INDEPENDENCE BANCORP INC /NJ/, 424B1, 1996-07-30

INDEPENDENCE BANCORP INC /NJ/
424B1, 1996-07-30
STATE COMMERCIAL BANKS

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Filed Pursuant to Rule 424(b)(1) of the Securities Act
File Number 333-01827

PROSPECTUS

Independence
LOGO Bancorp, Inc.
1,523,750 SHARES OF COMMON STOCK

This Prospectus covers (i) the issuance of a maximum of 776,875 shares of
Common Stock, $1.667 par value (the "Common Stock"), of Independence Bancorp,
Inc. (the "Company") reserved for issuance upon conversion of the Company's
Series A 9% Cumulative Convertible Preferred Stock ("Series A Preferred
Stock") into Common Stock or the issuance of such Common Stock pursuant to
the standby arrangements described herein and the reoffering of any Common
Stock issued pursuant to such standby arrangements and (ii) the issuance of a
maximum of 746,875 shares of Common Stock, reserved for issuance upon
exercise of rights (the "Common Stock Purchase Rights") to purchase one share
of Common Stock for $9.60 per share (subject to adjustment in certain events)
until the earlier to occur of October 30, 1997 or the conversion or
redemption of the Series A Preferred Stock to which such Common Stock
Purchase Right is attached or, the issuance of such Common Stock pursuant to
the standby arrangements described herein and the reoffering of any Common
Stock issued pursuant to such standby arrangement. The Common Stock Purchase
Rights are not transferable separately from the Series A Preferred Stock.

The Company has called all of the Series A Preferred Stock for redemption
on September 6, 1996 (the "Redemption Date") at a redemption price of $8.30,
together with accumulated and unpaid dividends thereon of $0.07 from July 31,
1996 to the Redemption Date, for a total redemption price of $8.37 for each
share of Series A Preferred Stock (the "Redemption Price"). No dividends will
accrue on the Series A Preferred Stock from and after the Redemption Date. On
June 13, 1996 the Company declared a dividend of $.18 per share on the Series
A Preferred Stock payable on July 30, 1996 to shareholders of record on June
28, 1996. Prior to the close of business on the Redemption Date, the Series A
Preferred Stock may be converted at a conversion ratio of one share of Common
Stock for each share of Series A Preferred Stock, and prior to the earlier of
the Redemption Date or the date the underlying Series A Preferred Stock is
converted, the Common Stock Purchase Right attached thereto may be exercised
for $9.60 per share to purchase one share of Common Stock. Holders who
convert their Series A Preferred Stock into Common Stock will not be entitled
to receive dividends accrued since July 30, 1996. Any Series A Preferred
Stock called and not surrendered for conversion by the close of business on
the Redemption Date will be redeemed and any Common Stock Purchase Right
attached to Series A Preferred Stock which has not been exercised prior to
the Redemption Date shall be null and void.

The Common Stock is traded on the NASDAQ National Market under the symbol
IBNJ. The closing sale price of the Common Stock on July 17, 1996, as
reported on the NASDAQ National Market, was $12.25 per share.

Based on the above-stated last sale price of the Common Stock on July 17,
1996, the market value of the Common Stock into which each share of Series A
Preferred Stock is convertible is approximately $12.25, or considerably
higher than the amount to be received upon redemption. Such value is, of
course, subject to change depending on the market price of the Common Stock.
SO LONG AS THE MARKET PRICE OF THE COMMON STOCK IS HIGHER THAN $8.37 PER
SHARE, A HOLDER WHO CONVERTS HIS SERIES A PREFERRED STOCK WILL RECEIVE COMMON
STOCK WITH A MARKET VALUE GREATER THAN THE AMOUNT OF CASH RECEIVABLE UPON
REDEMPTION OF THE SERIES A PREFERRED STOCK.

------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

------

THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, BANK INSURANCE FUND, SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.

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The Company has made standby arrangements with Janney Montgomery Scott
Inc. (the "Purchaser") pursuant to which the Purchaser has agreed, subject to
certain conditions, to purchase from the Company such number of shares of
Common Stock which, in the aggregate, would have been issuable (i) upon
conversion of Series A Preferred Stock which either have been surrendered for
redemption or have not been surrendered for conversion prior to the close of
business on the Redemption Date, and (ii) upon exercise of the Common Stock
Purchase Rights attached to the Series A Preferred Stock which have not been
exercised and which expire on the Redemption Date. The standby arrangement
provides for a negotiated per share purchase price based on prevailing market
conditions at the time of sale. Pursuant to the standby arrangement, the
Company will receive proceeds equal to the number of shares of Common Stock
purchased by the Purchaser multipled by the agreed upon purchase price,
irrespective of the number of shares sold by the Purchaser or the price at
which such shares are sold by the Puchaser. Pursuant to the standby
arrangement, the Purchaser will initially offer such shares at the negotiated
per share purchase price and the Company will receive the negotiated per
share purchase price less an 8% discount. The Purchaser may also acquire
Series A Preferred Stock in the open market or otherwise prior to the
Redemption Date, and has agreed to convert into Common Stock all shares of
Series A Preferred Stock so purchased (and exercise all related Common Stock
Purchase Rights) and all Series A Preferred Stock (and exercise all related
Common Stock Purchase Rights) it otherwise beneficially owns. The Company
will pay the Purchaser a fee of $1.12 per share for each share of Series A
Preferred Stock so converted by the Purchaser. The Company has also agreed to
pay to the Purchaser in addition to the commission referenced above an
advisory fee equal to $75,000 plus its out-of-pocket expenses in connection
therewith up to a maximum of $50,000. See "Standby and Other Arrangements"
for a further description of the Purchaser's compensation arrangements.

Prior to or after the Redemption Date, the Purchaser may offer to the
public shares of Common Stock, including shares acquired through the purchase
and conversion of the Series A Preferred Stock (and the exercise of the
related Common Stock Purchase Rights) at prices set from time to time by the
Purchaser. Each such price when set will not exceed the greater of the last
sale or current asked price of the Common Stock as reported in the NASDAQ
National Market plus the amount of any concession to dealers, and an offering
price on any calendar day will not be increased more than once during such
day. The Purchaser may thus realize profits or losses independent of the
compensation referred to under "Standby and Other Arrangements." The
Purchaser may also make sales to dealers at prices which represent
concessions from the prices at which such shares are then being offered to
the public. The amount of such concessions is to be determined from time to
time by the Purchaser. Any Common Stock so offered is offered subject to
prior sale, when, as and if received by the Purchaser and subject to its
right to reject orders in whole or in part.
INVESTORS ARE URGED TO READ AND CONSIDER CAREFULLY THE INFORMATION SET FORTH
UNDER "RISK FACTORS." SEE PAGE 11 OF THE PROSPECTUS

JANNEY MONTGOMERY SCOTT INC.

The date of this Prospectus is July 19, 1996.
<PAGE>

IN CONNECTION WITH THIS OFFERING, THE PURCHASER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ NATIONAL MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME. IN CONNECTION WITH THIS OFFERING, THE PURCHASER AND ITS AFFILIATES MAY
ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE EXCHANGE ACT.
(SEE "STANDBY AND OTHER ARRANGEMENTS") DURING THIS OFFERING, CERTAIN PERSONS
AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN
TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE
COMPANY'S COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10b-6, 10b-7, AND
10b-8 UNDER THE EXCHANGE ACT.

AVAILABLE INFORMATION

As permitted by the rules and regulations of the Securities and Exchange
Commission (the "Commission"), this Prospectus omits certain information
contained in the Registration Statement on Form S-3 filed by the Company with
the Commission under the Securities Act of 1933, as amended, of which this
Prospectus is a part. For such information, reference is made to the
Registration Statement and the exhibits thereto. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
are not necessarily complete; with respect to each such contract, agreement
or other document filed as an exhibit to the Registration Statement or
incorporated by reference therein, reference is made to such contract,
agreement or other document for a more complete description of the matter
involved, and each such statement is qualified in its entirety by such
reference.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, DC 20549; and at the Commission's
New York Regional Office, Seven World Trade Center, 13th Floor, New York, New
York 10048; and Chicago Regional Office, Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60621; and copies of such
material can be obtained from the Public Reference Section of the Commission,
Washington, DC 20549 at prescribed rates. The Common Stock of the Company is
listed on the NASDAQ National Market and such reports, proxy statements and
other information can also be inspected at the offices of NASDAQ Operations,
1735 K Street, N.W., Washington, DC 20006.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents and portions of documents filed by the Company
with the Commission are hereby incorporated by reference into this Prospectus
and made a part hereof: the Annual Report on Form 10-K for the year ended
December 31, 1995 and the Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Common Stock offered hereby shall
be deemed to be incorporated by reference in this Prospectus and to be part
of this Prospectus from the date of filing of such documents. Any statement
contained herein or in any document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part of this Prospectus, except as so modified or superseded.

The Company hereby undertakes to provide without charge to each person,
including any beneficial owner to whom a copy of this Prospectus has been
delivered, upon written or oral request of such person, a copy of any or all
of the information that has been incorporated by reference in this Prospectus
(not including exhibits to such information unless such exhibits are
specifically incorporated by reference into the information that this
Prospectus incorporates). Written or oral requests for such copies should be
directed to Independence Bancorp, Inc., 1100 Lake Street, Ramsey, New Jersey
07446, Attention: Kevin J. Killian, Executive Vice President; (201) 825-1000.

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PROSPECTUS SUMMARY

The information set forth below is qualified in its entirety by the
detailed information and financial statements appearing elsewhere in this
Prospectus. References to the "Company" in this Prospectus shall, unless the
context otherwise requires, include the Company and the Bank.

THE COMPANY

Independence Bancorp, Inc. ("Bancorp" or the "Company") is a one-bank
holding company headquartered in Ramsey, New Jersey. At March 31, 1996, on a
consolidated basis, the Company had total assets of approximately $338.3
million, total deposits of approximately $316.8 million, and total
stockholders' equity of approximately $19.0 million.

The Company has one bank subsidiary, Independence Bank of New Jersey
("Independence" or the "Bank"), which is a New Jersey chartered commercial
bank subject to regulation by the New Jersey Department of Banking (the
"Department") and, because its deposits are federally insured by the Bank
Insurance Fund ("BIF"), the Federal Deposit Insurance Corporation ("FDIC").
The Bank currently accounts for substantially all of the total assets and the
net income of the Company.

The Bank is an independent community bank which seeks to provide personal
attention and professional financial assistance to its customers. The Bank is
a locally managed, owned and oriented financial institution.

The Bank is a member of the Commerce Network (the "Network") and has the
exclusive right to use the "Yes Bank" logo within its primary service area.
The Network is a group of five community banks with over 70 branch banking
offices throughout New Jersey and Southeastern Pennsylvania that provides
certain marketing support and technical support services to its members which
allows them to take advantage of the Network's size.

The Bank engages in a full service commercial and retail banking business
from seven offices in Bergen County, New Jersey and one office in Passaic
County, New Jersey. These commercial and retail banking services are provided
by the Bank primarily to consumers and small to mid-size companies within its
primary service area (i.e., Bergen and Passaic Counties, New Jersey). Lending
services are focused on commercial real estate, commercial and consumer
lending to local borrowers. The Bank's lending and investing activities are
funded principally by deposits gathered through its retail branch offices.

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The Bank's retail approach to banking emphasizes a combination of
long-term customer relationships, quick responses to customer needs, active
marketing, convenient locations, free personal checking with no minimum
balance requirements and free business checking for customers maintaining a
minimum balance of $1,000 and extended hours of operation (including Saturday
and Sunday). The Bank's retail approach to banking has produced low cost
deposits and has resulted in a high concentration of demand and savings
deposits due to convenience and service rather than rate. As of March 31,
1996, 77.0% of the Bank's total deposits represented demand and savings
deposits, while 23.0% represented time deposits. Financial highlights of the
Bank include the following:

o Profitability. The Bank's net income has improved from $1.2 million for
the year ended December 31, 1993 to $3.0 million for the year ended
December 31, 1995. This performance has resulted in an increase in
return on average assets (ROA) from .49% in 1993 to 1.01% in 1995.
Return on average common equity (ROE) increased from 8.77% for the year
ended December 31, 1993 to 18.39% for the year ended December 31, 1995.
Net interest margin increased from 5.11% to 5.26% over this same time
period. The Bank's net income improved from $549,000 for the three
months ended March 31, 1995 to $843,000 for the three months ended
March 31, 1996.

o Asset Quality. The nonperforming assets as a percentage of total assets
ratio was .89% at March 31, 1996. The allowance for possible loan
losses to nonperforming loans ratio was 179.82% at March 31, 1996 and
the net charge-offs to average loan ratios was .02% at March 31, 1996.

o Deposit, Loan and Asset Growth. The Bank's deposits have grown from
$244.7 million at December 31, 1993 to $316.8 million at March 31,
1996. This deposit growth has fueled the Bank's loan growth from $121.6
million at December 31, 1993 to $145.9 million at March 31, 1996. Total
assets over that period have increased to $338.3 million from $260.9
million.

The Company maintains its executive offices at 1100 Lake Street, Ramsey,
New Jersey 07446; telephone 201-825-1000.

A potential investor should be aware of certain considerations that could
have an adverse effect on the Company. For a discussion of these issues see
"Investment Risks."

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THE OFFERING

Common Stock Offered........... 1,523,750 shares of Common Stock, par value
$1.667 per share, to be used in connection
with the call for redemption of all of the
Company's Series A Preferred Stock and the
attached Common Stock Purchase Rights and
the related Standby Purchase Agreement. See
"Alternatives Available to Holders of Series
A Preferred Stock" and "Standby and Other
Arrangements."

Common Stock Issued After the
Offering..................... 2,844,598 shares.

Estimated Net Proceeds to the
Company...................... $6,920,272. See "Use of Proceeds."(1)

Use of Proceeds................ For general corporate purposes, including
the funding of the redemption of the Series
A Preferred Stock not tendered for
conversion and providing additional equity
capital to the Company's bank subsidiary for
use as working capital and to support its
growth.

NASDAQ National Market
Symbol....................... IBNJ.

Cash Dividends................. Cash dividends are currently paid quarterly
on the Common Stock at the annual rate of
$0.25 per share. The Company has recently
announced that the annual rate of cash
dividends on the Common Stock will increase
to $0.30 in the third quarter of 1996 and
$0.35 in the fourth quarter of 1996. See
"Dividends."

Conversion of Series A
Preferred Stock and exercise
of Common Stock Purchase
Rights by the Company's ESOP
and by the Company's
Directors and Executive
Officers..................... The Company's ESOP, which owns 187,387
shares of Series A Preferred Stock, has
indicated it will sell a sufficient number
of shares of Series A Preferred Stock in the
market and/or to the Purchaser at market
prices so as to allow the ESOP to have
sufficient funds to exercise all Common
Stock Purchase Rights attached to the shares
of Series A Preferred Stock not sold. The
ESOP has also indicated it will convert all
shares of Series A Preferred Stock not sold.
Additionally, the directors and executive
officers of the Company have indicated their
intention to convert a total of 70,544
shares of Series A Preferred stock, which
represents all of the shares of Series A
Preferred Stock owned by them and exercise a
total of 67,844 Common Stock Purchase
Rights, which represents substantially all
of the Common Stock Purchase Rights attached
to the shares of Series A Preferred Stock.

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(1) Assumes conversion of all outstanding shares of Series A Preferred Stock,
exercise of approximately 85% of the 746,875 Common Stock Purchase Rights
at $9.60 and the sale of 109,488 shares of Common Stock to the Purchaser
at an estimated price of $12.50 per share (less 8% discount). No
assurance can be given as to the price of Common Stock sold to the
Purchaser. See "Standby and Other Arrangements."

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ALTERNATIVES AVAILABLE TO HOLDERS OF
SERIES A PREFERRED STOCK

The Company has called for redemption at the close of business on
September 6, 1996 (the "Redemption Date"), all of the Company's outstanding
Series A Preferred Stock. Pursuant to the terms of the Series A Preferred
Stock, holders of the Series A Preferred Stock will be entitled to receive
upon redemption a total redemption price of $8.37 (the "Redemption Price")
for each share of Series A Preferred Stock which equals the redemption price
of $8.30 plus accrued dividends of $0.07 from July 31, 1996.

Payment of the Redemption Price will be made by the Transfer Agent, on and
after the Redemption Date, upon receipt of the Series A Preferred Stock so
redeemed. On and after the Redemption Date, dividends will cease to accrue
and holders of Series A Preferred Stock will not have any rights as such
holders other than the right to receive $8.37 per share of Series A Preferred
Stock upon surrender for redemption. On June 13, 1996 the Company declared a
dividend of $.18 per share on the Series A Preferred Stock payable on July
30, 1996 to shareholders of record on June 28, 1996. As a result of the
foregoing call for redemption, the Common Stock Purchase Rights attached to
the shares of Series A Preferred Stock will expire on the earlier of the date
the Series A Preferred Stock is converted or the Redemption Date, after which
time such Common Stock Purchase Rights will be null and void.

The following alternatives are available with respect to holders of Series
A Preferred Stock:

(1) Convert the Series A Preferred Stock at a conversion ratio of one
share of Common Stock for each share of Series A Preferred Stock. On July
17, 1996, the closing sale price of the Common Stock, as reported on the
NASDAQ National Market was $12.25 per share. THE CONVERSION RIGHT EXPIRES
AT THE CLOSE OF BUSINESS (5:00 P.M. NEW YORK CITY TIME) ON THE REDEMPTION
DATE, SEPTEMBER 6, 1996; and/or

Based on the above-stated last sale price of the Common Stock on July
17, 1996, the market value of the Common Stock into which each share of
Series A Preferred Stock is convertible is approximately $12.25, or
considerably higher than the amount to be received upon redemption. Such
value is, of course, subject to change depending on the market price of
the Common Stock. SO LONG AS THE MARKET PRICE OF THE COMMON STOCK IS
HIGHER THAN $8.37 PER SHARE, A HOLDER WHO CONVERTS HIS SERIES A PREFERRED
STOCK WILL RECEIVE COMMON STOCK WITH A MARKET VALUE GREATER THAN THE
AMOUNT OF CASH RECEIVABLE UPON REDEMPTION OF THE SERIES A PREFERRED STOCK.

(2) Exercise the Common Stock Purchase Right at an exercise price of
$9.60 per share of Common Stock. On July 17, 1996, the closing sale price
of the Common Stock, as reported on the NASDAQ National Market was $12.25
per share. THE RIGHT TO EXERCISE THE COMMON STOCK PURCHASE RIGHT EXPIRES
AT THE CLOSE OF BUSINESS (5:00 P.M., NEW YORK CITY TIME) ON THE REDEMPTION
DATE, SEPTEMBER 6, 1996; or

Based on the above-stated sale price of the Common Stock on July 17,
1996, the market value of the Common Stock purchasable upon the exercise
of the Common Stock Purchase Right is approximately $12.25, or
considerably higher than the amount to be paid upon exercise. Such value
is, of course, subject to change depending on the market price of the
Common Stock. SO LONG AS THE MARKET PRICE OF THE COMMON STOCK IS HIGHER
THAN $9.60 PER SHARE, A HOLDER WHO EXERCISES HIS COMMON STOCK PURCHASE
RIGHTS WILL RECEIVE COMMON STOCK WITH A MARKET VALUE GREATER THAN THE
AMOUNT PAID UPON EXERCISE OF THE COMMON STOCK PURCHASE RIGHT.

(3) Sell the Series A Preferred Stock (which includes the Common Stock
Purchase Rights attached thereto) in the open market. Holders of Series A
Preferred Stock should consult with their own advisers regarding if and
when they should sell their Series A Preferred Stock and the tax
consequences thereof; or

(4) Accept the Redemption Price of $8.37 for each share of Series A
Preferred Stock called for redemption; and/or

(5) Do not exercise the Common Stock Purchase Right.

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SERIES A PREFERRED STOCK NOT RECEIVED FOR CONVERSION PRIOR TO THE CLOSE OF
BUSINESS ON SEPTEMBER 6, 1996 WILL BE REDEEMED AS SET FORTH ABOVE. A HOLDER
OF SERIES A PREFERRED STOCK MAY BOTH CONVERT THE SHARES OF SERIES A PREFERRED
STOCK AND EXERCISE THE COMMON STOCK PURCHASE RIGHT RELATED THERETO.

COMMON STOCK PURCHASE RIGHTS NOT EXERCISED PRIOR TO THE CONVERSION OR
REDEMPTION OF THE SERIES A PREFERRED STOCK TO WHICH THEY ARE ATTACHED WILL BE
NULL AND VOID.

Anyone with questions or needing assistance concerning the various options
available with respect to the Series A Preferred Stock called for redemption
should call (201) 825-1000 and ask to speak to Kevin J. Killian, Executive
Vice President, or call the Transfer Agent, The First National Bank of
Boston, at (617) 575-3170 and ask to speak to the Investor Relations Unit
about the various options.

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SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following selected consolidated financial information of the Company
for each of the years in the five years ended December 31, 1995 and for each
of the three months ended March 31, 1996 and 1995 has been derived from the
Company's consolidated financial statements. Such selected consolidated
financial information should be read in conjunction with the Company's
consolidated financial statements as of December 31, 1995 and 1994 and for
each of the three years in the period ended December 31, 1995 and related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
3 Months Ended
March 31, Year Ended December 31,
------------------------- -------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- -----------
(in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income ......... $ 5,446 $ 4,894 $ 20,711 $ 17,073 $ 16,471 $ 17,238 $ 19,139
Interest expense ........ 1,586 1,372 6,122 4,610 4,764 6,554 10,252
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income ..... 3,860 3,522 14,589 12,463 11,707 10,684 8,887
Provision for possible loan
losses ................ 120 180 559 1,014 2,635 2,697 10,162
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income (loss)
after provision for
possible loan losses .. 3,740 3,342 14,030 11,449 9,072 7,987 (1,275)
Non-interest income ..... 790 498 2,131 2,057 3,333 2,606 3,988
Non-interest expense .... 3,255 3,019 11,800 11,000 10,912 9,590 8,652
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes ................. 1,275 821 4,361 2,506 1,493 1,003 (5,939)
Income tax provision
(benefit) ............. 432 272 1,311 823 284 -- (1,875)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) ....... $ 843 $ 549 $ 3,050 $ 1,683 $ 1,209 $ 1,003 $ (4,064)
=========== =========== =========== =========== =========== =========== ===========
Common Share Data:
Net income (loss) (primary) $ .47 $ .31 $ 1.79 $ .95 $ .50 $ .68 $ (3.14)
Net income (loss) (fully
diluted) .............. .39 .26 1.43 .87 .50 .68 (3.14)
Cash dividends declared . .0625 -- .075 -- -- -- .15
Book value (year/period end)
(fully diluted) ....... 8.69 7.52 8.72 7.97 7.17 6.68 6.65
Average common shares
outstanding:
Fully diluted ......... 2,187,796 2,112,224 2,127,188 1,933,570 1,305,668 1,305,668 1,294,381
Common shares outstanding
(at end of year/period) . 1,315,329 1,308,328 1,312,748 1,308,328 1,305,668 1,305,668 1,305,668
Balance Sheet Data (at
year/period end):
Total assets ............ 338,389 301,733 $ 325,187 $ 283,251 $ 260,935 $ 247,161 $ 236,870
Total loans, net ........ 145,987 131,920 139,800 127,828 121,652 129,346 117,735
Securities .............. 138,301 119,342 136,663 115,869 91,203 66,955 55,348
Total deposits .......... 316,877 283,146 304,346 265,432 244,683 231,596 227,190
Stockholders' equity .... 19,005 15,893 18,627 15,412 14,169 13,458 8,606
</TABLE>

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<TABLE>
<CAPTION>
3 Months Ended
March 31, Year Ended December 31,
------------------- ---------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- ------- -------- ------- ------- ------- ---------
(in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Ratios:
Return on average assets ............... 1.03% .78% 1.01% .63% .49% .43% (1.75)%
Return on average common equity ........ 18.15 13.99 18.39 11.37 8.77 10.33 (41.54)
Net interest margin .................... 5.20 5.38 5.26 5.06 5.11 5.00 4.31
Dividend payout ........................ 13.30 -- 4.19 -- -- -- --
Asset Quality Ratios:
Allowance for possible loan losses to
total loans ......................... 1.89% 2.09% 1.89% 2.02% 2.01% 2.56% 2.63%
Allowance for possible loan losses to
non-performing loans ................ 179.82 90.46 156.72 77.04 44.56 32.19 24.32
Non-performing loans to total loans .... 1.05 2.31 1.21 2.62 4.51 5.92 9.97
Non-performing assets as a percentage
of total assets ..................... .89 1.34 0.93 1.64 2.72 4.41 5.81
Net charge-offs to average loans ....... .02 (.04) 0.36 0.70 2.71 1.93 7.90
Capital Ratios:
Average equity to average assets ....... 5.62 5.27 5.52% 5.50% 5.55% 4.13% 4.21%
Leverage capital ....................... 5.77 5.43 5.76 5.46 5.31 5.28 3.63
Tier I capital to risk-adjusted assets.. 10.49 10.16 10.70 10.23 9.27 8.24 6.08
Total capital to risk-adjusted assets .. 11.62 11.56 11.95 11.71 10.97 10.02 7.59
</TABLE>

10
<PAGE>

RISK FACTORS

Investors are urged to read and consider carefully the information set
forth below as well as the other information set forth in this Prospectus.

MARKET FOR COMMON STOCK

The Common Stock trades on the NASDAQ National Market under the symbol
"IBNJ", however there has been only limited trading in the Common Stock. It
is not expected that an active market for the Common Stock will develop in
the foreseeable future. See "Price Range of Common Stock." Stock subject to
limited trading may be subject to greater price volatility. Investors in the
shares of Common Stock must, therefore, be prepared to assume the risk of
their investment for an indefinite period of time.

CASH DIVIDENDS

The Company's Board of Directors resumed payment of cash dividends on the
Common Stock in the second quarter of 1995. The payment of dividends, among
other things, will depend upon the earnings, capital requirements, and
financial condition of the Bank. Accordingly, investors cannot rely on any
cash dividends to recover the cost of their investment. See "Dividends".

STOCK NOT AN INSURED DEPOSIT

Investments in the Common Stock are not deposits insured against loss by
the FDIC or any other entity.

ECONOMIC CONDITIONS AND RELATED UNCERTAINTIES

Banking is affected, directly and indirectly, by local, domestic, and
international economic and political conditions, and by government monetary
and fiscal policies Conditions such as inflation, recession, unemployment,
volatile interest rates, tight money supply, scarce natural resources, real
estate values, international conflicts and other factors beyond the Company's
control, may adversely affect the potential profitability of the Bank. Any
future rise in interest rates, while increasing the income yield on the
Bank's earning assets, may adversely affect loan demand and the cost of funds
and, consequently, the profitability of the Bank. Any future decreases in
interest rates may adversely affect the Bank's profitability because such
decreases may reduce the amounts which the Bank may earn on its assets.
Economic downturns could result in the delinquency of outstanding loans.
Management does not expect any one particular factor to affect the Bank's
results of operations. However, a continued downtrend in several areas,
including real estate, construction and consumer spending, could have an
adverse impact on the Bank's profitability.

COMMUNITY REINVESTMENT ACT RATING

The Bank recently received a "satisfactory" rating from the Federal
Deposit Insurance Corporation ("FDIC") under the Community Reinvestment Act
("CRA"). However during 1994 and 1995 the Bank received a "needs to improve"
rating from the FDIC under the CRA. An institution's CRA rating is considered
by regulators in determining whether to grant charters, branches and other
deposit facilities, relocations, mergers, consolidations and acquisitions.
Performance less than satisfactory may be the basis for denying an
application. A "needs to improve" rating could have an effect upon the
ability of the Bank to expand in the future.The Bank's current plans call for
the opening of a number of new branch offices in the next five years.The Bank
has taken steps to maintain its "satisfactory" rating under the CRA. See
"Supervision and Regulation."

EFFECT OF INTEREST RATES ON THE BANK AND THE COMPANY

The operations of financial institutions such as the Bank are dependent to
a large degree on net interest income which is the difference between
interest income from loans and investments and interest expense on deposits
and borrowings. An institution's net interest income is significantly
affected by market rates of interest which in turn are affected by prevailing
economic conditions, by the fiscal and monetary policies of the federal
government and by the policies of various regulatory agencies. At March 31,
1996 total interest earning assets maturing or repricing within one year were
less than total interest bearing liabilities maturing or repricing dur-

11
<PAGE>

ing the same time period by $81.37 million, representing a negative
cumulative one year gap of 24.05%. Like all financial institutions, the
Bank's balance sheet is affected by fluctuations in interest rates. While gap
analysis is a general indicator of the potential effect that changing
interest rates may have on net interest income, the gap itself does not
present a complete picture of interest rate sensitivity. First, changes in
the general level of interest rates do not affect all categories of assets
and liabilities equally or simultaneously. Second, assumptions must be made
to construct a gap table. Money-market deposits, for example, which have no
contractual maturity, are assigned a repricing interval of 90 days.
Management can influence the actual repricing of the deposits independent of
the gap assumption. Third, the gap table represents a one-day position and
cannot incorporate a changing mix of assets and liabilities over time as
interest rates change. Volatility in interest rates can also result in
disintermediation, which is the flow of funds away from financial
institutions into direct investments, such as US Government and corporate
securities and other investment vehicles, including mutual funds, which,
because of the absence of federal insurance premiums and reserve
requirements, generally pay higher rates of return than financial
institutions. The Company does not feel that changes in interest rates would
have a material impact on operations. At March 31, 1996, the net unrealized
loss on the Bank's held to maturity securities portfolio was $1.4 million.
See "Management's Discussion of Financial Condition and Results of
Operations."

ALLOWANCE FOR POSSIBLE LOAN LOSSES

The Bank has established an allowance for possible loan losses which
management believes to be adequate to offset potential losses currently
inherent in the Bank's existing loans. However, there is no precise method of
predicting loan losses. There can be no assurance that any future declines in
real estate market conditions, general economic conditions or changes in
regulatory policies will not require the Bank to increase its allowance for
possible loan losses.

COMPETITION

Vigorous competition exists in all major areas in which the Company and
the Bank presently engage in business. The Company and the Bank face
competition from various financial and non-financial businesses. In addition,
the Bank faces intense competition in local and national markets from other
banking and financial institutions. Many of these competitors have
substantially greater resources and capital than do the Company and the Bank.
In addition, many of the Bank's competitors have higher legal lending limits
than does the Bank. Particularly intense competition exists for sources of
funds including savings and retail time deposits and for loans, deposits and
other services that the Bank offers. See "Business."

PRINCIPAL STOCKHOLDERS

After the Redemption of the Series A Preferred Stock, the ESOP and the
directors and officers of the Bank will beneficially own approximately 23.1%
of the outstanding Common Stock. See "Principal Stockholders."

ACCOUNTING STANDARDS

The operations of the Company are affected by accounting standards issued
by the Financial Accounting Standards Board ("FASB") which the Company is
required to adopt. The adoption of such standards can have the effect of
reducing the Company's earnings and capital. Information on current FASB
standards that affect the Bank can be found in the Notes to Financial
Statements contained in this Prospectus.

LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITIES UNDER NEW JERSEY LAW

Pursuant to the Company's Certificate of Incorporation, as authorized
under applicable New Jersey law, directors of the Company are not liable for
monetary damages for breach of fiduciary duty, except in connection with a
breach of the duty of loyalty, for acts or omissions not in good faith or
which involve a knowing violation of law, for dividend payments or stock
repurchases illegal under New Jersey law or for any transaction in which a
director has derived an improper personal benefit. The Company's Bylaws
provide that the Company must indemnify its officers and directors to the
fullest extent permitted by law for all expenses incurred in settlement of
actions against such persons in connection with their service to the Company.

12
<PAGE>

FEDERAL AND STATE REGULATION

The operations of the Company and the Bank are heavily regulated and will
be affected by present and future legislation and by the policies established
from time to time by various federal and state regulatory authorities. In
particular, the monetary policies of the FRB have had a significant effect on
the operating results of banks in the past, and are expected to continue to
do so in the future. Among the instruments of monetary policy used by the FRB
to implement its objectives are changes in the discount rate charged on bank
borrowings and changes in the reserve requirements on bank deposits. It is
not possible to predict what changes, if any, will be made to existing
federal and state legislation or the effect that such changes may have on the
future business and earnings prospects of the Company. During the past
several years, significant legislative attention has been focused on the
regulation and deregulation of the financial services industry. Non-bank
financial institutions, such as securities brokerage firms, insurance
companies and money market funds, have been permitted to engage in activities
which compete directly with traditional bank business. As a New Jersey
chartered commercial bank which is not a member of the Federal Reserve
System, the Bank is subject to the regulation, supervision, control and
examination by the FDIC and the New Jersey Department of Banking. See
"Government Supervision and Regulation."

USE OF PROCEEDS

The maximum amount required to redeem all shares of Series A Preferred
Stock called for redemption is $6,502,444. The net proceeds to the Company
from the sale of the Common Stock to the Purchaser pursuant to the agreement
described herein under "Standby and Other Arrangements" are estimated to be
approximately $6,920,272 (assuming conversion of all of the Series A
Preferred Stock, the exercise of approximately 85% of the 746,875 Common
Stock Purchase Rights at $9.60 and the sale of 109,488 shares of Common Stock
to the Purchaser at an estimated price of $12.50 per share (less 8%
discount). See "Standby and Other Arrangements." The Company intends to use
the net proceeds for general corporate purposes including the funding of the
redemption of the Series A Preferred Stock not tendered for conversion and
providing additional equity capital to the Company's bank subsidiary for use
as working capital and to support its growth. No specific proceeds from this
Offering are being designated to open new branch offices over the next five
years. Although the Company intends to use its general corporate funds to
open such branches, it is possible that a portion of the net proceeds from
this Offering will be used to open new branch offices over the next five
years. Pending such uses, the net proceeds are anticipated to be invested in
short-term interest-bearing investments.

13
<PAGE>

CAPITALIZATION

The following table sets forth the unaudited consolidated capitalization
of the Company (i) as of March 31, 1996 and (ii) as of March 31, 1996, as
adjusted to give effect to the conversion or redemption of the Series A
Preferred Stock and the sale of the Common Stock to the Purchaser pursuant to
the agreement described herein under "Standby and Other Arrangements."

<TABLE>
<CAPTION>
March 31, 1996
---------------------------
Actual As Adjusted(2)
--------- --------------
(in thousands)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, no par value, 1,000,000 shares authorized
Series A 9% Cumulative Convertible Preferred Stock,
stated value $1.00; authorized 776,875 shares and
776,875 shares issued and outstanding (liquidating
preference: $8.00 per share totaling $6,215,000) .......... $ 777 $ 0
Series B Non-Convertible Preferred Stock, stated value
$1.00; authorized 217,500 shares and no shares issued
and outstanding (no liquidation preference)(1) ........... -- --
Common Stock, par value $1.667 per share; authorized
5,000,000 shares and 1,312,748 shares outstanding ......... 2,193 4,733
Additional Paid-In Capital .................................. 12,946 18,103
Retained earnings ........................................... 4,206 4,206
Net unrealized holding gain on securities available for
sale, net of income taxes ................................ 17 17
Unearned ESOP Preferred Stock ............................... (1,134) (1,134)
--------- ---------
Total stockholders' equity ............................... $19,005 $25,925
========= =========
Capital Ratios:
Leverage capital ............................................ 5.77% 7.88%
Tier 1 capital to risk adjusted assets ...................... 10.49 14.32%
Total capital to risk adjusted assets ....................... 11.62 15.73%
</TABLE>

- ------
(1) Commerce Bancorp, Inc. owns 30,000 shares of Series A Preferred Stock and
187,500 Stock Purchase Warrants ("Warrants") which expire on October 31,
1997 and prior thereto are exercisable at $9.60 per share (subject to
adjustment under certain circumstances). The Common Stock Purchase Rights
attached to the Series A Preferred Stock owned by Commerce and the
Warrants are exercisable only into shares of the Series B Preferred
Stock. See "DESCRIPTION OF SECURITIES - Series B NonConvertible Preferred
Stock."

(2) Assumes conversion of all outstanding shares of Series A Preferred Stock,
the exercise of approximately 85% of the 746,875 Common Stock Purchase
Rights at $9.60, the sale of 109,488 shares of Common Stock to the
Purchaser as an estimated price of $12.50 per share (less 8% discount).

14
<PAGE>

PRICE RANGE OF COMMON STOCK

The Common Stock of the Company is listed for quotation on the NASDAQ
National Market under the symbol IBNJ. Trading in the Common Stock has been
limited. The following table sets forth the range of the high and low sales
prices for the Common Stock for the first and second quarters of 1996, for
each quarter in 1995 and the fourth quarter of 1994 and the range of high and
low bid prices for the Common Stock for the first three quarters of 1994. The
high and low bid prices reflect inter-dealer quotations, without retail
mark-up, mark-down or commissions and do not necessarily represent actual
transactions.

<TABLE>
<CAPTION>
Dividends
Year Quarter High Low Paid
------ ------------------ -------- -------- -----------
<S> <C> <C> <C> <C>
1996 Second .............. $13.50 $11.50 $0.0625
First................ 14.75 12.75 0.0625

1995 Fourth .............. 14.50 12.50 0.025
Third................ 14.25 12.25 0.025
Second .............. 13.25 9.50 0.025
First................ 10.50 8.50 --

1994 Fourth .............. 10.50 8.75 --
Third................ 8.25 8.00 --
Second .............. 8.25 7.50 --
First................ 8.25 7.25 --
</TABLE>

On July 17, 1996, the last reported sale price of the Common Stock, as
reported on the NASDAQ National Market, was $12.25 per share.

As of March 31, 1996, there were 1,315,329 shares of the Company's Common
Stock outstanding and approximately 610 holders of record of such stock.

DIVIDENDS

The Company paid cash dividends on its Common Stock of $0.075 per share in
1995. Prior thereto, the Company had not paid cash dividends on its Common
Stock since 1991. The Company paid a cash dividend of $0.0625 per share on
its Common Stock in the first and second quarters of 1996.

The Company currently intends to pay cash dividends on its Common Stock on
a quarterly basis in the foreseeable future. The Company has recently
announced that the annual rate of cash dividends on the Common Stock will
increase to $0.30 in the third quarter of 1996 and $0.35 in the fourth
quarter of 1996. However, because the ability to pay cash dividends depends
upon a number of factors including those stated below, there can be no
assurance that cash dividends will be paid in the future. Future cash or
stock dividends will be subject to determination and declaration by the Board
of Directors, which will consider the earnings, financial condition and
capital needs of the Company and the Bank and the restrictions discussed
herein.

Subject to such preferences, limitations and relative rights as may be
fixed for any series of preferred stock that may be issued, the holders of
the Common Stock are entitled to receive dividends when, as and if declared
by the Board of Directors out of funds legally available therefor. Under the
New Jersey Business Corporation Act, the Company may not pay cash dividends
if, after giving effect thereto, either (i) the Company would be unable to
pay its debts as they become due in the usual course of its business; or (ii)
the Company's total assets would be less than its total liabilities.

Funds for the payment of cash dividends by the Company on its Common Stock
and preferred stock are obtained solely from dividends paid to the Company by
the Bank. Accordingly, restrictions on the Bank's ability to pay cash
dividends directly affect the payment of cash dividends by the Company. The
Bank is subject to certain limitations on the amount of cash dividends that
it may pay by the New Jersey Banking Act of 1948, as

15
<PAGE>

amended (the "Banking Act"). Under the Banking Act, no dividends may be paid
by the Bank unless, following the payment of the dividend, the capital stock
of the Bank is unimpaired and either (i) the Bank will have a surplus of not
less than 50% of its capital stock, or (ii) the payment of the dividend will
not reduce the surplus of the Bank.

Under the Financial Institutions Supervisory Act, the FDIC has the
authority to prohibit a state-chartered bank from engaging in conduct which,
in the FDIC's opinion, consists of an unsafe or unsound banking practice.
Under certain circumstances, the FDIC could claim that the payment of a
dividend or other distribution by a bank to its sole shareholder constitutes
an unsafe or unsound practice.

16
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

FINANCIAL REVIEW

This financial review presents management's discussion and analysis of
results of operations and financial condition. It should be read in
conjunction with the audited consolidated financial statements and the
accompanying notes appearing in this report.

OVERVIEW

Independence Bancorp's (the "Company") performance for 1995 was
highlighted by continued progress in earnings growth, record levels in
deposits, loans and assets and improved asset quality. This was the fourth
consecutive year of improved earnings and net income exceeded the previous
high achieved in 1989. For the first time in four years a common stock cash
dividend was paid.

Net income for 1995 was $3.1 million, an increase of 81.2% compared to the
$1.7 million recorded in 1994. The results for 1994 rose 39.2% over the $1.2
million recorded in 1993. Fully diluted earnings per common share were $1.43
for 1995 as compared to $.87 for 1994, and $.50 for 1993. Earnings were
enhanced by the loan and securities growth experienced during the year.
Return on average assets ("ROA") was 1.01% in 1995 as compared to .63% in
1994 and .49% in 1993, while the return on average equity ("ROE") was 18.39%
in 1995, which compared to 11.37% in 1994 and 8.77% in 1993.

Continued progress in asset quality was reflected by the decline in
non-performing assets. During 1995, non-performing loans, including impaired
loans, and other real estate ("ORE") declined 34.9%, or $1.6 million, to $3.0
million, or .93% of total assets. The comparable figures for December 31,
1994 and 1993 were $4.6 million, or 1.64% and $7.1 million, or 2.72%,
respectively.

Consolidated assets at year end 1995 amounted to $325.2 million,
representing an increase of 14.8% over 1994. Loans, net of unearned fees,
amounted to $142.5 million, or 43.8% of total assets, at December 31, 1995 as
compared to $130.5 million, or 46.1% of total assets, at year end 1994. Total
securities, including securities available for sale, increased to $136.7
million and accounted for 42.0% of total assets as compared to 40.9% last
year. Time deposits increased by $13.7 million, or 25.6%, to $67.2 million at
year end. Demand deposits, both non-interest and interest bearing, and
savings deposits grew by $25.2 million, or 11.9%, over 1994 to $237.1
million.

At December 31, 1995, the Company's Tier I capital was 10.70% and Total
capital was 11.95% as compared to 10.23% and 11.71%, respectively, at
December 31, 1994. The leverage ratio at year end 1995 was 5.76%, as compared
to 5.46% for the prior year. At December 31, 1995, Independence Bank of New
Jersey's (the "Bank") Tier I, Total capital and leverage capital ratios were
11.29%, 12.54% and 6.10%, respectively.

RESULTS OF OPERATION

SUMMARY

Net income before preferred dividends for the year ended December 31, 1995
was $3.1 million, or $1.43 fully diluted per common share compared to $1.7
million, or $.87 fully diluted per common share, in 1994 and $1.2 million, or
$.50 per fully diluted common share in 1993. Earnings performance for 1995
reflected gains in net interest income, an increase in non-interest income
and a decrease in the provision for possible loan losses. These positive
factors were partially offset by an increase in non-interest expense. For the
year ended December 31, 1995, net interest income rose $2.1 million, or
16.8%, over the prior year as a result of growth in earning assets,
particularly securities, as well as increased non-interest bearing demand
deposits. The provision for possible loan losses decreased $455 thousand as a
result of the declining level of non-performing loans. Non-interest expenses
increased $800 thousand reflecting increases in salaries and benefits,
advertising, and stationary and supplies expense.

17
<PAGE>

Net interest income in 1994 rose 6.5% over the prior year as a result of
an increase in non-interest bearing demand deposits and the favorable impact
of lower non-performing loans on earning assets. The loan loss provision
decreased $1.6 million as a result of the declining levels of non-performing
loans. These factors were partially offset by the $1.3 million decrease in
non-interest income and the $539 thousand increase in the provision for
income taxes.

NET INTEREST INCOME

Tax equivalent net interest income increased $2.2 million in 1995 or
17.6%, compared to increases of 6.8% in 1994 and 9.3% in 1993. The net
interest margin was 5.26% in 1995 versus 5.06% in 1994 and 5.11% in 1993. The
increase in 1995 was primarily due to the increase in earning assets and
slightly wider interest rate spreads, coupled with a 22.8% increase in
non-interest bearing liabilities. The table on page 20 provides the
components of average assets and liabilities together with their respective
yields. The table on page 6 provides a reconciliation of the changes in net
interest income attributable to variations in balances and yields.

Average earning assets increased $31.8 million in 1995 compared to an
increase of $17.8 million in 1994. Average earning assets comprise 92.1% of
average total assets, compared to 92.2% in 1994 and 92.4% in 1993.

Average loans increased $11.2 million or 8.9% in 1995 compared to a
decrease of 4.2% in 1994. Loans grew throughout 1995, and showed a marked
increase in the fourth quarter. At year end, loans outstanding had grown 9.2%
overall from year end 1994 levels. The Company's securities portfolio
(securities held to maturity and securities available for sale) increased on
average $16.3 million or 14.9% in 1995 compared to an increase of 32.5% in
1994.

Average interest bearing liabilities increased $19.9 million or 10.2% in
1995, compared to an increase of 6.0% in 1994 and 1.2% in 1993. The ratio of
average non-interest bearing deposits to interest bearing liabilities was
32.0% for 1995, compared to 28.7% for 1994 and 25.6% for 1993. The increase
in non-interest bearing deposits comes from the Company's expanded customer
base and its ability to attract and retain these type of deposits.

The Company's net interest rate spread increased 4 basis points during
1995 to 4.61%, following a decrease of 4 basis points in 1994 to 4.57% and an
increase of 21 basis points in 1993 to 4.61%. Yields on earning assets
increased 53 basis points during 1995 to 7.45% compared to a decrease of 27
basis points in 1994 to 6.92% and 86 basis points in 1993 to 7.19%.

The rates paid on interest bearing liabilities increased 49 basis points
during 1995 to 2.84% compared to a decrease of 23 basis points in 1994 to
2.35% and a decrease of 100 basis points in 1993 to 2.58%. In 1995, the
Company continued to benefit from the ratio of non-interest demand and other
low cost deposits to total earning assets, without significantly increasing
deposit rates.

18
<PAGE>

In 1994, the net interest margin benefited from an increase in the ratio
of non-interest demand and low cost deposits to total earning assets,
reducing overall funding costs during the year. However, earning asset growth
was primarily in securities- from 40% of earning assets in 1993 to 47% in
1994- which reduced the yield on earning assets in 1994.

<TABLE>
<CAPTION>
1995 vs. 1994 1994 vs. 1993
Increase (Decrease) Increase (Decrease)
Due to Changes in (1): Due to Changes in (1):
------------------------------ -------------------------------
Volume Rate Total Volume Rate Total
-------- ------- -------- -------- --------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Interest income
Securities:
Taxable ............. $ 815 $ 293 $1,108 $1,518 $(598) $ 920
Tax-exempt .......... 120 (7) 113 -- 2 2
Deposits with banks .... (54) 91 37 (93) 57 (36)
Federal funds sold ..... 281 184 465 (105) 152 47
Loans:
Commercial .......... (156) 523 367 (707) 42 (665)
Real estate ......... 995 70 1,065 340 (47) 293
Installment ......... 160 363 523 (141) 172 31
Tax-exempt .......... (6) 3 (3) 40 (17) 23
-------- ------- -------- -------- --------- -------
Total interest income .... 2,155 1,520 3,675 852 (237) 615
-------- ------- -------- -------- --------- -------
Interest expense
Deposits:
NOW accounts ........ 70 58 128 207 (226) (19)
Money-market ........ 86 75 161 (80) (10) (90)
Savings deposits .... (46) (21) (67) 347 (306) 41
Time deposits ....... 536 762 1,298 (207) (2) (209)
Long-term debt - ESOP
Loan .............. (10) 2 (8) 123 -- 123
-------- ------- -------- -------- --------- -------
Total interest expense ... 636 876 1,512 390 (544) (154)
-------- ------- -------- -------- --------- -------
Net increase ............. $1,519 $ 644 $2,163 $ 462 $ 307 $ 769
-------- ------- -------- -------- --------- -------
</TABLE>

- ------
(1) Changes due to both volume and rate have been allocated to volume or rate
changes in proportion to the absolute dollar amounts of the change of
each.

19
<PAGE>

AVERAGE STATEMENTS OF CONDITION WITH
RESULTANT INTEREST AND AVERAGE RATES

The following table reflects the components of the Company's net interest
income, setting forth, for the year ends presented herein, (1) average
assets, liabilities and stockholders' equity, (2) interest income earned on
interest earning assets and interest expense paid on interest bearing
liabilities, (3) average yields earned on interest earning assets and average
rates paid on interest bearing liabilities, and (4) the Company's net yield
on interest earning assets (i.e., net interest income divided by average
interest earning assets). Rates are computed on a tax-equivalent basis.

<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------- -------------------------------- --------------------------------
Average Average Average Average Average Average
(In thousands) Balance Interest Yield Balance Interest Yield Balance Interest Yield
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Securities:
Taxable ................ $123,719 $ 7,120 5.76% $109,341 $ 6,012 5.50% $ 82,533 $ 5,092 6.17%
Tax-exempt ............. 2,087 126 6.12 133 13 9.91 100 11 10.61
Deposits with banks ...... 4,230 245 5.79 5,464 208 3.81 8,164 244 2.99
Federal funds sold ...... 12,757 755 5.84 7,298 290 3.92 8,174 243 2.93
Loans:(1)
Commercial ............. 28,085 2,672 9.51 30,021 2,305 7.68 38,012 2,970 7.81
Real estate ............ 73,813 6,437 8.72 62,377 5,372 8.61 58,473 5,079 8.69
Installment ............ 33,484 3,318 9.91 31,733 2,795 8.81 33,384 2,764 8.28
Tax-exempt ............. 949 122 12.86 998 125 12.54 746 102 13.68
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total interest earning
assets .................. 279,124 20,795 7.45 247,365 17,120 6.92 229,586 16,505 7.19
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Non-interest earning assets:
Cash and due from banks 17,128 14,231 12,475
Other assets ............ 9,758 9,283 9,425
Allowance for possible
loans losses ............ (2,796) (2,588) (3,029)
--------- --------- ---------
Total assets ................ $303,214 $268,291 $248,457
--------- --------- ---------
Liabilities and Stockholders' Equity:
Interest bearing liabilities:
NOW accounts ............ $ 48,525 $ 823 1.70 $ 44,184 $ 695 1.57% $ 38,302 $ 714 1.87%
Money-market ............ 40,222 940 2.34 36,359 779 2.14 37,018 869 2.35
Savings deposits ........ 65,076 1,384 2.13 67,083 1,451 2.16 57,950 1,410 2.43
Time deposits ........... 60,844 2,860 4.70 47,067 1,562 3.32 51,733 1,771 3.42
Long-term debt - ESOP
Loan ................... 1,246 115 9.23 1,355 123 9.08 -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total interest bearing
liabilities ............. 215,913 6,122 2.84 196,048 4,610 2.35 185,003 4,764 2.58
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Non-interest bearing liabilities:
Demand deposits ......... 69,070 56,231 47,295
Other liabilities ....... 1,646 1,212 2,391
Stockholders' equity ........ 16,585 14,800 13,768
--------- --------- ---------
Total liabilities and
stockholders' equity ..... $303,214 $269,291 $248,457
--------- --------- ---------
Net interest income ......... $14,673 $12,510 $11,741
--------- --------- ---------
Net interest spread ......... 4.61% 4.57% 4.61%
--------- --------- ---------
Total cost of funds ......... 2.19% 1.86% 2.08%
--------- --------- ---------
Net interest margin ......... 5.26% 5.06% 5.11%
--------- --------- ---------
</TABLE>

- ------
(1) Non-accrual loans are included in the daily average loan amounts
outstanding. Fees are included in loan interest. Loans and total interest
earnings assets are net of unearned income.

20
<PAGE>

PROVISION FOR POSSIBLE LOAN LOSSES

The Company maintains an allowance for possible loan losses at a level
considered by management to be adequate to cover the inherent risk of loss
associated with its loan portfolio. The allowance for possible loan losses is
based on estimates, and ultimate losses may vary from the current estimates.
Management reviews the loan portfolio and evaluates credit risk on a
quarterly basis. Such review takes into consideration the financial condition
of the borrowers, fair market value of the collateral, level of delinquency,
historical loss experience by portfolio, industry trends and the impact of
local and national economic conditions. If there are any significant changes
to the Company's estimate of the adequacy of the allowance, they are
reflected in operations during the period in which they become known. For a
future discussion see "Asset Quality and Risk Elements."

The provision for possible loan losses was $559 thousand for 1995 as
compared to $1.0 million for 1994 and $2.6 million for 1993. This reduction
was due principally to the decline in non-performing loans arising primarily
from improved economic conditions and real estate values in the Company's
market area.

NON-INTEREST INCOME

Various types of non-interest income, such as service charges on deposit
accounts and other service charges, commissions and fees are generated
through the Company's core business operations. Total non-interest income
amounted to $2.1 million in 1995 which approximates 1994. Total non-interest
income in 1994, including securities gains, decreased $1.2 million, or 36.4%,
from 1993. The decrease in non-interest income in 1994 reflects the adoption
of the Free Personal Checking Program that was instituted during early 1994.

The following table presents the components of non-interest income for the
years ended December 31, 1995, 1994, and 1993.

<TABLE>
<CAPTION>
For the Year Ended Percent
December 31 Increase (Decrease)
------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands) .................... 1995 1994 1993 1995 vs 1994 1994 vs 1993
-------- -------- -------- -------------- --------------
Non-interest income
Service charges on deposit
Accounts ..................... $1,299 $1,154 $1,409 12.6% (18.1)%
Securities gains ................ -- -- 472 * *
Gain on sale of loans ........... 25 3 603 733.3 (99.5)
Safe deposit rental income 103 107 114 (3.7) (6.1)
Other commissions and fees 213 207 194 2.9 6.7
Other ........................... 491 586 541 (16.2) 8.3
-------- -------- -------- -------------- --------------
$2,131 $2,057 $3,333 3.6% (38.3)%
======== ======== ======== ============== ==============
</TABLE>

- ------
* Percentage change not revelant.

Service charges on deposit accounts increased $145 thousand, or 12.6% to
$1.3 million in 1995. This growth was primarily attributable to the growth in
deposits experienced during 1995. Service charges on deposit accounts
represents 61.0%, 56.1% and 49.2% of total non-interest income, not including
securities gains, for the three years ended December 31, 1995.

Other income totaled $832 thousand in 1995 as compared with $903 thousand
for 1994. The decrease in 1995 in other income is attributable to the gains
on sale of ORE that occurred in 1994 which were partially offset by the
increases in automated teller network fees and check printing income. Other
income in 1994 decreased 37.8% from 1993. The decrease in 1994 is
attributable to the one-time gain on the sale of fixed rate mortgage loans
that occurred in 1993.

During 1995 and 1994 there were no sales of securities. Net gains on
securities transactions in 1993 amounted to $472 thousand. The gains in 1993
were recognized as certain government mortgage-backed securities were sold to
reduce prepayment risk resulting from the declining interest rate environment
and heavy refinancing activity.

21
<PAGE>

NON-INTEREST EXPENSE

Non-interest expense totaled $11.8 million for 1995, $800 thousand or
7.3%, above the 1994 level. This compared to an increase in 1994 of $88
thousand, or .8%, over 1993.

Non-interest expense categories for the years ended December 31, 1995,
1994 and 1993 are shown in the table below.

<TABLE>
<CAPTION>
For the Year Ended Percent
December 31 Increase (Decrease)
---------------------------------- --------------------------------
(In thousands) 1995 1994 1993 1995 vs 1994 1994 vs 1993
------------------------------- --------- --------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Non-interest expense
Salaries and employee benefits ..... $ 5,481 $ 4,900 $ 4,628 11.9% 5.9 %
Occupancy .......................... 1,499 1,452 1,396 3.2 4.0
Equipment .......................... 1,041 892 788 16.7 13.2
Foreclosed real estate expense ..... 425 491 625 (13.4) (21.4)
FDIC insurance assessment .......... 339 643 644 (47.3) .2
Legal fees(a) ...................... 259 360 502 (28.1) (28.3)
Audit and regulatory expenses ...... 104 221 379 (52.9) (41.7)
Credit reports ..................... 195 172 298 13.4 (42.3)
Other .............................. 2,457 1,869 1,652 31.5 13.1
--------- --------- --------- -------------- --------------
$11,800 $11,000 $10,912 7.3% .8 %
========= ========= ========= ============== ==============
</TABLE>

- ------
(a) The Bank paid a total of $119, $135 and $192 in legal fees to a law firm
of which a director is a partner during the years ended December 31,
1995, 1994, and 1993, respectively.

The largest component of non-interest expense is salaries and employee
benefits which accounted for 46.4% of total non-interest expense in 1995 as
compared to 44.5% and 42.4% in 1994 and 1993, respectively. Salaries and
employee benefits expense totaled $5.5 million, in 1995 as compared with $4.9
million in 1994. The $581 thousand, or 11.9% increase, compared to an 5.9%
increase in 1994. These increases are due primarily to staffing increases
relative to the Company's growth, normal wage increases and increases in the
cost of employee benefits, primarily the Employee Stock Ownership Plan. Total
full-time equivalent employees at December 31, 1995 were 182, compared to 161
at December 31, 1994, an increase of 13.0%. This compares to full-time
equivalent employees of 150 at December 31, 1993.

Occupancy expenses were $1.5 million for 1995, an increase of 3.2% over
1994. This increase was attributed to normal increases in the operating
expenses of the Company's facilities. The increase in 1994 over 1993 was
primarily due to increased levels of rents and additional maintenance costs,
primarily snow removal in the first quarter of 1994. Equipment expenses in
1995 amounted to $1.0 million, an increase of $149 thousand, or 16.7% over
1994. The increase was principally due to additional lease and maintenance
costs associated with new equipment required to support the data processing
conversion and the branch automation project completed in the third quarter
of 1994. Also reflected in 1995 is the installation of two new on-site
automated teller machines and related costs.

FDIC insurance of $339 thousand for the year ended December 31, 1995,
decreased $304 thousand or 47.3% compared to $643 thousand for the year ended
December 31, 1994. During 1995, the Company received the most favorable risk
classification for purposes of determining the annual deposit insurance
assessment rate, which resulted in a refund of $170 thousand from the FDIC
for excess premium payments made during 1995. Although the Company's deposits
increased in 1995, the overall rate charged by the FDIC decreased 82.6%.
Insurance premiums in 1994 remained at the same level as 1993 as the decrease
in the overall rate charged by the FDIC more than offset the increase in the
Company's deposits.

Foreclosed real estate expense, which results from costs of holding and
operating other real estate in addition to valuation reserves, were $425
thousand for 1995, down $66 thousand, or 13.4% from 1994 due to a reduction
in the number of ORE properties. In 1994, these costs were $491 thousand as
compared to $625 thousand in 1993. A provision of $230 thousand to increase
valuation reserves was recorded in 1995, compared to $277 thousand in 1994.

22
<PAGE>

Other expenses, which include legal fees, audit and regulatory expenses,
loan related expenses and advertising were $3.0 million in 1995, an increase
of $393 thousand, or 15.0% from 1994. Other expenses for 1994 were $2.6
million, or 7.4% lower than that of 1993. This increase in 1995 was the
result of higher advertising costs, stationery and supplies expense and loan
related expenses. These increases were offset by lower legal fees and lower
audit and regulatory charges. The decrease in 1994 was the result of lower
legal fees and lower audit and regulatory costs offset by higher stationery
and supplies expense and advertising costs.

INCOME TAXES

The provision for income taxes increased $488 thousand in 1995 to $1.3
million, as compared to $823 thousand in 1994 and $284 thousand in 1993.
These increases were primarily attributable to the Company's improved
earnings.

Effective January 1, 1992, the Company began accounting for income taxes
in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). This standard requires, among other
things, recognition of future tax benefits, measured by enacted tax rates,
attributable to temporary differences between financial statement and the
income tax basis of assets and liabilities and net operating loss
carryforwards, to the extent that realization of such benefits is more likely
than not.

The Company has a future tax liability attributable to temporary
differences of $153 thousand.

FINANCIAL CONDITION

Total average assets increased $34.9 million, or 13.0%, to $303.2 million
in 1995, while total assets reached $325.2 million at year end, an increase
of 14.8% from the 1994 balance. Average interest earning assets, which
represented 92.1% of total average assets, increased $31.8 million, or 12.8%,
from 1994 to $279.1 million in 1995. Specifically, average total securities,
including short-term investments, increased $20.5 million, or 16.8%, over
1994. Average loan balances increased by 8.9% or $11.2 million during 1995.
The majority of this growth was in the real estate portfolio.

SECURITIES

The Company maintains a securities portfolio to fund increases in loans or
decreases in deposits. The portfolio is comprised of securities that the
Company believes will suit its needs and perform reasonably well under
various interest rate scenarios. The Company's securities portfolio is
comprised primarily of U.S. government and federal agency securities. These
securities are of high quality and are extremely liquid.

The Company's securities portfolio consists of securities classified as
held to maturity and available for sale. The Company designates securities
upon purchase into one of the two categories. At December 31, 1995,
securities classified as held to maturity totaled $90.3 million and
represented securities that the Company has the positive intent and ability
to hold to maturity. Available for sale securities totaled $46.4 million and
represented securities that the Company may sell to meet liquidity needs or
in response to significant changes in interest rates or prepayment risks. The
Company took advantage of the one-time opportunity to transfer securities out
of the held to maturity category without penalty. The Company transferred
$40.7 million of securities that had been previously classified as held to
maturity to available for sale in December 1995. These consisted of $32.7
million in U.S. Treasury securities and $8.0 million of obligations of other
U.S. government agencies.

At December 31, 1995, the securities portfolio, including available for
sale, totaled $136.7 million, an increase of 17.9% from year end 1994. On
average, the securities portfolio increased 14.9% in 1995 and 32.3% in 1994.
Average securities represented 45.1%, 44.3% and 36.0% of earning assets for
1995, 1994 and 1993, respectively.

At December 31, 1995, the Company had net unrealized gains in the held to
maturity securities portfolio of $29 thousand as compared to net unrealized
losses of $8.1 million at December 31, 1994.

23
<PAGE>

The following table presents held to maturity securities as of December
31, 1995, and the maturity distribution and weighted average yield, on a
fully taxable-equivalent basis.

<TABLE>
<CAPTION>
After 1 Year After 5 Years
Within but Within but Within
(In thousands) 1 Year 5 Years 10 Years After 10 Years Total
------------------------------------------ --------- -------------- --------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities:
Book value ............................. $ -- $23,496 $ -- $ -- $23,496
--------- -------------- --------------- -------------- ----------
Weighted Average Yield ................. --% 5.11% --% --% 5.11%
--------- -------------- --------------- -------------- ----------
Obligations of other U.S. Government
agencies:
Book value ............................. 1,106 41,800 5,107 13,480 61,493
--------- -------------- --------------- -------------- ----------
Weighted Average Yield ................. 7.00% 6.22% 6.04% 6.88% 6.36%
--------- -------------- --------------- -------------- ----------
Obligations of states and political
subdivisions:
Book value ............................. 5,008 200 100 -- 5,308
--------- -------------- --------------- -------------- ----------
Weighted Average Yield. ................ 3.77% 6.13% 5.2% --% 3.89%
--------- -------------- --------------- -------------- ----------
Total securities:
Book value ............................. $6,114 $65,496 $5,207 $13,480 $90,297
--------- -------------- --------------- -------------- ----------
Weighted Average Yield. ................ 4.35% 5.82% 6.03% 6.88% 5.89%
========= ============== =============== ============== ==========

</TABLE>

The following table presents available for sale securities as of December
31, 1995 and the maturity distribution and weighted average yield, on a fully
taxable-equivalent basis.

<TABLE>
<CAPTION>
After 1 Year After 5 Years
Within but Within but Within
(In thousands) 1 Year 5 Years 10 Years After 10 Years Total
------------------------------------ ---------- -------------- --------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Treasury securities:
Book value ....................... $12,745 $17,174 $4,177 $ -- $34,096
---------- -------------- --------------- -------------- ----------
Weighted Average Yield ........... 5.67% 5.74% 6.04% --% 5.75%
---------- -------------- --------------- -------------- ----------
Obligations of other U.S. Government
agencies:
Book value ....................... -- 7,125 4,093 55 11,273
---------- -------------- --------------- -------------- ----------
Weighted Average Yield ........... --% 7.15% 6.10% 8.50% 6.77%
---------- -------------- --------------- -------------- ----------
Equity Securities:
Book value ....................... -- -- -- 997 997
---------- -------------- --------------- -------------- ----------
Weighted Average Yield ........... --% --% --% 6.00% 6.00%
---------- -------------- --------------- -------------- ----------
Total Securities:
Book value ....................... $12,745 $24,299 $8,270 $1,052 $46,366
---------- -------------- --------------- -------------- ----------
Weighted Average Yield ........... 5.67% 6.15% 6.06% 6.13% 6.01%
---------- -------------- --------------- -------------- ----------
</TABLE>

24
<PAGE>

LOANS

The loan portfolio totaled $142.5 million at December 31, 1995, an
increase of 9.2% from December 31, 1994. This follows a 5.1% increase in
1994. Average total loans for the year were $136.3 million, representing a
8.9% increase from 1994, compared to a 4.2% average decrease experienced in
1994.

The following table shows the classification of loans by major category,
at December 31, for each of the past five years:

<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993 1992 1991
- -------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Commercial ......... $ 26,592 $ 27,109 $ 32,839 $ 44,566 $ 55,026
Real estate:
Construction .. 5,777 2,750 3,885 884 734
Commercial .... 44,360 39,803 34,463 28,656 23,829
Residential.... 29,378 28,205 20,466 24,523 10,437
Installment ........ 36,387 32,591 32,491 34,117 30,893
---------- ---------- ---------- ---------- ----------
Total .... $142,494 $130,458 $124,144 $132,746 $120,919
========== ========= ========== ========== ==========
</TABLE>

Commercial loans are made to companies located within the Company's market
area for working capital and other short-term needs and term loans for the
acquisition of assets. Commercial loans decreased by $517 thousand, or 1.9%
for the year and represented 18.7% of the total loan portfolio. This follows
a decrease of $5.7 million, or 17.4%, in 1994 from 1993. Construction loans
are primarily made to local developers. Construction loans are primarily made
on single family structures which are generally under contract before being
built. Advances under loans are closely monitored and made after inspection
by officers of the Company. Construction loans increased $3.0 million or
110.1% in 1995 from 1994. The growth in construction loans was due to the
increased activity in the Company's market area. Construction loans decreased
by $1.1 million in 1994 from 1993. The decline in the portfolio in 1994 was
the result of completed projects going to permanent financing.

Commercial mortgage loans are made to local property owners and are
written using Board approved underwriting standards. Commercial mortgage
loans increased in 1995 by $4.5 million, or 11.4%, from 1994 and comprise
31.1% of the Company's total loan portfolio. Commercial mortgages increased
from 1993 to 1994 by $5.3 million, or 15.5%. The commercial mortgage
portfolio is primarily owner occupied properties.

At December 31, 1995, residential loans totaled $29.4 million, or 20.6% of
the Company's total loan portfolio. Residential loans are predominately
secured by one to four family properties in the Company's primary market
area. Residential loans increased by $1.2 million, or 4.2%, from 1994 to 1995
primarily as a result of the Company adding to its adjustable rate portfolio.
Adjustable rate loans are generally retained in the portfolio. Residential
loans increased by $7.7 million, or 37.8%, from 1993 to 1994. In order to
maintain interest rate risk at levels in line with the Company's internal
requirements, loans may be periodically sold into the secondary market. This
allows the Company to keep its portfolio mixed between fixed rate and
variable rate loans, as well as maintaining a shorter maturity of its
portfolio.

Installment loans at December 31, 1995 increased $3.8 million, or 11.6%,
from December 31, 1994. The increase was due to the increase of $4.7 million
in fixed rate home equity loans. Installment loans increased slightly at
December 31, 1994 from December, 1993. The increase was due to the increase
of $1.4 million in fixed rate home equity loans offset by the decrease of
$887 thousand and $361 thousand in the adjustable rate home equity portfolio
and the credit card portfolio, respectively.

25
<PAGE>

The following table summarizes the maturities of certain loan categories
at December 31, 1995:

<TABLE>
<CAPTION>
Due in Due in Due in
One Year One to Over Five
(In thousands) or Less Five Years Years Total
- ---------------------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Commercial ........... $ 1,859 $ 4,824 $19,909 $ 26,592
Real estate:
Construction .... 5,777 -- -- 5,777
Commercial ...... 1,297 21,481 21,582 44,360
Residential ..... 8,569 12,760 8,049 29,378
Installment .......... 2,006 4,309 30,072 36,387
---------- ------------ ----------- ----------
Total ...... $19,508 $43,374 $79,612 $142,494
========== ============ =========== ==========
</TABLE>

- ------
Included above in loans due after one year are adjustable rate loans of
$51,803 and fixed rate loans of $71,183.

Loan concentrations are considered to exist when there are amounts loaned
to separate borrowers engaged in similar activities which would cause them to
be similarly impacted by economic or other conditions. At December 31, 1995
and 1994, there were no concentrations of loans exceeding 10% of total loans
which are not otherwise disclosed as a category on the Company's financial
statements.

ASSET QUALITY AND RISK ELEMENTS

Lending is one of the most important functions performed by the Company
and by its very nature, it is the most risky, complicated and profitable part
of the Company's business. A separate risk management department monitors
risk assessment, credit file maintenance and overall financial condition of
borrowers. Additionally, efforts are made to limit concentrations of credit
within the loan portfolio so as to minimize the impact of a downturn in any
one economic sector.

Management realizes that some degree of risk must be expected in the
normal course of lending activities. Reserves are maintained to absorb such
potential loan losses. The allowance for possible loan losses and related
provision are a statement of management's evaluation of the credit portfolio
and economic climate.

Statements of Financial Accounting Standards (SFAS) No. 114 and No. 118,
"Accounting by Creditors for Impairment of a Loan," were adopted effective
January 1, 1995. These new statements require that an impaired loan that is
within the scope of this statement be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate
or at the loan's observable market price, or if the loan is collateral
dependent, based on the fair value of the collateral. A loan is impaired
when, based on current information and events, it is probable that a creditor
will be unable to collect all amounts due according to the contractual terms
of the loan agreement. As of December 31, 1995, impaired loans totaled $1.7
million.

Non-performing assets include non-accrual loans, impaired loans and other
real estate (ORE). Loans which are past due in excess of 90 days as to the
collection of principal or interest constitute non-accrual loans, except that
loans which are contractually past due by more than 90 days may continue on
an accrual basis if the loan is sufficiently collateralized and is in the
process of being collected. ORE is acquired through foreclosure on loans
secured by land or real estate. ORE is reported at the lower of carrying
value or fair market value as determined by appraisal on the date of
acquisition less costs to dispose.

Non-performing assets were $3.0 million and $4.6 million at December 31,
1995 and 1994, respectively, and amounted to .93% and 1.64% of total assets
for each of these periods, respectively. Non-performing assets are at the
lowest level in the last six years. Non-accrual loans totaled $1.6 million
and $2.6 million, at December 31, 1995 and December 31, 1994, respectively.
Impaired loans not included in non-accrual totaled $146 thousand at December
31, 1995 compared to $792 thousand at December 31, 1994. ORE amounted to $1.3
million at December 31, 1995, an increase of $79 thousand or 6.5% from ORE of
$1.2 million at December 31, 1994. All costs associated with the holding and
maintaining of ORE properties are expensed as incurred. The decrease in
non-performing assets is the result of loans returned to accrual status,
payoffs, payments and charge-offs.

26
<PAGE>

The following table sets forth summary data related to the allowance for
possible loan losses, the provision for possible loan losses and charge-off
experience for the past five years:

<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------------
(In thousands) 1995 1994 1993 1992 1991
------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Loans, net of unearned income,
(at end of year) ......................... $142,494 $130,458 $124,144 $132,746 $120,919
---------- ---------- ---------- ---------- ----------
Average loans outstanding ................. $136,331 $125,129 $130,615 $128,727 $129,894
---------- ---------- ---------- ---------- ----------
Balance of allowance for possible loan
losses at beginning of year .............. $ 2,630 $ 2,492 $ 3,400 $ 3,184 $ 3,278
Loans charged-off:
Commercial .............................. 658 1,040 2,974 993 7,303
Commercial lease financing .............. -- 32 190 1,464 1,375
Real estate-construction ................ -- -- -- -- 174
Real estate-commercial .................. -- 1 -- 131 --
Real estate-residential ................. 77 11 41 12 146
Installment ............................. 191 152 804 794 1,640
---------- ---------- ---------- ---------- ----------
Total loans charged-off ............... 926 1,236 4,009 3,394 10,638
---------- ---------- ---------- ---------- ----------
Recoveries of loans:
Commercial .............................. 323 146 177 659 285
Commercial lease financing .............. 9 66 155 150 57
Real estate-commercial .................. -- 1 1 16 3
Real estate-residential ................. -- -- 20 -- --
Installment ............................. 99 147 113 88 37
---------- ---------- ---------- ---------- ----------
Total recoveries ...................... 431 360 466 913 382
---------- ---------- ---------- ---------- ----------
Net loans charged-off ..................... 495 876 3,543 2,481 10,256
Provision charged to expense .............. 559 1,014 2,635 2,697 10,162
---------- ---------- ---------- ---------- ----------
Balance at end of year .................... $ 2,694 $ 2,630 $ 2,492 $ 3,400 $ 3,184
---------- ---------- ---------- ---------- ----------
Allowance for possible loan losses to total
loans outstanding (at end of year) ...... 1.89% 2.02% 2.01% 2.56% 2.63%
---------- ---------- ---------- ---------- ----------
Net loans charged-off to average loans
outstanding ............................. .36% .70% 2.71% 1.93% 7.90%
---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>

The following table sets forth the allocation of the allowance for
possible loan losses by category of loans and the percentage of loans in each
category to total loans. The allocation is based upon management's review of
the portfolio as well as historical trends and current loan growth.

<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------------------------------------
1995 1994 1993
------------------------- ------------------------- -------------------------
% of % of % of
Amount Loans to Amount Loans to Amount Loans to
of Total of Total of Total
(In thousands) Allowance Loans Allowance Loans Allowance Loans
- ----------------------------- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial ................. $ 942 18.3% $1,291 20.3% $1,214 24.7%
Commercial lease financing .. 9 .3 8 .6 25 1.3
Real estate-construction ... 138 2.5 152 2.1 39 3.2
Real estate-commercial ..... 1,019 32.7 691 30.3 680 27.7
Real estate-residential .... 235 20.6 191 21.7 157 16.5
Installment ................ 351 25.6 297 25.0 377 26.6
----------- ---------- ----------- ---------- ----------- ----------
Total .................... $2,694 100.0% $2,630 100.0% $2,492 100.0%
=========== ========== =========== ========== =========== ==========
</TABLE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
1992 1991
------------------------- -------------------------
% of % of
Amount Loans to Amount Loans to
of Total of Total
(In thousands) Allowance Loans Allowance Loans
- ----------------------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Commercial ................. $1,946 30.7% $1,501 39.7%
Commercial lease financing .. 56 2.6 699 5.8
Real estate-construction ... 7 .6 27 .5
Real estate-commercial ..... 587 21.7 317 19.7
Real estate-residential .... 218 18.3 160 8.4
Installment ................ 586 26.1 480 25.9
----------- ---------- ----------- ----------
Total .................... $3,400 100.0% $3,184 100.0%
=========== ========== =========== ==========
</TABLE>

27
<PAGE>

The allowance for possible loan losses at year end 1995 was $2.7 million,
an increase of $64 thousand as compared to year end 1994. The allowance at
December 31, 1995 represents 1.89% of total loans outstanding as compared to
2.02% at December 31, 1994. At December 31, 1995 and 1994, the allowance for
possible loan losses represented 156.7% and 77.0% of total non-performing
loans, respectively.

The Company is continually analyzing its loan portfolio in order to
identify early risk elements that require managements attention. The loan
portfolio is subject to review by lending management, the Company's internal
loan review staff, the Company's independent public accountants and various
regulatory agencies. The Company believes that its low level of
non-performing assets are a reflection of the Company's underwriting
discipline and its practice of early problem recognition and resolution.

As of December 31, 1995, a commercial mortgage in the amount of $1.6
million was classified as a potential problem loan. This is a loan which
management has information which indicates that the borrower may not be able
to comply with current payment terms. Although there is some question about
the borrowers ability to comply with current loan payment terms, minimal
loss, if any, are anticipated.

Net loan charge-offs were $495 thousand for the year ended December 31,
1995 as compared with $876 thousand for the year ended December 31, 1994. The
ratio of net charge-offs to average loans amounted to .36% for 1995 as
compared with .70% in 1994.

DEPOSITS

The Company's deposit base is its primary source of funds. The Company
offers a broad range of deposit products, including non-interest bearing
demand deposits, NOW accounts, savings accounts, money-market accounts and
certificates of deposit. The Company remains a deposit-driven financial
institution with emphasis on core deposit accumulation and retention as a
basis for sound growth and profitability.

The December 31, 1995 total deposit balance of $304.3 million represents
an increase of $38.9 million, or 14.7%, from the December 31, 1994 balance of
$265.4 million. This increase was primarily the result of the $26.7 million
increase in demand deposits, both non-interest bearing and interest bearing,
and the $13.7 million increase in time deposits partially offset by the $1.5
million decrease in savings deposits. The Company believes that its record of
sustaining core deposit growth is reflective of the Company's retail approach
to banking which emphasizes a combination of free checking accounts,
convenient branch locations, extended hours of operation, quality service and
active marketing.

The following is a breakdown of the maturity of certificates of deposits
of $100,000 or more as of December 31, 1995 and 1994, respectively:

<TABLE>
<CAPTION>
(In thousands) 1995 1994
--------------------------- --------- --------
<S> <C> <C>
3 months or less .......... $11,422 $5,010
3 to 6 months ............. 511 587
6 to 12 months ............ 720 232
Over 12 months ............ 425 218
--------- --------
Total ................... $13,078 $6,047
========= ========
</TABLE>

INTEREST RATE SENSITIVITY

Interest rate sensitivity and the repricing characteristics of assets and
liabilities are managed by the Company's Asset/Liability Committee. The
principal objective of the Committee is to maximize net interest income
within acceptable levels of risk established by policy. The Committee
attempts to maintain stable net interest margins by generally matching the
volume of assets and liabilities maturing, or subject to repricing, and by
adjusting rates in relation to market conditions to influence volumes and
spreads.

28
<PAGE>

The following table shows the gap position of the Company at December 31,
1995:

<TABLE>
<CAPTION>
Due Between
Due Within 91 Days and Due After Non-Interest
(In thousands) 90 Days One Year One Year Bearing Total
------------------------------------ ------------ ------------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Net loans .......................... $ 59,565 $ 12,059 $ 69,151 $ 1,719 $142,494
Short-term investments ............. 18,631 -- -- -- 18,631
Securities ......................... 3,641 16,316 116,706 -- 136,663
Non-interest bearing assets ........ -- -- -- 27,399 27,399
------------ ------------- ----------- -------------- ----------
Total assets ...................... $ 81,837 $ 28,375 $185,857 $ 29,118 $325,187
------------ ------------- ----------- -------------- ----------
Interest bearing deposits .......... $168,606 $ 15,876 $ 38,987 $ -- $223,469
Other liabilities .................. -- -- -- 83,091 83,091
Stockholders' equity ............... -- -- -- 18,627 18,627
------------ ------------- ----------- -------------- ----------
Total liabilities and stockholders'
equity ........................... $168,606 $ 15,876 $ 38,987 $101,718 $325,187
------------ ------------- ----------- -------------- ----------
Period gap ......................... ($ 86,769) $ 12,499 $146,870 ($ 72,600)
------------ ------------- ----------- --------------
Cumulative gap ..................... (86,769) (74,270) 72,600
------------ ------------- -----------
Period gap to total assets ......... (26.68)% 3.84% 45.16%
Cumulative gap to total assets ..... (26.68)% (22.84)% 22.32%
------------ ------------- -----------
</TABLE>

The difference between the volume of assets and liabilities that reprice
in a given period is the interest sensitivity gap. A "positive" gap results
when more assets than liabilities mature or are repriced in a given time
frame. Conversely, a "negative" gap results when there are more liabilities
than assets maturing or being repriced during a given period of time. The
smaller the gap, the less the effect of market volatility on net interest
income. Asset/liability management is the utilization of this information to
develop strategies to allocate funds to certain types of assets and to offer
different liability products to achieve a certain asset/liability balance in
order to produce desired profit margins.

As depicted in the table above, sensitivity to interest rate fluctuations
is measured in a number of time frames. At December 31, 1995, rate sensitive
liabilities exceeded rate sensitive assets at the 90 day interval and
resulted in a negative gap of $86.8 million. Rate sensitive assets exceeded
rate sensitive liabilities at the 91 to 365 day interval by $12.5 million.
The total cumulative negative gap repricing within 365 days is $74.3 million.
As the Company is liability sensitive, the Company's net interest margin
would be negatively affected in a rising rate environment as liabilities
reprice more quickly than assets. Management has identified numerous
strategies, including a redeployment of asset maturities and cash flows to
attempt to insulate net interest income from the effects of changes in
interest rates.

These gap positions are monitored as part of the committee process. This
activity includes periodic forecasts of future business activity which are
applied to various interest rate environments in a simulation process. The
use of these financial modeling techniques assists management in its
continuing efforts to achieve stable earnings growth in an ever-changing
interest rate environment.

While gap analysis is a general indicator of the potential effect that
changing interest rates may have on net interest income, the gap itself does
not present a complete picture of interest rate sensitivity. First, changes
in the general level of interest rates do not affect all categories of assets
and liabilities equally or simultaneously. Second, assumptions must be made
to construct a gap table. Money-market deposits, for example, which have no
contractual maturity, are assigned a repricing interval of 90 days.
Management can influence the actual repricing of the deposits independent of
the gap assumption by among other methods, adjusting rates. Third, the gap
table represents a one-day position and cannot incorporate a changing mix of
assets and liabilities over time as interest rates change.

For this reason, the Company primarily uses simulation techniques to
project future net interest income streams, incorporating the current "gap"
position, the forecasted balance sheet mix and the market rates and bank
products under a variety of interest rate scenarios.

29
<PAGE>

LIQUIDITY

Liquidity measures the ability to satisfy current and future cash flow
needs as they become due. Maintaining a level of liquid funds through
asset/liability management seeks to ensure that these needs are met at a
reasonable cost. On the asset side, liquid funds are maintained in the form
of cash and due from banks, federal funds sold and unpledged short-term
securities and securities available for sale. At December 31, 1995, these
assets amounted to $85.3 million as compared to $34.2 million for the same
period in 1994. This represents 26.2% and 12.1% of total assets at December
31, 1995 and 1994, respectively.

The primary source of liquidity is the Company's ability to attract new
deposits and retain deposit obligations as they mature. The Company utilizes
its branch network to access retail customers who provide a highly stable
source of core funds. These funds are comprised of demand deposits, savings
accounts and certificates of deposit. Core deposits averaged $283.7 million
and $250.9 million for 1995 and 1994, respectively, representing an increase
of $32.8 million, or 13.1%. The Company remains a deposit-driven financial
institution with emphasis on core deposit accumulation and retention as a
basis for sound growth and profitability. The Company believes that its
record of sustaining core deposit growth is reflective of the Company's
retail approach to banking which emphasizes a combination of free personal
checking accounts, convenient branch locations, extended hours of operation,
quality service and active marketing. Historically, the overall liquidity of
the Company has been enhanced by the significant amount of core deposits.

CAPITAL RESOURCES

A significant measure of the strength of a financial institution is a
strong capital base which can expand in close proportion to asset growth. It
is the capital base which provides the primary risk insurance to depositors.
Also, it is an important consideration to federal regulators, analysts of the
Company's common stock, as well as others in the marketplace.

The Federal Reserve Board and the FDIC have issued risk-based capital
guidelines for U.S. banking organizations. The objective of these efforts was
to provide a more uniform capital framework that is sensitive to differences
in risk profiles among banking companies.

The risk-based guidelines define a two-tier framework. Tier I capital
consists primarily of common stockholders' equity and qualifying perpetual
preferred stock, less goodwill, while total capital consists of Tier I
capital and the allowance for possible loan losses up to 1.25% of
risk-weighted assets.

The table below presents in summary form the risk-based and leverage
capital ratios of the Company and the Bank as of December 31, 1995 and 1994.

<TABLE>
<CAPTION>
1995 1994
---------------------------------------- ----------------------------------------
Company Bank Company Bank
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Risk-Based Capital Ratios
Tier I Capital:
Actual ........................ 10.70% 11.29% 10.23% 11.30%
Regulatory Minimum Requirement . 4.00% 4.00% 4.00% 4.00%
Total Capital:
Actual ........................ 11.95% 12.54% 11.71% 12.55%
Regulatory Minimum Requirement . 8.00% 8.00% 8.00% 8.00%
Leverage Ratios
Actual ........................... 5.76% 6.10% 5.46% 6.02%
Regulatory Minimum Requirement ... 4.00% to 5.00% 4.00% to 5.00% 4.00% to 5.00% 4.00% to 5.00%
</TABLE>

30
<PAGE>

Three Months Ended March 31, 1996

OVERVIEW

The Company recorded net income applicable to Common Stock for the three
months ended March 31, 1996 of $730 thousand, or $.39 per fully diluted
common share. This compares to net income applicable to Common Stock for the
three months ended March 31, 1995 of $409 thousand, or $.26 per fully diluted
common share. Net income per fully diluted common share for the first quarter
of 1996 reflects an increase of 50% over the comparable period in 1995. The
Company's first quarter 1996 net income benefitted from a $338 thousand, or
9.6% increase in net interest income before the provision for possible loan
losses as compared to the same period in 1995. Also contributing to the
earnings growth for the first quarter of 1996 was a $60 thousand, or 33.3%
reduction in the allowance for possible loan losses and a $292 thousand, or
58.6% increase in non-interest income. Included in the increase in
non-interest income is a gain on sale of available for sale securities of
$254 thousand, partially offset by a 7.8% or $236 thousand increase in
non-interest expense.

As of March 31, 1996, the Company's Capital ratios were: 5.77% for Tier I
leverage capital; 10.49% for Tier I capital to risk-adjusted assets; and
11.62% for total Tier capital to risk-adjusted assets. The Bank's ratios as
of March 31, 1996 were 6.08% for Tier I leverage capital; 11.01% for Tier I
capital to risk-adjusted assets; and 12.27% for total Tier capital to
risk-adjusted assets. All ratios remain above regulatory mandated levels.

Non-accrual loans and total non-performing assets declined 50.0%, and
25.3%, respectively, from March 31, 1995 to March 31, 1996. Total
non-performing assets at March 31, 1996 remained at the same level as that of
December 31, 1995.

NET INTEREST INCOME

Net interest income, stated on a fully tax equivalent (FTE) basis,
increased $366 thousand, or 10.4% for the first quarter of 1996 as compared
to the first quarter of 1995. Net interest margins were 5.20% for the three
months ended March 31, 1996 and 5.38% for the three months ended March 31,
1995.

Interest income (FTE) totalled $5.5 million for the first three months of
1996, an increase of 11.8%, or $581 thousand, as compared to the same period
in 1995, while interest expense increased 15.7%, or $215 thousand during this
period. Growth in average securities, interest bearing deposits with banks,
commercial and residential real estate and installment loans and federal
funds substantially accounted for the increase in net interest income.
Similarly, increases in average time deposits and N.O.W. accounts primarily
accounted for the increase in interest expense.

Average interest earning assets for the first three months of 1996
increased $35.3 million, or 13.2%, over the comparable period in 1995,
however, the overall rate on earning assets decreased by 15 basis points due
to the decrease in rates received on federal funds and interest-bearing
deposits with banks. Securities, and commercial and residential real estate
loans are primarily responsible for the growth in average earning assets with
increases of $14.8 million and $12.0 million, respectively, as compared with
the same period of 1995.

The Company's average rate paid on interest-bearing liabilities increased
8 basis points for the three month period ended March 31, 1996, as compared
to the same period of 1995. The cost of these interest-bearing liabilities
increased to 2.76% for the first quarter of 1996 compared to 2.68% for the
first quarter of 1995 primarily due to higher rates paid on time deposits.
Average demand deposits for the first quarter of 1996 increased $12.7
million, or 19.7% compared to the first quarter of 1995. Average time
deposits, and other interest bearing liabilities increased $12.7 million, or
22.5%, and $11.0 million, or 7.3%, respectively, for the first quarter of
1996 as compared to the same period in 1995.

Included in interest-earning assets are loans on which the accrual of
interest has been discontinued. Such non-accrual loans amounted to $1.6
million at March 31, 1996. Had these loans been current in accordance with
their terms, interest income on loans for the first quarter of 1996 would
have been $38 thousand higher.

ALLOWANCE AND PROVISION FOR POSSIBLE LOAN LOSSES

The allowance for possible loan losses is maintained at a level considered
adequate by management to absorb potential loan losses. It is the result of
an ongoing analysis which relates outstanding balances to expected

31
<PAGE>

allowance levels required to absorb future credit losses. Current economic
problems are addressed through management's assessment of anticipated changes
in the regional economic climate, changes in composition and volume of the
loan portfolio and variances in levels of classified, non-performing and past
due loans. Allowance adequacy calculations are completed by applying risk
assessments to determine specific and general allowance requirements for
problem and non-problem loans.

The Company adopted Statement of Financial Accounting Standards (SFAS) No.
114 and No. 118, "Accounting by Creditors for Impairment of a Loan", as of
January 1, 1995. SFAS 114 requires that an impaired loan, as defined, be
measured based on the present value of expected future cash flows discounted
at the loan's original effective interest rate. A loan is considered impaired
when, in the Bank's opinion, the Bank will be unable to collect all amounts
due according to the original contractual term of the loan agreement. Groups
of smaller homogeneous loans, such as consumer loans and residential real
estate loans, are specifically excluded from this definition. Impairment may
be measured based on the loan's observable market price of the fair value of
the collateral if the loan is collateral dependent. When the measure of the
impaired loan is less than the recorded investment in the loan, the
impairment is recorded through a valuation allowance. Management has
determined that its nonaccrual loans and those loans previously classified as
insubstance foreclosures are impaired loans.

The Bank had previously estimated its allowance for possible loan losses
using methods similar to those prescribed in SFAS 114. Adoption of these
statements did not require any additional provisions for possible loan losses
as of January 1, 1995.

As of March 31, 1996 included in the Company's total loan portfolio of
$148.8 million, it had under SFAS 114 a total recorded investment in impaired
loans of $1.6 million. Of this amount, $1.5 million did not require a
valuation allowance. For the remaining $97 thousand of impaired loans there
was a $76 thousand valuation allowance established. This valuation allowance
was included in the $2.8 million allowance for possible loan losses in the
Bank's consolidated statement of condition. The average recorded investment
in impaired loans for the first quarter of 1996 was $1.7 million.

Interest payments received on impaired loans are recorded as interest
income unless collection of the remaining investment is doubtful in which
case payments received are recorded as reductions of principal. The Bank did
not recognize interest income on impaired loans for the first quarter of
1996.

The following table lists selected data relating to the loan portfolio and
certain other factors which were considered by management in determining the
amount of the allowance for possible loan losses for the period ended March
31, 1996.
As of, or For the Period Ended
(in thousands)

<TABLE>
<CAPTION>
March 31,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
Non-Accrual Loans:
Commercial ................................................ $ 735 $2,233
Real estate-commercial .................................... 239 526
Real estate-residential ................................... 318 121
Installment ............................................... 269 239
--------- ---------
Total ................................................ 1,561 3,119
Other real estate owned ........................................ 1,453 915
--------- ---------
Total non-performing assets .......................... $3,014 $4,034
========= =========
Ratio of non-performing assets to total assets ................. .89% 1.34%
Accruing loans past due 90 days or more:
Commercial ................................................ $ 193 $ 95
Real estate-commercial .................................... 329 --
Installment ............................................... 8 48
--------- ---------
Total ................................................ $ 530 $ 143

</TABLE>

32
<PAGE>

For the three months ended March 31, 1996, net loan charge-offs were $9
thousand as compared with net loan recoveries of $12 thousand for the same
period of 1995. There were $91 thousand in charge-offs, of which $76 thousand
or 83.5% were commercial loans, and the remaining 16.5% were installment
loans. Recoveries during the first three months of 1996 were for commercial
and installment loans previously charged off and totalled $24 thousand and
$58 thousand, respectively.

At March 31, 1996, the Company's non-accrual loans, impaired loans, and
other real estate (in total, non-performing assets) totalled $3.0 million as
compared to $4.0 million at March 31, 1995. Delinquent loans (i.e. loans 90
days or more past due, and still accruing) increased $387 thousand due to one
commercial loan of $193 thousand and two commercial real estate loans
totalling $329 thousand.

As of March 31, 1996, a commercial mortgage in the amount of $1.6 million
was classified as a potential problem loan. Subsequent to March 31, 1996, the
Company has placed this loan on non-accrual status. This is a loan as to
which management has information indicating that the borrower may not be able
to comply with current payment terms. Although there is some question about
the borrower's ability to comply with current loan terms, minimal loss, if
any, is anticipated.

At March 31, 1996, the Company's allowance for possible loan losses was
$2.8 million, approximately equal to the level of the allowance for possible
loan losses at March 31, 1995. For March 31, 1996, this represented 1.9% of
total loans and 179.7% of total non-performing loans. This compares to 2.1%
of total loans and 90.5% of total non-performing loans at March 31, 1995. The
Company's allowance for possible loan losses at December 31, 1995 was $2.7
million, or 1.9% of loans and 156.7% of total non-performing loans.

NON-INTEREST INCOME

Non-interest income for the three months ended March 31, 1996 increased
$292 thousand or 58.6% over the comparable period in 1995. During the first
quarter of 1996, the Company sold $8.0 million of its securities classified
as available for sale which resulted in a gain of $254 thousand, while no
sales of available for sale securities occurred during the first quarter of
1995. Non-interest income, excluding gains from sales of securities,
increased $38 thousand, or 7.6% for the first quarter of 1996 as compared to
the same period of 1995. Service charges on deposit accounts for the three
months ended March 31, 1996 increased $18 thousand or 5.9% over the first
three months of 1995 as a result of increased income from account related
charges. Other non-interest income for the first quarter of 1996 increased
$20 thousand or 10.4% over the same period of 1995 primarily due to increased
income from ATM fees, safe deposit fees, check printing income, and other
loan fees, partially offset by a decrease in credit card fee income.

NON-INTEREST EXPENSE

Non-interest expense for the first quarter of 1996 totalled $3.3 million,
an increase of $236 thousand, or 7.8% over the comparable period of 1995.
First quarter 1996 and 1995 non-interest expense annualized as a percentage
of total average assets was 3.96% and 4.18%, respectively. Salaries and
employee benefits for the three months ended March 31, 1996 increased $252
thousand, or 18.8% over the first quarter of 1995 as a result of additions to
staff and increased expense relating to maintaining the Company's employee
stock option plan ("ESOP"). In December 1995, the Company elected to adopt
the American Institute of Certified Public Accountants Statement of Position
93-6 (SOP 93-6), "Employers' Accounting for Employee Stock Ownership Plans",
with retroactive application, as required, effective January 1, 1994. The
required adjustments and per share effect have been reflected in the fourth
quarter 1995 and 1994 since the effect on interim quarters would not be
significantly different from amounts previously reported. Debt of the ESOP is
recorded as debt of the Company, and shares pledged as collateral for the
debt are reported as unearned ESOP preferred stock in the balance sheet. As
the debt is repaid, shares are released from collateral, and compensation
expense is reported for an amount equal to the current market price of the
shares, and the shares become outstanding for earnings per share
computations. Dividends on allocated ESOP shares are recorded as a reduction
of retained earnings, and dividends on unallocated ESOP shares are recorded
as a reduction of the ESOP debt and related accrued interest.

As a result of the adoption of SOP 93-6, the Company reported compensation
expense of $64 thousand and $36 thousand, for the first quarter of 1996 and
1995, respectively. Interest expense relating to the ESOP for the

33
<PAGE>

three months ended March 31, 1996 totaled $27 thousand. Interest incurred on
the ESOP debt during the first quarter of 1995 was not recorded by the
Company, as the Company reflected the effects of SOP 93-6 in the fourth
quarter of 1995 only. First quarter 1996 occupancy and equipment expenses
increased $22 thousand or 3.5% over the first quarter of 1995 primarily due
to building maintenance costs and equipment depreciation expense. These costs
were partially offset by a reduction in equipment maintenance costs, and
building and leasehold depreciation. Other non-interest expenses for the
first quarter of 1996 decreased $38 thousand or 3.6% as compared to the same
period of 1995. Insurance premiums on deposit accounts for the first quarter
of 1996 decreased $161 thousand or 99.4% as compared to the same period of
1995 as a result of the Company receiving the most favorable risk
classification during 1995. Other non-interest expenses, excluding insurance
premiums on deposit accounts for the first quarter of 1996 increased $123
thousand or 13.9% over the same period of 1995 due to compliance expenses,
higher advertising and marketing-related costs, professional fees, and
stationery and postage expenses, partially offset by decreases in legal
expense and costs associated with the holding of other real estate owned.

INTEREST RATE SENSITIVITY AND LIQUIDITY

Management has identified numerous strategies, including a redeployment of
asset maturities and cash flows in an attempt to insulate net interest income
from the effects of changes in interest rates. Sensitivity to interest rate
fluctuations is measured in a number of time frames. Gap positions are
monitored as part of the Asset/Liability Committee ("ALCO") process. This
activity includes periodic forecasts of future business activity which are
applied to various interest rate environments in a simulation process. The
use of these financial modeling techniques assists management in its
continuing efforts to achieve stable earnings growth in an everchanging
interest rate environment. While gap analysis is a general indicator of the
potential effect that changing interest rates may have on net interest
income, the gap itself does not present a complete picture of interest rate
sensitivity. For this reason, the Company primarily uses simulation
techniques to project future net interest income streams, incorporating the
current "gap" position, the forecasted balance sheet mix and the anticipated
spread relationships between market rates and bank products under a variety
of interest rate scenerios.

Liquidity measures the ability to satisfy current and future cash flow
needs as they become due. The Company's primary sources of liquidity are
deposits, loan repayments and securities. During the first three months of
1996 and 1995, average balances in marketable securities and other short-term
investments comprised 47.6% and 46.5% of average total assets, respectively.
During the first three months of 1996, average deposit balances (after
interest credited) increased 8.3% to $307.2 million from December 31, 1995.

The Company maintains a securities portfolio to fund increases in loans or
decreases in deposits, and is comprised of securities that the Company
believes will suit its needs and perform reasonably well under various
interest rate scenerios. These securities, which consists primarily of
obligations of the U.S. Treasury and U.S. Government Agencies and issues of
state and political subdivisions totalled $138.3 million at March 31, 1996,
an increase of 1.2% or $1.6 million over December 31, 1995. In December 1995,
the Company took advantage of the one-time opportunity to transfer securities
out of the held to maturity category without penalty, and transferred $40.7
million of securities that had been previously classified as held to maturity
to available for sale. At March 31, 1996, the Company's securities classified
as held to maturity reflected gross unrealized gains of $57 thousand and
gross unrealized losses of $1.5 million. Securities available for sale at
March 31, 1996 totaled $36.7 million, a decrease of $9.6 million or 20.8% as
compared to December 31, 1995 due to matured and called bonds, and sales of
securities which occurred during the first quarter of 1996.

In accordance with SFAS 115, at March 31, 1996, the Company had unrealized
gains of $17 thousand (net of tax effects) in total stockholders' equity for
net increases in the fair market values of its securities classified as
available for sale. The Company had no securities classified as trading
securities as of March 31, 1996.

The Company remains a deposit-driven financial institution with emphasis
on core deposit accumulation and retention as a basis for sound growth and
profit ability. The Company believes that its record of sustaining core
deposit growth is reflective of the Company's retail approach to banking
which emphasizes a combination of free checking accounts, convenient branch
locations, extended hours of service, quality service and active marketing.
Historically, the overall liquidity of the Company has been enhanced by the
significant amount of core deposits.

34
<PAGE>

CAPITAL RESOURCES

At March 31, 1996, stockholders' equity totaled $19.0 million or 5.6% of
total assets, as compared with $18.6 million, or 5.7%, at December 31, 1995.

The Federal Reserve Board standards applicable to bank holding companies
and similar standards of the Federal Deposit Insurance Corporation applicable
to banks classify capital into two tiers, referred to as Tier I and Tier II.
Tier I capital consists primarily of common stockholders' equity and
qualifying perpetual preferred stock, less goodwill. Tier II capital consists
of the allowance for possible loan and lease losses up to 1.25% of
risk-weighted assets.

The Federal Reserve Board requires each bank holding company to maintain a
minimum leverage ratio of 3.0% (Tier I capital to quarterly average total
assets). The minimum 3.0% leverage requirement applies only to top-rated
banking organizations without any operating, financial or supervisory
deficiencies. Other organizations are expected to hold an additional capital
cushion of at least 100 to 200 basis points of Tier I capital, and, in all
cases, banking organizations should hold capital commensurate with the level
and nature of all the risks to which they are exposed. The Company's leverage
capital ratio at March 31, 1996 was 5.77%. On March 31, 1996, the Bank's
leverage capital ratio was 6.08%.

The following table reflects the Company's and Bank's capital ratios as of
March 31, 1996:

<TABLE>
<CAPTION>
Company Bank
- ---------------------------------------------- --------- --------

<S> <C> <C>
Tier I Risk Based Capital:

Actual .................................. 10.49% 11.01%

Regulatory Minimum Requirement .......... 4.00% 4.00%

Total Risk Based Capital:

Actual .................................. 11.62% 12.27%

Regulatory Minimum Requirement .......... 8.00% 8.00%

Leverage Ratio:

Actual .................................. 5.77% 6.08%

Regulatory Minimum Requirement .......... 4.00%- 4.00%-

5.00% 5.00%
</TABLE>

35
<PAGE>

BUSINESS

GENERAL

Independence Bancorp, Inc. (the "Company") is a New Jersey business
corporation which is registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended (the "Holding Company Act"). As a
bank holding company, the Company's operations are confined to the ownership
and operation of banks and activities deemed by the Federal Reserve Board to
be closely related to banking to be a proper incident thereto. The Company
incorporated on November 10, 1983 for the purpose of acquiring Independence
Bank of New Jersey (the "Bank") and thereby enabling the Company to operate
within the bank holding company structure. On June 28, 1984 the Company
acquired 100 percent of the outstanding shares of the Bank.

Except as otherwise indicated, all references herein to the Company
include the Bank.

The principal activities of the Company are the owning and supervising of
the Bank, which engages in a general banking business from seven offices
located in Bergen County, New Jersey and one office in Passaic County, New
Jersey. The day-to-day affairs of the Bank are managed by the Bank's officers
and directors. The Company's principal executive offices are located at 1100
Lake Street, Ramsey, New Jersey 07446.

THE BANK

The Bank is a member of the Commerce Network (the "Network") and has the
exclusive right to use the "Yes Bank" logo within its primary service area.
The Network provides certain marketing and support services to the Bank. The
Network is a group of five community banks with over 70 branch banking
offices throughout New Jersey and southeastern Pennsylvania that provides
certain marketing support services and technical support services to its
members which allows them to take advantage of the Network's size.

The Bank provides a broad range of retail and commercial banking services
for consumers and small and mid-sized companies through branch offices in
Ramsey, Allendale, Ridgewood, Mahwah, Montvale, Park Ridge, Hackensack and
Hawthorne, New Jersey. The Bank's lending and investment activities are
funded principally by retail deposits gathered through its retail branch
office network. The Bank is not a member of the Federal Reserve System. The
Bank's deposits are insured by the Bank Insurance Fund ("BIF") of the Federal
Deposit Insurance Corporation (the "FDIC") to the maximum extent permitted by
law. As of March 31, 1996, the Bank had total assets of approximately $339.0
million, total deposits of approximately $316.9 million and total
stockholders' equity of approximately $20.0 million.

The Bank has focused its strategy for growth primarily on the further
development of its community-based retail banking network. The objective of
this corporate strategy is to build earnings growth potential for the future
as the retail branch office network matures. The Bank's branch concept uses a
prototype or standardized branch office building, convenient locations and
active marketing, all designed to attract retail deposits. Using this
prototype branch concept, the Bank plans to open a number of new branch
offices in the next five years. The Bank's retail approach to banking
emphasizes a combination of long-term customer relationships, quick responses
to customer needs, active marketing, convenient locations, free checking for
customers maintaining certain minimum balances and extended hours of
operation. The Bank has attempted to locate its branches in the fastest
growing communities within its primary service area.

Commercial loans are made to companies located within the Bank's market
area for working capital and other short term needs and term loans for the
acquisition of assets. Construction loans are primarily made to local
developers and are primarily made on single family structures which are
generally under contract before being built. Commercial mortgage loans are
made to local property owners. Residential loans are predominantly secured by
one-to-four family properties in the Bank's primary market area. The Bank's
underwriting standards require a careful consideration of a borrower's
financial condition, as reflected on acceptable financial statements, as well
as the management capability, industry and economic environment affecting the
borrower. Each

36
<PAGE>

potential credit is evaluated on, among other factors, the specific purpose
and structure of the loan, the source of and schedule for repayment, the
borrower's financial strength and character, and the value of any collateral.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

The Bank is not dependent on any one or more major customers.

SERVICE AREA

The Bank's primary service area includes Bergen and Passaic Counties, New
Jersey and more particularly the following cities located in these counties
where the Bank has branch offices: Ramsey, Allendale, Ridgewood, Mahwah,
Montvale, Park Ridge, Hackensack and Hawthorne. Retail deposits gathered
through these focused branching activities are used to support the Bank's
lending throughout Northern New Jersey.

RETAIL BANKING ACTIVITIES

The Bank provides a broad range of retail banking services and products,
including free personal checking accounts and savings programs, negotiable
orders of withdrawal ("NOW") accounts, money-market accounts, certificates of
deposit, secured and unsecured loans, consumer loan programs (including
installment loans for home improvement and the purchase of consumer goods and
automobiles), home equity and Visa/MasterCard revolving lines of credit,
overdraft checking, mortgage loans, safe deposit facilities, wire transfers,
automated teller facilities, money orders and holiday club accounts.

COMMERCIAL BANKING ACTIVITIES

The Bank offers a broad range of commercial banking services, including
free business checking accounts (subject to a $1,000 minimum balance), night
depository facilities, wire transfers, money-market accounts, certificates of
deposit, short-term loans for seasonal or working capital purposes, term
loans for fixed assets and expansion purposes, revolving credit plans and
other commercial loans to fit the needs of its customers. The Bank also
finances the construction of business properties and makes real estate
mortgage loans on completed buildings. Where the needs of the customer exceed
the Bank's lending limit for any one customer (approximately $3.3 million at
December 31, 1995), the Bank may participate with other banks in making a
loan.

COMPETITION

The Bank's service area is characterized by intense competition for
banking business among bank holding companies and commercial banks, thrift
institutions and other financial institutions. The Bank actively competes
with such banks and financial institutions for local retail and commercial
accounts. The Bank also is subject to competition from other major banking
and financial institutions outside its service area, many of which are
substantially larger and have greater financial resources than the Bank.
Other competitors, including credit unions, consumer finance companies,
insurance companies and money-market mutual funds, compete with certain
lending and deposit gathering services offered by the Bank.

Other institutions may have the ability to finance wide-ranging
advertising campaigns, and to allocate investment assets to regions of
highest yield and demand. Many institutions offer services such as trust
services and international banking which the Bank does not directly offer
(but which the Bank may offer indirectly through other institutions). Many
institutions, by virtue of their greater total capital, can have
substantially higher lending limits than the Bank.

In commercial transactions, the Bank's legal lending limit to a single
borrower (approximately $3.4 million as of March 31, 1996) permits it to
compete effectively for the business of smaller businesses. However, this
legal lending limit is considerably lower than that of various competing
institutions and thus may act as a constraint on the Bank's effectiveness in
competing for financings in excess of these limits.

In consumer transactions, the Bank believes that it is able to compete
effectively with larger financial institutions because it offers longer hours
of operation, personalized service and competitive interest rates on savings
and time accounts with low minimum deposit requirements.

37
<PAGE>

In order to compete more effectively with other financial institutions
both within and beyond its primary service area, the Bank uses, to the
fullest extent possible, the flexibility which independent status permits.
This includes an emphasis on specialized services for the small business
person and professional contacts by the Bank's officers, directors and
employees, and the greatest possible efforts to understand fully the
financial situation of relatively small borrowers. The size of such
borrowers, in management's opinion, often inhibits close attention to their
needs by larger institutions. The Bank may seek to arrange for loans in
excess of its lending limit on a participation basis with other financial
institutions in order to more fully to service customers whose loan demands
exceed the Bank's lending limit.

The Bank endeavors to be competitive with all competing financial
institutions in its primary service area with respect to interest rates paid
on time and saving deposits, its overdraft charges on deposit accounts, and
interest rates charged on loans.

NATIONAL MONETARY POLICY

In addition to being affected by general economic conditions, the earnings
and growth of the Bank and the Company are affected by the policies of the
regulatory agencies, including the Board of Governors of the Federal Reserve
System ("FRB") and FDIC. An important function of the FRB is to regulate the
money supply and credit conditions. Among the instruments used to implement
these objectives are open market operations in United States Government
securities, setting the discount rate and changes in reserve requirements
against bank deposits. These instruments are used in varying combinations to
influence overall growth of bank loans, investments and deposits and their
use may also affect interest rates charged on loans or paid on deposits. The
monetary policies and regulations of the FRB have had a significant effect on
the operating results of commercial banks in the past and are expected to
continue to do so in the future. The effects of such policies upon the future
business, earnings and growth of the Company and the Bank cannot be
predicted.

EMPLOYEES

As of March 31, 1996, the Company, including the Bank, had approximately
179 full-time equivalent employees of whom 67 were part-time. The Company
considers its relationships with its employees to be good.

LEGAL PROCEEDINGS

Neither the Company, the Bank nor any of their properties is subject to
any legal proceedings other than routine and non-material litigation
incidental to its business which primarily consists of collection proceedings
in which the Bank is seeking to enforce obligations due it.

SUPERVISION AND REGULATION

The banking industry is highly regulated. Statutory and regulatory
controls increase the cost of doing business. The operations of the Bank are
subject to requirements and restrictions under federal and state law,
including requirements to maintain reserves against deposits, and limitations
on the types of investments that may be made and the types of services which
can be offered. Various consumer laws and regulations also affect the
operations of the Bank.

THE COMPANY

The Company is registered as a "bank holding company" under the Holding
Company Act and is, therefore, subject to regulation by the FRB.

Under the Holding Company Act, the Company is required to obtain the prior
approval of the FRB before it can merge or consolidate with any other bank
holding company or acquire all or substantially all of the assets of any bank
that is not already majority owned by it or acquire direct or indirect
ownership or control of any voting shares of any bank that is not already
majority owned by it, if after such acquisition it would directly or
indirectly own or control more than 5% of the voting stock of such bank. See
"Recent Legislation."

38
<PAGE>

The Company is generally prohibited under the Holding Company Act from
engaging in, or acquiring direct or indirect ownership or control of more
than 5% of the voting shares of any company engaged in nonbanking activities
unless the FRB, by order or regulation, has found such activities to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. In making such determination, the FRB considers whether the
performance of these activities by a bank holding company can reasonably be
expected to produce benefits to the The Company maintains a securities
portfolio to fund increases in loans or decreases in deposits, and is
comprised of securities that the Company believes will suit its needs and
perform reasonably well under various interest rate scenerios. These
securities, which consists primarily of obligations of the U.S. Treasury and
U.S. Government Agencies and issues of state and political public which
outweigh the possible adverse effects. The FRB has by regulation determined
that certain activities are closely related to banking within the meaning of
the Holding Company Act. These activities include, among others, operating a
mortgage, finance, credit card or factoring company; performing certain data
processing operations; providing investment and financial advice, acting as
an insurance agent for certain types of credit-related life insurance;
leasing personal property on a full payout, non-operating basis; and certain
stock brokerage and investment advisory services.

Under the policy of the FRB with respect to bank holding company
operations, a bank holding company is deemed to serve as a source of
financial strength to its subsidiary depository institutions and to commit
resources to support such institutions in circumstances where it might not do
so absent such policy. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("1991 Banking Law"), a bank holding company is
required to guarantee that any "undercapitalized" (as such term is defined in
the statute) insured depository institution subsidiary will comply with the
terms of any capital restoration plan filed by such subsidiary with its
appropriate federal banking agency to the lesser of (i) an amount equal to 5%
of the institution's total assets at the time the institution became
undercapitalized, or (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital
standards as of the time the institution failed to comply with such capital
restoration plan.

In addition, under the Holding Company Act, the Company is required to
file periodic reports of its operations with, and is subject to examination
by, the FRB.

The Company is also under the jurisdiction of the Securities and Exchange
Commission and various state securities commissions for matters related to
the offering and sale of its securities, and is subject to the Securities and
Exchange Commission's rules and regulations relating to periodic reporting,
reporting to shareholders, proxy solicitation and insider trading.

The Company, as an affiliate of the Bank within the meaning of the Federal
Reserve Act, is subject to certain restrictions under the Federal Reserve Act
regarding, among other things, extensions of credit to it by the Bank and the
use of the stock or other securities of the Company as collateral for loans
by the Bank to any borrower. Further, under the Federal Reserve Act and the
FRB regulations, a bank holding company and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with extensions of
credit or provisions of property or services. These so-called "anti-tie-in
provisions" generally provide that a bank may not extend credit, lease or
sell property or furnish any service or fix or vary the consideration for any
of the foregoing (or obtain the same from), to a customer on the condition or
requirement that the customer provide some additional credit, property or
service to the bank, the bank's holding company or any other subsidiary of
the bank's holding company, or on the condition or requirement that the
customer not obtain other credit, property or services from a competitor of
the bank, the bank's holding company or any subsidiary of the bank's holding
company.

THE BANK

The Bank, as a state-chartered commercial bank, is subject to the New
Jersey Banking Act of 1948, as amended. The Bank is also subject to the
supervision of, and to regular examination by, the New Jersey Department of
Banking ("Department") and the FDIC and is required to furnish periodic
reports to each agency. Although the Bank is not a member of the Federal
Reserve System, it is still subject to substantial regulation by the FRB. The
approval of the Department is necessary for the establishment of any
additional branch offices by any state bank, subject to applicable state law
restrictions. Under present New Jersey Law, the Bank may operate offices at
any location in New Jersey approved by the Department. See "Recent
Legislation."

39
<PAGE>

The aspects of the lending and deposits business of the Bank which is
regulated by the above mentioned agencies include, among others, personal
lending and mortgage lending. The operations of the Bank are also subject to
numerous Federal, state and local laws and regulations which set forth
specific restrictions and procedural requirements with respect to the
extension of credit, credit practices, the disclosure of credit terms and
discrimination in credit transactions.

State-chartered banks are prohibited from engaging as principals in
activities that are not permitted for national banks, unless: (i) the FDIC
determines the activity would pose no significant risk to the appropriate
deposit insurance fund, and (ii) the bank is, and continues to be, in
compliance with all applicable capital standards. The Bank currently does not
engage as principal in activities not permitted for national banks.

The Bank, as an institution, the deposits of which are insured by the BIF
of the FDIC, is subject to an insurance assessment imposed by the FDIC. The
insurance assessment paid by BIF-insured institutions is determined under a
risk-based assessment system. Under this system, banks pay a semi-annual
assessment at a rate which is based upon the assessment risk classification
assigned to the bank by the FDIC. In determining the assessment risk
classification, the FDIC assigns each bank to one of the three capital groups
and within each capital group to one of the three supervisory subgroups.
Depending upon the assessment risk classification assigned to a bank, the
semi-annual assessments paid by banks range from 0.00% of an institution's
average assessment base for banks assigned to the highest capital group and
highest supervisory subgroup to 0.31% for banks assigned to the lowest
capital group and lowest supervisory subgroup. Banks are notified of the
assessment risk classification by the first day of the month preceding each
semi-annual period. The Bank's current assessment rate is 0.00%.

Under the Community Reinvestment Act, as amended ("CRA"), as implemented
by FDIC regulations, a bank has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
its entire community, including low- and moderate-income neighborhoods. CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the
types of products and services that it believes are best suited to its
particular community, consistent with CRA. CRA requires the FDIC to assess an
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by such
institution. The CRA requires public disclosure of an institution's CRA
rating and requires that the FDIC provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating
system. An institution's CRA rating is considered in determining whether to
grant charters, branches and other deposit facilities, relocations, mergers,
consolidations and acquisitions. Performance less than satisfactory may be
the basis for denying an application. The Bank recently received a
"satisfactory" rating from the FDIC under the CRA. However in 1994 and 1995,
the Bank received a "needs to improve" rating, which is the rating
immediately below "satisfactory." A "needs to improve" rating could have an
effect on the ability of the Bank to expand in the future. The Company has
taken steps to maintain its "satisfactory" rating under CRA including
strengthening its ongoing commitment to small business lending and expanding
its commitment to specialized lending to low- and moderate-income areas
within the Company's market areas. While the Company believes that its
efforts will be successful in maintaining the Bank's CRA rating, there can be
no assurances that the Company's efforts will be successful and that the
rating will be maintained.

CAPITAL REQUIREMENTS

Effective December 31, 1992, risk-based capital standards issued by bank
regulatory authorities in the United States were fully implemented. These
capital standards attempt to relate a banking company's capital to the risk
profile of its assets and provide the basis for which all banking companies
and banks are evaluated in terms of capital adequacy. The risk-based capital
standards require all banking organizations to meet a minimum ratio of total
capital to risk weighted assets of 8.00% (including certain off-balance sheet
activities, such as standby letters of credit) of which at least 4.00% is
required to be in the form of Tier I capital.

A banking organization's qualifying total capital consists of two
components: Tier I capital (core capital) and Tier II capital (supplementary
capital). At least 50% of a banking organization's total regulatory capital
must consist of Tier I capital. Tier I capital is an amount equal to the sum
of (i) common stockholders' equity (includ-

40
<PAGE>

ing adjustments for any surplus or deficit); (ii) non-cumulative perpetual
preferred stock (plus, for bank holding companies, cumulative perpetual
preferred stock in an amount up to 25% of Tier I capital); and (iii) the
company's minority interest in the equity account of consolidated
subsidiaries, less certain goodwill items.

Tier II capital may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and
other debt securities, perpetual preferred stock and a limited amount of the
allowance for possible loan losses.

Under the risk-weighted capital guidelines, balance sheet assets and
certain off-balance sheet items, such as standby letter of credit, are
assigned to one of four risk-weight categories (0%, 20%, 50% or 100%)
according to the nature of the assets and their collateral or the identity of
any obligor or guarantor. For example, cash is assigned to the 0% risk
category, while loans secured by one-to-four family residences are assigned
to the 50% risk category. The aggregated amount of such assets and
off-balance sheet items in each risk category is adjusted by the risk-weight
assigned to that category to determine weighted values, which are added
together to determine the total risk-weighted assets for the banking
organization. Accordingly, an asset, such as a commercial loan, which is
assigned to a 100% risk category is included in risk-weighted assets at its
nominal face value, whereas a loan secured by a single-family mortgage is
included at only 50% of its nominal face value.

Under regulations issued by the FRB, bank holding companies, including the
Company, are required to maintain 3% minimum leverage capital ratio (Tier I
capital, less intangible assets, to total average assets) plus an additional
capital cushion of 100 to 200 basis points (1 - 2%). In order for an
institution to operate at or near the minimum leverage requirements of 3%,
the FRB expects that such institution would have well-diversified risk, no
undue interest rate risk exposure, excellent asset quality, high liquidity
and good earnings. In general, the bank holding company would have to be
considered a strong banking organization, rated in the highest category under
the bank holding company rating system and have no significant plans for
expansion. Higher capital ratios of up to 5% will generally be required if
all the above characteristics are not exhibited, or if the institution is
undertaking expansion, seeking to engage in new activities, or otherwise
faces unusual or abnormal risks.

The FDIC adopted a similar rule for insured non-member banks, such as the
Bank, in March 1991. Pursuant to the rule, the FDIC is not precluded from
requiring a bank to maintain a higher capital level based on the
institution's particular risk profile. The FDIC rule provides that
institutions not in compliance with the regulation are expected to be
operating in compliance with a capital plan or agreement with the regulator.
If they do not do so, they are deemed to be engaging in an unsafe and unsound
practice and may be subject to enforcement action. Enforcement actions could
include a capital directive, a cease and desist order, civil monetary
penalties, removal and prohibition orders against institution-affiliated
parties, the establishment of restrictions on the Bank's operations, and
appointment of a conservator or receiver. Failure to maintain capital of at
least 2% of assets constitutes an unsafe and unsound condition justifying
termination of FDIC insurance.

The 1991 Banking Law requires each federal Banking agency including the
Board of Governors of the FRB to revise its risk-based capital standards to
ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of non-traditional activities, as
well as reflect the actual performance and expected risk of loss on
multi-family mortgages. All of the bank regulatory agencies recently issued a
final rule that amends their capital guidelines for interest rate risk and
requires such agencies to consider in their evaluation of a bank's capital
adequacy the exposure of a bank's capital and economic value to changes in
interest rates. This final rule does not establish an explicit supervisory
threshold. The agencies intend, at a subsequent date, to incorporate explicit
minimum requirements for interest rate risk into their risk based capital
standards and have proposed a supervisory model to be used together with bank
internal models to gather data and hopefully propose at a later date explicit
minimum requirements. This law also requires each federal Banking agency,
including the FRB, to specify, by regulation, the levels at which an insured
institution would be considered "well-capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." At December 31, 1995, the Bank and the Company each met
the regulatory definition of a "well-capitalized" financial institution,
i.e., a leverage capital ratio exceeding 5%, and a Tier I risk-based capital
ratio exceeding 6%, and a total risk-based capital ratio exceeding 10%.

41
<PAGE>

RECENT LEGISLATION

On September 29, 1994, the President signed into law the "Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994" (the "Interstate
Act"). Among other things, the Interstate Act permits bank holding companies
to acquire banks in any state one year after enactment. Beginning June 1,
1997, a bank may merge with a bank in another state so long as both states
have not opted out of interstate branching between the date of enactment of
the Interstate Act and May 31, 1997. States may enact laws opting out of
interstate branching before June 1, 1997, subject to certain conditions.
States may also enact laws permitting interstate merger transactions before
June 1, 1997 and host states may impose conditions on a branch resulting from
an interest merger transaction that occurs before June 1, 1997, if the
conditions do not discriminate against out-of-state banks, are not preempted
by Federal law and do not apply or require performance after May 31, 1997.
Interstate acquisitions and mergers would both be subject, in general, to
certain concentration limits and state entry rules relating to the age of the
bank.

Under the Interstate Act, the Federal Deposit Insurance Act is amended to
permit the responsible Federal regulatory agency to approve the acquisition
of a branch of an insured bank by an out-of-state bank or bank holding
company without the acquisition of the entire bank or the establishment of a
"de novo" branch only if the law of the state in which the branch is located
permits out-of-state banks to acquire a branch of a bank without acquiring
the bank or permits out-of-state banks to establish "de novo" branches.

New Jersey recently passed legislation opting-in early to interstate bank
mergers and allowing out-of-state banks and bank holding companies to branch
in New Jersey by the acquisition of a branch without the acquisition of the
entire bank.

On September 23, 1994, the President signed into law the "Riegle Community
Development and Regulatory Improvement Act of 1994" (the "Development Act").
Among other things, the Development Act establishes a $382 million fund (the
"Fund") to promote economic development and credit availability in
underserved communities by providing financial and technical assistance to
community development financial institutions ("CDFIs").

CDFIs include banks, savings associations and bank holding companies which
have a primary mission of promoting community development. Institutions
receiving monies from the Fund will be required to provide matching funds
dollar for dollar. Under the Fund, a CDFI may receive up to $5 million over a
three-year period, with affiliates in other states not presently served
eligible to receive up to an additional $3.75 million over three years.

One third of the Fund will be used to finance the Bank Enterprise Act, an
existing (but previously unfunded) incentive program designed to encourage
depository institutions to increase funding in distressed neighborhoods.

In addition to the above, the Development Act contains provisions relating
to, among others, small business capital formation, small business loan
securitization, consumer protection for "reverse mortgages," paperwork
reduction and reform of the national flood insurance program.

The foregoing is a summary and general description of certain provisions
of each of the Interstate Act and the Development Act and does not purport to
be complete. Many of the provisions of each will be implemented through the
adoption of regulations by the various Federal banking agencies. Moreover,
many of the significant provisions of the legislation have not yet become
effective. As of the date hereof, the Company is continuing to study the
legislation and regulations relating to the legislation but cannot yet assess
its impact on the Company.

42
<PAGE>

MANAGEMENT

The following table sets forth certain information with respect to the
executive officers and directors of the Company and the Bank. The directors
each serve for a one year term and until their successors are elected and
qualified. Except for Mr. Bosma who became a director in 1991, each of the
directors of the Company has served in such capacity since the formation of
the Company in 1984. Each director of the Company is also a director of the
Bank. Officers of the Company and the Bank serve at the discretion of their
respective Boards of Directors.

<TABLE>
<CAPTION>
Age as of Position with the Company
Name December 31, 1995 and/or Bank
------------------- ----------------- --------------------------------------------
<S> <C> <C>
James R. Napolitano 53 Chairman of the Board and Principal Executive
Officer of the Company and Bank

A. Roger Bosma 53 President of the Company and Bank;
Chief Credit Officer of the Bank; Director
of the Company and Bank

Joseph LoScalzo 61 Director of the Company and Bank

Esko J. Koskinen 71 Director of the Company and Bank

William F. Dator 52 Director of the Company and Bank

Julius J. Franchini 60 Director of the Company and Bank

Robert F. Frasco 63 Director of the Company and Bank

Robert O. Hagman 70 Director of the Company and Bank

Joseph A. Haynes 53 Director of the Company and Bank

Kevin J. Killian 39 Executive Vice President, Chief Financial
Officer and Secretary of the Company
and the Bank

Patrick W. Thaller 52 Executive Vice President and Chief Lending
Officer of the Bank

</TABLE>

Except as noted below, each of the directors and officers of the Company
and Bank has had the same principal occupation or employment for at least the
past five years.

Mr. Napolitano has been Chairman of the Board of the Company since 1984
and Bank since 1975. In April, 1991 in his capacity as Chairman of the Board,
Mr. Napolitano assumed executive officer responsibilities at the Company and
Bank. In July 1995, Mr. Napolitano assumed the Principal Executive Officer's
function of the Company and the Bank. In addition to his duties at the
Company and Bank, he continues to have a limited law practice with the law
firm of Napolitano & Napolitano, Esquire, Ramsey, New Jersey, of which he is
a partner.

Mr. Bosma has served as President of the Company and Bank since March 18,
1991, Chief Executive Officer of the Company and Bank from March 18, 1991 to
July, 1995 and Chief Credit Officer of the Bank since July 1995. Prior
thereto, he served as a Senior Vice President of Credit at First Fidelity
Bancorp responsible for establishing credit policy and credit training since
1985.

Mr. LoScalzo is President of LoScalzo Builders, Ltd., Allendale, New
Jersey.

Mr. Koskinen is President of Greenway Construction Co., Inc., Montvale,
New Jersey.

Mr. Dator is Partner of The Dator Commercial Agency, Inc. (Real Estate),
Mahwah, New Jersey.

43
<PAGE>

Mr. Franchini is President of Lynn Chevrolet, Inc., Kearny, New Jersey and
President of Franchini Chevrolet, Inc., Garfield, New Jersey.

Mr. Frasco is President of Frasco Enterprises (Real Estate), Mahwah, New
Jersey.

Mr. Hagman is a Partner of CSA Equipment Company, Floral Park, New Jersey.

Mr. Haynes is a Registered Representative of Smith Barney, Paramus, New
Jersey.

Mr. Killian joined the Company and Bank in March, 1992. Prior to that time
for more than five years, he was employed in various positions by First
Fidelity Bank, N.A., including Assistant Vice President - Budget Manager,
Vice President - Division Controller and Vice President Corporate Budget
Manager.

Mr. Thaller joined the Bank in July, 1995. Prior to that time for more
than five years, he was employed in various positions by the Bank of New
York, N.A. and its predecessor, National Community Bank of New Jersey,
including President, Northeast Region and Senior Officer of Banking Group and
Executive Vice President.

44
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information as of the date of this
Prospectus with respect to the beneficial ownership of the Company Common
Stock and/or Series A Preferred Stock by (i) the persons known by the Company
to be beneficial owners of more than five percent of its Common Stock and/or
Series A Preferred Stock, (ii) by each director of the Company, and (iii) by
all directors and executive officers of the Company, as a group. Except as
otherwise noted, each beneficial owner listed has sole investment and voting
power with respect to the Common Stock and/or Series A Preferred Stock. See
"Description of Securities -- Series B Non-Convertible Preferred Stock" for
a description of the Company securities beneficially owned by Commerce
Bancorp, Inc.

<TABLE>
<CAPTION>
Common Stock Series A Preferred Stock
---------------------------- ----------------------------
Shares Shares
Beneficially Percent Beneficially Percent
Name and Address of Beneficial Owner Owned (A) of Class Owned (A) of Class
------------------------------------------- -------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Independence Employee Stock
Ownership Plan
1100 Lake Street
Ramsey, NJ 07446 ......................... 374,774(b) 22.2 187,387 24.1
Robert F. and Linda Frasco
53 Indianfield Court
Mahwah, NJ 07430 ......................... 110,299(c) 8.1 22,500 2.9
Julius J. Franchini
461 Kearny Avenue
Kearny, NJ 07032 ......................... 93,518 (d) 7.0 8,900 1.1
Thomas E. and Barbara L. Napolitano
18 Lancaster Court
Ramsey, NJ 07446 ......................... 76,256 (e) 5.7 12,500 1.6
James R. and Catherine Napolitano
754 Barnstable Lane
Franklin Lakes, NJ 07417 ................. 68,788 (f) 5.2 7,834 1.0
A. Roger Bosma ............................ 13,760 (g) 1.0 1,650 *
Joseph LoScalzo ........................... 49,407 (h) 3.7 7,710 1.0
Esko J. Koskinen .......................... 58,009 (i) 4.3 9,300 1.2
William F. Dator .......................... 5,043 (j) * -- --
Robert O. Hagman .......................... 25,667 (k) 1.9 5,400 *
Joseph A. Haynes .......................... 28,315 (l) 2.1 6,250 *
All directors and executive officers of the
Company as a group (12 persons) .......... 455,445 (m) 30.2 70,544 9.1
</TABLE>

- ------
*less than 1%

(a) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission and, accordingly,
may include securities owned by or for, among others, the wife and/or
minor children of the individual and any other relative who has the same
home as such individual, as well as other securities as to which the
individual has or shares voting or investment power or has the right to
acquire within 60 days after the date of this Prospectus. Beneficial
ownership may be disclaimed as to certain of the securities.

(b) Includes 187,387 shares of Common Stock which can be acquired upon the
conversion of the Series A Preferred Stock and 187,387 shares which can
be acquired upon the exercise of the Common Stock Purchase Rights
included with the Series A Preferred Stock. See "REDEMPTION OF SERIES A
PREFERRED STOCK -- The Company's Employee Stock Ownership Plan and
Directors and Officers of the Company.

45
<PAGE>

(c) Includes 22,500 shares which could be acquired upon the conversion of the
Series A Preferred Stock and 22,500 shares which could be acquired upon
the exercise of the Common Stock Purchase Rights included with the Series
A Preferred Stock. Includes 4,025 shares which could be acquired upon the
exercise of options granted under the 1990 Stock Option Plan for
Non-Employee Directors, as amended (the "1990 Plan").

(d) Includes 8,900 shares which could be acquired upon the conversion of the
Series A Preferred Stock and 8,900 shares which could be acquired upon
the exercise of the Common Stock Purchase Rights included with the Series
A Preferred Stock. Includes 4,025 shares which may be acquired upon the
exercise of options granted under the 1990 Plan.

(e) Includes 12,500 shares which could be acquired upon conversion of the
Series A Preferred Stock and 12,500 shares which could be acquired upon
the exercise of the Common Stock Purchase Rights included with the Series
A Preferred Stock.

(f) Includes 39,195 shares held jointly by Mr. Napolitano and his wife.
Includes 6,326 shares held by Mr. Napolitano's wife and children.
Includes 2,386 shares which could be acquired upon the conversion of the
Series A Preferred Stock and 2,386 shares which could be acquired upon
the exercise of the Common Stock Purchase Rights included with the Series
A Preferred Stock. Includes 5,448 shares held by Mr. Napolitano's wife
which can be acquired upon the conversion of the Series A Preferred Stock
and 5,448 shares which could be acquired upon the exercise of the Common
Stock Purchase Rights included with the Series A Preferred Stock. Does
not include 79,200 shares held by relatives of Mr. Napolitano as to which
he disclaims beneficial ownership. Includes 525 shares which may be
acquired upon the exercise of options granted under the 1990 Plan.
Includes 3,500 shares which may be acquired upon the exercise of options
granted under the 1986 Stock Option Plan.

(g) Includes 1,000 shares which could be acquired upon the conversion of the
Series A Preferred Stock and 1,000 shares which could be acquired upon
the exercise of the Common Stock Purchase Right included with the Series
A Preferred Stock. Includes 650 shares held by Mr. Bosma's wife and
children which can be acquired upon the conversion of the Series A
Preferred Stock and 650 shares which could be acquired upon the exercise
of the Common Stock Purchase Rights included with the Series A Preferred
Stock. Includes 10,250 shares which may be acquired upon the exercise of
options granted under the 1986 Stock Option Plan.

(h) Excludes 2,714 shares held by or on behalf of Mr. LoScalzo's children as
to which he disclaims beneficial ownership. Includes 4,025 shares which
may be acquired upon the exercise of options granted under the 1990 Plan.
Includes 7,085 shares which could be acquired upon the conversion of the
Series A Preferred Stock and 7,085 shares which could be acquired upon
the exercise of the Common Stock Purchase Rights included with the Series
A Preferred Stock. Includes 625 shares held by Mr. LoScalzo's wife which
can be acquired upon the conversion of the Series A Preferred Stock and
625 shares which could be acquired upon the exercise of the Common Stock
Purchase Rights included with the Series A Preferred Stock.

(i) Includes 34,308 shares held by Greenway Construction Profit Sharing Plan
of which Mr. Koskinen is a trustee. Includes 7,000 shares held by
Greenway Construction Profit Sharing Plan which could be acquired upon
the conversion of the Series A Preferred Stock and 7,000 shares which
could be acquired upon the exercise of the Common Stock Purchase Rights
included with the Series A Preferred Stock. Includes an additional 1,550
shares which could be acquired upon the conversion of the Series A
Preferred Stock and 1,550 which could be acquired upon the exercise of
the Common Stock Purchase Rights included with the Series A Preferred
Stock. Includes 750 shares held by Mr. Koskinen's wife which could be
acquired upon the conversion of the Series A Preferred Stock and 750
shares which could be acquired upon the exercise of the Common Stock
Purchase Rights included with the Series A Preferred Stock. Does not
include 5,201 shares held by relatives of Mr. Koskinen as to which he
disclaims beneficial ownership. Includes 4,025 shares which may be
acquired upon the exercise of options granted under the 1990 Plan.

(j) Includes 393 shares which are held by Mr. Dator's wife as custodian for
Mr. Dator's children. Excludes 921 shares held by Mr. Dator's children.
Mr. Dator disclaims beneficial ownership with respect to these shares.
Includes 4,025 shares which may be acquired upon the exercise of options
granted under the 1990 Plan.

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<PAGE>

(k) Includes 5,400 shares which could be acquired upon the conversion of the
Series A Preferred Stock and 5,400 shares which could be acquired upon
the exercise of the Common Stock Purchase Rights included with the Series
A Preferred Stock. Includes 4,025 shares which may be acquired upon the
exercise of options granted under the 1990 Plan.

(l) Excludes 53 shares held by the son of Mr. Haynes. Mr. Haynes disclaims
beneficial ownership with respect to these shares. Includes 6,250 shares
which could be acquired upon the conversion of the Series A Preferred
Stock and 6,250 shares which could be acquired upon the exercise of the
Common Stock Purchase Rights included with the Series A Preferred Stock.
Includes 4,025 shares which may be acquired upon the exercise of options
granted under the 1990 Plan.

(m) Includes 70,544 shares which could be acquired upon the conversion of the
Series A Preferred Stock and 70,544 shares which could be acquired upon
the exercise of the Common Stock Purchase Rights included with the Series
A Preferred Stock. Includes 18,625 shares which may be acquired upon the
exercise of options granted under the 1986 Stock Option Plan. Includes
28,700 shares which may be acquired upon the exercise of options granted
under the 1990 Plan.

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<PAGE>

DESCRIPTION OF SECURITIES

The following statements are summaries of certain provisions of the
Company's capital stock and are qualified in their entirety by reference to
the complete text of the Company's Certificate of Incorporation, as amended
(the "Certificate"), a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part.

The Company is authorized to issue 5,000,000 shares of Common Stock, par
value $1.667 per share, and 1,000,000 shares of Preferred Stock, without par
value.

Under the Certificate, the Board of Directors is authorized, without
further stockholder action, to provide for the issuance of the Preferred
Stock in one or more classes or series within any class or classes, with such
designations, preferences, qualifications, limitations and special or
relative rights, if any, as may be designated by the Board of Directors. The
authority of the Board of Directors includes, but is not limited to, the
determination or fixing of the following with respect to shares of each class
or any series thereof: (i) the voting rights and powers, if any, (ii) the
rates and times at which, and the terms and conditions on which, dividends,
if any, will be paid, and any dividend preferences or rights of cumulation,
(iii) whether shares shall be convertible or exchangeable, and, if so, the
terms and provisions thereof, (iv) whether shares shall be redeemable, and,
if so, the terms and conditions thereof, and (v) the rights and preferences
(if any) upon the voluntary or involuntary dissolution, liquidation or
winding up of the Company.

SERIES A PREFERRED STOCK

Pursuant to its authority under the Certificate, the Board of Directors of
the Company has authorized the issuance of 776,875 shares of the Series A
Preferred Stock, all of which is issued and outstanding.

Dividends. Holders of the Series A Preferred Stock are entitled to
cumulative dividends accruing from the date of issue, when, as and if
declared by the Board of Directors out of funds legally available therefor,
at the annual rate of $0.72 per share. For information regarding certain
restrictions on the payment of dividends, see "Dividends." Subject to change
by the Board of Directors, dividends are payable quarterly on the thirtieth
day of January, April, July, and October, to holders of record as they appear
on the record books of the Company on the last day of the month preceding the
month in which the dividend is payable. If all accrued dividends on the
Series A Preferred Stock have not been paid or set apart for payment, (i) no
dividends or other distributions may be paid or set apart for payment on the
Common Stock or any other class of capital stock ranking on parity with or
junior to the Series A Preferred Stock as to dividends or other
distributions, (ii) the Company is prohibited from repurchasing, redeeming or
otherwise acquiring Common Stock or any other class of capital stock ranking
on parity with or junior to the Series A Preferred Stock as to dividends and
other distributions, and (iii) the Company is prohibited from issuing any
preferred stock which ranks senior to or on parity with the Series A
Preferred Stock.

Liquidation. In the event of any liquidation, dissolution or winding up of
the affairs of the Company, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Company, the
holders of the Series A Preferred Stock are entitled to receive, out of the
assets of the Company legally available for distribution to its shareholders,
the amount of $8.00 in cash for each share of the Series A Preferred Stock,
plus an amount equal to all dividends accrued and unpaid on each such share
up to the date fixed for distribution, before any distribution may be made to
the holders of the Company's Common Stock or any other class of capital stock
ranking junior to the Series A Preferred Stock as to dividends or other
distributions. If, after payment or provision for payment of the debts and
other liabilities of the Company, the remaining net assets of the Company are
not sufficient to pay the holders of the Series A Preferred Stock and
preferred stock of all other series ranking on parity with the Series A
Preferred Stock as to dividends and other distributions the full amounts of
their respective preferences, the holders of the Series A Preferred Stock and
preferred stock of all such other series would share ratably in any
distribution of assets.

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<PAGE>

Redemption. The Series A Preferred Stock is redeemable in whole or in
part, at the option of the Company, at the following redemption prices per
share during the following periods:

<TABLE>
<CAPTION>
If Redeemed in the
12-Month Period Then the Redemption
Beginning October 31, Price Shall Be
-------------------- -------------------
<S> <C>
1995 $8.30
1996 and thereafter $8.00
</TABLE>

plus in each case any accumulated and unpaid dividends to the date fixed for
redemption.

If less than all of the outstanding shares of the Series A Preferred Stock
are to be redeemed, redemption may be by lot, pro rata or any other means
which the Board of Directors of the Company determines to be equitable. All
rights of the holders of the Series A Preferred Stock called for redemption
shall cease on the date fixed for redemption (or, except for any rights of
conversion, on any prior date on which the redemption price plus accumulated
and unpaid dividends are deposited in trust).

Notice of redemption must be mailed at least 30 days but not more than 60
days prior to the redemption date to each holder of shares of the Series A
Preferred Stock to be redeemed at their respective addresses as shown on the
record books of the Company.

The Series A Preferred Stock is not subject to any mandatory redemption,
sinking fund or other similar provisions.

Conversion. At any time prior to redemption, shares of the Series A
Preferred Stock are convertible at the option of the holders thereof into
Common Stock at the conversion rate of one share of Common Stock for each
share of the Series A Preferred Stock, except that, with respect to shares of
the Series A Preferred Stock called for redemption, the right to convert
shall cease at the close of business on the redemption date. No payment or
adjustment on account of dividends accrued or in arrears will be made on the
shares of the Series A Preferred Stock surrendered for conversion.

The conversion rate is subject to adjustment in the event of payment of a
dividend in shares of capital stock of the Company, any subdivision or
combination of the Common Stock or a reclassification of the Common Stock.
The conversion rate also will be adjusted in case of any issuance of rights
to holders of Common Stock to subscribe for shares of Common Stock at less
than current market price or any distribution to holders of Common Stock of
evidences of indebtedness or assets.

No fractional shares will be issued on conversion, but if such conversion
results in a fraction, a cash adjustment will be paid.

Voting Rights. Except under the limited circumstances described below and
as required by applicable law, the Series A Preferred Stock has no voting
rights.

If there is a default in the payment of full dividends on the Series A
Preferred Stock for six non-consecutive quarterly dividend periods or four
consecutive quarterly dividend periods, the holders of the Series A Preferred
Stock will be entitled to notice of all meetings of the Company and to full
voting rights (together with the holders of Common Stock but not as a
separate class unless otherwise required by law) at all meetings and on all
matters, and each holder of shares of the Series A Preferred Stock will be
entitled to one vote for all full shares of Common Stock into which the
aggregate number of shares of Series A Preferred Stock held are convertible
as of the record date for such vote. All such voting rights will terminate
when all defaults in such dividends have been cured and the dividend for the
then current quarterly dividend period has been paid or declared and set
apart for payment.

If any amendment to the Company's Certificate would amend, alter or repeal
any of the preferences, special rights or powers of the Series A Preferred
Stock, authorize any reclassification of the Series A Preferred Stock, or
create any class of stock having a dividend payment or liquidation payment
preference equal or superior to the Series A Preferred Stock, then the
affirmative vote of the holders of two-thirds of all outstanding shares of
the Series A Preferred Stock, voting as a separate class, would be required
for its adoption.

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<PAGE>

Common Stock Purchase Rights. Each full share of Series A Preferred Stock
entitles the holder thereof to purchase, upon exercise thereof, one fully
paid and nonassessable share of Common Stock for $9.60 per share until the
earlier to occur of 5:00 P.M., New York time, on October 31, 1997, the
redemption of the Series A Preferred Stock or the conversion of the Series A
Preferred Stock, when such rights will expire. The Common Stock Purchase
Rights exercise price and the number and type of shares to be issued on
exercise thereof are subject to adjustments under certain circumstances
including the payment of a dividend in shares of capital stock of the
Company, any subdivision or combination of the Common Stock, a
reclassification of the Common Stock and in the event the Company issues
additional shares of common stock at a price below the then current exercise
price.

The Common Stock Purchase Rights are evidenced only by a legend on the
Series A Preferred Stock certificate. The Common Stock Purchase Rights may be
combined, exchanged or transferred upon the records of the Company only with
the Series A Preferred Stock and the Common Stock Purchase Rights may not be
split up, combined, exchanged or transferred separately upon the records of
the Company.

The Common Stock Purchase Rights may be exercised by surrendering the
Series A Preferred Stock certificate at the offices of the Company (or if the
Company has a transfer agent, the offices of the Company's transfer agent)
together with written notice to the Company (or the Company's transfer agent)
that the holder elects to exercise the rights, the number of shares of Common
Stock desired to be purchased and the applicable rights purchase price.

Fractional shares of the Company's Common Stock will not be issued upon
the exercise of the Common Stock Purchase Rights but cash will be paid in
lieu of fractional shares.

Other. The holders of the Series A Preferred Stock are not entitled to any
preemptive rights. Shares of the Series A Preferred Stock redeemed or
converted shall be deemed to be authorized and unissued shares of preferred
stock.

SERIES B NON-CONVERTIBLE PREFERRED STOCK

Pursuant to its authority under the Certificate, the Board of Directors of
the Company has authorized the issuance of 217,500 shares of the Series B
Non-Convertible Preferred Stock ("Series B Preferred Stock"), none of which
is issued and outstanding. Commerce Bancorp, Inc. owns 30,000 shares of
Series A Preferred Stock and 187,500 Stock Purchase Warrants ("Warrants")
which expire on October 31, 1997 and prior thereto are exercisable at $9.60
per share (subject to adjustment under certain circumstances). The Common
Stock Purchase Rights attached to the Series A Preferred Stock and the
Warrants owned by Commerce are exercisable only into shares of the Series B
Preferred Stock. Commerce Bancorp, Inc. also beneficially owns 35,327 shares
of Common Stock.

Dividends. Holders of the Series B Preferred Stock are entitled to
non-preferential dividends, when, as and if declared by the Board of
Directors out of funds legally available therefor, at the same rate as are
declared and paid to holders of the Company's Common Stock. For information
regarding certain restrictions on the payment of dividends, see "Dividends."
Dividends on each share of Series B Preferred Stock outstanding shall not be
cumulative. Dividends (whether in cash, stock or otherwise) shall not be
declared and paid on the Company's Common Stock without the declaration and
payment of equivalent dividends on the Series B Preferred Stock. Holders of
the Series B Preferred Stock shall be entitled to participate in any
dividends or other distributions (whether in cash, stock or otherwise)
declared and paid on or with respect to any Common Stock ratably with any
Common Stock.

Liquidation. In the event of any liquidation, dissolution or winding up of
the affairs of the Company, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Company, and
subject to the rights of the holders of any stock of the Company ranking
senior to the Series B Preferred Stock in respect of distributions upon
liquidation, dissolution or winding up of the Company, such as the Series A
Preferred Stock, the holders of the outstanding Series B Preferred Stock
shall be entitled to receive and share ratably with any distribution of
assets to be made to the holders of any Common Stock.

Voting Rights. Except under the limited circumstances described below and
as required by applicable law, the Series B Preferred Stock has no voting
rights.

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<PAGE>

If any amendment to the Company's Certificate would amend, alter or repeal
any of the preferences, special rights or powers of the Series B Preferred
Stock or authorize any reclassification of the Series B Preferred Stock then
the affirmative vote of the holders of two-thirds of all outstanding shares
of the Series B Preferred Stock, voting as a separate class, would be
required for its adoption.

Ranking. The Series B Preferred Stock shall rank junior to the Series A
Preferred Stock and on parity with the Company's Common Stock as to the
payment of dividends and the distribution of assets on liquidation,
dissolution and winding up of the Company, and, unless otherwise provided in
the Certificate of Incorporation of the Company, as amended, or a Certificate
of Designations relating to a subsequent series of preferred stock of the
Company, the Series B Preferred Stock shall rank junior to all other series
of the Company's preferred stock, as to the payment of dividends and the
distribution of assets on liquidation, dissolution or winding up.

Other. The holders of the Series B Preferred Stock are not entitled to any
preemptive rights. The shares of Series B Preferred Stock shall not be
redeemable or convertible.

COMMON STOCK

Voting Rights. Holders of Common Stock are entitled to one vote for each
share held and have no cumulative voting rights for the election of
directors.

Dividends. Subject to such preferences, limitations and relative rights as
may be fixed for any series of preferred stock that may be issued, including
the Series A Preferred Stock, holders of Common Stock are entitled to receive
such dividends, when, as and if declared by the Board of Directors out of
funds legally available therefor. For information regarding certain
restrictions on the payment of dividends, see "Dividends."

Liquidation. In the event of liquidation, after payment or provision for
payment of all debts and liabilities and subject to the rights of any series
of preferred stock which may be outstanding, including the Series A Preferred
Stock, holders of Common Stock would share pro rata in all assets
distributable to shareholders in respect of shares held by them.

Other. Holders of Common Stock have no preemptive rights. The shares of
Common Stock issuable upon conversion of the Series A Preferred Stock and the
exercise of the Common Stock Purchase Rights will, when issued, be validly
issued, fully paid and non-assessable.

TRANSFER AGENT

The transfer agent, conversion agent or registrar for the Series A
Preferred Stock and the transfer agent and registrar for the Common Stock
issuable upon conversion of the Series A Preferred Stock and issuable upon
the exercise of the Common Stock Purchase Rights is The First National Bank
of Boston.

ANTI-TAKEOVER" PROVISIONS AND MANAGEMENT IMPLICATIONS

The Certificate contains certain provisions which may be deemed to be
"anti-takeover" in nature in that such provisions may deter, discourage or
make more difficult the assumption of control of the Company by another
corporation or person through a tender offer, merger, proxy contest or
similar transaction or series of transactions.

One of these provisions relates to the ability of the Company to issue up
to 5,000,000 shares of Common Stock (of which 1,312,748 are presently
outstanding) and up to 1,000,000 shares of preferred stock (of which 776,875
are presently outstanding) with such rights, preferences and limitations as
the Board of Directors may determine. These additional shares of Common Stock
and preferred stock were authorized for the purpose of providing the
Company's Board of Directors with as much flexibility as possible to issue
additional shares, without further shareholder approval, for proper corporate
purposes including financing, acquisitions, stock dividends, stock splits,
employee incentive plans, and other similar purposes. However, these
additional shares may also be used by the Board of Directors (if consistent
with its fiduciary responsibilities) to deter future attempts to gain control
over the Company.

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<PAGE>

A second provision requires the affirmative vote of 80% of the outstanding
shares of capital stock of the Company issued and entitled to vote to approve
any merger or consolidation of the Company or any sale or lease of
substantially all of the Company's assets, unless the transaction is approved
by the Board of Directors.

The overall effect of the foregoing provisions may be to deter a future
tender offer. Shareholders may view any such offer to be in their best
interests should any offer include a substantial premium over the market
price of the Common Stock at that time. In addition, these provisions may
have the effect of assisting the Company's management to retain its position
and place it in a better position to resist changes that the shareholders may
want to make if dissatisfied with the conduct of the Company's business. The
Board of Directors of the Company does not presently know of a third party
that plans to make an offer to acquire the Company through a tender offer,
merger or purchase of substantially all of the assets of the Company.

52
<PAGE>

REDEMPTION OF SERIES A PREFERRED STOCK

The following alternatives are available with respect to holders of Series
A Preferred Stock:

(1) Convert the Series A Preferred Stock at a conversion ratio of one
share of Common Stock for each share of Series A Preferred Stock. On July
17, 1996, the closing sale price of the Common Stock, as reported on the
NASDAQ National Market was $12.25 per share. Upon conversion of the Series
A Preferred Stock, no payment or adjustment will be made in respect of
accrued dividends. THE CONVERSION RIGHT EXPIRES AT THE CLOSE OF BUSINESS
(5:00 P.M. NEW YORK CITY TIME) ON THE REDEMPTION DATE, September 6, 1996;
and/or

Based on the above-stated last sale price of the Common Stock on July
17, 1996, the market value of the Common Stock into which each share of
Series A Preferred Stock is convertible is approximately $12.25, or
considerably higher than the amount to be received upon redemption. Such
value is, of course, subject to change depending on the market price of
the Common Stock. SO LONG AS THE MARKET PRICE OF THE COMMON STOCK IS
HIGHER THAN $8.37 PER SHARE, A HOLDER WHO CONVERTS HIS SERIES A PREFERRED
STOCK WILL RECEIVE COMMON STOCK WITH A MARKET VALUE GREATER THAN THE
AMOUNT OF CASH RECEIVABLE UPON REDEMPTION OF THE SERIES A PREFERRED STOCK.

(4) Accept the Redemption Price of $8.37 for each share of Series A
Preferred Stock called for redemption; and/or

(5) Do not exercise the Common Stock Purchase Right.

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<PAGE>

COMMON STOCK PURCHASE RIGHTS NOT EXERCISED PRIOR TO THE CONVERSION OR
REDEMPTION OF THE SERIES A PREFERRED STOCK TO WHICH THEY ARE ATTACHED WILL BE
NULL AND VOID.

THE COMPANY'S EMPLOYEE STOCK OWNERSHIP PLAN AND DIRECTORS AND OFFICERS OF THE
COMPANY.

The Company's Employee Stock Ownership Plan ("ESOP") which currently owns
187,387 shares of Series A Preferred Stock has indicated it will sell a
sufficient number of shares of Series A Preferred Stock in the market and/or
to the Purchaser at market prices so as to allow the ESOP to have sufficient
funds to exercise all Common Stock Purchase Rights attached to the shares of
Series A Preferred Stock not sold. The ESOP has also indicated it will
convert all shares of Series A Preferred Stock not sold.

The directors and officers of the Company have indicated their intention
to convert all of the shares of Series A Preferred Stock owned by them into
Common Stock and exercise substantially all of the Common Stock Purchase
Rights associated with the shares of Series A Preferred Stock. It is
anticipated that the directors and officers of the Company will beneficially
own approximately an aggregate of 455,445 shares of Common Stock following
the redemption of the Series A Preferred Stock set forth in this Prospectus.
See "Principal Stockholders."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

In the opinion of Blank Rome Comisky & McCauley, Cherry Hill, New Jersey
and Philadelphia, Pennsylvania, counsel to the Company, the material federal
income tax consequences of the conversion of Series A Preferred Stock into
Common Stock, of the redemption of Series A Preferred Stock and of the
exercise of the Common Stock Purchase Rights are set forth in the following
discussion. The discussion is based upon currently existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing regulations
thereunder and current administrative rulings and court decisions. The
discussion does not address federal income tax consequences of the sale of
the Series A Preferred Stock or other potentially relevant federal income tax
matters, nor does it address the federal income tax consequences that may be
relevant to particular categories of holders subject to special treatment
under certain federal income tax laws such as dealers in securities,
tax-exempt entities, banks, insurance companies, and foreign individuals and
entities. Accordingly, the federal income tax consequences to a particular
holder of a conversion or redemption of the Series A Preferred Stock and of
the exercise of the Common Stock Purchase Rights may differ from the
consequences described herein. The discussion also does not describe any tax
consequences arising out of the tax laws of any state, locality, or foreign
jurisdiction. Holders of Series A Preferred Stock should consult their own
tax advisers about the federal, state, local, and foreign tax consequences of
the conversion or redemption of Series A Preferred Stock and of the exercise
of the Common Stock Purchase Rights.

Conversion into Common Stock. Except as discussed below, a holder
generally will recognize no gain or loss for regular federal income tax
purposes on the conversion of Series A Preferred Stock into shares of Common
Stock. A holder's tax basis in shares of Common Stock received upon
conversion in the aggregate will be the same as the holder's tax basis in the
Series A Preferred Stock converted into such shares. If a holder holds Series
A Preferred Stock as a capital asset, the holder's holding period for shares
of Common Stock received upon conversion of the Series A Preferred Stock will
include the holder's holding period for the Series A Preferred Stock.

Redemption. A holder generally will recognize gain or loss equal to the
difference, if any, between the holder's tax basis in the Series A Preferred
Stock and the amount realized by the holder upon the redemption.

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<PAGE>

(The amount realized for purposes of determining gain or loss will not
include the amount paid in connection with the redemption for accrued
dividends that have either been declared or with respect to which the holder
otherwise has a legal right prior to the date of the redemption, which will
generally be taxable as dividend income.) Gain or loss resulting from
redemption of the Series A Preferred Stock will generally be taxed under
Section 302 of the Code as gain or loss from the sale or exchange of Series A
Preferred Stock if the redemption: (i) results in a "complete termination" of
the holder's stock interest in the Company under Section 302(b)(3) of the
Code; (ii) is "substantially disproportionate" with respect to the holder
under Section 302(b)(2) of the Code; or (iii) is "not essentially equivalent
to a dividend" with respect to the shareholder under Section 302(b)(1) of the
Code. For purposes of determining whether any of these tests (the "Section
302 Tests") have been met, shares considered owned by a holder by reason of
certain constructive ownership rules under the Code, as well as shares
actually owned, must generally be taken into account. A distribution to a
shareholder will be "not essentially equivalent to a dividend" if it results
in a "meaningful reduction" in the shareholder's stock interest in the
Company.

If any of the Section 302 Tests are satisfied, the redemption of the
Series A Preferred Stock would generally result in taxable gain or loss to a
holder equal to the difference between the amount of cash received (except,
as described above, if attributable to accrued dividends) and the
shareholder's tax basis in the Series A Preferred Stock redeemed. Such gain
or loss would be capital gain or loss if the Series A Preferred Stock were
held as a capital asset, and would be long-term capital gain or loss if the
holding period for the Series A Preferred Stock were to exceed one year
(determined as of the Redemption Date). If the redemption does not satisfy
any of the Section 302 Tests, the gross proceeds received by the shareholder
would be treated as a distribution taxable as a dividend to the extent of the
Company's current and accumulated earnings and profits (as determined for
federal tax purposes) and any excess would first be treated as a return of
the holder's tax basis in the redeemed shares (to the extent thereof) and
then as a gain from a sale or exchange of the Series A Preferred Stock.

Exercise of Common Stock Purchase Rights. Generally, a holder of Common
Stock Purchase Rights will not recognize any gain or loss on the purchase of
shares of Common Stock for cash upon exercise of the Common Stock Purchase
Rights. The tax basis of the shares received will be equal to the tax basis,
as adjusted, in the Common Stock Purchase Rights so exercised, plus the cash
exercise price. The holding period of the shares received upon exercise of a
Common Stock Purchase Right for cash will not include the period during which
the Common Stock Purchase Right was held, but will commence only upon the
exercise date of the Common Stock Purchase Right.

Tax Withholding. Information reporting to the Internal Revenue Service
("IRS") will be required with respect to payments of dividends made on the
Series A Preferred Stock. Under applicable law and regulations, the Company
generally will be required to withhold, and will withhold, 31% of the
dividends paid on the Series A Preferred Stock, unless the holder or other
payee furnishes to the Company his taxpayer identification number (social
security number or employer identification number) and certifies that he is
not subject to backup withholding, and the Company has not been notified by
the IRS that the payee has under-reported interest or dividend payments.
Information reporting and withholding may also be required on the redemption
or conversion of Series A Preferred Stock if the holder fails to furnish his
taxpayer identification number or unless the holder is otherwise exempt from
withholding. Similar information reporting and withholding rules apply with
respect to dividends on and sales of the Common Stock.

STANDBY AND OTHER ARRANGEMENTS

Upon the terms and subject to the conditions contained in the Standby
Agreement, dated as of July 22, 1996 (the "Standby Agreement"), Janney
Montgomery Scott Inc. (the "Purchaser") has agreed to purchase from the
Company (i) such number of shares of Common Stock which, in the aggregate,
would have been issuable upon conversion of the Series A Preferred Stock
surrendered for redemption or not surrendered for conversion prior to the
close of business on the Redemption Date, and (ii) such number of shares of
Common Stock which, in the aggregate, would have been issuable upon exercise
of the Common Stock Purchase Rights attached to the shares of Series A
Preferred Stock which were not exercised, for a negotiated per share purchase
price based on prevailing market conditions at the time of sale for all
shares of Common Stock sold pursuant to the Standby Agreement less an 8%
discount.

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<PAGE>

The Purchaser may also acquire Series A Preferred Stock in the open market
or otherwise prior to the Redemption Date including shares of Series A
Preferred Stock from the ESOP. The Purchaser has agreed to convert into
Common Stock all Series A Preferred Stock so purchased (and exercise all
related Common Stock Purchase Rights) and all other Series A Preferred Stock
(and exercise all related Common Stock Purchase Rights) it may beneficially
own. The Company will pay the Purchaser a fee of $1.12 per share for each
share of Series A Preferred Stock so converted by the Purchaser.

The Standby Agreement provides that the Purchaser will offer any Common
Stock purchased from the Company for resale as set forth on the cover page of
this Prospectus. The Purchaser may also make sales of such shares to certain
securities dealers at prices which may reflect concessions from the prices at
which such shares are then being offered to the public. The amount of such
concessions will be determined from time to time by the Purchaser. The shares
of Common Stock so offered are offered by the Purchaser subject to prior
sale, when, as, and if received by the Purchaser and subject to their right
to reject orders in whole and in part.

Pursuant to the terms of the Standby Agreement and in consideration of
their commitment and obligations thereunder, the Company has agreed to pay to
the Purchaser in addition to the commission referenced above an advisory fee
equal to $75,000 plus its out-of-pocket expenses in connection therewith up
to a maximum of $50,000.

The Purchaser may assist in the solicitation of conversions by holders of
Series A Preferred Stock but will receive no commission therefor. The Company
has agreed to indemnify the Purchaser against certain liabilities, including
certain liabilities under the Securities Act, including civil liabilities
which arise out of or are based upon any untrue statement or alleged untrue
statement of certain material facts contained in this Prospectus or the
omission or alleged omission to state herein a material fact required to be
stated herein or necessary to make the statements herein not misleading and
certain liabilities under the Securities Act or to contribute to payments
which the Purchaser may be required to make in respect thereof.

In connection with this offering, the Purchaser and its respective
affiliates may engage in passive market making transactions in the Common
Stock on the NASDAQ National Market in accordance with Rule 10b-6A under the
Exchange Act, as amended, during a period before commencement of offers or
sales of the shares offered hereby. Under Rule 10b-6A, market makers in the
Company's Common Stock who are participating in the underwriting can continue
to make a market during the two day "cooling-off" period prior to the
commencement of the offering at a price no higher than the highest
independent bid. The passive market making transactions must comply with
applicable volume and price limits and be identified as such.

During the 180 days following the effective date of the Registration
Statement, except with the Purchaser's prior written consent and except for
(i) the issuance of the shares of Common Stock pursuant to the Standby
Agreement, (ii) the issuance of Common Stock upon conversion of the Series A
Preferred Stock and/or the issuance of Common Stock upon the exercise of
Common Stock Purchase Rights, and (iii) the issuance of Common Stock or
options pursuant to any existing employee stock option, restricted stock,
stock purchase or 401(k) plans, the Company will not offer for sale, sell, or
otherwise dispose of, or file a registration statement under the Securities
Act covering, any shares of its Common Stock, or sell or grant options,
rights, or warrants with respect to, or securities convertible into, any
shares of its Common Stock.

56
<PAGE>

LEGAL MATTERS

An opinion will be delivered by Blank Rome Comisky & McCauley, Cherry
Hill, New Jersey and Philadelphia, Pennsylvania to the effect that the shares
of Common Stock will, when issued as contemplated in this Prospectus, be
validly issued, fully paid and non-assessable. Certain legal matters relating
to the Standby Agreement will be passed upon for the Purchaser by Saul,
Ewing, Remick & Saul, Philadelphia, Pennsylvania.

EXPERTS

The consolidated financial statements of the Company as of December 31,
1995 and 1994 and for each of the three years in the period ended December
31, 1995 appearing in this Prospectus have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said report.

57
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
Audited Annual Financial Statements:
<S> <C>
Report of Independent Public Accountants ...................................................... F-1
Consolidated Balance Sheets as of December 31, 1995 and 1994 .................................. F-2
Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993 ........ F-3
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1995,
1994 and 1993 ................................................................................ F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 .... F-5
Notes to Consolidated Financial Statements .................................................... F-6
Unaudited Interim Financial Statements:
Consolidated Condensed Balance Sheet as of March 31, 1996 ..................................... F-21
Consolidated Condensed Statements of Income for the Three Month Periods Ended March 31, 1996 and
1995 ......................................................................................... F-22
Consolidated Condensed Statements of Cash Flows for the Three Month Periods Ended March 31, 1996
and 1995 ..................................................................................... F-23
Notes to Consolidated Condensed Financial Statements .......................................... F-24
</TABLE>

58
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of
Independence Bancorp, Inc.:

We have audited the accompanying consolidated balance sheets of Independence
Bancorp, Inc. (a New Jersey corporation) and subsidiary as of December 31,
1995 and 1994, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Independence Bancorp, Inc.
and subsidiary as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.

As discussed in Notes 1 and 10 to the consolidated financial statements, on
January 1, 1994 the Company changed its method of accounting for securities
and in 1995, retroactive to January 1, 1994, its method of accounting for its
Employee Stock Ownership Plan.

ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 19, 1996

F-1
<PAGE>

INDEPENDENCE BANCORP, INC AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31
------------------------
(In thousands, except per share data) 1995 1994
---------- ----------
<S> <C> <C>
Assets
Cash and due from banks (Note 2) ...................................... $ 20,280 $ 17,326
Interest bearing deposits in other banks .............................. 5,811 4,860
Federal funds sold .................................................... 12,820 8,550
---------- ----------
Cash and cash equivalents ........................................ 38,911 30,736
---------- ----------
Securities (Notes 1 and 3)
Available for sale, at market ....................................... 46,366 3,451
Held to maturity, at cost (market value $90,326 and $104,364) ....... 90,297 112,418
---------- ----------
Total securities ................................................. 136,663 115,869
---------- ----------
Loans (Notes 1, 4 and 5)
Commercial .......................................................... 26,592 27,109
Real estate-construction ............................................ 5,777 2,750
Real estate-commercial .............................................. 44,360 39,803
Real estate-residential ............................................. 29,378 28,205
Installment ........................................................... 36,387 32,591
---------- ----------
Total loans ...................................................... 142,494 130,458
Less:
Allowance for possible loan losses .................................. 2,694 2,630
---------- ----------
Loans, net ....................................................... 139,800 127,828
---------- ----------
Premises and equipment, net (Notes 1 and 6) ........................... 5,455 5,257
Accrued interest receivable ........................................... 2,759 1,890
Other real estate, net (Notes 1 and 4) ................................ 1,230 1,148
Other assets .......................................................... 369 523
---------- ----------
Total assets ..................................................... $325,187 $283,251
---------- ----------
Liabilities and Stockholders' Equity Deposits
Demand (non-interest bearing) ....................................... $ 80,877 $ 63,569
Money-market, NOW and super NOW ..................................... 91,293 81,928
Savings ............................................................. 64,928 66,397
Time certificates of $100,000 or more ............................... 13,078 6,047
Other time certificates ............................................. 54,170 47,491
---------- ----------
Total deposits ................................................... 304,346 265,432
---------- ----------
Other liabilities ..................................................... 1,020 1,100
Employee Stock Ownership Plan (ESOP) debt (Note 10) ................... 1,194 1,307
---------- ----------
Total liabilities ................................................ 306,560 267,839
---------- ----------
Commitments and Contingencies (Note 7)
Stockholders' equity (Notes 8, 9, 10 and 12)
Preferred stock, no par value, 1,000,000 shares authorized ............ -- --
Cumulative convertible preferred stock, 9% Series A, $1 par value, 776,875
issued and outstanding (liquidation value $6,215) ................... 777 777
Non convertible preferred stock, Series B, $1 stated value, authorized 217,500
shares, none issued ................................................. -- --
Common stock, par value $1.667 per share, 5,000,000 authorized; 1,312,748
and 1,308,328, respectively, issued and outstanding ................. 2,189 2,182
Additional Paid-In Capital ............................................ 12,970 12,802
Retained earnings ..................................................... 3,594 1,084
Net unrealized holding gain (loss) on securities available for sale, net
of income taxes ..................................................... 291 (126)
Unearned ESOP preferred stock ......................................... (1,194) (1,307)
---------- ----------
Total stockholders' equity ....................................... 18,627 15,412
---------- ----------
Total liabilities and stockholders' equity ....................... $325,187 $283,251
---------- ----------
</TABLE>

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

F-2
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
(In thousands, except per share data) 1995 1994 1993
------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Interest income:
Loans ............................................ $12,508 $10,554 $10,885
Securities:
Taxable ....................................... 7,120 6,012 5,092
Tax-exempt .................................... 83 9 7
Deposits with banks .............................. 245 208 244
Federal funds sold ............................... 755 290 243
--------- --------- ---------
Total interest income ............................ 20,711 17,073 16,471
--------- --------- ---------
Interest expense:
Interest on deposits ............................. 6,007 4,487 4,764
Interest on ESOP loan (Note 10) .................. 115 123 --
--------- --------- ---------
Total interest expense ........................... 6,122 4,610 4,764
--------- --------- ---------
Net interest income .............................. 14,589 12,463 11,707
Provision for possible loan losses ................. 559 1,014 2,635
--------- --------- ---------
Net interest income after provision for possible
loan losses ................................... 14,030 11,449 9,072
--------- --------- ---------
Non-interest income:
Service charges on deposit accounts .............. 1,299 1,154 1,409
Gain on sale of --
Securities .................................... -- -- 472
Residential mortgage loans and related servicing
rights ...................................... 25 3 603
Other income ..................................... 807 900 849
--------- --------- ---------
2,131 2,057 3,333
--------- --------- ---------
Non-interest expense:
Salaries and employee benefits ................... 5,481 4,900 4,628
Occupancy ........................................ 1,499 1,452 1,396
Equipment ........................................ 1,041 892 788
Other expenses (Note 13) ......................... 3,779 3,756 4,100
--------- --------- ---------
11,800 11,000 10,912
--------- --------- ---------
Income before income taxes ....................... 4,361 2,506 1,493
Income tax provision (Notes 1 and 11) ............ 1,311 823 284
--------- --------- ---------
Net income ......................................... 3,050 1,683 1,209
Dividends on preferred stock (Note 10) ........... 441 423 559
--------- --------- ---------
Net income applicable to common stock .............. $ 2,609 $ 1,260 $ 650
--------- --------- ---------
Income per common share (Note 1)
Primary ............................................ $ 1.79 $ .95 $ .50
Fully Diluted ...................................... 1.43 .87 .50
--------- --------- ---------
Average common shares outstanding:
Primary ............................................ 1,461 1,317 1,306
Fully diluted ...................................... 2,127 1,934 1,306
--------- --------- ---------

</TABLE>

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

F-3
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
Net
Unrealized
Cumulative Gain (Loss) Unearned
Convertible Additional Retained on Securities ESOP Total
Preferred Common Paid-In Earnings Available Preferred Stockholders
(In thousands, except share data) Stock Stock Capital (Deficit) for Sale Stock Equity
- ---------------------------------------------- --------- ----- --------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 ................. $777 $2,177 $12,790 ($ 814) $ -- ($ 1,472) $13,458
Net income-1993 .............................. 1,209 1,209
Cash dividends on preferred stock ($.72 per
share) ..................................... (559) (559)
Principal payment on ESOP debt . ............. 61 61
--------- ----- --------- --------- ------------- ----------- -------------
Balance at December 31, 1993 ................. 777 2,177 12,790 (164) -- (1,411) 14,169
Net income-1994 .............................. 1,683 1,683
Cash dividends on preferred stock ($.72 per
share) ..................................... (432) (432)
Common stock issued pursuant to stock option
plan (2,250 shares) ....................... 4 10 14
Common stock issued pursuant to stock bonus
plan (410 shares) ......................... 1 2 (3)
ESOP shares earned ........................... 104 104
Net unrealized holding loss on securities
available for sale, net of tax benefit .... (126) (126)
--------- ----- --------- --------- ------------- ----------- -------------
Balance at December 31, 1994 ................. 777 2,182 12,802 1,084 (126) (1,307) 15,412
Net income-1995 .............................. 3,050 3,050
Cash dividends on preferred stock ($.72 per
share)...................................... (441) (441)
Cash dividends on common stock
($.075 per share) .......................... (99) (99)
Common stock issued pursuant to dividend
reinvestment and stock option plans
(4,420 shares) ............................. 7 40 47
ESOP shares earned ............................ 82 113 195
Tax benefit on dividends paid to ESOP ......... 46 46
Change in net unrealized holding gain (loss)
on securities available for sale, net of
income taxes ................................ 417 417
--------- ----- --------- --------- ------------- ----------- -------------
Balance at December 31, 1995 ................. $777 $2,189 $12,970 $3,594 $ 291 ($ 1,194) $18,627
========= ===== ========= ========= ============= =========== =============
</TABLE>

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

F-4
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income .......................................... $ 3,050 $ 1,683 $ 1,209
---------- ---------- ----------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for possible loan losses .................. 559 1,014 2,635
Depreciation of bank premises and equipment ......... 621 606 659
Net amortization and accretion on securities ........ (37) 385 312
Provision for possible losses on other real estate .. 230 277 375
Gain on sale of securities .......................... -- -- (472)
Loss (gain) on sale of other real estate ............ 3 (106) (37)
Gain on sale of residential mortgage loan and related
servicing rights ................................. (25) (3) (603)
Increase in accrued interest receivable ............. (869) (336) (162)
Decrease in other assets ............................ 154 318 343
(Decrease) increase in other liabilities ............ (80) 428 38
---------- ---------- ----------
Total adjustments ................................ 556 2,583 3,088
---------- ---------- ----------
Net cash provided by operating activities ........... 3,606 4,266 4,297
---------- ---------- ----------
Cash Flows From Investing Activities:
Proceeds from sale of securities:
Held to maturity ................................. -- -- 24,491
Proceeds from maturities of securities:
Available for sale ............................... 3,345 2,194 --
Held to maturity ................................. 17,681 13,872 20,992
Purchase of securities:
Available for sale ............................... (3,842) -- --
Held to maturity ................................. (37,574) (41,315) (69,571)
Net (increase) decrease in loans .................... (12,677) (8,728) 4,823
(Increase) decrease in other real estate ............ (79) 1,560 (582)
Capital expenditures ................................ (819) (979) (627)
---------- ---------- ----------
Net cash used in investing activities ............... (33,965) (33,396) (20,474)
---------- ---------- ----------
Cash Flows From Financing Activities:
Net increase in deposit accounts .................... 38,914 20,749 13,087
Principal payments on ESOP debt ..................... 113 104 61
Proceeds from the issuance of common stock .......... 47 14 --
Dividends paid on preferred stock ................... (441) (432) (559)
Dividends paid on common stock ...................... (99) -- --
---------- ---------- ----------
Net cash provided by financing activities ........... 38,534 20,435 12,589
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents . 8,175 (8,695) (3,588)
Cash and cash equivalents, beginning of year ........ 30,736 39,431 43,019
---------- ---------- ----------
Cash and cash equivalents, end of year .............. $ 38,911 $ 30,736 $ 39,431
---------- ---------- ----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest ......................................... $ 6,007 $ 4,487 $ 4,764
Income taxes ..................................... 900 420 90
========== ========== ==========
</TABLE>

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

F-5
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993

(Amounts in thousands, except share data)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations. Independence Bancorp, Inc. ( the "Company")
commenced operations in June, 1984, as a New Jersey corporation and as a bank
holding company registered under the Bank Holding Company Act of 1956.
Through its banking subsidiary Independence Bank of New Jersey (the "Bank"),
the Company provides a full range of banking services to individual and
corporate customers primarily located in Northeastern New Jersey. The Company
is regulated by various Federal and state agencies and is subject to periodic
examination by those regulatory authorities.

The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and practices within the
banking industry. The significant accounting policies are summarized as
follows:

Principles of Consolidation and Use of Estimates. The accompanying
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary, the Bank and the Bank's wholly-owned investment
subsidiary, Independence Asset Management, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Securities. The Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115), effective January 1, 1994. SFAS 115 requires the
Company to classify its securities as: (1) held to maturity, (2) available
for sale and (3) trading.

Securities held to maturity consist of debt securities that management
intends to, and the Company has the ability to, hold until maturity. Such
securities are stated at cost, adjusted for amortization of premium and
accretion of discount.

Securities available for sale consist of debt and equity securities that
are not intended to be held to maturity and are not held for trading.
Securities available for sale are reported at fair value, with unrealized
gains and losses credited or charged, net of tax effect, directly to
stockholders' equity. Realized gains and losses on securities available for
sale are determined on a specific identification basis.

The Company has not classified any of its securities as trading.

Loans. Substantially all loans classified as commercial loans are at least
partially secured by real estate. Loans are stated at their principal amount
outstanding, net of any unearned income and net of loan origination fees and
costs. Nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized over the life of the loan as an
adjustment to the loan's yield. The Bank does not accrue interest on any loan
when factors indicate collectibility is doubtful. In general, the accrual of
interest is discontinued when a loan becomes 90 days past due as to principal
or interest. When interest accruals are discontinued, interest credited to
income in the current year is reversed, and interest accrued in the prior
year is charged to the allowance for possible loan losses. Management may
elect to continue the accrual of interest when the estimated net realizable
value of collateral is sufficient to cover the principal balance and accrued
interest. Non-accrual loans are returned to accrual status when interest is
received on a current basis and other factors indicating doubtful collection
cease.

Allowance for Possible Loan Losses. The allowance for possible loan losses
is maintained at a level believed by management to be adequate to meet
reasonably foreseeable loan losses on the basis of many factors including the
risk characteristics of the portfolio, underlying collateral, current and
anticipated economic condi-

F-6
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993 - (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

tions that may affect the borrower's ability to pay, specific problem loans,
and trends in loan delinquencies and charge-offs. Possible losses on loans
are provided for under the allowance method of accounting. The allowance is
increased by provisions charged to earnings and reduced by loan charge-offs,
net of recoveries. Loans are charged off in whole or in part when, in
management's opinion, collectibility is not probable.

While management uses available information to establish the allowance for
possible loan losses, future additions to the allowance may be necessary if
economic developments differ substantially from the assumptions used in
making the evaluation. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for possible loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on judgments different from those
of management.

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

The Company had previously measured the allowance for possible loan losses
using methods similar to those prescribed in the statement. As a result of
adopting these statements, no additional allowance for possible loan losses
was required as of January 1, 1995.

Premises and Equipment. Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized on a straight-line basis over the lives of the
related leases, or the life of the improvement, whichever is shorter.

Other Real Estate. Other real estate is comprised of commercial and
residential real estate properties acquired in partial or total satisfaction
of problem loans.

Other real estate is carried at the lower of fair value, as determined by
current appraisals, less estimated costs to sell, or the recorded investment
in the loan on the property. Losses identified at the time of acquisition of
such properties are charged against the allowance for possible loan losses.
Subsequent write-downs that may be required to the carrying value of these
assets and losses realized from asset sales are charged to other operating
expenses. Costs of holding such property are charged to expense as incurred.
Gains, to the extent allowable, realized on the disposition of these
properties are included in other operating income.

Income Taxes. The asset and liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.

The Company files a consolidated Federal income tax return, and the amount
of income tax expense or benefit is allocated on a subsidiary by subsidiary
basis.

Interest on Loans. Interest on commercial, industrial, simple interest
installment and real estate loans is credited to operations based upon the
principal amount outstanding. Interest on other installment loans is taken
into income on scheduled payment dates by use of the sum-of-the-month-digits
method.

Net Income Per Common Share. Primary net income per common and common
equivalent shares, after preferred dividends, is based on the weighted
average common shares and common share equivalents, including

F-7
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993 - (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

stock options and warrants, outstanding during the year, adjusted for the
effect of subsequent common stock dividends and after adjustment for the
elimination of dividends paid on unallocated shares of the ESOP Plan (See
Note 10). Fully diluted income per share is based on the weighted average
number of common and common equivalent shares outstanding adjusted for shares
issuable upon conversion of preferred stock and the elimination of dividends
paid on unallocated shares of the ESOP Plan. For the year ended December 31,
1993, shares issuable upon conversion of preferred stock and stock options
were antidilutive and have not been included in the computations of per share
information.

Statement of Cash Flows. For purposes of reporting cash flows, cash and
cash equivalents include cash and due from banks, interest bearing deposits
with banks and Federal funds sold.

Reclassifications. Certain reclassifications have been made to prior
period consolidated financial statements to place them on a basis comparable
with the current period consolidated financial statements.

New Financial Accounting Standards. The Financial Accounting Standards
Boards (FASB) issued SFAS No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of." in March
1995. This statement is effective for the year ended December 31, 1996.
Statement No. 121 requires that long-lived assets to be held and used by the
Company be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has evaluated the impact of Statement No. 121 on its
financial statements and does not expect it to be material.

NOTE 2. CASH AND DUE FROM BANKS

The Bank is required to maintain a cash reserve balance based upon its
deposits in accordance with banking regulations. The average amount of this
reserve for the years ended December 31, 1995 and 1994 was approximately
$4,334 and $3,274, respectively.

NOTE 3. SECURITIES

The amortized cost and estimated market values of the Company's securities
available for sale portfolio at December 31, 1995 and 1994 is as follows:

<TABLE>
<CAPTION>
1995 1994
------------------------------------------------- -------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Available for Sale Cost Gains Losses Value Cost Gains Losses Value
- ------------------ ----------- ----------- ----------- --------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury securities ... $33,644 $462 ($ 10) $34,096
Obligations of other U.S.
Government agencies ....... 11,283 68 (78) 11,273 $3,651 $ -- ($200) $3,451
Equity securities ........... 997 -- -- 997
----------- ----------- ----------- ---------
Total ..................... $45,924 $530 ($ 88) $46,366
=========== =========== =========== =========

</TABLE>

Information relative to the Company's securities held to maturity
portfolio at December 31, 1995 and 1994 is as follows:

<TABLE>
<CAPTION>
1995 1994
------------------------------------------------- -------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Held to Maturity Cost Gains Losses Value Cost Gains Losses Value
- ---------------- ----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury securities ... $23,496 $111 $(137) $23,470 $ 57,471 $ -- $(3,522) $ 53,949
Obligations of other U.S.
Government agencies ....... 61,493 293 (241) 61,545 54,647 -- (4,532) 50,115
Obligations of states and
political subdivisions .... 5,308 8 (5) 5,311 300 -- -- 300
----------- ----------- ----------- --------- ----------- ----------- ----------- --------
Total ..................... $90,297 $412 $(383) $90,326 $112,418 $ -- $(8,054) $104,364
=========== =========== =========== ========= =========== =========== =========== ========

</TABLE>

F-8
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993 - (Continued)

NOTE 3. SECURITIES - (Continued)

The contractual maturities of securities at December 31, 1995 are set
forth in the following table:

<TABLE>
<CAPTION>
Held to Maturity Available For Sale
----------------------------- -----------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Due in one year ................................... $ 5,008 $ 5,004 $12,712 $12,745
Due after one year through five years ............. 52,015 52,062 20,897 21,177
Due after five years through ten years ............ 3,204 3,234 8,062 8,270
Mortgage-backed securities ........................ 30,070 30,026 3,256 3,178
Equity securities ................................. -- -- 997 997
----------- -------------- ----------- --------------
Total securities ................................ $90,297 $90,326 $45,924 $46,366
=========== ============== =========== ==============

</TABLE>

Actual maturities on debt securities may differ from those presented above
as certain obligations provide the issuer the right to call or prepay the
obligation prior to scheduled maturity without penalty.

In November 1995, the FASB issued a special report - "A Guide to
Implementation of Statement No. 115 on Accounting for Certain Investments in
Debt and Equity Securities." This special report allowed a company to make a
one-time reclassification of securities from its held to maturity category
without tainting the classification of the other securities remaining within
the category. Accordingly, in December 1995, the Bank reclassified $40.7
million of held to maturity securities to available for sale resulting in a
mark-to-market gain of $286, net of tax.

In 1993, the Company sold securities totaling $24,982 for a gross gain of
$472. No securities were sold during 1994 and 1995.

The carrying value of securities pledged to secure public deposits,
treasury tax and loan deposits and for other purposes as required by law,
approximate $1,243 at December 31, 1995.

NOTE 4. LOANS

Non-Performing Assets

The following table presents categories of non-performing assets, and the
ratio of total non-performing assets to total assets:

1995 1994
-------- --------
Non-accrual loans:
Commercial ............................... $ 994 $2,207
Commercial lease financing ............... -- 22
Installment .............................. 272 306
Real estate-commercial ................... 285 758
Real estate-residential .................. 168 121
-------- --------
Total .................................. 1,719 3,414
-------- --------
Other real estate owned ....................... 1,301 1,222
-------- --------
Total non-performing assets ................... $3,020 $4,636
-------- --------
Ratio of non-performing assets to total assets . 0.93% 1.64%
-------- --------
Accruing loans past due 90 days or more:
Commercial ............................... $ 21 $ 154
Installment .............................. 12 35
-------- --------
Total .................................. $ 33 $ 189
======== ========

F-9
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993 - (Continued)

NOTE 4. LOANS - (Continued)

The amount of interest income lost on those loans classified as
non-accrual in 1995 and 1994, had these loans been current in accordance with
their original terms, was $136 and $250, respectively. There were no
significant restructured loan amounts at December 31, 1995 and 1994.

RELATED PARTY LOANS

Loans have been granted to officers and directors of the Company and its
subsidiary and to their associates. As of December 31, 1995, there were no
related party loans which were past due. The aggregate dollar amount of these
loans was $3,483 and $7,323 at December 31, 1995 and 1994, respectively.
During 1995, there were $1,903 of new loans made and repayments totaled
$3,016 and a reduction of $2,727 due to the resignation of a director.

NOTE 5. ALLOWANCE FOR POSSIBLE LOAN LOSSES

The allowance for possible loan losses is based upon estimates, and
ultimate losses may vary from the current estimates. These estimates are
reviewed periodically and, as adjustments become necessary, they are
reflected in operations in the periods in which they become known.

A summary of the activity in the allowance for possible loan losses is as
follows:

1995 1994 1993
--------- --------- ---------
Balance at beginning of year ............ $2,630 $ 2,492 $ 3,400
Provision charged to operations ......... 559 1,014 2,635
Recoveries of charged-off loans ......... 431 360 466
Loans charged-off ....................... (926) (1,236) (4,009)
--------- --------- ---------
Balance at end of year ................ $2,694 $ 2,630 $ 2,492
========= ========= =========

A loan is considered impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the
loan agreement. These loans consist primarily of non-accrual loans but may
include performing loans to the extent that situations arise which would
reduce the probability of collection in accordance with the contractual
terms. As of December 31, 1995, the Company's recorded investment in impaired
loans and the related valuation allowance calculated under SFAS No. 114 are
as follows:

Recorded Valuation
Investment Allowance
------------ -----------
Impaired loans --
Valuation allowance required ............. $ 160 $115
No valuation allowance required .......... 1,559 --
------------ -----------
Total Impaired Loans ................... $1,719 $115
============ ===========

This valuation allowance is included in the allowance for possible loan
losses in the consolidated balance sheet.

The average recorded investment in impaired loans for the year ended
December 31, 1995 was $2,686. Interest payments received on impaired loans
are recorded as interest income unless collection of the remaining recorded
investment is doubtful at which time payments received are recorded as
reductions of principal. The Company did not recognize any interest income on
impaired loans for the year ended December 31, 1995.

F-10
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993 - (Continued)

NOTE 6. PREMISES AND EQUIPMENT

The net carrying amount of premises and equipment is summarized as
follows:

December 31
--------------------
1995 1994
-------- --------
Land and land improvements ............................ $1,476 $1,457
Building .............................................. 2,503 2,122
Furniture, fixtures and equipment ..................... 3,316 2,820
Leasehold improvements ................................ 2,038 2,023
-------- --------
9,333 8,422
Less accumulated depreciation and amortization ........ 3,878 3,165
-------- --------
$5,455 $5,257
======== ========

NOTE 7. COMMITMENTS AND CONTINGENCIES

Lease Commitments

Certain Bank facilities are occupied under non-cancelable long-term
operating leases which expire at various dates through 2013. Certain lease
agreements provide for renewal options and increases in rental payments based
upon increases in the consumer price index or the lessor's cost of operating
the facility. Minimum aggregate annual lease payments for the remainder of
the term are as follows:

1996 ................................ $ 957
1997 ................................ 740
1998 ................................ 637
1999 ................................ 671
2000 ................................ 709
Thereafter .......................... 4,405
--------
Total lease commitments ........... $8,119
========

Net occupancy and equipment expense for 1995, 1994 and 1993 includes
approximately $1,106, $992 and $932, respectively, of rental expense for bank
facilities.

The Bank leases one of its branches from a director and its headquarters
facility from a partnership in which a director has a substantial interest.
In management's opinion, the terms of these leases are considered comparable
to those which would exist with unaffiliated parties, and aggregate rental
payments under these leases totaled $554, $477 and $453, in 1995, 1994 and
1993, respectively, and are included in net occupancy and equipment expense.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

In the ordinary course of the business of meeting the financial needs of
its customers, the Company through its banking subsidiary, is party to
various financial instruments which are properly not reflected in the
consolidated financial statements. These financial instruments include
standby letters of credit, unused portions of lines of credit and commitments
to extend various types of credit.

These instruments involve, to varying degrees, elements of credit risk in
excess of the amounts recognized in the consolidated financial statements.
The Company seeks to limit any exposure of credit loss by applying the

F-11
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993 - (Continued)

NOTE 7. COMMITMENTS AND CONTINGENCIES - (Continued)

same credit underwriting standards it uses for on-balance sheet lending
facilities. The following table provides a summary of financial instruments
with off-balance sheet risk at December 31, 1995:

Contract
Amount
----------
Standby letters of credit ................................... $ 3,276
Commitments under unused lines of credit .................... 47,661
Outstanding loan commitments ................................ 12,737
----------
Total financial instruments with off-balance sheet risk ... $63,674
==========

LITIGATION

In the normal course of business, the Company may be a party to various
legal proceedings and claims. In the opinion of management, the consolidated
financial position or results of operations of the Company will not be
materially affected by the outcome of such legal proceedings and claims.

NOTE 8. BENEFIT PLANS

Stock Option Plan

Under the 1986 Employee Stock Option Plan and the 1994 Employee Stock
Option Plan (the "Option Plans") 102,102 and 100,000 shares of common stock,
respectively, were available for issuance under the plan to key employees of
the Company and its subsidiary.

At the date the options are granted, the exercise price cannot be less
than the fair market value of the Company's common stock. The options may not
be exercised until one year from the date the options are granted, and expire
ten years from such date. The following is a summary of the option
transactions which occurred under the Option Plans during 1995, 1994 and
1993.

<TABLE>
<CAPTION>
Number of
Shares Price Per Share
----------- ---------------
<S> <C> <C>
Balance, December 31, 1992 ............................ 81,488 $5.50 - $22.68
Options granted ....................................... 25,400 6.25
Options canceled ...................................... (6,372) 6.00 - 22.68
----------- ---------------
Balance, December 31, 1993 ............................ 100,516 5.50 - 22.68
Options granted ....................................... 18,600 8.75
Options canceled ...................................... (25,081) 6.00 - 22.68
Options exercised ..................................... (2,250) 6.00
----------- ---------------
Balance, December 31, 1994 ............................ 91,785 5.50 - 22.68
Options granted ....................................... 20,600 13.25
Options canceled ...................................... (3,036) 6.00 - 22.68
Options exercised ..................................... (1,591) 6.00 - 8.75
----------- ---------------
Balance, December 31, 1995 (40,100 shares exercisable) . 107,758 $5.50 - $22.68
=========== ===============

</TABLE>

The 1990 Stock Option Plan for Non-Employee Directors (the "Non-Employee
Plan") reserves 84,000 shares of the Company's common stock for issuance
under the plan to members of the Board of Directors of the Company and its
subsidiary who are not also employees. At the date the options are granted,
the exercise price cannot be less than the fair market value of the Company's
common stock. The options may not be exercised until one year from the date
the options are granted and expire ten years from such date. The following is
a summary of the option transactions which occurred under the Non-Employee
Plan during 1995, 1994 and 1993.

F-12
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993 - (Continued)

NOTE 8. BENEFIT PLANS - (Continued)

<TABLE>
<CAPTION>
Number of
Shares Price Per Share
----------- ---------------
<S> <C> <C>
Balance, December 31, 1992 ................................. 12,725 $6.00 - $18.09
Options granted ............................................ 4,000 7.50
----------- ---------------
Balance, December 31, 1993 ................................. 16,725 6.00 - 18.09
Options granted ............................................ 8,000 8.00
----------- ---------------
Balance, December 31, 1994 ................................. 24,725 6.00 - 18.09
Options granted ............................................ 7,000 11.375
Options canceled ........................................... (3,025) 6.00 - 18.09
----------- ---------------
Balance, December 31, 1995 (21,700 shares exercisable) ..... 28,700 $6.00 - $18.09
=========== ===============

</TABLE>

DIVIDEND REINVESTMENT PLAN

The Company's Dividend Reinvestment Plan authorizes the sale of 100,000
shares of common stock to stockholders who choose to invest all or a portion
of their cash dividends. During 1995, 2,828 shares of common stock were
issued through the dividend reinvestment plan. During 1994 and 1993, no
shares of common stock were issued through the dividend reinvestment plan.

RETIREMENT SAVINGS PLAN

The Company has a retirement savings plan covering substantially all of
its employees. Under the Plan, the Company matches 50 percent of the
employee's contribution (up to a maximum of three percent of their
contribution). The Company's contributions under the Plan were approximately
$69, $61 and $59 in 1995, 1994 and 1993, respectively.

The Company and the Bank offer no postretirement or postemployment
employee benefits other than those described above.

NOTE 9. PREFERRED STOCK

On October 16, 1992, the Company issued 776,875 shares of nonvoting Series
A 9% cumulative convertible preferred stock. The 9% convertible preferred
stock bears a cumulative annual dividend of $.72 per share and is convertible
at any time at the option of the holder into one share of common stock,
subject to adjustment in certain events. The 9% convertible preferred stock
is redeemable at the option of the Company, under certain circumstances, at
redemption prices ranging from $9.20 to $8.00 per share plus any accumulated
and unpaid dividends to the date fixed for redemption.

Each share of the 9% convertible preferred stock gives the holder thereof
the option to purchase one share of common stock for $9.60 per share, subject
to adjustment in certain events, until the earlier to occur of October 30,
1997 or the conversion or redemption of the 9% convertible preferred stock.
The common stock purchase right is not transferable separately from the 9%
convertible preferred stock.

NOTE 10. EMPLOYEE STOCK OWNERSHIP PLAN

In 1992, the Company's Board of Directors approved the adoption of an
Employee Stock Ownership Plan ("ESOP"). The ESOP is a qualified retirement
plan for the benefit of eligible employees of the Company and its subsidiary.
The ESOP invests primarily in common stock or preferred stock which is
convertible into common stock. The assets of the ESOP are held in a trust
fund pursuant to a Trust Agreement. The trustees under the Trust Agreement
are authorized to invest up to 100% of the trust fund in common stock or
convertible preferred stock of the Company. The trustees are also authorized
to borrow money for the purpose of purchasing common stock or convertible
preferred stock of the Company.

F-13
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993 - (Continued)

NOTE 10. EMPLOYEE STOCK OWNERSHIP PLAN - (Continued)

The ESOP purchased directly from the Company 187,500 shares of the 9%
convertible preferred stock during the 1992 preferred stock offering. To
purchase such shares, the ESOP received a loan from a bank in which a former
director of the Company has a substantial interest. The loan bears interest
at a fixed annual rate of 9% and is a five year term loan requiring 19
quarterly payments of principal and interest of $57 and a final quarterly
balloon payment of the remaining principal and interest. The loan is secured
by a pledge of the shares owned by the ESOP. In addition, the Company has
guaranteed repayment of the loan and is required to contribute annually to
the ESOP an amount sufficient to pay the required debt service on the loan.
As part of the lending arrangement, the Company has issued the lending bank a
stock purchase warrant to purchase 187,500 shares of the Company's Series B
Preferred Stock.

The Accounting Standards Division of the American Institute of Certified
Public Accountants issued Statement of Position 93-6 (SOP 93-6), Employers'
Accounting for Employee Stock Ownership Plans, in November 1993. SOP 93-6
requires accounting for ESOPs under the shares allocated method for shares
purchased by the ESOPs after December 31, 1992. Application of the guidance
in this SOP may be elected, and is encouraged, for shares acquired by ESOPs
on or before December 31, 1992. The Company elected to adopt this statement
in 1995 with retroactive application, as required, effective January 1, 1994.

A summary of dividends and expenses for the ESOP follows:

December 31,
--------------
1995 1994
---- ----
Compensation expense .................................... $196 $104
Interest expense ........................................ 115 123
Dividends --
Allocated shares ................................... 17 8
Unallocated shares ................................. 118 127

In 1993, the Company reported compensation expense of $95 which is equal
to the ESOP debt principal repayments less dividends received by the ESOP.
Interest incurred on the ESOP debt of $132 in 1993 was not recorded by the
Company. Dividends paid on ESOP shares were reflected as a reduction of
retained earnings and all ESOP shares were considered outstanding for
earnings per share computations.

All dividends received by the ESOP are used to pay debt service. The ESOP
shares initially were pledged as collateral for its debt. As the debt is
repaid, shares are released from collateral and allocated to active employees
based on the proportion of debt service paid in the year. Debt of the ESOP is
recorded as debt of the Company and the shares pledged as collateral are
reported as unearned ESOP preferred stock in the balance sheet. As shares are
released from collateral, the Company reports compensation expense equal to
the current market price of the shares, and the shares become outstanding for
earnings per share computations. Dividends on allocated ESOP shares are
recorded as a reduction of retained earnings; dividends on unallocated ESOP
shares are recorded as a reduction of ESOP debt and related accrued interest.
During 1993, 176,377 shares of preferred stock were considered outstanding
for earnings per share purposes that are no longer considered outstanding
1995 and 1994.

The ESOP preferred shares as of December 31, 1995 and 1994 are as follows:

1995 1994
---------- ----------
Allocated shares, beginning of year ............... 24,100 11,123
Shares released for allocation on December 31 ..... 14,202 12,977
Unearned shares, at end of year ................... 149,085 163,400
---------- ----------
Total ESOP preferred shares ....................... 187,387 187,500
---------- ----------
Fair value of unearned shares at December 31 ...... $2,348,000 $1,797,000
========== ==========

During 1995, 113 shares were withdrawn from the ESOP.

F-14
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993 - (Continued)

NOTE 11. INCOME TAXES

The current and deferred amounts of Federal income tax expense are as
follows:

Year Ended December 31
---------------------------
1995 1994 1993
-------- ------ ------
Current ......................................... $1,619 $594 $141
Deferred ........................................ (308) 229 143
-------- ------ ------
$1,311 $823 $284
======== ====== ======

A reconciliation of the Federal income tax provision to the applicable
statutory Federal income tax rate is as follows:

<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Income before income taxes ........................................ $4,361 $2,506 $1,493
Tax expense at statutory rate ..................................... 1,483 852 508
Increase (decrease) in Federal income tax resulting from: Tax-exempt
interest ......................................................... (48) (25) (24)
Reduction of valuation allowance on deferred tax asset ............ (124) -- (346)
Other, net ........................................................ -- (4) 146
--------- --------- ---------
$1,311 $ 823 $ 284
========= ========= =========

</TABLE>

The components of the net deferred tax asset (liability) at December 31,
1995 and 1994 are as follows:

<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Allowance for possible loan losses .................................. $(302) $(172)
Depreciation ........................................................ 149 (31)
Other, net .......................................................... -- 35
Federal tax operating loss carryforwards ............................ -- --
Federal AMT credit carryforward ..................................... -- 403
---------- ----------
Total ............................................................... (153) 235
Valuation allowance ................................................. -- (124)
---------- ----------
(153) 111
Unrealized (gain) loss on securities available for sale ............. (161) 74
---------- ----------
($ 314) $ 185
========== ==========

</TABLE>

The Company recorded a valuation allowance of $124 against its net
deferred tax asset at December 31, 1994. During 1995, this valuation
allowance was reversed as the Company believes its income levels have fully
stabilized and it is more likely than not that the Company will realize the
benefit of its deferred tax asset.

NOTE 12. CAPITAL REQUIREMENTS

The Bank's regulators have classified and defined bank capital into the
following components: (1) Tier I capital which includes intangible
stockholders' equity for common stock and certain perpetual preferred stock

F-15
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993 - (Continued)

NOTE 12. CAPITAL REQUIREMENTS - (Continued)

and (2) Tier II capital which includes a portion of the allowance for
possible loan losses, certain qualifying long-term debt and preferred stock
which does not qualify for Tier I capital. The Company's regulators have
implemented risk-based capital guidelines which require a bank to maintain
certain minimum capital as a percent of such bank's assets and certain
off-balance sheet items adjusted for predefined credit risk factors (risk-
adjusted assets). The regulatory minimum Tier I and combined Tier I and Tier
II capital ratios are 4.0% and 8.0%, respectively. In addition to the
risk-based capital requirements, a bank is also required by its regulators to
maintain a certain level of Tier I capital as a percent of average tangible
assets (leverage ratio). The following table reflects the Company and the
Bank's capital ratios as of December 31, 1995:

Required Regulatory
Actual Capital Ratios (%)
-------- -------------------
Company
Tier I leverage capital ..................... 5.76% 4.00% to 5.00%
Risk-based capital
Tier I ..................................... 10.70 4.00
Total (Tier I and Tier II) ................. 11.95 8.00
Bank
Tier I leverage capital ..................... 6.10% 4.00% to 5.00%
Risk-based capital
Tier I ..................................... 11.29 4.00
Total (Tier I and Tier II) ................. 12.54 8.00
======== ====

The Federal Reserve Board (FRB) also stipulates certain capital
requirements for the Company and the Bank. In the opinion of management, the
Company's leverage capital ratio of 5.76% and the Bank's leverage capital
ratio of 6.10% at December 31, 1995, are in excess of the FRB's minimum
requirements for such ratios.

NOTE 13. OTHER EXPENSES

Other non-interest expense for the years ended December 31, 1995, 1994 and
1993 consists of the following:

1995 1994 1993
-------- -------- --------
Foreclosed real estate expense ........... $ 425 $ 491 $ 625
FDIC insurance assessment ................ 339 643 644
Legal fees (a) ........................... 259 360 502
Audit and regulatory expenses ............ 104 221 379
Credit reports ........................... 195 172 298
Other .................................... 2,457 1,869 1,652
-------- -------- --------
$3,779 $3,756 $4,100
======== ======== ========

(a) The Bank paid a total of $119, $135, and $192 in legal fees to a law firm
of which a director is a partner during the years ended December 31,
1995, 1994, and 1993, respectively.

NOTE 14. RESTRICTIONS ON SUBSIDIARY BANK DIVIDENDS

Certain bank regulatory limitations exist on the availability of
subsidiary bank undistributed net assets for the payment of dividends to the
Company without the prior approval of the bank regulatory authorities.

F-16
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993 - (Continued)

NOTE 14. RESTRICTIONS ON SUBSIDIARY BANK DIVIDENDS - (Continued)

Under New Jersey State Law dividends may be paid only if capital would
remain unimpaired and remaining surplus would be no less than 50% of capital
stock. In addition to these statutory restrictions, the subsidiary bank is
required to maintain adequate levels of capital. At December 31, 1995, $4,522
was available under the most restrictive limitations for the payment of
dividends to the Company.

NOTE 15. INDEPENDENCE BANCORP, INC.

Financial Statements of Parent Company Only

December 31
--------------------
CONDENSED BALANCE SHEETS 1995 1994
- ------------------------ --------- --------
Assets:
Deposits in subsidiary ............................... $ 124 $ 143
Other assets ......................................... 205 44
Investment in subsidiary ............................. 19,594 16,674
--------- --------
Total Assets ...................................... $19,923 $16,861
========= ========
Liabilities and Stockholders' Equity:
Employee Stock Ownership Plan (ESOP) Debt ............ $ 1,194 $ 1,307
Other liabilities .................................... 102 142
Stockholders' equity ................................. 18,627 15,412
--------- --------
Total liabilities and stockholders' equity ........ $19,923 $16,861
========= ========

Year Ended December 31
-----------------------------
CONDENSED STATEMENTS OF INCOME 1995 1994 1993
- ------------------------------ -------- -------- -------
Dividends from subsidiary .............. $ 816 $ 717 $ 517
Expenses:
Interest expense -- ESOP loan ...... 115 123 --
General and administrative expenses . 296 182 162
-------- -------- -------
Income before income taxes ............. 405 412 355
Income tax benefit ..................... 139 77 32
-------- -------- -------
Income before equity in undistributed
income of subsidiary ................. 544 489 387
Equity in undistributed income of
subsidiary ........................... 2,506 1,194 822
-------- -------- -------
Net income ............................. $3,050 $1,683 $1,209
======== ======== =======

F-17
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993 - (Continued)

NOTE 15. INDEPENDENCE BANCORP, INC. - (Continued)

<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------
CONDENSED STATEMENTS OF CASH FLOWS 1995 1994 1993
- ---------------------------------- --------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................ $ 3,050 $ 1,683 $1,209
Less equity in undistributed income of subsidiary ..... (2,506) (1,194) (822)
(Increase) decrease in other assets ................... (161) (44) 21
Decrease in other liabilities ......................... (40) (136) (5)
Other, net ............................................ 18 -- --
--------- --------- --------
Net cash provided by operating activities ............. 361 309 403
--------- --------- --------
Cash flows from financing activities:
Dividends paid -- preferred ........................... (441) (432) (559)
Dividends paid -- common .............................. (99) -- --
Issuance of common stock .............................. 47 14 --
Principal payment on ESOP debt ........................ 113 104 61
--------- --------- --------
Net cash used in financing activities ................. (380) (314) (498)
--------- --------- --------
Net change in cash .................................... (19) (5) (95)
Cash at beginning of year ............................. 143 148 243
--------- --------- --------
Cash at end of year ................................... $ 124 $ 143 $ 148
========= ========= ========
</TABLE>

NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS 107), requires disclosure of fair
value information about financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate that value. The
fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. SFAS 107 excludes
certain financial instruments and all non-financial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.

Fair value estimates are made at a specific point in time based on
relevant market information and information about the financial instrument.
In cases where the quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the entire holdings of a particular financial
instrument. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimated future cash flows, and
judgments regarding expected loss experience, current economic conditions,
risk characteristics of various financial instruments and other factors.
These estimates involve uncertainties and are subjective in nature, and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.

Fair value estimates are determined for on- and off-balance sheet
financial instruments, without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are
not considered financial instruments. Tax implications related to the
realization of the unrealized gains and losses have a significant effect on
fair value estimates and have not been considered in any of the estimates.

Reasonable comparability between financial institutions may not be likely
due to the various valuation techniques permitted and numerous estimates
which must be made given the absence of secondary markets for many of the
financial instruments. This lack of uniform valuation methodologies
introduces a greater degree of subjectively of these estimated fair values.

The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.

F-18
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993 - (Continued)

NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS - (Continued)

CASH AND CASH EQUIVALENTS, AND ACCRUED INTEREST RECEIVABLE:

The carrying amounts for cash and cash equivalents and accrued interest
receivable approximate fair value.

SECURITIES:

The fair values for securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based
on quoted market prices of comparable instruments.

LOANS:

The fair values of loans are estimated by discounting future cash flows,
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality.

DEPOSITS:

The fair value of demand and savings deposits are equal to the carrying
amounts reported in the consolidated financial statements. For certificates
of deposit, fair value is estimated using the rates currently offered for
deposits of similar maturities.

STANDBY LETTERS OF CREDIT AND COMMITMENTS TO EXTEND CREDIT:

These off-balance sheet instruments are primarily comprised of unfunded
loan commitments which are generally priced at market at the time of funding,
therefore, the fair values of these items are substantially similar to the
related notional amounts.

The carrying values and estimated fair values of the Bank's financial
statements are as follows:

<TABLE>
<CAPTION>
December 31
------------------------------------------------------
1995 1994
-------------------------- --------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents ........................... $ 38,911 $ 38,911 $ 30,736 $ 30,736
Securities available for sale ....................... 46,366 46,366 3,451 3,451
Securities held to maturity ......................... 90,297 90,326 112,418 104,364
Loans, net .......................................... 139,800 143,944 127,828 127,333
Accrued interest receivable ......................... 2,759 2,759 1,890 1,890

Financial liabilities:
Deposits ............................................ 304,346 304,882 265,432 265,519
Accrued interest payable ............................ 458 458 345 345
========== ============ ========== ============

</TABLE>

There is no material difference between the notional amount and the
estimated fair value of off-balance sheet unfunded loan commitments and
standby letters of credits which totaled $60,398 and $3,276, respectively, at
December 31, 1995 and $50,089 and $2,423 as of December 31, 1994,
respectively.

F-19
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1994 AND 1993 - (Continued)

NOTE 17. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following quarterly financial information for the two years ended
December 31, 1995 is unaudited. However, in the opinion of management, all
adjustments, which include only normal recurring adjustments necessary to
present fairly the results of operations for the periods, are reflected.
Results of operations for the periods are not necessarily indicative of the
results of the entire year or any other interim period.

<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------
1995 March 31 June 30 September 30 December 31
- ---- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C>
Total interest income .................................... $4,894 $5,198 $5,232 $5,387
Net interest income ...................................... 3,522 3,687 3,705 3,675
Provision for possible loan losses ....................... 180 160 140 79
Net income ............................................... 549 700 831 970
Net income per share -- primary .......................... $ .31 $ .42 $ .44 $ .64*
Net income per share -- fully diluted .................... $ .26 $ .33 $ .35 $ .47*
---------- --------- -------------- -------------
1994
- ----
Total interest income .................................... $3,927 $4,167 $4,379 $4,600
Net interest income ...................................... 2,901 3,092 3,237 3,233
Provision for possible loan losses ....................... 250 250 250 264
Net income ............................................... 401 431 456 395
Net income per share -- primary .......................... $ .20 $ .22 $ .24 $ .28
Net income per share -- fully diluted .................... $ .19 $ .20 $ .21 $ .28
========== ========= ============== =============

</TABLE>

* The Company adopted the AICPA Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans", in December 1995 (See Note
10). The required adjustments and per share effect have been reflected in
the fourth quarter of 1995 and 1994 since the effect on interim quarters
would not be significantly different from amounts previously reported.

F-20
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET (UNAUDITED)

<TABLE>
<CAPTION>
March 31,
(In thousands, except share data) 1996
-------------------------------- -----------
<S> <C>
Assets
Cash and due from banks .......................................................................... $ 18,281
Interest bearing deposits in other banks ......................................................... 4,073
Federal funds sold ............................................................................... 21,365
-----------
Cash and cash equivalents ...................................................................... 43,719
-----------
Securities
Available for sale, at market .................................................................. 36,744
Held to maturity, at cost (market value $100,112) .............................................. 101,557
-----------
Total securities ............................................................................ 138,301
Loans
Commercial ..................................................................................... 27,321
Real estate-construction ....................................................................... 4,811
Real estate-commercial ......................................................................... 49,122
Real estate-residential ........................................................................ 31,233
Installment .................................................................................... 36,305
-----------
Total loans ................................................................................. 148,792
Less: ............................................................................................
Allowance for possible loan losses ............................................................. 2,805
-----------
Loans, net .................................................................................. 145,987
-----------
Premises and equipment, net ...................................................................... 5,593
Accrued interest receivable ...................................................................... 3,023
Other real estate, net ........................................................................... 1,381
Other assets ..................................................................................... 385
-----------
Total assets ................................................................................... $338,389
===========
Liabilities and Stockholders' Equity Deposits ....................................................
Demand (non-interest bearing) .................................................................. $ 76,955
Money market, NOW, and super NOW ............................................................... 101,267
Savings ........................................................................................ 65,619
Time certificates of $100,000 or more .......................................................... 19,532
Other time certificates ........................................................................ 53,504
-----------
Total deposits .............................................................................. 316,877
Other liabilities ................................................................................ 1,370
Employee Stock Ownership Plan (ESOP) debt ........................................................ 1,137
-----------
Total liabilities .............................................................................. 319,384
-----------
Commitments and Contingencies
Stockholders' equity
Preferred stock, no par value, 1,000,000 shares authorized
Cumulative convertible preferred stock, 9% Series A, $1.00 par value, 776,875 issued and
outstanding (liquidation value - $6,215) ....................................................... 777
Nonconvertible preferred stock, Series B, $1.00 stated value, authorized 217,500 shares, non issued --
Common stock, par value $1.867 per share, 5,000,000 authorized; 1,315,329 issued and outstanding . 2,193
Additional paid-in capital ....................................................................... 12,946
Retained earnings ................................................................................ 4,206
Net unrealized holding gain on securities available for sale, net of income taxes ................ 17
Unearned ESOP preferred stock. ................................................................... (1,134)
-----------
Total stockholders' equity ..................................................................... 19,005
-----------
Total liabilities and stockholders' equity ..................................................... $338,389
===========

</TABLE>

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

F-21
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
(In thousands, except share data) 1996 1995
-------------------------------- ----------- -----------
<S> <C> <C>
Interest Income:
Loans .................................................... $ 3,248 $ 2,968
Securities
Taxable ............................................... 1,830 1,682
Tax-exempt ............................................ 55 4
Deposits with banks ...................................... 118 80
Federal funds sold ....................................... 195 160
----------- -----------
Total interest income ................................. 5,446 4,894
----------- -----------
Interest expense:
Interest on deposits ..................................... 1,559 1,372
Interest on ESOP loan .................................... 27 --
----------- -----------
Total interest expense ................................ 1,586 1,372
----------- -----------
Net interest income ................................... 3,860 3,522
Provision for possible loan losses ......................... 120 180
----------- -----------
Net interest income after provision for possible loan
losses .................................................. 3,740 3,342
----------- -----------
Non-Interest Income:
Service charges on deposit accounts ...................... 323 305
Gain on sale of securities ............................... 254 --
Other income ............................................. 213 193
----------- -----------
790 498
----------- -----------
Non-Interest Expense:
Salaries and employee benefits ........................... 1,592 1,340
Occupancy ................................................ 391 378
Equipment ................................................ 266 257
Other expenses ........................................... 1,006 1,044
----------- -----------
3,255 3,019
----------- -----------
Income before income taxes ............................... 1,275 821
Income tax provision ..................................... 432 272
----------- -----------
Net Income ................................................. 843 549
Dividends on preferred stock ............................. 113 140
----------- -----------
Net income applicable to common stock .................... $ 730 $ 409
=========== ===========
Net Income Per Common Share
Primary .................................................. $ .47 $ .31
Fully Diluted ............................................ .39 .26
=========== ===========
Average Common Shares Outstanding
Primary .................................................. 1,560,722 1,321,282
Fully Diluted ............................................ 2,187,796 2,112,224
=========== ===========

</TABLE>

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

F-22
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
(In thousands)
Cash Flows From Operating Activities: 1996 1995
------------------------------------ ---------- ---------
<S> <C> <C>
Net Income ........................................................... $ 843 $ 549
---------- ---------
Adjustments to Reconcile Net Income to Net Cash Provided by Operating
Activities:
Provision for possible loan losses ................................... 120 180
Depreciation of bank premises and equipment .......................... 176 187
Net amortization and accretion on securities ......................... (36) 70
Provision for possible losses on other real estate ................... -- 140
Loss on sale of other real estate .................................... 4 3
Gain on sale of residential mortgage loans and related servicing rights (2) (4)
Net loan (charge-offs) recoveries .................................... (9) 12
Net gain on sale of securities available for sale .................... (254) --
Increase in accrued interest receivable .............................. (263) (525)
(Increase) decrease in other assets .................................. (16) 27
Increase in other liabilities ........................................ 350 356
---------- ---------
Total Adjustments .................................................... 70 446
---------- ---------
Net cash provided by operating activities ............................ 913 995
---------- ---------
Cash Flows From Investing Activities:
Proceeds from maturities of securities:
Available for sale ................................................. 2,226 54
Held for maturity .................................................. 5,454 3,119
Purchase of securities:
Available for sale ................................................. (4,551) (2,872)
Held for maturity .................................................. (13,387) (3,896)
Sale of securities available for sale ................................ 8,547 --
Net increase in loans ................................................ (6,657) (4,447)
Sale of other real estate ............................................ 159 438
Capital expenditures ................................................. (314) (406)
---------- ---------
Net cash used in investing activities ................................ (8,503) (8,010)
---------- ---------
Cash Flows From Financing Activities:
Net increase in deposit accounts ..................................... 12,531 17,714
Principal payments on ESOP debt ...................................... 30 27
Proceeds from the issuance of common stock ........................... 32 --
Dividends paid on common stock ....................................... (82) --
Dividends paid on preferred stock .................................... (113) (140)
---------- ---------
Net cash provided by financing activities ............................ 12,398 17,601
---------- ---------
Net increase (decrease) in cash and cash equivalents ................. 4,808 10,586
Cash and cash equivalents, beginning of year ......................... 38,911 30,736
---------- ---------
Cash and cash equivalents, end of year ............................... $ 43,719 $41,322
---------- ---------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest ........................................................... $ 1,587 $ 1,372
Income taxes ....................................................... -- 175
Noncash investing activities:
Loans transferred to other real estate ............................. 300 165
(Increase) decrease - market valuation of securities available for
sale ............................................................. 415 71
Securities transferred from held to maturity to available for sale . -- --
---------- ---------

</TABLE>

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

F-23
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for interim financial information. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. Therefore, it is
suggested that the accompanying unaudited consolidated financial statements
be read in conjunction with the financial statements and notes thereto
included in Independence Bancorp, Inc.'s (the Company) December 31, 1995
Annual Report to Shareholders. In the opinion of management, the accompanying
unaudited consolidated financial statements include all adjustments of a
normal recurring nature necessary to present fairly the Company's financial
position as of March 31, 1996, the results of its operations for the three
months then ended, and cash flows for the first three months of 1996. The
results of operations for such interim periods are not necessarily indicative
of the results to be expected for the full year.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of Independence Bancorp,Inc. include
the accounts of the Company and its wholly-owned subsidiary, Independence
Bank of New Jersey (the Bank). All significant intercompany accounts and
transactions have been eliminated.

SECURITIES

The Company adopted Statement of Financial Accounting Standard No. 115
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS
115), effective January 1, 1994. SFAS 115 requires the Company to classify
its securities as: (1) held to maturity, (2) available for sale, and (3)
trading.

The Company has not classified any of its securities as trading.

LOANS

Substantially all loans classified as commercial loans are at least
partially secured by real estate. Loans are stated at their principal amount
outstanding, net of any unearned income and net of loan origination fees and
costs. Nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized over the life of the loan as an
adjustment to the loans' yield. The Bank does not accrue interest on any loan
when factors indicate collectibility is doubtful. In general, the accrual of
interest is discontinued when a loan becomes 90 days past due as to principal
or interest. When interest accruals are discontinued, interest credited to
income in the current year is reversed, and interest accrued in the prior
year is charged to the allowance for possible loan losses. Management may
elect to continue the accrual of interest when the estimated net realizable
value of collateral is sufficient to cover the principal balance and accrued
interest. Nonaccrual loans are returned to accrual status when interest is
received on a current basis and other factors indicating doubtful collection
cease.

F-24
<PAGE>

INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

ALLOWANCE FOR POSSIBLE LOAN LOSSES

The allowance for possible loan losses is maintained at a level believed
by management to be adequate to meet reasonably foreseeable loan losses on
the basis of many factors including the risk characteristics of the
portfolio, underlying collateral, current and anticipated economic conditions
that may affect the borrower's ability to pay, specific problem loans, and
trends in loan delinquencies and charge-offs. Possible losses on loans are
provided for under the allowance method of accounting. The allowance is
increased by provisions charged to earnings and reduced by loan charge-offs,
net of recoveries. Loans are charged-off in whole or in part when, in
management's opinion, collectibility is not probable.

OTHER REAL ESTATE

Other real estate is comprised of commercial and residential real estate
properties acquired in partial or total satisfaction of problem loans. Other
real estate is carried at the lower of fair value, as determined by current
appraisals, less estimated costs to sell, or the recorded investment in the
loan on the property. Losses identified at the time of acquisition of such
properties are charged against the allowance for possible loan losses.
Subsequent write-downs that may be required to the carrying value of these
assets and losses realized from asset sales are charged to other operating
expenses. Costs of holding such property are charged to expense as incurred.
Gains, to the extent allowable, realized on the disposition of these
properties are included in other operating income.

NET INCOME PER COMMON SHARE

Primary net income per common and common equivalent shares, after
preferred dividends, is based on the weighted average common shares and
common share equivalents, including stock options and warrants outstanding
during the year, adjusted for the effect of subsequent common stock dividends
and after adjustment for the elimination of dividends paid on unallocated
shares of the ESOP Plan. Fully diluted income per share is based on the
weighted average number of common and common equivalent shares outstanding
adjusted for shares issuable upon conversion of preferred stock and the
elimination of dividends paid on unallocated shares of the ESOP Plan.

NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES

In the normal course of business, there are outstanding various legal
proceedings, commitments and contingent liabilities, such as guarantees and
commitments to extend credit which are not reflected in the accompanying
financial statements. At March 31, 1996 standby letters of credit were
approximately $3,568,000. In addition, the Company has committed $27,633,000
for home equity loans; $24,764,000 for commercial and residential real estate
loans; $10,632,000 for commercial lines of credit and $6,132,000 for all
other commitments.

In the judgment of management, the financial position or results of
operations of the Company will not be materially adversely affected by the
outcome of any present legal proceedings or other commitments and contingent
liabilities.

F-25
<PAGE>

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

No dealer, salesperson or any other individual has been authorized to give
any information or make any representations not contained in this Prospectus
in connection with the offering covered by this Prospectus. If given or made,
such information or representations must not be relied upon as having been
authorized by the Company or the Purchaser. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy the Common
Stock in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has not been any change in the facts set forth in this Prospectus
or in the affairs of the Company since the date hereof.
------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
--------
<S> <C>
Available Information ........................... 2
Incorporation of Certain Documents by
Reference ...................................... 2
Prospectus Summary .............................. 4
Alternatives Available to Holders of Series A
Preferred Stock ................................ 7
Selected Consolidated Financial Information ..... 9
Risk Factors .................................... 11
Use of Proceeds ................................. 13
Capitalization. ................................. 14
Price Range of Common Stock ..................... 15
Dividends ....................................... 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............ 17
Business ........................................ 36
Supervision and Regulation ...................... 38
Management ...................................... 43
Principal Stockholders .......................... 45
Description of Securities ....................... 48
Redemption of Series A Preferred Stock .......... 53
Certain Federal Income Tax Consequences ......... 54
Standby and Other Arrangements .................. 55
Legal Matters ................................... 57
Experts ......................................... 57
Index to Consolidated Financial Statements ...... 58
</TABLE>

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

1,523,750 SHARES

[LOGO]

COMMON STOCK

------
PROSPECTUS
------

JANNEY MONTGOMERY SCOTT INC.

July 19, 1996

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