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
              6:  CONSOLIDATED STATEMENTS OF CASH FLOW
              7:  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             17:  REPORT OF INDEPENDENT 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

                                                             1997            1996            1995            1994             1993
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>             <C>             <C>             <C>              <C>
INCOME STATEMENT DATA:
Interest Income                                      $ 10,753,855    $  8,382,903    $  6,296,011    $  4,396,324     $  2,703,788
Interest Expense                                        4,879,599       3,813,161       2,870,884       1,765,907        1,092,806
------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income                                     5,874,256       4,569,742       3,425,127       2,630,417        1,610,982
Provision for Possible Loan Losses                        280,000         309,500         206,000         156,000          130,000
------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision
   for Possible Loan Losses                             5,594,256       4,260,242       3,219,127       2,474,417        1,480,982
Non-Interest Income                                       561,330         371,615         362,820         207,642          192,083
Non-Interest Expense                                    4,303,238       3,426,609       2,495,340       2,162,657        1,741,896
------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes                       1,852,348       1,205,248       1,086,607         519,402          (68,831)
Income Tax Expense (Benefit)                              749,310         485,163         423,390        (307,752)            --
------------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss)                                    $  1,103,038    $    720,085    $    663,217    $    827,154     $    (68,831)
====================================================================================================================================
BALANCE SHEET DATA:
Total Assets                                         $148,549,488    $124,995,467    $ 88,743,914    $ 74,075,685     $ 52,660,542
Federal Funds Sold and Other
   Short Term Investments                                 188,304       7,213,478       5,170,063       3,625,661        2,914,280
Securities Available For Sale                          11,266,269       8,726,878       4,874,738       3,473,951        5,329,917
Securities Held To Maturity                            22,101,977      13,989,481      14,580,823      18,091,163        6,410,724
Loans, Net                                            105,389,043      86,992,283      59,528,167      44,988,469       35,015,352
Deposits                                              133,930,016     112,521,390      79,679,792      67,053,817       46,604,614
Shareholders' Equity                                   13,095,530      11,909,659       8,703,176       6,819,399        5,989,086
====================================================================================================================================
PERFORMANMCE RATIOS:
Return on Average Assets                                      .80%            .67%            .83%           1.30%            (.16)%
Return on Average Equity                                     8.89%           8.07%           8.16%          13.50%           (1.35)%
Net Interest Margin                                          4.52%           4.51%           4.53%           4.38%          4.07 %
====================================================================================================================================
ASSET QUALITY:
Loans Past Due Over 90 Days                          $       --      $     20,600    $       --      $       --       $      5,985
Non-Accrual Loans                                          62,632          24,384            --              --               --
Net Charge Offs                                            81,168          53,153          51,043          14,973            5,965
Allowance for Loan Losses To Total Loans                      .92%            .89%            .88%            .82%           .65 %
====================================================================================================================================
PER SHARE DATA (1):
Earnings Per Share (Basic)                           $        .81    $        .61    $        .58    $        .80     $       (.08)
Earnings Per Share (Assuming Dilution)                        .80             .60             .58             .80             (.08)
Book Value                                                   9.54            8.72            7.42            6.61             5.83
====================================================================================================================================
CAPITAL RATIOS:
Total Risked-Based Capital                                  12.81%          13.40%          14.11%          14.03%         15.99 %
Tier I Risked-Based Capital                                 11.89%          12.56%          13.29%          13.28%         15.39 %
Leverage Capital                                             8.72%           9.58%           9.89%           9.21%         11.19 %
====================================================================================================================================
</TABLE>

(1) Retroactively restated for the 6 for 5 exchange of shares resulting from the
    acquisition of Somerset Valley Bank by SVB Financial Services, Inc.
<PAGE>
Dear Shareholder:

   The year 1997 will be remembered for  significant  price  fluctuations in the
stock market,  low inflation,  modest but steady economic  growth,  low interest
rates, and a generally favorable climate for the banking industry.  Bank mergers
and  acquisitions  continued  at a  frenetic  pace,  particularly  in the Middle
Atlantic States,  further consolidating the industry and allowing for additional
market penetration by the community banks.

   Throughout this flurry of activity, SVB Financial Services, Inc., through its
wholly owned  subsidiary,  Somerset  Valley Bank,  has continued to thrive while
taking advantage of the general upheaval caused by this consolidation process.

   Both  commercial and individual  customers have reached out for stability and
familiarity  and we have responded by adding  technological  enhancements to our
product  lines and  continuing  our focus on  personal  service.  We have  added
convenient  branch  locations and introduced  remote banking systems which allow
customers access to their accounts from their telephones, personal computers and
a  worldwide  debit  card in a  partnership  with  MasterCard.  These  products,
Teleplus,  PC Plus and Master Money Debit Card,  have been well  accepted by our
clients and continue to grow in popularity.

   Our branch in Hillsborough  Centre has grown to over $18 million in less than
two years,  and our new  office in  Bridgewater  Township  has  reached  over $6
million  in less than six  months of  operation.  The Bank has also  acquired  a
mini-branch/drive-up  facility on Gaston Avenue in Somerville which now provides
additional  convenience  for our  Somerville  customers,  mitigating the lack of
drive-up  services  at  our  highly  successful  West  End  Avenue  headquarters
facility.  We are very  excited  about the opening,  in February of 1998,  of an
on-site  banking  facility at Arbor Glen, a continuing  health care  facility in
Bridgewater Township.  Arbor Glen will ultimately house over 300 residents,  150
employees  and its own health and wellness  center that will serve the residents
and the community at large.

   Several  milestones   occurred  in  1997,   including  Somerset  Valley  Bank
surpassing  net  earnings of over $1 million,  exceeding  $150 million in assets
during the fourth  quarter,  and ending the year with more than $100  million in
loans   ($106,470,674   or  an  increase  of  21%  over  last  year's  total  of
$87,855,063).

   Our year-end total assets of  $148,549,488  was an increase of 19% over total
assets of  $124,995,467  as of December  31, 1996,  and our  deposits  grew from
$112,521,390  on December 31, 1996, to  $133,930,016 or an increase of 19%. As a
result of this growth and despite  the expense  involved in adding new  branches
with related occupancy and personnel costs,  Somerset Valley Bank had net income
of  $1,103,038  or a 53% increase  over 1996  earnings of  $720,085.  As our new
branches  mature and  additional  branches  are added to our  network,  we fully
expect to continue our history of impressive growth and profitability.

   In October of 1997,  Somerset  Valley  engaged  the  services  of a respected
consulting  firm to assist us in locating  and securing  future  branch sites as
part of our plans for continued  growth.  We are currently  negotiating  for two
additional  branch  sites in  Somerset  County and  another in the  northeastern
portion of Monmouth County. As part of our strategic  planning process,  we have
defined an expanded  market area contiguous to our present branch network within
which we will explore future branching opportunities.
<PAGE>
   In addition to our plans for  expansion,  the company is also  exploring  the
possibility of listing our stock on one of the national  exchanges.  The purpose
of such an action would be to have the price of our stock determined on the open
market  based upon  performance  factors as the  company  goes  forward.  Such a
listing should create  liquidity for the stock and provide  shareholders  with a
source to  determine  the value and  marketability  of their  shares in a public
environment.  It is our intention to initiate  whatever actions are necessary to
complete this task prior to the end of 1998.

   Although our challenges for the next several years are  considerable,  we are
confident  that we are up to the task.  The company will  continue to pursue new
product offerings as technology changes the landscape of our industry and brings
banking closer to home. We are well on our way to identifying  and resolving the
problems  expected with computer  glitches at the change of the millennium.  (In
many programs  sensitive to date functions,  certain systems are not designed to
recognize the  difference  between the year 2000 or 1900 due to only a two-digit
field  for the  date.) A  committee  of senior  management  is  functioning  and
communicating  with hardware and software  vendors in determining  which systems
are  compliant  with  the  changeover  to the  year  2000  and we have  begun an
education process directed at both our borrowing and non-borrowing  customers to
assist them in  recognizing  potential  exposures.  Through those efforts we are
diligently  working to assure that this  changeover  is a non-event.  We will be
reporting   the   status  of  our   efforts  to  our   shareholders   in  future
communications.

   Above  all,  our  commitment  to  personal  service,  community  support  and
increased  shareholder value continues to drive the company. We truly appreciate
the support of our directors and shareholders in making SVB Financial  Services,
Inc., an economic  partner in our community and an investment of which we can be
proud.

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, 1997 AND 1996
=======================================================================================
                                                                 1997             1996
=======================================================================================
<S>                                                     <C>              <C>
ASSETS
Cash & Due from Banks                                   $   5,794,622    $   4,914,698
Federal Funds Sold                                               --          5,450,000
Other Short Term Investments                                  188,304        1,763,478
---------------------------------------------------------------------------------------
Total Cash and Cash Equivalents                             5,982,926       12,128,176
---------------------------------------------------------------------------------------
Securities
  Available for Sale, at Market Value                      11,266,269        8,726,878
  Held to Maturity, (Market Value $22,143,036 in 1997
   and $13,998,228 in 1996)                                22,101,977       13,989,481
---------------------------------------------------------------------------------------
Total Securities                                           33,368,246       22,716,359
---------------------------------------------------------------------------------------
Loans                                                     106,470,674       87,855,063
  Allowance for Possible Loan Losses                         (982,198)        (783,366)
  Unearned Income                                             (99,433)         (79,414)
---------------------------------------------------------------------------------------
Net Loans                                                 105,389,043       86,992,283
---------------------------------------------------------------------------------------
Premises & Equipment, Net                                   1,733,516        1,066,109
Other Real Estate                                                --            304,700
Other Assets                                                2,075,757        1,787,840
---------------------------------------------------------------------------------------
Total Assets                                            $ 148,549,488    $ 124,995,467
=======================================================================================
<PAGE>
<CAPTION>
                                                           SVB FINANCIAL SERVICES, INC.
                                                            Consolidated Balance Sheets
                                                       AS OF DECEMBER 31, 1997 AND 1996
=======================================================================================
                                                                 1997             1996
=======================================================================================
<S>                                                     <C>              <C>
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand
  Non-interest Bearing                                  $  21,965,676    $  21,420,923
  NOW Accounts                                             13,014,148        6,439,160
Savings                                                     9,042,660        7,675,671
Money Market Accounts                                      16,227,255       15,710,515
Time
  Greater than $100,000                                    12,879,808        6,211,335
  Less than $100,000                                       60,800,469       55,063,786
---------------------------------------------------------------------------------------
Total Deposits                                            133,930,016      112,521,390
---------------------------------------------------------------------------------------
Federal Funds Purchased                                       500,000             --
Obligation Under Capital Lease                                443,697             --
Accrued Expenses & Other Liabilities                          580,245          564,418
---------------------------------------------------------------------------------------
Total Liabilities                                         135,453,958      113,085,808
---------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common Stock, $4.17 Par Value: 10,000,000
  Shares Authorized; 1,373,030 Shares in 1997 and
  1,366,523 Shares in 1996 Issued and Outstanding           5,725,535        5,698,401
Additional Paid-in Capital                                  5,473,127        5,447,009
Retained Earnings                                           1,859,173          756,135
Unrealized Gain on Securities Available for Sale,

  Net of Income Taxes                                          37,695            8,114
---------------------------------------------------------------------------------------
Total Shareholders' Equity                                 13,095,530       11,909,659
---------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity              $ 148,549,488    $ 124,995,467
=======================================================================================
</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, 1997, 1996 AND 1995

=======================================================================================================
                                                                      1997          1996           1995
=======================================================================================================
<S>                                                            <C>           <C>            <C>
INTEREST INCOME
Interest on Loans                                              $ 8,664,936   $ 6,827,602    $ 4,850,687
Interest on Securities Available for Sale                          754,742       350,166        205,413
Interest on Securities Held to Maturity                            990,574       918,011      1,013,811
Interest on Other Short Term Investments                            54,307        46,757         14,798
Interest on Federal Funds Sold                                     289,296       240,367        211,302
-------------------------------------------------------------------------------------------------------
Total Interest Income                                           10,753,855     8,382,903      6,296,011
-------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on Deposits                                             4,866,837     3,813,161      2,870,715
Interest on Obligation Under Capital Lease                          12,590          --             --
Interest on Federal Funds Purchased                                    172          --              169
-------------------------------------------------------------------------------------------------------
Total Interest Expense                                           4,879,599     3,813,161      2,870,884
-------------------------------------------------------------------------------------------------------
Net Interest Income                                              5,874,256     4,569,742      3,425,127
PROVISION FOR POSSIBLE LOAN LOSSES                                 280,000       309,500        206,000
-------------------------------------------------------------------------------------------------------
Net Interest Income after Provision For Possible Loan Losses     5,594,256     4,260,242      3,219,127
-------------------------------------------------------------------------------------------------------
OTHER INCOME
Service Charges on Deposit Accounts                                231,117       171,130        120,411
Gain/(Loss) on the Sale of Securities Available for Sale             1,283        (2,117)         2,336
Gain on the Sale of Loans                                          214,533       131,966        181,599
Other Income                                                       114,397        70,636         58,474
-------------------------------------------------------------------------------------------------------
Total Other Income                                                 561,330       371,615        362,820
-------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
Consolidated Statements of Income
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

=======================================================================================================
                                                                      1997          1996           1995
=======================================================================================================
<S>                                                            <C>           <C>            <C>
OTHER EXPENSE
Salaries and Employee Benefits                                   2,180,133     1,781,085      1,269,371
Occupancy Expense                                                  476,797       400,770        240,049
Equipment Expense                                                  305,688       246,190        174,985
Other Expenses                                                   1,340,620       998,564        810,935
-------------------------------------------------------------------------------------------------------
Total Other Expense                                              4,303,238     3,426,609      2,495,340
-------------------------------------------------------------------------------------------------------
Net Income Before Provision for Income Taxes                     1,852,348     1,205,248      1,086,607
-------------------------------------------------------------------------------------------------------
Provision for Income Taxes                                         749,310       485,163        423,390
-------------------------------------------------------------------------------------------------------
NET INCOME                                                     $ 1,103,038   $   720,085    $   663,217
=======================================================================================================
EARNINGS PER COMMON SHARE - BASIC                              $       .81   $       .61    $       .58
=======================================================================================================
EARNINGS PER COMMON SHARE - ASSUMING DILUTION                  $       .80   $       .60    $       .58
=======================================================================================================
</TABLE>

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
                                                                               FOR THE YEARS ENDED DECEMBER 31, 1997, 1996  AND 1995

                                                                                                     UNREALIZED
                                                                   ADDITIONAL         RETAINED       GAIN (LOSS)          TOTAL
                                                      COMMON          PAID-IN         EARNINGS       ON SECURITIES     SHAREHOLDERS'
                                                       STOCK          CAPITAL         (DEFICIT)   AVAILABLE FOR SALE      EQUITY
====================================================================================================================================
<S>                                                <C>              <C>              <C>              <C>              <C>
BALANCE, DECEMBER 31, 1994                         $  4,304,566     $  3,179,996     $   (627,167)    $    (37,996)    $  6,819,399
------------------------------------------------------------------------------------------------------------------------------------
Exercise of Warrants                                    588,645          584,515             --               --          1,173,160
Net Income - 1995                                          --               --            663,217             --            663,217
Change in Unrealized Gain (Loss)
   on Securities Available for Sale                        --               --               --             47,400           47,400
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995                            4,893,211        3,764,511           36,050            9,404        8,703,176
------------------------------------------------------------------------------------------------------------------------------------
Issuance of Common Stock,
  Net of Related Issuance Costs                         834,000        1,711,266             --               --          2,545,266
Exercise of Stock Options                                 5,004            4,996             --               --             10,000
Non Participants in Exchange Offer                      (33,787)         (33,733)            --               --            (67,520)
Fractional Shares on Exchange                               (27)             (31)            --               --                (58)
Net Income - 1996                                          --               --            720,085             --            720,085
Change in Unrealized Gain (Loss)
  on Securities Available for Sale                         --               --               --             (1,290)          (1,290)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996                            5,698,401        5,447,009          756,135            8,114       11,909,659
------------------------------------------------------------------------------------------------------------------------------------
Issuance of Common Stock                                 27,134           26,118             --               --             53,252
Net Income for the Year                                    --               --          1,103,038             --          1,103,038
Change in Unrealized Gain (Loss)
  on Securities Available for Sale                         --               --               --             29,581           29,581
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997                         $  5,725,535     $  5,473,127     $  1,859,173     $     37,695     $ 13,095,530
====================================================================================================================================
</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, 1997, 1996 AND 1995
====================================================================================================================================
                                                                                     1997                 1996                 1995
====================================================================================================================================
<S>                                                                          <C>                  <C>                  <C>
OPERATING ACITIVITES
Net Income                                                                   $  1,103,038         $    720,085         $    663,217
Adjustments to Reconcile Net Income to Net
  Cash Provided By Operating Activities
Provision for Possible Loan Losses                                                280,000              309,500              206,000
Depreciation and Amortization                                                     298,248              208,228              170,619
(Accretion)of Securities Discount                                                 (27,240)             (50,581)            (208,496)
(Gains)/ Losses on Sales of Securities
  Available for Sale, Net                                                          (1,283)               2,117               (2,336)
(Increase)in Other Assets                                                        (301,439)            (728,809)             (92,653)
Increase in Accrued Expenses
  and Other Liabilities                                                               588              204,356              153,414
Increase/(Decrease) in Unearned Income                                             20,020               (9,828)             (14,414)
------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities                                       1,371,932              655,068              875,351
====================================================================================================================================

INVESTING ACTIVITIES
Proceeds from Sales of Securities Available for Sale                            1,502,109            1,994,043              490,909
Proceeds from Maturities of Securities
  Available for Sale                                                            4,747,425            4,333,967            2,501,243
  Held to Maturity                                                             11,112,112            8,717,552           27,278,825
Purchases of Securities
  Available for Sale                                                           (8,736,079)         (10,142,305)          (3,233,692)
  Held to Maturity                                                            (19,204,111)          (8,117,765)         (24,643,976)
(Increase) in Loans                                                           (18,696,780)         (27,763,788)         (14,731,285)
Decrease in Other Real Estate                                                     304,700                 --                   --
Capital Expenditures                                                             (508,436)            (862,822)            (394,874)
------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used for Investing Activities                                        (29,479,060)         (31,841,118)         (12,732,850)
====================================================================================================================================
<PAGE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
====================================================================================================================================
                                                                                     1997                 1996                 1995
====================================================================================================================================
<S>                                                                          <C>                  <C>                  <C>
FINANCING ACTIVITIES
Net Increase in Demand Deposits                                                 7,119,741            9,154,962            2,465,193
Net Increase (Decrease) in Savings Deposits                                     1,366,989            1,975,168           (1,257,739)
Net Increase in Money Market Deposits                                             516,740            6,395,137            1,343,585
Net Increase in Time Deposits                                                  12,405,156           15,316,331           10,074,936
Increase in Federal Funds Purchased                                               500,000                 --                   --
Proceeds from the Issuance of Common Stock, Net                                    53,252            2,555,208            1,173,160
(Decrease)in Common Stock from Non Acceptance
  of Exchange Offer                                                                  --                (67,520)                --
------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities                                      21,961,878           35,329,286           13,799,135
------------------------------------------------------------------------------------------------------------------------------------
(Decrease)/Increase in Cash and Cash Equivalents, Net                          (6,145,250)           4,143,236            1,941,636
Cash and Cash Equivalents, Beginning of Year                                   12,128,176            7,984,940            6,043,304
------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year                                       $  5,982,926         $ 12,128,176         $  7,984,940
====================================================================================================================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year for Interest                                       $  4,760,500         $  2,685,545         $  2,914,732
====================================================================================================================================
Cash Paid During the Year for Federal Income Taxes                           $    737,562         $    325,000         $    225,000
====================================================================================================================================
Transfer of Loans to Other Real Estate                                       $       --           $    304,700         $       --
====================================================================================================================================
Capital Expenditures Used for Capital Lease Obligation                       $    443,697         $       --           $       --
====================================================================================================================================
</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 with authorized capital of 10,000,000 shares of
$4.17 par value common  stock.  On September 3, 1996,  the Company  acquired 100
percent of the shares of Somerset  Valley Bank (the  "Bank") by  exchanging  six
shares of its common  stock for each five shares of the Bank.  This  exchange of
shares has been  accounted  for as a  reorganization  of entities  under  common
control, similar to a pooling of interests,  which resulted in no changes to the
underlying carrying amounts of assets and liabilities.

   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.  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,
they are 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

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:  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.

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.  Unrealized
gains  and  losses,  net  of  tax  effect,  are  reflected  as  a  component  of
shareholders'  equity.  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, 1997
and 1996.

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
the 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.

SALE OF LOANS: The Company  periodically sells certain commercial loans to other
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.

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  (three to thirty  years) or the term of the related
lease.

INTEREST ON LOANS:  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.

                                       7
<PAGE>
   Loan origination fees are deferred and are recognized over the estimated life
of the related  loans as an  adjustment  of the loan yield,  and are included in
interest on loans in the accompanying statements of income.

CASH AND CASH  EQUIVALENTS:  Cash and  cash  equivalents  include  cash on hand,
non-interest  bearing  amounts  due from  banks,  Federal  funds  sold and other
short-term investments. Generally, Federal funds are sold for a 60-day period or
less.

INCOME TAXES:  The Company  accounts for income taxes under the liability method
specified by Statement of Financial  Accounting  Standards 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 effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment  date.  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,
leased assets, deferred loan fees and compensation.

EARNINGS PER SHARE:  During 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.  Prior  periods'  earnings per share  calculations  have been
restated to reflect the adoption of SFAS No. 128.

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 estimated 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.

ADVERTISING COSTS: The Company expenses advertising costs as incurred.

NEW  FINANCIAL  ACCOUNTING   STANDARDS:   The  Company  adopted  SFAS  No.  125,
"Accounting for Transfers and Servicing of Financial Assets and  Extinguishments
of Liabilities",  as amended by SFAS No. 127, "Deferral of the Effective Date of
Certain  Provisions of SFAS No. 125-An  Amendment of FASB Statement No. 125", on
January 1, 1997. SFAS No. 125 applies a  control-oriented,  financial-components
approach  to  financial-asset-transfer  transactions  whereby  the  Company  (1)
recognizes the financial and servicing assets it controls and the liabilities it
has  incurred,   (2)  derecognizes   financial  assets  when  control  has  been
surrendered, and (3) derecognizes liabilities once they are extinguished.  Under
SFAS No. 125,  control is considered to have been  surrendered  only if: (i) the
transferred  assets have been isolated from the  transferor  and its  creditors,
even in bankruptcy or other  receivership  (ii) the  transferee has the right to
pledge or exchange the transferred  assets, or, is a qualifying  special-purpose
entity (as defined) and the holders of beneficial  interests in that entity have
the right to pledge or exchange those  interests;  and (iii) the transferor does
not maintain  effective control over the transferred assets through an agreement
which both  entitles and obligates it to repurchase or redeem those assets prior
to maturity,  or through an agreement  which both  entitles and  obligates it to
repurchase  or redeem those  assets  prior to maturity,  or through an agreement
which both  entitles and  obligates it to  repurchase  or redeem those assets if
they were not readily obtainable  elsewhere.  If any of these conditions are not
met, the Company accounts for the transfer as a secured borrowing.

   SFAS No. 125 also  requires  that the Company  derecognize a liability if and
when it is extinguished.  A liability is considered  extinguished under SFAS No.
125 if (1)  the  Company  pays  the  creditor,  and  thus,  is  relieved  of its
obligation for the liability,  or (2) is legally released from being the primary
obligor under the liability, either judicially or by the creditor.

   In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting  Comprehensive  Income",  which is effective for years beginning
after December 15, 1997.  SFAS No. 130 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. The effect of adopting SFAS
No. 130 is not expected to be material to the  Company's  financial  position or
results of operations.

   In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise  and  Related  Information",  which  is  effective  for  all  periods
beginning  after December 15, 1997.  SFAS No. 131 requires that public  business
enterprises report certain information about operating segments in complete sets
of financial  statements of the enterprise and in condensed financial statements
of interim periods issued to shareholders. It also requires that public business
enterprises  report certain  information about their products and services,  the
geographic areas in which they operate, and their major customers. Management is
currently  evaluating  the  disclosure  impact of SFAS No. 131 on its  financial
statements.

                                       8
<PAGE>
3: SECURITIES

Information  relative to the Company's securities portfolio at December 31, 1997
and 1996 is as follows:

<TABLE>
<CAPTION>
====================================================================================================================================
                                                               AMORTIZED               GROSS               GROSS           ESTIMATED
                                                                    COST    UNREALIZED GAINS   UNREALIZED LOSSES        MARKET VALUE
====================================================================================================================================
<S>                                                          <C>                 <C>                 <C>                 <C>
1997
AVAILABLE FOR SALE
U.S. Treasury Securities                                     $ 2,249,153         $     1,397         $      --           $ 2,250,550
U.S. Government Agency Securities                              5,999,700              12,665               4,780           6,007,585
Mortgage-Backed Securities                                     2,960,302              54,498               6,666           3,008,134
------------------------------------------------------------------------------------------------------------------------------------
                                                             $11,209,155         $    68,560         $    11,446         $11,266,269
====================================================================================================================================
HELD TO MATURITY
U.S. Treasury Securities                                     $ 8,753,699         $    16,119         $        48         $ 8,769,770
U.S. Government Agency Securities                             11,477,026              26,117               4,923          11,498,220
Mortgage-Backed Securities                                     1,871,252               5,891               2,097           1,875,046
------------------------------------------------------------------------------------------------------------------------------------
                                                             $22,101,977         $    48,127         $     7,068         $22,143,036
====================================================================================================================================
1996
AVAILABLE FOR SALE
U.S. Treasury Securities                                     $ 2,748,885         $     3,956         $       141         $ 2,752,700
U.S. Government Agency Securities                              4,244,256              12,452              15,845           4,240,863
Mortgage-Backed Securities                                     1,721,442              11,873                --             1,733,315
------------------------------------------------------------------------------------------------------------------------------------
                                                             $ 8,714,583         $    28,281         $    15,986         $ 8,726,878
====================================================================================================================================
HELD TO MATURITY
U.S. Treasury Securities                                     $ 6,249,421         $    14,870         $       228         $ 6,264,063
U.S. Government Agency Securities                              5,738,111              11,165              14,080           5,735,196
Other Securities                                                 498,248               3,939                --               502,187
Mortgage-Backed Securities                                     1,503,701               2,548               9,467           1,496,782
------------------------------------------------------------------------------------------------------------------------------------
                                                             $13,989,481         $    32,522         $    23,775         $13,998,228
====================================================================================================================================
</TABLE>
<PAGE>
   There are no significant  concentrations  of securities  (greater than 10% of
shareholders' equity) in any individual security issues.

   The amortized cost and estimated value of securities at December 31, 1997, 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         ESTIMATED
                                                          COST      MARKET VALUE
================================================================================
<S>                                                <C>               <C>
AVAILABLE FOR SALE
Due in 1 year or less                              $ 2,249,153       $ 2,250,550
Due after 1 year through 5 years                     5,999,700         6,007,585
Mortgage-Backed Securities                           2,960,302         3,008,134
--------------------------------------------------------------------------------
                                                   $11,209,155       $11,266,269
================================================================================
HELD TO MATURITY
Due in 1 year or less                              $10,981,476       $10,990,267
Due after 1 year through 5 years                     9,249,249         9,277,723
Mortgage-Backed Securities                           1,871,252         1,875,046
--------------------------------------------------------------------------------
                                                   $22,101,977       $22,143,036
================================================================================
</TABLE>

   At  December  31,  1997,  securities  having a book  value  of  approximately
$250,000  were  pledged to secure  public  deposits  and for other  purposes  as
required by law.

   Proceeds from sales of investment  securities  available for sale during 1997
were  $1,502,109.  Gross gains of $1,283 were realized on these sales.  Proceeds
from  sales of  investments  securities  available  for sale  during  1996  were
$1,994,043.  Gross losses of $2,117 were realized on these sales.  Proceeds from
sales of investment  securities  available  for sale during 1995 were  $490,909.
Gross gains of $2,336 were realized on these sales.

                                       9
<PAGE>
4: LOANS

At  December  31,  1997  and  1996,  the  composition  of  outstanding  loans is
summarized as follows:
<TABLE>
<CAPTION>
================================================================================
                                                        1997                1996
================================================================================
<S>                                            <C>                  <C>
Secured by Real Estate:
  Residential Mortgage                         $ 33,248,717         $ 28,023,269
  Commercial Mortgage                            29,793,163           23,690,659
  Construction                                    4,851,720            2,289,233
Commercial & Industrial                          20,889,305           17,135,417
Loans to Individuals
  for Automobiles                                12,177,339           13,260,060
Loans to Individuals                              4,969,103            3,456,425
Other Loans                                         541,327                 --
--------------------------------------------------------------------------------
                                               $106,470,674         $ 87,855,063
================================================================================
</TABLE>

There were no loans  restructured  during 1997 or 1996. 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.  There were $20,600 in loans past due 90 days or
more as to  principal  or  interest  and $24,384 on a  non-accrual  status as of
December 31, 1996.

   Effective January 1, 1995, the Company adopted the provisions of SFAS No. 114
"Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan-Income  Recognition  and  Disclosures,"  .
SFAS No. 114  requires  that  certain  impaired  loans be measured  based on the
present value of expected  future cash flows  discounted  at the loans  original
effective  interest rate. As a practical  expedient,  impairment may be measured
based on the loans  observable  market price or the fair value of the collateral
if the loan is  collateral  dependent.  When the measure of the impaired loan is
less than the  recorded  investment  in the loan,  the  impairment  is  recorded
through a valuation allowance.  This statement is not applicable to large groups
of smaller  homogeneous  loans, such as residential  mortgage loans and consumer
loans, which are collectively evaluated for impairment.

   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.

   The Company had  previously  measured the  allowance for possible loan losses
using  methods  similar  to those  prescribed  in SFAS No.  114.  As a result of
adopting these statements,  no additional allowance for possible loan losses was
required . As of December 31, 1997,  no loans were deemed to be impaired.  As of
December  31,  1996,  the Company had  $183,911 in loans which were deemed to be
impaired. A valuation reserve of $19,577 was recorded for these loans.
<PAGE>
   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, 1997 and 1996. 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 and Hunterdon counties.

   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 $11,978 at December 31, 1997 and $146,517 at December
31, 1996,  all of which were current as to principal and interest.  There are no
loans to Directors or their affiliated interests.

5: ALLOWANCE FOR LOAN LOSSES

The allowance for possible loan losses is based on estimates and ultimate losses
may vary from the current estimates.  These estimates are reviewed periodically,
and as  adjustments  become  necessary,  they are reflected in operations in the
period in which they become  known.  An analysis of the  allowance  for possible
loan losses is as follows:
<TABLE>
<CAPTION>
================================================================================
                                           1997            1996             1995
================================================================================
<S>                                   <C>             <C>             <C>
Balance at January 1,                 $ 783,366       $ 527,019       $ 372,062
Provision Charged to
Operations                              280,000         309,500         206,000
Charge Offs                             (86,399)        (57,593)        (51,043)
Recoveries                                5,231           4,440            --
--------------------------------------------------------------------------------
Balance at December 31,               $ 982,198       $ 783,366       $ 527,019
================================================================================
</TABLE>
6: PREMISES AND EQUIPMENT

Premises and equipment consists of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
================================================================================
                                   ESTIMATED
                                USEFUL LIVES           1997                1996
================================================================================
<S>                               <C>           <C>                  <C>
Construction in Progress                        $   209,585          $   63,079
Premises & Improvements           5-30 years      1,053,920             491,355
Furniture & Equipment             3-10 years      1,218,935           1,101,924
--------------------------------------------------------------------------------
                                                  2,482,440           1,656,358
Less:  Accumulated Depreciation                    (748,924)           (590,249)
--------------------------------------------------------------------------------
                                                 $1,733,516          $1,066,109
================================================================================
</TABLE>

                                       10
<PAGE>
7: DEPOSITS

At December 31, 1997,  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
                                     LESS             TWELVE MONTHS                  YEARS                YEARS               TOTAL
====================================================================================================================================
<S>                           <C>                      <C>                     <C>                   <C>                <C>
$100,000 or more              $ 8,797,987              $ 2,705,109             $ 1,274,110           $  102,602         $12,879,808
Less than $100,000             16,769,957               32,558,717              10,361,224            1,110,571          60,800,469
====================================================================================================================================
</TABLE>

8: OTHER EXPENSE

The major components of other expenses are as follows:
<TABLE>
<CAPTION>
================================================================================
                                            1997            1996            1995
================================================================================
<S>                                   <C>             <C>             <C>
Data Processing Services              $  215,210      $  163,691      $  131,038
Marketing & Business
  Development                            143,947         129,915          94,597
Stationery, Forms &
  Supplies                               155,863         121,470          80,453
Insurance                                 88,108          75,508          62,773
Amortization of
  Organizational Costs                    13,522          43,452          41,340
Legal, Examination &
  Accounting                             176,915         106,062          83,847
FDIC Insurance
  Assessment                              13,906           2,000          74,332
Other, Net                               533,149         356,466         242,555
--------------------------------------------------------------------------------
                                      $1,340,620      $  998,564      $  810,935
================================================================================
</TABLE>

9: COMMITMENTS AND CONTINGENCIES

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,  1997,  future  minimum  rental
payments,  including the renewal  options under these leases for the  subsequent
five years are as follows:

===================================
1998                     $  403,465
-----------------------------------
1999                     $  421,413
-----------------------------------
2000                     $  431,417
-----------------------------------
2001                     $  439,989
-----------------------------------
2002                     $  442,639
-----------------------------------
TOTAL                    $2,138,923
===================================

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 $286,047,  $244,413,  and
$153,618 for the years ended December 31, 1997, 1996 and 1995 respectively.

   The Company had  outstanding  commitments  to extend credit of $18,585,000 at
December 31, 1997 and  $11,809,000  at December 31, 1996.  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, 1997.

   The Company has employment contracts with certain key executives that provide
severance  pay  benefits  if there is a change in  control of the  Company.  The
agreements will continue in effect on a year-to-year  basis until  terminated or
not renewed by the  Company or key  executives.  Upon a change in  control,  the
Company shall continue to pay the key executives' salary, including bonuses, per
the agreements and certain benefits for one to two years. The maximum contingent
liability under the agreements at December 31, 1997 was $730,330.

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 1997  and  50% in 1996  and  1995,  up to 6% of the  employee's
salary.  Employees become fully vested in the Company's  contribution after five
years of service. The Company contributed  $44,316,  $25,495, and $19,159 to the
Plan in 1997, 1996 and 1995, respectively.

                                       11
<PAGE>
11: INCOME TAXES

The  components  of the provision  (benefit) for income taxes in 1997,  1996 and
1995 are as follows:
<TABLE>
<CAPTION>
================================================================================
                                       1997               1996              1995
================================================================================
<S>                              <C>                <C>                <C>
Federal
Current                          $ 653,283          $ 440,740          $ 239,708
Deferred                           (70,760)           (64,396)           122,338
State                              166,787            108,819             61,344
--------------------------------------------------------------------------------
                                 $ 749,310          $ 485,163          $ 423,390
================================================================================
</TABLE>

Deferred  income taxes are provided for the  differences  between the  financial
reporting  basis  and the tax  basis of the  Company's  asset  and  liabilities.
Cumulative temporary differences at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
================================================================================
                                                             1997           1996
================================================================================
<S>                                                    <C>            <C>
Start-up and Organization Costs                        $    (900)     $  (4,575)
Depreciation                                              24,514          4,296
Accretion of Securities Discount                         (12,398)        (2,893)
Allowance for Possible Loan Losses318,119                259,237
--------------------------------------------------------------------------------
Deferred Tax Asset, Net                                $ 329,335      $ 256,065
================================================================================
</TABLE>

A reconciliation of income taxes calculated at the U.S. statutory rate of 34% to
the actual income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
================================================================================
                                               1997          1996          1995
================================================================================
<S>                                       <C>           <C>           <C>
Statutory Provision                       $ 630,218     $ 409,784     $ 369,446
State Taxes on Income,
  net of Federal Tax Benefit                110,079        72,009        61,344
Other                                         9,013         3,370        (7,400)
--------------------------------------------------------------------------------
                                          $ 749,310     $ 485,163     $ 423,390
================================================================================
</TABLE>
<PAGE>
12: STOCK OPTION PLAN

At  December  31,  1997,  the Company had two stock  option  plans.  The Company
applies APB Opinion 25,  "Accounting  for Stock Issued to Employees" and related
Interpretations in accounting for its plans. Accordingly,  no compensation costs
have been recognized for either plan.

   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  82,404 are  reserved for issuance
under the Plan including 76,700 shares outstanding at December 31, 1997.

   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  54,600 are reserved for issuance  under the Plan, all of which
were outstanding at December 31, 1997.

   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 SFAS 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>
================================================================
                                             1997           1996
================================================================
<S>                                   <C>              <C>
Net Income
  As reported                         $1,103,038       $720,085
  Pro forma                            1,022,527        660,685

Basic Earnings per share
  As reported                               $.81           $.61
  Pro forma                                 $.75           $.56

Diluted earnings per share
  As reported                               $.80           $.60
  Pro forma                                 $.74           $.55
================================================================
</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 and 1996, respectively;  no
dividend  yield  for both  years;  expected  volatility  of 39.82%  and  39.77%;
risk-free  interest rate of 5.85% and 6.35% and expected lives of five years for
both years.

                                       12
<PAGE>
A summary of the status of the  Company's  option plans as of December 31, 1997,
and changes for the three years ended is as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
                                                     1997                       1996                           1995
====================================================================================================================================
                                            NUMBER     WEIGHTED AVERAGE   NUMBER   WEIGHTED AVERAGE     NUMBER      WEIGHTED AVERAGE
                                              OF        EXERCISE PRICE      OF      EXERCISE PRICE        OF          EXERCISE PRICE
                                            SHARES        PER SHARE       SHARES      PER SHARE         SHARES           PER SHARE
====================================================================================================================================
<S>                                        <C>            <C>             <C>         <C>               <C>             <C>
Outstanding at beginning of year            49,200        $    8.33       24,000      $   8.33          24,000           $   8.33
Options granted                             85,100            13.00       26,400          8.33             --               --
Options exercised                            3,000             8.33        1,200          8.33             --               --
Options expired                               --            --              --            --               --               --
------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year                 131,300        $   11.35       49,200      $   8.33          24,000          $   8.33
Options exercisable at year end             46,200        $    8.33       22,800      $   8.33          24,000          $   8.33
Weighted average fair value of
  options granted during the year                           $  5.71                      $3.75                              --
====================================================================================================================================
</TABLE>

The following table summarizes  information about non-qualified stock options at
December 31, 1997:
<TABLE>
<CAPTION>
====================================================================================================================================
                                                       OPTIONS OUTSTANDING                                  OPTIONS EXERCISABLE
                                     =========================================================         =============================
                                                             WEIGHTED
                                       NUMBER                AVERAGE                 WEIGHTED            NUMBER            WEIGHTED
RANGE OF                             OUTSTANDING            REMAINING                 AVERAGE          EXERCISABLE          AVERAGE
EXERCISE                                  AT                CONTRACTUAL              EXERCISE               AT             EXERCISE
PRICES                                 12/31/97                LIFE                    PRICE             12/31/97            PRICE
====================================================================================================================================
<S>                                     <C>                  <C>                     <C>                  <C>               <C>
$ 8.33 to $12.50                        46,200               2.6 years               $    8.33            46,200            $   8.33
$13.00 to $19.50                        85,100               4.9 years               $   13.00               --                  --
====================================================================================================================================
</TABLE>

13: ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial  Accounting  Standards  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.

  Estimated  fair values  have been  determined  by the  Company  using the best
available  data  and  estimation  methodology  suitable  for  each  category  of
financial instruments is as follows:

  For short term  investments,  such as cash and cash equivalents and short term
deposits, the carrying amount is a reasonable estimate of fair value.
<TABLE>
<CAPTION>
================================================================================
                                                 FAIR ESTIMATED        CARRYING
                                                     VALUE              AMOUNT
================================================================================
<S>                                                <C>                <C>
Cash and Cash Equivalents                          $5,982,926         $5,982,926
</TABLE>

For  securities  held in the  Company's  investment  portfolio  fair  value  was
determined by reference to quoted market prices as of December 31, 1997.
<TABLE>
<CAPTION>
================================================================================
                                                 ESTIMATED FAIR        CARRYING
                                                     VALUE              VALUE
================================================================================
<S>                                                <C>               <C>
Available for Sale Securities                      $11,266,269       $11,266,269
Held to Maturity Securities                        $22,143,036       $22,101,977
</TABLE>

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 an estimated  fair value equal to the
amount payable on demand.
<TABLE>
<CAPTION>
================================================================================
                                           ESTIMATED FAIR            CARRYING
                                                VALUE                  VALUE
================================================================================
<S>                                         <C>                     <C>
Loans                                       $107,896,000            $106,470,674
Deposits                                    $134,205,000            $133,930,016
</TABLE>

                                       13
<PAGE>
14: 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, 1997,  that the
Company and its subsidiary Bank meets all capital adequacy requirements to which
they are subject.

  As of  December  31,  1997  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
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 following tables.

<TABLE>
<CAPTION>
====================================================================================================================================
SVB FINANCIAL SERVICES, INC. AND SOMERSET VALLEY BANK

                                                                                TO BE ADEQUATELY
                                                        ACTUAL                     CAPITALIZED             TO BE WELL CAPITALIZED
                                               =====================       ======================       ============================
                                                  AMOUNT       RATIO          AMOUNT        RATIO         AMOUNT           RATIO
====================================================================================================================================
<S>                                            <C>            <C>          <C>              <C>         <C>                <C>
As of December 31, 1997
Total Capital to Risk Weighted Assets          $13,678,286    12.81%       $ 8,542,296      8.00%       $10,677,871        10.00%
Tier I Capital to Risk Weighted Assets         $12,696,088    11.89%       $ 4,271,148      4.00%       $ 6,406,723         6.00%
Tier I Capital to Average Assets               $12,696,088     8.72%       $ 5,491,359      4.00%       $ 6,864,199         5.00%
====================================================================================================================================
As of December 31, 1996
Total Capital to Risk Weighted Assets          $12,525,569    13.40%       $ 7,479,328      8.00%       $ 9,349,159        10.00%
Tier I Capital to Risk Weighted Assets         $11,742,203    12.56%       $ 3,736,664      4.00%       $ 5,609,496         6.00%
Tier I Capital to Average Assets               $11,742,203     9.58%       $ 4,903,999      4.00%       $ 6,129,999         5.00%
====================================================================================================================================
<CAPTION>
====================================================================================================================================
SOMERSET VALLEY BANK

                                                                                TO BE ADEQUATELY
                                                        ACTUAL                    CAPITALIZED             TO BE WELL CAPITALIZED
                                               =====================       ======================       ============================
                                                  AMOUNT       RATIO          AMOUNT        RATIO         AMOUNT           RATIO
====================================================================================================================================
<S>                                            <C>            <C>          <C>              <C>         <C>                <C>
As of December 31, 1997
Total Capital to Risk Weighted Assets          $13,019,484    12.20%       $ 8,540,861      8.00%       $10,670,608        10.00%
Tier I Capital to Risk Weighted Assets         $12,037,286    11.28%       $ 4,270,431      4.00%       $ 6,405,646         6.00%
Tier I Capital to Average Assets               $12,037,286     8.25%       $ 5,488,501      4.00%       $ 6,860,626         5.00%
====================================================================================================================================
As of December 31, 1996
Total Capital to Risk Weighted Assets         $11,830,863     12.66%       $ 7,473,838      8.00%       $ 9,342,298        10.00%
Tier I Capital to Risk Weighted Assets        $11,047,497     11.83%       $ 3,736,919      4.00%       $ 5,605,379         6.00%
Tier I Capital to Average Assets              $11,047,497      9.01%       $ 4,901,829      4.00%       $ 6,127,287         5.00%
====================================================================================================================================
</TABLE>

15: YEAR 2000

The  Company  is aware of the issues  associated  with the  programming  code in
existing  computer systems as the millennium (Year 2000)  approaches.  The "Year
2000" problem is pervasive  and complex as virtually  every  computer  operation
will be affected in some way by the  rollover of the two digit year value to 00.
The issue is whether  computer  systems will properly  recognize  date sensitive
information  when  the  year  changes  to  2000.  Systems  that do not  properly
recognize such  information  could generate  erroneous data or cause a system to
fail.

   The Company is utilizing  both  internal and external  resources to identify,
correct or reprogram,  and test the systems for the Year 2000 compliance.  It is
anticipated  that all  reprogramming  efforts  will be complete by December  31,
1998,  allowing  adequate  time for testing.  To date,  confirmations  have been
received  from the  Company's  primary  processing  vendors that plans are being
developed to address processing of transactions in the Year 2000. Management has
not yet assessed the Year 2000 compliance  expense and related  potential effect
on the Company's earnings.

                                       14
<PAGE>
16: CONDENSED FINANCIAL STTEMENTS OF SVB FINANCIAL SERVICES, INC.
    (PARENT COMPANY ONLY):
<TABLE>
<CAPTION>
BALANCE SHEET                                           DECEMBER 31, 1997  DECEMBER 31, 1996
============================================================================================
<S>                                                          <C>                <C>
ASSETS
  Cash and Due From Banks                                    $    640,858       $    626,091
  Other Assets                                                     69,775             68,615
  Investment in Subsidiary (Equity Method)                     12,384,897         11,214,953
--------------------------------------------------------------------------------------------
Total Assets                                                 $ 13,095,530       $ 11,909,659
============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' Equity
  Common Stock                                               $  5,725,535       $  5,694,077
  Capital Paid-in Excess of Par Value                           5,473,127          5,451,333
  Retained Earnings                                             1,859,173            756,135
  Net Unrealized Holding Gains on Securities
   Available for Sale, Net of Tax                                  37,695              8,114
--------------------------------------------------------------------------------------------
Total Shareholders' Equity                                     13,095,530         11,909,659
--------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity                   $ 13,095,530       $ 11,909,659
============================================================================================
<CAPTION>
                                                                      YEARS ENDED
STATEMENT OF INCOME                                     DECEMBER 31, 1997  DECEMBER 31, 1996
============================================================================================
<S>                                                          <C>                <C>
OPERATING INCOME
Dividends from Bank Subsidiary                               $       --         $    150,000
Interest Income                                                    20,945              3,187
--------------------------------------------------------------------------------------------
Total Income                                                 $     20,945       $    153,187
--------------------------------------------------------------------------------------------
OPERATING EXPENSE
Other Expense                                                      32,470              3,747
--------------------------------------------------------------------------------------------
Total Expense                                                      32,470              3,747
--------------------------------------------------------------------------------------------
Income Before Equity in Undistributed Income of Subsidiary        (11,525)           149,440
Equity in Undistributed Income of Subsidiary                    1,114,563            570,645
--------------------------------------------------------------------------------------------
NET INCOME                                                   $  1,103,038       $    720,085
============================================================================================
<CAPTION>
                                                                      YEARS ENDED
STATEMENT OF CASH FLOWS                                 DECEMBER 31, 1997  DECEMBER 31, 1996
============================================================================================
<S>                                                          <C>                <C>
OPERATING ACTIVITIES
Net Income                                                   $  1,103,038       $    720,085
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Equity in Undistributed Income of Subsidiary                   (1,114,563)          (570,645)
Amortization of Organization Costs                                 13,522               --
(Increase) in Other Assets                                        (14,682)           (68,615)
--------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities                         (12,685)            80,825
--------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of Additional Common Stock in Subsidiary Bank            (25,800)        (2,000,000)
--------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from Stock Issuance, Net                                  53,252          2,545,266
--------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents, Net                         14,767            626,091
Cash and Cash Equivalents, Beginning of Year                      626,091               --
--------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year                       $    640,858       $    626,091
============================================================================================
</TABLE>

                                             15
<PAGE>
17: EARNINGS PER SHARE

The  following  table  illustrates  the  reconciliation  of the  numerators  and
denominators of the basic and diluted EPS computations:
<TABLE>
<CAPTION>
====================================================================================================================================
                                                                          INCOME                    SHARES                PER SHARE
FOR THE YEAR ENDED DECEMBER 31, 1997                                 (NUMERATOR)             (DENOMINATOR)                   AMOUNT
====================================================================================================================================
<S>                                                                   <C>                       <C>                           <C>
BASIC EPS
Income available to Common Shareholders                               $1,103,038                1,369,701                     $ .81

Effect of Dilutive Securities
Stock Options                                                                                      16,596
------------------------------------------------------------------------------------------------------------------------------------
DILUTED EPS
Income available to Common Shareholders
plus assumed conversions                                              $1,103,038                1,386,297                     $ .80
====================================================================================================================================
</TABLE>

Options  to  purchase  84,600  shares  of  common  stock  at  $13 a  share  were
outstanding  during  the year.  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, 1997.
<TABLE>
<CAPTION>
====================================================================================================================================
                                                                          INCOME                    SHARES                PER SHARE
FOR THE YEAR ENDED DECEMBER 31, 1996                                 (NUMERATOR)             (DENOMINATOR)                   AMOUNT
====================================================================================================================================
<S>                                                                   <C>                       <C>                           <C>
BASIC EPS
Income available to Common Shareholders                               $  720,085                1,178,100                     $ .61

Effect of Dilutive Securities
Stock Options                                                                                      17,674
------------------------------------------------------------------------------------------------------------------------------------
DILUTED EPS
Income available to Common Shareholders
plus assumed conversions                                              $  720,085                1,195,774                     $ .60
====================================================================================================================================
<CAPTION>
====================================================================================================================================
                                                                          INCOME                    SHARES                PER SHARE
FOR THE YEAR ENDED DECEMBER 31, 1996                                 (NUMERATOR)             (DENOMINATOR)                   AMOUNT
====================================================================================================================================
BASIC EPS
<S>                                                                   <C>                       <C>                           <C>
Income available to Common Shareholders                               $  663,217                1,152,408                     $ .58
====================================================================================================================================
</TABLE>

Options  to  purchase  24,000  shares  of  common  stock at  $8.33 a share  were
outstanding  during  the year.  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 August 25,
1999, were still outstanding at December 31, 1997.


                                       16
<PAGE>
                                                    SVB FINANCIAL SERVICES, INC.
                                        Report of Independent Public Accountants



               Report of Independent Certified Public Accountants

To the Board of Directors and Shareholders
SVB Financial Services, Inc.

         We  have  audited  the  consolidated  balance  sheet  of SVB  Financial
Services,  Inc.  and  Subsidiary  as of  December  31,  1997,  and  the  related
consolidated statements of income,  shareholders' equity and cash flows the year
ended December 31, 1997. These financial  statements are the  responsibility  of
the  Corporation's  management.  Our  responsibility is to express an opinion on
these consolidated  financial statements based on our audit. We also audited the
adjustments  to shares and  earnings per share data for 1996 and 1995 due to the
adoption of Statement of Financial  Accounting  Standards No 128,  "Earnings per
Share" as discussed in Note 17. In our opinion such  adjustments are appropriate
and have been properly applied.

         We conducted our audit in accordance with generally  accepted  auditing
standards.  Those standards require that we plan and perform our 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 consolidated  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 our audit provides a reasonable basis for our opinion.

         In our opinion, the 1997 consolidated  financial statements referred to
above  present  fairly,  in all material  aspects,  the  consolidated  financial
positions of SVB Financial  Services,  Inc. and Subsidiary at December 31, 1997,
and the  consolidated  results of their operations and their  consolidated  cash
flows for the year  ended  December  31,  1997,  in  conformity  with  generally
accepted accounting principles.

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

January 14, 1998


<PAGE>
                              ARTHUR ANDERSEN LLP


                    REPORT OF INDPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of SVB Financial Services, Inc.:

     We  have  audited  the  accompanying  consolidated  balance  sheets  of SVB
Financial  Services,  Inc.  (a New  Jersey  corporation)  and  subsidiary  as of
December 31, 1996, and the related consolidated statements of income, changes in
shareholders'  equity  and cash  flows for each of the two  years in the  period
ended December 31, 1996. 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.

     ln our opinion,  the financial statements referred to above present fairly,
in all material respects, the financial position of SVB Financial Services, Inc.
and subsidiary as of December 31, 1996, and the results of their  operations and
their  cash  flows for each of the two years in the period  ended  December  31,
1996, in conformity with generally accepted accounting principles.



/s/Arthur Andersen LLP
----------------------
Arthur Andersen LLP


Princeton, New Jersey
January 22, 1997

                                       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 result 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 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, 1997 was $1,103,038, an increase of
$382,953 or 53% from 1996.  It is a milestone  in that it  represents  the first
time that net income has exceeded $1 million in the Company's six year history.

  Net interest income was the major contributor to the increase in net income.

  As a result of the growth in the Company's earning assets, net interest income
increased  $1,334,014  or  31%  from  1996.   Non-interest  income  also  showed
significant growth in 1997. Total non-interest income was $561,330,  an increase
of  $189,715  or 51% as a result of gains on the sale of SBA  loans and  service
charges on deposit  accounts.  Partially  offsetting the growth in income was an
increase in non-interest expenses of $876,629 or 26% much of which resulted from
additions to the banking staff.

  The  Company's  total  assets  grew  $23,554,021  or 19%.  Most of this growth
occurred in the loan portfolio.  Net income for the year ended December 31, 1996
was $720,085, an increase of $56,868 or 9% from 1995. The primary reason for the
increase in net income was an increase in net interest  income of  $1,144,615 or
33%  resulting  from the  significant  growth  in  earning  assets  the  Company
experienced in 1996.

  Total assets of the Company grew $36,251,553 or 41% in 1996. The strong demand
for loans caused total loans to account for much of the increase as loans showed
growth of $27,710,635 or 46%.

  Although the growth in net interest income was significant,  so was the growth
in non-interest  expenses.  Non-interest  expenses  increased $931,269 or 37% in
1996.

  The Company  opened its first branch office in the first quarter of 1996 which
created  additional  personnel,  occupancy  and marketing  expenses.  Additional
expenses were also realized in the relocation of the  back-office  operations to
Hillsborough,  as well as the overall increases in transaction  volume resulting
from the growth of the Company.

  A 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 earning assets.

                                       18
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF NET INTEREST INCOME
===================================================================================================

                                                                             1997
                                                         ==========================================
                                                           AVERAGE         AVERAGE
                                                           BALANCE           RATE        INTEREST
===================================================================================================
<S>                                                     <C>                 <C>        <C>
ASSETS
Federal Funds Sold                                      $  5,236,575         5.52%      $  289,296
Other Short Term Investments                               1,060,250         5.12%          54,307

Securities Available for Sale                             12,380,885         6.10%         754,742
Securities Held to Maturity                               16,381,012         6.05%         990,574
---------------------------------------------------------------------------------------------------
Total Securities                                          28,761,897         6.07%       1,745,316
---------------------------------------------------------------------------------------------------
Loans                                                     95,038,942         9.12%       8,664,936
---------------------------------------------------------------------------------------------------
Total Interest Earning Assets                            130,097,664         8.27%      10,753,855
Cash and Due from Banks                                    4,652,258
Allowance for Possible Loan Losses                          (872,296)
Premises and Equipment                                     1,279,351
Other Real Estate Owned                                      227,064
Other Assets                                               1,899,930
---------------------------------------------------------------------------------------------------
Total Assets                                            $137,283,971
===================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Savings Deposits                                        $  8,231,620         3.11%     $   256,214
Money Market Deposit Accounts                             18,016,816         3.53%         636,811
NOW Accounts                                               8,902,947         2.56%         228,342
Time Deposits                                             68,428,340         5.47%       3,745,470
---------------------------------------------------------------------------------------------------
Total Interest Bearing Deposits                          103,579,723         4.70%       4,866,837
Federal Funds Purchased                                        2,740         6.28%             172
Obligations Under Capital Lease                              152,188         8.27%          12,590
---------------------------------------------------------------------------------------------------
Total Interest Bearing Liabilities                       103,734,651         4.70%       4,879,599
Demand Deposits                                           20,583,833
Accrued Expenses and Other Liabilities                       559,103
Cost to Fund Earning Assets                                                  3.75%
Shareholders' Equity                                      12,406,384
---------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity              $137,283,971
===================================================================================================
Net Interest Income                                                                     $5,874,256
===================================================================================================
Net Interest Margin                                                          4.52%
===================================================================================================
<PAGE>
<CAPTION>
SUMMARY OF NET INTEREST INCOME
==============================================================================================
                                                                 Years Ended December 31,
                                                                            1996
                                                         =====================================
                                                           AVERAGE        AVERAGE
                                                           BALANCE         RATE      INTEREST
==============================================================================================
<S>                                                     <C>               <C>      <C>
ASSETS
Federal Funds Sold                                       $ 4,504,304       5.34%    $  240,367
Other Short Term Investments                                 936,242       4.99%        46,757

Securities Available for Sale                              5,912,478       5.92%       350,166
Securities Held to Maturity                               15,237,370       6.02%       918,011
----------------------------------------------------------------------------------------------
Total Securities                                          21,149,848       6.00%     1,268,177
----------------------------------------------------------------------------------------------
Loans                                                     74,648,772       9.15%     6,827,602
----------------------------------------------------------------------------------------------
Total Interest Earning Assets                            101,239,166       8.28%     8,382,903
Cash and Due from Banks                                    4,057,475
Allowance for Possible Loan Losses                          (640,572)
Premises and Equipment                                       813,007
Other Real Estate Owned                                       48,286
Other Assets                                               1,673,570
----------------------------------------------------------------------------------------------
Total Assets                                            $107,190,932
==============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Savings Deposits                                        $  6,977,173       3.13%    $  218,201
Money Market Deposit Accounts                             11,940,716       3.26%       388,814
NOW Accounts                                               6,042,628       2.46%       148,712
Time Deposits                                             56,700,027       5.39%     3,057,434
----------------------------------------------------------------------------------------------
Total Interest Bearing Deposits                           81,660,544       4.67%     3,813,161
Federal Funds Purchased                                            -           -             -
Obligations Under Capital Lease                                    -           -             -
----------------------------------------------------------------------------------------------
Total Interest Bearing Liabilities                        81,660,544       4.67%     3,813,161
Demand Deposits                                           16,027,197
Accrued Expenses and Other Liabilities                       606,068
Cost to Fund Earning Assets                                                3.77%
Shareholders' Equity                                       8,897,123
----------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity              $107,190,932
==============================================================================================
Net Interest Income                                                                 $4,569,742
==============================================================================================
Net Interest Margin                                                        4.51%
==============================================================================================
<PAGE>
<CAPTION>
SUMMARY OF NET INTEREST INCOME
=============================================================================================

                                                                          1995
                                                        =====================================
                                                          AVERAGE        AVERAGE
                                                          BALANCE          RATE     INTEREST
=============================================================================================
<S>                                                    <C>                <C>    <C>
ASSETS
Federal Funds Sold                                      $ 3,592,027        5.88%  $   211,302
Other Short Term Investments                                283,389        5.22%       14,798

Securities Available for Sale                             3,615,515        5.68%      205,413
Securities Held to Maturity                              17,146,453        5.91%    1,013,811
---------------------------------------------------------------------------------------------
Total Securities                                         20,761,968        5.87%    1,219,224
---------------------------------------------------------------------------------------------
Loans                                                    51,047,241        9.50%    4,850,688
---------------------------------------------------------------------------------------------
Total Interest Earning Assets                            75,684,625        8.32%    6,296,012
Cash and Due from Banks                                   3,134,843
Allowance for Possible Loan Losses                         (451,397)
Premises and Equipment                                      490,206
Other Real Estate Owned                                           -
Other Assets                                              1,033,880
---------------------------------------------------------------------------------------------
Total Assets                                            $79,892,157
=============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Savings Deposits                                        $ 5,942,451        3.27%  $   194,043
Money Market Deposit Accounts                             8,366,762        3.54%      296,300
NOW Accounts                                              4,417,143        2.31%      102,187
Time Deposits                                            41,703,884        5.46%    2,278,185
---------------------------------------------------------------------------------------------
Total Interest Bearing Deposits                          60,430,240        4.75%    2,870,715
Federal Funds Purchased                                       2,740        6.20%          170
Obligations Under Capital Lease                                   -            -            -
---------------------------------------------------------------------------------------------
Total Interest Bearing Liabilities                       60,432,980        4.75%    2,870,885
Demand Deposits                                          10,838,744
Accrued Expenses and Other Liabilities                      492,190
Cost to Fund Earning Assets                                                3.79%
Shareholders' Equity                                      8,128,243
---------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity              $79,892,157
=============================================================================================
Net Interest Income                                                                $3,425,127
=============================================================================================
Net Interest Margin                                                        4.53%
=============================================================================================
</TABLE>
NOTE:  Non-accrual loans are included in the Average Loan Balances.

                                       19
<PAGE>
The following table presents the changes in net interest income  attributable to
either a change in volume or a change in rate.
<TABLE>
<CAPTION>
===============================================================================================================================
                                           YEAR ENDED DECEMBER 31,                             YEAR ENDED DECEMBER 31,
                                                1997 VS 1996                                         1996 VS 1995
                                    INCREASE (DECREASE) DUE TO CHANGES IN:              INCREASE (DECREASE) DUE TO CHANGES IN:
                                      VOLUME        RATE          TOTAL                   VOLUME          RATE         TOTAL
===============================================================================================================================
<S>                                <C>            <C>         <C>                       <C>            <C>          <C>
Increase (Decrease) in
Interest Income:

Federal Funds Sold                 $   40,209     $  8,720     $   48,929               $   45,811      $(16,746)   $   29,065
Other Short Term Investments            6,326        1,224          7,550                   32,576          (617)       31,959

Securities Available for Sale         394,023       10,553        404,576                  135,691         9,062       144,753
Securities Held to Maturity            69,145        3,418         72,563                 (115,456)       19,656       (95,800)
-------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities           463,168       13,971        477,139                   20,235        28,718        48,953
Loans                               1,858,953      (21,619)     1,837,334                2,151,257      (174,342)    1,976,915
-------------------------------------------------------------------------------------------------------------------------------
Total Interest Income               2,368,656        2,296      2,370,952                2,249,879      (162,987)    2,086,892
-------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Savings Deposits                       39,027       (1,014)        38,013                   31,902        (7,744)       24,158
Money Market Deposit Accounts         212,330       35,667        247,997                  114,007       (21,493)       92,514
NOW Accounts                           73,119        6,511         79,630                   39,649         6,876        46,525
Time Deposits                         641,333       46,703        688,036                  808,244       (28,995)      779,249
-------------------------------------------------------------------------------------------------------------------------------
Total Interest Bearing Deposits       965,809       87,867      1,053,676                  993,802       (51,356)      942,446
Borrowed Funds                         12,762            -        12,762                      (169)            -          (169)
-------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense                978,571       87,867     1,066,438                   993,633       (51,356)      942,277
-------------------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income      $1,390,085     $(85,571)   $1,304,514                $1,256,246     $(111,631)   $1,144,615
===============================================================================================================================
</TABLE>
1997 vs. 1996

  Net interest income for 1997 was $5,874,256,  an increase of $1,304,514 or 29%
from 1996.  An  increase in the  Company's  average  earning  assets from $101.2
million  in 1996 to  $130.0  million  was  mostly  responsible  for the  overall
increase in interest income of $2,370,952.  Average loan growth produced most of
this  increase.  Total loans  averaged  $95.0  million in 1997 compared to $74.7
million in 1996.

  Interest rates remained  relatively stable during 1997. The prime lending rate
changed once from 8.25% to 8.50% in March.  The yield on the  Company's  earning
assets  dropped one basis point from 8.28% to 8.27%.  The yield on loans dropped
three basis points to 9.12% while the yield on  investments  improved from 6.00%
to 6.07%.

  Although the cost of interest bearing liabilities increased three basis points
from 4.67% to 4.70%,  the overall cost of funding the Company's  earning  assets
declined  two  basis  points  from  3.77% to  3.75%.  This  was a  result  of an
improvement in the percentage of the Company's earning assets being supported by
non-interest  bearing funds,  i.e., demand deposits and capital from 19% in 1996
to 20% in 1997.

  The net interest  margin remained stable at 4.52% compared to 4.51% in 1996 in
spite of the 25 basis point  change in the prime rate.  The Company  attempts to
maintain a balanced interest rate risk position. See "Interest Rate Risk".

                                       20
<PAGE>
1996 vs. 1995

 Net interest income was $4,569,742 for 1996 compared to $3,425,127 for 1995, an
increase of $1,144,615.  Most of the increase was  attributable to the growth in
average  earning  assets which were $101.2  million in 1997 and $75.7 million in
1995.  Almost all of this increase  occurred in loans.  The Company  experienced
significant loan growth including commercial, consumer and mortgage loans. Total
loans  averaged  $74.6  million in 1996  compared to $51.0  million in 1995,  an
increase of $23.6  million or 46%.  The  increase in loan volume  accounted  for
$2,151,257  of the  increase in interest  income.  However,  this was  partially
offset by a decline of $174,342 in interest income due to a drop in the yield on
loans of 35 basis points. This drop was attributable to a change in market rates
compared to 1995 coupled  with a change in the mix of the loan  portfolio as the
Company increased its outstanding auto loans through its dealer network. The net
increase in interest income compared to 1995 was $2,086,892.

OTHER INCOME

A  comparison  of the  major  components  of other  income  is  included  in the
following table:
<TABLE>
<CAPTION>
================================================================================
THE YEARS ENDED:                           1997            1996           1995
================================================================================
<S>                                     <C>            <C>             <C>
Service Charges on
  Deposit Accounts                      $ 231,117      $ 171,130       $ 120,411
Gain (Loss) on the
  Sale of Securities                        1,283         (2,117)          2,336
Gain on the
  Sale of Loans                           214,533        131,966         181,599
Other Income                              114,397         70,636          58,474
--------------------------------------------------------------------------------
                                        $ 561,330      $ 371,615       $ 362,820
================================================================================
</TABLE>

  Other  income  increased  $189,715 or 51% during 1997 in  comparison  to 1996.
Service charges on deposit  accounts  increased  $59,987 or 35% 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. These increases were largely a result of additional volume, rather than an
increase in service charges. As of December 31, 1997, the Company had three full
service banking locations as compared to two in 1996.

  Gains on the sale of loans were $214,533 in 1997 compared to $131,966 in 1996,
an  increase of $82,567 or 63%.  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.

  Other  income  increased  $43,761 or 62% during  1997.  A good portion of this
increase  was  related  to  the  servicing  of SBA  loans  as  described  above.
Additionally,  fees  received  on the  issuance  of letters of credit  more than
doubled in 1997 due to the increase in the volume of lending activity.

  Other  income  increased  $8,795 or 2% from 1995 to 1996.  Service  charges on
deposit accounts  increased $50,719 or 42% due to volume increases in the number
of accounts and also due to an increase in the charge for overdrafts.

  Gains on the sale of loans were $131,966 in 1996 compared to $181,599 in 1995.
As  mentioned  above,  these  sales will vary and are  dependent  on SBA lending
activity.  Other income increased $12,162 or 21% mainly due to servicing fees on
SBA loans sold.

                                       21
<PAGE>
A  comparison  of the major  components  of other  expense  is  included  in the
following table:
<TABLE>
<CAPTION>
================================================================================
THE YEARS ENDED:                         1997            1996             1995
================================================================================
<S>                                   <C>             <C>             <C>
Salaries and
  Employee Benefits                   $2,180,133      $1,781,085      $1,269,371
Occupancy Expense                        476,797         400,770         240,049
Equipment Expense                        305,688         246,190         174,985
Other Expenses                         1,340,620         998,564         810,935
--------------------------------------------------------------------------------
                                      $4,303,238      $3,426,609      $2,495,340
================================================================================
</TABLE>

  Total other  expense  increased  $876,629 or 26% in  comparison  to 1996.  The
Company opened its second branch office in Bridgewater Township in July of 1997.
Expenses  were  impacted  by  additional  personnel,  occupancy  costs and other
expenses related to the opening of a new branch.

  Salaries  and  Benefits  expense  increased  $399,048 or 22% from 1996 levels.
Because of the growth in assets (19%) and the opening of the Bridgewater office,
the Company has had to hire additional  personnel to better service its customer
base.  The  number  of  employees  grew to 52 at  December  31,  1997 from 39 at
December  31,  1996.  The  increase in  employees  combined  with normal  salary
increases, accounted for the variance from 1996.

  Occupancy  expense  increased  $76,027  or 19%  from  1996  mainly  due to the
increased  rent from the  Bridgewater  office and  increased  depreciation  from
facility  improvements.  Equipment expense increased $59,248 or 24% during 1997.
In 1997, the Company made an investment in a computer  network to remain current
with technology and improve efficiency. The Company has also been able to supply
each employee with access to a personal computer.

  Other expenses  increased $342,056 or 34%. Much of the increase was related to
the growth in the Company, which affected many areas, especially examination and
data processing costs, which were up $49,978 and $51,519 respectively.  Costs of
$13,636 were incurred for the  maintenance  of other real estate owned which was
disposed of in the third quarter of 1997.  Advertising and business  development
expenses as well as stationery and supplies  included costs  associated with the
promotion of the Bridgewater  branch as well as the  introduction of several new
banking products. Directors fees increased by $54,881.

  Total other expenses  increased $931,269 or 37% from 1995 to 1996. In February
of 1996, the Company opened its first branch office at the  Hillsborough  Centre
Shopping  Center.  As of December 31, 1996, total deposits were $10.2 million in
Hillsborough. Even though this was a good first year for the branch, the average
deposits were not sufficient to cover the initial opening expenses.

  Salaries and Benefits expense accounted for $511,714 of the total increase. In
addition,  during the latter part of 1995 and 1996 the Company added  additional
staff  especially in the lending area and  back-office  operations,  in order to
properly service the Company's  growth in deposit and loan volume.  Deposits and
loans showed  substantial  increases in 1996 and the Company's total assets grew
over 40%. Such growth necessitated additional employees.

  Occupancy expense increased $160,721 or 67% and equipment increased $71,205 or
41% mostly due to the opening of the new branch as well as  equipment  purchased
for the other new staff  members.  The  operations  department  was moved to the
second floor of the  Hillsborough  office in July to  accommodate  the growth in
volume and staff. Consequently,  moving expenses,  additional rent and equipment
needed also contributed to an increase in these two areas.

  Other  expenses  increased  $187,624 or 23%. Over $43,000 of this increase was
from additional  advertising and business  development  expenses  related to the
opening of the  Hillsborough  office.  The Company  also had to  advertise  more
aggressively  for  deposits  in order to fund  increased  loan  demand.  Outside
services and data processing  increased $96,060 due to the growth of the Company
and increased transaction volume.  Stationery and supplies increased $41,019 due
to the additional volume of transactions, additional staff, and increased costs.
Fees paid to  Directors  for Board and  Committee  meetings  increased  $21,950.
Offsetting some of the increases, FDIC insurance decreased $72,332.

INVESTMENT 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>
The following table sets forth the amortized cost and estimated market values of
securities in the investment portfolios as of December 31, 1997 and 1996.
<TABLE>
<CAPTION>
====================================================================================================================================
                                                                     1997                                       1996
                                                     AMORTIZED                 ESTIMATED           AMORTIZED              ESTIMATED
                                                          COST              MARKET VALUE                COST           MARKET VALUE
====================================================================================================================================
<S>                                               <C>                       <C>                  <C>                    <C>
AVAILABLE FOR SALE:
U.S. Treasury Securities                          $  2,249,153              $  2,250,550         $ 2,748,885            $ 2,752,700
U.S. Government Agency Securities                    5,999,700                 6,007,585           4,244,256              4,240,863
Mortgage-Backed Securities                           2,960,302                 3,008,134           1,721,442              1,733,315
------------------------------------------------------------------------------------------------------------------------------------
                                                   $11,209,155               $11,266,269         $ 8,714,583            $ 8,726,878
====================================================================================================================================
HELD TO MATURITY:
U.S. Treasury Securities                          $  8,753,699              $  8,769,770         $ 6,249,421            $ 6,264,063
U.S. Government Agency Securities                   11,477,026                11,498,220           5,738,111              5,735,196
Other Securities                                             -                         -             498,248                502,187
Mortgage-Backed Securities                           1,871,252                 1,875,046           1,503,701              1,496,782
------------------------------------------------------------------------------------------------------------------------------------
                                                   $22,101,977               $22,143,036         $13,989,481            $13,998,228
====================================================================================================================================
</TABLE>

With regard to mortgage-backed securities, the Company does not hold any private
issue CMOs. None of the mortgage-backed securities are classified as "high risk"
under FFIEC policy  statement  criteria.  As of December 31, 1997, there was not
one issuer where the aggregate book value or aggregate  market value exceeds ten
percent of shareholders' equity.
<PAGE>
The maturity distribution and weighted average yield of the Company's investment
portfolio as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
                                                                      DUE IN:                           DUE IN:
                                                                     ONE YEAR                    AFTER ONE YEAR
                                                                      OR LESS                THROUGH FIVE YEARS          TOTAL
====================================================================================================================================
<S>                                     <C>                         <C>                             <C>              <C>
AVAILABLE FOR SALE:
U.S. Treasury Securities
  Market Value                                                      $2,250,550                                -      $  2,250,550
  Yield                                                                   5.59%                               -              5.59%
U.S. Government Agency Securities
  Market Value                                                               -                       $6,007,585      $  6,007,585
  Yield                                                                                                    6.27  %           6.27%
Mortgage-Backed Securities
  Market Value                           $3,008,134                          -                                -      $  3,008,134
  Yield                                        6.52%                         -                                -              6.52%
====================================================================================================================================
HELD TO MATURITY:
U.S. Treasury Securities
  Book Value                                                        $6,749,878                       $2,003,821      $  8,753,699
  Yield                                                                   5.77%                            5.97  %           5.82%
U.S. Government Agency Securities
  Book Value                                                        $4,231,598                       $7,245,428       $11,477,026
  Yield                                                                   5.66%                            6.61  %           6.26%
Mortgage-Backed Securities
  Book Value                             $1,871,252                          -                                -        $1,871,252
  Yield                                       6.17%                          -                                -              6.17%
====================================================================================================================================
</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.

                                       23
<PAGE>
LOANS

The following  table  summarizes the Company's loan portfolio as of December 31,
1997 and 1996.
<TABLE>
<CAPTION>
================================================================================
                                                     1997               1996
================================================================================
<S>                                             <C>                 <C>
Secured by Real Estate:
  Residential Mortgage                          $ 33,248,717        $ 28,023,269
  Commercial Mortgage                             29,793,163          23,690,659
  Construction                                     4,851,720           2,289,233
Commercial & Industrial                           20,889,305          17,135,417
Loans to Individuals for
  Automobiles                                     12,177,339          13,260,060
Other Loans to Individuals                         4,969,103           3,456,425
Other Loans                                          541,327                --
--------------------------------------------------------------------------------
                                                $106,470,674        $ 87,855,063
================================================================================
</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 both 1997 and 1996. The
loan  portfolio  increased by $18.6  million or 21% in 1997 and $27.7 million or
46% in 1996.

  The Company targets small to medium sized businesses and  professionals in the
lending market area. For much of 1996 and continuing  into 1997, the Company was
able to attract customers that were dissatisfied with the services of the larger
regional banks. The Company tries to remain competitive in its pricing of loans,
but will not sacrifice loan quality to capture business. It is important to note
that 30% of the loans  secured by  residential  real estate as of  December  31,
1997,  were for commercial  purposes.  It is common for small business owners to
secure commercial loans with their personal businesses.

  During  1996,  the  Company  was  actively  seeking  relationships  with local
automobile  dealerships to generate  indirect  financing of consumer  automobile
loans.  A decision was made in 1997 to remain  competitive,  but not  aggressive
with  respect  to  pricing  on these  types  of  loans.  Consequently,  loans to
individuals  for  automobiles  dropped $1.1 million or 8% in 1997.  Construction
loans increased $2.6 million or 112% due to increased  construction  activity in
the market area.
<PAGE>
  The  following  table sets forth the  Company's  total loans by  maturity  and
interest rate sensitivity as of December 31, 1997:
<TABLE>
<CAPTION>
====================================================================================================================================
                                                      MATURITY                   AFTER
                                                        WITHIN               1 THROUGH                 AFTER
                                                        1 YEAR                 5 YEARS               5 YEARS                  TOTAL
====================================================================================================================================
<S>                                                <C>                     <C>                   <C>                   <C>
Loans with fixed rates                             $12,273,721             $38,460,772           $ 1,354,065           $ 52,088,558
Loans with floating rates                           19,808,901               9,859,120            24,714,095             54,382,116
------------------------------------------------------------------------------------------------------------------------------------
Total                                              $32,082,622             $48,319,892           $26,068,160           $106,470,674
====================================================================================================================================
</TABLE>

                                       24
<PAGE>
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 or five year fixed rate which  adjusts  annually
thereafter  for the life of the loan,  which may be up to 30 years.  The Company
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.

  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 does not finance the purchase of raw land but
will  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  and the cost  associated  with its
completion.  Although  the Company does  environmental  due  diligence  prior to
closing,  an  environmental  risk  factor  may  arise  during  construction.  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.

                                       25
<PAGE>
  The following table summarizes the composition of the Company's non-performing
assets as of the dates indicated:
<TABLE>
<CAPTION>
============================================================================================
DECEMBER 31,                                            1997          1996          1995
============================================================================================
<S>                                                  <C>           <C>           <C>
Non-performing assets (1):
Non-accruing loans
  Commercial and Construction                        $    --       $    --       $    --
  Real Estate                                             --            --            --
  Installment                                           62,632        24,384          --
Total non-accrual loans                                 62,632        24,384          --
Restructured loans                                        --            --            --
--------------------------------------------------------------------------------------------
Total non-performing loans                              62,632        24,384          --
--------------------------------------------------------------------------------------------
Other real estate owned                                   --         304,700          --
--------------------------------------------------------------------------------------------
Total non-performing assets                          $  62,632     $ 329,084     $    --
--------------------------------------------------------------------------------------------
Loans past due 90 days or more (2)                   $    --       $  20,600     $    --
--------------------------------------------------------------------------------------------
Non-performing loans to total loans                       0.06%         0.03%          N/A
Non-performing assets to total assets                     0.04%         0.26%          N/A
Allowance for loan losses to  non-performing loans    1,568.20%     3,212.62%          N/A
============================================================================================
</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.

  The following table summarizes the activity in the allowance for possible loan
losses for the period indicated:
<TABLE>
<CAPTION>
============================================================================================
DECEMBER 31,                                            1997          1996          1995
============================================================================================
<S>                                                  <C>           <C>           <C>
Balance, beginning of period                         $ 783,366     $ 527,019     $ 372,062
Loans charged off
  Commercial and Construction                          (33,814)       (2,035)      (43,969)
  Real Estate                                             --          (2,375)         --
  Installment                                          (52,585)      (53,183)       (7,074)
--------------------------------------------------------------------------------------------
Total charge offs                                      (86,399)      (57,593)      (51,043)
--------------------------------------------------------------------------------------------
Recoveries of loans previously charged off
  Commercial and Construction                             --             619          --
  Real Estate                                             --            --            --
  Installment                                            5,231         3,821          --
--------------------------------------------------------------------------------------------
Total recoveries                                         5,231         4,440          --
--------------------------------------------------------------------------------------------
Net Loans charged off                                  (81,168)      (53,153)      (51,043)
--------------------------------------------------------------------------------------------
Provision charged to expense                           280,000       309,500       206,000
--------------------------------------------------------------------------------------------
Balance, end of period                               $ 982,198     $ 783,366     $ 527,019
--------------------------------------------------------------------------------------------
Net charge offs as a percentage of average loans          0.09%         0.07%         0.10%
Allowance for loan losses to total loans                  0.92%         0.89%         0.88%
Allowance for loan losses to  non-accrual loans       1,568.20%     3,212.62%          N/A
============================================================================================
</TABLE>

                                             26
<PAGE>
  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 analyst who has 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.

  The increases in the Company's  provision for loan losses during 1997 and 1996
were primarily a result of increases in the outstanding  loan balances and not a
deterioration  of credit  quality.  As noted in the table,  the  Company  had no
non-performing  loans in 1995, and non-performing  loans as of December 31, 1997
and  1996  totaled   $62,632  or  .06%  and  $24,384  or  .03%  of  total  loans
respectively.  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 date indicated:
<TABLE>
<CAPTION>
====================================================================================================================================
                                                              DECEMBER 31, 1997                           DECEMBER 31, 1996
                                                      ===============================             ==================================
                                                                              PERCENT                                       PERCENT
                                                        AMOUNT         LOANS TO TOTAL                AMOUNT          LOANS TO TOTAL
====================================================================================================================================
<S>                                                   <C>                     <C>                  <C>                      <C>
Commercial and Construction                           $727,603                 64.37%              $547,181                  61.80%
Real Estate                                             47,393                 21.69%                33,058                  20.68%
Installment                                            207,202                 13.94%               203,127                  17.52%
------------------------------------------------------------------------------------------------------------------------------------
                                                      $982,198                100.00%              $783,366                 100.00%
====================================================================================================================================
</TABLE>

                                       27
<PAGE>
DEPOSITS

Following  is the average  balances  and rates paid on deposits  for the periods
indicated:
<TABLE>
<CAPTION>
====================================================================================================================================
YEARS ENDED
DECEMBER 31, 1997        DECEMBER 31, 1996        DECEMBER 31, 1995
====================================================================================================================================
                                         AVERAGE       AVERAGE             AVERAGE        AVERAGE            AVERAGE      AVERAGE
                                         BALANCE          RATE             BALANCE           RATE            BALANCE         RATE
====================================================================================================================================
<S>                                 <C>                  <C>           <C>                  <C>          <C>                <C>
Demand Deposits                     $ 20,583,833            -          $16,027,197             -         $10,838,744           -
Savings Deposits                       8,231,620         3.11%           6,977,173          3.13%          5,942,451        3.27%
Money Market Deposits Accounts        18,016,816         3.53%          11,940,716          3.26%          8.366,762        3.54%
NOW Accounts                           8,902,947         2.56%           6,042,628          2.46%          4,417,143        2.31%
Time Deposits                         68,428,340         5.47%          56,700,027          5.39%         41,703,884        5.46%
------------------------------------------------------------------------------------------------------------------------------------
                                    $124,163,556         3.92%         $97,687,741          3.90%        $71,268,984        4.03%
====================================================================================================================================
</TABLE>

Following is the maturity  distribution of time certificates of deposit $100,000
and over at December 31, 1997:

===============================================================
Three months or less                                $ 8,797,987
Over three months through twelve months               2,705,109
Over 1 year through five years                        1,376,712
---------------------------------------------------------------
                                                    $12,879,808
===============================================================

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 1997, the Company  generated  cash flow from  operations of $1,371,932.
This was more than the  $655,068  generated  in 1996 for  several  reasons.  Net
income of  $1,103,038  was  $382,953  higher in 1997 as  compared  to 1996.  The
increase in other assets of $301,439 was $427,370  lower than the 1996  increase
in other assets,  but was partially  offset by the increase in accrued  expenses
and other liabilities of $588 which was $203,768 lower than the 1996 increase in
other liabilities.

  Net cash used in investing activities was $29,479,060. Proceeds from the sales
and  maturities  of  securities  totaled  $17,361,646  all of which  was used to
purchase securities.  These purchases totaled $27,940,190. The increase in loans
for 1997 represented $18,696,780 net cash used for investing activities.

  The  increases  in  loans  were  funded  by net  cash  provided  by  financing
activities  of  $21,961,878.  Deposits,  most notably  time and demand  deposits
accounted for most of the amount.

  There was a decrease in cash and cash  equivalents  of  $6,145,250  during the
period. In addition to cash and cash  equivalents,  the Company's primary source
of liquidity  includes  securities held for sale and securities held to maturity
that mature in one year of less,  which totaled $28.2 million  inclusive of cash
and cash  equivalents  at December 31, 1997 and  represents 19% of total assets.
The Company  believes its  liquidity  position is sufficient to provide funds to
meet future loan demand or the possible outflow of deposits.

                                       28
<PAGE>
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 or 5 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 five
years.  Adjustable rate securities  require an estimate  average life at time of
purchase of ten years or less.  Callable securities are also purchased for terms
of five years or less with call period of three months to two 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, 1997, 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
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.

                                       29
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATE SENSITVITY AT DECEMBER 31, 1997 (In thousands)
====================================================================================================================================
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                                             $  17,496        $   5,529        $  10,343       $    --          $  33,368
Federal Funds Sold                                          --               --               --              --               --
Other Short Term Investments                                 188             --               --              --                188
Loans                                                     45,663           13,073           47,672              62          106,470
Valuation Reserve(1)                                        --               --               --            (1,082)          (1,082)
Non-interest Earning Assets                                 --               --               --             9,605            9,605
------------------------------------------------------------------------------------------------------------------------------------
Total Assets                                           $  63,347        $  18,602        $  58,015       $   8,585        $ 148,549
====================================================================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Money Market accounts                                  $  16,227        $    --          $    --         $    --          $  16,227
NOW accounts                                              13,014             --               --              --             13,014
Other Savings Deposits                                     9,043             --               --              --              9,043
Time CDs over $100,000                                     8,798            2,705            1,377            --             12,880
Other Time Deposits                                       16,772           32,557           11,471            --             60,800
Federal Funds Purchased                                      500             --               --              --                500
Obligation Under Capital Lease                              --               --                443            --                443
------------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities                        64,354           35,262           13,291            --            112,907
------------------------------------------------------------------------------------------------------------------------------------
Non-interest Bearing Liabilities                            --               --               --            21,966           21,966
Other Liabilities                                           --               --               --               580              580
Stockholders' Equity                                        --               --               --            13,096           13,096
------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
  Stockholders' Equity                                 $  64,354        $  35,262        $  13,291       $  35,642        $ 148,549
====================================================================================================================================
Interest Rate Sensitivity Gap                          $  (1,007)       $ (16,660)       $  44,724       $ (27,057)
------------------------------------------------------------------------------------------------------------------------------------
Cumulative Gap                                         $  (1,007)       $ (17,667)       $  27,057
====================================================================================================================================
Cumulative Gap to Total Assets                             (.68 )%        (11.89 )%          18.21 %
====================================================================================================================================
</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:

     (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.

  The ALCO  attempts to maintain the Company's  cumulative  gap ratios at +/-10%
for 90 days or less, +/-20% for between 91 days and 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 liabilities 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.

  An  additional  analysis  of the Bank's  interest  rate risk is a forecast  of
changes in the Bank's market value of portfolio equity (MVPE) under  alternative
interest rate environments.  The MVPE is defined as the net present value of the
Bank's  existing  assets,  liabilities  and off balance sheet  instruments.  The
calculated  estimated  of change in MVPE for the Bank at December 31, 1997 is as
follows:

                                       30
<PAGE>
<TABLE>
<CAPTION>
CHANGES IN INTERESTS
===============================================================
                                        MVPE           PERCENT
                                      AMOUNT            CHANGE
                              (IN THOUSANDS)
===============================================================
<S>                                  <C>               <C>
+200 Basis Points                    $14,597           (4.00)%
Flat Rate                             15,241               -
-200 Basis Points                     15,499             2.00%
===============================================================
</TABLE>

  Management has not yet  established  policy for acceptable  change in the MVPE
under alternate interest rate.

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,
                              =================================
                              1997           1996          1995
===============================================================
<S>                           <C>            <C>          <C>
Return on Average
  Assets                      0.80%          0.67%         0.83%
Return on Average
  Equity                      8.89%          8.07%         8.16%
Average Equity to
  Average Assets              9.04%          8.30%        10.17%
===============================================================
</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.

<TABLE>
<CAPTION>
===============================================================
                                   Years Ended December 31,
                              =================================
                              1997           1996          1995
===============================================================
<S>                          <C>            <C>           <C>
Total Capital to
  Risk Weighted Assets       12.81%         13.40%        14.11%
Tier 1 Capital to
  Risk Weighted Assets       11.89%         12.56%        13.29%
Leverage Ratio                8.72%          9.58%         9.89%
===============================================================
</TABLE>

It is the  Company's  intentions  to retain  its  earnings  in order to  provide
adequate capital to continue to support its growth. The Company has never paid a
dividend.
<PAGE>
SUMMARY OF QUARTERLY RESULTS

The following  summarizes  the results of operations  during 1997 on a quarterly
basis:
<TABLE>
<CAPTION>
====================================================================================================================================
                                                                           For the Quarters Ended
                                           =========================================================================================
                                             March 31                   June 30               September 30              December 31
====================================================================================================================================
<S>                                        <C>                       <C>                        <C>                      <C>
Interest Income                            $2,466,755                $2,620,462                 $2,776,010               $2,890,628
Interest Expense                            1,106,398                 1,196,057                  1,273,565                1,303,579
------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income                         1,360,357                 1,424,405                  1,502,445                1,587,049

Provision for Loan Losses                      75,000                    75,000                     65,000                   65,000
------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After
  Provision for Loan Losses                 1,285,357                 1,349,405                  1,437,445                1,522,049
------------------------------------------------------------------------------------------------------------------------------------
Gain on the Sale of Loans                      26,755                    27,353                     44,485                  115,940
Other Non Interest Income                      83,523                    81,382                     83,082                   98,810
Other Non Interest Expense                  1,008,115                 1,038,323                  1,093,504                1,163,296
------------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes                    387,520                   419,817                    471,508                  573,503

Income Taxes                                  156,027                   168,991                    190,156                  234,136
------------------------------------------------------------------------------------------------------------------------------------
Net Income                                 $  231,493                $  250,826                 $  281,352               $  339,367
====================================================================================================================================
</TABLE>


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

BOARD OF DIRECTORS                      SOMERSET VALLEY BANK FOUNDERS
                                        ADVISORY COUNCIL:
John K. Kitchen
Chairman of the Board                   Richard Bradley
G. Robert Santye                        Maureen T. Kruse
Vice Chairman of the Board              Matthew Madlinger
Bernard Bernstein                       John Majcher
Robert P. Corcoran                      Thomas C. Miller, Esq.
Mark S. Gold, MD                        Harold T. Moscatiello
Raymond L. Hughes                       Edward Rego
S. Tucker S. Johnson                    Janak Sakaria, MD
Willem Kooyker                          Helga Schwartz, MD
Frank Orlando                           Michael A. Sena
Gilbert E. Pittenger                    Albert DiFiore
Frederick D. Quick                      Sandra L. Runyon
Anthony J. Santye, Jr.                  Frank Tourville
Donald Sciaretta                        Donald Sweeney, MD
Herman C. Simonse
Donald R. Tourville

SOMERSET VALLEY BANK
HILLSBOROUGH ADVISORY COUNCIL:

Michael Avolio
Elaine DeMilia
Walter J. Dietz, III
Peter McGavisk
John Mondoro
Dan Pullen, DDS
Harry Smith
Kevin Sweeney
Frank N. Yurasko, Esq.
<PAGE>
Somerset Valley Banking Staff

Robert P. Corcoran                           Kathy Ruggiero
President and C.E.O.                         Assistant Vice President
                                             Branch Administration
Keith B. McCarthy
Chief Operating Officer                      Mary Ann Soriano
                                             Assistant Vice President
Arthur E. Brattlof
Executive Vice President,                    Marguerite Eppler
Senior Loan Officer                          Secretary to the Board

Robert F. Cramer                             Jeannette Capra
Vice President                               Assistant Treasurer
Consumer Loans
                                             Christopher Fenimore
Michael A. Novak                             Assistant Treasurer
Vice President
Commercial Loans                             Christopher Seaman
                                             Assistant Treasurer
Roger W. Russell
Vice President                               Margaret O'Keeffe
Loan Administration                          Assistant Treasurer
                                             Manager
Karen L. Zaliwski
Vice President                               Jeanne G. Hagen
Operations                                   Human Resources Director

Rene Miranda                                 Suzanne B. Lennard
Assistant Vice President                     Assistant Secretary
                                             Assistant Manager
W. Gay Pfahler
Assistant Vice President

Mary E. Rowe
Assistant Vice President

<PAGE>
GENERAL COUNSEL:
Thomas C. Miller, Esq.
Miller,  Robertson and Rogers, P.C.
21 North Bridge Street
Somerville, NJ 08876

INDEPENDENT PUBLIC ACCOUNTANTS:
Grant Thornton, LLP
Two Commerce Square
2001 Market Street, Suite 3100
Philadelphia, PA 19103-7080

TRANSFER AGENT:
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016

SVB Financial Services, Inc.
SOMERSET VALLEY BANK

MAIN OFFICE
103 West End Avenue
Somerville, NJ 08876
Telephone:   (908) 704-1188
Fax:         (908) 685-2180

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

FORM 10-K:
The annual report filed with the Securities and Exchange Commission on
Form 10-K is available without charge upon written request to:
Mr. Keith McCarthy
Somerset Valley Bank
103 West End Avenue
Somerville, NJ 08876