EXHIBIT 13

                         Annual Report to Stockholders
                 for the fiscal year ended September 30, 1996


<PAGE>



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Corporate Description                                         

     Pulse Bancorp,  Inc. (the  "Corporation")  is the holding company for Pulse
Savings  Bank  which  was  chartered  by the State of New  Jersey  in 1916.  The
Corporation  is also the holding  company for Pulse  Insurance  Services,  Inc.,
Pulse Investment,  Inc., and Pulse Real Estate, Inc. All three subsidiaries were
formed in 1996 and are currently inactive.

     The principal  business of Pulse Savings Bank is the acceptance of deposits
from the general public and the origination of mortgage loans for the purpose of
constructing,  financing or refinancing  one to four-family  dwellings and other
improved residential and commercial real estate. In addition, the Bank purchases
mortgage-backed  securities  collateralized by one to four-family  dwellings and
investment  securities.  Its income is derived  largely from  interest on loans,
mortgage-backed securities and investment securities. Its principal expenses are
interest paid on deposits and borrowings and operating expenses.

     The business of the Bank is conducted through four offices located in South
River,  South  Amboy,  Monroe  Township and  Lawrenceville,  New Jersey Table of
Contents


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Table of Contents
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Consolidated Financial Highlights                                            2
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Report to Stockholders                                                       3
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Management's Discussion and Analysis                                         4
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Consolidated Financial Statements                                           10
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Notes to Consolidated Financial Statements                                  14
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Independent Auditors' Report                                                34
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Officers and Directors                                                      35
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Corporate and Stockholder's Information                                     36
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                                                                    Common Stock

  The  Corporation's  common  stock is  traded  over-the-counter  on the  Nasdaq
National Market System  appearing  under the symbol "PULS".  The following table
reflects the stock price as published by the Nasdaq statistical report.

                                                      HIGH    LOW

                                                     ----    ---
First Quarter
12-31-94                                            14 3/4    12 1/2
Second Quarter
3-31-95                                             16 3/4    14
Third Quarter
6-30-95                                             16        14 1/2
Fourth Quarter
9-30-95                                             17        14 3/4
First Quarter
12-31-95                                            17 1/2    15 3/4
Second Quarter
3-31-96                                             17        15 1/2
Third Quarter
6-30-96                                             18        14 1/2
Fourth Quarter
9-30-96                                             18        16 7/8

                                                                              
     While  the  Corporation  is not  subject  to  dividend  restrictions  under
regulations of the New Jersey Department of Banking,  the Corporation depends on
dividends  paid to it by the Bank in  order  to  declare  and pay  dividends  to
stockholders of the Corporation.  Under New Jersey banking law, the Bank may not
pay a dividend to the Corporation unless,  following payment,  the capital stock
of the Bank will be unimpaired  and (a) the Bank will have a surplus of not less
than 50% of its capital stock, or, if not, (b) the payment of such dividend will
not  reduce  the  surplus  of the Bank.  Under New  Jersey  corporate  law,  the
Corporation  may pay dividends in cash or shares but may not pay a dividend that
would render it insolvent or cause its' liabilities to exceed its' assets.

     The number of  stockholders of record of common stock as of the record date
of December 3, 1996, was approximately  885. This does not reflect the number of
persons or entities who held stock in nominee or "street"  name through  various
brokerage firms. At September 30, 1996, there were 3,049,878 shares outstanding.

                                                                              1
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Consolidated Financial Highlights
<TABLE>
<CAPTION>
                                                                         At September 30,
                                                        --------------------------------------------------
                                                        1992       1993       1994       1995       1996
                                                        --------------------------------------------------
                                                                         (In Thousands)
Selected Financial Condition and Other Data
<S>                                                   <C>        <C>        <C>        <C>        <C>     
Assets ............................................   $401,005   $435,177   $447,684   $445,779   $502,500
Loans Receivable, net .............................    201,555    175,835    139,975    134,277    134,548
Mortgage-backed securities held to maturity .......    146,183    186,309    182,000    174,969    164,092
Mortgage-backed securities available for sale .....       --         --         --         --       40,255
Investment securities held to maturity ............     28,966     49,277     87,917    114,381    105,549
Investment securities available for sale ..........       --         --         --         --       39,055
Real estate owned .................................      3,375      4,091      3,281      2,628      2,233
Deposits ..........................................    357,890    387,704    396,190    391,038    394,581
Borrowings ........................................       --         --         --         --       64,275
Stockholders' equity ..............................     40,849     45,310     49,292     52,274     38,459
</TABLE>

<TABLE>
<CAPTION>
                                                                            Year Ended September 30,
                                                        --------------------------------------------------
                                                             1992      1993      1994      1995      1996
                                                        --------------------------------------------------
                                                                 (In Thousands, Except Per Share Data)

<S>                                                        <C>       <C>       <C>       <C>       <C>    
Interest income ........................................   $33,605   $31,586   $30,348   $30,739   $32,733
Interest expense .......................................    18,649    14,492    13,780    17,230    19,133
                                                           -------   -------   -------   -------   -------
Net interest income ....................................    14,956    17,094    16,568    13,509    13,600
Provision for loan losses ..............................     2,500     2,101     2,650      --        --
Non-interest income ....................................       111       252       357       294       326
Non-interest expenses ..................................     4,925     5,148     5,003     5,643     8,474
Income taxes ...........................................     2,713     3,634     3,254     2,895     1,959
                                                           -------   -------   -------   -------   -------
  Net income ...........................................   $ 4,929   $ 6,463   $ 6,018   $ 5,265   $ 3,493
                                                           =======   =======   =======   =======   =======
Net income per share ...................................   $  1.32   $  1.70   $  1.55   $  1.34   $  0.94
                                                           =======   =======   =======   =======   =======
Dividends per share ....................................   $  0.50   $  0.65   $  0.60   $  0.70   $  0.70
                                                           =======   =======   =======   =======   =======
</TABLE>



<TABLE>
<CAPTION>
                                                     At or For Year Ended September 30,
                                                ------------------------------------------
                                                 1992     1993     1994     1995     1996
                                                ------------------------------------------

Selected financial ratios:
<S>                                             <C>      <C>      <C>      <C>      <C>  
Return on average assets .................       1.23%    1.53%    1.35%    1.18%    0.74%
Return on average equity .................      12.55%   14.87%   12.37%   10.29%    7.02%
Dividend payout ratio ....................      36.90%   37.29%   37.68%   51.20%   69.38%
Stockholders' equity/total assets ........      10.19%   10.41%   11.01%   11.72%    7.65%
Non-performing loans/total assets ........       1.95%    1.03%    0.57%    0.73%    0.36%
Real estate owned/total assets ...........       0.84%    0.94%    0.73%    0.58%    0.44%
Allowance for loan losses/loans receivable       2.08%    2.55%    2.40%    1.93%    1.82%
</TABLE>

_____________________
(1)  Includes a pre-tax charge of approximately  $2.7 million as a result of the
     FDIC's one-time special insurance assessment. See Note 15.

2
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REPORT TO STOCKHOLDERS

     We are pleased to report  that two  extremely  important  pieces of Federal
legislation were adopted by Congress during our fiscal year. This legislation is
obviously of great importance to thrift  institutions and it could significantly
impact the franchise value of Pulse Bancorp, Inc. (the "Corporation").
     First,  as a result of the  enactment  of the  Small  Business  Act,  Pulse
Savings Bank (the "Bank")  would be able to change to a commercial  bank charter
and diversify its lending  without  having to recapture any of the pre- 1988 bad
debt  reserve  accumulations.  Essentially,  the  bad  debt  reserve  was  a tax
incentive  that allowed  thrift  institutions  to set up reserves  with tax free
dollars to offset future loan losses.  All reserves set aside since 1988 must be
recaptured, however, these amounts are insignificant to the Bank.
     Secondly, President Clinton signed into law the Deposit Insurance Funds Act
of 1996 (DIFA) on September 30, 1996. This act included  provisions  which would
fully  capitalize  the Savings  Association  Insurance  Fund (SAIF),  reallocate
payment of the annual Financing  Corporation  (FICO) bond obligation and provide
for the eventual  merger of the SAIF with the Bank  Insurance  Fund (BIF).  As a
result of DIFA,  the Bank was required to pay a one-time  special  assessment on
deposits  held as of March 31, 1995 which  equaled 65.7 basis points per $100 of
deposits.  Effective  January 1, 1997, the FDIC  insurance  premium for the Bank
will be reduced significantly.
     The  financial  results for the fiscal year ended  September  30, 1996 were
impacted by the one-time SAIF  assessment.  Net income for the fiscal year ended
September 30, 1996 was reported at  $3,493,000  or $.94 per share  compared with
$5,265,000 or $1.34 per share for the fiscal year ended  September 30, 1995. The
1996 fiscal year reflects an after tax charge of  approximately  $1,750,000  for
the special assessment by the Savings Association Insurance Fund.
     A major  accomplishment  during  the 1996  fiscal  year was the  successful
completion of the "Modified  Dutch Auction".  In June 1996, the  stockholders of
the  Corporation  tendered  approximately  837,000 shares of common stock in the
auction. This reduced the stockholders' equity to approximately $38.5 million at
September  30,  1996.  The  main  purpose  of the  auction  was to  improve  the
Corporation's   return  on  average  equity  by  reducing  its   overcapitalized
condition.  This  auction  was very well  received by our  stockholders  and the
investment community.
     In conjunction with the Modified Dutch Auction,  another  accomplishment of
the  Corporation  was the  development  and  adoption of a plan to leverage  its
existing  capital  by  increasing  its  lending  and  investment  activity.  The
development  of this growth  strategy,  through the use of borrowed  funds,  has
afforded the  Corporation the potential for increased  earnings per share.  This
strategy has also contributed to the growth of the assets during the 1996 fiscal
year.
     The Bank's  focus during the 1996 fiscal year was the  development  of core
deposit  relationships.   This  strategy  involved  increasing  the  retail  and
commercial checking accounts.  In order to attract these accounts,  the Bank was
successful  in  implementing  the "MAC" card program and offering  phone banking
services to  customers.  Additionally,  the Bank also  instituted  a credit card
program for new and existing  customers.  The  development of these new services
has assisted the Bank in its retention and solicitation of core deposits.
     On the loan side, the Bank  accelerated  its first mortgage and home equity
loan production by offering highly  competitive rates. The Bank will continue to
undertake aggressive strategies to attract quality loan business. In conjunction
with  lending,  management  of  the  Bank  has  worked  diligently  to  decrease
non-performing  loans and real estate owned. At the end of the 1996 fiscal year,
the  non-performing  loans  were  $1,834,000  compared  with  $3,283,000  at the
previous  fiscal year.  The real estate owned was reported at  $2,233,000 at the
end of the fiscal year  compared  with  $2,628,000  the previous  year.  We will
continue to work diligently to keep these  non-performing  loans and real estate
owned balances at low levels. Additionally, the allowance for loan losses at the
end of the fiscal year was $2,459,000.
     In  assessing  the  accomplishments  and  strategies  the  Corporation  has
employed,  we would like to portray to our  stockholders  and customers  that we
will continue to operate this  Corporation  as a small  community  bank with the
goal of  safeguarding  your best interest.  Amid the changes taking place in the
banking  industry  throughout the state and the country,  the Board of Directors
and management are committed to the enhancement of shareholder value.
     As we approach a new era in the financial services industry,  we would like
to  express  our  gratitude  to our loyal  stockholders  who have  supported  us
throughout the years. As a result of the invaluable  contributions  of the Board
of Directors  and the  dedication of the  employees,  we are able to look at the
future with optimism. We thank you for your continued interest and support.

                           Sincerely,


                           /s/George T. Hornyak, Jr.
                           George T. Hornyak, Jr.
                           President
                           Chief Executive Officer


                           /s/Benjamin S. Konopacki
                           Benjamin S. Konopacki
                           Chairman of the Board
                                                                              3
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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General   Pulse Bancorp,  Inc. (the  "Corporation")  owns 100% of the issued and
          outstanding  common  stock of Pulse  Savings Bank  (formerly  Pulawski
          Savings Bank prior to a change in name  effective  January 14,  1994),
          hereafter referred to as the "Bank", which is the primary asset of the
          Corporation.  The  Corporation  is also 100% owner of Pulse  Insurance
          Services,  Inc., Pulse Real Estate, Inc., and Pulse Investment,  Inc.,
          all of which  were  formed  during  the 1996  period,  but  which  are
          currently   inactive.   The   Corporation's   business  is   conducted
          principally through the Bank.

          The  earnings  of the Bank  depend  primarily  upon  the  level of net
          interest income,  which is the difference  between the interest earned
          on assets such as loans,  mortgage-backed securities,  investments and
          other interest-earning assets and the interest paid on its liabilities
          such as deposits and  borrowings.  Net interest  income is affected by
          many factors,  including  regulatory,  economic and competitive forces
          that  influence  interest  rates,  loan demand and deposit  flow.  Net
          interest  income is also  affected  by the  composition  of the Bank's
          interest-earning  assets and  interest-bearing  liabilities and by the
          repricing of such assets and liabilities.  Operating  results are also
          affected  to a lesser  extent  by the types of  lending  such as fixed
          rates  versus  adjustable  rates,  each of which has a  different  fee
          structure. The Bank is vulnerable to interest rate fluctuations to the
          extent that its  interest-bearing  liabilities  mature or reprice more
          rapidly  than  its   interest-earning   assets.  Such  asset/liability
          structure  may result in lower net interest  income during the periods
          of rising  interest  rates and may be beneficial in times of declining
          interest  rates.  The Bank's net income is also affected by provisions
          for loan losses, non-interest income, non-interest expenses and income
          taxes.

Financial Condition

          The Corporation's assets at September 30, 1996 totaled $502.5 million,
          which  represents  an increase of $56.7 million or 12.7% when compared
          with $445.8 million at September 30, 1995.  Investment securities held
          to maturity totaled $105.5 million and $114.4 million at September 30,
          1996 and 1995,  respectively,  which  represents  a  decrease  of $8.9
          million or 7.7%.  The decrease in  investment  securities is primarily
          due to the transfer of $29.8 million to investments available for sale
          in  December  1995,  pursuant  to the  limited  window of  opportunity
          provided by "Special  Report-Guide To  Implementation of Statement 115
          on Accounting For Certain  Investments on Debt and Equity  Securities"
          (Special  Report),  along with calls and  maturities of $55.0 million,
          which more than offset the purchase of investment securities issued by
          the  U.S.   Government  or  its  agencies   totaling   $75.9  million.
          Mortgage-backed securities held to maturity totaled $164.1 million and
          $175.0  million at September  30, 1996 and 1995,  respectively,  which
          represents  a decrease  of $10.9  million  or 6.2%.  The  decrease  in
          mortgage-backed  securities was primarily due to the transfer of $29.0
          million to investments  available for sale in December 1995,  pursuant
          to the  Special  Report,  along  with  principal  repayments  of $22.6
          million,  which more than offset  purchases  totaling  $40.6  million.
          Loans  receivable  amounted to $134.6  million  and $134.3  million at
          September 30, 1996 and 1995 respectively, which represents an increase
          of $0.3 million or 0.2%. The increase  during the 1996 period in loans
          receivable is due primarily to loan originations  exceeding  principal
          collections  of loans by $1.1  million,  which  offset the transfer of
          $0.8  million of loans to other real  estate  owned  during the fiscal
          1996  period.  Other  assets  increased  $0.8 million or 26.1% to $3.7
          million at  September  30, 1996  compared to $2.9 million at September
          30, 1995.  The increase was largely due to an increase in the deferred
          taxes as a result of the FDIC's Special Assessment enacted into law on
          September 30, 1996,  along with the tax effect of the unrealized  loss
          on the Bank's securities available for sale portfolio. During the 1996
          period,  the  Bank  did not  make a  provision  for  loan  losses  and
          transferred  loans  totaling  $0.8  million to real  estate  owned for
          properties acquired in settlement of loans. Loan losses charged to the
          allowance decreased from $765,000 in fiscal 1995 to $145,000 in fiscal
          1996.  Due to the  reduction  in loan  delinquencies  and the apparent
          stabilization  of real estate values,  management feels that increases
          to the allowance for loan losses were not warranted  during the fiscal
          year ending  September 30, 1996.  However,  there can be no assurances
          that  further  additions  to the  allowance  for loan  losses will not
          become  necessary in future  periods.  Total deposits at September 30,
          1996  increased  $3.5 million or 0.9% to $394.6  million when compared
          with $391.0 million at September 30, 1995.

4
<PAGE>
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          During the 1996  period the Bank  instituted  a plan to  leverage  its
          capital by  increasing  its  lending  and  investment  activity.  This
          increased  activity,  along  with  the  Modified  Dutch  Auction,  was
          financed by increased borrowings obtained from various brokers through
          securities sold under repurchase agreements.  As a result,  securities
          sold under  repurchase  agreements  was $64.3 million at September 30,
          1996,  compared to $-0- at  September  30,  1995.  This  strategy  has
          contributed  to the growth of the Bank's  assets and has  afforded the
          Corporation the potential for increased  earnings per share.  The Bank
          is aware of the  interest  rate risk  associated  with this  strategy.
          Furthermore,  it has the  ability to either  sell  certain  securities
          available  for sale or to utilize  future cash flows to  minimize  the
          exposure to fluctuations in market interest rates.

          Stockholders'  equity  amounted to $38.5  million and $52.3 million at
          September  30,  1996 and 1995,  respectively.  The  decrease  of $13.8
          million during the 1996 period was a direct result of a Modified Dutch
          Auction  issuer  tender offer the  Corporation  conducted  whereby the
          Corporation  was  seeking  to buy back up to  1,000,000  shares of its
          common  stock.  Shareholders  were able to specify the price they were
          willing to tender their shares within a range not less than $16.00 nor
          greater than $17.75 per share. The Modified Dutch Auction concluded on
          June 21,  1996 with the  Corporation  buying  back  837,080  shares at
          $17.75 per share for a total of $15.0 million.  The repurchased shares
          are   treated   as   treasury    stock   and   as   a   reduction   of
          stockholders'equity.  During the years  ended  September  30, 1996 and
          1995,  cash dividends of $2.4 million and $2.7 million,  respectively,
          were paid on the Corporation's common stock. At September 30, 1996 and
          1995, treasury stock totaled $ 16.7 and $1.7 million, respectively.

Results of Operations 
for the three years ended 
September 30, 1996

          Net Income

          Net income  decreased to $3.5 million for the year ended September 30,
          1996 when compared with $5.3 million for the year ended  September 30,
          1995, a decrease of $1.8 million or 33.7%.  The decrease in net income
          during the 1996  period  resulted  primarily  from an increase of $2.7
          million in Federal  insurance  premium expense as a result of the SAIF
          Special  Assessment  enacted  into law on  September  30,  1996.  This
          increase was  somewhat  offset by a reduction in income tax expense of
          $0.9 million . Net income decreased to $5.3 million for the year ended
          September  30, 1995 when compared with $6.0 million for the year ended
          September  30, 1994, a decrease of $752,000 or 12.5%.  The decrease in
          net income during the 1995 period  resulted from increases in interest
          and  non-interest  expenses,  along  with a decrease  in  non-interest
          income,  which more than offset an  increase  in  interest  income and
          decreases in income tax expense and the provision for loan losses.

Interest Income

          Interest  income on loans  during the year ended  September  30,  1996
          decreased $0.5 million or 4.4% to $11.9 million when compared to $12.4
          million  during the same 1995  period.  The  decrease  during the 1996
          period resulted from a decrease of $5.8 million in the average balance
          of loans  outstanding.  Interest income on loans during the year ended
          September  30, 1995  decreased  $2.3 million or 15.6% to $12.4 million
          when  compared  to $14.7  million  during  the same 1994  period.  The
          decrease  during the 1995  period  resulted  from a decrease  of $29.0
          million in the average  balance of loans  outstanding  which more than
          offset an  increase  from  8.80% to 8.98% in the  yield  earned on the
          Bank's loan  portfolio.  The decrease in the average  balance of loans
          receivable  during  the  1995  period  resulted  primarily  from  loan
          principal collections exceeding loan originations by $9.3 million.

          During the 1996 period,  the Bank took advantage of the limited window
          of  opportunity   provided  by  the  Special  Report  and  transferred
          approximately  $29.0 million of  mortgage-backed  securities and $29.8
          million of  investments  from the held to maturity  classification  to
          available  for  sale.  As a result of the  reclassification,  the Bank
          recorded  interest  income on  securities  available  for sale of $3.3
          million  during the 1996  period  compared to $-0- during the 1995 and
          1994 periods.

          Income on securities  held to maturity  decreased $0.9 million or 5.0%
          to $16.7  million  during 1996  compared to $17.6  million  during the
          comparable  1995 period.  The decrease was primarily due to a decrease
          in the average  balance of  securities  held to maturity,  which was a
          direct

                                                                              5
<PAGE>
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          result of the  transfer  of $58.8  million to the  available  for sale
          classification  and calls and repayments of $73.2 million,  which more
          than  offset  purchases  of  securities  held to  maturity  of  $116.6
          million.  Income on securities held to maturity increased $2.4 million
          or 16.1% to $17.6 million during 1995 compared to $15.2 million during
          the 1994  period.  The  increase was due to an increase in the average
          balance of  securities  held to maturity as a result of  purchases  of
          $48.1 million exceeding calls and repayments of $28.7 million.

          Income from other interest-earning  assets increased $139,000 or 19.3%
          to $860,000 for the 1996 period from $721,000 for the 1995 period. The
          increase was due to an increase in the average  balance  maintained in

          federal funds sold, which was a direct result of the excess cash which
          was needed to complete the modified dutch auction.

          Interest Expense

          Interest  on  deposits  increased  by $0.6  million  or 3.4% to  $17.8
          million  during the year ended  September  30,  1996 when  compared to
          $17.2  million  during the same 1995 period.  The increase  during the
          1996 period was primarily  attributable  to an increase in the average
          balance of deposits  held.  During the 1996 period  deposit growth and
          interest  credited  exceeded  deposits   withdrawn  by  $3.5  million.
          Interest  on  deposits  increased  by $3.4  million  or 25.0% to $17.2
          million  during the year ended  September  30,  1995 when  compared to
          $13.8  million  during the same 1994 period.  The increase  during the
          1995 period was primarily  attributable  to an increase of .89% in the
          Bank's cost of deposits from 3.51% to 4.40%, resulting from a shift to
          higher  costing  certificates  of deposit.  The increase in the Bank's
          cost of deposits reflects an increase in general market interest rates
          paid on deposits.  During the 1995 period, deposits withdrawn exceeded
          deposit growth and interest credited by $5.2 million. Interest expense
          on securities  sold under  repurchase  agreements was $1.3 million for
          the year ending 1996 compared to $-0- during the same 1995 period. The
          increase  during the 1996 period was a result of borrowing  agreements
          the Bank entered  into in order to finance  increased  investment  and
          lending activity.

          Provision For Loan Losses

          During the years ended  September 30, 1996 and 1995,  the Bank did not
          record any  provisions  for loan  losses.  The  provisions  charged to
          operations  totaled $2.7 million  during the year ended  September 30,
          1994. The allowance for loan losses  amounted to $2.5 million and $2.6
          million at September  30, 1996 and 1995,  respectively.  A majority of
          the  provision  during the 1994 period  resulted from the discovery of
          fradulent bridge loans.  During the years ended September 30, 1996 and
          1995,  charged-off  loans  decreased  significantly  to  $145,000  and
          $765,000,  respectively,  from $3.8 million in 1994.  The decrease was
          mostly  attributable  to the $3.7  million in bridge loans the Company
          charged off in 1994.  At September  30, 1996 and 1995,  allowance  for
          loan losses as a percentage of loans  receivable were 1.82% and 1.93%,
          respectively.  The allowance for loan losses is based on  management's
          evaluation  of the risk  inherent in its loan  portfolio and gives due
          consideration  to  changes  in general  market  conditions  and in the
          nature and volume of loan activity.  Due to the  stabilization  of the
          real  estate  market  in  New  Jersey  and   continued   reduction  in
          non-performing loans, management feels that increases to the loan loss
          provision were not warranted  during the fiscal years ending September
          30, 1996 and 1995.  However,  there can be no assurances  that further
          additions  to the loan loss  allowance  will not become  necessary  in
          future   periods.   At  September  30,  1996  and  1995,   the  Bank's
          non-performing   loans   totaled  $1.8   million  and  $3.3   million,
          respectively.  Although  the Bank  maintains  its  allowance  for loan
          losses at a level which it considers adequate to provide for potential
          losses,  there can be no  assurance  that such  losses will not exceed
          estimated amounts.

          Non-Interest Income

          Non-interest  income  increased  to $326,000 or 10.9%  during the year
          ended  September 30, 1996 from $294,000 for the same 1995 period.  The
          increase of $32,000 during the 1996 period resulted  primarily from an
          increase in fees and service  charges of $34,000  resulting  primarily
          from an

6
<PAGE>
--------------------------------------------------------------------------------

          increase in mortgage prepayment charges. Non-interest income decreased
          to $294,000 during the year ended September 30, 1995 from $357,000 for
          the same 1994 period.  The decrease of $63,000  during the 1995 period
          resulted  primarily  from a decrease  in fees and  service  charges of
          $73,000  resulting  primarily  from a decrease in mortgage  prepayment
          charges, which more than offset an increase in miscellaneous income of
          $10,000.

          Non-Interest Expenses

          Non-interest  expenses  increased $2.8 milion or 50.2% during the year
          ended September 30, 1996 when compared with the same 1995 period.  The
          large  increase  in the 1996  period was  primarily  due to the FDIC's
          one-time  Special  Assessment  for  deposit  insurance  totaling  $2.7
          million,  enacted into law on  September  30,  1996.  Also  increasing
          during the 1996  period  were  losses  from  foreclosed  real  estate,
          advertising,  salaries and employee  benefits and occupancy expense of
          $269,000,  $54,000, $36,000, and $21,000 These increases were somewhat
          offset  by a  decrease  in  miscellaneous  expense  of  $251,000.  The
          decrease in miscellaneous  expense was primarily due to the writedowns
          taken  during the 1995 period  regarding  the bridge loan  receivables
          which were not required during 1996.  Non-interest  expenses increased
          $640,000  or 12.8%  during  the year  ended  September  30,  1995 when
          compared  with the same 1994 period.  During the year ended  September
          30, 1995, salaries and employee benefits, equipment, federal insurance
          premium,  loss on foreclosed real estate,  and miscellaneous  expenses
          increased by  $182,000,  $39,000,  $15,000,  $319,000,  and  $220,000,
          respectively,  which more than offset  decreases in occupancy  expense
          and advertising of $29,000 and $106,000, respectively. The increase in
          loss on  foreclosed  real estate in the 1995 period was due to reduced
          gains on sales of foreclosed real estate of $572,000,  which more than
          offset a decrease in the loss provision of $176,000 and an increase in
          operational expenses of $77,000. The increase in miscellaneous expense
          was  primarily  due to further  writedowns  regarding  the  fraudulent
          bridge loans.  Although increased prices and higher volume continue to
          be reflected in the  increases in  non-interest  expenses,  management
          continues to limit discretionary expense items, where practical.

          Income Taxes

          Income tax expense totaled $2.0 million, $2.9 million and $3.3 million
          during  the  years  ended   September   30,   1996,   1995  and  1994,
          respectively.  The  decrease  during  the 1996 and  1995  periods  was
          primarily due to a decrease in pre-tax income.


                                                                              7
<PAGE>

Liquidity and 
Capital Resources

          Liquidity  is  a  measurement   of  the  Bank's  ability  to  generate
          sufficient  cash  flow,  in  order  to meet  all  current  and  future
          financial  obligations and commitments as they arise. The Bank adjusts
          its  liquidity  levels  in order to meet  funding  needs  for  deposit
          outflows,  payment  of real  estate  taxes  from  escrow  accounts  on
          mortgage loans,  repayment of borrowings,  when  applicable,  and loan
          funding  commitments.  The Bank also  adjusts its  liquidity  level as
          appropriate to meet its asset/liability objectives. The Bank's primary
          sources of funds are deposits,  amortization  and  prepayments of loan
          and mortgage-backed  securities principal,  borrowings,  maturities of
          investment   securities  and  funds  provided  by  operations.   While
          scheduled  loan  and  mortgage-backed   securities   amortization  and
          maturing investment securities are a relatively predictable sources of
          funds,   deposit   flow  and  loan  and   mortgage-backed   securities
          prepayments are greatly influenced by market interest rates,  economic
          conditions  and  competition.  The Bank  manages  the  pricing  of its
          deposits to maintain a steady deposit balance.  In addition,  the Bank
          invests its excess funds in Federal Funds and overnight  deposits with
          the FHLB-NY,  which provides  liquidity to meet lending  requirements.
          Federal funds sold and interest-bearing deposits at September 30, 1996
          and 1995 amounted to $0.5 million and $3.9 million,  respectively. The
          Bank's  liquidity,  represented  by cash  and cash  equivalents,  is a
          product of its operating,  investing and financing  activities.  

          These activities are summarized as follows:

<TABLE>
<CAPTION>

                                                                                 Year Ended                     
                                                                                September 30,
                                                                            ---------------------
                                                                              1995         1996
                                                                              ----         ----
                                                                                 (In Thousands)
          <S>                                                               <C>          <C>     
          Cash and cash equivalents at beginning of period ...............  $ 16,126     $  8,762   
                                                                            --------     --------
          Operating activities:
            Net income ...................................................     5,265        3,493
            Adjustments to reconcile net income to net cash provided by
              operating activities .......................................     4,090        1,555
                                                                            --------     --------
          Net cash provided by operating activities ......................     9,355        5,048
          Net cash used in investing activities ..........................    (9,208)
          Net cash provided by (used in)financing activities..............    (7,511)      50,909
                                                                            --------     --------
          Net increase (decrease) in cash and cash equivalents ...........    (7,364)      (4,012)
                                                                            --------     --------
          Cash and cash equivalents at end of period .....................  $  8,762     $  4,750
                                                                            ========     ========
</TABLE>
          Cash  was  generated  by  operating  activities  in each of the  above
          periods.  The primary source of cash from operating  activities during
          each of the  periods  was net  income.  The  primary  uses of cash for
          investing activity are for lending and the purchases of investment and
          mortgage-backed  securities.  Net loans  amounted  to $134.5  million,
          $134.3  million and $140.0  million at September  30,  1996,  1995 and
          1994,  respectively.  Purchases  of  investments  and  mortgage-backed
          securities held to maturity totaled $116.6 million,  48.1 million, and
          $91.2 million  during the years ended  September 30, 1996,  1995,  and
          1994,  respectively.  Purchases  of  investments  and  mortgage-backed
          securities  available for sale totaled  $25.1 million  during the year
          ended  September 30, 1996.  There were no available for sale purchases
          during 1995 and 1994. In addition to funding new loan  production  and
          the purchases of investment  and  mortgage-backed  securities  through
          operations and financing activities,  principal repayments on existing
          loans,  investments  and  mortgage-backed  securities  and  borrowings
          provided funds. 

          The primary source of financing  activities during the 1996 period was
          from  increased  borrowings of $64.3 million along with an increase in
          deposits of $3.5 million. Net cash used in financing activities during
          the 1995 period  resulted from a decrease in deposits  outstanding  of
          $5.1 million.

          During the 1996  period,  as  previously  discussed,  the  Corporation
          purchased  837,080 of its common  stock at $17.75 per share  under the
          method of a modified  dutch  auction for a total of  $14,975,000.  The
          main purpose of the buyback was to improve the Corporation's return on
          average  equity  by  reducing  its  overcapitalized   condition.   The
          Corporation has no current plans 
8
<PAGE>

--------------------------------------------------------------------------------

          to buyback  additional  stock,  however,  this does not  preclude  the
          Corporation from buying back additional shares in future periods.

          Liquidity  management  is  both a  daily  and  long-term  function  of
          business  management.   Excess  liquidity  is  generally  invested  in
          short-term  investments,  such as federal  funds and  interest-bearing
          deposits.  If the Bank  requires  funds beyond its ability to generate
          them internally the Bank utilizes  repurchase  agreements with certain
          brokers  that will  advance  short term funds in exchange  for pledged
          securities held in the portfolio.  Furthermore,  borrowing  agreements
          exist with the FHLB-NY, which provide an additional source of funds.

          The Bank  anticipates  that it will have sufficient funds available to
          meet its  current  commitments  to  originate  loans  and to  purchase
          mortgage-backed securities and investment securities. At September 30,
          1996,  such   outstanding   commitments   amounted  to  $3.1  million.
          Additionally,  unused lines of credit,  at September 30, 1996 amounted
          to $11.0 million.  Certificates of deposit  scheduled to mature in one
          year  or  less,  at  September  30,  1996,   totaled  $206.5  million.
          Management believes, based upon its experience and Bank's deposit flow
          histories,  that a  significant  portion of such  deposits will remain
          with the Bank.

          The Bank is subject to regulatory capital requirements mandated by the
          Federal Deposit Insurance Corporation  ("FDIC").  The Bank is required
          to meet minimum regulatory capital  requirements,  defined by the FDIC
          as  risk-based  capital (Tier 1 and Total) and leverage  capital.  The
          following table presents the minimum capital  requirement  ratios, the
          actual  ratios  and the  excess  of  actual  ratios  over the  minimum
          requirements as of September 30, 1996:

                                   Requirement        Actual        Excess
                                   -----------        ------        ------

        Risk-based capital:                                                     
          Tier 1 ...............      4.00%           23.24%         19.24%
          Total ................      8.00%           24.49%         16.49%
        Leverage capital .......      4.00%            7.22%          3.22%
        
Impact of Inflation
and Changing Prices

          The consolidated  financial  statements and the related data presented
          herein  have been  prepared  in  accordance  with  generally  accepted
          accounting  principles,  which  require  a  measurement  of  financial
          position and operating results in terms of historical dollars, without
          considering  changes in the  relative  purchasing  power of money over
          time due to inflation.

          Unlike  most  industrial  companies,  virtually  all of the assets and
          liabilities of the  Corporation  are monetary in nature.  As a result,
          interest  rates have a more  significant  impact on the  Corporation's
          performance than the effects of general levels of inflation.  Interest
          rates do not  necessarily  move in the same  direction  or in the same
          magnitude as the prices of goods and services, because such prices are
          affected  by  inflation  to a larger  extent than  interest  rates are
          affected by inflation.

                                                                             9
<PAGE>

PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>

                                                                                                        September 30,
                                                                                                 ------------------------------
ASSETS                                                                              Note(s)           1995             1996      
                                                                                    -------           -----            ----
<S>                                                                          <C>                 <C>              <C>             
Cash and due from depository institutions ................................                       $   4,836,510    $   4,249,883   
Federal funds sold .......................................................                           3,925,000          500,000
                                                                                                 -------------    -------------
    Total cash and cash equivalents ......................................                           8,761,510        4,749,883
Investment securities available for sale .................................                  2             --         39,054,697
Mortgage-backed securities available for sale ............................                  3             --         40,255,064
Investment securities held to maturity; estimated fair value                 
                                                                             
  of $112,886,000(1995) and $103,192,000(1996) ...........................                  2      114,380,553      105,549,457
 Mortgage-backed securities held to maturity; estimated fair value of        
  $174,629,000 (1995) and $162,617,000 (1996) ............................                  3      174,969,291      164,091,984
Loans receivable, net ....................................................                  4      134,276,842      134,547,804
Real estate owned ........................................................                           2,627,864        2,232,624
Premises and equipment, net ..............................................                  5        1,207,162        1,235,135
Federal Home Loan Bank of New York stock, at cost ........................                           2,540,200        2,543,100
Interest receivable ......................................................                  6        4,071,079        4,527,354
Other assets .............................................................          11 and 14        2,944,797        3,712,747
                                                                                                 -------------    -------------
    Total assets .........................................................                       $ 445,779,298    $ 502,499,849
                                                                                                 =============    =============
                                                                             
-------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                    
Liabilities                                                                                                                
Deposits .................................................................                  7    $ 391,037,843    $ 394,580,611
Securities sold under repurchase agreements...............................                  8             --         64,275,000
Advance payments by borrowers for taxes and insurance ....................                             458,356          628,243
Other liabilities ........................................................                           2,009,508        4,557,461
                                                                                                 -------------    -------------
    Total liabilities ....................................................                         393,505,707      464,041,315
                                                                                                 -------------    -------------
Commitments and contingencies ............................................                 13             --               --
Stockholders' equity .....................................................   9, 10, 11 and 12
Common stock; par value $1.00; authorized 10,000,000 shares;                 
 4,077,828 (1995) and 4,111,958 (1996) shares issued and 3,852,828           
  (1995) and 3,049,878 (1996) shares outstanding .........................                           4,077,828        4,111,958
Paid-in capital in excess of par value ...................................                          11,819,769       12,105,541
Retained earnings -- substantially restricted ............................                          38,078,494       39,147,609
Unrealized loss on securities available for sale, net of tax .............                                --           (229,074)
Treasury stock at cost; 225,000 (1995) and 1,062,080 (1996)                  
    common shares, respectively ..........................................                          (1,702,500)     (16,677,500)
                                                                                                 -------------    -------------  
     Total stockholders' equity ..........................................                          52,273,591       38,458,534
                                                                                                 -------------    -------------
    Total liabilities and stockholders' equity ...........................                       $ 445,779,298    $ 502,499,849
                                                                                                 =============    =============
                                                                             
</TABLE>                                                
                                                                          
See accompanying notes to consolidated financial statements.

10
<PAGE>

PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Income
<TABLE>
<CAPTION>

                                                                                           Year Ended September 30,
                                                                             ----------------------------------------------
                                                                    Note(s)          1994            1995          1996
                                                                    -------          ----            ----          ----
Interest income:
<S>                                                                  <C>     <C>             <C>            <C>             
 Loans .......................................................                  $ 14,690,933    $ 12,403,877   $ 11,861,002      
 Securities available for sale ...............................                          --              --        3,277,058
 Securities held to maturity .................................                    15,178,018      17,614,211     16,734,714
  Other interest-earning assets ..............................                       479,422         720,927        860,031
                                                                                 ------------   ------------   ------------
    Total interest income ....................................                    30,348,373      30,739,015     32,732,805
                                                                                 ------------   ------------   ------------
Interest expense:
  Deposits ...................................................              7     13,780,250      17,229,807     17,806,866
  Securities sold under repurchase agreements ................                          --              --        1,325,972
                                                                                 ------------   ------------   ------------
     Total interest expense ..................................                    13,780,250      17,229,807     19,132,838
                                                                                 ------------   ------------   ------------
Net interest income ..........................................                    16,568,123      13,509,208     13,599,967
Provision for loan losses ....................................              4      2,650,000           --             --
                                                                                 ------------   ------------   ------------
Net interest income after provision for loan losses ..........                    13,918,123      13,509,208     13,599,967
                                                                                 ------------   ------------   ------------
Non-interest income:
  Fees and service charges ...................................                       296,391         223,495        257,523
  Miscellaneous ..............................................                        60,737          70,670         68,199
                                                                                 ------------   ------------   ------------
    Total non-interest income ................................                       357,128         294,165        325,722
                                                                                 ------------   ------------   ------------
Non-interest expenses:
  Salaries and employee benefits .............................             10      2,247,000       2,429,369      2,465,912
  Occupancy expense ..........................................                       293,009         263,788        285,267
  Equipment ..................................................                       497,277         536,064        538,308
  Advertising ................................................                       336,265         230,237        283,769
  Federal insurance premium ..................................             15        887,630         902,993      3,600,986
  Loss (income) from foreclosed real estate, net .............                      (287,514)         31,342        300,379
  Miscellaneous ..............................................                     1,029,982       1,249,597        998,993
                                                                                 ------------   ------------   ------------
    Total non-interest expenses ..............................                     5,003,649       5,643,390      8,473,614
                                                                                 ------------   ------------   ------------
Income before income taxes ...................................                     9,271,602       8,159,983      5,452,075
Income taxes .................................................             11      3,254,000       2,894,770      1,959,466
                                                                                 ------------   ------------   ------------
Net income ...................................................                  $  6,017,602    $  5,265,213   $  3,492,609
                                                                                 ============   ============   ============
Net income per common share ..................................                                                     9 and 10
  and common stock equivalents ...............................                   $       1.55   $       1.34   $       0.94
                                                                                 ============   ============   ============
 Dividends per common share...................................       9 and 10    $       0.60   $       0.70   $       0.70
                                                                                 ============   ============   ============
Weighted average number of common shares and common stock
  equivalents outstanding ....................................       9 and 10       3,871,227      3,928,205      3,728,116
                                                                                 ============   ============   ============
</TABLE>

 See accompanying notes to consolidated financial statements.

                                                                             11
<PAGE>

PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>


                                                    Paid-in        Retained                      Net Unrealized
                                                   Capital in      Earnings-                   Loss on Securities
                                        Common     Excess of     Substantially      Treasury   Available For Sale;
                                         Stock     Par Value      Restricted          Stock         Net of Tax        Total
                                         -----     ---------      ----------          -----         ----------        -----

<S>                                 <C>            <C>            <C>             <C>             <C>             <C>         
Balance -- September 30, 1993 ...   $  1,959,164   $ 12,925,145   $ 31,759,057    $ (1,333,750)   $       --      $ 45,309,616
Net income for the year ended 
  September 30, 1994 ............           --             --        6,017,602            --              --         6,017,602
Issuance of common stock ........         74,600        526,425           --              --              --           601,002
Purchase of treasury stock ......           --             --             --          (368,750)           --          (368,750)
Stock split .....................      1,982,364     (1,982,364)          --              --              --              --
Cash dividends ..................           --             --       (2,267,267)           --              --        (2,267,267) 
                                    ------------   ------------   ------------    ------------    -------------    ------------
Balance -- September 30, 1994 ...      4,016,128     11,469,206     35,509,392      (1,702,500)           --        49,292,226
Net income for the year ended 
  September 30, 1995 ............           --             --        5,265,213            --              --         5,265,213
Issuance of common stock ........         61,700        350,563           --              --              --           412,263
Cash dividends ..................           --             --       (2,696,111)           --              --        (2,696,111)
                                    ------------   ------------   ------------    ------------    ------------    ------------
Balance -- September 30, 1995 ...      4,077,828     11,819,769     38,078,494      (1,702,500)           --        52,273,591
Net income for the year ended 
  September 30, 1996 ............           --             --        3,492,609            --              --         3,492,609
Issuance of common stock ........         34,130        285,772           --              --              --           319,902
Purchase of treasury stock ......           --             --             --       (14,975,000)           --       (14,975,000)
Cash dividends ..................           --             --       (2,423,494)           --              --        (2,423,494)   
Change in unrealized loss on 
  securities available for sale,
  net of tax ....................           --             --             --              --          (229,074)       (229,074)
                                    ------------   ------------   ------------    ------------    ------------    ------------
Balance -- September 30, 1996 ...   $  4,111,958   $ 12,105,541   $ 39,147,609    $(16,677,500)   $   (229,074)   $ 38,458,534
                                    ============   ============   ============    ============    ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.

12
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                               Year Ended September 30,
                                                                                  -------------------------------------------- 
                                                                                        1994            1995           1996
                                                                                        ----            ----           ----
Cash flows from operating activities:
<S>                                                                               <C>             <C>             <C>         
  Net income .................................................................... $  6,017,602    $  5,265,213    $  3,492,609
  Adjustments to reconcile net income to net cash provided by operating
  activities:
    Depreciation ................................................................      161,559         157,945         142,007
    Amortization of premiums, discounts and fees, net ...........................     (577,172)       (149,083)       (189,083)
    Provision for loan losses ...................................................    2,650,000            --              --
    Provision for losses on real estate owned ...................................      227,500          52,200         341,500
    Gain on sale of real estate owned ...........................................     (624,345)        (52,208)        (62,462)
    Originations of mortgage loans held for sale ................................   (1,439,114)           --              --
    Principal repayments on mortgage loans held for sale ........................    1,543,385            --              --
    Increase in interest receivable .............................................      (43,877)       (694,447)       (456,275)
    Deferred income tax expense (benefit) .......................................      816,454          95,258        (805,042)
    (Increase) decrease in other assets .........................................     (714,400)      4,338,383          37,092
    Increase in other liabilities ...............................................       78,055         341,922       2,547,953
                                                                                  ------------    ------------    ------------
      Net cash provided by operating activities .................................    8,095,647       9,355,183       5,048,299
                                                                                  ------------    ------------    ------------

Cash flows from investing activities:
  Proceeds from calls and maturities of investment securities held to maturity ..   10,188,388      12,560,000      55,000,000
  Purchase of investment securities held to maturity ............................  (48,788,125)    (39,000,000)    (75,932,187)
  Proceeds from principal repayments of investment securities available for sale.         --              --         4,197,200
  Purchase of investment securities available for sale ..........................         --              --       (10,000,000)
  Purchase of mortgage-backed securities held to maturity .......................  (42,401,625)     (9,120,219)    (40,624,537)
  Purchase of mortgage-backed securities available for sale .....................         --              --       (15,081,456)
  Principal repayments on mortgage-backed securities held to maturity ...........   46,737,815      16,139,416      18,198,392
  Principal repayments on mortgage-backed securities available for sale .........         --              --         4,318,741
  Proceeds from sale of student loans ...........................................      186,792          90,093           4,454
  Net decrease (increase) in loans receivable ...................................   29,186,335       7,907,163        (790,568)
  Proceeds from sales of and repayments on real estate owned ....................    1,009,664       2,077,524         913,852
  Additions to premises and equipment ...........................................      (52,909)        (31,864)       (169,980)
  Net decrease (increase) in Federal Home Loan Bank of New York stock ...........      357,100         170,100          (2,900)
                                                                                  ------------    ------------    ------------
      Net cash used in investing activities .....................................   (3,576,565)     (9,207,787)    (59,968,989)
                                                                                  ------------    ------------    ------------
Cash flows from financing activities:
  Net increase (decrease) in deposits ...........................................    8,486,168      (5,152,525)      3,542,768
   Net increase in securities sold under repurchase agreements ..................         --              --        64,275,000
 (Decrease) increase in advance payments by borrowers for taxes and insurance....      (40,574)        (75,177)        169,887
  Issuance of common stock ......................................................      601,025         412,263         319,902
  Purchase of treasury stock ....................................................     (368,750)           --       (14,975,000)
  Cash dividends paid ...........................................................   (2,267,267)     (2,696,111)     (2,423,494)
                                                                                  ------------    ------------    ------------
      Net cash provided by (used in) financing activities .......................    6,410,602      (7,511,550)     50,909,063
                                                                                  ------------    ------------    ------------

Net (decrease) increase in cash and cash equivalents ............................   10,929,684      (7,364,154)     (4,011,627)


Cash and cash equivalents -- beginning ..........................................    5,195,980      16,125,664     8,761,510
                                                                                  ------------    ------------    ------------

Cash and cash equivalents -- ending .............................................  $16,125,664    $  8,761,510   $ 4,749,883
                                                                                   ===========    ============   ===========
Supplemental schedule of noncash investing activities:
  Transfer of loans held for sale to loans receivable ...........................  $   211,942    $  3,586,035   $      --
                                                                                   ===========    ============   ===========
  Transfer of fraudulent bridge loans to other assets ...........................  $ 4,750,000    $         --   $      --
                                                                                   ===========    ============   ===========
  Transfer of loans receivable to real estate owned .............................  $ 2,431,662    $  1,424,125   $   797,650
                                                                                   ===========    ============   ===========
  Loans to facilitate sales of real estate owned ................................  $ 2,628,440    $         --   $        --
                                                                                   ===========    ============   ===========
  Transfer of mortgage-backed securities and investments held to
     maturity to available for sale .............................................  $        --    $         --   $58,764,618
                                                                                   ===========    ============   ===========
Cash paid during the period for:
  Income taxes ..................................................................  $ 3,260,000    $  1,200,000   $ 2,495,000
                                                                                   ===========    ============   ===========
  Interest ......................................................................  $13,783,902    $ 17,466,043   $18,835,293
                                                                                   ===========    ============   ===========

</TABLE>
See accompanying notes to consolidated financial statements.
                                                                             13
<PAGE>

PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements

--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES

          Basis of consolidated financial statement presentation

          The  consolidated  financial  statements  include the  accounts of the
          Corporation,  a savings  bank  holding  company,  and its wholly owned
          subsidiaries, Pulse Savings Bank, Pulse Insurance Services, Pulse Real
          Estate,  and Pulse  Investment,  Inc.  The  Corporation's  business is
          conducted  principally  through the Bank. The other three subsidiaries
          were  formed  during  the 1996  period  to  afford  possible  economic
          opportunities  in future periods.  All three,  however,  are currently
          inactive. All significant  intercompany accounts and transactions have
          been  eliminated  in   consolidation.   The   consolidated   financial
          statements of the  Corporation  have been prepared in conformity  with
          generally   accepted   accounting   principles.   In   preparing   the
          consolidated  financial  statements,  management  is  required to make
          estimates and assumptions  that affect the reported  amounts of assets
          and  liabilities  as of the  date of the  consolidated  statements  of
          financial  condition  and  income for the period  then  ended.  Actual
          results  could differ  significantly  from those  estimates.  Material
          estimates that are  particularly  susceptible  to significant  changes
          relate to the  determination  of the  allowance  for loan losses,  the
          valuation of real estate  owned and the  carrying  amount of the fraud
          loss receivable (see Note 14).  Management believes that the allowance
          for loan losses is adequate, real estate owned is appropriately valued
          and the carrying  amount of the fraud loss  receivable is appropriate.
          While  management  uses available  information to recognize  losses on
          loans and real estate  owned,  future  additions to the  allowance for
          loan  losses  or  further  writedowns  of  real  estate  owned  may be
          necessary based on changes in economic  conditions in the market area.
          Additionally,  while  management  uses  the most  currently  available
          information  to  evaluate  the  carrying  amount  of  the  fraud  loss
          receivable,  the  collection  process  is  ongoing.  Accordingly,  the
          carrying amount of the fraud loss receivable  could be reduced as more
          definitive  information  becomes  available  as to the  extent  of the
          recovery expected.  In addition,  various regulatory  agencies,  as an
          integral part of their examination  process,  periodically  review the
          Bank's  allowance for loan losses,  real estate owned  valuations  and
          fraud loss receivable valuation. Such agencies may require the Bank to
          recognize additions to the allowance or additional writedowns based on
          their  judgments  about  information  available to them at the time of
          their examination.

          Cash and cash equivalents

          Cash and cash equivalents include cash and amounts due from depository
          institutions, interest-bearing deposits in other banks having original
          maturities of three months or less and federal funds sold.  Generally,
          federal funds sold are sold for one-day periods.

          Investment and mortgage-backed securities

          The Bank accounts for its  investments in accordance with Statement of
          Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
          Investments  in Debt and Equity  Securities".  SFAS 115  addresses the
          accounting  and  reporting  requirements  for  investments  in  equity
          securities that have readily  determinable  values and all investments
          in debt securities. SFAS 115 requires the classification of securities
          among three categories:  held-to-maturity,  trading, and available for
          sale.  Management  determines the  appropriate  classification  of the
          securities at the time of purchase. As of September 30, 1996, the Bank
          has classified its investments and mortgage-backed  securities between
          held to maturity and available for sale.

          Investment and mortgage-backed securities are classified as securities
          held to  maturity  based  on  management's  intent  and the  Company's
          ability to hold them to maturity.  Such securities are stated at cost,
          adjusted for  unamortized  purchase  
14
<PAGE>

                                            PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
                                      Notes to Consolidated Financial Statements


          premiums and discounts.  Purchase premiums and discounts are amortized
          over the life of the related security using the level yield method.

          Investment and mortgage-backed securities not classified as securities
          held to maturity  or trading  account  securities  are  classified  as
          securities   available  for  sale,  and  are  stated  at  fair  value.
          Unrealized  gains and  losses  are  excluded  from  earnings,  and are
          reported  as a separate  component  of  stockholders'  equity,  net of
          taxes.  Such securities  include those that may be sold in response to
          changes  in  interest  rates,  changes  in  prepayment  risk or  other
          factors.

          Loans receivable

          Loans  receivable are stated at unpaid  principal  balances,  less the
          allowance for loan losses and net deferred loan  origination  fees and
          discounts.  The Bank defers loan  origination  fees and certain direct
          loan origination  costs and amortizes such amounts as an adjustment of
          yield over the estimated lives of the related loans.

          An  allowance  for loan  losses is  maintained  at a level  considered
          adequate to provide for potential loan losses. Management of the Bank,
          in  determining  the  allowance  for loan losses,  considers the risks
          inherent in its loan portfolio and changes in the nature and volume of
          its loan  activities,  along with the general economic and real estate
          market  conditions.  The  Bank  utilizes  a  two  tier  approach:  (1)
          identification   of  problem  loans  and  the  establishment  of  loss
          allowances  on  such  loans;   and  (2)   establishment  of  valuation
          allowances on the remainder of its loan portfolio.  The Bank maintains
          a loan review  system which  allows for a periodic  review of its loan
          portfolio and the early  identification  of potential  problem  loans.
          Such system takes into consideration,  among other things, delinquency
          status,  size of loans, types of collateral and financial condition of
          the borrowers.  Loan loss  allowances are  established  for identified
          loans based on a review of such information  and/or  appraisals of the
          underlying  collateral.  On the remainder of the loan portfolio,  loan
          loss  allowances are  established  based upon a combination of factors
          including,   but  not  limited  to,   actual  loan  loss   experience,
          composition of the loan  portfolio,  current  economic  conditions and
          management's  judgment.  Although  management  believes  that adequate
          allowances  for  loan  losses  are  established,   actual  losses  are
          dependent  upon future events and, as such,  further  additions to the
          level of the loan loss allowance may be necessary.

          Non-accrual  loans include loans for which  reasonable doubt exists as
          to timely collectibility.  At the time a loan is placed on non-accrual
          status,  previously  accrued  and  uncollected  interest  is  reversed
          against interest income in the current period. Interest collections on
          non-accrual  loans are  generally  credited  to  interest  income when
          received.  After  principal  and interest  payments  have been brought
          current and future  collectibility  is reasonably  assured,  loans are
          returned to accrual status.

          Restructured  loans are loans whose  contractual  interest  rates have
          been  reduced  to  below  market  rates  or  where  other  significant
          concessions have been made due to a borrower's financial difficulties.
          Interest income on restructured loans is generally accrued.

          On October 1,  1995,  the Bank  adopted  prospectively  SFAS No.  114,
          "Accounting by Creditors for Impairment of a Loan", as amended by SFAS
          No. 118,  "Accounting  by Creditors for  Impairment of a Loan - Income
          Recognition  and  Disclosure".  SFAS 114 defines an impaired loan as a
          loan for which it is probable based upon current  information that the
          lender will not collect amounts due under the contractual terms of the
          loan agreement.  The Bank has defined the population of impaired loans
          to be all  commercial  and  construction  real estate loans as well as
          residential  real estate loans greater than  $500,000.  Impaired loans
          are individually assessed to determine that each loan's carrying value
          is not in excess of the fair value of the  related  collateral  or the
          present value of the expected future cash

                                                                             15
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements

          flows.  Income recognition and charge-off policies were not changed as
          a result of SFAS 114 and SFAS 118.

          Real estate owned

          Real estate owned  consists of real estate  acquired by foreclosure or
          deed in lieu of foreclosure and is initially  recorded at the lower of
          cost or fair value at the date of  acquisition.  Fair value is defined
          as the amount  reasonably  expected to be  received in a current  sale
          between a willing seller (the Bank) and a willing  buyer.  Real estate
          owned is subsequently  carried at the lower of cost or fair value less
          estimated  selling  costs.  Costs  incurred in developing or preparing
          properties for sale are capitalized.  Income and expenses of operating
          and holding  properties are recorded in operations as incurred.  Gains
          and losses from sales of such properties are recognized as incurred.

          Concentration of risk

          The Bank's real estate and lending activities are concentrated in real
          estate and loans secured by real estate located primarily in the State
          of New Jersey.

          Premises and equipment

          Land is stated at cost. Buildings, building improvements,  furnishings
          and  equipment  are  stated  at cost,  less  accumulated  depreciation
          computed on the straight-line  method over the estimated lives of each
          type of asset. Significant renewals and betterments are charged to the
          property and equipment account. Maintenance and repairs are charged to
          operations in the year incurred.

          Interest-rate risk

          The Bank is principally engaged in the business of attracting deposits
          from the  general  public  and using  these  deposits,  together  with
          borrowings   and  other   funds,   to  reinvest  in   investment   and
          mortgage-backed  securities  and to make loans  secured by real estate
          and,  to  a  lesser  extent,   consumer   loans.   The  potential  for
          interest-rate  risk exists as a result of the shorter  duration of the
          Bank's interest-sensitive liabilities compared to the generally longer
          duration of  interest-sensitive  assets. In a rising rate environment,
          liabilities  will  reprice  faster than assets,  thereby  reducing the
          market value of long-term  assets and net  interest  income.  For this
          reason,  management  regularly  monitors the maturity structure of the
          Bank's  assets  and  liabilities  in order  to  measure  its  level of
          interest- rate risk and plan for future volatility.

          Income taxes

          Federal and state income taxes are  provided for  utilizing  the asset
          liability  method.  Under the asset and  liability  method,  temporary
          differences  between the basis of assets and liabilities for financial
          reporting  and  tax  purposes  are  measured  as of the  statement  of
          financial  condition  date.  Deferred tax  liabilities or recognizable
          deferred tax assets are calculated on such differences,  using current
          statutory rates which result in future taxable or deductible  amounts.
          The effect on deferred taxes of a change in tax rates is recognized in
          income in the period that includes the enactment date.

          The  Corporation  and the  subsidiaries  file a  consolidated  federal
          income tax return.  Income taxes are allocated to the  Corporation and
          the  sudsidiaries  based on the  contribution  of their  income to the
          consolidated  return.  Separate  state income tax returns are filed by
          the Corporation and the subsidiaries.

          Net income per common share and common stock equivalents

          Net income per common share and common stock  equivalents  is based on
          the weighted  average  number of common  shares  actually  outstanding
          during the period plus the shares that would be  outstanding  assuming
          the exercise of dilutive stock options, all of which are considered to
          be common stock equivalents. The number of shares that would be issued
          from the  exercise of stock  options has 
16
<PAGE>
                                            PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
                                      Notes to Consolidated Financial Statements

          been  reduced by the number of shares  that could have been  purchased
          from the  proceeds at the average  price of the  Corporation's  common
          stock.

          Reclassification

          Certain amounts for the prior years have been  reclassified to conform
          with the current year's presentation.

--------------------------------------------------------------------------------
2. INVESTMENT SECURITIES

A summary of investment securities held to maturity and available for sale is as
follows:
<TABLE>
<CAPTION>

                                                                                September 30, 1995
                                                         ---------------------------------------------------------
                                                                             Gross           Gross       Estimated
                                                            Carrying      Unrealized      Unrealized       Fair
                                                              Value           Gains         Losses         Value
                                                              -----           -----         ------         -----

Investment Securities Held To Maturity
U.S. Government (including agencies):
<S>                                                      <C>            <C>            <C>            <C>         
  Within one year ....................................   $  2,000,000   $      8,125   $       --     $  2,008,125
  After one year but within five years ...............     57,000,000        180,117        352,829     56,827,288
  After five years but within ten years ..............     54,780,605         28,073      1,372,711     53,435,967
                                                         ------------   ------------   ------------   ------------
                                                          113,780,605        216,315      1,725,540    112,271,380
                                                         ------------   ------------   ------------   ------------
Obligations of states and political subdivisions:
  After one year but within five years ...............          2,500           --             --            2,500
  After ten years ....................................        597,448         17,484          3,040        611,892
                                                         ------------   ------------   ------------   ------------
                                                              599,948         17,484          3,040        614,392
                                                         ------------   ------------   ------------   ------------
                                                         $114,380,553   $    233,799     $1,728,580   $112,885,772
                                                         ============   ============   ============   ============
</TABLE>

<TABLE>
<CAPTION>


                                                                              September 30, 1996
                                                           -------------------------------------------------------
                                                                              Gross         Gross       Estimated
                                                           Carrying        Unrealized     Unrealized       Fair
                                                             Value            Gains         Losses         Value
                                                             -----            -----         ------         -----

Investment Securities Held To Maturity
U.S. Government (including agencies):
<S>                                                      <C>            <C>            <C>            <C>         
  After one year but within five years ...............   $ 27,989,889   $     52,500   $    410,234   $ 27,632,155
  After five years but within ten years ..............     70,959,597         51,920      1,911,438     69,100,079
  After ten years ....................................      6,000,000           --          161,677      5,838,323
                                                         ------------   ------------   ------------   ------------
                                                          104,949,486        104,420      2,483,349    102,570,557
                                                         ------------   ------------   ------------   ------------
Obligations of states and political subdivisions:
 Within one year .....................................          2,500           --             --            2,500
 After ten years .....................................        597,471         21,789           --          619,260
                                                         ------------   ------------   ------------   ------------
                                                              599,971         21,789           --          621,760
                                                         ------------   ------------   ------------   ------------
                                                         $105,549,457   $    126,209     $2,483,349   $103,192,317
                                                         ============   ============   ============   ============
Investment Securities Available For Sale
U.S. Government (including agencies):
  After one year but within five years ...............   $ 18,000,000   $       --     $    397,566   $ 17,602,434
  After five years but within ten years ..............     21,813,748         12,500        373,985     21,452,263
                                                         ------------   ------------   ------------   ------------
                                                         $ 39,813,748   $     12,500   $    771,551   $ 39,054,697
                                                         ============   ============   ============   ============
</TABLE>

There were no sales of investment  securities held to maturity and available for
sale during the years ended September 30, 1994, 1995 and 1996.

In November 1995 the Financial Accounting Standards Board issued guidance on the
implementation  of "Special Report-A Guide To Implementation of Statement 115 on
Accounting  for  Certain  Investments  in Debt and Equity  Securities"  (Special
Report). This special report provided an opportunity for a one-time reassessment
of the  classification  of  securities as of a single  measurement  date between
November 15,  1995,  and December  31,  1995.  As a result,  securities  held to
maturity with 
                                                                             17
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements

an amortized  cost of  $58,765,000  and a net  unrealized  gain of
$529,000 were transferred to securities available for sale on December 31, 1995.
These securities were transferred to increase the overall level of liquidity and
improve the ability to manage interest rate risk.

--------------------------------------------------------------------------------
3. MORTGAGE-BACKED SECURITIES

A summary  mortgage-backed  securities  at  September  30, 1996 and 1995,  is as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                      September 30, 1995
                                                    ---------------------------------------------------------
                                                                      Gross          Gross         Estimated
                                                      Carrying      Unrealized     Unrealized        Fair
                                                        Value         Gains          Losses          Value
                                                        -----         -----          ------          -----

Mortgage-Backed Securities Held To Maturity

<S>                                                 <C>            <C>            <C>            <C>         
Government National Mortgage Association ........   $ 92,090,521   $  1,311,106   $     60,891   $ 93,340,736
Federal Home Loan Mortgage Corporation ..........     31,374,816        301,287        275,237     31,400,866
Federal National Mortgage Association ...........     13,559,930        172,909        249,221     13,483,618
Collateralized mortgage obligations .............     37,944,024         52,535      1,592,850     36,403,709
                                                    ------------   ------------   ------------   ------------
                                                    $174,969,291   $  1,837,837   $  2,178,199   $174,628,929
                                                    ============   ============   ============   ============
</TABLE>

<TABLE>
<CAPTION>
                                                                        September 30, 1996
                                                    ---------------------------------------------------------
                                                                        Gross        Gross         Estimated
                                                       Carrying      Unrealized    Unrealized        Fair
                                                         Value          Gains        Losses          Value
                                                         -----          -----        ------          -----
Mortgage-Backed Securities Held To Maturity
<S>                                                 <C>            <C>            <C>            <C>         
Government National Mortgage Association ........   $ 67,075,905   $    743,542   $    194,683   $ 67,624,764
Federal Home Loan Mortgage Corporation ..........     39,159,809        174,932        402,384     38,932,357
Federal National Mortgage Association ...........     21,470,218         95,144        603,746     20,961,616
Collateralized mortgage obligations .............     36,386,052         10,191      1,298,317     35,097,926

                                                    $164,091,984   $  1,023,809   $  2,499,130   $162,616,663
                                                    ============   ============   ============   ============
Mortgage-Backed Securities Available For Sale
Government National Mortgage Association ........   $ 39,848,435   $    406,629   $       --     $ 40,255,064
                                                    ------------   ------------   ------------   ------------
                                                    $ 39,848,435   $    406,629   $       --     $ 40,255,064
                                                    ============   ============   ============   ============
</TABLE>

There were no sales of mortgage-backed securities held to maturity and available
for sale  during  the  years  ended  September  30,  1994,  1995 and  1996.  The
contractual  maturities of the  mortgage-backed  securities  generally exceed 20
years; however, the effective average life is expected to be significantly less,
due to anticipated prepayments.

18
<PAGE>
                                            PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
                                      Notes to Consolidated Financial Statements

--------------------------------------------------------------------------------
 4. LOANS RECEIVABLE, NET

A summary of loans receivable is as follows:
<TABLE>
<CAPTION>

                                                                                          September 30,
                                                                                       1995           1996
                                                                                       ----           ----
Real estate mortgage:
<S>                                                                                <C>            <C>         
  One-to-four family ...........................................................   $ 58,203,379   $ 65,509,636
  Multi-family .................................................................     32,922,376     28,190,149
  Commercial ...................................................................     35,466,355     29,882,549
                                                                                   ------------   ------------
                                                                                    126,592,110    123,582,334
                                                                                   ------------   ------------

Real estate construction .......................................................         93,334        125,000
                                                                                   ------------   ------------

Consumer:
  Passbook or certificate ......................................................        287,604        184,185
  Student education guaranteed by the State of New Jersey ......................          6,864           --
  Home equity ..................................................................     10,397,056     13,543,650
                                                                                   ------------   ------------
                                                                                     10,691,524     13,727,835
                                                                                   ------------   ------------

Total loans ....................................................................    137,376,968    137,435,169
                                                                                   ------------   ------------
Less: Allowance for loan losses ................................................      2,603,852      2,458,777
         Deferred loan fees and discounts ......................................        496,274        428,588
                                                                                   ------------   ------------

                                                                                      3,100,126      2,887,365
                                                                                   ------------   ------------
                                                                                   $134,276,842   $134,547,804
                                                                                   ============   ============
</TABLE>

Non-accrual and restructured loans were as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                                 September 30,
                                                                                  --------------------------------------------- 
                                                                                        1994           1995           1996
                                                                                    ------------   ------------   ------------
<S>                                                                                <C>            <C>            <C>         
   Non-accrual .................................................................   $      1,455   $      1,928   $        999
   Restructured ................................................................          4,200          4,167          2,135
                                                                                   ------------   ------------   ------------
                                                                                   $      5,655   $      6,095   $      3,134
                                                                                   ============   ============   ============
</TABLE>

The  impact of  non-accrual  and  restructured  loans on  interest  income is as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                Year Ended September 30,
                                                                  1994   1995   1996
                                                                  ----   ----   ----
                                                                            
<S>                                                               <C>    <C>    <C> 
Interest income if performing in accordance with original terms   $655   $622   $325
Interest income actually recorded .............................    427    349    154
                                                                  ----   ----   ----
Interest income lost ..........................................   $228   $273   $171
                                                                  ====   ====   ====
</TABLE>


SFAS 114 and SFAS 118 were  adopted  prospectively  on October  1,  1995.  These
statements  address  the  accounting  for  impaired  loans and  specify  how the
allowance for loan losses  related to these impaired loans should be determined.
The  adoption  of these  statements  did not  affect  the  level of the  overall
allowance or the Bank's  operating  results.  Income  recognition and charge-off
policies  were not changed as a result of these  statements.  At  September  30,
1996, the impaired loan portfolio was primarily  collateral dependent as defined
under SFAS 114 and totaled  $654,000 for which general and specific  allocations
to the  allowance  for loan  losses of  $262,000  were  identified.  The average
balance of impaired  loans during the 1996 fiscal year was $654,000.  The amount
of cash basis  interest  income that was recognized on impaired loans during the
year ended September 30, 1996 was $-0- .

An analysis of the allowance for loan losses is as follows:

                                           Year Ended September 30,
                                   -----------------------------------------
                                       1994           1995           1996
                                       ----           ----           ----
                                                                     
Balance-beginning ..............   $ 4,486,713    $ 3,368,816    $ 2,603,852
Provisions charged to operations     2,650,000           --             --
Losses charged to allowance ....    (3,767,897)      (764,964)      (145,075)
                                   -----------    -----------    -----------
Balance-ending .................   $ 3,368,816    $ 2,603,852    $ 2,458,777
                                   ===========    ===========    ===========

                                                                             19
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements

The activity during the years ended September 30, 1995 and 1996, with respect to
loans to directors, officers and associates of such persons is as follows:

         Balance -- September 30, 1994...       562,200     
         Loans originated ...............          --
         Loan principal repayments ......       (15,385)
                                              ---------
         Balance -- September 30, 1995...       546,815
         Loans originated ...............          --
         Loan principal repayments ......       (38,903)
                                              ---------
         Balance -- September 30, 1996...     $ 507,912
                                              =========
         



5. PREMISES AND EQUIPMENT, NET

A summary of premises and equipment is as follows:

                                          September 30,
                                    -----------------------
                                        1995         1996
                                        ----         ----
Land ............................   $  247,037   $  247,037
Buildings and improvements ......    1,477,229    1,477,229
Less accumulated depreciation....      667,186      719,893
                                    ----------   ----------
                                       810,043      757,336
                                    ----------   ----------
Furnishings and equipment .......    1,049,242    1,219,222
Less accumulated depreciation....      899,160      988,460
                                    ----------   ----------
                                       150,082      230,762
                                    ----------   ----------
                                    $1,207,162   $1,235,135
                                    ==========   ==========


Depreciation  charges are computed on the straight-line  method over the assets'
estimated  useful  lives,  which  range  from 10 to 40 years for  buildings  and
improvements and 3 to 10 years for furnishings and equipment.

--------------------------------------------------------------------------------
6. INTEREST RECEIVABLE

A summary of interest receivable is as follows:

                                                               September 30,
                                                         -----------------------
                                                            1995          1996
                                                            ----          ----
Loans ................................................   $1,115,043   $  968,493
Mortgage-backed securities held to maturity ..........    1,040,945      968,245
Mortgage-backed securities available for sale ........           --      216,679
Investment securities held to maturity ...............    1,915,091    1,697,054
Investment securities available for sale .............           --      676,883
                                                         ----------   ----------
                                                         $4,071,079   $4,527,354
                                                         ==========   ==========

20
<PAGE>
                                            PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
                                      Notes to Consolidated Financial Statements

--------------------------------------------------------------------------------
7. DEPOSITS

A summary of deposits by type is as follows:
<TABLE>
<CAPTION>

                                               September 30,
                            -----------------------------------------------------
                                    1995                           1996
                            ---------------------         -----------------------
                            Weighted                      Weighted             
                             Average                       Average        
                            Interest                      Interest      
                              Rate         Amount           Rate         Amount
                              ----         ------           ----         ------

Demand:
<S>                          <C>      <C>                   <C>      <C>           
  Non-interest-bearing....   0.00%    $  3,602,493          0.00%    $  3,941,492  
  Interest-bearing .......   3.21%      90,972,960          3.15%      87,091,543
                                      ------------                   ------------
                             3.09%      94,575,453          3.01%      91,033,035
Savings and club .........   2.74%      59,629,453          2.73%      57,429,028
Certificates of deposit...   5.45%     236,832,937          5.32%     246,118,548
                                      ------------                   ------------
                             4.47%    $391,037,843          4.41%    $394,580,611
                                      ============                   ============
</TABLE>
                                                             

Certificates of deposit with balances of $100,000 or more totalled approximately
$11,417,000 and $15,322,000 at September 30, 1995 and 1996, respectively.

The scheduled maturities of certificates of deposit are as follows:

                                   September 30,
                               --------------------
                                 1995       1996
                                 ----       ----
                                  (In Thousands)

One year or less ...........   $184,966   $206,483
After one to two years .....     30,334     28,380
After two to three years....     15,416      6,925
After three years ..........      6,117      4,331
                               --------   --------
                               $236,833   $246,119
                               ========   ========

A summary of interest expense on deposits is as follows:
<TABLE>
<CAPTION>

                                                             Year Ended September 30,
                                                  ---------------------------------------  
                                                      1994         1995          1996
                                                      ----         ----          ----

<S>                                               <C>           <C>           <C>        
Interest-bearing demand .......................   $ 3,341,983   $ 3,499,629   $ 2,854,521
Savings and club ..............................     1,740,418     1,897,746     1,622,457
Certificates of deposit less than $100,000 ....     8,329,060    11,288,140    12,604,742
Certificates of deposit $100,000 or more ......       368,789       544,292       725,146
                                                  -----------   -----------   -----------
                                                  $13,780,250   $17,229,807   $17,806,866
                                                  ===========   ===========   ===========
</TABLE>
--------------------------------------------------------------------------------
8.  SECURITIES SOLD UNDER 
    REPURCHASE AGREEMENTS

          Securities sold under  repurchase  agreements at September 30, 1996 is
          $64,275,000.   Securities   underlying  these  repurchase   agreements
          consisted of agencies and mortgage-backed  securities which had a book
          value of  $68,454,000  and a market value of  $68,006,000 at September
          30, 1996.

          The  obligations  to  repurchase  securities  sold are  reflected as a
          liability  in the  balance  sheet.  The  dollar  amount of  securities
          underlying the agreements remains in the asset accounts,  although the
          securities  underlying the agreements are delivered to the brokers who
          arranged the transactions.
                                                                             21
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PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements

         
         The following table summarizes  information  regarding securities sold
         under repurchase agreements:
                                                                       At
                                                                  September 30,
                                                                      1996
                                                                  -------------
         
         Weighted average interest rate .......................         5.79%
         Maximum amount outstanding at any month-end
             during the period ................................   $   64,550
         Average amount outstanding during the period .........   $   22,951
         Weighted average interest rate during the period......         5.77%

         The  scheduled   maturities  of  securities   sold  under   repurchase
         agreements are as follows:

<TABLE>

<CAPTION>

                                              Carrying Value               Estimated
                                                (Including                    Fair
                                             accrued interest)                Value
                                             -----------------            ------------
<S>                                             <C>                        <C>        
Agencies:
         30 to 90 days                          $19,019,881                $18,261,558
         Over 90 days                            20,600,180                 20,000,000
                                                -----------                -----------
                                                 39,620,061                 38,261,558
                                                -----------                -----------
Mortgage-Backed Securities:                                                  
         30 to 90 days                           19,552,928                 19,509,749
         Over 90 days                            10,255,511                 10,234,489
                                                -----------                -----------
                                                 29,808,439                 29,744,238
                                                -----------                -----------
         Total                                  $69,428,500                $68,005,796
                                                ===========                ===========
</TABLE>
                                                            

--------------------------------------------------------------------------------
9. STOCKHOLDERS' EQUITY

          On  November  23,  1993,  the  Board  of  Directors  adopted  a  stock
          repurchase program authorizing the repurchase of up to 376,472 shares,
          approximately 10% of the Corporation's outstanding common stock over a
          two  year  period,  at a  market  price  prevailing  at  the  time  of
          repurchase. The repurchase program concluded on November 23, 1995 with
          a total of 25,000 shares repurchased at a price of $14.75 per share.

          On June 21,  1996,  the  Corporation  completed  a buyback  of 837,080
          shares of its' common stock under a stock  repurchase  plan  utilizing
          the Modified  Dutch  Auction  method of  repurchase.  The  transaction
          resulted recording of treasury stock of $14,975,000.

          Dividends payable by the Bank to the Corporation and dividends payable
          by the Corporation to stockholders are subject to various  limitations
          imposed by federal and state laws, regulations and policies adopted by
          federal and state regulatory agencies. The Bank is required by federal
          law to obtain FDIC  approval for the payment of dividends if the total
          of all dividends  declared by the Bank in any year exceed the total of
          the Bank's net profits (as defined) for that year and the retained net
          profits (as defined) for the  preceding  two years,  less any required
          transfers  to  surplus.  Under New  Jersey  law,  the Bank may not pay
          dividends  unless,  following  payment,  the capital stock of the Bank
          would be  unimpaired  and (a) the Bank will have a surplus of not less
          than 50% of its capital  stock,  or, if not,  (b) the payments of such
          dividends will not reduce the surplus of the Bank.

22
<PAGE>
                                            PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
                                      Notes to Consolidated Financial Statements

--------------------------------------------------------------------------------
10. BENEFIT PLANS

          Retirement plan

          The Bank has a non-contributory defined contribution plan covering all
          eligible  employees.  Pension  plan  costs are  determined  by a money
          purchase type formula.  Total pension plan expense for the years ended
          September 30, 1994,  1995 and 1996 amounted to $163,000,  $144,000 and
          $160,000, respectively.

          Stock option plan

          The Bank maintains a stock option plan (the "Plan") for its directors,
          officers and certain other  employees.  Options granted under the Plan
          are exercisable over a period not to exceed ten years.

Changes in the number of shares outstanding under the Plan are as follows:
<TABLE>
<CAPTION>
                                       Number            Price
                                     of Shares         Per Share         Aggregate
                                     ---------         ---------         ---------

<S>                                   <C>            <C>                 <C>       
Balance, September 30, 1993....       267,352        $4.000-8.8125       $1,822,861
  Granted .....................       154,000        13.000-13.500        2,026,000
  Exercised ...................        97,800         4.000-13.500          601,025
  Expired .....................         5,000               13.000           65,000
                                      -------                             ---------
Balance, September 30, 1994           318,552         4.000-13.500        3,182,836
  Granted .....................        48,000               14.00           672,000
  Exercised ...................        61,700         4.000- 8.625          412,263
                                      -------                             ---------
Balance, September 30, 1995....       304,852         6.625-14.000        3,442,573
  Granted .....................         3,136               17.00            53,312
  Exercised ...................        34,130         6.625-14.000          319,902
                                      -------                             ---------
Balance, September 30, 1996....       273,858        $6.625-17.000       $3,175,983
                                      =======                             =========
                                      
</TABLE>

--------------------------------------------------------------------------------
11. INCOME TAXES

          The bad debt reserve method currently available to thrift institutions
          is repealed for tax years beginning after 1995. Upon repeal,  the Bank
          is required  generally to  recapture  into income for tax purposes the
          portion of its bad debt reserve (other than supplemental reserve) that
          exceeds its base year reserves, approximately $1,950,000. As a result,
          the Bank may no longer use the  percentage of taxable  income  reserve
          method.  A small  thrift (one with $500  million or less in assets) is
          allowed  to use either the  specific  charge-off  method or the "bank"
          experience method of section 585 to compute its bad debt deduction.

          The recapture amount resulting from the change in a thrift's method of
          accounting  for its bad debt  reserves  generally  will be taken  into
          income for tax purposes ratably ( on a straight-line basis) over a six
          year period.  If the Bank meets the "residential loan requirement" for
          a tax year beginning in 1996 or 1997, the recapture can potentially be
          deferred for up to two years.  The residential loan requirement is met
          if the  principal  amount of housing loans made by the Bank during the
          year at issue  (1996  or  1997)  is at  least  as much as the  average
          principal  amount of loans made during the six most recent years prior
          to 1996. Refinancing and home equity loans are excluded.

                                                                             23
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements

          Income tax expense for the years ended  September 30, 1994,  1995, and
          1996 is made up of the following components:

                                            Year Ended September 30,            
                                    ----------------------------------------
                                       1994          1995          1996
                                       ----          ----          ----
                                                                         
            Current tax expense:
            
                 Federal ........   $ 2,240,813   $ 2,578,063    $ 2,537,250
                 State ..........       196,733       221,449        227,258
                                    -----------   -----------    -----------
                                      2,437,546     2,799,512      2,764,508
            Deferred tax expense:
            
                 Federal ........       742,887        82,846       (760,740)
                 State ..........        73,567        12,412        (44,302)
                                        816,454        95,258       (805,042)
                                    -----------   -----------    -----------
                                    $ 3,254,000   $ 2,894,770    $ 1,959,466
                                    ===========   ===========    ===========

          A  reconciliation  between  the  effective  income tax expense and the
          amount  calculated by  multiplying  the applicable  statutory  Federal
          income tax rate of 34% for the years ended  September  30, 1994,  1995
          and 1996 is as follows:

<TABLE>
<CAPTION>

                                                                    Year Ended September 30,           
                                                          -----------------------------------------
                                                              1994           1995           1996
                                                              ----           ----           ----
                                                                                   
           <S>                                            <C>            <C>            <C>        
           Computed "expected" Federal tax expense ....   $ 3,152,345    $ 2,774,394    $ 1,853,706
           State income tax, net of Federal tax benefit       178,398        154,348        120,751
           Tax-exempt interest ........................       (15,113)       (13,135)       (13,145)
           Exercise of non-statutory stock options ....       (67,108)          --             --
           Other ......................................         5,478        (20,837)        (1,846)
                                                          -----------    -----------    -----------
                                                          $ 3,254,000    $ 2,894,770    $ 1,959,466
                                                          ===========    ===========    ===========
           </TABLE>
           

24
<PAGE>
                                            PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
                                      Notes to Consolidated Financial Statements


          The tax effects of temporary differences that give rise to significant
          portions of the deferred tax assets and  deferred tax  liabilities  at
          September 30, 1995 and 1996 are as follows:

           <TABLE>
           <CAPTION>

                                                                           September 30,
                                                                         1995          1996
                                                                         ----          ----
           <S>                                                        <C>          <C>                                 
           From operations:
                       Deferred tax assets
                          Allowance for loan and real estate losses   $  936,855   $  884,668
                          Deferred fees ...........................      170,296      133,726
                          Pension .................................       51,955         --
                          Core deposit amortization ...............       82,154       74,358
                          Organization costs ......................        3,251          651
                          Non-accrued interest ....................           --       36,700
                          BIF/SAIF Special assessment .............           --      971,460
                                                                      ----------   ----------
                              Total gross deferred assets .........    1,244,511    2,101,563
                                                                      ----------   ----------

               Deferred tax liabilities
               Depreciation .......................................       43,809       35,417
               Discount accretion on bonds ........................       19,693       19,340
               Bad debt tax reserve in excess of base year ........      204,497      265,252
                                                                      ----------   ----------
                               Total gross deferred tax liabilities      267,999      320,009
                                                                      ----------   ----------
                        Net deferred tax asset from operations ....      976,512    1,781,554
                  Shareholders' equity - unrealized losses on
                        securities available for sale .............           --      123,348
                                                                      ----------   ----------
                          Total net deferred tax assets ...........   $  976,512   $1,904,902
                                                                      ==========   ==========
           </TABLE>
           
          Management  believes,  based upon current facts, that more likely than
          not there will be sufficient taxable income in future years to realize
          the net deferred tax asset.  However,  there can be no assurance about
          the levels of future earnings.
                                                                             25
<PAGE>

PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements

--------------------------------------------------------------------------------
12. REGULATORY MATTERS

          FDIC   regulations   require  banks  to  maintain  minimum  levels  of
          regulatory capital. Under regulations in effect at September 30, 1996,
          the Bank was required to maintain (i) a minimum leverage ratio of Tier
          I capital to total adjusted assets of 4.0%, and (ii) minimum ratios of
          Tier I and total  capital  to  risk-weighted  assets of 4.0% and 8.0%,
          respectively.

          Under its prompt corrective action  regulations,  the FDIC is required
          to  take  certain   supervisory   actions  (and  may  take  additional
          discretionary   actions)   with   respect   to   an   undercapitalized
          institution.  Such actions could have a direct  material effect on the
          institutions's  financial  statements.  The  regulations  establish  a
          framework for the  classification  of savings  institutions  into five
          categories:     well     capitalized,      adequately     capitalized,
          undercapitalized,   significantly  undercapitalized,   and  critically
          undercapitalized.   Generally,   an  institution  is  considered  well
          capitalized  if it has a leverage  (Tier 1) capital  ratio of at least
          5.0%, a Tier 1 risk-based  capital ratio of at least 6.0%; and a total
          risk-based capital ratio of at least 10.0%.

          The   foregoing   capital   ratios  are  based  in  part  on  specific
          quantitative  measures of assets,  liabilities and certain off-balance
          sheet  items as  calculated  under  regulatory  accounting  practices.
          Capital  amounts and  classifications  are also subject to qualitative
          judgements by the FDIC about capital  components,  risk weightings and
          other factors.

          Management believes that, as of September 30, 1996, the Bank meets all
          capital  adequacy  requirements to which it is subject.  Further,  the
          most   recent   FDIC   notification   categorized   the   Bank   as  a
          well-capitalized   institution  under  the  prompt  corrective  action
          regulations.  There  have  been no  conditions  or events  since  that
          notification that management  believes have changed the Bank's capital
          classification.

          The  following is a summary of the Bank's actual  capital  amounts and
          ratios as of September 30, 1996 and 1995:

            As of September 30, 1995                                       
         
            Total capital (to risk-weighted assets)...........    34.43%    
            Tier 1 capital (to risk-weighted assets)..........    32.71%
            Tier 1 capital (to total assets)..................    11.17%
         
            As of September 30, 1996
         
            Total capital (to risk-weighted assets)...........    24.49%
            Tier 1 capital (to risk-weighted assets)..........    23.24%
            Tier 1 capital (to total assets)..................     7.22%
   

26                                                                         
<PAGE>

                                            PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
                                      Notes to Consolidated Financial Statements


--------------------------------------------------------------------------------
13. COMMITMENTS AND CONTINGENCIES

          The Bank is a party to financial  instruments with  off-balance  sheet
          risk in the normal course of business to meet the  financing  needs of
          its  customers  and to reduce  its own  exposure  to  fluctuations  in
          interest rates.  These financial  instruments  include  commitments to
          extend credit and purchase  securities.  The commitments  involve,  to
          varying  degrees,  elements of credit and interest rate risk in excess
          of the amount  recognized in the consolidated  statements of financial
          condition.  The  Bank's  exposure  to  credit  loss  in the  event  of
          nonperformance  by the other  party to the  financial  instrument  for
          commitments  to  extend  credit  is  represented  by  the  contractual
          notional  amount of those  instruments.  The Bank uses the same credit
          policies  in  making  commitments  as it  does  for  on-balance  sheet
          instruments.  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
          commitments may expire without being drawn upon, the total  commitment
          amounts do not necessarily  represent  future cash  requirements.  The
          Bank  evaluates  each  customer's  creditworthiness  on a case-by-case
          basis. The amount of collateral  obtained,  if deemed necessary by the
          Bank  upon  extension  of  credit,  is  based on  management's  credit
          evaluation of the  counterparty.  Collateral held varies but primarily
          includes   residential   real  estate  and   commercial   real  estate
          properties.  Commitments  to purchase  securities  are  contracts  for
          delayed  delivery  of  securities  in which the seller  agrees to make
          delivery at a specified  future date of a specified  instrument,  at a
          specified price or yield.  Risks arise from the possible  inability of
          counterparties to meet the terms of their contracts and from movements
          in securities  values and interest  rates. 

          The Bank has the following outstanding commitments:

                                                             September 30,      
                                                      --------------------------
                                                          1995          1996
                                                          ----          ----
                                                                            
          To originate loans .......................   $ 4,681,000   $ 3,094,000
                                                       ===========   ===========
          Homeowners' Equity Credit Line Program....   $11,528,000   $11,002,000
                                                       ===========   ===========


          At September 30, 1996, of the $3,094,000 in outstanding commitments to
          originate  loans,  $2,512,000  are for loans at fixed  interest  rates
          within a range of 7.625% to8.625% and $582,000 are for adjustable rate
          loans.   The  Homeowners'   Equity  Credit  Line  Program   represents
          undisbursed funds from approved lines of credit.  Unless  specifically
          cancelled by notice from the Bank,  these are firm  commitments to the
          respective  borrowers on demand. The lines of credit re secured by the
          respective  one-to-four  family  residential  properties  owned by the
          borrowers.  The interest rate charged for any month on funds disbursed
          under the  program  ranges from 1.00% to 1.50% above the prime rate as
          most recently  published in The Wall Street  Journal prior to the last
          business day of the month immediately preceding the month in which the
          billing cycle begins.

          The   Corporation   also  has,  in  the  normal  course  of  business,
          commitments for services and supplies.  Management does not anticipate
          losses on any of the above-mentioned  commitments.  The Corporation is
          also a party to  litigation  which  arises  primarily  in the ordinary
          course  of  business.  In the  opinion  of  management,  the  ultimate
          disposition of such  litigation  should not have a material  effect on
          the consolidated financial statements of the Corporation.


                                                                            27
<PAGE>

PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements

--------------------------------------------------------------------------------
14. FRAUD LOSS

          On July 6, 1994, the Bank discovered that a portfolio of approximately
          $8.4  million of bridge  loans  believed to be secured by  residential
          real  estate   were  in  fact  made  to   fictitious   borrowers   and
          collateralized by fictitious  properties.  The loans had been extended
          based upon fraudulent mortgage  applications and related documentation
          submitted to the Bank by its then general counsel.

          During the fiscal year ended  September 30, 1995,  the Bank received a
          settlement  of $2.6 million from its surety bond claim  regarding  the
          bridge  loans,  and  $275,000  received  upon the  sale of a  personal
          residence,  which was part of the estate of the responsible party, and
          charged-off  amounts  totaling  $202,000 to reduce the  receivable  in
          other assets to $1.7 million.  During the fiscal year ended  September
          30, 1996,  approximately  $100,000 was  collected  from the estate and
          through the  settlement of a lawsuit.  The receivable at September 30,
          1996 was reduced to $1.6 million,  it's estimated realizable value. To
          the  extent  the  Corporation  is unable  to  collect  on the  pending
          litigation,  the Corporation may have to charge-off additional amounts
          in future  periods.  Management  believes  the  remaining  balance  is
          collectable  through the malpractice  insurance policy relevant to the
          attorney  responsible  for the fraud.  The Bank has filed claims under
          the malpractice  insurance  coverage available in order to recover all
          unpaid amounts.  A trial date of January 13, 1997 has been established
          for this litigation.

--------------------------------------------------------------------------------
15. RECAPITALIZATION OF 
    SAVINGS INSTITUTION INSURANCE FUND 
    ("SAIF")

          On September  30,  1996,  legislation  was enacted,  which among other
          things,   imposed  a  special  one-time   assessment  on  SAIF  member
          institutions,  including  the  Bank,  to  recapitalized  the  SAIF and
          spreads the obligations for payment of Financing  Corporation ("FICO")
          bonds across all SAIF and Bank  Insurance  Fund ("BIF")  members.  The
          Federal Deposit  Insurance  Corporation  ("FDIC")  special  assessment
          being levied amounts to 65.7 basis points on SAIF assessable  deposits
          held as of March 31, 1995.  The special  assessment  was recognized in
          the fourth  quarter and is tax  deductible.  The Bank took a charge of
          $2,700,000  before  tax-effect,  as  a  result  of  the  FDIC  special
          assessment.  This legislation will eliminate the substantial disparity
          between  the  amount  that BIF and SAIF had been  paying  for  deposit
          insurance premiums.

          Beginning  on January 1, 1997,  BIF members  will pay a portion of the
          FICO  payment  equal  to 1.3  basis  points  on  BIF-insured  deposits
          compared to 6.4 basis points on SAIF-insured  deposits, and will pay a
          pro rata share of the FICO  payment on the earlier of January 1, 2000,
          or the date upon which the last savings  association  ceases to exist.
          The legislation  also requires BIF and SAIF to be merged by January 1,
          1999, provided that subsequent legislation is adopted to eliminate the
          savings association  charter and no savings  associations remain as of
          that time.

          The FDIC has recently  proposed to lower SAIF  assessments  to a range
          comparable  to that of BIF  members,  although  SAIF members must also
          make the FICO payments described above.  Management cannot predict the
          level of FDIC  insurance  assessments  on an on-going basis or whether
          the BIF and SAIF will eventually be merged.

--------------------------------------------------------------------------------
16. FAIR VALUE OF FINANCIAL 
    INSTRUMENTS

          Statement  of Financial  Accounting  Standards  No. 107,  "Disclosures
          about Fair Value of  Financial  Instruments"  requires  disclosure  of
          estimated fair values for financial instruments.

          Limitations

          The fair value estimates are made at a discrete point in time based on
          relevant  market  information  and  information  about  the  financial
          instruments.  Fair value  

28
<PAGE>
PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
                  
          estimates  are  based on  judgments  regarding  future  expected  loss
          experience,  current  economic  conditions,  risk  characteristics  of
          various financial  instruments and other factors.  These estimates are
          subjective  in  nature  and  involve   uncertainties  and  matters  of
          significant  judgment  and,  therefore,   cannot  be  determined  with
          precision.  Changes  in  assumptions  could  significantly  affect the
          estimates. Further, the foregoing estimates may not reflect the actual
          amount  that  could be  realized  if all or  substantially  all of the
          financial  instruments were offered for sale at one time. In addition,
          the fair value  estimates  are based on  existing  on-and-off  balance
          sheet   financial   instruments   without   attempting  to  value  the
          anticipated  future  business and the value of assets and  liabilities
          that  are not  considered  financial  instruments.  Other  significant
          assets and liabilities  that are not considered  financial  assets and
          liabilities include mortgage servicing rights,  premises and equipment
          and advances from borrowers for taxes and insurance.  In addition, the
          tax  ramifications  related to the realization of the unrealized gains
          and losses can have a significant  effect on fair value  estimates and
          have not been considered in any of the estimates.  Finally, reasonable
          comparability between financial  institutions may not be likely due to
          the  wide  range  of  permitted  valuation   techniques  and  numerous
          estimates  which  must be made given the  absence of active  secondary
          markets for many of the  financial  instruments.  This lack of uniform
          valuation methodologies introduces a greater degree of subjectivity to
          these estimated fair values. The estimation methodologies used and the
          estimated fair values and carrying values of financial instruments are
          set forth below:

          Cash and cash equivalents and interest receivable

          The carrying  amounts for cash and cash  equivalents  approximate fair
          value.

          Investment and mortgage-backed securities

          Available for sale  securities are reported at their  respective  fair
          values in the  Consoidated  Statements of Financial  Condition.  These
          values  were  based  on  quoted  market  prices.  The fair  values  of
          securities held to maturity were also based upon quoted market prices.

          Loans receivable

          The  fair  value  of fixed  rate  loans  receivable  is  estimated  by
          discounting  the future cash flows,  using the current  rates at which
          similar  loans  with  similar  remaining  maturities  would be made to
          borrowers with similar credit  ratings.  For those loans with floating
          interest  rates,  it is presumed that estimated fair values  generally
          approximate their recorded book balances.

          Deposits

          The fair value of demand,  savings  and club  accounts is equal to the
          amount  payable  on demand at the  reporting  date.  The fair value of
          certificates of deposit is estimated by discounting  future cash flows
          using rates currently offered for deposits of ar remaining maturities.
          For those deposits with floating  interest  rates, it is presumed that
          estimated  fair  values  generally  approximate  their  recorded  book
          balances.
                                                                            29
<PAGE>

PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements

          Securities sold under repurchase agreements

          The fair values for securities  sold under  repurchase  agreements are
          calculated by  discounting  estimated  future cash flows using current
          rates offered for similar remaining maturities.

          Commitments

          The fair values of  commitments  related to loans are estimated  using
          fees currently  charged to enter into similar  agreements  taking into
          account  the  remaining  terms  of  the  agreements  and  the  present
          creditworthiness   of  the   counterparties.   For  fixed   rate  loan
          commitments,  fair value also considers the difference between current
          levels  of  interest  and the  committed  rates.  The  fair  value  of
          commitments  to  purchase  mortgage-backed  securities  is based  upon
          quoted market prices of similar securities.

        <TABLE>
        <CAPTION>
                                                                               September 30,               
                                                               ------------------------------------------
                                                                       1995                    1996
                                                               --------------------  -------------------- 
                                                                          Estimated             Estimated
                                                               Carrying      Fair    Carrying      Fair
                                                                Amount       Value    Amount       Value
                                                                ------       -----    ------       -----
                                                                            (In Thousands)
        
        Financial assets
        <S>                                                    <C>        <C>        <C>         <C>     
        Cash and cash equivalents ..........................   $  8,762   $  8,762   $  4,750    $  4,750
        Investment securities available for sale ...........         --         --       39,055     39,055
        Mortgage-backed securities available for sale.......         --         --       40,255     40,255
        Investment securities held to maturity .............    114,381    112,886      105,549    103,192
        Mortgage-backed securities held to maturity.........    174,969    174,629      164,092    162,617
        Loans receivable ...................................    134,277    138,646      134,548    134,270
        Financial liabilities...............................
        
        Deposits ...........................................    391,038    389,850      394,581    393,419
        Securities sold under repurchase agreements ........       --         --         64,275     64,275
        Commitments ........................................     16,209     16,209       14,096     14,096
        

</TABLE>



                                                                            30
<PAGE>

                                            PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
                                      Notes to Consolidated Financial Statements

--------------------------------------------------------------------------------
17. PARENT CORPORATION FINANCIAL DATA

The following condensed  financial  statements of the Corporation should be read
in conjunction with the notes to consolidated financial statements.

                        STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
                                                                September 30,
                                                       -----------------------------
                                                             1995           1996
                                                             ----           ----
        Assets
<S>                                                     <C>             <C>         
        Cash ........................................   $     40,044    $     74,730
        Loans receivable from subsidiary ............      1,000,000         950,000
        Investment in subsidiaries ..................     49,671,053      35,941,076
        Fraud loss receivable .......................      1,600,000       1,565,000
        Due from subsidiary .........................        567,866         498,766
                                                        ------------    ------------
          Total assets ..............................   $ 52,878,963    $ 39,029,572
                                                        ============    ============
        Liabilities and stockholders' equity
        Liabilities
        Dividends payable ...........................   $    577,924    $    533,729
        Other liabilities ...........................         27,448          37,309
                                                        ------------    ------------
          Total liabilities .........................        605,372         571,038
                                                        ------------    ------------
        Stockholders' equity
        Common stock ................................      4,077,828       4,111,958
        Paid-in-capital in excess of par value ......     11,819,769      12,105,541
        Retained earnings-substantially restricted...     38,078,494      39,147,609

        Unrealized loss on securities available for
          sale, net of tax ..........................             --        (229,074)
        Treasury stock, at cost .....................     (1,702,500)    (16,677,500)
                                                        ------------    ------------
          Total stockholders' equity ................     52,273,591      38,458,534
                                                        ------------    ------------
          Total liabilities and stockholders' equity    $ 52,878,963    $ 39,029,572
                                                        ============    ============
</TABLE>

                              STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                 Year Ended September 30,
                                        -----------------------------------------
                                             1994          1995           1996
                                             ----          ----           ----
Income:

<S>                                      <C>            <C>           <C>        
  Dividends from subsidiary ..........   $ 2,267,267    $ 2,696,110   $ 2,423,495
  Undistributed earnings of subsidiary     3,770,758      2,567,491       996,097
  Interest income ....................        79,554         90,524       170,732
                                         -----------    -----------   -----------
    Total income .....................     6,117,579      5,354,125     3,590,324
                                         -----------    -----------   -----------
Expenses:
  Miscellaneous ......................       112,590         83,550        58,422
                                         -----------    -----------   -----------
    Total expense ....................       112,590         83,550        58,422
                                         -----------    -----------   -----------
Income before income taxes ...........     6,004,989      5,270,575     3,531,902
Income tax (benefit) expense .........       (12,613)         5,362        39,293
                                         -----------    -----------   -----------
Net income ...........................   $ 6,017,602    $ 5,265,213   $ 3,492,609
                                         ===========    ===========   ===========

                                                                            31
<PAGE>

PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements

</TABLE>

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                               Year Ended September 30,
                                                     --------------------------------------------
                                                          1994           1995            1996
                                                          ----           ----            ----

Cash flows from operating activities:
<S>                                                  <C>             <C>             <C>         
  Net income .....................................   $  6,017,602    $  5,265,213    $  3,492,609
  Adjustments to reconcile net income to net
    cash provided by operating activities:

    (Increase) decrease in due from subsidiary ...       (194,955)         23,212          69,100
    (Increase) decrease in fraud loss receivable .           --        (1,600,000)         35,000
    Decrease in other assets .....................         33,132          18,731            --
    Increase (decrease) in dividends
      payable ....................................        103,878           9,255         (44,195)
    Increase in other
      liabilities ................................         27,000             448           9,861
    (Increase) decrease in undistributed
      earnings of subsidiary .....................     (3,770,758)     (2,567,491)     13,729,977
                                                     ------------    ------------    ------------
      Net cash provided by operating activities...      2,215,899       1,149,368      17,292,352
                                                     ------------    ------------    ------------ 

Cash flows provided by investing activities:
(Increase) decrease in loans receivable
  from subsidiary ................................       (150,000)      1,100,000          50,000
                                                     ------------    ------------       ---------
      Net cash provided by (used in)
        investing activities .....................       (150,000)      1,100,000          50,000
                                                     ------------    ------------    ------------
Cash flows from financing activities:
  Issuance of common stock .......................        601,025         412,263         319,902
  Cash dividends paid ............................     (2,267,267)     (2,696,111)     (2,423,494)
  Purchase of treasury stock .....................       (368,750)           --       (14,975,000)
  Decrease in fair value of securities held for
     sale, net of tax ............................           --              --          (229,074)
                                                     ------------    ------------    ------------
    Net cash (used in) investing
      activities .................................     (2,034,992)     (2,283,848)    (17,307,666)
                                                     ------------    ------------    ------------
Net increase (decrease) in cash ..................         30,907         (34,480)         34,686
Cash -- beginning ................................         43,617          74,524          40,044
                                                     ------------    ------------    ------------
Cash -- ending ...................................   $     74,524    $     40,044    $     74,730
                                                     ============    ============    ============
</TABLE>

--------------------------------------------------------------------------------
18. IMPACT OF NEW ACCOUNTING 
    STANDARDS

          In October 1995, the Financial  Accounting Standards Board issued SFAS
          No. 123,  "Accounting  for Stock-Based  Compensation".  This statement
          establishes   financial   accounting   and  reporting   standards  for
          stock-based  employees  compensation  plans.  SFAS 123  encourages all
          entities  to adopt the "fair  value  base  method" of  accounting  for
          employee stock compensation  plans.  However,  SFAS 123 also allows an
          entity to continue to measure compensation cost under such plans using
          the "intrinsic value based method." Under the fair value based method,
          compensation  cost is measured at the grant date based on the value of
          the award and is  recognized  over the  service  period,  usually  the
          vesting period. Fair value is determined using an option pricing model
          that  takes  into  account  the  stock  price at the grant  date,  the
          exercise price, the expected life of the option, the volatility of the
          underlying  stock and the expected  dividends on it, and the risk-free
          interest  rate  over  the  expected  life  of the  option.  Under  the
          intrinsic value based method, compensation cost is the excess, if any,
          of the  quoted  market  price of the stock at the grant  date or other
          measurement  date over the amount an employee  must pay to acquire the
          stock.  Most stock plans have no intrinsic value at date of grant, and
          under previous  accounting  guidance,  no compensation  cost was to be
          recognized.

          The  account   requirements   of  this  statement  are  effective  for
          transactions  entered into in fiscal  years that begin after  December
          15, 1995.  The Bank intends to continue  accounting  for  compensation
          cost under the intrinsic value based method and will provide pro forma
          disclosures  for all awards  granted after  September  30, 1996.  Such
          disclosures  include net income and  earnings per share as if the fair
          value based method of accounting has been applied.

          In June 1996, the Financial Accounting Standards Board issued SFAS No.
          125  "Account for  Transfers  and  Servicing  of Financial  Assets and
          Extinguishments of Liabilities". SFAS 125 amends portions of SFAS 115,
          amends  and  extends  to 

32
<PAGE>

                                            PULSE BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
                                      Notes to Consolidated Financial Statements

          all servicing  assets and  liabilities  the  accounting  standards for
          mortgages  servicing  rights now in SFAS 65, and supersedes  SFAS 122.
          The  Statement  provides   consistent   standards  for  distinguishing
          transfers of financial  assets that are sales from  transfers that are
          secured   borrowings.   Those  standards  are  based  upon  consistent
          application  of  a  financial  components  approach  that  focuses  on
          control. The Statement also defines accounting treatment for servicing
          assets and other retained interest in the assets that are transferred.
          SFAS 125 is effective for transfers and servicing of financial  assets
          and  extinguishments of liabilities  occurring after December 31, 1996
          and is to be applied  prospectively.  The adoption of the statement is
          not  expected  to  have a  material  effect  on the  Bank's  financial
          condition or results of operation.

--------------------------------------------------------------------------------
19. QUARTERLY FINANCIAL DATA (UNAUDITED)

A summary of the quarterly consolidated financial data is as follows:

<TABLE>
<CAPTION>

                                                                First   Second    Third   Fourth
Year Ended September 30, 1995                                  Quarter  Quarter   Quarter Quarter
-----------------------------                                  -----------------------------     
                                                                (In Thousands, Except Per Share Data)

<S>                                                             <C>      <C>      <C>      <C>   
Interest income .............................................   $7,424   $7,603   $7,802   $7,910
Interest expense ............................................    3,885    4,287    4,583    4,475
                                                                ------   ------   ------   ------
  Net interest income .......................................    3,539    3,316    3,219    3,435
Non-interest income .........................................       74       77       77       66
Non-interest expenses .......................................    1,371    1,543    1,319    1,360
                                                                ------   ------   ------   ------
Income before income taxes ..................................    2,242    1,850    1,927    2,141
Income taxes ................................................      800      639      691      765
                                                                ------   ------   ------   ------
Net income ..................................................   $1,442   $1,211   $1,236   $1,376
                                                                ======   ======   ======   ======
Net income per common share and common stock equivalents ....   $  .37   $  .31   $  .31   $  .35
                                                                ======   ======   ======   ======
Dividends per common share ..................................   $  .15   $  .15   $  .15   $  .25
                                                                ======   ======   ======   ======
</TABLE>
<TABLE>
<CAPTION>

                                                            First    Second    Third     Fourth
Year Ended September 30, 1996                              Quarter   Quarter   Quarter   Quarter
-----------------------------                              -------   -------   -------   -------
                                                           (In Thousands, Except Per Share Data)

<S>                                                        <C>       <C>       <C>       <C>    
Interest income ........................................   $ 7,845   $ 7,857   $ 8,254   $ 8,777
Interest expense .......................................     4,523     4,451     4,794     5,365
                                                           -------   -------   -------   -------
  Net interest income ..................................     3,322     3,406     3,460     3,412
Non-interest income ....................................        94        82        65        85
Non-interest expenses ..................................     1,341     1,388     1,363     4,382(1)
                                                           -------   -------   -------   -------
Income before income taxes .............................     2,075     2,100     2,162      (885)
Income taxes ...........................................       752       755       773      (320)
                                                           -------   -------   -------   -------
Net income .............................................   $ 1,323   $ 1,345   $ 1,389   $ ( 565)
                                                           =======   =======   =======   =======
Net income per common share and common stock equivalents   $   .33   $   .34   $   .36   $  (.18)
                                                           =======   =======   =======   =======
Dividends per common share .............................   $  .175   $  .175   $  .175   $  .175
                                                           =======   =======   =======   =======
</TABLE>

(1)  Includes a pre-tax charge of approximately  $2.7 million as a result of the
     FDIC's one-time special insurance assessment. See Note 15.


                                                                            33
<PAGE>


--------------------------------------------------------------------------------
Independent Auditors' Report




To the Board of Directors
  and Stockholders
Pulse Bancorp, Inc.

We have audited the accompanying  consolidated statements of financial condition
of Pulse Bancorp,  Inc. and Subsidiaries (the "Corporation") as of September 30,
1995 and 1996 and the  related  consolidated  statements  of income,  changes in
stockholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Corporation's management. Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements  based on our audits.  The  accompanying  consolidated  statement  of
income,  changes in stockholders' equity, and cash flow of the Corporation as of
September 30, 1994 were audited by other  auditors,  whose report  thereon dated
October 25, 1994 expressed an unqualified opinion on those statements.

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 our audits provide a reasonable basis for our opinion.

 In our opinion, the consolidated financial statements referred to above present
fairly, in all material  respects,  the financial position of the Corporation as
of  September  30, 1995 and 1996 and the results of their  operations  and their
cash  flows for the years  then  ended in  conformity  with  generally  accepted
accounting principles.



/s/KPMG Peat Marwick LLP
Short Hills, New Jersey
October 24, 1996



34
<PAGE>
PULSE BANCORP, INC. AND PULSE SAVINGS BANK
--------------------------------------------------------------------------------
Officers and Directors of the Corporation and the Bank



OFFICERS                                          DIRECTORS

BENJAMIN S. KONOPACKI                             BENJAMIN S. KONOPACKI
Chairman of the Board                             Chairman  
                                                  
GEORGE T. HORNYAK, JR.                            JOSEPH CHADWICK
President and Chief Executive                     GEORGE T. HORNYAK, JR.
Officer                                           EDWIN A. KOLODZIEJ
                                                  WAYNE A. KRONOWSKI
THOMAS KONOPACKI                                  EDWIN A. ROGINSKI
Executive Vice President and                      ADAM RZEPKA
Chief Financial Officer                           Director Emeritus
                                                  
RONALD E. VAUGHN, JR.                             FRANK L. CHADWICK
Senior Vice President-Chief                       Chairman Emeritus
Lending Officer                                   
                                                  
JEFFREY GOSTKOWSKI                                ASSOCIATE BOARD
Vice President                                    
                                                  South Amboy
PATRICIA M. BARSZCZ                               
Vice President-Asst. Secretary                    
                                                  WALTER FABISZEWSKI
CATHERINE D. FRANZONI                             EDWARD GLEASON
Vice President-Treasurer                          JOHN JANKOWSKI
                                                  STANLEY KNAST
NANCY M. JANOSKO
Secretary

GLENN BROOKS
Asst. V.P./Internal Auditor

FLORENCE PAWLOWSKI
Branch Manager-Asst. Vice 
President

SYLVIA GAN
Asst. Vice President

GAIL WOLYNEC
Asst. V.P./Asst. Secretary

RENEE PARSONS
Asst. Secretary

NADYA CUPRYK
Asst. V.P.

                                                                             35
<PAGE>


--------------------------------------------------------------------------------
CORPORATE & STOCKHOLDER'S INFORMATION

<TABLE>
<CAPTION>

MAIN OFFICE                                  STOCK LISTING

<S>                                          <C>   
Pulse Bancorp, Inc.                          The Corporation's Common Stock is traded over-the-
6 Jackson Street                             counter on the Nasdaq National Market System
P.O. Box 193                                 appearing under the symbol "PULS".
South River, New Jersey 08882      
(908) 257-2400                               MARKET MAKERS
(908) 257-2400 - Mortgage Department
                                             Sandler O'Neill & Partners, L.P.
PULSE SAVINGS BANK OFFICES                   Ryan, Beck & Co., Inc.
                                             Herzog, Heine, Geduld, Inc.
MAIN OFFICE                                  F.J. Morrissey & Co., Inc.
6 Jackson Street
South River, New Jersey 08882                ANNUAL MEETING
(908) 257-2400                               
                                             January 23, 1997, 10:00 A.M.
Washington Avenue & Davis Lane               Forsgate Country Club
South Amboy, New Jersey 08879                Forsgate Drive
(908) 721-1300                               Jamesburg, New Jersey 08831

Prospect Plains and Applegarth Roads         10-K INFORMATION:
Monroe Township, New Jersey 08512
(609) 655-1900 -- Branch Office              A COPY OF THE CORPORATION'S ANNUAL REPORT
                                             ON FORM 10-K FOR THE FISCAL YEAR ENDED SEP-
1225 Brunswick Avenue                        TEMBER 30, 1996, AS FILED WITH THE SECURITIES 
Lawrenceville, New Jersey 08648              AND EXCHANGE COMMISSION WILL BE FURNISHED
(609) 394-1500                               WITHOUT CHARGE TO STOCKHOLDERS AS OF THE 
                                             RECORD DATE UPON WRITTEN REQUEST TO THE 
CORPORATE INFORMATION                        SECRETARY, PULSE BANCORP, INC., 6 JACKSON
                                             STREET, SOUTH RIVER, NEW JERSEY 08882.
Nancy M. Janosko
Secretary
Pulse Bancorp, Inc.
6 Jackson Street
P.O. Box 193
South River, New Jersey 08882
(908) 257-2400

TRANSFER AGENT AND REGISTRAR

American Stock Transfer and Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
(212) 936-5100

SPECIAL COUNSEL

Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street, N.W.
Suite 700 East
Washington, DC  20005
</TABLE>

36