UNITED NATIONAL BANCORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

COMMISSION FILE NUMBER 000-16931

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UNITED NATIONAL BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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NEW JERSEY 22-2894827
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

1130 ROUTE 22 EAST, BRIDGEWATER, NJ 08807-0010
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (908) 429-2200

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [x]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [x] No [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant was $431 million as of January 31, 2003.

The number of shares of Registrant's Common Stock, $1.25 par value,
outstanding as of January 31, 2003 was 18,994,035.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement for the 2003 Annual Meeting of
Shareholders are incorporated by reference into Part III.

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INDEX -- FORM 10-K

PART I

ITEM 1. BUSINESS

GENERAL

United National Bancorp ('United', the 'Registrant' or the 'Company') is a
bank holding company registered with the Board of Governors of the Federal
Reserve System (the 'FRB') under the Bank Holding Company Act of 1956, as
amended. United was incorporated by United National Bank, the predecessor to
UnitedTrust Bank (the 'Bank') in the State of New Jersey on August 13, 1987 and
commenced operations August 1, 1988 as a bank holding company for the Bank.

At December 31, 2002, the Company had consolidated assets of $2.9 billion,
consolidated deposits of $2.2 billion and consolidated stockholders' equity of
$265 million. Based on consolidated assets at December 31, 2002, the Company was
the fifth largest independent commercial bank holding company headquartered in
New Jersey. At December 31, 2002, the total number of full-time equivalent
employees of the Company was 748.

The Bank, a wholly owned subsidiary of United, is a commercial bank
established in 1902, which is chartered under the laws of the State of New
Jersey. The Bank is a member of the Federal Reserve System (the 'Federal
Reserve') and the Federal Home Loan Bank (the 'FHLB') and its deposits are
insured by the Federal Deposit Insurance Corporation (the 'FDIC'). The Bank is
headquartered in Bridgewater, New Jersey and operates 53 banking offices in
central New Jersey and eastern Pennsylvania. In New Jersey, the Bank operates 12
offices in Somerset County, 10 offices in Hunterdon County, 10 offices in Warren
County, 6 offices in Union County, 3 offices in Middlesex County, 3 offices in
Morris County and 2 offices in Essex County. In Pennsylvania, the Bank operates
6 offices in Northampton County and 1 office in Lehigh County. The Bank also
operates 60 automatic teller machines ('ATMs') affiliated with the STAR System
and Plus nationwide networks and is a member of NYCE, Cirrus and Honor, a
Florida network.

United makes its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K, and amendments to such reports, available of
its website at www.unitedtrust.com without charge as soon as reasonably
practicable after filing or furnishing these reports to the Security and
Exchange Commission (the 'SEC').

INDUSTRY SEGMENTS

For data on industry segments, see the information under 'Lines of Business'
on pages 20-22 of this Report and under 'Note 18 -- Segment Reporting' on
pages 65-68 of this Report.

The Company serves a market area that has a diverse base of customers,
including corporations, small businesses and individuals. Through the Bank's 53
banking offices, the Company provides a broad range of commercial banking,
retail banking, real estate lending, private banking/trust and other financial
services.

The principal executive offices of both United and the Bank are located at
1130 Route 22 East, Bridgewater, New Jersey, and the telephone number at that
address is (908) 429-2200.

VISTA MERGER

On August 21, 2002, the Company acquired Vista Bancorp, Inc. ('Vista') in a
transaction accounted for under the purchase method of accounting (the 'Vista
Merger'). Under the terms of the Vista Merger, the Company acquired all
5,350,637 outstanding shares of Vista in exchange for 4,695,184 shares of the
Company's Common Stock and $37,943,095 in cash.

Based on its unaudited financial statement at June 30, 2002, Vista had total
assets of $713 million, deposits of $600 million and stockholders' equity of $66
million. Vista was headquartered in Phillipsburg, New Jersey and operated 16
banking offices in western New Jersey and eastern Pennsylvania.

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PRODUCTS AND SERVICES

The Company, through the Bank, provides a broad range of commercial banking,
retail banking, real estate lending, private banking/trust and other financial
services.

Personal Banking Services are provided by the Bank, through its network of
53 branches and 60 ATMs. Among the services provided at the branch locations
are: checking accounts, money market accounts, NOW accounts, certificates of
deposit, statement and passbook savings accounts, individual retirement accounts
('IRAs'), self-employed pension plans ('SEPs'), safe deposit services, credit
cards, consumer and other personal loans, home equity loans, mortgage loans,
lines of credit and other consumer financing vehicles.

The Bank offers a full range of trust and investment services for
individuals and corporations. These include: fiduciary services, estate
planning, custodial, employee benefits, pension, and profit sharing plans. The
market value of trust assets under administration was $735 million at December
31, 2002. Other services include the sale of alternative investment products,
such as mutual funds and tax-deferred annuities, and the sale of long-term care
insurance.

Brokerage services are offered to customers under a networking agreement
with UVest Financial Services, Inc.

Commercial Banking Services are provided to the Bank's commercial customers
at its branch locations as well as at its executive offices in Bridgewater, New
Jersey and its loan administration facility in Phillipsburg, New Jersey. These
services include secured and unsecured loans, term loans, lines of credit and
corporate credit cards. The Bank also participates in New Jersey Economic
Development Authority programs, which make tax-exempt, low interest rate
financing available to borrowers who wish to relocate or expand their activities
in New Jersey. As a Small Business Administration ('SBA') Preferred Lender, the
Bank is able to offer streamlined processing on SBA loans. In addition, the Bank
makes other Government loan programs available to qualified borrowers. As a
member of the Automated Clearing House, the Bank makes direct deposit services
available to its customers.

Other Subsidiaries of the Bank include United National Agency, Inc., a New
Jersey corporation that provides certain insurance products; United Commercial
Capital Group, LLC, a New Jersey limited liability company that provides timely
and innovative financing solutions for real estate and commercial transactions
that do not fit the parameters of traditional financings; and United National
Investment Company, Inc., a New Jersey corporation that manages a portion of the
Bank's investment portfolio and operates as an investment company under state
tax law.

COMPETITION

The Company and the Bank face strong competition in the communities they
serve from a number of sources, including other commercial banks, savings banks,
savings and loan associations, mortgage banking firms, credit unions, issuers of
commercial paper, money market funds, securities firms, consumer finance
companies, factoring companies and insurance companies. Competition for the
Company and the Bank is not limited to financial institutions based in New
Jersey. A number of large out-of-state and foreign commercial banks, bank
holding companies and other financial institutions have an established market
presence in New Jersey. Many of the financial institutions operating in New
Jersey engage in local, regional, national and international operations and have
greater resources than the Company.

SUPERVISION AND REGULATION

The banking industry is highly regulated. Statutory and regulatory controls
increase a bank holding company's cost of doing business and limit management's
options to deploy assets and maximize income. Areas subject to regulation and
supervision by the bank regulatory agencies include: the nature of business
activities; minimum capital levels; dividends; affiliate transactions; expansion
and closing of locations; acquisitions and mergers; interest rates paid on
certain types of deposits; reserves against deposits; terms, amounts and
interest rates charged to various types of borrowers; and investments.

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BANK HOLDING COMPANY REGULATION

The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the 'Holding Company Act'), and is registered
as such with and is supervised by the FRB. The Company is required to file
reports with the FRB and provide such additional information as the FRB may
require.

The Company is required to obtain the approval of the FRB before it may
acquire all or substantially all of the assets of any bank, or direct or
indirect ownership of any voting securities of any bank if, after giving effect
to such acquisition, the Company would, directly or indirectly, own or control
more than 5% of the voting shares of that bank. The Holding Company Act also
prohibits acquisition by the Company of more than 5% of the voting shares of a
bank located outside the State of New Jersey, unless the acquisition is
specifically authorized by laws of the state in which the bank is located. In
addition to the approval of the FRB, prior approval must also be obtained from
any other banking agency having supervisory jurisdiction over the bank to be
acquired before a bank acquisition can be completed. Many states, including New
Jersey, have adopted legislation which permits banks and bank holding companies
resident in New Jersey to acquire banks and bank holding companies in states
with reciprocal legislation. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the 'Interstate Banking Act') provides that the FRB may
approve an acquisition by a bank holding company of a bank located in a state
other than the bank holding company's home state without regard to whether such
transaction is prohibited under the laws of any state. The Interstate Banking
Act also permits Federal banking agencies to approve interstate bank mergers
without regard to state law. States have authority to opt-out of the legislation
subject to certain conditions. In addition, the Interstate Banking Act permits
de novo branching across state lines but only with respect to states that
affirmatively adopt legislation authorizing de novo interstate branching.

A bank holding company is prohibited from engaging in, or acquiring direct
or indirect control of more than 5% of the voting shares of any company engaged
in non-banking 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.

Under the FRB's regulations, a bank holding company is required to serve as
a source of financial and managerial strength to its subsidiary banks and may
not conduct its operations in an unsafe and unsound manner.

REGULATION OF THE BANK

On May 7, 2001, the Bank changed from a federally chartered bank to a state
chartered bank and in conjunction, changed its name from United National Bank to
UnitedTrust Bank. Since its charter change, the Bank has been subject to
regulation and examination by the Federal Reserve and the New Jersey Department
of Banking. Prior to its charter change, the Bank was subject to regulation and
examination by the Comptroller of the Currency ('Comptroller'). The deposits of
the Bank are insured by the FDIC to the extent provided by law.

The Company and the Bank are also subject to applicable provisions of New
Jersey law insofar as they do not conflict with or are not preempted by Federal
law.

COMMUNITY REINVESTMENT

Under the Community Reinvestment Act ('CRA'), as implemented by FRB
regulations, a member 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. The 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 the CRA. The CRA requires the Federal Reserve in
connection with its examination of the Bank to assess the Bank's record of
meeting the credit needs of its community and to take that record into account
in its evaluation of certain applications by the Bank. The CRA requires all
institutions to make public disclosure of their CRA ratings. The Bank received a
'Satisfactory' CRA rating in its most recent examination.

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DIVIDEND RESTRICTIONS AND OTHER ACTIONS

The Company is a legal entity separate and distinct from the Bank. Most of
the Company's revenues, including funds available for the payment of dividends
and for operating expenses, are provided by dividends paid to it by the Bank.
There are statutory and regulatory limitations on the amount of dividends that
may be paid to the Company by the Bank. The holders of the Company's Common
Stock are entitled to receive dividends, when, as and if declared by the Board
of Directors of the Company out of funds legally available. The only statutory
limitation is that such dividends may not be paid when the Company is insolvent.
As a practical matter, restrictions on the ability of the Bank to pay dividends
act as restrictions on the amount of funds available for payment of dividends by
the Company. As a New Jersey chartered commercial bank, the Bank is subject to
the restrictions on the payment of dividends contained in the New Jersey Banking
Act of 1948, as amended (the 'Banking Act'). Under the Banking Act, the Bank may
pay dividends only out of retained earnings, and out of surplus to the extent
that surplus exceeds 50% of stated capital. Under the Financial Institutions
Supervisory Act, the FDIC has the authority to prohibit a state chartered bank
from engaging in conduct that, in the FDIC's opinion, constitutes an unsafe or
unsound banking practice. Under certain circumstances, the FDIC could claim that
the payment of a dividend or other distribution by the Bank to the Company
constitutes an unsafe or unsound practice. The Company is also subject to FRB
policies which require, among other things, that a bank holding company must
maintain a minimum capital base. The FRB would most likely seek to prohibit any
dividend that would reduce a holding company's capital below these minimum
amounts. In addition, if the Company defers payment in its trust preferred
securities, it would be prohibited from paying dividends on its Common Stock
until the deferred payments had been made.

See 'Capital Adequacy' and 'Common Stock and Dividends' on page 32, 'Note
12 -- Capital Requirements' on page 55, and 'Cash Dividend Restrictions' on
pages 70-71 of this Report.

GOVERNMENTAL POLICIES AND LEGISLATION

The policies of regulatory authorities, including the Federal Reserve and
the FDIC, have had a significant effect on the operating results of commercial
banks in the past and are expected to do so in the future. An important function
of the Federal Reserve is to regulate national monetary policy (e.g., regulating
the money supply) through such means as open market dealings in securities, the
establishment of the discount rate on member bank borrowings, and changes in
reserve requirements on member bank deposits.

From time to time, various proposals are made in the United States Congress,
as well as in state legislatures, and before various bank regulatory
authorities, which would alter the powers of, and place restrictions on,
different types of banking organizations. It is impossible to predict whether
any proposals will be adopted and the impact, if any, of their adoption on the
business of the Company and the Bank.

CAPITAL REQUIREMENTS

The FRB measures capital adequacy for bank holding companies on the basis of
a risk-based capital framework and a leverage ratio. The minimum ratio of total
risk-based capital to risk-weighted assets is 8%. At least half of the total
capital must be common stockholders' equity (not inclusive of net unrealized
gains and losses on available for sale securities) and perpetual preferred
stock, less goodwill and other non-qualifying intangible assets ('Tier 1
capital'). The remainder (i.e., the 'Tier 2 risk-based capital') may consist of
hybrid capital instruments, perpetual debt, term subordinated debt, other
preferred stock and a limited amount of the allowance for loan losses. At
December 31, 2002, the Company had Tier 1 capital as a percentage of
risk-weighted assets of 10.34% and a total risk-based capital ratio of 11.36%.

In addition, the FRB has established minimum leverage ratio guidelines for
bank holding companies. These guidelines currently provide for a minimum
leverage ratio of 3% for bank holding companies that meet certain criteria,
including that they maintain the highest regulatory rating. All

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other bank holding companies are required to maintain a leverage ratio of at
least 100 to 200 basis points above the minimum. At December 31, 2002, the
Company had a leverage ratio of 7.40%.

The Bank is subject to the FDIC's Statement of Policy on Risk-Based Capital,
the requirements of which are substantially identical to the FRB's risk-based
capital framework. At December 31, 2002, the Bank had Tier 1 capital as a
percentage of risk-weighted assets of 10.14% and a total risk-based capital
ratio of 11.16%.

In addition to the Statement of Policy on Risk-Based Capital, the FDIC
requires banks to operate with a minimum Leverage Ratio of 3%. Under these
guidelines, institutions operating at the 3% minimum are expected to have well
diversified risk profiles, including no undue interest rate risk, excellent
asset quality, high liquidity and good earnings. Institutions not meeting these
characteristics, as well as institutions experiencing growth, would be expected
to maintain capital levels at least 100 to 200 basis points above the minimum.
The FDIC is authorized to set higher capital requirements for an individual bank
when the bank's particular circumstances so warrant. At December 31, 2002, the
Bank had a Leverage Ratio of 7.26%.

The FRB and the FDIC have regulations which identify concentration of credit
risk and certain risks arising from nontraditional activities, as well as an
institution's ability to manage these risks, as important factors in assessing
an institution's overall capital adequacy. The FRB capital adequacy guidelines
limit the amount of certain deferred tax assets that may be included in a bank
holding company's Tier 1 capital for risk-based and leverage capital purposes.

FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF 1989 ('FIRREA')

Under FIRREA, a bank insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
insured depository institution in danger of default. The term 'default' is
defined to mean the appointment of a conservator or receiver for such
institution and 'in danger of default' is defined generally as the existence of
certain conditions indicating that a 'default' is likely to occur in the absence
of regulatory assistance. Thus, the Bank could incur liability to the FDIC
pursuant to this statutory provision in the event of the default of any other
insured depository institution owned or controlled by the Company. At the
present time, the Bank is the only FDIC-insured depository institution
controlled by the Company.

Any such liability to the FDIC would be subordinated in right of payment to
deposit liabilities, secured obligations, any other general or senior liability
and any obligation subordinated to depositors or other general creditors, other
than obligations owed to any affiliate of the depository institution (with
certain exceptions) and any obligations to shareholders in such capacity. The
imposition of such liability in sufficient amounts, however, could lead to the
appointment of the FDIC as conservator or receiver for the Bank. If any insured
depository institution becomes insolvent and the FDIC is appointed its
conservator or receiver, within a reasonable period following such appointment
the FDIC may disaffirm or repudiate any contract or lease to which such
institution is a party, the performance of which it determines to be burdensome,
and the disaffirmance or repudiation of which it determines to promote the
orderly administration of the institution's affairs.

FIRREA broadened the enforcement powers of the Federal banking agencies,
including the power to impose fines and penalties, over all financial
institutions. FIRREA also prohibits an insured depository institution from
entering into a written or oral contract with any person for goods, products or
services that would jeopardize the safety or soundness of the institution.
Further, under FIRREA the failure to meet capital guidelines could subject a
financial institution to a variety of regulatory actions, including the
termination of deposit insurance by the FDIC.

FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 ('FDICIA')

FDICIA was enacted in December 1991 and was primarily designed to provide
additional financing for the FDIC by increasing its borrowing ability. The FDIC
was given the authority to increase deposit insurance premiums to repay any such
borrowing. In addition, FDICIA identifies the following capital

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standard categories for financial institutions: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized. As a result of FDICIA, the various banking regulatory agencies
have set certain capital and other measures for determining the categories into
which financial institutions fall. FDICIA imposes progressively more restrictive
constraints on operations, management and capital distributions depending on the
category in which an institution is classified. Pursuant to FDICIA,
undercapitalized institutions must submit recapitalization plans, and a company
controlling a failing institution must guarantee such institution's compliance
with its plan. FDICIA also required the various regulatory agencies to prescribe
certain non-capital standards for safety and soundness relating generally to
operations and management, asset quality and executive compensation, and permits
regulatory action against a financial institution that does not meet such
standards.

GRAMM-LEACH-BLILEY FINANCIAL MODERNIZATION ACT

On November 12, 1999, the Gramm-Leach-Bliley Financial Modernization Act of
1999 (the 'Modernization Act') was signed into law. The Modernization Act:

1. allows bank holding companies meeting management, capital and CRA
standards to engage in a substantially broader range of nonbanking
activities than was previously permissible, including insurance
underwriting and making merchant banking investments in commercial and
financial companies; if a bank holding company elects to become a
financial holding company, it files a certification, effective in 30
days, and thereafter may engage in certain financial activities without
further approvals;

2. allows insurers and other financial services companies to acquire banks;

3. removes various restrictions that previously applied to bank holding
company ownership of securities firms and mutual fund advisory companies;
and

4. established the overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities operations.

The FRB has adopted rules to allow banks to form subsidiaries to engage in
financial activities allowed for financial holding companies. Electing banks
must meet the same management and capital standards as financial holding
companies but may not engage in insurance underwriting, real estate development
or merchant banking. Sections 23A and 23B of the Federal Reserve Act apply to
financial subsidiaries and the capital invested by a bank in its financial
subsidiaries will be eliminated from the bank's capital in measuring all capital
ratios.

The Modernization Act also modified other current financial laws, including
laws related to financial privacy and community reinvestment.

ANTI-TERRORISM ACT

As part of the USA Patriot Act, signed into law on October 26, 2001,
Congress adopted the International Money Laundering Abatement and Financial
Anti-Terrorism Act of 2001 (the 'Act'). The Act authorizes the Secretary of the
Treasury, in consultation with the heads of other government agencies, to adopt
special measures applicable to financial institutions such as banks, bank
holding companies, broker-dealers and insurance companies. Among its other
provisions, the Act requires each financial institution: (i) to establish an
anti-money laundering program; (ii) to establish due diligence policies,
procedures and controls that are reasonably designed to detect and report
instances of money laundering in United States private banking accounts and
correspondent accounts maintained for non-United States persons or their
representatives; and (iii) to avoid establishing, maintaining, administering, or
managing correspondent accounts in the United States for, or on behalf of, a
foreign bank that does not have a physical presence in any country. In addition,
the Act expands the circumstances under which funds in a bank account may be
forfeited and requires covered financial institutions to respond under certain
circumstances to requests for information from federal banking agencies within
120 hours.

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The Act also amended the Bank Holding Company Act and the Bank Merger Act to
require the Federal banking agencies to consider the effectiveness of a
financial institution's anti-money laundering activities when reviewing an
application under these acts.

SECURITIES AND EXCHANGE COMMISSION

The Company's Common Stock is registered with the Securities and Exchange
Commission ('SEC') under the Securities Exchange Act of 1934 (the '1934 Act').
As a result of such registration, the Company and its officers, directors and
major shareholders are obligated to file certain reports with the SEC.
Furthermore, the Company is subject to proxy and tender offer rules promulgated
pursuant to the 1934 Act.

SARBANES-OXLEY ACT

The Sarbanes-Oxley Act of 2002 ('Sarbanes-Oxley Act'), which became law on
July 30, 2002, added new legal requirements for public companies affecting
corporate governance, accounting and corporate reporting.

The Sarbanes-Oxley Act provides for, among other things:

1. a prohibition on personal loans made or arranged by an issuer to its
directors and executive officers (with an exception for nearly all loans
made by banks);

2. independence requirements for audit committee members;

3. independence requirements for company auditors;

4. certification of financial statements and Forms 10-K and 10-Q reports by
the chief executive officer and the chief financial officer;

5. the forfeiture of bonuses or other incentive-based compensation and
profits from the sale of an issuer's securities by directors and senior
officers in the twelve-month period following initial publication of any
financial statements that later require restatement due to corporate
misconduct;

6. disclosure of off-balance sheet transactions;

7. two-business day filing requirements for insiders filing Form 4;

8. disclosure of a code of ethics for financial officers and prompt
disclosure on a Form 8-K of any change or waiver of such code;

9. 'real time' filing of periodic reports;

10. posting of certain SEC filings and other information on the Company
website;

11. the reporting of securities violations 'up the ladder' by both in-house
and outside attorneys;

12. restrictions on the use of non-GAAP financial measures;

13. the formation of a public accounting oversight board; and

14. various increased criminal penalties for violations of securities laws.

The Sarbanes-Oxley Act contains provisions which became effective upon enactment
on July 30, 2002 and provisions which become effective from within 30 days to
one year from enactment. The SEC has been delegated the task of enacting rules
to implement various provisions. In addition, each of the national stock
exchanges has proposed new corporate governance rules, including rules
strengthening director independence requirements for boards, the adoption of
corporate governance codes and charters for the nominating, corporate governance
and audit committees.

EFFECTS OF INFLATION

A bank's asset and liability structure differs from that of an industrial
company, since its assets and liabilities fluctuate over time based upon
monetary policies and changes in interest rates. The growth in

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a bank's earning assets, regardless of the effects of inflation, will increase
net interest income if a bank is able to maintain a consistent interest spread
between earning assets and supporting liabilities.

A purchasing power gain or loss from holding net monetary assets during the
year represents the effect of general inflation on monetary assets and
liabilities. Almost all of the assets and liabilities of the Company are
considered monetary because they are fixed in terms of dollars and, therefore,
are not materially affected by inflation.

CONCENTRATION OF CUSTOMERS AND SEASONALITY OF BUSINESS

No single person, group of persons, enterprise or other entity produces a
material portion of the Bank's deposits or loans. No customer accounts for as
much as two percent of the Bank's overall business. There is no material impact
on the Bank's volume, deposits or loans, as a result of seasonal changes. The
majority of the Bank's customers operate or reside within New Jersey and eastern
Pennsylvania. The ability of the Bank's customers to meet their contractual
obligations is, to a certain extent, dependent upon the economic conditions
existing in these states.

ITEM 2. PROPERTIES

The corporate headquarters and principal office of the Company are located
in leased facilities in Bridgewater, New Jersey, approximately 45 miles from New
York City. The Bridgewater facility has usable space of 65,000 square feet and
houses the executive offices of the Company and the Bank, as well as a banking
office of the Bank. The check and data processing center of the Bank is located
in leased facilities in Phillipsburg, New Jersey.

The Company provides banking services at 53 banking office locations. Of its
53 banking locations, the Company owns 25 and leases 28.

ITEM 3. LEGAL PROCEEDINGS

The Company is party, in the ordinary course of business, to litigation
involving collection matters, contract claims and other miscellaneous causes of
action arising from its business. Management does not consider that any current
proceedings depart from usual routine litigation and, in its judgment, the
Company's financial position and results of operations will not be materially
affected by these proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year ended December 31, 2002.

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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The following is a list of the Company's executive officers, their ages and
their positions at December 31, 2002. All of these executive officers have been
employed by the Company or its bank subsidiaries for more than five years, with
the exception of Alfred J. Soles and H. Richard Minette.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded in the over-the-counter market on the
NASDAQ Stock Market under the symbol, 'UNBJ.' The following table presents the
high and low closing sales prices of the Common Stock and the dividends declared
thereon for the periods noted below.

The Common Stock of the Company was held by 2,684 holders of record as of
December 31, 2002.

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the
Consolidated Financial Statements and related notes thereto included elsewhere
in this Annual Report and 'Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations.'

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(1) Includes Federal funds purchased, securities sold under agreements to
repurchase less than one year, FHLB advances, U.S. Treasury demand notes and
borrowed funds.

(2) Includes other borrowed funds, securities sold under agreements to
repurchase greater than one year, obligations under capital lease, trust
capital securities and employee stock ownership plan debt.

(3) Efficiency ratio is calculated by dividing adjusted non-interest expense by
tax-equivalent net interest income and adjusted non-interest income.
Adjusted non-interest expense is total non-interest expense less one-time
charges, amortization of intangible assets and net costs to operate other
real estate. Adjusted non-interest income is total non-interest income less
net gains from securities transactions and non-recurring income.

(4) Non-performing loans consist of non-accrual loans, restructured loans and
loans past due 90 days or more and still accruing.

11

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion is an analysis of the financial condition and
results of operations of the Company for the years ended December 31, 2002, 2001
and 2000 and should be read in conjunction with the related financial statements
and accompanying notes presented elsewhere herein.

VISTA MERGER

On August 21, 2002, the Company acquired Vista Bancorp, Inc. ('Vista') in a
transaction accounted for under the purchase method of accounting (the 'Vista
Merger'). Under the terms of the Vista Merger, the Company acquired all
5,350,637 outstanding shares of Vista in exchange for 4,695,184 shares of the
Company's Common Stock and $37,943,095 in cash.

Based on its unaudited financial statement at June 30, 2002, Vista had total
assets of $713 million, deposits of $600 million and stockholders' equity of $66
million. Vista was headquartered in Phillipsburg, New Jersey and operated 16
banking offices in western New Jersey and eastern Pennsylvania.

The Company and Vista entered into this merger to enhance stockholder value
by building a community banking company able to provide more products and
services for its customers, more investment opportunities for clients and added
capital to deploy in the future. The Vista Merger enhances the combined
company's range of products and services and increases the distribution channels
available to customers. The acquisition of Vista has strengthened the Company's
market share position in the western New Jersey marketplace and has provided an
entry into Pennsylvania.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Such statements are not
historical facts and include expressions about our confidence and strategies and
our expectations about earnings, opportunities, and market conditions. These
statements may be identified by such forward-looking terminology as 'expect',
'believe', 'anticipate', 'optimistic', or by expressions of confidence such as
'for the coming months', 'consistent', 'continue', 'strong', 'superior' or
similar statements or variations of such terms. Actual results may differ
materially from such forward-looking statements. The factors which may cause
such forward-looking statements to vary from actual results include, but are not
limited to, expected cost savings from the Vista Merger or other planned
programs not being realized or not being realized within the expected time
frame; income or revenues from the Vista Merger or other planned programs being
lower than expected or operating costs higher; competitive pressures in the
banking or financial services industries increasing significantly; business
disruption related to program implementation or methodologies; weakening of
economic conditions in New Jersey or Pennsylvania; changes in legal, regulatory
and tax structures; and unanticipated occurrences delaying planned programs or
initiatives or increasing their costs or decreasing their benefits. The Company
does not assume any obligation for updating any such forward-looking statements
at any time.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

'Management's Discussion and Analysis of Financial Condition and Results of
Operation' is based upon the Company's Consolidated Financial Statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. Note 1 to the Company's
Audited Consolidated Financial Statements for the year ended December 31, 2002,
contains a summary of the Company's significant accounting policies. Management
believes the Company's policy with respect to the methodology for the
determination of the allowance for loan losses involves a high degree of
complexity and requires management to make difficult and subjective judgments
which often require assumptions or estimates about highly uncertain matters.
Changes in these judgments, assumptions or estimates could materially impact
results of operations. This critical policy and its application is periodically
reviewed with the Audit Committee and with the full Board of Directors.

12

The allowance for loan losses is based upon Management's evaluation of the
adequacy of the allowance, including an assessment of known and inherent risks
in the portfolio, giving consideration to the size and composition of the loan
portfolio, actual loan loss experience, level of delinquencies, detailed
analysis of individual loans for which full collectibility may not be assured,
the existence and estimated net realizable value of any underlying collateral
and guarantees securing the loans, and current economic and market conditions.
Although Management attempts to obtain and use the best information reasonably
available, the level of the allowance for loan losses remains an estimate which
is subject to significant judgment and short-term change. Various regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowance for loan losses. Such agencies may require the Company
to make additional provisions for loan losses based upon information available
to them at the time of their examination. Furthermore, the majority of the
Company's loans are secured by real estate in the State of New Jersey.
Accordingly, the collectibility of a substantial portion of the carrying value
of the Company's loan portfolio is susceptible to changes in local market
conditions and may be adversely affected should real estate values decline or
the Central New Jersey area experience an adverse economic shock. Future
adjustments to the allowance for loan losses may be necessary due to economic,
operating, regulatory and other conditions beyond the Company's control.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

EARNINGS SUMMARY

The Company reported net income for 2002 of $20.4 million, down 17% from the
$24.8 million earned in 2001. Diluted per share earnings were $1.24 in 2002, or
23% below the $1.62 recorded for 2001. The decline in 2002 earnings resulted
from an increased loan loss provision primarily related to two large credits
(both involving fraud by the borrower) that had been placed on non-accrual and
from integration expenses related to the Vista Merger. The increases in net
interest income and non-interest expense during 2002 over 2001 were largely due
to the impact of the Vista Merger.

The return on average assets for the year was 0.88% in 2002 and 1.22% in
2001, while the return on average stockholders' equity for the year was 10.28%
in 2002 and 16.25% in 2001. The higher loan loss provisions recorded in the
first and second quarters of 2002 and the Vista integration costs incurred in
the second and third quarters of 2002 adversely affected the return on average
assets and the return on average stockholders' equity for the year 2002. The
return on average stockholders' equity was also adversely impacted by the Vista
Merger and the required application of the purchase method of accounting, which
resulted in a greater increase in stockholders' equity than would have occurred
under the pooling of interests method of accounting. The return on average
tangible stockholders' equity was 12.52% in 2002 and 16.89% in 2001. Tangible
stockholders' equity is defined as total stockholders' equity less total
intangible assets, including goodwill. The Company's efficiency ratio rose to
61.18% for 2002 from 57.34% for 2001 due to sluggish revenue growth.

NET INTEREST INCOME

The Company's most significant revenue source is net interest income, which
represents the difference between interest earned on assets and interest paid to
depositors and other creditors. A portion of the Company's total interest income
is derived from investments which are exempt from Federal taxation. Due to the
'tax-free' nature of these investments, the amount of pretax income realized
from them is less than the amount of pretax income realizable from comparable
investments subject to Federal taxation. For purposes of the following
discussion and analysis of financial condition and results of operations,
interest exempt from Federal taxation has been restated to a fully tax-
equivalent basis assuming a statutory tax rate of 35% for 2002, 2001 and 2000.
This was accomplished by adjusting this income upward to make it equivalent to
the level of taxable income required to earn the same amount after taxes.

13

A summary of net interest income on a tax-equivalent basis for 2002 and 2001
is presented in the following table:

For the year ended December 31, 2002, tax-equivalent net interest income
increased 13% from the prior year as the result of 13% growth in average
interest earning assets, partly offset by a two basis point decline in the net
interest margin.

An analysis of the major factors affecting the Company's net interest margin
during 2002 follows:

ANALYSIS OF NET INTEREST MARGIN

The two basis point narrowing in the net interest margin during 2002
compared to 2001 primarily resulted from the negative effect that the lower
interest rate environment had on the contribution of net non-interest bearing
funds, a less favorable mix of interest bearing liabilities, a shift in the mix
of earning assets from higher yielding loans to lower yielding securities and
short-term investments, and higher levels of non-performing loans. Wider spreads
on securities and loans served to partially offset these unfavorable factors.
During the second half of 2002, the Company's net interest margin was adversely
affected by an acceleration of prepayments on mortgage-related assets. Further
margin pressure could result from a continuation of such trends in the absence
of any shift in the Company's interest rate sensitivity position.

Average interest earning assets grew 13% in 2002 from 2001 as average loans,
securities and short-term investments all increased. Average loans increased
$150 million or 12% during 2002 compared to 2001, primarily from loans added in
the Vista Merger that was consummated in the third quarter of 2002. Average
securities rose $65 million or 10% in 2002 from 2001, also due to the Vista
Merger. Average short-term investments increased $35 million to $37 million in
2002 from $2 million in 2001, due to a sharp rise in prepayments on
mortgage-related assets.

Average deposits grew 16% in 2002 from 2001 and average core deposits (which
exclude time deposits of $100,000 and over) rose 22%. Average total deposits for
2002 contained approximately $216 million in such deposits resulting from the
Vista Merger. Excluding the effect of the Vista Merger, average total deposits
for 2002 increased $19 million or 1% from 2001, while average core deposits grew
$75 million or 6%. The increase in average core deposits in 2002 over 2001
excluding the impact of Vista Merger was largely attributable to a $23 million
or 9% growth in average demand deposits and a $62 million or 11% growth in
average savings deposits, which includes NOW and money market accounts. The
Company reduced its short-term borrowings by $110 million or 59% due to the
effect of the Vista Merger as well as to the aforementioned growth in average
core deposits. Average other borrowings, which consist of debt having an
original maturity of one year or more, increased $124 million or 61% during 2002
from 2001. The increase in average other borrowings was principally due to
liability extensions made in the second quarter of 2001 to reduce the liability
sensitivity of the Bank, higher amortizing advances from the Federal Home Loan
Bank of New York that were used to match fund certain fixed-rate loans and the
issuance of $30 million of trust preferred securities in December 2001.

14

AVERAGE CONSOLIDATED BALANCE SHEET, NET INTEREST INCOME AND NET INTEREST MARGIN
(TAX-EQUIVALENT BASIS)

- ---------

(1) Securities available for sale are stated at amortized cost.

(2) Average loan balances and yields include non-accruing loans. Loan fees are
included in the interest amounts and are not material.

15

The following table presents an analysis of the impact on interest income
and expense resulting from changes in average volumes and rates over the past
three years. For purposes of this disclosure, changes that are not solely due to
volume or rate have been allocated proportionally to both, based on their
relative absolute values.

VOLUME/RATE ANALYSIS (TAX-EQUIVALENT BASIS)

PROVISION FOR LOAN LOSSES

The provision for loan losses represents Management's estimate of the amount
necessary to be charged to operations to bring the allowance for loan losses to
a level that is considered adequate in relation to the risk of losses inherent
in the loan portfolio. Actual loan losses, net of recoveries, serve to reduce
the allowance.

The loan loss provision amounted to $11.2 million in 2002 representing an
$8.4 million increase from the 2001 provision of $2.8 million. The substantial
increase in the loan loss provision for 2002 was related primarily to two large
credits that were placed on non-accrual in the first and second quarters of
2002.

16

NON-INTEREST INCOME

Non-interest income has become an increasingly important source of revenue
for the Company. The major components of non-interest income are presented
below.

- ---------

NM -- Not meaningful.

Non-interest income amounted to $23.1 million in 2002, an increase of 2%
from the $22.7 million earned in 2001. The principal factors affecting this
comparison were the impact of the Vista Merger, which added approximately $1.5
million in other income and was largely responsible for the increases in service
charges on deposit accounts and in income on life insurance; a $1.2 million
recovery from the dissolution of the United Financial Services ('UFS') joint
venture in the first quarter of 2002; and a higher gain on the sale of a credit
card portfolio in the second quarter of 2002. These favorable factors were
partially offset by lower other service charges, commissions and fees and a
decrease in trust income. The decline in other service charges, commissions and
fees was primarily related to lower credit card fees resulting from the sale of
these portfolios in 2001 and 2002, while the decrease in trust income was due to
lower asset values under administration resulting from stock market conditions.

NON-INTEREST EXPENSE

The Company closely monitors non-interest expense growth. The following
table presents an analysis of the major categories of non-interest expenses:

17

Non-interest expense increased 19% to $68.7 million in 2002 over the $57.9
million incurred in 2001. A major factor in the overall expense increase was the
inclusion of approximately $4.5 million in non-interest expenses resulting from
the Vista Merger, which contributed to the growth in salary, occupancy,
furniture and equipment, marketing and telecommunication expenses. An increase
in merger-related and restructuring charges, pension plan and healthcare
expenses, legal and other professional service fees, and intangible asset
amortization related to the Vista Merger were also principal factors
contributing to the growth in expenses. Partly offsetting these expense
increases were declines in data processing expense related to the in-house
processing of checks and lower credit card expense resulting from the sale of
this portfolio.

The Company adopted the fair value based method to recognize compensation
expense on all of its outstanding stock option awards in the fourth quarter of
2002, in accordance with the provisions of Statement of Financial Accounting
Standards ('SFAS') No. 123, 'Accounting for Stock-Based Compensation,' as
amended by SFAS No. 148, which permits retroactive restatement. Accordingly, the
Company increased its employee benefit expense in its current and prior periods.
The impact on net income per diluted share was $(0.02) for each year in the
three-year period ended December 31, 2002.

INCOME TAXES

The provision for income taxes amounted to $3.7 million in 2002, down $5.8
million or 61% from the $9.5 million incurred in 2001. The decline in the income
tax provision in 2002 from 2001 was due to a 29% decrease in income before
provision for income taxes and a lower effective tax rate. The effective tax
rate was 15% for 2002 and 28% for 2001. The decline in the effective tax rate
for 2002 versus 2001 was largely due to an increase in the proportion of
tax-exempt income to income before provision for income taxes. For further
information regarding the provision for income taxes, see 'Note 13 -- Income
Taxes' on pages 56-57 of this Report.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

EARNINGS SUMMARY

Net income for 2001 was $24.8 million, largely unchanged from the $24.7
million earned in 2000. Diluted net income per share was $1.62 in 2001 compared
to $1.59 reported in 2000. The Company's operating income for 2001, defined as
net income excluding the effect of one-time charges, net of taxes, was $25.2
million, or $1.65 per diluted share. Net income for 2001 included a
non-recurring, after-tax charge of $0.5 million, or $0.03 per diluted share,
related to the conversion of United National Bank to a state chartered bank and
its name change to UnitedTrust Bank. On an operating basis, income per diluted
share increased 4% to $1.65 from the $1.59 reported in 2000.

In 2001, the return on average assets was 1.22% compared to 1.16% in 2000.
The return on average stockholders' equity was 16.25% in 2001 versus 20.48% in
2000. In addition, the efficiency ratio improved to 57.34% for 2001 from 58.60%
in 2000. The decrease in the efficiency ratio from 2000 to 2001 was due
primarily to an increase in net interest income.

NET INTEREST INCOME

A summary of net interest income on a tax-equivalent basis for 2001 and 2000
is presented in the following table:

For the year ended December 31, 2001, tax-equivalent net interest income
grew 4% from the prior year as a result of a 39 basis point widening of the net
interest margin, partly offset by lower levels of average interest earning
assets, principally loans and securities.

18

The net interest margin widened to 4.04% in 2001 from 3.65% in 2000. This 39
basis point improvement resulted primarily from a more rapid decline on rates
paid on deposits and borrowings than on earning asset yields. Also contributing
to the margin improvement in 2001 was the more rapid recognition of accretion on
certain securities purchased at a discount due to prepayments and calls. Partly
offsetting the margin expansion in these periods was a reduced contribution from
net non-interest bearing funds due to the lower interest rate environment.

Average interest earning assets declined 6% in 2001 from 2000 as both
average loans and securities decreased. Average loans fell $55 million or 4%
during 2001 compared to 2000 and resulted from $103 million in planned loan
sales made by the Company during 2001 to reposition its balance sheet. These
transactions involved the sale of $81 million in residential mortgage loans in
the first half of 2001 and $22 million in credit card receivables at June 30,
2001. Average securities declined $69 million or 10% in 2001 from 2000,
primarily due to higher than expected principal prepayments received on the
existing portfolio, as well as calls on certain Federal agency securities
resulting from a declining interest rate environment.

Average deposits and average core deposits (which exclude time deposits of
$100,000 and over) both declined 5% in 2001 from 2000. The 5% decline in average
total deposits resulted primarily from a lower level of average time deposits
and from a $25 million decrease in average savings deposits, including NOW and
money market accounts, of which nearly half was due a decrease in secured credit
card deposits resulting from the sale of this business in the second quarter of
2001. Average non-interest bearing deposits increased $9 million or 3% in 2001
from 2000.

NON-INTEREST INCOME

The major components of non-interest income for the years 2001 and 2000 are
presented below.

- ---------

NM -- Not meaningful.

In 2001, total non-interest income amounted to $22.7 million, a decrease of
$3.9 million or 15% from 2000. The decline in non-interest income in 2001 was
largely due to a $3.7 million decrease in net gains from securities transactions
and a $2.5 million reduction in other service charges, commissions and fees,
partially offset by a $1.3 million increase in other income, a $723,000 increase
in income on life insurance and a $542,000 gain on the disposition of the
Company's $22 million secured credit card portfolio at the end of the second
quarter of 2001.

Net gains on securities transactions of $0.2 million were recorded in 2001
compared with $3.9 million in 2000. The 2000 gains resulted from the sale of
certain equity securities.

The decline in other service charges, commissions and fees in 2001 was due
primarily to a decrease in fees generated from our credit card area related to
the aforementioned sale of credit card receivables.

The growth in income on life insurance in 2001 from 2000 resulted primarily
from additional purchases made in the second half of 2000, while the increase in
other income in 2001 from 2000 was primarily due to higher gains recognized from
the sale of residential mortgage loans.

19

NON-INTEREST EXPENSE

The following table presents an analysis of the major categories of
non-interest expenses for the years 2001 and 2000:

- ---------

NM -- Not meaningful.

Non-interest expense increased a modest 1% to $57.9 million in 2001 over the
$57.4 million recognized in 2000. Included in non-interest expense in 2001 were
pretax restructuring charges of $792,000 in connection with the conversion of
United National Bank to a state chartered bank and its name change to
UnitedTrust Bank. Excluding these charges, non-interest expense in 2001
decreased $241,000 or 0.4% from 2000.

During 2001, salaries, wages and employee benefits increased $1.7 million or
7% over 2000, reflecting normal salary adjustments, higher incentive
compensation related to the elimination of certain accruals in 2000 and
increased healthcare expenses, partly offset by a higher pension plan expense
credit in 2001. This expense increase was largely offset by lower data
processing, furniture and equipment, and credit card expenses related to the
aforementioned sale of the Company's secured credit card portfolio in 2001.

INCOME TAXES

The provision for income taxes was $9.5 million for 2001 unchanged from
2000. The effective tax rate was 28% in both 2001 and 2000. For further
information regarding the provision for income taxes, see 'Note 13 -- Income
Taxes' on pages 56-57 of this Report.

LINES OF BUSINESS

The Company, for management purposes, is segmented into the following lines
of business: Retail Banking, Commercial Banking, Investments, and Trust and
Investment Services. Activities not included in these lines are reflected in All
Other. Summary financial information on a fully tax-equivalent basis for the
lines of business is presented in 'Note 18 -- Segment Reporting' on pages 65-68
of this Report.

Line of business information is based on accounting practices that conform
to and support the current management structure, and is not necessarily
comparable with similar information for any other financial institution.

20

Income before taxes on a fully tax-equivalent basis includes revenues and
expenses directly associated with each line, plus allocations of certain
indirect revenues and expenses. Centrally provided corporate services and
general overhead are allocated in proportion to the contribution of each
business line to consolidated pretax income prior to the inclusion of these
costs. A matched maturity funds transfer method is employed to assign a cost of
funds to the earning assets of each business line, as well as to a value of
funds to the liabilities of each business line. The provision for loan losses is
allocated based on the historical net charge-off ratio for each line of
business.

RETAIL BANKING

Retail Banking meets the needs of individuals and small businesses. This
segment includes loans secured by one-to-four family residential properties,
construction financing, loans to individuals for household, family and other
personal expenditures, and lease financing. In addition, this segment includes
the branch network. Income before taxes for this segment in 2002, increased $6.0
million from 2001 due to an $11.8 million increase in net interest income and a
decrease of $0.8 million in the loan loss provision allocation. This was offset
by decreases in non-interest income of $1.7 million and an increase in
non-interest expense of $4.9 million. The higher net interest income was
primarily related to increased average consumer loans and wider-spread average
core deposits when compared to 2001. The decrease in the loan loss provision was
due to a reduction related to the sale of the unsecured credit card portfolio in
2002. The decrease in non-interest income was primarily due to the lower credit
card fees resulting from the sale of the unsecured credit card portfolio in
2002, while the increase in non-interest expense was mainly due to the Vista
transaction. Income before taxes in 2001 declined $7.8 million from 2000 due to
a $7.7 million decline in net interest income. The reduction in net interest
income was primarily related to a 7% decline in average deposits and narrowed
spreads on such deposits after funds credits.

COMMERCIAL BANKING

Commercial Banking provides term loans, demand secured loans, Small Business
Administration ('SBA') financing, floor plan loans and financing for commercial
and construction lending and commercial credit to middle-market businesses. It
also includes the operations of United Commercial Capital Group, which provides
non-traditional real estate and commercial financings. Pretax results in 2002
decreased $14.0 million to a pretax loss of $1.8 million from 2001 primarily due
to a $9.2 million increase in the loan loss provision allocation. Of this
amount, $3.7 million was related to the Suprema Specialties credit facility and
$2.4 million was due to a charge-off of a loan to an insurance premium financing
company. The remaining allocation was due to increased loan volume. In addition,
net interest income decreased $3.1 million from 2001 due to narrower loan
spreads and non-interest expense increased $2.5 million due to the Vista Merger.
In 2001, pretax income grew $4.4 million from 2000 due to a $3.3 million
increase in net interest income resulting from wider loan spreads after funds
charges. A $1.4 million reduction in the loan loss allocation was partially
offset by a $0.7 million increase in non-interest expense.

INVESTMENTS

The Investments segment is comprised of the Company's securities portfolio,
which includes U.S. Treasury and Federal Agency securities, tax-exempt
securities, mortgage-backed securities, corporate debt securities, equity
securities and short-term investments. Pretax income for 2002 increased $2.0
million over 2001 due to a $2.4 million increase in net interest income and a
$0.8 million increase in non-interest income, partially offset by a $1.2 million
increase in non-interest expense. The increase in net interest income was
largely due to a 16% growth in average investment securities. Pretax income for
2001 increased by $2.5 million over 2000 due to a $5.5 million rise in net
interest income resulting from higher spreads after funds charges on the
securities portfolio and after funds credits on borrowed funds. This was partly
offset by a $2.5 million decline in non-interest income resulting from lower
investment securities gains.

21

TRUST AND INVESTMENT SERVICES

The Trust and Investment Services segment derives revenue in the form of
fees generated for the services provided. The major sources of fee income are
generated from a full range of fiduciary services, ranging from mutual funds to
personal trust, investment advisory and employee benefits. Also included are
fees generated from the financial services area, which provides uninsured
financial products, including the sale of annuities, insurance and mutual funds.
In 2002, income before taxes for this segment decreased $1.8 million from 2001
due to a 10% decline in revenue resulting from a lower market value of trust
assets and a 23% increase in expenses, which was primarily due to a higher
occupancy expense allocation and increased commissions on alternative investment
products. Income before taxes in 2001 declined a modest $0.2 million from 2000.

ALL OTHER

The All Other segment primarily includes the impact of stockholders' equity
and the allowance for loan losses, as well as funds transfer-pricing offsets.
Additionally, certain revenues and expenses that are not considered allocable to
a line of business are reflected in this segment. Income before taxes in 2002
for this segment decreased $1.3 million from 2001 due to a $1.4 million decline
in net interest income related to a higher funds credit assigned to non-maturity
core deposits in Retail Banking in 2002, partially offset by prepayment penalty
income. Non-interest expense increased $1.2 million due primarily to $1.8
million in integration expenses relating to the Vista Merger. These unfavorable
factors were partially offset by an increase in non-interest income of $1.3
million due to a $1.2 million recovery from the dissolution of the UFS joint
venture. Income before taxes in 2001 increased $1.3 million from 2000 primarily
due to a $1.6 increase in funds transfer-pricing mismatch profits and a
reduction in non-interest expense of $0.4 million. These favorable variances
were offset in part by a decline in non-interest income of $0.8 million.

The following table shows the percentage contribution of the various lines
of business to consolidated income before taxes on a fully tax-equivalent basis:

22

FINANCIAL CONDITION

LOAN PORTFOLIO

At December 31, 2002, total loans increased 35% from year-end 2001,
primarily attributable to the effect of the Vista Merger. At the end of the
second quarter of 2002, the Company sold the remainder of its credit card
portfolio, which totaled $22 million at the time of the sale. A high level of
loan prepayments during 2002 that resulted from the low-interest rate
environment served to limit the growth of the loan portfolio, particularly in
the commercial, consumer and residential mortgage loan portfolios. Total loans
declined 4% from December 31, 2000 to December 31, 2001 as the result of $103
million in planned loan sales made by the Company during 2001 to reposition its
balance sheet. These transactions involved the sale of $81 million in
residential mortgage loans in the first half of 2001 and $22 million in credit
card receivables at June 30, 2001. Excluding these sales, total loans grew 4%
during 2001. An analysis of loans outstanding, net of unearned income, is
presented in the following table:

A significant portion of the Company's loan portfolio (including commercial
and consumer loans) is secured by real estate assets. Substantially all of the
Company's loans are to customers located within New Jersey. Accordingly, the
Company is subject to deterioration of credit quality within its loan portfolio
in the event that the New Jersey economy in general and/or the real estate
market in New Jersey weakens. The Company has not engaged in international
lending and, at year-end 2002, had four Shared National Credits totaling $28.5
million. The Company strives to maintain a balanced loan portfolio with each of
the four major segments of the portfolio approximating a quarter of the total
portfolio. At December 31, 2002, commercial real estate loans (consisting of
construction and commercial mortgage loans) were 29% of total loans, residential
mortgage loans were 27% of total loans, consumer loans, including lease
financing, were 24% of total loans, and commercial loans were 20% of total
loans.

Although the Bank has a legal lending limit to any one borrower of $34
million, it is the policy of the Bank to limit total credit exposure (i.e., both
outstanding loans and unused loan commitments) to any single lending
relationship to $15 million, or approximately 43% of the Bank's legal lending
limit. The Executive Committee of the Board of Directors of the Bank has
authorized seven exceptions to this policy, which aggregated $144 million at
year-end 2002. At that date, the Company had 52 relationships with total credit
exposure in excess of $5 million. The total of such credit exposure was
approximately $543 million, or 29% of total loans and total unused loan
commitments.

The average recorded balances of impaired loans during 2002, 2001 and 2000
were $1.4 million, $0.6 million and $0.5 million, respectively. For additional
discussion on impaired loans, see 'Asset Quality' below.

The Company will continue to compete for what it believes are quality loans
in those sectors of the business community where such loans are most prevalent.

ASSET QUALITY

Lending policies are formulated by the Company's Senior Lending Officer and
reviewed and approved by the Board of Directors of the Company and the Bank.
Loan approval requirements are dictated by the policies for the respective loan
areas of the Bank, which are based on, but not limited to, reputation of the
customer, collateral securing the loan, capital, ability to repay, and current
economic

23

conditions. Individual approval limits for each of the Bank's loan officers are
reviewed and reset from time to time. Authority for approval of credits between
$1 million and $5 million, is retained by the Bank's Management Loan Committee,
consisting of the Bank's Chief Executive Officer, President, Chief Operating
Officer and Senior Lending Officer, Executive Vice President Commercial and
Consumer Lending, Executive Vice President Real Estate Lending and the Senior
Credit Officer, as appropriate. Credit extensions exceeding $5 million must be
approved by both the Management Loan Committee and by the Executive Committee of
the Board of Directors of the Bank.

The Bank maintains a risk rating system for all commercial, construction and
commercial real estate loans. Each of these loans is evaluated and given a
rating upon origination. Loan officers are required to identify potentially
deteriorating loan situations through a self-reporting system. Subsequently,
these loans are monitored on a regular basis by the Bank's Credit Quality
Committee and rating revisions may be made. Additionally, the Bank's independent
loan review consultant reviews substantially all credits that are rated special
mention or worse. Each month, the Bank's lending staff reviews delinquent loans
for all loan portfolios with the Credit Quality Committee of the Bank,
consisting of the same management group as the Bank's Management Loan Committee
as well as other lending department heads, and the Executive Committee of the
Board of Directors of the Bank. These processes allow for implementation of a
strategy to react in the early stage of a potential credit concern.

The Company's independent loan review function is an integral part of its
overall loan administration. The Bank has engaged an independent consultant to
perform the loan review function. The independent consultant is responsible for
the evaluation of credit extensions with respect to quality, documentation and
risk criteria. The consultant's direct reporting line to the Audit Committee of
the Board of Directors of the Bank is intended to maintain its independence and
to provide assurance that troubled loan situations will be identified and proper
procedures followed to establish corrective measures. The loan review and the
self-reporting and risk rating systems are designed to provide the Company with
an early warning mechanism to detect loans to customers with deteriorating
financial conditions or loans that may represent potentially troubled
situations. In addition, the Company's internal audit department reviews loan
documentation and collateral as part of its regular audit procedures.

NON-PERFORMING ASSETS

The Company defines non-performing assets as non-accrual loans, impaired
loans, loans past due 90 days or more and still accruing, other real estate
owned and other assets owned. At December 31, 2002, non-performing assets
totaled $16.3 million or 0.57% of total assets, up from the $6.6 million or
0.34% of total assets at December 31, 2001.

Non-performing loans at December 31, 2002 were $15.7 million or 0.95% of
total loans, compared to $6.4 million or 0.52% of total loans at December 31,
2001. The $9.3 million increase from 2001 resulted primarily from the impact of
the Vista Merger and a rise in non-performing lease financings, which is
included in the consumer loan portfolio.

At December 31, 2002, the Company's holdings in other real estate owned
amounted to $570,000 compared to $127,000 at December 31, 2001. Foreclosures
will continue to result in assets migrating from non-performing loans to other
real estate owned. It is the Company's intent to actively negotiate and dispose
of these properties at fair market values which are considered reasonable under
the circumstances. In 2002, the Company recognized $98,000 in net costs relating
to these properties compared to $29,000 in net recoveries 2001. Other assets
owned amounted to $30,000 at year-end, a decrease of $34,000 from 2001.

24

The level of non-performing assets and certain related ratios over the past
five years are set forth in the following table:

- ---------

(1) Generally represents those loans on which Management has determined that
borrowers may be unable to meet contractual principal and/or interest
obligations or where interest or principal is past due for a period of 90
days or more (except when such loans are both well-secured and in the
process of collection). When loans are placed on non-accrual status, all
accrued but unpaid interest is reversed.

(2) Represents loans on which payments of interest and/or principal are
contractually past due 90 days or more, but are currently accruing interest
at the previously negotiated rates, based on a determination that such loans
are both well-secured and in the process of collection.

(3) Consists of real estate acquired through foreclosure.

(4) Consists of assets, other than real estate, acquired through repossession,
forfeiture or abandonment.

25

LOAN LOSS EXPERIENCE

The following table presents an analysis of the allowance for loan losses,
including charge-offs and recoveries by loan category, for the last five years.

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses has been allocated according to the amount
deemed appropriate to provide for the possibility of losses within the
categories of loans set forth in the table below. The amount of such components
of the allowance at year-end for the past five years and the ratio of the
related loan balances outstanding to total loans are as follows:

26

ASSET/LIABILITY MANAGEMENT

The Company's asset/liability management activities are intended to ensure
adequate liquidity and to protect net interest revenue from the effect of
adverse movements in the level of interest rates and the shape of the interest
rate yield curve. The Asset/Liability Management Committee (the 'ALCO') is
responsible for monitoring the Company's liquidity and interest rate risk
positions. The ALCO meets regularly to assess the Company's current and
prospective risk exposure and to establish strategies to achieve net interest
margin objectives. Both on-balance sheet and off-balance sheet (e.g., interest
rate swap agreements) techniques are used to implement ALCO strategies.

INTEREST SENSITIVITY

The table below presents the Company's interest rate sensitivity position at
December 31, 2002:

Interest rate sensitivity is a measure of the relationship between earning
assets and supporting funds which tend to be 'sensitive' to changes in interest
rates during comparable time periods. The ALCO is charged with managing the
Company's rate sensitivity to attempt to optimize net interest income, while
maintaining an asset/liability mix which balances liquidity needs and interest
rate risk. Interest rate risk occurs when an asset matures, or its interest rate
changes, during a time period different from that of the supporting liability
and vice versa. The ALCO analyzes the repricing characteristics of assets and
supporting funds in evaluating its exposure to interest rate risk. Simulation
models are employed to measure the dynamics of future cash flows, balance sheet
changes and the impact on revenue of diverse interest rate scenarios. The
process begins with a static analysis of the current interest rate sensitivity
mismatches (i.e., gaps) as presented in the preceding table. The sensitivity gap
quantifies the repricing mismatch between assets and supporting funds over
various time intervals. The cumulative gap position as a percentage of total
rate sensitive assets provides a relative measure of a company's current
interest rate risk exposure.

ALCO monitors and manages interest rate sensitivity through simulation and
market value of equity analyses in order to avoid adverse earnings fluctuations
due to interest rate changes. The Company's simulation model includes certain
management assumptions based upon past experience and the expected behavior of
customers during various interest rate scenarios. The assumptions include
principal prepayments for various loan and security products and classifying the
non-maturity deposit

27

balances by degree of interest rate sensitivity. As of December 31, 2002,
utilizing the above assumptions results in a cumulative interest-sensitive
assets to interest-sensitive liabilities of 1.7x and 1.2x for the three-month
and twelve-month intervals, respectively.

However, assets and liabilities with similar repricing characteristics may
not reprice at the same time or to the same degree. As a result, the Company's
simulation model does not necessarily predict the impact of changes in general
levels of interest rates on net interest income.

Management believes that the simulation of net interest income in different
interest rate environments provides a more meaningful and dynamic measure of
interest rate risk. Income simulation analysis captures not only the potential
of all assets and liabilities to mature or reprice, but the probability that
such would occur. Income simulation also permits management to assess the
probable effects on the balance sheet not only of changes in interest rates, but
also of proposed strategies for responding to them.

The Company's income simulation model analyzes interest rate sensitivity by
projecting net interest income over the next 24 months in a flat rate scenario
versus net interest income in alternative interest rate scenarios. Management
reviews and refines its interest rate risk management process in response to the
changing economic climate. The model incorporates management assumptions
regarding the level of interest rate or balance changes on non-maturity deposit
products, such as NOW, savings, money market and demand deposit accounts, for a
given level of market rate changes. These assumptions incorporate historical
analysis and future expected customer behavior patterns. Interest rate caps and
floors are included, if applicable. Changes in prepayment behaviors of
mortgage-based products for both loans and securities in each rate environment
are also captured. Additionally, the impact of planned growth and anticipated
new business activities are factored into the model.

Mortgage loans and mortgage-backed securities are projected to prepay
between 6% and 45% on an annualized basis. Mortgage-backed securities, Federal
agency securities and other borrowings with call options, which the Company
believed would be called, were reported at the earlier of the next call date or
contractual maturity date. Non-maturity deposits of savings, money market,
interest-bearing transaction, and demand deposit accounts were reported with an
average duration of 4.2 years.

Currently, the Company's earnings simulation model employs a 400 basis point
differential in rates (i.e., the difference between a rising rate projection and
a declining rate projection) during the first year, in even monthly increments,
with rates held constant in the second year. The Company's ALCO policy has
established that interest income sensitivity will be considered acceptable if
the change in net interest income in the above interest rate scenario is within
10% of net interest income from the flat rate scenario in the first year and
over a two-year timeframe.

Based on the results of the income simulation model at December 31, 2002,
the Company would expect an increase of approximately $0.3 million in annual net
interest income if interest rates were to rise 300 basis points gradually over a
twelve-month horizon compared to a flat interest rate scenario, while it would
expect a decrease of approximately $2.5 million in annual net interest income if
interest rates were to decline 100 basis points gradually over a twelve-month
horizon compared to a flat interest rate scenario.

In light of significant changes occurring in market interest rates, the
Company will continue to evaluate its sensitivity to interest rates.

LIQUIDITY AND FUNDING

Liquidity management involves the Company's ability to maintain prudent
amounts of liquid assets in its portfolio in order to meet the borrowing needs
and deposit withdrawal requirements of customers and to support asset growth.
Current and future liquidity needs are reviewed by ALCO to determine the
appropriate asset/liability mix.

The ALCO analysis includes an examination of the maturity and potential
volatility characteristics of the Company's liabilities. Funding sources
available to the Company include retail and commercial deposits, purchased
liabilities and stockholders' equity. During 2002, the Company was able to
reduce its reliance on short-term borrowings or other 'purchased' funds to
satisfy liquidity requirements

28

through the growth in core deposits and the impact of the Vista Merger.
Consequently, the sum of average time deposits of $100,000 and over and average
short-term borrowings was $233 million or only 10% of average total assets at
December 31, 2002.

A maturity distribution of the Company's certificates of deposit in
denominations of $100,000 and over at December 31, 2002 is presented in the
following table:

The following table sets forth certain information regarding the Company's
short-term borrowed funds at or for the years ended December 31:

Additionally, asset liquidity is provided by short-term investments and the
marketability of securities available for sale. Short-term investments averaged
$37 million in 2002 and amounted to $41 million at year-end 2002, while
securities available for sale at market value averaged $655 million in 2002 and
amounted to $828 million at December 31, 2002.

The Company's investment policies include standards regarding credit
quality, maturity parameters, permissible investment categories and
diversification. At December 31, 2002, the majority of the debt securities in
the Company's investment and available for sale portfolios were investment grade
and 91% were in the categories of U.S. Treasury, Federal Agency and 'AAA' rated
securities.

The Company intends to hold its investment securities for the foreseeable
future. However, the level and composition of the portfolio may change as a
result of maturities and purchases undertaken as part of the asset/liability
management process. Unexpected changes in the financial environment are likely
to affect the Company's interest rate risk, liquidity position and the potential
return on the portfolio. Additionally, the Company may also purchase and sell
those securities that are available for sale in order to address these changes.
Overall balance sheet size and capital adequacy are considered in determining
the appropriate level for the portfolio. When economic factors cause changes in
the balance sheet or when the Company reassesses its interest rate risk,
liquidity or capital position, strategic changes may be made in both the
securities held to maturity and securities available for sale portfolios based
on opportunities to enhance the ongoing total return of the balance sheet.

29

The following table sets forth the market value of securities available for
sale at year-end 2002, 2001 and 2000.

The following table sets forth the amortized costs of securities held to
maturity at year-end 2002, 2001 and 2000.

Asset liquidity is represented by the ease with which assets can be
converted into cash. This liquidity is provided by marketable equity securities
and debt securities with maturity dates, assuming prepayments, of one year or
less, which totaled $411.0 million at year-end 2002. Included within this figure
are marketable equity securities amounting to $4.3 million. Debt securities
consist primarily of U.S. Treasury securities, Federal agency obligations,
mortgage-backed securities, state and municipal securities and corporate debt
securities. All securities held by the Company are believed to be readily
marketable. As of December 31, 2002, debt securities scheduled to mature within
one year based upon estimated cash flows, amounted to $406.7 million and
represented 48% of the total debt securities portfolio. Approximately 76% of the
entire debt portfolio is scheduled to mature within five years, based upon
estimated cash flows. There was no security issue held which represented more
than 10% of the Company's stockholders' equity. Additional liquidity is derived
from scheduled loan and investment payments of principal and interest, as well
as prepayments received.

The contractual maturity distribution and weighted average yields
(calculated on the basis of the stated yields to maturity, considering
applicable premium or discount), on a tax-equivalent basis (assuming a 35%
Federal income tax rate), of the Company's securities held to maturity and
securities available for sale portfolios (at amortized cost) at December 31,
2002, excluding equity securities, were as follows:

30

Another important aspect of a bank's liquidity management involves the
maturity characteristics of its loan portfolio. At the end of 2002, total
consumer and real estate mortgage loans accounted for 80% of the Company's loan
portfolio. The scheduled and expected maturities of such loans are typically of
a long-term nature with periodic principal repayments required. An analysis of
the remaining portion of the Company's loan portfolio is as follows:

31

The Bank is a member of the FHLB, which provides it with an additional
source of liquidity, as well as enhancing its match-funding capabilities. At
year-end 2002, the Bank had borrowed $220 million from the FHLB to match-fund
certain of its loans and for other asset/liability management purposes.

Balance sheet projections are also employed by the ALCO to assess the effect
that future cash flows and potential balance sheet changes would have on the
Company's and the Bank's liquidity needs.

CAPITAL ADEQUACY

The Company strives to maintain a strong capital position. Capital adequacy
is monitored in relation to the size, composition and quality of its asset base
and with consideration given to regulatory guidelines and requirements, as well
as industry standards. Management seeks to maintain a capital structure that
will support anticipated asset growth and provide for favorable access to the
capital markets.

At December 31, 2002, total stockholders' equity was $265 million, an
increase of $108 million or 69% from year-end 2001. The primary reason for the
increase was the $110 million in Common Stock issued in conjunction with the
Vista Merger. During 2002, the Company generated net retained earnings of $7
million and recognized $10 million in net unrealized gains on securities
available for sale, net of tax. These increases in 2002 were offset by a $14
million reduction resulting from the Company's purchase under its stock
repurchase program of 606,000 Treasury shares at an average price of $22.65 per
share and the recognition of a minimum pension liability that reduced
comprehensive income by $6 million after taxes. As detailed in 'Note 12 --
Capital Requirements' on page 55 of this Report, the Company and the Bank
currently exceed all minimum capital requirements.

COMMON STOCK AND DIVIDENDS

The Company's Common Stock is traded in the over-the-counter market on the
NASDAQ Stock Market. The market price of its common shares declined during the
first seven months of 2002 reaching a low of $18.00 early in the third quarter.
The market price of the Company's common shares recovered steadily over the
remainder of the year reaching a high of $23.75 in December. The Company's
Common Stock price was $23.05 at December 31, 2002 compared to $24.01 at the end
of 2001. As a result of the Vista Merger, book value per common share increased
32% during 2002 and amounted to $13.93 per share at year-end 2002. This resulted
in the Company's per share market price to book value falling to 165% from 228%
at the end of 2001.

The Company has paid cash dividends for 58 consecutive quarters since it
commenced operations in 1988. While the Company presently expects to continue to
pay dividends, no assurance can be given that dividends will be paid in the
future since the declaration and payment of such dividends will be based on a
number of factors considered by the Board of Directors, including current and
prospective earnings, anticipated asset growth, the Company's capital position
and the economic outlook. Future dividends will also depend on, among other
things, the earnings and financial condition of the Bank, its need for funds and
applicable governmental policies and regulations. Any deferral of payments due
to the trust preferred securities would prevent the Company from paying
dividends until the deferred amounts are paid.

32

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Information pertaining to this item can be found in section 'Asset/Liability
Management' of this report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following audited consolidated financial statements and related
documents are presented herein on the following pages:

Independent Auditors' Report................................ 34
United National Bancorp and Subsidiaries:
Consolidated Balance Sheets............................... 35
Consolidated Statements of Income......................... 36
Consolidated Statements of Changes in Stockholders'
Equity.................................................. 37
Consolidated Statements of Cash Flows..................... 38
Notes to Consolidated Financial Statements................ 39

33

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
United National Bancorp:

We have audited the accompanying consolidated balance sheets of United
National Bancorp and subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
2002. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
Consolidated Financial Statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 Consolidated Financial Statements referred to above
present fairly, in all material respects, the financial position of United
National Bancorp and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 1m to the consolidated financial statements, effective
December 31, 2002, the Company adopted Statement of Financial Accounting
Standards No. 123 'Accounting for Stock-Based Compensation,' as amended by
Statement of Financial Accounting Standards No. 148 'Accounting for Stock-Based
Compensation -- Transition and Disclosure -- an amendment of FASB Statement
No. 123.'

KPMG LLP
Short Hills, New Jersey
January 21, 2003

34

UNITED NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.

35

UNITED NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)

The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.

36

UNITED NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001, AND 2002

The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.

37

UNITED NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.

38

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

United National Bancorp owns UnitedTrust Bank, which operates through a
branch network primarily located throughout central and northwestern counties in
New Jersey and eastern Pennsylvania. The Company provides a full range of
banking and trust services to its market area in a competitive environment.

On August 21, 2002, Vista Bancorp, Inc. ('Vista') was merged with and into
the Company with the Company being the surviving corporation (the 'Vista
Merger') in a transaction accounted for under the purchase method of accounting.

The Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and
practices within the banking industry. The significant policies are summarized
as follows:

A. PRINCIPLES OF CONSOLIDATION AND USE OF ESTIMATES

The accompanying Consolidated Financial Statements include the accounts of
United National Bancorp (the 'Parent Company') and its wholly-owned
subsidiaries, UnitedTrust Bank (the 'Bank'), UNB Capital Trust I (the 'Trust'),
and UNB Capital Trust II (the 'Trust II') or when consolidated with the Parent
Company (the 'Company'). All significant intercompany balances and transactions
have been eliminated in consolidation.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.

B. SECURITIES

At the time of purchase, securities are classified into one of three
categories: held to maturity, available for sale, or trading account securities.

Securities which the Company has the ability and intent to hold until
maturity are classified as 'held to maturity.' These securities are stated at
cost, adjusted for amortization of premium and accretion of discount, using the
interest method over the term of the securities.

Securities that may be held for indefinite periods of time, which Management
intends to use as part of its asset/liability management strategy and that may
be sold in response to changes in interest rates, changes in prepayment risk, or
other similar factors, are classified as 'available for sale' and reported at
estimated market value. Unrealized holding gains and losses (net of related tax
effects) on such securities are excluded from earnings but are included in other
comprehensive income as a component of stockholders' equity. Upon realization,
such gains or losses are included in earnings using the specific identification
method.

Trading account securities are carried at market value. Gains and losses
resulting from adjusting trading account securities to market value, as well as
security sales, are reported in non-interest income. This category includes
securities purchased specifically for short-term appreciation or to be available
for liquidity needs.

C. FEDERAL HOME LOAN BANK OF NEW YORK STOCK

This stock is carried at cost. The Company is required to maintain such
investment as part of its membership in the Federal Home Loan Bank of New York.

39

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

D. LOANS AND LEASE FINANCINGS

Loans and leases are stated at the principal amount outstanding, net of
deferred loan origination fees/expenses and unearned discounts. Interest on
substantially all loans is accrued and credited to interest income based upon
the principal amount outstanding. Loan fees and certain expenses associated with
originating loans are deferred and amortized over the lives of the respective
loans as an adjustment to the yield utilizing a method that approximates the
level yield. Generally, interest income is not accrued on loans (including
impaired loans) where principal or interest is 90 days or more past due, unless
the loans are adequately secured and in the process of collection. A loan less
than 90 days past due may be placed on non-accrual if Management believes there
is sufficient doubt as to the ultimate collectibility of the outstanding loan
balance. A loan is transferred to accrual when it is brought current and its
future collectibility is reasonably assured.

When a loan (including an impaired loan) is classified as non-accrual,
uncollected past due interest is reversed and charged against current income.
Interest income will not be recognized until the financial condition of the
borrower improves, payments are brought current and a consistent payment history
is established. Payments received on non-accrual loans, including impaired
loans, are first applied to all principal amounts owed. Once the remaining
principal balance is deemed fully collectible, payments are then applied to
interest income and fees.

A loan is considered impaired when, based upon current information and
events, it is probable that the Bank will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Impaired loans are
measured based upon the present value of expected future cash flows, or, as a
practical expedient, at the loan's observable market price, or the fair value of
the underlying collateral, if the loan is collateral dependent. Commercial and
commercial real estate loans of $100,000 and over are evaluated for impairment.
Loans under $100,000 and homogeneous loans (residential and consumer loans) are
treated collectively and not individually.

Loans held for sale are carried at the lower of cost or market using the
aggregate method. Gains and losses on loans sold are included in non-interest
income.

E. ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is maintained at a level considered adequate
to provide for inherent and estimable loan losses. The allowance is increased by
provisions charged to current operations and reduced by net charge-offs. The
level of the allowance is based on Management's evaluation of inherent and
estimable losses in the portfolio, after consideration of appraised collateral
values, financial condition of the borrower, delinquency and charge-off trends,
portfolio growth trends, as well as prevailing economic conditions. Management
evaluates the adequacy of the allowance for loan losses on a regular basis
throughout the year. Management believes that the allowance for loan losses is
adequate. While Management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based upon adverse
changes in economic conditions and specific elements underlying the Company's
ability to collect upon a loan including significant changes in collateral value
and the deterioration in the financial condition of borrowers. In addition,
various regulatory agencies periodically review the Company's allowance for loan
losses. Such agencies may require the Company to recognize additions to the
allowance based upon their judgments of information available to them at the
time of their examination.

F. 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, which range from three to forty years.
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.

40

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets held and used is measured by a comparison
of the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.

G. OTHER REAL ESTATE

Other real estate owned consists of property acquired through a foreclosure
proceeding or acceptance of a deed-in-lieu of foreclosure. Only collateral of
which the Company has taken physical possession is classified as other real
estate.

Other real estate is carried at the lower of fair value of the related
property, as determined by current appraisals less estimated costs to sell, or
the recorded investment in the property. Write-downs on these properties, which
occur after the initial transfer from the loan portfolio, are recorded as
operating expenses. Costs of holding such properties are charged to expense in
the current period. Gains, to the extent allowable, and losses on the
disposition of these properties are reflected in current operations.

H. GOODWILL AND OTHER INTANGIBLE ASSETS

On July 20, 2001, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 142, 'Goodwill and
Other Intangible Assets.' SFAS No. 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead tested
for impairment at least annually in accordance with the provisions of SFAS No.
142. SFAS No. 142 also requires that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and periodically reviewed for impairment.

The Company adopted SFAS No. 142 on January 1, 2002. The adoption of SFAS
No. 142 had no significant impact on the Company's accounting for recorded
intangible assets, primarily core deposit intangibles.

The Company recorded a core deposit intangible of $14.8 million in
connection with the Vista Merger during the third quarter of 2002, of which
$493,000 was amortized during the current year. The core deposit intangible has
an estimated life of 10 years and will be periodically reviewed for impairment.
In addition, the Company recorded goodwill of $79.5 million in connection with
the Vista transaction. The goodwill will be tested for impairment at least
annually in accordance with the provisions of SFAS No. 142.

During 2002, the Company recorded amortization of intangible assets acquired
before July 1, 2001 of approximately $1.8 million, which primarily represented
core deposit intangibles. The remaining amortization period of these core
deposit intangibles is approximately 2.4 years.

I. TRUST ASSETS

Assets held in fiduciary or agency capacities for customers are not included
in the Consolidated Balance Sheets since such items are not assets of the
Company.

J. INCOME TAXES

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the

41

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

K. NET INCOME PER COMMON SHARE

Basic income per common share is computed by dividing net income available
to common stockholders by the weighted average number of shares outstanding
during each year.

Diluted net income per common share is computed by dividing net income
available to common stockholders by the weighted average number of shares
outstanding, as adjusted for the assumed exercise of potential common stock
options, using the treasury stock method.

Calculation of Basic and Diluted Earnings Per Share:

L. STATEMENT OF CASH FLOWS

For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks and short-term investments, including Federal funds sold.
Generally, Federal funds are sold for a one-day period.

M. STOCK-BASED COMPENSATION

At December 31, 2002, the Company has Officer and non-employee Director
stock option plans. Prior to the fourth quarter of 2002, the Company accounted
for those plans under the recognition and measurement provisions of APB Opinion
No. 25, 'Accounting for Stock Issued to Employees,' and related Interpretations.
No stock-based employee compensation cost was reflected in previously reported
results, as all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of the grant.
Effective December 31, 2002, the Company adopted the fair value recognition
provisions of SFAS No. 123, 'Accounting for Stock-Based Compensation,' as
amended by SFAS No. 148 'Accounting for Stock-Based Compensation -- Transition
and Disclosure -- an amendment of FASB Statement No. 123' for stock-based
employee compensation. All prior periods presented have been restated to reflect
the compensation cost that would have been recognized had the recognition
provisions of SFAS No. 123 been applied to all awards granted to employees after
January 1, 1995.

42

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

N. RETIREMENT BENEFITS AND CASH SURRENDER VALUE OF LIFE INSURANCE POLICIES

The Company maintains a noncontributory defined benefit pension plan, which
covers all employees who have met eligibility requirements of the Plan. It is
the Company's policy to fund the plan sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act of 1974.
In addition, the Company provides health care and life insurance benefits for
qualifying employees. The Company recognizes the cost of these plans over the
estimated period of service provided by covered employees. To partially offset
employee benefit costs, the Company maintains investments in tax-advantaged life
insurance policies accounted for at cash surrender value. Increases in cash
surrender value are reported as a component of other income.

O. RECENT ACCOUNTING PRONOUNCEMENTS

In December, 2002, the FASB issued SFAS No. 148, 'Accounting for Stock-Based
Compensation-Transition and Disclosure -- an amendment of FASB Statement
No. 123.' SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both interim
and annual financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
Effective December 31, 2002, the Company elected to adopt the fair value
recognition provisions of SFAS No. 123, 'Accounting for Stock-Based
Compensation', for stock-based employee compensation. All prior periods
presented have been restated to reflect the compensation cost that would have
been recognized had the recognition provisions of Statement 123 been applied to
all awards granted to employees after January 1, 1995. The interim reporting
requirements of SFAS No. 148 are effective for interim periods beginning after
December 31, 2002.

In October, 2002, the FASB issued SFAS No. 147, 'Accounting of Certain
Financial Institutions -- an amendment of FASB Statements No. 72 and 144 and
FASB Interpretation No. 9.' This Statement removes acquisitions of financial
institutions from the scope of both SFAS No. 72 and Interpretation No. 9 and
requires that those transactions be accounted for in accordance with SFAS No.
141, 'Business Combinations', and SFAS No. 142, 'Goodwill and Other Intangible
Assets.' The provisions of SFAS No. 147 that relate to the application of the
purchase method of accounting apply to all acquisitions of financial
institutions, except transactions between two or more mutual enterprises.

SFAS No. 147 clarifies that a branch acquisition that meets the definition
of a business should be accounted for as a business combination, otherwise the
transaction should be accounted for as an acquisition of net assets that does
not result in the recognition of goodwill. The provisions of SFAS No. 147 are
effective October 1, 2002. The Company has previously purchased deposits of
another financial institution and recorded a core deposit intangible. This
Statement will have no effect on the accounting or amortization of the recorded
intangible asset.

In July, 2002, the FASB issued SFAS No. 146, 'Accounting for Costs
Associated with Exit or Disposal Activities.' The standard requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
The Statement is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The initial adoption of this Statement is not
expected to have a significant impact on the Company's financial statements.

In April, 2002, the FASB issued SFAS No. 145, 'Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections.' The Statement, among other things, rescinds SFAS No. 4, 'Reporting
Gains and Losses from Extinguishments of Debt.' Under SFAS No. 4, gains and
losses from the extinguishment of debt were required to be classified as an
extraordinary item, if material. Under SFAS No. 145, gains or losses from the
extinguishment of debt are to be classified as a component of operating income,
rather than an extraordinary item. SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002, with early adoption of the provisions

43

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

related to the rescission of SFAS No. 4 encouraged. Upon adoption, companies
must reclassify prior period amounts previously classified as an extraordinary
item. Management does not anticipate that the initial adoption of SFAS No. 145
will have a significant impact on the Company's Consolidated Financial
Statements.

In October, 2001, the FASB issued SFAS No. 144, 'Accounting for the
Impairment of Disposal of Long-Lived Assets.' While SFAS No. 144 supersedes SFAS
No. 121, 'Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of,' it retains many of the fundamental provisions of that
Statement. The Statement is effective for fiscal years beginning after December
15, 2001. The initial adoption of SFAS No. 144 did not have a significant impact
on the Company's Consolidated Financial Statements.

In August, 2001, the FASB issued SFAS No. 143, 'Accounting for Asset
Retirement Obligations,' which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 requires an enterprise to record
the fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible
long-lived assets. The Company is required to adopt the provisions of SFAS
No. 143 for fiscal years beginning after June 15, 2002. Management does not
anticipate that the initial adoption of SFAS No. 143 will have a significant
impact on the Company's Consolidated Financial Statements.

P. COMPREHENSIVE INCOME

Total comprehensive income amounted to the following for the periods
indicated:

Q. RECLASSIFICATIONS

Certain reclassifications have been made to the prior years' financial
statements to conform with the classifications used in 2002.

NOTE 2. ACQUISITIONS AND DISSOLUTION OF JOINT VENTURE

A. 2002 ACQUISITION

On August 21, 2002, Vista Bancorp, Inc. ('Vista') was merged with and into
the Company with the Company being the surviving corporation (the 'Vista
Merger') in a transaction accounted for under the purchase method of accounting.
Vista was headquartered in Phillipsburg, New Jersey and operated 16 branches in
western New Jersey and eastern Pennsylvania.

Under the terms of the Vista Merger, the Company acquired all 5,350,637
outstanding shares of Vista in exchange for 4,695,184 shares of the Company's
Common Stock and $37,943,095 in cash. Outstanding options to acquire 15,916
shares of Vista Common Stock were converted in the Vista Merger into options to
acquire 19,395 shares of the Company's Common Stock, reflecting an exchange
ratio of 1.219, and the exercise price of each option was adjusted
proportionally.

The Company and Vista entered into this merger to enhance stockholder value
by building a community banking company able to provide more products and
services for its customers, more

44

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

investment opportunities for clients and added capital to deploy in the future.
The Vista Merger enhances the combined company's range of products and services
and increases the distribution channels available to customers. The acquisition
of Vista has strengthened the Company's market share position in the western New
Jersey marketplace and has provided an entry into Pennsylvania.

Under the purchase method of accounting, the assets and liabilities of Vista
were recorded at their respective fair values as of the merger date. Each of the
purchase accounting adjustments represents fair values assigned to the assets
and liabilities of Vista. Based on the ending Vista tangible equity of $59.8
million, an aggregate purchase price of $147.6 million and net purchase
accounting adjustments amounting to $6.5 million, the Vista Merger resulted in
total intangible assets of $94.3 million. Of the total intangible assets, $14.8
million was allocated to core deposit premiums, based on a deposit intangible
valuation study, and the remaining amount of $79.5 million to goodwill.

The goodwill recorded in connection with the Vista Merger is not subject to
amortization and the majority is not deductible for tax purposes. The core
deposit intangible is being amortized over its estimated economic life of 10
years using the straight-line method.

As of December 31, 2002, the Company allocated the goodwill and core deposit
intangible to its reportable segments, based upon certain factors including, but
not limited to, the segments' respective contribution to the Company's earnings.
As such, goodwill of $65.5 million was allocated to Retail Banking, $13.5
million to Commercial Banking and $0.5 million to Trust and Investment Services
segments, while the core deposit intangible was allocated exclusively to the
Retail Banking segment. See 'Note 18 -- Segment Reporting' for additional
information.

The statement of net assets acquired at fair value as of August 21, 2002 and
the computation of the purchase price and goodwill related to the Merger are
presented below.

STATEMENT OF NET ASSETS ACQUIRED (AT FAIR VALUE)

45

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PURCHASE PRICE AND GOODWILL

The computation of the purchase price, the allocation of the purchase price
to net assets of Vista based on their respective fair values as of August 21,
2002, and the resulting amount of goodwill are presented below.

Common shares outstanding of Vista (in thousands)........... 5,350.6
Percentage to be exchanged for United common stock.......... 75%
--------
Vista common shares to be exchanged for United Common Stock
(in thousands)............................................ 4,013.0
Exchange ratio.............................................. 1.17
--------
United common stock to be issued (in thousands)......... 4,695.2
Market price per share of United Common Stock............... $ 23.36
--------
Total market value of United Common Stock to be issued
(in millions)......................................... $ 109.7
--------

Common shares outstanding of Vista (in thousands)........... 5,350.6
Percentage to be exchanged for cash......................... 25%
--------
Vista common shares to be exchanged for cash (in
thousands)............................................ 1,337.6
Cash price per share of Vista Common Stock.................. $ 28.36
--------
Total cash to be distributed to Vista stockholders (in
millions)............................................. $ 37.9
--------
Total purchase price of Vista (in millions)................. $ 147.6
--------
--------
(In Millions)
Total purchase price of Vista............................... $ 147.6
Total common stockholders' equity of Vista.................. (59.8)
--------
Excess of purchase price over carrying value of assets
acquired.............................................. 87.8
Purchase accounting adjustments related to assets and
liabilities acquired, net of tax:
Borrowings.............................................. 0.5
Benefit plans........................................... 1.2
Other liabilities (transaction costs incurred in
connection with the Vista Merger)..................... 2.2
Investment securities................................... (3.5)
Core deposit intangible................................. (8.7)
--------
Goodwill.................................................... $ 79.5
--------
--------

The following table illustrates the applicable income taxes for each of the
purchase accounting adjustments:

Of the $3.2 million of transaction costs incurred in connection with the
Vista Merger, $2.9 million has been charged against the accrual and $0.3 million
remained in the accrual through December 31, 2002.

46

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME

The Company's unaudited pro forma consolidated condensed statements of
income for the years ended December 31, 2002 and 2001, are presented below. The
unaudited pro forma information presented in the pro forma consolidated
condensed statements of income is not necessarily indicative of the results of
operations or the combined financial position that would have resulted had the
Vista Merger been completed at the beginning of the applicable periods
presented, nor is it necessarily indicative of the results of operations in
future periods or the future financial position of the combined company.

The combined company expects to achieve certain merger benefits in the form
of operating expense reductions and revenue enhancements. The unaudited pro
forma condensed combined statement of income does not reflect potential
operating expense reductions or revenue enhancements that are expected to result
from the Vista Merger, and therefore may not be indicative of the results of
future operations. No assurance can be given with respect to the ultimate level
of operating expense reductions or revenue enhancements.

The pro forma purchase accounting adjustments related to securities and
borrowings are being amortized or accreted into income using methods that
approximate a level yield over their respective estimated lives. The fair value
of loans, deposits and stock options of Vista as compared to their carrying
values was not significant to the pro forma amounts presented and therefore, has
been omitted from the pro forma condensed combined financial statements. The
core deposit intangible is being amortized and included as a charge to
non-interest expense over its estimated economic life (10 years) using the
straight-line method.

47

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- ---------

(a) Includes the Company for the twelve months ended December 31, 2002 and
Vista for the period August 22, 2002 through December 31, 2002.

(b) Includes Vista for the period January 1, 2002 through August 21, 2002.

(c) Includes the Company without Vista for the twelve months ended December 31,
2001.

(d) Includes Vista for the twelve months ended December 31, 2001.

(e) Interest Income includes amortization of purchase accounting adjustments
for investment securities, interest expense includes borrowing costs to
fund the Vista Merger, and non-interest expense includes amortization of
core deposit intangible.

B. DISSOLUTION OF JOINT VENTURE

During the first quarter of 2002, the Company recorded a $1.2 million
recovery related to the settlement of its joint venture data-servicing provider,
United Financial Services, Inc. ('UFS'), that ceased operations during the
fourth quarter of 1999.

NOTE 3. CASH AND DUE FROM BANKS

Balances reserved to meet regulatory requirements amounted to $0.7 million
at December 31, 2002.

NOTE 4. SECURITIES AVAILABLE FOR SALE

The amortized cost and estimated market value of securities available for
sale at December 31, 2002 and 2001 are as follows:

48

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The amortized cost and estimated market value of debt securities available
for sale at December 31, 2002, by contractual maturity, are shown in the
following table. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.

49

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Gross gains and gross losses realized during 2002, 2001 and 2000 relating to
securities were as follows:

NOTE 5. SECURITIES HELD TO MATURITY

The amortized cost and estimated market value of securities held to maturity
at December 31, 2002 and 2001 are as follows:

The amortized cost and estimated market value of securities held to maturity
at December 31, 2002, by contractual maturity, are shown in the following table.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.

50

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

There were no sales of securities held to maturity during 2002, 2001 and
2000.

Securities held to maturity and available for sale at amortized cost
totaling $6.4 million and $253.1 million, respectively, on December 31, 2002,
were pledged to secure deposits of public funds, securities sold under
agreements to repurchase, other borrowings or required by other agreements and
for other purposes as required and permitted by law. Securities pledged to
secure deposits of public funds, securities sold under agreements to repurchase,
other borrowings or required by other agreements were not under the sole control
of the Company.

NOTE 6. LOANS

Loans outstanding by classification at December 31, 2002 and 2001 are as
follows:

The Company extends credit in the normal course of business to its
customers, the majority of whom operate or reside within the counties where the
Company has its branches and the contiguous counties in New Jersey and
Pennsylvania. The ability of its customers to meet contractual obligations is,
to a certain extent, dependent upon the economic conditions existing in these
counties.

During 2002, the Company sold its credit card receivable portfolio of $13.6
million.

During 2001, the Company repositioned its balance sheet with planned loan
sales of $103.4 million. These transactions involved the sale of $81.0 million
in residential mortgage loans and $22.4 million in credit card receivables and
related deposits.

As of December 31, 2002 and 2001, the Company's non-accrual loans were $14.0
million and $4.4 million, respectively. Of these, the loans considered to be
impaired were $2.1 million and $1.2 million respectively, with related valuation
allowances of $0.5 million and $0.9 million, respectively. These valuation
allowances are included in the allowance for loan losses in the accompanying
Consolidated Balance Sheets. Substantially all impaired loans were evaluated for
impairment losses based upon the fair value of the underlying collateral of the
loan. The average recorded balances in impaired loans during 2002, 2001 and 2000
were $1.4 million, $0.6 million and $0.5 million, respectively.

The following information is presented for those loans classified as
non-accrual at December 31, 2002, 2001 and 2000:

Loans to directors, executive officers, and/or their affiliated interests
amounted to approximately $11.6 million and $10.9 million at December 31, 2002
and 2001, respectively. All such loans, which are

51

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

primarily secured, were current as to principal and interest payments, and in
the opinion of Management, all were granted on terms, which were comparable to
loans to unrelated parties at the dates such loans were granted. An analysis of
the 2002 activity in these loans is as follows (in thousands):

NOTE 7. ALLOWANCE FOR LOAN LOSSES

A summary of the allowance for loan losses activity for the years ended
December 31, 2002, 2001, and 2000, is as follows:

NOTE 8. PREMISES AND EQUIPMENT

The detail of premises and equipment at December 31, 2002 and 2001, is as
follows:

Depreciation expense amounted to $3.7 million, $3.3 million and $3.2 million
in 2002, 2001 and 2000, respectively.

NOTE 9. DEPOSITS

Time deposits, with remaining maturities greater than one year, mature as
follows (in thousands):

2004........................................................ $103,533
2005........................................................ 64,727
2006........................................................ 5,157
2007........................................................ 18,485
--------
Total................................................... $191,902
--------
--------

Time certificates of deposit of $100,000 or more totaled $170.8 million and
$124.5 million on December 31, 2002 and 2001, respectively.

52

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Interest-bearing deposits amounted to $1,791.6 million and $1,128.4 million
at December 31, 2002 and 2001, respectively. Non-interest-bearing deposits
amounted to $361.8 million and $272.3 million at December 31, 2002 and 2001,
respectively.

NOTE 10. SHORT-TERM BORROWINGS

Selected data relating to short-term borrowings for the years ended December
31, 2002 and 2001 are as follows:

NOTE 11. OTHER BORROWINGS

Selected data relating to other borrowings for the years ended December 31,
2002 and 2001 are as follows:

At December 31, 2002, other borrowed funds and securities sold under
agreements to repurchase mature are $101.1 million in 2003, $39.5 million in
2004, $78.7 million in 2005, $50.3 million in 2006 and $51.3 million thereafter.

53

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has a lease agreement on its headquarters building. The lease,
which has been accounted for as a capital lease, expires in 2015. Lease
commitments under this agreement are as follows (in thousands):

2003........................................................ $ 1,089
2004........................................................ 1,154
2005........................................................ 1,187
2006........................................................ 1,187
2007........................................................ 1,258
Thereafter.................................................. 10,322
-------
Total................................................... 16,197
Less: amount representing interest...................... (7,044)
-------
Total obligation under capital lease........................ $ 9,153
-------
-------

Vista had a lease agreement on certain computer equipment. This lease, which
has been accounted for as a capital lease, expires in 2004. Lease commitments
under this agreement are $143,000 in 2003 and $131,000 in 2004, of these amounts
$46,000 represents interest.

On December 18, 2001, the Company placed $30 million of trust capital
securities through UNB Capital Trust II, a statutory business trust formed under
the laws of the State of Connecticut, of which the Company owns all common
securities. The capital securities pay cumulative cash distributions quarterly
at a floating rate based on 90-day LIBOR. The dividends paid to holders of the
trust capital securities are deductible for income tax purposes. The quarterly
distributions may, at the option of the Company, be deferred for up to 20
consecutive quarterly periods. The securities are redeemable in whole or in part
but in all cases in a principal amount with integral multiples of $1,000 on any
March 18, June 18, September 18 or December 18 on and after December 18, 2006.
The securities are redeemable at par until December 18, 2031 when redemption is
mandatory. Prior redemption is permitted under certain circumstances such as
changes in tax or regulatory capital rules. The proceeds of the capital
securities, along with its capital, were invested by the Trust II in $30.9
million principal amount of variable rate junior subordinated debentures of the
Company due December 18, 2031, which are the sole assets of the Trust II. The
Company guarantees the capital securities through the combined operation of the
debentures and other related documents. The Company's obligations under the
guarantee are unsecured and subordinate to senior and subordinated indebtedness
of the Company. The capital securities qualify as Tier I capital for regulatory
capital purposes.

On March 21, 1997, the Company placed $20 million of trust capital
securities through UNB Capital Trust I, a statutory business trust formed under
the laws of the State of Delaware, of which the Company owns all common
securities. The capital securities pay cumulative cash distributions
semiannually at an annual rate of 10.01%. The dividends paid to holders of the
trust capital securities are deductible for income tax purposes. The semiannual
distributions may, at the option of the Company, be deferred for up to 5 years.
The securities are redeemable from March 15, 2007 until March 15, 2017 at a
declining rate of 105.0% to 100.0% of the principal amount. After March 15,
2017, they are redeemable at par until March 15, 2027 when redemption is
mandatory. Prior redemption is permitted under certain circumstances such as
changes in tax or regulatory capital rules. The proceeds of the capital
securities, along with its capital, were invested by the Trust in $20.6 million
principal amount of 10.01% junior subordinated debentures of the Company due
March 15, 2027, which are the sole assets of the Trust. The Company guarantees
the capital securities through the combined operation of the debentures and
other related documents. The Company's obligations under the guarantee are
unsecured and subordinate to senior and subordinated indebtedness of the
Company. The capital securities qualify as Tier I capital for regulatory capital
purposes.

In October 2001, the Company repurchased $2.7 million of its 10.01% trust
capital securities and incurred an after-tax loss of $0.1 million to common
shareholders.

54

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In August 2002, the Company retired $1.0 million of its 10.01% trust capital
securities as a result of the Vista acquisition.

NOTE 12. CAPITAL REQUIREMENTS

On May 7, 2001, the Bank changed its charter from a federally chartered bank
to a state chartered bank and in conjunction changed its name from United
National Bank to UnitedTrust Bank.

The Federal Reserve Board, in the case of bank holding companies such as the
Company, and state member banks such as the Bank, has adopted risk-based capital
guidelines which require a minimum ratio of 8% of total risk-based capital to
assets, as defined in the guidelines.

The regulations establish a framework for the classification of depository
institutions into five categories: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. Generally, an institution is considered well capitalized if it
has a leverage ratio of at least 5.0%; a Tier I capital ratio of at least 6.0%;
and a total risk-based capital ratio of at least 10.0%.

In addition, the Federal Reserve Board supplemented its risk-based capital
guidelines with an additional capital ratio referred to as the leverage ratio.
The regulations require a financial institution to maintain a minimum leverage
ratio of 4% to 5%, depending upon the condition of the institution.

Under its prompt corrective action regulations, the Federal Reserve Board is
required to take certain supervisory actions (and may take additional
discretionary actions) with respect to an undercapitalized institution. Such
actions could have a direct material effect on the institution's financial
statements.

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

As of December 31, 2002, the Company and the Bank met all capital adequacy
requirements to which they are subject. Further, based upon the capital ratios,
the Company and the Bank qualify as 'well capitalized' at December 31, 2002.

The following is a summary of the Company's and the Bank's actual capital
amounts and ratios as of December 31, 2002 and 2001, compared to the regulatory
authorities minimum capital adequacy requirements and requirements for
classification as a well capitalized institution:

55

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13. INCOME TAXES

The components of the provision for income taxes are as follows:

Included in other comprehensive income are income tax expense attributable
to net unrealized gains on securities available for sale in the amounts of $6.4
million, $5.6 million and $9.1 million for the years ended December 31, 2002,
2001 and 2000, respectively. Also included in other comprehensive income is a
$3.9 million tax benefit pertaining to additional minimum pension liability
under the Company's pension plans.

A reconciliation between the amount of reported income tax expense and the
amount computed by multiplying income before taxes by the statutory Federal
income tax rate is as follows:

The components of the net deferred tax asset as of December 31, 2002 and
2001 are as follows:

(table continued on next page)

56

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(table continued from previous page)

Management believes the existing net deductible temporary differences will
reverse during periods in which the Company generates sufficient net taxable
income. Accordingly, Management believes it is more likely than not that the
Company will realize the benefit of the deferred tax asset. However, significant
changes in the Company's operations and/or economic conditions could affect its
ability to fully utilize the benefits of the deferred tax asset.

NOTE 14. EMPLOYEE BENEFIT PLANS

PENSION BENEFITS

The Company has a noncontributory defined benefit plan, funded through a
self-administered trust, covering substantially all full-time employees who have
attained age 21 and have completed one year of service. Annual contributions are
made to the plan equal to the minimum amount currently deductible for Federal
income tax purposes. Plan assets are comprised of debt and equity securities. In
addition, the Company has supplemental pension agreements with an officer as
well as employees who retired prior to the formation of the current plan.

In August 2002, the Company acquired Vista Bancorp. Vista also maintained a
noncontributory defined benefit retirement plan, funded through a
self-administered trust, covering most employees with one or more years of
continuous employment. For the foreseeable future, the Company will retain
Vista's benefit retirement plan ('Vista's Plan') separate and distinct from the
Company's and those individuals under Vista's Plan will continue to earn
benefits. The Company will evaluate its options during the course of 2003 to
determine if Vista's Plan will continue to remain independent from the
Company's.

POST RETIREMENT BENEFITS

Expected costs of providing these benefits, including medical and life
insurance coverage, are charged to expense during the years that the employees
render service.

Vista's post retirement health plan was merged into the Company's post
retirement health plan as of January 1, 2003.

57

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the Company's pension benefits plan and post
retirement benefits plan funded status for 2002 and 2001 (measurement date
September 30):

The Company maintains a non-tax qualified plan for certain of its executives
('SERP') to supplement the benefit these executives can receive under the
Company's 401(k) Plan and defined benefit plans. In connection with the SERP,
the Company has $76.6 million in corporate owned life insurance at December 31,
2002.

58

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's net periodic (benefit) expense for 2002, 2001 and 2000
includes the following:

The assumed health care cost trend in measuring the expected cost of the
post retirement benefits range from 5.0% through 6.0% in 2002, declining by 0.5%
per year to an ultimate level of 5.0% by the year 2004.

A 1% change in the assumed health care cost trend rate would have the
following effects on the Company's post retirement benefits:

OTHER BENEFITS

Employees can make contributions to the Company's 401(k) Plan by means of
payroll deductions of up to 15% of their compensation up to a maximum
contribution of $10,500. Matching contributions are made by the Company for up
to 5% of the employee's compensation at the discretion of the Board of Directors
and totaled $360,000, $619,000 and $316,000 in 2002, 2001 and 2000,
respectively.

59

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth Vista's pension benefits plan and post
retirement benefits plan funded status for 2002 (measurement date
September 30):

Vista's net periodic expense from August 21, 2002, which was the date that
the Company acquired Vista, through December 31, 2002 was as follows:

The assumed health care cost trend in measuring the expected cost of the
post retirement benefits was 6% for 2002 and for each future year.

60

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A 1% change in the assumed health care cost trend rate would have the
following effects on the Vista Plan's post retirement benefits:

NOTE 15. STOCK OPTION PLANS

Under the Company's Officers Stock Incentive Plan (the 'Plan'), shares of
the Company's Common Stock may be granted to the Company's employees. The Plan
provides for the discretionary granting of stock options with or without stock
appreciation rights. Under the Plan, the exercise price of each option equals
the market price of the Company's stock on the date of grant. The options
granted have a maximum term of ten years and vest over a period of four years.

Under the plan for Non-Employee Directors (the 'Directors Plan'), options to
acquire shares of the Company's Common Stock may be granted to Non-Employee
Directors. Each Non-Employee Director of the Company or its affiliates is
eligible to receive options under the Directors Plan. The options granted have a
term of ten years and vest over four years. Under the Directors Plan, the
exercise price of each option equals the market price of the Company's stock on
the date of grant.

In the fourth quarter of 2002, the Company adopted the fair value based
method to recognize compensation expense on all its outstanding stock option
awards, in accordance with the provisions of SFAS No. 123, 'Accounting for
Stock-Based Compensation,' as amended by SFAS No. 148, which permits retroactive
restatement. Accordingly, the Company increased its employee benefits expense in
its current and prior periods.

The table below highlights the impact that adopting SFAS No. 148 had on the
Company's employee benefits, net income and net income per share.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2002, 2001 and 2000, respectively; dividend yield
of 4.3%, 4.1% and 4.0% for 2002, 2001 and 2000, respectively; expected
volatility of 28%, 28% and 25% for 2002, 2001 and 2000, respectively; risk-free
interest rates of 4.3%, 4.8% and 6.3% for 2002, 2001 and 2000, respectively; and
expected lives of 5 years for both plans. A summary of the status of both the
Plan and the Directors Plan of the Company as of

61

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 2002, 2001 and 2000 and changes during the years ended on those
dates, adjusted for subsequent stock dividends and splits, is presented below:

The following table summarizes information about the stock options
outstanding at December 31, 2002, adjusted for the effect of subsequent stock
dividends and splits.

The Plan also provides for granting of Restricted Stock Awards, which
generally vest over a period of four years. Stock dividends and splits are
granted to the employees when paid. Transactions involving these awards are
summarized as follows:

Compensation expense recognized related to the Restricted Stock Awards was
$24,000, $37,000 and $24,000 for the years ended December 31, 2002, 2001 and
2000, respectively.

NOTE 16. LITIGATION, COMMITMENTS AND CONTINGENT LIABILITIES

The Company is party, in the ordinary course of business, to litigation
involving collection matters, contract claims and other miscellaneous causes of
action arising from its business. Management does not consider that any such
proceedings depart from usual routine litigation and, in its judgment, the

62

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company's financial position and results of operations will not be materially
affected by the outcome of any such proceedings.

The Company has lease commitments facilities and equipment expiring at
various dates through 2021. Rent expense on these leases amounted to
approximately $2.1 million, $1.8 million and $1.6 million for the years ended
December 31, 2002, 2001 and 2000, respectively. The headquarters building lease
has been accounted for as a capital lease, in accordance with SFAS No. 13
'Accounting for Leases,' (See Note 11 'Other Borrowings'). The minimum annual
rentals under the terms of the lease agreements, excluding the capital lease, as
of December 31, 2002, were as follows (in thousands):

2003.................................................... $4,090
2004.................................................... 3,808
2005.................................................... 3,210
2006.................................................... 2,626
2007.................................................... 2,298
Thereafter.............................................. 7,046

The above represents minimum rentals, not adjusted for possible future
increases due to property taxes and cost of living escalation provisions.

The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financial needs of its customers.
These financial instruments consist of commitments to extend credit and standby
letters of credit. These financial instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the accompanying Consolidated Balance Sheets. The contract or notional amounts
of these instruments express the extent of involvement the Company has in each
class of financial instrument.

The Company uses the same credit policies and collateral requirements in
making commitments and conditional obligations as it does for on-balance sheet
instruments. Commitments to extend credit are agreements to lend to customers as
long as there is no violation of any condition established in the contract.

Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since the commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based upon Management's
credit evaluation of the borrower. Collateral held on these commitments varies.
Standby letters of credit are conditional commitments issued by the Company
insuring performance obligations of a customer to a third-party. These
commitments commonly involve real estate transactions.

The Company has entered into agreements with nine executive officers
providing for the payment of cash and other benefits to them in the event of
their voluntary or involuntary termination within three years following a change
of control of the Company. Payment under these agreements in the event of a
change in control would consist of a lump sum payment equal to two or 2.99 years
of annual taxable compensation, depending on the officer involved. If any of the
compensation or other benefits

63

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

payable to an officer under his or her agreement results in additional taxes
because the amounts are deemed to constitute excess parachute payments within
the meaning of Section 280G of the Internal Revenue Code, the Company will make
an additional payment so as to provide the officer with the compensation and
benefits he or she would have received in the absence of such additional taxes.

The Company is under a routine examination by the State of New Jersey,
Department of Treasury, Division of Taxation. Management believes the results of
the examination will not have a material impact on the consolidated financial
condition or results of operations of the Company.

STOCKHOLDER RIGHTS PLAN

On November 1, 2001, the Company adopted a stockholder rights plan. Under
the rights plan, each stockholder of record on November 14, 2001 received a
distribution of one Right for each share of Common Stock of the Company owned.
Initially, the rights will be represented by the Company's Common Stock
certificates, will not be traded separately from the Common Stock and will not
be exercisable.

The Rights will become exercisable only if a person or group acquires, or
announces a tender offer that would result in ownership of, 12% or more of the
Company's Common Stock, at which time each Right would enable the holder to buy
one-hundredth of a share of the Company's Series A preferred stock at an
exercise price of $75.00, subject to adjustment. Following the acquisition of
12% or more of the Company's Common Stock, the holders of Rights (other than the
acquiring person or group) will be entitled to purchase shares of the Company's
Common Stock at half-price, and in the event of a subsequent merger or other
acquisition of the Company, to buy shares of Common Stock of the acquiring
entity at one-half of the market price of those shares.

The Company may redeem the Rights for $0.01 per Right at any time before the
acquisition by a person or group of 12% or more of the Company's Common Stock.
The rights will expire on November 1, 2011.

NOTE 17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, 'Disclosures about Fair Value of Financial Instruments,'
requires that the Company disclose estimated fair values for its financial
instruments. The fair value estimates are made at a discrete point in time based
upon relevant market information and information about the financial
instruments. Because no market exists for a portion of the Company's financial
instruments, fair value estimates are based on judgment regarding a number of
factors. These estimates are subjective in nature and involve some
uncertainties. Changes in assumptions and methodologies may have a material
effect on these estimated fair values. In addition, reasonable comparability
between financial institutions may not exist due to a wide range of permitted
valuation techniques and numerous estimates, which must be made. This lack of
uniform valuation methodologies also introduces a greater degree of subjectivity
to these estimated fair values.

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

CASH AND SHORT-TERM INVESTMENTS

For those short-term instruments, the carrying value is a reasonable
estimate of fair value.

SECURITIES

Fair values are based on quoted market prices or dealer quotes. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities. Federal Reserve Bank and Federal Home Loan Bank
stock is required to be maintained as part of membership. Cost approximates the
fair value of these securities, as that is the amount at which the stock may be
redeemed.

64

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

LOANS

The fair value of loans is estimated by discounting the future cash flows
using the build-up approach consisting of four components: the risk-free rate,
credit quality, operating expense, and prepayment option price.

DEPOSITS

The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated by discounting the future
cash flows using the risk-free market rate.

SHORT-TERM AND OTHER BORROWINGS

For short-term borrowings, the carrying value is a reasonable estimate of
fair value. The fair values for other borrowings are calculated by discounting
estimated future cash flows using current rates offered for borrowings of
similar remaining maturities.

COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT

The fair value of standby letters of credit is estimated using the fees
currently charged to enter into similar agreements and the present credit
worthiness of the counter parties. On this basis, these fees approximate the
fair value. The Bank does not charge a fee on loan commitments and,
consequently, there is no basis on which to calculate a fair value.

The estimated fair values of the Company's financial instruments as of
December 31, 2002 and 2001 are as follows:

NOTE 18. SEGMENT REPORTING

The Company has five reportable segments: Retail Banking, Commercial
Banking, Investments, Trust and Investment Services, and All Other. The Retail
Banking segment includes loans secured by one-to-four family residential
properties, construction financing, loans to individuals for household, family
and other personal expenditures, and lease financing. In addition, the Retail
Banking segment includes the branch network. The Commercial Banking segment
provides term loans, demand secured loans, Small Business Administration ('SBA')
financing, floor plan loans and financing for commercial real estate
transactions. The Investments segment is comprised of the Company's securities
portfolio,

65

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

which includes U.S. Treasury and Government Agency securities, tax-exempt
securities, mortgage-backed securities, corporate debt securities, equity
securities and short-term investments. The Trust and Investment Services segment
offers a full spectrum of fiduciary services, ranging from mutual funds to
personal trust, investment advisory and employee benefits. The All Other segment
is primarily comprised of the treasury function, which is responsible for
managing interest rate risk. Additionally, certain revenues and expenses that
are not allocable to a line of business are reflected in this area.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on profit or loss from operations before income taxes not
including one-time charges and amortization of intangible assets. For purposes
of this review, interest income, which is tax-exempt from Federal taxation, has
been restated to a tax-equivalent basis, which places tax-exempt income on a
comparable basis with taxable income to facilitate analysis.

The Company uses 'matched-maturity funds transfer pricing' and cost
allocations to analyze segment reporting. Funds transfer pricing system matches
interest income and expense against market rates to determine a net spread by
product segment. The system allows for comparable performance evaluation of
funds users and providers and supports asset/liability management. Without a
transfer pricing system, funds users, such as the lending and investment
functions, receive credit for interest income without being charged for the full
amount of associated costs of funds, while funds providers, such as the branch
network, would be charged with interest expense without being credited for the
full amount of associated interest credit. Cost allocations are performed to
allot expenses to the appropriate organizational units, products or
responsibility centers.

The Company's reportable segments are strategic business units that offer
different products and services. Even though they are managed separately, the
Company collectively cross-sells its products and services to customers.

As of December 31, 2002, the Company allocated the goodwill and core deposit
intangible to its reportable segments, based upon certain factors, including but
not limited to, the segments respective contribution to the Company's earnings.
As such, average goodwill of $23.1 million was allocated to the Retail Banking,
$4.8 million to Commercial Banking and $0.2 million to Trust and Investment
Services segments while the core deposit intangible was allocated exclusively to
the Retail Banking segment.

66

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following tables present the results of operations on a tax-equivalent
basis and average balances by reportable segment for the years ended December
31, 2002, 2001 and 2000 (in thousands).

67

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

68

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 19. CONDENSED FINANCIAL STATEMENTS -- PARENT COMPANY

The condensed financial statements of United National Bancorp (parent
company only) are presented below:

CONDENSED BALANCE SHEETS

CONDENSED STATEMENTS OF INCOME

69

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED STATEMENTS OF CASH FLOWS

CASH DIVIDEND RESTRICTIONS

Substantially all of the revenue of the Company available for the payment of
dividends on its stock will result from dividends paid to the Company by the
Bank. The amount of dividends that the Bank may pay on its capital stock is
subject to certain limitations imposed by New Jersey law. Thus, all dividends
declared from time to time by the Board of Directors for any year shall not be
paid unless the capital stock of the Bank is unimpaired and the Bank has a
surplus of not less than 50% of its capital stock. In addition, the Bank is
required by Federal law to obtain the prior approval of the Federal Reserve
Board for the payment of dividends if the total of all dividends declared by the
Board of Directors in any year will exceed the total of the Bank's net profits
for that year combined with the retained net income for the preceding two years
('earnings limitation' test).

70

UNITED NATIONAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under the earnings limitation test, the Bank had available $2.7 million for
the payment of cash dividends at December 31, 2002. Other sources available to
the Company to fund its cash dividends in 2003 include cash on hand, proceeds
from the sale of securities and short-term and long-term borrowings.
Additionally, the Bank's ability to pay cash dividends under the earnings
limitation test will increase by any net earnings it realizes during 2003.

If the Company were to defer any payments of interest on its Trust Capital
Securities by deferring payment on the junior subordinated debentures, it would
be prohibited from paying dividends on its Common Stock until all deferred
payments were made.

NOTE 20. CONSOLIDATED QUARTERLY FINANCIAL DATA -- (UNAUDITED)

- ---------

* Net income per common share for the fourth quarter of 2001 adjusted for
a $127 loss, net of taxes, or $0.01 per diluted share on the repurchase
of $2.7 million in trust capital securities.

All periods presented above have been restated for the effects of adopting
SFAS No. 123, 'Accounting for Stock-Based Compensation,' which had the effect of
reducing previously reported net income by $49,000 in the first quarter of 2002;
$70,000 in the each of the second, third and fourth quarters of 2002; $44,000 in
the first quarter of 2001; and $51,000 in each of the second, third and fourth
quarters of 2001.

71

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

United's Proxy Statement for its 2003 Annual Meeting will contain, under the
caption 'Election of Directors,' the information required by Item 10 with
respect to directors of United and certain information with respect to executive
officers and that information is incorporated herein by reference. Certain
additional information regarding executive officers of United, who are not also
directors, appears in Part I, Item 4A of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

United's Proxy Statement for its 2003 Annual Meeting will contain, under the
captions 'Executive Compensation', and 'Compensation Committee Interlocks and
Insider Participation,' the information required by Item 11 and that information
(other than information included in the Proxy Statement pursuant to
Item 402(i), (k) and (l) of Regulation S-K) is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

EQUITY COMPENSATION PLAN INFORMATION

- ---------

(1) This figure excludes 28,245 shares issuable under options assumed in prior
acquisitions. The weighted average exercise price of these options was
$12.76.

(2) This represents the number of securities available for future issuance under
United's 2001 Non-Employee Director Long Term Equity Plan and United's 2001
Officer Long-Term Equity Plan, combined. Each plan provides for the grant of
stock options and restricted stock awards. The number of shares available
under the plans will be adjusted equitably for stock splits, stock
dividends, recapitalizations, mergers and other changes in the capital stock
of United. In addition, the number of shares available will be increased by
stock options granted but not exercised and restricted stock grants that are
forfeited.

United's Proxy Statement for its 2003 Annual Meeting will contain, under the
caption 'Stock Ownership of Management and Principal Shareholders,' other
information required by Item 12 and that information is incorporated herein by
reference.

72

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

United's Proxy Statement for its 2003 Annual Meeting will contain, under the
caption 'Compensation Committee Interlocks and Insider Participation' and
'Certain Transactions,' the information required by Item 13 and that information
is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

Based on their evaluation of the Company's disclosure controls and
procedures in the 90 days prior to the date hereof, the Company's principal
executive officer and principal financial officer have determined that such
controls and procedures are effective. No significant change has occurred in the
Company's internal controls since the date of the evaluation that could
significantly affect these controls subsequent to the date of the evaluation.

The Company's Management, including the CEO and the Treasurer, does not
expect that our disclosure controls or our internal controls will prevent all
error and all fraud. A control system, no matter how well conceived and
operated, provides reasonable, not absolute, assurance that the objectives of
the control system are met. The design of a control system reflects resource
constraints; the benefits of controls must be considered relative to their
costs. Because there are inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been or will be
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns occur because of simple error
or mistake. Controls can be circumvented by the individual acts of some persons,
by collusion of two or more people, or by management override of the control.
The design of any system of controls is based in part upon certain assumptions
about the likelihood of future events. There can be no assurance that any design
will succeed in achieving its stated goals under all future conditions; over
time, control may become inadequate because of changes in conditions or
deterioration in the degree of compliance with the policies or procedures.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(A)(1) FINANCIAL STATEMENTS

The consolidated financial statements and report of independent public
accountants of United National Bancorp have been included in Item 8.

(A)(2) FINANCIAL STATEMENT SCHEDULES

Financial statement schedules are omitted as the required information, if
applicable, is presented in the above financial statements or notes thereto.

(A)(3) OTHER EXHIBITS

List of Exhibits
(3) (a) Certificate of Incorporation of the Company, as in effect on
the date of this filing.
(b) By-laws of the Company, as in effect on the date of this
filing.
(10) Material Contracts
(a) Executive Supplemental Retirement Income Agreement and
Conditions, Assumptions, and Schedule of Contributions and
Phantom Contributions for six Executive Officers
(incorporated by reference to the Company's Annual Report on
Form 10-K for the Year Ended December 31, 1997 filed with
the Securities and Exchange Commission on March 30, 1998
(Exhibit 10(f))).

73

(b) Executive Death Benefit Master Agreement (incorporated by
reference to the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1997 filed with the Securities
and Exchange Commission on March 30, 1998 (Exhibit 10(g))).
(c) Executive Deferred Compensation Plan (incorporated by
reference to the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1997 filed with the Securities
and Exchange Commission on March 30, 1998 (Exhibit 10(h))).
(d) Executive Deferred Bonus Plan (incorporated by reference to
the Company's Annual Report on Form 10-K for the Year Ended
December 31, 1997 filed with the Securities and Exchange
Commission on March 30, 1998 (Exhibit 10(i))).
(e) Directors Deferred Compensation Plan for United National
Bancorp (incorporated by reference to the Company's Annual
Report on Form 10-K for the Year Ended December 31, 1997
filed with the Securities and Exchange Commission on
March 30, 1998 (Exhibit 10(j))).
(f) Directors Deferred Compensation Plan for United National
Bank (incorporated by reference to the Company's Annual
Report on Form 10-K for the Year Ended December 31, 1997
filed with the Securities and Exchange Commission on
March 30, 1998 (Exhibit 10(k))).
(g) Change of Control Agreements for nine executive officers
effective November 14, 2000 (incorporated by reference to
the Company's Annual Report on Form 10-K for the Year Ended
December 31, 2000 filed with the Securities and Exchange
Commission on March 30, 2001 (Exhibit 10(i)))
(h) Change of Control Agreements for one executive officer
effective August 15, 2001 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 2001 filed
with the Securities and Exchange Commission on March 25, 2002
(Exhibit 10(j))).
(i) 2001 Officer Long-Term Equity Plan and the 2001 Non-Employee
Director Long-Term Equity Plan for United National Bancorp
(incorporated by reference on the Company's Report on
Form S-8 filed with the Securities and Exchange Commission
on August 22, 2001.)
(j) Common Securities Guarantee dated March 21, 1997
(incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the Quarterly Period Ended September 30,
2002 filed with the Securities and Exchange Commission on
November 14, 2002 (Exhibit 10(a))).
(k) Capital Securities Guarantee dated March 21, 1997
(incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the Quarterly Period Ended September 30,
2002 filed with the Securities and Exchange Commission on
November 14, 2002 (Exhibit 10(b))).
(l) Capital Securities Guarantee dated December 18, 2001
(incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the Quarterly Period Ended September 30,
2002 filed with the Securities and Exchange Commission on
November 14, 2002 (Exhibit 10(c))).
(21) List of Subsidiaries
(23) Consent of Independent Public Accountants

(B) REPORTS ON FORM 8-K

A Form 8-K/A was filed on November 1, 2002 under Item 7 'Financial
Statements, Pro Forma Financial Information and Exhibits.' This Form 8-K/A
amends the Form 8-K filed on September 4, 2002 to include the required financial
statements.

74

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

UNITED NATIONAL BANCORP

By /s/ THOMAS C. GREGOR
..................................
THOMAS C. GREGOR
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER

Dated: March 18, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

75

/s/ ANTONIA S. MAROTTA Director March 18, 2003
.........................................
ANTONIA S. MAROTTA

/s/ JOHN W. MCGOWAN III Director March 18, 2003
.........................................
JOHN W. MCGOWAN III

/s/ PATRICIA A. MCKIERNAN Director March 18, 2003
.........................................
PATRICIA A. MCKIERNAN

/s/ CHARLES N. POND, JR. Director March 18, 2003
.........................................
CHARLES N. POND, JR.

/s/ PAUL K. ROSS Director March 18, 2003
.........................................
PAUL K. ROSS

/s/ ARLYN D. RUS Director March 18, 2003
.........................................
ARLYN D. RUS

/s/ DAVID R. WALKER Director March 18, 2003
.........................................
DAVID R. WALKER

/s/ RONALD E. WEST Director March 18, 2003
.........................................
RONALD E. WEST

/s/ GEORGE J. WICKARD Director March 18, 2003
.........................................
GEORGE J. WICKARD

/s/ J. MARSHALL WOLFF Director March 18, 2003
.........................................
J. MARSHALL WOLFF

76

CERTIFICATIONS

I, Thomas C. Gregor, certify that:

1. I have reviewed this Annual Report on Form 10-K of United National
Bancorp;

2. Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Annual
Report;

3. Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Annual Report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Annual Report
is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this Annual Report (the 'Evaluation Date'); and

c. presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
Annual Report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 18, 2003

/s/ Thomas C. Gregor
................................
Thomas C. Gregor
Chairman of the Board,
President and Chief Executive Officer

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I, Alfred J. Soles, certify that:

1. I have reviewed this Annual Report on Form 10-K of United National
Bancorp;

2. Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Annual
Report;

3. Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Annual Report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Annual Report
is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this Annual Report (the 'Evaluation Date'); and

c. presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
Annual Report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 18, 2003

/s/ Alfred J. Soles
................................
Alfred J. Soles
Vice President and Treasurer
(Principal Financial Officer)

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