SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K

(Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
|X|        EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 1998

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

For the transition period from ____________________ to _________________________

Commission File Number: 0-17353

                            FMS FINANCIAL CORPORATION
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

   New Jersey                                                  22-2916440     
--------------------------------------------------       -----------------------
 (State or other jurisdiction of incorporation             (I.R.S. Employer
      or organization)                                      Identification No.)

   3 Sunset Road, Burlington, New Jersey                          08016       
--------------------------------------------------       -----------------------
     (Address of principal executive offices)                   (Zip Code)

Registrant's telephone number, including area code:           (609) 386-2400    
                                                    ----------------------------

Securities registered pursuant to Section 12(b) of the Act:        None      
                                                            --------------------

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.10 per share
                     --------------------------------------
                                (Title of Class)

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

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

         Based on the closing sales price of $9.00 per share of the registrant's
common stock on March 1, 1999, as reported on the Nasdaq  National Market System
the  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
registrant was approximately  $65.1 million.  On such date,  7,231,767 shares of
the registrant's Common Stock were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     1.   Portions of 1998 Annual Report to Stockholders (Parts II and IV)
     2.   Portions  of  Proxy   Statement   for  the  1999  Annual   Meeting  of
          Stockholders. (Part III)


<PAGE>

                                     PART I

Forward-Looking Statements

         FMS Financial  Corporation  (the  "Corporation")  may from time to time
make  written  or  oral  "forward-looking   statements,"   including  statements
contained  in  the  Corporation's  filings  with  the  Securities  and  Exchange
Commission (including this Annual Report on Form 10-K and the exhibits thereto),
in its reports to stockholders and in other  communications  by the Corporation,
which are made in good faith by the  Corporation  pursuant to the "safe  harbor"
provisions of the private securities litigation reform act of 1995.

         These forward-looking statements involve risks and uncertainties,  such
as statements of the Corporation's plans,  objectives,  expectations,  estimates
and intentions,  that are subject to change based on various  important  factors
(some of which are beyond the  Corporation's  control).  The following  factors,
among others,  could cause the  Corporation's  financial  performance  to differ
materially from the plans,  objectives,  expectations,  estimates and intentions
expressed in such forward-looking  statements: the strength of the United States
economy  in  general  and the  strength  of the  local  economies  in which  the
Corporation conducts operations; the effects of, and changes in, trade, monetary
and fiscal policies and laws,  including  interest rate policies of the board of
governors of the federal reserve system,  inflation,  interest rate,  market and
monetary fluctuations;  the timely development of and acceptance of new products
and  services  of the  Corporation  and the  perceived  overall  value  of these
products  and services by users,  including  the  features,  pricing and quality
compared to  competitors'  products and services;  the  willingness  of users to
substitute competitors' products and services for the Corporation's products and
services;  the success of the Corporation in gaining regulatory  approval of its
products  and  services,  when  required;  the impact of  changes  in  financial
services'  laws and  regulations  (including  laws  concerning  taxes,  banking,
securities  and  insurance);  technological  changes,  acquisitions;  changes in
consumer  spending  and saving  habits;  and the success of the  Corporation  at
managing the risks involved in the foregoing.

         The Corporation  cautions that the foregoing list of important  factors
is  not   exclusive.   The   Corporation   does  not  undertake  to  update  any
forward-looking  statement,  whether written or oral, that may be made from time
to time by or on behalf of the Corporation.

Item 1.  Business

General

         FMS Financial Corporation,  a New Jersey corporation,  headquartered in
Burlington,  New Jersey,  is the holding  company for Farmers and Mechanics Bank
(the "Bank").  The Bank principally  operates  through its  twenty-three  branch
offices located throughout Burlington County, New Jersey.

         The Bank is primarily  engaged in the business of  attracting  deposits
from the general public and  originating  loans which are secured by residential
real estate. To a lesser extent, the Bank also originates  consumer,  commercial
business loans and construction loans and invests in U.S. government  securities
and  mortgage-related  securities.  The Bank has several  subsidiaries which are
currently either inactive or not material to the operations of the Bank.

Competition

         The Bank's  primary  market area  consists of  Burlington  County,  New
Jersey, and is one of many financial  institutions serving this market area. The
competition for deposit products comes from other insured financial institutions
such as commercial banks, thrift institutions and credit unions in the Bank's


<PAGE>


market area.  Deposit  competition also includes a number of insurance  products
sold by local  agents and  investment  products  such as mutual  funds and other
securities sold by local and regional brokers. Loan competition comes from other
insured financial institutions such as commercial banks, thrift institutions and
credit unions.

Lending Activities

Analysis of Loan Portfolio

         The  following  table sets  forth the  composition  of the Bank's  loan
portfolio in dollar amounts and in  percentages of the respective  portfolios at
the dates indicated.
<TABLE>
<CAPTION>

                                                                          December 31,
                            -----------------------------------------------------------------------------------------------------
                                   1998                  1997                 1996                1995               1994
                            ------------------  --------------------  -------------------   ----------------   ------------------  
                             Carrying  Percent    Carrying  Percent    Carrying  Percent    Carrying  Percent  Carrying  Percent
                              Value   of Total     Value   of Total     Value    of Total    Value   of Total   Value    of Total
                             -------  --------    -------  --------    -------   --------   -------  --------  -------   --------
                                              (In thousands)
Mortgage loans:
<S>                        <C>        <C>       <C>         <C>      <C>        <C>       <C>        <C>     <C>        <C>   
  One-to-four family........$246,072    81.11%   $253,001     82.43%  $257,451    82.89%   $249,278    85.30% $245,874    85.65%
  Commercial real estate....  45,938    15.14      42,974     14.00     39,177    12.61      34,721    11.88    32,228    11.23
  Commercial construction...   2,609      .86       2,385       .78      4,395     1.42          --       --        --       --
  Construction..............   1,410      .46       3,258      1.06      3,712     1.20       2,116      .73     2,924     1.02
                              ------   ------     -------    ------    -------   ------     -------    -----   -------  -------
      Total mortgage loans.. 296,029    97.57     301,618     98.27    304,735    98.12     286,115    97.91   281,026    97.90
Consumer and other loans:
  Consumer..................   3,237     1.07       3,609      1.17      4,015     1.29       4,337     1.48     4,317     1.50
  Commercial business.......   4,121     1.36       1,712       .56      1,830      .59       1,779      .61     1,712      .60
                              ------  -------     -------   -------    -------   ------      ------   ------   -------   ------
   Total consumer and other
        loans...............   7,358     2.43       5,321      1.73      5,845     1.88       6,116     2.09     6,029     2.10
                              ------   ------    --------    ------   --------   ------    --------   ------  --------   ------

      Total loans...........$303,387   100.00%    306,939    100.00%   310,580   100.00%    292,231   100.00%  287,055   100.00%
                             =======   ======     =======    ======    =======   ======     =======   ======   =======   ======
</TABLE>


         Residential  Loans.  One of the primary lending  activities of the Bank
has been the origination of conventional  mortgage loans to enable  borrowers to
purchase  existing  homes,  refinance  existing  mortgage loans or construct new
homes.  The Bank  generally  originates  mortgage  loans  with terms of 15 to 30
years, amortized on a monthly basis, with principal and interest due each month.
Typically,  residential real estate loans remain  outstanding for  significantly
shorter periods than their  contractual terms because borrowers may refinance or
prepay loans at their option.

         The Bank presently  offers  mortgage loans that adjust every year after
an initial  fixed term of one,  two,  five or seven years,  at an interest  rate
indexed higher than the corresponding U.S. Treasury security index. The interest
rates on these mortgages  adjust annually after the one, two, five or seven year
anniversary  date of the loan with an interest rate  adjustment  cap of 1.5% per
year and  presently  not to exceed a rate of 11.5% over the life of the loan. At
December 31, 1998, adjustable-rate  residential first mortgage loans amounted to
$55.1  million or 18.17% of the Bank's  total loan  portfolio.  These  loans are
generally not originated under terms,  conditions and documentation which permit
their  sale in the  secondary  mortgage  market to  Federal  Home Loan  Mortgage
Corporation ("FHLMC") and Federal National Mortgage Association ("FNMA").

         Fixed-rate mortgage loans are generally underwritten according to FHLMC
and FNMA  guidelines.  The Bank sells  fixed-rate  loans in the secondary market
from time to time when such sales are consistent with the Bank's asset/liability
management goals and can be achieved on terms favorable

                                        2

<PAGE>



to the Bank. The Bank generally  charges a higher  interest rate on loans if the
property is not  owner-occupied.  At December 31, 1998, $166.8 million or 55% of
the  Bank's  total loan  portfolio,  consisted  of  long-term  fixed-rate  first
mortgage loans of which none were classified as held for sale.

         The Bank's lending policies  generally limit the maximum  loan-to-value
ratio on owner-occupied residential first mortgage loans to 95% of the lesser of
the appraised value or purchase price,  with the condition that private mortgage
insurance  is  required  on loans  with  loan-to-value  ratios in excess of 80%.
Mortgage loans on investment  properties  are made by the Bank at  loan-to-value
ratios up to 70%. The loan-to-value ratio,  maturity and other provisions of the
loans made by the Bank have  generally  reflected the policy of making less than
the maximum loan permissible  under applicable  regulations,  in accordance with
established  lending  practices,  market  conditions and underwriting  standards
maintained by the Bank.  The Bank  requires  fire and casualty  insurance on all
properties  securing real estate loans made by the Bank.  The Bank also performs
title searches to ensure its lien position.

         The Bank actively  solicits and originates home equity loans and equity
reserve  lines  of  credit  secured  by the  equity  in the  borrower's  primary
residence. These loans generally have terms of 10 to 15 years, some of which are
fixed rates and some of which have rates that adjust  based upon the prime rate.
At December  31,  1998,  the Bank had home  equity  loans in the amount of $14.8
million or 4.88% of its total loan  portfolio.  Also at December 31,  1998,  the
Bank had approved  $23.8  million in home equity lines of credit,  of which $9.3
million was outstanding.

         Construction   Loans.   The  Bank  originates   loans  to  finance  the
construction  of one-to-four  family  dwellings  and/or  commercial real estate.
Generally,  the Bank only makes interim  construction loans to individuals if it
also makes the permanent  mortgage loan on the property.  Construction  loans to
builders are generally  made only if the Bank makes the permanent  mortgage loan
or if the  builder  has a contract  for sale and the  purchaser  has  received a
permanent mortgage commitment.  Interim construction loans to builders generally
have terms of up to nine months and interest  rates which adjust above the prime
interest rate (generally 1% to 2%).

         Construction  financing  is  generally  considered  to involve a higher
degree of risk of loss than  long-term  financing  on  improved,  occupied  real
estate.  Risk of loss on a  construction  loan is  dependent  largely  upon  the
accuracy  of the initial  estimate  of the  property's  value at  completion  of
construction  and  development  and the estimated cost  (including  interest) of
construction. During the construction phase, a number of factors could result in
delays and cost  overruns.  If the estimate of  construction  costs proves to be
inaccurate,  the Bank  may be  required  to  advance  funds  beyond  the  amount
originally committed to permit completion of the development. If the estimate of
value proves to be inaccurate,  the Bank may be  confronted,  at or prior to the
maturity of the loan,  with a project  having a value which is  insufficient  to
assure full repayment.

         Commercial Real Estate Loans.  The Bank's  commercial real estate loans
are loans secured by commercial  real estate (e.g.,  shopping  centers,  medical
buildings,  retail  offices) and  multi-family  dwelling units (e.g.,  apartment
projects with more than four units), in the Bank's market area.  Commercial real
estate loans and multi-family  residential loans have been made in amounts up to
$3.8  million,  with most of such loans  ranging in size from  $100,000  to $1.0
million.  Permanent loans on commercial  properties are generally  originated in
amounts up to 75% of the appraised value of the property.  The Bank's  permanent
commercial  real estate  loans are secured by improved  property  such as office
buildings,  retail stores, warehouse, church buildings and other non-residential
buildings,  most of  which  are  located  in the  Bank's  primary  market  area.
Commercial real estate loans and multi-family residential loans are

                                        3

<PAGE>



generally made at rates which adjust above the prime interest rate (generally 1%
to 2%) or a specified  treasury  index or are balloon loans with fixed  interest
rates  which  mature in three to five years with  principal  amortization  for a
period of up to 25 years.

         Loans  secured  by  commercial  real  estate are  generally  larger and
involve a greater degree of risk than one-to-four  family  residential  mortgage
loans. Of primary concern,  in commercial and multi-family  real estate lending,
is the borrower's  creditworthiness  and the feasibility and cash flow potential
of the project.  Loans secured by income  properties  are  generally  larger and
involve greater risks than residential  mortgage loans because payments on loans
secured by income  properties  are often  dependent on  successful  operation or
management  of the  properties.  As a  result,  repayment  of such  loans may be
subject  to a greater  extent  than  residential  real  estate  loans to adverse
conditions in the real estate market or the economy.

         Consumer. Regulations permit federally chartered thrift institutions to
make secured and unsecured consumer loans up to 35% of the institution's assets.
The Bank makes various types of secured and unsecured  consumer loans  including
education  loans,  lines of  credit,  automobile  loans (new and used) and loans
secured by deposit  accounts.  Consumer loans generally have terms of six months
to five  years,  some of which are at fixed  rates and some of which  have rates
that adjust periodically.

         Consumer loans are  advantageous  to the Bank because of their interest
rate  sensitivity,  but they also  involve  more  credit  risk than  residential
mortgage loans because of the higher  potential of defaults and the difficulties
involved in disposing of the collateral, if any.

         Commercial  Business Loans.  The Bank's  commercial  business loans are
underwritten  on the basis of the  borrower's  ability to service such debt from
income.  The Bank's  commercial  business  loans are generally made to small and
mid-sized  companies  located  within the Bank's  primary  lending area. In most
cases, the Bank requires  additional  collateral of equipment,  chattel or other
assets before making a commercial business loan.

         Loan Commitments.  The Bank issues loan origination commitments to real
estate  developers  and  qualified  borrowers  primarily  for the  construction,
purchase and refinancing of residential  real estate and commercial real estate.
Such  commitments are made on specified terms and conditions,  including in most
cases, the payment of a  non-refundable  commitment fee based on a percentage of
the amount of committed  funds.  At December 31, 1998, the Bank had unused lines
of credit and outstanding  loan origination  commitments of approximately  $29.8
million.

         Loan  Origination  and Loan  Servicing  Fees.  The Bank  receives  loan
origination fees or "points" for originating loans. Loan points are a percentage
of the  principal  amount of the mortgage loan which are charged to the borrower
for  origination of the loan. The Bank's loan  origination  fees generally range
from 2% to 3% on conventional  residential  mortgages and 1% to 2% on commercial
real estate loans.  All loan  origination  fees, net of incremental  direct loan
origination  costs,  are deferred and amortized over the contractual life of the
related loans.

         At December  31, 1998,  the Bank  serviced for others 492 loans with an
outstanding  aggregate  balance of $20.4 million.  Loan servicing income for the
years ended December 31, 1998, 1997 and 1996, was $68 thousand, $83 thousand and
$98  thousand,  respectively.  Such loans were  originated  by the Bank and sold
through the secondary  mortgage market with the servicing  rights to those loans
retained

                                        4

<PAGE>



by the Bank.  The loan servicing  activities of the Bank include  collecting and
remitting  loan  payments,  holding  escrow funds for the payment of real estate
taxes and insurance premiums and generally administering the loans.

Non-Performing and Problems Assets

         When a loan is  more  than 30 days  delinquent,  the  borrower  will be
contacted by mail or phone and payment requested.  If the delinquency continues,
subsequent efforts will be made to contact the delinquent  borrower.  In certain
instances,  the Bank may modify the loan or grant a limited  moratorium  on loan
payments to enable the borrower to reorganize his financial affairs. If the loan
continues in a delinquent  status for 90 days or more,  the Bank  generally will
initiate foreclosure proceedings.

         Loans are generally placed on non-accrual  status when either principal
or interest is 90 days or more past due. Interest accrued and unpaid at the time
a loan is placed on non-accrual status is charged against interest income by the
establishment  of  a  reserve  on  uncollected  interest.  Such  interest,  when
ultimately collected, is credited to the income in the period received.

           Non-Performing  Assets.  The following  table sets forth  information
regarding  impaired  loans,  troubled  debt  restructured  and real estate owned
assets by the Bank at the dates indicated.
<TABLE>
<CAPTION>
                                                                                   At December 31,
                                                    ------------------------------------------------------------------------
                                                       1998             1997            1996            1995       1994
                                                    ---------         --------       ----------      --------     --------
                                                                                 (Dollars in Thousands)
<S>                                                  <C>              <C>             <C>             <C>         <C>   
Loans accounted for on a non-accrual basis:
Mortgage loans:
  One-to-four family.............................     $ 1,733          $2,394          $2,413          $2,502      $1,446
  Commercial real estate.........................       1,205           1,163           1,663           1,604       1,040
  Consumer and other.............................         282              80              15               6         469
                                                        -----           -----           -----           -----       -----
    Total mortgage non-accrual loans.............     $ 3,220          $3,637          $4,091          $4,112      $2,955
                                                        -----           -----           -----           -----       -----

Other nonaccrual loans...........................          --              --              --          $  354          --
Troubled debt restructuring......................     $   477(1)       $  684(1)       $  560(1)          634(1)   $1,143
Real estate owned, net...........................         168             446             622             669       1,812
Other non-performing assets......................         644             644           1,228           1,228       1,428
                                                        -----           -----           -----           -----       -----
Total non-performing assets......................     $ 4,509          $5,411          $6,501          $6,997      $7,338
                                                       ======           =====           =====           =====       =====

Total non-accrual loans to net loans.............        1.08%           1.20%           1.33%           1.43%       1.04%
                                                       ======            ====            ====            ====        ====
Total non-accrual loans to total assets..........         .47%            .58%            .76%           0.82%       0.61%
                                                       ======            ====            ====            ====        ====
Total non-performing assets to total assets......         .65%            .86%           1.20%           1.39%       1.52%
                                                       ======            ====            ====            ====        ====

</TABLE>
------------------------
(1)  Loans  restructured  prior  to SFAS  Nos.  114 and 118  effective  date and
performing in accordance with the terms of the restructuring agreement.

         Classified Assets. OTS regulations provide for a classification  system
for problem  assets of insured  institutions  which  covers all problem  assets.
Under this  classification  system,  problem assets of insured  institutions are
classified  as  "substandard,"  "doubtful,"  or "loss."  An asset is  considered
substandard if it is inadequately  protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard assets
include  those  characterized  by the  "distinct  possibility"  that the insured
institution will sustain "some loss" if the deficiencies are not corrected.

                                        5

<PAGE>



Assets  classified  as  doubtful  have all of the  weaknesses  inherent in those
classified  substandard,  with the  added  characteristic  that  the  weaknesses
present  make  "collection  or  liquidation  in full," on the basis of currently
existing facts,  conditions,  and values,  "highly questionable and improbable."
Assets  classified  as loss are  those  considered  "uncollectible"  and of such
little value that their  continuance  as assets without the  establishment  of a
specific  loss  reserve  is not  warranted.  Assets may be  designated  "special
mention"  because  of  potential   weaknesses  that  do  not  currently  warrant
classification in one of the aforementioned categories.

         When  an  insured  institution  classifies  problem  assets  as  either
substandard or doubtful,  it may establish general allowances for loan losses in
an amount  deemed  prudent by  management.  General  allowances  represent  loss
allowances which have been established to recognize the inherent risk associated
with lending activities,  but which, unlike specific  allowances,  have not been
allocated to particular problem assets. When an insured  institution  classifies
problem assets as loss, it is required either to establish a specific  allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. An institution's  determination as to the classification of its
assets and the amount of its  valuation  allowances  is subject to review by the
OTS, which may order the  establishment  of additional  general or specific loss
allowances.  A portion of general loss allowances  established to cover possible
losses  related to assets  classified as substandard or doubtful may be included
in determining an institution's  regulatory  capital,  while specific  valuation
allowances for loan losses generally do not qualify as regulatory capital.

         In  accordance  with its  classification  of  assets  policy,  the Bank
regularly  reviews the problem assets in its portfolio to determine  whether any
assets require classification in accordance with applicable regulations.  On the
basis of management's  review of its assets,  at December 31, 1998, the Bank had
$314 thousand,  $6.8 million,  and $9 thousand,  classified as special  mention,
substandard, and loss assets.

         Allowances for Loan Losses.  It is  management's  policy to provide for
losses on unidentified loans in its loan portfolio.  A provision for loan losses
is charged to  operations  based on  management's  evaluation  of the  potential
losses that may be incurred in the Bank's loan portfolio. Such evaluation, which
includes  a review of all loans of which full  collectibility  of  interest  and
principal  may not be  reasonably  assured,  considers the Bank's past loan loss
experience,  known and inherent risks in the portfolio,  adverse situations that
may affect the borrower's  ability to repay,  estimated  value of any underlying
collateral, and current economic conditions.


                                        6

<PAGE>



         The  following  table sets forth the  allocation  of the  allowance  by
category,  which  management  believes can be allocated  only on an  approximate
basis.  The  allocation  of the  allowance to each  category is not  necessarily
indicative  of future loss and does not  restrict  the use of the  allowance  to
absorb losses in any category.

         The following table sets forth an analysis of the Bank's  allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
                                                         For the Year Ended December 31,
                                           ---------------------------------------------------------
                                               1998      1997        1996        1995        1994
                                           ---------  ---------    --------    --------    ---------
                                                              (Dollars in Thousands)
<S>                                        <C>         <C>         <C>         <C>         <C>    
Balance at beginning of period ..........   $ 3,138     $ 2,782     $ 2,767     $ 2,622     $ 2,589
Loans charged-off:
  One-to-four family ....................       (37)         (8)       (114)        (13)        (44)
  Commercial real estate ................        --          --          --          --          --
  Construction ..........................        --          --          --          --          --
  Consumer ..............................        (1)        (40)         (1)         (6)        (37)
  Commercial business ...................        --          (1)         --          --         (38)
                                            -------     -------     -------     -------     -------
    Total charge-offs ...................       (38)        (49)       (115)        (19)       (119)
Recoveries ..............................         2           5          10          44          86
                                            -------     -------     -------     -------     -------
Net loans charged-off ...................       (36)        (44)       (105)         25         (33)
                                            -------     -------     -------     -------     -------
Provision for possible loan losses ......       240         400         120         120          66
                                            -------     -------     -------     -------     -------
Balance at end of period ................   $ 3,342     $ 3,138     $ 2,782     $ 2,767     $ 2,622
                                            =======     =======     =======     =======     =======
Ratio of net charge-offs to average loans
  outstanding during the period .........     0.012%      0.014%      0.035%     (0.009%)     0.012%

</TABLE>


                                        7

<PAGE>


Analysis of the Allowance for Loan Losses

         The following  table sets forth the breakdown of the allowance for loan
losses by loan category and the percent of loans in each category to total loans
receivable  for the periods  indicated.  The allocation of the allowance to each
category is not  necessarily  indicative  of future losses and does not restrict
the use of the allowances to absorb losses in any category.
<TABLE>
<CAPTION>
                                                                           At December 31,
                                   ------------------------------------------------------------------------------------------------
                                          1998               1997              1996                1995                1994
                                   ------------------- ------------------ ------------------- ------------------ ------------------
                                           Percent of         Percent of          Percent of         Percent of          Percent of
                                            Loans to           Loans to            Loans to           Loans to            Loans to
                                    Amount Total Loans Amount Total Loans Amount  Total Loans Amount Total Loans Amount Total Loans
                                    ------ ----------- ------ ----------- ------  ----------- ------ ----------- ------ -----------

  Loans:                                                             (Dollars in Thousands)

<S>                                <C>      <C>      <C>      <C>        <C>       <C>       <C>      <C>       <C>      <C>   
  One-to-four family............... $1,929    81.11%  $2,016    82.43%    $1,716     82.89%   $1,718    85.30%   $1,656    85.65%
  Commercial real estate...........  1,232    15.14      954    14.00        877     12.61       819    11.88       757    11.23
  Commercial construction..........     26      .86       24      .78         44      1.42        --       --        --       --
  Construction.....................     14      .46       32     1.06         37      1.20        21      .73        29     1.02
  Consumer and other...............     65     1.07       62     1.17         76      1.29        68     1.48        70     1.50
  Commercial business..............     76     1.36       50      .56         32       .59       141      .61       110      .60
                                    ------   ------   ------    -----     ------     -----    ------  -------     -----  -------
   Total allowance for loan losses  $3,342   100.00%  $3,138   100.00%    $2,782    100.00%   $2,767   100.00%   $2,622   100.00%
                                     =====   ======    =====   ======      =====    ======     =====   ======     =====   ======

</TABLE>



                                        8

<PAGE>



Investment Activities and Mortgage-Backed Securities

         General.  The Bank is required under federal  regulations to maintain a
minimum  amount of liquid  assets which may be invested in specified  short term
securities  and certain other  investments.  The Bank has maintained a liquidity
portfolio  in  excess  of  regulatory  requirements.  Liquidity  levels  may  be
increased or decreased depending upon the yields on investment  alternatives and
upon management's judgment as to the attractiveness of the yields then available
in relation to other  opportunities  and its expectation of future yield levels,
as well as management's  projections as to the short term demand for funds to be
used in the Bank's loan  origination and other  activities.  The Bank classifies
its  investments  as securities  available-for-sale  or  investments  securities
held-to-maturity  in  accordance  with SFAS No. 115. At December 31,  1998,  the
Bank's  investment  portfolio policy allowed  investments in instruments such as
U.S.  Treasury  obligations,  U.S. federal agency or federally  sponsored agency
obligations,   municipal  obligations,   mortgage-backed  securities,   banker's
acceptances,  certificates of deposit,  federal funds,  including FHLB overnight
and term deposits, as well as investment grade corporate bonds, commercial paper
and the  mortgage  derivative  products  described  below.  The Bank's  Board of
Directors may authorize additional investments.

         The Bank's  securities  available-for-sale  and  investment  securities
held-to-maturity  portfolios at December 31, 1998 did not contain  securities of
any issuer with an aggregate  book value in excess of 10% of the Bank's  equity,
excluding those issued by the United States Government or its agencies.

         Mortgage-Backed  Securities. To supplement lending activities, the Bank
has invested in residential mortgage-backed securities ("MBS").  Mortgage-backed
securities can serve as collateral for borrowings and, through repayments,  as a
source  of  liquidity.  Mortgage-backed  securities  represent  a  participation
interest in a pool of  single-family  or other type of mortgages,  the principal
and interest payments on which are passed from the mortgage originators, through
intermediaries (generally  quasi-governmental  agencies) that pool and repackage
the participation interests in the form of securities,  to investors such as the
Bank. Such quasi-governmental agencies, which guarantee the payment of principal
and interest to investors, primarily include FHLMC, Government National Mortgage
Association ("GNMA"), and FNMA.

         Mortgage-backed  securities  typically are issued with stated principal
amounts and the securities are backed by pools of mortgages that have loans with
interest  rates  that  are  within  a range  and have  varying  maturities.  The
underlying   pool  of  mortgages  can  be  composed  of  either   fixed-rate  or
adjustable-rate  mortgage  loans.   Mortgage-backed   securities  are  generally
referred to as mortgage participation certificates or pass-through certificates.
As a result,  the interest rate risk  characteristics  of the underlying pool of
mortgages (i.e., fixed-rate or adjustable-rate), as well as prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed  pass-through
security is equal to the life of the underlying mortgages.


                                        9

<PAGE>



         The following  table sets forth the carrying  value and market value of
the Bank's mortgage backed securities and investment securities held to maturity
and securities available for sale, FHLB stock, and interest bearing deposits and
overnight investments at the dates indicated.
<TABLE>
<CAPTION>
                                                                         At December 31,
                                                -------------------------------------------------------------------
                                                       1998                   1997                    1996
                                                -------------------- ----------------------    --------------------
                                                           Estimated              Estimated               Estimated
                                                 Carrying    Market    Carrying     Market     Carrying     Market
                                                   Value     Value      Value       Value        Value      Value
                                                   -----     -----      -----       -----        -----      -----
Investment securities held to maturity:                                    (In Thousands)
<S>                                            <C>       <C>        <C>         <C>          <C>        <C>     
  U.S. government and agency securities.......  $ 78,292  $ 78,242   $ 79,347    $ 79,498     $ 46,792   $ 46,156
  Reverse repurchase agreements...............        --        --     30,185      30,185       20,000     20,000
  Municipal bonds.............................     3,824     3,827      2,802       2,816          795        800
  U.S. treasuries.............................        --        --         15          14           15         14
  CMO's.......................................    47,302    47,297         --          --           --         --
  MBS.........................................    90,593    92,262     92,021      94,307      104,313    105,558
Investment securities available for sale:
  U.S. agencies...............................    18,501    18,501      7,871       7,871        4,997      4,997
  U.S. treasuries.............................        --        --         --          --        1,999      1,999
  CMO's.......................................    91,332    91,332     72,468      72,468       18,451     18,451
                                                 -------   -------    -------     -------       ------     ------
      Total investment securities.............   329,844   331,461    284,709     287,159      197,362    197,975
  Federal Home Loan Bank of New York stock ...     4,861     4,861      3,631       3,631        3,621      3,621
  Interest bearing deposits and overnight
    investments...............................        --        --        827         827          347        347
                                                --------  --------   --------    --------        -----      -----
     Total investments........................  $334,705  $336,322   $289,167    $291,617     $201,330   $201,943
                                                 =======   =======    =======     =======      =======    =======

</TABLE>
                                       10

<PAGE>



         The  following  table sets  forth the  scheduled  maturities,  carrying
values, market values and average yields for the Bank's investment securities at
December 31, 1998.
<TABLE>
<CAPTION>

                                                                                            More than
                                 One Year or Less   One to Five Years Five to Ten Years     Ten Years    Total Investment Securities
                                ------------------  ----------------- ----------------- ---------------- ---------------------------
                                Carrying   Average  Carrying Average  Carrying  Average Carrying Average  Carrying  Market  Average
                                  Value     Yield    Value    Yield    Value     Yield   Value    Yield     Value    Value    Yield
                                 -------   -------  -------  -------  -------   -------  -----    -----    -------  -------   -----
                                                                     (Dollars in Thousands)
<S>                               <C>     <C>    <C>          <C>    <C>        <C>    <C>       <C>    <C>        <C>       <C> 
Investment securities held to  
maturity: 
 U.S. government and
 agency obligations...........     $   --    --%   $ 5,000     6.05%  $53,387    6.33%  $ 19,905   6.96%  $ 78,292  $78,242    6.47%
 Municipal bond...............      3,594  3.91         --      --         --      --        230   5.60      3,824    3,827    4.01
 CMO's                                 --    --         --      --      5,456    6.50     41,846   6.69     47,302   47,297    6.66
 MBS..........................      1,008  6.84      5,166     7.17     7,253    7.54     77,166   7.19     90,593   92,262    7.21
Investment securities available 
for sale:
 U.S. Government and
  Agency......................         --    --         --       --    17,503    6.46        998   7.00     18,501   18,501    6.49
 CMO's........................         --    --        354     7.00     9,537    5.85     81,442   6.84     91,332   91,333    6.73
                                    -----          -------             ------            -------           -------   ------
   Total......................     $4,602  4.56%   $10,520     6.63%  $93,136    6.39%  $221,587   6.94%  $329,844 $331,461    6.74%
                                    =====  ====     ======    =====    ======   =====    =======  =====    =======  =======  ======
</TABLE>


                                       11

<PAGE>


Sources of Funds

         General. Deposits are the major external source of the Bank's funds for
lending and other investment purposes.  The Bank derives funds from amortization
and  prepayment  of loans and,  to a lesser  extent,  maturities  of  investment
securities,  borrowings,  mortgage-backed  securities and operations.  Scheduled
loan principal repayments are a relatively stable source of funds, while deposit
inflows and  outflows  and loan  prepayments  are  significantly  influenced  by
general interest rates and market conditions.

         Deposits.  Deposits are attracted from within the Bank's primary market
area of Burlington County, New Jersey, through the offering of a broad selection
of  deposit  instruments  including  regular  checking  accounts,   non-interest
checking   accounts,   money  market  accounts,   regular   passbook   accounts,
certificates  of deposit and IRA accounts.  Deposit account terms vary according
to the  minimum  balance  required,  the time  periods  the funds must remain on
deposit and the interest rate, among other factors. The Bank regularly evaluates
the internal cost of funds,  surveys  rates  offered by competing  institutions,
reviews the Bank's cash flow requirements for lending and liquidity and executes
rate  changes  when  deemed  appropriate.  The Bank  does not have any  brokered
deposits and has no present intention to accept or solicit such deposits.

         Certificates  of Deposit in Excess of  $100,000.  The  following  table
indicates the amount of the Bank's  certificates  of deposit of $100,000 or more
by time remaining until maturity as of December 31, 1998.

Maturity Period of Deposits         Certificates of
---------------------------         ---------------
                                        Deposit
                                        -------
                                     (In Thousands)
Three months or less.............       $ 11,541
Three through six months.........          4,966
Six through twelve months........          4,650
Over twelve months...............          5,647
                                          ------
     Total.......................       $ 26,804
                                          ======


                                       12

<PAGE>



         Deposit Rate. The following  table sets forth the  distribution  of the
Bank's  average  balance  of deposit  accounts  at the dates  indicated  and the
weighted average nominal interest rates on each category of deposits presented.
<TABLE>
<CAPTION>
                                                                              At December 31,
                                               1998                               1997                           1996
                                 ---------------------------------   -----------------------------   ----------------------------
                                                          Weighted                        Weighted                       Weighted
                                            Percent of    Average               Percent   Average                Percent  Average
                                  Average      Total      Nominal    Average   of Total   Nominal    Average    of Total  Nominal
                                  Balance    Deposits      Rate      Balance   Deposits    Rate      Balance    Deposits    Rate
                                  -------    --------     ------     -------   --------   ------     -------    --------   -----

                                                                         (Dollars In Thousands)

<S>                             <C>           <C>         <C>     <C>         <C>         <C>      <C>          <C>       <C>  
Passbook and regular savings.... $ 84,480       16.31%      2.53%   $ 73,802     15.6%      2.56%     $69,666     16.22%    2.52%

Checking accounts...............  128,259       24.76       1.89      89,418     18.8        .92       72,427     16.87      .96

Money market deposit accounts...   62,099       11.99       2.64      59,797     12.6       2.72       57,399     13.37     2.65

Certificates of deposit.........  234,471       45.26       5.35     243,381     51.3       5.32      228,974     53.32     5.30

Surrogate statement.............    8,714        1.68       5.80       7,860      1.7       5.80          947       .22     6.12
                                  -------     -------                -------  -------               ---------    ------

  Total Deposits................ $518,023      100.00%      3.49%   $474,258   100.00%      3.74%    $429,413    100.00%    3.77%
                                  =======      ======       ====     =======   ======       ====      =======    ======     ====

</TABLE>

                                       13

<PAGE>




Personnel

         As of December 31, 1998 the  Corporation,  including its  subsidiaries,
had 226 full-time employees and 141 part-time  employees.  The employees are not
represented  by  a  collective   bargaining   unit.   Management   believes  its
relationship with its employees is good.

Regulation

         Set  forth  below is a brief  description  of  certain  laws  which are
related to the regulation of the Corporation and the Bank. The description  does
not purport to be complete  and is  qualified  in its  entirety by  reference to
applicable laws and regulations.

Regulation of the Corporation

         General.  The Corporation is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Corporation is required
to  register  and file  reports  with the OTS and is subject to  regulation  and
examination by the OTS. In addition,  the OTS has enforcement authority over the
Corporation and its non-savings association  subsidiaries which also permits the
OTS to restrict or prohibit  activities that are determined to be a serious risk
to the subsidiary savings association. This regulation and oversight is intended
primarily  for  the  protection  of the  depositors  of the  Bank  and  not  for
stockholders of the Corporation.

         Qualified  Thrift  Lender Test.  As a unitary  savings and loan holding
company,  the  Corporation  generally  is not subject to activity  restrictions,
provided  the Bank  satisfies  the  Qualified  Thrift  Lender  ("QTL") test or a
somewhat  similar  test for  domestic  building  and loan  associations.  If the
Corporation  acquires  control  of  another  savings  association  as a separate
subsidiary, it would become a multiple savings and loan holding company, and the
activities of the Corporation and any of its  subsidiaries  (other than the Bank
or  any  other  SAIF-insured   savings  association)  would  become  subject  to
restrictions applicable to bank holding companies unless such other associations
each also qualify as a QTL and were acquired in a supervisory  acquisition.  See
"-- Regulation of the Bank -- Qualified Thrift Lender Test."

Regulation of the Bank

         General. As a federally-chartered,  SAIF-insured savings bank, the Bank
is subject to extensive  regulation by the OTS and the FDIC.  Lending activities
and other  investments must comply with various federal statutory and regulatory
requirements.   The  Bank  is  also  subject  to  certain  reserve  requirements
promulgated by the Federal Reserve Board.

         The OTS, in conjunction with the FDIC,  regularly examines the Bank and
prepares  reports for the  consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's  operations.  The Bank's  relationship
with its depositors and borrowers is also regulated to a great extent by federal
law,  especially  in such matters as the  ownership of savings  accounts and the
form and content of the Bank's mortgage documents.

         The Bank must file  reports  with the OTS and the FDIC  concerning  its
activities  and  financial  condition,   in  addition  to  obtaining  regulatory
approvals  prior to entering into certain  transactions  such as mergers with or
acquisitions  of other savings  institutions.  This  regulation and  supervision
establishes

                                       14

<PAGE>



a  comprehensive  framework of activities in which an institution can engage and
is intended primarily for the protection of depositors. The regulatory structure
also gives the regulatory  authorities  extensive  discretion in connection with
their supervisory and enforcement activities and examination policies, including
policies with respect to the  classification  of assets and the establishment of
adequate  loan  loss  reserves  for  regulatory  purposes.  Any  change  in such
regulations,  whether by the OTS, the FDIC or the Congress could have a material
adverse impact on the Corporation, the Bank and their operations.

         Insurance of Deposit Accounts.  The Bank's deposit accounts are insured
by the SAIF to a maximum of $100,000 for each insured  member (as defined by law
and  regulation).  Insurance  of deposits may be  terminated  by the FDIC upon a
finding that the institution has engaged in unsafe or unsound  practices,  is in
an unsafe or unsound  condition  to  continue  operations  or has  violated  any
applicable law, regulation,  rule, order or condition imposed by the FDIC or the
institution's primary regulator.

         Prior to  January 1,  1997,  as a member of the SAIF,  the Bank paid an
insurance premium to the FDIC equal to a minimum of 0.23% of its total deposits.
The FDIC also maintains another insurance fund, the Bank Insurance Fund ("BIF"),
which primarily insures commercial bank deposits.  In 1996, the annual insurance
premium for most BIF members was lowered to $2,000. The lower insurance premiums
for BIF  members  placed  SAIF  members  at a  competitive  disadvantage  to BIF
members.

         Effective  September  30,  1996,  federal  law was revised to mandate a
one-time  special  assessment on SAIF members such as the Bank of  approximately
 .657% of deposits held on March 31, 1995. Beginning January 1, 1997, the deposit
insurance  assessment  for SAIF  members  was reduced to .064% of deposits on an
annual basis through the end of 1999. During this same period,  BIF members will
be assessed approximately .013% of deposits. After 1999, assessments for BIF and
SAIF  members  should  be  the  same.  It  is  expected  that  these  continuing
assessments  for both  SAIF and BIF  members  will be used to repay  outstanding
Financing Corporation bond obligations.  As a result of these changes, beginning
January 1, 1997, the rate of deposit insurance assessed the Corporation declined
by approximately 70%.

         Regulatory  Capital  Requirements.   OTS  capital  regulations  require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted  assets,  (2) a leverage ratio (core capital) equal to
at least 3% of total adjusted assets, and (3) a risk-based  capital  requirement
equal  to 8.0% of  total  risk-weighted  assets.  In  addition,  the OTS  prompt
corrective  action  regulation  provides that a savings  institution  that has a
leverage  capital  ratio  of less  than 4% (3% for  institutions  receiving  the
highest examination rating) will be deemed to be  "undercapitalized"  and may be
subject to certain restrictions.

         Dividend  and  Other  Capital  Distribution  Limitations.  Current  OTS
regulations  require  the Bank to give  the OTS 30 days  advance  notice  of any
proposed  declaration  of  dividends  to the  Corporation  and  the  OTS has the
authority under its  supervisory  powers to prohibit the payment of dividends to
the Corporation.

         Current   OTS   regulations   impose   limitations   upon  all  capital
distributions  by savings  institutions,  such as cash  dividends,  payments  to
repurchase or otherwise acquire its shares,  payments to shareholders of another
institution  in a  cash-out  merger  and  other  distributions  charged  against
capital. The rule establishes three tiers of institutions, based primarily on an
institution's capital level. An institution that exceeds all requirements before
and after a proposed capital distribution ("Tier 1 institution") and has not

                                       15

<PAGE>



been  advised by the OTS that it is in need of more than the normal  supervision
can,  after prior  notice,  but without the  approval of the OTS,  make  capital
distributions during a calendar year equal to the greater of (i) 100% of its net
income to date during the  calendar  year plus the amount  that would  reduce by
one-half its "surplus capital ratio" (the excess over its capital  requirements)
at the  beginning of the calendar  year,  or (ii) 75% of its net income over the
most recent four quarter period.  Any additional capital  distributions  require
prior  regulatory  approval.  As of  December  31,  1998,  the Bank was a Tier 1
institution.  In the event the Bank's capital fell below its  requirement or the
OTS notified it that it was in need of more than normal supervision,  the Bank's
ability to make capital distributions could be restricted.  In addition, the OTS
could prohibit a proposed capital  distribution by any institution,  which would
otherwise  be  permitted  by the  regulation,  if the OTS  determines  that such
distribution would constitute an unsafe or unsound practice.

         Qualified  Thrift Lender Test.  HOLA requires  savings  institutions to
meet  a  qualified  thrift  lender  ("QTL")  test.  If  the  Bank  maintains  an
appropriate  level  of  Qualified  Thrift  Investments   (primarily  residential
mortgages and related investments, including certain mortgage-backed securities)
("QTIs")  and  otherwise  qualifies  as a QTL,  it will  continue  to enjoy full
borrowing  privileges from the FHLB of New York. The required percentage of QTIs
is 65% of  portfolio  assets  (defined as all assets  minus  intangible  assets,
property used by the  institution  in conducting  its business and liquid assets
equal to 10% of total  assets).  Certain  assets  are  subject  to a  percentage
limitation of 20% of portfolio  assets.  In addition,  savings  associations may
include shares of stock of the FHLBs,  FNMA and FHLMC as qualifying  QTIs. As of
December 31, 1998,  the Bank was in  compliance  with its QTL  requirement  with
92.31% of its assets invested in QTIs.

         Loans-to-One Borrower. Under the HOLA, as amended, savings institutions
are subject to the national bank limits on loans-to-one  borrower.  Generally, a
savings  association may not make a loan or extend credit to a single or related
group of borrowers in excess of 15% of the association's  unimpaired capital and
surplus.  An additional  amount may be lent, equal to 10% of unimpaired  capital
and surplus, if such loan is secured by readily-marketable  collateral, which is
defined to include  certain  securities  and  bullion,  but  generally  does not
include  real estate.  The Bank does not have any  loans-to-one  borrower  which
exceed these limits.

         Federal Home Loan Bank System.  The Bank is a member of the FHLB of New
York,  which is one of 12 regional  FHLBs that  administers  the home  financing
credit  function  of  savings  associations.  Each FHLB  serves as a reserve  or
central bank for its members within its assigned region.  It is funded primarily
from  proceeds  derived from the sale of  consolidated  obligations  of the FHLB
System.  It makes loans to members (i.e.,  advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB.

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York in an  amount  equal to at  least  1% of its  aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the beginning of each year.

         Federal  Reserve  System.   The  Federal  Reserve  Board  requires  all
depository  institutions to maintain  non-interest bearing reserves at specified
levels against their transaction accounts (primarily  non-interest  checking and
interest-bearing checking accounts) and non-personal time deposits. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy the liquidity requirements that are imposed by the OTS.

                                       16

<PAGE>




Item 2.  Properties

         The Bank conducts its business through its two  administrative  offices
located in  Burlington,  New Jersey and its 23 branch  locations  in  Burlington
County,  New Jersey. All of the Bank's office and branch facilities are owned by
the Bank,  except for two branch office locations in Lumberton and Medford,  New
Jersey.  Management of the Bank considers the physical  condition of each of the
Bank's administrative and branch offices to be good and adequate for the conduct
of the Bank's business.

Item 3.  Legal Proceedings

         The Bank is  periodically  involved  as a  plaintiff  or  defendant  in
various  legal  actions,   such  as  actions  to  enforce  liens,   condemnation
proceedings  on properties in which the Bank holds mortgage  interests,  matters
involving the making and servicing of mortgage loans and other matters  incident
to the Bank's  business.  In the opinion of  management,  none of these  actions
individually  or in the  aggregate  is believed to be material to the  financial
condition or results of operations of the Bank.

Item 4.  Submission of Matters to a Vote of Security Holders

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year ended December 31, 1998.

                                     Part II

Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
Matters

     The  information  contained  under  the  section  captioned  "Stock  Market
Information"  in the  Corporation's  1998  Annual  Report to  Stockholders  (the
"Annual Report") is incorporated herein by reference.

Item 6.  Selected Financial Data

     The information contained in the table captioned "Financial  Highlights" in
the Annual Report is incorporated herein by reference.

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

     The information contained in the section captioned "Management's Discussion
and Analysis of Financial  Condition  and Results of  Operations"  in the Annual
Report is incorporated herein by reference.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

     The  information  contained in the section  captioned  "Asset and Liability
Management" in the Annual Report is incorporated herein by reference.

Item 8.  Financial Statements and Supplementary Data

     The  Corporation's  financial  statements  listed  in  Item 14  herein  are
incorporated herein by reference.


                                       17

<PAGE>

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

     None.
                                    Part III


Item 10.  Directors and Executive Officers of the Registrant

     The  information  contained  under the sections  captioned  "Section  16(a)
Beneficial Ownership Reporting  Compliance" and "I - Information with Respect to
Nomineed for Director,  Directors Continuing in Office, and Executive Officers -
Election  of  Directors"  and "-  Biographical  Information"  in the 1999  Proxy
Statement are incorporated herein by reference.

Executive Officers of the Company Who Are Not Directors

Name and Title                          Age as of December 31, 1998
--------------                          ---------------------------

Channing L. Smith                                    55
Vice President and
Chief Financial Officer

James E. Igo                                         42
Senior Vice President and
Chief Lending Officer

Thomas M. Topley                                     38
Senior Vice President and
Corporate Secretary



     Channing L. Smith has served as Vice President and Chief Financial  Officer
of the  Corporation  and the Bank since October 1994.  In this  capacity,  he is
responsible for the management of the accounting,  treasury,  and investments of
the Bank.  From April  1994 to  October  1994,  he served as  controller  of the
Corporation and the Bank. From January 1990 to April 1993 he served as corporate
Controller for Circuit Foil USA.

     James E. Igo has  served as  Senior  Vice  President  and  Senior  Mortgage
Lending  Officer of the  Corporation  and the Bank since  November 1991. In that
capacity, he is responsible for overall loan production, credit quality, product
development, loan servicing and the creation of lending policies and procedures.
From  September  1990  to  November  1991,  he  served  as the  Vice  President,
Commercial  Lending of the Corporation and the Bank.  Prior to 1990, Mr. Igo was
Senior Vice President and Senior Lending Officer for a commercial bank.

     Thomas M. Topley has served as Senior Vice  President of  Operations  since
April 1993 and as  Corporate  Secretary  of the  Corporation  and the Bank since
April 1992. In that capacity,  he is responsible for corporate  records,  retail
branch   administration,   human  resources,   data  processing  and  accounting
operations.  From June 1990 to April 1993,  Mr. Topley served as Vice  President
and Controller for the Bank.


                                       18

<PAGE>



Item 11.  Executive Compensation

     The  information  contained  under the  section  captioned  "Proposal  I --
Election of  Directors  -  Executive  Compensation"  in the Proxy  Statement  is
incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

         (a)      Security Ownership of Certain Beneficial Owners

                  Information  required by this item is  incorporated  herein by
                  reference  to the Section  captioned  "Voting  Securities  and
                  Principal Holders Thereof" of the Proxy Statement.

         (b)      Security Ownership of Management

                  Information  required by this item is  incorporated  herein by
                  reference to the section captioned  "Proposal I -- Election of
                  Directors" of the Proxy Statement.

         (c)      Management  of  the  Corporation  knows  of  no  arrangements,
                  including  any  pledge  by any  person  of  securities  of the
                  Corporation,  the operation of which may at a subsequent  date
                  result in a change in control of the registrant.

Item 13.  Certain Relationships and Related Transactions

         The  information  required  by this  item  is  incorporated  herein  by
reference to the section  captioned  "Proposal I -- Election of  Directors"  and
"Voting Securities and Principal Holders Thereof" of the Proxy Statement.

                                     Part IV

Item 14.  Exhibits, Financial Statements, and Reports on Form 8-K

     (a)  Listed below are all financial  statements  and exhibits filed as part
          of this report, and are incorporated by reference.

          1.   The  consolidated  statements  of  financial  conditions  of  FMS
               Financial  Corporation and subsidiary as of December 31, 1998 and
               1997, and the related consolidated  statements of income, changes
               in  stockholders'  equity and cash flows for each of the years in
               the three year period ended December 31, 1998,  together with the
               related   notes   and  the   independent   auditors'   report  of
               PricewaterhouseCoopers, LLP, independent accountants.

          2.   Schedules omitted as they are not applicable.



                                       19

<PAGE>



          3.   Exhibits

                    The  following Exhibits are filed as part of this report:

                    3.1  Certificate of Incorporation (Incorporated by reference
                         to the Registrant's Form S-1 Registration Statement No.
                         33-24340).
                    3.2  Bylaws  (Incorporated  by reference to the Registrant's
                         Form S-1 Registration Statement No. 33-24340).
                    4    Agreement  to furnish copy to  Securities  and Exchange
                         Commission  upon  request of  Indenture  dated July 28,
                         1994, relating to 10% Subordinated  Debentures due 2004
                         in   aggregate   principal   amount  of  $10   million.
                         (Incorporated  by  reference  to  Registrant's   Annual
                         Report on Form 10-K for the fiscal year ended  December
                         31, 1994).
                    10.1 Stock  Option  and  Incentive  Plan   (Incorporated  by
                         reference  to the  Registrant's  Form S-8  Registration
                         Statement No. 33-24340).
                    13   1998 Annual Report to Stockholders
                    21   Subsidiaries of the Registrant
                    23   Consent of Independent Auditors
                    27   Financial Data Schedule (electronic filing only)


         (b)      No Reports on Form 8-K were filed  during the last  quarter of
                  the fiscal year covered by this Report.



                                       20

<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned,  thereunto duly authorized as of March 26, 1999.

                                       FMS FINANCIAL CORPORATION


                                       By: /s/ Craig W. Yates
                                           -------------------------------------
                                           Craig W. Yates, President and
                                           Chief Executive Officer
                                           (Duly Authorized Representative)

         Pursuant to the  requirement  of the  Securities  Exchange Act of 1934,
this report has been signed below on March 26, 1999 by the following  persons on
behalf of the registrant and in the capacities indicated.


/s/ Charles B. Yates                 /s/ Craig W. Yates
-----------------------------------  -------------------------------------------
Charles B. Yates                     Craig W. Yates
Chairman of the Board                President, Chief Executive Officer
                                     and Director
                                     (Principal Executive Officer)


/s/ George J. Barber                 /s/ Channing L. Smith
-----------------------------------  -------------------------------------------
George J. Barber, Director           Channing L. Smith
                                     Vice President and Chief Financial Officer
                                    (Principal Financial and Accounting Officer)

/s/ Edward J. Staats, Jr.            /s/ Wayne H. Page
-----------------------------------  -------------------------------------------
Edward J. Staats, Jr., Director      Wayne H. Page, Director



/s/ James C. Lignana                 /s/ Dominic W. Flamini
-----------------------------------  -------------------------------------------
James C. Lignana, Director           Dominic W. Flamini, Director



/s/ Vincent R. Farias                /s/ Ruppert A. Hall, Jr.
-----------------------------------  -------------------------------------------
Vincent R. Farias, Director          Ruppert A. Hall, Jr., Director



/s/ Mary Wells
-----------------------------------  
Mary Wells, Director