AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1996

REGISTRATION NO. 333-13741

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT

UNDER
THE SECURITIES ACT OF 1933

------------------
PRIME NEWCO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Pennsylvania 23-2860688
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)

7111 Valley Green Road
Fort Washington, PA 19034-2209
(215) 836-2400

(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

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

JAMES J. LYNCH
President and Chief Executive Officer
Prime Bancorp., Inc.

7111 Valley Green Road
Fort Washington, PA 19034-2209
(215) 836-2400

(Name, address, including zip code, and telephone
number, including area code, of agent for service)

Copies of all communications should be sent to:

David E. Beavers, Esq. John Lasak, Esq.
Stradley, Ronon, Stevens & Young, LLP Kania, Lindner, Lasak and Feeney
2600 One Commerce Square Two Bala Plaza, Suite 525
Philadelphia, PA 19103 Bala Cynwyd, PA 19004
(215) 564-8000 (610) 667-3240
Fax:(215) 564-8120 Fax: (610) 668-9676

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions under the Agreement and Plan of Reorganization, dated as of June 12,
1996, as amended, by and among Prime Bancorp., Inc., a Delaware corporation, and
First Sterling Bancorp, Inc., a Pennsylvania corporation, have been satisfied or
waived.

If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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PRIME BANCORP., INC.

CROSS REFERENCE SHEET

PURSUANT TO ITEM 501(B) OF REGULATION S-K, CROSS REFERENCE SHEET SHOWING
LOCATION
IN PROSPECTUS OF INFORMATION, REQUIRED BY ITEMS OF FORM S-4

FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT-PROSPECTUS
-------------------------------- --------------------------------------

1. Forepart of the Registration Statement and
Outside Front Cover Page of
Prospectus........................................ Facing Page; Cross Reference Sheet, Outside Front
Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover Page; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................. Summary; Selected Consolidated Financial Data
4. Terms of the Transaction............................ Summary; The Merger; Description of New Prime
Capital Stock; Comparison of Stockholders' Rights;
Certain Differences Between the Corporation
Statutes of Delaware and Pennsylvania
5. Pro Forma Financial Information..................... Summary; Pro Forma Condensed Combined Financial Data
6. Material Contacts with the Company Being Acquired... The Merger -- Background
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters..... Not Applicable
8. Interests of Named Experts and Counsel.............. Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................... Not Applicable

(INFORMATION ABOUT THE REGISTRANT)
10. Information with respect to S-3 Registrants......... Not Applicable
11. Incorporation of Certain Information by Reference... Not Applicable
12. Information with respect to S-2 or S-3
Registrants....................................... Information Incorporated by Reference; Selected
Consolidated Financial Data; Market Price and
Dividend Matters; Summary -- Comparative Per Share
Data; Pro Forma Condensed Combined Financial Data;
Prime Bancorp., Inc.
13. Incorporation of Certain Information by Reference... Information Incorporated by Reference
14. Information with respect to Registrants other than
S-2 or S-3 Registrants............................ Not Applicable

(INFORMATION ABOUT THE COMPANY BEING ACQUIRED)
15. Information with respect to S-3 Companies........... Not Applicable
16. Information with respect to S-2 or S-3 Companies.... Not Applicable
17. Information with respect to Companies other than S-2
or S-3 Companies.................................. First Sterling Management's Discussion and Analysis
of Financial Conditions and Results of Operations;
First Sterling Bancorp, Inc.; Selected
Consolidated Financial Data; Market Price and
Dividend Matters; Index to Financial Statements of
First Sterling Bancorp, Inc. and Subsidiary

(VOTING AND MANAGEMENT INFORMATION)
18. Information if Proxies, Consents or Authorizations
are to be Solicited............................... Prime Special Meeting; First Sterling Special
Meeting
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer... Not Applicable

[ PRIME BANCORP., INC. LETTERHEAD ]

November 8, 1996

Dear Stockholder:

You are cordially invited to attend a Special Meeting of Stockholders of
Prime Bancorp., Inc. to be held at Somerton Springs, 50 Bustleton Pike,
Feasterville, Pennsylvania, on December 17, 1996 at 10:00 a.m., local time. At
this meeting, you will be asked to consider and approve (i) the Agreement and
Plan of Reorganization dated as of June 12, 1996, as amended, (the 'Merger
Agreement') between Prime Bancorp., Inc. ('Prime'), Prime Newco, Inc., a newly
formed Pennsylvania corporation ('New Prime') and First Sterling Bancorp, Inc.
('First Sterling') and (ii) the Agreement and Plan of Merger dated September 12,
1996 between Prime and New Prime. Under the terms of the agreements, Prime and
First Sterling will merge with and into New Prime, which will assume the name
'Prime Bancorp, Inc.' after the transactions. Both mergers are intended to be
completed simultaneously.

Under Delaware law, in order to consummate the mergers, Prime must obtain
the approval of a majority of its outstanding shares. Completion of the merger
under the Merger Agreement is also subject to approval of the shareholders of
First Sterling under Pennsylvania law, approval of the sole shareholder of New
Prime, receipt of all required regulatory approvals, and other customary
conditions described in the enclosed Prospectus/Joint Proxy Statement. If the
mergers are approved and completed, each Prime stockholder will receive the same
number of shares of common stock of New Prime as he or she held in currently
outstanding Prime common stock immediately prior to the mergers. The rights and
privileges of the New Prime common stock are substantially the same as those of
the current Prime common stock, although there are some important differences,
due in part to the differences in the state laws governing each company, which
are described in the enclosed Prospectus/Joint Proxy Statement.

Pursuant to the terms of the Merger Agreement and upon the effective date
of the mergers, shareholders of First Sterling will be entitled to receive 1.00
share of New Prime common stock in exchange for each share of First Sterling
common stock owned. No fractional shares of New Prime common stock will be
issued in connection with the mergers and, in lieu thereof, New Prime will pay
First Sterling shareholders the value of any fractional shares of New Prime
common stock in cash.

A notice of the Special Meeting of Stockholders, a proxy for your use in
connection with that meeting, and a Prospectus/Joint Proxy Statement describing
the proposed transactions in detail accompany this letter. We urge you to read
all of these documents carefully before deciding how to vote your shares.

Your Board of Directors has unanimously determined that the mergers are
fair to and in the best interests of Prime and its stockholders. Both management
and the Board of Directors of Prime believe that the combination with First
Sterling, an institution with a strong community banking franchise in geographic
areas not currently serviced by Prime Bank and strong commercial banking
expertise, is very positive for Prime stockholders. Accordingly, your Board of
Directors unanimously recommends that you vote 'FOR' approval of the proposed
transactions.

We hope that you will attend the Special Meeting. Regardless of your plans
to attend, we urge you, because of the importance of this matter, to execute and
mail the enclosed proxy in the envelope provided. If you decide to attend the
meeting, you may withdraw your proxy and vote in person on all matters brought
before it.

Sincerely,

James J. Lynch
President and Chief Executive Officer

PRIME BANCORP., INC.
7111 VALLEY GREEN ROAD
FORT WASHINGTON, PA 19034-2209
(215) 836-2400

NOTICE OF SPECIAL MEETING
OF PRIME BANCORP., INC. STOCKHOLDERS

TO THE STOCKHOLDERS:

NOTICE IS HEREBY GIVEN that, pursuant to the call of the Board of
Directors, a Special Meeting of Stockholders of Prime Bancorp., Inc. will be
held at Somerton Springs, 50 Bustleton Pike, Feasterville, Pennsylvania on
December 17, 1996 at 10:00 a.m., local time, for the purpose of considering and
voting upon the following matters:

1. approval of the Agreement and Plan of Reorganization dated as of
June 12, 1996, as amended, between Prime Bancorp., Inc., Prime Newco, Inc.,
a newly formed Pennsylvania corporation ('New Prime') and First Sterling
Bancorp, Inc. and the merger described therein (a copy of the agreement is
attached as Annex A to the accompanying Prospectus/Joint Proxy Statement);

2. approval of the Agreement and Plan of Merger dated September 12,
1996 between Prime Bancorp., Inc. and New Prime and the merger described
therein (a copy of the agreement is attached as Annex D to the accompanying
Prospectus/Joint Proxy Statement); and

3. transaction of such other business as may properly come before the
meeting or any adjournment or adjournments thereof.

The close of business on November 6, 1996, has been fixed by the Board of
Directors as the record date for determining shareholders entitled to notice of
and to vote at this Special Meeting.

By Order of the Board of Directors,

November 8, 1996 Joseph A. Fluehr, III,
Philadelphia, Pennsylvania Secretary

YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. FAILURE TO
RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE AGREEMENTS. ACCORDINGLY, EVEN IF YOU
PLAN TO BE PRESENT AT THE SPECIAL MEETING, YOU ARE REQUESTED TO COMPLETE, DATE,
SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS
POSSIBLE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE EITHER IN PERSON OR BY
PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME
PRIOR TO THE EXERCISE THEREOF.

FIRST STERLING BANCORP, INC.
80 WEST LANCASTER AVE.
DEVON, PA 19333
(610) 971-1800

November 8, 1996

Dear Shareholder:

You are cordially invited to attend a Special Meeting of Shareholders of
First Sterling Bancorp, Inc. to be held at Radnor Hotel, 591 East Lancaster
Avenue, St. Davids, Pennsylvania, on December 17, 1996 at 11:00 AM, local time.
At this meeting, you will be asked to consider and approve the Agreement and
Plan of Reorganization dated as of June 12, 1996, as amended, (the 'Merger
Agreement') between Prime Bancorp., Inc. ('Prime'), Prime Newco, Inc., a newly
formed Pennsylvania corporation ('New Prime') and First Sterling Bancorp, Inc.
('First Sterling'). Under the terms of the Merger Agreement, First Sterling and
Prime will merge with and into New Prime which will assume the name 'Prime
Bancorp, Inc.' after the transaction.

Under Pennsylvania law, in order to consummate the merger First Sterling
must obtain the affirmative vote of a majority of the shares present and voting
at a duly called shareholders meeting at which a quorum is present. Completion
of the merger is also subject to the approval of the Prime stockholders,
approval of the sole shareholder of New Prime, receipt of all required
regulatory approvals, and other conditions described in the enclosed
Prospectus/Joint Proxy Statement.

Pursuant to the terms of the Merger Agreement and upon the effective date
of the merger, shareholders of First Sterling will be entitled to receive 1.00
share of New Prime common stock in exchange for each share of First Sterling
common stock owned. No fractional shares of New Prime common stock will be
issued in connection with the merger and, in lieu thereof, New Prime will pay
First Sterling shareholders the value of any fractional shares of New Prime
common stock in cash. Dissenting shareholders who follow the statutory
procedures described in the enclosed Prospectus/Joint Proxy Statement will be
entitled to receive the fair value of their shares.

A notice of the Special Meeting of Shareholders, a proxy for your use in
connection with that meeting, and a Prospectus/Joint Proxy Statement describing
the proposed transaction in detail accompany this letter. Also enclosed are
copies of Prime's (1) Annual Report on Form 10-K for the year ended December 31,
1995, (2) 1995 Annual Report to its stockholders, (3) proxy statement dated
March 18, 1996, and (4) Quarterly Report on Form 10-Q for the six months ended
June 30, 1996. On or about November 15, 1996, you will also be mailed Prime's
Quarterly Report on Form 10-Q for the nine months ended September 30, 1996. We
urge you to read all of these documents carefully before deciding how to vote
your shares.

Your Board of Directors has unanimously determined that the merger is fair
to and in the best interests of First Sterling and its shareholders. Your Board
of Directors and management believe that the combination with Prime presents an
excellent opportunity for the First Sterling shareholders to participate in the
excellent growth opportunities and stronger competitive position of a
substantially larger, but community oriented banking organization. Accordingly,
your Board of Directors unanimously recommends that you vote 'FOR' approval of
the Merger Agreement.

Sincerely,

William H. Bromley
President

FIRST STERLING BANCORP, INC.
80 WEST LANCASTER AVENUE
DEVON, PA 19333
(610) 971-1800

NOTICE OF SPECIAL MEETING
OF FIRST STERLING BANCORP, INC. SHAREHOLDERS

TO THE SHAREHOLDERS:

NOTICE IS HEREBY GIVEN that, pursuant to the call of the Board of
Directors, a Special Meeting of Shareholders of First Sterling Bancorp, Inc.
will be held at the Radnor Hotel, 591 East Lancaster Avenue, St. Davids,
Pennsylvania on December 17, 1996 at 11:00 AM, local time, for the purpose of
considering and voting upon the following matters:

1. to approve the Agreement and Plan of Reorganization dated as of
June 12, 1996, as amended, between Prime Bancorp., Inc., Prime Newco, Inc.,
a newly formed Pennsylvania corporation ('New Prime') and First Sterling
Bancorp, Inc. and the Merger described therein (a copy of the Agreement is
attached as Annex A to the accompanying Prospectus/Joint Proxy Statement);
and

2. to transact such other business as may properly come before the
meeting or any adjournments thereof.

The close of business on November 6, 1996, has been fixed by the Board of
Directors as the record date for determining shareholders entitled to notice of
and to vote at this Special Meeting.

By Order of the Board of Directors,

November 8, 1996 James D. Kania,
Devon, Pennsylvania Secretary

YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. EVEN IF YOU
PLAN TO BE PRESENT AT THE SPECIAL MEETING, YOU ARE REQUESTED TO COMPLETE, DATE,
SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS
POSSIBLE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE EITHER IN PERSON OR BY
PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME
PRIOR TO THE EXERCISE THEREOF.

PRIME BANCORP., INC. AND FIRST STERLING BANCORP, INC.
JOINT PROXY STATEMENT
------------------------------

PRIME NEWCO, INC.

PROSPECTUS
1,654,546 SHARES OF COMMON STOCK
PAR VALUE $1.00 PER SHARE

This Prospectus/Joint Proxy Statement is being furnished in connection with
the solicitation of proxies by the Board of Directors of Prime Bancorp., Inc.
('Prime') and the Board of Directors of First Sterling Bancorp, Inc. ('First
Sterling') to be used at a special meeting of stockholders of Prime and First
Sterling, respectively, to be held on December 17, 1996 (the 'Prime Special
Meeting' and the 'First Sterling Special Meeting,' respectively, and together
the 'Special Meetings'). The purpose of the Special Meetings is to consider and
vote upon an Agreement and Plan of Reorganization, dated as of June 12, 1996, as
amended, between Prime, Prime Newco, Inc., a newly formed Pennsylvania
corporation ('New Prime') and First Sterling (the 'Merger Agreement'). At the
Prime Special Meeting, stockholders will also be asked to consider and vote upon
an Agreement and Plan of Merger dated September 12, 1996 between Prime and New
Prime. Pursuant to the terms of these agreements, First Sterling and Prime will
merge into New Prime, which as a result of the mergers will change its name to
'Prime Bancorp, Inc.' (the 'Merger').

Upon consummation of the Merger, each outstanding share of common stock of
First Sterling ('First Sterling Stock') (other than any shares held by Prime or
a subsidiary thereof other than in a fiduciary capacity or in satisfaction of a
debt previously contracted) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to receive
1.00 share of common stock of New Prime, par value $1.00 per share ('Prime
Stock'), plus cash in lieu of any fractional share interest, as described in
this Prospectus/Joint Proxy Statement, with the exception of shares held by
First Sterling shareholders who elect to exercise certain statutory dissenters'
rights. In addition, upon consummation of the Merger, each outstanding share of
common stock of Prime ('PBI Stock') will become one (1) share of Prime Stock.
See 'The Merger,' Annex A and Annex D.

This Prospectus/Joint Proxy Statement also constitutes a prospectus of New
Prime relating to the shares of Prime Stock issuable to holders of First
Sterling Stock upon consummation of the Merger. Based on 1,454,203 shares of
First Sterling Stock outstanding on the date hereof, 89,833 shares of First
Sterling Stock issuable upon the exercise of outstanding stock options on such
date, and a maximum of 110,510 shares of First Sterling Stock issuable upon the
conversion of First Sterling's 7.5% Convertible Subordinated Debentures
('Debentures'), a maximum of 1,654,546 shares of Prime Stock are expected to be
issued upon consummation of the Merger. New Prime has filed a registration
statement with the Securities and Exchange Commission ('SEC') with respect to
such Prime Stock.

The PBI Stock is traded on the Nasdaq National Market System. The closing
sale of the PBI Stock on June 11, 1996, (the last trading day prior to the
public announcement of the Merger) was $17.75 per share. After the Merger, the
Prime Stock is expected to assume the trading rights of the PBI Stock on the
Nasdaq National Market System.

All information contained in this Prospectus/Joint Proxy Statement with
respect to Prime and New Prime has been supplied by Prime, and all information
with respect to First Sterling has been supplied by First Sterling. This
Prospectus/Joint Proxy Statement is first being mailed to the holders of the
First Sterling Stock and PBI stock on or about November 8, 1996.

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

NEITHER THE MERGER NOR THE SECURITIES OFFERED HEREBY HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------

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

The date of this Prospectus/Joint Proxy Statement is November 4, 1996.

AVAILABLE INFORMATION

Prime is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and, in
accordance with those requirements, files reports, proxy and information
statements, and other information with the Securities and Exchange Commission
(the 'SEC'). The documents filed by Prime with the SEC can be inspected and
copied at the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's Regional Office in New York, which is
located at 7 World Trade Center, Suite 1300, New York, New York 10048. The PBI
Stock is quoted on the Nasdaq National Market. Consequently, reports, proxy
statements and other information relating to Prime also may be inspected and
copied at the Public Reference Section of The National Association of Securities
Dealers, Inc. ('NASD') at 1735 K Street, N.W., Washington D.C. 20006-1506.
Copies of such documents can be obtained from the public reference sections at
prescribed rates. Insofar as New Prime is an inactive corporation which has been
newly formed for the purposes described herein, it is not presently subject to
the Exchange Act. Immediately prior to the effective time of the Merger, Prime
and New Prime will file with the SEC such documents as are necessary for New
Prime to become a successor registrant to Prime under applicable SEC rules, and
New Prime anticipates succeeding to the trading privileges of Prime on the
Nasdaq National Market.

This Prospectus/Joint Proxy Statement does not contain all of the
information set forth in the Registration Statement on Form S-4, of which this
Prospectus/Joint Proxy Statement is a part, and exhibits thereto (together with
the amendments thereto, the 'Registration Statement') which has been filed by
Prime with the SEC under the Securities Act of 1933, as amended (the 'Securities
Act') and the regulations thereunder, certain portions of which have been
omitted pursuant to the regulations of the SEC. For further information,
reference is made to the Registration Statement and the exhibits filed or
incorporated as a part thereof, which are on file at the offices of the SEC and
may be obtained upon payment of the fee prescribed by the SEC, or may be
examined without charge at the SEC's offices. Statements contained in this
Prospectus/Joint Proxy Statement as to the contents of any contract or any
document referred to herein, are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement.

No person has been authorized to give any information or make any
representation not contained in this Prospectus/Joint Proxy Statement in
connection with the offer and proxy solicitations contained herein, and, if
given or made, such information or representation must not be relied upon as
having been authorized by Prime or New Prime. NEITHER THE DELIVERY OF THIS
PROSPECTUS/JOINT PROXY STATEMENT NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH
THIS PROSPECTUS/JOINT PROXY STATEMENT RELATES SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PRIME OR
FIRST STERLING SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS/JOINT PROXY
STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO
SELL OR SOLICITATION TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH
AN OFFER OR SOLICITATION IS NOT LAWFUL.

INFORMATION INCORPORATED BY REFERENCE

The following documents are hereby incorporated by reference into and made
a part of this Prospectus/Joint Proxy Statement which documents have previously
been filed by Prime (File No. 0-17286) with the SEC:

(1) The annual report on Form 10-K for the fiscal year ended December 31,
1995;

(2) The quarterly reports on Form 10-Q for the fiscal quarters ended March
31, 1996 and June 30, 1996;

(3) The current reports on Form 8-K dated June 12, 1996 and filed on June
27, 1996 as amended by filing on August 12, 1996; and

(4) The description of the common stock of Prime Bancorp., Inc. in its
registration statement on Form S-1 filed pursuant to Section 12(g) of
the Securities Act of 1933 (No. 33-23083), dated October 11, 1988,
including all amendments thereto and reports filed under the Securities
Exchange Act for the purpose of updating such description.

Such incorporation by reference will not be deemed to specifically incorporate
by reference the information referred to in Item 402(a)(8) of Regulation S-K.

All documents filed by Prime pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus/Joint Proxy Statement and
prior to the date of the Special Meetings shall be deemed to be incorporated by
reference in this Prospectus/Joint Proxy Statement and to be a part hereof from
the date of filing of such documents. Any statement incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus/Joint Proxy Statement to the extent that a statement contained herein
or in any other such subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus/Joint Proxy Statement.

THIS PROSPECTUS/JOINT PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER
THAN THE EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED THEREIN BY REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS/JOINT PROXY STATEMENT IS
DELIVERED, ON WRITTEN OR ORAL REQUEST. REQUESTS FOR DOCUMENTS FILED BY PRIME
SHOULD BE DIRECTED TO MICHAEL J. SEXTON, CHIEF FINANCIAL OFFICER, PRIME
BANCORP., INC., 7111 VALLEY GREEN ROAD, FORT WASHINGTON, PA 19034-2209
(TELEPHONE NO. 215-836-2400). IN ORDER TO ENSURE TIMELY DELIVERY OF DOCUMENTS
PRIOR TO THE SPECIAL MEETINGS, ANY REQUESTS SHOULD BE MADE BY NOT LATER THAN
NOVEMBER 29, 1996.

TABLE OF CONTENTS

PAGE
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SUMMARY.................................................................................................... 7
The Companies............................................................................................ 7
Prime................................................................................................. 7
First Sterling........................................................................................ 7
The Special Meetings..................................................................................... 7
Security Ownership of Management and Others.............................................................. 8
The Merger............................................................................................... 8
General............................................................................................... 8
Reasons for the Merger................................................................................ 9
Recommendations of the Board of Directors............................................................. 9
Opinion of Financial Advisor.......................................................................... 9
Interests of Certain Persons in the Merger............................................................ 10
Conditions to the Merger.............................................................................. 10
Certain Federal Income Tax Consequences............................................................... 10
Accounting Treatment.................................................................................. 11
Dissenters Rights..................................................................................... 11
Management After the Merger........................................................................... 11
Comparison of Stockholders' Rights....................................................................... 11
Trading Matters.......................................................................................... 11
Comparative Per Share Data (Unaudited)................................................................... 11

SELECTED CONSOLIDATED FINANCIAL DATA....................................................................... 13

FIRST STERLING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....... 19

Results of Operations...................................................................................... 19
Summary.................................................................................................. 19
Net Interest Income...................................................................................... 20
Provision For Loan Losses................................................................................ 24
Non-Interest Income...................................................................................... 25
Non-Interest Expense..................................................................................... 25
Provision for Income Taxes............................................................................... 26

Financial Condition........................................................................................ 26
Sources and Uses of Funds................................................................................ 26
Investment Securities and Other Short-Term Investments................................................... 27
Loans.................................................................................................... 28
Deposits................................................................................................. 29
Short-Term Borrowings.................................................................................... 29
Non-Performing Assets.................................................................................... 29
Allowance for Loan Losses................................................................................ 30
Liquidity................................................................................................ 32
Capital Resources........................................................................................ 33
Interest Rate Sensitivity................................................................................ 34
Effects of Inflation..................................................................................... 35

MARKET PRICE AND DIVIDEND MATTERS.......................................................................... 36

THE FIRST STERLING SPECIAL MEETING......................................................................... 37
Date, Time and Place..................................................................................... 37
Matters to be Considered at the First Sterling Special Meeting........................................... 37
Record Date; Proxies..................................................................................... 37
Vote Required............................................................................................ 37

PAGE
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Solicitation, Voting and Revocation of Proxies........................................................... 38
Certain Beneficial Owners Of First Sterling Stock........................................................ 38

THE PRIME SPECIAL MEETING.................................................................................. 41
Date, Time and Place..................................................................................... 41
Matters to be Considered at the Prime Special Meeting.................................................... 41
Record Date; Proxies..................................................................................... 41
Votes Required........................................................................................... 41
Solicitation, Voting and Revocation of Proxies........................................................... 41
Certain Beneficial Owners Of PBI Stock................................................................... 42

THE MERGER................................................................................................. 44
General.................................................................................................. 44
Effect On The Corporate Parties.......................................................................... 44
Background Of The Merger................................................................................. 44
Reasons For The Merger -- First Sterling................................................................. 46
Reasons For The Merger -- Prime.......................................................................... 47
Opinion Of Financial Advisor To Prime.................................................................... 48
The Merger Consideration................................................................................. 51
Exchange Of Stock Certificates........................................................................... 51
Certain Federal Income Tax Consequences.................................................................. 52
Dissenters Rights........................................................................................ 53
Representations and Warranties........................................................................... 56
Conditions To Consummation Of The Merger................................................................. 56
Regulatory Approvals..................................................................................... 57
Conduct of Business Pending The Merger................................................................... 59
No Solicitation.......................................................................................... 60
Effective Time Of The Merger; Termination And Amendment.................................................. 60
Interests Of Certain Persons In The Merger............................................................... 61
Treatment of Stock Options and Debentures................................................................ 62
Management After The Merger.............................................................................. 63
Resale Of Prime Stock.................................................................................... 65
Accounting Treatment..................................................................................... 66

PRIME BANCORP., INC........................................................................................ 66
Recent Developments...................................................................................... 66

FIRST STERLING BANCORP, INC................................................................................ 68
General.................................................................................................. 68
First Sterling Bank...................................................................................... 68
Services................................................................................................. 68
Competition.............................................................................................. 69
Offices.................................................................................................. 69

PRIME NEWCO, INC........................................................................................... 69

PRO FORMA CONDENSED COMBINED FINANCIAL DATA................................................................ 70
COMPARISON OF STOCKHOLDERS' RIGHTS......................................................................... 76
Capital Stock............................................................................................ 76
Voting Power............................................................................................. 76
Board of Directors....................................................................................... 77
Limitation on Directors' Liability....................................................................... 77
Supermajority Vote on Certain Matters.................................................................... 77
Informal Shareholder Action.............................................................................. 78
Modification of Charter Documents and Bylaws............................................................. 78

PAGE
-----------

CERTAIN DIFFERENCES BETWEEN THE CORPORATION
STATUTES OF DELAWARE AND PENNSYLVANIA...................................................................... 79
Fiduciary Duties of Directors............................................................................ 79
Limitation of Director Liability......................................................................... 79
Indemnification.......................................................................................... 80
Shareholder Protective Provisions........................................................................ 80
Amendments to Charter.................................................................................... 83
Mergers and Major Transactions........................................................................... 83
Dividends................................................................................................ 83
Stock Repurchases........................................................................................ 83
Voting Rights............................................................................................ 83
Appraisal or Dissenters Rights........................................................................... 83
Amendments to Bylaws..................................................................................... 84
Action by Written Consent................................................................................ 84
Special Meetings of Shareholders......................................................................... 84
Annual Meeting of Shareholders........................................................................... 85
Case Law and Court Systems............................................................................... 85

DESCRIPTION OF NEW PRIME CAPITAL STOCK..................................................................... 85
General.................................................................................................. 85
Common Stock............................................................................................. 86
Preferred Stock.......................................................................................... 86

EXPERTS.................................................................................................... 86

LEGAL MATTERS.............................................................................................. 87

STOCKHOLDER PROPOSALS...................................................................................... 87

Annex F -- INDEX TO FINANCIAL STATEMENTS OF FIRST STERLING BANCORP, INC. AND SUBSIDIARY.................... F-1

Annex A -- Agreement and Plan of Reorganization and First Amendment

Annex B -- Berwind Financial Group, L.P. Opinion to Prime

Annex C -- Pennsylvania Statutory Provisions Relating to Dissenters Rights

Annex D -- Agreement and Plan of Merger

SUMMARY

The following is a summary of the information contained in this
Prospectus/Joint Proxy Statement. This summary is not, and is not intended to
be, a complete statement of all material contained in this Prospectus/Joint
Proxy Statement and it is qualified in its entirety by reference to the more
detailed discussions contained elsewhere in this document, in the accompanying
annexes attached hereto and the information incorporated herein by reference.
Shareholders should read carefully this entire Prospectus/Joint Proxy Statement
and the annexes hereto and information incorporated herein.

THE COMPANIES

PRIME

Prime is a non-diversified savings and loan holding company incorporated
under the laws of the State of Delaware. Prime's principal subsidiary is Prime
Bank, a savings bank ('Prime Bank') which is a Pennsylvania chartered stock
savings bank headquartered in Philadelphia, PA.

Through Prime Bank, Prime follows a community bank strategy, focusing on
providing individuals, businesses, and communities with quality basic banking
services, including primarily residential real estate loans, commercial real
estate loans, construction loans, consumer loans and commercial business loans.
As of September 30, 1996, Prime Bank operated through eighteen (18) branch
offices throughout Philadelphia, Bucks and Montgomery Counties in southeastern
Pennsylvania.

New Prime is a newly-organized Pennsylvania corporation which has no
present operations or assets. New Prime has been formed solely for the purpose
of merging Prime into it. See 'The Merger -- Reasons for the Merger -- Prime'.

The principal executive offices for both Prime and New Prime are located at
7111 Valley Green Road, Fort Washington, PA 19034-2209 (215-836-2400). The
statutory head office of Prime Bank is 6425 Rising Sun Avenue, Philadelphia, PA
19111. See 'Prime Bancorp., Inc.' for a description of certain recent
legislative developments affecting Prime, New Prime and Prime Bank.

FIRST STERLING

First Sterling is a privately owned bank holding company incorporated under
the laws of the Commonwealth of Pennsylvania. Its sole subsidiary is First
Sterling Bank, a Pennsylvania chartered banking organization ('First Sterling
Bank') which is headquartered in Devon, Pennsylvania.

Through First Sterling Bank, First Sterling is engaged in the business of
providing banking services to individuals, businesses and communities focusing
on both basic banking services as well as commercial lending services including
commercial business loans, construction loans, residential loans and commercial
real estate loans. As of October 1, 1996, First Sterling Bank operated through
five (5) branch offices in Chester, Delaware and Montgomery Counties in
southeastern, Pennsylvania.

The principal executive offices of First Sterling and First Sterling Bank
are located at 80 West Lancaster Avenue, Devon, PA 19333 (610-971-1800). See
'First Sterling Bancorp, Inc.'

THE SPECIAL MEETINGS

The Prime Special Meeting will be held at Somerton Springs, 50 Bustleton
Pike, Feasterville, Pennsylvania, on December 17, 1996, at 10:00 a.m., local
time. The First Sterling Special Meeting will be held at the Radnor Hotel, 591
East Lancaster Avenue, St. Davids, Pennsylvania, on December 17, 1996, at 11:00
a.m., local time. Only the holders of record of outstanding shares of PBI Stock
and First Sterling Stock at the close of business on November 6, 1996 (the
'Prime Record Date') and

November 6, 1996 (the 'First Sterling Record Date'), respectively, are entitled
to notice of and to vote at the Prime Special Meeting and the First Sterling
Special Meeting, respectively. At the Prime Record Date, 3,725,066 shares of
Prime Stock were outstanding and entitled to be voted, and at the First Sterling
Record Date 1,454,203 shares of First Sterling Stock were outstanding and
entitled to be voted. Holders of PBI Stock and First Sterling Stock are each
entitled to one vote per share on each matter to be voted on at the respective
Special Meetings.

At the Special Meetings and at any adjournment or adjournments thereof,
stockholders of Prime and First Sterling will consider and vote upon and approve
the Merger Agreement, a copy of which is attached as Annex A hereto. In
addition, at the Prime Special Meeting the holders of the PBI Stock will be
asked to approve the merger of Prime into New Prime pursuant to the Agreement
and Plan of Merger, a copy of which is attached as Annex D hereto. The
affirmative vote of at least a majority of the issued and outstanding PBI Stock
is necessary to approve the Merger Agreement and the merger with New Prime on
behalf of Prime.

Shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast on the First Sterling Record Date must be
present in person or by proxy at the First Sterling Special Meeting in order for
a quorum to be present for purposes of voting on the Merger Agreement. Approval
of the Merger Agreement will require the affirmative vote of at least a majority
of the shares of First Sterling Stock present and voting at the First Sterling
Special Meeting.

SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS

As of the Prime Record Date, the directors and executive officers of Prime
and their affiliates in the aggregate beneficially owned 565,588 shares, or
15.2%, of the outstanding PBI Stock, excluding shares subject to options. Each
Prime director and executive officer has indicated his or her present intention
to vote, or cause to be voted, the PBI Stock so owned by him or her for approval
of the Merger Agreement. As of the Prime Record Date, First Sterling directors
and executive officers beneficially owned 605 shares of PBI Stock. Each First
Sterling director and executive officer has indicated his present intention to
vote all of the shares of PBI Stock owned by him for approval of the Merger
Agreement. Based upon the foregoing, persons holding an aggregate of
approximately 15% of the outstanding shares of PBI Stock on the Prime Record
Date have indicated a present intention to vote for approval of the Merger
Agreement. See 'The Prime Special Meeting -- Certain Beneficial Owners of PBI
Stock'.

As of the First Sterling Record Date, the directors and executive officers
of First Sterling and their affiliates in the aggregate beneficially owned
997,863 shares, or 68.6%, of the outstanding First Sterling Stock, excluding
shares subject to options or issuable on conversion of the Debentures. Each of
the directors and executive officers of First Sterling has indicated his present
intention to vote, or cause to be voted, the First Sterling Stock so owned by
him for approval and adoption of the Merger Agreement. None of the directors or
executive officers of Prime beneficially owned any shares of First Sterling
Stock. 'The First Sterling Special Meeting -- Certain Beneficial Owners of First
Sterling Stock'.

THE MERGER

GENERAL

First Sterling and Prime will merge with and into New Prime which will
survive the Merger, pursuant to the terms and conditions of the Merger Agreement
(Annex A) and Agreement and Plan of Merger (Annex D). First Sterling and Prime
will cease to exist as separate corporate entities at the Effective Time of the
Merger, and their assets, liabilities and operations will transfer by operation
of law to New Prime. After the Merger is effected, New Prime will operate as
both a bank holding company and a savings and loan holding company. As a result
of the Merger, the Articles of

Incorporation of New Prime will be amended to change the corporation's name to
'Prime Bancorp, Inc.'

It is anticipated that the Merger will be completed as promptly as
practicable after the requisite stockholder approvals have been obtained, all
appropriate regulatory approvals have been obtained, and all other conditions to
the Merger have been satisfied or waived, and will be effective as of the close
of business on December 31, 1996. As a result of the Merger, each share of First
Sterling Stock shall be converted into the right to receive one share of Prime
Stock (the 'Exchange Ratio'), plus cash in lieu of any fractional interest. In
addition, each outstanding share of PBI Stock will become one share of Prime
Stock. See 'The Merger -- The Merger Consideration,' ' -- Exchange of Stock
Certificates,' ' -- Effective Time of the Merger; Termination and Amendment' and
' -- Effect on the Corporate Parties.'

In connection with the Merger, the outstanding options to acquire First
Sterling Stock in favor of certain employees and directors of First Sterling
will be assumed by New Prime and converted into options to acquire Prime Stock.
Furthermore, by their terms, the Debentures will also become convertible into
Prime Stock.

REASONS FOR THE MERGER

The Boards of Directors of Prime and First Sterling believe that the
combination of the two companies will result in a premier community
banking-oriented franchise in Philadelphia and its surrounding counties. The
Merger brings together two strong and profitable institutions with different
strengths. First Sterling Bank has an attractive franchise and is
well-positioned in the rapidly expanding suburbs west of the City of
Philadelphia. In addition, First Sterling Bank is particularly strong in its
commercial banking operations which is an area which Prime Bank has targeted for
strategic development. Prime Bank has a particular strength in its branch
network which includes 18 branches. Both Boards of Directors have identified
growth opportunities in the Philadelphia banking region by focusing on the
business and personal needs of small and medium sized businesses which, because
of the service needs and requirements of the customer, are often best served by
community banking institutions. See 'The Merger -- Background of the Merger', '
- -- Reasons for the Merger -- First Sterling' and ' -- Reasons for the Merger --
Prime'.

The Board of Directors of Prime believes that it is in the best interest of
Prime and its stockholders to change the state of incorporation of Prime from
Delaware to Pennsylvania; thus, it has approved the merger of Prime into New
Prime. The primary reasons for this change are to conform the company's domicile
to the state where its principal offices and businesses are located, to take
advantage of the modernized Pennsylvania Business Corporation Law ('PBCL'), to
reduce state taxes by eliminating the annual cost of Delaware franchise taxes,
and to eliminate certain technical questions relating to the initial issuance of
the PBI Stock and the original organization of Prime. See 'The Merger -- Reasons
for the Merger -- Prime.'

RECOMMENDATIONS OF THE BOARD OF DIRECTORS

The Boards of Directors of both Prime and First Sterling believe that the
terms of the Merger Agreement are fair to and in the best interest of their
respective stockholders. The Prime Board of Directors (with all seven directors
present) and the First Sterling Board of Directors (with all seven directors
present in person or by conference telephone) have each, by unanimous vote,
approved the Merger Agreement and the transactions contemplated thereby, and
recommend that their respective stockholders vote to approve the Merger
Agreement. See 'The Merger -- General'.

OPINION OF FINANCIAL ADVISOR

Berwind Financial Group, L.P. ('Berwind') has rendered to Prime its written
opinion, dated October 31, 1996, that as of the date of such opinion, and
subject to the assumptions and considerations set forth therein, the Merger is
fair from a financial point of view to the holders of the PBI Stock. A copy of
the opinion of Berwind is attached hereto as Annex B. See 'The Merger -- Opinion
of Financial Advisor to Prime'.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Certain members of the Boards of Directors and managements of Prime and
First Sterling may be deemed to have certain interests in the Merger in addition
to their interests generally as stockholders of Prime or First Sterling, as the
case may be. These interests may include: (i) the agreement of Prime to cause
the election of three First Sterling nominees to the Board of Directors of New
Prime after the Merger is effective, (ii) Prime's covenant to enter into an
employment agreement with William H. Bromley pursuant to which Mr. Bromley is
employed as an Executive Vice President of New Prime for a period of three years
at a base salary of $200,000 per annum, providing for a bonus of $75,000, an
award of incentive stock options to purchase 33,000 shares of Prime Stock, and
providing for benefits equal to twice his average annual compensation in the
event that Mr. Bromley terminates his employment upon a change in control of New
Prime, (iii) the interest of James D. Kania, an officer and director of First
Sterling, and principal, along with his father and siblings, in the landlord of
three of the five facilities leased by First Sterling Bank, and (iv) Messrs.
James J. Lynch, Erwin T. Straw and Walter L. Tillman, Jr. with respect to their
employment agreements with Prime which have 'change in control' provisions which
may be triggered by the Merger. Each of Messrs. Lynch, Straw and Tillman have
executed written waivers with respect to the Merger. See 'The Merger --
Interests of Certain Persons in the Merger'.

CONDITIONS TO THE MERGER

The obligations of Prime, New Prime and First Sterling to consummate the
Merger are subject to various conditions, including obtaining requisite
stockholder approvals, obtaining necessary regulatory approvals from the Board
of Governors of the Federal Reserve System ('FRB'), the Department of Banking of
the Commonwealth of Pennsylvania ('PADOB'), and the Office of Thrift Supervision
('OTS'), and certain other federal and state governmental authorities, in each
case without the imposition of any conditions which would reasonably be expected
to either (a) result in a material adverse effect on the financial condition,
results of operations, business or prospects of New Prime or (b) prevent the
parties from realizing the major portion of the economic benefits of the
transactions contemplated by the Merger Agreement. New Prime has filed
applications for necessary approvals with the FRB, OTS, and PADOB, and expects
to have filed all other necessary applications with other regulatory authorities
prior to the mailing of this Prospectus/Joint Proxy Statement.

There are certain other normal and customary conditions to completion of
the transactions, namely receipt of accountants' letters regarding pooling of
interests accounting treatment, receipt of opinions of counsel relating to
certain federal income tax consequences of the Merger and certain corporate law
matters, and approval of the Nasdaq National Market, subject to official notice
of issuance, of trading privileges with respect to the shares of Prime Stock to
be issued in connection with the Merger. The Merger Agreement permits any
condition (other than a condition required in order to comply with applicable
law) to be waived by the party benefitted thereby. See 'The Merger -- Regulatory
Approvals' and ' -- Conditions to Consummation of the Merger'.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The Merger is intended to qualify as a 'tax-free' reorganization under
Section 368 of the Internal Revenue Code of 1986, as amended ('Code'), so that
no gain or loss will be recognized by Prime or First Sterling, and no gain or
loss will be recognized by First Sterling shareholders, except in respect of

cash received in lieu of fractional shares, or by Prime stockholders. First
Sterling and Prime have each received opinions of legal counsel dated the date
hereof to the effect that the Merger will constitute a 'reorganization' within
the meaning of Section 368 of the Code for federal income tax purposes, subject
to certain assumptions set forth in such opinions. Each First Sterling and Prime
stockholder is urged to consult his or her own tax advisor to determine the
specific tax consequences of the Merger to such stockholder, including the
applicability of various state, local and foreign tax laws. See 'The Merger --
Certain Federal Income Tax Consequences'.

ACCOUNTING TREATMENT

It is anticipated that the Merger, when consummated, will be accounted for
as a pooling of interests. The merger with First Sterling will not be
consummated in the event that the Merger cannot be accounted for as a pooling of
interests. See 'The Merger -- Accounting Treatment.'

DISSENTERS RIGHTS

Under the provisions of the Delaware General Corporation Law ('DGCL'), the
holders of the PBI Stock are not entitled to dissenters rights or appraisal
remedies in connection with the Merger. Under the PBCL, holders of the First
Sterling Stock are entitled to exercise dissenters rights in connection with the
Merger. In order for a First Sterling shareholder to exercise dissenters rights
there are specific statutory requirements under the PBCL which must be followed
precisely, or else the shareholder will lose the right to dissent. See 'The
Merger -- Dissenters Rights' and Annex C hereto.

MANAGEMENT AFTER THE MERGER

After the Merger, the Board of Directors of New Prime will initially
consist of ten directors, comprised of seven directors nominated by the Board of
Directors of Prime and three directors nominated by the Board of Directors of
First Sterling. The executive officers of New Prime will remain substantially
unchanged, with the exception that William H. Bromley, presently President of
First Sterling and First Sterling Bank, will become an Executive Vice President
of New Prime. Mr. Bromley will remain as President of First Sterling Bank. See
'The Merger -- Management After the Merger.'

COMPARISON OF STOCKHOLDERS' RIGHTS

The rights of shareholders of First Sterling currently are determined by
reference to the PBCL, and First Sterling's Articles of Incorporation and
Bylaws. At the effective time of the Merger, shareholders of First Sterling will
become shareholders of New Prime and their rights as such will then be
determined by reference to the provisions of the PBCL and the Articles of
Incorporation and Bylaws of New Prime. The rights of stockholders of Prime are
currently determined by reference to the DGCL and Prime's Certificate of
Incorporation and Bylaws. At the Effective time of the Merger, stockholders of
Prime will become shareholders of New Prime and their rights as such will be
determined by reference to the provisions of the PBCL and New Prime's Articles
of Incorporation and Bylaws. See 'Comparison of Stockholders' Rights,' 'Certain
Differences Between the Corporation Statutes of Delaware and Pennsylvania' and
'Description of New Prime Capital Stock'.

TRADING MATTERS

PBI Stock is traded on Nasdaq National Market System under the symbol
'PSAB.' It is anticipated that the Prime Stock at the effective time of the
Merger will succeed to the trading privileges of the PBI Stock on the Nasdaq
National Market System and will trade under the symbol 'PSAB.' On June 11, 1996,
the last trading day prior to the public announcement of the execution of the
Merger Agreement, the last reported sale price of a share of PBI Stock was
$17.75. There is no current market for the First Sterling Stock. See 'Market
Price and Dividend Matters.'

COMPARATIVE PER SHARE DATA
(Unaudited)

The tables which follow present certain historical per share data for Prime
and First Sterling and certain pro forma combined per share data at the dates
and for the periods indicated, giving effect to the Merger using the pooling of
interests method of accounting. Because the Exchange Ratio is one for one, the
equivalent book value per share is equal to the pro forma book value set forth
below. The per share data included in the tables which follow should be read in
conjunction with the historical financial statements of Prime and First Sterling
and the related notes accompanying each such financial statements, as
incorporated by reference herein or included in Annex F hereto. The data
presented are not necessarily indicative of the results which would have been
obtained if the combination had been consummated in the periods indicated or
which may be obtained in the future.

PER COMMON SHARE JUNE 30, 1996 DECEMBER 31, 1995
---------------- ------------- -----------------

BOOK VALUE:
Historical book value per share:
Prime Bancorp................................................................. $15.58 $15.18
First Sterling................................................................ 8.72 8.19
Pro forma book value............................................................ 13.19 12.64

-----------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
--------------- --------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----

CASH DIVIDENDS DECLARED:
Historical cash dividends per share
Prime................................................... $.34 $.30 $ .62 $ .54 $ .50
First Sterling.......................................... -- -- -- -- --
Pro forma cash dividends declared......................... $.34 $.30 $ .62 $ .54 $ .50
NET INCOME:
Historical net income per share
Prime................................................... $.86 $.79 $1.55 $1.55 $1.46(1)
First Sterling.......................................... .66 .48 1.03 .61 .79
Pro forma net income per share............................ $.78 $.70 $1.39 $1.27 $1.27

- ------------------
(1) Does not reflect the cumulative effect on prior years of a change in tax
accounting method. Earnings per share of Prime in 1993 after the cumulative
effect of a change in accounting principle was $1.75.

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected historical consolidated financial data of Prime and
First Sterling for the five years ended December 31, 1995, are derived in part
from the audited consolidated financial statements contained in Annex F hereto
or incorporated herein by reference. The historical consolidated financial data
of Prime and First Sterling for the six months ended June 30, 1996 and 1995, are
derived from unaudited consolidated financial statements of each company
contained in Annex F hereto or incorporated herein by reference. The unaudited
consolidated financial statements include all adjustments, consisting of normal
recurring accruals, which are considered necessary by the managements of Prime
and First Sterling for a fair presentation of the financial position and results
of operations of Prime and First Sterling for these periods, respectively.
Operating results for the six months ended June 30, 1996, are not necessarily
indicative of the results that may be expected for any other interim period or
the entire year ending December 31, 1996. The Prime selected historical
consolidated financial data set forth below should be read in conjunction with,
and are qualified in their entirety by, the historical consolidated financial
statements of Prime, including the related notes, incorporated herein by
reference. See 'Available Information' and 'Information Incorporated by
Reference.' All figures are stated in thousands except per share data and
percentages.

SELECTED HISTORICAL FINANCIAL DATA OF PRIME

6 MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995(8) 1996(8)
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

BALANCE SHEET DATA:
Total Amount of:
Assets................................... $ 364,110 $ 393,324 $ 450,912 $ 566,904 $ 607,975 $ 568,120 $ 644,560
Loans (2) and mortgage-backed
securities............................. 289,453 320,778 386,140 449,441 487,367 449,280 534,848
Investment securities and
interest-bearing deposits.............. 57,307 46,543 34,732 71,733 72,508 71,088 57,241
Land acquired for development and
resale................................. 1,209 1,000 838 694 10,405 10,139 10,107
Deposits................................. 294,840 338,006 368,800 447,651 476,539 469,441 499,781
FHLB advances and other borrowings....... 22,811 6,271 27,264 59,710 68,844 39,122 80,760
Stockholders' equity..................... 41,325 44,909 49,698 47,641 56,247 54,241 58,048
Book value............................... 11.67 12.53 13.65 12.86 15.18 14.64 15.58

INCOME STATEMENT DATA:
Interest income.......................... $ 33,584 $ 30,691 $ 31,310 $ 34,986 $ 42,795 21,044 22,560
Interest expense......................... 19,598 14,944 13,150 15,253 21,825 10,599 11,068
Net interest income...................... 13,986 15,747 18,160 19,733 20,970 10,445 11,492
Provision for loan losses................ 1,320 1,200 1,442 1,243 644 356 650
Net interest income after provision for
loan losses............................ 12,666 14,547 16,718 18,490 20,326 10,089 10,842
Gain (loss) on sale of assets............ 320 220 279 (104) 728 328 198
Rental income............................ 227 214 350 321 174 54 143
Non-interest income...................... 1,702 1,668 1,233 1,578 1,954 809 1,033
Non-interest expenses.................... 8,197 8,769 9,807 11,336 13,831 6,609 7,235
Income before income taxes and effect of
cumulative change in accounting
principle.............................. 6,718 7,880 8,773 8,949 9,351 4,671 4,981
Income tax expense....................... 2,652 3,177 3,349 3,141 3,498 1,709 1,733
Income before effect of cumulative change
in accounting principle................ 4,066 4,703 5,424 5,808 5,853 2,962 3,248
Cumulative effect on prior years of
change in tax accounting method (9).... -- -- 1,055 -- -- -- --
Net income............................... $ 4,066 $ 4,703 $ 6,479 $ 5,808 $ 5,853 $ 2,962 $ 3,248
Primary earnings per share (1)........... $ 1.19 $ 1.28 $ 1.46 $ 1.55 $ 1.56 $ 0.79 $ 0.86
Fully diluted earnings per share (1)..... $ 1.19 $ 1.29 $ 1.46 $ 1.55 $ 1.55 $ 0.79 $ 0.86
Dividends declared per share............. $ 0.22 $ 0.37 $ 0.50 $ 0.54 $ 0.62 $ 0.30 $ 0.34

AVERAGE BALANCE SHEET DATA:
Total Amount of:
Assets................................... $ 352,475 $ 365,152 $ 419,389 $ 498,930 $ 575,740 $ 565,319 $ 615,686
Loans(2) and mortgage-backed
securities............................. 295,123 295,871 359,402 408,851 465,195 453,516 508,193
Investment securities and
interest-bearing deposits.............. 44,951 47,604 31,965 52,194 63,630 63,700 58,833
Deposits................................. 290,543 306,579 348,895 406,278 461,335 451,459 486,495
FHLB advances and other borrowings....... 22,289 9,319 15,746 32,763 56,132 54,310 65,885
Stockholders' equity..................... 39,769 43,117 47,304 48,670 51,944 50,941 57,148
Common shares outstanding-primary........ 3,417 3,653 3,706 3,736 3,763 3,760 3,778
Common shares outstanding-fully
diluted................................ 3,417 3,668 3,712 3,736 3,774 3,757 3,776

PERCENTAGES:
Net income to average total stockholders'
equity................................. 10.22% 10.91% 11.47% 11.93% 11.27% 11.63% 11.37%
Net income to average assets............. 1.15% 1.28% 1.28% 1.16% 1.00% 1.04% 1.04%
Average stockholders' equity to average
assets................................. 11.28% 11.81% 11.28% 9.75% 9.02% 9.01% 9.28%
Allowance for loan losses to:
Net loans.............................. 0.92% 1.15% 1.34% 1.32% 1.09% 1.09% 0.99%
Non-performing loans................... 86.78% 97.00% 93.16% 99.19% 126.31% 117.86% 82.75%
Net charge-offs to average net loans..... 0.25% 0.22% 0.23% 0.27% 0.34% 0.31% 0.19%
Total non-performing assets to total
assets (3)............................. 0.91% 0.96% 1.02% 0.81% 0.55% 0.71% 0.78%
Capital ratios:
Tangible capital....................... 10.25% 9.82% 9.57% 7.16% 7.52% 7.93% 7.54%
Leverage............................... 10.25% 9.82% 9.57% 7.16% 7.52% 7.93% 7.54%
Risk-based Capital..................... 17.80% 17.34% 18.46% 13.41% 14.08% 14.59% 12.52%
Net interest margin...................... 4.11% 4.58% 4.64% 4.65% 4.26% 4.35% 4.23%

See footnotes on page 18.

The First Sterling selected historical consolidated financial data set
forth below should be read in conjunction with, and is qualified in its entirety
by, the historical consolidated financial statements of First Sterling,
including the related notes, contained in Annex F hereto.

SELECTED HISTORICAL FINANCIAL DATA OF FIRST STERLING

BALANCE SHEET DATA:
Total Amount of:
Assets................................... $ 99,706 $ 119,080 $ 147,946 $ 172,327 $ 211,986 $ 190,927 $ 227,944
Loans (2) and mortgage-back securities... 73,519 88,583 107,639 117,073 152,304 131,412 170,143
Investment securities and
interest-bearing deposits.............. 19,495 21,824 31,381 45,460 50,428 45,528 47,630
Deposits................................. 87,152 101,790 122,363 137,415 167,958 145,345 157,014
FHLB advances and other borrowings....... 3,332 6,480 14,380 21,509 27,474 30,420 53,740
Stockholders' equity..................... 6,062 7,092 8,931 9,728 11,982 11,167 12,676
Book value............................... 4.42 5.18 6.52 6.85 8.19 7.60 8.72
INCOME STATEMENT DATA:
Interest income.......................... $ 8,042 $ 9,336 $ 10,643 $ 12,082 $ 16,184 $ 7,579 $ 9,101
Interest expense......................... 5,054 4,886 5,133 6,027 8,732 4,016 4,861
Net interest income...................... 2,988 4,450 5,510 6,055 7,452 3,563 4,240
Provision for loan losses................ 392 963 718 351 485 237 185
Net interest income after provision for
loan losses............................ 2,596 3,487 4,792 5,704 6,967 3,326 4,055
Gain (loss) on sale of assets............ 13 451 112 (117) 4 (17) 4
Non-interest income...................... 225 321 626 499 583 286 344
Non-interest expense..................... 2,624 3,225 3,786 4,698 5,099 2,435 2,799
Income before income taxes and
extraordinary credit................... $ 210 $ 1,034 $ 1,744 $ 1,388 $ 2,455 $ 1,160 $ 1,604
Income tax expense....................... 68 353 590 484 839 398 550
Income before extraordinary credit....... 142 681 1,154 904 1,616 762 1,054
Extraordinary credit-tax NOL............. 68 348 -- -- -- -- --
Net income............................... $ 210 $ 1,029 $ 1,154 $ 904 $ 1,616 $ 762 $ 1,054
Primary earnings per share(1)(10)........ $ 0.10 $ 0.49 $ 0.83 $ 0.62 $ 1.07 $ 0.50 $ 0.69
Fully diluted earnings per share
(1)(10)................................ $ 0.14 $ 0.48 $ 0.79 $ 0.61 $ 1.03 $ 0.48 $ 0.66
AVERAGE BALANCE SHEET DATA:
Total Amount of:
Assets................................... 85,095 108,690 134,480 163,320 193,578 182,903 217,136
Loans (2) and mortgage-backed
securities............................. 61,809 81,250 97,159 114,794 133,044 123,378 162,352
Investment securities and
interest-bearing deposits.............. 13,504 23,723 33,166 43,509 55,198 54,498 49,594
Deposits................................. 76,062 94,157 113,224 135,133 151,300 140,251 166,605
FHLB advances and other borrowings....... 1,288 6,247 11,830 17,002 28,765 29,688 34,554
Stockholders' equity..................... 6,043 6,585 7,685 9,355 11,001 10,592 12,424
Common shares outstanding-primary........ 1,397 1,397 1,397 1,465 1,515 1,522 1,518
Common shares outstanding-fully
diluted................................ 1,521 1,521 1,520 1,575 1,626 1,632 1,628
PERCENTAGES:
Net income to average total stockholders'
equity ................................ 3.48% 15.63% 15.02% 9.66% 14.69% 14.39% 16.97%
Net income to average assets............. 0.25% 0.95% 0.86% 0.55% 0.83% 0.83% 0.97%
Average stockholders' equity to average
assets................................. 7.10% 6.06% 5.71% 5.73% 5.68% 5.79% 5.72%
Allowance for loan losses to:
Net loans.............................. 1.09% 1.32% 1.50% 1.50% 1.50% 1.50% 1.45%
Non-performing loans................... 78.91% 41.66% 66.01% 67.30% 98.39% 60.26% 101.21%
Net charge-offs to average net loans..... 0.23% 0.72% 0.27% 0.18% (0.04%) 0.02% --
Total non-performing assets to total
assets................................. 1.03% 2.39% 1.71% 1.56% 1.13% 1.84% 1.13%
Capital ratios:
Tangible capital....................... 6.08% 5.96% 6.04% 5.65% 5.65% 5.85% 5.56%
Leverage............................... 6.08% 5.96% 6.04% 5.65% 5.65% 5.85% 5.56%
Risk-based Capital..................... 11.45% 11.32% 11.65% 11.86% 10.95% 11.31% 9.99%
Net interest margin...................... 3.97% 4.33% 4.23% 3.82% 3.96% 4.04% 4.02%

See footnotes on page 18.

The following table sets forth selected unaudited pro forma condensed
combined financial data of Prime and First Sterling at the dates and for the
periods indicated, giving effect to the Merger using the pooling of interests
method of accounting. See 'The Merger-Accounting Treatment' and 'Pro Forma
Condensed Combined Financial Data.' The selected unaudited pro forma condensed
combined financial data set forth below should be read in conjunction with, and
are qualified in their entirety by, the historical consolidated financial
statements of Prime and First Sterling, including the related notes, which are
contained in Annex F hereto or incorporated herein by reference, and in
conjunction with the selected consolidated historical and other unaudited pro
forma condensed combined consolidated financial information appearing elsewhere
herein or therein. See 'Pro Forma Condensed Combined Financial Data' and
'Information Incorporated By Reference.' The data set forth below are not
necessarily indicative of the results of the future operations of New Prime upon
consummation of the Merger or the actual results that would have been achieved
had the Merger been consummated prior to the periods indicated.

See footnotes on page 18.

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA(4)

BALANCE SHEET DATA:(6)(12)
Total Amount of:
Assets................................... $ 463,816 $ 512,404 $ 598,858 $ 739,231 $ 819,961 $ 759,047 $ 872,051
Loans (2) and mortgage-backed
securities............................. 362,972 409,361 493,779 566,514 639,671 580,692 703,991
Investment securities and
interest-bearing deposits.............. 76,802 68,367 66,113 117,193 122,936 116,616 104,871
Deposits................................. 381,992 439,796 491,163 585,066 644,497 614,786 656,795
FHLB advances and other borrowings....... 26,143 12,751 41,644 81,219 96,318 69,542 134,500
Stockholders' equity (10)(11)............ 47,387 52,001 58,629 57,369 68,229 65,408 69,771
Book value (10)(11)...................... 9.65 10.50 11.70 11.19 13.20 12.64 13.19
INCOME STATEMENT DATA:
Interest income.......................... $ 41,626 $ 40,027 $ 41,953 $ 47,068 $ 58,979 $ 28,623 $ 31,661
Interest expense......................... 24,652 19,830 18,283 21,280 30,557 14,615 15,929
Net interest income...................... 16,974 20,197 23,670 25,788 28,422 14,008 15,732
Provision for loan losses................ 1,712 2,163 2,160 1,594 1,129 593 835
Net interest income after provision for
loan losses............................ 15,262 18,034 21,510 24,194 27,293 13,415 14,897
Gain (loss) on sale of assets............ 333 671 391 (221) 732 311 202
Rental income............................ 227 214 350 321 174 54 143
Non-interest income...................... 1,927 1,989 1,859 2,077 2,537 1,095 1,377
Non-interest expense..................... 10,821 11,994 13,593 16,034 18,930 9,044 10,034
Income before income taxes and effect of
cumulative change in accounting
principle and extraordinary credit..... 6,928 8,914 10,517 10,337 11,806 5,831 6,585
Income tax expense....................... 2,652 3,182 3,939 3,625 4,337 2,107 2,283
Income before effect of cumulative change
in accounting principle and
extraordinary credit................... 4,276 5,732 6,578 6,712 7,469 3,724 4,302
Cumulative effect on prior years of
change in tax accounting method and
extraordinary credit (9)............... -- -- 1,055 -- -- -- --
Net income............................... $ 4,276 $ 5,732 $ 7,633 $ 6,712 $ 7,469 $ 3,724 $ 4,302
Primary earnings per share(1)(10)(11).... $ 0.88 $ 1.08 $ 1.30 $ 1.29 $ 1.42 $ 0.71 $ 0.80
Fully diluted earnings per
share(1)(10)(11)....................... $ 0.86 $ 1.05 $ 1.27 $ 1.27 $ 1.39 $ 0.70 $ 0.78
Dividends declared per share............. $ 0.22 $ 0.37 $ 0.50 $ 0.54 $ 0.62 $ 0.30 $ 0.34
AVERAGE BALANCE SHEET DATA:(6)(12)
Total Amount of:
Assets................................... $ 437,570 $ 473,842 $ 553,869 $ 662,250 $ 769,318 $ 748,222 $ 832,369
Loans(2) and mortgage-backed
securities............................. 356,932 377,121 456,561 523,645 598,239 576,894 669,545
Investment securities and
interest-bearing deposits.............. 58,455 71,327 65,131 95,703 118,828 118,198 108,427
Deposits................................. 366,605 400,736 462,119 541,411 612,635 591,710 653,100
FHLB advances and other borrowings....... 23,577 15,566 27,576 49,765 84,897 83,998 99,389
Stockholders' equity (10)(11)............ 45,812 49,702 54,989 58,025 62,945 61,533 68,619
Common shares outstanding-fully diluted
(10)(11)............................... 4,938 5,189 5,232 5,311 5,400 5,389 5,404
Common shares outstanding-primary
(10)(11)............................... 4,814 5,050 5,103 5,201 5,278 5,282 5,391
PERCENTAGES: (6)
Net income to average total stockholders'
equity................................. 9.33% 11.53% 13.88% 11.57% 11.87% 12.10% 12.54%
Net income to average assets............. 0.98% 1.21% 1.38% 1.01% 0.97% 1.00% 1.03%
Average stockholders' equity to average
assets................................. 10.47% 10.49% 9.93% 8.76% 8.18% 8.22% 8.24%
Allowance for loan losses to: (7)
Net loans.............................. 0.96% 1.19% 1.38% 1.37% 1.22% 1.21% 1.32%
Non-performing loans................... 84.63% 71.40% 83.16% 87.07% 113.98% 87.95% 103.59%
Net charge-offs to average net loans..... 0.24% 0.34% 0.24% 0.26% 0.24% 0.23% 0.13%
Total non-performing assets to total
assets(3).............................. 0.93% 1.29% 1.19% 0.99% 0.70% 1.00% 0.87%
Capital ratios:
Tangible capital....................... 9.32% 8.92% 8.70% 6.80% 7.02% 7.39% 6.89%
Leverage............................... 9.32% 8.92% 8.70% 6.80% 7.02% 7.39% 6.89%
Risk-based Capital..................... 16.25% 15.79% 16.58% 13.02% 13.18% 13.69% 11.83%
Net interest margin...................... 4.09% 4.50% 4.54% 4.44% 4.18% 4.26% 4.17%

See footnotes on page 18.

FOOTNOTES TO SELECTED FINANCIAL DATA (UNAUDITED)

(1) Earnings per share have been adjusted to reflect the stock split and stock
dividends declared and paid by Prime. The 1993 earnings per share of Prime
do not reflect the cumulative effect on prior years of a change in tax
accounting method. Earnings per share of Prime for 1993 after the
cumulative change in accounting principle were $1.75. First Sterling's 1991
and 1992 earnings per share do not reflect the extraordinary credit for the
recognition of the tax benefit of net operating loss carryforwards.
Earnings per share of First Sterling after the effect of the extraordinary
credit were: primary earnings per share of $0.19 and $0.77 and
fully-diluted earnings per share of $0.17 and $0.71 for 1991 and 1992,
respectively.

(2) Loans include loans receivable, net and loans held for sale.

(3) Excludes the impact of the $10.0 million condominium project which was
acquired by a deed in lieu of foreclosure and classified as land acquired
for development and resale as of February, 1995. The ratio of
non-performing assets to total assets would have been 2.2%, 2.5% and 2.3%
at December 31, 1995, June 30, 1995 and 1996, respectively if the
condominium project were included in non-performing assets.

(4) The pro forma information presented is not necessarily indicative of the
results of operations or the combined financial position that would have
resulted had the Merger been consummated at the beginning of the applicable
periods indicated, nor is it necessarily indicative of the results of
operations in future periods or the future financial position of the
combined entities. Pro forma financial information assumes the Merger was
consummated as of the beginning of each of the periods indicated.

(5) It is assumed that the Merger will be accounted for on a pooling of
interests accounting basis, and accordingly the related pro forma
adjustments herein reflect, where applicable, the Exchange Ratio of 1.00
share of Prime Stock for each outstanding share of First Sterling Stock. In
addition, upon consummation of the Merger, each outstanding share of PBI
Stock will become one (1) share of Prime Stock.

(6) The pro forma condensed combined income statement data do not reflect the
estimated $1.0 million addition to the provision for loan losses which New
Prime anticipates making, or charges and expenses of approximately $1.85
million attributable to the Merger since these charges are non-recurring.

The pro forma condensed combined balance sheet data at June 30, 1996
reflect approximately $1.85 million of charges, which include: $300
thousand for fixed asset and service contract write downs; $375 thousand
for the reduction of both the space and term on First Sterling's office
lease; $225 thousand for employee severance costs; and $950 thousand for
other expenses directly attributable to the Merger. Accordingly, pro forma
stockholders' equity has been reduced by $953 thousand, representing the
after tax effect of the charges and expenses attributable to the Merger and
the conversion of the Debentures.

(7) After the Merger, New Prime intends to modify its approach to the workout
of certain assets. This strategy involves the accelerated resolution of
problem assets which, New Prime believes, is more economical than a
long-term work out approach, and will allow management to concentrate its
resources on growth and revenue generation. As a result of this strategy,
New Prime will make an addition to the allowance for loan losses of
approximately $1.0 million, ($620 thousand after-tax).

(8) Interim data is calculated on an annualized basis for purposes of
comparability with full year data.

(9) In February, 1992, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes' ('SFAS No. 109'). Under the asset and liability method provided for
by SFAS No. 109, deferred tax assets and liabilities are recognized for the
tax consequences of temporary differences by applying enacted statutory tax
rates applicable for future years to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
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. Under SFAS No. 109,
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.

Prime adopted SFAS No. 109 as of January 1, 1993. The cumulative effect of
this change in accounting for income taxes of $1.06 million has been
calculated as of January 1, 1993 and is reported separately in the
consolidated statement of operations for the year ended December 31, 1993.
First Sterling also adopted SFAS No. 109 as of January 1, 1993; the impact
of SFAS No. 109 on First Sterling was immaterial.

(10) Reflects the cancellation of 15,800 shares of First Sterling Stock held as
treasury stock.

(11) Reflects the conversion of $1.05 million in principal amount of Debentures
to 110,510 shares of Prime Stock.

(12) Reflects deferred tax receivable at statutory rates totalling $847 thousand
related to approximately $1.2 million of expenses attributable to the
Merger and the addition of approximately $1.0 million to New Prime's
allowance for loan losses.

CONSOLIDATED SUMMARY OF QUARTERLY EARNINGS

The following quarterly financial information for the eight quarters ended
June 30, 1996 is unaudited. However, in the opinion of management of First
Sterling, all adjustments, which include only normal recurring adjustments
necessary to present fairly the results of operations for the periods, are
reflected in conformity with generally accepted accounting principles. Results
of operations for the periods presented are not necessarily indicative of the
results for the entire year or for any other interim period.

FIRST STERLING BANK
SUMMARY OF QUARTERLY EARNINGS

1994 1995 1996
------------------------ -------------------------------------------------- -----------
3RD QUARTER 4TH QUARTER 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER 1ST QUARTER
----------- ----------- ----------- ----------- ----------- ----------- -----------

Interest income.................... $3,119 $3,263 $3,640 $3,939 $4,243 $4,362 $4,434
Interest expense................... 1,608 1,686 1,892 2,124 2,288 2,428 2,428
------ ------ ------ ------ ------ ------ ------
Net interest income................ 1,511 1,577 1,748 1,815 1,955 1,934 2,006
Provision for loan losses.......... 201 22 67 170 204 44 63
------ ------ ------ ------ ------ ------ ------
Net interest income after provision
for loan losses.................. 1,310 1,555 1,681 1,645 1,751 1,890 1,943
Other income....................... 94 3 105 164 154 164 178
Other expenses..................... 1,270 1,234 1,209 1,226 1,349 1,315 1,380
------ ------ ------ ------ ------ ------ ------
Income before income taxes......... 134 324 577 583 556 739 741
Income tax expense................. 47 122 198 200 199 242 248
------ ------ ------ ------ ------ ------ ------
Net income......................... $ 87 $ 202 $ 379 $ 383 $ 357 $ 497 $ 493
====== ====== ====== ====== ====== ====== ======
Primary earnings per share......... $ 0.06 $ 0.13 $ 0.25 $ 0.25 $ 0.24 $ 0.33 $ 0.32
====== ====== ====== ====== ====== ====== ======
Fully diluted earnings per share... $ 0.06 $ 0.13 $ 0.24 $ 0.24 $ 0.23 $ 0.32 $ 0.31
====== ====== ====== ====== ====== ====== ======

2ND QUARTER
-----------
Interest income.................... $4,667
Interest expense................... 2,433
------
Net interest income................ 2,234
Provision for loan losses.......... 122
------
Net interest income after provision
for loan losses.................. 2,112
Other income....................... 170
Other expenses..................... 1,419
------
Income before income taxes......... 863
Income tax expense................. 302
------
Net income......................... $ 561
------
------
Primary earnings per share......... $ 0.37
------
------
Fully diluted earnings per share... $ 0.35
======

FIRST STERLING MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section presents First Sterling management's discussion and analysis
of the financial condition and results of operations of First Sterling,
including First Sterling Bank. This discussion and analysis should be read in
conjunction with the consolidated financial statements of First Sterling,
including the related notes thereto, contained in Annex F hereto.

RESULTS OF OPERATIONS

SUMMARY

First Sterling's net income for the six months ended June 30,1996 was
$1,054,000, which is an increase of $292,000 or 38% from the $762,000 earned in
the six months ended June 30, 1995. The major contributor to the increase was a
$677,000 increase in the net interest income which was partially offset by an
increase of $364,000 in operating expenses, primarily salaries and rent. Primary
per share earnings for the six month periods were $.69 for 1996 and $.50 for
1995. Fully diluted earnings per share for the six month periods were $0.66 for
1996 and $0.48 for 1995.

First Sterling recorded net income of $1,616,000 for the year ended
December 31, 1995, compared with $904,000 recorded in 1994. Primary per share
earnings were $1.07 in 1995 compared with $.62 in 1994 and $.83 in 1993. Fully
diluted earnings per share were $1.03, $0.61 and $0.79, respectively, for the
years ended December 31, 1995, 1994 and 1993.

For the six months ended June 30, return on average total assets was .97%
for 1996 and .83% for 1995 and return on average equity was 16.97% and 14.39%,
respectively. For the year, return on average total assets was .83% for 1995,
compared with .55% for 1994 and .86% for 1993. Return on average equity was
14.69% for 1995 compared with 9.66% for 1994 and 15.02% for 1993.

Average earning assets for the six months ended June 30, 1996 increased
19.2% from the comparable period in 1995. Interest margin decreased to 4.02%
from 4.04% due primarily to the cost of interest bearing deposits growing faster
than the yield on earning assets.

For the entire year 1995 average earning assets increased 18.9% to
$188,242,000 and the interest margin increased to 3.96% from 3.82%. The increase
in the interest rate spread was primarily the result of the yield on earning
assets, especially loans, increasing faster than the cost of funds. The 1993
margin was 4.23%. The decrease in the net interest margin from 1993 to 1994
resulted from decreased mortgage closings and related fees, which were the
direct result of the rising interest rate market.

First Sterling believes it maintains a high quality loan portfolio. The
percentage of non-performing assets, comprised of non-accrual loans, loans past
due 90 or more days as to principal or interest payments, restructured loans and
other real estate owned, represented 1.50% of June 30, 1996 loans and other real
estate owned, down from 2.64% at June 30, 1995 and 1.55% of December 31, 1995
loans and other real estate owned, down from 2.27% at December 31, 1994. The
allowance for loan losses was 1.50% of year-end loans at December 31, 1995 and
December 31, 1994. The loan loss provision increased $134,000 in 1995 to
$485,000 which is less than might have been expected considering the loan
growth. This was due to recoveries exceeding charge-offs by $51,000.

Non-interest income increased $79,000 for the six months ended June 30,
1996 compared to the same period in 1995. A $25,000 advisory fee and a $21,000
increase in securities values were the main reasons for the increase.
Non-interest income increased from $383,000 in 1994 to $587,000 in 1995. This
resulted from a $121,000 increase in securities values, from a loss of $117,000
in 1994 to a gain of $4,000 in 1995, and an $83,000 increase in service charges.
The increased service charges resulted from greater activity rather than higher
fees.

For the six months ended June 30, 1996, non-interest expense items grew
$364,000 or 14.9% from the same period in 1995. Increased salaries and benefits
and occupancy costs were the primary reasons for the increase. For the year
ended December 31, 1995, First Sterling's assets grew 23%, while non-interest
expense items increased $401,000, or 9% compared to 1994. Salaries and benefits
accounted for $262,000 of the increase as First Sterling was able to minimize
additional hiring by improving the utilization of the employees hired in 1994 in
preparation for the expansion in 1995. Occupancy costs increased $96,000 in 1995
as the Bala Cynwyd office was open for a full year. Insurance costs decreased
$119,000 because of the reduction in FDIC premiums during the last seven months
of 1995. The $201,000 increase in other operating expenses is primarily
attributable to the settlement of various litigation matters.

NET INTEREST INCOME

Net interest income is the product of the volume of average earning assets
and the average rates earned on them, less the volume of average interest
bearing liabilities and the average rates paid thereon. The amount of net
interest income is affected by changes in interest rates, account balances or
volume, and the mix of earning assets and interest bearing liabilities.

For analytical purposes, net interest income is adjusted to a taxable
equivalent basis in tables 1 through 4. This adjustment facilitates performance
comparisons among taxable and tax exempt assets by increasing tax exempt income
by an amount equivalent to the federal income taxes which would have been paid
if this income were taxable at the federal statutory rate of 34%.

Table 1 presents average balances, taxable equivalent interest income and
expense and average rates earned and paid for First Sterling's assets and
liabilities. Table 3 analyzes the changes attributable to the volume and rate
components of net interest income. Table 2 presents the net interest income on a

fully taxable equivalent basis for the six month periods ended June 30, 1996 and
1995 as well as for each of the years in the three year period ended December
31, 1995.

For the six months ended June 30, 1996, net interest income was $4,240,000
which is a 19% increase from the $3,563,000 for the same period in 1995. As
shown in table 3, the increase was the result of a $962,000 increase due to
volume, partially offset by a $285,000 decrease caused by rate changes. Average
earning assets increased to $211,946,000 for the six months ended June 30, 1996
from $177,876,000 for the same period in 1995. The interest rate spread for the
six months ended June 30, 1996 was 3.37% compared with 3.39% for the same period
in 1995. The net interest margin was 4.02% compared to 4.04%.

Net interest income on a fully taxable equivalent basis totaled $7,452,000
for the year ended December 31, 1995, an increase of $1,397,000 or 23% from
$6,055,000 in 1994. Net interest income in 1994 increased 10% from $5,510,000 in
1993.

During 1995 there was an increase in net interest income of $972,000 due to
changes in volume and an increase of $425,000 due to changes in rates. In 1994
there was an increase of $1,018,000 due to changes in volume and a decrease of
$473,000 due to changes in rates.

The change in the net interest margin attributable to interest rates can be
understood by analyzing the interest rate spread and the net interest margin on
earning assets. While the interest rate spread considers only the difference
between the average rate earned on earning assets and the average rate paid on
interest bearing liabilities, the net interest margin takes into account the
contribution of assets funded by interest free sources.

As reflected in Table 4, average earning assets were $188,242,000 in 1995,
$158,303,000 in 1994 and $130,325,000 in 1993. The interest rate spread for 1995
was 3.30% compared with 3.28% for 1994 and 3.66% for 1993. The net interest
margin for 1995 was 3.96% compared with 3.82% for 1994 and 4.23% for 1993.

Short-term interest rates (prime, federal funds, etc.) rose during the
first half of 1995 followed by a decline in the second half of 1995. Long-term
interest rates, in general, declined steadily for the entire year. The net
result of these interest rate movements was a slight flattening of the overall
yield curve. The average prime rate in 1995 was 8.83% compared with 7.17% in
1994. The average federal funds rate increased to 5.84% for 1995 compared with
4.23% for 1994. During 1995, compared with 1994, the average yield on earning
assets increased 97 basis points while the average cost of funds increased 95
basis points resulting in an increase in the interest rate spread of 2 basis
points. The yield on the investment portfolio increased 90 basis points due to
reinvestment at higher rates, when compared with the yield of the securities
maturing. Average loans, which represent the highest yielding earning assets,
increased $18,250,000 or 15.9% and produced a yield of 9.53% in 1995 compared
with 8.48% in 1994. Average loans represented 70.7% of the average earning
assets for 1995. The cost of interest bearing deposits increased to 5.10% in
1995 compared with 4.24% in 1994. Rates paid on interest bearing transaction
accounts decreased throughout 1995. Interest rates offered on time deposits have
been rising. Consequently, depositors have been shifting from transaction
accounts to higher yielding time deposits. This shift is of significance to
First Sterling, which is more dependent on time deposits than more seasoned
banks. The increase in the cost of short-term borrowings (292 basis points) was
caused primarily by the rise in the federal funds rate. The interest rate spread
increased 2 basis points, which when added to the increase in the value of
non-interest bearing funds of 12 basis points, resulted in a net 14 basis point
increase in the net interest margin.

TABLE 1
AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE SUMMARY
(TAXABLE EQUIVALENT BASIS -- DOLLARS IN THOUSANDS)

YEAR
ENDED
DECEMBER
SIX MONTHS ENDED 31,
------------------------------------------------------------------------ ---------
JUNE 30, 1996 JUNE 30, 1995 1995
----------------------------------- ----------------------------------- ---------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE
--------- ----------- ----------- --------- ----------- ----------- ---------

ASSETS
Short-term investments
Interest bearing deposits............... $ 320 $ 10 6.58% $ 184 $ 5 5.48% $ 316
Federal funds sold and securities
purchased under agreements to
resell................................ 2,508 68 5.44% 4,396 130 5.96% 4,351
Total short-term investments.......... 2,828 78 5.55% 4,580 135 5.94% 4,667

INVESTMENT SECURITIES
U.S. government obligations............. 32,848 1,018 6.20% 35,882 1,123 6.31% 33,689
U.S. government agencies................ 10,293 399 7.75% 10,818 339 6.32% 13,731
State and municipals.................... 400 19 9.55% 395 19 9.70% 398
Other securities........................ 3,225 99 6.14% 2,823 90 6.43% 2,713
Total investment securities........... 46,766 1,535 6.58% 49,918 1,571 6.35% 50,531

LOANS (1)
Commercial.............................. 100,076 4,797 9.64% 78,623 3,895 9.99% 83,533
Residential mortgages................... 49,987 2,097 8.44% 34,960 1,476 8.51% 39,272
Consumer (2)............................ 12,289 594 9.72% 9,795 502 10.34% 10,239
Total loans........................... 162,352 7,488 9.28% 123,378 5,873 9.60% 133,044
Total earning assets.................. 211,946 9,101 8.64% 177,876 7,579 8.59% 188,242
Other assets.............................. 5,190 5,027 5,336
Total assets.......................... $ 217,136 8.43% $ 182,903 8.36% $ 193,578

LIABILITIES AND SHAREHOLDER EQUITY
Interest bearing deposits
Demand deposits......................... $ 7,800 $ 95 2.45% $ 6,386 $ 83 2.62% $ 6,585
Savings deposits........................ 26,781 434 3.25% 23,699 389 3.31% 24,683
Time deposits of $100,000 or more....... 20,238 560 5.55% 13,418 368 5.53% 17,465
Other time deposits..................... 95,617 2,737 5.74% 82,689 2,257 5.50% 87,347
Total interest bearing deposits....... 150,436 3,826 5.10% 126,192 3,097 4.95% 136,080
Short-term borrowings................... 15,270 359 4.71% 4,718 121 5.17% 2,782
Long-term debt.......................... 19,284 676 7.03% 24,970 798 6.44% 25,983
Total interest-bearing liabilities.... 184,990 4,861 5.27% 155,880 4,016 5.20% 164,845
Non-interest bearing demand deposits.... 16,169 14,059 15,220
Other liabilities....................... 3,553 2,372 2,512
Shareholders' equity.................... 12,424 10,592 11,001
Total liabilities and shareholders'
equity.............................. $ 217,136 4.49% $ 182,903 4.43% $ 193,578
Interest rate spread.................... 3.37% 3.39%
Effect of non-interest bearing funds.... 0.65% 0.65%
Net interest income/margin.............. $ 4,240 4.02% $ 3,563 4.04%

1994 1993
--------------------------------- --------------------
AVERAGE AVERAGE AVERAGE AVERAGE
INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST
--------- ----------- --------- --------- ----------- --------- ---------
ASSETS
Short-term investments
Interest bearing deposits............... $ 19 6.01% $ 169 $ 7 4.14% $ 445 $ 15
Federal funds sold and securities
purchased under agreements to
resell................................ 255 5.86% 3,969 181 4.56% 3,922 118
Total short-term investments.......... 274 5.87% 4,138 188 4.54% 4,367 133
INVESTMENT SECURITIES
U.S. government obligations............. 2,127 6.31% 28,300 1,599 5.65% 18,772 1,131
U.S. government agencies................ 891 6.49% 9,707 485 5.00% 8,628 516
State and municipals.................... 38 9.55%
Other securities........................ 178 6.56% 1,364 80 5.87% 1,399 103
Total investment securities........... 3,234 6.40% 39,371 2,164 5.50% 28,799 1,750
LOANS (1)
Commercial.............................. 8,346 9.99% 75,366 6,516 8.65% 67,391 5,676
Residential mortgages................... 3,354 8.54% 30,237 2,466 8.16% 21,506 2,315
Consumer (2)............................ 976 9.53% 9,191 748 8.14% 8,262 769
Total loans........................... 12,676 9.53% 114,794 9,730 8.48% 97,159 8,760
Total earning assets.................. 16,184 8.60% 158,303 12,082 7.63% 130,325 10,643
Other assets.............................. 5,017 4,155
Total assets.......................... 8.36% $ 163,320 7.40% $ 134,480
LIABILITIES AND SHAREHOLDER EQUITY
Interest bearing deposits
Demand deposits......................... $ 175 2.66% $ 5,675 $ 133 2.34% $ 4,862 $ 131
Savings deposits........................ 803 3.25% 25,724 728 2.83% 21,276 640
Time deposits of $100,000 or more....... 984 5.63% 17,616 760 4.31% 22,742 981
Other time deposits..................... 4,975 5.70% 72,522 3,528 4.86% 53,164 2,754
Total interest bearing deposits....... 6,937 5.10% 121,537 5,149 4.24% 102,044 4,506
Short-term borrowings................... 179 6.43% 2,906 102 3.51% 1,424 44
Long-term debt.......................... 1,616 6.22% 14,096 776 5.51% 10,406 583
Total interest-bearing liabilities.... 8,732 5.30% 138,539 6,027 4.35% 113,874 5,133
Non-interest bearing demand deposits.... 13,596 11,180
Other liabilities....................... 1,830 1,741
Shareholders' equity.................... 9,355 7,685
Total liabilities and shareholders'
equity.............................. 4.51% $ 163,320 3.69% $ 134,480
Interest rate spread.................... 3.30% 3.28%
Effect of non-interest bearing funds.... 0.66% 0.54%
Net interest income/margin.............. $ 7,452 3.96% $ 6,055 3.82% $ 5,510

AVERAGE
RATE
-----------
ASSETS
Short-term investments
Interest bearing deposits............... 3.37%
Federal funds sold and securities
purchased under agreements to
resell................................ 3.01%
Total short-term investments.......... 3.05%
INVESTMENT SECURITIES
U.S. government obligations............. 6.02%
U.S. government agencies................ 5.98%
State and municipals....................
Other securities........................ 7.36%
Total investment securities........... 6.08%
LOANS (1)
Commercial.............................. 8.42%
Residential mortgages................... 10.76%
Consumer (2)............................ 9.31%
Total loans........................... 9.02%
Total earning assets.................. 8.17%
Other assets..............................
Total assets.......................... 7.91%
LIABILITIES AND SHAREHOLDER EQUITY
Interest bearing deposits
Demand deposits......................... 2.69%
Savings deposits........................ 3.01%
Time deposits of $100,000 or more....... 4.31%
Other time deposits..................... 5.18%
Total interest bearing deposits....... 4.42%
Short-term borrowings................... 3.09%
Long-term debt.......................... 5.60%
Total interest-bearing liabilities.... 4.51%
Non-interest bearing demand deposits....
Other liabilities.......................
Shareholders' equity....................
Total liabilities and shareholders'
equity.............................. 3.82%
Interest rate spread.................... 3.66%
Effect of non-interest bearing funds.... 0.57%
Net interest income/margin.............. 4.23%

- ------------------
(1) Includes fees on loans. Average loan balances include non-accruing loans.
(2) Includes home equity loans.

TABLE 2
NET INTEREST INCOME
(IN THOUSANDS)

SIX MONTHS ENDED JUNE 30 YEAR ENDED DECEMBER 31,
---------------------------- -------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----

Total interest income............................ $9,101 $7,579 $16,184 $12,082 $10,643
Total interest expense........................... 4,861 4,016 8,732 6,027 5,133
------ ------ ------- ------- -------
Net interest income (fully taxable equivalent)... $4,240 $3,563 $ 7,452 $ 6,055 $ 5,510
====== ====== ======= ======= =======

TABLE 3
RATE-VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
(IN THOUSANDS)

SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------------------- -----------------------------------------------------------
1996 VS. 1995 1995 VS. 1994 1994 VS. 1993
CHANGES DUE TO: TOTAL CHANGES DUE TO: TOTAL CHANGES DUE TO:
VOLUME RATE CHANGE VOLUME RATE CHANGE VOLUME RATE
----------- --------- ----------- ----------- --------- ----------- ----------- ---------

(Taxable Equivalent)
Interest Income
Short-term investments....... $ (49) $ (8) $ (57) $ 26 $ 60 $ 86 $ (7) $ 62
Investment securities........ (113) 77 (36) 677 393 1,070 594 (180)
Loans........................ 1,792 (177) 1,615 1,655 1,291 2,946 1,518 (548)
------ ----- ------ ------ ------ ------ ------ -----
Total interest income...... 1,630 (108) 1,522 2,358 1,744 4,102 2,105 (666)
------ ----- ------ ------ ------ ------ ------ -----
Interest Expense
Interest bearing deposits.... 613 116 729 663 1,125 1,788 832 (189)
Short-term borrowings........ 249 (11) 238 (5) 82 77 51 7
Long-term debt............... (194) 72 (122) 728 112 840 204 (11)
------ ----- ------ ------ ------ ------ ------ -----
Total interest expense..... 668 177 845 1,386 1,319 2,705 1,087 (193)
------ ----- ------ ------ ------ ------ ------ -----
Net interest income............ $ 962 $(285) $ 677 $ 972 $ 425 $1,397 $1,018 $(473)
------ ----- ------ ------ ------ ------ ------ -----

TOTAL
CHANGE
-----------
(Taxable Equivalent)
Interest Income
Short-term investments....... $ 55
Investment securities........ 414
Loans........................ 970
------
Total interest income...... 1,439
------
Interest Expense
Interest bearing deposits.... 643
Short-term borrowings........ 58
Long-term debt............... 193
------
Total interest expense..... 894
------
Net interest income............ $ 545
------

TABLE 4
INTEREST RATE SPREAD AND NET INTEREST MARGIN ON EARNING ASSETS
(DOLLARS IN THOUSANDS)

FOR SIX MONTHS ENDED FOR YEAR ENDED DECEMBER 31,
---------------------------------------------- ---------------------------------------------------------
JUNE 30, 1996 JUNE 30, 1995 1995 1994 1993
---------------------- ---------------------- ---------------------- ---------------------- ---------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE BALANCE
--------- --- --------- --- --------- --- --------- --- ---------

(Taxable Equivalent)
Earnings assets......... $ 211,946 8.64% $ 177,876 8.59% $ 188,242 8.60% $ 158,303 7.63% $ 130,325
========= ========= ========= ========= =========
Interest bearing
liabilities........... $ 184,990 5.27% $ 155,880 5.20% $ 164,845 5.30% $ 138,539 4.35% $ 113,874
Interest rate spread.... 3.37% 3.39% 3.30% 3.28%
Interest free sources
used to fund earning
assets................ 26,956 21,996 23,397 19,764 16,451
--------- --------- --------- --------- ---------
Total sources of funds.. $ 211,946 4.62% $ 177,876 4.55% $ 188,242 4.64% $ 158,303 3.81% $ 130,325
========= ========= ========= ========= =========
Net interest margin..... 4.02% 4.04% 3.96% 3.82%

RATE
----
(Taxable Equivalent)
Earnings assets......... 8.17%

Interest bearing
liabilities........... 4.51%
Interest rate spread.... 3.66%
Interest free sources
used to fund earning
assets................

Total sources of funds.. 3.94%

Net interest margin..... 4.23%

Average interest rates rose during 1994 compared to 1993. The average prime
rate in 1994 was 7.17% compared with 6.00% in 1993. The average federal funds
rate increased to 4.23% for 1994 compared with 3.02% for 1993. During 1994,
compared with 1993, the average yield on earning assets decreased 54 basis
points while the average cost of funds decreased only 16 basis points resulting
in a decrease in the interest rate spread of 38 basis points. The yield on the
investment portfolio decreased 58 basis points due to reinvestment at
significantly lower rates when compared with the yield of the securities
maturing. Average loans, which represent the highest yielding earning assets,
increased $17,635,000 or 18.2% and produced a yield of 8.48% in 1994 compared
with 9.02% in 1993, which represents a decrease of 54 basis points. This
decrease was primarily the result of lower mortgage fee income which is included
in interest income. The reduction of fees was due to a reduction in the number
and dollar volume of refinancings of residential mortgages and fewer home
purchases as a result of rising interest rates. Average loans represented 72.5%
of the average earning assets for 1994. The cost of interest bearing deposits
decreased to 4.24% in 1994 compared with 4.42% in 1993. Rates paid on interest
bearing transaction accounts decreased in early 1994 and remained relatively
flat throughout the year despite the increasing rate environment. Interest rates
on time deposits had been rising. Consequently, depositors shifted from
transaction accounts to higher yielding time deposits, reversing the trend of
the prior three years. The increase in the cost of short-term borrowings (42
basis points) was caused primarily by the rise in the federal funds rate. The
interest rate spread decreased 38 basis points, which when added to the decrease
in the value of non-interest bearing funds, resulted in a 41 basis point decline
in the net interest margin.

First Sterling's cost of interest bearing funds is generally higher, and
its net interest margin is generally lower, when compared with banking companies
of First Sterling's asset size. This is due to First Sterling's having been in
existence for less time than the average of its peer group and having a limited
number of locations. The building of core deposits, which are lower cost funds,
is a very time consuming process. Since First Sterling has had significant
growth in its loan portfolio, the source of these funds has had to come from
time deposits and borrowings. The selectivity in loan underwriting necessitates
competitive pricing to obtain quality loan growth. With loan yields comparable
to peers and the cost of funds higher than peers, First Sterling's interest
margin is lower than its peers.

PROVISION FOR LOAN LOSSES

The provision for loan losses for the six months ended June 30, 1996 was
$185,000, down from $237,000 for the same period in 1995. The reduction was due
to management's estimate of the amount needed to maintain an adequate reserve.
One of the major factors in the decision that a lower reserve was needed was a
reduction in delinquent loans to 1.7% of outstanding loans from 2.7% at December
31, 1995. There were no charge-offs in the current period compared to $22,000 in
the prior year's period. Loans are charged off when there is no reasonable
expectation of payment of a significant portion of the loan or when the
regulators classify a loan as a loss.

The provision for loan losses charged against earnings for the year was
$485,000 in 1995 compared with $351,000 in 1994, an increase of 38.2%. The
increase was less than it would have been had not recoveries on charged-off
loans exceeded charge-offs for the year by $51,000. The provision was based on
management's estimate of the amount needed to maintain an adequate allowance for
loan losses. This estimate was based on management's review of the loan
portfolio, the level of net credit losses, past loan loss experience, the
general economic outlook and other factors that First Sterling management
considered appropriate.

Several improvements were seen from 1994 to 1995 in certain measures of
loan portfolio performance. The ratio of net charge-offs to average loans
decreased to (.04)% in 1995 from .18% in 1994 and the level of nonperforming
loans decreased to $2,356,000 (1.55% of year-end loans) at December 31, 1995
from $2,648,000 (2.27% of year-end loans) at December 31, 1994.

NON-INTEREST INCOME

Non-interest income for the six months ended June 30, 1996 increased
$79,000 from the same period in 1995 to $348,000. The major reason for the
increase was a $25,000 advisory fee for assisting a client in evaluating his
business and a $21,000 increase in securities values.

Non-interest income increased from $383,000 in 1994 to $587,000 for the
year ended December 31, 1995. The $204,000 increase resulted from a $121,000
increase in securities values (from a loss of $117,000 in 1994 to a gain of
$4,000 in 1995) and an $83,000 increase in service charges. The increased
service charges resulted from greater activity rather than higher fees. The
service charges are primarily for account maintenance, overdrafts and check
charges. Non-interest income in 1994 was $355,000 less than in 1993 primarily
because of a $112,000 securities gain in 1993 as opposed to a $117,000
securities loss in 1994. Securities are sold primarily as the result of
decisions by the asset/liability committee to manage the interest rate
sensitivity of First Sterling Bank.

NON-INTEREST EXPENSE

Non-interest expense increased $364,000 or 15% for the six months ended
June 30, 1996 compared to the same period in 1995. Salaries and benefits
increased $195,000 due to additional hiring and normal increases. Occupancy
expense increased $190,000 as the result of leasing additional space. Insurance
expense was down $160,000 because of the reduction in FDIC premiums as explained
below.

Table 5 reflects First Sterling's non-interest expense which increased
$401,000 or 9% from 1994 to 1995 compared with an increase of $913,000 or 24%
from 1993 to 1994.

Salaries and benefits accounted for $262,000 of the 1995 increase as First
Sterling was able to minimize additional hiring by improving the utilization of
the employees hired in 1994 in preparation for the expansion in 1995. The 13.4%
growth in salary and employee benefit costs is less than the 18.5% growth in
average assets. Occupancy costs increased $96,000 primarily as the result of the
Bala Cynwyd office being open for a full year versus seven months in 1994.
Insurance costs decreased $119,000 because of the reduction in FDIC insurance
premiums during the last seven months of 1995. Because the FDIC insurance fund
is fully funded, an additional benefit is anticipated in 1996, although certain
pending legislation or other events may still preclude realization of this
anticipated benefit. The $201,000 increase in other operating expenses is
primarily attributable to the settlement of various litigation matters.

The 1994 increases were primarily in salaries and employee benefits, which
increased $428,000 in anticipation of increased volume and an effort to improve
market share, and in occupancy expense which increased $203,000 primarily as a
result of the opening of the Bala Cynwyd office. Advertising expenses also
increased $177,000 as a result of efforts to increase market share.

TABLE 5
NON-INTEREST EXPENSE
(DOLLARS IN THOUSANDS)

JUNE 30, 1996 VS. 1995 1995 VS. 1994 1994 VS. 1993
-------------------------------------------- --------------------------------- ----------------------
CHANGE CHANGE CHANGE
1996 AMOUNT % 1995 1995 AMOUNT % 1994 AMOUNT
--------- ----------- --------- --------- --------- ----------- --------- --------- -----------

Salaries and
employee
benefits.......... $1,260 $ 195 18.31% $1,065 $2,215 $ 262 13.41% $1,953 $428
Net occupancy
expense........... 705 190 36.89% 515 1,046 96 10.10% 950 203
Advertising......... 110 8 7.84% 102 213 (39) -15.48% 252 77
Insurance........... 32 (160) -83.33% 192 224 (118) -34.50% 342 54
Other............... 692 131 23.35% 561 1,401 200 16.65% 1,201 151
------ ---- ------- ------ ------ ---- ------- ------ ---
Total............. $2,799 $ 364 14.95% $2,435 $5,099 $ 401 8.54% $4,698 $913
====== ===== ======= ====== ====== ===== ======= ====== ====

% 1993
--------- ---------
Salaries and
employee
benefits.......... 28.07% $1,525
Net occupancy
expense........... 27.18% 747
Advertising......... 44.00% 175
Insurance........... 18.75% 288
Other............... 14.38% 1,050
------- ------
Total............. 24.12% $3,785
======= ======

PROVISION FOR INCOME TAXES

For the six months ended June 30, 1996, income tax expense was $550,000
compared to $398,000 for the same period in 1995. The effective rate was 34.3%
for both years.

Income tax expense amounted to $839,000 for the year ended December 31,
1995 as compared with $484,000 in 1994 and $590,000 in 1993. First Sterling's
effective tax rate for 1995 was 34.2% compared with 34.9% in 1994 and 33.8% in
1993. For a more comprehensive analysis of income tax expense, refer to Note 10
of the Notes to Consolidated Financial Statements of First Sterling in Annex F
hereto.

FINANCIAL CONDITION

SOURCES AND USES OF FUNDS

First Sterling's financial condition can be evaluated in terms of trends in
its sources and uses of funds. The comparison of average balances in Table 6
indicates how First Sterling has managed these elements. For the six months
ended June 30, 1996 compared to the like period in 1995, average funding
increased 19.2% to fund loan growth. Time deposits were the largest source of
funds but short-term borrowings played a more significant role than in the past.
Average funding uses increased $29.9 million or 18.9% in 1995 as compared with
an increase of $28.0 million or 21.5% in 1994. In 1995 and 1994, loans were the
biggest use of funds although there were significant increases in the investment
portfolio in both years. Time deposits contributed about half of the growth in
funds available in both years.

TABLE 6
SOURCES AND USES OF FUNDS
(DOLLARS IN THOUSANDS)

FOR SIX MONTHS ENDED JUNE 30 FOR YEAR ENDED DECEMBER 31,
-------------------------------------------- ---------------------------------------------------------
1996 1995 1995 1994
AVERAGE CHANGE AVERAGE AVERAGE CHANGE AVERAGE CHANGE
BALANCE AMOUNT % BALANCE BALANCE AMOUNT % BALANCE AMOUNT
--------- ----------- --------- --------- --------- ----------- --------- --------- -----------

Funding uses:
Short-term
investments......... $ 2,828 $ (1,752) -38.25% $ 4,580 $ 4,667 $ 529 12.79% $ 4,138 $ (229)
Total investment
securities.......... 46,766 (3,152) -6.31% 49,918 50,531 11,160 28.34% 39,371 10,572
Loans................. 162,352 38,974 31.59% 123,378 133,044 18,250 15.90% 114,794 17,635
--------- ----------- --------- --------- --------- ----------- --------- --------- -----------
Total uses.......... $ 211,946 $ 34,070 19.15% $ 177,876 $ 188,242 $ 29,939 18.91% $ 158,303 $ 27,978
========= ========= ========= ========= ========= ========= ========= ========= ===========
Funding sources:
Interest bearing
demand
deposits............ $ 7,800 $ 1,414 22.14% $ 6,386 $ 6,585 $ 910 16.04% $ 5,675 $ 813
Savings
deposits............ 26,781 3,082 13.00% 23,699 24,683 (1,041) -4.05% 25,724 4,448
Time deposits......... 115,855 19,748 20.55% 96,107 104,812 14,674 16.28% 90,138 14,232
Short-term
borrowings.......... 15,270 10,552 223.65% 4,718 2,782 (124) -4.27% 2,906 1,482
Long-term
debt................ 19,284 (5,686) -22.77% 24,970 25,983 11,887 84.33% 14,096 3,690
Non-interest bearing
funds (net)(1)...... 26,956 4,960 22.55% 21,996 23,397 3,633 18.38% 19,764 3,313
--------- ----------- --------- --------- --------- ----------- --------- --------- -----------
Total
sources........... $ 211,946 $ 34,070 19.15% $ 177,876 $ 188,242 $ 29,939 18.91% $ 158,303 $ 27,978
========= ========= ========= ========= ========= ========= ========= ========= ===========

1993
AVERAGE
% BALANCE
--------- ---------
Funding uses:
Short-term
investments......... -5.24% $ 4,367
Total investment
securities.......... 36.71% 28,799
Loans................. 18.15% 97,159
--------- --------
Total uses.......... 21.47% $130,325
========= ========
Funding sources:
Interest bearing
demand
deposits............ 16.72% $ 4,862
Savings
deposits............ 20.91% 21,276
Time deposits......... 18.75% 75,906
Short-term
borrowings.......... 104.07% 1,424
Long-term
debt................ 35.46% 10,406
Non-interest bearing
funds (net)(1)...... 20.14% 16,451
--------- --------
Total
sources........... 21.47% $130,325
========= ========

- ------------------
(1) Non-interest bearing liabilities and stockholders' equity less non-interest
bearing assets.

INVESTMENT SECURITIES AND OTHER SHORT-TERM INVESTMENTS

For the six months ended June 30, 1996 compared to the same period in 1995,
average short-term investments and investment securities decreased $4,904,000 to
$49,594,000. The decrease was primarily due to the maturity and redemption of
U.S. agency issues. At June 30, 1996, the portfolio was composed of U.S.
Treasuries (70.2%), U.S. agency issues (28.7%), collateralized mortgage
obligations ('CMOs') (.3%), and municipal bonds (.8%).

Average short-term investments and investment securities, in the aggregate,
increased $11.7 million or 26.9% during the year ended December 31, 1995 to
$55,198,000 compared with an increase of $10.3 million or 31.2% during 1994 to
$43,509,000. The investment objectives of First Sterling Bank's portfolio are to
maintain necessary liquidity to meet demand for funds due to deposit outflow or
increased loan demand without incurring a loss due to market risk, to provide
income during periods of slow loan demand, to provide an adequate supply of
investment securities for pledging, to reduce tax liabilities, and to maintain
high credit quality, diversification and an above average yield. Accordingly,
98.8% of First Sterling's investments are classified as available-for-sale to
provide the flexibility to achieve those objections. The classification of
investment securities is explained below. The portfolio is structured to provide
maximum return on investment while meeting strict interest rate risk and credit
risk standards.

At December 31, 1995, the portfolio was comprised of U.S. Treasury issues
(66.1%), U.S. agency issues (32.7%), CMOs (.4%), and municipals (.8%), while at
December 31, 1994 the portfolio was comprised of 82% U.S. Treasuries, 16% U.S.
agencies and 2% CMOs. As shown in Table 7, the weighted average yield on the
portfolio was 6.75% with an average life of two years. For information on actual
investment balances as of December 31, 1995 and December 31, 1994, see the
footnotes to the financial statements appended hereto as Annex F.

At December 31, 1995, net unrealized gains in the portfolio were $653,000,
consisting of gross unrealized gains of $661,000 and gross unrealized losses of
$8,000. This compares with gross unrealized gains of $66,000 and gross
unrealized losses of $715,000 for a net unrealized loss of $639,000 at December
31, 1994. First Sterling accounts for investment securities in accordance with
the provisions of Statement of Financial Accounting Standards No. 115 ('SFAS
115'), 'Accounting for Certain Investments in Debt and Equity Securities.' SFAS
115 addresses the accounting and reporting for investments in equity securities
that have readily determinable fair values and for all investments in debt
securities. These investments are to be classified in one of three categories
and accounted for as follows: (1) debt securities that a company has the
positive intent and ability to hold to maturity are classified as
held-to-maturity securities and reported at amortized cost; (2) debt and equity
securities that are bought and held principally for the purpose of selling them
in the near term are classified as trading securities and reported at fair
value, with unrealized gains and losses included in earnings; and (3) debt and
equity securities not classified as either held-to-maturity or trading
securities are classified as available-for-sale securities and reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity.

TABLE 7
ANALYSIS OF INVESTMENT SECURITIES

JUNE 30, 1996 DECEMBER 31, 1995
------------------------------------- -------------------------------------
WEIGHTED WEIGHTED
FAIR AVERAGE FAIR AVERAGE
AVAILABLE FOR SALE VALUE COST YIELD VALUE COST YIELD
- ---------------------------------------- ---------- ---------- ------------- ---------- ---------- -------------

Less than 1 year........................ $16,919,176 $16,881,029 6.59% $10,132,501 $10,022,077 6.74%
1 to 5 years............................ 25,963,435 25,883,286 6.44% 35,678,424 35,192,643 6.61%
Greater than 10 years................... 3,912,366 4,012,792 8.02% 4,022,192 3,992,698 8.02%
----------- ----------- ---- ----------- ----------- ----
Total................................. $46,794,977 $46,777,107 6.66% $49,833,117 $49,207,418 6.75%
=========== =========== ==== =========== =========== ====

WEIGHTED WEIGHTED
FAIR AVERAGE FAIR AVERAGE
HELD TO MATURITY VALUE COST YIELD VALUE COST YIELD
- ---------------------------------------- ---------- ---------- ------------- ---------- ---------- -------------

5 to 10 years........................... $ 422,762 $ 400,000 9.26% $ 431,391 $ 400,000 9.26%
CMO's................................... 157,879 158,170 6.02% 190,852 194,525 6.02%
---------- ---------- ---- ---------- ---------- ----
Total................................. $ 580,641 $ 558,170 8.34% $ 622,243 $ 594,525 8.20%
========== ========== ==== ========== ========== ====

LOANS

Average loans outstanding increased $38,974,000 or 31.6% for the six months
ended June 30, 1996, compared to the like period in 1995. Mortgages increased
43% to $49,987,000 and commercial loans increased 27% to $100,076,000.

Average loans increased $18,250,000 or 15.9% during the year ended December
31, 1995 to $133,044,000 compared with an increase of $17,635,000 or 18.2% in
1994 to $114,794,000. Loan growth continued in 1995, primarily in the area of
commercial loans, as more emphasis was placed on this line of business.

The economy in First Sterling's market area is diversified and has been
relatively stable. This affords First Sterling the opportunity to select quality
commercial credits and selectively grow its mortgage and consumer business.
First Sterling believes it has been successful in growing its business by
providing flexibility in meeting customer needs and personal service while still
maintaining strict underwriting standards.

Loan balances during 1995 were influenced by the improving economy and, as
a result, balances in both the commercial and mortgage areas increased. First
Sterling sells in the secondary market a majority of the residential mortgages
it originates in order to avoid taking excessive interest rate risk.

First Sterling's policy is to make the vast majority of its loans and
commitments in the market area it serves. It believes that this tends to reduce
risk and gives First Sterling the opportunity to deliver multiple products to
the same customer base. First Sterling has never made loans outside of the
United States.

TABLE 8
LOANS OUTSTANDING, NET OF UNEARNED INCOME
(IN THOUSANDS)

JUNE 30, DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------

Commercial........................... $ 108,201 $ 84,609 $ 94,508 $ 75,947 $ 72,881 $ 64,904 $ 49,552
Mortgage............................. 50,551 38,841 48,413 32,772 27,881 16,418 15,452
Consumer:
Home equity........................ 9,718 8,079 9,356 7,914 5,690 5,296 5,982
Other.............................. 4,024 1,627 2,345 2,221 2,825 3,149 3,330
--------- --------- --------- --------- --------- --------- ---------
Total.............................. $ 172,494 $ 133,156 $ 154,622 $ 118,854 $ 109,277 $ 89,767 $ 74,316
========= ========= ========= ========= ========= ========= =========

TABLE 9
LOAN MATURITIES AND INTEREST SENSITIVITY (1)
(IN THOUSANDS)

DECEMBER 31, 1995
-----------------------------------------------
OVER
ONE YEAR ONE THROUGH FIVE
OR LESS FIVE YEARS YEARS TOTAL
--------- ------------ --------- -----------

Commercial..................................................... $57,111 $30,469 $ 6,928 $ 94,508
Mortgage....................................................... 11,140 21,872 15,401 48,413
------- -------- ------- --------
Total........................................................ $68,251 $52,341 $22,329 $142,921
======= ======= ======= ========
Loans with predetermined interest rate......................... $14,560 $34,343 $21,914 $ 70,817
Loans with variable interest rate.............................. 53,691 17,998 415 72,104
------- --------- ------- --------
Total........................................................ $68,251 $52,341 $22,329 $142,921
======= ======= ======= ========

- ------------------
(1) Excludes home equity and consumer loans.

DEPOSITS

For the six months ended June 30, 1996, average deposits increased
$26,354,000 or 18.8% compared to the same period in 1995. In the same periods,
average non-interest bearing deposits increased 15% and were 9.7% of total
deposits compared to 10.0% at June 30, 1995.

Average deposits, including non-interest bearing demand deposits, increased
$16.2 million or 12.0% during the year ended December 31, 1995, compared with an
increase of $21.9 million or 19.4% in 1994. First Sterling, like many other
commercial banks, has experienced deposit growth even as the competition for
depositors' funds has become more intense. Competition for deposits has come
from other commercial banks, thrift institutions, credit unions, brokerage
houses and mutual funds. Deposit growth was primarily due to the increase in
average interest rates during 1995. While rates paid on interest bearing
transaction accounts decreased throughout 1995, rates paid on time deposits have
been increasing due to rising interest rates. Depositors appear to be shifting
from transaction accounts to time deposits.

During 1995 average time deposits increased $14.7 million compared with an
increase of $14.2 million during 1994. These deposits were used to fund loan
growth. Additionally, the growth of non-interest bearing deposits has been
relatively slow in recent years. The percentage of average non-interest bearing
demand deposits to average total deposits amounted to 10.1% in 1995 and 1994 and
9.9% in 1993. First Sterling believes it has remained interest rate competitive
and has introduced new deposit products to maintain and attract deposits. As can
be seen in Table 13, First Sterling attempts to keep the amount of time deposits
of $100,000 or more at what management feels are reasonable levels due to their
volatility.

SHORT-TERM BORROWINGS

For the six months ended June 30, 1996, average short term borrowings
increased 324% or $10,552,000 compared to the similar period in 1995. This
increase reflects a more extensive use of Federal Home Loan Bank repurchase
agreements. The balance at June 30, 1996 was $33,118,000 compared to $2,778,000
at December 31, 1995. The increase in short-term borrowings was intended to take
advantage of the lower rates. When rates begin to rise, borrowing maturities
will be extended.

Average short-term borrowings decreased $124,000 or 4.3% during the year
ended December 31, 1995 compared with an increase of $1,482,000 or 104.1% in
1994. Short-term borrowings are primarily represented by short-term Federal Home
Loan Bank borrowings and securities sold under agreements to repurchase. The
level of short-term borrowings is dependent upon many items such as loan growth,
deposit growth and the interest rates paid for these funds. The average cost of
short-term borrowings increased from 3.09% in 1993 to 3.51% in 1994 and to 6.43%
in 1995.

NON-PERFORMING ASSETS

At June 30, 1996, nonperforming assets totalled $2,581,000, a reduction of
26.6% from the $3,518,000 at June 30, 1995 which was unusually high because of a
few large loans which were current as to interest but which had matured and had
not yet been formally extended.

Table 10 reflects First Sterling's non-performing assets for the six month
periods ended June 30, 1996 and 1995 and the five years ended December 31, 1995.
First Sterling's policy is to discontinue the accrual of interest on loans on
which principal or interest is past due 90 days or more or where any portion of
a loan is classified loss by the regulatory authorities. When a loan is placed
on non-accrual status, any accrued and unpaid interest is generally charged
against income. Management believes that strict adherence to this policy with
regard to non-accruals and charge-offs provides assurance that the loan
portfolio is accurately valued and income is correctly recorded in First
Sterling's financial statements. Other real estate owned represents property
acquired through foreclosure.

TABLE 10
NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)

Non-accrual loans................................ $ 1,957 $ 1,313 $ 1,858 $ 874 $ 1,450 $ 1,689 $ 1,024
Loans past due 90 or more days as to principal or
interest payments.............................. 272 1,751 248 645 1,033 1,153 --
Restructured loans............................... 250 250 250 1,129 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total non-performing loans..................... 2,479 3,314 2,356 2,648 2,483 2,842 1,024
Other real estate owned.......................... 102 204 49 49 49 -- --
--------- --------- --------- --------- --------- --------- ---------
Total non-performing assets.................... $ 2,581 $ 3,518 $ 2,405 $ 2,697 $ 2,532 $ 2,842 $ 1,024
========= ========= ========= ========= ========= ========= =========
Ratios:
Non-performing loans to total loans............ 1.44% 2.49% 1.52% 2.23% 2.27% 3.17% 1.38%
Non-performing assets to total loans and other
real estate owned............................ 1.50% 2.64% 1.55% 2.27% 2.32% 3.17% 1.38%
Allowance for loan losses to non-performing
loans.......................................... 101.21% 60.26% 98.39% 67.30% 66.01% 41.66% 78.91%

Loan quality is maintained through diversification of risk, strict
enforcement of credit control practices and continued monitoring of the loan
portfolio. These efforts are reflected in the trend of non-performing loans. The
percentage of non-performing loans to total loans has shown a consistent
decrease over the last four years as the amount of non-performing loans has
remained fairly consistent while the total loan portfolio has grown
significantly.

At December 31, 1995, First Sterling had loans secured by commercial real
estate totaling 35% of total loans. There were no other loan concentrations.
Loan concentrations are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities which would cause
them to be similarly affected by economic or other industry specific conditions.

The balance of non-accrual and restructured loans was $2,108,000 at
December 31, 1995. If such loans were on the accrual basis, an additional
$120,000 of interest income would have been recognized.

In 1995, First Sterling adopted the provisions of Statement of Financial
Accounting Standards No. 114 ('SFAS 114'), 'Accounting by Creditors for
Impairment of a Loan,' as amended by Statement of Financial Accounting Standards
No. 118 ('SFAS 118'), 'Accounting by Creditors for Impairment of a Loan --
Income Recognition and Disclosures.' SFAS 114 addresses the accounting by
creditors for impairment of certain loans. SFAS 114 requires that impaired loans
that are within the scope of the Statement be measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate, except that all collateral-dependent loans are measured for impairment
based on the fair value of the underlying collateral. Commercial loans and
certain consumer loans with large balances are evaluated for impairment in
accordance with SFAS 114. Management considers a loan to be impaired when it is
probable that collection of all amounts due according to the contractual terms
of the loan agreement will not be made. This determination usually is made when
a loan becomes 90 days past due. However, in certain circumstances where the
loan is in collection or where loans have matured and have not been formally
extended, loans greater than 90 days past due may not be considered impaired.

On December 31, 1995 the balance of impaired loans was $1,830,000. The
impaired loans consist of loans where it is probable that First Sterling will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. Interest income for impaired loans that are on nonaccrual status is
recognized using the cash basis.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is based on management's continuing
evaluation of the loan portfolio, assessment of economic conditions, the
diversification and size of the portfolio, adequacy of collateral, past and
anticipated loss experience and the amount and quality of nonperforming loans.
The specific allocations in any particular category may prove excessive or
inadequate and consequently

may be re-allocated in the future to reflect then current conditions.
Accordingly, the entire allowance is considered available to absorb losses in
any category. At December 31, 1995, the specific reserves related to the
$1,830,000 of impaired loans were $533,000 and the remainder of the allowance
($1,785,000) represents the SFAS 5 allowance established on loans not considered
impaired under SFAS 114.

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 on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review First Sterling Bank's allowance
for loan losses. Such agencies may require First Sterling Bank to recognize
additions to the allowance based on their judgments of information available to
them at the time of their examination.

Table 11 reflects an analysis of the allowance for loan losses for the six
month periods ended June 30, 1996 and 1995 and the five years ended December 31,
1995.

For the six months ended June 30, 1996 the allowance for loan losses
increased $191,000 to $2,509,000 as the result of the provision for loan losses
of $185,000 plus the recovery of charged-off loans of $6,000. The allowance at
June 30, 1996 is 1.54% of average loans and 1.45% of period end loans. The
provision for loan losses of $485,000 together with the net recoveries of
$51,000 increased the allowance for loan losses from $1,782,000 in 1994 to
$2,318,000 at December 31, 1995. The allowance for loan losses as a percentage
of year-end loans was 1.50% at December 31, 1995, December 31, 1994, and
December 31, 1993.

TABLE 11
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)

SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------

Balance, beginning of period............. $ 2,318 $ 1,782 $ 1,782 $ 1,639 $ 1,184 $ 808 $ 558
Provision charged to operating expense... 185 237 485 351 718 963 392
Loans charged off:
Commercial............................. -- -- 82 -- 59 -- 142
Real estate............................ -- 17 17 197 201 583 --
Consumer............................... -- 5 5 12 3 4 --
--------- --------- --------- --------- --------- --------- ---------
Total loans charged off.............. -- 22 104 209 263 587 142
--------- --------- --------- --------- --------- --------- ---------
Recoveries:
Commercial............................. -- -- -- -- -- -- --
Real estate............................ 6 -- 155 -- -- -- --
Consumer............................... -- -- -- 1 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total recoveries..................... 6 -- 155 1 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net charge-offs.......................... (6) 22 (51) 208 263 587 142
--------- --------- --------- --------- --------- --------- ---------
Balance, end of period................... $ 2,509 $ 1,997 $ 2,318 $ 1,782 $ 1,639 $ 1,184 $ 808
========= ========= ========= ========= ========= ========= =========
Total loans:
Average................................ $ 162,352 $ 123,378 $ 133,044 $ 114,794 $ 97,159 $ 81,250 $ 61,806
Year-end............................... 172,494 133,156 154,622 118,854 109,277 89,767 74,316
Ratios:
Net charge-offs to:
Average loans........................ 0.00% 0.02% -0.04% 0.18% 0.27% 0.72% 0.23%
Loans at year-end.................... 0.00% 0.02% -0.03% 0.18% 0.24% 0.65% 0.19%
Allowance for loan losses............ 0.00% 1.10% -2.20% 11.67% 16.05% 49.58% 17.57%
Provision for loan losses............ 0.00% 9.28% -10.52% 59.26% 36.63% 60.96% 36.22%
Allowance for loan losses to:
Average Loans........................ 1.54% 1.62% 1.74% 1.55% 1.69% 1.46% 1.31%
Loans at year-end.................... 1.45% 1.50% 1.50% 1.50% 1.50% 1.32% 1.09%

LIQUIDITY

The objective of First Sterling's liquidity plan is to maintain an adequate
and safe pattern of cash flow in order to meet all obligations. This includes
the ability to fund asset growth, repay maturing liabilities, and meet
customers' demands for funds. Liquidity is sustained through a diversified mix
of liabilities and a system tracking cash flows, repricing opportunities and
maturities for major assets.

Asset growth is measured using a variety of ratios and targets, all of
which are closely monitored and must remain within designated limits. The
monthly oversight by the Asset Liability Management Committee allows for minor
adjustments on a regular basis, to minimize the adverse impact on the major
operations of First Sterling Bank. Within the overall liquidity plan a detailed
prioritization strategy is addressed to maintain appropriate funding. The
strategy allows for overnight Federal Funds borrowing, availability through the
Federal Home Loan Bank for short-term, mid-term and long-term needs, investment
portfolio actions, asset securitization and availability of liability products.

The generation of deposit balances is the primary source of liquidity from
liability categories. Total deposits increased by $30.5 million or 22.2% from
year-end 1994 to year-end 1995. Table 12 reflects the change in the major
classifications of deposits by comparing the year-end balances for the past
three years and Table 13 reflects the maturity of large dollar deposits for the
same periods. As shown in Table 14, other forms of short-term borrowings are
also significant sources of liquidity. At June 30, 1996, extensive use was being
made of short-term repurchase agreements with the Federal Home Loan Bank, as
volatile certificates of deposit were allowed to decrease. This was a planned
move and First Sterling Bank still has significant borrowing capacity to cover
expected funding needs if necessary. First Sterling Bank continues to maintain
diverse liability funding sources.

As can be seen in the cash flow statements, cash used in investing
activities was $39,522,000, $26,412,000, and $28,584,000, respectively, in the
years ended December 31, 1995, 1994 and 1993 and $15,489,000 and $13,649,000 for
the six month periods ended, respectively, June 30, 1996 and June 30, 1995.
Except for 1994, when there was a significant increase in investments, the major
portion of the funds were used to increase loans. The funds were provided
primarily by financing activities with less than 10% being provided by operating
activities in every period except 1994.

As of June 30, 1996, First Sterling had commitments to extend credit of
$16,271,000 and $887,000 in standby letters of credit. Since some commitments
and letters of credit are expected to expire without being drawn down, they do
not necessarily represent future cash requirements. The necessary funding for
these commitments is available through anticipated deposit growth and
approximately $33,000,000 in unused borrowing capacity at the Federal Home Loan
Bank.

TABLE 12
DEPOSITS BY MAJOR CLASSIFICATION
(IN THOUSANDS)

JUNE 30, DECEMBER 31,
------------------------ -------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------

Non-interest bearing deposits................... $ 19,541 $ 17,794 $ 16,858 $ 12,695 $ 16,581
Interest bearing demand deposits................ 7,452 6,497 7,546 5,887 5,106
Savings deposits................................ 2,125 2,096 2,242 1,799 1,262
Money market deposit accounts................... 26,727 23,085 22,178 22,291 21,106
Time deposits................................... 92,297 85,472 96,300 79,864 59,188
Time deposits of $100,000 or more............... 8,872 10,770 22,834 14,879 19,120
-------- -------- -------- -------- --------
Total......................................... $157,014 $145,714 $167,958 $137,415 $122,363
======== ======== ======== ======== ========

TABLE 13
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
(IN THOUSANDS)

JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------

Three months or less.................................... $4,983 $ 5,479 $ 8,565 $ 9,699 $10,354
Over three months through twelve months................. 1,692 3,439 12,540 3,149 6,731
Over twelve months...................................... 2,197 1,852 1,729 2,031 2,035
------ ------- ------- ------- -------
Total................................................. $8,872 $10,770 $22,834 $14,879 $19,120
====== ======= ======= ======= =======

TABLE 14
SHORT-TERM BORROWINGS
(IN THOUSANDS)

JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------

Overnight federal funds purchased......................... $ -- $ -- $ -- $ -- $ --
Federal Home Loan Bank borrowings......................... 28,000 4,000 -- 5,000 3,000
Securities sold under agreement to repurchase............. 5,118 3,100 2,778 1,765 330
------- ------- ------- ------ ------
Total short-term borrowings............................... $33,118 $ 7,100 $ 2,778 $6,765 $3,330
======= ======= ======= ====== ======
Average amount outstanding................................ $15,270 $ 4,718 $ 2,782 $2,906 $1,424
Weighted average interest rate............................ 4.71% 5.17% 6.43% 3.51% 3.09%
Maximum outstanding of any month end...................... $33,118 $10,220 $10,200 $6,765 $3,330

CAPITAL RESOURCES

In 1994, First Sterling sold 100,000 shares of common stock. The sale
netted $1,000,000, which was used to fund the opening of the Bala Cynwyd office.

Shareholder's equity increased $694,000 from December 31, 1995 to June 30,
1996. The increase was the result of net income of $1,054,000 and an unrealized
loss on investments of $360,000. Shareholder's equity increased $2,254,000 or
23.2% in 1995 compared to $797,000 or 8.9% in 1994. The 1995 increase resulted
from net income of $1,616,000 and the increase in the net unrealized gain(loss)
on securities of $835,000, partially offset by the purchase of $197,000 in
treasury stock. The increase in 1994 was adversely impacted by net unrealized
losses on investments available-for-sale of $1,107,000.

Common measures of adequate capitalization for banking institutions are
ratios of capital to assets. These ratios indicate the proportion of permanently
committed funds to the total asset base. Guidelines issued by federal regulatory
authorities require both banks and bank holding companies to meet minimum
risk-based capital ratios in an effort to make regulatory capital more
responsive to the risk exposure related to a bank's on- and off-balance sheet
items. Risk-based capital guidelines redefine the components of capital,
categorize assets into different risk classes and include certain off-balance
sheet items in the calculation of capital requirements. The components of
risk-based capital are segregated as Tier 1 and Tier 2 capital. Tier 1 capital
is composed of total stockholders' equity reduced by goodwill and other
intangible assets. Tier 2 capital is the allowance for loan losses (with certain
limitations) and qualifying debt obligations. Table 15 presents the capital
ratios for First Sterling for the past three years calculated at year-end in
accordance with these guidelines. At December 31, 1995, First Sterling and First
Sterling Bank exceeded all capital requirements and are considered to be 'well
capitalized' for bank regulatory purposes.

TABLE 15
CAPITAL RATIOS

JUNE 30, DECEMBER 31,
----------- -------------------------------
1996 1995 1994 1993
----------- --------- --------- ---------

Risk-based capital Tier 1 ratio........................................ 8.19% 8.48% 9.61% 10.34%
Total capital ratio (Tier 1 and Tier 2)................................ 9.99 10.95 11.86 11.65
Leverage capital ratio................................................. 5.56 5.65 5.65 6.04

INTEREST RATE SENSITIVITY

Through the use of balance sheet GAP management, as well as income
statement GAP management, combined with earnings change ratios, First Sterling
attempts to predict and monitor the impact on First Sterling Bank due to
changing interest rates. Balance sheet GAP, as generally defined, is the
difference between interest rate sensitive assets and interest rate sensitive
liabilities. This difference will produce either a positive or a negative GAP.
In a negative GAP environment, the institution is said to be liability
sensitive. This means that the liabilities will reprice more quickly than the
assets. In a declining interest rate environment, this would be a beneficial
position, producing additional income as the liabilities roll into lower rates.
Conversely, in a rising rate environment, having the liabilities reprice more
quickly will produce a higher interest expense level thereby reducing profits.
The inverse is true for a positive GAP position. Therefore, in general, having a
positive GAP position as you enter a rising rate market is preferred and
maintaining a negative GAP position to weather a declining rate market is
desirable.

Income statement GAP analysis is based on the assignment of an earnings
change ratio ('ECR') to each interest rate sensitive asset and liability. The
ECR represents the percentage of price change on each specific asset or
liability as it relates to the change in the base rate (such as the prime
lending rate). This analysis allows management to more accurately evaluate the
true impact of market rate changes.

The resultant product of both balance sheet GAP and income statement GAP is
in the form of a percentage. In an effort to maintain comfortable levels and
preparedness for market changes, First Sterling maintains both percentages
within target ranges to account for fluctuations in interest rates. Management
believes that with the limitations established and the monthly monitoring, there
is ample time to redirect strategies with minor adjustments to the asset
liability mix as rates change.

Management also engages in model simulation. This allows for instantaneous
interest rate changes ('shocks') to be assumed in order to simulate the impact
of various changes. On a regular basis, shocks are utilized to determine how
First Sterling Bank will be impacted if rates were to move up or down 100, 200,
or 300 basis points. The effects of each shock upon the bank as a whole as well
as specifically upon the investment portfolio are then analyzed. As of June 30,
1996, the impact of a 100 basis point shock to First Sterling Bank was not
material within the model simulation, having less than a 1% effect on net
income. Projections of income and expense levels, including budget information,
are entered on an ongoing basis, allowing management to be more aware of the
impact of interest rate changes on the financial condition of First Sterling
Bank at all times.

Table 16 is a summary of the balance sheet GAP as of December 31,1995.

TABLE 16
INTEREST RATE SENSITIVITY
DECEMBER 31, 1995
(IN THOUSANDS)

WITHIN 3 MONTHS 1 TO 5 AFTER
3 MONTHS TO 1 YEARS YEARS 5 YEARS TOTAL
--------- ----------- ----------- ----------- -----------

Assets
Investment securities............................ $ 4,377 $ 8,126 $ 33,308 $ 4,860 $ 50,671
Loans............................................ 56,873 18,620 53,147 25,982 154,622
------- -------- -------- -------- --------
Total rate sensitive assets...................... 61,250 26,746 86,455 30,842 205,293
Total cumulative assets.......................... 61,250 87,996 174,451 205,293
======= ======== ======== ======== ========
Liabilities
Savings deposits................................. -- 11,089 18,920 1,958 31,967
Time deposits less than $100,000................. 20,243 52,966 23,071 20 96,300
Time deposits over $100,000...................... 8,565 12,540 1,729 -- 22,834
Borrowings....................................... 10,802 15,024 1,648 -- 27,474
------- -------- -------- -------- --------
Total rate sensitive liabilities................. 39,610 91,619 45,368 1,978 178,575
Total cumulative liabilities..................... 39,610 131,229 176,597 178,575
======= ======== ======== ======== ========
Gap during period................................ 21,640 (64,873) 41,087 28,864 26,718
======= ======== ======== ======== ========
Cumulative gap................................... 21,640 (43,233) (2,146) 26,718
======= ======== ======== ======== ========
Cumulative gap/earning assets.................... 10.54% -21.06% -1.05% 13.01%
======= ======== ======== ======== ========
Cumulative gap ratio............................. 1.55 0.67 0.99 1.15
======= ======== ======== ======== ========

EFFECTS OF INFLATION

The impact of inflation upon banks differs from the impact upon
non-financial institutions. Banks, as financial intermediaries, have assets
which are primarily monetary in nature and change corresponding to movements in
the inflation rate. The precise impact of inflation upon First Sterling is
difficult to measure. Inflation may cause non-interest expense items to increase
at a more rapid rate than earning sources. Inflation may also affect the
borrowing needs of consumers, thereby affecting the growth rate of First
Sterling's assets. Inflation may also affect the general level of interest
rates, which can have an effect on the profitability of First Sterling.

MARKET PRICE AND DIVIDEND MATTERS

The PBI Stock is presently, and after the Merger is effected the Prime
Stock will be, traded on the Nasdaq National Market System under the symbol
'PSAB.' On September 1, 1996, there were 3,725,056 shares of PBI Stock
outstanding, which were held by approximately 750 stockholders of record. The
following table sets forth the high and low closing sale prices for the PBI
Stock, as quoted on the Nasdaq National Market System, and the dividends
declared per share, for the periods indicated.

DIVIDENDS
DECLARED
FOR THE QUARTER ENDED HIGH LOW (PER SHARE)
--------------------- --------- --------- -------------

March 31, 1993.............................................. $13.39 $10.23 $.10
June 30, 1993............................................... 15.08 12.19 .18
September 30, 1993.......................................... 15.08 13.23 .11
December 31, 1993........................................... 17.35 14.67 .11
------ ------ -----
March 31, 1994.............................................. $17.56 $15.91 $.13
June 30, 1994............................................... 17.97 16.95 .13
September 30, 1994.......................................... 15.91 14.87 .13
December 31, 1994........................................... 15.23 14.32 .15
------ ------ -----
March 31, 1995.............................................. $17.27 $16.14 $.15
June 30, 1995............................................... 16.36 15.68 .15
September 30, 1995.......................................... 19.09 18.18 .15
December 31, 1995........................................... 20.88 18.00 .17
------ ------ -----
March 31, 1996.............................................. $18.50 $17.50 $.17
June 30, 1996............................................... 18.75 17.50 .17
September 30, 1996.......................................... 19.75 18.75 .17

The Board of Directors of Prime, on December 20, 1995, declared a special
10% stock dividend which was paid on February 1, 1996 to stockholders of record
on January 2, 1996. Prime also declared and paid 10% stock dividends in 1993 and
1994. The trading information set forth above has been adjusted to reflect the
10% stock dividends through and including December 31, 1995 for the purpose of
comparability.

It is Prime's current policy to pay quarterly cash dividends and its Board
of Directors currently intends to continue to pay quarterly dividends. Future
cash dividends will be subject to determination and declaration by the Board of
Directors of New Prime, which will take into account the company's financial
condition, results of operations, industry standards, economic conditions and
other factors including regulatory and tax considerations. Currently, Prime
relies on the payment of dividends by Prime Bank in order to generate cash and
income sufficient to pay a dividend. Funds for the payment of the dividends by
New Prime will be obtained from Prime Bank and First Sterling Bank. The Board of
Directors of New Prime may consider the payment of stock dividends from time to
time in addition to, or in lieu of, cash dividends.

The amount of dividends that may be declared or paid by the banks are
subject to certain restrictions. Banks may not declare or pay cash dividends on
their stock if the effect thereof would be to cause the bank's net worth to be
reduced below (1) the amount, if any, required for the liquidation account or
(2) the net worth requirements imposed by applicable bank regulatory
authorities. See Note 3 to the consolidated financial statements of Prime,
incorporated herein by reference.

First Sterling Stock is not traded on either a national securities
exchange, a consolidated transaction reporting system or an automated quotation
system of a registered securities association. As of September 1, 1996, First
Sterling had approximately 60 shareholders. There is no active trading in First
Sterling Stock which is subject to certain restrictions on transferability.
There has been some private trading on a sporadic basis since the initial stock
issuance in 1987. The most recent transaction involved the purchase by First
Sterling of 15,800 shares from William H. Bromley at $12.50 per share.

This transaction took place in July, 1995. No dividends have ever been declared
or paid on the First Sterling Stock.

On June 11, 1996, the last trading day prior to the public announcement of
the execution of the Merger Agreement, the last reported sale price of a share
of PBI Stock was $17.75. On October 29, 1996, the last reported sale price of a
share of PBI Stock was $18.94.

No assurance can be given as to what the market price of PBI Stock, and
consequently Prime Stock will be if and when the Merger is consummated. Due to
the fixed exchange ratio for the Merger, and because the market price of Prime
Stock is subject to fluctuation, the value of the shares of Prime Stock that
holders of First Sterling Stock will receive in the Merger may increase or
decrease prior to and following the Merger. Stockholders of Prime and First
Sterling are advised to obtain current market quotations for PBI Stock. In
addition, past dividends paid in respect of PBI Stock are not necessarily
indicative of future dividends which may be declared and paid. No assurance can
be given concerning dividends to be declared and paid in respect of Prime Stock
before or after the Merger is effected.

THE FIRST STERLING SPECIAL MEETING

DATE, TIME AND PLACE

The First Sterling Special Meeting will be held at the Radnor Hotel, 591
East Lancaster Avenue, St. Davids, Pennsylvania, at 11:00 AM local time on
December 17, 1996.

MATTERS TO BE CONSIDERED AT THE FIRST STERLING SPECIAL MEETING

At the First Sterling Special Meeting, First Sterling shareholders will be
asked to consider and vote upon the Agreement and Plan of Reorganization dated
as of June 12, 1996, as amended, between Prime, New Prime and First Sterling and
the Merger described therein. This Prospectus/Joint Proxy Statement is being
mailed to all registered holders of First Sterling Stock along with copies of
(i) Prime's annual report on Form 10-K for the year ended December 31, 1995,
(ii) Prime's Annual Report 1995 to its stockholders for the year ended December
31, 1995, (iii) Prime's proxy statement dated March 18, 1996, and (iv) Prime's
quarterly report on Form 10-Q for the six months ended June 30, 1996. On or
about November 15, 1996, First Sterling shareholders will also be mailed Prime's
quarterly report on Form 10-Q for the nine months ended September 30, 1996.

RECORD DATE; PROXIES

The close of business on November 6, 1996 (the 'First Sterling Record
Date') has been fixed by the Board of Directors of First Sterling as the record
date for the determination of holders of First Sterling Stock entitled to notice
of and to vote at the First Sterling Special Meeting. At the close of business
on the First Sterling Record Date, there were outstanding 1,454,203 shares of
First Sterling Stock. Holders of record of First Sterling Stock are entitled to
one vote per share on matters that come before the meeting. Shareholders of
First Sterling are entitled to exercise statutory dissenters' rights with
respect to the Merger. See 'The Merger -- Dissenters Rights.'

Proxies in the form enclosed, if duly signed, marked and received in time
for voting, will be voted in accordance with the directions of the shareholders
of First Sterling. The giving of a Proxy does not preclude the right to vote in
person should the shareholder so desire.

VOTE REQUIRED

The affirmative vote of a majority of all shares of First Sterling Stock
present in person or by proxy and voting at the First Sterling Special Meeting,
is required to approve the Merger. A majority of the outstanding shares of First
Sterling Stock must be present in person or by proxy to constitute a quorum for
the First Sterling Special Meeting.

SOLICITATION, VOTING AND REVOCATION OF PROXIES

The Board of Directors of First Sterling by this Prospectus/Joint Proxy
Statement is soliciting proxies in the accompanying form for use at the First
Sterling Special Meeting. When proxies are returned properly executed, the
shares represented thereby will be voted in accordance with the shareholders'
directions. Shareholders are urged to specify their choices by marking the
appropriate box on the enclosed proxy card. IF NO CHOICE HAS BEEN SPECIFIED, THE
SHARES WILL BE VOTED IN FAVOR OF THE MERGER. A shareholder may vote for,
against, or abstain from voting on, any matter as may properly come before the
meeting.

Under the PBCL and the First Sterling Bylaws, the presence, in person or by
proxy, of shareholders entitled to cast at least a majority of the votes which
all shareholders are entitled to cast on the First Sterling Record Date
constitutes a quorum to take action at the First Sterling Special Meeting.
Shares which are present, or represented by proxy, at the First Sterling Special
Meeting will be counted for quorum purposes regardless of whether the holder of
the shares or proxy fails to vote on a matter ('abstentions'). For voting
purposes, only shares voted for the adoption of the Merger, and not abstentions,
will be counted as voting in favor in determining whether the Merger is approved
by the holders of shares of First Sterling Stock. As a consequence, abstentions
will not be counted as either a vote for or against the Merger.

The expense of soliciting proxies for the First Sterling Special Meeting
will be paid by First Sterling. The solicitation will be made by the use of the
mails and may also be made by officers and regular employees of First Sterling.
Proxies may be solicited by personal interview, mail, telephone and possibly by
facsimile transmission. Expenses incurred in connection with printing and
mailing this Prospectus/Joint Proxy Statement and related filing fees will be
shared with Prime.

Shareholders who execute proxies retain the right to revoke them at any
time before they are voted. A proxy may be revoked by written notice to the
Corporate Secretary of First Sterling at 80 West Lancaster Avenue, Devon, PA
19333; by submission of a proxy with a later date; by a request in person to
return the executed proxy; or by giving notice to the Corporate Secretary of
First Sterling in open meeting, but such revocation shall not affect any vote
previously taken.

CERTAIN BENEFICIAL OWNERS OF FIRST STERLING STOCK

First Sterling does not know of any person or group that is the beneficial
owner of more than five percent of the outstanding First Sterling Stock, except
as indicated herein. The following table reflects as of September 1, 1996 the
First Sterling Stock beneficially owned by beneficial owners of more than five
percent of the outstanding common stock, executive officers and directors and
all five percent shareholders, executive officers and directors as a group, and
the pro forma effect of the Merger on such ownership. Except as otherwise noted,
to First Sterling's knowledge each beneficial owner listed has sole investment
and voting power with respect to the First Sterling Stock owned by him.

SHARES
BENEFICIALLY PERCENT PRO FORMA
OWNED OF EFFECT OF
BENEFICIAL OWNER (1)(2) CLASS (2) MERGER (3)
- ---------------- ----------- --------- -----------

Arthur J. Kania Trust, Allen Speiser and Stanley J. Kania,
Trustees...................................................... 503,916(4) 32.21% 9.53%
William H. Bromley.............................................. 63,611(5) 3.92% 1.19%
Richard E. Caruso............................................... 107,684 6.88% 2.04%
William J. Cunningham........................................... 107,684(6) 6.88% 2.04%
James D. Kania.................................................. 43,961(7) 2.81% .83%
Arthur L. Powell................................................ 49,679(8) 3.17% .94%
Frank H. Reeves................................................. 16,933(9) 1.08% .32%
Thomas J. Scanlon, Jr........................................... 113,684 7.24% 2.15%
Allen Speiser................................................... 503,916(10) 32.21% 9.53%
R. Richard Williams............................................. 122,984 7.83% 2.32%
All directors, executive officers and 5% shareholders as a group
consisting of 10 persons...................................... 1,130,136 68.30% 21.01%

(1) The securities 'beneficially owned' by an individual are determined in accordance with the definition of
'beneficial ownership' set forth in the regulations of the Securities and Exchange Commission and,
accordingly, may include securities owned by or for, among others, the spouse and/or minor children of the
individual and any other relative who has the same home as such individual, as well as other securities as
to which the individual has or shares voting or investment power or which the individual has the right to
acquire under outstanding stock options within 60 days after September 30, 1996. Beneficial ownership may be
disclaimed as to certain of the securities.
(2) Based on 1,564,713 shares outstanding, including shares issuable pursuant to conversion of the Debentures,
plus for each individual, shares issuable upon exercise of vested stock options. The following persons own
stock options exercisable within 60 days of September 30, 1996, for the amounts indicated: William H.
Bromley--60,000; James D. Kania--12,000; R. Richard Williams--6,000; Thomas J. Scanlon, Jr.--6,000 and Frank
H. Reeves--5,833. The following persons own Debentures convertible into First Sterling Stock in the amounts
indicated: Richard E. Caruso--7,684; William J. Cunningham--7,684; William H. Bromley--631; James D.
Kania--421; Arthur L. Powell--5,894; Thomas J. Scanlon, Jr.--7,684; Allen Speiser--1,578; and R. Richard
Williams--7,684.
(3) Assumes issuance of 1,564,713 shares of Prime Stock issued to First Sterling shareholders in the Merger
(including 110,510 shares to be issued upon conversion of the Debentures, assuming conversion prior to
December 31, 1996) and 3,725,056 shares of PBI Stock outstanding as of September 1, 1996.
(4) Excludes shares owned directly by James D. Kania, a beneficiary of the trust and director of First Sterling.
Includes 466,500 shares owned by the Trust, 27,748 shares owned by trusts for Allen Speiser's benefit, and
9,668 shares owned by a trust of which Mr. Speiser is trustee for the benefit of third parties. Excludes
33,415 shares owned directly by Mr. Arthur J. Kania, grantor of and counsel to the Arthur J. Kania Trust
either outright or by conversion of his Debentures.
(5) Includes a total of 710 shares owned by an IRA account for the benefit of Lynne C. Bromley, the wife of
William H. Bromley; excludes options on 33,000 shares to be provided Mr. Bromley in his Employment Agreement
with New Prime.
(6) Includes 7,684 shares owned by a pension plan for the benefit of Mr. Cunningham.
(7) Excludes shares owned by the Arthur J. Kania Trust, of which James D. Kania is a beneficiary. Includes
$30,210 of Debentures convertible into 3,180 shares which Mr. Kania holds as trustee for the benefit of
minor nieces of his. Excludes a like amount of Debentures convertible into 3,180 shares which his sister,
Karen Roland, holds as trustee for the benefit of Mr. Kania's minor sons. Mr. Kania disclaims beneficial
ownership of the shares held for the benefit of his sons.
(8) Includes 19,702 shares owned by LRP Associates, a partnership of which Mr. Powell's adult children are
limited partners and of which Mr. Powell and his wife are the general partners.
(9) Includes 11,100 shares in an IRA plan for the benefit of Mr. Reeves.
(10) Includes 27,748 shares held in trusts for Mr. Speiser's benefit. Includes shares held by trusts of which
Mr. Speiser is trustee but not a beneficiary, namely 466,500 shares owed by the Arthur J. Kania Trust and
9,668 shares held by trusts for the benefit of unrelated parties.

Each First Sterling director and executive officer has indicated his
present intention to vote, or cause to be voted, the First Sterling Stock so
owned by him for approval of the Merger.

THE PRIME SPECIAL MEETING

DATE, TIME AND PLACE

The Prime Special Meeting will be held at Somerton Springs, located at 50
Bustleton Pike, Feasterville, Pennsylvania, at 10:00 AM local time on December
17, 1996.

MATTERS TO BE CONSIDERED AT THE PRIME SPECIAL MEETING

At the Prime Special Meeting, Prime stockholders will be asked to consider,
vote upon and approve (i) the Merger Agreement dated as of June 12, 1996, as
amended, between Prime, New Prime and First Sterling and the merger described
therein and (ii) the Agreement and Plan of Merger dated September 12, 1996
between Prime and New Prime and the merger described therein. In this
Prospectus/Joint Proxy Statement, both mergers are collectively referred to as
the 'Merger.'

RECORD DATE; PROXIES

The close of business on November 6, 1996 (the 'Prime Record Date') has
been fixed by the Board of Directors of Prime as the record date for the
determination of holders of PBI Stock entitled to notice of and to vote at the
Prime Special Meeting. At the close of business on the Prime Record Date, there
were outstanding 3,725,066 shares of PBI Stock. Holders of record of shares of
PBI Stock are entitled to one vote per share on matters that come before the
meeting. Stockholders of Prime are not entitled to exercise dissenters' rights
with respect to the Merger. See 'The Merger -- Dissenters Rights' and 'Certain
Differences Between The Corporation Statutes Of Delaware And Pennsylvania --
Appraisal or Dissenters Rights.'

Proxies in the form enclosed, if duly signed, marked and received in time
for voting, will be voted in accordance with the directions of the stockholders
of Prime. The giving of a Proxy does not preclude the right to vote in person
should the stockholder so desire.

VOTES REQUIRED

The affirmative vote of a majority of all shares of PBI Stock outstanding
on the Prime Record Date is required to adopt the Merger. A majority of the
outstanding shares present or represented at the meeting will constitute a
quorum.

The merger with First Sterling (Annex A) and the merger with New Prime
(Annex D) will be voted on as separate matters. The merger with New Prime, if
approved, may be accomplished even if the merger with First Sterling is not
approved or completed. Likewise, the merger with First Sterling may, if
approved, be accomplished even if the merger with New Prime is not approved or
completed.

SOLICITATION, VOTING AND REVOCATION OF PROXIES

The Board of Directors of Prime are by this Prospectus/Joint Proxy
Statement soliciting proxies in the accompanying form for use at the Prime
Special Meeting. When proxies are returned properly executed, the shares
represented thereby will be voted in accordance with the stockholders'
directions. Stockholders are urged to specify their choices by marking the
appropriate box on the enclosed proxy card. IF NO CHOICE HAS BEEN SPECIFIED, THE
SHARES WILL BE VOTED IN FAVOR OF ADOPTION OF THE MERGER. A stockholder may vote
for, against, or abstain from voting on, any matter as may properly come before
the meeting. Under Delaware law, shares which abstain or constitute 'broker
non-votes' (i.e., shares held by a broker or nominee as to which a broker or
nominee does not have authority to vote on a particular matter) will be counted
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum, but as not voted for purposes of determining the approval
of any matter submitted to the stockholders for a vote. Since the Merger must be
approved by a majority of outstanding shares, both abstentions and broker
non-votes will have the practical effect of a vote against the Merger.

The expenses of soliciting proxies for the Prime Special Meeting will be
paid by Prime. The solicitation will be made by use of the mails and through
brokers and banking institutions, and may also be made by officers and regular
employees of Prime. Proxies may be solicited by personal interview, mail,
telephone and possibly by facsimile transmission. Prime has also retained
Shareholder Communications Corporation to assist in soliciting proxies in favor
of the Merger and has agreed to pay to Shareholder Communications Corporation a
fee of $4,470, plus expenses. Expenses incurred in connection with printing and
mailing this Prospectus/Joint Proxy Statement and related filing fees will be
shared with First Sterling.

Stockholders who execute proxies retain the right to revoke them at any
time before they are voted. A proxy may be revoked by written notice to the
Corporate Secretary of Prime, at 6425 Rising Sun Avenue, Philadelphia, PA 19111;
by submission of a proxy with a later date; or by a request in person to return
the executed proxy; or by giving notice to the Corporate Secretary of Prime in
open meeting, but such revocation shall not affect any vote previously taken.

CERTAIN BENEFICIAL OWNERS OF PBI STOCK

Prime does not know of any person or group that is the beneficial owner of
more than five percent of the outstanding PBI Stock, except as indicated herein.
The following table reflects as of September 1, 1996 the PBI Stock beneficially
owned by beneficial owners of more than five percent of the outstanding common
stock, directors and all officers and directors as a group, and the pro forma
effect of the Merger on such ownership. Except as otherwise noted, to Prime's
knowledge each beneficial owner listed has sole investment and voting power with
respect to the PBI Stock owned by him or her.

SHARES
BENEFICIALLY PERCENT PRO FORMA
OWNED OF EFFECT OF
BENEFICIAL OWNER (1)(2) CLASS (2) MERGER (3)
- ---------------- ----------- --------- -----------

Erwin T. Straw................................................... 266,112(4) 7.05% 4.98%
Frederick G. Betz................................................ 48,995(5) 1.31% 0.92%
Joseph A. Fluehr, III............................................ 47,744(6) 1.28% 0.90%
Ernest Larenz.................................................... 139,023(7) 3.72% 2.62%
James J. Lynch................................................... 60,000 1.61% 1.12%
David H. Platt................................................... 18,768 0.50% 0.35%
Raymond L. Weinmann.............................................. 14,655 0.39% 0.28%
Walter L. Tillman, Jr............................................ 28,673 0.77% 0.54%
Michael J. Sexton................................................ 4,600 0.12% 0.09%
All directors and officers as a group, consisting of 14 persons
(8)............................................................ 790,937 20.02% 14.34%

Each Prime director and executive officer has indicated his present
intention to vote, or cause to be voted, the PBI Stock so owned by him for
approval of the Merger.

THE MERGER

GENERAL

The following is a discussion of the material aspects of the proposed
transactions. It includes a summary of the principal terms of the Merger
Agreement and is qualified in its entirety by reference to the agreement
(including the First Amendment thereto), which is attached to this
Prospectus/Joint Proxy Statement as Annex A. It also describes the principal
terms of the Agreement and Plan of Merger between Prime and New Prime and is
qualified in its entirety by reference to the agreement, which is attached
hereto as Annex D. The description set forth below is qualified in its entirety
by reference to Annex A and Annex D. All stockholders of Prime and First
Sterling are urged to read Annex A and Annex D in their entirety.

The Boards of Directors of Prime and First Sterling have determined that
the Merger is fair to and in the best interests of the stockholders of Prime and
First Sterling, respectively, and have unanimously approved the Merger
Agreement. ACCORDINGLY, THE BOARDS OF DIRECTORS OF PRIME AND FIRST STERLING
UNANIMOUSLY RECOMMEND THAT THE STOCKHOLDERS OF PRIME AND FIRST STERLING,
RESPECTIVELY, VOTE 'FOR' APPROVAL OF THE MERGER.

EFFECT ON THE CORPORATE PARTIES

First Sterling and Prime will merge with and into New Prime, which will
survive the Merger, pursuant to the terms and conditions of the Merger Agreement
(Annex A) and the Agreement and Plan of Merger (Annex D). For the convenience of
the parties, and to minimize transaction expenses the two transactions are being
combined and completed together. First Sterling and Prime will cease to exist as
separate corporate entities at the effective time of the Merger and their
assets, liabilities and operations will transfer by operation of law to New
Prime. After the Merger is effected, New Prime will operate as both a bank
holding company and savings and loan holding company, and its wholly-owned
subsidiaries Prime Bank and First Sterling Bank will continue to exist as
separate corporate entities.

As a result of the Merger, the Articles of Incorporation of New Prime will
be amended to change the corporation's name to 'Prime Bancorp, Inc.' After the
Merger is effected, the Board of Directors of Prime will be expanded to ten,
with seven members to be the nominees of the Board of Directors of Prime and
three members to be the nominees of the Board of Directors of First Sterling.
The executive officers of Prime will become the executive officers of New Prime
with the addition of William H. Bromley, President of First Sterling who will
become an Executive Vice President of New Prime.

BACKGROUND OF THE MERGER

As the pace of change within the banking industry has accelerated over the
past decade, and as competition has increased, both Prime and First Sterling
have periodically evaluated their respective strategic alternatives and
long-term goals. In connection with this process, each has confirmed its
commitment to the five-county market (Philadelphia, Montgomery, Bucks, Delaware,
and Chester Counties) by focusing on becoming strong community banks offering
high quality basic banking services with a strong customer service orientation.
Prime has attempted to grow by building on existing strengths and expanding both
through internal growth as well as identifying appropriate acquisition
candidates. First Sterling, which only commenced operations in 1988, has grown
steadily through internal growth.

Prime's Board of Directors has, over a number of years, periodically
reviewed strategic alternatives including (a) remaining independent and
continuing its strategy of internal growth and expansion through acquisition,
(b) engaging in a merger-of-equals type transaction, or (c) a strategic
combination with a larger bank. Prime's Board determined that Prime should
continue its strategy of independence and seek growth internally and through
strategic acquisitions within its market area. It is in this context Prime
entered into the Merger Agreement with First Sterling.

Similarly, First Sterling's Board of Directors has for some time recognized
the industry trends and anticipated that industry consolidation will continue.
As a commercial bank it recognized the void in the marketplace resulting from
the mergers of many large banks and the substantial opportunities for a
well-managed community bank which could deliver competitive products to the
individual consumer and small and mid-sized businesses. It is in that context
that First Sterling entered into the Merger Agreement with Prime.

The top management of Prime and First Sterling have known each other for
many years. Mr. Erwin T. Straw and Mr. William H. Bromley, on occasion and on an
informal basis, discussed the strategic direction of their respective
organizations. Prompted in part by the unprecedented consolidation in the
regional banking market which occurred during late 1994 and 1995, Mr. Straw met
on November 29, 1995 with Mr. Arthur J. Kania, Esq., of Kania, Lindner, Lasak
and Feeney, counsel to First Sterling, to discuss opportunities which such
consolidation presented for Prime and First Sterling. At this meeting a possible
combination of Prime and First Sterling was discussed on a very preliminary
basis.

On February 6, 1996, Mr. James J. Lynch and Mr. Kania met to discuss
whether the combination of the two companies was feasible from a financial,
business, and cultural point of view. During this meeting, the participants
discussed a wide range of matters affecting a combination, including preliminary
discussions on the valuation of First Sterling. No final conclusion was reached
as to the feasibility of a possible combination as a result of these meetings;
however the parties exchanged financial information with respect to each
company.

On February 21, 1996, Mr. Lynch and Walter L. Tillman, Jr. presented
current information concerning First Sterling at a meeting of Prime's Board of
Directors. In addition to summary financial information on First Sterling,
Mr. Lynch reviewed a number of potential positive aspects to a combination with
First Sterling, including: expansion to the very desirable western suburbs,
acquisition of a quality commercial lending group and loan generation
capabilities, earnings growth through expansion and efficiencies, and quality
management. At the meeting, the Board authorized management to continue
discussions with First Sterling's representatives and management.

In early March, Prime engaged Berwind to assist in evaluating its strategic
alternatives and the potential First Sterling combination. At the March 20, 1996
meeting of the Prime Board of Directors, Berwind discussed the potential
transaction in detail and highlighted several major points: the identification
of First Sterling as the best strategic partner available for Prime, the
importance for thrift banks to become more active in the commercial banking
sector, the enhancement of return on equity, and the synergistic benefits which
Prime and First Sterling bring to each other. Berwind reviewed the price range
under discussion between the parties and the potential impact the transaction
might have on the price of PBI Stock. The Board then voted unanimously to
authorize management to continue discussions with First Sterling.

Subsequent exploratory discussions between Mr. Lynch and Messrs. Kania and
Bromley occurred on March 26, April 4, and April 10. These meetings focused on
non-financial terms and on reconciling different views on pricing and the
cost-savings and revenue-enhancement assumptions which might be considered
reasonable.

The Board of Directors of First Sterling met on February 22, 1996 and April
18, 1996 and reviewed the status of the discussions with management of Prime.
Also discussed were the results of preliminary due diligence, appropriate
combination ratios, market considerations, strategic alternatives and the
overall fairness of a potential transaction.

The parties agreed to commence formal due diligence starting Saturday,
April 20. Senior managers of both Prime and First Sterling met through April 28
to analyze the materials provided for due diligence review. At the meeting of
the Prime Board of Directors on May 15, Mr. Lynch and Prime's management
discussed the results of their due diligence investigation of First Sterling.
After the conclusion of the presentation, the Board authorized management to
negotiate the terms of a definitive agreement with First Sterling. In the
ensuing days, the parties and their respective

representatives and advisors negotiated the terms of the transaction and
prepared and negotiated the required documentation.

On June 11, 1996, the Board of Directors of Prime met to consider the terms
of the definitive Merger Agreement and related documentation. At this meeting,
Prime's management, financial advisors, independent outside auditors, and legal
counsel detailed the negotiations which had taken place since the last meeting
of the Board of Directors, and the due diligence activities conducted by or on
behalf of Prime. Representatives of Berwind presented an updated financial
analysis of the proposed transaction and discussed in detail the negotiations
which resulted in the agreed upon Exchange Ratio. Management expressed its view
that the Exchange Ratio was fair to the stockholders of Prime from a financial
point of view. Legal counsel to Prime reviewed the Merger Agreement and related
documentation with the Board of Directors as well as other legal considerations.
The independent auditors for Prime reviewed certain matters relating to the
Merger. The Merger Agreement was unanimously approved by the Board of Directors
of Prime at this meeting.

On June 12, 1996, the Board of Directors of First Sterling met to consider
the offer of Prime and the definitive Merger Agreement and related
documentation. At this meeting, First Sterling's management and legal advisors
detailed the negotiations which had taken place since the prior meeting of the
Board of Directors and the due diligence activities conducted by or on behalf of
First Sterling. Management presented a financial analysis of the proposed
transaction, discussed in detail the negotiations which resulted in the agreed
upon Exchange Ratio and expressed their view that the Exchange Ratio was fair to
the stockholders of First Sterling from a financial point of view. Legal counsel
to First Sterling reviewed the Merger Agreement and related documentation with
the Board of Directors, as well as other legal considerations. The Merger
Agreement was unanimously approved by the Board of Directors of First Sterling
at this meeting.

On June 12, 1996, the Merger Agreement was executed by Prime and First
Sterling. After the close of business on June 12, Prime issued a press release
with respect to the Merger. On September 12, 1996, Prime, First Sterling and New
Prime entered into the First Amendment to Agreement and Plan of Reorganization
to add New Prime as a party, to provide that First Sterling will merge into New
Prime, to add certain representations and warranties of New Prime, and to have
New Prime assume the obligations of Prime under the original agreement.

REASONS FOR THE MERGER -- FIRST STERLING

The Board of Directors of First Sterling, with the assistance of its
independent auditors and attorneys, evaluated the financial, legal and other
considerations bearing on the decision to approve the Merger Agreement. The
terms of the Merger Agreement, including the Exchange Ratio, are a result of
arm's length negotiations between representatives of Prime and First Sterling.
In reaching its determination to approve the Merger Agreement, the Board of
Directors considered a number of factors, including the following: (i) the
Exchange Ratio in relation to the market value, book value and earnings per
share of the First Sterling Stock, (ii) information relating to the business,
financial condition, results of operations, capital levels, asset quality,
credit policies, adequacy of loan loss reserves, interest rate risk profile and
prospects of Prime and First Sterling, as well as the ability of the combined
enterprise to compete in relevant banking markets, (iii) the current and
prospective environment for financial institutions generally, and the trend
toward consolidation in the financial services industry, (iv) the general
structure of the transaction, including the generally tax-free nature of the
transaction to stockholders of First Sterling, (v) the opinion of management as
to the fairness, from a financial point of view, of the Exchange Ratio to be
paid to the holders of the First Sterling Stock, (vi) the strength of senior
management of Prime, (vii) a review of alternatives to the Merger, including the
alternative of remaining independent and growing internally, (viii) a review of
the terms of the Merger Agreement with First Sterling's legal advisors, (ix) the
impact of the Merger and related transactions on the employees of First Sterling
and the customers and communities served by it and (x) opportunities to serve
the business and personal needs of small and medium sized businesses formerly
served by community banks which have been acquired by large regional banks
during the past few years.

The foregoing discussion of the information and factors considered by the
First Sterling Board of Directors is not intended to be exhaustive, but includes
all material factors considered by the Board. In reaching its determination to
approve the Merger Agreement, the Board did not assign any relative or specific
weights to the various factors considered nor did the Board specifically
characterize any factor as positive or negative (except as specifically stated
above). Individual directors may have given different weights to different
factors and may have viewed certain factors more positively or negatively than
others.

REASONS FOR THE MERGER -- PRIME

At its meeting on June 11, 1996, the Board of Directors of Prime determined
the Merger and the Merger Agreement are fair to, and in the best interests of,
Prime, its employees and stockholders. In reaching its determination, the Prime
Board consulted with management as well as its financial and legal advisors and
independent auditors, and considered a number of factors including the
following: (i) the opportunity for geographic expansion into the growing suburbs
west of the City of Philadelphia, in Montgomery, Chester and Delaware counties;
(ii) the strong market recognition of the First Sterling franchise and the
profitability of First Sterling; (iii) First Sterling Bank's strength in
commercial lending which is a principal target area for growth by Prime;
(iv) the terms of the Merger Agreement and other documents to be executed in
connection with the Merger; (v) the Prime Board's review, based in part on
presentations of Prime's management, financial advisor, independent auditors and
legal counsel regarding (a) the due diligence review of First Sterling's
business, results of operations, asset quality, financial condition, credit
policies, adequacy of loan loss reserves, interest rate risk profile and
prospects of Prime and First Sterling, (b) the compatibility of management
philosophy and corporate objectives and the respective contributions that First
Sterling and Prime will each make to the combined entity, (c) the enhanced
opportunities for growth and improvement in competitive position that the Merger
makes possible as a result of the greater capitalization and geographic coverage
of the combined entity, and (d) certain opportunities for limited cost savings
and synergies; (vi) the current and prospective economic and competitive
environment in the banking industry generally; (vii) the expectation that the
Merger will be tax-free for federal income tax purposes to Prime and its
stockholders and will be accounted for as a pooling of interests; (viii) the
opportunity that the Merger provides to strengthen and deepen the strong
management team of Prime by integrating the senior executive management of First
Sterling; and (ix) the Merger is anticipated to become accretive to Prime's
earnings per share in 1997 based upon First Sterling's projected earnings and
potential cost savings.

The foregoing discussion of the information and factors considered by the
Prime Board of Directors is not intended to be exhaustive, but includes all
material factors considered by the Board. In reaching its determination to
approve the Merger Agreement, the Board did not assign any relative or specific
weights to the various factors considered nor did the Board specifically
characterize any factor as positive or negative (except as specifically stated
above). Individual directors may have given different weights to different
factors and may have viewed certain factors more positively or negatively than
others.

The reasons for the merger of Prime into New Prime are unrelated to the
transaction with First Sterling. The Board of Directors of Prime believes that
it is in the best interest of Prime and its stockholders to change the state of
incorporation of Prime from Delaware to Pennsylvania. The primary reasons for
this change are to conform the company's domicile to the state where its
principal business offices and business are located, to take advantage of the
modernized PBCL, to reduce state taxes on Prime by eliminating the annual cost
of Delaware franchise taxes, and to eliminate certain technical questions
relating to the initial issuance of the PBI Stock and the original organization
of Prime.

Since Prime has no particular nexus to the State of Delaware, and all of
its banking activities are located in the Commonwealth of Pennsylvania, Prime
derives no particular benefit from maintaining its corporate domicile in
Delaware. Since its banking focus is in the Philadelphia and southeastern

Pennsylvania area, New Prime will conform its legal domicile to its business
home and reinforce its commitment to the Pennsylvania business community.

The perceived advantages of being governed by the DGCL have been
substantially eliminated by the PBCL which is a comprehensive, modern and
flexible business corporation law designed to meet the changing corporate and
business needs of enterprises such as Prime. Under the amendment of the PBCL in
1988, New Prime will have the protection of certain anti-takeover provisions
which are not available to Prime under the DGCL. New Prime has elected to have
some of the optional anti-takeover provisions apply to New Prime, but has
elected not to have certain others apply since it does not believe that it is
presently in the best interest of New Prime and its shareholders that all of
these provisions apply. See 'Certain Differences Between the Corporation
Statutes of Delaware and Pennsylvania -- Anti-Takeover Provisions.'

Prime is presently subject to both Delaware and Pennsylvania state taxes.
Upon approval of the merger into New Prime, New Prime will continue to be
subject to Pennsylvania taxes. However, New Prime will experience annual tax
savings by avoiding annual fees and franchise tax liability in Delaware, except
with respect to any wholly-owned subsidiary which it continues to maintain in
Delaware for other business reasons. New Prime also anticipates some minor
savings in administrative costs due to the elimination of certain Delaware
annual reports and tax returns.

Legal counsel to Prime has advised it that there are certain technical
questions relating to the initial issuance of the PBI Stock and the original
organization of Prime which can be effectively eliminated in connection with the
reincorporation of Prime into Pennsylvania. These questions have arisen
principally because an amendment to Prime's Certification of Incorporation to
reflect a change in par value of the PBI Stock to $1.00 per share was not filed
with Delaware Secretary of State prior to initial sale of PBI Stock in 1988. It
is expected that the Merger will eliminate these questions and that all of the
Prime Stock to be issued in connection with the Merger will be duly and validly
issued, fully paid and non-assessable.

In order to effectuate the merger into New Prime, Prime has issued ten (10)
shares of PBI Stock (the 'Trust Shares') to a trustee who holds the Trust Shares
under an irrevocable declaration of trust for the proportional benefit of all
the holders of the PBI Stock reflected on the stock transfer records of Prime as
outstanding immediately prior to the Effective Time. The Trust Shares have been
issued solely for the purpose of validating the corporate transactions described
in this Prospectus/Joint Proxy Statement and to assure the elimination of the
technical questions referred to above. Upon completion of the merger of Prime
into New Prime, each share of PBI Stock reflected on the stock transfer records
of Prime as outstanding immediately prior to the Effective Time, along with such
share's proportional interest in the Trust Shares, will be converted into one
share of Prime Stock. See 'The Merger -- The Merger Consideration.' Prime has
agreed to indemnify, defend and hold the trustee harmless against any liability,
claim, suit or expense arising out of the creation of administration of the
Declaration of Trust provided the trustee acts in good faith.

The merger under the Merger Agreement and the merger of Prime into New
Prime will be accomplished contemporaneously in order to minimize expenses to
Prime. In the event that for any reason the merger with First Sterling as
provided in the Merger Agreement is not consummated, the merger of Prime into
New Prime, if approved by stockholders and all regulatory authorities, will
nonetheless be consummated, unless in the opinion of the Board of Directors of
Prime, circumstances arise which make it inadvisable to proceed. If the
reincorporation in Pennsylvania is not approved by the Prime stockholders, the
merger with First Sterling may be consummated, in which case Prime will continue
as a Delaware corporation.

OPINION OF FINANCIAL ADVISOR TO PRIME

Prime has retained Berwind to act as its financial advisor and to render a
fairness opinion in connection with the Merger. Berwind has rendered its opinion
to the Board of Directors that, based upon and subject to the various
considerations set forth therein as of the date of the opinion, the

consideration to be received in the Merger is fair, from a financial point of
view, to the holders of PBI Stock.

The full text of Berwind's opinion, which sets forth assumptions made,
matters considered and limitations of the review undertaken, is attached as
Annex B hereto, and should be read in its entirety by all Prime stockholders.
The summary of the opinion of Berwind set forth in this Prospectus/Joint Proxy
Statement is qualified in its entirety by reference to the full text of such
opinion attached as Annex B.

Berwind was selected to act as Prime's financial advisor in connection with
the Merger based upon its qualifications, expertise and experience. Berwind has
knowledge of, and experience with, Pennsylvania banking markets and banking
organizations operating in those markets and was selected by Prime because of
its knowledge of, experience with, and reputation in the financial services
industry. Berwind, as part of its investment banking business, is engaged
regularly in the valuation of assets, securities and companies in connection
with various types of asset and security transactions, including mergers,
acquisitions, private placements, and valuations for various other purposes and
in the determination of adequate consideration in such transactions.

On June 11, 1996, Prime's Board of Directors approved the Merger Agreement
and on June 12, 1996, Prime and First Sterling executed the Merger Agreement. In
connection with and as a condition precedent to the Merger, Berwind delivered an
opinion (the 'Proxy Opinion') to Prime stating that, as of the date of the Proxy
Opinion, the Merger was fair to the shareholders of Prime from a financial point
of view. No limitations were imposed by Prime's Board of Directors upon Berwind
with respect to the investigations made or procedures followed by Berwind in
rendering its Proxy Opinion.

In rendering its Proxy Opinion, Berwind: (i) reviewed the historical
financial performances, current financial positions and general prospects of
Prime and First Sterling; (ii) reviewed the Merger Agreement; (iii) reviewed and
analyzed the stock market performance of Prime; (iv) studied and analyzed the
financial and operating data of Prime and First Sterling; (v) considered the
terms and conditions of the Merger to Prime; (vi) met and/or communicated with
certain members of Prime's and First Sterling's senior management to discuss
its operations, historical financial statements, and future prospects;
(vii) reviewed this Prospectus/Joint Proxy Statement, and (viii) conducted such
other financial analyses, studies and investigations as Berwind deemed
appropriate.

In delivering its Proxy Opinion, Berwind assumed that in the course of
obtaining the necessary regulatory and governmental approval for the Merger, no
restriction will be imposed on First Sterling that would have a material adverse
effect on the contemplated benefits of the Merger.

Berwind relied, without independent verification, upon the accuracy and
completeness of all the financial and other information reviewed by it for
purposes of its opinion. In that regard, Berwind assumed that the financial
forecasts, including, without limitation, projected cost savings, have been
reasonably prepared on a basis reflecting the best currently available judgments
and estimates of the managements of Prime and First Sterling and that such
forecasts will be realized in the amounts and at the times contemplated hereby.
Berwind is not an expert in the evaluation of loan portfolios or the allowances
for loan losses with respect thereto, and it has assumed that all allowances for
loan and lease losses set forth in the balance sheets of Prime and First
Sterling were adequate and complied fully with applicable law, regulatory policy
and sound banking practice as of the date of such financial statements. In
addition, Berwind did not make an independent evaluation or appraisal of the
assets (including loans) or liabilities of Prime and First Sterling.

Set forth below is a summary of selected analyses prepared by Berwind in
connection with the delivery of its opinion:

Comparable Companies and Comparable Acquisition Transaction
Analyses. Berwind compared selected financial and operating data for First
Sterling with those of a peer group of: (i) Southeastern Pennsylvania and
Southwestern New Jersey based banks and bank holding companies with assets
between $100 million and $300 million as of the most recent period publicly
available, and (ii) Pennsylvania based banks and bank holding companies which
commenced operations after

January 1, 1988. Financial data and operating ratios compared in the analysis of
the First Sterling peer group included: return on average assets, return on
average equity, shareholders' equity to assets ratios and certain asset quality
ratios. Berwind also compared selected financial, operating and stock market
data for Prime with those of a peer group of selected thrifts and thrift holding
companies with assets between $300 million and $1 billion as of the most recent
period publicly available located in Pennsylvania and New Jersey. Financial,
operating and stock market data, ratios and multiples compared in the analysis
of the Prime peer group included return on average assets, return on average
equity, shareholders' equity to assets ratios, certain asset quality ratios,
price to book value, and price to earnings.

Berwind also compared the multiples of book value, tangible book value and
latest twelve months' earnings inherent to the Merger with the multiples paid in
recent acquisitions of banks and bank holding companies that Berwind deemed
comparable. The transactions deemed comparable by Berwind included both
interstate and intrastate acquisitions announced during the eighteen month
period ended on the date of the Proxy Opinion, in which the selling
institution's assets were between $150 million and $300 million as of the most
recent period publicly available. Berwind compared selected transactions based
upon, among other considerations, certain geographic and financial
characteristics of First Sterling. However, no company or transaction used in
this analysis is identical to Prime, First Sterling or the Merger. Accordingly,
an analysis of the result of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
would affect the public trading values of the companies or company to which they
are being compared.

Pro Forma Contribution Analysis. Berwind analyzed the contribution of each
of First Sterling and Prime of selected balance sheet and income statement items
to the pro forma combined company (New Prime) as if the Merger had been
consummated on June 30, 1996. The analysis demonstrated that, among other
factors, First Sterling would have contributed 26% of total assets, 31% of total
loans, 35% of total loan loss reserve, 24% of deposits, 18% of shareholders'
equity and 24% of net income of New Prime, with Prime contributing the remaining
balance. Berwind did not consider estimated cost savings and earnings
improvements from the Merger in this Contribution Analysis.

In connection with rendering its Proxy Opinion, Berwind performed a variety
of financial analyses. Although the evaluation of the fairness, from a financial
point of view, of the consideration to be paid in the Merger was to some extent
a subjective one based on the experience and judgment of Berwind and not merely
the result of mathematical analysis of financial data, Berwind principally
relied on the previously discussed financial valuation methodologies in its
determinations. Berwind believes its analyses must be considered as a whole and
that selecting portions of such analyses and factors considered by Berwind
without considering all such analyses and factors could create an incomplete
view of the process underlying Berwind's opinion. In its analysis, Berwind made
numerous assumptions with respect to business, market, monetary and economic
conditions, industry performance and other matters, many of which are beyond
Prime's and First Sterling's control. Any estimates contained in Berwind's
analyses are not necessarily indicative of future results or values, which may
be significantly more or less favorable than such estimates.

In reaching its opinion as to fairness, none of the analyses performed by
Berwind was assigned a greater or lesser weighing by Berwind than any other
analysis. Although the foregoing summary describes the material provisions of
the analyses conducted by Berwind in connection with the delivery of the Proxy
Opinion, it does not purport to be a complete description of all the analyses
performed by Berwind and is qualified by reference to the written opinion of
Berwind set forth in Annex B hereto.

Berwind's Proxy Opinion was based solely upon the information available to
it and the economic, market and other circumstances as they existed as of the
date its Proxy Opinion was delivered; events occurring after the date of its
Proxy Opinion could materially affect the assumptions used in preparing its
Proxy Opinion. Berwind has not undertaken to reaffirm and revise its Proxy
Opinion or otherwise comment upon any events occurring after the date thereof.

Pursuant to the terms of the engagement letter dated March 12, 1996, Prime
has paid Berwind $50,000 for acting as financial advisor in connection with the
Merger including delivering the Proxy Opinion. In addition, Prime has also
agreed to pay Berwind $125,000 upon the consummation of the Merger and to
reimburse Berwind for its reasonable out-of-pocket expenses. Whether or not the
Merger is consummated, Prime has also agreed to indemnify Berwind and certain
related persons against certain liabilities relating to or arising out of its
engagement.

The full text of Berwind's Proxy Opinion, dated as of the date of this
Prospectus/Joint Proxy Statement, which sets forth assumptions made and matters
considered, is attached hereto as Annex B. Prime's stockholders are urged to
read the Proxy Opinion in its entirety. Berwind's Proxy Opinion is directed only
to the fairness of the transaction, from a financial point of view, and does not
constitute a recommendation to any holder of PBI Stock as to how such holder
should vote at the Prime Special Meeting.

THE FOREGOING PROVIDES ONLY A SUMMARY OF THE PROXY OPINION OF BERWIND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THAT OPINION WHICH
IS SET FORTH IN ANNEX B HERETO.

THE MERGER CONSIDERATION

In accordance with the terms of and subject to the conditions set forth in
the Merger Agreement and the Agreement and Plan of Merger set forth in Annex D
hereto, First Sterling and Prime together will be merged with and into New
Prime, with New Prime as the surviving corporation of the Merger. The Merger
Agreement provides that at the effective time of the Merger each outstanding
share of First Sterling Stock (other than any shares held by First Sterling,
First Sterling Bank, Prime or Prime Bank, but including shares held in trust,
managed, custodial or nominee accounts and the like, that are owned beneficially
by third parties (collectively 'trust account shares') or acquired in
satisfaction of a debt previously contracted) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be automatically converted
into the right to receive 1.00 fully paid and non-assessable share of Prime
Stock.

No fractional shares of Prime Stock will be issued in connection with the
Merger and, in lieu thereof, First Sterling shareholders will be entitled to
receive cash based upon the average of the last quoted bid and ask prices of the
PBI Stock for each of the five trading days immediately preceding the effective
date of the Merger, as reported on the Nasdaq National Market, without interest.
No shareholder will be entitled to dividends, voting rights or any other rights
in respect of any fractional shares. If the outstanding shares of PBI Stock are
changed into a different number or class by virtue of any recapitalization,
split, stock dividend, or similar event, then the Exchange Ratio will be
adjusted proportionately. The issuance of PBI Stock for other corporate
purposes, such as for other acquisitions or pursuant to stock option plans, will
not result in an adjustment to the Exchange Ratio. From and after the effective
date of the Merger, First Sterling shareholders will cease to have any rights
with respect to such shares other than the right to receive the Merger
consideration (or their rights under the PBCL to the extent such shareholder
perfected his or her dissenter's rights), and such shares will thereafter be
deemed canceled and void. The sole rights of such shareholders will be to
receive the Merger consideration from New Prime. See 'The Merger -- Dissenters
Rights'.

In connection with the Merger, Prime has issued ten shares of PBI Stock to
a trustee for the proportional benefit of all of the holders of the PBI Stock
reflected on the official stock transfer records of Prime as outstanding
immediately prior to the Effective Time. These shares have been issued to the
trustee solely for the purpose of assuring the validity of the Prime Stock to be
issued to the Prime stockholders and the validity of the Merger, and to
eliminate the technical questions relating to the issuance of the PBI Stock and
the initial organization of Prime. See 'The Merger -- Reasons for the Merger --
Prime'. At the Effective Time, each share of PBI Stock, together with its
proportional interest in the shares issued to the trustee as provided in this
paragraph, shall automatically be converted into one fully paid and
non-assessable share of Prime Stock.

EXCHANGE OF STOCK CERTIFICATES

Each holder of certificates representing shares of First Sterling Stock
will, upon the surrender to an exchange agent designated by New Prime ('Exchange
Agent') of such certificates in proper form, be entitled to receive a
certificate or certificates representing the number of whole shares of Prime
Stock into which the surrendered certificates shall have been converted by
reason of the Merger. Until surrendered for exchange, New Prime shall be
entitled, but not be obligated, to treat each outstanding certificate of First
Sterling Stock for all corporate purposes as evidencing the ownership of the
full number of shares of Prime Stock into which such shares have been converted
by reason of the Merger.

Until a First Sterling shareholder's outstanding certificates shall have
been surrendered, New Prime shall not be obligated to deliver with respect to
such First Sterling shareholder, as applicable (i) the certificates representing
the shares of Prime Stock into which such First Sterling Stock is converted by
reason of the Merger; and (ii) any and all dividends and payment for fractional
shares with respect to the Prime Stock to which the First Sterling shareholder
is entitled. Upon the delivery to New Prime or the Exchange Agent by a First
Sterling shareholder of the outstanding First Sterling certificates and
transmittal form and any other required documents, there will be delivered to
the record shareholder thereof the certificate representing the shares of the
Prime Stock to which the exchanging First Sterling holder is entitled, along
with any dividends thereon and any payment for fractional shares, all without
interest.

As soon as practicable after the Effective Time, the Exchange Agent will
send a transmittal form to each First Sterling shareholder. The transmittal form
will contain instructions with respect to the surrender of certificates
previously representing First Sterling Stock, including instructions with
respect to lost certificates and the issuance of certificates for Prime Stock in
a name other than the name in which the First Sterling Stock is registered.
Since New Prime is not obligated to pay dividends to any First Sterling
stockholder until such time as the certificates representing the First Sterling
Stock are surrendered in accordance with the conversion procedures outlined
herein, First Sterling shareholders are encouraged to submit the transmittal
letter and appropriate documentation to Exchange Agent promptly after the
Effective Time.

All stockholders of Prime will be entitled to surrender their stock
certificates for PBI Stock to the Exchange Agent for exchange for new stock
certificates for an equal number of shares of Prime Stock. A registered holder
of PBI Stock will be recognized as the registered holder of an equal member of
shares of Prime Stock, notwithstanding the failure to surrender the old stock
certificates. As soon as practicable after the Effective Time, the Exchange
Agent will send a transmittal form to each Prime stockholder. The transmittal
form will contain instructions with respect to the surrender of certificates of
PBI Stock, including instructions with respect to lost certificates and the
issuance of certificates for Prime Stock in a name other than the name in which
the PBI Stock is registered.

CERTIFICATES SHOULD NOT BE RETURNED TO EITHER PRIME OR FIRST STERLING WITH
THE ENCLOSED PROXY AND SHOULD NOT BE FORWARDED UNTIL AFTER RECEIPT OF A LETTER
OF TRANSMITTAL WHICH WILL BE PROVIDED TO SHAREHOLDERS BY AMERICAN STOCK TRANSFER
AND TRUST COMPANY, THE EXCHANGE AGENT FOR THE PRIME STOCK, UPON CONSUMMATION OF
THE MERGER.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

General. The following is a summary description of the material federal
income tax consequences of the Merger to stockholders of Prime and First
Sterling. This summary is not a complete description of all of the consequences
of the Merger and, in particular, may not address federal income tax
considerations, among others, that may affect the treatment of a First Sterling
shareholder which, at the Effective Time, already owns PBI Stock, is not a U.S.
citizen, is a tax-exempt entity, or an individual who acquired First Sterling
Stock pursuant to an employee stock option. In addition, no information is
provided herein with respect to the tax consequences of the Merger under
applicable foreign, state or local laws. Consequently, each stockholder of Prime
and First Sterling is advised to consult a tax advisor as to the specific tax
consequences of the transaction to that

shareholder. The following discussion is based on the Code, as in effect on the
date of this Prospectus/Joint Proxy Statement, without consideration of the
particular facts or circumstances of any holder of First Sterling Stock or PBI
stock.

The Merger. Each party's obligation to effect the Merger is conditioned on
the delivery of an opinion to First Sterling from Kania, Lindner, Lasak and
Feeney, counsel to First Sterling, and the delivery of an opinion to Prime from
Stradley, Ronon, Stevens & Young, LLP, counsel to Prime, each dated as of the
Effective Time, based upon certain representations and assumptions set forth
therein, with respect to certain federal income tax consequences of the Merger.
Assuming such opinions are delivered and the Merger is consummated, the material
federal income tax consequences of the Merger to the stockholders of Prime and
First Sterling will be as described below.

No gain or loss will be recognized by stockholders of Prime or First
Sterling upon the exchange of their PBI Stock or First Sterling Stock solely for
shares of Prime Stock (but see the next paragragh regarding fractional shares)
pursuant to the Merger. The basis of the Prime Stock received by a Prime or
First Sterling shareholder receiving solely Prime Stock will be the same as his
or her basis in the PBI Stock or First Sterling Stock surrendered in exchange
therefor. The holding period of the shares of Prime Stock received by a Prime or
First Sterling shareholder receiving solely Prime Stock will include the period
during which such Prime or First Sterling shareholder held the PBI Stock or
First Sterling Stock surrendered in exchange therefor, provided the surrendered
PBI Stock or First Sterling Stock was held by such shareholder as a capital
asset on the date of the Merger. The legal opinions with respect to certain of
such matters assume that the PBI Stock will be treated as 'stock or securities'
for federal income tax purposes. In addition, counsel to Prime is of the opinion
that the PBI Stock should be treated as 'stock or securities' for federal income
tax purposes. If, contrary to such opinion, the PBI Stock were determined not to
be 'stock or securities' for federal income tax purposes due to the technical
questions relating to the initial issuance of the PBI Stock in 1988, then gain
or loss would be recognized by the stockholders of Prime upon the exchange of
their PBI Stock for Prime Stock in connection with the Merger. See 'The Merger
- -- Reasons for the Merger -- Prime.'

Shareholders of First Sterling who receive cash in lieu of a fractional
share of Prime Stock are treated as if the shareholders actually receive the
fractional share from New Prime and then New Prime redeems it for cash. Such
cash payments are treated by the former First Sterling shareholders as having
been received as full payment in exchange for the fractional share interests so
redeemed. Gain or loss is realized and recognized by each such First Sterling
shareholder equal to the difference between the amount of cash received for the
fractional share and the tax basis of the fractional share. If the fractional
share is a capital asset in the hands of a First Sterling shareholder, then the
gain or loss recognized constitutes a capital gain or loss.

THE MERGER MAY HAVE CONSEQUENCES AFFECTING TAXES OTHER THAN THE FEDERAL
INCOME TAX CONSEQUENCES DISCUSSED ABOVE. SHAREHOLDERS SHOULD CONSULT THEIR TAX
ADVISORS CONCERNING ALL TAX CONSEQUENCES OF THE CONSUMMATION OF THE MERGER AS IT
RELATES TO THEIR OWN CIRCUMSTANCES, INCLUDING BUT NOT LIMITED TO CONSEQUENCES
UNDER FEDERAL, STATE AND LOCAL INCOME TAX AND OTHER TAX LAWS.

DISSENTERS RIGHTS

The holders of the PBI Stock are not entitled to any dissenters rights or
rights of appraisal under the DGCL in connection with the Merger. The holders of
the First Sterling Stock shall be entitled to exercise dissenters rights
pursuant to Section 1930(a) and Sections 1571 through 1580 ('Subchapter 15D') of
the PBCL, provided such shareholders comply with the provisions contained
therein. First Sterling will not give any notice of such requirements other than
as described in this Prospectus/Joint Proxy Statement and as required by the
PBCL. The following discussion is not a complete statement of the law relating
to dissenters rights and is qualified in its entirety by reference to Annex C
hereto. This discussion and Annex C should be reviewed carefully by any First
Sterling shareholder who wishes to exercise dissenters rights, or who wishes to
reserve the right to do so, as failure to comply with the procedures set forth
in the appropriate provisions of Subchapter 15D will result in the loss of
dissenters

rights. Exercise of dissenters rights by a sufficient number of shareholders of
First Sterling could jeopardize the pooling of interests accounting treatment
for the Merger.

A holder of record of First Sterling Stock may assert dissenters rights as
to fewer than all of the First Sterling Stock registered in such holder's name
only if the holder dissents with respect to all the First Sterling Stock
beneficially owned by any one person and discloses the name and address of the
person or persons on whose behalf the holder dissents. In that event, the
holder's rights shall be determined as if the shares as to which the holder has
dissented and the other shares were registered in the names of different
holders. A beneficial owner of First Sterling Stock, who is not also the record
holder of such shares, may assert dissenters rights with respect to shares held
on such owner's behalf and shall be treated as a dissenting shareholder under
the terms of Subchapter 15D if the beneficial owner submits to First Sterling
not later than the time of filing the Notice of Intention to Dissent (as defined
below) a written consent of the record holder. Such beneficial owner may not
dissent with respect to some but less than all First Sterling Stock owned by
such beneficial owner, whether or not any shares are registered in such owner's
name.

Holders of First Sterling Stock (or beneficial owners thereof as provided
above) who follow the procedures of Subchapter 15D will be entitled to receive
from First Sterling the fair value of their First Sterling Stock immediately
before the Effective Time, taking into account all relevant factors but
excluding any appreciation or depreciation in anticipation of the effectuation
of the Merger Agreement. Holders of First Sterling Stock (or beneficial owners
thereof) who elect to exercise their dissenters rights must comply with all of
the following procedures to preserve those rights.

Holders of First Sterling Stock (or beneficial owners thereof) who wish to
exercise dissenters rights must file a written notice of intention to demand the
fair value of their First Sterling Stock if the Merger Agreement is effectuated
(the 'Notice of Intention to Dissent'). SUCH DISSENTERS MUST FILE THE NOTICE OF
INTENTION TO DISSENT WITH THE SECRETARY OF FIRST STERLING PRIOR TO THE VOTE BY
SHAREHOLDERS ON THE MERGER AGREEMENT; THEY MUST MAKE NO CHANGE IN THEIR
BENEFICIAL OWNERSHIP OF FIRST STERLING STOCK FROM THE DATE OF SUCH FILING UNTIL
THE EFFECTIVE TIME; AND THEY MUST REFRAIN FROM VOTING THEIR FIRST STERLING STOCK
FOR THE ADOPTION OF THE MERGER AGREEMENT. Neither a proxy nor a vote against the
Merger Agreement will constitute the giving of the Notice of Intention to
Dissent.

If the Merger Agreement is approved by the required vote of the First
Sterling shareholders, First Sterling will mail a notice (the 'Notice of
Approval') to all dissenters who filed a Notice of Intention to Dissent prior to
the vote on the Merger Agreement and who refrained from voting for the adoption
of the Merger Agreement. First Sterling expects to mail the Notice of Approval
promptly after the Effective Time. The Notice of Approval will state where and
when (the 'Demand Deadline') a demand for payment must be sent and certificates
for First Sterling Stock must be deposited in order to obtain payment; it will
supply a form for demanding payment (the 'Demand Form') which includes a request
for certification of the date on which the holder, or the person on whose behalf
the holder dissents, acquired beneficial ownership of First Sterling Stock; and
it will be accompanied by a copy of Subchapter 15D. Dissenters must ensure that
the Demand Form and their certificates for First Sterling Stock are received by
First Sterling on or before the Demand Deadline. All mailings to First Sterling
are at the risk of the dissenter. However, if a shareholder desires to dissent,
First Sterling recommends that the Notice of Intention to Dissent, the Demand
Form and the holder's stock certificates be sent by certified mail.

Any holder (or beneficial owner) of First Sterling Stock who fails to file
a Notice of Intention to Dissent, fails to complete and return the Demand Form,
or fails to deposit stock certificates with First Sterling, each within the time
periods prescribed, will lose the holder's (or beneficial owner's) dissenters
rights under Subchapter 15D. A dissenter will retain all rights of a
shareholder, or beneficial owner, as the case may be, until those rights are
modified by effectuation of the Merger.

Upon timely receipt of the completed Demand Form, First Sterling is
required by the PBCL either to remit to dissenters who have returned the Notice
of Intention to Dissent and the completed Demand Form and have deposited their
certificates, each in a timely fashion, the amount First Sterling estimates

to be the fair value for their shares or to give written notice that no such
remittance will be made. First Sterling will determine whether to make such a
remittance or to defer payment for such shares until completion of the necessary
appraisal proceedings, after giving due consideration to the number of shares,
if any, with respect to which shareholders have dissented and any objections
that may be raised with respect to the standing of the dissenting shareholder.
The remittance or notice will be accompanied by:

1. The closing balance sheet and statement of income of First Sterling
for the fiscal year ended December 31, 1995, together with the latest
available interim financial statements;

2. A statement of First Sterling's estimate of the fair value of the
First Sterling Stock; and

3. A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of
Subchapter 15D.

If First Sterling does not remit the amount of its estimate of the fair
value of the First Sterling Stock, it will return any certificates that have
been deposited, and may make a notation on any such certificates that a demand
for payment in accordance with Subchapter 15D has been made. If shares carrying
such notation are thereafter transferred, each new certificate issued therefor
may bear a similar notation, together with the name of the original dissenting
holder or owner of such shares. A transferee of such shares will not acquire by
such transfer any rights in First Sterling other than those which the original
dissenter had after making demand for payment of their fair value.

If First Sterling gives notice of its estimate of the fair value of the
shares as provided above without remitting such amount, or remits payment of its
estimate of the fair value of a dissenter's shares, and the dissenter believes
that the amount remitted or stated is less than the fair value of such shares,
the dissenter may send to First Sterling the dissenter's own estimate (the
'Holder's Estimate') of the fair value of the shares as contemplated by PBCL
1578, which will be deemed a demand for payment of the amount of the deficiency.
If a dissenter does not file a Holder's Estimate within 30 days after the
mailing by First Sterling of its remittance or notice, the dissenter will be
entitled to no more than the amount stated in the notice or remitted to the
dissenter by First Sterling.

If, within 60 days after the Effective Time or after the timely receipt by
First Sterling of any Holder's Estimate, whichever is later, any demands for
payment remain unsettled, First Sterling may file in the Court of Common Pleas
of Chester County an application for relief requesting that the fair value of
the shares be determined by the court. There is no assurance that First Sterling
will file such an application. All dissenters, wherever residing, whose demands
have not been settled will be made parties to any such appraisal proceeding. The
court may appoint an appraiser to receive evidence and recommend a decision on
the issue of fair value. Each dissenter who is made a party will be entitled to
recover the amount by which the fair value of the dissenter's shares is found to
exceed the amount, if any, previously remitted, plus interest. If First Sterling
fails to file an application for relief, any dissenter who has made a demand and
who has not already settled the dissenter's claim against First Sterling may do
so in the name of First Sterling at any time within 30 days after the expiration
of the 60-day period. If a dissenter does not file an application within the
30-days period, each dissenter entitled to file an application shall be paid
First Sterling's estimate of the fair value of the shares and no more, and may
bring an action to recover any amount not previously remitted.

The cost and expenses of such court proceedings, including the reasonable
compensation and expenses of the appraiser appointed by the court, will be
determined by the court and assessed against First Sterling, except that any
part of the costs and expenses may be apportioned and assessed as the court
deems appropriate against all or some of the dissenters who are parties and
whose action in demanding supplemental payment the court finds to be dilatory,
arbitrary or in bad faith. Fees and expenses of counsel and of experts of the
respective parties may be assessed as the court deems appropriate against First
Sterling, and in favor of any or all dissenters, if First Sterling fails to
comply substantially with the requirements of Subchapter 15D. Such fees and
expenses may be assessed against either First Sterling or a dissenter, if the
court finds that the party against whom the fees and expenses are assessed acted
in bad faith or in a dilatory or arbitrary manner. If the court finds that the
services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated

and should not be assessed against First Sterling, it may award such counsel
reasonable fees to be paid out of the amounts awarded to the dissenters who were
benefitted.

Under the PBCL, a shareholder of First Sterling has no right to obtain, in
the absence of fraud or fundamental unfairness, an injunction against the
Merger, nor any right to valuation and payment of the fair value of the holder's
shares because of the Merger, except to the extent provided by the dissenters
rights provisions of Subchapter 15D. The PBCL also provides that absent fraud or
fundamental unfairness, the rights and remedies provided by Subchapter 15D are
exclusive. This Prospectus/Joint Proxy Statement constitutes the notice of a
proposed corporate action which would give rise to dissenters rights as required
under PBCL Section 1571(d).

REPRESENTATIONS AND WARRANTIES

The Merger Agreement contains customary representations and warranties of
Prime, New Prime and First Sterling relating to, among other things,
(a) corporate organization and similar corporate matters and capital structures,
(b) good standing and the authority to carry on business, (c) shares of capital
stock, (d) subsidiaries, (e) corporate power and authority, (f) the
authorization, execution and delivery of the Merger Agreement, (g) the absence
of violations of or defaults under applicable laws and such party's corporate
organization documents, (h) documents filed by Prime with the Commission and the
accuracy of the information included therein, (i) the absence of litigation,
(j) compliance with applicable laws and certain bank regulatory matters, (k) as
to First Sterling, the absence of defaults under various contracts and the
possession of good title to various properties, (l) brokers' and finders' fees,
(m) as to First Sterling, retirement and other employee plans and matters under
the Employee Retirement Income Security Act of 1974, as amended, (n) as to First
Sterling, the accuracy of the financial information provided to Prime, (o) the
absence of undisclosed liabilities, (p) as to First Sterling, transactions with
affiliates, (q) as to New Prime, the absence of any material liability not
recorded on the books of Prime or in the pro forma information contained herein
resulting from the Merger, which warranty will survive closing for four years,
(r) environmental matters, (s) the filing of tax returns and payment of taxes,
(t) the absence of knowledge of any reason why the Merger would not qualify for
a 'pooling of interests' accounting or as a 'reorganization' for purposes of
Section 368(a) of the Code and (u) the conduct of the business in the ordinary
course and the absence of material changes since March 31, 1996.

CONDITIONS TO CONSUMMATION OF THE MERGER

The Merger Agreement provides that consummation of the Merger is subject to
the satisfaction of certain conditions, or the waiver of such conditions by the
party or parties entitled to do so, at or before the Effective Time. Each of the
parties' obligations under the Merger Agreement is subject to the following
conditions: (i) all corporate action (including approval of stockholders of both
Prime and First Sterling) necessary to authorize the execution and delivery of
the Merger Agreement and consummation of the transactions contemplated thereby
shall have been duly and validly taken; (ii) the receipt of all necessary
regulatory approvals, consents or waivers required by any governmental authority
to consummate the Merger, and such approvals and consents shall not impose any
condition or restriction on New Prime which would reasonably be expected to
either (a) result in a material adverse effect on the financial condition,
results of operations, business or prospects of New Prime on a consolidated
basis, or (b) prevent the parties from realizing the major portion of the
economic benefits of the transactions contemplated by the Merger Agreement;
(iii) none of Prime, First Sterling or their respective subsidiaries shall be
subject to any statute, rule, regulation, order or decree which prohibits,
restricts or makes illegal the consummation of the Merger; (iv) the Registration
Statement shall have become effective under the Securities Act, and New Prime
shall have received all permits, authorizations or exemptions necessary under
all state securities laws to issue Prime Stock in connection with the Merger,
and neither the Registration Statement nor any such permit, authorization or
exemption shall be subject to a stop order or threatened stop order by any
governmental authority; (v) the shares of Prime Stock to be issued in connection
with the Merger shall have been approved for listing on the Nasdaq National
Market; (vi) each of Prime and First Sterling shall have received an opinion of
its respective counsel to the effect that the Merger will qualify as a
reorganization within the

meaning of Section 368(a) of the Code and with respect to certain other related
federal income tax considerations; (vii) Coopers & Lybrand, L.L.P, shall have
issued a letter to First Sterling, and KPMG Peat Marwick LLP shall have issued a
letter to Prime, in each case dated as of the date of this Prospectus/Joint
Proxy Statement, to the effect that, based upon the Merger Agreement and related
agreements and the facts and circumstances then known to it, the Merger shall be
accounted for as a pooling of interests under generally accepted accounting
principles; and (viii) all consents or approvals of all persons (other than
governmental authorities) required for completion of the Merger shall have been
obtained and be in full force and effect, unless the failure to obtain any such
consent or approval is not likely to have, individually or in the aggregate, a
material adverse effect on First Sterling, Prime or New Prime.

In addition to the foregoing conditions, the obligations of Prime under the
Merger Agreement are conditioned upon (i) the accuracy in all material respects
as of the date of the Merger Agreement and as of the Effective Time of the
representations and warranties of First Sterling set forth in the Merger
Agreement, except as to any representation or warranty which specifically
relates to an earlier date and except as otherwise contemplated by the Merger
Agreement; (ii) the performance of all material covenants and obligations
required to be complied with and satisfied by First Sterling; (iii) the receipt
of a certificate from a specified officer of First Sterling with respect to
compliance with the conditions relating to (i) and (ii) immediately above as set
forth in the Merger Agreement; (iv) the receipt of certain legal opinions from
First Sterling's legal counsel, Kania, Lindner, Lasak and Feeney; and (v) the
receipt of the Proxy Opinion from Berwind. Any of the foregoing conditions may
be waived by Prime.

In addition to the other conditions set forth above, First Sterling's
obligations under the Merger Agreement are conditioned upon (i) the accuracy in
all material respects as of the date of the Merger Agreement and as of the
Effective Time of the representations and warranties of Prime and New Prime set
forth in the Merger Agreement, except as to any representation or warranty which
specifically relates to an earlier date and except as otherwise contemplated by
the Merger Agreement; (ii) the performance of all material covenants and
obligations required to be complied with and satisfied by Prime and New Prime;
(iii) the receipt of a certificate from a specified officer of Prime with
respect to compliance with the conditions relating to (i) and (ii) immediately
above as set forth in the Merger Agreement; and (iv) the receipt of certain
legal opinions from legal counsel to Prime, Stradley, Ronon, Stevens & Young,
LLP. Any of the foregoing conditions may be waived by First Sterling.

REGULATORY APPROVALS

Consummation of the Merger is subject to prior receipt of all required
approvals, consents or waivers of the Merger by all applicable federal and state
regulatory authorities. In order to consummate the Merger, New Prime, Prime,
First Sterling, Prime Bank and/or First Sterling Bank must obtain the prior
consent, approval or waiver, as applicable, of the FRB, the OTS, the U.S.
Department of Justice and the PADOB.

The Merger is subject to the prior approval of the FRB under Section 3 of
the Bank Holding Company Act ('BHCA') and the Bank Merger Act ('BMA') and of the
OTS under applicable provisions of the Homeowners' Loan Act ('HOLA') and the
Change in Bank Control Act ('CBCA'). Pursuant to the applicable provisions of
the BHCA and the BMA, the FRB will submit notice of the application to the U.S.
Department of Justice, the Federal Deposit Insurance Corporation ('FDIC'), and
the PADOB. These agencies have 30 days to submit their views and recommendations
to the FRB. The FRB is required to hold a public hearing in the event it
receives a written recommendation of disapproval of the application from any of
these agencies within such 30-day period. Furthermore, the BHCA and FRB
regulations require publication of notice of, and the opportunity for public
comment on, the application and authorize the FRB to hold a public hearing in
connection therewith if the FRB determines that such a hearing would be
appropriate. Any such hearing or comments provided by third parties could
prolong the period during which the application is subject to review by the FRB.
The FRB may not approve the Merger if (i) such transaction would result in a
monopoly or would be in furtherance of any combination or conspiracy to
monopolize or

attempt to monopolize the business of banking in any part of the United States;
or (ii) the effect of such transaction, in any section of the country, may be to
substantially lessen competition, or tend to create a monopoly, or in any other
manner to restrain trade, unless the FRB finds that the anticompetitive effects
of the proposed transaction are clearly outweighed in the public interests by
the probable effect of the transaction in meeting the convenience and needs of
the community to be served. In conducting its review of any application for
approval, the FRB is required to consider whether the financial and managerial
resources of the acquiring bank holding company are adequate (including
consideration by a variety of means of the competence, experience and integrity
of the applicant's directors, officers and principal stockholders and compliance
with, among other things, laws dealing with community reinvestment
responsibility). The FRB has the authority to deny an application if it
concludes that the combined organization would have an inadequate capital
position or if the acquiring organization does not meet the requirements of the
Community Reinvestment Act of 1977, as amended.

Each of the BHCA and the BMA provides that a transaction approved by the
applicable federal banking agency generally may not be consummated until 30 days
after approval by such agency. If the U.S. Department of Justice and the
relevant agency otherwise agree, this 30-day period may be reduced to as few as
15 days. During such period, the U.S. Department of Justice may commence a legal
action challenging the transaction under the antitrust laws. The commencement of
an action would stay the effectiveness of the approval of the federal banking
agency unless a court specifically orders otherwise. If, however, the U.S.
Department of Justice does not commence a legal action during such waiting
period, it may not thereafter challenge the transaction except in an action
commenced under Section 2 of the Sherman Antitrust Act.

Under Section 4 of the BHCA and related regulations, the Federal Reserve
Board must consider whether the performance of Prime's nonbanking activities
comply with the requirements and limitations of Section 4 and the FRB
regulations applicable thereunder, and whether those activities can reasonably
be expected to produce benefits to the public (such as greater convenience,
increased competition and gains in efficiency) that outweigh possible adverse
effects (such as undue concentration of resources, decreased or unfair
competition, conflicts of interest and unsound banking practices). This
consideration includes an evaluation of the financial and managerial resources
of New Prime after the Merger and the effect of the proposed transaction on
those resources.

Pursuant to the provisions of the HOLA and the OTS savings and loan holding
company regulations, Prime's acquisition of First Sterling Bank is also subject
to the approval of the OTS. Prime is, and New Prime will be, deemed a 'savings
and loan holding company' by the OTS because the deposits of its savings bank
subsidiary, Prime Bank, are insured by the Savings Association Insurance Fund
('SAIF') administered by the FDIC, and because Prime has elected, and New Prime
is expected to continue to elect, to be treated as a 'savings and loan holding
company.' Because of the possibility that the Merger will cause a shareholder of
First Sterling to acquire more than 10% of the voting stock of New Prime and to
become the largest stockholder of Prime, the CBCA and applicable OTS regulations
also require that notice be given the OTS and that the Merger may not take place
until either the OTS notifies the parties in writing of its intent not to
disapprove the proposed transaction or 60 days (subject to extension by the OTS)
shall have passed without the OTS' objection. Under the applicable OTS
regulations, a shareholder who acquires more than 10% of a class of voting stock
and is subject to any of several control factors (including whether the acquiror
would be one of the two largest shareholders) is rebuttably presumed to be in
'control' of a savings and loan holding company. In connection with such
application and notice, it will be necessary for the parties to comply with any
conditions imposed by the OTS, or else alternatively for the parties to rebut
any presumption of control, or for the proposed acquiror to divest sufficient
shares to avoid a presumption of control and secure the nonobjection of the OTS.
If such shareholder is deemed by the OTS to be in control of New Prime, other
shareholders of First Sterling might also be deemed by the OTS to be in control
of New Prime because they bear relationships giving rise to a rebuttable
presumption, under applicable regulations, that they are 'acting in concert'
with a controlling shareholder.

The approval of the PADOB also is required for consummation of the Merger.
The factors that such state banking authorities will consider in determining
whether to grant their approval include the

competitive effects of the Merger, the principles of sound banking and the
public interest and the needs of the communities served by Prime and First
Sterling.

Applications have been or will be filed with applicable regulatory
authorities for approval of the Merger. Although neither Prime nor First
Sterling is aware of any basis for disapproving the Merger, there can be no
assurance that all requisite approvals will be obtained, that such approvals
will be received on a timely basis or that such approvals will not impose
conditions or requirements which, individually or in the aggregate, would
(i) result in a material adverse effect on the financial condition, results of
operations, business or prospects of New Prime on a consolidated basis, or
(ii) prevent the parties from realizing the major portion of the economic
benefits of the transactions contemplated by the Merger Agreement.

CONDUCT OF BUSINESS PENDING THE MERGER

Pursuant to the Merger Agreement, each of Prime, New Prime and First
Sterling has made certain covenants, with respect to itself and its
subsidiaries, relating to the conduct of business pending consummation of the
Merger. Among other things, each has agreed (except as otherwise contemplated by
the Merger Agreement or with the written consent of the other party) not to do
any of the following:

(i) conduct its business other than in the ordinary and usual course,
or fail to use reasonable efforts to preserve its business organization,
assets, relations with customers, suppliers, employees, and business
associates or knowingly take any action which might reasonably be expected
to adversely affect the ability to obtain any necessary regulatory
approvals or its ability to perform any material obligation under the
Merger Agreement;

(ii) issue, sell or otherwise permit to become outstanding any
additional shares of its stock or give any person the right to acquire any
such shares, other than (a) pursuant to the exercise of stock options
outstanding on the date of the Merger Agreement, (b) issuance of First
Sterling Stock in connection with the conversion of First Sterling's
Debentures, or (c) pursuant to employee benefit plans or programs in effect
as of June 12, 1996;

(iii) make, declare or pay any dividends on shares of its stock other
than regular quarterly cash dividends of $.17 per share of PBI Stock
(provided, however, that Prime may increase its quarterly dividend
commencing in the last quarter of 1996) in accordance with past dividend
practice, or redeem or otherwise acquire any shares of its stock;

(iv) in the case of First Sterling, increase any salaries or employee
benefits or enter into or modify any employment, severance or similar
agreements or arrangements or grant any salary, wage or employee benefit
increases except for normal increases in the ordinary course of business
consistent with past practice, or other changes required by law or to
satisfy existing contractual obligations;

(v) in the case of First Sterling, enter into or modify any employee
benefit plan including pension, stock options, retirement, deferred
compensation, group insurance or other types of plans including the taking
of any action which would accelerate the vesting, exercise or payment of
any benefits payable thereunder;

(vi) engage in any acquisition or disposition of assets except in the
ordinary and usual course of business, except that Prime may enter into
business combination transactions in which the aggregate consideration does
not exceed $10,000,000 or the aggregate number of shares of PBI Stock
issuable does not exceed 10% of the number of shares outstanding at
December 31, 1995;

(vii) amend its charter documents, except that Prime may amend its
Certificate of Incorporation to increase its authorized common stock and
make any other changes which may be deemed necessary or appropriate for the
completion of the Merger;

(viii) implement or adopt any changes in accounting principles,
methods, or practices;

(ix) knowingly take any action that is likely to prevent or impede the
Merger from qualifying for a pooling of interests in accounting treatment,
or as a reorganization under Section

368(a) of the Code, or that is likely to result in a breach of any
representation or warranty or a condition of the Merger Agreement;

(x) incur any indebtedness other than in the ordinary course of
business; or

(xi) agree or commit to do any matter prohibited by the above
provisions.

Furthermore, each party agreed to provide the other party and its
representatives with such financial data and other information with respect to
its business and properties as such party shall from time to time reasonably
request. Each party will cause all non-public financial and business information
obtained by it from the other to be treated confidentially. If the Merger is not
consummated, each party will return to the other all non-public financial
statements, documents and other materials previously furnished by such party.

NO SOLICITATION

Without the prior written consent of the other, neither First Sterling nor
Prime, directly or through its officers, directors, employees, agents or other
representatives, shall solicit or encourage inquiries or proposals with respect
to, or engage in any negotiations concerning, or provide any confidential
information to, or have any discussions with, any person relating to, or enter
into any agreement with respect to, any Takeover Proposal (as defined in the
Merger Agreement). Each of Prime and First Sterling agrees to advise the other
orally within one (1) business day, of any such inquiry or proposal.

EFFECTIVE TIME OF THE MERGER; TERMINATION AND AMENDMENT

The Effective Time of the Merger shall be the date and time of the filing
of (i) the Certificate of Merger with the Secretary of State of Delaware and
(ii) Articles of Merger with the Secretary of State of Pennsylvania, unless a
different date and time is specified as the Effective Time in such Articles of
Merger and Certificate of Merger. The Effective Time shall be as set forth in
such Articles of Merger and Certificate of Merger, which will be filed only
after the receipt of all requisite regulatory approvals of the Merger, approval
of the Merger Agreement by the requisite vote of Prime stockholders and First
Sterling's shareholders and the satisfaction or waiver of all other conditions
to the Merger. For ease of administration and accounting, unless precluded by
law, the parties intend to have the Merger become effective on December 31,
1996.

A closing (the 'Closing') shall take place immediately prior to the
Effective Time on a day no later than (5) business days following the
satisfaction or waiver (subject to applicable law) of all the conditions to
consummation of the Merger specified in the Merger Agreement (other than the
delivery of certificates, opinions and other instruments and documents to be
delivered at the Closing), or on such other date as the parties may mutually
agree upon. The Merger Agreement may be terminated by either party, if through
no fault of that party, the Closing is not held on or before March 31, 1997.

The Merger Agreement may be terminated, by action taken or authorized by
their respective Boards of Directors, either before or after approval by the
stockholders of First Sterling and Prime, as follows: (i) at any time at or
prior to the Effective Time by the mutual consent in writing of the parties;
(ii) at any time at or prior to the Effective Time in the event of a material
breach by the other party of any representation, warranty, material covenant or
agreement, which breach has not been cured within the time period specified in
the Merger Agreement; (iii) at any time by either party in writing if any
application for any required federal or state regulatory approval has been
denied by final action and the time period for appeals has run; (iv) at any time
by either party in writing if the stockholders of First Sterling or Prime fail
to approve the Merger Agreement at a meeting duly called for the purpose, unless
the failure of such occurrence is due to the failure of the party seeking to
terminate to perform or observe in any material respect its agreements set forth
in the Merger Agreement; or (v) at any time prior to the Effective Time, by
either party in writing upon the affirmative vote of a majority of its Board of
Directors, in the event that the Merger is not consummated by March 31, 1997,
except to the extent that the failure of the Merger to be consummated arises out
of or results from the knowing action or inaction of the party seeking to
terminate the Merger Agreement. In the event of termination, no party shall have
any further liability to the other under the Merger Agreement, except that
certain

provisions thereof relating to confidentiality shall survive any such
termination and any such termination shall not relieve any breaching party from
liability for any willful breach of any covenant, undertaking, representation or
warranty giving rise to such termination.

To the extent permitted under applicable law, the Merger Agreement may be
amended or supplemented at any time by written agreement of the parties whether
before or after the approval of Prime's or First Sterling's stockholders,
provided that after any such approval the Merger Agreement may not be amended or
supplemented in a manner which (i) changes the Exchange Ratio, (ii) changes the
principal terms of the Merger Agreement, or (iii) otherwise materially adversely
affects First Sterling's or Prime's stockholders, in each case, without further
approval of such stockholders.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Certain members of the Boards of Directors and management of Prime and
First Sterling may be deemed to have certain interests in the Merger in addition
to their interest generally as stockholders of Prime or First Sterling,
respectively. Such additional interests, to the extent material and to the best
knowledge of Prime and First Sterling, are described below. The Boards of
Directors of each of First Sterling and Prime were aware of these interests at
the time they approved the Merger Agreement and the transactions contemplated
thereby.

Board Membership. The Merger Agreement provides that the Board of
Directors of First Sterling shall have the right to nominate three nominees to
serve on the Board of Directors of New Prime after the Merger is effective.
Prime and New Prime are obligated to take all necessary actions to have such
nominees elected to the Board of Directors of New Prime. It is anticipated that
the Board of Directors of New Prime will consist of ten members. The remaining
seven members will be nominees of Prime.

Executive Employment Agreement. In order to ensure continuity of
management following consummation of the Merger, Prime has entered into an
Employment Agreement with William H. Bromley, President of First Sterling and
First Sterling Bank, which will take effect at the Effective Time. Under this
Employment Agreement Mr. Bromley will be employed as an Executive Vice President
of New Prime for a period of three (3) years at a base salary of $200,000 per
annum. It is anticipated that Mr. Bromley will also continue as a President of
First Sterling Bank. The agreement also provides for a bonus of $75,000, and an
award of incentive stock options to purchase 16,500 shares of Prime Stock which
will vest immediately at the Effective Time and another 16,500 shares which will
vest over the term of the Employment Agreement.

In the event that Mr. Bromley were to terminate his employment for 'good
reason' as defined in the agreement, he will be entitled to receive severance
benefits equal to twice his average annual aggregate compensation reportable as
gross income for federal income tax purposes during the three (3) calendar years
immediately preceding the year of such termination (or such lesser period of
time if he has not been employed for three (3) full calendar years). 'Good
reason' means the failure by New Prime to comply with any material provision of
the Employment Agreement which is not cured within ten (10) days of written
notice of such non-compliance, any purported termination of employment by New
Prime which is not effected pursuant to the procedures set forth in the
Employment Agreement, or termination by Mr. Bromley as a result of a change in
control of New Prime. The Agreement defines 'change in control' to include any
of the following: (1) any change in control required to be reported pursuant to
item 6(e) of Schedule 14A promulgated under the Exchange Act, (2) the
acquisition of beneficial ownership by any person (as defined in Sections 13(d)
and 14(d) of the Exchange Act) of 25% or more of the combined voting power of
Prime's then outstanding securities, or (3) during any period of two consecutive
years, there is a change in the majority of the Board of Directors for any
reason, unless the election of each new director was approved by at least
two-thirds of the directors then in office who were directors at the beginning
of the period. Based upon the compensation provided for Mr. Bromley during the
first year of his employment under the Employment Agreement, the maximum
severance payments he would be entitled to receive upon his election to
terminate in connection with a change in control, would be $500,000.

Certain Real Estate Leases. First Sterling Bank leases three (3) of its
five (5) branch offices from Dominion Properties, L.P. The Arthur J. Kania Trust
is the major shareholder of First Sterling and a limited partner in Dominion
Properties, L.P. Allen Speiser, a director of First Sterling, is a trustee of
the Arthur J. Kania Trust. James D. Kania, a director of First Sterling, is a
beneficiary of the Arthur J. Kania Trust and a General Partner of Dominion
Properties, L.P.

The leases with Dominion Properties, L.P. run for terms of ten (10) years
commencing January 1, 1996. The leases also provide certain renewal options with
annual increases in rent for two (2) of the branch office leases based on
changes in the Consumer Price Index. Prior to the execution of the Merger
Agreement, First Sterling and Dominion Properties, L.P. entered into an
agreement with respect to the corporate offices of First Sterling which
agreement allows First Sterling, at its election, to reduce both the space and
term of its office tenancy upon payment of a fee in the amount of $375,000.00 to
the landlord. Prime believes that the fee negotiated is consistent with that
which would be paid in an arms length transaction with an unaffiliated landlord.

Certain Prime Employment Agreements. Each of Messrs. Erwin T. Straw, James
J. Lynch and Walter L. Tillman, Jr., executive officers or directors of Prime
have entered into employment agreements with Prime which obligate Prime to make
certain payments to the individuals in the event that any of them elects to
terminate his employment for 'good reason', including upon a change in control
of Prime. The agreements define 'change in control' to include, without
limitation, any of the following: (1) any change in control required to be
reported pursuant to item 6(e) of Schedule 14A, promulgated under the Exchange
Act; (2) the acquisition of beneficial ownership by any person (as defined in
Sections 13(d) and 14(d) of the Exchange Act) of 25% or more of the combined
voting power of Prime's then outstanding securities; or (3) during any period of
two consecutive years, there is a change in the majority of the Board of
Directors for any reason, unless the election of each new director was approved
by at least two-thirds of the directors then in office who were directors at the
beginning of the period.

If Mr. Straw or Mr. Lynch were to terminate his employment for 'good
reason' in connection with a change in control, each would receive severance
payments covering the remaining term of his agreement equal to the product of
the number 2.99 multiplied by his average aggregate annual compensation
includable in his gross income for federal income tax purposes for the past five
calendar years. If Mr. Tillman similarly terminates his employment for 'good
reason', he is entitled to severance payments equal to two times his average
aggregate annual compensation includable in his gross income for federal income
tax purposes for the past three calendar years. All such severance payments will
be paid in a lump sum on or before the fifth day following the date of
termination. However, if the severance payments would be deemed to constitute
'parachute payments' under Section 280G of the Internal Revenue Code (the
'Code') of 1986, as amended, the severance payments will be reduced to the
extent necessary to ensure that no portion of the severance payments are subject
to the excise tax imposed by Section 4999 of the Code.

Assuming that Messrs. Straw, Lynch and Tillman continue to earn their 1996
base salaries, plus bonuses equal to those earned for 1995 (except as to Mr.
Lynch for whom a minimum bonus for 1996 based upon his employment agreement was
assumed), their maximum severance payments, upon a termination for good reason
in connection with a change in control, and without consideration of the excise
tax imposed by Section 4999 of the Code, would be, respectively, $950,222,
$1,196,000 and $320,000. Each of Messrs. Straw, Lynch and Tillman has waived any
right to claim that the Merger will constitute such a change in control.

TREATMENT OF STOCK OPTIONS AND DEBENTURES

Upon consummation of the Merger, the obligations with respect to the
outstanding options to purchase 89,833 shares of First Sterling Stock, which
have previously been granted to six officers or directors of First Sterling,
will be assumed by New Prime. In addition, all options to purchase PBI Stock
which are outstanding immediately prior to the effective time of the Merger will
also be assumed by New Prime. Each such option will remain an option to purchase
the same number of whole shares of Prime Stock as under the preexisting option,
and the exercise price, and other terms will remain the

same as under the preexisting option. Under the terms of the Merger Agreement,
First Sterling agrees that it will take all necessary action or refrain from
taking such action, in each case, which would result in the acceleration of the
right to exercise, or the removal of any or all restrictions on, the outstanding
options to purchase First Sterling Stock.

Upon consummation of the Merger, First Sterling's obligations with respect
to the Debentures shall become obligations of New Prime. The Debentures will be
convertible into 110,510 shares of Prime Stock if converted by the holders prior
to December 31, 1996. After December 31, 1996, the conversion price increases
under the terms of the Debentures from $9.50 per share to $11.00 per share, and
the total number of shares issuable upon conversion decreases to approximately
95,450.

MANAGEMENT AFTER THE MERGER

Directors. After the Merger, the Board of Directors of New Prime will
initially consist of ten (10) members. Seven (7) of those members will be
nominated by the Board of Directors of Prime and the remaining three (3)
directors will be nominated by the Board of Directors of First Sterling.

The Bylaws of New Prime provide that the Board of Directors shall consist
of not less than seven nor more than fifteen members, in accordance with the
Articles of Incorporation and the Bylaws, the Board of Directors is divided into
three classes as nearly equal in number as possible. One class of directors is
to be elected annually. The members of each class are to be elected for a term
of three years and until their successors are elected and qualified.

It is anticipated that the Board of Directors of New Prime will have a
number of standing committees including an Executive Committee, an Audit
Committee, a Compensation Committee, and a Nominating Committee. The Executive
Committee, except as limited by the PBCL and the Bylaws, will have the full
authority of the Board of Directors when the Board of Directors is not in
session. The Audit Committee will review the records and affairs of the company
to determine its financial condition and will review with management and the
independent auditors the systems of internal control. This Committee will
approve the scope of the audit procedures employed by the company's independent
auditors and will meet with the auditors to discuss the results of their audit.
The Audit Committee will report to the Board of Directors with respect to the
foregoing matters and will recommend annually the selection of independent
auditors.

The Compensation Committee will interpret and administer the company's
stock option plans, including the grant of options. The Nominating Committee's
duties will include the review of prospective candidates to be nominated as
Directors of the company if replacements are required and for future Board
expansion, the establishment of documented criteria to be used in consideration
of possible nominees for directorship, the documentation of procedures that the
Committee should review on an ongoing basis regarding the conduct of directors,
and the making of recommendations for management succession.

The present members of the Board of Directors of Prime are: Frederick G.
Betz, Joseph A. Fluehr, III, Ernest Larenz, James J. Lynch, David H. Platt,
Erwin T. Straw, and Raymond L. Weinmann. The business experience during at least
the last five years for each of the current Prime directors is as follows:

Mr. Betz has served as a director of Cheltenham Federal Savings and Loan
Association ('Cheltenham') and subsequently Prime since 1988. Presently he is
President of Fred Betz and Sons, Inc., a custom home building company located in
Southampton, Pennsylvania.

Mr. Fluehr has served as a director of North East Federal Savings and Loan
Association ('North East') and subsequently Prime since 1983. He is a funeral
director and the owner of the Joseph A. Fluehr, III Funeral Home in Richboro,
Pennsylvania. He is also the Chairman of the Board of Trustees of St. Mary's
Medical Center, a division of the Franciscan Health System, in Langhorne, PA and
a Director of St. Joseph's Home for the Aged, Holland, PA.

Mr. Larenz has served as a director of North East and subsequently Prime
since 1976. He is the President of Medicare Management Nursing Homes which is
responsible for the operation of various nursing homes. He is also a
builder/developer of residential and commercial properties.

Mr. Lynch, age 46, served as Executive Vice President of MidLantic Bank
from 1994 to 1995. Prior thereto, Mr. Lynch has held various positions within
Continental Bank culminating as President from 1992 to 1994. He helped manage
Continental's merger with MidLantic National Bank. Prior thereto, Mr. Lynch was
employed with First Pennsylvania bank from 1968 to 1976.

Mr. Platt has served as a director of North East and subsequently Prime
since 1983. He is the President of Somerton Springs Pro-Golf Shoppes which has
ten golf shops and two golf facilities throughout the Delaware Valley area. He
is also President of the Ballroom at Somerton Springs, Inc. and Newtown Swim
Club Inc.

Mr. Straw has served as President and Chief Executive Officer of Cheltenham
and subsequently Prime since January, 1985. Prior to joining Cheltenham, Mr.
Straw was employed for 24 years with Cheltenham Bank, ultimately serving as a
Vice President. Prior thereto, Mr. Straw spent six years with Household
International as a manager in the consumer finance industry.

Mr. Weinmann has served as a director of Cheltenham and subsequently Prime
since 1986. Mr. Weinmann is President of The Weinmann Group, a company that
provides consulting services to developers and builders. In 1977, he co-founded
Meehan-Weinmann, Inc. which became one of the ten largest construction companies
in the Delaware Valley, building many of the notable projects in Philadelphia
and Atlantic City. In 1983, the company was designated as redeveloper of
Conshohocken and was a prime mover of that community's resurgence.

The present members of the Board of Directors of First Sterling are:
William H. Bromley, William J. Cunningham, James D. Kania, Arthur L. Powell,
Thomas J. Scanlon, Jr., Allen Speiser, and R. Richard Williams. The business
experience during at least the last five years for each of the First Sterling
directors and its chief financial officer is as follows:

Mr. Bromley, age 46, has served as President, Chief Executive Officer and a
director of First Sterling and First Sterling Bank since 1988. Before joining
First Sterling, Mr. Bromley was employed for seven years by Industrial Valley
Bank and Trust Company ('IVB') from 1979 through 1986 as a commercial loan
officer and as a Regional Vice President for Chester County, Lancaster County
and central and western Delaware County. Prior to joining IVB, Mr. Bromley
worked for three years (1976 to 1979) with Midlantic National Bank in
Haddonfield, N.J. Mr. Bromley currently serves as a member of the Board of
Directors of the Upper Main Line YMCA. He is Section Chairman of the
Pennsylvania Bankers Association.

William J. Cunningham, 53, has been a Director of First Sterling and First
Sterling Bank since 1988. He was a co-founder and managing partner of the Miami
Heat, a National Basketball Association (NBA) team from 1988 until the sale by
Cunningham of his interest in 1995. From 1986 to 1988 Mr. Cunningham was a
national analyst and sports commentator for CBS Inc. He served as the Coach of
the Philadelphia 76ers from 1977 through 1984, leading the team to an NBA
championship in 1983. Throughout the period from 1965 through 1978 he played
professionally for the Philadelphia 76ers, including for the 1967 NBA
Championship team.

James D. Kania, 36, has been a Director and Secretary of First Sterling and
First Sterling Bank since 1988. For the last ten years, Mr. Kania has been a
principal of Trikan Associates (real estate and management services). Since
1993, he has been general and/or managing partner of Whitehorse Business
Associates, Dominion Properties, L.P., Centerpoint I and II and DelaCastle
Associates (real estate development, management and/or ownership).

Arthur L. Powell, 74, has been a Director of First Sterling and the First
Sterling Bank since 1988. Mr. Powell is an owner of Kravco Company (developer of
commercial real estate in the Philadelphia area and one of the country's largest
privately held shopping center management companies), and a partner in certain
real estate partnerships managed by that firm. He joined that firm in 1956 and
served in various capacities, including President and Chairman of the Board and
continues as an active

member of its Board of Directors. He is a founding member of The Wharton Real
Estate Center of the Wharton School at the University of Pennsylvania.

Thomas J. Scanlon, Jr., 49, has been a Director of First Sterling and First
Sterling Bank since 1988. Mr. Scanlon had been President of Jordan Chemical
Company in Folcroft, Delaware County, for over ten years. Jordan Chemical
Company was acquired by PPG Industries, Inc., in 1985, and Mr. Scanlon became
and has remained a regional sales manager for that firm since then.

Allen Speiser, 74, has been a Director of First Sterling and First Sterling
Bank since 1988. Mr. Speiser has been self-employed as a Certified Public
Accountant with offices in Bala Cynwyd, Pennsylvania and Florida.

R. Richard Williams, 50, has been a Director of First Sterling and First
Sterling Bank since 1988. In 1977, he founded Valquip Corporation, a marketer of
industrial valves and related products for the petrochemical industries. Mr.
Williams is currently President of that firm.

Frank H. Reeves, 59, has been Senior Vice President and Chief Financial
Officer of First Sterling and First Sterling Bank since 1988. Prior to that, Mr.
Reeves had been a Senior Vice President of IVB.

Executive Officers. After the Merger, the executive officers of New Prime
shall consist of the following persons:

James J. Lynch President and Chief Executive Officer
William H. Bromley Executive Vice President
Walter L. Tillman, Jr. Executive Vice President
Michael J. Sexton Treasurer and Chief Financial Officer

A brief biographical description of each of the above officers who are not
also directors of Prime or First Sterling is listed below.

Walter L. Tillman, Jr., age 45, has served as Executive Vice President and
Chief Operating Officer of Prime and of Prime Bank since January 1, 1991. From
March, 1990 until June 30, 1990, Mr. Tillman served as Vice President of Prime
and Prime Bank. Prior to joining Prime, Mr. Tillman was employed by Independence
Bancorp, Inc. where he was Vice President, Director, Asset/Liability Management
of a $2.8 billion multi-bank holding company from 1987 to November 1989. He was
initially hired by Independence Bancorp, Inc. in 1985 as a Vice
President/Planning Manager. Prior to joining Independence Bancorp, Inc., Mr.
Tillman was employed by Cheltenham Bank, a subsidiary of Independence Bancorp,
Inc., as Senior Vice President-Resource Management Division from 1984 to 1985.
Prior thereto, from 1981 to 1984, he was Vice President-Comptroller of
Cheltenham Bank. He was initially hired by Cheltenham in 1976 where he advanced
during that period to Assistant Vice President/Assistant Treasurer.

Michael J. Sexton, age 35, has served as Chief Financial Officer of Prime
since December, 1993 and as Vice President and Controller of Prime Bank since
April, 1989. Prior thereto, from April, 1988, he was Systems Analyst of
Cheltenham Federal Savings and Loan Association. Prior to joining Cheltenham,
Mr. Sexton was employed by Liberty Bank as an Assistant Vice President of
Financial Systems responsible for management information systems.

RESALE OF PRIME STOCK

The Prime Stock issued pursuant to the Merger will be freely transferable
under the Securities Act, except for shares issued to any First Sterling
shareholder who may be deemed to be an affiliate of New Prime for purposes of
Rule 144 promulgated under the Securities Act ('Rule 144') or an affiliate of
First Sterling for purposes of Rule 145 promulgated under the Securities Act
('Rule 145') (each an 'Affiliate'). Affiliates may not sell their Prime Stock
acquired in connection with the Merger except pursuant to an effective
registration statement under the Securities Act covering such shares, or in
compliance with Rule 145 under the Securities Act or other applicable exemption
from the registration requirements of the Securities Act. Persons who may be
deemed to be Affiliates of First Sterling generally include individuals or
entities that control, are controlled by or are under common control with, First
Sterling and may include certain officers, directors, and principal shareholders
of First Sterling.

Pursuant to the Merger Agreement, First Sterling has agreed to use its
reasonable best efforts to cause each Affiliate to execute and deliver to Prime
a written agreement to the effect that such person will not offer to sell, sell
or otherwise dispose of any shares of Prime Stock to be issued in connection
with the Merger except pursuant to an effective registration statement or an
exemption from registration under the Securities Act. SEC guidelines regarding
qualifying for the pooling of interests method of accounting also limit sales of
shares of the acquiring and acquired company by Affiliates of either company in
a business combination. SEC guidelines indicate further that the pooling of
interests method of accounting generally will not be challenged on the basis of
sales by Affiliates of the acquiring or acquired company if they do not dispose
of any of the shares of the corporation they received in connection with a
merger during the period beginning 30 days before the merger and ending when
financial results covering at least 30 days of post-merger operations of the
combined entity have been published.

In addition to the foregoing restrictions, in connection with the tax
opinions to be provided to Prime and First Sterling in connection with the
Merger, each holder of 5% or more of the issued and outstanding First Sterling
Stock will be requested to sign a letter confirming that each has no present
intention to sell the Prime Stock each will receive in the Merger. Similar
representations will be requested of the officers and directors of Prime and
holders of 5% or more of the issued and outstanding PBI Stock.

ACCOUNTING TREATMENT

It is anticipated that the Merger, when effected, will be accounted for as
a pooling of interests, and it is a condition of Closing of the Merger that the
parties receive letters from their respective independent auditors, KPMG Peat
Marwick LLP for Prime and Coopers & Lybrand, L.L.P. for First Sterling, to the
effect that the Merger qualifies for such accounting treatment. Under this
method of accounting, the historical book value of the assets, liabilities and
stockholders' equity of First Sterling, as reported on its consolidated balance
sheets, will be carried over to the consolidated balance sheets of New Prime and
no goodwill or other intangible assets will be created. New Prime will include
on its consolidated statements of operations the consolidated results of
operations of First Sterling for the entire fiscal year in which the
consummation of the Merger occurs and will combine and restate its results of
operations for prior periods to include the reported consolidated results of
operations of First Sterling for prior periods. The unaudited pro forma
condensed combined financial information contained in this Prospectus/Joint
Proxy Statement has been prepared using the pooling of interests accounting
method to account for the Merger. See 'Selected Consolidated Financial Data' and
'Pro Forma Condensed Combined Financial Data.'

PRIME BANCORP., INC.

RECENT DEVELOPMENTS

Prime Bank converted from a federally chartered savings bank to a
Pennsylvania chartered stock savings bank under the name 'Prime Bank, a savings
bank' effective March 19, 1996. As a result of this conversion, the regulatory
framework within which Prime and Prime Bank operate changed significantly.
Current information with respect to these changes is contained in Prime's
Quarterly Report on Form 10-Q for the period ended June 30, 1996, incorporated
herein by reference.

On August 20, 1996, federal legislation was passed which will require
thrift institutions such as Prime Bank to recapture federal income tax benefits
associated with post-1987 excess bad debt reserve deductions, whether or not
such thrift institutions merge with or convert into commercial banks. However,
federal tax benefits associated with pre-1988 excess bad debt reserve deductions
are now protected from recapture, including in cases of merger with or
conversion into a commercial bank. As a result of this legislation, the primary
obstacle to the conversion of many thrift institutions into commercial banks has
been eliminated. Prime has already reserved for the recapture of post-1987
excess bad debt reserve tax benefits.

While the August 1996 legislation did not resolve the disparity in
assessment rates for members of the SAIF deposit insurance fund such as Prime
Bank, as compared to the assessment rates for members

of the BIF insurance fund such as First Sterling Bank, on September 30, 1996,
the U.S. Congress passed and the President signed, as part of the omnibus
appropriation legislation, a BIF-SAIF rescue package which included the
following provisions, among others: (1) with certain exceptions, SAIF member
institutions such as Prime Bank will be obligated to pay, by November 27, 1996,
a one-time special assessment based on their deposits as of March 31, 1995 (FDIC
staff has estimated that this assessment will be at a rate of approximately 65.7
basis points, but it may be higher if the FDIC grants more exemptions from
payment of the assessment than it has initially projected), and, as a result of
this recapitalization of the SAIF fund it is expected that the differential
between the basic deposit insurance assessment rate between BIF and SAIF will be
reduced substantially, if not eliminated; (2) with certain exceptions, beginning
on January 1, 1997, all federally insured banking and savings institutions would
begin sharing the costs of payments to the Financing Corporation ('FICO') for
debt service on FICO obligations, but at different rates, with BIF-insured
deposits assessed at a rate estimated to be approximately 1.3 basis points, in
contrast to SAIF-insured deposits which would be assessed at a rate of
approximately 6.4 basis points, resulting in a deposit insurance disparity as
between BIF and SAIF-insured deposits of slightly over 5 basis points until the
date that the BIF and SAIF funds merge; (3) the BIF and SAIF funds would merge
to form a new 'Deposit Insurance Fund' on January 1, 1999 (provided there are
'no savings associations'--as distinguished from state savings banks such as
Prime Bank and other institutions classified as 'banks' for deposit insurance
purposes--on that date); (4) the Treasury Department would be directed to report
to Congress by March 31, 1997 on issues relating to the possible merger of the
OTS and the OCC and a combination of federal thrift charters and national bank
charters into a single federal banking charter; (5) the federal banking
regulators would be authorized to prohibit SAIF insured institutions from
inducing customers to shift their deposits to affiliated BIF-insured
institutions; and (6) a number of regulatory relief provisions were included.

In addition, in September 1996, legislation was introduced in Congress
which would provide for a common federal charter for banks and savings
associations, but would not apply to state chartered commercial banks such as
First Sterling Bank or state chartered savings banks such as Prime Bank. As
introduced, the legislation would also liberalize the powers of 'financial
services holding companies', which could include New Prime, whether they are
bank holding companies or savings and loan holding companies. However, the
prospects for passage of that legislation and its possible effects on New Prime
are uncertain and not possible to assess with any certainty at this time.

On October 8, 1996, the FDIC also proposed to reduce the fourth quarter
SAIF assessment rate to adjust for the recapitalization of the SAIF fund. Under
the proposal, the 23 basis point assessment for well-capitalized institutions
would be reduced to 18 basis points for those 'savings associations' which are
obligated to pay FICO assesements, and to the nominal minimum statutory
assessment for institutions which are not obligated to pay FICO assessments.
Prime's management believes that Prime Bank, as a 'bank' for FDIC insurance
purposes, should not be obligated to pay the FICO assessment. If the FDIC agrees
that Prime Bank is not subject to FICO assessments, Prime Bank may also be
entitled to a refund for certain assessments paid for periods after its March,
1996 conversion to a state chartered savings bank.

While the special assessment under the federal BIF-SAIF legislation will
require a cash payment by Prime Bank in the approximate amount of $2.71 million
and will result in a charge to pre-tax earnings for the period ended September
30, 1996, it is not otherwise expected to have significant impact on the
financial position or results of operations of Prime Bank. This expense will be
partially offset by reductions in regular assessments under the FDIC's October 8
proposal. With the passage of this legislation, the competitive disadvantages
presented to a SAIF member such as Prime Bank have been substantially
eliminated. Furthermore, the passage of that legislation, together with the
August 1996 federal bad debt reserve tax legislation will increase the strategic
options available to New Prime in choosing charters for its subsidiary
institutions. Management of Prime has not made any decisions relating to
possible mergers of Prime Bank and First Sterling Bank, issues relating to
charters of any subsidiary institutions, or issues relating to disparities in
costs of maintaining BIF deposits versus SAIF deposits, during periods following
completion of the Merger.

FIRST STERLING BANCORP, INC.

GENERAL

First Sterling is a Pennsylvania business corporation which is registered
as a bank holding company under the Federal Bank Holding Company Act of 1956, as
amended (the 'BHCA'). First Sterling was incorporated on January 15, 1987 for
the purpose of organizing First Sterling Bank and thereby enabling First
Sterling Bank to operate within a bank holding company structure. First Sterling
became an active bank holding company on June 1, 1988, when First Sterling Bank
received the authority to begin operations from the PADOB and it received
permission from the FRB to commence activity as a bank holding company. First
Sterling Bank is a wholly owned subsidiary of First Sterling.

First Sterling's sole activity consists of owning and supervising First
Sterling Bank, which engages in the commercial and consumer banking business.
First Sterling, through First Sterling Bank, derives all of its income from the
furnishing of banking and bank related services.

First Sterling is a legal entity separate and distinct from First Sterling
Bank. The rights of First Sterling, and thus the rights of First Sterling's
creditors and shareholders, to participate in the distribution of the assets or
earnings of First Sterling Bank, are necessarily subject to the prior claims of
First Sterling Bank, except to the extent that claims of First Sterling itself
as a creditor may be recognized. Such claims on First Sterling Bank by creditors
other than First Sterling include obligations in respect of federal funds
purchased and certain other borrowings, as well as deposit liabilities.

First Sterling directs the policies and coordinates the financial resources
of First Sterling Bank. First Sterling provides and performs various technical,
advisory and auditing services for First Sterling Bank, coordinates First
Sterling Bank's general policies and activities and participates in First
Sterling Bank's major business decisions.

As of June 30, 1996, First Sterling, on a consolidated basis had total
assets of $227,944,000, total deposits of $157,014,000 and total shareholder's
equity of $12,676,000.

FIRST STERLING BANK

First Sterling Bank is a Pennsylvania state chartered banking institution
and member of the Federal Reserve System. On March 14, 1987, an Application to
Establish a State Chartered Banking Institution was filed and accepted by the
PADOB, which granted preliminary approval of the application on May 21, 1987. On
May 26, 1988, the PADOB granted First Sterling Bank a Certificate of Authority
to conduct business. First Sterling Bank commenced banking operations pursuant
to its charter on June 1, 1988.

First Sterling Bank offers a broad range of commercial banking services
from its Devon, Pennsylvania headquarters as well as from its branch offices.
First Sterling Bank's Primary Service Area ('PSA') encompasses the counties of
Chester, Delaware and Montgomery.

As of October 1, 1996, First Sterling Bank operated a total of five (5)
locations: Devon, Chester County; St. David's, Delaware County; Bryn Mawr,
Montgomery County; Bala Cynwyd, Montgomery County; and Media, Delaware County.

SERVICES

First Sterling Bank serves the needs of its customers by offering a wide
range of credit and deposit services. Credit services, predominantly to small
and medium sized businesses and their owners, include lines of credit, term
loans, mortgage loans, revolving credit lines and letters of credit. First
Sterling Bank also offers Merchant Credit Card services, consumer credit
services including personal credit lines, VISA cards, automobile loans,
installment loans, and home improvement loans. Deposit services include a full
range of commercial and personal deposit services including checking accounts,
NOW accounts, money market accounts, certificates of deposit, statement savings,
sweep

accounts, zero balance accounts, automatic and telephone transfers, individual
retirement accounts, and direct deposit.

All deposits, up to the full extent permitted by law, are insured by the
FDIC. First Sterling Bank is a member of the MAC automated teller network and
operates MAC machines at the St. David's and Bryn Mawr office locations. Other
services include safe deposit boxes, Series EE bonds, traveler's checks, money
orders, and VISA cash advances. Trust services are not offered by First Sterling
Bank.

COMPETITION

In all phases of its business, First Sterling Bank competes with numerous
regionally based commercial banks, most of which have assets, capital and
lending limits larger than those of First Sterling Bank. There are several other
community commercial banks in First Sterling Bank's PSA. First Sterling Bank,
along with other commercial banks, competes with respect to its lending
activities and in attracting demand deposits with savings banks, credit unions,
savings and loan associations, insurance companies, regulated small loan
companies and with non-bank issuers of commercial paper and other securities,
such as shares in money market funds.

In order to compete with the other financial institutions located both
within and outside of its PSA, First Sterling Bank uses, to the fullest extent
possible, the flexibility provided by its ability to make lending decisions
locally. This includes an emphasis on specialized services for small and medium
sized businesses and their owners, professionals, and personal contacts by First
Sterling Bank's officers, directors and employees. If there are customers whose
loan demands exceed First Sterling Bank's lending limit, First Sterling Bank
seeks to arrange for such loans on a participation basis with other financial
institutions.

First Sterling Bank attempts to be competitive with the other financial
institutions in its PSA with respect to interest rates paid on certificates of
deposit and money market accounts and interest rates charged on loans.

OFFICES

As of October 1, 1996, First Sterling Bank operated a headquarters office
and branch containing approximately 9,500 square feet at 80 West Lancaster
Avenue, Devon, Pennsylvania and four other branch locations. One branch,
containing 3,124 square feet, is located in St. David's at the corner of Radnor
Chester Road and Route 30; the second branch, containing 2,250 square feet, is
located in Bryn Mawr at 22 North Bryn Mawr Avenue. The third branch has 4,500
square feet and is located at 50 Monument Road in Bala Cynwyd. First Sterling
Bank's fifth location contains approximately 7,000 square feet and is located at
101 West Baltimore Pike in Media.

PRIME NEWCO, INC.

New Prime has been formed solely for the purposes of effecting the Merger.
It has no assets and has had no business or operations since its incorporation
in September, 1996 and will not have any business or operations until such time
as the Merger is effected.

Consequently, New Prime has no financial statements to file or report on,
no results of operation for management to discuss and analyze and no properties.
It is not a party to any legal proceedings. Its shares are not presently
registered under the Securities Exchange Act of 1934, and are not traded on any
exchange or automated quotation system. No dividends have been paid on the
outstanding shares of New Prime's common stock.

Upon completion of the Merger, New Prime will change its name to 'Prime
Bancorp, Inc.' and will succeed to the business and assets of Prime and First
Sterling and the Prime Stock is intended to be registered under the Securities
Exchange Act of 1934 and traded on the Nasdaq National Market System under the
symbol 'PSAB.'

PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The following table sets forth selected unaudited consolidated pro forma
financial data of Prime and First Sterling at the dates and for the periods
indicated, after giving effect to the Merger using the pooling of interests
method of accounting. See 'The Merger -- Accounting Treatment.' The unaudited
pro forma condensed combined financial data set forth below should be read in
conjunction with, and is qualified in its entirety by, the historical
consolidated financial statements of Prime and First Sterling, including the
related notes, which are contained in Annex F hereto or incorporated herein by
reference, and in conjunction with the selected consolidated historical and
other unaudited pro forma combined condensed consolidated financial information
appearing elsewhere herein. See 'Selected Consolidated Financial Data.' The data
set forth below is not necessarily indicative of the results of the future
operations of New Prime upon consummation of the Merger or the actual results
that would have been achieved had the Merger been consummated prior to the
periods indicated.

PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FIRST PRO FORMA
PRIME STERLING ADJUSTMENTS BALANCE
--------- --------- ----------- -----------

Assets
Cash in Banks................................................. $ 17,338 $ 4,595 $ $ 21,933
Interest-bearing deposits..................................... 3,286 192 3,478
Federal funds sold............................................ -- 1,100 1,100
--------- --------- ----------- -----------
Cash and cash equivalents................................... 20,624 5,887 26,511
--------- --------- ----------- -----------
Investment securities......................................... 10,368 643 11,011
Investment securities available for sale at market value...... 43,587 46,795 90,382
Mortgage-backed securities.................................... 96,403 158 96,561
Mortgage-backed securities available for sale at market
value....................................................... 55,544 -- 55,544
Loans receivable.............................................. 380,064 172,494 552,558
Deferred fees, net.......................................... (80) -- (80)
Allowance for loan losses................................... (3,737) (2,509) (1,000)(4) (7,246)
--------- --------- ----------- -----------
Loans receivable, net..................................... 376,247 169,985 (1,000) 545,232
--------- --------- ----------- -----------
Loans held for sale........................................... 6,654 -- 6,654
Accrued interest receivable................................... 4,894 2,101 6,995
Real estate owned, at cost.................................... 481 102 583
Land acquired for development and resale...................... 10,107 -- 10,107
Property and equipment........................................ 9,200 1,031 (300)(4) 9,931
Goodwill...................................................... 3,623 -- 3,623
Other assets.................................................. 6,828 1,242 847(8) 8,917
--------- --------- ----------- -----------
$ 644,560 $ 227,944 $ (453) $ 872,051
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Liabilities and Stockholders' Equity
Liabilities:
Deposits.................................................... $ 499,781 $ 157,014 $ $ 656,795
Advances from Federal Home Loan Bank of Pittsburgh.......... 12,000 48,622 60,622
Other borrowed money........................................ 68,760 6,168 (1,050)(7) 73,878
Advance payments by borrowers for taxes and insurance....... 2,163 279 2,442
Other liabilities........................................... 3,808 3,185 1,550(4) 8,543
--------- --------- ----------- -----------
586,512 215,268 500 802,280
--------- --------- ----------- -----------
Stockholders' equity
Common stock................................................ 3,909 1,470 95(6,7) 5,474
Additional paid-in capital.................................. 30,637 6,622 829(6,7) 38,088
Retained earnings........................................... 26,257 4,729 (2,075)(4,6) 28,911
Valuation adjustment for debt securities net of taxes....... (1,940) 53 -- (1,887)
Treasury Stock.............................................. (815) (198) 198(6) (815)
--------- --------- ----------- -----------
58,048 12,676 (953) 69,771
--------- --------- ----------- -----------
$ 644,560 $ 227,944 $ (453) $ 872,051
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Book value per share.......................................... $ 15.58 $ 8.72 $ 13.19

See footnotes on page 75.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FIRST PRO FORMA
PRIME STERLING BALANCE
----------- ------------ -----------

Interest income........................................................... $ 22,560 $ 9,101 $ 31,661
Interest expense.......................................................... 11,068 4,861 15,929
----------- ------------ -----------
Net interest income....................................................... 11,492 4,240 15,732
Provision for loan losses................................................. 650 185 835
----------- ------------ -----------
Net interest income after provision for loan losses....................... 10,842 4,055 14,897
Gain (loss) on sale of assets............................................. 198 4 202
Rental income............................................................. 143 -- 143
Other income.............................................................. 1,033 344 1,377
Non-interest expense...................................................... 7,235 2,799 10,034
----------- ------------ -----------
Income before income taxes................................................ 4,981 1,604 6,585
Income tax expense........................................................ 1,733 550 2,283
----------- ------------ -----------
Net income................................................................ $ 3,248 $ 1,054 $ 4,302
----------- ------------ -----------
----------- ------------ -----------

Earnings per share:
Primary................................................................. $ .86 $ .69 $ .80
Fully diluted........................................................... $ .86 $ .66 $ .78

Weighted average number of shares outstanding:
Primary................................................................. 3,777,707 1,517,647 5,390,064
Fully diluted........................................................... 3,780,589 1,628,157 5,503,456

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FIRST PRO FORMA
PRIME STERLING BALANCE
----------- ------------ -----------

Interest income........................................................... $ 21,044 $ 7,579 $ 28,623
Interest expense.......................................................... 10,599 4,016 14,615
----------- ------------ -----------
Net interest income....................................................... 10,445 3,563 14,008
Provision for loan losses................................................. 356 237 593
----------- ------------ -----------
Net interest income after provision for loan losses....................... 10,089 3,326 13,415
Gain (loss) on sale of assets............................................. 328 (17) 311
Rental income............................................................. 54 -- 54
Other income.............................................................. 809 286 1,095
Non-interest expense...................................................... 6,609 2,435 9,044
----------- ------------ -----------
Income before income taxes................................................ 4,671 1,160 5,831
Income tax expense........................................................ 1,709 398 2,107
----------- ------------ -----------
Net income................................................................ $ 2,962 $ 762 $ 3,724
----------- ------------ -----------
----------- ------------ -----------

Earnings per share:
Primary................................................................. $ .79 $ .50 $ .71
Fully diluted........................................................... $ .79 $ .48 $ .70

Weighted average number of shares outstanding:
Primary................................................................. 3,759,949 1,521,836 5,281,785
Fully diluted........................................................... 3,761,713 1,632,346 5,394,059

See footnotes on page 75.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FIRST PRO FORMA
PRIME STERLING BALANCE
----------- ------------ -----------

Interest income........................................................... $ 42,795 $ 16,184 $ 58,979
Interest expense.......................................................... 21,825 8,732 30,557
----------- ------------ -----------
Net interest income....................................................... 20,970 7,452 28,422
Provision for loan losses................................................. 644 485 1,129
----------- ------------ -----------
Net interest income after provision for loan losses....................... 20,326 6,967 27,293
Gain (loss) on sale of assets............................................. 728 4 732
Rental income............................................................. 174 -- 174
Other income.............................................................. 1,954 583 2,537
Non-interest expense...................................................... 13,831 5,099 18,930
----------- ------------ -----------
Income before income taxes................................................ 9,351 2,455 11,806
Income tax expense........................................................ 3,498 839 4,337
----------- ------------ -----------
Net income................................................................ $ 5,853 $ 1,616 $ 7,469
----------- ------------ -----------
----------- ------------ -----------

Earnings per share:
Primary................................................................. $1.56 $1.07 $1.42
Fully diluted........................................................... $1.55 $1.03 $1.39

Weighted average number of shares outstanding:
Primary................................................................. 3,762,728 1,515,253 5,277,981
Fully diluted........................................................... 3,773,808 1,625,763 5,399,571

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FIRST PRO FORMA
PRIME STERLING BALANCE
----------- ------------ -----------

Interest income........................................................... $ 34,986 $ 12,082 $ 47,068
Interest expense.......................................................... 15,253 6,027 21,280
----------- ------------ -----------
Net interest income....................................................... 19,733 6,055 25,788
Provision for loan losses................................................. 1,243 351 1,594
----------- ------------ -----------
Net interest income after provision for loan losses....................... 18,490 5,704 24,194
Gain (loss) on sale of assets............................................. (104) (117) (221)
Rental income............................................................. 321 -- 321
Other income.............................................................. 1,578 499 2,077
Non-interest expense...................................................... 11,336 4,698 16,034
----------- ------------ -----------
Income before income taxes................................................ 8,949 1,388 10,337
Income tax expense........................................................ 3,141 484 3,625
----------- ------------ -----------
Net income................................................................ $ 5,808 $ 904 $ 6,712
----------- ------------ -----------
----------- ------------ -----------

Earnings per share:
Primary................................................................. $1.55 $ .62 $1.29
Fully diluted........................................................... $1.55 $ .61 $1.27

Weighted average number of shares outstanding:
Primary................................................................. 3,736,405 1,464,598 5,201,003
Fully diluted........................................................... 3,736,405 1,575,108 5,311,513

See footnotes on page 75.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FIRST PRO FORMA
PRIME STERLING BALANCE
----------- ------------ -----------

Interest income........................................................... $ 31,310 $ 10,643 $ 41,953
Interest expense.......................................................... 13,150 5,133 18,283
----------- ------------ -----------
Net interest income....................................................... 18,160 5,510 23,670
Provision for loan losses................................................. 1,442 718 2,160
----------- ------------ -----------
Net interest income after provision for loan losses....................... 16,718 4,792 21,510
Gain (loss) on sale of assets............................................. 279 112 391
Rental income............................................................. 350 -- 350
Other income.............................................................. 1,233 626 1,859
Non-interest expense...................................................... 9,807 3,786 13,593
----------- ------------ -----------
Income before income taxes and effect of cumulative change in accounting
principle............................................................... 8,773 1,744 10,517
Income tax expense........................................................ 3,349 590 3,939
----------- ------------ -----------
Income before effect of cumulative change in accounting principle......... 5,424 1,154 6,578
Cumulative effect on prior years of change in tax accounting method....... 1,055 -- 1,055
----------- ------------ -----------
Net income................................................................ $ 6,479 $ 1,154 $ 7,633
----------- ------------ -----------
----------- ------------ -----------

Primary earnings per share:
Income before effect of cumulative change in accounting principle....... $1.46 $0.83 $1.30
Cumulative effect on prior years of change in tax accounting method..... 0.28 -- 0.21
Net income.............................................................. $1.75 $0.83 $1.51

Fully diluted earnings per share:
Income before effect of cumulative change in accounting principle....... $1.46 $0.79 $1.27
Cumulative effect on prior years of change in tax accounting method..... 0.28 -- 0.20
Net income.............................................................. $1.75 $0.79 $1.47

Weighted average number of shares outstanding:
Primary................................................................. 3,706,276 1,396,503 5,102,779
Fully diluted........................................................... 3,712,344 1,520,032 5,232,376

See footnotes on page 75.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FIRST PRO FORMA
PRIME STERLING BALANCE
----------- ------------ -----------

Interest income........................................................... $ 30,691 $ 9,336 $ 40,027
Interest expense.......................................................... 14,944 4,886 19,830
----------- ------------ -----------
Net interest income....................................................... 15,747 4,450 20,197
Provision for loan losses................................................. 1,200 963 2,163
----------- ------------ -----------
Net interest income after provision for loan losses....................... 14,547 3,487 18,034
Gain (loss) on sale of assets............................................. 220 451 671
Rental income............................................................. 214 -- 214
Other income.............................................................. 1,668 321 1,989
Non-interest expense...................................................... 8,769 3,225 11,994
----------- ------------ -----------
Income before income taxes and extraordinary credit....................... 7,880 1,034 8,914
Income tax expense........................................................ 3,177 353 3,530
----------- ------------ -----------
Income before extraordinary credit........................................ 4,703 681 $ 5,384
Extraordinary credit...................................................... -- 348 348
Net income................................................................ $ 4,703 $ 1,029 $ 5,732
----------- ------------ -----------
----------- ------------ -----------
Primary earnings per share:
Income before extraordinary credit...................................... $1.29 $ .52 $1.08
Extraordinary credit.................................................... -- .25 .07
Net income.............................................................. 1.29 .77 1.15
Fully diluted earnings per share:
Income before extraordinary credit...................................... $1.28 $ .48 $1.05
Extraordinary credit.................................................... -- .23 .06
Net income.............................................................. $1.28 $ .71 $1.11
Weighted average number of shares outstanding:
Primary................................................................. 3,652,951 1,397,169 5,050,120
Fully diluted........................................................... 3,668,406 1,520,698 5,189,104

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1991
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FIRST PRO FORMA
PRIME STERLING BALANCE
----------- ------------ -----------

Interest income........................................................... $ 33,584 $ 8,042 $ 41,626
Interest expense.......................................................... 19,598 5,054 24,652
----------- ------------ -----------
Net interest income....................................................... 13,986 2,988 16,974
Provision for loan losses................................................. 1,320 392 1,712
----------- ------------ -----------
Net interest income after provision for loan losses....................... 12,666 2,596 15,262
Gain (loss) on sale of assets............................................. 320 13 333
Rental income............................................................. 227 -- 227
Other income.............................................................. 1,702 225 1,927
Non-interest expense...................................................... 8,197 2,624 10,821
----------- ------------ -----------
Income before income taxes and extraordinary credit....................... 6,718 210 6,928
Income tax expense........................................................ 2,652 68 2,720
----------- ------------ -----------
Income before extraordinary credit........................................ 4,066 142 4,208
Extraordinary credit...................................................... -- 68 68
----------- ------------ -----------
Net income................................................................ $ 4,066 $ 210 $ 4,276
----------- ------------ -----------
----------- ------------ -----------
Primary earnings per share:
Income before extraordinary credit...................................... $1.19 $ .14 $ .88
Extraordinary credit.................................................... -- .05 .01
Net income.............................................................. 1.19 .19 .89
Fully diluted earnings per share:
Income before extraordinary credit...................................... $1.19 $ .13 $ .86
Extraordinary credit.................................................... -- .04 .01
Net income.............................................................. 1.19 .17 .87
Weighted average number of shares outstanding:
Primary................................................................. 3,416,974 1,397,169 4,814,143
Fully diluted........................................................... 3,416,974 1,520,698 4,937,672

See footnotes on page 75.

FOOTNOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(UNAUDITED)

(1) The pro forma information presented is not necessarily indicative of the results of operations or the
combined financial position that would have resulted had the Merger been consummated at the beginning of the
applicable periods indicated, nor is it necessarily indicative of the results of operations in future
periods or the future financial position of the combined entities. Pro forma financial information assumes
the Merger was consummated as of the beginning of each of the periods indicated.

(2) It is assumed that the Merger will be accounted for on a pooling of interests accounting basis, and
accordingly, the related pro forma adjustments herein reflect, where applicable, the Exchange Ratio of 1.00
share of Prime Stock for each outstanding share of First Sterling Stock. In addition, upon consummation of
the Merger, each outstanding share of PBI Stock will become one (1) share of Prime Stock.

(3) The pro forma condensed combined income statement data does not reflect the estimated $1.0 million addition
to the provision for loan losses which New Prime anticipates making, or charges and expenses of
approximately $1.85 million attributable to the Merger since these charges are non-recurring.

(4) After the Merger, New Prime intends to modify its approach to the workout of certain assets. This strategy
involves the accelerated resolution of problem assets which, New Prime believes, is more economical than a
long-term work out approach, and will allow management to concentrate its resources on growth and revenue
generation. As a result of this strategy, New Prime will make an addition to the allowance for loan losses
of approximately $1.0 million ($620 thousand after-tax).

The pro forma combined balance sheet data at June 30, 1996 reflects approximately $1.85 million of charges,
which includes: $300 thousand for fixed asset and service contract write downs; $375 thousand for the
reduction of both the space and term on First Sterling's office lease; $225 thousand for employee severance
costs; and $950 thousand for other expenses directly attributable to the Merger. Accordingly, pro forma
stockholders' equity has been reduced by $953 thousand, representing the after tax effect of the charges and
expenses attributable to the Merger and the conversion of the Debentures.

(5) In February 1992, the FASB issued Statement of Financial Accounting Standards No. 109, 'Accounting for
Income Taxes' ('SFAS No. 109'). Under the asset and liability method provided for by SFAS No. 109, deferred
tax assets and liabilities are recognized for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable for future years to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and
tax credit carryforwards. 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. Under SFAS No. 109, 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.

Prime adopted SFAS No. 109 as of January 1, 1993. The cumulative effect of this change in accounting for
income taxes of $1,055,000 has been calculated as of January 1, 1993 and is reported separately in the
consolidated statement of operations for the year ended December 31, 1993. First Sterling also adopted SFAS
No. 109 as of January 1, 1993; the impact of SFAS No. 109 on First Sterling was immaterial.

(6) Reflects the cancellation of 15,800 shares of First Sterling Stock held as treasury stock.

(7) Reflects the conversion of $1.05 million in principal amount of Debentures to 110,510 shares of Prime Stock.

(8) Reflects deferred tax receivable at statutory rates totalling $847 thousand related to approximately $1.2
million of expenses attributable to the Merger and the addition of approximately $1.0 million to New Prime's
allowance for loan losses.

COMPARISON OF STOCKHOLDERS' RIGHTS

Upon consummation of the Merger, the stockholders of Prime and the
shareholders of First Sterling will become shareholders of New Prime, and their
rights as such will cease to be defined and governed by the Certificate of
Incorporation and Bylaws of Prime and the Articles of Incorporation and Bylaws
of First Sterling, respectively, and as to Prime the DGCL, and will be defined
instead by the Articles of Incorporation and Bylaws of New Prime and the
provisions of the PBCL. Certain provisions of the Articles of Incorporation and
Bylaws of New Prime materially alter the rights of shareholders of First
Sterling from those that First Sterling shareholders presently have. In
addition, while the Articles of Incorporation and Bylaws of New Prime are
substantially similar to the present Certificate of Incorporation and Bylaws of
Prime, there are some differences, including a provision protecting directors
against personal liability for money damages for breaches of fiduciary duty not
involving self-dealing, recklessness or willful misconduct. The most significant
differences are summarized below. This summary is qualified in its entirety by
reference to the full text of the Articles of Incorporation and Bylaws of First
Sterling, the Certificate of Incorporation and Bylaws of Prime, and the Articles
of Incorporation and Bylaws of New Prime, all as amended from time to time. The
Articles of Incorporation and Bylaws of New Prime are attached as exhibits to
New Prime's Registration Statement on Form S-4 of which this Prospectus/Joint
Proxy Statement forms a part. In addition, there are certain differences between
the corporate laws of the State of Delaware and the Commonwealth of Pennsylvania
which could be implemented by New Prime or which otherwise affect the management
and internal affairs of New Prime. For a discussion of such provisions, see
'Certain Differences Between the Corporation Statutes of Delaware and
Pennsylvania.'

CAPITAL STOCK

Prime. Prime has the authority to issue 10,000,000 shares of common stock,
par value $1.00 per share, and 5,000,000 shares of preferred stock, par value
$1.00 per share. No shares of preferred stock of Prime are currently issued or
outstanding. The Board of Directors of Prime has the power to set the rights,
preferences, privileges and designations with respect to each class or series of
Prime preferred shares. The Board of Directors of Prime could designate
additional classes and series of, and issue additional shares of, preferred
stock without shareholder approval.

New Prime. New Prime has the authority to issue 13,000,000 shares of
common stock, par value $1.00 per share, and 2,000,000 shares of preferred
stock, par value $1.00 per share. The Board of Directors of New Prime will have
the power to set the rights, preferences, privileges and designations with
respect to each class or series of New Prime preferred shares. The Board of
Directors of New Prime could designate additional classes and series of, and
issue additional shares of, preferred stock without shareholder approval. See
'Description of New Prime Capital Stock.'

First Sterling. First Sterling has the authority to issue 5,000,000 shares
of common stock, par value $1.00 per share. No preferred stock is authorized.

VOTING POWER

Based upon the current capitalization of First Sterling and Prime, after
consummation of the Merger, Prime shareholders will hold approximately 3,725,056
shares of the common stock of New Prime and First Sterling shareholders will
hold approximately 1,454,203 shares of the common stock of New Prime. Prime
shareholders and First Sterling shareholders will hold approximately 72% and
28%, respectively, of the voting power of New Prime after the Merger. Assuming
all of the Debentures are converted to First Sterling Stock before December 31,
1996, then First Sterling shareholders would hold approximately 1,564,713 shares
of the common stock of New Prime or approximately 30% of the voting power of New
Prime after the Merger. No shareholder of either company will possess the same
relative voting power in matters put to a vote of shareholders of New Prime as
he or she had possessed prior to the transaction. See 'The First Sterling
Special Meeting -- Certain Beneficial Owners of First Sterling Stock' and 'The
Prime Special Meeting -- Certain Beneficial Owners of PBI Stock.'

BOARD OF DIRECTORS

New Prime. The Articles of Incorporation and Bylaws of New Prime provide
for a classified Board of Directors of not less than seven nor more than 15
members with staggered terms which will run for three years, after the initial
term. Shareholders of New Prime do not have the right to vote cumulatively in
the election of Directors.

Prime. The Board of Directors of Prime currently has seven members,
divided into three classes. The Certificate of Incorporation and Bylaws of Prime
provide for a classified Board of Directors of seven members with staggered
terms which will run for three years, after the initial term. Shareholders of
Prime do not have the right to vote cumulatively in the election of Directors.

First Sterling. The Board of Directors of First Sterling currently has
seven members; its the Bylaws provide for no fewer than five and no more than
ten Directors. The Articles of Incorporation and Bylaws of First Sterling
currently do not provide for a classified Board of Directors. Shareholders of
First Sterling currently do not have the right to vote cumulatively in the
election of Directors.

LIMITATION ON DIRECTORS' LIABILITY

Prime. The Certificate of Incorporation and Bylaws of Prime include no
provision limiting monetary liability on the part of Directors for breach of
fiduciary duty.

New Prime. The Bylaws of New Prime contain a provision consistent with
PBCL Section 1713 limiting the liability of Directors of New Prime for monetary
damages for any action or omission unless the Director breached or failed to
perform his fiduciary duties under Chapter 17B of the PBCL and the breach or
failure constituted self-dealing, willful misconduct or recklessness. The
limitation on liability shall not apply to liabilities for taxes or violation of
any criminal statute. APPROVAL OF THE MERGER BY HOLDERS OF THE PBI STOCK AND
FIRST STERLING STOCK WILL CONSTITUTE APPROVAL OF THIS DIRECTOR LIABILITY
PROVISION.

First Sterling. The Articles of Incorporation and Bylaws of First Sterling
include no provision limiting monetary liability on the part of Directors for
breach of fiduciary duty.

SUPERMAJORITY VOTE ON CERTAIN MATTERS

Prime. The Certificate of Incorporation of Prime prohibits the acquisition
of control of Prime, which is deemed to mean sole or shared acquisition of more
than 10% of the voting power of Prime, unless such acquisition of control was
approved by at least two-thirds of the then current Directors or at least
two-thirds of the outstanding voting securities of Prime. Furthermore, so long
as PBI Stock continues to be traded on the Nasdaq or a national securities
exchange, no offer to acquire sole or shared control of over 10% of the voting
power of Prime may be made, unless it has received either prior approval of at
least two-thirds of the directors then in office or prior approval by certain
regulatory authorities. The Certificate of Incorporation of Prime also contains
provisions that eliminate certain rights with respect to shares in excess of 10%
of the voting power of Prime ('Excess Shares') acquired by shareholders in
violation of the aforementioned supermajority voting provisions.

The Certificate of Incorporation of Prime also requires that certain
mergers, consolidations, asset transfers, transfers of voting securities of
Prime or of any of its subsidiaries, proposals for liquidation or dissolution,
or certain other transactions involving interested shareholders or their
affiliates (i.e. a shareholder holding directly or indirectly 10% or more of the
voting power of the outstanding Prime securities) will require both the
affirmative vote of 75% of all eligible voting power and over half of the voting
power excluding the interested shareholders of Prime, unless such transaction
has received the affirmative vote of a majority of certain disinterested
Directors or the value of the consideration to be received by shareholders of
Prime meets certain specified valuation tests. Lastly, the Certificate of
Incorporation of Prime contains a prohibition against the payment of 'greenmail'
to certain specified shareholders.

New Prime. The Articles of Incorporation of New Prime contain
substantially the same provisions as described above in the Certificate of
Incorporation of Prime, except that the Articles of Incorporation of New Prime
contain no provisions relating to Excess Shares. In addition to such
supermajority vote provisions, (i) New Prime has elected initially to be covered
by the anti-takeover protective provisions of Chapter 25F (relating to business
combinations) of the PBCL and (ii) Section 2538 of the PBCL requires the
affirmative vote of a majority of shareholders, excluding shares held by an
interested shareholder, to approve certain fundamental transactions. New Prime
has elected not to be covered by certain other anti-takeover provisions of the
PBCL, namely Chapter 25E (relating to control transactions), Chapter 25G
(relating to control-share acquisitions) and Chapter 25H (relating to
disgorgement by certain controlling shareholders following attempts to acquire
control). See 'Certain Differences Between the Corporation Statutes of Delaware
and Pennsylvania -- Shareholder Protective Provisions.'

First Sterling. The Articles of Incorporation and Bylaws of First Sterling
contain no supermajority voting provisions pertaining to acquisition of control
of First Sterling, or certain mergers, consolidations, asset transfers,
transfers of voting securities of First Sterling or any of its subsidiaries,
proposals for liquidation or dissolution, or similar types of transactions.

INFORMAL SHAREHOLDER ACTION

Prime. The Certificate of Incorporation and Bylaws of Prime do not
prohibit action by shareholders by partial or unanimous written consent, which
is permissible under the DGCL.

New Prime. The Articles of Incorporation and Bylaws of New Prime do not
authorize shareholder action by partial written consent and the PBCL prohibits
such action without express authorization in the Bylaws. The Articles of
Incorporation and Bylaws of New Prime do not prohibit action by unanimous
written consent of shareholders. Thus under the PBCL such actions are permitted.

First Sterling. The Bylaws of First Sterling explicitly prohibit
shareholder action by written consent without a meeting.

MODIFICATION OF CHARTER DOCUMENTS AND BYLAWS

New Prime and Prime. In general, the Certificate of Incorporation of Prime
may be amended, as proposed by the Board of Directors, upon the affirmative vote
by a majority of the outstanding voting shares at a duly called meeting. The
Bylaws may be amended at a meeting called for such purpose upon the affirmative
vote of two-thirds of the Directors then in office or two-thirds of the
outstanding voting shares at a duly called meeting. However, amendments to
Article 8 ('Certain Business Combinations') of the Certificate of Incorporation
of Prime concerning supermajority voting requirements applicable to certain
business transactions may only be effected upon proposal by the Board of
Directors of Prime and an affirmative vote of 75% of outstanding voting shares
at a duly called meeting. The terms of the Bylaws and Articles of Incorporation
of New Prime are substantially similar to those of Prime with respect to the
aforementioned terms. See 'Comparison of Stockholders' Rights -- Supermajority
Vote on Certain Matters.'

First Sterling. The Articles of Incorporation of First Sterling may be
amended as proposed by the Board of Directors, upon the affirmative vote of a
majority of the shares present and voting at a duly called meeting, the notice
for which included notice of such proposed amendments. The Bylaws of First
Sterling may be amended upon the affirmative vote of either a majority of the
Directors or a majority of the shareholders of First Sterling entitled to vote
thereupon in each case at a duly called meeting the notice for which included
notice of such proposed amendments.

CERTAIN DIFFERENCES BETWEEN THE CORPORATION
STATUTES OF DELAWARE AND PENNSYLVANIA

Although the DGCL and the PBCL are similar in many respects, there are a
number of differences between the two statutes which should be carefully
considered by both Prime stockholders and First Sterling shareholders in
evaluating the proposed Merger. The Articles of Incorporation and Bylaws of New
Prime also contain various provisions which modify the statutory provisions and
differ from the charter provisions of both Prime and First Sterling and,
accordingly, should be carefully considered by both Prime and First Sterling
shareholders. The following summary, which sets forth certain material
differences between the two statutes, does not purport to be a complete
statement of all differences between the DGCL and the PBCL, nor does it purport
to be a complete statement of the provisions of the two statutes which it
compares, nor the modifying provisions in the Articles of Incorporation and
Bylaws of New Prime.

All statements contained in the following summary are qualified in their
entirety by the laws of Delaware and Pennsylvania and reference is made to those
laws for a complete statement of their provisions. Certain provisions of the
PBCL are made applicable only to 'registered corporations,' which is defined to
include corporations that have, and will have, a class or series of shares
entitled to vote generally in the election of directors of a corporation, which
shares are registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended. New Prime will be a 'registered
corporation.' Among the more significant differences affecting the rights,
obligations and relationships between a corporation and its shareholders are the
following.

FIDUCIARY DUTIES OF DIRECTORS

Both the DGCL and PBCL provide that the board of directors has the ultimate
responsibility for managing the business and affairs of a corporation. In
discharging this function, directors owe fiduciary duties of care and loyalty to
the corporation and to its shareholders.

Delaware courts have held that the duty of care requires the directors to
exercise an informed business judgment. An informed business judgment means that
the directors have informed themselves of all material information reasonably
available to them. Delaware courts have also imposed a heightened standard of
conduct upon directors in matters involving a contest for control of the
corporation.

Similar to Delaware law, Pennsylvania law requires that directors perform
their duties in good faith, in a manner they reasonably believe to be in the
best interests of the corporation, and with such care, including reasonable
inquiry, skill and diligence, as a person of ordinary prudence would use under
similar circumstances. The PBCL, however, contains a provision specifically
permitting (not requiring) directors, in discharging their duties, to consider
the effects of any action taken by them upon any or all affected groups
(including, e.g. shareholders, employees, customers, creditors and certain
communities) as well as all other pertinent factors. While Prime's Certificate
of Incorporation contains a similar provision, it is unclear how such provision
would be interpreted by Delaware courts. Furthermore, unlike Delaware law, the
PBCL expressly makes clear that a director has no greater obligation to justify,
or higher burden of proof with respect to, any act relating to an actual or
potential take-over of the corporation than he or she has with respect to any
other act as a director.

LIMITATION OF DIRECTOR LIABILITY

Both the DGCL and the PBCL permit a corporation's certificate or articles
of incorporation (or bylaws in Pennsylvania) to limit a director's exposure to
monetary liability for breach of fiduciary duty. Under the DGCL, Delaware
corporations have the power to eliminate a director's personal liability for
monetary damages, except for liability for (i) breach of the duty of loyalty,
(ii) acts or omissions not in good faith or constituting intentional misconduct
or knowing violation of law, (iii) declaration of an improper dividend or an
improper redemption of stock, or (iv) any transaction from which the director
derived an improper personal benefit. There is no provision in the Prime
Certificate of Incorporation electing this limitation.

Under the PBCL, a corporation, by the vote of its shareholders, has the
power to absolve its directors from monetary liability for actions taken or
omissions, unless (i) the director breached or failed to perform his or her
duties under the PBCL, and (ii) the breach or failure constitutes self-dealing,
willful misconduct, or recklessness. In addition, a director under Pennsylvania
law will remain personally liable pursuant to any criminal statute or for the
payment of taxes. The Bylaws of New Prime contain this protection of directors.
APPROVAL OF THE MERGER BY THE HOLDERS OF THE PBI STOCK AND FIRST STERLING STOCK
WILL CONSTITUTE APPROVAL OF THIS DIRECTOR LIABILITY PROVISION. The Articles of
Incorporation and Bylaws of First Sterling include no provision limiting
monetary liability on the part of Directors for breach of fiduciary duty.

INDEMNIFICATION

The Bylaws of New Prime and Prime, respectively, provide for
indemnification of their directors and officers consistent with Pennsylvania and
Delaware law, respectively. The Articles of Incorporation and Bylaws of First
Sterling include no provisions for indemnification of directors or officers.

Both the DGCL and the PBCL permit a corporation to indemnify any person
involved in a third party action by reason of his being an officer or director
of the corporation, against expenses, judgments, fines and settlement amounts
paid in such third party action (and against expenses incurred in any derivative
action), if such person acted in good faith and reasonably believed that his
actions were in or not opposed to the best interests of the corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe that
his conduct was unlawful. Furthermore, the laws of both states provide that a
corporation may advance expenses incurred in defending any action upon receipt
of an undertaking by the person to repay the amount advanced if it is ultimately
determined that he is not entitled to indemnification.

In general, no indemnification for expenses in derivative actions is
permitted under the laws of either state in situations in which the person has
been adjudged liable to the corporation, unless a court finds him entitled to
such indemnification. If, however, the person has been successful in defending a
third party or derivative action, indemnification for expenses incurred is
mandatory under the laws of both states.

In both states, the statutory provisions for indemnification are
non-exclusive with respect to any other rights, such as contractual rights (and,
in the case of a Pennsylvania corporation, under a bylaw or vote of shareholders
or disinterested directors), to which a person seeking indemnification may be
entitled. Unlike Delaware law, however, Pennsylvania law expressly permits such
contractual or other rights to provide for indemnification against judgments and
settlements paid in a derivative or other action unless a court determines that
the act or omission giving rise to the claim for indemnification constituted
willful misconduct or recklessness. The Bylaws of New Prime do not contain such
a provision.

SHAREHOLDER PROTECTIVE PROVISIONS

While Delaware law permits corporations to adopt various charter provisions
to provide protection to shareholders, Chapter 25 of the PBCL contains certain
shareholder protective provisions which apply to a registered corporation, such
as New Prime, unless the registered corporation elects not to be governed by
such provisions. New Prime has elected in its Articles of Incorporation only to
have Chapter 25F and Section 2538 be applicable to it. The provisions, which
were added to the PBCL with the intent of protecting Pennsylvania corporations
against many abusive hostile acquisition and takeover techniques, are briefly
described below.

Chapter 25E provides that in the event a shareholder becomes a
controlling shareholder of a registered company by, individually or as part
of a group, directly or indirectly, acquiring 20% or more of the share
voting power of the company, then any remaining shareholders who object to
the transaction are entitled to compel the acquirer to purchase all
remaining shares for their fair market value in cash, including a pro-rata
share of any control premium enjoyed by the

controlling shareholder, although non-controlling shareholders are not
precluded from selling their shares to the controlling shareholder at any
other price. There are certain exceptions to the statutory determination of
acquisition of control relating, among other circumstances, to share
acquisitions by bequest or in the course of fulfilling duties as an agent,
broker, nominee, trustee, or similar third-party. The controlling
shareholder must give notice to every voting shareholder of record of the
company when a control transaction has occurred. In the event that the
controlling shareholder and any dissenting shareholders cannot agree on the
fair market value of company shares within the proper statutory time
period, or if the controlling shareholder fails to provide proper statutory
notice of a control transaction, then the statute also provides for a
court-supervised valuation procedure and appraiser, of which dissenting
shareholders may avail themselves.

Chapter 25F generally prohibits business combinations for a period of
five years with a 20% shareholder unless all disinterested directors
approve. Subject to certain exceptions, any investor who acquires 20% or
more of the stock of a registered Pennsylvania corporation ('Interested
Shareholder') may not engage in any 'business combination' with the
corporation for a five-year period. In addition, shares which are issuable
under any agreement or upon exercise of conversion or option rights or with
respect to shares acquired in a stock split, stock dividend or
recapitalization are not included as owned by an interested shareholder for
purposes of calculating the 20% threshold. By comparison, in Delaware an
interested shareholder is defined as an acquiror of 15% or more of a
corporation's voting stock and such shareholder is subject to only a three
year moratorium on 'business combinations' with the corporation.

Both the PBCL and the DGCL define a 'business combination' to include
a merger of the corporation with the interested shareholder, a mortgage or
sale of assets having a market value of ten percent or more of the
aggregate market value of the assets or stock of the corporation to the
interested shareholder, the liquidation of the corporation as proposed by
the interested shareholder, an issuance of shares equal to five percent or
more of the market value of all outstanding shares of the corporation, and
certain other transactions which may disproportionately benefit the
interested shareholder. However, the PBCL also includes certain lease and
mortgage transactions in the definition of business combinations.

Under the PBCL, a 'business combination' with an Interested
Shareholder may occur if any of the following conditions are met: (1) if
prior to the 20% acquisition, the Board of Directors approves such
acquisition of stock or the 'business combination;' (2) following the 20%
acquisition, all holders of common stock consent; or (3) if the interested
shareholder owns 80% of the corporation's voting stock and a majority of
disinterested shareholders consent to the proposed 'business combination'
at a meeting called no earlier than three months after the 20% acquisition
and all shareholders receive a price for their shares in accordance with a
'fair price' valuation procedure provided in the PBCL. After five years,
any 'business combination' must be approved by holders of a majority of
shares other than those held by the Interested Shareholder, or all
shareholders other than the Interested Shareholder must receive a price for
their shares in accordance with a 'fair price' valuation procedure.

By contrast, the three year moratorium of the DGCL does not apply if
(1) prior to the date the acquiror becomes an interested shareholder, the
target corporation's board of directors approves the 'business combination'
or the acquisition of stock; (2) the acquiror owns 85% of the target
corporation's outstanding voting stock at the time of the transaction; or
(3) on or subsequent to the date the acquiror becomes an interested
shareholder, the 'business combination' is approved by the board of
directors and is authorized by a vote of at least two-thirds of the
outstanding stock not including stock owned by the interested shareholder.

Under the 'fair price' provisions of the PBCL, (a) the aggregate of
the cash and non-cash consideration per common share to be received by the
shareholders shall be at least equal to the higher of: (i) the highest per
share price paid by the interested shareholder at the time he was a five
percent shareholder for any common shares acquired by him within five years
prior to either

the announcement date of the 'business combination' or the transaction by
which he became an Interested Shareholder, plus interest, minus dividends
paid during such period up to the amount of such interest; or (ii) the
higher of the market value per share on the date of announcement of the
'business combination' or on the date he first became an Interested
Shareholder, plus interest, and minus dividends, as aforesaid; and (b) the
aggregate of the cash and non-cash consideration to be paid per share,
other than on common shares, shall be at least equal to the higher of the
amounts determined under the foregoing clauses (i) and (ii), as applied to
shares other than common shares, or the highest preferential amount upon
liquidation plus the amount of dividends to which holders of shares of such
class are entitled; and (c) the consideration for the common or other
shares shall be paid promptly to all shareholders other than the interested
shareholder in cash or in the same form as paid by the Interested
Shareholder to acquire the largest number of shares previously acquired by
him or her. Section 2556 of the PBCL should be consulted for the exact
terms of the fair price provisions.

As with the DGCL, the PBCL may have the effect of encouraging would-be
acquirors of the company to negotiate directly with the board of directors.
Further, the 'fair price' provisions of the PBCL may provide in the
circumstances indicated above benefits to the company's shareholders.

Chapter 25G provides that a shareholder loses his voting rights in a
control share acquisition, i.e. the purchase of more than 20% of the
company's stock, unless and until the remaining shareholders of the company
vote to restore voting rights after a detailed information statement is
provided to all shareholders, and the company is also provided a right to
redeem the stock for a period of two years.

Chapter 25H provides for the disgorgement of greenmail profits, i.e.
any profits earned over the original purchase price during a certain period
of time.

Section 2538 concerns transactions involving interested shareholders,
which are defined to be shareholders that are a party to a transaction, or
that are treated differently from other shareholders in a transaction, or
persons acting in concert with, under common control with, or controlling,
directly or indirectly, the interested shareholder, with the exception of
certain agents and other such third-parties. Section 2538 requires the
affirmative vote of a majority of all shareholders, excluding shares held
by an interested shareholder, to approve certain fundamental transactions
such as a merger, consolidation, share exchange, sale of a substantial
portion of the company's assets, division, voluntary dissolution,
winding-up, or reclassification of the company. However, such shareholder
approval provisions do not apply (1) when the transaction has been approved
by a majority of the board of directors, excluding directors who have a
material equity interest in the interested shareholder or who were
nominated for election by the interested shareholder and were first elected
to the board within 24 months of the transaction; (2) if the consideration
to be received by shareholders of any class in the transaction is at least
equal to the highest amount paid by the interested shareholder in acquiring
shares of the same class; or (3) if the plan of merger or consolidation
relating to the transaction does not require the approval of company
shareholders under PBCL Section 1924(b)(1)(ii) because immediately prior to
the adoption of the plan and continuously until the effective date of the
transaction another party to the merger or consolidation directly or
indirectly owns at least 80% of the outstanding shares of each class of the
company. These provisions are cumulative and apply in addition to any other
approvals and procedures required by state law or the articles of
incorporation and bylaws of the company.

In addition, Pennsylvania law permits corporations such as New Prime to
adopt various charter provisions to provide protection to shareholders, which
New Prime has done and which are summarized above. See 'Comparison of
Stockholders' Rights -- Supermajority Vote on Certain Matters'.

AMENDMENTS TO CHARTER

Under Delaware law, amending the Certificate of Incorporation of Prime
generally requires the approval of the holders of a majority of the shares
entitled to vote. Pennsylvania law, which applies to New Prime and First
Sterling, only requires the affirmative vote of a majority of the votes actually
cast on a proposed amendment, unless the articles of incorporation or bylaws
require a greater percentage. Pennsylvania law also eliminates the need for
shareholder approval of certain non-material amendments to the articles of
incorporation (such as a change in the corporate name) and eliminates the need
for class votes in order to change the par value of, or decrease the number of
authorized shares of, any class of stock.

MERGERS AND MAJOR TRANSACTIONS

Under Delaware law, fundamental corporate transactions (such as mergers,
sales of all or substantially all of the corporation's assets, dissolutions,
etc.) require the approval of the holders of a majority of the shares of Prime.
Pennsylvania law, which applies to New Prime and First Sterling, presents a
lower approval threshold by requiring only a majority of the votes actually cast
by the shareholders at the meeting. Delaware and Pennsylvania laws each permit a
corporation to increase the minimum percentage vote required above the statutory
minimums described above. As described above, the Articles of Incorporation and
Bylaws of New Prime impose higher approval requirements for certain transactions
(including mergers, interested party transactions and other fundamental
transactions). See 'Comparison of Stockholders' Rights -- Supermajority Vote on
Certain Matters.'

DIVIDENDS

Delaware law permits dividends to be paid out of (i) surplus (the excess of
net assets of the corporation over capital) or (ii) net profits for the current
or immediately preceding fiscal year, unless the net assets are less than the
capital of any outstanding preferred stock. Pennsylvania law permits the payment
of dividends unless they would render the corporation insolvent, meaning either
(i) the corporation would be unable to pay its debts as they become due in the
ordinary course of business, or (ii) the total assets of the corporation would
be less than the sum of its total liabilities plus the amount that would be
needed upon dissolution of the corporation to pay the holders of shares having a
liquidation preference.

STOCK REPURCHASES

Under the DGCL, a Delaware corporation may not purchase or redeem its own
shares when the capital of the corporation is impaired or when such purchase or
redemption would cause an impairment of the capital of the corporation. A
Delaware corporation may, however, purchase or redeem out of capital any of its
preferred shares if such shares will be retired upon acquisition, thereby
reducing the capital of the corporation. In contrast, Pennsylvania law permits a
corporation to redeem any and all classes of its shares and treats such
redemption or repurchase like a dividend, subject to the same limitations
described above.

VOTING RIGHTS

Under Delaware law, cumulative voting in the election of directors is only
permitted if expressly authorized in the charter of a corporation. The
Certificate of Incorporation of Prime does not authorize cumulative voting.
Under Pennsylvania law, however, shareholders automatically have cumulative
voting rights unless the Pennsylvania charter provides otherwise. Under the
Articles of Incorporation and Bylaws of First Sterling and of New Prime,
shareholders do not have cumulative voting rights.

APPRAISAL OR DISSENTERS RIGHTS

The rights of shareholders to demand payment in cash by a corporation of
the fair value of their shares under certain circumstances are called appraisal
rights under the DGCL and dissenters rights under the PBCL. Delaware law does
not afford appraisal rights to holders of shares which are either

listed on a national securities exchange, quoted on the Nasdaq National Market
or held of record by more than 2,000 shareholders, unless the plan of merger or
consolidation converts such shares into anything other than stock of the
surviving corporation or stock of another corporation which is either listed on
a national securities exchange, quoted on the Nasdaq National Market or held of
record by more than 2,000 shareholders. For this reason, shareholders of Prime
will not have appraisal rights in connection with the Merger.

Pennsylvania law is substantially the same as Delaware law regarding
appraisal rights, except that (i) Pennsylvania law does not automatically deny
dissenters rights to holders of shares quoted on the Nasdaq National Market and
(ii) where shares are listed on a national exchange or held of record by more
than 2,000 shareholders, dissenters rights will nevertheless be available under
Pennsylvania law unless the plan converts such shares into stock of the
surviving or new corporation. As a result of the Merger, since First Sterling
will not be the surviving corporation, the shareholders of First Sterling will
have dissenters rights with respect to the Merger.

AMENDMENTS TO BYLAWS

Under Delaware law, if the certificate of incorporation confers on the
board of directors the power to amend the bylaws, the DGCL does not limit the
power of the board to make changes in the bylaws. Under Pennsylvania law,
however, the board's power to adopt or amend bylaw provisions on specified
subjects is limited absent a contrary provision in the articles.

Under Delaware law, a corporation's bylaws may be amended by the
shareholders at any annual meeting, without the need to obtain the consent of
the board of Directors or to give prior notice that such action would be taken
at the meeting. Pennsylvania law is more restrictive to shareholders, as it
requires that a copy of any proposed amendment to the bylaws, or a summary
thereof, be included with the notice of the meeting at which the shareholders
wish to amend a Pennsylvania corporation's bylaws.

ACTION BY WRITTEN CONSENT

Delaware law permits a majority of shareholders to consent in writing to
any action without a meeting, unless the certificate of incorporation prohibits
such written consent, which is not the case with Prime as the Bylaws of Prime
are silent on this subject. The PBCL permits shareholders of a non-registered
Pennsylvania business corporation to act by unanimous written consent, unless
restricted by the by-laws. In addition, if the bylaws so provide, the PBCL also
permits shareholders to act by written consent of the minimum number of votes
that would be necessary to authorize the action at a meeting at which all
shareholders entitled to vote thereon were present and voting, provided that
shareholders who did not consent to the action were given at least ten days
written notice prior to the effectiveness of the action. However, the bylaws of
First Sterling explicitly prohibit shareholder action by written consent without
a meeting. With respect to registered corporations such as New Prime,
Pennsylvania law also permits action by less than unanimous written consent of
its shareholders, but only when specifically authorized in the articles of
incorporation of the registered company. No such express authorization is
contained in the articles of incorporation of New Prime.

SPECIAL MEETINGS OF SHAREHOLDERS

Both Delaware and Pennsylvania laws permit a special meeting of the
shareholders to be called by the board of directors or such other person as may
be authorized by the corporation's charter or bylaws. In addition, the PBCL
permits a special meeting of the shareholders of a non-registered business
corporation to be called by shareholders entitled to cast at least 20% of the
votes that all shareholders are entitled to cast at the particular meeting,
unless otherwise provided in the articles of incorporation. However, the PBCL
explicitly states that the shareholders of a registered business corporation do
not have a statutory right to call special meetings of the shareholders,
although such a right may be granted by the bylaws or charter of the
corporation.

ANNUAL MEETING OF SHAREHOLDERS

Under Delaware law, if the annual meeting for the election of directors is
not held on the designated date the directors are required to cause such meeting
to be held as soon thereafter as may be convenient. If they fail to do so for a
period of 80 days after the designated date, or if no date has been designated,
for a period of 18 months after the organization of the corporation or after its
annual meeting, the Court of Chancery may summarily order a meeting to be held
upon application of any shareholder or director.

Under Pennsylvania law, if the annual meeting of shareholders for election
of directors is not called and held within six months after the designated time,
any shareholder may call such meeting at any time thereafter without application
to the court.

CASE LAW AND COURT SYSTEMS

There is a substantial body of case law in Delaware interpreting the
corporation law of that state. A comparable body of judicial interpretations
does not exist in Pennsylvania. Delaware also has established a system of
Chancery Courts to adjudicate matters arising under its corporation law.
Pennsylvania is considering but has not yet established an equivalent court
system. As a result of these factors there may be less certainty as to the
outcome of matters governed by Pennsylvania corporation law, and therefore it
may be more difficult to obtain legal guidance as to such matters than would be
the case under Delaware law.

DESCRIPTION OF NEW PRIME CAPITAL STOCK

GENERAL

New Prime has the authority to issue 13,000,000 shares of common stock, par
value $1.00 per share, and 2,000,000 shares of preferred stock, par value $1.00
per share. Based on the current capitalization of First Sterling and Prime,
5,179,259 shares of the common stock of New Prime are expected to be issued and
outstanding as of the Effective Time. In the event the First Sterling Debentures
are converted prior to the Effective Time, an additional 110,510 shares of Prime
Stock will be issued and outstanding as of the Effective Time for a total of
5,289,769 shares. No shares of preferred stock of New Prime are currently issued
or outstanding.

The authorized but unissued shares of the common stock and preferred stock
of New Prime will be available for future corporate purposes, such as raising
capital, stock dividends, employee incentive plans, acquisitions and other
purposes as determined by the Board of Directors of New Prime. It is not the
intention of the Board of Directors of New Prime to seek approval of the holders
of shares of the capital stock of New Prime for future issuance of any of the
additional shares, except as may be required by applicable laws or rules of the
National Association of Securities Dealers, Inc. (the 'NASD'). Presently, NASD
rules require prior shareholder approval of transactions (other than a public
offering for cash) in which there will be issued common stock, or securities
convertible into or exercisable for common stock, having voting power equal to
or in excess of 20% of the voting power outstanding prior to the issuance of
such securities.

The following summary does not purport to be complete and is subject in all
respects to the applicable provisions of the PBCL, and the Articles of
Incorporation and Bylaws of New Prime.

THE FOLLOWING DESCRIPTIONS OF THE CAPITAL SECURITIES OF NEW PRIME SHOULD BE
READ CAREFULLY BY SHAREHOLDERS OF FIRST STERLING AND PRIME SINCE, AT THE
EFFECTIVE TIME, EACH ISSUED AND OUTSTANDING SHARE OF FIRST STERLING STOCK AND OF
PBI STOCK WILL BE CONVERTED INTO 1.00 FULLY PAID AND NONASSESSABLE SHARES OF THE
COMMON STOCK OF NEW PRIME.

COMMON STOCK

Voting Rights. Each holder of the common stock of New Prime has one vote
on matters presented for consideration by the shareholders for each share held.
There are no cumulative voting rights in the election of directors. All issued
and outstanding shares of the common stock of New Prime will be fully paid and
non-assessable. In certain circumstances, if the directors of New Prime from
time to time decide to designate or issue any class or series of preferred stock
with such rights, preferences, privileges and designations as they may
determine, any such class or series of preferred stock issued by New Prime may
affect voting rights of the common stock of New Prime. Super-majority voting
provisions apply in certain situations; for a discussion of such provisions see
'Comparison of Stockholders' Rights -- Supermajority Vote on Certain Matters'.

Dividends. Each holder of the common stock of New Prime is entitled to
share ratably in dividends out of funds legally available therefor, when and as
declared by the Board of Directors of New Prime, after full cumulative dividends
on any class or series of preferred stock ranking superior as to dividends to
the common stock of New Prime have been paid or declared and funds sufficient
for the payment thereof set apart, and after the payment of the full amount of
sinking fund, retirement fund, or other retirement payments, if any, to which
holders of shares of the preferred stock of New Prime may be entitled in
preference to the common stock.

Preemptive Rights. The holders of the common stock of New Prime have no
preemptive rights to acquire any new or additional unissued shares or treasury
shares of the capital stock of New Prime.

Liquidation. In the event of a liquidation, dissolution or winding up of
New Prime, whether voluntary or involuntary, the holders of common stock of New
Prime will be entitled to share ratably in any assets or funds of New Prime that
are available for distribution to its shareholders after the satisfaction of its
liabilities (or after adequate provision is made therefor) and after preferences
on any outstanding preferred stock.

PREFERRED STOCK

The Board of Directors of New Prime has the authority, without further
action by the holders of the outstanding shares of common stock of New Prime, to
issue shares of preferred stock of New Prime from time to time in one or more
classes or series and to fix the number of shares constituting any class or
series. The Board of Directors of New Prime shall have the power to fix the
terms of any such series or class, including designations, preferences, and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions relating thereto, including voting
rights, dividends, rights on liquidation, dissolution or winding up, conversion
or exchange rights and redemption provisions (including sinking fund
provisions), if any. The designations, rights and preferences of any class or
series of preferred shares of New Prime which may be issued would be set forth
in a statement which would be filed with the Secretary of State of Pennsylvania.

The issuance in the future of shares of preferred stock of New Prime, or
the designation of authorized but unissued shares of preferred stock of New
Prime with voting and other rights which may be established by the Board of
Directors in its discretion without shareholder approval, may be used by the
Board of Directors of New Prime to create voting impediments or otherwise delay
or prevent a change in control of New Prime. By issuance of preferred shares of
New Prime, the Board of Directors could modify the rights of holders of the
common stock of New Prime. There is no current intention to issue any preferred
shares of New Prime.

EXPERTS

The consolidated statements of financial position of Prime as of December
31, 1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995, included in Prime's Annual Report on Form 10-K
and incorporated by reference herein, have been incorporated by reference herein
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants,

incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. The aforementioned report of KPMG Peat Marwick LLP
covering Prime's consolidated financial statements refers to changes in the
method of accounting for income taxes and investments in 1993.

The consolidated financial statements of First Sterling at December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995, included in this Prospectus/Joint Proxy Statement and the Registration
Statement, have been audited by Coopers & Lybrand L.L.P. as set forth in their
report thereon included herein. The consolidated financial statements of First
Sterling referred to above are included herein in reliance upon such reports and
given upon the authority of Coopers & Lybrand L.L.P. as experts in accounting
and auditing.

LEGAL MATTERS

The validity of the shares of common stock of New Prime to be issued by New
Prime under the Merger Agreement and certain tax and other matters relating to
the Merger will be passed upon by counsel to New Prime, Stradley, Ronon, Stevens
& Young, LLP, 2600 One Commerce Square, Philadelphia, Pennsylvania 19103.
Certain other matters relating to the Merger will be passed upon for First
Sterling by its counsel, Kania, Lindner, Lasak and Feeney, Two Bala Plaza, Suite
525, Bala Cynwyd, PA 19004. Arthur J. Kania, a member of Kania, Lindner, Lasak
and Feeney, is a shareholder of First Sterling and settlor of, and counsel to,
the Arthur J. Kania Trust, the largest shareholder of First Sterling.

STOCKHOLDER PROPOSALS

New Prime expects to hold its 1997 Annual Meeting on or before April 20,
1997. Stockholder proposals intended to be presented at the next Annual Meeting
must be submitted by November 20, 1996 to receive consideration for inclusion in
the proxy materials relating to that meeting. Any such proposal will be subject
to Rule 14a-8 of the rules and regulations of the Securities and Exchange
Commission.

In addition, New Prime's Bylaws provide that any stockholder wishing to
nominate a candidate for election to the Board of Directors or to bring any
other business before a meeting of stockholders must give notice of such
nomination or item of business to the company in writing received by the company
at its executive offices not less than 30 days nor more than 90 days prior to
the meeting, together with certain information concerning the stockholder making
such nomination or proposing such business and concerning the nominee or the
business proposed to be conducted, as the case may be. However, that if less
than 40 days notice or prior public disclosure of the meeting is given or made
to stockholders, such notice, to be timely, must be received no later than the
10th day following such notice or public disclosure.

INDEX TO FINANCIAL STATEMENTS OF
FIRST STERLING BANCORP, INC. AND SUBSIDIARY

Annual Financial Statements

Report of Independent Accountants............................... F-2

Consolidated Balance Sheets at
December 31, 1995 and 1994................................... F-3

Consolidated Statements of Income
for the Years Ended
December 31, 1995, 1994 and 1993............................. F-4

Consolidated Statements of Shareholders'
Equity for the Years Ended
December 31, 1995, 1994 and 1993............................. F-5

Consolidated Statements of Cash Flows
for the Years Ended
December 31, 1995, 1994 and 1993............................. F-6

Notes to Consolidated Financial Statements...................... F-7

Interim Financial Statements

Consolidated Balance Sheets at June 30, 1996
and December 31, 1995....................................... F-22

Consolidated Statements of Income (Unaudited)
for the Three and Six Months Ended
June 30, 1996 and 1995....................................... F-23

Consolidated Statements of Cash Flows
(Unaudited) for the Six Months Ended
June 30, 1996 and 1995....................................... F-24

Notes to Consolidated Financial Statements (Unaudited).......... F-25

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

BOARD OF DIRECTORS OF
FIRST STERLING BANCORP, INC.:

WE HAVE AUDITED THE ACCOMPANYING CONSOLIDATED BALANCE SHEETS OF FIRST
STERLING BANCORP, INC. AND SUBSIDIARY (THE COMPANY) AS OF DECEMBER 31, 1995 AND
1994, AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME, SHAREHOLDERS' EQUITY
AND CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31,
1995. THESE FINANCIAL STATEMENTS ARE THE RESPONSIBILITY OF THE COMPANY'S
MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL
STATEMENTS BASED ON OUR AUDITS.

WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING
STANDARDS. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE AUDIT TO OBTAIN
REASONABLE ASSURANCE ABOUT WHETHER THE FINANCIAL STATEMENTS ARE FREE OF MATERIAL
MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE SUPPORTING
THE AMOUNTS AND DISCLOSURES IN THE FINANCIAL STATEMENTS. AN AUDIT ALSO INCLUDES
ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY
MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION.
WE BELIEVE THAT OUR AUDITS PROVIDE A REASONABLE BASIS FOR OUR OPINION.

IN OUR OPINION, THE CONSOLIDATED FINANCIAL STATEMENTS REFERRED TO ABOVE
PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF FIRST
STERLING BANCORP, INC. AND SUBSIDIARY AS OF DECEMBER 31, 1995 AND 1994 AND THE
CONSOLIDATED RESULTS OF THEIR OPERATIONS AND THEIR CASH FLOWS FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995, IN CONFORMITY WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES.

AS DISCUSSED IN NOTE 2 TO THE CONSOLIDATED FINANCIAL STATEMENTS, THE
COMPANY ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115, 'ACCOUNTING
FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES' AS OF DECEMBER 31, 1993.

COOPERS & LYBRAND L.L.P.

BALTIMORE, MARYLAND
FEBRUARY 23, 1996

F-2

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994

ASSETS:

1995 1994
------------- -------------
Cash and due from banks......... $ 4,861,330 $ 926,529
Federal funds sold.............. -- 4,800,000
Investments available for sale.. 49,833,117 30,339,944
Investments held to maturity.... 594,525 15,119,841
Federal Reserve Bank stock...... 242,800 242,800
Loans:
Commercial................... 94,507,827 75,947,150
Mortgage..................... 48,412,745 32,772,205
Consumer..................... 11,701,227 10,135,032
------------- -------------
Total loans.................. 154,621,799 118,854,387
Allowance for loan losses.... (2,318,001) (1,781,627)
------------- -------------
Loans, net................... 152,303,798 117,072,760
------------- -------------
Accrued interest and fees
receivable................. 2,143,807 1,362,593
Premises and equipment, at cost:
Leasehold improvements....... 1,042,817 1,020,497
Furniture, fixtures and
equipment.................. 995,360 991,055
Computer equipment and
software................... 926,888 819,074
------------- -------------
2,965,065 2,830,626
Accumulated depreciation..... (1,915,584) (1,551,950)
------------- -------------
Premises and equipment, net..... 1,049,481 1,278,676
Federal income taxes
receivable................... -- 24,831
Deferred income taxes........... 614,478 856,072
Prepaid expenses and other
assets....................... 342,237 302,770
------------- -------------
Total assets............... $ 211,985,573 $ 172,326,816
------------- -------------
------------- -------------
LIABILITIES:

Deposits:
Demand....................... $ 24,404,024 $ 18,581,626
Savings and money market..... 24,420,762 24,090,249
Certificates of deposit less
than $100,000.............. 96,299,709 79,863,378
Certificates of deposit of
$100,000 or more........... 22,833,811 14,879,265
------------- -------------
167,958,306 137,414,518
Repurchase agreements........... 2,778,000 1,765,000
Income taxes payable............ 16,948 --
Accrued interest payable........ 2,976,922 1,886,888
Accrued liabilities............. 1,577,325 1,788,502
Subordinated debentures......... 1,050,000 1,050,000
FHLB advances................... -- 5,000,000
FHLB notes payable.............. 23,646,201 13,694,067
------------- -------------
Total liabilities.......... 200,003,702 162,598,975
------------- -------------
Commitments and contingencies
(Note 11)
Shareholders' equity:
Common stock, par value $1
per share; 5,000,000 shares
authorized; 1,470,003
and 1,470,003 shares
outstanding at December 31,
1995 and 1994,
respectively................. 1,470,003 1,470,003
Additional paid-in capital..... 6,621,747 6,621,747
Retained earnings.............. 3,674,660 2,058,196
Unrealized gains (losses) on
investments available for
sale, net of taxes........... 412,961 (422,105)
Treasury stock, 15,800
shares, at cost.............. (197,500) --
------------- -------------
Total shareholders'
equity..................... 11,981,871 9,727,841
------------- -------------
Total liabilities and
shareholders' equity....... $ 211,985,573 $ 172,326,816
------------- -------------
------------- -------------

See accompanying notes to consolidated financial statements.

F-3

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1995, 1994 and 1993

1995 1994 1993
-------------- -------------- --------------

Interest income:
Interest and fees on loans.................................... $ 12,675,922 $ 9,730,124 $ 8,760,194
Interest on investment securities and federal funds sold...... 3,285,861 2,282,644 1,765,125
Other interest and dividends.................................. 222,650 69,491 118,075
-------------- -------------- --------------
Total interest income...................................... 16,184,433 12,082,259 10,643,394
-------------- -------------- --------------
Interest expense:
Interest on savings and money market deposits................. 977,218 861,003 770,942
Interest on certificates of deposit less than
$100,000................................................... 4,975,017 3,527,942 2,754,294
Interest on certificates of deposit of $100,000 or more....... 984,241 760,045 981,273
Interest on Federal Home Loan Bank borrowings................. 1,637,419 748,669 535,155
Interest on repurchase agreements............................. 79,576 50,908 13,279
Interest on subordinated debt................................. 78,750 78,750 78,750
-------------- -------------- --------------
8,732,221 6,027,317 5,133,693
-------------- -------------- --------------
Net interest income........................................ 7,452,212 6,054,942 5,509,701
Provision for loan losses....................................... 485,000 351,000 718,000
-------------- -------------- --------------
Net interest income after provision for loan
losses.................................................. 6,967,212 5,703,942 4,791,701
Other income:
Service charges and other fees................................ 583,219 499,494 626,148
Gain (loss) on sale of investment securities.................. 4,139 (116,972) 112,048
-------------- -------------- --------------
Net interest income and other income....................... 7,554,570 6,086,464 5,529,897
-------------- -------------- --------------
Operating expenses:
Salaries and employee benefits................................ 2,214,586 1,953,316 1,525,000
Occupancy..................................................... 1,046,415 950,121 747,252
Advertising................................................... 213,000 252,033 174,653
Insurance..................................................... 223,806 342,301 288,235
Other......................................................... 1,401,585 1,200,831 1,050,278
-------------- -------------- --------------
Total operating expenses................................... 5,099,392 4,698,602 3,785,418
-------------- -------------- --------------
Income before income taxes...................................... 2,455,178 1,387,862 1,744,479
Provision for income taxes...................................... 838,714 483,700 590,414
-------------- -------------- --------------
Net income................................................. $ 1,616,464 $ 904,162 $ 1,154,065
-------------- -------------- --------------
-------------- -------------- --------------
Earnings per share:
Primary....................................................... $ 1.07 $ .62 $ .83
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average shares outstanding -- Primary................ 1,515,253 1,464,598 1,396,503
-------------- -------------- --------------
-------------- -------------- --------------
Fully-diluted................................................. $ 1.03 $ .61 $ .79
-------------- -------------- --------------
-------------- -------------- --------------
Weighted Average shares outstanding --
fully-diluted.............................................. 1,625,763 1,575,108 1,520,032
-------------- -------------- --------------
-------------- -------------- --------------

See accompanying notes to consolidated financial statements.

F-4

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993

ADDITIONAL UNREALIZED TOTAL
COMMON PAID-IN ACCUMULATED SECURITIES TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS GAINS STOCK EQUITY
----------- ----------- ------------ ----------- ---------- ------------

Balance, December 31,
1992.......................... $ 1,370,003 $ 5,721,747 $ (31) -- $ 7,091,719
Net income...................... -- -- 1,154,065 -- 1,839,337
Unrealized appreciation on
available-for-sale securities,
net of deferred taxes......... -- -- -- $ 685,272 --
----------- ----------- ------------ ----------- ---------- ------------
Balance, December 31,
1993.......................... 1,370,003 5,721,747 1,154,034 685,272 -- 8,931,056
Net income...................... 904,162 904,162
Issuance of common
stock......................... 100,000 900,000 1,000,000
Unrealized depreciation on
available for sale securities,
net of deferred taxes......... (1,107,377) (1,107,377)
----------- ----------- ------------ ----------- ---------- ------------
Balance, December 31,
1994.......................... 1,470,003 6,621,747 2,058,196 (422,105) -- 9,727,841
Net income...................... 1,616,464 1,616,464
Unrealized appreciation on
available for sale securities,
net of deferred taxes......... 835,066 835,066
Treasury stock.................. $ (197,500) (197,500)
----------- ----------- ------------ ----------- ---------- ------------
Balance, December 31,
1995.......................... $ 1,470,003 $ 6,621,747 $3,674,660 $ 412,961 $ (197,500) $ 11,981,871
----------- ----------- ------------ ----------- ---------- ------------
----------- ----------- ------------ ----------- ---------- ------------

See accompanying notes to consolidated financial statements.

F-5

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993

1995 1994 1993
-------------- -------------- --------------

Cash flows from operating activities:
Net income...................................................... $ 1,616,464 $ 904,162 $ 1,154,065
Adjustments to reconcile net income to cash:
Provision for loan losses.................................... 485,000 351,000 718,000
Depreciation and amortization................................ 363,634 341,483 307,537
Deferred income tax benefit.................................. (188,591) (33,350) (168,790)
Amortization of premium (discount) on investments............ (26,482) 97,304 138,159
(Gain)/loss on sale of investment securities................. (4,139) 116,972 (112,048)
Increase in accrued interest receivable...................... (781,214) (252,058) (98,429)
(Increase) decrease in prepaid expenses and other assets..... (39,467) 184,954 (495,343)
Increase in accrued interest payable......................... 1,090,034 511,053 253,890
Increase (decrease) in accrued liabilities................... (211,177) 866,971 (1,530,723)
Increase in taxes payable.................................... 41,779 -- --
-------------- -------------- --------------
Net cash provided by operating activities.................. 2,345,841 3,088,491 166,318
-------------- -------------- --------------
Cash flows from investing activities:
Net increase in loans........................................... (35,716,038) (9,785,108) (19,773,260)
Additions to premises and equipment............................. (134,439) (625,488) (265,877)
Purchase of investments, available for sale..................... (30,871,431) (52,030,893) (18,862,908)
Purchase of securities, held to maturity........................ (6,958,125) (2,817,637) --
Purchase of FRB stock........................................... -- (29,900) --
Purchases of FHLB stock......................................... (572,300) (1,770,000) --
Proceeds from sales of securities available for sale............ 26,020,201 40,500,129 10,317,919
Proceeds from maturities of securities held to maturity......... 8,499,918 -- --
Principal receipts on securities available for sale............. 209,752 147,218 --
-------------- -------------- --------------
Net cash used in investing activities...................... (39,522,462) (26,411,679) (28,584,126)
-------------- -------------- --------------
Cash flows from financing activities:
Net increase in deposits........................................ 30,543,788 15,051,618 20,573,230
Increase in securities sold under agreement to repurchase....... 1,013,000 1,435,000 (100,000)
(Decrease) increase in advances under line of credit............ (5,000,000) 2,000,000 3,000,000
Increase in notes payable to Federal Home Loan Bank............. 9,952,134 3,694,067 5,000,000
Proceeds from issuance of bank stock............................ -- 1,000,000 --
Purchase of treasury stock...................................... (197,500) -- --
-------------- -------------- --------------
Net cash provided by financing activities.................. 36,311,422 23,180,685 28,473,230
-------------- -------------- --------------
Net (decrease) increase in cash and cash equivalents.............. (865,199) (142,503) 55,422
Cash and cash equivalents at beginning of year.................... 5,726,529 5,869,032 5,813,610
-------------- -------------- --------------
Cash and cash equivalents at end of year.......................... $ 4,861,330 $ 5,726,529 $ 5,869,032
-------------- -------------- --------------
-------------- -------------- --------------
Supplemental disclosures of cash flow information:
Interest paid................................................... $ 7,642,187 $ 5,515,264 $ 4,879,803
-------------- -------------- --------------
-------------- -------------- --------------
Taxes paid...................................................... $ 950,000 $ 603,922 $ 1,151,000
-------------- -------------- --------------
-------------- -------------- --------------
Noncash transactions:
Transfers to other real estate owned............................ -- -- 50,000
Change in unrealized gain/(loss) on securities, available for
sale, net of taxes of $430,185, $(570,496) and $353,000,
respectively................................................. $ 835,066 $ (1,107,377) $ 685,272
-------------- -------------- --------------
-------------- -------------- --------------
Transfer of securities from available for sale to held to
maturity..................................................... $ -- $ 6,216,704 $ --
-------------- -------------- --------------
-------------- -------------- --------------
Transfer of securities from held to maturity to available for
sale at fair value, amortized cost of $12,654,152............ $ 12,681,936 -- --
-------------- -------------- --------------
-------------- -------------- --------------

See accompanying notes to consolidated financial statements.

F-6

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND REPORTING ENTITY

First Sterling Bancorp, Inc. (the Company) is a bank holding company
organized under the laws of the Commonwealth of Pennsylvania on January 15, 1987
to engage in commercial banking business through its wholly-owned subsidiary,
First Sterling Bank (the Bank), a Pennsylvania state-chartered bank insured by
the Federal Deposit Insurance Corporation. On May 26, 1988, the Bank was granted
a Certificate of Authority to conduct business and commenced commercial banking
operations on June 1, 1988.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, First Sterling Bank. All intercompany balances
and transactions have been eliminated in consolidation.

Interest Rate Risk

The earnings of the Company depend on the earnings of the Bank. The Bank is
dependent primarily upon the level of net interest income, which is the
difference between interest earned on its interest earning assets, such as loans
and investments, and the interest paid on its interest-bearing liabilities, such
as deposits and borrowings. Accordingly, the operations of the Bank are subject
to risks and uncertainties surrounding its exposure to change in the interest
rate environment. The bank manages interest rate risk through its
asset/liability management strategies with the primary objective to maximize net
interest margin in current and anticipated rate environments, while balancing
interest-sensitive assets and liabilities and providing adequate liquidity for
projected needs.

Use of Estimates

In addition, the preparation of financial statements in conformity with
generally accepted accounting principles requires management to make significant
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. These significant estimates include the allowance
for loan losses. Actual results could differ from those estimates.

Investment Securities

As of December 31, 1993, the Bank elected to adopt FAS 115, 'Accounting for
Certain Investments in Debt and Equity Securities.' The impact of adopting this
standard, net of the related income tax effect, was $685,272 as of December 31,
1993. The statement requires management to make a determination as to which of
the three categories that they will classify their investments in:
Held-to-Maturity, Trading or Available-for-Sale.

Held to Maturity -- Securities identified as 'Held to Maturity' must be
held with the positive intent and ability to hold them to maturity. These
securities are reported at amortized cost.

Trading Securities -- Securities held with the intent for quick resale at a
trading profit. Trading securities are reported at fair value, with changes in
unrealized gains or losses included in current earnings.

Available for Sale -- Securities not included in the above two categories
are reported at fair value, with unrealized gains or losses, net of taxes,
excluded from earnings and reported directly as a separate component of
shareholders' equity. Securities classified as available for sale include
investments 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 or other factors.

F-7

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)

Realized gains and losses on sale of investment securities are recognized
using the specific identification method.

On November 16, 1995, the bank restructured their investment portfolios in
connection with the amnesty window provided by the Financial Accounting
Standards Board (FASB). The Bank transferred, from its held to maturity
portfolio to its available for sale portfolio, government agency securities with
amortized cost and market values of $12,654,152 and $12,681,936, respectively,
and recorded unrealized gains and losses of $73,036 and $54,699, respectively,
net of taxes, as a separate component of shareholders' equity.

Loans and Allowances for Loan Losses

Loans are stated at the amount of unpaid principal, reduced by an allowance
for loan losses. Interest on loans is calculated by using the simple interest
method on daily balances of the principal amount outstanding.

Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity or payment of principal or interest for a
period of more than 90 days, unless such loans are well-secured and in the
process of collection. If a loan or a portion of a loan is classified as
doubtful or is partially charged off, the loan is classified as nonaccrual.
Loans that are on a current payment status or past due less than 90 days may
also be classified as nonaccrual if repayment in full of principal and/or
interest is in doubt.

Loans may be returned to accrual status when all principal and interest
amounts contractually due are reasonably assured of repayment within an
acceptable period of time, and there is a sustained period of repayment
performance (generally a minimum of six months) by the borrower, in accordance
with the contractual terms of interest and principal.

While a loan is classified as nonaccrual and the future collectibility of
the recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. In the case where a nonaccrual loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate.

The allowance for possible loan losses is established through a provision
for loan losses charged to operations. Loans are charged against the allowance
when management believes that the collectibility of the loan principal is
unlikely. Recoveries on loans previously charged off are credited to the
allowance.

The allowance is an estimate that management believes will be adequate to
absorb possible loan losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio quality and
diversification, review of specific problem loans, the adequacy of the
underlying collateral or present value of future cash flows, the results of the
most recent regulatory examination, current economic conditions and trends that
may affect the borrower's ability to pay. While management uses the best
information available to make such evaluations, future adjustments to the
allowance may be necessary if circumstances differ substantially from
assumptions used in making evaluations.

The Company adopted Statement of Financial Accounting Standards No. 114,
'Accounting by Creditors for Impairment of a Loan' ('SFAS 114') on January 1,
1995. SFAS 114 requires an adjustment to the carrying value of a loan through
the provision for possible credit losses when it is

F-8

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

'probable' that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan. SFAS 114 was subsequently amended by
Statement of Financial Accounting Standards No. 118, 'Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosure' ('SFAS 118') to
allow a creditor to use existing methods for recognizing interest income on an
impaired loan. Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. Impairment criteria
are applied to the loan portfolio exclusive of small homogeneous loans such as
residential mortgage and consumer loans which are evaluated collectively for
impairment. The adoption of SFAS Nos. 114 and 118 resulted in no additional
provision for loan losses.

Deferred Loan Fees

Fees for loan originations, commitments and origination costs are deferred
and recognized as an interest income yield adjustment over the terms of the
loans.

Premises and Equipment

Leasehold improvements, furniture, equipment and software are stated at
cost less accumulated depreciation and amortization. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the lease term or the
lives of the improvements on the straight-line basis. Maintenance and repairs
and minor improvements are charged to current operations as incurred. Gain or
loss on retirement or disposal of individual assets is recorded as income or
expense in the period of retirement or disposal.

Real Estate Owned

Real estate owned consists of foreclosed assets and is stated at the lower
of cost or estimated fair value minus estimated costs to sell the property.

Income Taxes

In 1993, the Company adopted Statement of Financial Accounting Standards
No. 109, 'Accounting for Income Taxes,' which requires recognition of deferred
tax liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse (see Note 10).

Net Income Per Share

Net income per share is calculated on the basis of the weighted average
number of shares outstanding during the period, including the assumed exercise
of dilutive stock options using the treasury stock method. The convertible
subordinated debt is not considered a common stock equivalent. Fully diluted per
share data includes the assumed conversion of the convertible subordinated debt
using the 'If Converted' method. Fully diluted earnings per share, as presented,
includes the effect of the dilutive stock options and the convertible
subordinated debt.

F-9

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents includes
cash on hand, amounts due from banks and federal funds sold. Generally, federal
funds are sold for a one-day period. The bank is required to maintain certain
average reserve balances as established by the Federal Reserve Board. The
amounts of those balances for the reserve computation periods which included
December 31, 1995 and 1994 were $478,000 and $487,000, respectively. These
requirements were satisfied through the restriction of vault cash and a balance
at the Federal Reserve Bank of Philadelphia.

Recently Issued Accounting Standards

In May 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 122 'Accounting for
Mortgage Servicing Rights' which is effective for the Company beginning January
1, 1996. The statement requires the recognition of separate assets relating to
the rights to service mortgage loans for others based on their fair value if it
is practicable to estimate the value. The statement applies prospectively to
transactions entered into in 1996, therefore there will be no cumulative effect
upon adoption of this statement. In addition, this statement is not expected to
have a significant effect on the financial position or results of operations of
the Company.

In October 1995, the FASB issued SFAS No. 123 'Accounting for Stock Based
Compensation,' which is effective for the Corporation beginning January 1, 1996.
SFAS No. 123 provides an alternative method of accounting for stock-based
compensation arrangements, based on fair value of the stock-based compensation
utilizing various assumptions regarding the underlying attributes of the options
and the Corporation's stock, rather than the existing method of accounting for
stock based compensation which is provided in Accounting Principles Board
Opinion No. 25, 'Accounting for Stock Issued to Employees' (APB 25). The FASB
encourages entities to adopt the fair value based method, but does not require
the adoption of this method. For those entities that continue to apply APB 25,
pro forma disclosure of the effect, if adopted, of SFAS 123 on net income and
earnings per share would be required in the 1996 notes to consolidated financial
statements. The Company anticipates that it will continue its current accounting
policy.

3. INVESTMENTS

Investments available for sale as of December 31, 1995 are as follows:

1995
--------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AGGREGATE FAIR HOLDING HOLDING
VALUE GAINS LOSSES AMORTIZED COST
-------------- ----------- ----------- --------------

U.S. Treasury Notes......................... $ 33,358,140 $ 443,130 $ 3,966 $ 32,918,976
Agencies -- MBS............................. 14,105,077 186,535 -- 13,918,542
FHLB Stock.................................. 2,369,900 -- -- 2,369,900
-------------- ----------- ----------- --------------
Total..................................... $ 49,833,117 $ 629,665 $ 3,966 $ 49,207,418
-------------- ----------- ----------- --------------
-------------- ----------- ----------- --------------

F-10

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. INVESTMENTS -- (CONTINUED)

Investments held to maturity as of December 1995 are as follows:

1995
--------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AGGREGATE HOLDING HOLDING AMORTIZED
FAIR VALUE GAINS LOSSES COST
----------- ----------- ----------- -----------

Municipal bonds..................................... $ 431,391 $ 31,291 $ -- $ 400,000
Agencies............................................ 190,852 -- 3,673 194,525
----------- ----------- ----------- -----------
Total............................................. $ 622,243 $ 31,291 $ 3,673 $ 594,525
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

Investments available for sale as of December 31, 1994 are as follows:

1994
-----------------------------------------------------------
GROSS
GROSS UNREALIZED
AGGREGATE FAIR UNREALIZED HOLDING
VALUE HOLDING GAINS LOSSES AMORTIZED COST
-------------- ------------- ------------ --------------

Treasuries................................. $ 27,548,126 $ -- $ (592,769) $ 28,140,895
Agencies -- CMO's.......................... 994,218 -- (5,782) 1,000,000
FHLB Stock................................. 1,797,600 -- -- 1,797,600
-------------- ----- ------------ --------------
Total.................................... $ 30,339,944 $ -- $ (598,551) $ 30,938,495
-------------- ----- ------------ --------------
-------------- ----- ------------ --------------

Investments held to maturity as of December 31, 1994 are as follows:

1994
---------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AGGREGATE FAIR HOLDING HOLDING
VALUE GAINS LOSSES AMORTIZED COST
-------------- ----------- ------------ --------------

Treasuries................................. $ 7,931,250 $ -- $ (33,160) $ 7,964,410
Agencies................................... 7,137,759 65,614 (83,286) 7,155,431
-------------- ----------- ------------ --------------
Total.................................... $ 15,069,009 $ 65,614 $ (116,446) $ 15,119,841
-------------- ----------- ------------ --------------
-------------- ----------- ------------ --------------

The maturity distribution, by contractual maturity, of the aggregate fair
value and amortized cost of debt securities at December 31, 1995 are as follows:

AVAILABLE FOR SALE FAIR VALUE COST
------------------ -------------- --------------

Less than 1 year........................................... $ 10,132,501 $ 10,022,077
1 to 5 years............................................... 35,678,424 35,192,643
Greater than 10 years...................................... 4,022,192 3,992,698
-------------- --------------
Total.................................................... $ 49,833,117 $ 49,207,418
-------------- --------------
-------------- --------------

HELD TO MATURITY FAIR VALUE COST
---------------- ----------- -----------

5 to 10 years..................................................... $ 431,391 $ 400,000
CMO's............................................................. 190,852 194,525
----------- -----------
Total........................................................... $ 622,243 $ 594,525
----------- -----------
----------- -----------

F-11

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. INVESTMENTS -- (CONTINUED)

Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
prepayment penalty.

In 1995, 1994 and 1993, proceeds from the sale of securities available for
sale were $26,020,201, $40,500,129 and 10,317,919, respectively, resulting in
gross gains of $28,474 and gross losses of ($24,335) for 1995, gross losses of
($116,972) for 1994 and gross gain of $112,048 for 1993.

As of December 31, 1995 and 1994, approximately $13,000,000 and $4,000,000
of investment securities were pledged and segregated at the Federal Reserve Bank
to collateralize deposits of public funds and for other purposes.

As of December 31, 1995 and 1994, securities sold under agreements to
repurchase amounted to approximately $2,778,000 and $1,765,000, respectively.
The repurchase agreements were collateralized by U.S. Treasury securities that
have been pledged in an amount equal to the fair value of the repurchase
agreements or $2,778,000 and $1,765,000, as of December 31, 1995 and 1994,
respectively.

The bank is required to own shares of capital stock in the Federal Reserve
Bank (FRB) and Federal Home Loan Bank (FHLB) as part of doing business with
these institutions. The bank owned $242,800 of FRB stock and $2,369,900 and
$1,797,600 of FHLB stock at December 31, 1995 and 1994, respectively.

4. LOANS

At December 31, 1995, the recorded investment in loans for which impairment
has been recognized in accordance with FAS 114 totalled $1,829,502, of which
$717,451 related to loans with no valuation allowance because the loans have
been partially paid down or written down through charge-offs, and $1,112,051
related to loans with a corresponding valuation allowance of $532,591. For the
year ended December 31, 1995, the average recorded investment in impaired loans
was approximately $1,372,600. The Company recognized interest on impaired loans
of approximately $31,000 during 1995.

Loans on which the accrual of interest has been discontinued or reduced
amounted to approximately $1,858,000, $874,000 and $1,450,498 at December 31,
1995, 1994 and 1993, respectively. If interest on those loans had been accrued,
such income would have approximated $119,660, $80,850 and $110,403 for 1995,
1994 and 1993, respectively. Interest income was recognized on nonaccrual loans
in 1995, 1994 and 1993 of $30,698, $35,216 and $110,403, respectively.
Designation of loans as nonaccrual or partial accrual loans does not relieve the
borrowers of their contractual obligations. In addition, at December 31, 1994
one loan was restructured with an aggregate balance of $1,129,254. The majority
of the outstanding principal balance on this loan was paid off during 1995. The
remaining $250,000 outstanding balance at December 31, 1995 is adequately
collateralized. If interest on this loan had been accrued in accordance with its
original terms, such income would have approximated $90,340 in 1994. Interest
income recognized on this loan was $33,878 in 1994. Unearned loan fee income was
$157,267, $108,635 and $63,634 as of December 31, 1995, 1994 and 1993
respectively.

F-12

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses were as follows:

1995 1994 1993
------------- ------------- -------------

Balance at beginning of year............................. $ 1,781,627 $ 1,638,312 $ 1,183,547
Provision charged to operations.......................... 485,000 351,000 718,000
Net loans (charged off), recovered....................... 51,374 (207,685) (263,235)
------------- ------------- -------------
$ 2,318,001 $ 1,781,627 $ 1,638,312
------------- ------------- -------------
------------- ------------- -------------

During 1995 approximately $104,000 in loans were charged off, while
recoveries from loans previously written off amounted to $155,374.

6. CONVERTIBLE SUBORDINATED DEBENTURES

The Company issued $1,001,000 of 7.5% Convertible Subordinated Debentures
due December 31, 2000 during December 1990, and an additional $49,000 of such
debentures in 1991. The debentures are subordinated to any future senior
indebtedness of the Company and are convertible by the holders into the
Company's common stock at any time until December 31, 2000 at a conversion price
of $9.50 through 1996 and $11 per share thereafter until the maturity date. The
debentures are redeemable at any time at the option of the Company at a premium
of 3% until the maturity date.

The Company can require the holders to convert the principal, including any
redemption premium, into common stock at any time at a conversion price of $7.50
per share. The debentures are also payable upon the merger or transfer of
substantially all of the Company's assets, unless assumed by the acquiring
company.

Interest on the debentures is payable quarterly commencing on April 15,
1991. The debentures represent a primary capital investment as defined by the
Federal Reserve System Capital Adequacy Guidelines Regulation.

7. BORROWINGS FROM FEDERAL HOME LOAN BANK:

Line of Credit:

As of December 31, 1995 and 1994, the Bank had a line of credit with the
FHLB of approximately $17.83 million and $14.77 million, respectively. Advances
under this credit facility are payable on demand, bear interest at the Federal
funds rate plus .25% (6.05% at December 31, 1995 and 6.61% at December 31,
1994). Advances outstanding as of December 31, 1995 and 1994 are $0 and
$5,000,000, respectively.

F-13

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. BORROWINGS FROM FEDERAL HOME LOAN BANK: -- (CONTINUED)

Notes Payable:

As of December 31, 1995 the Bank has the following fixed rate loans with
the FHLB:

AMOUNT TERM RATE MATURITY DATE
- -------------- ------------------ ------------------ ------------------
$ 5,000,000 3 years 4.82% February 1996
3,000,000 2 years 5.25% March 1996
15,000,000 1.5 years 7.40% August 1996
23,933 2 years 4.69% January 1996
23,933 2.5 years 4.85% July 1996
23,933 3 years 5.01% January 1997
23,933 3.5 years 5.22% July 1997
23,933 4 years 5.43% January 1998
23,933 4.5 years 5.57% July 1998
502,603 2 years 5.70% January 1999
- --------------
$ 23,646,201
- --------------
- --------------

All borrowings from the FHLB are collateralized by a pledge of the Bank's
entire portfolio of unencumbered investment securities, mortgage-backed
securities, certain mortgage loans and a lien on the Bank's FHLB stock.

8. SHAREHOLDERS' EQUITY

The Federal Reserve Board's risk-based capital guidelines require all
state-chartered member banks to maintain total capital equal to at least 8.0% of
risk-weighted total assets and Tier 1 capital (common stock, additional paid-in
capital and retained earnings) equal to 4.0% of risk-weighted total assets for
the years ended December 31, 1995 and 1994.

The risk-weighting process permits banks to discount the value of certain
high quality assets by varying percentages in computing the value of total
assets for the purpose of calculating the ratio of required capital. At December
31, 1995 and 1994, the Bank's total capital was 10.95% and 11.86% of
risk-weighted total assets and Tier 1 capital equals 8.48% and 9.61% of
risk-weighted total assets.

During 1995, the Company repurchased 15,800 shares of its $1 par common
stock at a price of $12.50 per share, shown as a deduction from the total of
capital stock, paid-in capital and retained earnings.

During 1994, the holding company offered and sold 100,000 shares of its $1
par common stock at $10.50 to the directors and other shareholders of the
Company. The transaction resulted in an additional 100,000 shares outstanding
and an increase in additional paid-in capital of $900,000, net of underwriting
and legal fees.

During 1988 and 1990, the Company issued options to purchase common stock
of the Company to selected directors and officers. The options price per share
is based on the estimated fair value on the date granted.

F-14

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. SHAREHOLDERS' EQUITY -- (CONTINUED)

The following is a summary of options granted:

SHARES OPTION PRICE EXPIRATION
UNDER OPTION PER SHARE DATE

------------- ------------- ------------
Options granted 1988
(Vesting -- 5 years)..................................... 50,000 $ 5.00 5/31/97

Options granted 1988
(Vesting -- 5 years)..................................... 24,000 5.00 5/31/98

Options granted 1988
(Vesting -- 4 years)..................................... 9,166 6.00 5/31/97

Options granted 1990
(Vesting -- 5 years)..................................... 10,000 7.00 5/31/97

Options canceled 1993...................................... (3,333) 6.00
-------------
Balance December 31, 1993, 1994 and 1995................... 89,833 5.29 1.69 years
------------- ------------- ------------
------------- ------------- ------------

9. PENNSYLVANIA SHARES TAX

Effective July 1, 1989, Pennsylvania enacted legislation creating the bank
shares tax and a new bank tax credit allowing a one-time tax credit for banks
chartered after January 1, 1979. The maximum amount of the credit that can be
used in any year is limited to 80% of the tax liability for that year. Under the
revised statute, the Bank's share of the tax liability was reduced by aggregate
credits of approximately $500,000 for the years 1989 through 1991.

Subsequent to July 1, 1989, several lawsuits were brought against the
Pennsylvania Department of Revenue requesting the new bank shares tax and the
new bank tax credit be declared invalid.

On April 22, 1995 the Pennsylvania Department of Revenue negotiated a
settlement with the bank allowing in full the maximum amount of credit to be
applied to the tax liability. As of December 31, 1994 the bank had utilized all
of its tax credits. At December 31, 1995 the bank neither has nor is permitted
by law to have tax credits available to offset future shares tax liability.

10. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and income tax purposes.

F-15

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. INCOME TAXES -- (CONTINUED)

The components of the deferred tax asset recognized in the 1995, 1994 and
1993 balance sheets are as follows:

1995 1994 1993
----------- ----------- -----------

Deferred tax assets:
Deferred loan fees........................................... $ 25,969 $ 36,936 $ 21,636
Loan loss reserve............................................ 658,432 508,378 478,648
Depreciation................................................. 92,496 80,422 73,352
Deferred rent................................................ 16,436 18,715 21,816
Other real estate owned...................................... 6,800 6,800 6,800
Other........................................................ 27,081 -- 2,962
Unrealized depreciation on available for sale investments.... -- 217,449 --
----------- ----------- -----------
Gross deferred tax asset....................................... 827,214 868,700 605,214
----------- ----------- -----------
Deferred tax liabilities:
Unrealized (appreciation) on available for sale
investments............................................... (212,736) -- (353,000)
Other........................................................ -- (12,628) --
----------- ----------- -----------
Gross deferred tax liability................................... (212,736) (12,628) (353,000)
----------- ----------- -----------
Net deferred tax assets........................................ $ 614,478 $ 856,072 $ 252,214
----------- ----------- -----------
----------- ----------- -----------

The components of income tax expense attributed to operations are as
follows:

1995 1994 1993
------------- ----------- -----------
Federal:
Current.......................... $ 1,027,305 $ 517,050 $ 759,204
Deferred......................... (188,591) (33,350) (168,790)
------------- ----------- -----------
$ 838,714 $ 483,700 $ 590,414
------------- ----------- -----------
------------- ----------- -----------

Total income tax expense attributable to operations differed from the
amounts computed by applying the U.S. federal statutory tax rates to pre-tax
income from operations as follows:

1995 1994 1993
----------- ----------- -----------

Provision computed by applying the U.S. statutory rate.... $ 834,761 $ 471,908 $ 595,922
Officer's life insurance.................................. 438 438 438
Business and entertainment expenses....................... 15,595 12,224 3,236
Tax-exempt interest income................................ 4,415 -- --
Loss on asset disposition................................. -- -- (1,546)
Tax credit -- low income.................................. (15,000) -- (3,500)
Other..................................................... (1,495) (870) (4,136)
----------- ----------- -----------
$ 838,714 $ 483,700 $ 590,414
----------- ----------- -----------
----------- ----------- -----------

11. COMMITMENTS AND CONTINGENCIES

The Bank has entered into certain noncancellable leases for bank premises
which are accounted for as operating leases. All lease agreements for office and
banking facilities are with an affiliate of a principal shareholder, except for
the Bala Cynwyd Branch office lease, which is with a nonaffiliate. The lease
terms are for ten years with renewal options for two additional five-year
periods.

F-16

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

Future minimum rental payments, excluding real estate taxes, insurance and
maintenance required under noncancellable operating leases that have initial or
remaining lease terms in excess of one year at December 31, 1995, are as
follows:

1996................................................ $ 395,730
1997................................................ 395,730
1998................................................ 235,570
1999................................................ 177,186
2000................................................ 179,842
Thereafter.......................................... 525,312
-------------
Total............................................. $ 1,909,370
-------------
-------------

The total minimum rent expense for the initial lease term is being expensed
on a straight-line basis over the term of the lease. The difference between
rental expense recognized in the period and actual rental payments is recorded
as a deferred liability. The leases also require the Bank to pay its pro rata
portion of increases over the base year in direct expense such as maintenance,
taxes and insurance.

Rent expense for leases for the years ended December 31, 1995, 1994 and
1993 was $395,730, $348,892 and $293,846, respectively. Of these amounts,
$282,730, $267,720 and $293,846 were for leases with a related party.

Effective January 1, 1992, the Company entered into a five-year employment
agreement with an officer of the Company. The agreement provides for an annual
salary plus increases resulting from merit review.

12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
AND CONCENTRATIONS OF CREDIT RISK

The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to originate and/or purchase
residential, consumer, commercial and construction loans and standby letters of
credit to guarantee performance of a customer to a third party. Such instruments
generally have fixed expiration dates or termination clauses and may require
payment of a fee to the Bank. The Bank uses the same credit policies in
making commitments and issuing standby letters of credit as it does for
on-balance- sheet instruments. However, these instruments are properly not
recorded on the Bank's financial statements.

Credit risk is defined as the possibility of sustaining a loss due to the
failure of the other parties to a financial instrument to perform in accordance
with the terms of the contract. The maximum exposure to credit loss under
commitments to extend credit and standby letters of credit is represented by the
contractual amount of these instruments.

Since some commitments and letters of credit are expected to expire without
being drawn down, the amounts summarized below as of December 31, 1995 and 1994,
respectively, do not necessarily represent future cash requirements.

1995 1994
-------------- --------------
Commitments to extend credit.............. $ 16,319,000 $ 17,183,000
Standby letter of credit.................. 794,000 724,000

Commitments to extend credit are agreements to lend to a customer as long
as they are not in violation of any condition established in the contract.
Commitments generally have fixed expiration

F-17

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
AND CONCENTRATIONS OF CREDIT RISK -- (CONTINUED)

dates or other termination clauses and many require the payment of a fee. The
Company evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained upon extension of credit is based on management's
credit evaluation of the customer. Collateral held varies but may include real
estate, marketable securities, pledged deposits, equipment and accounts
receivable.

Standby letters of credit are conditional commitments issued that guarantee
the performance of a customer to a third party. The credit risk and collateral
policy involved in issuing letters of credit is essentially the same as that
involved in extending loan commitments. The amount of collateral obtained is
based on management's credit evaluation of the customer. Collateral held varies
but may include real estate, marketable securities, pledged deposits, equipment
and accounts receivable.

It is the practice of the Bank to lend primarily in its trade area, which
is principally the Greater Delaware Valley area. The Bank, to a large extent,
extends credit collateralized by real estate. This includes residential and
commercial mortgages, residential and commercial construction loans, home equity
loans and commercial loans collateralized by real estate. These lending
activities could be similarly affected by a downturn in the general economy, the
regional economy or real estate values.

13. OTHER RELATED PARTY TRANSACTIONS

Certain directors, executive officers and their associates and bank
employees are indebted to the Bank. At December 31, 1995 and 1994, the loans
outstanding to these parties amounted to $5,405,000 and $8,780,146,
respectively.

The following table presents a rollforward of the loans outstanding to
these parties, for the year ended December 31, 1995:

Balance, December 31, 1994................................... $ 8,780,146
New loans.................................................... 1,167,663
Repayments and other changes................................. (4,542,809)
-------------
Balance, December 31, 1995................................... $ 5,405,000
-------------
-------------

A law firm affiliated with a principal shareholder serves as counsel to the
Company. Fees and expenses of $183,465, $136,242 and $81,784, respectively, have
been paid or accrued for professional services for the years ended December 31,
1995, 1994 and 1993.

14. LITIGATION

In the normal course of business, litigation and claims may be brought
against the bank. Management, after reviewing developments with legal counsel,
establishes loss contingency reserves as deemed necessary. No such reserves have
been established as of December 31, 1995.

15. RETIREMENT PLANS

The Bank has a defined contribution plan pursuant to the provision of
401(k) of the Internal Revenue Code. The plan covers all employees who meet the
age and service requirements. The plan provides for elective employment
contributions up to 15% of compensation and a 40% matching company contribution
limited to 6%. The total expense relating to current retirement plans was
$31,021, $25,793 and $15,593, for 1995, 1994 and 1993, respectively.

F-18

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, 'Disclosure about Fair
Value of Financial Instruments,' requires disclosure of fair value information
about financial instruments, whether or not recognized on the balance sheet, for
which it is practical to estimate fair value. In cases where quoted market
prices are not available, fair values are based on assumptions including future
cash flows and discount rates. Accordingly, the fair value estimates cannot be
substantiated, may not be realized, and do not represent the underlying value of
the Company.

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

Cash and Cash Equivalents:

The carrying value is a reasonable estimate of fair value.

Investment Securities and Securities Available for Sale:

For investment securities with a quoted market price, fair value is equal
to quoted market prices. If a quoted market price is not available, fair value
is estimated using quoted market prices for similar securities.

Loans:

For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair value is the carrying value. For other homogeneous
categories of loans such as fixed rate commercial loans, residential mortgages
and consumer loans, fair value is estimated based on discounting the estimated
future cash flows using the current rates at which similar loans would be made
to borrowers with similar collateral and credit ratings and for similar
remaining maturities.

Deposit Liabilities:

For checking, savings and money market accounts, fair value is the amount
payable on demand at the reporting date. For time deposits, fair value is
estimated using the rates currently offered for deposits of similar remaining
maturities.

Subordinated Debentures:

Fair value is estimated using the quoted average of the broker bid and ask
price at year end.

Commitments to Extend Credit and Standby Letters of Credit:

For commitments and standby letters of credit expiring within 90 days or
with a variable rate, the settlement amount is a reasonable estimate of fair
value. For commitments and standby letters of credit expiring beyond 90 days or
with a fixed rate, the fair value is the present value of the obligations based
on current loan rates.

F-19

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)

At December 31, 1995, the carrying amount and the estimated fair value of
the Company's financial instruments are as follows:

DECEMBER 31, 1995
----------------------------------
RECORDED
BANK FAIR
AMOUNT VALUE
---------------- ----------------

Financial assets:
Cash and cash equivalents........................................ $ 4,861,330 $ 4,861,330
Investment securities available for sale......................... 49,833,417 49,833,117
Investments held to maturity..................................... 594,525 622,243
FRB stock........................................................ 242,800 242,800
Net loans........................................................ 152,303,798 152,281,999
Financial liabilities:
Deposits
Demand........................................................... 24,404,024 24,404,024
Savings and money market......................................... 24,420,762 24,420,762
Certificates of deposit.......................................... 119,133,520 118,981,600
Subordinate debentures........................................... 1,050,000 1,050,000
Repurchase agreements............................................ 2,778,000 2,778,000
Off balance sheet financial instruments:
Commitments to extend credit..................................... 16,319,000 16,319,000
Standby letters of credit........................................ 794,000 794,000

17. PARENT COMPANY FINANCIAL INFORMATION

Condensed financial statements for First Sterling Bancorp, Inc. only:

Balance Sheets as of December 31, 1995 and 1994:

1995 1994
-------------- --------------

Assets:
Cash................................................................ -- --
Investment in debt of subsidiary.................................... $ 1,050,000 $ 1,050,000
Investment in subsidiary, at equity................................. 11,981,870 9,727,840
-------------- --------------
Total assets............................................... $ 13,031,870 $ 10,777,840
-------------- --------------
-------------- --------------
Liabilities:
Subordinated debentures............................................. 1,050,000 1,050,000
-------------- --------------
Total liabilities.......................................... 1,050,000 1,050,000
-------------- --------------
Shareholders' equity:
Common stock........................................................ 1,470,003 1,470,003
Additional paid-in capital.......................................... 6,621,746 6,621,746
Retained earnings................................................... 3,674,660 2,058,196
Unrealized gains (losses) on investments available for sale, net of
taxes............................................................ 412,961 (422,105)
Treasury stock...................................................... (197,500) --
-------------- --------------
Total shareholders' equity................................. 11,981,870 9,727,840
-------------- --------------
Total liabilities and shareholders' equity................. $ 13,031,870 $ 10,777,840
-------------- --------------
-------------- --------------

F-20

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. PARENT COMPANY FINANCIAL INFORMATION -- (CONTINUED)

Statements of Operations for the years ended December 31, 1995, 1994 and
1993:

1995 1994 1993
------------- ----------- -------------

Income..................................................... $ 78,750 $ 78,750 $ 78,750
Expense.................................................... (78,750) (78,750) (78,750)
Equity in undistributed income of subsidiary............... 1,668,621 956,137 1,206,040
------------- ----------- -------------
Income before income taxes............................... 1,668,621 956,137 1,206,040
Income taxes............................................... -- -- --
------------- ----------- -------------
Net income............................................... $ 1,668,621 $ 956,137 $ 1,206,040
------------- ----------- -------------
------------- ----------- -------------

Statements of Cash Flows for the years ended December 31, 1995, 1994 and
1993:

1995 1994 1993
------------- ------------- -------------

Operating activities:
Net income............................................. $ 1,668,621 $ 956,137 $ 1,206,040
Adjustments to reconcile net income to cash used by
operating activities:
Equity in undistributed earnings of
subsidiary....................................... (1,668,621) (956,137) (1,206,040)
------------- ------------- -------------
Net cash used by operating activities............... -- -- --
Investing activities:
Investments in Subsidiary.............................. -- (1,000,000) --
------------- ------------- -------------
Financing activities:
Proceeds from issuance of Stock........................ -- 1,000,000 --
------------- ------------- -------------
Increase in cash....................................... -- -- --
Cash, beginning of year................................ -- -- --
------------- ------------- -------------
Cash, end of year...................................... -- -- --
------------- ------------- -------------
------------- ------------- -------------

F-21

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
as of June 30, 1996 and December 31, 1995
(Unaudited)

JUNE 30, DECEMBER 31,
1996 1995
---------------- ----------------

ASSETS:
Cash and due from banks....................................................... $ 4,786,755 $ 4,861,330
Fed funds sold................................................................ 1,100,000 0
Investments available for sale................................................ 46,794,977 49,833,117
Investments held to maturity.................................................. 558,170 594,525
Fed Reserve bank stock........................................................ 242,800 242,800
Loans:
Commercial.................................................................. 108,200,710 94,507,827
Mortgage.................................................................... 50,550,846 48,412,745
Consumer.................................................................... 13,742,659 11,701,227
---------------- ----------------
Total loans........................................................... 172,494,215 154,621,799
Allowance for loan loss....................................................... (2,509,006) (2,318,001)
Loans, net............................................................ 169,985,209 152,303,798
Accrued interest receivable................................................... 2,101,247 2,143,807
Premises and equipment, at cost:
Leasehold improvements...................................................... 1,083,330 1,042,817
Furniture, fixtures and equipment........................................... 1,040,470 995,360
Computer equipment and software............................................. 995,980 926,888
---------------- ----------------
3,119,780 2,965,065
Accumulated depreciation...................................................... (2,088,360) (1,915,584)
---------------- ----------------
Premises and equipment, net........................................... 1,031,420 1,049,481
Deferred income taxes......................................................... 827,214 614,478
Prepaid expenses and other assets............................................. 516,446 342,237
---------------- ----------------
Total assets.......................................................... $ 227,944,238 $ 211,985,573
---------------- ----------------
---------------- ----------------
LIABILITIES:
Deposits:
Demand...................................................................... 26,993,002 24,404,024
Savings & money market...................................................... 28,852,448 24,420,762
Certificates of deposit less than $100,000.................................. 92,296,745 96,299,709
Certificates of deposit greater than $100,000............................... 8,872,256 22,833,811
---------------- ----------------
157,014,451 167,958,306

Repurchase agreements....................................................... 5,118,000 2,778,000
Accrued interest payable.................................................... 2,118,397 2,976,922
Accrued liabilities......................................................... 1,345,429 1,594,273
Subordinated debentures..................................................... 1,050,000 1,050,000
FHLB advances............................................................... 28,000,000 0
FHLB notes payable.......................................................... 20,622,268 23,646,201
---------------- ----------------
Total liabilities..................................................... 215,268,545 200,003,702
Shareholders' equity:
Common stock, par value $1 per share; 5,000,000 shares authorized;
1,454,203 shares outstanding................................................ 1,470,003 1,470,003
Additional paid-in capital.................................................... 6,621,747 6,621,747
Retained earnings............................................................. 4,728,915 3,674,660
Unrealized gains (losses) on investments available for sale,
net of taxes................................................................ 52,528 412,961
Treasury stock, 15,800 shares, at cost........................................ 197,500 197,500
---------------- ----------------
Total shareholders' equity............................................ 12,675,693 11,981,871
---------------- ----------------
Total liabilities and shareholders' equity............................ $ 227,944,238 $ 211,985,573
---------------- ----------------
---------------- ----------------

F-22

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
For the Three and Six Months Ended June 30, 1996 and June 30, 1995
(Unaudited)

FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------

Interest Income:
Interest and fees on loans......................... $ 3,885,167 $ 3,067,088 $ 7,488,409 $ 5,872,675
Interest on investment securities and
federal funds................................... 709,796 806,343 1,484,247 1,591,778
Other interest & dividends......................... 72,486 65,602 128,545 114,150
------------- ------------- ------------- -------------
Total interest income........................ 4,667,449 3,939,033 9,101,201 7,578,603
------------- ------------- ------------- -------------
Interest expense:
Interest on savings and money market deposits...... 277,628 233,402 529,327 472,359
Interest on certificates of deposit
less than $100,000.............................. 1,297,254 1,208,384 2,737,100 2,257,203
Interest on certificates of deposit
greater than $100,000........................... 225,986 177,336 559,794 367,671
Other interest..................................... 632,560 504,692 1,035,046 918,374
------------- ------------- ------------- -------------
Total interest expense....................... 2,433,428 2,123,814 4,861,267 4,015,607
------------- ------------- ------------- -------------
Net interest income.......................... 2,234,021 1,815,219 4,239,934 3,562,996
Provision for loan losses............................ 122,000 170,000 185,000 237,000
------------- ------------- ------------- -------------
Net interest income after provision for
loan losses............................... 2,112,021 1,645,219 4,054,934 3,325,996
Other income:
Service charges and other fees..................... 165,800 160,552 343,779 286,003
Gain (loss) on sale of investment
securities...................................... 4,062 3,282 4,062 (17,034)
------------- ------------- ------------- -------------
Net interest income and other
income.................................... 2,281,883 1,809,053 4,402,775 3,594,965
------------- ------------- ------------- -------------
Operating expenses:
Salaries and employee benefits..................... 624,061 531,545 1,260,298 1,065,154
Occupancy.......................................... 374,253 262,461 704,340 514,833
Advertising........................................ 45,000 51,000 110,000 102,000
Insurance.......................................... 17,858 95,967 31,603 191,844
Other.............................................. 357,313 285,099 692,279 561,071
------------- ------------- ------------- -------------
Total operating expenses..................... 1,418,485 1,226,072 2,798,520 2,434,902
------------- ------------- ------------- -------------
Income before income taxes........................... 863,398 582,981 1,604,255 1,160,063

Provision for income taxes........................... 302,000 200,000 550,000 398,000
------------- ------------- ------------- -------------
Net income................................... $ 561,398 $ 382,981 $ 1,054,255 $ 762,063
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income per share -- Primary...................... $ .37 $ .25 $ .69 $ .50
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares outstanding.................. 1,517,647 1,521,836 1,517,647 1,521,836
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income per share assuming full dilution.......... $ .35 $ .24 $ .66 $ .48
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares -- fully diluted............. 1,628,157 1,632,346 1,628,157 1,632,346
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

F-23

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
(UNAUDITED)

SIX MONTHS ENDED JUNE 30,
------------------------------
1996 1995
-------------- --------------

Cash flows from operating activities:
Net income...................................................................... $ 1,054,255 762,063
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses..................................................... 185,000 237,000
Depreciation and amortization................................................. 172,776 147,595
Deferred income tax provision (benefit)....................................... (27,058) (60,001)
Loss (gain) on sale of investments............................................ (4,062) 17,034
(Increase) decrease in accrued interest receivable............................ 42,560 (230,955)
Increase in prepaid expenses and other assets................................. (174,209) (163,686)
Decrease in accrued interest payable.......................................... (858,525) (178,496)
Increase (decrease) in accrued liabilities.................................... (248,844) 497,671
-------------- --------------
Net cash provided by operating activities.................................. 141,893 1,028,225
-------------- --------------

Cash flows used in investing activities:
Net increase in loans........................................................... (17,866,411) (14,576,215)
Purchases of premises and equipment............................................. (154,714) (46,352)
Purchases of securities, available for sale..................................... (11,890,486) (10,107,006)
Purchases of securities, held to maturity....................................... -- (2,965,625)
Proceeds from sales of securities, available for sale........................... 14,391,226 13,462,485
Proceeds from maturities of securities, held to maturity........................ -- 499,918
Principal receipts on securities available for sale............................. 31,705 83,346
-------------- --------------

Net cash used in investing activities...................................... (15,488,680) (13,649,449)
-------------- --------------

Cash flows from financing activities:
Net increase (decrease) in deposits............................................. (10,943,855) 7,930,190
Increase in securities sold under repurchase agreements......................... 2,340,000 (65,000)
Borrowings from Federal Home Loan Bank.......................................... 24,976,067 8,976,067
-------------- --------------

Net cash provided by financing activities.................................. 16,372,212 16,841,257
-------------- --------------

Net increase in cash and cash equivalents....................................... 1,025,425 4,220,033
Cash and cash equivalents at beginning of year.................................. 4,861,330 5,726,529
-------------- --------------

Cash and cash equivalents at end of year........................................ $ 5,886,755 $ 9,946,562
-------------- --------------
-------------- --------------
Supplemental disclosures of cash flow information:
Interest paid................................................................. $ 3,292,000 $ 2,302,000
-------------- --------------
-------------- --------------
Taxes paid.................................................................... $ 655,000 $ 500,000
-------------- --------------
-------------- --------------
Non-cash transactions:
Transfers to other real estate owned.......................................... $ 53,000 $ 155,000
-------------- --------------
-------------- --------------
Change in unrealized gain (loss) on securities available for sale, net of
taxes of ($185,677) and $347,633........................................... $ (360,433) $ 674,817
-------------- --------------
-------------- --------------

F-24

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995, and December 31, 1995
(Unaudited)

1. REPORTING AND ACCOUNTING POLICIES

The accompanying consolidated financial statements include the accounts of
First Sterling Bancorp, Inc. (the 'Company') and its wholly owned subsidiary,
First Sterling Bank, (the 'Bank'). All significant intercompany accounts and
transactions are eliminated in the consolidated statements.

The consolidated balance sheet as of June 30, 1996, as well as the
respective statements of income and cash flows for the three and six month
periods ended June 30, 1996 and 1995, are unaudited. The consolidated balance
sheet as of December 31, 1995 is derived from the Company's audited 1995 Annual
Report and the related footnotes are referenced to the Company's 1995 Annual
Report.

The financial statements reflect all adjustments, which in the opinion of
management are necessary for a fair presentation of the results of the interim
periods and are of a normal and recurring nature. The results for the periods
presented are not necessarily indicative of the full year.

2. ADOPTION OF FINANCIAL ACCOUNTING STANDARDS

The Company adopted Statement of Financial Accounting Standards No. 122
(SFAS 122), 'Accounting for Mortgage Servicing Rights.' The statement requires
the recognition of separate assets relating to the rights to service mortgage
loans for others based on their fair value if it is practicable to estimate
their value. The statement applied prospectively to transactions entered into
during 1996, therefore, there was no cumulative effect upon adoption of this
statement. In addition, this statement did not have a significant effect on the
financial position or results of the Company as of June 30, 1996.

The Company did not adopt Statement of Financial Accounting Standards No.
123 (SFAS 123), 'Accounting for Stock Based Compensation,' but, rather continues
to apply its existing method of accounting for stock-based compensation which is
provided in Accounting Principal Opinion No. 25, 'Accounting for Stock Issued to
Employees' (APB 25). SFAS 123 provides an alternative method of accounting for
stock-based compensation arrangements, based on fair value of the stock-based
compensation utilizing various assumptions regarding the underlying attributes
of the options and the Corporation's stock. The Company will provide pro forma
disclosure of the effect as if SFAS 123 was adopted on net income and earnings
per share in the 1996 notes to consolidated financial statements.

3. MERGER AGREEMENT

On June 12, 1996 the Company entered into an Agreement and Plan of
Reorganization ('Agreement') with Prime Bancorp, Inc. Under the terms of the
Agreement, the Company and Prime Bancorp, Inc. will merge into a newly-formed
Holding Company, New Prime. As a result of the Merger, each share of the
Company's stock shall be converted into the right to receive one share of Prime
stock. The Merger is subject to various conditions, including stockholder
approvals, regulatory approvals from the Board of Governors of the Federal
Reserve System, the banking authorities of the Commonwealth of Pennsylvania and
the Office of Thrift Supervision as well as certain other federal and state
governmental authorities.

4. RELATED PARTY LEASES

During the first quarter of 1996, the Company entered into extended
noncancellable lease agreements for bank premises with an affiliate of a
principal shareholder. The lease arrangements pertain to space currently
occupied by the Bank and consist of three branches and the Company's
headquarters. As part of entering into these lease arrangements, the Company
significantly increased its space in the headquarters building to allow for
future growth. The lease terms are for a period of 10 years with renewal options
for two additional five year periods. The Company also leases space for its Bala
Cynwyd Branch from a non-affiliate.

F-25

FIRST STERLING BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995, and December 31, 1995 -- (Continued)
(UNAUDITED)

4. RELATED PARTY LEASES -- (CONTINUED)

Future minimum rental payments, excluding real estate taxes, insurance and
maintenance required under noncancelable operating leases that have initial or
remaining lease terms in excess of one year at June 30, 1996 are as follows:

AFFILIATED TOTAL
------------- -------------
Six month period ended December 31, 1996...... $ 278,257 $ 335,108
Years ended December 31,
1997..................................... 573,772 689,748
1998..................................... 591,570 709,866
1999..................................... 609,926 730,587
2000..................................... 628,856 751,931
Thereafter.................................... 3,449,672 3,878,270
------------- -------------
Total.................................... $ 6,132,053 $ 7,095,509
------------- -------------
------------- -------------

The leases also require the Company to pay its pro rata portion of
increases over the base year in direct expenses such as maintenance, taxes and
insurance.

Rent expense for leases for the six months ended June 30, 1996 and 1995 was
$397,903 and $215,104, respectively. Of these amounts, $340,903 and $158,479
were for leases to the related party described above.

The Company has entered into an Agreement with the affiliate of the
principal shareholder with respect to the corporate office lease. The Agreement
allows the Company, at its election, to reduce its corporate office tenancy upon
payment of a fee in the amount of $375,000 to the Landlord. Such Agreement, if
exercised, will reduce the expansion space at corporate headquarters by
approximately one-half and reduce the lease term for the balance of such space
from ten years to five years.

It is probable that the Company will exercise its option to reduce its
corporate office tenancy in the event that the pending merger with Prime
Bancorp, Inc. is consummated.

F-26

Annex A

AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement"), is
dated as of June 12, 1996 is made by and between PRIME BANCORP, INC., a Delaware
corporation ("PRIME") and FIRST STERLING BANCORP, INC., a Pennsylvania
corporation ("FIRST STERLING").

BACKGROUND:

First Sterling is a privately owned bank holding company with
its principal executive offices in Devon, Pennsylvania. First Sterling owns all
of the issued and outstanding capital stock of First Sterling Bank, a
Pennsylvania chartered banking organization ("Bank"), consisting solely of
90,000 authorized shares of common stock, each having a par value of $10.00, all
of which shares are issued and outstanding as of the date hereof (collectively
the "Bank Common Stock"). The authorized capitalization of First Sterling
consists solely of 5,000,000 authorized shares of common stock ("First Sterling
Common Stock"), each having a par value of $1.00, of which 1,454,203 shares are
issued and outstanding as of the date hereof.

Prime is a non-diversified saving and loan holding company
with its principal executive offices located in Philadelphia, Pennsylvania. The
authorized capitalization of Prime consists solely of 10,000,000 authorized
shares of common stock, each having a par value of $1.00 ("Prime Common Stock"),
of which 3,723,353 shares are issued and outstanding as of the date hereof, and
5,000,000 authorized shares of preferred stock, each having a par value of $1.00
("Prime Preferred Stock"), of which none are issued and outstanding.

First Sterling has awarded to certain key employees, officers
and directors of the Bank and First Sterling, options to purchase First Sterling
Common Stock ("First Sterling Stock Options"). In connection with the
transactions contemplated hereby, the parties desire that Prime assume as
provided herein the obligations of First Sterling with respect to the First
Sterling Stock Options outstanding as of the date of this Agreement, as such
number may be reduced through exercise or cancellation.

The Board of Directors of each of Prime and First Sterling
deem it advisable and in the best interest of their respective stockholders that
First Sterling merge with and into Prime pursuant to the Merger (as hereafter
defined) hereinafter provided for, and desire to make certain representations,
warranties and agreements in connection with such Merger. The parties intend
that the transactions contemplated by this Agreement shall (i) constitute a
reorganization as described in Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as amended, and the regulations thereunder (the "Code"), and (ii) be
accounted for as a "pooling of interests" under generally accepted accounting
principles.

NOW, THEREFORE, in consideration of the foregoing, the
representations, warranties, covenants and agreements set forth herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, intending to be legally bound, the parties agree as follows:

ARTICLE I
THE MERGER

1.01 The Merger.

(a) First Sterling and Prime will execute and
deliver, and agree subject to the terms and conditions of this Agreement,
to submit to their respective shareholders for adoption and approval as required
under the Delaware General Corporation Law ("DGCL"), or the Pennsylvania
Business Corporation Law ("PBCL"), as applicable, together with this Agreement,
the Plan of Merger in the form attached hereto as Exhibit 1.01, with such
further changes as may be mutually agreed upon by the parties hereto ("Merger
Agreement"), providing for the merger of First Sterling with and into Prime
("Merger") and the conversion of each of the outstanding shares of First
Sterling Common Stock into shares of Prime Common Stock as provided herein and
in the Merger Agreement. From and after the Effective Time (as defined below),
the identity and separate existence of First Sterling shall cease, and Prime
shall succeed, without other transfer, to all the rights, properties, debts and
liabilities of First Sterling.

(b) In connection with the Merger, Prime shall
take such actions as may be necessary to reserve sufficient shares of Prime
Common Stock, prior to the Merger, to permit the issuance of shares of Prime
Common Stock

to the holders of the outstanding shares of First Sterling Common Stock as of
the Effective Time in accordance with the terms of the Merger Agreement and this
Agreement and upon exercise of the First Sterling Stock Options to be assumed by
Prime pursuant to the terms of this Agreement.

1.02 Effective Time of the Merger. Promptly after all
conditions to this Agreement have been satisfied or waived, a certificate and
articles of merger pertaining to the Merger (collectively the "Merger
Documents"), or such other documents reasonably necessary to effect the Merger
shall be executed and filed in accordance with the DGCL and the PBCL, as the
case may be, and the Merger shall become effective substantially simultaneously
in accordance with the terms of the Merger Agreement (such time and date are
referred to herein as the "Effective Time"). The Merger shall have all of the
effects as are set forth in the Merger Agreement, the DGCL and the PBCL.

1.03 Merger Consideration.

(a) Subject to the provisions of this Agreement,
at the Effective Time, automatically by virtue of the Merger, each share of
Prime Common Stock issued and outstanding immediately prior to the Effective
Time, shall be unchanged and shall remain issued and outstanding common stock of
Prime after the Effective Time. The shares of Prime Common Stock owned by First
Sterling or any of its subsidiaries (other than shares held in trust, managed,
custodial or nominee accounts and the like or held by mutual funds for which
First Sterling or any Subsidiary acts as investment advisor, that in any such
case are beneficially owned by third-parties (any such shares, "trust account
shares") and shares acquired in respect of debts previously contracted (any such
shares, "DPC shares")) shall become treasury shares of Prime.

(b) Subject to the provisions of this Agreement,
at the Effective Time, automatically by virtue of the Merger, each share
(excluding shares held by First Sterling or any of its Subsidiaries ("Treasury
Shares") or Prime or any of its Subsidiaries (in each case other than trust
account shares or DPC shares)) of First Sterling Common Stock issued and
outstanding immediately prior to the Effective Time shall become and be
converted into the right to receive one share (subject to possible adjustment as
set forth in Section 1.05 hereof) (the "Exchange Ratio") of Prime Common Stock.
All shares of First Sterling Common Stock owned by First Sterling or its
Subsidiaries as Treasury Shares and all shares of First Sterling Common Stock
owned by Prime or its Subsidiaries (in each case other than trust account shares
or DPC shares) shall be canceled and retired and shall cease to exist, and no
shares of Prime Common Stock or other consideration shall be deliverable in
exchange therefor.

1.04 Fractional Shares. Notwithstanding any other provision
hereof, no fractional shares of Prime Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in connection
with the Merger. In lieu of any fractional shares, Prime shall pay to each
holder of First Sterling Common Stock who would otherwise be entitled to a
fractional share an amount in cash determined by multiplying such fraction by
the average of the last quoted bid and ask prices for Prime Common Stock for the
five trading days immediately preceding the Effective Time, as the same are
reported on the Nasdaq National Market System.

1.05 Anti-Dilution Provisions. In the event Prime changes (or
establishes a record date for changing) the number of shares of Prime Common
Stock issued and outstanding prior to the Effective Time as a result of a stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding Prime Common Stock and the record date therefor shall be prior
to the Effective Time, the Exchange Ratio shall be proportionally adjusted.

1.06 Exchange Procedures.

(a) As of the Effective Time, Prime shall cause
to be deposited with American Stock Transfer & Trust Company (or another
bank or institution selected by Prime and reasonably acceptable to First
Sterling) ("Exchange Agent"), for the benefit of the holders of the then issued
and outstanding shares of First Sterling Common Stock, for exchange in
accordance with this Article I, certificates representing the Prime Common Stock
and cash in lieu of any fractional shares to be issued in exchange for the
issued and outstanding shares of First Sterling Common Stock.

(b) From and after the Effective Time, each
holder of a certificate which immediately prior to the Effective Time,
represented a share of First Sterling Common Stock (other than Treasury Shares
or shares held by Prime or First Sterling excluding trust account shares or DPC
shares), shall be entitled to receive in exchange therefor (or upon provision of
an appropriate affidavit of lost certificate and indemnity bond), upon surrender
thereof to the Exchange Agent (i) a certificate or certificates representing a
number of whole shares of Prime Common Stock into which such holder's First

-2-

Sterling Common Stock were converted pursuant to the Merger, and (ii) the cash
payment, if any, in lieu of the issuance of fractional shares as provided in
Section 1.04 hereof. From and after the Effective Time, Prime shall be entitled
to treat each certificate representing the issued and outstanding shares of
First Sterling Common Stock immediately prior to the Effective Time (each a
"First Sterling Certificate"), which has not yet been surrendered for exchange,
as evidencing the ownership of the number of full shares of Prime Common Stock
into which the First Sterling Common Stock represented by such First Sterling
Certificate shall have been converted pursuant to this Article I,
notwithstanding the failure to surrender such First Sterling Certificate.
However, notwithstanding any other provision of this Agreement, until holders or
transferees of First Sterling Certificates formerly representing First Sterling
Common Stock shall have surrendered them for exchange as provided herein (y) no
dividend or other distribution shall be paid with respect to any shares of Prime
Common Stock represented by such First Sterling Certificates and no payment for
fractional shares shall be made, and (z) without regard to when such First
Sterling Certificates are surrendered for exchange as provided herein, no
interest shall be paid or payable on any dividends, if any, or any amount
payable in respect of fractional shares of Prime Common Stock pursuant to
Section 1.04 hereof. Upon surrender of a First Sterling Certificate which
immediately prior to the Effective Time represented First Sterling Common Stock,
there shall be paid to the holder of such First Sterling Certificate, the amount
of any dividends, if any, which theretofore became payable, but which were not
paid by reason of the holder's failure to surrender such First Sterling
Certificate, with respect to the number of whole shares of Prime Common Stock
represented by such First Sterling Certificate issued upon such surrender. If
any certificate for Prime Common Stock is to be issued in a name other than that
in which the First Sterling Certificate surrendered in exchange therefor is
registered, it shall be a condition of such an exchange that the person
requesting such exchange shall pay any transfer or other taxes required by
reason of the issuance of such certificate for shares of Prime Common Stock in a
name other than that of the registered holder of the First Sterling Certificate
surrendered, or shall establish to the satisfaction of Prime that such tax has
been paid or is not applicable.

(c) As soon as practicable after the Effective
Time, Prime shall make available to the Exchange Agent stock certificates
for the Prime Common Stock required to effect the exchange referred to in this
Article I. The shares of Prime Common Stock into which the shares of First
Sterling Common Stock shall be converted in the Merger shall be deemed to have
been issued at the Effective Time.

(d) Promptly after the Effective Time, Prime
shall cause the Exchange Agent to mail to each holder of record of First
Sterling Certificates the following: (i) a letter of transmittal specifying that
delivery shall be effected and risk of loss and title to the First Sterling
Certificates shall pass, only upon delivery of the First Sterling Certificates
to the Exchange Agent, which letter shall be in a form and contain such
provisions as are mutually agreeable to Prime and First Sterling, and
(ii) instructions for use in effecting the surrender of the First Sterling
Certificates in exchange for certificates representing shares of Prime Common
Stock and cash in lieu of fractional shares. Upon the proper surrender of the
First Sterling Certificate to the Exchange Agent, together with a properly
completed and duly executed letter of transmittal, the holder of such First
Sterling Certificate shall be entitled to receive in exchange therefor (y) a
certificate representing that number of whole shares of Prime Common Stock into
which the First Sterling Common Stock represented by the First Sterling
Certificates surrendered shall have been converted pursuant to the Merger and
(z) a check representing the amount of cash in lieu of any fractional shares and
unpaid dividends and distributions, if any, which such holder has the right to
receive in respect of such First Sterling Certificate surrendered. Each First
Sterling Certificate so surrendered shall forthwith be canceled.

(e) In the event that any shares or funds held
by the Exchange Agent remain unclaimed by the holders of record of First
Sterling Common Stock at the Effective Time for a period of six (6) months after
the Effective Time, such shares and funds shall be redelivered to Prime. Any
shareholders of First Sterling who have not theretofore complied with the
exchange procedures set forth in this Section 1.06, shall thereafter look only
to Prime for payment of their shares of Prime Common Stock, cash in lieu of
fractional shares, and any unpaid dividends and distributions on the Prime
Common Stock deliverable in respect of each share of First Sterling Common
Stock, such shareholder held at the Effective Time, without any interest
thereon. If any outstanding First Sterling Certificates are not surrendered or
the payment for them not claimed prior to the date on which such payments would
otherwise escheat to or become the property of any governmental unit or agency,
the unclaimed items shall, to the extent permitted by abandoned property and
other applicable law, become the property of Prime (and to the extent not in its
possession shall be paid over to it), free and clear of all claims or interest
of any person previously entitled to such claims. Notwithstanding the foregoing,
none of Prime, the Exchange Agent or other person shall be liable to any former
holder of First Sterling Common Stock for any amounts delivered to a public body
or official pursuant to applicable abandoned property, escheat or similar laws.

1.07 Options. Notwithstanding any provision to the contrary
therein, from and after the Effective Time, all First Sterling Stock Options
which are then outstanding and unexercised, shall be converted into and become
options to

-3-

purchase shares of Prime Common Stock, and Prime shall assume each such First
Sterling Stock Option in accordance with the terms of the agreement which
evidences such option; provided, however, that from and after the Effective Time
(i) each First Sterling Stock Option assumed by Prime may be exercised solely to
purchase shares of Prime Common Stock, (ii) the number of shares of Prime Common
Stock purchasable upon exercise of any such First Sterling Stock Option shall be
equal to the number of shares of First Sterling Common Stock that were
purchasable under such First Sterling Stock Option immediately prior to the
Effective Time multiplied by the Exchange Ratio and rounding up to the nearest
whole share, and (iii) the per share exercise price under each such First
Sterling Stock Option shall be adjusted by dividing the per share exercise price
of each such First Sterling Stock Option by the Exchange Ratio and rounding to
the nearest cent. It is intended that the foregoing assumption by Prime of the
obligations with respect to outstanding First Sterling Stock Options shall be
effected in a manner which is consistent with the requirements of Section 424 of
the Code as to any First Sterling Stock Option that is an incentive stock option
as defined in Section 422 of the Code.

ARTICLE II
CLOSING

2.01 Closing. Unless otherwise agreed in writing, the closing
of the Merger ("Closing") shall take place at 2600 One Commerce Square,
Philadelphia, Pennsylvania, on a date not later than five (5) business days
after satisfaction or waiver (subject to applicable law) of the conditions
(excluding the conditions that by their terms cannot be satisfied until the
Closing Date) set forth in Article VI ("Closing Date"), unless another time or
date is agreed to in writing by the parties. If, through no fault of either
Prime, First Sterling or the Bank, Closing is not held on or before March 31,
1997, this Agreement may be terminated by Prime or First Sterling by written
notice to the other.

2.02 Deliveries. In addition to the instruments and
certificates to be delivered and the payments to be made at Closing as provided
in Article I hereof, there shall be delivered, the opinions, certificates,
consents and other documents required to be delivered pursuant to Article VI
hereof.

2.03 Effectiveness. All transactions, deliveries and payments
to take place at the Closing shall be deemed to take place simultaneously and no
transaction, delivery, certificate, consent or other document or payment shall
be deemed made until all transactions, deliveries and payments at the Closing
are completed. All such transactions, deliveries and payments shall be given
effect as of the commencement of business on the Closing Date.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIRST STERLING

Except as disclosed in a disclosure schedule which
specifically refers to the section to which such disclosure relates and is
delivered prior to the execution of this Agreement ("First Sterling Disclosure
Letter"), First Sterling represents and warrants to Prime as follows:

3.01 Organization, Power, Etc., of the Bank. The Bank is a
chartered banking organization duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania, has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted and is duly qualified or licensed and is in good
standing to do business as a foreign corporation in each jurisdiction in which
the property owned, leased or operated by it or the nature of its business, as
now being conducted, makes such qualification necessary, except where the
failure to be so qualified or licensed would not have a material adverse effect
on the business, operations or financial condition of the Bank. The First
Sterling Disclosure Letter sets forth a complete list of the jurisdictions in
which the Bank is qualified or licensed to do business. Prime has heretofore
received true and complete copies of the Articles of Incorporation and Bylaws as
currently in effect, of the Bank.

3.02 Organization, Power, Etc., of First Sterling. First
Sterling is a corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Pennsylvania, has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted and is duly qualified or licensed and is in good standing
to do business as a foreign corporation in each jurisdiction in which the
property owned, leased or operated by it or the nature of its business, as now
being conducted, makes such qualification necessary, except where the failure to
be so qualified or licensed would not have a material adverse effect on the
business, operations or financial condition of First Sterling. The First
Sterling Disclosure Letter sets forth a complete list of the jurisdictions in
which First Sterling is qualified

-4-

or licensed to do business. Prime has heretofore received true and complete
copies of the Articles of Incorporation and Bylaws as currently in effect, of
First Sterling.

3.03 Subsidiaries; Joint Ventures. The Bank has no
Subsidiaries and is not engaged in any joint ventures or partnerships with third
parties. Other than the Bank, First Sterling has no Subsidiaries and is not
engaged in any joint ventures or partnerships with third parties. "Subsidiary"
or "Subsidiaries" shall mean an affiliate (as defined under the federal
securities laws) controlled directly or indirectly through one or more
intermediaries.

3.04 Authorization and Effect of Agreement.

(a) First Sterling has all requisite power and
authority to execute, deliver and perform this Agreement; the execution,
delivery and performance of this Agreement by First Sterling have been duly
authorized by all requisite corporate action; and this Agreement has been duly
executed and delivered by First Sterling and constitutes the legal, valid and
binding obligation of First Sterling, enforceable in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws affecting
creditors' rights generally, or by the principles governing the availability of
equitable remedies.

(b) The execution, delivery and performance by
First Sterling of this Agreement will not violate or conflict with any
provision of law or regulation, any order of any court or other agency of
government, the Articles of Incorporation or Bylaws of First Sterling, the Bank
or any Subsidiary, any judgment, award or decree or any material indenture,
agreement or other instrument to which First Sterling, the Bank or any
Subsidiary is a party, or by which they or any of their properties or assets is
bound or affected, or result in a breach of or constitute (with notice or lapse
of time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the properties or assets of
First Sterling, the Bank or any Subsidiary.

3.05 Capital Stock of the Bank. The authorized capital stock
of the Bank consists solely of 90,000 authorized shares of common stock, each
having a par value of $10.00, all of which are duly authorized, validly issued
and outstanding, fully paid and nonassessable, and no shares are held as
treasury shares by the Bank. None of the Bank Common Stock has been issued in
violation of any preemptive rights of any past or present stockholder of the
Bank or any stock purchase agreement or other agreement to which the Bank or
First Sterling was or is a party or by which either was or is bound. No
subscription, warrant, option, convertible security or other right (contingent
or otherwise) to purchase or acquire any shares of any class of capital stock of
the Bank, or any instrument or securities convertible into capital stock, is
authorized or outstanding. No shares of Bank Common Stock have been reserved for
issuance and neither the Bank nor First Sterling has any obligation or
commitment to authorize, issue, sell, repurchase or redeem any shares of Bank
Common Stock. There is no commitment of the Bank to distribute to holders of any
class of its capital stock any evidences of indebtedness or assets and the Bank
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof. All shares of Bank
Common Stock are owned legally and beneficially by First Sterling, free and
clear of all Liens (as defined in Section 3.11 hereof).

3.06 Capital Stock of First Sterling. The authorized capital
stock of First Sterling consists solely of 5,000,000 authorized shares of common
stock, each having a par value of $1.00, of which 1,454,203 shares are duly
authorized, validly issued and outstanding, fully paid and nonassessable, and
15,800 shares are held as treasury shares by First Sterling. None of the issued
and outstanding shares of First Sterling Common Stock has been issued in
violation of any preemptive rights of any past or present stockholder or any
stock purchase agreement or other agreement to which First Sterling was or is a
party or by which it was or is bound. No subscription, warrant, option,
convertible security or other right (contingent or otherwise) to purchase or
acquire any shares of any class of capital stock of First Sterling, or any
instrument or securities convertible into capital stock, is authorized or
outstanding other than the First Sterling Stock Options and First Sterling
Debentures (as defined in Section 5.02). No shares of First Sterling Common
Stock have been reserved for issuance and First Sterling has no obligation or
commitment to authorize, issue, sell, repurchase or redeem any First Sterling
Common Stock, except pursuant to the First Sterling Stock Options and the First
Sterling Debentures. There is no commitment of First Sterling to distribute to
holders of any class of its capital stock any evidences of indebtedness or
assets and First Sterling has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. There is not now, and at Closing there will not be, any
stockholder agreement, voting trust or other agreement or understanding to which
First Sterling or, to the best of its knowledge, any of its shareholders is a
party or bound relating to the voting of First Sterling Common Stock. All of the
issued and outstanding shares of First Sterling Common Stock have been issued
pursuant to proper and effective exemptions from registration under applicable
federal and state

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securities laws. The First Sterling Disclosure Letter sets forth a true,
accurate and complete list of each First Sterling Stock Option with the name of
the holder, number of shares, term, vesting schedule, grant date, expiration
date and exercise price. No Subsidiary of First Sterling holds any shares of
First Sterling Common Stock.

3.07 Governmental Requirements. The Merger will require
(insofar as the Bank and First Sterling are concerned) the approval or
non-objection of the Pennsylvania Banking Department (the "PADOB"), the Board of
Governors of the Federal Reserve (the "Federal Reserve"), the Federal Deposit
Insurance Corporation ("FDIC") and the U.S. Department of Justice. No other
consent, approval, authorization or permit of, or filing with or notification
to, any governmental entity or Regulatory Agency (except for the filing of
articles of merger and a certificate of merger under the PBCL and DGCL) is
required in order to authorize First Sterling or the Bank to complete the
transactions contemplated by this Agreement. "Regulatory Agency (Agencies)"
shall mean the PADOB, the Federal Reserve, the FDIC, the U.S. Department of
Justice, the Office of Thrift Supervision, the U.S. Securities and Exchange
Commission, the Pennsylvania Securities Commission, the Office of the
Comptroller of the Currency, and each other federal or state governmental agency
or authority charged with the supervision or regulation of financial
institutions or their holding companies or the issuance of securities or engaged
in the insurance of deposits. Neither First Sterling nor any of its Subsidiaries
or any of their respective assets, is a party to or subject to any order,
decree, agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, or has adopted any board resolution
at the request of, any Regulatory Agency.

3.08 Financial Information. First Sterling has previously
delivered to Prime its audited consolidated balance sheets as of December 31,
1993, December 31, 1994 and December 31, 1995, and the related audited
consolidated statements of operations and shareholders' equity and of
consolidated cash flows for the years ended December 31, 1993, December 31, 1994
and December 31, 1995, including the notes thereto (collectively, the "Financial
Statements"), together with the reports thereon of First Sterling's and the
Bank's independent accountants. First Sterling has previously delivered to Prime
its unaudited consolidated balance sheet as of March 31, 1996 and the related
unaudited consolidated statements of operations for the three months ended March
31, 1996 (collectively, the "Interim Financial Statements"). The Financial
Statements and Interim Financial Statements (i) were prepared from the books and
records of First Sterling, the Bank and the Subsidiaries and (ii) present fairly
the consolidated financial position of First Sterling and the Bank,
respectively, as of the respective dates specified therein, and the consolidated
results of operations and retained earnings and of consolidated cash flows of
First Sterling and the Bank, respectively, for the respective periods then
ended, all in conformity with generally accepted accounting principles applied
on a consistent basis (subject in the case of the Interim Financial Statements
to normal, recurring audit adjustments).

3.09 Absence of Undisclosed Liabilities.

(a) Except as and to the extent reflected or
reserved against in the respective Interim Financial Statements of First
Sterling and the Bank and except for other liabilities or obligations which in
the aggregate would not have a material adverse effect on First Sterling, its
financial condition, business or assets, as of March 31, 1996 neither the Bank
nor First Sterling had any liabilities or obligations, secured or unsecured
(whether known or unknown, accrued, absolute, contingent or otherwise) of a
nature customarily accrued, reserved against or disclosed in a balance sheet
prepared in conformity with generally accepted accounting principles, including,
without limitation, (i) any tax liabilities due or to become due, or whether
incurred in respect of or measured by the assets, sales or income of First
Sterling, the Bank or the Subsidiaries for any period to March 31, 1996, or
arising out of transactions entered into or any state of facts existing at such
date, and (ii) any loss contingencies as may be required by generally accepted
accounting principles to be disclosed, if not accrued; and there is no basis for
the assertion against First Sterling, the Bank or any Subsidiary as of March 31,
1996 of any liabilities or obligations not adequately reflected or reserved
against in their respective Interim Financial Statements.

(b) On the Closing Date neither First Sterling,
the Bank nor any Subsidiary will have (i) any loss contingency of a nature
customarily accrued, reserved against or disclosed in a balance sheet prepared
in conformity with generally accepted accounting principles, nor (ii) any other
liabilities or obligations, except as will have been incurred from and after
March 31, 1996 in the ordinary course of business, and consistent with the terms
of this Agreement, in aggregate amounts not materially greater than those
incurred in the comparable period during the prior fiscal year and except for
other liabilities or obligations which in the aggregate would not have a
material adverse effect on First Sterling, its financial condition, business or
assets.

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3.10 Absence of Certain Changes. Since March 31, 1996:

(a) neither First Sterling, the Bank nor any
Subsidiary has conducted its business other than in the ordinary course;

(b) neither First Sterling, the Bank nor any
Subsidiary has suffered any change in its condition (financial or
otherwise), assets, liabilities (accrued, absolute, contingent or otherwise),
earnings, prospects or business, except for changes which have been in the
ordinary course of business and which have not, individually or in the
aggregate, been materially adverse;

(c) neither First Sterling, the Bank nor any
Subsidiary has (i) experienced any labor- management dispute or work
stoppage or any strike which has had or is likely to have a material adverse
effect on First Sterling or (ii) suffered any casualty loss (whether or not
insured) in excess of $50,000 in amount individually;

(d) neither First Sterling, the Bank nor any
Subsidiary has permitted or allowed any of its properties or assets to be
mortgaged, pledged or subjected to any security interest, lien or encumbrance
securing indebtedness or obligations, other than for Liens securing purchase
money debt the aggregate payments on which on any individual obligation do not
exceed $50,000;

(e) neither First Sterling, the Bank nor any
Subsidiary has canceled any material debts or claims, or waived any rights
of substantial value, or sold, leased or transferred any material properties or
assets except for a fair consideration in the ordinary course of business and
consistent with past practice;

(f) neither First Sterling, the Bank nor any
Subsidiary has transferred or granted any rights under any material
concessions, leases, licenses, agreements, patents, inventions, trademarks,
tradenames, servicemarks, brand names or copyrights or with respect to any
know-how owned or used by, or benefitting it other than in the ordinary course
of business;

(g) neither First Sterling, the Bank nor any
Subsidiary has granted any increase in the compensation of its employees
other than in the ordinary course of business consistent with past practice
(including, without limitation, any increase pursuant to any bonus, pension,
profit-sharing or other plan or commitment);

(h) neither First Sterling, the Bank nor any
Subsidiary has made any capital expenditure or commitment for additions to
its property, plant or equipment in excess of $50,000 in the aggregate;

(i) there has not been any change in the
authorized, issued or outstanding capital stock of First Sterling, the Bank
or any Subsidiary, any granting of any stock option or right to purchase shares
of capital stock or the issuance of any security convertible into shares of
capital stock of First Sterling, the Bank or any Subsidiary, any purchase,
redemption, retirement or other acquisition of any shares of capital stock of
First Sterling, the Bank or any Subsidiary, or any agreement to do any of the
foregoing, or any declaration, setting aside, or payment of any dividend or the
making of any other distribution or payment in respect of the capital stock of
First Sterling, the Bank or any Subsidiary;

(j) neither First Sterling, the Bank nor any
Subsidiary has failed to extend credit to any customers or other third
parties doing business with it except in the ordinary course of business
consistent with past practice;

(k) neither First Sterling, the Bank nor any
Subsidiary has failed to use its best efforts to operate its business in
the ordinary course so as to preserve its business intact, to keep available to
Prime the services of the Bank's employees, and to preserve for Prime the
goodwill of the Bank's suppliers, customers and others having business relations
with it;

(l) neither First Sterling, the Bank nor any
Subsidiary has changed any of its accounting principles or the methods of
applying such principles;

(m) no event or circumstance has occurred or
has arisen which may require the Bank or any of its Subsidiaries to write
down or write off all or part of the value of any asset or to establish or
increase any general or specific reserves for losses on any assets; and

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(n) neither First Sterling, the Bank nor any
Subsidiary has agreed, whether in writing or otherwise, to take any of the
actions set forth in this Section 3.10.

3.11 Title, Assets, Absence of Liens, Etc. First Sterling, the
Bank and each of its Subsidiaries has, with respect to all assets and properties
owned or used by it, good and valid, and with respect to all owned real property
marketable and insurable, title, free and clear of all liens, encumbrances,
encroachments, defects, mortgages, pledges, liabilities, options, security
interests, conditional sale or other title retention agreements, assessments,
licenses, covenants, restrictions, reservations, claims, burdens, charges and
rights and interests whatsoever of third parties (collectively, "Liens"), except
for Liens adequately disclosed in the Financial Statements or Interim Financial
Statements.

3.12 Tax Matters. (A) First Sterling, the Bank and the
Subsidiaries have each duly and timely filed (taking into account any extensions
of time to file) with the appropriate federal, state, county, local and foreign
governmental tax authorities all tax returns required to be filed by or with
respect to First Sterling, the Bank and the Subsidiaries pursuant to any
applicable federal, state, county, local or foreign tax laws ("Tax Returns");
(B) such Tax Returns correctly reflect in all material respects all taxes due
and such Tax Returns have not been amended by First Sterling, the Bank or the
Subsidiaries; (C) First Sterling, the Bank and the Subsidiaries (i) have each
paid or properly accrued on the Financial Statements and Interim Financial
Statements, and for periods through March 31, 1996 on their respective books and
records (x) all taxes shown as due and payable on such Tax Returns, (y) all
assessments in respect of any such taxes and (z) all other taxes upon any of
them or upon any of the respective properties, assets, revenues, income or
franchises due and payable in respect of all periods through March 31, 1996, and
(ii) have each paid or properly accrued on their respective books and records
all taxes for any period from the date of the last reporting period covered by
such Tax Returns until the date hereof; (D) there are no tax liens upon any
property of First Sterling, the Bank or any Subsidiary and neither the Bank nor
any Subsidiary has been advised by any tax authority of any proposal to file a
tax lien against it or to claim or assess any deficiency or adjustment to tax;
(E) there is no pending tax examination, or other proceeding with respect to
taxes, involving First Sterling, the Bank or any Subsidiary; (F) the Federal
Income Tax Returns of First Sterling, the Bank and the Subsidiaries have never
been audited and no extensions of the applicable statutes of limitation for any
prior period or periods have been granted; (G) neither First Sterling, the Bank
nor any Subsidiary has disclosed on Form 8275, or on any other form of
disclosure statement included with a Tax Return filed with the Internal Revenue
Service, the existence of any item for purposes of avoiding a substantial
understatement or negligence penalty pursuant to Section 6661 or Section 6662 of
the Code; (H) there are no agreements, waivers or other arrangements providing
for any extension of time with respect to the filing of any Tax Returns by First
Sterling, the Bank or any Subsidiary or the payment by, or assessment against,
First Sterling, the Bank or any Subsidiary of any tax; and (I) First Sterling,
the Bank and each Subsidiary have withheld or collected from each payment made
to each of its respective employees (or has otherwise paid or made provision
for) the amount of all taxes (including but not limited to Federal Income Taxes,
Federal Insurance Contribution Act taxes, state and local income and wage dues,
payroll taxes, workers' compensation and unemployment compensation taxes)
required to be withheld or collected therefrom and has paid (or caused to be
paid) the same in respect of its respective employees, in each case when due.
For purposes of this Agreement, the terms "tax" and "taxes" shall include all
federal, state, county, local and foreign taxes, assessments, duties and
tariffs, including without limitation all income, franchise, property,
production, sales, use, payroll, license, windfall profits, severance,
withholding, excise, gross receipts and other taxes, as well as any interest,
additions or penalties relating thereto and any interest in respect of such
additions or penalties.

No agreement or consent pursuant to Section 341(f) of
the Code has ever been made with respect to First Sterling, the Bank or any
Subsidiary, to any of the assets or properties thereof or to any predecessor
corporation thereof. Further, neither First Sterling nor the Bank nor any
Subsidiary shall make any agreement or consent pursuant to Section 341(f) in
respect of any such corporation or as a result of the transactions contemplated
hereby or otherwise.

None of the assets of First Sterling, the Bank or
the Subsidiaries is required to be treated as being owned by any other
person pursuant to the "safe harbor" leasing provisions of Section 168(f)(8) of
the Internal Revenue Code of 1954 as in effect prior to the repeal of said
leasing provisions.

3.13 Use of Real and Personal Property. The owned and leased
or licensed real and personal property of First Sterling, the Bank and each
Subsidiary are used and operated in compliance and conformity in all material
respects with all applicable material leases, contracts, commitments, licenses
and Permits (as defined in Section 3.14), and conform in all material respects
with all applicable laws, regulations, ordinances and codes, and in each case
are in good operating condition and repair and are adequate and sufficient for
the operation of their respective businesses as presently conducted. The First
Sterling Disclosure Letter sets forth a complete and accurate description of all
owned real property and leased real property and

-8-

material leased personal property, including the principal terms of such leases.
No law, regulation, ordinance or agreement presently in effect precludes or
materially restricts continuation (presently or after Closing) of the present
use of such property in the manner heretofore used by First Sterling, or any
Subsidiary. For these purposes, materiality shall mean leases or other contracts
or commitments where First Sterling or its Subsidiaries are obligated to make
future payments on any such item in excess of $50,000. There are no
nonconforming uses or variances in effect with respect to any plant, facility,
structure or building owned and/or used by First Sterling or any Subsidiary.
Neither First Sterling, the Bank nor any Subsidiary has received notice from any
governmental entity of any material violation of any applicable zoning or
building regulation, ordinance or law, Permit, any health or safety statute,
order, rule, regulation or requirement, or any other law or statute relating to
the use by First Sterling, the Bank and the Subsidiaries of their assets or the
conduct of their businesses in connection therewith, and, so far as is known to
First Sterling and the Bank, there is no such violation. First Sterling and the
Bank know of no pending or threatened condemnation proceedings relating to any
of the owned or leased properties of First Sterling or any Subsidiary which
would have a material adverse effect on First Sterling.

3.14 Conduct of Operations. All permits, licenses, approvals,
consents, franchises and authorizations ("Permits") which are material to the
business, assets or financial condition of First Sterling, the Bank or any
Subsidiary and are required by administrative agencies and other governmental
authorities to be obtained by First Sterling, the Bank or any Subsidiary in
connection with the ownership of their assets and the conduct of their
businesses have been duly obtained and are in effect. First Sterling, the Bank
and each Subsidiary are in good standing under all Permits, and the businesses
of First Sterling, the Bank and each Subsidiary are being conducted in
substantial compliance and conformity with all such Permits. There is not under
any Permit, any existing default or breach which, with notice or lapse of time
or both, would constitute a default. Neither First Sterling, the Bank nor any
Subsidiary has received any claim or notice that any of them is not in
compliance with, or is in violation of, and each of First Sterling, the Bank and
the Subsidiaries are in compliance in all material respects with, all applicable
federal, state, county, local and foreign laws, ordinances and regulations,
reporting and record-keeping requirements, except for such minor violations
which in the aggregate would not have a material adverse effect on First
Sterling, its financial condition, business or assets. Without limiting the
foregoing: the Bank is not conducting any activities, or conducting activities
to a degree or in scope, which it is not permitted to conduct, and the Bank is
not in violation of any "insider loan" requirements or any other lending or
"loans to one borrower" limits.

3.15 Validity of Leases and Contracts. Each material (as
defined in Section 3.13) lease pursuant to which First Sterling, the Bank or any
Subsidiary leases real or personal property, and each other material contract or
commitment of First Sterling, the Bank or any Subsidiary, is valid and
enforceable in all material respects in accordance with its terms, and neither
First Sterling, the Bank or any Subsidiary is in default under any provision of
any such lease or contract or commitment, nor is there any event which, with
notice or lapse of time or both, would constitute a default, whereby cure cannot
be effected without jeopardy to the realization of the benefits of such lease or
contract or commitment or whereby such default would have a material adverse
effect on the business, assets or financial condition of First Sterling, the
Bank or any Subsidiary.

3.16 Validity of Proprietary Rights; Infringement. First
Sterling and the Bank own, possess or lawfully use in the operation of their
respective businesses, all trademarks, trademark applications, copyrights,
tradenames, servicemarks, franchises and other rights of a proprietary nature
(including without limitation, rights to software and rights to trade secrets
and proprietary information, processes and know how) and other authorizations
(collectively, the "Rights") which are utilized in or reasonably necessary to
the conduct of their respective businesses as now or theretofore conducted, free
and clear of all Liens. All of the Rights which are material to First Sterling
or its business not owned exclusively by First Sterling or the Bank are
described in the First Sterling Disclosure Letter. To the best knowledge of
First Sterling and the Bank, no other person is infringing or violating the
Rights, and the use thereof by First Sterling, the Bank and any Subsidiary does
not infringe or violate the rights of any third party. To the best knowledge of
First Sterling and the Bank, they do not violate or infringe the proprietary
rights of any third party in the conduct of their businesses.

3.17 Insurance. First Sterling, the Bank and each Subsidiary,
currently maintains, and has in the past maintained insurance coverages adequate
in kind and amount to cover all reasonably expected risks for all past periods
and any costs for the defense of claims arising from such risks, in each case
consistent with industry practice. All current policies maintained by First
Sterling and the Bank are in full force and effect on the date hereof, and no
notice or threatened notice of cancellation has been received with respect to
any of such policies. All such policies are accurately summarized in the First
Sterling Disclosure Letter. All outstanding claims in excess of 25,000 in amount
with respect to any current or prior insurance policies are accurately and
completely listed in the First Sterling Disclosure Letter. All such policies
having retrospective rating

-9-

plans or paid loss retrospective rating plans have been accounted for in the
Financial Statements and Interim Financial Statements and on the books of the
Bank.

3.18 Loans. All loans included in the numbers reported in the
Interim Financial Statements, and all loans reflected on the Bank's books and
records, are (except where otherwise indicated in the First Sterling Disclosure
Letter) performing, not past due, not classified, not subject to treatment as
"in substance foreclosures", and have not been the subject of restructurings or
workouts, except to the extent reserved for or identified in the Interim
Financial Statements and Financial Statements. Information pertaining to each
loan contained in the related loan file is true and complete in all material
respects.

3.19 Legal Proceedings. There are no actions, suits,
proceedings, arbitrations or investigations, either administrative or judicial
pending or to the knowledge of First Sterling and the Bank threatened or
contemplated by or against First Sterling, the Bank or any Subsidiary or
affecting any of their assets, properties or prospects, at law or in equity or
otherwise, whether or not covered by insurance before or by any court or
governmental entity, domestic or foreign, nor to the best knowledge of First
Sterling and the Bank any disputes or claims threatened which could result in
such proceedings. Neither First Sterling, the Bank nor any Subsidiary is subject
to, or in default with respect to, any indictment, order, injunction, degree or
award of any court, arbitrator or governmental entity, domestic or foreign and
neither First Sterling, the Bank nor any of their respective officers has any
knowledge of any state of facts or the occurrence of any event which might
reasonably form the basis of a claim against First Sterling, the Bank or any
Subsidiary with respect thereto.

3.20 Books of Account, Minute Books and Stock Record Books.
The books of account of First Sterling, the Bank and each Subsidiary
substantially and accurately reflect all of its items of income and expense, and
all of its assets, liabilities and accruals. The corporate minute books and
stock record books of First Sterling, the Bank and each Subsidiary are complete
and correct, accurately reflect action taken at all meetings of their
stockholders and Boards of Directors and each committee (if any) of such Boards
of Directors, and properly and accurately record the issuance and transfer of
all shares of capital stock of First Sterling, the Bank and each Subsidiary.

3.21 Employee Benefits Plans. Except as disclosed in the First
Sterling Disclosure Letter, First Sterling and its Subsidiaries do not and did
not sponsor, maintain, support or contribute to, nor are they or were they
otherwise a party to, or in default under, and do not have and have not had any
liability or accrued obligations under, any plan, program, fund or arrangement,
either qualified or non-qualified for federal income tax purposes, for one or
more employees, their dependents and/or their beneficiaries, including but not
limited to pension or welfare benefit plans, incentive or other benefit
arrangement for any employee ("Plans"). There does not exist any "accumulated
funding deficiency" (within the meaning of Section 412 of the Code, with respect
to any plan sponsored or maintained by First Sterling or its Subsidiaries, and
no contributions have been made, nor benefits accrued, with respect to any plan
or pension which exceed the applicable limitations of Code Section 415. There
does not exist any unfulfilled obligation to contribute with respect to any such
plan for any plan year ending on or before the date hereof, and a favorable
letter of determination or opinion letter has been issued with respect to each
such Plan. There is no unfunded past service liability for any period prior to
April 30, 1996, except for current contributions not made but fully accrued. No
"prohibited transaction" (as defined in either the Employee Retirement Income
Security Act of 1974 as amended ("ERISA"), or Code Section 4978) has occurred
with respect to any Plan, nor is any person contractually bound to enter into
any such transaction. At no time since September 2, 1974 has First Sterling or
its Subsidiaries sponsored, adopted, maintained, contributed to, or been
obligated to contribute to, any single employer, multi-employer or multiple
employer qualified defined benefit plan (as such terms are defined in ERISA
Section 4001). First Sterling and its Subsidiaries have filed or caused to be
filed on a timely basis all returns, reports, statements, notices, declarations
and other documents required by any governmental entity, local, state or federal
(including, without limitation, the Internal Revenue Service, the Department of
Labor and the Pension Benefit Guaranty Corporation), with respect to each Plan.
The representations and warranties of this Section are accurate not only with
respect to First Sterling and the Bank but also with respect to each member of
any "controlled group of corporations" or any group of "trades or businesses
under common control" (as such terms are used in Code Section 414) of which
First Sterling and the Bank is a member.

First Sterling has provided to Prime true and complete copies
of the following: (i) each of the Plans; (ii) summary plan descriptions, if any,
for each of the Plans; (iii) each trust agreement, insurance policy or other
instrument relating to the funding of each of the Plans; (iv) the two most
recent Annual Report (Form 5500 Series) and accompanying schedules filed with
the Internal Revenue Service or United States department of Labor with respect
to each of the Plans; (v) the most recent audited financial statement, if
required by Section 103 of ERISA, for each of the Plans; (vi) the most recent
actuarial report of each Plan, if any, which is a defined benefit plan within
the meaning of Section 414(j) of the Code; (vii) each policy of fiduciary
liability insurance (and agreements related thereto) maintained in connection
with the Plans, and (viii) the most

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recent determination letter issued by the Internal Revenue Service with respect
to each of the Plans that is intended to qualify under Section 401(a) of the
Code.

3.22 Pooling; Reorganization. As of the date hereof, neither
First Sterling, the Bank nor any Subsidiary is aware of any reason why the
transactions contemplated by this Agreement will fail to qualify (i) for pooling
of interests accounting treatment under generally accepted accounting principles
or (ii) as a reorganization under Section 368(a)(1)(A) of the Code.

3.23 Transactions with Affiliates. Neither First Sterling, the
Bank nor any Subsidiary has any contract or commitment or obligation to or with
any affiliate (as defined under the Securities Act of 1933), executive officer
(as defined under Section 16 of the Securities Exchange Act of 1934) or director
of First Sterling that will survive the Closing or that will be required under
item 404 of Regulation S-K of the Securities and Exchange Commission to be
disclosed in the Joint Proxy Statement (as defined in Section 7.03 below),
except for immaterial items such as credit card accounts.

3.24 Environmental Matters. Except as disclosed in the First
Sterling Disclosure Letter, (i) the operations of First Sterling and its
Subsidiaries have not involved the generation, manufacture, refining, transport,
treatment, storage, disposal or release of any substance, waste or combination
of wastes which poses a present or potential threat to human health, living
organisms or environment, or is deemed to be "hazardous" under any federal,
state or local law (collectively "Hazardous Substances"); (ii) there are no
Hazardous Substances located on or under any properties owned or leased by First
Sterling or any Subsidiary; (iii) First Sterling and its Subsidiaries have not
received any notification that it is a "potentially responsible party" with
respect to any potential cleanup at any proposed federal or state "superfund"
location; (iv) First Sterling and its Subsidiaries maintain all material Permits
required under any federal, state or local law relating to the protection of the
environment, and are in compliance with all material terms of such Permits;
(v) First Sterling and its Subsidiaries have not received any written notice of
the existence or pendency of any investigation, claim, suit or legal,
administrative or regulatory proceeding, or any similar action, arising in whole
or in part under any federal, state or local laws relating to the protection of
the environment, with respect to any properties owned or leased by First
Sterling or any Subsidiary or in any way affecting the business, assets, or
operations of First Sterling or any Subsidiary; (vi) First Sterling and its
Subsidiaries have not caused or permitted to exist as a result of an intentional
or unintentional action or omission on its part, a releasing, spilling, leaking,
pumping, emitting, dumping, or discharging of any Hazardous Substances into the
air, ground or ground water of or surrounding any properties owned or leased by
First Sterling or any Subsidiary or any other lands; (vii) there are no
agreements, orders, judgments, decrees, letters or memoranda by or with any
court or governmental entity imposing any liability or obligation on First
Sterling, the Bank or any of its Subsidiaries under any applicable law relating
to the protection of the environment; and (viii) there are no reasonably
anticipated future events, conditions, circumstances, practices, plans or legal
requirements that could give rise to obligations on First Sterling, the Bank or
any of its Subsidiaries under any applicable law relating to the protection of
the environment.

3.25 No Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on by First Sterling
with Prime and its representatives (i) without the intervention of any other
person retained by First Sterling and (ii) in such manner as not to give rise to
any valid claim against any of the parties hereto for a brokerage commission,
finder's fee or other like payment. First Sterling expressly agrees to
indemnify, defend and hold Prime harmless of, from and against any and all
claims for brokers, finders or similar fees, commissions or expenses in
connection with the transactions contemplated by this Agreement asserted by any
person claiming by, through or under First Sterling, the Bank, or any Subsidiary
of First Sterling.

3.26 Disclosure. No representation or warranty of First
Sterling contained in this Agreement, and no statement contained in any
certificate or the First Sterling Disclosure Letter furnished or to be furnished
by or on behalf of First Sterling to Prime or any of its representatives
pursuant hereto, contains or will contain any untrue statement of a material
fact, or omits or will omit to state any material fact necessary, in light of
the circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading or necessary in order to fully and
fairly provide the information required to be provided in any such document,
certificate or letter.

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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PRIME

Except as disclosed in a disclosure schedule which
specifically refers to the section to which such disclosure relates and is
delivered prior to the execution of this Agreement ("Prime Disclosure Letter"),
Prime represents and warrants to First Sterling as follows:

4.01 Organization, Power, Etc., of Prime. Prime is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being conducted
and is duly qualified or licensed and is in good standing to do business as a
foreign corporation in each jurisdiction in which the property owned, leased or
operated by it or the nature of its business, as now being conducted, makes such
qualification necessary, except where the failure to be so qualified or licensed
would not have a material adverse effect on the business, operations or
financial condition of Prime. The Prime Disclosure Letter sets forth a complete
list of the jurisdictions in which Prime is qualified or licensed to do
business. First Sterling has heretofore received true and complete copies of the
Certificate of Incorporation and Bylaws, as currently in effect, of Prime.

4.02 Organization, Power, Etc., of Prime Bank. Prime Bank, a
savings bank ("Prime Bank"), is a Pennsylvania chartered stock savings bank duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted and is duly qualified or licensed and is in good standing to do
business as a foreign corporation in each jurisdiction in which the property
owned, leased or operated by it or the nature of its business, as now being
conducted, makes such qualification necessary, except where the failure to be so
qualified or licensed would not have a material adverse effect on the business,
operations or financial condition of Prime. The Prime Disclosure Letter sets
forth a complete list of the jurisdictions in which Prime Bank is qualified or
licensed to do business. First Sterling has heretofore received true and
complete copies of the Articles of Incorporation and Bylaws as currently in
effect, of Prime Bank.

4.03 Authorization and Effect of Agreement.

(a) Prime has all requisite power and authority
to execute, deliver and perform this Agreement; the execution, delivery and
performance of this Agreement by Prime have been duly authorized by all
requisite corporate action; and this Agreement has been duly executed and
delivered by Prime and constitutes the legal, valid and binding obligation of
Prime, enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by the principles governing the availability of equitable
remedies.

(b) The execution, delivery and performance by
Prime of this Agreement will not violate or conflict with any provision of
law or regulation, any order of any court or other agency of government, the
Certificate of Incorporation or Bylaws of Prime, Prime Bank or any Subsidiary,
any judgment, award or decree or any material indenture, agreement or other
instrument to which Prime, Prime Bank or any Subsidiary is a party, or by which
they or any of their properties or assets is bound or affected, or result in a
breach of or constitute (with notice or lapse of time or both) a default under
any such indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of Prime, Prime Bank or any Subsidiary.

4.04 Capital Stock of Prime. The authorized capital stock of
Prime consists solely of (i) 10,000,000 authorized shares of common stock, each
having a par value of $1.00, being the Prime Common Stock, and (ii) 5,000,000
authorized shares of preferred stock, each having a par value of $1.00, being
the Prime Preferred Stock. There are no shares of Prime Preferred Stock issued
and outstanding. As of June 6, 1996, there are 3,723,353 shares of Prime Common
Stock issued and outstanding, all of which are duly authorized, validly issued
and outstanding, fully paid and non-assessable (the "Prime Shares"), and 184,063
shares are held as treasury shares by Prime. None of the Prime Shares has been
issued in violation of any preemptive rights of any past or present stockholder
or any stock purchase agreement or other agreement to which Prime was or is a
party or by which it was or is bound. No subscription, warrant, option,
convertible security or other right (contingent or otherwise) to purchase or
acquire any shares of any class of capital stock of Prime, or any instrument or
securities convertible into capital stock, is authorized or outstanding, except
for stock options as disclosed in the SEC Documents (as defined in Section
4.06). No shares of Prime Common Stock have been reserved for issuance and Prime
has no obligation or commitment to authorize, issue, sell, repurchase or redeem
any Prime Common Stock, except as disclosed in the SEC Documents. There is no
commitment of Prime to distribute to holders of any class of its capital stock
any evidences of

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indebtedness or assets, other than regularly declared dividends, and Prime has
no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any shares of its capital stock or any interest therein or to pay any dividend
or make any other distribution in respect thereof. There are no stockholder
agreements, voting trusts or other agreements or understandings to which Prime
or, to the best of its knowledge, any of its stockholders, is a party or bound,
relating to the voting of Prime Shares.

4.05 Governmental Requirements. The Merger will require
(insofar as Prime is concerned) the approval or non-objection of the PADOB, the
Office of Thrift Supervision (the "OTS"), the U.S. Department of Justice, the
FDIC, and the Federal Reserve. Prime will be required to register the issuance
of the Prime Common Stock in connection with the Merger with the Securities
Exchange Commission ("SEC"). Prime will also be required to register the
issuance of the Prime Common Stock with, or secure permits or approvals for its
issuance from, or file appropriate notifications with, any applicable state
securities regulatory agencies. No other consent, approval, authorization or
permit of, or filing with or notification to, any governmental entity or
Regulatory Agency (except for the filing of articles of merger and a certificate
of merger under the PBCL and DGCL) is required in order to authorize Prime or
Prime Bank to complete the transactions contemplated by this Agreement. Neither
Prime nor any of its Subsidiaries or any of their respective assets, is a party
to or subject to any order, decree, agreement, memorandum of understanding or
similar arrangement with, or a commitment letter or similar submission to, or
has adopted any board resolution at the request of, any Regulatory Agency.

4.06 Financial Reports and SEC Documents. Its Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, and all other reports,
registration statements, definitive proxy statements or information statements
filed or to be filed by it or any of its subsidiaries subsequent to December 31,
1995 under the Securities Act of 1933, as amended (together with the rules and
regulations thereunder, the "Securities Act"), or under Sections 13(a), 13(c),
14 and 15(d) of the Securities Exchange Act of 1934, as amended (together with
the rules and regulations thereunder, the "Exchange Act"), in the form filed, or
to be filed (collectively, its "SEC Documents"), with the SEC (i) complied or
will comply as of the date of filing thereof in all material respects as to form
with the applicable requirements under the Exchange Act and (ii) did not and
will not contain as of the date of filing thereof any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading; and each of the balance sheets in or
incorporated by reference into any such SEC Document (including the related
notes and schedules thereto) fairly presents and will fairly present the
financial position of the entity or entities to which it relates as of its date
and each of the statements of income and changes in shareholders' equity and
cash flows or equivalent statements in such report and documents (including any
related notes and schedules thereto) fairly presents and will fairly present the
results of operations, changes in shareholders' equity and changes in cash
flows, as the case may be, of the entity or entities to which it relates for the
periods set forth therein, in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved, except
in each case as may be noted therein, subject to normal and recurring year-end
audit adjustments in the case of unaudited statements. All material agreements,
contracts and other documents required to be filed by it as exhibits to any SEC
Document have been so filed.

4.07 Absence of Certain Changes. Since March 31, 1996, there
has not occurred or arisen any event, individually or in the aggregate, having
or which, insofar as reasonably can be foreseen, in the future is likely to
have, a material adverse effect upon Prime or its financial condition, assets or
business.

4.08 Tax Matters. Prime and its Subsidiaries have each duly
and timely filed (taking into account any extensions of time to file) all Tax
Returns required to be filed by each of them with the appropriate federal,
state, county, local and foreign governmental tax authorities. All such Tax
Returns correctly reflect in all material respects all taxes due and such Tax
Returns have not been amended by Prime or its Subsidiaries. All taxes required
to be paid in respect of periods covered by the Tax Returns, and in respect of
all periods subsequent to the last reporting period covered by the Tax Returns,
have either been paid or fully accrued on the books of Prime and each of its
Subsidiaries, and have been accurately reflected in the financial statements
contained in the SEC Documents. There are no tax liens upon any property of
Prime or any of its Subsidiaries, and Prime has not been advised by any tax
authority of any proposal to file a tax lien against it or any of its
Subsidiaries or to claim or assess any deficiency or adjustment to tax. There is
no pending tax examination, or other proceeding with respect to taxes, involving
Prime or any Subsidiary. The Federal Income Tax Returns of Prime have been
audited and settled through December 31, 1981, however Prime is awaiting final
assessment of tax and interest in connection with such audit. No extensions of
the applicable statutes of limitation for any prior period or periods have been
granted except in connection with the 1981 Federal Income Tax audit. Neither
Prime nor any Subsidiary has disclosed on Form 8275, or on any other form of
disclosure statement included with a Tax Return filed with the Internal Revenue
Service, the existence of any item for purposes of avoiding a substantial
understatement or negligence penalty pursuant to Sections 6661 or 6662 of the
Code. There are no agreements,

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waivers or other arrangements providing for any extension of time with respect
to the filing of any Tax Returns by Prime or any of its Subsidiaries or the
payment by, or assessment against, Prime or any Subsidiary of any tax. Prime and
each Subsidiary have withheld or collected from each payment made to each of its
respective employees (or has otherwise paid or made provision for) the amount of
all taxes (including but not limited to Federal Income Taxes, Federal Insurance
Contribution Act taxes, state and local income and wage dues, payroll taxes,
workers' compensation and unemployment compensation taxes) required to be
withheld or collected therefrom and has paid (or caused to be paid) the same in
respect of its respective employees, in each case when due.

No agreement or consent pursuant to Section 341(f) of
the Code has ever been made with respect to Prime or any Subsidiary, to any of
the assets or properties thereof or to any predecessor corporation thereof.
Neither Prime nor any Subsidiary shall make any agreement or consent pursuant to
Section 341(f) in respect of any such corporation or as a result of the
transactions contemplated hereby or otherwise.

None of the assets of Prime or the Subsidiaries is
required to be treated as being owned by any other person pursuant to the
"safe harbor" leasing provisions of Section 168(f)(8) of the Internal Revenue
Code of 1954 as in effect prior to the repeal of said leasing provisions.

4.09 Conduct of Operations. All Permits which are material to
the business, assets or financial condition of Prime or any Subsidiary and are
required by administrative agencies and other governmental authorities to be
obtained by Prime or any Subsidiary in connection with the ownership of their
assets and the conduct of their businesses have been duly obtained and are in
effect. Prime and each Subsidiary is in good standing under all Permits, and the
businesses of Prime and each Subsidiary are being conducted in substantial
compliance and conformity with all such Permits. There is not under any Permit,
any existing default or breach which, with notice or lapse of time or both,
would constitute a default. Neither Prime nor any Subsidiary has received any
claim or notice that any of them is not in compliance with, or is in violation
of, and each of Prime and the Subsidiaries are in compliance in all material
respects with, all applicable federal, state, county, local and foreign laws,
ordinances and regulations, reporting and record-keeping requirements, except
for such minor violations which in the aggregate would not have a material
adverse effect on Prime, its financial condition, business or assets. Without
limiting the foregoing: Prime Bank is not conducting any activities, or
conducting activities to a degree or in scope, which it is not permitted to
conduct, and the Bank is not in violation of any "insider loan" requirements or
any other lending or "loans to one borrower" limits.

4.10 Legal Proceedings. There are no actions, suits,
proceedings, arbitrations or investigations, either administrative or judicial
pending or to the knowledge of Prime threatened or contemplated by or against
Prime or any Subsidiary or affecting any of their assets, properties or
prospects, at law or in equity or otherwise, before or by any court or
governmental entity, domestic or foreign, nor to the best knowledge of Prime any
disputes or claims threatened which could result in such proceedings, in each
case which is reasonably likely to have a material adverse effect on Prime, its
financial condition, assets or business. Neither Prime nor any Subsidiary is
subject to, or in default with respect to, any indictment, order, injunction,
degree or award of any court, arbitrator or governmental entity, domestic or
foreign, and neither Prime nor any of its officers has any knowledge of any
state of facts or the occurrence of any event which might reasonably form the
basis of a material claim against Prime or any Subsidiary with respect thereto.

4.11 Pooling; Reorganization. As of the date hereof, Prime is
not aware of any reason why the transactions contemplated by this Agreement will
fail to qualify (i) for pooling of interests accounting treatment under
generally accepted accounting principles or (ii) as a reorganization under
Section 368(a)(1)(A) of the Code.

4.12 Environmental Matters. Except as disclosed in the Prime
Disclosure Letter, (i) the operations of Prime and its Subsidiaries have not
involved the generation, manufacture, refining, transport, treatment, storage,
disposal or release of any Hazardous Substances; (ii) there are no Hazardous
Substances located on or under any properties owned or leased by Prime or any
Subsidiary; (iii) Prime and its Subsidiaries have not received any notification
that it is a "potentially responsible party" with respect to any potential
cleanup at any proposed federal or state "superfund" location; (iv) Prime and
its Subsidiaries maintains all material Permits required under any federal,
state or local law relating to the protection of the environment, and is in
compliance with all material terms of such Permits; (v) Prime has not received
any written notice of the existence or pendency of any investigation, claim,
suit or legal, administrative or regulatory proceeding, or any similar action,
arising in whole or in part under any federal, state or local laws relating to
the protection of the environment, with respect to any properties owned or
leased by Prime or any Subsidiary or in any way affecting the business, assets,
or operations of Prime or any Subsidiary; (vi) Prime and its Subsidiaries have
not caused or permitted to exist as a result of an intentional or unintentional

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action or omission on its part, a releasing, spilling, leaking, pumping,
emitting, dumping, or discharging of any Hazardous Substances into the air,
ground or ground water of or surrounding any properties owned or leased by Prime
or any Subsidiary or any other lands; (vii) there are no agreements, orders,
judgments, decrees, letters or memoranda by or with any court or governmental
entity imposing any liability or obligation on Prime or any of its Subsidiaries
under any applicable law relating to the protection of the environment; and
(viii) there are no reasonably anticipated future events, conditions,
circumstances, practices, plans or legal requirements that could give rise to
obligations on Prime or any of its Subsidiaries under any applicable law
relating to the protection of the environment.

4.13 No Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on by Prime with
First Sterling and their representatives (i) without the intervention of any
other person retained by Prime, other than its financial advisor Berwind
Financial Group, L.P. and (ii) in such manner as not to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finder's fee
or other like payment. Prime expressly agrees to indemnify, defend and hold
First Sterling harmless of, from and against any and all claims for brokers,
finders or similar fees, commissions or expenses in connection with the
transactions contemplated by this Agreement asserted by any person claiming by,
through or under Prime, Prime Bank, or any Subsidiary of Prime.

4.14 Books of Account, Minute Books and Stock Record Books.
The books of account of Prime and each Subsidiary substantially and accurately
reflect all of its items of income and expense, and all of its assets,
liabilities and accruals. The corporate minute books and stock record books of
Prime and each Subsidiary are complete and correct, accurately reflect action
taken at all meetings of their stockholders and Boards of Directors and each
committee (if any) of such Boards of Directors, and properly and accurately
record the issuance and transfer of all shares of capital stock of Prime and
each Subsidiary.

4.15 Absence of Undisclosed Liabilities.

(a) Except as and to the extent reflected or
reserved against in the SEC Documents and except for other liabilities or
obligations which in the aggregate would not have a material adverse effect on
Prime, its financial condition, business or assets, as of March 31, 1996, Prime
had no liabilities or obligations, secured or unsecured (whether known or
unknown, accrued, absolute, contingent or otherwise) of a nature customarily
accrued, reserved against or disclosed in a balance sheet prepared in conformity
with generally accepted accounting principles, including, without limitation,
(i) any tax liabilities due or to become due, or whether incurred in respect of
or measured by the assets, sales or income of Prime or the Subsidiaries for any
period to March 31, 1996, or arising out of transactions entered into or any
state of facts existing at such date, and (ii) any loss contingencies as may be
required by generally accepted accounting principles to be disclosed, if not
accrued; and there is no basis for the assertion against Prime or any Subsidiary
as of March 31, 1996 of any liabilities or obligations not adequately reflected
or reserved against in the SEC Documents.

(b) On the Closing Date neither Prime nor any
Subsidiary will have (i) any loss contingency of a nature customarily
accrued, reserved against or disclosed in a balance sheet prepared in conformity
with generally accepted accounting principles, or (ii) any other liabilities or
obligations, except as will have been incurred from and after March 31, 1996 in
the ordinary course of business, and consistent with the terms of this
Agreement, in aggregate amounts not materially greater than those incurred in
the comparable period during the prior fiscal year and except for other
liabilities or obligations which in the aggregate would not have a material
adverse effect on Prime, its financial condition, business or assets.

4.16 Loans. All loans included in the numbers reported in the
SEC Documents, and all loans reflected on Prime Bank's books and records, are
(except where otherwise indicated in the Prime Disclosure Letter) performing,
not past due, not classified, not subject to treatment as "in substance
foreclosures", and have not been the subject of restructurings or workouts,
except to the extent reserved for or identified in the SEC Document. Information
pertaining to each loan contained in the related loan file is true and complete
in all material respects.

4.17 Disclosure. No representation or warranty of Prime
contained in this Agreement and in no statement contained in any certificate or
the Prime Disclosure Letter furnished or to be furnished by or on behalf of
Prime to First Sterling or any of its representatives pursuant hereto, contains
or will contain any untrue statement of a material fact, or omits or will omit
to state any material fact necessary, in light of the circumstances under which
it was or will be made, in order to make the statements herein or therein not
misleading or necessary in order to fully and fairly provide the information
required to be provided in any such document, certificate or letter.

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ARTICLE V
CONDUCT OF BUSINESS PRIOR TO CLOSING

From the date hereof until the Closing, except as expressly
contemplated in this Agreement, (i) without the prior written consent of Prime
(which consent shall not be unreasonably withheld or delayed) First Sterling
will not, and will cause each of its Subsidiaries not to, and (ii) without the
prior written consent of First Sterling (which consent shall not be unreasonably
withheld or delayed) Prime will not, and will cause each of its Subsidiaries not
to:

5.01 Ordinary Course. Conduct the business of it and its
Subsidiaries other than in the ordinary and usual course or, to the extent
consistent therewith, fail to use reasonable efforts to preserve intact their
business organizations and assets and maintain their rights, franchises and
existing relations with customers, suppliers, employees and business associates,
or knowingly take any action that would, or might reasonably be expected to
(unless such action is required by law or sound banking practice) (i) adversely
affect the ability of any party to obtain any necessary approvals of any
Regulatory Agencies required for the transactions contemplated hereby without
the imposition of any burdensome condition of the type referred to in Section
6.02 or (ii) adversely affect its ability to perform any of its material
obligations under this Agreement.

5.02 Capital Stock. Other than (i) pursuant to the exercise of
stock options outstanding on the date hereof, or (ii) in the case of First
Sterling, the issuance of First Sterling Common Stock in connection with the
conversion of First Sterling's 7.5% Convertible Subordinated Debentures ("First
Sterling Debentures"), or (iii) in the case of Prime, pursuant to employee
benefit plans or programs in effect on the date of this Agreement, issue, sell
or otherwise permit to become outstanding any additional shares of capital
stock, any stock appreciation rights, or any options, warrants, convertible
security or other right (contingent or otherwise) to purchase or acquire any
such securities, enter into any agreement with respect to the foregoing, or make
any new grants of employee stock options, stock appreciation rights, or similar
stock-based employee rights prior to the Closing; provided however, Prime shall
be permitted to make grants of stock options to key employees in accordance with
past practice without being in violation of this Section 5.02.

5.03 Dividends; Changes in Stock. (1) Make, declare or pay any
dividend on or in respect of, or declare or make any distribution on any shares
of its capital stock, except Prime may continue the declaration and payment of
regular quarterly cash dividends not in excess of $.17 per share of Prime Common
Stock (provided, however, that commencing with the last dividend paid in 1996,
Prime may increase the amount of regular quarterly cash dividends per share)
with usual record and payment dates for such dividends in accordance with past
dividend practice, and (2) directly or indirectly combine, redeem, reclassify,
purchase or otherwise acquire, any shares of its capital stock (other than
acquisition of trust account shares in the ordinary course of business).

5.04 Compensation; Employment Agreements; Etc. In the case of
First Sterling and its Subsidiaries, enter into or amend any employment,
severance or similar agreements or arrangements with any of its directors,
officers or employees, or grant any salary or wage increase or increase any
employee benefit (including incentive or bonus payments), except for (i) normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice (including taking into account deferred
increases) or (ii) other changes as may be required by law or to satisfy
contractual obligations existing as of the date hereof consistent with past
practice, which to the extent practicable, have been disclosed in the First
Sterling Disclosure Letter.

5.05 Benefit Plans. In the case of First Sterling and its
Subsidiaries, enter into or modify (except as may be required by applicable law
or to satisfy contractual obligations existing as of the date hereof, which have
been disclosed in First Sterling Disclosure Letter) any pension, retirement,
stock option, stock purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement related thereto,
in respect of any of its directors, officers or other employees, including
without limitation taking any action that accelerates the vesting, exercise or
payment of any benefits payable thereunder.

5.06 Acquisitions and Dispositions. Except as disclosed in
their respective Disclosure Letters and except for dispositions and acquisitions
of assets in the ordinary and usual course of business consistent with past
practice, dispose of or discontinue any portion of its assets, business or
properties, which is material to it and its Subsidiaries taken as a whole, or
merge or consolidate with, or acquire (other than by way of foreclosures or
acquisitions of control in a bona fide fiduciary capacity or in satisfaction of
debts previously contracted in good faith, in each case in the ordinary and
usual course of business consistent with past practice) all or any portion of,
the business or property of any other entity (any of the foregoing, a "Business
Combination Transaction"), except that Prime may enter into an agreement or
agreements for, and may consummate, Business

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Combination Transactions in which the aggregate purchase price or prices paid by
Prime and/or its Subsidiaries does not exceed $10 million or the aggregate
number of shares of Prime Common Stock issuable does not exceed 10% of the
number of such shares outstanding on December 31, 1995 (the "10% Limit").
Notwithstanding the foregoing, with the prior consent of a majority of the First
Sterling Board of Directors, Prime may enter into an agreement or agreements for
Business Combination Transactions in which the aggregate purchase price or
prices paid exceeds $10 million or includes shares of Prime Common Stock in
excess of the 10% Limit.

5.07 Amendment. Amend its articles or certificate of
incorporation or by-laws (or similar constitutive documents), except that Prime
may amend its Certificate of Incorporation to increase its authorized common
stock or to make any other amendments which it may deem necessary or appropriate
to complete the transactions contemplated by this Agreement.

5.08 Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required by
generally accepted accounting principles.

5.09 Adverse Actions. (1) Knowingly take any action that
would, or is reasonably likely to, prevent or impede the transactions
contemplated hereby from qualifying (i) for pooling of interests accounting
treatment or (ii) as a reorganization within the meaning of Section 368(a) of
the Code; or (2) knowingly take any action that is intended or is reasonably
likely to result in (x) any of its representations and warranties set forth in
this Agreement being or becoming untrue in any material respect at any time
prior to the Closing, (y) any of the conditions to the transactions contemplated
hereby set forth in Article VI not being satisfied, or (z) a material violation
of any provision of this Agreement, except in each case, as may be required by
applicable law; provided however, in the event that any action required to be
taken by applicable law would have a material adverse effect upon the financial
position, business or operations of either party hereto, the other party shall
have the right to terminate its obligations under this Agreement without further
penalty or obligation on either party (but only if such required action was not
due to some other fact or circumstance which itself constitutes a breach of
warranty or covenant contained herein, otherwise the provisions of Article VIII
shall apply), by giving written notice of its election to terminate this
Agreement within ten (10) days after it is given notice of the taking of the
required action having the material adverse effect.

5.10 Indebtedness. No party shall, or shall permit any of its
Subsidiaries to, incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of such party or any of its Subsidiaries or
guarantee any debt securities of such party or any of its subsidiaries or
guarantee any debt securities of others other than (i) in replacement for
existing or maturing debt, (ii) indebtedness of any Subsidiary of Prime to Prime
or to another subsidiary of Prime, (iii) indebtedness of any Subsidiary of First
Sterling to First Sterling or to another Subsidiary of First Sterling,
(iv) short-term indebtedness in the ordinary course of business consistent with
prior practice, or (v) gap management transactions entered into in the ordinary
course of business consistent with past practice.

5.11 Agreements. Agree or commit to do anything prohibited by
Sections 5.01 through 5.10.

ARTICLE VI
PRE-CONDITIONS TO CLOSING

The obligation of each of the parties to consummate the
transactions contemplated hereby is conditioned upon the satisfaction at or
prior to the Closing of each of the following (except that only First Sterling's
obligations are conditioned upon satisfaction of Section 6.06 and only Prime's
obligations are conditioned upon satisfaction of Sections 6.07, 6.12, 6.14 and
6.15):

6.01 Shareholder Vote. Approval of (i) this Agreement by the
requisite votes of the shareholders of First Sterling and Prime and (ii) in the
case of Prime, any necessary or appropriate amendment to its Certificate of
Incorporation by the requisite vote of the shareholders of Prime;

6.02 Regulatory Approvals. Procurement by Prime and First
Sterling of all requisite approvals and consents of Regulatory Agencies, and the
expiration of the statutory waiting period or periods relating thereto, and such
approvals and consents shall not impose any condition or restriction upon Prime
or its Subsidiaries which would be reasonably expected either (i) to have a
material adverse effect after the Closing on the present or prospective
consolidated financial

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condition, business or operating results of Prime, or (ii) to prevent the
parties from realizing the major portion of the economic benefits of the
transactions contemplated hereby that they currently anticipate obtaining
therefrom;

6.03 Third Party Consents. All consents or approvals of all
persons (other than Regulatory Agencies) required for the completion of the
transactions contemplated hereby shall have been obtained and shall be in full
force and effect, unless the failure to obtain any such consent or approval is
not reasonably likely to have, individually or in the aggregate, a material
adverse effect on First Sterling or Prime;

6.04 No Injunction, Etc. No order, decree or injunction of any
court or agency of competent jurisdiction shall be in effect, and no law,
statute or regulation shall have been enacted or adopted, that enjoins,
prohibits or makes illegal consummation of the transactions contemplated hereby
(each party agreeing to use its best efforts to have such order, decree or
injunction lifted);

6.05 Pooling Letters. First Sterling shall have received from
Coopers & Lybrand, L.L.P. independent auditors for First Sterling, and Prime
shall have received from KPMG Peat Marwick LLP, independent auditors for Prime,
letters, dated the date of or shortly prior to the mailing date of the Joint
Proxy Statement (as defined in Section 7.03 below), to the effect that, if
consummated in accordance with this Agreement, the transaction contemplated
hereby qualifies for pooling of interests accounting treatment;

6.06 Representations, Warranties and Covenants of Prime.
(i) Each of the representations and warranties contained herein of Prime
shall be true and correct as of the date of this Agreement and upon the Closing
Date with the same effect as though all such representations and warranties had
been made on the Closing Date, except for any such representations and
warranties made as of a specified date, which shall be true and correct as of
such date, (ii) each and all of the agreements and covenants of Prime to be
performed and complied with pursuant to this Agreement on or prior to the
Closing Date shall have been duly performed and complied with in all material
respects, and (iii) First Sterling shall have received a certificate signed by
the Chief Executive Officer of Prime, dated the Closing Date, to the effect set
forth in clauses (i) and (ii);

6.07 Representations, Warranties and Covenants of First
Sterling. (i) Each of the representations and warranties contained herein of
First Sterling shall be true and correct as of the date of this Agreement and
upon the Closing Date with the same effect as though all such representations
and warranties had been made on the Closing Date, except for any such
representations and warranties made as of a specified date, which shall be true
and correct as of such date, (ii) each and all of the agreements and covenants
of First Sterling to be performed and complied with pursuant to this Agreement
on or prior to the Closing Date shall have been duly performed and complied with
in all material respects, and (iii) Prime shall have received a certificate
signed by the Chief Executive Officer of First Sterling, dated the Closing Date,
to the effect set forth in clauses (i) and (ii);

6.08 Effective Registration Statement. The Registration
Statement (as defined in Section 7.03 below) shall have become effective and no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC or any other governmental entity;

6.09 Blue-Sky Permits. Prime shall have received all state
securities laws and "blue sky" permits necessary to consummate the transactions
contemplated hereby;

6.10 Tax Opinion. Prime shall have received an opinion from
Stradley, Ronon, Stevens & Young, and First Sterling shall have received an
opinion from its tax counsel, to the effect that (i) the transactions
contemplated hereby constitute a reorganization under Section 368 of the Code,
and (ii) no gain or loss will be recognized by shareholders of First Sterling
who receive shares of Prime Common Stock in exchange for their shares of First
Sterling Common Stock upon the consummation of the Merger, except that gain or
loss may be recognized as to cash received in lieu of fractional share
interests; in rendering their respective opinions, each such counsel may require
and rely upon representations and agreements contained in certificates of
officers of Prime, First Sterling, and others and investment intent letters from
executive officers and one percent shareholders of First Sterling;

6.11 Nasdaq/National Market Listing. The shares of Prime
Common Stock issuable pursuant to this Agreement shall have been approved
for listing on the Nasdaq/National Market, subject to official notice of
issuance;

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6.12 Legal Opinions. Prime shall have received an opinion from
Kania, Lindner, Lasak and Feeney, and First Sterling shall have received an
opinion from Stradley, Ronon, Stevens & Young, LLP and such other legal counsel
chosen by Prime to provide opinions on Delaware law matters, in each case in
form and substance reasonably satisfactory to the recipient, covering such
matters as are customary for transactions of the nature contemplated by this
Agreement; and

6.13 Opinion of Financial Advisor. Prime shall have received
from its financial advisor an opinion, as of a date no earlier than three
business days prior to the mailing of the Joint Proxy Statement to its
shareholders, as to the fairness of the consideration to be received by Prime
from a financial point of view, as contemplated by this Agreement, and shall
include such opinion in the Joint Proxy Statement.

ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS

First Sterling hereby covenants to and agrees with Prime, and
Prime hereby covenants to and agrees with First Sterling, that:

7.01 Reasonable Best Efforts. Subject to the terms and
conditions of this Agreement, it shall use its reasonable best efforts in good
faith to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or desirable, or advisable under applicable
laws, so as to permit consummation of the Merger as promptly as reasonably
practicable and shall cooperate fully with the other party hereto to that end.

7.02 Shareholder Approvals. Each of them shall take, in
accordance with applicable law, National Association of Securities Dealers
Automated Quotation ("Nasdaq") National Market System ("NMS") rules in the case
of Prime, and its respective articles or certificate of incorporation and
by-laws, all action necessary to convene, respectively, (i) an appropriate
meeting of shareholders of Prime to consider and vote upon (A) any amendment to
the certificate of incorporation of Prime as may be necessary or appropriate to
consummate the Merger and (B) the approval of the Merger (the "Prime Meeting"),
and (ii) an appropriate meeting of shareholders of First Sterling to consider
and vote upon the approval of the Merger (the "First Sterling Meeting"; each of
the Prime Meeting and the First Sterling meeting, a "Meeting"), respectively, as
promptly as practicable after the Registration Statement is declared effective.
The Board of Directors of each of Prime and First Sterling will recommend
approval of such matters, and each of Prime and First Sterling will take all
reasonable lawful action to solicit such approval by its respective
shareholders. First Sterling and Prime shall coordinate and cooperate with
respect to the timing of such meetings and shall use their best efforts to hold
such meetings on the same day.

7.03 Registration Statement.

(a) Each of Prime and First Sterling agrees to
cooperate in the preparation of a registration statement on Form S-4 (the
"Registration Statement") to be filed by Prime with the SEC in connection with
the issuance of Prime Common Stock pursuant to the Merger (including the joint
proxy statement and prospectus and other proxy solicitation materials of Prime
and First Sterling constituting a part thereof (the "Joint Proxy Statement")).
Each of First Sterling and Prime agrees to use all reasonable efforts to cause
the Registration Statement to be declared effective under the Securities Act as
promptly as reasonably practicable after filing thereof. Prime also agrees to
use all reasonable efforts to obtain all necessary state securities law or "Blue
Sky" permits and approvals required to carry out the transactions contemplated
by this Agreement. First Sterling agrees to furnish to Prime all information
concerning First Sterling, its Subsidiaries, officers, directors and
shareholders as may be reasonably requested in connection with the foregoing,
including but not limited to consolidated audited financial statements of First
Sterling for all necessary periods meeting the accounting requirements of the
SEC.

(b) Each of First Sterling and Prime agrees, as
to itself and its Subsidiaries, that none of the information supplied or to
be supplied by it for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement and each
amendment thereto, if any, becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (ii) the Joint Proxy Statement and any amendment or supplement
thereto will, at the date of mailing to shareholders and at the times of the
Prime Meeting and the First Sterling Meeting, contain any statement which, in
the light of the circumstances under which such statement is made, is false or
misleading with respect to any material fact, or which will omit to state any
material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxy for the same

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meeting in the Joint Proxy Statement or any amendment or supplement thereto.
Each of First Sterling and Prime agrees that the Joint Proxy Statement (except,
in the case of First Sterling, with respect to portions thereof prepared by
Prime, and except, in the case of Prime, with respect to portions thereof
prepared by First Sterling) will comply as to form in all material respects with
the requirements of the Exchange Act and the rules and regulations of the SEC
thereunder, and the Registration Statement (except, in the case of First
Sterling, with respect to portions thereof prepared by Prime, and except, in the
case of Prime, with respect to portions thereof prepared by First Sterling) will
comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations of the SEC thereunder.

(c) In the case of Prime, Prime will advise
First Sterling, promptly after Prime receives notice thereof, of the time
when the Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order or the suspension of
the qualification of the Prime Common Stock for offering or sale in any
jurisdiction, of the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information.

7.04 Press Releases. Immediately upon execution of this
Agreement, the parties shall issue a joint press release in such form as is
mutually agreeable. Thereafter, except as otherwise required by applicable law
or the rules of the Nasdaq/NMS, neither Prime nor First Sterling shall, or shall
permit any of its Subsidiaries to, issue or cause the publication of any press
release or other public announcement with respect to, or otherwise make any
public statement concerning, the transactions contemplated by this Agreement
without the consent of the other party, which consent shall not be unreasonably
withheld.

7.05 Access; Information. Upon reasonable notice, it shall
afford the other party and its officers, employees, counsel, accountants and
other authorized representatives, access, during normal business hours
throughout the period prior to the Closing Date, to all of its properties,
books, contracts, commitments and records and, during such period, it shall
furnish promptly to it (i) a copy of each material report, schedule and other
document filed by it pursuant to the requirements of federal or state securities
or banking laws, and (ii) all other information concerning the business,
properties and personnel of it as the other may reasonably request. It will not
use any information obtained pursuant to this Agreement for any purpose
unrelated to the consummation of the transactions contemplated hereby and, if
this Agreement is terminated, will hold all information and documents obtained
pursuant to this Section in confidence (as provided in Section 9.06) unless and
until such time as such information or documents become publicly available other
than by reason of any action or failure to act by it or as it is advised by
counsel that any such information or document is required by law or applicable
Nasdaq/NMS rules to be disclosed. No investigation by either party of the
business and affairs of another shall affect or be deemed to modify or waive any
representation, warranty, covenant or agreement in this Agreement, or the
conditions to either party's obligation to complete the transactions
contemplated by this Agreement.

7.06 Acquisition, Proposals. Without the prior written consent
of the other, neither First Sterling nor Prime shall, and each of them shall
cause its respective Subsidiaries not to, and each of them shall direct its
officers, directors and employees and bankers, financial advisors, attorneys,
accountants and other representatives ("Representatives") not to, solicit or
encourage inquiries or proposals with respect to, or engage in any negotiations
concerning, or provide any confidential information to, or have any discussions
with, any person (other than the other party hereto) relating to, or enter into
any agreement with respect to or take any action to endorse or recommend a
Takeover Proposal. As used herein, the term "Takeover Proposal" shall mean any
proposal for a merger, consolidation or other business combination involving
such party or such Subsidiary or any tender or exchange offer or other plan,
proposal or offer by any person (other than the other party hereto) to acquire
in any manner 10% or more of the shares of any class of voting securities of, or
20% or more of the assets of, such party or any of its significant Subsidiaries,
other than pursuant to the transactions contemplated by this Agreement. Each of
Prime and First Sterling shall advise the other orally (within one business day)
and in writing (as promptly as practicable), in reasonable detail, of any such
inquiry or proposal which it or any of its Subsidiaries or any Representative
may receive and if such inquiry or proposal is in writing, then Prime or First
Sterling, as the case may be, shall deliver to the other a copy of such inquiry
or proposal as promptly as practicable after the receipt thereof.

7.07 Affiliate Agreements. Not later than the 15th day prior
to the mailing of the Joint Proxy Statement, First Sterling shall deliver to
Prime, a schedule of each person that, to the best of its knowledge, is or is
reasonably likely to be, as of the date of the relevant Meeting, deemed to be an
"affiliate" of First Sterling (each, an "Affiliate") as that term is used in
Rule 145 under the Securities Act or SEC Accounting Series Releases 130 and 135.
First Sterling shall use its respective reasonable best efforts to cause each
person who may be deemed to be an Affiliate of First Sterling to execute and
deliver to First Sterling and Prime on or before the Closing Date, a written
agreement to the effect that such person will not offer to sell,

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sell or otherwise dispose of any shares of Prime Common Stock to be issued
pursuant to this Agreement, except pursuant to an effective registration
statement or in compliance with Rule 145, as amended from time to time, or in a
transaction which in the opinion of legal counsel satisfactory to Prime, is
exempt from the registration requirements of the Securities Act.

7.08 Takeover Laws. No party shall take any action that would
cause the transactions contemplated by this Agreement to be subject to
requirements imposed by any takeover law, and each of them shall take all
necessary steps within its control to exempt (or ensure the continued exemption
of) the transactions contemplated by this Agreement from, or if necessary
challenge the validity or applicability of, any applicable Takeover Law, as now
or hereafter in effect.

7.09 Shares Listed. In the case of Prime, Prime shall use its
reasonable best efforts to cause to be approved for listing, prior to the
Effective Time, on the Nasdaq/NMS, upon official notice of issuance, the shares
of Prime Common Stock to be issued to the holders of First Sterling Common Stock
under this Agreement.

7.10 Regulatory Applications.

(a) Each party shall promptly (i) prepare and
submit applications to the appropriate Regulatory Agencies and (ii) make
all other appropriate filings to secure all other approvals, consents and
rulings, which are necessary for it to complete the Merger.

(b) Each of Prime and First Sterling agrees to
cooperate with the other and, subject to the terms and conditions set forth
in this Agreement, use its reasonable best efforts to prepare and file all
necessary documentation, to effect all necessary applications, notices,
petitions, filings and other documents, and to obtain all necessary permits,
consents, orders, approvals and authorizations of, or any exemption by, all
third parties and Regulatory Agencies necessary or advisable to complete the
Merger, including without limitation the regulatory approvals referred to in
Section 6.02. Each of Prime and First Sterling shall have the right to review in
advance, and to the extent practicable each will consult with the other, in each
case subject to applicable laws relating to the exchange of information, with
respect to all material written information submitted to, any third party or any
Regulatory Agencies in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto agrees
to act reasonably and as promptly as practicable. Each party hereto agrees that
it will consult with the other party hereto with respect to the obtaining of all
material permits, consents, approvals and authorizations of all third parties
and Regulatory Agencies necessary or advisable to complete the Merger and each
party will keep the other party apprised of the status of material matters
relating to completion of the transactions contemplated hereby.

(c) Each party agrees, upon request, to furnish
the other party with all information concerning itself, its Subsidiaries,
directors, officers and shareholders and such other matters as may be reasonably
necessary or advisable in connection with any filing, notice or application made
by or on behalf of such other party or any of its Subsidiaries to any Regulatory
Agency.

7.11 Accountants' Letters. Each of Prime and First Sterling
shall use its best efforts to cause to be delivered to Prime from KPMG Peat
Marwick LLP and to First Sterling from Coopers & Lybrand L.L.P., letters dated a
date within two business days before the date on which the Registration
Statement becomes effective, in form and substance reasonably satisfactory to
Prime and First Sterling, respectively, and customary in scope and substance for
letters delivered by independent auditors in connection with registration
statements on Form S-4.

7.12 Employee Benefits. Prime expressly agrees to provide to
employees of Bank and its Subsidiaries after the Closing Date and for an
indefinite period thereafter, employee benefits which are substantially similar
to the benefits presently available to employees of the Bank. In the ordinary
course of business after the Closing Date, Prime will evaluate its employee
benefits programs for all employees, and expressly reserves the right to make
such modifications to any and all such programs, including programs maintained
after the Closing Date for the benefit of Bank's employees. Such modifications
may include the elimination of any particular benefits as Prime believes
reasonable. Prime agrees that in connection with any changes in benefits, the
impact of such changes on the employees of Bank shall be equitable in comparison
with the impact of such changes on the employees of Prime's other Subsidiaries
which existed prior to the date of this Agreement. Nothing contained in this
Agreement is intended, nor shall anything herein be construed, to confer any
legal rights upon, or any third party beneficiary interest in, any employee of
Prime, Prime Bank, Bank, any Subsidiary, or any other third party.

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7.13 Governance Matters. Prime shall take all actions
reasonably necessary to expand the size of its Board of Directors to ten (10)
members and to cause three (3) nominees selected by First Sterling's Board of
Directors to be elected to the Prime Board of Directors as promptly as
practicable after the Effective Time. The remaining seven (7) directors shall be
designees of Prime. Bank shall elect James J. Lynch to its Board of Directors
and shall cause him to be elected chief executive officer of the Bank promptly
after the Effective Time.

7.14 Notification of Certain Matters. Each of First Sterling
and Prime shall give prompt notice to the other of any fact, event or
circumstance known to it that (i) is reasonably likely, individually or taken
together with all other facts, events and circumstances known to it, to result
in any material adverse effect with respect to it or (ii) would cause or
constitute a material breach of any of its representations, warranties,
covenants or agreements contained herein.

7.15 First Sterling Stock Options. To the extent that
acceleration of the exercisability of any First Sterling Stock Option, or the
removal of any or all restrictions on any outstanding First Sterling Stock
Option, is permitted but not required by the applicable governing instruments,
then First Sterling agrees that it shall take all necessary action or refrain
from taking any action, in each case with the result that such acceleration or
removal shall not occur. After the Closing Date, Prime shall issue to each
holder of an outstanding First Sterling Stock Option a document evidencing the
assumption of said option by Prime and the conversion thereof to options to
purchase Prime Common Stock.

7.16 Bromley Employment Agreement. Prime and William H.
Bromley will enter into and at the Effective Time, Prime will cause Bank to
enter into the employment agreement in the form attached hereto as Exhibit 7.16.

ARTICLE VIII
TERMINATION

8.01 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:

(a) Mutual Consent. At any time prior to the
Effective Time, by the mutual written consent of Prime and First Sterling,
if the Board of Directors of each so determines by vote of a majority of the
members of its entire Board.

(b) Delay. At any time prior to the Effective
Time, by Prime or First Sterling, if its Board of Directors so determines
by vote of a majority of the members of its entire Board, in the event that the
Merger is not consummated by March 31, 1997, except to the extent that the
failure of the Merger then to be consummated arises out of or results from the
knowing action or inaction of the party seeking to terminate pursuant to this
Section 8.01(b).

(c) No Approval. By First Sterling or Prime,
if its Board of Directors so determines by a vote of a majority of the
members of its entire Board, in the event that (i) the consent of the Regulatory
Agencies for consummation of the transactions contemplated by this Agreement
shall have been denied by final action of any such agency and the time for
appeal shall have expired, or (ii) any shareholder approval required by Section
6.01 herein is not obtained at the First Sterling Meeting or the Prime Meeting.

(d) Material Breach. By First Sterling if
there has been a material breach by Prime of any representation, warranty,
covenant or agreement set forth in this Agreement, which breach has not been
cured within ten (10) business days following receipt by Prime of notice of such
breach; and by Prime if there has been a material breach by First Sterling of
any representation, warranty, covenant or agreement set forth in this Agreement,
which breach has not been cured within ten (10) business days following receipt
by First Sterling of notice of such breach. The right to terminate this
Agreement under this Section 8.01(d) shall not be available to any party which
at such time is in material breach of any representation, warranty, covenant or
agreement set forth in this Agreement.

8.02 Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, no party to this Agreement shall have any liability or further
obligation to any other party hereunder except (i) as set forth in Sections 7.05
and 9.06, and (ii) that termination will not relieve a breaching party from
liability for any willful breach of this Agreement giving rise to such
termination.

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8.03 Amendment. This Agreement and the Merger Agreement may be
amended by the parties hereto at any time before or after approval hereof by
their respective shareholders, provided that after any such approval, no
amendment shall be made which (i) changes the Exchange Ratio, (ii) in any way
materially adversely affects the rights of the holders of the First Sterling
Shares or the holders of the outstanding Prime Common Stock, or (iii) changes
any of the principal terms of this Agreement or the Merger Agreement, in each
case without the further approval of such shareholders. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.

8.04 Waiver. At any time prior to the Effective Time, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions contained herein (subject to applicable law). Any
agreement on the part of the parties hereto to any such extension or waiver
shall be valid if set forth in an instrument signed on behalf of both of the
parties hereto.

ARTICLE IX
GENERAL MATTERS

9.01 Survival. None of the representations, warranties,
agreements and covenants contained in this Agreement shall survive the Effective
Time.

9.02 Assignment. This Agreement may not be assigned, whether
by operation of law or otherwise, without the prior written consent of the other
party hereto, and any such attempted assignment shall be void and of no effect.

9.03 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to constitute an original.

9.04 Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the Commonwealth of Pennsylvania,
without regard to the conflict of law principles thereof.

9.05 Expenses. Each party hereto will bear all expenses
incurred by it in connection with this Agreement and the transactions
contemplated hereby, except that printing expenses and SEC registration fees
shall be shared 30% by First Sterling and 70% by Prime.

9.06 Confidentiality.

(a) "Confidential Information" includes any
information relating to the parties generally, including but not limited to
regulatory compliance, management, employees, administration, financial
condition, assets, portfolio quality, business plan, lists or compilations of
customers or customer related information, correspondents, prospects and
contacts, and ways of doing business, pricing formulas, business or marketing
practices or strategies, whether written, graphic or oral, furnished directly or
indirectly by either of the parties to the other, except the following:
(i) Information that is now in the public domain or subsequently enters public
domain without an act or fault on the part of a party receiving the information
or by any affiliates, officers, directors, associates, partners, agents,
advisors, employees, attorneys, accountants, auditors, financial advisors,
investment bankers or other representatives ("Representatives") of that party;
or (ii) Information that either party receives on a non-confidential basis from
any third party having a lawful right to disclose such information.

(b) Each party shall maintain, and shall cause its
Representatives to maintain, in confidence all Confidential Information and
agree that the Confidential Information will be made available only to those
Representatives of the receiving party who are directly concerned with the
discussions, negotiations, due diligence or evaluations contemplated hereby, and
only after each of such persons shall have been advised of the obligations
created by this Section and shall agree to be bound by its terms. Upon a request
by a party, the other party will cause such of its Representatives to execute
confidentiality agreements similar to this Section. Each party will maintain a
list of individuals to whom any part of the Confidential Information is
disclosed, and will make such list available to each other upon request. Each
party shall take all necessary precautions to prevent the Confidential
Information from being disclosed or provided to any unauthorized person or
entity. Notwithstanding the foregoing, it is agreed that each party may disclose
this agreement or the fact of their discussions or negotiations to its
applicable banking and securities law regulators.

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(c) Neither party shall use the Confidential
Information for any purpose other than for the purpose of conducting the
discussions, negotiations, due diligence and evaluations described herein and
consummating the Merger without first obtaining the prior written consent of the
other party. Neither party, nor either party's Representatives, shall do any of
the following, each of which shall be deemed a wrongful use of Confidential
Information and a breach of a separate covenant and undertaking by the parties:

(i) Knowing and directly solicit the
present or former customers, or the prospects or employees, of the
disclosing party or its affiliates revealed by the Confidential Information
(however, general marketing and advertising activities, and routine
communications with a party's existing customers, conducted by such party in its
normal course of business, will not be considered a violation of this letter
provided Confidential Information is not used in any manner in connection with
such activities or communications); or

(ii) Directly or indirectly provide to
any competitor of the disclosing party or its affiliates, or directly or
indirectly permit any competitor of the disclosing Party or its affiliates to
obtain, any Confidential Information.

(d) If either party determines, on the advice
of its legal counsel or otherwise, that it is legally obligated or
compelled to disclose any Confidential Information, such party (the "Discloser")
will provide the other (the "Other Party") with prompt notice of such
determination prior to making any disclosure. In such event, the parties will
endeavor in good faith to cooperate in making a joint determination regarding
the necessity, timing, form and content of any public disclosures. If the
parties cannot agree, and if the Other Party does not obtain an injunction or
other relief preventing such disclosure, the Discloser agrees to publicly
disclose only that portion of the Confidential Information which, according to
the advice of legal counsel, is legally required.

(e) In the event the Merger is not consummated,
each party shall promptly return to the other party such other party's
Confidential Information, together with all documents and copies relating
thereto, to the other party, and will upon request confirm in writing to the
other party that it has caused its Representatives to destroy all notes and
memoranda made concerning the Confidential Information. Either party may, in its
sole discretion, at any time request a return of any or all Confidential
Information and related documents and copies, and the other party shall
thereupon immediately cause its Representatives to return the same. Each party
agrees to immediately notify the other if it receives legal process requesting
any Confidential Information, documents or testimony concerning any aspects
thereof or litigation touching upon the proposed business combination.

(f) The parties agree that failure to maintain
the confidentiality of the Confidential Information would result in
irreparable harm to the parties and that in the event of such failure or
violation, in addition to any and all other legal and equitable remedies that
may be available, the parties may obtain temporary restraining orders,
preliminary injunctions or similar equity relief in any courts in which it
chooses to seek such remedy.

9.07 Notices. All notices, requests and other communications
hereunder to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to such party at its address set forth below or
such other address as such party may specify by notice to the parties hereto.

If to Prime, to: Prime Bancorp, Inc.
6425 Rising Sun Avenue
Philadelphia, PA 19111
Attention: James J. Lynch,
President and Chief Executive Officer

Telecopy: (215) 742-6457

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With a copy to: Stradley, Ronon, Stevens & Young, LLP
Great Valley Corporate Center
30 Valley Stream Parkway
Malvern, PA 19355-1481
Attention: David F. Scranton, Esquire

Telecopy: (610) 640-1965

If to First Sterling, to: First Sterling Bancorp, Inc.
80 West Lancaster Avenue
Devon, PA 19333
Attention: William H. Bromley, President

Telecopy: (610) 971-0138

With a copy to: Kania, Lindner, Lasak and Feeney
Two Bala Plaza, Suite 525
Bala Cynwyd, PA 19004
Attention: John Lasak, Esquire

Telecopy: (610) 668-9676

9.08 Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provisions shall be interpreted to be only so broad as is enforceable.

9.09 Structure. The parties hereto agree to consider the
benefits of consolidating into a newly formed Delaware or Pennsylvania
corporation in lieu of the Merger, and in the event that they determine it is in
their mutual best interests to structure the transaction in such fashion, they
agree to execute and deliver such modification to this Agreement as is mutually
acceptable.

9.10 Entire Understanding; No Third Party Beneficiaries. This
Agreement represents the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and thereby and supersede any
and all other oral or written agreements heretofore made. Nothing in this
Agreement, expressed or implied, is intended to confer upon any person, other
than the parties hereto or their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.

9.11 Headings. The headings contained in this Agreement are
for reference purposes only and are not part of this Agreement.

IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their duly authorized officers as of the date first written
above.

PRIME BANCORP, INC.

Attest:

/s/ Joseph E. Fluehr, III, Secretary By: /s/ James J. Lynch, CEO
- ------------------------------------ ---------------------------------
FIRST STERLING BANCORP, INC.

Attest:

/s/ James D. Kania, Secretary By: /s/ William H. Bromley, President
- ------------------------------------ ---------------------------------

-25-

FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION

THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
is made as of September 12, 1996 by and among PRIME BANCORP., INC., a Delaware
corporation ("PRIME"), FIRST STERLING BANCORP, INC., a Pennsylvania corporation
("FIRST STERLING") and PRIME NEWCO, INC., a Pennsylvania corporation ("NEWCO").

BACKGROUND

Prime and First Sterling entered into an Agreement and Plan of
Reorganization dated as of June 12, 1996 (the "AGREEMENT"), pursuant to which
Prime and First Sterling agreed that First Sterling would be merged with and
into Prime subject to the terms and conditions contained therein. The Agreement
contemplated the possibility of merging First Sterling and Prime into a newly
formed Delaware or Pennsylvania corporation. Prime has determined that it is in
the best interest of its stockholders that Prime be merged with and into Newco
pursuant to the terms of an Agreement and Plan of Merger dated as of September
12, 1996 ("PRIME PLAN"), which merger is intended to be effected
contemporaneously with the Merger (as defined below). In recognition of the
Prime Plan, Prime and First Sterling desire to amend the Agreement in order to
provide that First Sterling will merge with and into Newco, and to make certain
other conforming changes to the Agreement.

Newco is a newly formed Pennsylvania corporation with its
registered office located in Philadelphia, Pennsylvania. The authorized
capitalization of Newco consists solely of 13 million shares of common stock,
each having a par value of $1.00 ("NEWCO COMMON STOCK") of which one share is
issued and outstanding as of the date hereof, and 2 million authorized shares of
preferred stock, each having a par value of $1.00 ("NEWCO PREFERRED STOCK"), of
which none are issued and outstanding.

NOW, THEREFORE, in consideration of the foregoing, the
representations, warranties, covenants and agreements set forth herein and in
the Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, intending to be legally bound, the
parties agree as follows:

1. Section 1.01 of the Agreement is hereby and restated
to read in its entirety as follows:

1.01 The Merger.

(a) First Sterling and Newco will execute and deliver
the Agreement and Plan of Merger in the form attached hereto as Exhibit 1.01,
with such further changes as may be mutually agreed upon by the parties hereto
("MERGER AGREEMENT") providing for the merger of First Sterling with and into
Newco ("MERGER") and the conversion of each of the outstanding shares of First
Sterling Common Stock into shares of Newco Common Stock as provided in the
Merger Agreement. First Sterling, Prime and Newco agree, subject to the terms
and conditions of this Agreement to submit to their respective shareholders for
adoption and approval as required under the Delaware General Corporation Law
("DGCL") or the Pennsylvania Business Corporation Law ("PBCL") as applicable,
this Agreement and the Merger Agreement. From and after the Effective Time (as
defined below), the identity and separate existence of First Sterling and Prime
shall cease, and Newco shall succeed, without other transfer, to all the rights,
properties, debts and liabilities of First Sterling.

(b) In connection with the Merger, Newco shall take
such actions as may be necessary to reserve sufficient shares of Newco Common
Stock, prior to the Merger, to permit the issuance of shares of Newco Common
Stock to the holders of the outstanding shares of First Sterling Common Stock as
of the Effective Time in accordance with the terms of the Merger Agreement and
this Agreement, and upon exercise of the First Sterling stock options to be
assumed by Newco pursuant to the terms of this Agreement.

2. Section 1.03 of the Agreement is hereby amended and
restated to read in its entirety as follows:

1.03 Merger Consideration.

(a) Subject to the provisions of this Agreement and
the Prime Plan, at the Effective Time, automatically by virtue of the mergers
contemplated hereby and thereby, each share of Prime Common Stock issued

and outstanding immediately prior to the Effective Time, shall become and be
converted into the right to receive one share of Newco Common Stock. The shares
of Prime Common Stock owned by First Sterling or any of its subsidiaries (other
than shares held in trust, managed, custodial or nominee accounts and the like
or held by mutual funds for which First Sterling or any Subsidiary acts as
investment advisor, that in any such case are beneficially owned by
third-parties (any such shares, "trust account shares") and shares acquired in
respect of debts previously contracted (any such shares, "DPC shares")) shall be
canceled.

(b) Subject to the provisions of this Agreement, at
the Effective Time, automatically by virtue of the Merger, each share (excluding
shares held by First Sterling or any of its Subsidiaries ("Treasury Shares") or
Prime or any of its Subsidiaries (in each case other than trust account shares
or DPC shares)) of First Sterling Common Stock issued and outstanding
immediately prior to the Effective Time shall become and be converted into the
right to receive one share (subject to possible adjustment as set forth in
Section 1.05 hereof) (the "Exchange Ratio") of Newco Common Stock. All shares of
First Sterling Common Stock owned by First Sterling or its Subsidiaries as
Treasury Shares and all shares of First Sterling Common Stock owned by Prime or
its Subsidiaries (in each case other than trust account shares or DPC shares)
shall be canceled and retired and shall cease to exist, and no shares of Newco
Common Stock or other consideration shall be deliverable in exchange therefor.

3. The reference to "Prime Common Stock" in the first
sentence of Section 1.04 is hereby amended to read
"Newco Common Stock".

4. The references to "Prime" and "Prime Common Stock" in
Sections 1.06 and 1.07 of the Agreement are hereby
amended to read "Newco" and "Newco Common Stock",
respectively.

5. The representations and warranties set forth in
ARTICLE III of the Agreement are made in favor of
Prime and Newco.

6. The representations and warranties set forth in
ARTICLE IV of the Agreement are made jointly by Prime
and Newco.

7. A new Article IVA is added to the Agreement and shall
read as set forth below:

ARTICLE IVA
REPRESENTATIONS AND WARRANTIES OF NEWCO

Newco and Prime, jointly and severally, hereby
represent and warrant to First Sterling as follows:

4A.01 Organization, Power, etc., of Newco. Newco is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania, has all requisite power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted and is duly qualified or licensed and is in good standing to do
business as foreign corporation in each jurisdiction in which the property
owned, leased or operated by it or the nature of its business, as now being
conducted, makes such qualification necessary, except with the failure to be so
qualified or licensed would not have a material adverse effect on the business,
operations or financial condition of Newco. First Sterling has heretofore
received true and complete copies of the Articles of Incorporation and Bylaws of
Newco, as currently in effect.

4A.02 Authorization and Effect of Agreement.

(a) Newco has all requisite power and authority
to execute, deliver and perform this Agreement; the execution, delivery and
performance of this Agreement by Newco have been duly authorized by all
requisite corporate actions; and this Agreement has been duly executed and
delivered by Newco and constitutes the legal, valid and binding obligation of
Newco, enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by the principles governing the availability of equitable
remedies.

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(b) The execution, delivery and performance by
Newco of this Agreement will not violate or conflict with any provision of law
or regulation, any order of any court or other agency of government, the
articles of incorporation or bylaws of Newco, any judgment, award or decree or
any material indenture, agreement or other instrument to which Newco is a party
or by which it or any of its properties or assets is bound or affected, or
result in a breach of or constitute (with notice or lapse of time or both), a
default under any such indenture, agreement, or other instrument, or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of Newco.

(c) The consummation of the mergers and the
transactions contemplated by the Agreement will not give rise to or create any
material or extraordinary liability not presently recorded or accrued in the
financial statements of Prime or any Subsidiary of Prime or reflected in the pro
forma financial information contained in the Registration Statement. This
warranty shall survive Closing for a period of four years.

4A.03 Capital Stock of Newco. The authorized capital
stock of Newco consists solely of (i) 13,000,000 authorized shares of common
stock, each having a par value of $1.00, being the Newco Common Stock, and
(ii) 2,000,000 authorized shares of preferred stock, each having a par
value of $1.00. There are no shares of Newco preferred stock issued and
outstanding and one share of Newco Common Stock issued and outstanding. No
subscription, warrant, option, convertible security or other right (contingent
or otherwise) to purchase or acquire any shares of any class of capital stock of
Newco, or any instrument or securities convertible into capital stock, is
authorized or outstanding. No shares of Newco Common Stock have been reserved
for issuance and Newco has no obligation or commitment to authorize, issue,
sell, repurchase or redeem any Newco Common Stock. There is no commitment of
Newco to distribute any evidences of indebtedness or assets, and Newco has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any shares of its capital stock or any interest therein or to pay any dividend
or to make any other distribution in respect thereof. There are no stockholders
agreements, voting trusts or other agreement or other understandings to which
Newco or its sole shareholder is a party or bound with the exception of that
certain Declaration of Trust dated August 23, 1996 by Maureen A. McGreevey, as
settlor and trustee.

8. All of the covenants, undertakings and agreements of
Prime contained in ARTICLES V through IX of the Agreement are hereby expressly
undertaken and made by Newco jointly with Prime unless the context otherwise
requires.

9. Exhibit 1.01 to the Agreement is hereby expressly
amended to read as set forth in Exhibit 1.01 hereto.

10. In all other respects, the Agreement is expressly
ratified, approved and confirmed by the parties hereto.

IN WITNESS WHEREOF, the parties have caused this First
Amendment to be executed by their duly authorized officers as of the date first
written above.

Attest: PRIME BANCORP., INC.

\s\ Seth Mackler By: \s\ Walter L. Tillman, Jr.
----------------------------- ----------------------------------
Seth Mackler, Assistant Secretary Walter L. Tillman, Jr., Exec. V. Pres.

Attest: FIRST STERLING BANCORP, INC.

\s\ James D. Kania By: \s\ William H. Bromley
----------------------------- ----------------------------------
James D. Kania, Secretary William H. Bromley, President

Attest: PRIME NEWCO, INC.

\s\ Seth Mackler By: \s\ Walter L. Tillman, Jr.
----------------------------- ----------------------------------
Seth Mackler, Assistant Secretary Walter L. Tillman, Jr., Exec. V. Pres.

-27-

Annex B

[BERWIND LETTERHEAD]

October 31, 1996

Board of Directors
Prime Bancorp, Inc.
6425 Rising Sun Avenue
Philadelphia, PA 19111

Directors:

You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders of Prime Bancorp, Inc. ("Prime") of the
financial terms of the proposed merger by and between Prime, Prime Newco, Inc.
("New Prime"), and First Sterling Bancorp, Inc. ("First Sterling"). The terms of
the proposed merger (the "Proposed Merger") between Prime, New Prime and First
Sterling are set forth in the Agreement and Plan of Reorganization dated June
12, 1996, as amended September 12, 1996, (the "Merger Agreement") and provides
that each outstanding common share of First Sterling will be converted into the
right to receive 1.0 shares of New Prime Common Stock, with cash to be paid in
lieu of any fractional shares.

Berwind Financial Group, L.P., as part of its investment banking
business, regularly is engaged in the valuation of assets, securities and
companies in connection with various types of asset and security transactions,
including mergers, acquisitions, private placements and valuations for various
other purposes, and in the determination of adequate consideration in such
transactions.

In arriving at our opinion, we have, among other things: (i) reviewed
the historical financial performance, current financial position and general
prospects of Prime and First Sterling, (ii) reviewed the Merger Agreement,
(iii) reviewed and analyzed the stock market performance of Prime, (iv) studied
and analyzed the consolidated financial and operating data of Prime and First
Sterling, (v) considered the terms and conditions of the Proposed Merger between
Prime, New Prime and First Sterling as compared with the terms and conditions of
comparable bank and bank holding company mergers and acquisitions, (vi) met
and/or communicated with certain members of Prime's and First Sterling's senior
management to discuss their operations, historical financial statements, and
future prospects, (vii) reviewed the Prospectus/Joint Proxy Statement, and
(viii) conducted such other financial analyses, studies and investigations as we
deemed appropriate.

Board of Directors
October 31, 1996
Page 2

Our opinion is given in reliance on information and representations made
or given by Prime and First Sterling and their respective officers, directors,
auditors, counsel and other agents, and on filings, releases and other public
information issued by Prime and First Sterling including financial statements,
financial projections, and stock price data as well as certain information from
recognized independent sources. We have not independently verified the
information concerning Prime and First Sterling nor other data which we have
considered in our review and, for purposes of the opinion set forth below, we
have assumed and relied upon the accuracy and completeness of all such
information and data. Additionally, we assume that the Proposed Merger is, in
compliance with and legal under applicable law.

With regard to financial and other information relating to the general
prospects of Prime and First Sterling, we have assumed that such information has
been reasonably prepared and reflects the best currently available estimates and
judgments of the managements of Prime and First Sterling as to Prime's and First
Sterling's most likely future performance. For Prime and First Sterling, we have
assumed the allowance for loan losses indicated on the balance sheets of each
entity is adequate to cover such losses; we have not reviewed the credit files
of either Prime or First Sterling. Also, in rendering our opinion, we have
assumed that in the course of obtaining the necessary regulatory approvals for
the Proposed Merger, no conditions will be imposed that will have a material
adverse effect on the contemplated benefits of the Proposed Merger to Prime.

Our opinion is based upon information provided to us by the managements
of Prime and First Sterling, as well as market, economic, financial, and other
conditions as they exist and can be evaluated only as of the date hereof and
speaks to no other period. Our opinion pertains only to the financial
consideration of the Proposed Merger and does not constitute a recommendation to
the Board of Prime and does not constitute a recommendation to Prime's
shareholders as to how such shareholders should vote on the Proposed Merger.

Based on the foregoing, it is our opinion that, as of the date hereof,
the Proposed Merger between Prime, New Prime and First Sterling is fair, from a
financial point of view, to the shareholders of Prime.

Sincerely,

/s/ Berwind Financial Group, L.P.
----------------------------------------
BERWIND FINANCIAL GROUP, L.P.

Annex C

PENNSYLVANIA STATUTORY PROVISIONS RELATING TO DISSENTERS RIGHTS

EXCERPT FROM SUBCHAPTER 19C

ss. 1930. Dissenters rights

(a) General rule. If any shareholder of a domestic business corporation
that is to be a party to a merger or consolidation pursuant to a plan of merger
or consolidation objects to the plan of merger or consolidation and complies
with the provisions of Subchapter D of Chapter 15 (relating to dissenters
rights), the shareholder shall be entitled to the rights and remedies of
dissenting shareholders therein provided, if any. See also section 1906(c)
(relating to dissenters rights upon special treatment).

SUBCHAPTER 15D

Dissenters Rights

Section:

1571. Application and effect of subchapter.
1572. Definitions.
1573. Record and beneficial holders and owners.
1574. Notice of intention to dissent.
1575. Notice to demand payment.
1576. Failure to comply with notice to demand payment, etc.
1577. Release of restrictions or payment for shares.
1578. Estimate by dissenter of fair value of shares.
1579. Valuation proceedings generally.
1580. Costs and expenses of valuation proceedings.

ss. 1571. Application and effect of Subchapter.

(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:

Section 1906(c) (relating to dissenters rights upon special
treatment).

Section 1930 (relating to dissenters rights).

Section 1931(d) (relating to dissenters rights in share exchanges).

Section 1932(c) (relating to dissenters rights in asset transfers).

Section 1952(d) (relating to dissenters rights in division).

Section 1962(c) (relating to dissenters rights in conversion).

Section 2104(b) (relating to procedure).

Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).

Section 2325(b) (relating to minimum vote requirement).

Section 2704(c) (relating to dissenters rights upon election).

Section 2705(d) (relating to dissenters rights upon renewal of
election).

Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).

Section 7104(b)(3) (relating to procedure).

(b) Exceptions.

(1) Except as otherwise provided in paragraph (2), the holders
of the shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting at
which a plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to
be voted on, are either:

(i) listed on a national securities exchange; or

(ii) held of record by more than 2,000 shareholders;

shall not have the right to obtain payment of the fair value of any such shares
under this subchapter.

(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the case
of:

(i) Shares converted by a plan if the shares are not converted
solely into shares of the acquiring, surviving, new or other corporation or
solely into such shares and money in lieu of fractional shares.

(ii) Shares of any preferred or special class unless the
articles, the plan or the terms of the transaction entitle all shareholders of
the class to vote thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a majority of the votes
cast by all shareholders of the class.

(iii) Shares entitled to dissenters rights under section
1906(c) (relating to dissenters rights upon special treatment).

(3) The shareholders of a corporation that acquires by purchase,
lease, exchange or other disposition all or substantially all of the shares,
property or assets of another corporation by the issuance of shares, obligations
or otherwise, with or without assuming the liabilities of the other corporation
and with or without the intervention of another corporation or other person,
shall not be entitled to the rights and remedies of dissenting shareholders
provided in this subchapter regardless of the fact, if it be the case, that the
acquisition was accomplished by the issuance of voting shares of the corporation
to be outstanding immediately after the acquisition sufficient to elect a
majority or more of the directors of the corporation.

-2-

(c) Grant of optional dissenters rights. The bylaws or a resolution of
the board of directors may direct that all or a part of the shareholders shall
have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholders to dissenters
rights.

(d) Notice of dissenters rights. Unless otherwise provided by statute,
if a proposed corporate action that would give rise to dissenters rights under
this subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:

(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value of
their shares by complying with the terms of this subchapter; and

(2) a copy of this subchapter.

(e) Other statutes. The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.

(f) Certain provisions of articles ineffective. This subchapter may not
be relaxed by any provision of the articles.

(g) Cross references. See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).

ss. 1572. Definitions.

The following words and phrases when used in this subchapter
shall have the meanings given to them in this section unless the context clearly
indicates otherwise:

"Corporation." The issuer of the shares held or owned by the
dissenter before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation for
the purposes of this subchapter. The successor corporation in a division shall
have sole responsibility for payments to dissenters and other liabilities under
this subchapter except as otherwise provided in the plan of division.

"Dissenter." A shareholder or beneficial owner who is entitled
to and does assert dissenters rights under this subchapter and who has performed
every act required up to the time involved for the Assertion of those rights.

"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects, taking into
account all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.

"Interest." Interest from the effective date of the corporate
action until the date of payment at such rate as is fair and equitable under all
of the circumstances, taking into account all relevant factors including the
average rate currently paid by the corporation on its principal bank loans.

ss. 1573. Record and beneficial holders and owners.

(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all

-3-

the shares of the same class or series beneficially owned by any one person and
discloses the name and address of the person or persons on whose behalf he
dissents. In that event, his rights shall be determined as if the shares as to
which he has dissented and his other shares were registered in the names of
different shareholders.

(b) Beneficial owners of shares. A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.

ss. 1574. Notice of intention to dissent.

If the proposed corporate action is submitted to a vote at a
meeting of shareholders of a business corporation, any person who wishes to
dissent and obtain payment of the fair value of his shares must file with the
corporation, prior to the vote, a written notice of intention to demand that he
be paid the fair value for his shares if the proposed action is effectuated,
must effect no change in the beneficial ownership of his shares from the date of
such filing continuously through the effective date of the proposed action and
must refrain from voting his shares in approval of such action. A dissenter who
fails in any respect shall not acquire any right to payment of the fair value of
his shares under this subchapter. Neither a proxy nor a vote against the
proposed corporate action shall constitute the written notice required by this
section.

ss. 1575. Notice to demand payment.

(a) General rule. If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed corporate action is
to be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a, notice of the adoption of the plan or other corporate action. In
either case, the notice shall:

(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.

(2) Inform holders of uncertificated shares to what extent transfer
of shares will be restricted from the time that demand for payment is received.

(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the shares.

(4) Be accompanied by a copy of this subchapter.

(b) Time for receipt of demand for payment. The time set for receipt of
the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.

ss. 1576. Failure to comply with notice to demand payment, etc.

(a) Effect of failure of shareholder to act. A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to

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section 1575 (relating to notice to demand payment) shall not have any right
under this subchapter to receive payment of the fair value of his shares.

(b) Restriction on uncertificated shares. If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).

(c) Rights retained by shareholder. The dissenter shall retain all
other rights of a shareholder until those rights are modified by effectuation of
the proposed corporate action.

ss. 1577. Release of restrictions or payment for shares.

(a) Failure to effectuate corporate action. Within 60 days after the
date set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.

(b) Renewal of notice to demand payment. When uncertificated shares
have been released from transfer restrictions and deposited certificates have
been returned, the corporation may at any later time send a new notice
conforming to the requirements of section 1575 (relating to notice to demand
payment), with like effect.

(c) Payment of fair value of shares. Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:

(1) The closing balance sheet and statement of income of the issuer
of the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the latest
available interim financial statements.

(2) A statement of the corporation's estimate of the fair value of
the shares.

(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.

(d) Failure to make payment. If the corporation does not remit the
amount of its estimate of the fair value of the shares as provided by subsection
(c), it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had after
making demand for payment of their fair value.

ss. 1578. Estimate by dissenter of fair value of shares.

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(a) General rule. If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's shares as
permitted by section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.

(b) Effect of failure to file estimate. Where the dissenter does not
file his own estimate under subsection (a) within 30 days after the mailing by
the corporation of its remittance or notice, the dissenter shall be entitled to
no more than the amount stated in the notice or remitted to him by the
corporation.

ss. 1579. Valuation proceedings generally.

(a) General rule. Within 60 days after the latest of:

(1) effectuation of the proposed corporate action;

(2) timely receipt of any demands for payment under Section 1575
(relating to notice to demand payment); or

(3) timely receipt of any estimates pursuant to section 1578
(relating to estimate by dissenter of fair value of shares);

if any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.

(b) Mandatory joinder of dissenters. All, dissenters, wherever
residing, whose demands have not been settled shall be made parties to the
proceeding as in an action against their shares. A copy of the application shall
be served on each such dissenter. If a dissenter is a nonresident, the copy may
be served on him in the manner provided or prescribed by or pursuant to
42 Pa.C.S. Ch. 53 (relating to bases of jurisdiction and interstate and
international procedure).

(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.

(d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.

(e) Effect of corporation's failure to file application. If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.

ss. 1580. Costs and expenses of valuation proceedings.

-6-

(a) General rule. The costs and expenses of any proceeding under
section 1579 (relating to valuation proceedings generally), including the
reasonable compensation and expenses of the appraiser appointed by the court,
shall be determined by the court and assessed against the business corporation
except that any part of the costs and expenses may be apportioned and assessed
as the court deems appropriate against all or some of the dissenters who are
parties and whose action in demanding supplemental payment under section 1578
(relating to estimate by dissenter of fair value of shares) the court finds to
be dilatory, obdurate, arbitrary, vexatious or in bad faith.

(b) Assessment of counsel fees and expert fees where lack of good faith
appears. Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.

(c) Award of fees for benefits to other dissenters. If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefitted.

-7-

Annex D

Agreement and Plan of Merger

This Agreement and Plan of Merger is dated September 12, 1996 by and
between PRIME NEWCO, INC., a Pennsylvania corporation (hereinafter called "PA
Prime") and PRIME BANCORP., INC., a Delaware corporation (hereinafter called
"Prime").

Background

The Boards of Directors of Prime and PA Prime have concluded that it is
in the best interests of both corporations that Prime be merged into PA Prime,
under and pursuant to the General Corporation Law of the State of Delaware and
the Business Corporation Law of the Commonwealth of Pennsylvania. PA Prime shall
be the surviving corporation (such corporation in its capacity as such surviving
corporation being sometimes referred to herein as the "Surviving Corporation")
in a transaction intended to qualify as a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended.

The authorized capital stock of Prime is 15 million shares, of which 10
million shares are designated common stock and 5 million shares are designated
preferred stock. There are no issued and outstanding shares of preferred stock
of Prime. With respect to the common stock of Prime as of the date hereof, there
are reflected on the official stock transfer records of Prime as issued and
outstanding (i) 3,725,056 shares (which together with all shares issued by Prime
after the date hereof other than the Trust Shares as hereafter defined, are
collectively referred to as the "Public Shares"), and (ii) 10 shares issued to a
trustee under a certain Declaration of Trust ("Trust") dated August 23, 1996
("Trust Shares") for the benefit of the holders of the Public Shares. In
addition, Prime has granted to certain officers and employees of Prime or its
wholly-owned subsidiary Prime Bank, a savings bank, options to acquire shares of
common stock of Prime ("Options") pursuant to stock option plans adopted by
Prime (collectively, the "Option Plans").

The authorized capital stock of PA Prime is 15 million shares, of which
13 million shares are designated common stock, par value $1.00 per share, and 2
million shares are designated preferred stock, par value $1.00 per share. There
are no issued and outstanding shares of preferred stock of PA Prime. There is
one (1) share of common stock of PA Prime issued and outstanding, which is owned
legally and beneficially by the Trust.

The respective Boards of Directors of Prime and PA Prime have approved
this Agreement and the merger contemplated hereby upon the terms and conditions
hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and the mutual
agreements, provisions, and covenants herein contained, the parties hereto
hereby agree in accordance with the General Corporation Law of the State of
Delaware and the Business Corporation Law of the Commonwealth of Pennsylvania
that Prime shall be, at the Effective Date (as hereinafter defined), merged
(hereinafter called "Merger") into PA Prime, which shall be the Surviving
Corporation, and the parties hereto adopt and agree to the following agreements,
terms, and conditions relating to the Merger and the mode of carrying the same
into effect.

1. Stockholders' Meetings; Filings; Effects of Merger

1.1. Prime Stockholders' Meeting. Prime shall call a meeting of its
stockholders to be held in accordance with the General Corporation Law of the
State of Delaware at the earliest practicable date, upon due notice thereof to
its stockholders, to consider and vote upon, among other matters, adoption of
this Agreement.

1.2. Action of the Trust as Sole Stockholder of PA Prime. On or before
October 15, 1996, the Trust as the sole stockholder of PA Prime, shall adopt
this Agreement in accordance with the Business Corporation Law of the
Commonwealth of Pennsylvania.

1.3. Filing of Certificate and Articles of Merger; Effective Date. If
(a) this Agreement is adopted by the Trust as the sole stockholder of PA Prime
in accordance with the Business Corporation Law of the

Commonwealth of Pennsylvania, (b) this Agreement is adopted by Prime in
accordance with the General Corporation Law of the State of Delaware, (c) the
necessary approvals of all applicable banking regulatory authorities are
obtained, and (d) this Agreement is not thereafter, and has not theretofore
been, terminated or abandoned as permitted by the provisions hereof, then a
Certificate of Merger shall be filed and recorded in accordance with the General
Corporation Law of the State of Delaware and Articles of Merger shall be filed
in accordance with the Business Corporation Law of the Commonwealth of
Pennsylvania. Such filings shall be made within five business days after the
latter of (i) receipt of all applicable regulatory approvals and (ii) the date
on which the meeting of the stockholders of Prime is held pursuant to Section
1.1 hereof. The Merger shall become effective at 5:00 P.M. on the day of such
filing in Pennsylvania, which date and time are herein referred to as the
"Effective Date."

1.4. Certain Effects of Merger. On the Effective Date, the separate
existence of Prime shall cease and Prime shall be merged into PA Prime which, as
the Surviving Corporation, shall possess all the rights, privileges, powers, and
franchises, of a public as well as of a private nature, and be subject to all
the restrictions, disabilities, and duties of Prime; and all the rights,
privileges, powers, and franchises of Prime, and all property, real, personal,
and mixed, and all debts due to Prime on whatever account, as well for stock
subscriptions and all other things in action of or belonging to Prime shall be
vested in the Surviving Corporation; and all property, rights, privileges,
powers, and franchises, and all and every other interest of Prime shall be
thereafter the property of the Surviving Corporation, and the title to any real
estate vested by deed or otherwise, under the laws of Delaware or Pennsylvania
or any other jurisdiction, in Prime shall not revert or be in any way impaired;
but all rights of creditors and all liens upon any property of Prime shall be
preserved unimpaired, and all debts, liabilities, and duties of Prime shall
thenceforth attach to the Surviving Corporation and may be enforced against it
to the same extent as if said debts, liabilities, and duties have been incurred
or contracted by it. At any time, or from time to time, after the Effective
Date, the last acting officers of Prime or the corresponding officers of the
Surviving Corporation, may, in the name of Prime, execute and deliver all such
proper deeds, assignments, and other instruments and take or cause to be taken
all such further or other action as the Surviving Corporation may deem necessary
or desirable in order to vest, perfect, or confirm in the Surviving Corporation
title to and possession of all Prime's property, rights, privileges, powers,
franchises, immunities, and interests and otherwise to carry out the purposes of
this Agreement.

2. Name of Surviving Corporation; Articles of Incorporation; Bylaws; Board of
Directors.

2.1 Name of Surviving Corporation. The name of the Surviving
Corporation from and after the Effective Date shall be PRIME BANCORP, INC.

2.2 Articles of Incorporation. The Articles of Incorporation of PA
Prime as in effect on the date hereof shall from and after the Effective Date
be, and continue to be, the Articles of Incorporation of the Surviving
Corporation until changed or amended as provided by law.

2.3 Bylaws. The Bylaws of PA Prime as in effect immediately before the
Effective Date, shall from and after the Effective Date be, and continue to be,
the Bylaws of the Surviving Corporation until amended as provided therein.

2.4 Board of Directors. The members of the Board of Directors of Prime
shall become the sole members of the Board of Directors of PA Prime on the
Effective Date.

3. Status and Conversion of Securities

The manner and basis of converting the shares of the capital stock of
Prime and the nature and amount of securities of PA Prime which the holders of
shares of common stock of Prime are to receive in exchange for such shares are
as follows:

-2-

3.1. Prime Common Stock. By virtue of the Merger and without any action
on the part of any shareholder, each one share of the Public Shares reflected on
the official stock transfer records of Prime as outstanding immediately prior to
the Effective Date, together with the proportional interest which the holder of
such share has in the Trust Shares (solely by reason of ownership of such one
share), shall be converted at the Effective Date into one fully paid,
non-assessable share of common stock of PA Prime, and outstanding certificates
representing the Public Shares shall thereafter represent shares of the common
stock of PA Prime. Such certificates may be exchanged by the holders thereof
after the Merger becomes effective for new certificates for the appropriate
number of shares bearing the name of the Surviving Corporation. The outstanding
certificates representing the Trust Shares at the Effective Date shall be
canceled.

3.2. Prime Options. By virtue of the Merger and without any action on
the part of any holder of Options, the Options shall be converted at the
Effective Date into options to acquire an equal number of shares of common stock
of PA Prime upon the same terms and conditions as set forth in the Option Plans
and grant agreements executed in connection with the Options outstanding
immediately prior to the Effective Date.

3.3. PA Prime Common Stock Held by the Trust. All issued and
outstanding shares of the common stock of PA Prime held by the Trust immediately
before the Effective Date shall, by virtue of the Merger and at the Effective
Date, cease to exist and certificates representing such shares shall be
canceled.

4. Miscellaneous

4.1 Abandonment. This Agreement may be terminated and the proposed
Merger abandoned at any time before the Effective Date of the Merger, and
whether before or after approval of this Agreement by the shareholders of PA
Prime or Prime, if the Board of Directors of Prime or of the Surviving
Corporation duly adopt a resolution abandoning this Agreement.

4.2 Counterparts. For the convenience of the parties hereto and to
facilitate the filing of this Agreement, any number of counterparts hereof may
be executed, and each such counterpart shall be deemed to be an original
instrument.

IN WITNESS WHEREOF, this Agreement has been executed by Prime and PA
Prime by their duly authorized officers all on the date first above written.

ATTEST: PRIME BANCORP., INC. (Delaware)

/s/ Joseph A. Fluehr III By:/s/ James J. Lynch
- -------------------------------- ---------------------------------
Joseph A. Fluehr, III, Secretary James J. Lynch, President and CEO
(SEAL)

ATTEST: PRIME NEWCO, INC. (Pennsylvania)

/s/ Joseph A. Fluehr III By:/s/ James J. Lynch
- -------------------------------- ---------------------------------
Joseph A. Fluehr, III, Secretary James J. Lynch, President
(SEAL)

-3-

REVOCABLE PROXY
PRIME BANCORP., INC.

SPECIAL MEETING OF STOCKHOLDERS -- DECEMBER 17, 1996

SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PRIME BANCORP., INC.

The undersigned hereby constitutes and appoints James J. Lynch, Erwin T.
Straw and Frederick G. Betz and each of them, with or without the other, as
attorneys-in-fact and proxies of the undersigned, to appear at the Special
Meeting of Stockholders of Prime Bancorp., Inc. (the 'Company') to be held on
December 17, 1996, and at any postponement or adjournment thereof,
and to vote all of the shares of the Company which the undersigned is entitled
to vote, with all the powers and authority the undersigned would possess if
personally present.

1. For approval of the Agreement and Plan of Reorganization dated as of June
12, 1996, as amended, between Prime Bancorp., Inc., Prime Newco, Inc. and
First Sterling Bancorp, Inc. and the merger described therein.

/ / FOR / / AGAINST / / ABSTAIN

2. For approval of the Agreement and Plan of Merger dated September 12, 1996
between Prime Bancorp., Inc. and Prime Newco, Inc. and the merger
described therein.

/ / FOR / / AGAINST / / ABSTAIN

3. To transact such other business as may properly come before the meeting
or any postponement or adjournment.

THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE DATE AND SIGN ON THE REVERSE AND RETURN PROMPTLY.

THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS TO THE CONTRARY ARE
INDICATED, THE PROXY AGENTS IN THEIR RESPECTIVE POSITIONS INTEND TO VOTE FOR
APPROVAL OF BOTH MERGERS AS DESCRIBED IN THE PROXY STATEMENT. DISCRETIONARY
AUTHORITY IS CONFERRED HEREBY AS TO CERTAIN MATTERS DESCRIBED IN THE PROXY
STATEMENT.

___________________________________
Signature

Please sign your name(s) exactly as
it (they) appears hereon,
indicating any official position or
representative capacity.
Date:__________________, 1996

Please date and sign this proxy and
return it promptly in the enclosed
envelope.

Part II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers.

Officers and directors of Registrant will be subject to the provisions
of the Pennsylvania Business Corporation Law ("PBCL"), and the Registrant's
By-Laws, which serve to limit and, in specified instances, to indemnify them
against, certain liabilities which they may incur in such capacities. These
various provisions are described generally below.

(a) Limitation on Directors' Liability.

Article IX, Section 10 of the Registrant's By-Laws limits a Director's
liability for money damages for breaches of, or failure to perform, his or her
duties as a Director, to the maximum extent permitted under the PBCL. Under the
PBCL, a Director is generally obligated to act in good faith, in a manner
reasonably believed to be in the best interest of the corporation, and with such
care, including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances. Under this By-Law provision, a
Director is immune from liability for money damages arising out of his or her
failure to meet this standard, including circumstances when the conduct
constitutes gross negligence, unless such failure constitutes self-dealing,
willful misconduct or recklessness. The Director is not, however, immune from
liability imposed under any criminal statute or for non-payment of any taxes.
This provision also does not affect any equitable remedies which do not have the
result of imposing monetary liability upon a Director.

(b) Indemnification.

Article IX of the By-Laws of Registrant provide for indemnification of
officers and directors of the Registrant consistent with the PBCL. Under the
By-Laws, the Registrant is obligated to indemnify officers and directors against
any claim (other than a claim by or in the right of the corporation), in the
event that such officer or director acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to the best interest of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In connection with
any action by or in the right of the Registrant, Registrant is obligated to
provide indemnification for any claims if the director acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interest of the corporation; provided, however, no indemnification shall be made
against expenses or judgments wherein the officer or director is found to be
liable for negligence or misconduct in the performance of his or her duty unless
and only to the extent that there is an appropriate judicial determination that
despite any adjudication of liability or settlement, such person is fairly and
reasonably entitled to indemnification.

Such indemnification shall be made either when ordered by a court or
upon a determination that indemnification is proper under the circumstances.
Such determination can be made either by (1) the Board of Directors by a
majority vote of disinterested directors; or (2) by independent counsel in a
written legal opinion, or (3) by the shareholders. To the extent an officer or
director is successful on the merits in defense of any action, suit or
proceeding, he or she shall be entitled to indemnification without the necessity
of any specific authorization.

The Registrant has the authority to advance expenses of defending an
pending or threatened claim upon receipt of an undertaking by or on behalf of
the person defending such claim to repay the advanced expenses if it shall
ultimately be determined that he or she is not entitled to be indemnified by the
Registrant.

II-1

The indemnification provisions of the By-Laws are not exclusive.
Pennsylvania law permits indemnification by written agreement or action of
stockholders beyond that provided in the corporation's By-Laws. In addition, the
PBCL also allows companies to provide indemnification in all circumstances
except where the acts giving rise to the asserted claim are determined by a
court to have constituted self-dealing, willful misconduct or recklessness.
The By-Laws of the Registrant do not provide for such indemnification.

Item 21. Exhibits.

(a) Exhibits and Exhibit Index

Exhibit No. Description Page No.
- ----------- ----------- --------

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

2.1 Agreement and Plan of Reorganization dated June 12, 1996 and First Amendment thereto Annex A to
dated September 12, 1996, by and among Registrant, Prime and First Sterling. (Registrant Prospectus
will supplementally provide a copy of the disclosure schedules to the SEC upon request.)
- -----------------------------------------------------------------------------------------------------------------------------------
2.2 Agreement and Plan of Merger dated September 12, 1996 between Registrant and Prime. Annex D to
Prospectus
- -----------------------------------------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation (Note: The Agreement and Plan of Merger which is Exhibit 2.2 **
will be filed to effect the change of Registrant's name.)
- -----------------------------------------------------------------------------------------------------------------------------------
3.2 Bylaws. **
- -----------------------------------------------------------------------------------------------------------------------------------
4.1 Form of First Sterling Subordinated Convertible Debenture (Registrant will supplementally Not filed.
provide a copy of the Debenture to the SEC upon request.)
- -----------------------------------------------------------------------------------------------------------------------------------
4.2 Form of Registrant's Stock Certificate for common stock. **
- -----------------------------------------------------------------------------------------------------------------------------------
5.1 Consent and Opinion of Stradley, Ronon, Stevens & Young regarding legality of shares. **
- -----------------------------------------------------------------------------------------------------------------------------------
8.1 Consent and Form of Opinion of Stradley, Ronon, Stevens & Young regarding tax matters. **
- -----------------------------------------------------------------------------------------------------------------------------------
8.2 Form of Opinion of Kania, Lindner, Lasak and Feeney regarding tax matters. **
- -----------------------------------------------------------------------------------------------------------------------------------
10.1 Employment Agreement between Prime, Prime Bank and James J. Lynch dated December *
18, 1995. (Incorporated by referenced to Exhibit 10.1(c) to Prime's Annual Report on
Form 10-K for year ended December 31, 1995, file no. 0-17286.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.2 Employment Agreement between Prime, Prime Bank and Walter L. Tillman, Jr. dated **
as of September 25, 1996.
- -----------------------------------------------------------------------------------------------------------------------------------
10.3 Employment Agreement between Prime, Prime Bank and Erwin T. Straw dated November *
14, 1988. (Incorporated by reference to Exhibit 10.1 to Prime's Annual Report on Form
10-K for year ended June 30, 1989.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.4 Addendum to Employment Agreement between Prime, Prime Bank and Erwin T. Straw **
dated as of January 29, 1996.
- -----------------------------------------------------------------------------------------------------------------------------------
10.5 Employment Agreement between Prime, Prime Bank and William H. Bromley to become **
effective upon completion of the merger with First Sterling.

II-2

Exhibit No. Description Page No.
- ----------- ----------- --------

- -----------------------------------------------------------------------------------------------------------------------------------
10.6 First Sterling 1988 Non-Qualified Stock Option Plan. **
- -----------------------------------------------------------------------------------------------------------------------------------
10.7 Lease Agreement between Dominion Properties L.P. and First Sterling Bank dated December 7, **
1995 for Devon branch and offices.
- -----------------------------------------------------------------------------------------------------------------------------------
10.8 Letter Agreement between dominion Properties L.P. and First Sterling Bank dated June 4, **
1996 regarding right to reduce the space leased under lease agreement for Devon offices
and the lease term for a portion of such space.
- -----------------------------------------------------------------------------------------------------------------------------------
10.9 Lease Agreement between Dominion Properties L.P. and First Sterling Bank dated as of December 15, **
1995 for the St. David's branch.
- -----------------------------------------------------------------------------------------------------------------------------------
10.10 Lease Agreement between Dominion Properties L.P. and First Sterling Bank dated as of December 15, **
1995 for branch in Bryn Mawr Square.
- -----------------------------------------------------------------------------------------------------------------------------------
10.11 Lease Agreement between Monument Road Associates and First Sterling Bank dated April 14, **
1994 for Bala Cynwyd branch.
- -----------------------------------------------------------------------------------------------------------------------------------
10.12 Lease Agreement between Silvio F. and Elizabeth O. D'Ignazio and First Sterling Bank dated as of **
July 3, 1996 for Media branch.
- -----------------------------------------------------------------------------------------------------------------------------------
10.13 First Sterling Bank 401(k) qualified retirement plan adoption agreement. **
- -----------------------------------------------------------------------------------------------------------------------------------
10.14 Prime's Incentive Stock Option Plan (incorporated by reference to Exhibit 10.2 to Prime's *
Annual Report on Form 10-K for the year ended December 31, 1994.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.15 Prime's Salary Continuation and Supplemental Retirement Plan (incorporated by reference *
to Exhibit 10.3 to Prime's Annual Report on Form 10-K for the fiscal year ended June 30,
1989.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.16 Prime's qualified retirement plan (incorporated by reference to Exhibit 10.4 to Prime's *
Annual Report on Form 10-K for the fiscal year ended June 30, 1989.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.17 Prime's Employee Retirement Savings Plan (incorporated by reference to Exhibit 10.5 to *
Prime's Annual Report on Form 10-K for the fiscal year ended June 30, 1989.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.18 Lease Agreement between Prime Bank and Lotz Realty, Inc. (incorporated by reference to *
Exhibit 10.6 to Prime's Annual Report on Form 10-K for the fiscal year ended June 30,
1989.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.19 Lease Agreement between Prime Bank and Village Plaza Shopping Center (incorporated by *
reference to Exhibit 10.7 to Prime's Annual Report on Form 10-K for the fiscal year
ended June 30, 1989.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.20 Lease Agreement between Prime Bank and Grant Plaza (incorporated by reference to *
Exhibit 10.8 to Prime's Annual Report on Form 10-K for the fiscal year ended June 30,
1989.)

II-3

Exhibit No. Description Page No.
- ----------- ----------- --------

- -----------------------------------------------------------------------------------------------------------------------------------
10.21 Lease Agreement between Prime Bank and Hopkinson Corporation (incorporated by *
reference to Exhibit 10.10 to Prime's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.22 Lease Agreement between Prime Bank and Foxcroft Square Company (incorporated by *
reference to Exhibit 10.11 to Prime's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1993.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.23 Lease Agreement between Prime Bank and Bell Atlantic Properties dated January 7, 1985 *
(incorporated by reference to Exhibit 10.12 to Prime's Annual Report on Form 10-K for
the year ended December 31, 1994.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.24 Lease Agreement between Prime Bank and The Trust of Russell A. Allen, Deceased dated *
July 31, 1985 (incorporated by reference to Exhibit 10.13 to Prime's Annual Report on
Form 10-K for the year ended December 31, 1994.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.25 Lease Agreement between Prime Bank and Mark Cohen dated September 24, 1994 *
(incorporated by reference to Exhibit 10.14 to Prime's Annual Report on Form 10-K for
the year ended December 31, 1994.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.26 Lease Agreement between Prime Bank and CoreStates Bank dated March 1, 1995 *
(incorporated by reference to Exhibit 10.15 to Prime's Annual Report on Form 10-K for
the year ended December 31, 1995.)
- -----------------------------------------------------------------------------------------------------------------------------------
10.27 Lease Agreement between Prime Bank and Cameron C. Troilo and Olga Jean Troilo dated *
June 26, 1995 (incorporated by reference to Exhibit 10.16 to Prime's Annual Report on
Form 10-K for the fiscal year ending December 31, 1995.)
- -----------------------------------------------------------------------------------------------------------------------------------
13.1 Prime's Annual Report on Form 10-K for the year ended December 31, 1995. **
- -----------------------------------------------------------------------------------------------------------------------------------
13.2 Prime's Quarterly Report on Form 10-Q for the six month period ended June 30, 1996. **
- -----------------------------------------------------------------------------------------------------------------------------------
21. Subsidiaries of the Registrant (incorporated by reference to Exhibit 22.1 to Prime's Annual *
Report on Form 10-K for the year ended December 31, 1994. Such subsidiaries will
become subsidiaries of Registrant upon completion of the mergers referred to herein.)
- -----------------------------------------------------------------------------------------------------------------------------------
23.1 Consent of Coopers & Lybrand, L.L.P.
- -----------------------------------------------------------------------------------------------------------------------------------
23.2 Consent of KPMG Peat Marwick LLP.
- -----------------------------------------------------------------------------------------------------------------------------------
23.3 Consent of Stradley, Ronon, Stevens & Young, LLP.
- -----------------------------------------------------------------------------------------------------------------------------------
23.4 Consent of Kania, Lindner, Lasak and Feeney.
- -----------------------------------------------------------------------------------------------------------------------------------
23.5 Consent of Berwind Financial Group, L.P.
- -----------------------------------------------------------------------------------------------------------------------------------
99.1 Purchase and Assumption Agreement by and among BMJ Financial Corp., Bank of *
Delaware Valley and Prime Bank dated August 19, 1992 (incorporated by reference to
Exhibit 28.1 to Prime's Form 10-Q for the quarter ended September 30, 1992.)

II-4

Exhibit No. Description Page No.
- ----------- ----------- --------

- -----------------------------------------------------------------------------------------------------------------------------------
99.2 Purchase and Assumption Agreement between Prime Bank and the Resolution Trust *
Corporation dated July 26, 1993 (incorporated by reference to Exhibit 28.2 to Prime's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993.)
- -----------------------------------------------------------------------------------------------------------------------------------
99.3 Purchase and Assumption Agreement between Prime Bank and the Resolution Trust *
Corporation dated December 25, 1993 (incorporated by reference to Exhibit 28.3 to
Prime's Annual Report on Form 10-K for the year ended December 31, 1994.)
- -----------------------------------------------------------------------------------------------------------------------------------
99.4 Purchase and Assumption Agreement between Prime Bank and the Resolution Trust *
Corporation dated September 16, 1994 (incorporated by reference to Exhibit 28.4 to
Prime's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.)
===================================================================================================================================

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

* Incorporated by reference from the indicated filing each in SEC file
no. 0-17286.

** Filed with Registration Statement on Form S-4, No. 333-13741, filed
October 8, 1996.

(b) Financial Statement Schedules.

None.

The opinion of Berwind Financial Group, L.P. is included as part of
the Prospectus/Proxy Statement as Annex B.

Item 22. Undertakings.

(a) Undertakings Pursuant to Item 512 of Regulation S-K.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate

II-5

offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.

(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(4) If the registration is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by ss.210.3-19 of this chapter at the
start of any delayed offering or throughout a continuous offering.
Financial statements and information otherwise required by Section
10(a)(3) of the Act need not be furnished, provided, that the
registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph
(a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of
those financial statements. Notwithstanding the foregoing, with respect
to registration statements on Form F-3, a post-effective amendment need
not be filed to include financial statements and information required
by Section 10(a)(3) of the Act or ss.210.3-19 of this chapter if such
financial statements and information are contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the Form F-3.

(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(6) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus
is sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to
and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are
not set forth in the prospectus, to deliver, or cause to be delivered
to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.

II-6

(7) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other Items of the applicable forms.

(8) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (7) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(b) Undertaking Pursuant to Item 22(b) of Form S-4.

The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-7

SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Amendment No. 1 to its Registration Statement on Form S-4 filed
with the Securities and Exchange Commission on October 8, 1996 No. 333-13741
(the "Registration Statement") to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Philadelphia, Commonwealth of
Pennsylvania, on the 31st day of October, 1996.

PRIME NEWCO, INC.

By: /s/ JAMES J. LYNCH
-------------------------------------------
James J. Lynch
President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.

/s/ Erwin T. Straw
- --------------------------
Erwin T. Straw Chairman of the Board of Directors Dated: October 31, 1996

/s/ James J. Lynch
- --------------------------
James J. Lynch President, CEO and Director Dated: October 31, 1996

/s/ Frederick G. Betz
- -------------------------
Frederick G. Betz Director Dated: October 31, 1996

/s/ Joseph A. Fluehr, III
- -------------------------
Joseph A. Fluehr, III Director Dated: October 31, 1996

/s/ Ernest Larenz
- -------------------------
Ernest Larenz Director Dated: October 31, 1996

/s/ David H. Platt
- -------------------------
David H. Platt Director Dated: October 31, 1996

/s/ Raymond L. Weinmann
- -------------------------
Raymond L. Weinmann Director Dated: October 31, 1996

/s/ Walter L. Tillman, Jr.
- -------------------------
Walter L. Tillman, Jr. Executive Vice President and
Chief Operating Officer Dated: October 31, 1996

/s/ Michael J. Sexton
- -------------------------
Michael J. Sexton Treasurer and Chief Financial
Officer Dated: October 31, 1996