EXHIBIT 13
<PAGE>


FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
Financial Condition: (In Thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
December 31,                                               1999           1998          1997          1996            1995
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>          <C>           <C>             <C>
Assets                                                   $772,501       $691,812     $628,403      $541,710        $501,550

Loans receivable and loans held for sale, net             299,695        298,603      302,831       306,871         288,400

Deposits                                                  603,892        536,310      489,440       453,277         428,809

Stockholders' equity                                       46,097         43,469       38,916        33,826          33,053
</TABLE>

<TABLE>
<CAPTION>
Operations: (In Thousands, except per share data)

--------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,                                    1999           1998          1997          1996            1995
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>          <C>           <C>             <C>
Interest income                                           $47,863        $46,563      $40,813       $36,841         $35,201

Interest expense                                           24,742         24,869       20,879        18,978          18,041

Net interest income                                        23,120         21,694       19,934        17,863          17,160

Net income                                                  5,114          5,271        5,491         3,026 (a)       4,343

Basic earnings per common share                              0.71           0.73         0.77          0.41            0.58

Diluted earnings per common share                            0.70           0.72         0.75          0.40            0.56

Dividends declared per common share                          0.12           0.11         0.08 (b)      0.07 (b)        0.07 (b)

Weighted average common shares outstanding                  7,210          7,204        7,165         7,411           7,512

Weighted average common shares and common
stock equivalents outstanding                               7,292          7,314        7,346         7,573           7,695

</TABLE>
Other Selected Data:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,                                    1999           1998          1997          1996            1995
--------------------------------------------------------------------------------------------------------------------------------

<S>                                                       <C>            <C>          <C>           <C>             <C>
Net interest rate spread                                     3.28%          3.50%        3.60%         3.50%           3.49%

Net interest margin                                          3.36           3.48         3.72          3.66            3.66

Return on average assets                                     0.61           0.79         0.98          0.60            0.89

Return on average equity                                    10.93          12.86        15.11          8.99           14.00

Dividend payout ratio                                       17.14          15.28        10.67         17.50           12.43

Equity-to-asset ratio                                        5.97           6.28         6.19          6.24            6.59
</TABLE>

(a)      Includes $2.7 million for the one-time assessment to recapitalize the
         SAIF.
 (b)     Adjusted for stock splits in 1998 and 1996, as applicable.

                                      -2-
<PAGE>

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

General

         The Private  Securities  Litigation  Reform Act of 1995  contains  safe
harbor  provisions  regarding  forward-looking  statements.  When  used  in this
discussion, the words "believes", "anticipates",  "contemplates", "expects", and
similar expressions are intended to identify  forward-looking  statements.  Such
statements  are  subject to certain  risks and  uncertainties  which could cause
actual  results to differ  materially  from  those  projected.  Those  risks and
uncertainties  include  changes in interest  rates,  risks  associated  with the
effect of opening a new branch,  the ability to control costs and expenses,  the
Year 2000 issues and general  economic  conditions.  FMS  Financial  Corporation
undertakes  no  obligation  to publicly  release the results of any revisions to
those  forward  looking  statements  which  may be made  to  reflect  events  or
circumstances   after  the  date  hereof  or  to  reflect  the   occurrence   of
unanticipated events.

         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,  employee  benefits,  deposit  insurance
premiums, depreciation, property maintenance and advertising.

Market Risk

         Market risk is the risk of loss from adverse  changes in market  prices
and rates.  The Bank's  market risk arises  primarily  from  interest  rate risk
inherent in its lending,  investment and deposit taking  activities.  The Bank's
profitability  is  affected by  fluctuations  in  interest  rates.  A sudden and
substantial  increase in interest rates may adversely impact the Bank's earnings
to the extent that the  interest  rates borne by assets and  liabilities  do not
change at the same speed,  to the same extent or on the same basis. To that end,
management  actively  monitors and manages its interest rate risk exposure.  The
Bank does not  participate  in hedging  programs,  interest  rate swaps or other
activities   involving  the  use  of  off-balance  sheet  derivative   financial
instruments,  but may do so in the future to mitigate  interest  rate risk.  The
Bank's policy allows  investment only in securities which have a rating of AA or
better.  The Bank holds a substantial  component of its investment  portfolio in
mortgage-backed    securities   and    collateralized    mortgage    obligations
(collectively,  "MBS"). At the end of 1999, the total investment in MBS amounted
to  $209.2  million,  or  53%  of  total  investments.   These  are  instruments
collateralized  by pools of residential  and commercial  mortgages  which return
interest and principal payments to the investor. Approximately 58% of the Bank's
MBS holdings are U.S. Government Agency securities (GNMA, FNMA and FHLMC), which
carry either direct government or quasi-government  guarantees and are rated AAA
in  terms of  quality.  The Bank  also  owns  non-agency  MBS,  issued  by major
financial institutions, which are rated AAA or 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 yields
and  expected  maturities.  MBS of $1.4  million and $1.7  million  were used to
secure public funds on deposit at December 31, 1999 and 1998, respectively.

         Interest  rate  risk is the risk of loss in  value  due to  changes  in
interest rates. This risk is addressed by the Bank's Asset Liability  Management
Committee  ("ALCO"),  which includes  senior  management.  The ALCO monitors and
considers  methods of managing  interest rate risk by monitoring  changes in the
interest rate  repricing GAP ("GAP"),  the net portfolio  values ("NPV") and net
interest  income under  various  interest rate  scenarios.  The ALCO attempts to
manage the various components of the Bank's balance sheet to minimize the impact
of sudden and  sustained  changes in interest  rates  through  GAP,  NPV and net
interest income scenarios.

         The Bank's  exposure  to  interest  rate risk is reviewed on a periodic
basis by the Board of Directors  and the ALCO.  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.

                                      -4-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

GAP Table

         The following table sets forth the amounts of  interest-earning  assets
and  interest-bearing  liabilities  and  borrowings  outstanding at December 31,
1999, 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.

<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)
<S>                                      <C>             <C>             <C>            <C>                 <C>        <C>
Interest-earning assets:
Investment securities                     $    32,573     $      16,871   $     23,038   $      36,149   $   188,864    $   297,495
Loans                                          32,440            45,822         72,063          39,099       115,004        304,428
Mortage-backed securities                       9,095            21,086         35,952          19,911        38,146        124,190

                                          --------------  --------------- -------------- --------------- -------------  ------------
    Total                                      74,108            83,779        131,053          95,159       342,014        726,113
                                          --------------  --------------- -------------- --------------- -------------  ------------

Interest-bearing liabilities:
Checking, Savings and
    Club accounts                              19,529            50,642         48,211          29,669        65,697        213,748
Money market accounts                          21,266            30,570          5,581           2,181         5,986         65,584
Certificates of deposit                        64,407            98,867         57,607          19,389         1,786        242,056
Borrowings                                     10,000            50,000         45,000           3,185         1,337        109,522
                                          --------------  --------------- -------------- --------------- -------------  ------------
    Total                                     115,202           230,079        156,399          54,424        74,806        630,910
                                          --------------  --------------- -------------- --------------- -------------  ------------
Interest Rate Sensitivity GAP             $   (41,094)    $    (146,300)  $    (25,346)  $      40,735   $   267,208    $    95,203
                                          ==============  =============== ============== =============== =============  ============

Cumulative Interest Rate Sensitivity GAP  $   (41,094)    $    (187,394)  $   (212,740)  $    (172,005)  $    95,203
                                          ==============  =============== ============== =============   =============
Ratio of Interest Rate Sensitive Assets
    to Interest Rate Sensitive Liabilities     64.33%            36.41%         83.79%         174.85%       457.20%        115.09%
                                          ==============  =============== ============== =============== =============  ============

Ratio of Cumulative GAP to Total Bank
    Assets                                     -5.32%           -24.25%        -27.53%         -22.26%        12.32%
                                          ==============  =============== ============== =============== ============
</TABLE>
         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 in the GAP table:
adjustable-rate mortgage loans have a constant prepayment rate of 2%; fixed-rate
mortgage loans have a prepayment rate that is constant through time at 6%; fixed
and  adjustable  rate  commercial  loans and  consumer  loans  have no  constant
prepayment  rate;   mortgage-backed  securities  and  CMOs  and  REMICs  have  a
prepayment  rate that is  constant  over time at 6%. Core  savings and  checking
deposits have a decay rate of 17% and money market accounts have a decay rate of
79% for the first  year,  20% for the second and third year and 12%  thereafter.
These  decay  rates are based on  assumption  rates  using  industry  experience
adjusted  by the Bank as  needed  to  reflect  our  individual  experience.  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.

       Interest  rate  risk  exposure  is  also  measured  using  interest  rate
sensitivity  analysis  to  determine  the  Bank's  change in NPV in the event of
hypothetical  changes in interest rates and interest  liabilities.  The Board of
Directors  may direct  management to adjust its asset and liability mix to bring
interest rate risk within Board approved limits if potential  changes to NPV and
net interest income  resulting from  hypothetical  interest rate changes are not
within the limits established.

        The Bank has developed  strategies to manage its liquidity,  shorten the
effective  maturities  of  certain  interest-earning  assets  and  increase  the
effective maturities of certain liabilities,  to reduce the exposure to interest
rate fluctuations.  These strategies include focusing its investment  activities
on short and medium-term securities,  maintaining and increasing the transaction
deposit accounts, as these accounts are considered to be relatively resistant to
changes in interest  rates and utilizing FHLB  borrowings and deposit  marketing
programs to adjust the term or repricing of its liabilities.

                                      -5-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

         The Bank also  measures  its  interest  rate  risk  using the OTS's NPV
method. NPV is calculated based on the net present value of estimated cash flows
utilizing market prepayment assumptions and market rates of interest provided by
independent  broker  quotations  and  other  public  sources.  An  institution's
interest  rate  risk is  measured  as the  change  to its NPV as a  result  of a
hypothetical immediate 200 basis point change in market interest rates. Based on
this analysis at December 31, 1999, the Bank would  experience a 373 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 131 basis  point  decrease in NPV if
rates decline 200 basis points.

         Although  the NPV  calculation  provides  an  indication  of the Bank's
interest  rate risk at a particular  point in time,  such  measurements  are not
intended  to and do not  provide a precise  forecast of the effect of changes in
market  interest  rates on the Bank's net  interest  income and will differ from
actual results.

Results of Operations

Net Interest Income

     The  earnings of the  Corporation  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 including non-interest checking
accounts 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  the  sale  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.
<PAGE>

Average Balances, Interest and Yields/Rates
<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                          ----------------------------------------------------------------------------------------------------------
                                        1999                                    1998                                     1997
                          ------------------------------------- -------------------------------------  -----------------------------
                                                                                                                             Average
                            Average                Average      Average                  Average       Average               Yield/
                            Balance     Interest  Yield/Rate    Balance      Interest    Yield/Rate    Balance     Interest   Rate
                          ----------- ----------- ---------- -----------  -------------  -----------   ---------- ---------- -------
                                                              (Dollars in Thousands)
<S>                    <C>           <C>            <C>     <C>          <C>              <C>     <C>           <C>        <C>
Interest-earning
assets:
    Loans receivable    $    301,257  $    23,408     7.77%   $  303,330   $   24,316       8.02%   $    310,540  $25,038    8.06%
    Mortgage-backed
    securities                97,899        6,568     6.71%       88,339        6,376       7.22%         97,013    7,062    7.28%
    Investment securities    289,359       17,887     6.18%      231,610       15,871       6.85%        127,937    8,713    6.81%
                          ----------- ----------- ---------- ------------  ----------- -----------  ------------- -------- ---------
Total interest-
earning assets
                             688,515       47,863     6.95%      623,279       46,563       7.47%        535,490   40,813    7.62%
                          ----------- ----------- ----------    ---------  ----------- -----------    ----------- -------- ---------
Interest-bearing liabilities:
    Deposits                 567,001       18,172     3.20%      518,023       18,091       3.49%        474,258   17,755    3.74%
    Borrowings                96,531        5,513     5.71%       98,459        5,721       5.81%         34,776    2,067    5.94%
    Subordinated
    debentures                10,000        1,057    10.57%       10,000        1,057      10.57%         10,000    1,057   10.57%
                          ----------- ----------- ---------- ------------  ----------- -----------  ------------- -------- ---------
Total interest-bearing
liabilities
                        $    673,532       24,742     3.67%   $  626,482       24,869       3.97%   $    519,034   20,879    4.02%
                          =========== ----------- ----------    =========  ----------- -----------    =========== -------- ---------
Net interest income                   $    23,121                          $   21,694                             $19,934
                                      ===========                          ===========                            ========
Interest rate spread                                  3.28%                                 3.50%                            3.60%
                                                  ==========                           ===========                        =========

Net yield on average interest-earning assets          3.36%                                 3.48%                            3.72%
                                                  ==========                           ===========                        =========

    Ratio of average interest-earning assets to
    average interest -bearing liabilities           102.22%                                99.49%                          103.17%
                                                  ==========                           ===========                        =========
</TABLE>
                                      -6-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

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
rates;  (ii)  changes  in volume;  (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,
                                           -----------------------------------------------------------------------------------------
                                                         1999 vs. 1998                                  1998 vs. 1997
                                           -------------------------------------------    ------------------------------------------
                                                      Increase (Decrease)                            Increase (Decrease)
                                                        Due to change in                               Due to change in
                                           -------------------------------------------    ------------------------------------------
                                               Rate          Volume         Total            Rate           Volume         Total
                                           -------------  -------------  -------------    ------------   -------------  ------------
                                                                                (In Thousands)
<S>                                       <C>            <C>             <C>             <C>            <C>            <C>
Interest income:
     Loans                                 $      (742)   $       (166)   $     (908)     $      (141)   $       (581)   $     (722)
     Mortgage-backed securities                   (498)            690            192             (55)           (631)         (686)
     Investment securities                      (1,941)          3,957          2,016              97           7,061         7,158
                                           -------------  -------------  -------------    ------------   -------------  ------------
     Total change - interest income             (3,181)          4,481          1,300             (99)          5,849         5,750
                                           -------------  -------------  -------------    ------------   -------------  ------------
Interest expense:
     Deposits                                   (1,629)          1,710             81          (1,302)           1,638          336
     Borrowings                                    (96)           (112)          (208)           (131)           3,785        3,654
     Subordinated debentures                         0               0              0               0                0            0
                                           -------------  -------------  -------------    ------------   -------------  ------------
     Total change - interest expense            (1,725)          1,598           (127)         (1,433)           5,423        3,990
                                           -------------  -------------  -------------    ------------   -------------  ------------
Net change in net interest income          $    (1,456)    $     2,883    $     1,427     $     1,334    $        426   $     1,760
                                           =============  =============  =============    ============   =============  ============
</TABLE>

Comparisons of Years Ended December 31, 1999 and 1998.

Net Income

    The Corporation  and its subsidiary  recorded net income of $5.1 million for
the year ended December 31, 1999, or $.70 diluted earnings per share as compared
to net income of $5.3 million,  or $.72 diluted  earnings per share for the year
ended December 31, 1998. Net interest  income was $23.1 million in 1999 compared
to $21.7 million in 1998.  Provisions for loan losses were $654 thousand in 1999
and $240 thousand in 1998. Other income totaled $3.1 million in 1999 compared to
$2.4 million for the same period in 1998. Total operating  expenses for the year
ended  December  31, 1999 were $17.6  million  compared to $15.6  million in the
previous year.  During 1999, the  Corporation  declared  dividends which totaled
$.12 per share which resulted in a dividend payout ratio of 17.14%.

Interest Income

         Total interest  income  increased $1.3 million to $47.9 million in 1999
from $46.6  million in 1998.  The  increase  is  attributable  to  increases  in
interest  income on investment  securities  of $2.0 million and  mortgage-backed
securities of $192 thousand,  partially  offset by a decrease in interest income
on loans of $908 thousand.

         The increase in interest  income on investment  securities was due to a
$57.8 million increase in the average balance of investment securities to $289.4
million in 1999 from $231.6 million in 1998. The investment  portfolio increased
primarily due to the net purchase in 1999 of $84.2 million in U.S.  Agency notes
and $20.8  million in  collateralized  mortgage  obligations  (CMOs),  partially
offset by $73.4  million in  principal  paydowns.  The  increases in the average
balance of investment  securities  resulted in an increase in interest income of
$4.0 million in 1999 from the previous year.  Average yields  decreased to 6.18%
in 1999 from 6.85% in 1998,  which resulted in a decrease in interest  income of
$1.9 million on investment securities.


<PAGE>

         Interest income on mortgage-backed  securities  increased $192 thousand
in 1999 primarily due to volume increases in the portfolio.  The average balance
of the  portfolio  increased  $9.6  million to $97.9  million in 1999 from $88.3
million in 1998,  resulting in an increase in interest  income of $690 thousand.
The increase in the average  balance is due to the purchase of $57.3  million in
FHLMC, FNMA and GNMA securities in 1999,  partially offset by principal paydowns
of $26.5  million.  The yield on the  portfolio  decreased to 6.71% in 1999 from
7.22% in 1998, which resulted in a decrease in interest income of $498 thousand.

         The average  balance of the loan  portfolio  decreased  $2.0 million to
$301.3  million in 1999 from $303.3  million in 1998. The decline in loan volume
during 1999  resulted in a decrease in  interest  income of $166  thousand.  The
average  yield on the loan  portfolio  decreased  to 7.77% in 1999 from 8.02% in
1998 which resulted in a decrease in interest income of $742 thousand.

Interest Expense

         Total interest expense decreased $127 thousand to $24.7 million in 1999
from  $24.9  million in 1998.  The  decrease  was due to a decline  in  interest
expense on borrowings.

         Interest expense on borrowings  decreased $208 thousand to $5.5 million
in 1999 from $5.7  million in 1998.


                                   -7-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

This decrease was due to a decline in both the average balance of borrowings and
the rate.  The average  balance of  borrowings  decreased  $2.0 million to $96.5
million  in 1999  from  $98.5  million  in 1998,  resulting  in a $112  thousand
decrease in  interest  expense due to volume.  The  average  rate on  borrowings
decreased  to 5.71% in 1999  from  5.81% in 1998,  resulting  in a $96  thousand
decrease in interest expense due to changes in rate.

         Interest expense on deposits increased $81 thousand to $18.2 million in
1999 from $18.1 million in 1998. The average balance of deposits increased $49.0
million to $567.0 million in 1999 from $518.0  million in 1998,  resulting in an
increase in interest expense of $1.7 million.  Increases in deposits in 1999 are
primarily  due to an increase in the  average  balances of checking  accounts of
$22.2 million,  savings  accounts of $11.0 million and money market  accounts of
$3.4  million,  partially  offset  by  a  decline  in  the  average  balance  of
certificates  of deposit of $104  thousand.  These net  balance  increases  were
partially  offset by a decline in the average  rate paid on deposits of 29 basis
points to 3.20% in 1999 from 3.49% in 1998,  resulting in a decrease in interest
expense of $1.6 million. The lowering of the average rate on deposits was due to
an overall decline in the average interest rates on deposit products in 1999 and
an increase in the average balance of non-interest  "Free Personal Checking" and
"Free Business Checking" accounts of $12.0 million.

Provision For Loan Losses

         The provision for loan losses  increased $414 thousand to $654 thousand
in 1999 from $240 thousand in 1998. The increase in 1999 was attributable to the
continued  change in the mix of the loan  portfolio.  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.  The Corporation will continue to monitor its allowance for
loan losses and make future  adjustments to the allowance  through the provision
for loan losses as economic conditions dictate.  Management continues to offer a
wider variety of loan products  coupled with the continued  change in the mix of
the products  offered in the loan portfolio from lower yielding loans (i.e., one
to four family loans) to higher  yielding  loans (i.e.,  commercial  real estate
mortgage, commercial construction, consumer, and commercial business) which have
a higher degree of risk than one to four family loans.  Although the Corporation
maintains  its  allowance  for loan  losses at a level that it  considers  to be
adequate to provide for the inherent risk of loss in its loan  portfolio,  there
can be no assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods due
to the higher  degree of credit risk which  might  result from the change in the
mix of the loan portfolio.

Other Income (Expense)

         Other income from operations increased $724 thousand to $3.1 million in
1999 compared with $2.4 million in 1998.

         Gain on sale of fixed assets of $245 thousand  relates to the sale of a
parcel of land  located in  Burlington  Township.  The loss on disposal of fixed
assets of $210  thousand in 1998 relates to the  write-off of obsolete  computer
hardware and software due to the computer  system  conversion  completed  during
1998.

         Real estate owned  operations,  net, in 1999  resulted in a loss of $12
thousand,  which was  comprised of $37  thousand in real estate owned  operating
expenses  and  realized  gains of $25  thousand on the sale of real estate owned
properties.

         Service charges on accounts  increased $152 thousand to $2.5 million in
1999 from $2.4 million in 1998. The increase is the result of additional  retail
banking fees due to higher transaction volumes during the year.

 Operating Expenses

                  Total  operating  expenses  increased  $2.0  million  to $17.6
million in 1999 from $15.6 million in 1998.

                  Salaries and benefits  increased $1.2 million to $10.2 million
in 1999 from $9.0 million in 1998.  The increase was due to additional  staff in
the four new  branches  opened  during the year as well as an increase in branch
staff for extended  weekend hours until 3:00 p.m.  Average full time  equivalent
employees during 1999 were 382 as compared to 335 during 1998.
<PAGE>

                  Occupancy and  equipment  expense  increased  $501 thousand to
$3.5  million  in 1999  from  $3.0  million  in 1998.  This  increase  is due to
additional  depreciation  and occupancy  expenses on four new branches opened in
1999, as well as other facility and equipment  additions and improvements during
the year.

         Purchased  services expense  increased $208 thousand to $1.5 million in
1999 from $1.3 million in 1998.  Check  processing  costs increased $84 thousand
and MAC charges  increased  $99  thousand due to higher  transaction  volumes in
1999.

Comparisons of Years Ended December 31, 1998 and 1997.

Net Income

         The Corporation and its subsidiary  recorded net income of $5.3 million
for the year ended  December  31, 1998,  or $.72  diluted  earnings per share as
compared to net income of $5.5 million,  or $.75 diluted  earnings per share for
the year ended December 31, 1997. Net interest  income was $21.7 million in 1998
compared to $19.9 million in 1997. Provisions for loan losses were $240 thousand
in 1998 compared to $400 thousand in 1997.  Other income totaled $2.4 million in
1998  compared  to $2.1  million for the same  period in 1997.  Total  operating
expenses  for the year ended  December 31, 1998 were $15.6  million  compared to
$13.0  million in the previous  year.  During  1998,  the  Corporation  declared
dividends which totaled $.11 per share which resulted in a dividend payout ratio
of 15.28%.

                                      -8-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

Interest Income

         Total interest  income  increased $5.8 million to $46.6 million in 1998
from $40.8  million in 1997.  The  increase  is  attributable  to  increases  in
interest income on investment securities of $7.2 million,  partially offset by a
decrease  in  interest  income  on loans of $722  thousand  and  mortgage-backed
securities of $686 thousand.

         The increase in interest  income on investment  securities was due to a
$103.7  million  increase in the average  balance of  investment  securities  to
$231.6 million in 1998 from $127.9  million in 1997.  The  investment  portfolio
increased  primarily  due to the  net  purchase  in 1998 of  $131.3  million  in
collateralized mortgage obligations (CMOs), partially offset by $65.1 million in
principal  paydowns and $9.6 million net  reductions in U.S.  Agency notes.  The
increases  in the  average  balance  of  investment  securities  resulted  in an
increase  in interest  income of $7.1  million in 1998 from the  previous  year.
Average yields  increased to 6.85% in 1998 from 6.81% in 1997, which resulted in
an increase in interest income of $97 thousand.

         The average  balance of the loan  portfolio  decreased  $7.2 million to
$303.3  million in 1998 from $310.5  million in 1997. The decline in loan volume
during 1998  resulted in a decrease in  interest  income of $581  thousand.  The
average  yield on the loan  portfolio  decreased  to 8.02% in 1998 from 8.06% in
1997 which resulted in a decrease in interest income of $141 thousand.

         Interest income on mortgage-backed  securities  decreased $686 thousand
in 1998 primarily due to volume decreases in the portfolio.  The average balance
of the  portfolio  decreased  $8.7  million to $88.3  million in 1998 from $97.0
million in 1997,  resulting in a decrease in interest  income of $631  thousand.
The decline in the average  balance is primarily  due to  principal  paydowns of
$32.8 million,  partially  offset by purchases of $31.1 million during the year.
The  average  yield on the  portfolio  decreased  to 7.22% in 1998 from 7.28% in
1997, which resulted in a decrease in interest income of $55 thousand.

Interest Expense

         Total interest expense  increased $4.0 million to $24.9 million in 1998
from $20.9  million in 1997.  The  increase  was due to an  increase in interest
expense on borrowings and deposits.

         Interest  expense on borrowings  increased $3.7 million to $5.7 million
in 1998 from $2.1 million in 1997.  This  increase was due to an increase in the
average  balance of  borrowings,  partially  offset by a decline in the  average
rate. The average balance of borrowings increased $63.7 million to $98.5 million
in 1998 from $34.8  million in 1997,  resulting  in a $3.8  million  increase in
interest expense due to volume. This was primarily the result of a $70.7 million
increase in the average  balance of repurchase  agreements  during the year. The
average  rate on  borrowings  decreased  to  5.81% in 1998  from  5.94% in 1997,
resulting in a $131 thousand decrease in interest expense due to rate.

         Interest  expense on deposits  increased $336 thousand to $18.1 million
in 1998 from $17.8 million in 1997.  The average  balance of deposits  increased
$43.8 million to $518.0 million in 1998 from $474.3  million in 1997,  resulting
in an increase in interest  expense of $1.6  million.  Increases  in deposits in
1998 are  primarily  due to an  increase  in the  average  balances  of checking
accounts  of $38.2  million and savings  accounts  of $11.5  million,  partially
offset by a decline in the average  balance of  certificates  of deposit of $8.9
million.  These increases were partially offset by a decline in the average rate
paid on  deposits  of 25  basis  points  to 3.49%  in 1998  from  3.74% in 1997,
resulting in a decrease in interest expense of $1.3 million. The lowering of the
average  rate on deposits in 1998 was due to an increase in the average  balance
of non-interest  "Free Personal  Checking" and "Free Business Checking" accounts
of $19.7 million.

Provision For Loan Losses

         The provision for loan losses  decreased $160 thousand to $240 thousand
in 1998 from $400 thousand in 1997. 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.  The Corporation will
continue to monitor its allowance for loan losses and make future adjustments to
the  allowance  through the  provision  for loan  losses as economic  conditions
dictate.  Although the Corporation  maintains its allowance for loan losses at a
level that it considers to be adequate to provide for the inherent  risk of loss
in its loan  portfolio,  there can be no assurance  that future  losses will not
exceed estimated amounts or that additional  provisions for loan losses will not
be  required  in future  periods  due to the higher  degree of credit risk which
might result from the change in the mix of the loan portfolio.

Other Income (Expense)

         Other income from operations increased $280 thousand to $2.4 million in
1998 compared with $2.1 million in 1997.

         Loss on  disposal  of fixed  assets  of $210  thousand  relates  to the
write-off of obsolete  computer hardware and software due to the computer system
conversion completed during 1998.

         Real estate  owned  operations,  net in 1998  resulted in a loss of $64
thousand,  which was  comprised of $57  thousand in real estate owned  operating
expenses,  $108  thousand  of  provisions  for  loss  on  real  estate,  net  of
charge-offs,  and  realized  gains of $101  thousand  on the sale of real estate
owned properties.

         Service charges on accounts  increased $165 thousand to $2.4 million in
1998 from $2.2 million in 1997. The increase is the result of additional  retail
banking fees due to higher transaction volume during the year.

Operating Expenses

                  Total  operating  expenses  increased  $2.6  million  to $15.6
million in 1998 from $13.0 million in 1997.

                                      -9-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

                  Salaries and benefits  increased  $1.7 million to $9.0 million
in 1998 from $7.3 million in 1997.  The increase was due to additional  staff in
the new branches  opened  during the year as well as an increase in branch staff
for  extended  weekday  hours  until  9:00 p.m.  Average  full  time  equivalent
employees during 1998 were 335 as compared to 299 during 1997.

                  Occupancy and  equipment  expense  increased  $281 thousand to
$3.0  million  in 1998  from  $2.7  million  in 1997.  This  increase  is due to
additional  depreciation and occupancy  expenses on new branches opened in 1998,
as well as other facility and equipment  additions and  improvements  during the
year.

         Purchased  services expense  increased $232 thousand to $1.3 million in
1998 from $1.1 million in 1997.  Check  processing costs increased $101 thousand
and MAC charges increased $94 thousand due to the higher  transaction  volume in
1998.

         Advertising  expense increased by $77 thousand to $206 thousand in 1998
from $129  thousand in 1997.  The Bank has  engaged in a  newspaper  advertising
campaign emphasizing our branch locations and increased hours of operations.

Impact of Inflation and Changing Prices

         Unlike most industrial  companies,  substantially all the assets of the
Corporation  are monetary in nature.  As a result,  movements in interest  rates
have a greater impact on the  Corporation's  performance  than do the effects of
general levels of inflation.  Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.

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 securities sold under
agreements to repurchase  (repurchase  agreements) and advances from the Federal
Home Loan  Bank of New York  (FHLB).  At  December  31,  1999 the Bank had $90.0
million in repurchase  agreements and $16.3 million in advances from the FHLB 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.  Liquidity may be adversely affected by
unexpected  deposit  outflows,  excessive  interest  rates paid by  competitors,
adverse  publicity  relating  to  the  Banking  industry  and  similar  matters.
Management   monitors  projected   liquidity  needs  and  determines  the  level
desirable,  based  in  part  on the  Company's  commitment  to  make  loans  and
management's  assessment of the Company's ability to generate funds. The Company
is also  subject to federal  regulations  that impose  certain  minimum  capital
requirements.

         The amount of certificate accounts which are scheduled to mature during
the twelve months ending December 31, 2000 is approximately  $163.3 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, 1999,  the Bank had loan  commitments  outstanding  of
$24.7 million, of which $4.1 million were for fixed-rate loans and $20.6 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.

Year 2000

         The Company relies on computers to conduct its business and information
systems  processing.  Industry  experts were  concerned that on January 1, 2000,
some  computers  might not be able to interpret the new year  properly,  causing
computer malfunctions.  Some banking industry experts remain concerned that some
computers  may  not be able to  interpret  additional  dates  in the  year  2000
properly.  The Company has operated and evaluated its computer operating systems
following  January 1, 2000 and has not identified any errors or experienced  any
computer  system  malfunctions.   The  Company  will  continue  to  monitor  its
information systems to assess whether its systems are at risk of misinterpreting
any future dates and will develop, if needed,  appropriate  contingency plans to
prevent any potential  system  malfunction or correct any system  failures.  The
Company has not been informed of any such problem  experienced by its vendors or
its customers.

         However, it is too soon to conclude that there will not be any problems
arising from the Year 2000  problem.  The Company  will  continue to monitor its
significant vendors of goods and services and customers with respect to any Year
2000  problems  they may  encounter,  as those  issues may effect the  Company's
ability  to  continue  operations,  or  might  adversely  affect  its  financial
position,  results of operations and cash flows.  At this time, the Company does
not believe that these potential  problems will materially impact the ability to
continue  its  operations  or  effect  its  financial  statements.  Any  delays,
mistakes, or failures could have a significant impact on the Company's financial
condition and profitability.

                                      -10-

<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

Consolidated Summary of Quarterly Earnings (Unaudited)

The following table presents summarized quarterly data for 1999 and 1998:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                       1st             2nd              3rd             4th            Total
                               1999                  Quarter         Quarter          Quarter         Quarter           Year
------------------------------------------------------------------------------------------------------------------------------
                                                                  (In Thousands, except per share amounts)
<S>                                            <C>             <C>              <C>             <C>             <C>
Total interest income                           $     11,154    $     11,699     $     12,385    $     12,625    $     47,863
Total interest expense                                 5,958           6,046            6,234           6,504          24,742
                                                -------------   -------------    -------------   -------------   -------------
Net interest income                                    5,196           5,653            6,151           6,121          23,121
Provision for loan losses                                 60              60              474              60             654
                                                -------------   -------------    -------------   -------------   -------------
Net interest income after provision
     for loan losses                                   5,136           5,593            5,677           6,061          22,467
Total other income                                       651             953              754             747           3,105
Total operating expenses                               4,238           4,367            4,387           4,575          17,567
                                                -------------   -------------    -------------   -------------   -------------
Income before income taxes                             1,549           2,179            2,044           2,233           8,005
Federal and state income taxes                           562             787              736             806           2,891
                                                -------------   -------------    -------------   -------------   -------------

Net income                                      $        987    $      1,392     $      1,308    $      1,427    $      5,114
                                                =============   =============    =============   =============   =============

Basic earnings per common share                 $       0.14    $       0.19     $       0.18    $       0.20    $       0.71
                                                =============   =============    =============   =============   =============

Diluted earnings per common share               $       0.13    $       0.19     $       0.18    $       0.20    $       0.70
                                                =============   =============    =============   =============   =============
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                       1st             2nd              3rd             4th            Total
                               1998                  Quarter         Quarter          Quarter         Quarter           Year
------------------------------------------------------------------------------------------------------------------------------
                                                                  (In Thousands, except per share amounts)
<S>                                            <C>             <C>              <C>             <C>             <C>
Total interest income                           $     11,424    $     11,805     $     11,748    $     11,586    $     46,563
Total interest expense                                 6,136           6,365            6,290           6,078          24,869
                                                -------------   -------------    -------------   -------------   -------------
Net interest income                                    5,288           5,440            5,458           5,508          21,694
Provision for loan losses                                 60              60               60              60             240
                                                -------------   -------------    -------------   -------------   -------------
Net interest income after provision
     for loan losses                                   5,228           5,380            5,398           5,448          21,454
Total other income                                       605             536              590             650           2,381
Total operating expenses                               3,892           3,820            3,814           4,054          15,580
                                                -------------   -------------    -------------   -------------   -------------
Income before income taxes                             1,941           2,096            2,174           2,044           8,255
Federal and state income taxes                           700             761              785             738           2,984
                                                -------------   -------------    -------------   -------------   -------------

Net income                                      $      1,241    $      1,335     $      1,389    $      1,306    $      5,271
                                                =============   =============    =============   =============   =============

Basic earnings per common share                 $       0.17    $       0.19     $       0.19    $       0.18    $       0.73
                                                =============   =============    =============   =============   =============

Diluted earnings per common share               $       0.17    $       0.18     $       0.19    $       0.18    $       0.72
                                                =============   =============    =============   =============   =============
</TABLE>

                                      -11-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
December 31,                                                                              1999                1998
------------------------------------------------------------------------------------------------------------------------
ASSETS
------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                 <C>
     Cash and amounts due from depository institutions                             $     20,489,516    $     18,142,316
     Interest-bearing deposits                                                               82,493                   0
     Short term funds                                                                    25,703,862          11,754,075
                                                                                 -------------------   -----------------

        Total cash and cash equivalents                                                  46,275,871          29,896,391
     Investment securities held to maturity                                             220,307,242         129,417,826
     Investment securities available for sale                                            49,307,116         109,833,133
     Loans, net                                                                         299,694,517         298,603,223
     Mortgage-backed securities held to maturity                                        121,424,419          90,592,647
     Accrued interest receivable:
        Loans                                                                             1,398,470           1,839,217
        Mortgage-backed securities                                                          836,699             633,667
        Investments                                                                       3,628,622           2,371,410
     Federal Home Loan Bank stock                                                         4,861,410           4,861,410
     Real estate held for development, net                                                   87,926             644,487
     Real estate owned, net                                                                 448,541             167,541
     Office properties and equipment, net                                                20,686,272          19,292,247
     Deferred income taxes                                                                2,264,587           2,015,772
     Excess cost over fair value of net assets acquired                                      55,328             164,969
     Prepaid expenses and other assets                                                      959,819           1,156,573
     Subordinated debentures issue costs, net                                               263,765             321,113
                                                                                 -------------------   -----------------
TOTAL ASSETS                                                                       $    772,500,604    $    691,811,626
                                                                                 ===================   =================

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------

Liabilities:
     Deposits                                                                      $    603,892,117    $    536,309,623
     Securities sold under agreements to repurchase                                      90,000,000          80,000,000
     Advances from the Federal Home Loan Bank                                            16,337,031          16,368,321
     10% Subordinated debentures, due 2004                                               10,000,000          10,000,000
     Advances by borrowers for taxes and insurance                                        2,204,704           2,259,435
     Accrued interest payable                                                             1,437,348           1,304,742
     Dividends payable                                                                      215,519             216,953
     Other liabilities                                                                    2,316,882           1,883,887
                                                                                 -------------------   -----------------
     Total liabilities                                                                  726,403,601         648,342,961
                                                                                 -------------------   -----------------

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 7,897,791 and 7,897,191, and shares outstanding 7,183,978
        and 7,231,767 as of December 31, 1999 and 1998, respectively                        789,779             789,719
     Paid-in capital  in excess of par                                                    8,217,535           8,216,820
     Accumulated comprehensive loss - net of deferred income taxes                       (1,167,810)            (21,793)
     Retained earnings                                                                   42,108,955          37,860,291
     Less:  Treasury stock (713,813 and 665,424 shares, at cost,  as of
        December 31, 1999 and 1998, respectively)                                        (3,851,456)         (3,376,372)
                                                                                 -------------------   -----------------
Total stockholders' equity                                                               46,097,003          43,468,665
                                                                                 -------------------   -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                         $    772,500,604    $    691,811,626
                                                                                 ===================   =================
</TABLE>

See notes to consolidated financial statements.

                                      -12-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                  1999                    1998                   1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                      <C>                    <C>
INTEREST  INCOME:
Interest income on:
     Loans                                                       $         23,408,176     $        24,315,646    $     25,037,855
     Mortgage-backed securities                                             6,567,956               6,375,729           7,062,459
     Investments                                                           17,886,682              15,871,239           8,712,928
                                                                 ---------------------    --------------------   ----------------
Total interest income                                                      47,862,814              46,562,614          40,813,242
                                                                 ---------------------    --------------------   ----------------
INTEREST EXPENSE:
Interest expense on:
     Deposits                                                              18,171,523              18,090,683          17,754,531
     Borrowings                                                             5,513,478               5,720,876           2,066,929
     Subordinated debentures                                                1,057,348               1,057,348           1,057,348
                                                                 ---------------------    --------------------   ----------------
Total interest expense                                                     24,742,349              24,868,907          20,878,808
                                                                 ---------------------    --------------------   ----------------
NET INTEREST INCOME                                                        23,120,465              21,693,707          19,934,434
PROVISION FOR LOAN LOSSES                                                     653,579                 240,000             400,000
                                                                 ---------------------    --------------------   ----------------
NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                                        22,466,886              21,453,707          19,534,434
                                                                 ---------------------    --------------------   ----------------
OTHER INCOME (EXPENSE):
     Loan service charges and other fees                                      152,856                 147,080             170,766
     Gain on sale of loans                                                      3,849                   5,423               9,804
     Gain on sale of investment securities                                          0                       0               1,711
     Gain (Loss) on sale/disposal of fixed assets                             244,731                (209,935)                  0
     Loss from real estate held for development                                     0                       0            (200,000)
     Real estate owned operations, net                                        (11,802)                (64,215)           (179,879)
     Service charges on accounts                                            2,520,929               2,369,112           2,204,167
     Other income                                                             194,041                 133,584              94,664
                                                                 ---------------------    --------------------   ----------------
Total other income (expense)                                                3,104,604               2,381,049           2,101,233
                                                                 ---------------------    --------------------   ----------------
OPERATING EXPENSES:
     Salaries and employee benefits                                        10,182,540               8,971,707           7,319,822
     Occupancy and equipment                                                3,497,537               2,996,435           2,715,513
     Purchased services                                                     1,512,112               1,303,637           1,071,697
     Federal deposit insurance premiums                                       309,679                 294,912             232,739
     Professional fees                                                        461,378                 369,987             331,436
     Advertising                                                              215,281                 206,120             129,278
     Other                                                                  1,388,071               1,436,937           1,216,951
                                                                 ---------------------    --------------------   ----------------
Total operating expenses                                                   17,566,598              15,579,735          13,017,436
                                                                 ---------------------    --------------------   ----------------
INCOME BEFORE INCOME TAXES                                                  8,004,892               8,255,021           8,618,231

INCOME TAXES:
Current                                                                     2,336,374               3,293,115           3,195,477
Deferred                                                                      555,012                (309,582)            (68,400)
                                                                 ---------------------    --------------------   ----------------
Total income taxes                                                          2,891,386               2,983,533           3,127,077

NET INCOME                                                       $          5,113,506     $         5,271,488    $      5,491,154
                                                                 =====================    ====================   ================

BASIC EARNINGS PER COMMON SHARE                                                 $0.71                   $0.73               $0.77
                                                                 =====================    ====================   ================
 DILUTED EARNINGS PER COMMON SHARE                                              $0.70                   $0.72               $0.75
                                                                 =====================    ====================   ================

Weighted average common shares outstanding                                  7,210,038               7,203,862           7,165,455
Potential dilutive effect of the exercise of stock options                     81,554                 109,779             180,864
                                                                 ---------------------    --------------------   ----------------
Adjusted weighted average common shares outstanding                         7,291,592               7,313,641           7,346,319
                                                                 =====================    ====================   ================
</TABLE>
See notes to consolidated financial statements
                                      -13-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                            1999                  1998              1997
------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
<S>                                                                         <C>                   <C>                  <C>
Net income                                                                  $         5,113,506   $    5,271,488   $     5,491,154
Adjustments to reconcile net income to net cash provided
   by operating activities:
Provision for loan losses                                                               653,579          240,000           400,000
Depreciation and amortization                                                         2,016,259        1,999,005         1,876,773
Provision for real estate owned                                                               0          108,102           142,630
Provision for real estate held for development                                                0                0           200,000
Realized (gains) and losses on:
     Sale of loans and loans held for sale                                               (3,849)          (5,423)           (9,804)

     Sale of investments available for sale                                                   0                0            (1,711)
     (Sale) and Disposal of fixed assets                                               (244,731)         209,935             7,122
     Sale of real estate owned                                                          (25,097)        (101,349)          (10,630)
Proceeds from sale of loans held for sale                                                     0                0           101,625
Loans originated for sale                                                                     0                0          (100,000)
Increase in accrued interest receivable                                              (1,019,497)        (442,422)         (770,837)
Decrease (Increase) in prepaid expenses and other assets                                196,754          (95,448)         (171,226)
Increase in accrued interest payable                                                    132,606          190,438           253,759
Increase (Decrease) in other liabilities                                                446,775          (61,539)          (46,544)
Provision for deferred income taxes                                                     395,258         (465,972)          (67,530)
Other                                                                                         0           33,481            72,982
                                                                            --------------------  ---------------  ----------------
     Net cash provided by operating activities                                        7,661,563        6,880,296         7,367,763
                                                                            --------------------  ---------------  ----------------
INVESTING ACTIVITIES:
Proceeds from sale of:
     Education loans                                                                    750,565        1,658,700           953,442
     Real estate held for development                                                   556,561                0           333,245
     Real estate owned                                                                  110,097          603,095            75,630
     Office property and equipment                                                      353,410                0                 0
Principal collected and proceeds from maturities of investment
   securities held to maturity                                                       62,682,095      294,889,937       265,776,982
Proceeds from maturities of investment securities available for sale                107,709,603       86,593,751        11,942,666
Principal collected and proceeds from maturities of mortgage-backed
   securities                                                                        26,545,021       32,754,399        33,458,783
Principal collected on loans, net                                                    54,487,510       60,258,471        53,020,808
Longer-term loans originated or acquired, net                                       (57,275,106)     (58,185,394)      (50,305,474)
Purchase of investment securities and mortgage-backed securities
   held to maturity                                                                (256,292,451)    (343,502,524)     (320,005,763)
Purchase of investment securities available for sale                                 (4,056,041)    (116,472,554)      (78,570,231)
Purchase of Federal Home Loan Bank stock                                                      0       (1,230,610)          (10,200)
Purchase of office property and equipment                                            (3,009,232)      (4,912,791)       (2,077,581)
                                                                            --------------------  ---------------  ----------------
     Net cash used by investing activities                                          (67,437,968)     (47,545,520)      (85,407,693)
                                                                            --------------------  ---------------  ----------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts                                 53,936,730       61,509,157        27,376,384
Net increase (decrease) in time deposits                                             13,645,764      (14,639,514)        2,095,304
Net decrease in FHLB advances                                                           (31,290)      (8,128,155)       (8,053,524)
Proceeds from securities sold under agreement to repurchase                          10,000,000       20,000,000        60,000,000
Principal repayment of employee stock ownership plan debt                                     0          (33,481)          (72,982)
(Decrease) Increase in advances from borrowers for taxes and
   insurance                                                                            (54,731)          66,894            53,903
Purchase of treasury stock                                                             (475,084)        (186,051)         (127,361)
Dividends paid on common stock                                                         (866,279)        (767,461)         (525,479)
Net proceeds from issuance of common stock                                                  775          108,604             5,758
                                                                            --------------------  ---------------  ----------------
     Net cash provided by financing activities                                       76,155,885       57,929,993        80,752,003
                                                                            --------------------  ---------------  ----------------
INCREASE IN CASH AND CASH EQUIVALENTS                                                16,379,480       17,264,769         2,712,073
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                         29,896,391       12,631,622         9,919,549
                                                                            --------------------  ---------------  ----------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                      $        46,275,871   $   29,896,391   $    12,631,622
                                                                            ====================  ===============  ================

<PAGE>

Supplemental Disclosures:
     Cash paid for:
         Interest on deposits, advances, and other borrowings               $        24,113,145   $   24,678,469   $    20,625,049
         Income taxes                                                                 2,689,262        2,906,347         3,456,506
     Non cash investing and financing activities:
         Dividends declared and not paid at year end                                    215,519          216,953           167,154
         Non-monetary transfers from loans to real estate acquired
         through foreclosure                                                            366,000          331,028            32,435
</TABLE>

See notes to consolidated financial statements.

                                      -14-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
                                                                             Guarantee of
                                                                              employee
                            Common                             Accumulated     stock                                      Total
                            shares     Common      Paid-in    comprehensive   ownership    Retained       Treasury    Stockholders'
                         outstanding   stock       capital      income       plan debt     earnings        stock         Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>         <C>        <C>          <C>           <C>          <C>          <C>             <C>
Balances at
   December 31, 1996        2,392,707  $260,288   $8,413,558   $(166,152)    $(106,463)   $28,487,903  $(3,062,960)    $33,826,174
Net Income                                                                                  5,491,154                    5,491,154
Other comprehensive
   income, net of tax
   of $123,703
   Unrealized gain on
   securities available
   for sale                                                      220,107                                                   220,107
                                                                                                                      --------------
Total comprehensive
   income                                                                                                                5,711,261

Dividends declared                                                                           (572,997)                    (572,997)
Decrease in guarantee
   of employee stock
   ownership plan debt                                                          72,982                                      72,982
Exercise of stock options       1,486       149        5,609                                                                 5,758
Purchase of common stock       (6,277)                                                                    (127,361)       (127,361)

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

Balances at
   December 31, 1997        2,387,916   260,437    8,419,167      53,955       (33,481)    33,406,060   (3,190,321)     38,915,817
Net Income                                                                                  5,271,488                    5,271,488
Other comprehensive
   income, net of tax
   benefit of $42,492
  Unrealized loss on
  securities available
  for sale                                                       (75,748)                                                  (75,748)
                                                                                                                      --------------
Total comprehensive
   income                                                                                                                5,195,740

Dividends declared                                                                           (817,257)                    (817,257)
Decrease in guarantee
   of employee stock
   ownership plan debt                                                          33,481                                      33,481
Exercise of stock options      47,451     4,745      103,859                                                               108,604
Tax benefit from gains on
   stock options exercised                           218,331                                                               218,331
Purchase of common stock       (5,354)                                                                    (186,051)       (186,051)

Three-for-one stock split   4,801,754   524,537     (524,537)                                                                    0
------------------------------------------------------------------------------------------------------------------------------------

Balances at

   December 31, 1998        7,231,767   789,719    8,216,820     (21,793)            0     37,860,291   (3,376,372)     43,468,665
Net Income                                                                                  5,113,506                    5,113,506
Other comprehensive
   income, net of tax
   benefit of $648,072
  Unrealized loss on
  securities available
  for sale                                                    (1,146,017)                                               (1,146,017)
                                                                                                                      --------------
Total comprehensive
   income                                                                                                                3,967,489

Dividends declared                                                                           (864,842)                    (864,842)

Exercise of stock options         600        60          715                                                                   775

Purchase of common stock      (48,389)                                                                    (475,084)       (475,084)
------------------------------------------------------------------------------------------------------------------------------------
Balances at
   December 31, 1999        7,183,978  $789,779   $8,217,535 $(1,167,810)           $0    $42,108,955  $(3,851,456)    $46,097,003
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -15-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

FMS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------

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  institutions 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  reverse  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  Reserve  Bank.  The  amount of those
balances for the reserve computation periods which include December 31, 1999 and
1998 were $15.5 million and $11.0 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

         In accordance with Statement of Financial  Accounting Standards No. 115
(SFAS  No.  115),  "Accounting  for  Certain  Investments  in  Debt  and  Equity
Securities" the Corporation  classifies  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
until  realized.  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.  Premiums are  amortized  over the average life of the
security. 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.

Securities Purchased under Agreements to Resell

         The Bank invests excess funds in securities  purchased under agreements
to resell (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,
the securities  are 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.

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.  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 periodically 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  estimated  market  value,  determined  on a net
aggregate basis.

Interest on Loans

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

                                      -16-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

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.

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.

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.
Renewal and improvement costs are capitalized.

Deferred Loan Fees

         All loan fees and related direct loan  origination  costs are deferred.
Deferred loan fees and costs are generally  capitalized and 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
$16.7  million and $20.4  million at December  31, 1999 and 1998,  respectively.
Loan servicing fee income was approximately  $56 thousand,  $68 thousand and $83
thousand for the years ended December 31, 1999, 1998 and 1997, respectively.

Excess Cost over Fair Value of Net Assets Acquired

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

Income Taxes

         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 Statement of Financial Accounting Standards No. 109
(SFAS No. 109),  "Accounting for Income Taxes". These differences between pretax
accounting  income and taxable income for return purposes  consist  primarily of
the  calculations  for loan loss  allowance,  real estate losses,  depreciation,
recognition  of income and expenses  associated  with loan  origination,  profit
recognition on discounted mortgages and securities income.

Reclassifications

         Certain items in the 1998 and 1997  consolidated  financial  statements
have been reclassified to conform with the presentation in the 1999 consolidated
financial statements.

Earnings Per Share

         Statement of  Financial  Accounting  Standards  No. 128 (SFAS No. 128),
"Earnings per Share", requires the dual presentation of basic and diluted EPS on
the  face  of the  income  statement  for  all  entities  with  complex  capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS  computation  to the  numerator  and  denominator  of the  diluted EPS
computation.  Basic EPS  excludes  dilution  and is computed by dividing  income
available to common stockholders by the weighted-average number of common shares
outstanding  for the period.  Diluted EPS reflects the  potential  dilution that
could  occur  if  securities  or other  contracts  to issue  common  stock  were
exercised or  converted  into common stock or resulted in the issuance of common
stock that then  shared in the  earnings  of the  entity.  The  Corporation  has
presented   both  basic  and  diluted   earnings   per  share  as  well  as  the
reconciliation of the denominator in the consolidated statement of operations.

Basic and  diluted  earnings  per  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 the  three-for-one
stock split that was paid to shareholders on July 14, 1998. A total of 5,245,370
additional shares were issued in conjunction with the stock split. The par value
of the  Corporation's  stock  remained  unchanged.  As a  result,  $524,537  was
transferred from paid-in capital in excess of par to common stock.

                                      -17-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

2. INVESTMENT SECURITIES HELD TO MATURITY

         A comparison of amortized cost and estimated market value of investment
securities held to maturity at December 31, 1999 and 1998 are as follows:

                               December 31, 1999
             -------------------------------------------------------

                              Gross         Gross       Estimated
               Amortized    Unrealized   Unrealized       Market
                 Cost         Gains        Losses         Value
--------------------------------------------------------------------
U.S.
  Gov't
  Agencies   $ 170,610,811   $  51,318 $  (8,810,677)  $161,851,452
Municipal
  bonds          1,509,310         644             0      1,509,954
CMOs            48,187,121           0    (1,705,654)    46,481,467
--------------------------------------------------------------------
Total        $ 220,307,242   $  51,962 $ (10,516,331)  $209,842,873
--------------------------------------------------------------------


                               December 31, 1998
             -------------------------------------------------------
                              Gross         Gross       Estimated
               Amortized    Unrealized   Unrealized       Market
                 Cost         Gains        Losses         Value
--------------------------------------------------------------------
U.S.
  Gov't
  Agencies $    78,291,686  $  151,165 $    (201,073)  $ 78,241,778
Municipal
  bonds          3,823,802       2,833             0      3,826,635
CMOs            47,302,338      53,888       (59,017)    47,297,209
--------------------------------------------------------------------
Total      $   129,417,826  $  207,886 $    (260,090)   129,365,622
--------------------------------------------------------------------


         The Bank  has the  intent  and  ability  to hold  these  securities  to
maturity.  The amortized cost and estimated  market value of investments held to
maturity  at  December  31,  1999,  by  contractual  maturity  are  shown in the
following table.  Expected  maturities may differ as borrowers have the right to
call certain obligations.  CMOs are shown separately due to the amortization and
prepayment of principal occurring throughout the life of these instruments.

                                     December 31, 1999
                            ----------------------------------
                                Amortized          Estimated
                                  Cost            Market Value
--------------------------------------------------------------
Due one year or less      $      1,279,310     $    1,279,310
Due one to five years           19,139,522         18,645,821
Due five to ten years          100,274,387         94,554,046
Due after ten years             51,426,902         48,882,229
CMOs                            48,187,121         46,481,467
--------------------------------------------------------------
Total                     $    220,307,242   $    209,842,873
--------------------------------------------------------------

<PAGE>

3. INVESTMENT SECURITIES AVAILABLE FOR SALE

         The amortized cost and estimated market value of investment  securities
available for sale at December 31, 1999 and 1998 are as follows:

                              December 31, 1999
             ----------------------------------------------------
                             Gross        Gross       Estimated
              Amortized    Unrealized   Unrealized     Market
                Cost         Gains        Losses       Value
-----------------------------------------------------------------
U.S. Gov't
  Agencies $  10,291,646 $          0 $    (566,615) $ 9,725,031
CMOs          38,024,766        4,699    (1,212,915)  36,816,550
MBSs           2,817,131            0       (51,596)   2,765,535
-----------------------------------------------------------------
Total      $  51,133,543 $      4,699 $  (1,831,126) $49,307,116
-----------------------------------------------------------------

                              December 31, 1998
             ----------------------------------------------------
                             Gross        Gross       Estimated
              Amortized    Unrealized   Unrealized     Market
                Cost         Gains        Losses        Value
-----------------------------------------------------------------
U.S.
  Gov't
  Agencies $  18,492,035 $     26,683 $   (18,102) $  18,500,616
CMOs          91,377,435      206,435    (251,353)    91,332,517
-----------------------------------------------------------------
Total      $ 109,869,470 $    233,118 $  (269,455) $ 109,833,133
-----------------------------------------------------------------

The amortized cost and estimated market value of investments  available for sale
at December 31, 1999, by contractual  maturity are shown in the following table.
Expected  maturities  may differ as  borrowers  have the right to call or prepay
certain  obligations.  CMOs are shown  separately  due to the  amortization  and
prepayment of principal occurring throughout the life of these instruments.

                                      December 31, 1999
                            --------------------------------------
                               Amortized             Estimated
                                  Cost             Market Value
------------------------------------------------------------------
Due one to five years     $        5,295,000    $       5,087,541
Due five to ten years              2,996,646            2,815,300
Due after ten years                4,817,131            4,587,725
CMOs                              38,024,766           36,816,550
------------------------------------------------------------------
Total                     $       51,133,543    $      49,307,116
------------------------------------------------------------------

         There  were no sales of  investment  securities  during  1999 and 1998.
During 1997,  FNMA-mortgage-backed securities available for sale were sold which
resulted in a realized gain of $2 thousand.

                                      -18-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

4. LOANS, NET

         Loans, net at December 31, 1999 and 1998 consist of the following:

                                  1999                1998

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

Mortgage Loans             $     236,912,182   $     245,414,511
Construction Loans                   972,533           1,390,456
Commercial Construction            3,934,937           2,609,315
Consumer Loans                     3,273,792           3,237,176
Commercial Real Estate            52,543,711          45,937,998
Commercial Business                6,790,348           4,120,967
-----------------------------------------------------------------
Subtotal                         304,427,503         302,710,423
Less:
     Deferred loan fees              892,019             764,926
     Allowance for
       possible loan
       losses                      3,840,967           3,342,274
-----------------------------------------------------------------
Total loans, net           $     299,694,517   $     298,603,223
-----------------------------------------------------------------

         At December  31,  1999 and 1998 the  recorded  investment  in loans for
which  impairment had been  recognized in accordance  with SFAS Nos. 114 and 118
totaled  $3.1  million and $3.2  million,  respectively.  At December  31, 1999,
impaired loans of $1.7 million related to loans that were individually  measured
for impairment  with a valuation  allowance of $516 thousand and $1.5 million of
loans that were collectively  measured for impairment with a valuation allowance
of $63 thousand.  At December 31, 1998 impaired loans of $1.6 million related to
loans that were individually  measured for impairment with a valuation allowance
of $363 thousand and $1.6 million of loans that were  collectively  measured for
impairment  with a  valuation  allowance  of $69  thousand.  For the years ended
December 31, 1999 and 1998,  the average  recorded  investment in impaired loans
was approximately $3.6 million and $3.4 million, respectively.  During the years
ended December 31, 1999 and 1998 the  Corporation  recognized  $575 thousand and
$125 thousand, respectively, of interest on impaired loans.

         Loans which are 90 days delinquent as to principal  and/or 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, 1999 and 1998 was $3.1
million and $3.2 million,  respectively.  Interest  income on non-accrual  loans
that would have been recorded in 1999 under the original terms of such loans was
$265  thousand,  and the interest  income  actually  recognized in 1999 for such
loans was $556 thousand.  Interest  income on non-accrual  loans that would have
been recorded in 1998 under the original  terms of such loans was $266 thousand,
and the  actual  interest  income  recognized  in 1998 for such  loans  was $119
thousand.

         The Bank  originates and purchases  both  adjustable and fixed interest
rate loans. At December 31, 1999, the composition of these loans is as follows:

                                     Maturing
                          Maturing   from 200   Maturing
                          during      through     after
(In Thousands)             2000        2004       2004       Total
--------------------------------------------------------------------
Mortgage Loans
   (1-4 dwelling)       $   1,310  $  15,965  $  219,637  $ 236,912
Construction Loans            973          0           0        973
Commercial Construction       551          0       3,384      3,935
Consumer Loans              1,346      1,569         359      3,274
Commercial Real Estate      4,411     15,881      32,252     52,544
Commercial Business         2,788      3,459         543      6,790
--------------------------------------------------------------------
                Total   $  11,379  $  36,874  $  256,175  $ 304,428
--------------------------------------------------------------------


<PAGE>

Interest sensitivity
on the above loans:
Loans with
  predetermined rates   $   7,151  $  30,647  $  184,441  $ 222,239
Loans with adjustable
  or floating rates         4,228      6,227      71,734     82,189
--------------------------------------------------------------------
                Total   $  11,379  $  36,874  $  256,175  $ 304,428
--------------------------------------------------------------------

         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
one year U.S. Treasury constant maturity yield. 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.
Loans  pledged as  collateral  for advances and lines of credit from the Federal
Home Loan Bank totaled $41.5 million at December 31, 1999.

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

                                  Years ended December 31,
                          -----------------------------------------
                             1999           1998          1997
-------------------------------------------------------------------

Balance at beginning
  of year               $   3,342,274  $  3,137,781  $   2,781,937
Provisions charged to
  operations                  653,579       240,000        400,000
Charge-offs                  (232,828)      (37,876)       (49,042)
Recoveries                     77,942         2,369          4,886
-------------------------------------------------------------------
Balance at end of year  $   3,840,967  $  3,342,274  $   3,137,781
-------------------------------------------------------------------

                                      -19-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

5. MORTGAGE-BACKED SECURITIES

         Mortgage-backed  securities  held to maturity at December  31, 1999 and
1998 are summarized as follows:

                             December 31, 1999
          ---------------------------------------------------------
                            Gross         Gross
            Amortized     Unrealized   Unrealized      Estimated
              Cost          Gains        Losses       Market Value
-------------------------------------------------------------------
GNMA     $  37,742,389  $    253,470 $ (1,055,224)  $   36,940,635
FNMA        50,801,575       105,479   (1,061,964)      49,845,090
FHLMC       32,880,455       235,464      (86,612)      33,029,307
-------------------------------------------------------------------
Total    $ 121,424,419  $    594,413 $ (2,203,800)  $  119,815,032
-------------------------------------------------------------------

                             December 31, 1998
          ---------------------------------------------------------
                            Gross         Gross
            Amortized     Unrealized   Unrealized      Estimated
              Cost          Gains        Losses       Market Value
-------------------------------------------------------------------
GNMA    $   31,716,739  $    599,765 $     (3,615)  $   32,312,889
FNMA        37,531,455       597,103      (49,100)      38,079,458
FHLMC       21,255,729       524,392         (476)      21,779,645
Private         88,724         1,610          (33)          90,301
-------------------------------------------------------------------
Total   $   90,592,647  $  1,722,870 $    (53,224)  $   92,262,293
-------------------------------------------------------------------

The Bank has the intent and ability to hold these  securities  to  maturity.  At
December  31,  1999,  neither a disposal,  nor a condition  that could lead to a
decision not to hold these securities to maturity were reasonably foreseen.

6. OFFICE PROPERTIES AND EQUIPMENT, NET

         Office  properties  and  equipment  at  December  31, 1999 and 1998 are
summarized by major classification, as follows:

                                              December 31,
                                    -------------------------------
                                          1999            1998
-------------------------------------------------------------------

Land, buildings and improvements      $  21,036,089  $  18,900,216
Furniture and equipment                   4,356,086      4,153,118
Computers                                 4,128,761      3,629,926
-------------------------------------------------------------------
Total                                    29,520,936     26,683,260
Less accumulated depreciation            (8,834,664)    (7,391,013)
-------------------------------------------------------------------
Office properties and equipment, net  $  20,686,272  $  19,292,247
-------------------------------------------------------------------

7. REAL ESTATE HELD FOR DEVELOPMENT, NET

         The Bank, through its wholly-owned subsidiary, Land Financial Services,
Inc.,  had 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, 1999 and 1998, are summarized as follows:

                                         December 31,
                         ---------------------------------------
                                      1999           1998
----------------------------------------------------------------
Real estate held for
       development       $         376,694    $        933,256
Valuation allowance               (288,768)           (288,769)
----------------------------------------------------------------
Net                      $          87,926    $        644,487
----------------------------------------------------------------
<PAGE>

8. REAL ESTATE OWNED, NET

         Real estate owned, which was acquired through  foreclosure and deeds in
lieu of  foreclosure,  totaled $449 thousand and $168 thousand,  net at December
31, 1999 and 1998,  respectively.  Changes in allowance for real estate owned is
as follows:

                                Years ended December 31,
                      ---------------------------------------------
                           1999          1998          1997
-------------------------------------------------------------------
Balance at beginning
  of year             $    668,239  $    560,137   $   437,507
Provisions charged
  to operations                  0       108,102       142,630
Charge-offs                      0             0       (20,000)
-------------------------------------------------------------------
Balance at end
  of year             $    668,239  $    668,239   $   560,137
-------------------------------------------------------------------


                                      -20-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

9. DEPOSITS

         Deposits at December 31, 1999 and 1998 consisted of the following major
classifications and weighted average rates:

                                      December 31, 1999
                          ---------------------------------------------
                           Weighted                        Percent
                           Average Rate        Amount     of Total
-----------------------------------------------------------------------
Non-interest checking            0.00 %  $     82,504,184     13.66 %
Checking accounts                2.26         106,541,028     17.64
Savings accounts                 2.67         107,207,225     17.76
Money market accounts            2.76          65,583,704     10.86
Certificates                     4.92         242,055,976     40.08
-----------------------------------------------------------------------
Total                            3.20 %  $    603,892,117    100.00 %
-----------------------------------------------------------------------

                                      December 31, 1998
                          ---------------------------------------------
                           Weighted                        Percent
                           Average Rate        Amount     of Total
-----------------------------------------------------------------------
Non-interest checking            0.00 %  $     69,336,887     12.93 %
Checking accounts                1.89          75,280,395     14.04
Savings accounts                 2.83          95,591,907     17.82
Money market accounts            2.64          67,690,222     12.62
Certificates                     5.35         228,410,212     42.59
-----------------------------------------------------------------------
Total                            3.49 %  $    536,309,623    100.00 %
-----------------------------------------------------------------------

A summary of certificates by maturity at December 31, 1999 is as follows:

Years ended December 31,                      Amount
----------------------------------------------------------
2000                                   $      163,279,420
2001                                           37,325,167
2002                                           20,354,609
Thereafter                                     21,096,780
----------------------------------------------------------
Total                                  $      242,055,976
----------------------------------------------------------

         A summary of interest expense on deposits is as follows:

                            Years ended December 31,
                        ------------------------------------------------
                              1999            1998            1997
------------------------------------------------------------------------
Checking accounts       $     2,029,980 $     1,263,105    $    825,672
Savings accounts              2,787,185       2,591,626       2,347,193
Money market accounts         1,817,465       1,697,154       1,629,248
Certificates                 11,536,893      12,538,798      12,952,418
------------------------------------------------------------------------
Total interest expense  $    18,171,523 $    18,090,683    $ 17,754,531
------------------------------------------------------------------------
<PAGE>

10. ADVANCES FROM FEDERAL HOME LOAN BANK

         At December 31, 1999,  the Bank had advances from the Federal Home Loan
Bank of New York (FHLB) in the amount of $16.3  million with a weighted  average
interest rate of 6.0%.  Advances are  collateralized  by certain first  mortgage
loans.

                     Years ended December 31,
-------------------------------------------------------------------
       1999                            1998
-------------------------------------------------------------------
                Weighted                        Weighted
                Average  Maturity               Average   Maturity
      Amount     Rate      Date       Amount     Rate       Date
-------------------------------------------------------------------
  $  10,000,000   6.32%   6/6/00 $  10,000,000     6.32%    6/6/00
      5,000,000   5.62%  2/15/01     5,000,000     5.62%   2/15/01
      1,337,031   5.00%  10/9/07     1,368,321     5.00%   10/9/07
-------------------------------------------------------------------
  $  16,337,031   6.00%          $  16,368,321     6.00%
-------------------------------------------------------------------


11. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

         At December 31, 1999, the Bank had securities sold under the agreements
to repurchase (repurchase  agreements) in the aggregate amount of $90.0 million.
The repurchase  agreements are collateralized by U.S. Agency Notes and CMOs with
a market value of $92.5 million.  Accrued  interest  payable on these agreements
totaled $457 thousand at December 31, 1999.

                Year ended December 31, 1999
--------------------------------------------------------------
                                Weighted   Maturity   Call
Counterparty       Amount     Average Rate   Date    Feature
--------------------------------------------------------------
Merrill Lynch     $20,000,000    5.79%      9/19/02   9/19/00
FHLB               10,000,000    6.03%       2/1/00     -
FHLB               20,000,000    5.65%     11/18/02  11/18/00
FHLB               20,000,000    5.72%     12/19/07  12/19/02
FHLB               20,000,000    5.13%      1/14/08   1/14/01
--------------------------------------------------------------
Total             $90,000,000    5.62%
--------------------------------------------------------------

                Year ended December 31, 1998
--------------------------------------------------------------
                                Weighted   Maturity   Call
Counterparty       Amount     Average Rate   Date    Feature
--------------------------------------------------------------
Merrill Lynch     $20,000,000    5.79%      9/19/02   9/19/00
FHLB               20,000,000    5.65%     11/18/02  11/18/00
FHLB               20,000,000    5.72%     12/19/07  12/19/02
FHLB               20,000,000    5.13%      1/14/08   1/14/01
--------------------------------------------------------------
Total             $80,000,000    5.57%
--------------------------------------------------------------

                                      -21-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

12. INCOME TAXES

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

                                                1999                            1998                              1997
                                -------------------------------  ------------------------------   -------------------------------
                                      Amount         Percent          Amount          Percent           Amount         Percent
                                  ---------------   -----------  ------------------  ----------   ------------------- -----------
<S>                            <C>                     <C>          <C>                <C>            <C>                <C>
Tax at federal tax rate         $      2,721,663        34.00%       $   2,806,707      34.00%         $   2,930,199      34.00%
Increase from:
     State income taxes, net
         of federal income tax
         benefit                         165,583         2.07%             170,531       2.07%               189,102       2.19%
     Other                                 4,140         0.05%               6,295       0.08%                 7,776       0.09%
                                  ---------------   -----------  ------------------  ----------   ------------------- -----------
     Total                      $      2,891,386        36.12%       $   2,983,533      36.15%         $   3,127,077      36.28%
                                  ===============   ===========  ==================  ==========   =================== ===========
</TABLE>

         In accordance with the provisions of Statement of Financial  Accounting
Standards No. 109,  "Accounting  for Income Taxes" (SFAS No. 109),  deferred tax
assets and liabilities are  established  for the temporary  differences  between
accounting  bases and tax bases of the  Corporation's  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.

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

                                       December 31,
                                ------------------------------------
                                              1999          1998
------------------------------------------------------------------------
Deferred income tax assets:
  Allowance for possible loan        $
  losses                                 1,111,262     $     924,040
  Real estate losses                       482,409           482,409
  Deferred loan fees, net                  (24,926)           (2,225)
  Compensation and pension (asset)
  liability                                (24,900)           49,822
  Amortization of deposit premium          277,049           274,034
  Post retirement benefits                 185,000           185,000
  Capitalized interest                     305,209           284,690
  Other                                    143,273           155,340
------------------------------------------------------------------------
Gross deferred tax assets                2,454,376         2,353,110
Deferred income tax liabilities:
  Prepaid deposit insurance premium         11,148            48,912
  Depreciation                             178,641           288,426
------------------------------------------------------------------------
Gross deferred tax liabilities:            189,789           337,338
------------------------------------------------------------------------
Deferred income tax assets, net      $   2,264,587     $   2,015,772
------------------------------------------------------------------------

<PAGE>

         The following  represents  the components of income tax expense for the
years ended December 31, 1999, 1998 and 1997, respectively.

                              1999           1998         1997
------------------------------------------------------------------
Current Federal tax
   provision             $   2,131,769  $  3,008,922  $ 2,903,256
Current State tax
   provision                   204,605       284,193      292,221
------------------------------------------------------------------
   Total current
     provision               2,336,374     3,293,115    3,195,477
------------------------------------------------------------------
Deferred federal tax
  (benefit)                    508,734      (283,771)     (62,697)
Deferred state tax
  (benefit)                     46,278       (25,811)      (5,703)
------------------------------------------------------------------
   Total deferred tax
     (benefit)                 555,012      (309,582)     (68,400)
------------------------------------------------------------------
Total                    $   2,891,386  $  2,983,533  $ 3,127,077
------------------------------------------------------------------

13. LEASES

         The Bank leases three buildings and land to operate four branches 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, 1999 are as follows:

Fiscal Year                           Amount
-------------------------------------------------

2000                            $        180,535
2001                                      76,826
2002                                      76,826
2003                                      76,826
2004 and beyond                        1,056,817
-------------------------------------------------
Total                           $      1,467,830
-------------------------------------------------

                                      -22-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

         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 $127 thousand,  $105 thousand and $104 thousand
for fiscal years 1999, 1998 and 1997, 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 Bank converted its charter to that of
a Federal Savings Bank on October 15, 1993.

         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.

         The following is a reconciliation of the Bank's capital under generally
accepted  accounting  principles  ("GAAP") to regulatory capital at December 31,
1999:

                       Tangible           Core          Risk-based
                        Capital          Capital          Capital
---------------------------------------------------------------------
Bank's GAAP
   Capital         $    52,609,415  $    52,609,415  $    52,609,415
Add:
   Unrealized loss
     on investments
     AFS                 1,167,810        1,167,810        1,167,810
Less:
   Subsidiary
     investments
     not eligible          (87,926)         (87,926)         (87,926)
   Goodwill                (55,328)         (55,328)         (55,328)
   REO greater
     than 5 years         (149,541)        (149,541)        (149,541)
Supplementary
   qualifying
   capital item
General valuation
   allowance                     0                0        3,389,772
---------------------------------------------------------------------
Regulatory
  capital
  computed              53,484,430       53,484,430       56,874,202
Minimum
   regulatory
   capital
   requirement          15,462,237       30,924,474       24,206,915
---------------------------------------------------------------------
Regulatory
  capital
  excess           $    38,022,193  $    22,559,956  $    32,667,287
---------------------------------------------------------------------

<PAGE>
15. PENSION PLAN

         The Bank has a defined benefit pension plan for active  employees.  Net
pension  expense was $462  thousand,  $371  thousand and $385 thousand for years
ended  December 31, 1999,  1998 and 1997,  respectively.  The  components of net
pension cost are as follows:

                                  Years ended December 31,
                    --------------------------------------------------
                           1999             1998             1997
----------------------------------------------------------------------
Service cost        $       513,260   $      435,047    $     401,818
Interest cost               336,799          270,772          232,376
Return on assets           (418,356)        (359,216)        (286,070)
Net amortization
     and deferral            30,675           23,921           37,140
----------------------------------------------------------------------
Net periodic
     pension cost   $       462,378   $      370,524    $     385,264
----------------------------------------------------------------------

         The following table presents a  reconciliation  of the funded status of
the defined benefit pension plan at December 31, 1999 and 1998:

                                               December 31,
                                 ----------------------------------------
                                        1999                1998
-------------------------------------------------------------------------
Projected benefit obligation      $     6,406,113     $     5,200,545
Fair value of plan assets               7,520,267           5,895,741
-------------------------------------------------------------------------
Excess of plan assets over
     projected benefit obligation       1,114,154             695,196
Unrecognized net gain                  (1,423,841)         (1,153,817)
Unrecognized prior service cost            70,794              76,135
Unrecognized net transition
     obligation                           131,663             162,569
-------------------------------------------------------------------------
Accrued pension cost
     included in the consolidated
     balance sheet               $       (107,230)    $      (219,917)
-------------------------------------------------------------------------

         The following table presents a  reconciliation  of beginning and ending
balances of benefit obligations and plan assets:

                                                 December 31,
                                         ------------------------------
Change in Projected Benefit Obligation       1999           1998
-----------------------------------------------------------------------
Projected benefit obligation
  at beginning of year                     $5,200,545   $   4,419,723
Service cost                                  513,260         435,047
Interest cost                                 336,799         270,772
Actuarial loss                                464,723         133,501
Benefits paid                                (109,214)        (58,498)
-----------------------------------------------------------------------
Projected benefit obligation
  at end of year                           $6,406,113   $   5,200,545
-----------------------------------------------------------------------
Change in Plan Assets
-----------------------------------------------------------------------
Fair value of plan assets
  at beginning of year                     $5,895,741   $   5,171,488
Actual return of plan assets                1,158,675         782,751
Employer contribution                         575,065               0
Benefits paid                                (109,214)        (58,498)
-----------------------------------------------------------------------
Fair value of plan assets
  at end of year                           $7,520,267   $   5,895,741
-----------------------------------------------------------------------

                                      -23-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

         Actuarial assumptions used in determining pension cost are as follows:

                                 Years ended December 31,
                        ------------------------------------------
                               1999        1998          1997
----------------------------------------------------------------------
Discount rate for
     benefit obligation        6.00 %        6.00 %        6.00 %
Rate of increase in
     compensation levels
     and social security
     wage base                 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. In
accordance  with the provisions of Statement of Financial  Accounting  Standards
No. 106, "Employer  Accounting for Post Retirement Benefits other than Pensions"
(SFAS No. 106) the expected cost of such benefits must 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.

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

                                               December 31,
                                       ------------------------------
                                           1999             1998
---------------------------------------------------------------------
Interest cost                        $       29,149   $       30,514
Amortization of prior service cost          (14,499)         (14,499)
Amortization of gain                           (934)          (1,763)
---------------------------------------------------------------------
Net periodic post-retirement
     benefit cost                    $       13,716   $       14,252
---------------------------------------------------------------------

         The assumed  discount  rate used in the  calculation  for net  periodic
post-retirement benefit cost was 6.75% and 7.0% for 1999 and 1998, respectively.
The  assumed  health care cost trend rate for 1999 was 6% 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, 1999
----------------------------------------------------------------------
Accumulated post-retirement obligation
     at year end                                             $434,747
Service and interest Cost                                     $31,406
----------------------------------------------------------------------

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

                                            December 31,
                                    -----------------------------
                                        1999            1998
-----------------------------------------------------------------
Accumulated post-retirement
     benefit obligation           $    (403,766)  $    (451,181)
Unrecognized prior service cost         (84,577)        (99,076)
Unrecognized net gain                   (89,647)        (59,101)
-----------------------------------------------------------------

Accrued post-retirement benefit
     cost                         $    (577,990)  $    (609,358)
-----------------------------------------------------------------

         The assumed  discount rate used in the  calculation for the accumulated
post-retirement benefit obligation as of December 31, 1999 and 1998 was 8.0% and
6.75%, respectively.

16. SUBORDINATED DEBENTURES

         The  Corporation  issued $10.0  million of  subordinated  debentures in
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  redemption
prices  ranging from 103% down to 100%.  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.

                                      -24-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

17. 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,  securities  available  for  sale and
mortgage-backed securties: Fair value is equal to quoted market prices.

FHLB Stock: The stock of FHLB is issued only to FHLB member  institutions and is
redeemable only by another member  institution or the FHLB at its $100 per share
par value.

Loans: For variable-rate  loans that reprice  frequently and with no significant
change in credit risk, fair value is the carrying value. For other categories of
loans such as residential  mortgages,  commercial 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
with similar remaining maturities.

Securities sold under agreements to repurchase: 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.

Subordinated debentures: Fair value is estimated using the quoted average of the
broker bid and ask prices at year end.

Other borrowings: Fair value is estimated using a discounted cash flow analysis.

Advances from FHLB:  The carrying  value is a reasonable  estimate of fair value
due to the short term nature of these obligations.

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.
<PAGE>

         At December 31, 1999 and December 31, 1998, the carrying amount and the
estimated value of the Corporation's financial instruments are as follows:


<TABLE>
<CAPTION>
                                                                 December 31, 1999                        December 31, 1998
                                                       --------------------------------------   ---------------------------------
                                                           Carrying            Estimated            Carrying           Estimated
                                                            Amount            Market Value           Amount          Market Value
                                                       ------------------   -----------------   -----------------   -------------
<S>                                                   <C>                  <C>                 <C>                 <C>
Financial assets:
     Cash and cash equivalents                         $      46,275,871    $     46,275,871    $     29,896,391    $  29,896,391
     Investment securities held to maturity and
     investment securities available for sale          $     269,614,358    $    259,149,989    $    239,250,969    $ 239,198,755
     Mortgage-backed securities                        $     121,424,419    $    119,815,032    $     90,592,647    $  92,262,293
     FHLB Stock                                        $       4,861,410    $      4,861,410    $      4,861,410    $   4,861,410

     Loans, net of unearned income                     $     303,535,484    $    295,018,000    $    301,945,497    $ 309,708,000
        Less: Allowance for possible loan losses              (3,840,967)         (3,840,967)         (3,342,274)      (3,342,274)
     Loans, net                                        $     299,694,517    $    291,177,033    $    298,603,223    $ 306,365,726

Financial liabilities:
     Deposits
        Checking, passbook, and money market accounts  $     361,836,141    $    361,836,141    $    307,899,411    $ 307,899,411
        Certificates                                   $     242,055,976    $    239,077,000    $    228,410,212    $ 229,028,000
     Securities sold under agreements to repurchase    $      90,000,000    $     88,806,000    $     80,000,000    $  83,705,000
     Subordinated debentures                           $      10,000,000    $     10,300,000    $     10,000,000    $  10,500,000
     Other borrowings                                  $      16,337,031    $     16,120,000    $     16,368,321    $  16,467,000

Off-balance sheet financial instruments:
     Commitments to extend credit                      $      24,663,153    $     24,663,153    $     29,758,602    $  29,758,602
     Standby letters of credit                         $       1,887,175    $      1,887,175    $      1,301,772    $   1,301,772

</TABLE>

                                      -25-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

18.  COMMITMENTS AND CONTINGENCIES
         The Bank has  outstanding  loan  commitments  of  $24.7  million  as of
December 31, 1999. Of these commitments outstanding, the breakdown between fixed
and variable rate loans is as follows:

                                               December 31, 1999
                                   ------------------------------------------
                                     Fixed        Variable
                                      Rate          Rate           Total
-----------------------------------------------------------------------------
Commitments to fund loans         $ 4,051,356   $   1,752,600   $  5,803,956
  Unused lines:
  Construction                              0       1,446,881      1,446,881
  Equity line of credit loans               0      13,575,842     13,575,842
  Commercial                                0       3,095,540      3,095,540
  Consumer                                  0         740,934        740,934
-----------------------------------------------------------------------------
Total                             $ 4,051,356   $  20,611,797   $ 24,663,153
-----------------------------------------------------------------------------

         In addition to outstanding  loan  commitments,  the Bank as of December
31,  1999,  issued  $1.1  million  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

         There are no significant pending legal proceedings at December 31, 1999
which will have a material  impact on the  Corporation's  financial  position or
results of operations.

20.  LOANS TO OFFICERS AND DIRECTORS

         Regulation  O  provides  that  all  loans  to  executive  officers  and
directors  be made  on  substantially  the  same  terms  and  conditions  as are
available to the general public. On November 11, 1996,  Regulation O was amended
to allow  executive  officers to  participate in any employee loan rate discount
benefit program available to all full-time employees. Since the Bank offers such
an employee  benefit program,  the policy governing loans to executive  officers
was amended to allow the executive  officers to participate in this loan program
and thereby receive rate discounts. These changes went into effect on January 1,
1997. The rate discounts are available to employees as long as they are employed
at the Bank. If employment is terminated, the rate discount ceases from the date
of  termination.  At December  31, 1999 and 1998,  loans made to  directors  and
executive  officers whose  indebtedness  exceeded $60 thousand  amounted to $1.9
million  and  $1.5  million,  respectively.  During  1999  new  loans  to  these
individuals totaled $414 thousand and repayments totaled $245 thousand.

21. 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.

         A total of 241,926  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.  At  December  31,  1999,  the option
exercise prices were $1.292, $5.333 and $10.00.  Options are fully vested at the
date of grant and must be exercised within ten years.


<PAGE>

         A summary of the status of the  Corporations's  Stock Option Plan as of
December  31, 1999,  1998 and 1997 and changes  during the years ending on those
dates is presented below.

                                      Years Ended December 31,
                                   --------------------------------
                      1999             1998            1997
-------------------------------------------------------------------
                          Weighted         Weighted        Weighted
                          Average          Average         Average
                          Exercise         Exercise        Exercise
                  Shares   Price   Shares   Price  Shares   Price
-------------------------------------------------------------------
Outstanding at
  the Beginning
  of the year     210,618  $5.83  235,995    $ 1.91 246,453  $1.88
Options granted         0      0   93,000     10.00       0      0
Options exercised    (600)  1.29  (84,081)     1.29  (4,458)  1.29
Options
  surrendered      (4,500)  1.29  (34,296)     1.29  (6,000)  1.29
-------------------------------------------------------------------
Outstanding at
  the End of the
  year            205,518  $5.94  210,618    $ 5.83 235,995  $1.91
-------------------------------------------------------------------

         On January 1, 1996,  the  Corporation  adopted  Statement  of Financial
Accounting Standard No. 123, "Accounting for Stock Based Compensation" (SFAS No.
123).  As permitted by SFAS No. 123, the  Corporation  has chosen to continue to
apply APB Opinion No. 25,  "Accounting  for Stock Issued to Employees"  (APB No.
25) and related  interpretations  in accounting  for its Plan.  Accordingly,  no
compensation cost has been recognized for options granted under the Plan. If the
Corporation  had adopted  the fair value  method of  accounting  for stock based
compensation  the  Corporation's  net income and net income per share would have
been as follows:

                                  December 31, 1998
-----------------------------------------------------------
                                As Reported      Pro Forma
-----------------------------------------------------------

Net Income                     $ 5,271,488    $  5,042,974
Basic Earnings per share             $0.73           $0.70
Diluted Earnings per share           $0.72           $0.69
-----------------------------------------------------------


                                      -26-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

         The fair value of each option  grant is  estimated on the date of grant
using the  Black-Scholes  option  pricing model with the following  assumptions:
dividend yield of .86%, expected volatility of 26.11%, discount rate of 6.0% and
an expected life of 10 years at December 31, 1998. There were no options granted
in 1999 or 1997.

22.  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  compare
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 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.


                                      -27-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

23.  PARENT COMPANY FINANCIAL INFORMATION

         The financial statements for FMS Financial Corporation are as follows:
<TABLE>
<CAPTION>
                                                                                                              December 31,
                                                                                                 -----------------------------------
FMS Financial Corporation Statements of Financial Condition                                              1999              1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>               <C>
Assets:
     Cash                                                                                        $       501,861   $       499,293
     Investment in subsidiary                                                                         52,609,414        49,913,393
     Investment securities                                                                             1,000,000         1,000,000
     Intercompany receivable, net                                                                      2,185,306         2,199,643
     Subordinated debentures issue costs, net                                                            263,765           321,113
     Other                                                                                               168,843           168,843
                                                                                                   ---------------------------------
Total Assets                                                                                     $    56,729,189   $    54,102,285
                                                                                                   =================================
Liabilities:
     10% Subordinated debentures due 2004                                                        $    10,000,000   $    10,000,000
     Dividends payable                                                                                   215,519           216,953
     Accrued interest payable                                                                            416,667           416,667
                                                                                                   ---------------------------------
Total liabilities                                                                                     10,632,186        10,633,620
                                                                                                   ---------------------------------
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 7,897,791 and 7,897,191 and shares outstanding 7,183,978 and 7,231,767 as
        of December 31, 1999 and 1998, respectively                                                      789,779           789,719
     Paid-in capital in excess of par                                                                  8,217,535         8,216,820
     Accumulated comprehensive loss - net of deferred income taxes                                    (1,167,810)          (21,793)
     Retained earnings                                                                                42,108,955        37,860,291
     Less:Treasury Stock (713,813 and 665,424 shares, at cost at December 31, 1999 and
        1998, respectively)                                                                           (3,851,456)       (3,376,372)
                                                                                                   ---------------------------------
Total stockholders' equity                                                                            46,097,003        43,468,665
                                                                                                   ---------------------------------
Total Liabilities and Stockholders' Equity                                                       $    56,729,189   $    54,102,285
                                                                                                   =================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                  Years Ended December 31,
                                                                  --------------------------------------------------------
FMS Financial Corporation Statements of Operations                       1999               1998                1997
--------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                <C>                 <C>
Intercompany interest income                                       $      560,750     $       560,750     $       560,750
Interest expense                                                       (1,057,348)         (1,057,348)         (1,057,348)
Dividends from subsidiary                                               1,600,000           1,600,000           1,400,000
Equity in undistributed income of subsidiary                            3,841,261           3,999,243           4,418,909
--------------------------------------------------------------------------------------------------------------------------
Income before taxes                                                     4,944,663           5,102,645           5,322,311
Income tax benefit                                                        168,843             168,843             168,843
--------------------------------------------------------------------------------------------------------------------------
Net Income                                                         $    5,113,506     $     5,271,488     $     5,491,154
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                      -28-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                 For Years Ended December 31,
                                                                 ------------------------------------------------------------------
FMS Financial Corporation Statements of Cash Flows                  1999                     1998                       1997
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                 <C>                        <C>
Operating Activities
Net income                                                       $   5,113,506       $          5,271,488       $       5,491,154
Adjustments to reconcile net income to net cash provided
   by operating activities:
Equity in undistributed earnings of the subsidiary                  (3,841,261)                (3,999,243)             (4,418,909)
Amortization of bond issue costs                                        57,348                     57,347                  57,349
 Decrease (Increase) in intercompany receivable, net                    14,337                   (274,698)               (333,389)
Other operating activities                                                   0                     33,481                  72,982
                                                                 --------------      ---------------------      ------------------

     Net cash  provided by operating activities                      1,343,930                  1,088,375                 869,187


Financing Activities
Purchase of treasury stock                                            (475,084)                  (186,055)               (127,361)
Investment in subsidiary                                                  (775)                  (108,603)                 (5,758)
Cash dividends paid on common stock                                   (866,278)                  (767,457)               (525,479)
Principal repayment of employee stock ownership plan debt                    0                    (33,481)                (72,982)
Proceeds from issuance of stock                                            775                    108,603                   5,758
                                                                 --------------      ---------------------      ------------------

     Net cash used by financing activities                          (1,341,362)                  (986,993)               (725,822)
                                                                 --------------      ---------------------      ------------------

INCREASE IN CASH AND CASH EQUIVALENTS                                    2,568                    101,382                 143,365
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                           499,293                    397,911                 254,546
                                                                 --------------      ---------------------      ------------------

CASH AND CASH EQUIVALENTS, END OF YEAR                           $     501,861       $            499,293       $         397,911
                                                                 --------------      ---------------------      ------------------
</TABLE>

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

                                      -29-
<PAGE>

                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------


[LOGO]    PriceWaterhouseCoopers






                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of FMS Financial Corporation:

In our opinion, the accompanying  consolidated statements of financial condition
and the related consolidated statements of operations,  changes in stockholders'
equity, and cash flows present fairly, in all material  respects,  the financial
position of FMS Financial Corporation and Subsidiary ("the Company") at December
31, 1999 and 1998, and the results of their  operations and their cash flows for
each of the three years in the period ended  December 31,  1999,  in  conformity
with  accounting  principles  generally  accepted  in the United  States.  These
financial  statements are the  responsibility of the Company's  management;  our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing standards generally accepted in the United States which 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,   assessing  the  accounting  principles  used  and
significant  estimates made by management,  and evaluating the overall financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for the opinion expressed above.




/s/PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania
February 10, 2000


                                      -31-

<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------


                              CORPORATE INFORMATION


ANNUAL MEETING

         The 2000 Annual Shareholders' Meeting of FMS Financial Corporation will
be held at 10:00 a.m.,  on the 27th day of April,  2000 at the Riverton  Country
Club, Highland Avenue off of Route 130, Riverton, 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, 2000 was  approximately  759, 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 prices, as reported
by Nasdaq, for the periods ended December 31, 1999 and 1998:

                                          1999
                          ----------------------------------
QUARTER ENDED                        HIGH              LOW
------------------------------------------------------------
March 31,                         $  10.500        $  8.500
June 30,                          $  11.000        $  7.625
September 30,                     $  10.000        $  8.875
December 31,                      $  10.250        $  8.750
------------------------------------------------------------

                                          1998
                          ----------------------------------
QUARTER ENDED                        HIGH              LOW
------------------------------------------------------------
March 31,                         $  12.167        $ 11.167
June 30,                          $  17.000        $ 12.201
September 30,                     $  15.500        $  9.500
December 31,                      $  10.625        $  6.875
------------------------------------------------------------


         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. The Bank may not declare or pay a cash dividend on any of its stock
if the effect of the  declaration  or payment of  dividends  would  cause  their
regulatory  capital  to be  reduced  below  (1)  the  amount  required  for  the
liquidation  account established in connection with the mutual stock conversion,
or (2) the regulatory capital requirements imposed by the OTS. Additionally, the
Corporation  must pay interest to holders of its  debentures  before  payment of
cash dividends to its stockholders.

         As of  December  31,  1999 the Bank  was a Tier 1  institution  and had
available   $22.8  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,  but is subject 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.


                                      -32-