1996 ANNUAL REPORT

































                          SVB FINANCIAL SERVICES, INC.

<PAGE>


                                Table of Contents



      LETTER TO THE SHAREHOLDERS
      CONSOLIDATED BALANCE SHEETS
      CONSOLIDATED STATEMENTS OF INCOME
      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
      CONSOLIDATED STATEMENTS OF CASH FLOW
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS

<PAGE>
<TABLE>
<CAPTION>
                                                                                                SVB FINANCIAL SERVICES, INC.
                                                                                Selected Consolidated Financial Information
                                                           FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994, 1993 and 1992
                                               1996              1995             1994            1993            1992
===========================================================================================================================
<S>                                      <C>                <C>              <C>             <C>             <C>
INCOME STATEMENT DATA:
Interest income                          $   8,382,903      $  6,296,011     $  4,396,324    $  2,703,788    $  1,262,247
Interest expense                             3,813,161         2,870,884        1,765,907       1,092,806         685,482
---------------------------------------------------------------------------------------------------------------------------

Net interest income                          4,569,742         3,425,127        2,630,417       1,610,982         576,765
Provision for possible loan losses             309,500           206,000          156,000         130,000         107,000
---------------------------------------------------------------------------------------------------------------------------

Net interest income after provision for
  possible loan losses                       4,260,242         3,219,127        2,474,417       1,480,982         469,765
Non-interest income                            371,615           362,820          207,642         192,083          87,641
Non-interest expense                         3,426,609         2,495,340        2,162,657       1,741,896       1,441,567
---------------------------------------------------------------------------------------------------------------------------

Income (loss) before income taxes            1,205,248         1,086,607          519,402         (68,831)       (884,161)
Income tax expense (benefit)                   485,163           423,390         (307,752)             --              --
---------------------------------------------------------------------------------------------------------------------------

Net income (loss)                         $    720,085      $    663,217     $    827,154    $    (68,831)   $   (884,161)
===========================================================================================================================
BALANCE SHEET DATA:
Total Assets                             $ 124,995,467      $ 88,743,914     $ 74,075,685    $ 52,660,542    $ 33,439,249
Federal funds sold and other
  short term investments                     7,213,478         5,170,063        3,625,661       2,914,280       4,582,910
Securities available for sale                8,726,878         4,874,738        3,473,951       5,329,917              --
Securities held to maturity                 13,989,481        14,580,823       18,091,163       6,410,724       8,085,218
Loans, net                                  86,992,283        59,528,167       44,988,469      35,015,352      17,891,230
Deposits                                   112,521,390        79,679,792       67,053,817      46,604,614      29,810,861
Shareholders' Equity                        11,909,659         8,703,176        6,819,399       5,989,086       3,554,968
===========================================================================================================================
PERFORMANCE RATIOS:
Return on average assets                           .67%              .83%            1.30%           (.16%)         (4.07%)
Return on average equity                          8.07%             8.16%           13.50%          (1.35%)        (22.50%)
Net interest margin                               4.51%             4.53%            4.38%           4.07%           2.90%
===========================================================================================================================
ASSET QUALITY:
Loans past due over 90 days              $      20,600        $       --       $       --    $      5,985    $         --
Non-accrual loans                               24,384                --               --              --              --
Net charge offs                                 57,592            51,043           14,973           5,965              --
Allowance for loan losses to total loans          .89%               .88%             .82%            .65%            .59%
===========================================================================================================================
PER SHARE DATA (1):
Net income                               $         .61       $       .58      $       .80 $          (.08)   $      (1.23)
Book value                                        8.72              7.42             6.61            5.83            4.93
Weighted average shares outstanding          1,178,100         1,152,408        1,029,048         927,233         722,046
===========================================================================================================================
CAPITAL RATIOS:
Total risked-based capital                       13.40%            14.11%           14.03%          15.99%          13.87%
Tier I risked-based capital                      12.56%            13.29%           13.28%          15.39%          13.45%
Leverage capital                                  9.58%             9.89%            9.21%          11.19%          10.22%
===========================================================================================================================
<PAGE>

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

     In addition to celebrating the fifth anniversary of the opening of Somerset
Valley  Bank,  a number of other  significant  events  took place since our last
report. The Bank opened its first branch office at Hillsborough  Centre in Belle
Mead,  and in less than ten months  reached over $10 million in new deposits and
added more than 1,093 new  customers.  A second  branch,  to be located on North
Bridge  Street in  Bridgewater  Township,  was  approved by our  regulators  and
township officials and site work was begun prior to year end. We anticipate that
this branch will be in operation by the second quarter of 1997.

     In 1996, SVB Financial  Services,  Inc., a single bank holding  company was
formed and  assumed  ownership  of Somerset  Valley Bank  through an exchange of
stock,  offering  six shares of  holding  company  stock for every  five  shares
surrendered by bank  shareholders.  Shortly afterward,  SVB Financial  Services,
Inc.,  successfully  completed a stock  offering of 200,000 shares at $13.00 per
share,  adding an additional  $2.6 million to the Company's  capital.  The stock
offering was met with extreme enthusiasm and was actually over-subscribed,  with
many subscription agreements being returned to potential subscribers.  The quick
and successful  completion of this offering  underscores the positive perception
of the Company by its  community  and  existing  shareholders  and also  clearly
demonstrates  the liquidity and outside demand for our stock.  The $13 per share
selling price represents a significant premium over book value further enhancing
the value of your investment.

     Aside from the above  mentioned  structural and strategic  accomplishments,
the Company's wholly owned subsidiary, Somerset Valley Bank, recorded impressive
levels of growth and profitability in 1996. The Company's total assets grew from
$88.7  million  at year end 1995 to $124.9  million on  December  31,  1996,  an
increase of 41%. The addition of our new branch at  Hillsborough  Centre,  along
with a concerted marketing effort through officer contact and media advertising,
pushed our deposits from $79.6 million in 1995 to $112.5  million,  or an annual
increase of 41%. Our loan  portfolios  more than matched those  accomplishments,
growing by $27.7  million,  or 46%,  ending 1996 at $87.9  million up from $60.1
million the previous year.

     Despite the increase in employees  and  occupancy  costs related to opening
the new branch and  relocating  and expanding our  back-office  operations,  the
Company increased its net income in 1996 to $720,085 as compared to the previous
years'  earnings of  $663,217.  The above  mentioned  growth  figures  including
significant earnings growth in the fourth quarter of 1996, provide the basis for
a very optimistic outlook for performance in 1997.

     Strategically, Somerset Valley Bank is well positioned to take advantage of
potential  new  opportunities  that may  become  available  through  legislative
changes  favorable  to the  banking  community  with our  newly  formed  holding
company,  and our  strong  capital  position  will  allow us to grow the Bank in
accordance with our long-term  goals.  Additional  branching  opportunities  are
being explored and significant  changes and  enhancements to our delivery system
are currently  being  developed.  This year we will offer a deposit product that
will feature telephone banking, including an inquiry, balance transfer, and bill
paying mechanism, along with a nationwide debit card program in partnership with
a major  electronic card processing  firm. This product will allow our customers
to enjoy the convenience of home banking and the availability of accessing their
deposit  accounts  at Somerset  Valley Bank from almost  anywhere in the country
and, in many  instances,  the world.  We are also  exploring  possibilities  for
Internet  capabilities and other  technological  advances in banking products as
they evolve and become more readily accepted and required by our customer base.
<PAGE>
     Although technology  continues to alter the way many of us may choose to do
our banking,  customer service is still the overriding  factor in the success of
our Company.  Our philosophy in this regard remains steadfast and, regardless of
where  technology  and  expansion  take us, we must  continue  to  differentiate
ourselves as a community  bank,  supporting  those  individuals  and  businesses
within our community.

     This  philosophy is real and it represents how we conduct our business.  It
has taken us in five short years from a newly chartered, single branch bank to a
viable,   profitable  multi-branch  bank  holding  company  that  has  become  a
significant  provider  of  financial  services  within its  community.  With the
continuous  support and  commitment of our Board of Directors and  shareholders,
the next five  years  will  allow us to  continue  on this path of  success  and
provide our shareholders with a truly rewarding investment.

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

[GRAPHIC-PHOTOS OF ABOVE NAMED INDIVIDUALS]
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
Consolidated Balance Sheets
AS OF DECEMBER 31, 1996 AND 1995

                                                                      1996                   1995
===========================================================================================================================
<S>                                                            <C>                    <C>
ASSETS
Cash & Due from Banks                                          $   4,914,698          $  2,814,877
Federal Funds Sold                                                 5,450,000             4,575,000
Other Short Term Investments                                       1,763,478               595,063

===========================================================================================================================
Total Cash and Cash Equivalents                                   12,128,176             7,984,940
===========================================================================================================================

Securities (Notes 2 and 3)
  Available for Sale, at Market Value                              8,726,878             4,874,738
  Held to Maturity, (Market Value $13,998,228 in 1996
   and $14,649,141 in 1995)                                       13,989,481            14,580,823

===========================================================================================================================
Total Securities                                                  22,716,359            19,455,561
===========================================================================================================================

Loans (Notes 2, 4 and 5)                                          87,855,063            60,144,428
  Allowance for Possible Loan Losses                                (783,366)             (527,019)
  Unearned Income                                                    (79,414)              (89,242)

===========================================================================================================================
Net Loans                                                         86,992,283            59,528,167
===========================================================================================================================

Premises & Equipment, Net (Notes 2 and 6)                          1,066,109               716,215
Other Real Estate                                                    304,700                   --
Other Assets                                                       1,787,840             1,059,031

===========================================================================================================================
Total Assets                                                   $ 124,995,467          $ 88,743,914
===========================================================================================================================
<PAGE>
SVB FINANCIAL SERVICES, INC.
Consolidated Balance Sheets
AS OF DECEMBER 31, 1996 AND 1995

                                                                      1996                   1995
===========================================================================================================================
<S>                                                            <C>                    <C>
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand
  Non-interest Bearing                                         $  21,420,923          $ 12,829,836
  NOW Accounts                                                     6,439,160             5,875,285
Savings                                                            7,675,671             5,700,503
Money Market Accounts                                             15,710,515             9,315,378
Time
  Greater than $100,000                                            6,211,335             5,202,055
  Less than $100,000                                              55,063,786            40,756,735

===========================================================================================================================
Total Deposits                                                   112,521,390            79,679,792
===========================================================================================================================

Accrued Expenses & Other Liabilities                                 564,418               360,946
===========================================================================================================================

Total Liabilities                                                113,085,808            80,040,738
===========================================================================================================================

Commitments and Contingencies (Note 8)
===========================================================================================================================

SHAREHOLDERS' EQUITY (Notes 2, 11 and 13)
Common Stock, $4.17 Par Value: 10,000,000
  Shares Authorized; 1,366,523 Shares in 1996 and
  1,173,432 Shares in 1995 Issued and Outstanding                  5,698,401             4,893,211
Additional Paid-in Capital                                         5,447,009             3,764,511
Retained Earnings                                                    756,135                36,050
Unrealized Gain on Securities Available for Sale,
  Net of Income Taxes                                                  8,114                 9,404

---------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity                                        11,909,659             8,703,176

===========================================================================================================================
Total Liabilities and Shareholders' Equity                     $ 124,995,467          $ 88,743,914
===========================================================================================================================

The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                               SVB FINANCIAL SERVICES, INC.
                                                                                         Consolidated Statements of Income
                                                                       FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                                                               1996             1995 1994
===========================================================================================================================
<S>                                                                     <C>               <C>                 <C>
INTEREST INCOME (Note 2)
Interest on Loans                                                       $ 6,827,602       $ 4,850,687         $ 3,508,379
Interest on Securities Available for Sale                                   350,166           205,413             189,260
Interest on Securities Held to Maturity                                     918,011         1,013,811             558,076
Interest on Other Short Term Investments                                     46,757            14,798              32,746
Interest on Federal Funds Sold                                              240,367           211,302             107,863

---------------------------------------------------------------------------------------------------------------------------
Total Interest Income                                                     8,382,903         6,296,011           4,396,324
---------------------------------------------------------------------------------------------------------------------------

INTEREST EXPENSE
Interest on Deposits                                                      3,813,161         2,870,715           1,765,501
Interest on Federal Funds Purchased                                             --                169                 406
---------------------------------------------------------------------------------------------------------------------------

Total Interest Expense                                                    3,813,161         2,870,884           1,765,907
---------------------------------------------------------------------------------------------------------------------------

Net Interest Income                                                       4,569,742         3,425,127           2,630,417
PROVISION FOR POSSIBLE LOAN LOSSES (Notes 2 and 5)                          309,500           206,000             156,000
---------------------------------------------------------------------------------------------------------------------------

Net Interest Income after Provision For Possible Loan Losses              4,260,242         3,219,127           2,474,417
---------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Service Charges on Deposit Accounts                                         171,130           120,411             108,060
(Loss)/Gain on the Sale of Securities Available for Sale                     (2,117)            2,336                 --
Gain on the Sale of Loans                                                   131,966           181,599              59,358
Other Income                                                                 70,636            58,474              40,224

---------------------------------------------------------------------------------------------------------------------------
Total Other Income                                                          371,615           362,820             207,642
---------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSE
Salaries and Employee Benefits                                            1,781,085         1,269,371           1,055,231
Occupancy Expense                                                           400,770           240,049             221,109
Equipment Expense                                                           246,190           174,985             152,552
Other Expenses (Note 7)                                                     998,564           810,935             733,765

---------------------------------------------------------------------------------------------------------------------------
Total Other Expense                                                       3,426,609         2,495,340           2,162,657
---------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
                                                                                               SVB FINANCIAL SERVICES, INC.
                                                                                         Consolidated Statements of Income
                                                                       FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                                                               1996             1995 1994
===========================================================================================================================
<S>                                                                     <C>               <C>                 <C>
Net Income Before Provision (Benefit)
  for Income Taxes                                                        1,205,248         1,086,607             519,402

---------------------------------------------------------------------------------------------------------------------------
Provision (Benefit) for Income Taxes (Notes 2 and 10)                       485,163           423,390            (307,752)
---------------------------------------------------------------------------------------------------------------------------

NET INCOME                                                               $  720,085        $  663,217          $  827,154
===========================================================================================================================


NET INCOME PER SHARE                                                     $      .61        $     .58           $      .80
===========================================================================================================================


WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2)                              1,178,100        1,152,408            1,029,048
===========================================================================================================================

The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                               SVB FINANCIAL SERVICES, INC.
                                            Consolidated  Statements of Changes in Shareholders' Equity FOR THE YEARS ENDED
                                                                                           DECEMBER 31, 1996, 1995 AND 1994


                                                                                           UNREALIZED
                                                         ADDITIONAL       RETAINED        GAIN (LOSS)            TOTAL
                                          COMMON          PAID-IN         EARNINGS        ON SECURITIES       SHAREHOLDERS'
                                           STOCK          CAPITAL         (DEFICIT)     AVAILABLE FOR SALE       EQUITY
===========================================================================================================================
<S>                                    <C>              <C>             <C>

BALANCE, DECEMBER 31, 1993             $ 4,287,552      $ 3,163,010     $ (1,454,321)        $ (7,155)       $  5,989,086
===========================================================================================================================


Exercise of Warrants                        17,014           16,986               --               --              34,000
Net Income - 1994                               --               --          827,154               --             827,154
Change in Unrealized Gain (Loss)
  on Securities Available for Sale              --               --               --          (30,841)            (30,841)
---------------------------------------------------------------------------------------------------------------------------

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
===========================================================================================================================

The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                               SVB FINANCIAL SERVICES, INC.
                                                                                      Consolidated Statements of Cash Flow
                                                                      FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                                                             1996              1995             1994
===========================================================================================================================
<S>                                                                    <C>              <C>              <C>
OPERATING ACTIVITIES
Net Income                                                             $    720,085     $     663,217    $     827,154
Adjustments to Reconcile Net Income to Net
  Cash Provided By Operating Activities
Provision for Possible Loan Losses                                          309,500           206,000          156,000
Depreciation and Amortization                                               208,228           170,619          150,205
(Accretion) of Securities Premium/Discount                                  (50,581)         (208,496)        (116,405)
Losses/(Gains) on Sales of Securities Available for Sale, Net                 2,117            (2,336)              --
(Increase) in Other Assets                                                 (728,809)          (92,653)        (681,807)
Increase in Accrued Expenses
  and Other Liabilities                                                     204,356           153,414          253,283
(Decrease)/Increase in Unearned Income                                       (9,828)          (14,414)          12,823

===========================================================================================================================
Net Cash Provided By Operating Activities                                   655,068           875,351          601,253
===========================================================================================================================

INVESTING ACTIVITIES
Proceeds from Sales of Securities Available for Sale                      1,994,043           490,909               --
Proceeds from Maturities of Securities
  Available for Sale                                                      4,333,967         2,501,243        2,028,129
  Held to Maturity                                                        8,717,552        27,278,825       12,051,718
Purchases of Securities
  Available for Sale                                                    (10,142,305)       (3,233,692)        (243,083)
  Held to Maturity                                                       (8,117,765)      (24,643,976)     (23,592,446)
Increase in Loans                                                       (27,763,788)      (14,731,285)     (10,141,940)
Capital Expenditures                                                       (862,822)         (394,874)         (75,682)

===========================================================================================================================
Net Cash Used for Investing Activities                                  (31,841,118)      (12,732,850)     (19,973,304)
===========================================================================================================================

FINANCING ACTIVITIES
Net Increase in Demand Deposits                                           9,154,962         2,465,193        4,404,103
Net Increase (Decrease) in Savings Deposits                               1,975,168        (1,257,739)      (1,418,946)
Net Increase in Money Market Deposits                                     6,395,137         1,343,585          629,857
Net Increase in Time Deposits                                            15,316,331        10,074,936       16,834,189
Proceeds from the Issuance of Common Stock, Net                           2,555,208         1,173,160           34,000
(Decrease) in Common Stock from Non Acceptance of Exchange Offer            (67,520)               --               --

===========================================================================================================================
Net Cash Provided by Financing Activities                                35,329,286        13,799,135       20,483,203
===========================================================================================================================

Increase in Cash and Cash Equivalents, Net                                4,143,236         1,941,636        1,111,152
Cash and Cash Equivalents, Beginning of Year                              7,984,940         6,043,304        4,932,152

===========================================================================================================================
Cash and Cash Equivalents, End of Year                                 $ 12,128,176     $   7,984,940    $   6,043,304
===========================================================================================================================
<PAGE>
<CAPTION>
<CAPTION>
                                                                                               SVB FINANCIAL SERVICES, INC.
                                                                                      Consolidated Statements of Cash Flow
                                                                      FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                                                             1996              1995             1994
===========================================================================================================================
<S>                                                                    <C>              <C>              <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year for Interest                                 $  2,685,545     $   2,914,732   $   1,710,083
===========================================================================================================================


Cash Paid During the Year for Federal Income Taxes                      $   325,000      $    225,000   $       5,675
===========================================================================================================================


Transfer of Loans to Other Real Estate                                  $   304,700 $              --   $         --
===========================================================================================================================

The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<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 and Hillsborough,  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  consolidated  financial  statements  include the accounts of the Bank.  All
significant intercompany accounts and transactions have been eliminated.

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.

The Company had no securities held for trading purposes at December 31, 1996 and
1995.

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
<PAGE>
loan loss  allowances.  The  identification  of problem loans is achieved mainly
through review of specific major loans based on  delinquency  criteria,  size of
loan and location and value of collateral  property.  Specific loss reserves are
established for identified  problem loans based on reviews of current  operating
financial  information and fair value appraisals.  A range of loss allowances is
estimated based upon  consideration  of past  experience of originated  loans by
loan  type,   year  of   origination,   location  of  collateral   property  and
loan-to-value  ratios.  Based upon this  process,  consideration  of the current
economic environment and other factors,  management determines what it considers
to be an  appropriate  allowance  for possible loan losses.  Although  Company's
management believes it has a sound basis for this estimation,  actual write-offs
incurred in the future are highly  dependent upon future  events,  including the
economy  of the area in which the  Company  lends.

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.  Depre-ciation and amortization are
computed primarily on the straight-line method over the shorter of the estimated
useful  lives of the  assets  (three to ten  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.  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:  Deferred  income taxes are  recognized  for tax  consequences  of
"temporary  differences" by applying enacted  statutory tax rates to differences
between  the  financial  reporting  and the tax  basis of  existing  assets  and
liabilities.

NET INCOME PER SHARE: Net income per share is computed by dividing net income by
the weighted  average shares  outstanding  each year,  adjusted for common stock
equivalents,  if dilutive,  and the effect on prior  periods of the six for five
exchange offer (see Note 1).

NEW FINANCIAL  ACCOUNTING  STANDARDS:  The Financial Accounting Standards Boards
(FASB) issued SFAS No. 121,  "Accounting for the Impairment of Long-lived Assets
and for Long-lived  Assets to be Disposed Of," in March 1995.  This statement is
effective for the year ended  December 31, 1996.  Statement No. 121 requires the
long-lived  assets to be held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset  may not be  recoverable.  The  Company  has  evaluated  the  impact of
Statement  No. 121 on its financial  statements  and  determined  that it is not
material.
<PAGE>
SFAS No. 122,  "Accounting for Mortgage Servicing Rights" was issued in May 1995
and amends SFAS No. 65 "Accounting  for Certain  Mortgage  Banking  Activities."
This statement is effective for 1996 and requires the  recognition of a separate
asset for the rights to service mortgage loans for others.  The Company does not
service  mortgage  loans for others and will  therefore  not be impacted by this
statement.

SFAS No. 123,  "Accounting for Stock-Based  Compensation"  was issued in October
1995 and must be adopted by the Company effective January 1, 1996. SFAS No. 123,
requires entities that have employee stock option plans to estimate the value of
grants awarded to employees and disclose, in a pro forma footnote, the impact on
the entities'  income per share as if the  estimated  option value were expensed
over the vesting period of the grants.  Adoption of the disclosure  requirements
of this new accounting standard will not have an impact on the Company's results
of operations or financial condition.
<PAGE>
3: SECURITIES

Information  relative to the Company's securities portfolio at December 31, 1996
and 1995 is as follows:
<TABLE>
<CAPTION>

===========================================================================================================================
                                                                          GROSS          GROSS
                                               AMORTIZED                UNREALIZED    UNREALIZED         ESTIMATED
                                                  COST                    GAINS         LOSSES         MARKET VALUE
===========================================================================================================================
<S>                                          <C>                       <C>           <C>               <C>
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
===========================================================================================================================
1995
AVAILABLE FOR SALE
U.S. Treasury Securities                     $  3,543,131               $ 12,088           --          $  3,555,219
U.S. Government Agency Securities                 791,688                     --          (350)             791,338
Mortgage-Backed Securities                        525,452                  2,729           --               528,181

===========================================================================================================================
                                             $  4,860,271               $ 14,817     $    (350)        $  4,874,738
===========================================================================================================================
HELD TO MATURITY
U.S. Treasury Securities                     $  6,263,561               $ 50,008     $  (3,412)        $  6,310,157
U.S. Government Agency Securities               6,094,722                 37,156        (5,265)           6,126,613
Other Securities                                  496,147                 10,728            --              506,875
Mortgage-Backed Securities                      1,726,393                     --       (20,897)           1,705,496

===========================================================================================================================
                                             $ 14,580,823               $ 97,892     $ (29,574)        $ 14,649,141
===========================================================================================================================
</TABLE>
<PAGE>
The amortized  cost and  estimated  value of securities at December 31, 1996, 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              $  2,748,885        $  2,752,700
Due after 1 year through 5 years      4,244,256           4,240,863
Mortgage-Backed Securities            1,721,442           1,733,315

================================================================================
                                   $  8,714,583        $  8,726,878
================================================================================

HELD TO MATURITY
Due in 1 year  or  less           $  7,241,660         $  7,263,006
Due after 1 year through 5 years     5,244,120            5,238,440
Mortgage-Backed Securities           1,503,701            1,496,782

================================================================================
                                  $ 13,989,481         $ 13,998,228
================================================================================
</TABLE>

At December 31, 1996, securities having a book value of approximately $1,293,068
were pledged to secure  public  deposits  and for other  purposes as required by
law.
<PAGE>
4: LOANS
At  December  31,  1996  and  1995,  the  composition  of  outstanding  loans is
summarized as follows:
<TABLE>
<CAPTION>
================================================================================
                                    1996                 1995
================================================================================
<S>                            <C>                 <C>
Secured by Real Estate:
  Residential Mortgage         $ 28,023,269        $ 21,466,489
  Commercial Mortgage            23,690,659          15,700,266
  Construction                    2,289,233           2,812,000
Commercial & Industrial          17,135,417          12,554,205
Loans to Individuals
  for Automobiles                13,260,060           5,425,201
Loans to Individuals              3,456,425           2,186,267

================================================================================
                               $ 87,855,063        $ 60,144,428
================================================================================
</TABLE>
There were no loans  restructured  during  1996 or 1995.  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. There were no loans past due 90 days
or more or on a non-accrual  status as of December 31, 1995.  Loans to executive
officers  totaled  $146,517 at December  31, 1996 and  $147,984 at December  31,
1995, all of which were current as to principal and interest. There are no loans
to Directors or their affiliated interests.

Effective  January 1, 1995,  the Company  adopted the provisions of Statement of
Financial  Accounting  Standards No. 114 "Accounting by Creditors for Impairment
of a Loan"  SFAS  No.  114 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
and there is no impact on the comparability of years prior to 1995.
<PAGE>
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. There
were no loans deemed to be impaired as of December 31, 1995.

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.

5: ALLOWANCE FOR POSSIBLE 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>
================================================================================
                                1996   1995 1994
================================================================================
<S>                        <C>            <C>           <C>

Balance at January 1,      $ 527,019      $ 372,062     $ 231,035
Provision Charged to
   Operations                309,500        206,000       156,000
Charge Offs                  (57,593)       (51,043)      (15,846)
Recoveries                     4,440            --            873

================================================================================
Balance at December 31,    $ 783,366      $ 527,019     $ 372,062
================================================================================
</TABLE>
6: PREMISES AND EQUIPMENT

Premises and equipment consists of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
================================================================================
                                        1996             1995
================================================================================
<S>                               <C>               <C>

Construction in Progress$         $    63,079       $   227,451
Premises & Improvements               491,355           187,322
Furniture & Equipment               1,101,924           700,548

--------------------------------------------------------------------------------
                                    1,656,358         1,115,321

Less: Accumulated Depreciation(       590,249)         (399,106)

================================================================================
                                  $ 1,066,109       $   716,215
================================================================================
</TABLE>
<PAGE>
7: OTHER EXPENSE

The major components of other expenses are as follows:
<TABLE>
<CAPTION>
================================================================================
                                    1996          1995           1994
================================================================================
<S>                             <C>           <C>            <C>
Data Processing Services        $ 163,691     $ 131,038      $ 111,272
Marketing & Business
   Development                    129,915        94,597         73,682
Stationery, Forms & Supplies      121,470        80,453         62,144
Insurance                          75,508        62,773         65,539
Amortization of
   Organizational Costs            43,452        41,340         41,340
Legal, Examination &
   Accounting                     106,062        83,847         90,857
FDIC Insurance Assessment           2,000        74,332        110,153
Other, Net                        356,466       242,555        178,778

================================================================================
                                $ 998,564     $ 810,935      $ 733,765
</TABLE>
<PAGE>
8: 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 and one  non-director  shareholder.  As of December 31,
1996, future minimum rental payments,  including the renewal options under these
leases for the subsequent five years are as follows:
<TABLE>
<CAPTION>
================================================================================
<S>                                                                    <C>
1997                                                                   $283,048

--------------------------------------------------------------------------------
1998                                                                   $291,016

--------------------------------------------------------------------------------
1999                                                                   $293,064

--------------------------------------------------------------------------------
2000                                                                   $295,118

================================================================================
2001                                                                   $297,258
================================================================================
</TABLE>
The above amounts  represent  minimum  rentals not adjusted for possible  future
increases due to escalation  provisions and assumes that all option periods will
be exercised by the Company.  Rent expenses aggregated $244,413,  $153,618,  and
$139,808 for the years ended December 31, 1996, 1995 and 1994 respectively.

The Company had  outstanding  commitments  to extend  credit of  $11,809,000  at
December 31, 1996 and  $9,177,000  at December 31, 1995.  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, 1996.

9: BENEFIT PLAN

The Company has a 40l(k)  Savings Plan  covering  substantially  all  employees.
Under  the terms of the  Plan,  the  Company  will  match  50% of an  employee's
contribution,  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  $25,495,  $19,159 and  $12,700 to the Plan in 1996,  1995 and 1994,
respectively.
<PAGE>
10: INCOME TAXES

The  components  of the provision  (benefit) for income taxes in 1996,  1995 and
1994 are as follows:
<TABLE>
<CAPTION>
================================================================================
                          1996          1995            1994
================================================================================
<S>                   <C>            <C>            <C>

Federal:
  Current             $ 440,740      $ 239,708      $  18,170
  Deferred              (64,396)       122,338       (325,922)
State                   108,819         61,344             --

================================================================================
                      $ 485,163      $ 423,390      $(307,752)
================================================================================
</TABLE>
Deferred  income taxes are provided for the  financial  differences  between the
financial  reporting  basis  and the  tax  basis  of the  Company's  assets  and
liabilities.  Cumulative temporary differences at December 31, 1996 and 1995 are
as follows:
<TABLE>
<CAPTION>
================================================================================
                                              1996                 1995
================================================================================
<S>                                       <C>                 <C>
Start-up and Organization Costs           $  (4,575)          $  27,309
Depreciation                                  4,296               2,219
Accretion of Securities Discount             (2,893)             (5,708)
Allowance for Possible Loan Losses          259,237             179,774

================================================================================
Deferred Tax Asset, Net                   $ 256,065           $ 203,594
================================================================================
</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>
================================================================================
                                     1996           1995          1994
================================================================================
<S>                               <C>           <C>            <C>
Statutory Provision               $ 409,784     $ 369,446      $ 176,596
State Taxes on Income,
   net of Federal Tax Benefit        72,009        61,344           --
Reversal of
   Valuation Allowance
   on Deferred Tax Asset                 --          --        (473,453)
Other                                 3,370        (7,400)      (10,895)

================================================================================
                                  $ 485,163     $ 423,390     $(307,752)
================================================================================
</TABLE>
<PAGE>
During 1994, the Company recognized the benefit of a deferred tax asset from net
operating  loss forwards  that had been  established  in prior years.  Since the
Company  achieved  profitability  in 1994 and  projected  continued net earnings
growth,  the Company had reversed its valuation  allowance for its net operating
loss carryforward.

11: STOCK OPTION PLAN

On April 26, 1994,  the Company's  Directors  approved a qualified  stock option
plan for certain  members of  management.  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  49,200 are  reserved  for  issuance  under the plan as of December 31,
1996.

Transactions under the plan are summarized as follows:
<TABLE>
<CAPTION>
================================================================================
                                                    EXERCISE
                                  NUMBER              PRICE
                                OF SHARES           PER SHARE
================================================================================
<S>                                <C>                <C>
Outstanding,
December 31, 1994 and 1995         24,000             $ 8.33
Options granted                    26,400               8.33
Options exercised                   1,200               8.33
Options expired                        --                 --

Outstanding, December 31, 1996     49,200             $ 8.33
================================================================================
</TABLE>
The  outstanding  options that were granted  prior to January 1, 1995 were fully
exercisable at December 31, 1996 and have a remaining  contractual life of three
years.  The options  granted during 1996 were not exercisable as of December 31,
1996 and have a remaining contractual life of four years.

The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations  in accounting for the plan.  Accordingly,  no compensation cost
has been  recognized  for the stock option plan. Had  compensation  cost for the
Company's stock-based  compensation plan been determined based on the fair value
at the grant  dates for awards  under  those  plans  consistent  with the method
prescribed by FASB  Statement 123, the Company's net income and income per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
================================================================================
                                      1996
================================================================================
<S>                                <C>
Net Income
   As reported                     $ 720,085
   Pro forma                         660,685
Net Income per share
   As reported                     $     .61
   Pro forma                             .56
================================================================================
</TABLE>
<PAGE>
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 1996,  respectively;  expected  volatility  of
39.77%; risk-free
interest rate of 6.35%; no dividend yield; and expected lives of five years.

12: 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  method-ology  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 VALUE        BOOK VALUE
===============================================================================
<S>                               <C>                <C>

Cash and Cash Equivalents         $  12,128,176      $  12,128,176
===============================================================================
</TABLE>
For  securities  held in the  Company's  investment  portfolio  fair  value  was
determined by reference to quoted market prices as of December 31, 1996.
<TABLE>
<CAPTION>
================================================================================
                                        FAIR VALUE        BOOK VALUE
================================================================================
<S>                                 <C>               <C>
Available for Sale Securities       $   8,726,878     $   8,726,878

================================================================================
Held to Maturity Securities         $   13,998,228     $  13,989,481
================================================================================
</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.
<PAGE>
<TABLE>
<CAPTION>
================================================================================
                     FAIR VALUE          BOOK VALUE
================================================================================
<S>                <C>                 <C>

Loans              $  88,766,000       $  87,855,063

================================================================================
Deposits           $ 112,669,000       $ 112,521,390
================================================================================
</TABLE>

13: 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, 1996,  that the
Company and its subsidiary Bank meets all capital adequacy requirements to which
they are subject.

As of December 31, 1996 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.
<PAGE>
The Company and its subsidiary Bank's actual capital amounts and ratios are also
presented in the following tables.
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC. AND SOMERSET VALLEY BANK                                            TO BE WELL CAPITALIZED
                                                                               FOR CAPITAL       UNDER PROMPT CORRECTIVE
                                                        ACTUAL              ADEQUACY PURPOSES        ACTION PROVISIONS
-------------------------------------------------------------------------------------------------------------------------
                                              AMOUNT          RATIO        AMOUNT      RATIO      AMOUNT        RATIO
=========================================================================================================================
<S>                                        <C>               <C>        <C>            <C>      <C>             <C>
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%
=========================================================================================================================
AS OF DECEMBER 31, 1995
Total Capital to Risk Weighted Assets      $  9,064,357      14.11%     $ 5,139,609    8.00%    $ 6,424,512     10.00%
Tier I Capital to Risk Weighted Assets     $  8,537,338      13.29%     $ 2,569,805    4.00%    $ 3,854,707      6.00%
Tier I Capital to Average Assets           $  8,537,338       9.89%     $ 3,453,977    4.00%    $ 4,317,471      5.00%
=========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SOMERSET VALLEY BANK ONLY                                                                          TO BE WELL CAPITALIZED
                                                                           FOR CAPITAL UNDER         PROMPT CORRECTIVE
                                                   ACTUAL                   ADEQUACY PURPOSES        ACTION PROVISIONS
===========================================================================================================================
                                             AMOUNT        RATIO             AMOUNT     RATIO         AMOUNT      RATIO
===========================================================================================================================
<S>                                       <C>               <C>           <C>             <C>      <C>              <C>
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%
==========================================================================================================================
AS OF DECEMBER 31, 1995
Total Capital to Risk Weighted Assets     $  9,064,357      14.11%        $ 5,139,609     8.00%    $ 6,424,512      10.00%
Tier I Capital to Risk Weighted Assets    $  8,537,338      13.29%        $ 2,569,805     4.00%    $ 3,854,707       6.00%
Tier I Capital to Average Assets          $  8,537,338       9.89%        $ 3,453,977     4.00%    $ 4,317,471       5.00%
===========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

14: CONDENSED FINANCIAL STATEMENTS OF SVB FINANCIAL SERVICES, INC. (PARENT COMPANY ONLY):
===========================================================================================================================

BALANCE SHEET                                                                                          DECEMBER 31, 1996
===========================================================================================================================
<S>                                                                                                      <C>
ASSETS
  Cash and Due From Banks                                                                                $    626,091
  Other Assets                                                                                                 68,615
  Investment in Subsidiary (Equity Method                                                                  11,214,953

===========================================================================================================================
Total Assets                                                                                             $ 11,909,659
===========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' Equity
  Common Stoc                                                                                            $  5,694,077
  Capital Paid-in Excess of Par Value                                                                       5,451,333
  Retained Earnings                                                                                           756,135
Net Unrealized Holding Gains on Securities Available for Sale, Net of Tax                                       8,114

---------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity                                                                                 11,909,659
---------------------------------------------------------------------------------------------------------------------------

Total Liabilities and Shareholders' Equity                                                               $ 11,909,659
===========================================================================================================================

STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1996
===========================================================================================================================
OPERATING INCOME
Dividends from Bank Subsidiary                                                                           $    150,000
Interest Income                                                                                                 3,187

---------------------------------------------------------------------------------------------------------------------------
Total Income                                                                                                  153,187
---------------------------------------------------------------------------------------------------------------------------

OPERATING EXPENSE
Other Expense                                                                                                   3,747

---------------------------------------------------------------------------------------------------------------------------
Total Expense                                                                                                   3,747
---------------------------------------------------------------------------------------------------------------------------

Income Before Equity in Undistributed Income of Subsidiary                                                    149,440
Equity in Undistributed Income of Subsidiary                                                                  570,645

===========================================================================================================================
NET INCOME$                                                                                                   720,085
===========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

STATEMENT OF CASH FLOWSYEAR ENDED DECEMBER 31, 1996
===========================================================================================================================
<S>                                                                                                      <C>
OPERATING ACTIVITIES
Net Income                                                                                               $    720,085
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Equity in Undistributed Income of Subsidiary(570,645)
(Increase) in Other Assets(68,615)

---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities                                                                      80,825
---------------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
Purchase of Additional Common Stock in Subsidiary Bank                                                     (2,000,000)

---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from Stock Issuance, Net                                                                           2,545,266

---------------------------------------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents, Net                                                                    626,091
Cash and Cash Equivalents, Beginning of Year--

===========================================================================================================================
Cash and Cash Equivalents, End of Year                                                                   $    626,091
</TABLE>
<PAGE>



SVB FINANCIAL SERVICES, INC.
===============================================================================

                    Report of Independent Public Accountants


[GRAPHIC -- ARTHUR ANDERSEN LOGO]



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 1995 and the related  consolidated  statements  of income,
changes in  shareholders'  equity and cash flows for each of the three  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 1995,  and the  results of their
operations  and their cash flows for each of the three 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
<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 that are  reasonably
likely to have a material effect on the Company's  liquidity,  capital resources
or results of operations. RESULTS OF OPERATIONS: The Company completed its fifth
full year of operations in 1996. Net income for the year ended December 31, 1996
was  $720,085 an increase of $56,868 or 8.6% 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%. 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.

It is important to note that  quarterly  income  continued to improve  after the
opening  of the  Hillsborough  office.  Net  income by  quarter  for 1996 was as
follows:
<TABLE>
<CAPTION>
================================================================================
THREE MONTH NET
PERIODS ENDEDINCOME
================================================================================
<S>                                                                    <C>

March 31, 1996                                                         $ 78,061
June 30, 1996                                                           170,262
September 30, 1996                                                      183,217
December 31, 1996                                                       288,545
================================================================================
</TABLE>
Net income for 1995 was $663,217  compared to $827,154 in 1994.  It is important
to note that  during  1994 the  Company  recognized  a one-time  tax  benefit of
$307,752  related to the  reversal of a valuation  allowance  applicable  to the
Bank's deferred tax accounts,  related to net operating loss carry forwards.  In
comparison,  the  Company  was fully  taxable  in 1995.  Pretax  income for 1995
increased over 1994 by $567,205 or 109%.

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.
<PAGE>
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.
<TABLE>
<CAPTION>
SUMMARY OF NET INTEREST INCOME
                                                                  YEAR ENDED DECEMBER 31,
===============================================================================================
                                                                             1996
===============================================================================================
                                                             AVERAGE      AVERAGE
                                                             BALANCE       RATE        INTEREST
===============================================================================================
<S>                                                     <C>                <C>      <C>
ASSETS
Federal Funds Sold                                      $   4,504,304      5.34%    $  240,367
Securities Purchased Under Agreement to Resell                     --         --            --
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
Borrowed Funds                                                     --         --            --
-------------------------------------------------------------------------------------------------

Total Interest Bearing Liabilities                         81,660,544      4.67%     3,813,161
Demand Deposits                                            16,027,197
Accrued Expenses and Other Liabilities                        606,068
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>
                                                                               YEAR ENDED DECEMBER 31,
====================================================================================================================================
                                                                    1995                                   1994
====================================================================================================================================
                                                      AVERAGE      AVERAGE                       AVERAGE      AVERAGE    AVERAGE
                                                      BALANCE       RATE        INTEREST         BALANCE       RATE       INTEREST
====================================================================================================================================
<S>                                               <C>              <C>       <C>              <C>              <C>     <C>
ASSETS
Federal Funds Sold                                $  3,592,027      5.88%    $   211,302      $  2,519,589     4.28%   $  107,863
Securities Purchased Under Agreement to Resell              --         --             --           441,563     4.10%       18,122
Other Short Term Investments                           283,389      5.22%         14,798           393,133     3.72%       14,624

Securities Available for Sale                        3,615,515      5.68%        205,413         4,707,132     4.02%      189,260
Securities Held to Maturity                         17,146,453      5.91%      1,013,811        11,864,436     4.70%      558,076
------------------------------------------------------------------------------------------------------------------------------------

Total Securities                                    20,761,968      5.87%      1,219,224        16,571,568     4.51%      747,336

Loans                                               51,047,241      9.50%      4,850,688        40,141,035     8.74%    3,508,379
------------------------------------------------------------------------------------------------------------------------------------

Total Interest Earning Assets                       75,684,625      8.32%      6,296,012        60,066,888     7.32%    4,396,324
Cash and Due from Banks                              3,134,843                                   2,558,955
Allowance for Possible Loan Losses                    (451,397)                                   (294,854)
Premises and Equipment                                 490,206                                     475,411
Other Real Estate Owned                                     --                                          --
Other Assets                                         1,033,880                                     540,111

====================================================================================================================================
Total Assets                                      $ 79,892,157                                $ 63,346,511
====================================================================================================================================


LIABILITIES AND SHAREHOLDERS' EQUITY
Savings Deposits                                  $  5,942,451      3.27%    $   194,043      $  7,611,311     3.31%    $  251,573
Money Market Deposit Accounts                        8,366,762      3.54%        296,300         8,619,199     3.12%       268,781
NOW Accounts                                         4,417,143      2.31%        102,187         4,445,435     2.35%       104,581
Time Deposits                                       41,703,884      5.46%      2,278,185        27,492,118     4.15%     1,140,566
------------------------------------------------------------------------------------------------------------------------------------

Total Interest Bearing Deposits                     60,430,240      4.75%      2,870,715        48,168,063     3.67%     1,765,501
Borrowed Funds                                           2,740      6.20%            170             8,219     4.94%           406
------------------------------------------------------------------------------------------------------------------------------------

Total Interest Bearing Liabilities                  60,432,980      4.75%      2,870,885        48,176,282     3.67%     1,765,907
Demand Deposits                                     10,838,744                                   8,901,103
Accrued Expenses and Other Liabilities                 492,190                                     156,264
Shareholders' Equity                                 8,128,243                                   6,112,862
------------------------------------------------------------------------------------------------------------------------------------

Total Liabilities and Shareholders' Equity        $ 79,892,157                                $ 63,346,511
====================================================================================================================================


Net Interest Income                                                          $ 3,425,127       $ 2,630,417
===================================================================================================================================

Net Interest Margin                                                 4.53%                                      4.38%
===================================================================================================================================
</TABLE>
<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>
========================================================================================================================

========================================================================================================================
                                           YEARS ENDED DECEMBER 31,                        YEARS ENDED DECEMBER 31,
                                                 1996 VS 1995                                    1995 VS 1994
                                    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             $    45,811     $  (16,746)    $   29,065       $   55,052    $   48,387     $ 103,439
Securities Purchased
  Under Agreement to Resell             --             --             --          (18,122)          --        (18,122)
Other Short Term Investments        32,576           (617)        31,959             (390)          564           174

Securities Available for Sale      135,691          9,062        144,753          (20,681)       36,834        16,153
Securities Held to Maturity       (115,456)        19,656        (95,800)         288,937       166,798       455,735
------------------------------------------------------------------------------------------------------------------------

Total Investment Securities         20,235         28,718         48,953          268,256       203,632       471,888
Loans                            2,151,257       (174,342)     1,976,915        1,016,147       326,161     1,342,308
------------------------------------------------------------------------------------------------------------------------

Total Interest Income            2,249,879       (162,987)     2,086,892        1,320,943       578,744     1,899,687
------------------------------------------------------------------------------------------------------------------------

Interest Expense:
Savings Deposits                    31,902         (7,744)        24,158          (54,529)       (3,002)      (57,531)
Money Market Deposit Accounts      114,007        (21,493)        92,514           (7,578)       35,097        27,519
NOW Accounts                        39,649          6,876         46,525             (663)       (1,731)       (2,394)
Time Deposits                      808,244        (28,995)       779,249          705,403       432,216     1,137,619
------------------------------------------------------------------------------------------------------------------------

Total Interest Bearing Deposits    993,802        (51,356)       942,446          642,633       462,580     1,105,213
Borrowed Funds                        (169)            --           (169)            (383)          147          (236)
------------------------------------------------------------------------------------------------------------------------
Total Interest Expense             993,633        (51,356)       942,277          642,250       462,727     1,104,977
------------------------------------------------------------------------------------------------------------------------

Change in Net Interest Income  $ 1,256,246     $ (111,631)   $ 1,144,615       $  678,693     $ 116,017   $   794,710
========================================================================================================================
</TABLE>
<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 in-crease was attributable to the growth in
average  earning  assets which were $101.2  million in 1996 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
Com-pany  increased its outstanding  auto loans through its dealer network.  The
net increase in interest income compared to 1995 was $2,086,892.

Supporting the Company's  earning assets were its interest  bearing deposits and
non-interest  bearing  sources  of funds such as  capital  and demand  deposits.
Interest  bearing  deposits were $81.7 million in 1996 compared to $60.4 million
in 1995. Increases were found in all deposit types. The cost of interest bearing
liabilities  decreased  8 basis  points as  compared  to 1995.  Demand  deposits
increased  $5.2  million to $16.0  million but its affect on the overall cost of
funds did not offset the decline in the yield on earning  assets.  Consequently,
the net interest  margin  declined 2 basis points to 4.51%.  It is  management's
goal to  manage  its  interest  rate risk in order to  maintain  as stable a net
interest margin as possible.

The decline in the net interest  margin  resulted in a reduction in net interest
income of  approximately  $111,631.  This reduction was offset by an increase in
net  interest  income due to an  increase in volume,  leaving a net  increase of
$1,144,615.

1995 vs. 1994

Net interest  income  increased by $794,710 in 1995 as compared to 1994. Most of
this  increase  was  attributable  to the growth in the volume of the  Company's
earning  assets.  The  average  daily  balance in earning  assets  increased  by
$15,617,737  or 26% from the 1994 average.  Almost 70% of this increase took the
form of loans as the Company  continued to experience strong loan demand in 1995
in both the commercial and consumer  portfolios.  The loans to deposits ratio, a
measure of the percentage of deposits that the Company  invests in loans,  which
generally  provide a higher  return than  investments  and  federal  funds sold,
increased  from 70.3% in 1994 to 71.6% in 1995.  The growth in volume as well as
the  improvement  of the  mix  in  earning  assets  provided  $1,320,943  of the
$1,899,687  increase in interest  income.  The  remainder  was provided by a 100
basis point increase in the yield on earning  assets.  Interest rates in general
increased substantially during much of 1994. They remained fairly stable through
1995 before declining slightly in the second half of the year.

     Average  interest  bearing  deposits for 1995 increased  $12,262,177 or 25%
from 1994. Most of this increase was in the form of time deposits as the Company
continued to aggressively price its certificates of deposits in order to attract
new customers.  The overall cost of interest bearing  liabilities  increased 108
basis  points from 3.67% to 4.75% due to the 1994  increases  in interest  rates
mentioned  above.  Offsetting  this  increased  cost was a growth in the average
balance of  non-interest  sources of funds.  Average demand  deposits  increased
$1,937,641  or 22% due to increases in  commercial  checking  accounts.  Average
<PAGE>
shareholders'  equity increased  $2,015,381 due mostly to the issuance of common
stock as a result of the  exercise  of stock  warrants  issued in the 1993 stock
offering, which expired on March 1, 1995.

     The increases in  non-interest  sources of funds coupled with the growth in
the yield on earning assets  contributed to the improvement in the Company's net
interest  margin from 4.38% in 1994 to 4.53% in 1995. The improvement in the net
interest  margin  contributed  $116,017 to the  increase in net income while the
overall growth of the balance sheet contributed $678,693.

OTHER INCOME
A  comparison  of the  major  components  of other  income  is  included  in the
following table:
<TABLE>
<CAPTION>
================================================================================
THE YEARS ENDED:             1996         1995        1994
================================================================================
<S>                      <C>          <C>          <C>

Service Charges on
  Deposit Accounts       $ 171,130    $ 120,411    $ 108,060
(Loss) Gain on the
  Sale of Securities        (2,117)       2,336          --
Gain on the
  Sale of Loans            131,966      181,599       59,358
Other Income                70,636       58,474       40,224

================================================================================
                         $ 371,615    $ 362,820   $ 207,642
================================================================================
</TABLE>
Other income increased $8,795 or 2% during 1996 in comparison with 1995. Service
charges on deposit accounts increased $50,719 or 42% due to growth in the number
of both commercial and consumer  checking accounts and due to an increase in the
charge for overdrafts.

Other income increased  $12,162 or 21% mainly due to servicing fees on SBA loans
sold.  The Company is a preferred  SBA lender and, as such,  it  originates  SBA
loans and sells the government guaranteed portions in the secondary market while
retaining  the  servicing.  SBA loans are not the primary focus of the Company's
loan  business and these amounts can vary from year to year  depending  upon the
volume  of SBA loans  generated.  Gains on the sale of loans are a result of the
Company's  sales of SBA loans.  These were $131,966 in 1996 compared to $181,599
in 1995, and  consequently,  this decline offsets part of the increases in other
income as mentioned above.

Other income increased  $155,178 or 75% for the year ending December 31, 1995 as
compared with the same period in 1994.  Most of the increase was due to gains on
the sale of SBA loans.

Service charges on deposit accounts increased $12,351 or 11% in 1995 compared to
1994 due  mostly to  increases  in account  maintenance  and  overdraft  fees on
commercial checking accounts.  These increases were a result of volume increases
since the Bank did not change its rate of service  charges.  In order to attract
and maintain  commercial  demand  deposits,  the Company's  service  charges are
competitive in comparison to other banks.
<PAGE>
The increase in other income of $18,250 was also almost entirely due to
servicing fees on the SBA loans sold as mentioned above.

OTHER EXPENSE

A  comparison  of the major  components  of other  expense  is  included  in the
following table:
<TABLE>
<CAPTION>
================================================================================
THE YEARS ENDED:             1996            1995           1994
================================================================================
<S>                     <C>             <C>             <C>

Salaries and
  Employee Benefits     $ 1,781,085     $ 1,269,371     $ 1,055,231
Occupancy Expense           400,770         240,049         221,109
Equipment Expense           246,190         174,985         152,552
Other Expenses              998,564         810,935         733,765

================================================================================
                        $ 3,426,609     $ 2,495,340     $ 2,162,657
================================================================================
</TABLE>
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.  The
new branch employs five full time employees. 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. As mentioned  previously,  deposits and loans
showed  substantial  increases in 1996 and the Company's  total assets grew over
40%. Such growth necessitated additional employees.

Occupancy 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  area 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.
<PAGE>
Total other expenses for the year ended December 31, 1995 increased  $332,683 or
15% from the same period in 1994. As a relatively new organization,  the Company
had shown significant growth in assets in its first four years of operation.  As
a  result,  expenses  have had to grow in  order  to  support  and  service  the
Company's asset growth.

Salaries and Benefits  expense  accounted  for  approximately  half of all other
expenses. As mentioned previously, the growth of the Company during 1995 made it
necessary  for the Company to add  additional  staff  especially  in the lending
department and back-office operations. The Company also paid performance bonuses
to most of its  officers  and  employees.  These  factors  caused  salaries  and
benefits  expense to increase  $214,140 or 20%. Most of the $18,940  increase in
occupancy expense was due to increased rental expense. The Company began leasing
additional space at its back-office  facility at 117 West End Avenue and is also
leasing land on North  Bridge  Street in  Bridgewater  Township for the proposed
branch office.

The increase in  equipment  expense  resulted  from  purchases of furniture  and
computer  equipment for the additional  banking staff as well as increased costs
for equipment maintenance.

Other  expenses  increased  $77,170 or 11% during 1995.  Data  processing  costs
increased  $19,766 due to the  increase in  transaction  volume.  Marketing  and
Business  development  costs  increased  $20,915  as  the  Company  became  more
aggressive in advertising  in both newspaper and radio.  Stationery and supplies
increased  $18,309,  as the  cost of paper  and  transaction  volume  increased.
Director's  fees increased  $23,100.  Offsetting  some of these  increases was a
decline in FDIC  insurance  of  $35,821,  since the FDIC  substantially  lowered
premium  rates in the second half of 1995.  Legal,  examination  and  accounting
expenses also showed a decline of $7,010.

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.
<PAGE>
The following table sets forth the amortized cost and estimated market values of
securities in the investment portfolios as of December 31, 1996 and 1995
<TABLE>
<CAPTION>
===========================================================================================================================
                                                             1996                                1995
                                                AMORTIZED            ESTIMATED        AMORTIZED         ESTIMATED
                                                  COST             MARKET VALUE          COST         MARKET VALUE
===========================================================================================================================
<S>                                          <C>                  <C>                <C>               <C>
AVAILABLE FOR SALE:
U.S. Treasury Securities                     $  2,748,885         $  2,752,700       $  3,543,131      $  3,555,219
U.S. Government Agency Securities               4,244,256            4,240,863            791,688           791,338
Mortgage-Backed Securities                      1,721,442            1,733,315            525,452           528,181

===========================================================================================================================
                                             $  8,714,583         $  8,726,878       $  4,860,271      $  4,874,738
===========================================================================================================================

HELD TO MATURITY:
U.S. Treasury Securities                     $  6,249,421         $  6,264,063       $  6,263,561      $  6,310,157
U.S. Government Agency Securities               5,738,111            5,735,196          6,094,722         6,126,613
Other Securities                                  498,248              502,187            496,147           506,875
Mortgage-Backed Securities                      1,503,701            1,496,782          1,726,393         1,705,496

===========================================================================================================================
                                             $ 13,989,481         $ 13,998,228       $ 14,580,823      $ 14,649,141
===========================================================================================================================
</TABLE>
Note: 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, 1996,
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, 1996 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                                              $ 2,752,700             --          $ 2,752,700
  Yield                                                            5.69%            --                 5.69%
U.S. Government Agency Securities
  Market Value                                                      --      $ 4,240,863         $ 4,240,863
  Yield                                                             --             6.28%               6.28%
Mortgage-Backed Securities
  Market Value                       $ 1,733,315                    --              --          $ 1,733,315
  Yield                                     6.21%                   --              --                 6.21%
===========================================================================================================================
HELD TO MATURITY:
U.S. Treasury Securities
  Book Value                                                $ 5,502,885       $  746,536        $ 6,249,421
  Yield                                                            6.00%            5.73%              5.97%
U.S. Government Agency Securities
  Book Value                                                $ 1,240,527      $ 4,497,584        $ 5,738,111
  Yield                                                            6.14%            6.16%              6.16%
Other Securities
  Book Value                                                $   498,248              --          $  498,248
  Yield                                                            6.85%             --                6.85%
Mortgage-Backed Securities
  Book Value                         $ 1,503,701                    --               --         $ 1,503,701
  Yield                                     6.05%                   --               --                6.05%
===========================================================================================================================
</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.
<PAGE>

LOANS

The following  table  summarizes the Company's loan portfolio as of December 31,
1996 and 1995.
<TABLE>
<CAPTION>
================================================================================
                                     1996                  1995
================================================================================
<S>                             <C>                  <C>

Secured by Real Estate:
  Residential Mortgage          $ 28,023,269         $ 21,466,489
  Commercial Mortgage             23,690,659           15,700,266
  Construction                     2,289,233            2,812,000
Commercial & Industrial           17,135,417           12,554,205
Loans to Individuals
  for Automobiles                 13,260,060            5,425,201
Other Loans to Individuals         3,456,425            2,186,267

================================================================================
                                $ 87,855,063         $ 60,144,428
================================================================================
</TABLE>
Note:  The  Company's  commercial  loans  are not  concentrated  within a single
industry or group of related industries.

The  Company  experienced  significant  loan  growth in 1995 and 1996.  The loan
portfolio  increased by $27.7 million or 46% in 1996 and $14.7 million or 32% in
1995.  Since the Company  began  operations,  its main  emphasis with respect to
lending has been the small to medium sized  businesses and  professionals in its
market area. This market segment  continues to make up the bulk of the Company's
lending.  One of the reasons for the  significant  loan growth was the  apparent
inability of the larger regional and  out-of-state  banks to adequately  service
this segment of the market. It is important to note that in the table 35% of the
loans  secured by  residential  real estate,  as of December 31, 1996,  were for
commercial  purposes.  It is common  for  small  business  owners to secure  the
commercial loans with their personal residences.

During  1995,  the  Company  began  actively  seeking  relationships  with local
automobile  dealerships  for the  purpose  of  indirect  financing  of  consumer
automobile  loans.  At  December  31,  1996,  the Company  was  performing  such
financing for nine dealerships.  Automobile loans increased $4.2 million in 1995
and  $7.8  million  during  1996.  After  declining  in  1995,  other  loans  to
individuals increased by $1.3 million in 1996.
<PAGE>
The  following  table sets  forth the  Company's  total  loans by  maturity  and
interest rate sensitivity as of December 31, 1996:
<TABLE>
<CAPTION>
===========================================================================================================================
                                               MATURITY                   AFTER
                                                 WITHIN                1 THROUGH           AFTER
                                                 1 YEAR                 5 YEARS           5 YEARS            TOTAL
===========================================================================================================================
<S>                                           <C>                     <C>              <C>               <C>

Loans with fixed rates                        $ 10,219,211            $ 32,728,693     $    986,349      $ 43,934,253
Loans with floating rates                       14,884,065              10,695,633       18,341,112        43,920,810

===========================================================================================================================
Total                                         $ 25,103,276            $ 43,424,326     $ 19,327,461       $ 87,855,063
===========================================================================================================================
</TABLE>
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 70% 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.
<PAGE>
     The Company  originates and retains  residential  mortgage 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 earning potential of the borrower as
well as potential resale values associated with the collateral security of 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 70% 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.  During a construction  project,  an  environmental  risk factor may
arise. 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.
<PAGE>
The following table  summarizes the composition of the Company's  non-performing
assets as of the dates indicated:
<TABLE>
<CAPTION>
===========================================================================================================================
DECEMBER 31,                                                     1996             1995            1994
===========================================================================================================================
<S>                                                          <C>               <C>            <C>
Non-performing assets (1):
Non-accrual loans
  Commercial and Construction                                $      --         $      --      $      --
  Real Estate                                                       --                --             --
  Installment                                                   24,384                --             --
Total non-accrual loans                                         24,384                --             --
Restructured loans                                                  --                --             --
---------------------------------------------------------------------------------------------------------------------------

Total non-performing loans                                      24,384                --             --
---------------------------------------------------------------------------------------------------------------------------

Other real estate owned                                        304,700                --             --
---------------------------------------------------------------------------------------------------------------------------

Total non-performing assets                                  $ 329,084         $      -- $           --
===========================================================================================================================


Loans past due 90 days or more (2)                           $  20,600         $      -- $           --
Non-performing loans to total loans                                .03%              N/A            N/A
Non-performing assets to total assets                              .26%              N/A            N/A
Allowance for loan losses to non-performing loans             3,212.62%              N/A            N/A
===========================================================================================================================
(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.
</TABLE>
<PAGE>
The following  table  summarizes the activity in the allowance for possible loan
losses for the period indicated:
<TABLE>
<CAPTION>
===========================================================================================================================
YEARS ENDED DECEMBER 31,                                          1996                 1995 1994
===========================================================================================================================
<S>                                                          <C>

Balance, beginning of period                                 $ 527,019       $ 372,062          $ 231,035
Loans charged off
  Commercial and Construction                                   (2,035)        (43,969                 --
  Real Estate                                                   (2,375)             --                 --
  Installment                                                  (53,183)         (7,074)           (15,846)

---------------------------------------------------------------------------------------------------------------------------
Total charge offs                                              (57,593)        (51,043)           (15,846)
---------------------------------------------------------------------------------------------------------------------------


Recoveries of loans previously charged off
  Commercial and Construction                                      619              --                 --
  Real Estate                                                       --              --                 --
  Installment                                                    3,821              --                873
---------------------------------------------------------------------------------------------------------------------------

Total recoveries                                                 4,440              --                873
---------------------------------------------------------------------------------------------------------------------------

Net Loans charged off                                          (53,153)        (51,043)           (14,973)
---------------------------------------------------------------------------------------------------------------------------

Provision charged to expense                                   309,500         206,000            156,000
---------------------------------------------------------------------------------------------------------------------------

Balance, end of period                                       $ 783,366       $ 527,019          $ 372,062
===========================================================================================================================
Net charge offs as a percentage of total loans                     .06%            .08%              .03%
Allowance for loan losses to total loans                           .89%            .88%              .81%
Allowance for loan losses to non-accrual loans                3,212.62%            N/A               N/A
</TABLE>
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.
<PAGE>
  The  increases in the  Company's  provision for loan losses during the periods
indicated are 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 either 1995 or 1994, and non-performing loans as
of December  31, 1996 totaled  $24,384 or .03% of total  loans.  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 dates indicated:
<TABLE>
<CAPTION>
===========================================================================================================================
                                                  DECEMBER 31, 1996                                  DECEMBER 31, 1995
===========================================================================================================================
                                                                      PERCENT                              PERCENT
                                             AMOUNT              LOANS TO TOTAL            AMOUNT      LOANS TO TOTAL
===========================================================================================================================
<S>                                        <C>                      <C>                 <C>               <C>

Commercial and Construction                $ 547,181                 61.80%             $ 434,775          61.26%
Real Estate                                   33,058                 20.68%                33,547          26.37%
Installment                                  203,127                 17.52%                58,697          12.37%

===========================================================================================================================
                                           $ 783,366                100.00%             $ 527,019         100.00%
===========================================================================================================================
</TABLE>
Note:  The increase in the allowance for loan losses  applicable to  installment
loans was the result of an increase in the balance of automobile loans from $5.4
million at December 31, 1995 to $13.2 million at December 31, 1996.

INTEREST RATE SENSITIVITY

Management of interest rate sensitivity is an important element of both earnings
performance and maintaining sufficient liquidity.  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.
<PAGE>
     The Company's  Asset/Liability  Management Committee is composed of certain
officers of the Company  (the "ALCO  Committee")  and  controls  asset/liability
management  procedures.  The  purpose  of the ALCO  Committee  is to review  and
monitor  the volume and mix of the  interest  sensitive  assets and  liabilities
consistent  with  the  Company's   overall   liquidity,   capital,   growth  and
profitability goals.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY AT DECEMBER 31, 1996 (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                                  $ 10,730             $  5,238           $  6,748    $     --     $  22,716
Federal Funds Sold                             5,450                   --                 --          --         5,450
Loans                                         35,659               12,786             39,393           17       87,855
Valuation Reserve (1)                             --                   --                 --         (863)        (863)
Non-interest Earning Assets                       --                   --                 --         9,83       79,837

===========================================================================================================================
Total Assets                                $ 51,839             $ 18,024           $ 46,141    $   8,991    $ 124,995
===========================================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Money Market accounts                       $ 15,711              $     --            $   --    $      --    $  15,710
NOW accounts                                   6,439                   --                 --           --        6,439
Other Savings Deposits                         7,675                   --                 --           --        7,675
Time CDs over $100,000                         3,415                1,875                921           --        6,211
Other Time Deposits                           17,379               28,899              8,786           --       55,065

---------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities          $ 50,619             $ 30,774            $ 9,707    $      --   $  91,100
---------------------------------------------------------------------------------------------------------------------------


Non-interest Bearing Liabilities             $    --             $     --            $    --    $ 21,421    $  21,421
Other Liabilities                                 --                   --                 --         564          564
Stockholders' Equity                              --                   --                 --      11,910       11,910

===========================================================================================================================
Total Liabilities and Stockholders' Equity  $ 50,619             $  30,774           $  9,707  $  33,895    $ 124,995
===========================================================================================================================


Interest Rate Sensitivity Gap               $  1,220             $ (12,750)          $ 36,434  $ (24,904)
---------------------------------------------------------------------------------------------------------------------------

Cumulative Gap                              $  1,220             $ (11,530)          $ 24,904
===========================================================================================================================


Cumulative Gap to Total Assets                   .98%               (9.22%)             19.92%
===========================================================================================================================
<PAGE>
(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.
</TABLE>

It is  management's  policy 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.

DEPOSITS

Following  is the average  balances  and rates paid on deposits  for the periods
indicated:
<TABLE>
<CAPTION>
===========================================================================================================================
                                           YEARS ENDED                       YEARS ENDED                 YEARS ENDED
                                         DECEMBER 31, 1996                 DECEMBER 31, 1995           DECEMBER 31, 1994
===========================================================================================================================
                                             AVERAGE                          AVERAGE                     AVERAGE
                                       BALANCE        RATE              BALANCE        RATE        BALANCE        RATE
===========================================================================================================================
<S>                               <C>                <C>           <C>                <C>       <C>               <C>

Demand Deposits                   $ 16,027,197          --         $ 10,838,744          --     $ 8,901,103         --
Savings Deposits                     6,977,173       3.13%            5,942,451       3.27%       7,611,311       3.31%
Money Market Deposits Accounts      11,940,716       3.26%            8,366,762       3.54%       8,619,199       3.12%
NOW Accounts                         6,042,628       2.46%            4,417,143       2.31%       4,445,435       2.35%
Time Deposits                       56,700,027       5.39%           41,703,884       5.46%      27,492,118       4.15%

===========================================================================================================================
                                  $ 97,687,741       3.90%         $ 71,268,984       4.03%     $57,069,166       3.09%
</TABLE>
<PAGE>
Following is the maturity  distribution of time certificates of deposit $100,000
and over at December 31, 1996:
<TABLE>
<CAPTION>
================================================================================
<S>                                                                 <C>
Three months or less                                                $ 3,415,000
Over three months through twelve months                               1,875,000
Over 1 year through five years                                          921,000

================================================================================
                                                                    $ 6,211,000
================================================================================
</TABLE>
LIQUIDITY

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

     The  Company's  liquidity  represented  by cash and cash  equivalents  is a
product of its operating, investing and financing activities.

     During 1996, the Company  generated cash flow from  operations of $655,068.
This was less than the $875,351  generated in 1995  primarily due to an increase
in other assets of $728,809.

     Net cash used in investing activities was $31,841,118.  Most of this amount
was represented by the increase in loans of $27,763,788. Proceeds from the sales
and  maturities  of  securities  totaled  $15,045,562  all of which  was used to
purchase securities. Such purchases totaled $18,260,070.

     The  increases  in loans  were  funded by net cash  provided  by  financing
activities  which totaled  $35,329,286.  Deposits,  most notably time and demand
deposits  accounted for most of the amount.  The Company  issued common stock in
the fourth quarter of 1996 which provided $2,555,208.

     There was an increase in cash and cash equivalents of $4,143,236 during the
period.  In  addition  to cash  and  cash  equivalents,  the  Company's  primary
liquidity includes securities available for sale and securities held to maturity
that mature in one year or less, which totaled $28,096,714 inclusive of cash and
cash  equivalents at December 31, 1996 and represent 22.0% 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.
<PAGE>
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,               1996        1995        1994
================================================================================
<S>                                   <C>        <C>          <C>

Return on Average Assets               .67%        .83%        1.30%
Return on Average Equity              8.07%       8.16%       13.50%
Average Equity to Average Assets      8.30%      10.17%        9.65%
================================================================================
</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,               1996        1995        1994
================================================================================
<S>                                   <C>        <C>          <C>

Total Capital to Risk
  Weighted Assets                     13.40%     14.11%       14.03%
Tier I Capital to Risk
  Weighted Assets                     12.56%     13.29%       13.28%
Leverage Ratio                         9.58%      9.89%        9.21%
================================================================================
</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>
SVB Financial Services, Inc. and Somerset Valley Bank
BOARD OF DIRECTORS:

John K. Kitchen
Chairman of the Board

G. Robert Santye
Vice Chairman of the Board

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

SOMERSET VALLEY BANK
FOUNDERS ADVISORY
COUNCIL:

Richard Bradley
Maureen T. Kruse
Matthew Madlinger
John Majcher
Thomas C. Miller, Esq.
Harold T. Moscatiello
Edward Rego
Janak Sakaria, MD
Helga Schwartz, MD
Michael A. Sena
Albert DiFiore
Sandra L. Runyon
Frank Tourville
Donald Sweeney, MD

SOMERSET VALLEY BANK
HILLSBOROUGH ADVISORY
COUNCIL:

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

Somerset Valley Bank Banking Staff
OFFICERS:

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

Keith B. McCarthy
Chief Operating Officer

Arthur E. Brattlof
Executive Vice President,
Senior Loan Officer

Robert F. Cramer
Vice President
Consumer Loans

Allison S. Fischer
Vice President
Bank Manager

Michael A. Novak
Vice President
Commercial Loans

Roger W. Russell
Vice President
Loan Administration

Karen L. Zaliwski
Vice President
Operations


Rene Miranda
Assistant Vice President

W. Gay Pfahler
Assistant Vice President

Mary E. Rowe
Assistant Vice President

Mary Ann Soriano
Assistant Vice President

Marguerite Eppler
Secretary to the Board

Suzanne B. Lennard
Assistant Secretary,
Assistant Manager

Jeannette Capra
Assistant Treasurer
<PAGE>

Christopher Fenimore
Assistant Treasurer

Christopher Seaman
Assistant Treasurer,
Assistant Manager



EMPLOYEES:

Elizabeth  Balunis  Margaret Biello Roselyn Bonge Michelle  Callahan Leo Delaney
Joan  Diemer  Sharon  Eckel Lisa  Giacomarra  Andrew  Gruszka  Nicole  Hunt Mary
Langmead Lillian Lazorchak Suzanne Long Lois Lott Kelly McGovern Kelly Moravasik
Margaret  O'Keeffe  Bedzaida  Rodriguez  Scott Ronca Lorenzo  Santiago  Rosemary
Tucillo Diana Valko Vimala Vimalavong Brian Zunski

<PAGE>


SVB FINANCIAL SERVICES, INC.


SOMERSET VALLEY BANK
103 WEST END AVENUE
SOMERVILLE, NJ 08876
TEL: 908-704-1188
FAX: 908-685-2180

SOMERSET VALLEY BANK
649 ROUTE 206
HILLSBOROUGH CENTRE
BELLE MEAD, NJ 08502
TEL: 908-281-4009
FAX: 908-281-3042


OPENING SPRING 1997
SOMERSET VALLEY BANK
BRIDGEWATER OFFICE
481 NORTH BRIDGE STREET
BRIDGEWATER, NJ 08807


GENERAL COUNSEL:

Thomas C. Miller, Esq.
Welaj, Miller and Robertson
21 North Bridge Street
Somerville, NJ 08876

INDEPENDENT
PUBLIC ACCOUNTANTS:

Arthur Andersen LLP
Princeton, NJ 08540

TRANSFER AGENT:

Registrar and
Transfer Company
10 Commerce Drive
Cranford, NJ 07016