EXHIBIT 13

                               CORPORATE PROFILE

 FMS Financial Corporation is the holding company for Farmers & Mechanics Bank.
 Farmers & Mechanics Bank, with total assets of $502 million, is the largest
 thrift institution headquartered in its primary market area of Burlington
 County, New Jersey.

 Founded in Burlington City in 1871 under the name of Farmers' and Mechanics'
 Building and Loan Association, the Bank operates sixteen banking offices in
 Burlington County, New Jersey.

 The daily stock quotation for FMS Financial Corporation is listed in the
 Nasdaq National Market System published in The Wall Street Journal, the
 Philadelphia Inquirer and other leading newspapers under the trading symbol of
 FMCO.

<PAGE>

<TABLE>
<CAPTION>

FINANCIAL HIGHLIGHTS

FINANCIAL CONDITION (IN THOUSANDS)

DECEMBER 31,                                         1995        1994        1993        1992        1991
                                                   --------    --------    --------    --------    --------
<S>                                                <C>         <C>         <C>         <C>         <C>
Assets                                             $501,550    $483,776    $445,029    $432,072    $397,642

Loans receivable and loans held for sale, net       288,400     283,260     269,264     254,989     233,322

Deposits                                            428,809     429,431     406,017     402,172     360,897

Stockholders' equity                                 33,053      29,159      25,906      21,582      19,769


OPERATIONS: (IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)

YEAR ENDED DECEMBER 31,                               1995        1994        1993        1992        1991
                                                   --------    --------    --------    --------    --------
Interest income                                     $35,201     $32,270     $31,510     $31,836     $33,194

Interest expense                                     18,041      15,336      16,100      18,854      23,571

Net interest income                                  17,160      16,934      15,410      12,982       9,623

Net income                                            4,343       4,455       4,215       1,752         523

Earnings per common share (a)                          1.69        1.68        1.63        0.68        0.20

Dividends declared per common share (a)                0.20           0           0           0           0


Weighted average common shares and common

stock equivalents outstanding (a)                     2,565       2,651       2,580       2,574       2,574

OTHER SELECTED DATA:

YEAR ENDED DECEMBER 31,                               1995        1994        1993        1992        1991
                                                   --------    --------    --------    --------    --------
Net interest rate spread                              3.49%       3.64%       3.49%       3.24%       2.63%

Net interest margin                                   3.66        3.72        3.62        3.36        2.71

Return on average assets                              0.89        0.94        0.96        0.43        0.14

Return on average equity                             14.00       16.01       17.80        8.20        2.69

Dividend payout ratio (a)                            11.83        0.00        0.00        0.00        0.00

Equity-to-asset ratio                                 6.59        6.03        5.82        4.99        4.97

<FN>

     (a) Earnings and  dividends  per common share and weighted  average  common
shares and common stock  equivalents  outstanding  amounts have been restated to
reflect a two-for-one stock split announced in November 1995.

</FN>
</TABLE>
<PAGE>

To our Shareholders:

     We are pleased to report continued strong earnings for 1995. Net interest
income increased modestly over 1994, in a period of generally declining interest
rates during the year. After-tax income for the year decreased slightly in
dollar amount as compared with 1994, but showed a small per-share earnings
increase (of one cent per share) for 1995, due to the lower number of shares
outstanding at year-end.

     As a milestone in the bank's growth as a community lending institution, it
should be noted that the bank's assets at the end of 1995 exceeded $500 million
for the first time in the bank's 125 year history. Also, with two additional
branch offices brought on-stream in 1995 (in Willingboro and Delran, NJ),
Farmers and Mechanics Bank had 14 banking offices in operations at year-end
1995. Two more branch locations will be up and running (Bordentown City and
Route 541 Burlington) by the time you are reading this report in April 1996. We
continue to believe that there are fine growth opportunities in the communities
we serve, and we plan to continue our efforts to develop additional branch
locations as circumstances permit.

     Our ability to grow as a community banking organization is a direct
function of the bank's capital base as reported in the balance sheet. We are
pleased to report that Farmers and Mechanics Bank  and its holding company
parent FMS Financial Corporation have registered continuing significant growth
in stockholders' equity over the past several years, rising from less than $20
million at the end of 1991, to just over $33 million at the end of 1995. At
December 31, 1995, the Bank's regulatory, tangible and core capital was 7.38% of
total assets, with risk-based capital at 16.17% of risk weighted assets. Both
figures leave substantial latitude for future growth in the Bank's lending ad
deposit-generating activities.

     We continue to believe that the future is bright for community banking. We
think that a community institution with a good branch system, and friendly
efficient service can compete very effectively with the larger commercial banks.
We believe that good local banking requires an ability to understand and respond
quickly to local needs. We are convinced that the public is better served when
they can visit and discuss their important banking problems and needs with the
top officers of the Bank without leaving their local area. We intend to continue
to do our very best to meet the banking and financial services needs of the
communities we serve.

     Once again, we want to express our appreciation for the loyalty of our
customers, the dedicated efforts of our staff, and the support of our
shareholders in building the continued success of this institution.

     Sincerely,

     /s/Craig W. Yates                  /s/Charles B. Yates
     Craig W. Yates                     Charles B. Yates
     President                          Chairman

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

    FMS Financial Corporation ("the Corporation") is the parent company of
Farmers & Mechanics Bank ("the Bank"), its only subsidiary.  Earnings of the
Corporation are primarily dependent on the earnings of the Bank as the
Corporation has engaged in no significant operations of its own.  Accordingly,
the earnings of the Corporation are largely dependent on the receipt of earnings
from the Bank in the form of dividends.

   The earnings of the Bank depend primarily on its net interest income.  Net
interest income is affected by: (i) the volume of interest-earning assets and
interest-bearing liabilities (see `Rate/Volume Analysis"), (ii) rates of
interest earned on interest-earning assets and rates paid on interest-bearing
liabilities and (iii) the difference ("interest rate spread") between average
rates of interest earned on interest-earning assets and average rates paid on
interest-bearing liabilities.  When interest-earning assets approximate or
exceed interest-bearing liabilities, any positive interest rate spread will
generate net interest income.

    The Bank also derives income from service charges on customer deposit
accounts and fees on loans.  In addition to interest expense, the Bank incurs
operating expenses such as salaries and employee benefits, deposit insurance
premiums, depreciation, property maintenance and advertising.

ASSET AND LIABILITY MANAGEMENT

    The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate spread which can be sustained during
fluctuations in prevailing interest rates.  Interest rate sensitivity is a
measure of the difference between   amounts  of   interest-earning   assets  and
interest-bearing liabilities which  either   reprice or mature  within a
given period of time. The difference, or the interest rate repricing
`GAP", provides an indication of the extent to which an institution's interest
rate spread will be affected by changes in interest rates over a period of time.
A GAP is considered positive when the amount of interest-rate sensitive assets
maturing or repricing over a specified period of time exceeds the amount of
interest-rate sensitive liabilities maturing or repricing within that period and
is considered negative when the amount of interest-rate sensitive liabilities
maturing or repricing over a specified period of time exceeds the amount of
interest-rate sensitive assets maturing or repricing within that period.
Generally, during a period of rising interest rates, a negative GAP within a
given period of time would adversely affect net interest income, while a
positive GAP within such period of time may result in an increase in net
interest income; during a period of falling interest rates, a negative GAP
within a given period of time may result in an increase in net interest income
while a positive GAP within such period of time may have the opposite effect.

GAP TABLE

    The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1995, which are
expected to reprice or mature in each of the future time periods shown.  The
amount of assets or liabilities shown which reprice or mature during a
particular period were determined by the contractual terms or assumed decay
rates of the asset or liability. The table assumes prepayments and scheduled
principal amortization of fixed-rate loans and mortgage-backed securities, and
assumes that adjustable rate mortgage loans will reprice at contractual
repricing intervals.  There has been no adjustment for the impact of future loan
commitments and loans in process.

<TABLE>
<CAPTION>

FARMERS & MECHANICS BANK     3 MONTHS        3 MONTHS         1 TO 3        3 TO 5         OVER 5
GAP TABLE                     OR LESS        TO 1 YEAR         YEARS         YEARS         YEARS        TOTAL

                                                      (DOLLARS IN THOUSANDS)

Interest-earning assets:

<S>                        <C>            <C>             <C>            <C>             <C>            <C>       
Investment securities      $   18,267     $     5,693     $    7,376     $    6,553      $   32,683     $   70,572
Loans                          53,558          44,765         70,153         47,239          75,452        291,167
Mortage-backed securities      33,753          31,921         23,294         11,420          11,167        111,555
                              -------         -------        -------        -------          ------        -------
  Total                       105,578          82,379        100,823         65,212         119,302        473,294
                              -------         -------        -------        -------         -------        -------


Interest-bearing
liabilities:

Now, Super Now, Passbook
  and Club accounts             7,001          14,015         29,311         20,384          42,442        113,153
Money market accounts           5,186          13,007         21,325         10,069           7,907         57,494
Certificates of Deposit        45,412          98,503         44,338         40,238             992        229,483
Borrowings                        432             750         12,000         10,000           5,544         28,726
                              -------         -------        -------        -------           -----        -------
  Total                        58,031         126,275        106,974         80,691          56,885        428,856
                              -------         -------        -------        -------          ------        -------
Interest Rate Sensitivity  $   47,547     $   (43,896)     $  (6,151)     $ (15,479)      $  62,417      $  44,438
GAP                        ==========     ===========      =========      =========       =========      =========

Cumulative Interest Rate   $   47,547     $     3,651     $   (2,500)     $ (17,979)      $   44,438
Sensitivity GAP            ==========     ===========     ==========      =========       ==========

Ratio of Interest Rate
Sensitive Assets  to Interest
Rate Sensitive Liabilities      181.93%         65.24%         94.25%          80.82%        209.72%         110.36%
                                ======          =====          =====           =====         ======          ====== 


RATIO OF CUMULATIVE GAP TO        9.49%          0.73%         -0.50%          -3.59%          8.87%
TOTAL BANK ASSETS                 ====           ====           ====            ====           ==== 


</TABLE>
<PAGE>

     The Bank's analysis of its interest-rate  sensitivity  incorporates certain
assumptions  concerning  the  amortization  of loans and other  interest-earning
assets and the  repricing  characteristics  of  deposits.  The Bank has made the
following  assumptions in calculating  the values on the GAP table:  adjustable-
rate mortgage loans have a constant  prepayment rate of 20%; fixed-rate mortgage
loans have a prepayment  rate that is constant  through time at 14%;  commercial
loans  fixed  and  adjustable  rates  have a  constant  prepayment  rate of 12%;
consumer  loans  have a  prepayment  rate  that is  constant  over  time at 16%;
mortgage-backed  securities  and  CMO/REMIC's  have a  prepayment  rate  that is
constant over time at 15% and 10%,  respectively.  Core savings and NOW checking
deposits  have a decay rate of 17% which is based on OTS  assumption  rates from
industry  experience;  money  market  deposits  have a decay rate  through  time
ranging from 74% almost  immediately  to 31% after one year.  The  interest-rate
sensitivity of the Bank's assets and liabilities  illustrated in the table could
vary  substantially if different  assumptions were used or if actual  experience
differs from the assumptions used.

    The table indicates the time period in which interest-earning assets and
interest bearing liabilities will mature or reprice in accordance with their
contractual terms or assumed decay rates, as applicable.  However, this table
does not necessarily indicate the impact of general interest rate movements on
the Bank's  net   interest  income   because  the   repricing  of  various
categories  of assets   and   liabilities  is   discretionary  and  is  subject
to competition and other pressures.  As a result, various assets and liabilities
indicated as repricing within the same period may in fact reprice at different
times and at different rate levels.

      The Bank measures its interest rate risk (IRR) using the OTS's net
portfolio value (NPV) method. NPV is the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts. An institution's IRR is measured as the change to its NPV as a result
of a hypothetical 200 basis point change in market interest rates. Based on this
analysis at December 31, 1995, the Bank would experience a 187 basis point
decrease in its NPV as a percent of assets if rates rise by 200 basis points in
comparison to a flat rate scenario and a 48 basis point increase in NPV if rates
decline 200 basis points.

RESULTS OF OPERATIONS
Net Interest Income

      The earnings of the Bank depend 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 interest-bearing
liabilities, such as deposits and borrowings.  Net interest income is a function
of the interest rate spread, which is the difference between the weighted
average yield earned on interest-earning assets and the weighted average rate
paid on interest-bearing liabilities, as well as the average balance of
interest-earning assets as compared to interest-bearing liabilities.  Net income
is also affected by non-interest income, such as gains (losses) on sales of
loans and investments, provision for loan losses and real estate owned, service
charges and other fees, and operating expenses.

    The following table sets forth certain information relating to the
Corporation's average balance sheet and reflects the average yield on assets and
average rates paid on liabilities for the periods indicated.  Such yields and
rates are derived by dividing income or expense by the average balance of
interest-earning assets or interest-bearing liabilities, respectively, for the
periods presented.

<TABLE>
<CAPTION>

AVERAGE BALANCES, INTEREST AND YIELDS/RATES
                                                          YEARS ENDED DECEMBER 31,
                                1995                              1994                               1993
                   ---------------------------------  -------------------------------    --------------------------------
                   AVERAGE               AVERAGE      AVERAGE                AVERAGE     AVERAGE               AVERAGE
                    BALANCE    INTEREST   YIELD/RATE  BALANCE    INTEREST  YIELD/RATE    BALANCE    INTEREST   YIELD/RATE

                                              (DOLLARS IN THOUSANDS)

Interest-earning
assets:
<S>                 <C>         <C>           <C>      <C>         <C>           <C>      <C>        <C>            <C>  
  Loans             $289,665   $  23,572     8.14%    $ 280,041   $  22,241     7.94%    $ 267,040  $   22,150     8.29%
  receivable
  Mortgage-backed    122,838       8,034     6.54%      128,775       7,492     5.82%      129,530       7,910     6.11%
  securities
  Investment          55,798       3,595     6.44%       46,591       2,536     5.44%       29,473       1,450     4.92%
  securities          ------       -----     ----        ------       -----     ----        ------       -----     ---- 

Total interest-
earning assets       468,301      35,201     7.52%      455,407      32,269     7.09%      426,043      31,510     7.39%
                     -------      ------     ----       -------      ------     ----       -------      ------     ---- 


Interest-bearing
liabilities:

  Deposits           419,394      15,961     3.81%      429,341      14,539     3.39%      407,184      15,906     3.91%
  Borrowings          27,889       2,080     7.46%       15,091         796     5.27%        5,453         194     3.56%
                      ------       -----     ----        ------         ---     ----         -----         ---     ---- 

Total interest-
bearing liabilities $447,283      18,041     4.03%     $444,432      15,335     3.45%     $412,637      16,100     3.90%
                    ========      ------     ----      ========      ------     ----      ========      ------     ---- 
                                                                                                                               
        


Net interest income            $  17,160                         $   16,934                         $   15,410
                               =========                         ==========                         ==========

Interest rate spread                         3.49%                              3.64%                              3.49%
                                             ====                               ====                               ==== 

Net yield on average
interest-earning assets                      3.66%                              3.72%                              3.62%
                                             ====                               ====                               ==== 

Ratio of average
 interest-earning assets to
  average interest-bearing                 104.70%                            102.47%                            103.25%
  liabilities                              ======                             ======                             ====== 
 
</TABLE>

<PAGE>
RATE VOLUME ANALYSIS

    The following table sets forth certain information regarding changes in
interest income and interest expense of the Corporation for the periods
indicated.  For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume; (ii) changes  in  rates; (iii)  total  change  in  rate  and volume (the
combined effect of changes in both volume and rate, not separately identified,
has been allocated to rate). Because average balances on loans include non-
performing loans which reduce the computed yield, a higher level of non-
performing loans affects both the changes due to volume and rate.

<TABLE>
<CAPTION>

                                                      YEARS ENDED DECEMBER 31,
   
                                           1995 VS. 1994                  1994 VS. 1993

                                        INCREASE (DECREASE)            INCREASE (DECREASE)
                                          DUE TO CHANGE IN              DUE TO CHANGE IN

                                        RATE    VOLUME    TOTAL         RATE    VOLUME    TOTAL
                                      ------    ----       -----      ------     -----    ------ 
                                                            (IN THOUSANDS)

Interest income:
<S>                                   <C>      <C>       <C>          <C>      <C>       <C>    
   Loans receivable                   $  567   $ 764     $ 1,331      $ (986)  $ 1,078   $    92
   Mortgage-backed securities            887    (346)        541        (372)      (46)     (418)
   Investment securities                 558     501       1,059         243       842     1,085
                                      ------    ----       -----      ------     -----    ------ 

   Total change - interest income      2,012     919       2,931      (1,115)    1,874       759
                                      ------    ----       -----      ------     -----    ------ 

Interest expense:

   Deposits                            1,759    (337)      1,422      (2,233)      866    (1,367)
   Borrowings                            610     674       1,284         259       343       602
                                      ------    ----       -----      ------     -----    ------ 

   Total change - interest expense     2,369     337       2,706      (1,974)    1,209      (765)
                                      ------    ----       -----      ------     -----    ------ 

Net change in net interest income     $ (357)   $ 582      $  225      $  859   $   665   $ 1,524
                                      ======    =====      ======      ======   =======   =======
</TABLE>

IMPACT OF INFLATION AND CHANGING PRICES

     The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles which
generally require the measurement of financial position and operating results in
terms of historical dollars (except investments available for sale), without
considering changes in the relative purchasing power of money over time due to
inflation.  Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature.  As a result,
interest rates have a more significant impact on a financial institution's
performance than general levels of inflation.  Interest rates do not necessarily
move in the same direction or in the same magnitude as the price of goods and
services, since such prices are affected by inflation.  In the current interest
rate environment, liquidity and the maturity structure of the Bank's assets and
liabilities are critical to the maintenance of acceptable performance levels.

  ACCOUNTING STANDARDS CHANGE

      Effective January 1, 1994, the Corporation adopted Financial Accounting
Standards No. 115 (SFAS No. 115), `Accounting for Certain Investments in Debt
and Equity Securities'. The effect of adopting SFAS No. 115 resulted in an
unrealized holding loss of $615 thousand for investments available for sale.
The impact on stockholders' equity, net of tax, was $392 thousand.  The adoption
of SFAS No. 115 had no effect on net income.

     During the first quarter of 1995, the Corporation adopted the provisions of
Statement of Financial Accounting Standards Nos. 114 and 118 (SFAS Nos. 114 and
118) `Accounting by Creditors for Impairment of a Loan" which generally
applies to all loans including all loans that are restructured as a troubled
debt restructuring involving a modification of terms. According to SFAS Nos. 114
and 118, impairment of a loan occurs when it is probable the Bank will  not be
able to collect all amounts due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally based on the present
value of expected cash flows discounted at the historical effective interest
rate, except that  collateral dependent loans may be measured for impairment
based on the fair value of collateral. The adoption of SFAS Nos. 114 and 118 did
not have a material impact on the financial position or results of operations of
the Corporation during the year ended December 31, 1995.

     In May 1995, the FASB issued Financial Accounting Standards No. 122 (SFAS
No. 122) `Accounting for Mortgage Servicing Rights". This pronouncement
requires  entities which sell or securitize loans and retain the mortgage
servicing rights to allocate the total cost of the mortgage loans to the
mortgage servicing rights and the loans (without the mortgage servicing rights)
based on their fair values if it is practicable to estimate those fair values.
Any cost allocated to mortgage servicing rights should be recognized as a
separate asset and amortized over the period of estimated net servicing income.
It is 

<PAGE>
anticipated that the adoption of SFAS No. 122 during 1996, will not have a
material impact on the financial position or results of operations of the
Corporation due to the Bank's limited volume of loan sales.

     In October 1995, the FASB issued Financial Accounting Standards No. 123
(SFAS No. 123) `Accounting for Stock-Based Compensation". This statement
defines a fair value based method of accounting for an employee stock option or
similar equity instrument and encourages all entities to adopt that method of
accounting for their employee stock compensation plans. However, it also allows
an entity to continue to measure compensation cost for those plans using the
intrinsic value based method. Entities electing to remain with their current
accounting method must make pro forma disclosures of net income and earnings per
share as if the fair value based method of accounting had been applied. This
statement is effective for the fiscal year ending December 31, 1996. It is the
intent of the Bank to continue with its current method of accounting for stock
based compensation as prescribed by APB opinion No. 25, `Accounting for Stock
Issued to Employees'.

COMPARISONS OF YEARS ENDED DECEMBER 31, 1995 AND 1994.

Net Income

    The Corporation and its subsidiary recorded net income of $4.3 million for
the year ended December 31, 1995, or $1.69 per share as compared to net income
of $4.5 million, or $1.68 per share for the year ended December 31, 1994.  Net
interest income was $17.2 million in 1995 compared to $16.9 million in 1994.
Provisions for loan losses in 1995 was $120 thousand compared to $66 thousand in
1994.  Other income totaled $1.7 million in 1995 compared to $1.3 million for
the same period in 1994.  Total operating expenses for the year ended December
31, 1995 were $11.9 million compared to $11.4 million in the previous year.
During 1995, the Corporation declared dividends which totaled $.20 per share
which resulted in a dividend payout ratio of 11.83% during 1995. The ability of
the Corporation to pay dividends to shareholders is directly dependent upon the
ability of the Bank to pay dividends to the Corporation. See Stockholders'
equity footnote.

Interest Income

     Total interest income increased $2.9 million to $35.2 million in 1995 from
$32.3 million in 1994.  The increase is attributable to increases in interest
income on loans, investment securities and mortgage-backed securities of $1.3
million, $1.1 million and $541 thousand, respectively.

     The increase in interest income on loans was due to an increase in the
average volume of loans of $9.6 million, primarily due to an increase in the
average balance of fixed rate mortgages, adjustable rate mortgage loans and
commercial loans of $5.7 million, $3.7 million and $1.9 million, respectively,
which resulted in an increase in interest income of $764 thousand. The increase
in interest income was also the result of an increase of 20 basis points in the
average yield on the loan portfolio. The average yield on the portfolio
increased to 8.14% during 1995 from 7.94% during 1994 which resulted in an
increase of $567 thousand of interest income.

     Interest income on investment securities increased $1.1 million to $3.6
million during 1995. The increase was the result of a $9.2 million increase in
the average balance of investments to $55.8 million during 1995 from $46.6
million during 1994 as well as an increase in the average yield on the
investments. The increase in the average balance of the portfolio was due to the
purchase of $18.5 million of U.S. Government Agency notes and $2.8 million of
collateralized mortgage obligations during the year.  The increase in the
average balance of investment securities resulted in an increase in interest
income of $501 thousand. The average yield increased to 6.44% during 1995 from
5.44% during 1994 which resulted in an increase in interest income of $558
thousand.

     Interest income on mortgage-backed securities increased  $541 thousand to
$8.0 million during 1995. The increase was due to an increase in the average
yield of these securities to 6.54% during 1995 from 5.82% during 1994, which
resulted in a $887 thousand increase in interest income. This increase was
partially offset by a decrease in the average balance of the portfolio. The
average balance of mortgage-backed securities declined $5.9 million to $122.8
million due to principal paydowns of $19.8 million during the year, which
resulted in a decrease in interest income of $346 thousand.

Interest Expense

     Total interest expense increased $2.7 million to $18.0 million in 1995 from
$15.3 million in 1994.  The increase in interest expense was due to both an
increase in interest expense on deposits as well as borrowings.

     Interest expense on deposits increased $1.4 million to $15.9 million during
1995 from $14.5 million during 1994. The average rate on deposits increased 42
basis points to 3.81% during 1995 from 3.39% during 1994, resulting in an
increase in interest expense of $1.8 million. This increase was partially offset
by a decline in the average balance of deposits of $9.9 million to $419.4
million during 1995, resulting in a decrease in interest expense of $337
thousand. This was primarily due to a decline in the average balance of money
market accounts of $12.4 million, partially offset by an increase in the average
balance of certificates of deposit of $7.1 million during 1995.

  Interest expense on borrowings increased $1.3 million to $2.1 million in 1995
from $796 thousand in 1994.  This increase was due to an increase in the average
balance of borrowings as well as an increase in the average rate. The average
balance of borrowing increased to $27.9 million in 1995 from $15.1 million in
1994, resulting in a $674 thousand increase in interest expense due to volume.
This was the result of an $11 million increase in the average balance of
advances from the Federal Home Loan Bank during the year. The average rate on
borrowing increased to 7.46% during 1995 from 5.27% during 1994, resulting in a
$610 thousand increase in interest expense due to rate.

<PAGE>
Provision For Loan Losses

   The provision for loan losses increased $54 thousand to $120 thousand during
1995 from $66 thousand in 1994.  The determination of the allowance level for
loan losses is based on management's analysis of risk characteristics of various
classifications of loans, previous loan loss experience, estimated fair value of
the underlying collateral and current economic conditions.

Other Income (Expense)

    Other income from operations was $1.7 million in 1995 compared with $1.3
million in 1994.

      Loss from real estate held for development of $200 thousand was the result
of an additional provision to the  valuation allowance. The allowance level was
adjusted in 1995 based on management's analysis of the current market conditions
relating to the two remaining land development properties.

     Real estate owned operations, net in 1995 resulted in a loss of $92
thousand, which was comprised of $35 thousand in real estate owned operating
expenses, $234 thousand of provisions for loss on real estate and $177 thousand
of realized gains on the sale of real estate owned properties.

      Service charges collected on depositors' accounts increased $431 thousand
to $1.5 million in 1995 from $1.1 million in 1994.  The increase is the result
of additional retail banking fees due to higher transaction volume during the
year.

 Operating Expenses
     Total operating expenses increased $563 thousand to $11.9 million in 1995
from $11.4 million in 1994.  The increase in operating expenses was primarily
due to the addition of one branch to the Bank's branch network during the year.

     Salaries and benefits increased $339 thousand to $6.3 million in 1995 from
$5.9 million in 1994.  The increase was due to additional staff in the new
branch opened during the year as well as an increase in administrative staffing.
Average full time equivalent employees during 1995 were 209 as compared to 196
during 1994.

     Occupancy and equipment increased $131 thousand to $2.1 million in 1995 
from $1.9 million in 1994.  This increase is due to additional depreciation and
occupancy expenses on a new branch opened in 1995, as well as other facility and
equipment additions and improvements during the year.

     Purchased services increased $176 thousand to $1.0 million in 1995 from 
$846 thousand in 1994 which includes an increase in MAC charges of $85 thousand 
as well as an increase in DDA processing of $11 thousand due to higher 
transaction volume during the year.

     Federal deposit insurance premiums decreased to $974 thousand in 1995 from
$1.0 million in 1994.  The decrease is due to a decline in the average deposits
of the Bank as well as a full year of the lowered FDIC rate of $.23 per $100
which was changed during the last six months of 1994.

     Currently, the Bank pays an insurance premium to the Federal Deposit
Insurance Corporation ("FDIC") equal to .23% of its total deposits.  Federal
law requires that the FDIC maintain the reserve level of each of the Savings
Association Insurance Fund ("SAIF") and the Bank Insurance Fund ("BIF") at
1.25% of insured deposits. Reserves are funded through payments by insured
institutions of insurance premiums. The BIF reached this level during 1995. The
FDIC reduced the insurance premiums to a range between 0.0% and 0.31% for
members of BIF while maintaining the current range of between 0.23% and 0.31% of
deposits for members of SAIF. As a result, most BIF insured institutions will
pay only the statutory minimum of $2,000 annually. The reduction in insurance
premiums for BIF members places SAIF members, such as the Bank, at a material
competitive disadvantage to BIF members. A disparity in insurance premiums
between those required for SAIF members, such as the Bank, and BIF members
allows BIF members in the Bank's market area, as a result of the reduction in
insurance premiums, to increase the rates paid on deposits. This could put
competitive pressure on the Bank to raise the interest rates paid on deposits
thus increasing its cost of funds and possibly reducing net interest income. The
resultant competitive disadvantage could result in the Bank losing deposits to
BIF members who have a lower cost of funds and are therefore able to pay higher
rates of interest on deposits. Although the Bank has other sources of funds,
these other sources may have higher costs than those of deposits, resulting in
lower net yields on loans originated using such funds. A one-time assessment on
thrift institutions sufficient to recapitalize the SAIF to a level which would
at least approach that of the BIF has received the support of several sponsors.
While there can be no assurance that this or any other idea for addressing the
premium disparity will in fact materialize, an assessment of this kind could
have a material adverse impact on the Bank's results of operations and financial
position.

<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1993

Net Income

    The Corporation and its subsidiary recorded net income of $4.5 million for
the year ended December 31, 1994, or $1.68 per share as compared to net income
of $4.2 million, or $1.63 per share for the year ended December 31, 1993.  Net
interest income before provision for loan losses was $16.9 million in 1994
compared to $15.4 million in 1993.  Provisions for loan losses in 1994 was $66
thousand compared to $202 thousand in 1993.  Other income totaled $1.3 million
in 1994 compared to $1.2 million for the same period in 1993.  Total operating
expenses for the year ended December 31, 1994 were $11.4 million compared to
$9.7 million in the previous year.

Interest Income

     Total interest income increased $759 thousand to $32.3 million in 1994 from
$31.5 million in 1993.  The increase is attributable to increases in interest
income on investment securities and loans of $1.1 million and $92 thousand,
respectively.  These increases were partially offset by a decrease in interest
income on mortgage-backed securities of $418 thousand.

     The increase in interest income on investments was due to an increase in
the average volume of investments, primarily U.S. Government Agency notes as
well as an increase in the average interest rate earned.  The average volume of
investment securities increased to $46.6 million in 1994 from $29.5 million in
1993, resulting in an increase in interest income of $842 thousand due to
changes in volume.  The average interest rate earned on investment securities
increased to 5.44% in 1994 from 4.92% in 1993, resulting in an increase in
interest income of $243 thousand due to changes in interest rates.

     The increase in interest income on loans was due to an increase in the
average volume of loans, partially offset by a decline in the average rate
received on loans.  The average volume of loans increased to $280.0 million in
1994 from $267.0 million in 1993, resulting in a $1.1 million increase in
interest income due to changes in volume.  The average earning interest rates
received on loans declined to 7.94% in 1994 from 8.29% in 1993, resulting in a
decrease of $986 thousand in interest income on loans due to changes in rates.

     The decrease in interest income on mortgage-backed securities was due to a
decrease in the average earning interest rate received on mortgage-backed
securities, as well as a decrease in the average volume of mortgage-backed
securities.  The  weighted average rate on mortgage-backed securities declined
to 5.82% in 1994 from 6.11% in 1993, resulting in a $372 thousand decline in
interest income due to changes in rates.  The average volume of mortgage-backed
securities decreased to $128.8 million in 1994 from $129.5 million in 1993,
resulting in a $46 thousand decrease in interest income due to changes in
volume.

Interest Expense

     Total interest expense decreased $765 thousand to $15.3 million in 1994
from $16.1 million in 1993.  The decline in interest expense is due to a decline
in the weighted average rate paid on deposits partially offset by an increase in
the average volume of deposits.

     During the period the average interest rate paid on deposits declined to
3.39% in 1994 from an average rate of 3.91% in 1993, resulting in a $2.2 million
decrease in interest expense on deposits due to changes in rates.  Partially
offsetting the decline in rates was an increase in the average volume of
deposits which increased to $429.3 million in 1994 from an average balance of
$407.2 million in 1993, resulting in a $866 thousand increase in interest
expense due to changes in volume.  The increase in the average deposits is
primarily due to the purchase of deposits during the year totaling approximately
$39.3 million.

     Interest expense on borrowings  increased $602 thousand to $796 thousand in
1994 from $194  thousand  in 1993.  This  increase  is due to an increase in the
average  balance of  borrowings  to $15.1  million in 1994 from $5.5  million in
1993,  resulting in a $343 thousand  increase in interest expense due to volume.
This  increase is the result of the  issuance of $10.0  million of  subordinated
debentures by the Corporation during 1994.

     On July 28, 1994, the Corporation  issued $10 million  principal  amount of
10%  subordinated  debentures  (the  `Debentures")  in  an  underwritten  public
offering.  The Debentures  were issued in  denominations  of $1,000 and integral
multiples  thereof.  Interest  is payable  on the  Debentures  semi-annually  on
February 1 and August 1 of each year.  The  Corporation  made its first interest
payment on the Debentures on February 1, 1995.

     The Debentures are not redeemable prior to August 1, 1997.  Thereafter, the
Debentures are redeemable at any time by the Corporation, in whole or in part,
on not less than 30 days notice, at fixed redemption prices, together with
accrued interest to the redemption date.

     The Debentures were issued pursuant to an Indenture dated as of July 28,
1994.  In accordance with the Indenture, the Corporation may not declare or pay
a dividend, or purchase or redeem, or otherwise acquire for value, any of its
capital stock, or return any capital to holders of its capital stock, or make
any distribution of assets to holders of its capital stock unless from and after
the date of any such transaction the Corporation retains at all times cash, cash
equivalents or marketable securities in an amount not less than the aggregate
amount of two consecutive semi-annual interest payments that will be due and
payable on the Debentures following such transaction (the `Cash Retention").
In determining the minimum amount of the Cash Retention, the Corporation must
deduct the amount of  each semi-annual  interest payment  made on the Debentures
following the proposed declaration or redemption, as the case may be.

<PAGE>
Provision For Loan Losses

   The provision for loan losses decreased $136 thousand to $66 thousand during
1994 from $202 thousand in 1993.  The determination of the allowance level for
loan losses is based on management's analysis of risk characteristics of various
classifications of loans, previous loan loss experience, estimated fair value of
the underlying collateral and current economic conditions.

Other Income (Expense)

    Total operating income was $1.3 million in 1994 compared with $1.2 million
in 1993.

      Service charges collected on depositors' accounts increased $225 thousand
to $1.1 million in 1994 from $863 thousand in 1993.  The increase is the result
of additional retail banking fees due to a higher average customer deposit base
during the year.

     Loss on sale of investment securities is due to a $122 thousand loss on the
sale of the ARM mutual funds during the year.

     Real estate owned operations, net in 1994 resulted in a loss of $259
thousand, which was comprised of $90 thousand in real estate owned operating
expenses, $79 thousand of provisions for loss on real estate and $90 thousand of
realized losses on the sale of real estate owned properties.

Operating Expenses

     Total  operating  expenses  increased $1.7 million to $11.4 million in 1994
from $9.7 million in 1993. The increase in operating  expenses was primarily due
to the addition of three branches to the Bank's branch network during the year.

     Salaries and benefits  increased  $1.1 million to $5.9 million in 1994 from
$4.8 million in 1993. The increase was due to additional  staff in the three new
branches  opened  during  the  year  as well as an  increase  in  administrative
staffing.  Average full time equivalent  employees  increased to 196 during 1994
from 168 during  1993.  The increase  also  resulted  from the $129  thousand of
expense related to the issuance and exercise of stock appreciation rights during
the year.

          Occupancy and equipment increased $345 thousand to $1.9 million in
1994 from $1.6 million in 1993. This increase is primarily due to additional
depreciation and occupancy expenses on the new branches opened during the year.

          Purchased services decreased $84 thousand to $846 thousand in 1994
from $930 thousand in 1993 due primarily to lower processing costs incurred from
a change in  the Bank's check processors  during the year.

     Federal deposit insurance premiums decreased to $1.02 million in 1994 from
$1.07 million in 1993.  The decrease is due to a decline in the insurance
premium, partially offset by higher average deposits during the year.

     Professional fees increased $56 thousand to $363 thousand in 1994 from $307
thousand in 1993.  This increase is primarily due to an increase in audit and
examination fees of $51 thousand the year.

     Other operating expenses increased to $1.2 million during 1994 from $1.0
million in 1993.  This increase is primarily due to an increase in amortization
expense of $183 thousand, resulting from the $1.4 million in premiums paid on
deposits acquired during the year.

LIQUIDITY AND CAPITAL RESOURCES

     The Bank's liquidity is a measure of its ability to fund loans, withdrawals
of deposits and other cash outflows in a cost effective manner.  The Bank's
primary sources of funds are deposits and scheduled amortization and prepayments
of loan principal.  The Bank also obtains funds from the sale and maturity of
investment securities and short-term investments as well as the maturity of
mortgage-backed securities and funds provided by operations.  During the past
several years, the Bank has used such funds primarily to meet its ongoing
commitments to fund maturing time deposits and savings withdrawals, to fund
existing and continuing loan commitments and to maintain liquidity.  While the
Bank has been able to fund its operations internally during recent periods, it
has periodically supplemented its liquidity needs with advances from the FHLB of
New York.  At December 31, 1995 the Bank had $24.5 million in advances from the
Federal Home Loan Bank of New York.  While loan payments, maturing investments
and mortgage-backed securities are relatively predictable sources of funds,
deposit flows and loan prepayments are greatly influenced by general interest
rates, economic conditions and competition.  The Bank's liquidity is also
influenced by the level of demand for funding loan originations.

     The Bank is required under applicable federal regulations to maintain
specified levels of `liquid investments", which include certain United States
government and federal agency securities and other approved investments.
Regulations currently in effect require the Bank to maintain liquid assets of
not less than 5% of its withdrawable accounts plus short-term borrowings.
Short-term liquid assets must consist of not less than 1% of such accounts and
borrowings, which amount is also included in the 5% requirement. These levels
are changed from time to time by the regulators to reflect the current economic
conditions.  The Bank has generally maintained liquidity in excess of required
levels.  The Bank's regulatory liquidity and short-term liquidity was 10.63% and
4.75%, respectively, at December 31, 1995.

<PAGE>

     The amount of certificate accounts which are scheduled to mature during the
twelve months ending December 31, 1996 is approximately $143.3 million.  To the
extent these deposits do not remain at the Bank upon maturity, the Bank believes
it can replace these funds with deposits, FHLB advances or outside borrowings.
It has been the Bank's experience that a substantial portion of such maturing
deposits remain with the Bank.

     At December 31, 1995, the Bank had loan commitments outstanding of $25.7
million, of which $2.6 million were for fixed-rate loans and $23.1 million were
for adjustable-rate loans.  Funds required to fulfill the commitments are
derived primarily from loan repayments, net deposit inflows or, when
appropriate, borrowings.

     Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") the Bank must have core capital equal to 3% of assets, which
1.5% must be tangible capital, excluding goodwill.  FIRREA also established
risk-based capital standards.  In measuring the Bank's compliance with FIRREA
capital standards, the Bank must deduct from its regulatory capital calculation
investments in, and advances to, subsidiaries engaged in activities not
permissible for national banks.  At December 31, 1995, the Bank exceeded all
three regulatory capital levels required under FIRREA.  At December 31, 1995,
the Bank's regulatory tangible and core capital was $36.8 million or 7.38% of
total bank assets and risk-based capital was $39.2 million or 16.17% of risk-
weighted assets.

The Bank holds a substantial component of its investment portfolio in mortgage-
backed securities and collateralized mortgage obligations (collectively,
`MBS").  At the end of 1995, the total investment in MBS amounted to $124.3
million, or 68% of total investments.  These are instruments collateralized by
pools of residential and commercial mortgages, which return interest and
principal payments to the investor.  Approximately 89% of the Bank's MBS
holdings are U.S. Government Agency securities (GNMA, FNMA, and FHLMC), which
carry either a direct government or a quasi-government guarantee and are rated
AAA in terms of quality.  The Bank also owns non-agency MBS, issued by major
financial institutions, which are rated AAA and AA.  MBS are generally very
liquid issues with major brokerage houses providing ready markets.  However, MBS
are subject to prepayment and extension risk which can adversely affect their
yield and expected maturity.

<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED SUMMARY OF QUARTERLY EARNINGS (UNAUDITED)

The following table presents summarized quarterly data for 1995 and 1994:

                                         1ST             2ND             3RD              4TH            TOTAL
1995                                   QUARTER         QUARTER         QUARTER          QUARTER          YEAR
                                  ------------     ------------    ------------    ------------     ------------

                                              (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<S>                               <C>              <C>             <C>             <C>              <C>         
Total interest income             $      8,444     $      8,721    $      9,013    $      9,023     $     35,201
Total interest expense                   4,052            4,408           4,791           4,790           18,041
                                  ------------     ------------    ------------    ------------     ------------
Net interest income                      4,392            4,313           4,222           4,233           17,160

Provision for loan losses                   30               30              30              30              120
                                  ------------     ------------    ------------    ------------     ------------


Net interest income after
provision for loan losses                4,362            4,283           4,192           4,203           17,040
Total other income                         438              446             458             348            1,690
Total operating expenses                 2,967            2,961           2,993           2,995           11,916
                                  ------------     ------------    ------------    ------------     ------------


Income before income taxes               1,833            1,768           1,657           1,556            6,814
Federal and state income taxes             669              639             600             563            2,471
                                  ------------     ------------    ------------    ------------     ------------


Net income                        $      1,164     $      1,129    $      1,057    $        993     $      4,343
                                  ============     ============    ============    ============     ============




Earnings per common share (a)     $       0.45     $       0.44    $       0.42    $       0.38     $       1.69
                                  ============     ============    ============    ============     ============

                                        1ST             2ND             3RD              4TH             TOTAL
1994                                  QUARTER          QUARTER         QUARTER          QUARTER          YEAR
                                  ------------     ------------    ------------    ------------     ------------

                                                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Total interest income             $      7,513     $      7,978    $      8,326    $      8,452     $     32,269
Total interest expense                   3,525            3,776           3,961           4,073           15,335
                                  ------------     ------------    ------------    ------------     ------------

Net interest income                      3,988            4,202           4,365           4,379           16,934
Provision for loan losses                   12               18              18              18               66
                                  ------------     ------------    ------------    ------------     ------------

Net interest  income after
  provision for loan losses              3,976            4,184           4,347           4,361           16,868
Total other income                         285              373             370             247            1,275
Total operating expenses                 2,530            2,934           2,993           2,896           11,353
                                  ------------     ------------    ------------    ------------     ------------


Income before income taxes               1,731            1,623           1,724           1,712            6,790
Federal and state income taxes             606              546             576             607            2,335
                                  ------------     ------------    ------------    ------------     ------------


Net income                        $      1,125     $      1,077    $      1,148    $      1,105     $      4,455
                                  ============     ============    ============    ============     ============

Earnings per common share (a)     $       0.42     $       0.40    $       0.43    $       0.43     $       1.68
                                  ============     ============    ============    ============     ============

<FN>
(a) Earning per common share and weighted average common shares outstanding
have been restated to reflect a two-for-one stock split announced in November
1995.
</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31,                                                  1995                        1994
                                                            -------------          -------------   

ASSETS

<S>                                                         <C>                   <C>           
   Cash and amounts due from depository institutions        $   9,804,770         $    9,425,147
   Interest-bearing Deposits                                      124,334                582,744
   Federal funds sold                                                   0              1,300,000
   Short term funds                                                56,476                 72,654
                                                            -------------          -------------   

       Total cash and cash equivalents                          9,985,580             11,380,545
   Investment securities held to maturity                      43,564,913             21,204,072
   Investment securities available for sale                    22,767,981             11,466,127
   Loans receivable - net                                     288,400,236            283,259,831
   Mortgage-backed securities held to maturity                111,554,864            131,872,980
   Accrued interest receivable:
       Loans                                                    1,749,652              1,678,617
       Mortgage-backed securities                                 964,148              1,028,201
       Investments                                                892,533                366,287
   Federal Home Loan Bank stock                                 4,058,100              3,728,400
   Real estate held for development - net                       1,227,732              1,427,732
   Real estate owned - net                                        668,792              1,811,527
   Office properties and equipment - net                       12,773,479             10,688,190
   Deferred income taxes                                          897,443              1,146,603
   Excess cost over fair value of net assets acquired             997,505              1,320,731
   Prepaid expenses and other assets                              553,944                845,436
   Subordinated Debentures issue cost - net                       493,157                550,505
                                                            -------------          -------------   

TOTAL ASSETS                                                $ 501,550,059          $ 483,775,784
                                                            =============          =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:

   Deposits                                                 $ 428,809,380          $ 429,430,814
   Advances from the Federal Home Loan Bank                    24,500,000             10,070,000
   10% Subordinated Debentures, due 2004                       10,000,000             10,000,000
   Guarantee of employee stock ownership plan debt                182,444                258,425
   Advances by borrowers for taxes and insurance                2,093,130              2,105,281
   Accrued interest payable                                       888,456                837,694
   Dividends payable                                              125,288                      0
   Other liabilities                                            1,898,861              1,914,760
                                                            -------------          -------------   
   Total liabilities                                          468,497,559           454,616,974
                                                            -------------          -------------   

Commitments and contingencies
Stockholders' Equity:

   Preferred stock - $.10 par value 5,000,000 shares
   authorized; none issued Common stock - $.10 par value
   10,000,000 shares authorized; shares issued 2,601,634
   and 1,295,100, and shares outstanding 2,505,756 and 
   1,257,550 as of December 31, 1995 and 1994,
   respectively                                                   260,163                129,510
 
   Paid-in capital in excess of par                             8,408,840              8,495,186
   Unrealized loss on securities available for sale -            (236,154)             (415,872)
   net of deferred income taxes
   Guarantee of employee stock ownership plan debt               (182,444)              (258,425)
   Retained earnings - substantially restricted                25,951,864             22,108,961
   Less:  Treasury stock (95,878 and 37,550 shares,
     at cost,  as of December 31, 1995 and 1994,
     respectively)                                             (1,149,769)              (900,550)
                                                            -------------          -------------   
Total stockholders' equity                                     33,052,500             29,158,810
                                                            -------------          -------------   
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  $ 501,550,059          $ 483,775,784
                                                          =============          =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,                        1995              1994              1993
                                            --------------   --------------     --------------

INTEREST  INCOME:
Interest income on:

<S>                                        <C>               <C>                <C>           
  Loans                                    $    23,572,092   $   22,241,502     $   22,149,620
  Mortgage-backed securities                     8,033,982        7,492,533          7,909,658
  Investments                                    3,594,867        2,535,568          1,450,619
                                            --------------   --------------     --------------
Total interest income                           35,200,941       32,269,603         31,509,897
                                            --------------   --------------     --------------

INTEREST EXPENSE:
Interest expense on:

  Deposits                                      15,961,110       14,539,097         15,905,872
  Subordinated Debentures                        1,049,015          456,306                  0
  Borrowings                                     1,031,043          339,840            194,478
                                            --------------   --------------     --------------
Total interest expense                          18,041,168       15,335,243         16,100,350
                                            --------------   --------------     --------------

NET INTEREST INCOME                             17,159,773       16,934,360         15,409,547
PROVISION FOR LOAN LOSSES                          120,000           66,000            202,000
                                            --------------   --------------     --------------

NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES                       17,039,773       16,868,360         15,207,547
                                            --------------   --------------     --------------

OTHER INCOME (EXPENSE):
  Loan service charges and other fees              269,977          319,192            296,558
  Gain on sale of loans                              8,836           14,728            256,441
  (Loss) Gain on sale of investment securities           0         (121,609)            62,268
  Loss from real estate held for development      (200,000)               0           (400,000)
  Real estate owned operations, net                (91,986)        (258,685)          (124,314)
  Service charges on depositors' accounts        1,519,078        1,087,928            863,201
  Other income                                     184,687          233,172            211,625
                                            --------------   --------------     --------------
Total other income (expense)                     1,690,592        1,274,726          1,165,779
                                            --------------   --------------     --------------

OPERATING EXPENSES:

  Salaries and employee benefits                 6,285,898        5,947,270          4,758,460
  Occupancy and equipment                        2,053,513        1,922,159          1,577,083
  Purchased services                             1,021,442          845,537            930,371
  Federal deposit insurance premium                973,503        1,022,196          1,069,961
  Professional fees                                367,160          363,347            307,260
  Advertising                                       25,250           24,104             28,715
  Other                                          1,189,114        1,227,855          1,011,358
                                            --------------   --------------     --------------
Total operating expenses                        11,915,880       11,352,468          9,683,208
                                            --------------   --------------     --------------

INCOME BEFORE INCOME TAXES AND                   6,814,485        6,790,618          6,690,118
CUMULATIVE EFFECT OF CHANGE IN 
ACCOUNTING PRINCIPLES 

INCOME TAXES:
Current                                          2,526,805         2,076,887         2,417,650
Deferred                                           (55,724)          258,276            17,820
                                            --------------    --------------    --------------
Total income taxes                               2,471,081         2,335,163         2,435,470

INCOME BEFORE CUMULATIVE EFFECT
  OF CHANGE IN ACCOUNTING PRINCIPLES             4,343,404         4,455,455         4,254,648
Cumulative effect of change in
accounting principles, net of tax                        0                 0           (40,000)
                                            --------------   --------------     --------------
NET INCOME                                  $    4,343,404    $    4,455,455    $    4,214,648
                                            ==============    ==============    ==============

EARNINGS PER COMMON SHARE*:
Income before cumulative effect of change
  in accounting principles                           $1.69             $1.68             $1.65

Cumulative effect of change in accounting
  principles, net of tax                              0.00              0.00             (0.02)
                                                      ----              ----             ----- 

NET INCOME                                           $1.69             $1.68             $1.63
                                                     =====             =====             =====

 Weighted average common shares and
   common stock equivalents outstanding*         2,565,166         2,650,634         2,579,518
                                                 =========         =========         =========

<FN>
     * Earnings per common share and weighted  average  common shares and common
stock equivalents  outstanding have been restated to reflect a two-for-one stock
split announced in November 1995.

See notes to consolidated financial statements.
</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,                          1995              1994              1993
                                           ----------------   ---------------   --------------- 

OPERATING ACTIVITIES:

<S>                                        <C>                <C>               <C>            
Net income                                 $      4,343,404   $     4,455,455   $     4,214,648
Adjustments to reconcile net income to
net cash provided by operating activities:

Provision for loan losses                           120,000            66,000           202,000
Depreciation and amortization                     1,622,710         1,735,995         1,210,907
Provision for real estate owned                     354,453           157,526            29,321
Provision for real estate held for                  200,000                 0           400,000
development
Realized (gains) and losses on:
  Sale of loans and loans held for sale              (8,836)          (14,728)         (256,441)
  Sale of investments available for sale                  0           121,609           (39,750)
  Disposal and sale of fixed assets                   3,836               265             3,489
  Sale of real estate owned                        (177,197)           90,204           (28,809)
Proceeds from sale of loans held for
sale                                                257,989           571,966        12,103,092
Loans originated for sale                          (254,000)         (519,164)      (11,887,193)
Increase in accrued interest receivable            (533,227)         (171,288)         (285,608)
Decrease (Increase) in prepaid expenses             348,840          (210,871)          490,949
and other assets
Increase (Decrease) in accrued interest
payable                                              50,762           480,227           (67,381)
Decrease in other liabilities                       (15,899)         (600,518)       (1,526,354)
Deferred income taxes                               (55,724)          258,276          (442,183)
Other                                                75,981            80,108            47,801
                                           ----------------   ---------------   --------------- 
  Net cash provided by operating 
   activities                                     6,333,092         6,501,062         4,168,488
                                           ----------------   ---------------   --------------- 

INVESTING ACTIVITIES:
Proceeds from sale of:
  Education loans                                   868,725         1,182,050           534,077
  Real estate held for development                        0                 0           452,939
  Real estate owned                               1,022,006           641,754           445,353
  Office property and equipment                           0                 0            83,117
Proceeds from maturities of investment
  securities held to maturity                    35,549,229        51,749,025        13,285,033
Proceeds from maturities of investment
securities available for sale                    13,767,144         3,527,118        12,000,000
Principal collected on mortgage-backed
  securities                                     21,454,381        35,831,645        51,560,074
Principal collected on longer-term loans,net     40,393,832        47,098,661        66,259,189
Longer-term loans originated or acquired,net    (46,373,552)      (63,052,814)      (81,172,809)
Purchase of investment securities and
mortgage-backed securities held to maturity     (62,865,500)     (106,872,825)      (73,061,636)
Purchase of investment securities
available for sale                              (21,317,509)       (1,136,497)       (6,202,655)
Increase (Decrease) in real estate held
for development                                           0            25,575          (103,406)
Purchase of Federal Home Loan Bank stock           (329,700)         (240,800)         (406,000)
Purchase of office property and equipment        (3,037,422)       (2,314,663)       (1,122,038)
Cash received from branch purchase, net                   0        37,423,277                 0
                                           ----------------   ---------------   --------------- 
  Net cash used (provided) by investing
  activities                                    (20,868,366)        3,861,506       (17,448,762)
                                           ----------------   ---------------   --------------- 

FINANCING ACTIVITIES:

Net (decrease) increase in demand deposits
  and savings accounts                           (5,609,287)       (6,649,839)       18,777,333
Net increase (decrease) in time deposits          4,987,853        (9,254,006)      (14,932,462)
Net increase in FHLB advances                    14,430,000         2,070,000         6,500,000
Principal repayment of employee stock
  ownership plan debt                               (75,981)          (65,981)          (70,319)
Net proceeds from issuance of 10%
  Subordinated Debentures                                 0         9,426,522                 0
Decrease (Increase) in advances from
  borrowers for taxes and insurance                 (12,151)          196,380           (47,467)
Purchase of treasury stock                         (249,219)         (900,550)                0
Dividends paid on common stock                     (375,213)                0                 0
Net proceeds from issuance of common stock           44,307            24,025            38,750
                                           ----------------   ---------------    -------------- 
   Net cash provided (used) by financing
   activities                                    13,140,309        (5,153,449)       10,265,835
                                           ----------------   ---------------    -------------- 

(DECREASE) INCREASE IN CASH AND CASH
  EQUIVALENTS                                    (1,394,965)        5,209,119        (3,014,439)
CASH AND CASH EQUIVALENTS, BEGINNING OF
  YEAR                                           11,380,545         6,171,426         9,185,865
                                           ----------------    --------------    --------------  
CASH AND CASH EQUIVALENTS, END OF YEAR    $       9,985,580   $    11,380,545   $     6,171,426
                                          =================   ===============   ===============


Supplemental Disclosures:
  Cash paid for:
     Interest on deposits, advances
       and other borrowings               $     17,990,406   $    14,855,016   $    16,167,731
     Income taxes                                2,503,591         2,212,593         2,273,587
  Non cash investing and financing
    activities:
     Deposits acquired in connection
       with branch acquisition                           0        39,317,734                 0
     Assets acquired in connection
       with branch acquisition                           0           510,403                 0
     Transfer of securities to available for
       sale during FASB 115 suspension period    4,979,408                 0                 0
     Dividends declared and not paid at 
       year end                                    125,288                 0                 0
     Non-monetary transfers from loans to
       real estate acquired through foreclosure     56,527         1,090,740           361,573
</TABLE>

See notes to consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                                           UNREALIZED   GUARANTEE OF
                                              PAID-IN       LOSS ON       EMPLOYEE    RETAINED
                                              CAPITAL      SECURITIES      STOCK      EARNINGS-                 TOTAL
                                     COMMON   IN EXCESS    AVAILABLE     OWNERSHIP  SUBSTANTIALLY  TREASURY  STOCKHOLDERS'
                                      STOCK    OF PAR    FOR SALE, NET   PLAN DEBT   RESTRICTED     STOCK       EQUITY
                                   --------- ----------  -------------  --------- -------------  ---------- ------------- 


<S>                                <C>       <C>           <C>           <C>         <C>            <C>       <C>                
Balances at December 31, 1992      $ 128,700 $ 8,433,221   $ (23,600)  $ (394,725) $ 13,438,858   $     0   $ 21,582,454
Net Income                                                                            4,214,648                4,214,648
Decrease in guarantee of employee
  stock ownership plan debt                                                70,319                                 70,319
Exercise of stock options                500      38,250                                                          38,750
                                   ---------  ----------    --------     --------- -------------  ---------- ------------- 

Balances at December 31, 1993        129,200   8,471,471     (23,600)    (324,406)   17,653,506          0    25,906,171
Net Income                                                                            4,455,455                4,455,455
Increase in unrealized loss on
  securities available for sale,net                         (392,272)                                           (392,272)
Decrease in guarantee of employee
  stock ownership plan debt                                                65,981                                 65,981
Exercise of stock options                310      23,715                                                          24,025
Purchase of common stock                                                                          (900,550)     (900,550)
                                   --------- -----------    --------     --------- -------------  ---------- ------------- 

Balances at December 31, 1994        129,510   8,495,186    (415,872)    (258,425)   22,108,961   (900,550)   29,158,810
Net Income                                                                            4,343,404                4,343,404
Dividends declared                                                                     (500,501)                (500,501)
Decrease in unrealized loss on
  securities available for sale,net                          179,718                                             179,718
Decrease in guarantee of employee
  stock ownership plan debt                                                75,981                                 75,981
Exercise of stock options                572      43,735                                                          44,307
Purchase of common stock                                                                          (249,219)     (249,219)
Two-for-one stock split              130,081    (130,081)                                                              0
                                   --------- -----------    --------    ---------  ------------  ---------- ------------- 

Balances at December 31, 1995       $260,163 $ 8,408,840   $(236,154)   $(182,444) $ 25,951,864 $(1,149,769) $33,052,500
                                    ======== ===========   =========    =========  ============ ===========  ===========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements are prepared in accordance with
generally accepted accounting principles.  The consolidated financial statements
include the accounts of FMS Financial Corporation ("the Corporation"), Farmers
& Mechanics Bank, and its wholly-owned subsidiaries ("the Bank").  Material
intercompany accounts and transactions have been eliminated in consolidation.

REGULATORY AUTHORITIES

    The regulatory agency overseeing savings associations is the Office of
Thrift Supervision ("OTS") and the deposits of the Bank are insured by the
Federal Deposit Insurance Corporation ("FDIC").

     At periodic intervals, both the OTS and the FDIC routinely examine the
Corporation as part of their legally prescribed oversight of the savings and
loan industry.  Based on these examinations, the regulators can direct that the
Corporation's financial statements be adjusted in accordance with their
findings.  In addition, the Corporation is subject to regulations of the
Securities and Exchange Commission ("SEC").

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents include cash and amounts due from depository
institutions, interest-bearing deposits with an original maturity of 90 days or
less, money market funds and federal funds sold. Cash and cash equivalents
exclude repurchase agreements which are generally classified as investments held
to maturity.  Generally, federal funds are purchased and sold for one-day
periods.  The Bank is required to maintain certain average reserve balances as
established by the Federal Home Loan Bank.  The amount of those balances for the
reserve computation periods which include December 31, 1995 and 1994 were $3.2
million and $3.3 million, respectively.  These requirements were satisfied
through the balance of vault cash and a balance at the Federal Home Loan Bank.

INVESTMENTS AND MORTGAGE-BACKED SECURITIES

     During 1994, the Corporation adopted Statement of Financial Accounting
Standards No. 115 (SFAS No. 115), `Accounting for Certain Investments in Debt
and Equity Securities"which required the classification of investments into
three categories, as applicable; trading, available for sale or held to
maturity.  Upon the adoption of SFAS No. 115 on January 1, 1994, the Corporation
categorized selected investments and mortgage-backed securities that are part of
the Corporation's asset/liability management strategy and that may be sold in
response to changes in interest rates, prepayments and similar factors, as
available for sale.  Investments classified as available for sale are reported
at the current market value with net unrealized gains and losses, net of
applicable deferred tax effects, added to or deducted from the Corporation's
total stockholders' equity. Gains and losses on the sale of investment 
securities are recognized utilizing the specific identification method.

     Investment and mortgage-backed securities classified as held to maturity
are recorded at cost, adjusted for amortization of premiums or accretion of
discounts over the term of the security.  Premiums and discounts are amortized
using a method which in total approximates the interest method over the
remaining contractual life of the security.  The Corporation has the intent and
ability to hold these securities to maturity.

REVERSE REPURCHASE AGREEMENTS

       The Bank invests excess funds in reverse repurchase agreements.
Generally, the maturity date of the reverse repurchase agreement is less than 90
days. Due to the short-term nature of the agreement, the Bank does not take
possession of the securities; instead it is held in safekeeping by the Bank's
agent. The carrying value of the agreements approximates fair market value
because of the short maturity of the investment and the Bank believes that it is
not exposed to any significant risk on its investments in reverse repurchase
agreements.

ALLOWANCE FOR POSSIBLE LOAN LOSSES

     An allowance for possible loan losses is maintained at a level that
management considers adequate to provide for potential losses based upon the
portfolio's past loss experience, current economic conditions and other relevant
factors.  When collection of a loan's principal balance or portion thereof is
considered doubtful, management charges the allowance for possible loan losses
based on their assessment of the loan's underlying collateral, if collateral
dependent or present value of estimated future cash flows, and the borrower's
financial condition.  While management uses the best information available to
make evaluations about the adequacy of the allowance for loan losses, future
adjustments to the allowance may be necessary if conditions differ substantially
from the assumptions used in making evaluations.

LOANS HELD FOR SALE

      The Bank sells selected fixed-rate residential mortgage loans, without
recourse, to provide additional funds for lending and to restructure the loan
portfolio to improve interest rate risk. These loans are carried at the lower of
cost or market value, determined on a net aggregate basis.

<PAGE>

INTEREST ON LOANS

     The Bank recognizes interest on loans when earned.  Generally, the Bank
does not recognize interest on loans three months or more delinquent.  Such
interest ultimately collected is credited to income in the period of recovery.

REAL ESTATE OWNED

     Real estate owned consists of properties acquired by or in-lieu of
foreclosure.  These assets are carried at the lower of cost or estimated fair
value at the time the loan is foreclosed less estimated cost to sell.  The
amounts recoverable from real estate owned could differ materially from the
amounts used in arriving at the net carrying value of the assets because of
future market factors beyond the control of the Bank.  Costs to improve the
property are capitalized, whereas costs of holding the property are charged to
expense.

OFFICE PROPERTIES AND EQUIPMENT

     Office properties and equipment are recorded at cost.  Depreciation is
computed using the straight-line method over the expected useful lives of the
assets.  The costs of maintenance and repairs are expensed as they are incurred
and renewals and improvements are capitalized.

DEFERRED LOAN FEES

     The Bank defers all loan fees and related direct loan origination costs.
Deferred loan fees and costs are generally amortized as a yield adjustment over
the life of the loan using the interest method.

LOANS SERVICED FOR OTHERS

     Servicing loans for others generally consists of collecting mortgage
payments, disbursing payments to investors and processing foreclosures.  Loan
servicing income is recorded upon receipt and includes servicing fees from
investors and certain charges collected from borrowers, such as late payment
fees.  The total amount of loans being serviced for the benefit of others was
$34.4 million and $38.3 million at December 31, 1995 and 1994, respectively.
Loan servicing fee income was approximately $113 thousand, $132 thousand and
$163 thousand for the years ended December 31, 1995, 1994 and 1993,
respectively.

REAL ESTATE HELD FOR DEVELOPMENT

     Real estate held for development is carried at cost not to exceed net
realizable value.  Net realizable value is determined based on a discounted
estimate of the fair market value.

EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED

     The excess cost over the fair value of assets acquired is being amortized
over a five year period using the straight-line method.

INCOME TAXES

      Effective January 1, 1993, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 109 (SFAS No. 109) `Accounting
for Income Taxes'.  The adoption of SFAS No. 109 required a change from the
deferred method under Accounting Principles Board Opinion No. 11 to the asset
and liability method of accounting for income taxes.  The asset liability
method, requires that deferred tax assets and liabilities be measured based on a
tax rate convention under which the reversal of temporary differences, including
operating loss and tax credit carry forwards, are expected to be taxed.  SFAS
No. 109 also requires that deferred tax assets be reduced by a valuation
allowance, if it is probable that some portion or all of the deferred tax assets
will not be realized.  The Corporation did not restate its prior year's
financial statements in conjunction with the adoption of SFAS No. 109.  The
cumulative effect of the adoption of SFAS No. 109 was to increase net deferred
income taxes by $275 thousand, which was credited to earnings in the first
quarter of 1993 as a cumulative effect of change in accounting principle.

     The Corporation computes its taxable income for both financial reporting
and federal tax purposes on the accrual basis.  The Corporation reports certain
items of income and expense in its consolidated financial statements in periods
different from those in which such items enter into the determination of taxable
income.  In conformity with generally accepted accounting principles, the
Corporation provides for the tax effects of such timing differences in its
consolidated financial statements, subject to the deferred tax asset
realizability provisions of SFAS No. 109.  These differences between pretax
accounting income and taxable income for return purposes consist primarily of
the calculations for bad debt deductions, real estate losses, depreciation,
recognition of income and expenses associated with loan origination, profit
recognition on discounted mortgages and securities income.

POST-RETIREMENT BENEFITS OTHER THAN PENSIONS

     Effective January 1993, the Corporation adopted the provisions of Statement
of Financial Accounting Standards No. 106, `Employers' Accounting for Post-
retirement Benefits Other Than Pensions', (SFAS No. 106).  SFAS No. 106 changed
the practice of accounting for post-retirement health care benefits from a cash
basis to an accrual basis whereby, during the years that the employee renders
service, the expected cost of providing those benefits to an employee will be
recorded.   The accumulated post-retirement benefit obligation as of January 1,
1993 of $500 thousand was charged in the first quarter of 1993 as a cumulative
effect of change in accounting principle, net of an income tax benefit of $185
thousand.

RECLASSIFICATIONS

     Certain items in the 1994 and 1993 consolidated financial statements have
been reclassified to conform with the presentation in the 1995 consolidated
financial statements.

<PAGE>

EARNINGS PER COMMON SHARE

     Earnings per common share and weighted average common shares outstanding
and common stock equivalents have been retroactively restated to reflect the
increased number of common shares resulting from a two-for-one stock split that
was announced in November 1995 and paid to shareholders on  January 12, 1996. A
total of 1,300,817 additional shares were issued in conjunction with the stock
split. The par value of the Corporation's stock remained unchanged. As a result,
$130,081 was transferred from paid-in capital in excess of par to common stock.
During 1995 and 1994, earnings per share was based on dividing net income by the
weighted average number of common shares outstanding plus the shares that would
be outstanding assuming the exercise of dilutive stock options, all of which are
considered to be common stock equivalents.  During 1993, common stock
equivalents did not have a material dilutive effect on the earnings per share
calculation.  The weighted average shares and common stock equivalents
outstanding for the year ended December 31, 1995 and 1994 totaled 2,565,166 and
2,650,634, respectively, and the weighted average shares outstanding totaled
2,579,518 for the year ended December 31, 1993.

NEW ACCOUNTING PRONOUNCEMENTS

     In May 1995, the FASB issued Statement of Financial Accounting Standards
No. 122, `Accounting for Mortgage Servicing Rights", which is effective for
the Corporation 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.
This statement is not expected to have a significant effect on the financial
position or results of operations of the Corporation.

    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
determined by an option pricing model utilizing various assumptions regarding
the underlying attributes of the options and the Company's stock, rather than
the existing method of accounting for stock-based compensation which is provided
in Accounting Practices Bulletin 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 effects, if
adopted, of SFAS No. 123 on net income and earning per share would be required
in the 1996 financial statements. The Corporation will continue to apply APB 25
and therefore, there will be no impact on the financial position and results of
operations.

<PAGE>

2. INVESTMENT SECURITIES HELD TO MATURITY

     A comparison of amortized cost and estimated market value of investment
securities held to maturity at December 31, 1995 and 1994 are as follows:

<TABLE>
<CAPTION>

                                            DECEMBER 31, 1995
                                          GROSS           GROSS        ESTIMATED
                         AMORTIZED      UNREALIZED      UNREALIZED       MARKET
                           COST            GAINS          LOSSES          VALUE
                      ------------      ----------     ---------     ------------
<S>                   <C>               <C>            <C>           <C>         
U.S. Gov't Agencies   $ 34,086,243      $   64,656     $ (40,910)    $ 34,109,989
Reverse  Repurchase      9,000,000               0             0        9,000,000
Municipal bonds            463,670             447             0          464,117
U.S. Treasury               15,000               0        (1,000)          14,000
                      ------------      ----------     ---------     ------------

Total                 $ 43,564,913      $   65,103     $ (41,910)    $ 43,588,106
                      ============      ==========     =========     ============

</TABLE>


<TABLE>
<CAPTION>
                                      DECEMBER 31, 1994
                                            GROSS          ESTIMATED
                           AMORTIZED      UNREALIZED         MARKET
                             COST           LOSSES           VALUE
                        ------------      ----------    -------------    
<S>                     <C>             <C>             <C>          
U.S. Gov't Agencies     $ 18,988,006    $ (1,157,896)   $  17,830,110
U.S. Treasury              1,976,058         (80,875)       1,895,183
Municipal bonds              240,008          (4,563)         235,445
                        ------------    ------------     ------------   
 
Total                   $ 21,204,072    $ (1,243,334)    $ 19,960,738
                        ============    ============     ============
</TABLE>

     The amortized cost and estimated market value of investments held to
maturity at December 31, 1995, by contractual maturity are shown in the
following table. Expected maturities may differ as borrowers have the right to
call certain obligations.
<TABLE>
<CAPTION>

                                        DECEMBER 31, 1995
                                 AMORTIZED              ESTIMATED
                                   COST               MARKET VALUE
                               ------------           -------------
<S>                            <C>                    <C>          
Due one year or less           $ 11,360,099           $  11,352,799
Due one to five years             9,116,962               9,102,647
Due five to ten years            14,591,370              14,625,160
Due after ten years               8,496,482               8,507,500
                               ------------           -------------
                               $ 43,564,913           $  43,588,106
                               ============           =============
</TABLE>


     During 1995, the Financial Accounting Standards Board permitted a one-time
opportunity for institutions to reassess the appropriateness of the designations
of all securities. The Bank used this opportunity to reassess its assets and
liability management  and reclassified various investments totaling $5.0 million
from held to maturity to available for sale. This reclassification resulted in
an unrealized loss of $70 thousand for investments available for sale. The
impact on stockholder's equity was a net of tax decrease of $45 thousand. At
December 31, 1995 the Bank had purchased $9.0 million of reverse repurchase
agreements with Merrill Lynch Mortgage Capital, Inc with an average maturity of
7 days and an average rate of 6.08%. At December 31, 1995, neither a disposal,
nor conditions that could lead to a decision not to hold these remaining
securities to maturity, were reasonably foreseen.

3. INVESTMENT SECURITIES AVAILABLE FOR SALE

     The amortized cost and estimated market value of investment securities
available for sale at December 31, 1995 and 1994 are as follows:



<TABLE>
<CAPTION>
                                       DECEMBER 31, 1995

                                              GROSS           GROSS          ESTIMATED
                            AMORTIZED       UNREALIZED      UNREALIZED         MARKET
                               COST            GAINS          LOSSES           VALUE
                         ------------       ---------      ----------      ------------
<S>                      <C>                <C>            <C>             <C>         
U.S. Gov't Agencies      $  8,000,000       $       0      $  (72,500)     $  7,927,500
U.S. Treasury               1,979,408             592               0         1,980,000
CMO's                       5,520,407          13,179         (48,787)        5,484,799
REMIC'S                     7,589,420               0        (298,218)        7,291,202
Common Stock                   50,000          34,480               0            84,480
                         ------------       ---------      ----------      ------------
  Total                  $ 23,139,235       $  48,251      $ (419,505)     $ 22,767,981
                         ============       =========      ==========      ============
</TABLE>


                                      DECEMBER 31, 1994
                                        GROSS          ESTIMATED
                     AMORTIZED        UNREALIZED        MARKET
                        COST           LOSSES            VALUE
                  ------------      -----------      ----------- 
CMO'S             $  4,112,077      $  (249,017)     $ 3,863,060
REMIC'S              7,942,763         (366,096)       7,576,667
Common Stock            50,000          (23,600)          26,400
                  ------------      -----------      ----------- 
Total             $ 12,104,840      $  (638,713)    $ 11,466,127
                  ============      ===========     ============

     The amortized cost and estimated market value of investments available for
sale at December 31, 1995, by contractual maturity are shown in the following
table. Expected maturities may differ as borrowers have the right to call or
prepay certain obligations. CMO's and REMIC's are shown separately due to the
amortization an prepayment of principal occurring throughout the life of these
instruments.

                                    DECEMBER 31, 1995
                                AMORTIZED          ESTIMATED
                                  COST           MARKET VALUE
                           ------------          -----------
Due one year or less       $          0          $         0
Due one to five years         4,979,408            4,907,500
Due five to ten years         5,000,000            5,000,000
CMO's                         5,520,407            5,484,799
REMIC's                       7,589,420            7,291,202
Common stock                     50,000               84,480
                           ------------          -----------
                          $  23,139,235         $ 22,767,981
                          =============         ============


     During 1995, there were no sales of investment securities available for
sale. During 1994, the ARM mutual funds were sold which resulted in a $122
thousand loss.  In 1993, there were $40 thousand in gross realized gains and no
realized losses on sales of investment securities available for sale.

<PAGE>

4. LOANS RECEIVABLE

     Loans receivable at December 31, 1995 and 1994 consist of the following:

                                     1995                       1994
                               -------------              ------------- 
Mortgage Loans                 $ 249,278,288              $ 245,874,184
Construction Loans                 4,063,081                  5,699,500
Consumer Loans                     4,336,346                  4,316,961
Commercial Real Estate            34,721,212                 32,227,826
Commercial Business                1,779,051                  1,711,804
                               -------------              ------------- 
Subtotal                         294,177,978                289,830,275
Less:
   Loans in process                1,947,301                  2,775,219
   Deferred loan fees              1,063,662                  1,173,713
   Allowance for
   possible loan losses            2,766,779                  2,621,512
                               -------------              ------------- 
Total loans
receivable, net                $ 288,400,236              $ 283,259,831
                               =============              =============



    The Corporation adopted SFAS Nos. 114 and 118, `Accounting by Creditors for
Impairment of a Loan"during the first quarter of 1995. At December 31, 1995
the recorded investment in loans for which impairment has been recognized in
accordance with SFAS Nos. 114 and 118 totaled $4.5 million, of which $2.0
million related to loans that were individually measured for impairment with a
valuation allowance of $350 thousand and $2.5 million of loans that were
collectively measured for impairment with a valuation allowance of $150
thousand. For the year ended December 31, 1995, the average recorded investment
in impaired loans was approximately $3.6 million. The Corporation recognized
$259 thousand of interest on impaired loans, all of which is recognized on the
cash basis.

     Loans which are 90 days delinquent as to principal and interest are placed
on a non-accrual status and all previously accrued interest is reversed.  The
principal amount of non-accrual loans at December 31, 1995 and 1994 was $4.1
million and $3.0 million, respectively.  Interest income on non-accrual loans
that would have been recorded in 1995 under the original terms of such loans was
$232 thousand, and the interest income actually recognized in 1995 for such
loans was $186 thousand.  Interest income on non-accrual loans that would have
been recorded in 1994 under the original terms of such loans was $186 thousand,
and the actual interest income recognized in 1994 for such loans was $46
thousand.

     The Bank originates and purchases both adjustable and fixed interest rate
loans.  At December 31, 1995, the composition of these loans is as follows:

                                       Maturing
                           Maturing    from 1997    
                           during      through     Maturing
                            1996         2000     after 2000      Total
(In Thousands)            --------    --------    ----------    ----------

Mortgage Loans (1-4       $  1,075    $ 11,704    $  236,499    $  249,278
dwelling)
Construction Loans           4,063           0             0         4,063
Consumer Loans               1,331       1,254         1,752         4,337
Commercial Real Estate      11,899      15,154         7,668        34,721
Commercial Business          1,245         328           206         1,779
                          --------   ---------    ----------    ---------- 
       Total              $ 19,613   $  28,440    $  246,125    $  294,178
                          ========   =========    ==========    ==========


Interest sensitivity
on the above loans:
    Loans with
     predetermined rates $  18,720 $  25,959      $  160,986    $  205,665
    Loans with
     adjustable or
     floating rates            893     2,481          85,139        88,513
                          --------   ---------    ----------    ---------- 
            Total        $  19,613 $  28,440      $  246,125    $  294,178
                         ========= =========      ==========    ==========


     Construction, commercial and land loans are generally indexed to the prime
rate plus a percentage (generally 1% to 2%).  The adjustable rate mortgage loans
have interest rate adjustment limitations and are generally indexed to the 1
year U.S. Treasury note rate.  Future market factors may affect the correlation
of the interest rate adjustment with the rates the Bank pays on the short-term
deposits that have been primarily utilized to fund these loans.

   Changes in the allowance for possible loan losses are as follows:

                                              YEARS ENDED DECEMBER 31,
                                     1995           1994           1993
                                 -----------    -----------     -----------
Balance at beginning of year     $ 2,621,512    $ 2,588,660     $ 2,380,227
Provision charged to
  operations                         120,000         66,000         202,000
Charge-offs                          (18,475)      (119,625)         (8,851)
Recoveries                            43,742         86,477          15,284
                                 -----------    -----------     -----------  
Balance at end year end          $ 2,766,779    $ 2,621,512     $ 2,588,660
                                 ===========    ===========     ===========

<PAGE>

5. MORTGAGE-BACKED SECURITIES

     Mortgage-backed securities held to maturity at December 31, 1995 and 1994
are summarized as follows:

<TABLE>
<CAPTION>

                                           DECEMBER 31, 1995

                                          GROSS            GROSS
                   AMORTIZED            UNREALIZED       UNREALIZED         ESTIMATED
                     COST                 GAINS            LOSSES          MARKET VALUE
                  -------------         ----------        ---------      -------------
<S>               <C>                   <C>               <C>            <C>          
GNMA              $  15,225,124         $  426,254        $    (348)     $  15,651,030
FNMA                 41,506,743            549,696         (106,535)        41,949,904
FHLMC                54,039,337          1,233,442          (49,292)        55,223,487
PRIVATE                 783,660              1,196           (4,477)           780,379
                  -------------         ----------        ---------      -------------
TOTAL             $ 111,554,864        $ 2,210,588        $ (160,652)    $ 113,604,800
                  =============        ===========        ==========     =============
</TABLE>


<TABLE>
<CAPTION>


                                            December 31, 1994

                                          Gross                 Gross
                   Amortized            Unrealized           Unrealized            Estimated
                     Cost                 Gains                Losses             Market Value
                  -------------         ----------        -------------          -------------

<S>               <C>                   <C>                <C>                   <C>          
GNMA              $  17,521,710         $  41,718          $   (712,129)         $  16,851,299
FNMA                 48,746,020             7,373            (2,995,587)            45,757,806
FHLMC                64,474,394            75,317            (2,431,719)            62,117,992
Private               1,130,856                 0               (31,930)             1,098,926
                  -------------         ----------        -------------          -------------
Total             $ 131,872,980         $ 124,408          $ (6,171,365)         $ 125,826,023
                  =============         =========          ============          =============
</TABLE>

     The Bank has the intent and ability to hold these securities to maturity.
At December 31, 1995, neither a disposal, nor a condition that could lead to a
decision not to hold these securities to maturity were reasonably foreseen.
Mortgage-backed securities of $1.1 million and $1.2 million were to secure
public funds on deposit at December 31, 1995 and 1994, respectively.

6. OFFICE PROPERTIES AND EQUIPMENT

     Office properties and equipment at December 31, 1995 and 1994 are
summarized by major classification, as follows:

                                                    DECEMBER 31,
                                             1995                1994
                                        ------------        ------------
Land, buildings and improvements        $ 12,351,961        $ 10,322,305
Furniture and equipment                    3,032,286           2,334,884
Computers                                  2,979,324           2,690,052
                                        ------------        ------------
Total                                     18,363,571          15,347,241

Less accumulated depreciation             (5,590,092)         (4,659,051)
                                        ------------        ------------
Net Office properties and
   equipment                            $ 12,773,479        $ 10,688,190
                                        ============        ============




7. REAL ESTATE HELD FOR DEVELOPMENT

     The Bank, through its wholly-owned subsidiary, Land Financial Services,
Inc., has entered into several real estate investments.  Real estate held for
development is carried at the lower of cost or estimated net realizable value.
Intercompany loans from the Bank are the primary sources of funding and have
been eliminated in consolidation. Such investments in real estate at December
31, 1995 and 1994, are summarized as follows:

                                                DECEMBER 31,
                                        1995                 1994
                                    -----------           -----------   
Real Estate held for development    $ 4,898,782           $ 4,898,782
Valuation  allowance                 (3,671,050)           (3,471,050)
                                    -----------           -----------   
Net                                 $ 1,227,732           $ 1,427,732
                                    ===========           ===========

     During 1995, the Bank recorded an additional $200 thousand provision on the
real estate held for development. The  losses were reflected as a charge to
income in the other income section of the consolidated statements of operations.

     Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), the Bank is required to deduct from capital its investments
in and advances to subsidiaries engaged in activities not permissible for
national banks (i.e. real estate development).

8. REAL ESTATE OWNED

     Real estate owned, net at December 31, 1995 and 1994 totaled $669 thousand
and $1.8 million, respectively, which were acquired through deeds in lieu of
foreclosure.  Changes in allowance for real estate owned is as follows:

                                               YEARS ENDED DECEMBER 31,
                                        1995             1994            1993
                                    ---------        ---------       ---------
Balance at beginning of year        $  79,000        $       0       $       0
Provisions charged to operations      354,453          157,526          29,321
Charge-offs                          (120,261)         (78,526)        (29,321)
Recoveries                                  0                0               0
                                    ---------        ---------       ---------
Balance at end of year              $ 313,192        $  79,000       $       0
                                    =========        =========       =========

<PAGE>

9. DEPOSITS

     Deposits at December 31, 1995 and 1994 consisted of the following major
classifications and weighted average rates:

                                              DECEMBER 31, 1995
                                   WEIGHTED                       PERCENT
                                 AVERAGE RATE      AMOUNT         OF TOTAL
                                 ------------ --------------      -------- 
Non-interest checking                 0.00%   $   28,678,611        6.69%
NOW accounts                          1.52        44,442,958       10.36
Savings accounts                      2.59        68,710,447       16.02
Money market accounts                 2.66        57,493,882       13.41
Certificates                          5.21       229,483,482       53.52
                                      ----    --------------      ------ 


Total                                 3.81%    $ 428,809,380      100.00%
                                      ====     =============      ====== 





                                               DECEMBER 31, 1994
                                 WEIGHTED                          PERCENT
                               AVERAGE RATE         AMOUNT         OF TOTAL
                               ------------    --------------      -------- 

Non-interest checking                 0.00%    $   22,028,452        5.13%
NOW accounts                          1.50         49,291,426       11.48
Savings accounts                      2.78         68,974,307       16.06
Money market accounts                 2.67         64,641,000       15.05
Certificates                          4.44        224,495,629       52.28
                                      ----        -----------       -----

Total                                 3.38%    $  429,430,814      100.00%
                                      ====     ==============      ====== 
                                  

     A summary of certificates by maturity at December 31, 1995 are as follows:

YEAR ENDED DECEMBER 31,                         AMOUNT
                                            -------------
1996                                        $ 143,340,146
1997                                           29,499,652
1998                                           15,334,324
Thereafter                                     41,309,360
                                            -------------
Total                                       $ 229,483,482
                                            =============


     A summary of interest expense on deposits is as follows:

                                          YEARS ENDED DECEMBER 31,
                                    1995             1994                1993
                             ------------       ------------       ------------
NOW accounts                 $    704,815       $    657,628       $    734,144
Savings accounts                1,750,873          2,102,620          1,997,299
Money market accounts           1,571,079          1,913,044          2,065,121
Certificates                   11,934,343          9,865,805         11,109,308
                             ------------       ------------       ------------
Total interest expense       $ 15,961,110       $ 14,539,097       $ 15,905,872
                             ============       ============       ============



10. ADVANCES FROM FEDERAL HOME LOAN BANK

     At December 31, 1995, the Bank had advances from the Federal Home Loan Bank
of New York  ("FHLB")  in the amount of $24.5  million  with a weighted  average
interest rate of 5.96%.  The advances  scheduled to mature are as follows:  $5.0
million  maturing  June 1997,  $5.0  million  maturing  June 1998,  $3.0 million
maturing  October  1998,  $10.0  million  maturing  June 2000,  and $1.5 million
maturing  October 2007. At December 31, 1995, the Bank had an unused credit line
with the FHLB of $24.8 million.  Advances from FHLB at December 31, 1994 totaled
$10.1  million  with a weighted  average  interest  rate of 5.28%.  Advances are
collateralized by FHLB stock and certain first mortgage loans.

11. SUBORDINATED DEBENTURES

     The Corporation completed the issuance of $10.0 million of Subordinated
Debentures in a public offering on July 28, 1994.  The Debentures are unsecured,
bear interest at a rate of 10% per annum and mature on July 28, 2004.  Interest
payments are due semiannually on February 1 and August 1 commencing February 1,
1995.  The Debentures are redeemable, in whole or in part, at any time at the
option of the Corporation at specified redemption prices, except that the
debentures may not be redeemed prior to August 1, 1997.  The net proceeds from
the sale of the Debentures totaled $9.4 million and were used for the expansion
of the Bank's operations through branch acquisitions and general corporate
purposes.  The Corporation is required to retain at all times cash, cash
equivalents or marketable securities in an amount not less than the aggregate
amount of two consecutive semi-annual interest payments that will be due and
payable on the Debentures following such declaration date or redemption date.

12. INCOME TAXES

     Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standard No. 109, `Accounting for Income Taxes" (SFAS No. 109).
SFAS No. 109 incorporates a balance sheet approach to deferred income tax
accounting.  Under this asset and liability method, deferred tax assets and
liabilities are established for the temporary differences between accounting
bases and tax bases of the Corporations' assets and liabilities at the tax rates
expected to be in effect when the temporary differences are realized or settled.
Management believes the existing net deductible temporary differences which give
rise to the net deferred income tax assets are realizable on a more likely than
not basis.

<PAGE>

        The temporary differences that gives rise to significant portions of
deferred tax assets and deferred tax liability are as follows:

                                                           DECEMBER 31,
                                                        1995            1994
                                                    ----------      ----------
Deferred income tax assets:

  Allowance for possible loan losses                $  448,273      $  549,355
  Real estate losses                                   286,597         264,129
  Deferred loan fees, net                               54,262          80,175
  Compensation and pension liability                    60,869          59,227
  Amortization of deposit premium                      116,338          87,721
  Post retirement benefits                             185,000         185,000
  Capitalized interest                                 466,821         393,957
  Unrealized (gain) loss on investments                (12,758)        222,841
  Other                                                 85,654          60,786
                                                    ----------     -----------
Gross deferred tax assets                            1,691,056       1,903,191
Valuation allowance                                   (289,588)       (289,588)
                                                    ----------     -----------
                                                     1,401,468       1,613,603
Deferred income tax liabilities:

  Prepaid deposit insurance premium                    170,029         179,161
  Depreciation                                         333,996         287,839
                                                    ----------     -----------

Gross deferred tax liabilities:                        504,025         467,000
                                                    ----------     -----------
Deferred income tax assets, net                     $  897,443     $ 1,146,603
                                                    ==========     ===========

     There was no change in the valuation allowance for the year ended December
31, 1995. The net change in the valuation allowance for the year ended December
31, 1994 was a decrease of $235 thousand.  This change resulted from a
reassessment of the realizability of the existing net deductible temporary
differences which give rise to the net deferred income tax assets.

     The following represents the components of income tax expense for the years
ended December 31, 1995, 1994 and 1993, respectively.

<TABLE>
<CAPTION>

                                          1995               1994          1993
                                      -----------       -----------     -----------
<S>                                   <C>               <C>             <C>        
Current Federal tax provision         $ 2,305,857       $ 1,880,325     $ 2,196,495
Current State tax provision               220,948           196,562         221,155
                                      -----------       -----------     -----------
  Total Current provision               2,526,805         2,076,887       2,417,650
                                      -----------       -----------     -----------
Deferred Federal tax
 provision (benefit)                      (51,078)          234,892          15,446
Deferred State tax
 provision (benefit)                       (4,646)           23,384           2,374
                                      -----------       -----------     -----------
  Total Deferred provision (benefit)      (55,724)          258,276          17,820
                                      -----------       -----------     -----------
Total                                 $ 2,471,081       $ 2,335,163     $ 2,435,470
                                      ===========       ===========     ===========
</TABLE>

    The Bank is permitted under the Internal Revenue Code ("Code") to deduct
an annual addition to a reserve for bad debts in determining taxable income,
subject to certain limitations.  The Corporation's deductions in 1995, 1994 and
1993 were based upon the percentage of taxable income method as defined by the
Code.  The bad debt deduction under this method equals 8% of taxable income
determined, without regard to that deduction, and with certain adjustments.

     A deferred tax liability has not been recognized for the base year reserve
used for purposes of calculating the tax bad debt deduction because it is
management's belief that this reserve will not reverse in the foreseeable
future.  The cumulative amount of the temporary difference related to this base
year reserve is $6.3 million.  The unrecognized deferred tax liability related
to this amount is $2.4 million.  A deferred tax liability has been recognized
for the portion of the tax bad debt reserve which arose in 1988 and subsequent
years.

     The Corporation's  provision for income taxes differs from that computed by
applying  the  statutory  federal  income  tax rate to  income  before  taxes as
follows:

<TABLE>
<CAPTION>

                                     1995                        1994                        1993
                                AMOUNT      PERCENT       AMOUNT      PERCENT         AMOUNT       PERCENT
                             -----------    -------     -----------   -------       ----------     ------- 

<S>                         <C>              <C>       <C>             <C>          <C>             <C>   
Tax at federal tax rate     $ 2,316,925      34.00%    $ 2,308,810     34.00%      $ 2,274,640      34.00%
Increase (Decrease) from:
   State income taxes, net
      of federal income tax
      benefit                   142,759       2.09%        145,164      2.14%          147,529       2.21%
   Change in valuation
      allowance                       0       0.00%       (234,701)    (3.46%)               0       0.00%
   Other                         11,397       0.17%        115,890      1.71%           13,301       0.19%
                            -----------      -----      -----------    -----        ----------      ----- 
   Total                    $ 2,471,081      36.26%    $ 2,335,163     34.39%      $ 2,435,470      36.40%
                            ===========      =====     ===========     =====        ==========      ===== 
</TABLE>


<PAGE>

13. LEASES

     The Bank leases a building and land to operate two branches and certain
equipment under noncancelable leases which expire over the next 25 years.  These
leases generally provide for the payment of taxes and maintenance by the lessee.
Most of these operating leases provide the Bank with the option to renew the
lease after the initial lease term.  Future minimum rental payments under
existing leases as of December 31, 1995 are as follows:

FISCAL YEAR                      AMOUNT
                              -----------
1996                          $   104,922
1997                               70,016
1998                               53,349
1999                               53,349
2000 and beyond                 1,084,761
                              -----------
Total                         $ 1,366,397
                              ===========


     The leases for the buildings contain cost of living adjustments based on
changes in the consumer price index.  The minimum lease payments shown above
include base rentals exclusive of any future adjustments.  Total rent expense
for all operating leases amounted to $104 thousand, $97 thousand and $114
thousand for fiscal years 1995, 1994 and 1993, respectively.

14. STOCKHOLDERS' EQUITY

     On December 14, 1988, the Bank converted to a state chartered stock Savings
Bank and simultaneously formed FMS Financial Corporation.  At the time of
conversion, eligible deposit account holders were granted priority in the
unlikely event of a future liquidation of the Bank.  The special reserve has
been decreased to the extent that the balances of eligible account holders were
reduced at annual determination dates.

     The ability of the Corporation to pay dividends to stockholders is directly
dependent upon the ability of the Bank to pay dividends to the Corporation.  OTS
regulations restrict the ability of the Bank to pay dividends to the Corporation
if such dividends reduce the net worth of the Bank below the amount required in
the special reserve account and based on the Bank's net income and capital
position.  Furthermore, income appropriated to bad debt reserves and deducted
for federal income tax purposes cannot be used to pay dividends without payment
of federal income taxes on the amount of such income removed from reserves for
such purposes at the then current income tax rate.

      At December 31, 1995, the Bank exceeded all three regulatory capital
levels required under FIRREA.  At December 31, 1995, the Bank's regulatory
tangible and core capital was $36.8 million or 7.38% of total bank assets and
risk-based capital was $39.2 million or 16.17% of risk-weighted assets.

   The following is a reconciliation of the Bank's capital under generally
accepted accounting principles ("GAAP") to regulatory capital at December 31,
1995:

<TABLE>
<CAPTION>

                                 TANGIBLE              CORE             RISK-BASED
                                 CAPITAL             CAPITAL              CAPITAL
                               ------------       ------------         ------------
<S>                            <C>                <C>                  <C>         
GAAP Capital                   $ 38,807,320       $ 38,807,320         $ 38,807,320
Add:
   Unrealized loss
     on investments AFS             236,154             236,154             236,154
Less:
   Subsidiary investments not
     eligible                    (1,246,907)         (1,246,907)         (1,246,907)
   Goodwill                        (997,505)           (997,505)           (997,505)
Supplementary qualifying
   capital item:
   General valuation allowance            0                   0           2,449,606
                               ------------        ------------        ------------
Regulatory capital
   computed                      36,799,062          36,799,062          39,248,668
Minimum regulatory
   capital requirement            7,483,207          14,840,127          19,416,997
                               ------------        ------------        ------------

Regulatory capital
   excess                      $ 29,315,855        $ 21,958,935        $ 19,831,671
                               ============        ============        ============
</TABLE>


15. PENSION PLAN

     The Bank has a defined benefit pension plan for active employees.  Net
pension expense was $279 thousand, $239 thousand and $234 thousand for years
ended 1995, 1994 and 1993, respectively.  The components of net pension cost are
as follows:

                               YEARS ENDED DECEMBER 31,

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

Service Cost          $ 253,640     $ 218,797        $ 195,048
Interest Cost           163,002       146,491          137,283
Return on Assets       (616,173)      (39,613)        (202,156)
Net Amortization
   and Deferral         478,773       (86,277)         104,291
                      ---------     ---------        ---------
Net periodic
   pension cost       $ 279,242     $  239,398       $ 234,466
                      =========     ==========       =========

<PAGE>


     The following table presents a  reconciliation  of the funded status of the
defined benefit pension plan at December 31, 1995 and 1994:

                                                         December 31,
                                                       1995           1994
                                                  -----------     -----------
 Actuarial present value of benefit obligation:
    Vested                                        $ 2,084,446     $ 2,044,193
    Nonvested                                         176,264         186,713
                                                  -----------     -----------
 Accumulted benefit obligation                      2,260,710       2,230,906
 Projected benefit obligation                       2,941,106       2,766,250
 Fair value of plan assets                          3,194,912       2,583,831
                                                  -----------     -----------
 Excess (Deficit) of plan assets over
   projected benefit obligation                       253,806        (182,419)
 Unrecognized net (gain) loss                        (225,225)         83,443
 Unrecognized prior service cost                       94,542         101,435
 Unrecognized net transition obligation               255,287         286,193
                                                  -----------     -----------
 Prepaid pension liability included in the
   consolidated balance sheets                     $  378,410      $  288,652
                                                   ==========      ==========



     Actuarial assumptions used in determining pension cost are as follows:

                                                  YEARS ENDED DECEMBER 31,
                                           1995            1994           1993
                                           -----           -----          -----
Discount rate for benefit obligation       6.00%           6.00%          6.00%
Rate of increase in compensation levels    4.00%           4.00%          4.00%
Expected long-term rate of return on
   plan assets                             7.00%           7.00%          7.00%


    In addition to providing pension plan benefits, the Bank provides certain
health care and life insurance benefits to certain retired employees.  The
Corporation adopted Statement of Financial Accounting Standards No. 106,
`Employer Accounting for Post Retirement Benefits other than Pensions" (SFAS
No. 106) in the first quarter of 1993.  SFAS No. 106 requires that the expected
cost of such benefits be actuarially determined and accrued ratably from the
date of hire to the date the employee is fully eligible to receive benefits.
The accumulated post-retirement benefit obligation is not funded but is
reflected in the statement of financial condition as a liability.  Prior to the
adoption of SFAS No. 106, post-retirement benefit costs were recorded on the pay
as you go basis.

  The net periodic post-retirement benefit cost includes the following
components:

                                                 DECEMBER 31,
                                         1995                  1994
                                       --------             ---------  
Service Cost                           $      0             $       0
Interest Cost                            42,258                38,881
Amortization of prior service cost       (1,521)                    0
Amortization of (gain)/loss              (9,045)                    0
                                       --------             ---------  
Net periodic post-retirement
   benefit cost                        $ 31,692             $  38,881
                                       ========             =========

The assumed discount rate used in the calculation for net periodic post-
retirement benefit cost was 8.25% and 6.75% for 1995 and 1994, respectively.
The assumed health care cost trend rate for 1995 was 8% and was graded down in
1% increments per year to an ultimate rate of 5% per year.  The impact of a 1%
increase in the assumed health care cost trend for each future year would be as
follows:

                                                         December 31, 1995
                                                         -----------------      
Accumulated post-retirement obligation at year end           $527,642
Service Cost                                                       $0
Interest Cost                                                 $45,589


     The following table summarizes the amounts recognized in the Bank's balance
sheet:

                                                 DECEMBER 31,
                                           1995             1994
                                         --------         -------- 
Accumulated post-retirement
   benefit obligation                  $ (485,073)      $ (514,492)
Unrecognized prior service cost           (98,832)               0
Unrecognized net gain                    (106,555)        (195,488)
                                       ----------       ---------- 
Accrued post-retirement benefit
   cost                                $ (690,460)      $ (709,980)
                                       ==========       ========== 


     The assumed discount rate used in the calculation for the accumulated post-
retirement benefit obligation as of December 31, 1995 and 1994 was 7.0% and
8.25%, respectively.

<PAGE>

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

     The disclosure of the fair value of all financial instruments is required,
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 Corporation.

     The Corporation uses 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  HELD TO MATURITY 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 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 certificates
of 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 asked price at year end.

OTHER BORROWINGS:  Fair value is estimated using a discounted cash flow
analysis.

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.

At December 31, 1995 and December 31, 1994, the carrying amount and the
estimated fair value of the Corporation's financial instruments are as 
follows:

<TABLE>
<CAPTION>

                                                           DECEMBER 31, 1995                DECEMBER 31, 1994
                                                                     ESTIMATED                          ESTIMATED
                                                     CARRYING         MARKET            CARRYING          MARKET
                                                      AMOUNT          VALUE              AMOUNT           VALUE
                                                --------------    -------------      --------------    -------------

Financial assets:

<S>                                             <C>               <C>                <C>               <C>          
  Cash and cash equivalents                     $    9,985,580    $   9,985,580      $   11,380,545    $  11,380,545
  Investment securities held
    to maturity and investment
    securities available for sale                   66,332,894       66,356,087          32,670,199       31,426,865
  Mortgage-backed securities                       111,554,864      113,604,800         131,872,980      125,826,023

  FHLB Stock                                         4,058,100        4,058,100           3,728,400        3,728,400
  Loans, net of unearned income                    291,167,015      297,704,000         285,881,343      268,724,526
    Less: Allowance for possible loan losses        (2,766,779)               0         (2,621,512)                0
  Net loan receivable                           $  288,400,236    $ 297,704,000      $  283,259,831    $ 268,724,526

Financial liabilities:
  Deposits
     NOW, passbook, and money market accounts      199,325,898      199,325,898         204,935,185      204,935,185
     Certificates                                  229,483,482      229,200,000         224,495,629      215,074,154
  Subordinated debentures                           10,000,000       10,150,000          10,000,000       10,000,000
  Other borrowings                                  24,682,444       24,866,000          10,328,425        9,647,350

Off-balance sheet financial
instruments:
  Commitments to extend credit                      25,686,791       25,686,791          31,811,675       31,811,675
  Standby letters of credit                            935,673          935,673           1,104,051        1,104,051

</TABLE>

<PAGE>

17. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT ("FDICIA")

     The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was enacted into law on December 19, 1991.  The statute includes a
number of additional supervisory measures.  The additional supervisory powers
and regulations mandated by FDICIA include a `Prompt Corrective Action"
program that permits regulators to take increasingly harsh action against
associations that fail to meet certain new capital-based requirements.  Various
other sections of FDICIA impose substantial new audit and reporting
requirements.

     FDICIA also requires each regulatory agency to institute non-capital safety
and soundness standards for each institution it regulates by August 1, 1993.
These standards must cover (1) internal controls, (2) loan documentation,  (3)
credit underwriting, (4) interest rate exposure, (5) asset growth, (6)
compensation, fees and benefits paid to employees, officers and directors, (7)
operational and managerial standards, and (8) asset quality, earnings and stock
valuation standards for preserving a minimum ratio of market value to book value
for publicly traded shares (if feasible).  Many of the regulations required by
FDICIA have been promulgated by federal regulators. It is anticipated that the
Bank will be subject to certain additional FDICIA requirements in fiscal year
1996.

      As of December 31, 1995 management of the Bank believes that it is in
compliance with the regulations adopted pursuant to FDICIA.

18.  COMMITMENTS AND CONTINGENCIES

     The Bank has outstanding loan commitments of $25.7 million as of December
31, 1995.  Of these commitments outstanding, the breakdown between fixed and
variable rate loans is as follows:

<TABLE>
<CAPTION>

                                                       DECEMBER 31, 1995
                                        FIXED             VARIABLE
                                         RATE                RATE             TOTAL
                                      -----------        ------------      ------------
Commitments to:
<S>                                   <C>                 <C>              <C>        
       fund loans                     $ 2,586,478         $ 1,348,350      $ 3,934,828
Unused lines:
       Construction                             0           1,947,301        1,947,301
       Equity line of credit loans              0          19,804,662       19,804,662
                                      -----------        ------------      ------------
                                      $ 2,586,478        $ 23,100,313      $ 25,686,791
                                      ===========        ============      ============
</TABLE>

     In addition to outstanding loan commitments, the Bank as of December 31, 
1995,issued $936 thousand in standby letters of credit to guarantee performance
of a customer to a third party.

     Commitments and standby letters of credit are issued in accordance with the
same loan policies and underwriting standards as settled loans.  Since some
commitments and standby letters of credit are expected to expire without being
drawn down, these amounts do not necessarily represent future cash requirements.

19. LITIGATION

    A lawsuit was filed against the Corporation and the Bank in December, 1992,
in connection with an employment and severance agreement the Corporation had
entered into with its former President.  Another lawsuit was filed in January,
1993, against Peter's Passion, Inc., a wholly-owned land development subsidiary
of the Bank.  A settlement of both suits was reached and provided for the
Company to contribute $340 thousand to the settlement. Such an amount was
reserved in the financial statements at December 31, 1993 and was paid during
1994. There are no significant pending legal proceedings which will have a
material impact on the Bank's financial position or results of operations at
December 31, 1995.

20.  LOANS TO OFFICERS AND DIRECTORS

     In the past, the Bank has followed a policy of granting mortgage loans to
directors, officers and employees for the purpose of purchasing or refinancing
such person's primary residence at preferential rates.  The officers, directors
and employees were not charged a loan origination fee, but were charged for the
reimbursable costs of underwriting the loan.  Such a rate discount remains in
effect for the time the person remains employed by the Bank.  If the employment
is terminated, the rate discount ceases from that date of termination.  Under
the Financial Institutions Reform, Recovery and Enforcement Act of 1989, loans
made to officers and directors must be on substantially the same terms as
offered in comparable transactions with non-affiliated parties.  The Bank's loan
policy is to comply with these requirements.  Loans to other employees may still
be made on preferential terms.  At December 31, 1995 and 1994, loans made to
directors and executive officers whose indebtedness exceed $60 thousand amounted
to $904 thousand and $1.1 million, respectively.  During 1995 and 1994 there
were no new loans to these individuals and repayments totaled $191 thousand and
$121 thousand, respectively.
21. EMPLOYEE STOCK OWNERSHIP PLAN

     In connection with the conversion to stock form, the Corporation
established an Employee Stock Ownership Plan ("ESOP"), which purchased
approximately $660 thousand worth of common stock.  In order to make the
purchase, the ESOP borrowed approximately $660 thousand on December 8, 1988 from
a commercial bank.  The debt, which accrues interest at 80% of the commercial
bank's base rate, has been guaranteed by the Corporation, and is payable and
expensed in ten annual installments of approximately $66 thousand. Additional
principal payments may be made from cash dividends paid on the unallocated ESOP
shares.

     Annual contributions to the ESOP are made in amounts determined by the
Board of Directors.  Because the Corporation's loan guarantee represents a
commitment either to make future contributions to the ESOP or to make the
principal payments when due, the guarantee has been reflected as a liability,
and an offsetting charge equivalent to the future contributions to be made has
been reflected as a reduction of stockholders' equity in the accompanying
consolidated statements of financial condition.

<PAGE>

22. STOCK OPTIONS

     The Corporation has established a stock compensation plan (the `Plan")
for executive officers and other selected employees of the Corporation.  The
Plan consists of incentive stock options intended to qualify under Section 422A
of the Internal Revenue Code of 1986.  These stock options may be surrendered
and stock appreciation rights may be granted in their place, with the approval
of the Corporation.

     At total of 115,642 shares of authorized but unissued common stock of the
Corporation has been reserved for future issuance under the Plan.  The option
price per share for options granted may not be less than the fair market value
of the common stock on the date of grant.  Options must be exercised within ten
years of the date of grant.

     Stock options of 95,823, 100,958 and 123,758 shares were outstanding and
exercisable at December 31, 1995, 1994 and 1993, respectively, at exercise
prices equal to the fair market value of the Common Stock on the date of grant
of such options. Options for 11,435, 6,200 and 10,000 shares were exercised
during the years ended December 31, 1995, 1994 and 1993, respectively. Options
for 12,000 shares were granted during 1995 at an exercise price equal to the
market price at the date of grant of $16.00 per share. All options previously
granted have an exercise price equal to $3.875. No options were granted during
1994 and 1993.  Stock appreciation rights of 5,700 and 16,600 were issued and
exercised during 1995 and 1994, respectively. No stock appreciation rights were
issued or exercised during 1993.

23.  RISKS AND UNCERTAINTIES

     The earnings of the Corporation depend on the earnings of the Bank. The
earnings of the Bank  depend 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 changes
in the interest rate environment.

     Most of the Bank's lending activity is with customers located within
southern New Jersey.  Generally, the loans are secured by real estate consisting
of single family residential properties.  While this represents a concentration
of credit risk, the credit losses arising from this type of lending compares
favorably with the Bank's credit loss experience on its portfolio as a whole.
The ultimate repayment of these loans is dependent to a certain degree on the
local economy and real estate market.

     The financial statements of the Corporation are prepared in conformity with
generally accepted accounting principles that require management to make
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 reported period. Actual results could differ from these estimates.

     Significant estimates are made by management in determining the
allowance for possible loan losses and carrying values of real estate owned and
real estate held for development. Consideration is given to a variety of factors
in establishing these estimates including current economic conditions,
diversification of the loan portfolio, delinquency statistics, results of
internal loan reviews, borrowers' perceived financial and managerial strengths,
the adequacy of underlying collateral, if collateral dependent, or present value
of future cash flows and other relevant factors. Since the allowance for
possible loan losses and carrying value of real estate assets and real estate
held for development is dependent, to a great extent, on the general economy and
other conditions that may be beyond the Bank's control, it is at least
reasonably possible that the estimates of the allowance for possible loan losses
and the carrying values of the real estate assets could differ materially in the
near term.

     During 1995, Congress began consideration of a recapitalization plan for
the Savings Association Insurance Fund (SAIF). The proposed plan provides all
SAIF member institutions, such as the Bank, to pay a one-time fee of
approximately 85 basis points on the amount of deposits held by the member
institution to recapitalize the SAIF. If the assessment was effected, based on
deposits as of March 31, 1995, the Bank's pro rata share would amount to
approximately $2.3 million after taxes. If the Bank is required to pay the
proposed special assessment, future deposit insurance premiums are expected to
be reduced from .23% to .06%. Management of the Bank is unable to predict
whether this proposal or any similar proposal will be enacted or whether ongoing
SAIF premiums will be reduced to a level comparable to that of BIF premiums.

24.  SUBSEQUENT EVENTS

     On November 28, 1995, the Board of Directors of the Corporation declared a
two-for-one stock split and a cash dividend of $.05 per share, both of which are
payable on January 12, 1996 to shareholders of record on January 2, 1996. All
references in the financial statements to number of shares, per share amounts,
stock options and market prices of the Corporation's common stock have been
retroactively restated to reflect the increased number of common shares
outstanding.

     On February 28, 1996, the Board of Directors of the Corporation declared a
$.05 per share cash dividend which is payable on April 15, 1996 to shareholders
of record on April 2, 1996.

     During March 1996, the Corporation repurchased 39,223 shares of its Common
Stock for a total purchase price of approximately $664 thousand in privately
negotiated transactions.

<PAGE>

25.  PARENT COMPANY FINANCIAL INFORMATION

     The financial statements for FMS Financial Corporation are as follows:

<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION STATEMENTS OF
FINANCIAL CONDITION                                                   DECEMBER 31,
                                                                  1995            1994
                                                            ------------    -------------
ASSETS:
<S>                                                         <C>             <C>          
  Cash                                                      $     81,827    $   1,000,000
  Investment in subsidiary                                    40,339,762       35,428,504
  Investment securities                                        1,000,000                0
  Intercompany receivable-net                                  3,043,996        2,814,519
  Subordinated Debentures issue cost-net                         493,157          550,505
  Other                                                          168,157           57,040
                                                            ------------    -------------
TOTAL ASSETS                                                $ 45,126,899     $ 39,850,568
                                                            ============     ============

LIABILITIES:

  10% Subordinated Debentures due 2004                      $ 10,000,000     $ 10,000,000
  Guarantee of employee stock ownership plan debt                182,444          258,425
  Dividends payable                                              125,288                0
  Accrued interest payable                                       416,667          433,333
                                                            ------------    -------------
TOTAL LIABILITIES                                           $ 10,724,399    $  10,691,758
                                                            ------------    -------------

STOCKHOLDERS' EQUITY:

  Preferred stock - $.10 par value 5,000,000
    shares authorized; none issued

  Common stock - $.10 par value 10,000,000
    shares authorized; shares issued 2,601,634 and
    1,295,100 and shares outstanding 2,505,756 and
    1,257,550 as of December 31, 1995 and 1994, 
    respectively                                                 260,163          129,510
  Paid-in capital in excess of par                             8,408,840        8,495,186
  Unrealized loss on securities available for
    sale, net of deferred income taxes                          (236,154)        (415,872)
  Guarantee of employee stock ownership plan debt               (182,444)        (258,425)
  Retained earnings - substantially restricted                27,301,864       22,108,961
  Less:Treasury Stock (95,878 and 37,550 shares, at cost
    at December 31, 1995 and 1994, respectively)              (1,149,769)        (900,550)
                                                            ------------    -------------
Total stockholders' equity                                    34,402,500       29,158,810
                                                            ------------    -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  $ 45,126,899    $  39,850,568
                                                            ============    =============
</TABLE>


<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION STATEMENTS OF OPERATIONS

                                                              YEARS ENDED DECEMBER 31,
                                                         1995               1994               1993
                                                    ------------        ------------       ------------
<S>                                                 <C>                 <C>                <C>         
Intercompany interest income                        $    537,030        $    288,546       $          0
Interest expense                                      (1,049,013)           (456,306)                 0
Equity in undistributed income of subsidiary           4,687,233           4,566,175          4,254,648
                                                    ------------        ------------       ------------
Income before taxes                                    4,175,250           4,398,415          4,254,648
Income tax benefit                                       168,154              57,040                  0
Cumulative effect of accounting changes                        0                   0            (40,000)
                                                    ------------        ------------       ------------
NET INCOME                                          $  4,343,404        $  4,455,455       $  4,214,648
                                                    ============        ============       ============
</TABLE>

These statements should be read in conjunction with the other notes related to
the consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>

FMS FINANCIAL CORPORATION STATEMENTS OF
CASH FLOWS
                                                                FOR YEARS ENDED DECEMBER 31,
                                                                 1995                   1994                    1993
                                                             -----------            -----------             -----------

OPERATING ACTIVITIES

<S>                                                          <C>                    <C>                     <C>        
Net income                                                   $ 4,343,404            $ 4,455,455             $ 4,214,648
Adjustments to reconcile net income to
net cash provided by operating activities:

Equity in undistributed earnings of the subidiary             (4,687,233)            (4,566,175)             (4,214,648)
Amortization of bond issue costs                                  57,347                 22,973                       0
(Decrease) Increase in interest payable                          (16,666)               433,333                       0
(Increase) Decrease in intercompany receivable, net             (229,477)               792,981                       0
Other operating activities                                       (35,135)                32,542                  31,569
                                                             -----------            -----------             -----------
  Net cash (used) provided by operating activities              (567,760)             1,171,109                  31,569

INVESTING ACTIVITIES

Purchase of marketable security                               (1,000,000)                     0                       0
                                                             -----------            -----------             -----------
  Net cash used by investing activities                       (1,000,000)                     0                       0

FINANCING ACTIVITIES

Net proceeds from issuance of 10% subordinated debentures              0              9,426,522                       0
Purchase of treasury stock                                      (249,219)              (900,550)                      0
Cash dividends received from subsidiary                        1,350,000                      0                       0
Investment in subsidiary                                         (44,307)            (5,047,625)                      0
Intercompany note receivable                                           0             (3,607,500)                      0
Cash dividends paid on common stock                             (375,213)                     0                       0
Principal repayment of employee stock                            (75,981)               (65,981)                (70,319)
ownership plan debt
Proceeds from issuance of stock                                   44,307                 24,025                  38,750
                                                             -----------            -----------             -----------
  Net cash provided (used) by financing activities               649,587               (171,109)                (31,569)
                                                             -----------            -----------             -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVLALENTS               (918,173)             1,000,000                       0

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                   1,000,000                      0                       0
                                                             -----------            -----------             -----------
CASH AND CASH EQUIVALENTS, END OF YEAR                       $    81,827           $  1,000,000             $         0
                                                            ============           ============             ===========
</TABLE>

These statements should be read in conjunction with the other notes related to
the consolidated financial statements.

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF FMS FINANCIAL CORPORATION:
We have audited the accompanying consolidated statements of financial condition
of FMS Financial Corporation and subsidiary as of December 31, 1995 and 1994,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1995.  These consolidated financial statements are the responsibility of the
Corporation's management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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 consolidated financial position of FMS
Financial Corporation 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 1 to the consolidated financial statements, the Corporation
changed its method of accounting for investment securities in 1994 and its
method of accounting for income taxes and post-retirement benefits other than
pensions in 1993.



/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.



2400 Eleven Penn Center
Philadelphia, Pennsylvania

February 9, 1996


<PAGE>

                             CORPORATE INFORMATION

ANNUAL MEETING

     The 1996 Annual Shareholders' Meeting of FMS Financial Corporation will be
held at 10:00 a.m., Friday, April 26, 1996 at the Riverton Country Club,
Highland Avenue off of Route 130, Cinnaminson, New Jersey.

STOCK MARKET INFORMATION

     The common stock of FMS Financial Corporation is traded over-the-counter
and is listed on the Nasdaq National Market System under the symbol `FMCO".
Daily quotations are included in the Nasdaq National Market stock tables
published in the Wall Street Journal and other leading newspapers.

     The number of record holders of common stock of the Corporation as of March
1, 1996 was approximately 828, not including those shares registered in names of
various investment brokers held in account for their customers.

     The following table sets forth the range of closing common bid prices, as
reported by Nasdaq, for the periods ended December 31, 1995 and 1994:

                                             1995

QUARTER ENDED                     HIGH                    LOW
                                 ------                 ------
MARCH 31,                        $12.25                 $11.25

JUNE 30,                         $13.28                 $11.50

SEPTEMBER 30,                    $16.50                 $13.50

DECEMBER 31,                     $17.00                 $16.25



                                             1994

QUARTER ENDED                      HIGH                    LOW
                                 ------                 ------

March 31,                         $11.50                 $10.50

June 30,                          $11.50                 $10.50

September 30,                     $12.00                 $10.50

December 31,                      $12.50                 $11.25

    The Corporation's sole operating assets are derived from its subsidiary,
Farmers & Mechanics Bank.  Consequently, the ability of the Corporation to
accumulate cash for payment of cash dividends to stockholders is directly
dependent upon the ability of the Bank to pay dividends to the Corporation.

     There are regulatory limitations on the ability of the Bank to pay cash
dividends to the Corporation which could, in turn, be used by the Corporation to
pay cash dividends to its stockholders.  Interest on savings accounts must be
paid by the Bank prior to payment of dividends on the common stock.
Additionally, the Corporation must pay interest to holders of its debentures
before payment of cash dividends to its stockholders.  Under the regulations of
the OTS, the Bank is not permitted to pay dividends on its stock if its
regulatory capital would be reduced below the amount required for the
liquidation account established in connection with its mutual-to-stock
conversion.  The Bank will not be permitted to pay dividends on its capital
stock if its regulatory capital would be reduced below the regulatory capital
requirements prescribed for institutions regulated by the OTS.  Further, income
appropriated to bad debt reserves and deducted for federal income tax purposes
cannot be used to pay cash dividends without the payments of federal income
taxes on the amount of such income removed from reserves for such purpose at the
then current income tax rate.

     The Bank's ability to pay dividends or make other capital distributions to
the Corporation is also governed by OTS regulations.  Under these regulations,
`capital distributions" are defined as cash dividends, payments by savings
associations to repurchase or otherwise acquire its shares, payments to
shareholders of another entity in a cash-out merger, and other distributions
charged against capital.  An institution that has regulatory capital that is at
least equal to its fully phased-in capital requirement and that has not been
notified that it `is in need of more than normal supervision," is a Tier 1
institution.  A Tier 1 institution is permitted under OTS regulations, after
prior notice to (and no objection by) the OTS, to make capital distributions
during a calendar year up to 100% of its net income to date during the calendar
year plus the amount that would reduce by one-half its `surplus capital
ratio', which is the percentage by which the ratio of its regulatory capital to
assets exceeds the ratio of its fully phased-in capital requirement to assets at
the beginning of the calendar year.  As of December 31, 1995 the Bank was a Tier
1 institution and had available $13.9 million for dividends to the Corporation,
subject to nonobjection by the OTS.  It is not likely that the Corporation would
request a dividend of that magnitude.

     The Corporation is not subject to OTS regulatory restrictions on the
payment of dividends to its stockholders, although the source of such dividends
is dependent upon dividends received by it from the Bank.  The Corporation is
subject, however, to the requirements of New Jersey law, which permits the
Corporation to pay dividends in cash or shares out of the Corporation's surplus,
defined as the excess of net assets of the Corporation over stated capital.

<PAGE>


BOARD OF DIRECTORS

CHARLES B. YATES
Chairman of the Board

WAYNE H. PAGE
Vice Chairman

GEORGE J. BARBER

DOMINIC W. FLAMINI

ROBERT N. GARRISON

JAMES C. LIGNANA

CRAIG W. YATES

DIRECTORS EMERITUS

ADOLPH N. BRIGHT

KAREN S. OLEKSA

HILYARD S. SIMPKINS

BANK OFFICERS

CHARLES B. YATES*
Chairman of the Board

CRAIG W. YATES*
President

JAMES E. IGO*
Sr. Vice President and Chief Lending Officer

CHANNING L. SMITH*
Vice President and Chief Financial Officer

THOMAS M. TOPLEY*
Sr. Vice President of Operations and
Corporate Secretary

DOUGLAS B. HALEY
Vice President, Consumer Lending

KAREN R. KOENIG
Vice President, Branch Operations

NANCY L. PARKER
Vice President, Human Resources

PETER S. SCHOENFELD
Vice President, Investments

KAREN D. SHINN
Vice President,  Operations

CINDY S. WERTZ
Vice President, Loan Servicing

JOHN P. BISHOP
Internal Auditor

STEVEN A. RYAN
Compliance Officer

MICHAEL J. HAGELGANS
Assistant Vice President, Commercial Lending

MARCELLA F. HATCHER*
Assistant Secretary

* Officers of Bank and Holding Company

<PAGE>

MARKET MAKERS

The following companies were making a market in the Corporation's common stock
at December 31, 1995:

HERZOG, HEINE, GEDULD, INC.                  ROBERT W. BAIRD & CO., INC.
26 Broadway                                  4300 W. Cypress Street
First Floor                                  Tampa, FL 33607
New York, NY 10004                           (813) 877-4000
(212) 908-4000

MERRILL LYNCH, PIERCE, FENNER                RYAN BECK & CO.
& SMITH, INC.                                80 Main St.
World Financial Center                       W. Orange, NJ  07052
250 Vesey Street                             (201) 325-3000
New York, NY 10281
(212) 449-1000

FORM 10-K AND OTHER FINANCIAL INQUIRIES

The Corporation's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, as filed with the Securities and Exchange Commission will be furnished
to shareholders of the Corporation upon written request without charge.
Shareholders, analysts and others seeking this and other requests for
information relating to stock, annual shareholders' meeting and related matters
on FMS Financial Corporation, should contact the Corporate Secretary at the
Administrative Offices.

TRANSFER AGENT AND REGISTRAR                 AUDITORS
American Stock Transfer and Trust Company    Coopers & Lybrand L.L.P.
40 Wall Street                               2400 Eleven Penn Center
New York, NY  10005                          Philadelphia, PA 19103

SPECIAL COUNSEL

Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005

<PAGE>


                                OFFICE LOCATIONS

                      EXECUTIVE AND ADMINISTRATIVE OFFICES
                       3 Sunset Road and 811 Sunset Road
                              Burlington NJ  08016
                                 (609) 386-2400

     MAIN BRANCH
     3 Sunset Road & Route 541
     Burlington,  NJ  08016
     (609) 386-2400

     BURLINGTON TOWNSHIP
     809 Sunset Road
     Burlington, NJ 08016
     (609) 387-1150

     BURLINGTON CITY
     352 High Street
     Burlington, NJ 08016
     (609) 386-4643

     BORDENTOWN
     335 Farnsworth Ave.
     Bordentown. NJ  08505
     (609) 291-8200

     DELRAN
     3002 Route 130 North
     Delran, NJ 08075
     (609) 764-3740

     EASTAMPTON
     1191 Woodlane Road
     Eastampton, NJ 08060
     (609) 261-6400

     EDGEWATER PARK
     1149 Cooper Street
     Edgewater Park, NJ 08010
     (609) 387-0046

     LUMBERTON
     1636-61 Route 38 & Eayrestown Road
     Lumberton, NJ 08048
     (609) 267-6811

     MEDFORD
     200 Tuckerton Road
     Medford, NJ 08055
     (609) 596-4300

     MEDFORD LAKES
     712 Stokes Road
     Medford, NJ 08055
     (609) 654-6373

     MOORESTOWN
     53 East Main Street
     Moorestown, NJ 08057
     (609) 235-0544

     MOUNT LAUREL
     4522 Church Road
     Mount Laurel, NJ 08054
     (609) 235-4445

     SOUTHAMPTON
     1841 Route 70
     Southampton, NJ 08088
     (609) 859-2700

     WILLINGBORO
     399 Charleston Road
     Willingboro, NJ 08046
     (609) 877-2888

     WILLINGBORO EAST
     611 Beverly-Rancocas Road
     Willingboro, NJ 08046
     (609) 871-4900

     WILLINGBORO WEST
     1 Rose Street & Beverly-Rancocas Road
     Willingboro, NJ 08046
     (609) 835-4700