generally on projects for
which a sale  contract  has  been  executed  and for  which  permanent  mortgage
financing  is in  place.  The  Company  will  generally  lend  up to  75% of the
appraised  completed  value of the  project.  Risks  inherent  with these  loans
include performance of the general economy which will affect whether the sale of
the project actually closes despite its contracted  status and the risk inherent
with  whether the  construction  of a project  will  actually be  completed  and
completed within budget.  Environmental factors may affect whether a project can
be completed.  However,  the Company does  environmental  due diligence prior to
closing.  An  environmental  risk  factor  is  the  risk  that  a  site  may  be
contaminated by toxic chemicals,  oil, gasoline or like substance.  In the event
that this occurs  environmental audits must be performed to determine the extent
of the problem and cost of cleanup.  Excessive  cleanup  costs may  endanger the
completion of the project.

   The Company makes consumer loans on an unsecured

basis as personal loans to finance various consumer goods.  Automobile loans are
also made on a direct basis and through the Company's relationship with area car
dealers.  Employment,  income,  credit rating,  as well as the potential  resale
values of automobiles, are the risk factors inherent in these loans.

   The Company  attempts to maintain an allowance  for possible loan losses at a
sufficient level to provide for potential  losses in the portfolio.  Loan losses
are  charged  directly to the  allowance  as they occur and any  recoveries  are
credited to the  allowance.  The allowance for possible loan losses is increased
periodically  through  charges to earnings  in the form of a provision  for loan
losses.

   Factors that influence management's judgment in determining the amount of the
provision for loan losses  include an ongoing  review of the overall  quality of
the  loan  portfolio  by the  Company's  credit  analysts  who  have no  lending
authority,  management's  continuing evaluation of loans and the assignment of a
specific risk rating to all non-consumer  borrowing, an evaluation of prevailing
and  anticipated  economic  conditions and their related effects on the existing
portfolio,  loan  classifications  and  evaluations  as  a  result  of  periodic
examinations  by Federal and State  supervisory  authorities  and  comments  and
recommendations  of the Company's  independent public accountants as a result of
their annual audit of the financial  statements.  It is management's practice to
review the allowance on a monthly basis to determine the provision to be made.

                                       25
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations

   The   following   table   summarizes   the   composition   of  the  Company's
non-performing assets as of the dates indicated:
<TABLE>
<CAPTION>
=================================================================================================================================
DECEMBER 31,                                                                              1998                            1997
(in thousands)
=================================================================================================================================
<S>                                                                                     <C>                             <C>      
Non-performing assets (1):
Non-accruing loans
  Commercial and Construction                                                          $      56                       $       - 
  Real Estate                                                                                  -                               - 
  Installment                                                                                 40                              63 
--------------------------------------------------------------------------------------------------------------------------------
    Total non-accrual loans                                                                   96                              63 
Restructured loans                                                                             -                               - 
--------------------------------------------------------------------------------------------------------------------------------
    Total non-performing loans                                                                96                              63 
--------------------------------------------------------------------------------------------------------------------------------
Other real estate owned                                                                        -                               - 
--------------------------------------------------------------------------------------------------------------------------------
    Total non-performing assets                                                        $      96                       $      63 
--------------------------------------------------------------------------------------------------------------------------------
Loans past due 90 days or more (2)                                                     $       5                       $       - 
--------------------------------------------------------------------------------------------------------------------------------
Non-performing loans to total loans                                                         0.08%                           0.06%
Non-performing assets to total assets                                                       0.05%                           0.04%
Allowance for loan losses to non-performing loans                                       1,261.46%                       1,558.73%
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Non-performing  assets  excludes  loans  past due 90 days or more and still
accruing. 
(2)  Loans past due 90 days or more and still accruing.

As  noted  in the  previous  table,  the  Company's  charge  off  history  shows
relatively small  percentages of net charge offs. The following table depicts an
approximate  allocation  of the  allowance  for  loan  losses  as of  the  dated
indicated:
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
DECEMBER 31,                                                     1998                                          1997
                                                                           PERCENT OF                                   PERCENT OF
($ in thousands)                                        AMOUNT         LOANS TO TOTAL                AMOUNT          LOANS TO TOTAL
===================================================================================================================================
<S>                                                     <C>                    <C>                    <C>                    <C>   
Commercial and Construction                             $  986                 58.67%                 $ 728                  64.37%
Real Estate                                                 41                 25.17%                    47                  21.69%
Installment                                                184                 16.16%                   207                  13.94%
-----------------------------------------------------------------------------------------------------------------------------------
                                                       $ 1,211                100.00%                 $ 982                 100.00%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS
Following  is the average  balances  and rates paid on deposits  for the periods
indicated:
<TABLE>
<CAPTION>
====================================================================================================================================
YEARS ENDED DECEMBER 31,                                  1998                   1997
                                                       AVERAGE                AVERAGE               AVERAGE                 AVERAGE
($ in thousands)                                       BALANCE                   RATE               BALANCE                    RATE
====================================================================================================================================
<S>                                                  <C>                                          <C>                              
Demand Deposits                                      $  24,416                      -             $  20,584                       -
Savings Deposits                                        10,992                  3.17%                 8,232                   3.11%
Money Market Deposits Accounts                          18,288                  3.38%                18,017                   3.53%
NOW Accounts                                            14,684                  2.61%                 8,903                   2.56%
Time Deposits                                           78,296                  5.47%                68,428                   5.47%
------------------------------------------------------------------------------------------------------------------------------------
                                                     $ 146,676                  3.84%             $ 124,164                   3.92%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Following is the maturity  distribution of time certificates of deposit $100,000
and over at December 31, 1998:
<TABLE>
<CAPTION>
(in thousands)
<S>                                                 <C>     
Three months or less                                $ 10,300
Over three months through twelve months                2,949
Over 1 year through five years                           839
-------------------------------------------------------------------------------- 
                                                     $14,088
================================================================================
</TABLE>

                                       26
<PAGE>
                                                    SVB FINANCIAL SERVICES, INC.
                 Management's Discussion and Analysis of Financial Condition and
                                                           Results of Operations


The following  table  summarizes the activity in the allowance for possible loan
losses for the period indicated:
<TABLE>
<CAPTION>
==================================================================================================================================
                                                                                                   YEARS ENDED DECEMBER 31,
==================================================================================================================================
(in thousands)                                                                               1998                            1997
==================================================================================================================================
<S>                                                                                       <C>                             <C>    
Balance, beginning of period                                                              $  982                          $  783 
Loans charged off
  Commercial and Construction                                                                  -                             (34)
  Real Estate                                                                                  -                               - 
  Installment                                                                                (80)                            (52)
----------------------------------------------------------------------------------------------------------------------------------
Total charge offs                                                                            (80)                            (86)
----------------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off
  Commercial and Construction                                                                  8                               - 
  Real Estate                                                                                  -                               - 
  Installment                                                                                  1                               5 
----------------------------------------------------------------------------------------------------------------------------------
Total recoveries                                                                               9                               5 
----------------------------------------------------------------------------------------------------------------------------------
Net Loans charged off                                                                        (71)                            (81)
----------------------------------------------------------------------------------------------------------------------------------
Provision charged to expense                                                                 300                             280 
----------------------------------------------------------------------------------------------------------------------------------
Balance, end of period                                                                   $ 1,211                          $  982 
----------------------------------------------------------------------------------------------------------------------------------
Net charge offs as a percentage of average loans                                            0.06%                           0.09%
Allowance for loan losses to total loans                                                    1.00%                           0.92%
Allowance for loan losses to non-performing loans                                       1,261.46%                       1,558.73%
</TABLE>

LIQUIDITY

   The Company's  liquidity  needs arise  principally  to  accommodate  possible
deposit outflows and meet loan demand.  The Company's  liquidity is dependent on
the  successful  management  of its assets and  liabilities  so as to meet these
needs of both its deposit and loan customers.

   Liquidity,  as represented by cash and cash equivalents,  is a product of its
operating, investing, and financing activities.

During 1998, the Company  generated  $1,307,000 cash flow from  operations.  Net
cash used in investing activities was $23,017,000, most of which was in the form
of loans. Purchases of securities available for sale totaled $19,464,000,  while
purchases of securities held to maturity totaled  $8,717,000.  These were funded
mostly by  maturities  available  for sale and  securities  held to  maturity of
$6,633,000 and $15,797,000,  respectively. In addition to loans and investments,
the Company began  investing in time deposits due from banks,  during 1998 which
totaled $4,090,000 at year end.
<PAGE>
   Funding for  investment  activities  resulted  from an increase in  financing
activities of $35,375,000.  Almost half of this came from the increase in demand
deposits of $17,419,000  most of which was in interest  bearing demand deposits.
Savings,  time deposits,  and money market  deposits also increased  $4,793,000,
$3,999,000 and $9,572,000, respectively.

   Cash and cash equivalents increased $13,665,000 in 1998.

   The Company believes its liquidity position is sufficient to provide funds to
meet future loan demand or possible outflow of deposits.

                                       27
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations


ASSET AND LIABILITY MANAGEMENT

   Interest rate risk is defined as the sensitivity of the Company's current and
future  earnings  as well as its  capital  to  changes  in the  level of  market
interest rates. The Company's exposure to interest rate risk results from, among
other  things,  the  difference in  maturities  on interest  earning  assets and
interest  bearing  liabilities.  The  relationship  between  the  interest  rate
sensitivity of the Bank's assets and liabilities is continually monitored by the
Bank's  Asset/Liability  Management  Committee (the "ALCO").  The purpose of the
ALCO is to review and  monitor  the  volume,  mix and  pricing  of the  interest
sensitive assets and liabilities  consistent with the Bank's overall  liquidity,
capital, growth and profitability goals.

   Loans make up the largest portion of the Bank's assets.  In making commercial
loans,  the emphasis is placed on floating  rate loans tied to the prime lending
rate. Fixed rate commercial loans are generally written so that the rates can be
adjusted  within  3-5 years  with  payouts  up to 20 years.  Mortgage  loans are
currently  written to be adjusted annually after the first 3, 5 or 10 year term.
Home equity loans are tied to the prime lending rate although special promotions
may offer a fixed rate for  periods of not  greater  than one year.  Installment
loans are written at fixed rates from 3 to 5 years.

   The  Bank   utilizes  its   securities  to  manage  its  liquidity  and  rate
sensitivity. Fixed rate securities are purchased for terms of less than 5 years.
Adjustable rate securities  require an estimate average life at time of purchase
of 10 years or less. Callable securities are also purchased for terms of 5 years
or  less  with  a  call  period  of  three   months  to  2  years.   Fixed  rate
mortgage-backed  securities are also  purchased with estimated  average lives at
the time of purchase of not more than 5 years.

   A  significant  portion  of the  Bank's  assets  have  been  funded  with CDs
including  jumbo CDs.  Unlike  other  deposit  products,  such as,  checking and
savings  accounts,  CDs carry a high degree of  interest  rate  sensitivity  and
therefore,  their renewal will vary based on the  competitiveness  of the Bank's
interest rates. The Bank has attempted to price its CDs competitively.

   The nature of the Bank's current operations is such that it is not subject to
foreign  currency  exchange or commodity price risk.  Additionally,  neither the
Company nor the Bank owns any trading assets. At December 31, 1998, the Bank did
not have any hedging transactions in place.

INTEREST RATE SENSITIVITY ANALYSIS

   One measure of the Bank's  interest rate  sensitivity is through the use of a
sensitivity  gap analysis.  The interest rate  sensitivity gap is defined as the
difference between the amount of  interest-earning  assets maturing or repricing
within a specific  time  period and the amount of  interest-bearing  liabilities
maturing or repricing  within that same time period.  A gap is positive when the
amount of  interest-earning  assets maturing or repricing  exceeds the amount of
<PAGE>
interest-bearing  liabilities  maturing or repricing within that same period and
is  negative  when  the  amount  of  interest-bearing  liabilities  maturing  or
repricing  exceeds the amount of  interest-earning  assets maturing or repricing
within the same period.  Accordingly,  during a period of rising interest rates,
an  institution  with a negative  gap  position  would not be in as  favorable a
position,  compared to an  institution  with a positive gap, to invest in higher
yielding  assets.  A negative  gap may  result in the yield on an  institution's
interest-earning  assets  increasing  at a slower  rate than the  increase in an
institution's  cost of  interest-bearing  liabilities  than if it had a positive
gap. During a period of falling  interest rates, an institution  with a negative
gap would experience a repricing of its interest-earning assets at a slower rate
than its interest-bearing liabilities which, consequently, may result in its net
interest income growing at a faster rate than an institution with a positive gap
position.



                                       28
<PAGE>
                                                    SVB FINANCIAL SERVICES, INC.
                 Management's Discussion and Analysis of Financial Condition and
                                                           Results of Operations

INTEREST RATE SENSITIVITY AT DECEMBER 31, 1998 (In thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
MATURITY OR REPRICING IN (2)
                                         DUE IN                 BETWEEN                                     NON-
                                        90 DAYS               91 DAYS -               AFTER             INTEREST
                                        OR LESS                ONE YEAR            ONE YEAR              BEARING              TOTAL
===================================================================================================================================
<S>                                    <C>                     <C>                 <C>                  <C>               <C>      
ASSETS:
Securities                             $ 27,793                $  2,206            $  6,576             $      -          $  36,575
Federal Funds Sold                       10,325                       -                   -                    -             10,325
Interest Bearing Time Deposits              199                   3,491                 400                    -              4,090
Other Short Term Investments                965                       -                   -                    -                965
Loans                                    44,573                  15,801              61,004                   96            121,474
Valuation Reserve(1)                          -                       -                   -               (1,298)            (1,298)
Non-interest Earning Assets                   -                       -                   -               13,096             13,096
-----------------------------------------------------------------------------------------------------------------------------------
Total Assets                           $ 83,855                $ 21,498            $ 67,980             $ 11,894          $ 185,227
-----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Money Market Accounts                  $ 20,226                $      -            $      -             $      -          $  20,226
NOW Accounts                             24,502                       -                   -                    -             24,502
Other Savings Deposits                   13,836                       -                   -                    -             13,836
Time CDs over $100,000                   10,300                   2,949                 839                    -             14,088
Other Time Deposits                      28,343                  32,103               8,719                    -             69,165
Obligation Under Capital Lease                -                       -                 438                    -                438
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities       97,207                  35,052               9,996                    -            142,255
-----------------------------------------------------------------------------------------------------------------------------------
Non-interest Bearing Liabilities              -                       -                   -               27,897             27,897
Other Liabilities                             -                       -                   -                  710                710
Stockholders' Equity                          -                       -                   -               14,365             14,365
-----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
  Stockholders' Equity                 $ 97,207               $  35,052            $  9,996             $ 42,972          $ 185,227
-----------------------------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Gap          $(13,352)              $ (13,554)           $ 57,984             $ 31,078
-----------------------------------------------------------------------------------------------------------------------------------
Cumulative Gap                         $(13,352)              $ (26,906)           $ 31,078
-----------------------------------------------------------------------------------------------------------------------------------
Cumulative Gap to Total Assets            (7.21)%                (14.53)%             16.78%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Valuation Reserves include allowance for loan losses and deferred loan fees.
(2) The  following  are the  assumptions  that  were  used  to  prepare  the Gap
    analysis:
<PAGE>
     (A) Securities "available for sale" are placed in the first maturity bucket
     since they can be sold at any time.
     (B) Callable securities are spread
     based on their  actual  maturity  date.  
     (C) Loans are spread based on the earlier of their actual  maturity date or
     the date of their first potential rate adjustment.
     (D) Money Market  Accounts,  NOW Accounts,  and Other Savings  Accounts are
     subject to immediate withdrawal.
     (E) Time deposits are spread based on their actual maturity date.

                                       29
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations

 The ALCO attempts to maintain the Company's cumulative gap ratios at +/-15% for
90 days or less,  +/-20%  for  between  91 days to six months and +/-25% for six
months to one year.

   While gap  analysis  is a general  indicator  of the  potential  effect  that
changing interest rates may have on net interest income, the gap itself does not
present a complete picture of interest rate sensitivity.  First,  changes in the
general  level of  interest  rates do not  affect all  categories  of assets and
liabilities  equally  or  simultaneously.  Second,  assumptions  must be made to
construct a gap  analysis.  Money Market  deposits,  for example,  which have no
contractual  maturity,  are assigned a repricing interval of 90 days. Management
can  influence  the actual  repricing  of the  deposits  independent  of the gap
assumption.  Third,  the gap analysis  represents a one-day  position and cannot
incorporate a changing mix of assets and labilities  over time as interest rates
change. Volatility in interest rates can also result in disintermediation, which
is the flow of funds away from financial  institutions into direct  investments,
such as U. S. Government and corporate securities and other investment vehicles,
including  mutual  funds,  which,  because of the  absence of federal  insurance
premiums  and reserve  requirements,  generally  pay higher rates of return than
financial institutions.


RETURN ON ASSETS AND RETURN ON EQUITY

   The following  table depicts returns on average assets and returns on average
equity for the periods indicated:
<TABLE>
<CAPTION>
                                       Years Ended December 31,
================================================================================
                                   1998                  1997
================================================================================
<S>                               <C>                   <C>  
Return on Average Assets          0.75%                 0.80%
Return on Average Equity          8.82%                 8.89%
Average Equity to
  Average Assets                  8.44%                 9.04%
================================================================================
</TABLE>
CAPITAL RESOURCES

   Under the FDIC  Improvement  Act of 1991,  banks are  required  to maintain a
minimum ratio of total capital to risk based

assets  of 8% of  which  at  least  4%  must be in the  form  of Tier I  capital
(primarily shareholders' equity). The following are the Company's capital ratios
at the end of the periods indicated.
<PAGE>
<TABLE>
<CAPTION>
                                       Years Ended December 31,
================================================================================
                                   1998                  1997
================================================================================
<S>                              <C>                   <C>   
Total Capital to
  Risk Weighted Assets           11.14%                12.81%
Tier 1 Capital to
  Risk Weighted Assets           10.24%                11.89%
Leverage Ratio                    8.54%                 8.72%
================================================================================
</TABLE>
   It is the  Company's  intention  to retain its  earnings  in order to provide
adequate capital to continue to support its growth. The Company has never paid a
dividend.


                                       30
<PAGE>
                                                    SVB FINANCIAL SERVICES, INC.
                 Management's Discussion and Analysis of Financial Condition and
                                                           Results of Operations


SUMMARY OF QUARTERLY RESULTS

   The following summarizes the results of operations during 1998 on a quarterly
basis:
<TABLE>
<CAPTION>
====================================================================================================================================
                                                                             For the Quarters Ended
====================================================================================================================================
(in thousands)                               March 31                    June 30              September 30               December 31
====================================================================================================================================
<S>                                           <C>                        <C>                       <C>                       <C>    
Interest Income                               $ 2,916                    $ 3,044                   $ 3,183                   $ 3,323
Interest Expense                                1,328                      1,379                     1,426                     1,532
------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income                             1,588                      1,665                     1,757                     1,791
Provision for Loan Losses                          65                         70                        90                        75
------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After
  Provision for Loan Losses                     1,523                      1,595                     1,667                     1,716
------------------------------------------------------------------------------------------------------------------------------------
Gain on the Sale of Loans                          51                         69                       144                        70
Gain on the Sale of Securites                       -                          -                         4                         -
Other Income                                       94                         97                       112                       129
Other Expense                                   1,275                      1,341                     1,322                     1,364
------------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes                        393                        420                       605                       551
Income Taxes                                      159                        170                       238                       199
------------------------------------------------------------------------------------------------------------------------------------
Net Income                                     $  234                     $  250                    $  367                    $  352
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
YEAR 2000 DISCLOSURE


   The Year 2000  ("Y2K")  issue is the  result  of  computer  programs  using a
two-digit  format as opposed to four digits to indicate the year.  Such computer
systems  will be unable to interpret  dates beyond the year 1999,  which cause a
system  failure  or  other  computer  errors,  leading  to  the  disruptions  in
operations.

   In 1997,  the  Company  formed a Year  2000  Committee  to  develop a plan to
address the issue.  The first phase of the plan called for  identifying all date
reliant hardware,  including  computers,  check encoders,  vaults, A/C & heating
systems, lighting systems, etc. and computer software by performing an inventory
and contacting all vendors for information regarding the Y2K compliance of their
products.  The second phase of the plan called for the replacement or upgrade of
non-compliant  hardware  or software to Y2K  compliant  status.  The third phase
called for the testing of mission  critical  hardware  and software to ascertain
Y2K compliance.  In addition,  contingency  plans are being written to allow the
continuation of operations in case of system failures.
<PAGE>
   Phase   I    (Inventory/Assessment)    has   been    completed.    Phase   II
(Renovation/Implementation)  has been  completed  except for the  replacement of
check  encoder   hardware  which  will  take  place  in  mid  1999.   Phase  III
(Validation/Testing) is in progress and will be completed by June 30, 1999.

   Most of the Company's major computer applications (loans,  deposits,  general
ledger,  etc.) are outsourced to Fiserv, one of the largest bank data processing
servicers in the country.  Fiserv has a Year 2000 Plan, is performing testing on
all  mission  critical  systems  and  interfaces,  and  has  developed  its  own
contingency  plans.  Fiserv has completed  testing of its systems.  We have been
provided access to all its documentation and test results. In addition,  a third
party auditor has been hired by Fiserv's clients to review Fiserv's Y2K plan and
provide status reports.  At this writing Fiserv has substantially  completed the
validation  and  testing of the major  computer  applications  and is  currently
testing application interfaces.

   The Company expects to spend $200,000 for equipment  upgrades and $30,000 for
direct expense items to cover additional Y2K charges.

   The  Company  has also made  several  mailings  to its retail and  commercial
customers to apprise them of the Y2K problem.  Y2K risk assessment has been made
a part of the Bank's  commercial loan  underwriting  procedures.  The commercial
portfolio has been reviewed and a Y2K risk assessment made of customers.

   These  customers  have been  contacted and asked to complete a  questionnaire
regarding their Y2K effort.

                                       31
<PAGE>
   SVB Financial Services, Inc. and Somerset Valley Bank

BOARD OF DIRECTORS

John K. Kitchen
Chairman of the Board

G. Robert Santye
Vice Chairman of the Board

Bernard Bernstein
Robert P. Corcoran
Mark S. Gold, MD
Raymond L. Hughes
S. Tucker S. Johnson
Willem Kooyker
Frank Orlando
Gilbert E. Pittenger
Frederick D. Quick
Anthony J. Santye, Jr.
Donald Sciaretta
Herman C. Simonse
Donald R. Tourville


SOMERSET VALLEY BANK
FOUNDERS ADVISORY COUNCIL:

Richard Bradley
Maureen T. Kruse
Matthew Madlinger
John Majcher
Thomas C. Miller, Esq.
Harold T. Moscatiello
Edward Rego

Janak Sakaria, MD
Helga Schwartz, MD
Michael A. Sena
Albert DiFiore
Sandra L. Runyon
Frank Tourville
Donald Sweeney, MD

SOMERSET VALLEY BANK
HILLSBOROUGH ADVISORY COUNCIL:

Michael Avolio
Elaine DeMilia
Walter J. Dietz, III
Peter McGavisk
Daniel G. Marulli, DDS
John Mondoro
Dan Pullen, DDS
Harry Smith
Kevin Sweeney
Frank N. Yurasko, Esq.
<PAGE>
BANKING STAFF
OFFICERS:

Robert P. Corcoran
President and C.E.O.

Keith B. McCarthy
Chief Operating Officer

Arthur E. Brattlof
Executive Vice President,
Senior Loan Officer

Robert F. Cramer
Senior Vice President
Consumer Loans

Michael A. Novak
Senior Vice President
Commercial Loans

Jeffrey D. Mattison
Vice President
Commercial Loans

Kenneth A. Rastelli
Vice President
Commercial Loans

Kathy Ruggiero
Vice President
Branch Administration

Roger W. Russell
Vice President
Loan Administration

Karen L. Zaliwski
Vice President
Operations

Christopher Fenimore
Assistant Vice President
Consumer Loans

John P. Oliver
Assistant Vice President
Commercial Loans

Margaret O'Keeffe
Assistant Vice President and
Manager

Mary E. Rowe
Assistant Vice President
Accounting and Finance
<PAGE>
Mary Ann Soriano
Assistant Vice President
Bookkeeping

Marguerite Eppler
Secretary to the Board

Jeannette Capra
Assistant Treasurer

Christopher Seaman
Assistant Treasurer

Vimala Vimalavong
Assistant Treasurer

Kenneth S.B. Wade II
Assistant Treasurer

Jeanne G. Hagen
Human Resources Director

Suzanne B. Lennard
Assistant Secretary

GENERAL
COUNSEL:

Thomas C. Miller, Esq.
Miller,  Robertson and Rodgers, P.C.
21 North Bridge Street

Somerville, NJ 08876

INDEPENDENT
PUBLIC
ACCOUNTANTS:

Grant Thornton LLP
2001 Market Street

Philadelphia, PA 19103-7080

TRANSFER AGENT:

Registrar and Transfer Company
10 Commerce Drive

Cranford, NJ 07016

SOMERSET VALLEY BANK

Main Office
103 West End Avenue
Somerville, NJ 08876

Telephone:   (908) 704-1188
Fax:         (908) 685-2180
<PAGE>
HILLSBOROUGH OFFICE
649 Route 206
Hillsborough Centre
Belle Mead, NJ 08502

Telephone:   (908) 281-4009
Fax:         (908) 281-3042

BRIDGEWATER OFFICE

481 North Bridge Street
Bridgewater, NJ 08807
Telephone:   (908) 725-0033
Fax:         (908) 725-0110

GASTON AVENUE OFFICE

91 North Gaston Avenue
Somerville, NJ 08876
Telephone:   (908) 575-7300
Fax:         (908) 575-9395

ARBOR GLEN OFFICE

100 Monroe Street
Bridgewater, NJ 08807
Telephone:   (908) 595-9700
Fax:         (908) 526-3418