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


                                CORPORATE PROFILE



Originally  founded in 1871 under the name of Farmers' and  Mechanics'  Building
and Loan  Association,  Farmers & Mechanics Bank is a wholly owned subsidiary of
FMS Financial  Corporation.  The  Corporation  is listed on the Nasdaq  National
Market  System  under the  trading  symbol of FMCO.  With  total  assets of $1.2
billion,  the Corporation  employs 380 full-time and 237 part-time employees who
service over 154 thousand deposit accounts.  The Bank, which currently  operates
42 branches in Burlington,  Camden and Mercer County,  is open seven days a week
and offers free on-line banking,  bill pay, telephone banking and coin counting.
The Bank's goal is to provide convenient,  personal,  full service banking so as
to remain your "Hometown Bank."

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

BOARD OF DIRECTORS                BANK OFFICERS

ROY D. YATES                      CRAIG W. YATES*
Chairman of the Board             President

WAYNE H. PAGE                     JAMES E. IGO*
Vice Chairman                     Sr. Vice President and Chief Lending Officer

GEORGE J. BARBER                  CHANNING L. SMITH*
                                  Vice President and Chief Financial Officer
JOSEPH W. CLARKE, Jr.
                                  THOMAS M. TOPLEY*
VINCENT R. FARIAS                 Sr. Vice President of Operations and
                                  Corporate Secretary
DOMINIC W. FLAMINI
                                  MERLE A. BROWN
EDWARD J. STAATS, Jr.             Vice President, Branch Administration and
                                  Security Officer
MARY WELLS
                                  AMY J. HANNIGAN
CRAIG W. YATES                    Vice President and Controller

                                  JOHN J. JARUSZEWSKI
                                  Vice President, Information Systems

                                  CATHERINE A. MARSHALL
                                  Vice President, Loan Servicing

                                  PETER S. SCHOENFELD
                                  Vice President, Investments

                                  KAREN D. SHINN
                                  Vice President, Operations

                                  FRANK E. SMITH
                                  Vice President, Facilities and Design

                                  MARCELLA F. HATCHER*
                                  Assistant Secretary

                                  MARK R. JORGENSEN
                                  Assistant Vice President, Commercial Lending

                                  *  Officers of Bank and Holding Corporation

                                      -1-
--------------------------------------------------------------------------------
<PAGE>


   To Our Shareholders:


          Farmers & Mechanics Bank had satisfactory  financial  results for 2005
     and continued to make progress in building a community banking franchise by
     working to provide the best local service from numerous convenient branches
     in Burlington County, New Jersey, and nearby areas.

          For the past  decade,  we have worked to attract  checking and savings
     transactional accounts. Certificates of Deposit now represent less than 20%
     of our deposit base.  CD's have a higher  interest cost to the bank and are
     subject to rate  competition.  Transaction  accounts  have  lower  interest
     costs,  and  generate  significant  transaction  and  service  income,  but
     generally have higher operating and servicing costs. Most importantly, they
     represent a more significant relationship with depositors,  generating more
     branch  visits and closer ties  through the use of direct  deposit,  ATM's,
     check cards, telephone, computer banking, and internet bill paying.

          In addition to our  traditional  branches,  we now have seven Wal-Mart
     branches  with the  opening  of the Cherry  Hill and  Audubon  stores.  The
     Wal-Mart  branches  provide  extra  convenience  for our  existing  account
     holders,  as well as an opportunity to meet shoppers who don't bank with us
     yet.

          Our  earnings  in 2005 were lower than 2004  because  operating  costs
     continued to increase,  while deposit growth slowed,  and interest  expense
     rose  substantially  more than interest income.  After several years of low
     interest  rates to stimulate  the economy,  the Fed has now been  regularly
     increasing   short  term  rates,  and  yet  long  term  rates  have  lagged
     significantly.  Higher  short  term  rates  raise our  costs  for  interest
     sensitive  deposits in  certificate,  money  market,  and  government  unit
     accounts.  Long term rates are still quite low, and our  portfolio of loans
     and investments are generally  longer term  commitments that do not reprice
     quickly. This reduced our profit in 2005 and will continue to hurt earnings
     until the markets  return to a more  traditional  spread  between  long and
     short term rates.

          Some  economists  believe  that when long term rates stay low as short
     term rates  rise,  that it may portend a slowing of the  economy.  Our loan
     policies are  conservative  and we regularly  add to our loan loss reserves
     for possible future market conditions and portfolio growth.

          We continue to believe that a community bank can compete  successfully
     against the larger financial  institutions and build  significant value for
     shareholders.  The  directors,  officers,  and  staff  thank  you for  your
     continued interest and support.
                                                         Sincerely,

                                                         /s/Craig W. Yates

                                                         Craig W. Yates
                                                         President

                                      -3-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Financial Condition: (In Thousands)
------------------------------------------------------------------------------------------------------------------------------------

December 31,            2005       2004       2003       2002       2001        2000        1999       1998       1997       1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>        <C>        <C>        <C>        <C>         <C>         <C>        <C>        <C>        <C>
Assets              $1,231,263 $1,250,006 $1,225,557 $1,126,557   $966,537    $839,076    $772,501   $691,812   $628,403   $541,710

Loans receivable, net  442,571    418,799    402,606    361,674    336,544     290,179     299,695    298,603    302,831    306,871

Deposits               947,067    941,507    893,006    800,340    729,506     648,539     603,892    536,310    489,440    453,277

Stockholders' equity    75,082     70,337     62,830     57,638     52,203      47,410      46,097     43,469     38,916     33,826
</TABLE>

<TABLE>
<CAPTION>
Operations: (In Thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,                      2005     2004     2003    2002     2001    2000     1999     1998     1997     1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>      <C>      <C>     <C>      <C>     <C>      <C>      <C>      <C>      <C>
Interest income                            $57,847  $55,762  $50,814 $57,748  $55,300 $52,349  $47,863  $46,563  $40,813  $36,841
Interest expense                            21,537   18,414   19,362  24,756   28,752  27,398   24,742   24,869   20,879   18,978
Net interest income                         36,310   37,348   31,452  32,992   26,548  24,951   23,120   21,694   19,934   17,863
Net income                                   6,718    8,768    6,201   7,961    5,459   5,112    5,114    5,271    5,491    3,026(a)

Basic earnings per common share               1.03     1.35     0.96    1.22     0.81    0.74     0.71     0.73     0.77     0.41
Diluted earnings per common share             1.03     1.34     0.95    1.21     0.81    0.74     0.70     0.72     0.75     0.40
Dividends declared per common share           0.12     0.12     0.12    0.12     0.12    0.12     0.12     0.11     0.08(b)  0.07(b)

Weighted average common shares outstanding   6,504    6,495    6,477   6,548    6,701   6,888    7,210    7,204    7,165    7,411

Weighted average common shares and common
stock equivalents outstanding                6,521    6,529    6,515   6,577    6,714   6,947    7,292    7,314    7,346    7,573
</TABLE>

<TABLE>
<CAPTION>
Other Selected Data:
----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,                       2005      2004     2003     2002     2001     2000    1999    1998     1997    1996
----------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>       <C>      <C>      <C>      <C>      <C>     <C>     <C>      <C>     <C>
Net interest rate spread                      3.22%     3.28%    2.98%    3.44%    3.24%    3.40%   3.28%   3.50%    3.60%   3.50%
Net interest margin                           3.21      3.25     2.92     3.40     3.22     3.42    3.36    3.48     3.72    3.66
Return on average assets                      0.55      0.71     0.49     0.77     0.56     0.66    0.61    0.79     0.98    0.60
Return on average equity                      9.22     13.21     9.52    14.61    10.02    11.16   10.93   12.86    15.11    8.99
Dividend payout ratio                        11.65      8.95    12.63     9.92    14.81    16.22   17.14   15.28    10.67   17.50
Equity-to-asset ratio                         6.10      5.63     5.13     5.12     5.40     5.65    5.97    6.28     6.19    6.24
Number of employees (full-time equivalents)    525       515      522      480      439      427     382     335      299     236
</TABLE>

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

                                   -4- and -5-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

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,  credit risk,  risks  associated  with the effect of
opening a new branch,  the ability to control  costs and  expenses,  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 because the
Corporation engages 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 and Liquidity 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  including  interest rate swaps or
other activities  involving the use of off-balance  sheet  derivative  financial
instruments.  The Bank's  investment policy allows investment only in securities
which have a rating of AA or better.  U.S.  Government  agency  investments  are
callable notes issued by Fannie Mae (FNMA),  Freddie Mac (FHLMC) and the Federal
Home  Loan  Bank   (FHLB),   which   carry   either  a  direct   government   or
quasi-government  guarantee.  The  Bank  holds a  substantial  component  of its
investment portfolio in mortgage-backed  securities and collateralized  mortgage
obligations  (collectively,  "MBS  and  CMO").  At the end of  2005,  the  total
investment  in MBSs and  CMOs  amounted  to  $375.9  million,  or 54.7% of total
investments.  These are instruments  collateralized  by pools of residential and
commercial  mortgages  which  return  interest  and  principal  payments  to the
investor when performing in accordance with their terms.  Approximately 55.6% 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 credit quality.  The Bank also owns  non-agency  CMOs,
issued by major  financial  institutions,  which  are rated AAA or AA.  CMOs are
generally  very  liquid  issues  with major  brokerage  houses  providing  ready
markets.  However,  CMOs are subject to prepayment and extension risk, which can
adversely  affect their yields and expected average life. MBSs and CMOs of $54.1
million  and $45.4  million  were  used to secure  public  funds on  deposit  at
December 31, 2005 and 2004, respectively.

Interest Rate Risk
     Interest  rate risk is the risk of loss in value due to changes in interest
rates. This risk is addressed by the Funds Managment  Committee  ("FMC"),  which
includes senior  management.  The FMC 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 FMC 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 FMC. Interest rate sensitivity is a measure of
the difference between amounts of interest-earning  assets and  interest-bearing
liabilities  which either  reprice or future within a given period of time.

                                      -6-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

     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. At December 31, 2005, the Bank's GAP position
for net  assets  repricing  for one year  cumulative  totaled a  negative  $57.9
million or 4.71%.

     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.  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  Federal  Home Loan Bank  ("FHLB")
borrowings and deposit marketing  programs to adjust the repricing  intervals of
its liabilities.

     The Bank  measures  its  interest  rate  risk  using  the  Office of Thrift
Supervision's  ("OTS") 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,  2005,  the Bank would
experience a 389 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.  Due to the
abnormally  low interest rate  environment in 2004 decreases of 200 basis points
or more have been omitted.

                               December 31, 2005
                -------------------------------------------------
                              Net Portfolio Value
                -------------------------------------------------
Changes in
Interest Rates  $ Amount    $ Change    % Change    NPV Ratio (a)
(basis points)  -------------------------------------------------

    +300        $69,534     $(84,249)      (55%)         5.78%
    +200         98,609      (55,174)      (36%)         8.00%
    +100        128,179      (25,604)      (17%)        10.14%
     0          153,783            0         0          11.89%
    (100)       161,736        7,953        (5%)        12.37%
    (200)       153,229         (554)        0%         11.73%

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

                               December 31, 2004
                -------------------------------------------------
                              Net Portfolio Value
                -------------------------------------------------
Changes in
Interest Rates    $ Amount   $ Change   % Change  NPV Ratio (a)
(basis points)  -------------------------------------------------

    +300         $56,922    $ (87,216)      (61%)         4.69%
    +200          89,649      (54,488)      (38%)         7.17%
    +100         122,667      (21,471)      (15%)         9.52%
     0           144,138            0         0          10.96%
    (100)        143,993         (145)        0%         10.88%

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

(a) Calculated as the estimated NPV divided by present value of total assets.

     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.

Financial Condition
     Total assets of the  Corporation  decreased  $18.7  million or 1.5% to $1.2
billion at December 31, 2005 from $1.3 billion at December 31, 2004.  Short-term
funds  decreased  $24.8  million or 38.7% to $39.3  million at December 31, 2005
from  $64.1  million at  December  31,  2004,  primarily  due to a  decrease  in
short-term  money  market  accounts.  Investment  securities  held  to  maturity
increased  $20.5  million or 8.0% to $275.3  million at  December  31, 2005 from
$254.8 million at December 31, 2004. The increase in investment  securities held
to  maturity  during  the year is due to  purchases  of $123.0  million  of U.S.
Government agency notes (U.S. Gov't agencies),  $11.5 million of municipal bonds
and $9.4 million of CMOs, partially offset by investment calls and maturities of
$97.9 million and principal  paydowns of $25.2  million.  Investment  securities
available for sale increased  $13.6 million or 9.6% to $155.6 million during the
year ended  December 31, 2005 from $142.0 million

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

at December 31,  2004,  due to  purchases  of $44.0  million in U.S.  Government
agency notes, $18.0 million in MBSs available for sale and $5.0 million in CMOs,
partially offset by principal paydowns of $36.7 million and calls and maturities
of $14.0 million.  Mortgage-backed  securities held to maturity  decreased $61.0
million or 22.7% to $208.2  million during the year ended December 31, 2005 from
$269.2  million at December 31, 2004, as a result of principal  paydowns on MBSs
of $63.1 million, partially offset by purchases of $3.0 million in MBS pass thru
securities.  Loans receivable  increased $23.8 million or 5.7% to $442.6 million
at December 31, 2005 from $418.8  million at December 31, 2004.  The increase in
loans  receivable  during the year  ended  December  31,  2005 was due to $117.4
million of loans  originated,  partially  offset by $93.3  million of  principal
collected on loans.

     Total  liabilities  decreased  $23.5  million  or 2.0% to $1.2  billion  at
December 31, 2005 from $1.2 billion at December  31,  2004.  Deposits  increased
$5.6 million or 0.6% to $947.1  million at December 31, 2005 from $941.5 million
at December  31,  2004.  The  increase  in  deposits  during the year was due to
increases  in  checking  accounts  of $23.3  million  and time  deposits of $1.1
million, partially offset by decreases in money market accounts of $12.6 million
and savings  accounts  of $6.2  million.  Securities  sold under  agreements  to
repurchase  decreased  $20.0 million or 10.3% to $175.0  million at December 31,
2005  from  $195.0   million  at  December  31,  2004.   These   borrowings  are
collateralized by U.S. Government agency notes, MBSs and CMOs and had a weighted
average rate of 4.93% and 4.49% at December 31, 2005 and 2004, respectively.

    Stockholders'  equity  increased  $4.7  million or 6.7% to $75.1  million at
December 31, 2005 from $70.3 million at December 31, 2004.  The increase was due
to net  income  of $6.7  million  and the  exercise  of  stock  options  of $213
thousand,  partially  offset by $781  thousand of  dividends  declared on common
stock and a decrease of $1.4 million in  accumulated  comprehensive  income (net
unrealized gain and loss on available for sale securities).

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  noninterest  bearing
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  noninterest  income  and  expenses,  such as gains and losses on the sale of
investments,  provision  for loan losses,  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  interest income or expense by the average balance
of interest-earning assets or interest-bearing liabilities, respectively for the
periods presented.

<TABLE>
<CAPTION>
                                                                            Years Ended December 31,
                                      ----------------------------------------------------------------------------------------------
                                                   2005                               2004                         2003
                                      ----------------------------------------------------------------------------------------------
                                        Average            Average       Average              Average    Average           Average
                                        Balance  Interest Yield/Rate     Balance    Interest Yield/Rate  Balance Interest Yield/Rate
                                      ---------  -------- -----------  ----------  --------- ----------  ------- -------- ----------
                                                                              (Dollars in Thousands)
<S>                                <C>         <C>         <C>      <C>         <C>          <C>     <C>         <C>         <C>
Interest-earning assets:
    Loans receivable                   $436,338  $25,847     5.92%      $418,354     $24,577   5.87%     $388,201  $24,363     6.28%
    Interest-bearing deposits            46,693    1,338     2.87%        50,928         667   1.31%       33,529      462     1.38%
    Mortgage-backed securities          308,078   14,630     4.75%       396,962      17,389   4.38%      419,461   16,805     4.01%
    Investment securities               340,922   16,032     4.70%       281,314      13,129   4.67%      234,442    9,184     3.92%
                                      ----------------------------------------------------------------------------------------------
Total interest-earning assets         1,132,031   57,847     5.11%     1,147,558      55,762   4.86%    1,075,633   50,814     4.72%
                                      -----------------------------   -------------------------------  -----------------------------
Interest-bearing liabilities:
    Checking deposits                   399,956    4,125     1.03%       366,338       1,717   0.47%      313,492      915     0.29%
    Savings deposits                    196,030    1,149     0.59%       194,246       1,071   0.55%      179,673    1,249     0.70%
    Money market deposits               142,137    1,266     0.89%       139,038       1,001   0.72%      130,822    1,020     0.78%
    Time deposits                       208,825    4,878     2.34%       216,906       3,965   1.83%      225,240    5,401     2.40%
    Borrowings                          167,402    8,293     4.95%       221,883       9,291   4.19%      236,199    9,481     4.01%
    Long-term debt                       25,774    1,826     7.08%        25,774       1,369   5.31%       25,774    1,296     5.03%
                                      ----------------------------------------------------------------------------------------------
Total interest-bearing liabilities   $1,140,124   21,537     1.89%    $1,164,185      18,414   1.58%   $1,111,200   19,362     1.74%
                                     =========== -------     -----    ==========     -------   -----   ==========  -------     -----
Net interest income                              $36,310                             $37,348                       $31,452
                                                 =======                             =======                       =======
Interest rate spread                                         3.22%                             3.28%                           2.98%
                                                             =====                            ======                           =====

Net yield on average interest-earning assets                 3.21%                             3.25%                           2.92%
                                                            ======                            ======                          ======

Ratio of average interest-earning assets
  to average interest -bearing liabilities                  99.29%                            98.57%                          96.80%
                                                            ======                            ======                          ======
</TABLE>
                                      -8-
<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,
                                      --------------------------------------------------------------
                                              2005 vs. 2004                    2004 vs. 2003
                                      --------------------------------------------------------------
                                           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                                $213     $1,057     $1,270    $(1,678)    $1,892       $214
    Interest-bearing deposits             726        (55)       671        (35)       240        205
    Mortgage-backed securities          1,135     (3,894)    (2,759)     1,485       (901)       584
    Investment securities                 121      2,782      2,903      2,109      1,836      3,945
                                      -------    -------    -------    -------    -------    -------

    Total change - interest income      2,195       (110)     2,085      1,881      3,067      4,948
                                      -------    -------    -------    -------    -------    -------
Interest expense:
    Checking deposits                   2,250        158      2,408        648        154        802
    Savings deposits                       68         10         78       (279)       101       (178)
    Money market deposits                 243         22        265        (83)        64        (19)
    Time deposits                       1,061       (148)       913     (1,236)      (200)    (1,436)
    Borrowings                          1,283     (2,281)      (998)       385       (575)      (190)
    Long-term debt                        457          0        457         73          0         73
                                      -------    -------    -------    -------    -------    -------

    Total change - interest expense     5,362     (2,239)     3,123       (492)      (456)      (948)
                                      -------    -------    -------    -------    -------    -------

Net change in net interest income     $(3,167)   $ 2,129    $(1,038)   $ 2,373    $ 3,523    $ 5,896
                                      =======    =======    =======    =======    =======    =======
</TABLE>

Comparisons of Years Ended December 31, 2005 and 2004.

Net Income
     The Corporation and its subsidiary  recorded net income of $6.7 million for
the year ended  December  31, 2005,  or $1.03  diluted  earnings  per share,  as
compared to net income of $8.8 million,  or $1.34 diluted earnings per share for
the year ended December 31, 2004. Net interest  income was $36.3 million in 2005
compared to $37.3 million in 2004. Provisions for loan losses were $360 thousand
in 2005 and $330 thousand in 2004.  Noninterest income  was $5.5 million in 2005
compared to $6.1 million in 2004. Total noninterest  expenses for the year ended
December 31, 2005 were $30.1  million  compared to $28.4 million in the previous
year.  During 2005, the Corporation declared cash dividends, which totaled $0.12
per share which resulted in a dividend payout ratio of 11.65%.

Interest Income
     Total interest income  increased $2.1 million to $57.8 million in 2005 from
$55.7  million in 2004.  The  increase in 2005 is  attributable  to increases in
interest income on investment securities of $2.9 million,  loans of $1.3 million
and interest-bearing  deposits of $671 thousand,  partially offset by a decrease
in interest income on mortgage-backed securities of $2.8 million.

     Interest  income on investment  securities  increased $2.9 million in 2005.
The average  balance of the portfolio  increased $59.6 million to $340.9 million
in 2005  from  $281.3  million  in  2004.  The  investment  portfolio  increased
primarily due to purchases of $123.0  million of U. S.  Government  agency notes
and $9.4 million of CMOs.  These  increases  were  partially  offset by calls of
$94.7 million of U.S.  Government agency notes and principal paydowns of CMOs of
$25.2  million.  The increase in the average  balance of  investment  securities
resulted in an increase in interest  income of $2.8 million in 2005. The average
yield on the  portfolio  increased 3 basis points to 4.70% in 2005 from 4.67% in
2004, which resulted in an increase in interest income of $121 thousand.

      Interest  income on loans  increased $1.3 million to $25.9 million in 2005
from $24.6 million in 2004. The average balance of the loan portfolio  increased
$17.9  million to $436.3  million  in 2005 from  $418.4  million in 2004.  Loans
originated  during the year totaled  $117.4  million and principal  collected on
loans totaled $93.3 million in 2005. The increase in the loan volume during 2005
resulted in a volume  increase in interest  income of $1.1 million.  The average
yield on the loan portfolio increased 5 basis points to 5.92% in 2005 from 5.87%
in 2004, which resulted in an increase in interest income of $213 thousand.

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

     Interest  income on  interest-bearing  deposits  increased $671 thousand to
$1.3  million in 2005 from $667  thousand in 2004.  The  increase  was due to an
increase in the average  yield on the  portfolio of 156 basis points to 2.87% in
2005 from 1.31% in 2004,  which  resulted in an  increase in interest  income of
$726 thousand.  The average  balance  decreased $4.2 million to $46.7 million in
2005 from $50.9  million in 2004.  This  decrease  was  primarily  due to a $5.8
million  decline in the average balance of the money market  investment  account
during  the  year,  which  resulted  in a  decrease  in  interest  income of $55
thousand.

     Interest  income on  mortgage-backed  securities  decreased $2.8 million in
2005 due to volume  decreases  in the  portfolio.  The  average  balance  of the
portfolio  decreased $88.9 million to $308.1 million in 2005 from $397.0 million
in 2004, resulting in a decrease in interest income of $3.9 million. The average
balance  decrease  in 2005  was due to  principal  paydowns  on  mortgage-backed
securities of $63.1  million,  partially  offset by purchases of $3.0 million in
FHLMC securities.  The average yield on the portfolio  increased 37 basis points
to 4.75% in 2005 from 4.38% in 2004,  which  resulted in an increase in interest
income of $1.1 million.

Interest Expense
     Total interest expense increased $3.1 million to $21.5 million in 2005 from
$18.4 million in 2004.  The increase in interest  expense on checking  deposits,
time deposits,  long-term debt, money market deposits and savings deposits,  was
partially offset by a decrease in interest expense on borrowings.

     Interest  expense  on  checking  deposits  increased  $2.4  million to $4.1
million in 2005 from $1.7  million in 2004.  The average  rate on time  deposits
increased 56 basis points to 1.03% in 2005 from 0.47% in 2004, which resulted in
an increase in interest  expense of $2.3 million from higher rates.  The average
balance of checking  deposits  increased $33.7 million to $400.0 million in 2005
from $366.3 million in 2004,  which resulted in an increase in interest  expense
of $158 thousand.

     Interest  expense on time deposits  increased $913 thousand to $4.9 million
in 2005 from $4.0 million in 2004.  The average rate on time deposits  increased
51 basis points to 2.34% in 2005 from 1.83% in 2004, resulting in a $1.1 million
increase in interest expense due to changes in rate. The average balance of time
deposits decreased $8.1 million to $208.8 million in 2005 from $216.9 million in
2004, resulting in a $148 thousand decrease in interest expense due to volume.

     Interest  expense on long-term debt increased $457 thousand to $1.8 million
in 2005 from $1.4 million in 2004.  The average rate on long-term debt increased
177 basis  points  to 7.08% in 2005 from  5.31% in 2004,  which  resulted  in an
increase in interest expense of $457 thousand.  The average balance of long-term
debt remained constant at $25.8 million in 2005 and 2004.

     Interest  expense on money market deposits  increased $265 thousand to $1.3
million in 2005 from $1.0  million in 2004.  The  average  rate on money  market
deposits  increased 17 basis  points to 0.89% in 2005 from 0.72% in 2004,  which
resulted  in an  increase  in  interest  expense of $243  thousand.  The average
balance of money market  deposits  increased  $3.1 million to $142.1  million in
2005 from  $139.0  million in 2004,  which  resulted  in an increase in interest
expense of $22 thousand.

     Interest expense on savings deposits increased $78 thousand to $1.1 million
in 2005  from  $1.1  million  in 2004.  The  average  rate on  savings  deposits
increased 4 basis points to 0.59% in 2005 from 0.55% in 2004,  which resulted in
an increase in interest expense of $68 thousand.  The average balance of savings
deposits increased $1.8 million to $196.0 million in 2005 from $194.2 million in
2004, which resulted in an increase in interest expense of $10 thousand.

     Interest  expense on borrowings  decreased $998 thousand to $8.3 million in
2005 from $9.3  million in 2004.  The average  balance of  borrowings  decreased
$54.5 million to $167.4 in 2005 from $221.9 in 2004, resulting in a $2.3 million
volume decrease in interest expense. The average rate on borrowings increased 76
basis  points to 4.95% in 2005 from 4.19% in 2004,  resulting  in a $1.3 million
increase in interest expense due to rate changes.

Critical Accounting Estimate-Provision For Loan Losses
     A  critical  accounting  estimate  of the  Bank is the  provision  for loan
losses. The provision for loan losses increased $30 thousand to $360 thousand in
2005 from $330  thousand  in 2004.  The  increase  in the  provision  was due to
increases in the total loan portfolio and  particularly  increases in commercial
business and commercial real estate loans, which have a higher risk of loss than
residential  mortgages.  The amount of the allowance 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 net  charge-offs for 2005 and
2004 totaled $16 thousand and $18 thousand, respectively. The Bank will continue
to monitor its  allowance  for loan losses and make  future  adjustments  to the
allowance through the provision for loan losses. 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 Bank
maintains  its  allowance  for loan  losses at a level that it  considers  to be
adequate to provide for the probable existing loss in the 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.

                                      -10-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

     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.

Noninterest Income
     Noninterest income from operations  decreased $635 thousand to $5.5 million
in 2005 compared with $6.1 million in 2004. The decrease is primarily due to the
absence of a $683 thousand gain on the sale of investment securities recorded in
2004.

     Service charges on accounts increased $109 thousand to $5.3 million in 2005
from $5.2 million in 2004.  This is primarily the result of an increase in check
card income of $218  thousand to $1.6 million in 2005 from $1.4 million in 2004,
partially  offset by a $90 thousand  reduction in returned  item charges to $1.8
million in 2005 from $1.9 million in 2004.

Noninterest Expense
        Noninterest expense increased $1.7 million to $30.1 million in 2005 from
$28.4 million in 2004.

     Salaries and benefits  increased $1.1 million to $18.0 million in 2005 from
$16.9  million  in 2004.  The  increase  was  primarily  due to annual  pay rate
increases of $359 thousand and an increase of $472  thousand in  retirement  and
health  insurance costs in 2005.  Average full time equivalent  employees during
2005 were 525 as compared to 515 during 2004.

     Occupancy and equipment  expense increased $203 thousand to $5.6 million in
2005 from  $5.4  million  in 2004.  Furniture,  fixture  and  equipment  expense
increased  $104  thousand,  light,  heat and  utilities  expense  increased  $58
thousand and maintenance  expense  increased $57 thousand.  These increases were
due to the addition of the Cherry Hill Walmart  branch opened in 2005, and other
facility and equipment additions and improvements during the year.

     Telecommunications expense increased $153 thousand to $456 thousand in 2005
from $303  thousand in 2004.  This  increase was due to enhancing our network to
provide more efficient service to our customers.

     Noninterest  expenses are expected to continue increasing in future periods
as the Bank pursues its branch expansion strategy.

Comparisons of Years Ended December 31, 2004 and 2003.

Net Income
     The Corporation and its subsidiary  recorded net income of $8.8 million for
the year ended  December  31, 2004,  or $1.34  diluted  earnings  per share,  as
compared to net income of $6.2 million,  or $0.95 diluted earnings per share for
the year ended December 31, 2003. Net interest  income was $37.3 million in 2004
compared to $31.5 million in 2003. Provisions for loan losses were $330 thousand
in 2004 and $270 thousand in 2003.  Noninterest income remained constant at $6.1
million in 2004 and 2003. Total noninterest expenses for the year ended December
31, 2004 were $28.4  million  compared to $27.0  million in the  previous  year.
During 2004, the  Corporation  declared cash  dividends  which totaled $0.12 per
share which resulted in a dividend payout ratio of 8.95%.

Interest Income
     Total interest income  increased $5.0 million to $55.8 million in 2004 from
$50.8  million in 2003.  The increase is  attributable  to increases in interest
income on investment securities of $3.9 million,  mortgage-backed  securities of
$584  thousand,  loans of $214  thousand and  interest-bearing  deposits of $205
thousand.

     Interest  income on investment  securities  increased $3.9 million in 2004.
The increase in interest  income on the investment  securities was primarily due
to rate increases in the portfolio. The average yield on the portfolio increased
75 basis  points  to 4.67% in 2004  from  3.92% in 2003,  which  resulted  in an
increase  in  interest  income  of $2.1  million.  The  average  balance  of the
portfolio  increased $46.9 million to $281.3 million in 2004 from $234.4 million
in 2003. The investment portfolio increased primarily due to purchases of $189.1
million  of U.S.  Government  agency  notes and  $26.0  million  of CMOs.  These
increases  were  partially  offset by calls of $97.0 million of U.S.  Government
agency notes and principal  paydowns of CMOs of $49.1  million.  The increase in
the average balance of investment securities resulted in an increase in interest
income of $1.8 million in 2004.

     Interest income on  mortgage-backed  securities  increased $584 thousand in
2004 due to rate increases in the portfolio.  The average yield on the portfolio
increased 37 basis points to 4.38% in 2004 from 4.01% in 2003, which resulted in
an increase  in  interest  income of $1.5  million.  The average  balance of the
portfolio  decreased $22.5 million to $397.0 million in 2004 from $419.5 million
in 2003,  resulting  in a decrease  in  interest  income of $901  thousand.  The
decrease in the average balance was due to principal paydowns on mortgage-backed
securities of $101.5 million,  partially offset by purchases of $13.4 million in
MBS pass thru securities in 2004.

     Interest  income on loans  increased  $214  thousand  to $24.6  million  at
December 31, 2004 from $24.4 million at December 31, 2003.  The average  balance
of the loan  portfolio  increased  $30.2 million to $418.4  million in 2004 from
$388.2 million in 2003. Loans originated  during the

                                      -11-

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

year totaled  $126.7  million and principal  collected on loans  totaled  $110.1
million in 2004.  The  increase  in the loan volume  during 2004  resulted in an
increase  in interest  income of $1.9  million.  The  average  yield on the loan
portfolio  decreased 41 basis points to 5.87% in 2004 from 6.28% in 2003,  which
resulted in a decrease in interest income of $1.7 million.

     Interest  income on  interest-bearing  deposits  increased $205 thousand to
$667  thousand in 2004 from $462  thousand in 2003.  The  increase was due to an
increase in the average  balance of $17.4  million to $50.9 million in 2004 from
$33.5  million  in 2003.  The  increase  in the  average  balance  was due to an
increase in money market  investment  account of $33.0 million  during the year,
which resulted in an increase in interest  income of $240 thousand.  The average
yield on the  portfolio  decreased 7 basis points to 1.31% in 2004 from 1.38% in
2003, which resulted in a decrease in interest income of $35 thousand.

Interest Expense
     Total  interest  expense  decreased  $948 thousand to $18.4 million in 2004
from $19.4 million in 2003.  The decrease in interest  expense on time deposits,
borrowings,  savings and money market deposits was partially offset by increases
in interest expense on checking deposits and long-term debt.

     Interest expense on time deposits decreased $1.4 million to $4.0 million in
2004 from $5.4 million in 2003.  The average rate on time deposits  decreased 57
basis points to 1.83% in 2004 from 2.40% in 2003,  which  resulted in a decrease
in interest  expense of $1.2 million from lower  rates.  The average  balance of
time  deposits  decreased  $8.3  million to $216.9  million in 2004 from  $225.2
million in 2003,  which  resulted  in a  decrease  in  interest  expense of $200
thousand.

     Interest  expense on borrowings  decreased $190 thousand to $9.3 million in
2004 from $9.5  million in 2003.  The average  balance on  borrowings  decreased
$14.3 million to $221.9 million in 2004 from $236.2  million in 2003,  resulting
in a $575 thousand decrease in interest expense due to volume.  The average rate
on  borrowings  increased  18 basis  points to 4.19% in 2004 from 4.01% in 2003,
resulting  in a $385  thousand  increase in  interest  expense due to changes in
rate.

     Interest  expense on  savings  deposits  decreased  $178  thousand  to $1.1
million in 2004 from $1.2 million in 2003. The average rate on savings  deposits
decreased 15 basis points to 0.55% in 2004 from 0.70% in 2003, which resulted in
a decrease in interest expense of $279 thousand.  The average balance of savings
deposits  increased  $14.5 million to $194.2 million in 2004 from $179.7 million
in 2003, which resulted in an increase in interest expense of $101 thousand.

      Interest  expense on money market deposits  decreased $19 thousand to $1.0
million in 2004 from $1.0  million in 2003.  The  average  rate on money  market
deposits  decreased  6 basis  points to 0.72% in 2004 from 0.78% in 2003,  which
resulted in a decrease in interest expense of $83 thousand.  The average balance
of money market  deposits  increased $8.2 million to $139.0 million in 2004 from
$130.8 million in 2003, which resulted in an increase in interest expense of $64
thousand.

     Interest  expense on  checking  deposits  increased  $802  thousand to $1.7
million  in 2004  from $915  thousand  in 2003.  The  average  rate on  checking
deposits  increased 18 basis  points to 0.47% in 2004 from 0.29% in 2003,  which
resulted in an increase in interest  expense $648 thousand.  The average balance
on checking  deposits  increased  $52.8  million to $366.3  million in 2004 from
$313.5  million in 2003,  which  resulted in an increase in interest  expense of
$154 thousand.

     Interest  expense on long-term  debt increased $73 thousand to $1.4 million
in 2004 from $1.3 million in 2003.  The average rate on long-term debt increased
28 basis points to 5.31% in 2004 from 5.03% in 2003, resulting in a $73 thousand
increase  in  interest  expense  due to rate  changes.  The  average  balance of
long-term  debt remained  constant at $25.8 million in 2004 compared to the same
period in 2003.

Critical Accounting Estimate-Provision For Loan Losses
     A  critical  accounting  estimate  of the  Bank is the  provision  for loan
losses. The provision for loan losses increased $60 thousand to $330 thousand in
2004 from $270  thousand  in 2003.  The  increase  in the  provision  was due to
increases in the total loan portfolio and  particularly  increases in commercial
construction  and commercial  real estate loans which have a higher risk of loss
than  residential  mortgages.  The net charge-offs for 2004 and 2003 totaled $18
thousand and $180 thousand, respectively.

Noninterest Income
     Noninterest  income from operations  increased $61 thousand to $6.1 million
in 2004 compared with $6.1 million in 2003.

     Gain on sale of  investment  securities  increased  $397  thousand  to $683
thousand in 2004 from $286 thousand in 2003.  The Bank sold $17.0 million of MBS
and CMO  securities  and equity  securities  during  2004,  which  resulted in a
realized gain of $683 thousand.

     Service charges on accounts increased $557 thousand to $5.1 million in 2004
from $4.6  million in 2003.  The  increase  is the result of higher  transaction
volume on retail accounts during the year.

Noninterest Expense
     Noninterest  expense  increased  $1.4 million to $28.4 million in 2004 from
$27.0 million in 2003.

     Salaries and benefits  increased $1.4 million to $16.9 million in 2004 from
$15.5 million in 2003. The increase was due to annual pay rate increases of $338
thousand and an increase of $575  thousand in  retirement  and health  insurance
costs in 2004.  Average full time equivalent  employees  during 2004 were 515 as
compared to 522 during 2003.

                                      -12-

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

     Amortization  of core deposit  intangible  increased  $443 thousand to $716
thousand in 2004 from $273 thousand in 2003.  The increase is due to a full year
of amortization recorded in 2004.

     Purchased  services  expense  increased $8 thousand to $2.9 million in 2004
from $2.8 million in 2003.  Computer bill payment processing costs increased $70
thousand and check  processing  costs  increased $42 thousand both due to higher
transaction volume in 2004, partially offset by decreases in ATM charges of $163
thousand.

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  repayments 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. The Bank has
periodically   supplemented   its  funding  needs  with  securities  sold  under
agreements to repurchase  ("repurchase  agreements") and advances from the FHLB.
At December 31, 2005 the Bank had $175.0 million in repurchase agreements. 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 time deposit  accounts  which are  scheduled to mature during
the twelve months ending December 31, 2006 is approximately  $153.0 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.

CONTRACTUAL OBLIGATIONS

The  Corporation is subject to certain  contractual  obligations at December 31,
2005 as shown in the table below:

<TABLE>
<CAPTION>

Contractual Obligations                             Less than           1-3            3-5        More than
(In thousands)                                         1 year         years           years        5 years         Total
--------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>           <C>             <C>             <C>          <C>
Securities sold under agreements to repurchase*            $0       $40,000         $80,000         $55,000      $175,000
FMS Statutory Trust 1 debentures                            0             0               0          25,774        25,774
Operating leases                                          324           684             637           2,055         3,700
Commitments to fund loans                              22,790             0               0               0        22,790
Unused lines of credit                                      0             0               0          31,323        31,323
Standby letters of credit                               6,905             0               0               0         6,905
Software maintenance contracts                            456             0               0               0           456
</TABLE>

*Subject  to  prepayment  calls,  which  may  accelerate  the  payment  of these
obligations.

                                      -13-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

Consolidated Summary of Quarterly Earnings (Unaudited)

The following table presents summarized quarterly data for 2005 and 2004:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                        1st       2nd       3rd       4th      Total
              2005                    Quarter   Quarter   Quarter   Quarter    Year
-------------------------------------------------------------------------------------
                                          (In Thousands, except per share amounts)
<S>                                 <C>       <C>       <C>       <C>       <C>
Total interest income                 $14,003   $14,308   $14,586   $14,950   $57,847
Total interest expense                  4,967     5,134     5,420     6,016    21,537
                                      -------   -------   -------   -------   -------
Net interest income                     9,036     9,174     9,166     8,934    36,310
Provision for loan losses                  90        90        90        90       360
                                      -------   -------   -------   -------   -------
Net interest income after provision
    for loan losses                     8,946     9,084     9,076     8,844    35,950
Total noninterest income                1,322     1,435     1,385     1,340     5,482
Total noninterest expenses              7,382     7,395     7,585     7,705    30,067
                                      -------   -------   -------   -------   -------
Income before income taxes              2,886     3,124     2,876     2,479    11,365
Income taxes                            1,185     1,282     1,170     1,010     4,647
                                      -------   -------   -------   -------   -------

Net income                            $ 1,701   $ 1,842   $ 1,706   $ 1,469   $ 6,718
                                      =======   =======   =======   =======   =======

Basic earnings per common share       $  0.26   $  0.28   $  0.26   $  0.23   $  1.03
                                      =======   =======   =======   =======   =======

Diluted earnings per common share     $  0.26   $  0.28   $  0.26   $  0.23   $  1.03
                                      =======   =======   =======   =======   =======
</TABLE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                        1st       2nd       3rd       4th      Total
          2004                        Quarter   Quarter   Quarter   Quarter    Year
-------------------------------------------------------------------------------------
                                          (In Thousands, except per share amounts)
<S>                                 <C>       <C>       <C>       <C>       <C>
Total interest income                 $13,641   $13,585   $14,150   $14,386   $55,762
Total interest expense                  4,439     4,507     4,601     4,867    18,414
                                      -------   -------   -------   -------   -------
Net interest income                     9,202     9,078     9,549     9,519    37,348
Provision for loan losses                  75        75        90        90       330
                                      -------   -------   -------   -------   -------
Net interest income after provision
    for loan losses                     9,127     9,003     9,459     9,429    37,018
Total noninterest income                1,362     1,430     1,799     1,526     6,117
Total noninterest expenses              7,028     6,973     7,070     7,314    28,385
                                      -------   -------   -------   -------   -------
Income before income taxes              3,461     3,460     4,188     3,641    14,750
Income taxes                            1,383     1,387     1,680     1,532     5,982
                                      -------   -------   -------   -------   -------

Net income                            $ 2,078   $ 2,073   $ 2,508   $ 2,109   $ 8,768
                                      =======   =======   =======   =======   =======

Basic earnings per common share       $  0.32   $  0.32   $  0.39   $  0.32   $  1.35
                                      =======   =======   =======   =======   =======

Diluted earnings per common share     $  0.32   $  0.32   $  0.38   $  0.32   $  1.34
                                      =======   =======   =======   =======   =======
</TABLE>
                                      -14-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                                                       2005                  2004
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>                  <C>
ASSETS
------------------------------------------------------------------------------------------------------------------------------------
   Cash and amounts due from depository institutions                                             $54,544,693          $46,435,050
   Interest-bearing deposits                                                                          27,874               30,950
   Short-term funds                                                                               39,268,382           64,111,356
                                                                                              --------------       --------------
       Total cash and cash equivalents                                                            93,840,949          110,577,356
   Investment securities held to maturity                                                        275,340,435          254,833,749
   Investment securities available for sale                                                      155,632,095          141,999,280
   Loans, net                                                                                    442,571,357          418,798,633
   Mortgage-backed securities held to maturity                                                   208,195,874          269,221,897
   Accrued interest receivable                                                                     6,224,371            6,322,107
   Federal Home Loan Bank stock                                                                    8,248,420           10,250,120
   Office properties and equipment, net                                                           34,801,087           30,747,227
   Deferred income taxes                                                                           2,607,641            2,150,442
   Core deposit intangible                                                                         1,875,822            2,592,030
   Prepaid expenses and other assets                                                               1,440,857            1,950,913
   FMS Statutory Trust 1 issue costs, net                                                            484,467              562,311
                                                                                              --------------       --------------
TOTAL ASSETS                                                                                  $1,231,263,375       $1,250,006,065
                                                                                              ==============       ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Interest-bearing deposits                                                                    $759,991,442         $765,459,098
   Noninterest-bearing deposits                                                                  187,075,982          176,047,722
                                                                                              --------------       --------------
       Total deposits                                                                            947,067,424          941,506,820
   Securities sold under agreements to repurchase                                                175,000,000          195,000,000
   Advances from the Federal Home Loan Bank                                                                0           10,000,000
   FMS Statutory Trust 1 debentures                                                               25,774,000           25,774,000
   Advances by borrowers for taxes and insurance                                                   2,132,320            2,200,357
   Accrued interest payable                                                                        1,378,353            1,246,661
   Dividends payable                                                                                 195,486              195,029
   Other liabilities                                                                               4,633,516            3,746,579
                                                                                              --------------       --------------
   Total liabilities                                                                           1,156,181,099        1,179,669,446
                                                                                              --------------       --------------
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 8,006,392 and 7,991,292, and shares outstanding 6,515,110
    and 6,502,110 as of December 31, 2005 and 2004, respectively                                     800,639              799,129
   Paid-in capital in excess of par                                                                8,767,381            8,555,506
   Accumulated comprehensive income- net of deferred income taxes                                 (1,099,630)             270,784
   Retained earnings                                                                              77,583,683           71,646,199
   Less:  Treasury stock (1,491,282 and 1,489,182 shares, at cost, as of
       December 31, 2005 and 2004, respectively)                                                 (10,969,797)         (10,934,999)
                                                                                              --------------       --------------
Total stockholders' equity                                                                        75,082,276           70,336,619
                                                                                              --------------       --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                    $1,231,263,375       $1,250,006,065
                                                                                              ==============       ==============
</TABLE>

See notes to consolidated financial statements.

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

<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                         2005                2004                2003
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                  <C>                <C>
INTEREST INCOME:
Interest income on:
   Loans                                                                      $25,847,280          $24,576,705        $24,362,749
   Mortgage-backed securities                                                  14,629,526           17,388,728         16,805,015
   Investments                                                                 17,370,287           13,796,220          9,646,233
                                                                              -----------          -----------        -----------
Total interest income                                                          57,847,093           55,761,653         50,813,997
                                                                              -----------          -----------        -----------
INTEREST EXPENSE:
Interest expense on:
   Deposits                                                                    11,418,289            7,754,391          8,585,202
   Borrowings                                                                   8,293,015            9,290,862          9,480,985
   Long-term debt                                                               1,826,092            1,368,591          1,295,928
                                                                              -----------          -----------        -----------
Total interest expense                                                         21,537,396           18,413,844         19,362,115
                                                                              -----------          -----------        -----------
NET INTEREST INCOME                                                            36,309,697           37,347,809         31,451,882
PROVISION FOR LOAN LOSSES                                                         360,000              330,000            270,000
                                                                              -----------          -----------        -----------
NET INTEREST INCOME AFTER PROVISION
 FOR LOAN LOSSES                                                               35,949,697           37,017,809         31,181,882
                                                                              -----------          -----------        -----------
NONINTEREST INCOME:
   Service charges on accounts                                                  5,258,385            5,149,878          4,592,540
   Other income                                                                   155,667              137,136            131,805
   Loan service charges and other fees                                             75,167              105,828             85,759
   (Loss) Gain on disposal/sale of fixed assets                                    (6,769)              46,080           (115,658)
   Gain on sale of loans and real estate owned                                          0                  229            495,831
   Gain on sale of investment securities                                                0              682,880            285,846
   Gain on sale of real estate held for development                                     0                    0            600,780
   Real estate owned operations, net                                                    0               (4,586)           (20,365)
                                                                              -----------          -----------        -----------
Total noninterest income                                                        5,482,450            6,117,445          6,056,538
                                                                              -----------          -----------        -----------
NONINTEREST EXPENSE:
   Salaries and employee benefits                                              18,012,670           16,877,722         15,512,202
   Occupancy and equipment                                                      5,587,270            5,383,883          5,399,414
   Purchased services                                                           2,810,218            2,850,118          2,841,868
   Professional fees                                                              754,127              662,180            654,197
   Amortization of core deposit intangible                                        716,208              716,208            272,802
   Office supplies                                                                669,130              573,447            673,356
   Other expenses                                                                 632,481              588,887            802,241
   Telecommunications                                                             456,107              303,586            345,140
   Advertising                                                                    429,263              429,093            469,070
                                                                              -----------          -----------        -----------
Total noninterest expenses                                                     30,067,474           28,385,124         26,970,290
                                                                              -----------          -----------        -----------
INCOME BEFORE INCOME TAXES                                                     11,364,673           14,750,130         10,268,130
INCOME TAXES                                                                    4,646,441            5,981,901          4,066,716
                                                                              -----------          -----------        -----------
NET INCOME                                                                     $6,718,232           $8,768,229         $6,201,414
                                                                              ===========          ===========        ===========
BASIC EARNINGS PER COMMON SHARE                                                     $1.03                $1.35              $0.96
                                                                              ===========          ===========        ===========
DILUTED EARNINGS PER COMMON SHARE                                                   $1.03                $1.34              $0.95
                                                                              ===========          ===========        ===========

DIVIDENDS PER COMMON SHARE                                                          $0.12                $0.12              $0.12
                                                                              ===========          ===========        ===========

Weighted average common shares outstanding                                      6,504,143            6,495,218          6,476,938
Potential dilutive effect of the exercise of stock options                         16,495               34,251             37,996
                                                                              -----------          -----------        -----------
Adjusted weighted average common shares outstanding                             6,520,638            6,529,469          6,514,934
                                                                              ===========          ===========        ===========
</TABLE>
See notes to consolidated financial statements.

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

<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                                2005            2004            2003
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>             <C>             <C>
OPERATING ACTIVITIES:
Net income                                                                            $6,718,232      $8,768,229      $6,201,414
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses                                                                360,000         330,000         270,000
Amortization and accretion of premiums and discounts on investments, net               1,751,762       4,382,268       5,225,397
Amortization and accretion of other fees and costs                                       807,312         769,567         356,500
Depreciation                                                                           2,007,918       1,965,197       2,014,677
Realized (gains) and losses on:
    Sale of loans                                                                              0            (229)           (335)
    Disposal and Sale of fixed assets                                                      6,769         (46,080)        115,658
    Sale of investment securities                                                              0        (682,880)       (285,846)
    Sale of real estate owned                                                                  0            (654)       (495,496)
    Sale of real estate held for development                                                   0               0        (600,780)
Decrease (Increase) in accrued interest receivable                                        97,736      (1,118,359)         75,910
Decrease (Increase) in prepaid expenses and other assets                                 510,056        (347,619)        176,528
Increase (Decrease) in accrued interest payable                                          131,692         (72,840)        (63,553)
Increase (Decrease) in other liabilities                                               1,833,368         (21,078)        653,619
(Benefit) Provision for deferred income taxes                                           (457,199)       (106,533)        928,663
                                                                                   -------------    ------------   -------------
  Net cash provided by operating activities                                           13,767,646      13,818,989      14,572,356
                                                                                   -------------    ------------   -------------
INVESTING ACTIVITIES:
Proceeds from sale of:
  Education loans                                                                              0          60,279         103,399
  Real estate held for development                                                             0               0         688,706
  Real estate owned                                                                            0          48,948       1,192,294
  Office property and equipment                                                            3,111         238,871         308,814
  Investment securities available for sale                                                     0      22,870,336               0
Principal collected and proceeds from maturities of investment securities
  held to maturity                                                                   203,104,176     148,740,093     206,997,534
Principal collected and proceeds from maturities of investment securities
  available for sale                                                                 112,499,244      71,614,876     123,532,241
Principal collected and proceeds from maturities of mortgage-backed securities        63,068,576     101,548,462     202,995,009
Principal collected on loans, net                                                     93,277,149     110,121,450     137,639,469
Loans originated or acquired                                                        (117,423,133)   (126,679,593)   (179,403,933)
Purchase of investment securities and mortgage-backed securities held to maturity   (226,985,664)   (232,157,961)   (455,768,535)
Purchase of investment securities and mortgage-backed securities available for sale (128,868,417)    (88,703,074)   (156,532,806)
Redemption of Federal Home Loan Bank stock                                             2,001,700       1,559,500         252,100
Purchase of office property and equipment                                             (6,071,651)     (1,476,146)     (4,775,248)
Net cash received from deposit purchase                                                        0               0      36,540,170
                                                                                   -------------    ------------   -------------
  Net cash (used) provided by investing activities                                    (5,394,909)      7,786,041     (86,230,786)
                                                                                   -------------    ------------   -------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts                                   4,417,156      65,584,898      67,749,707
Net increase (decrease) in time deposits                                               1,143,448     (17,084,576)    (11,623,601)
Net decrease in FHLB advances                                                        (10,000,000)     (1,191,047)        (41,056)
Repayment from securities sold under agreement to repurchase                         (20,000,000)    (30,000,000)              0
(Decrease) Increase in advances from borrowers for taxes and insurance                   (68,037)         57,858          92,686
Purchase of treasury stock                                                               (34,798)              0         (48,419)
Dividends paid on common stock                                                          (780,298)       (779,240)       (776,929)
Net proceeds from issuance of common stock                                               213,385          49,796         230,333
                                                                                   -------------    ------------   -------------
  Net cash (used) provided by financing activities                                   (25,109,144)     16,637,689      55,582,721
                                                                                   -------------    ------------   -------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                     (16,736,407)     38,242,719     (16,075,709)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                         110,577,356      72,334,637      88,410,346
                                                                                   -------------    ------------   -------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                               $93,840,949    $110,577,356     $72,334,637
                                                                                   =============    ============   =============
Supplemental Disclosures:
  Cash paid for:
    Interest on deposits, advances, and other borrowings                            $ 21,405,704    $ 18,486,684   $  19,425,668
    Income taxes                                                                       4,727,200       5,450,000       2,469,200
  Non cash investing and financing activities:
    Dividends declared and not paid at year end                                          195,486         195,063         194,576
    Non-monetary transfers from loans to real estate owned through foreclosure                 0               0         453,892
</TABLE>
See notes to consolidated financial statements.

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
                              Common                                      Accumulated                                    Total
                              shares         Common       Paid-in        comprehensive    Retained        Treasury    Stockholders'
                            outstanding       stock       capital        income (loss)    earnings         stock         Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>            <C>         <C>               <C>             <C>          <C>            <C>
Balances at
  December 31, 2002          6,463,811      $794,981    $8,279,525        $1,216,053      $58,233,840  $(10,886,580)  $57,637,819
Net income                                                                                  6,201,414                   6,201,414
Other comprehensive
  income, net of tax
  benefit of $275,187
  Unrealized loss
  on securities available
  for sale                                                                  (413,814)                                    (413,814)
                                                                                                                      -----------
Total comprehensive
  income                                                                                                                5,787,600

Dividends declared                                                                           (777,590)                   (777,590)
Exercise of stock options       25,250         2,525       227,808                                                        230,333
Purchase of common stock        (3,184)                                                                     (48,419)      (48,419)
------------------------------------------------------------------------------------------------------------------------------------

Balances at
  December 31, 2003          6,485,877       797,506     8,507,333           802,239       63,657,664   (10,934,999)   62,829,743
Net income                                                                                  8,768,229                   8,768,229
Other comprehensive
  income, net of tax
  benefit of $331,228
  Unrealized loss
  on securities available
  for sale                                                                  (531,455)                                    (531,455)
                                                                                                                      -----------
Total comprehensive
  income                                                                                                                8,236,774

Dividends declared                                                                           (779,694)                   (779,694)
Exercise of stock options       16,233         1,623        48,173                                                         49,796
 -----------------------------------------------------------------------------------------------------------------------------------

Balances at
  December 31, 2004          6,502,110       799,129     8,555,506           270,784       71,646,199   (10,934,999)   70,336,619
Net income                                                                                  6,718,232                   6,718,232
Other comprehensive
  income, net of tax
  benefit of $946,428
  Unrealized loss
  on securities available
  for sale                                                                (1,370,414)                                  (1,370,414)
                                                                                                                      -----------
Total comprehensive
  income                                                                                                                5,347,818

Dividends declared                                                                           (780,748)                   (780,748)
Exercise of stock options       15,100         1,510       211,875                                                        213,385
Purchase of common stock        (2,100)                                                                     (34,798)      (34,798)
------------------------------------------------------------------------------------------------------------------------------------
Balances at
  December 31, 2005          6,515,110      $800,639    $8,767,381       $(1,099,630)     $77,583,683  $(10,969,797)  $75,082,276
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.

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

FMS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004, and 2003

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business
     FMS  Financial  Corporation,  a New Jersey  corporation,  headquartered  in
Burlington,  New  Jersey,  is the holding  company for Farmers & Mechanics  Bank
("Bank"). The Bank's principal business is attracting customer deposits from the
general  public  through its forty two branches and  investing  these  deposits,
together with funds  generated from  operations,  primarily in  residential  and
commercial mortgage loans, consumer,  commercial business and construction loans
and U.S. Government agency notes and mortgage-related securities.

Principles of Consolidation
     The  consolidated  financial  statements  are prepared in  accordance  with
generally accepted  accounting  principles in the United States of America.  The
consolidated   financial  statements  include  the  accounts  of  FMS  Financial
Corporation  ("Corporation") and Farmers & Mechanics Bank. Material intercompany
accounts and transactions  have been eliminated from the consolidated  financial
statements.

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  interest-bearing  amounts due
from depository institutions and short-term funds. Interest-bearing deposits are
deposits  with  banks  that  have an  original  maturity  of 90  days  or  less.
Short-term  funds are money  market  funds and federal  funds  sold.  Generally,
federal  funds  are  purchased  and  sold  for one day  periods.  Cash  and cash
equivalents exclude reverse repurchase agreements which are generally classified
as  investments  held to  maturity.  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,
2005  and 2004  were  $21.8  million  and  $22.4  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
     Investments  classified  as available  for sale are reported at the current
market  value  with net  unrealized  gains and  losses,  net of  applicable  tax
effects,  added to or deducted from the Corporation's total stockholders' equity
and  comprehensive  income  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 and discounts  are amortized  using a method which in total
approximates the interest method.  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.

Loans, net
     Loans are reported at principal  outstanding  balance net of deferred  loan
origination  costs  and the  allowance  for loan  losses.  The  Bank  recognizes
interest income on loans when earned.  All 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.  Such interest ultimately  collected is
recorded as income in the period of recovery.  Loans  classified  as impaired or
trouble debt  restructured,  excluding loans  classified as non-accrual,  accrue
interest daily under their original or modified terms.

Allowance for Loan Losses
     An  allowance  for loan  losses is  maintained  at a level that  management
considers  adequate to provide for  probable  losses  inherent in the  portfolio
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 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
the evaluations.

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

     The Bank  considers  a loan  impaired,  based on  current  information  and
events,  if it is probable that the Bank will be unable to collect the scheduled
payments on principal or interest when due according to the contractual terms of
the loan  agreement.  Loans  are  measured  for  impairment  based on the  loans
underlying  collateral,  if collateral dependent,  or present value of estimated
future cash flows.  Loans continue to be classified as impaired  unless they are
brought fully current and the collection of scheduled  interest and principal is
considered probable.

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

Office Properties and Equipment
     Office  properties  and  equipment  are recorded at cost.  Depreciation  is
computed using the  straight-line  method over the expected  useful lives of the
assets.  The  expected  useful  lives of assets are as  follows:  buildings  and
improvements range from 10 to 30 years, furniture, fixtures, and equipment range
from 3 to 10 years,  computers are 3 years and leasehold  improvements  are over
the  shorter  of the  useful  life  or the  term  of the  lease.  The  costs  of
maintenance  and  repairs  are  expensed  as  they  are  incurred.  Renewal  and
improvement costs are capitalized.  In accordance with SFAS No. 144, "Accounting
for  Impairment  or  Disposal  of  Long-Lived  Assets,"  long-lived  assets  are
evaluated for impairment by management on an ongoing basis. Impairment may occur
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.

Deferred Loan Fees
     All loan fees and  related  direct  loan  origination  costs are  deferred.
Deferred loan fees and costs are capitalized and amortized as a yield adjustment
over the life of the loan using the interest  method.  Amortization  of deferred
loan fees cease while a loan is on non-accrual status.

Core Deposit Intangible
     Core deposit intangible assets are amortized over their useful life of five
years using the  straight-line  method.  Intangibles  are tested for  impairment
annually. There has been no impairment recorded.

Income Taxes
     The  Corporation  computes its taxable income for both financial  reporting
and  federal  and state tax  purposes on the  accrual  basis.  Income  taxes for
financial  reporting  purposes  are  recorded in  accordance  with SFAS No. 109,
"Accounting for Income Taxes". The asset and liability approach  underlying SFAS
No. 109 requires the  recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary  differences  between the carrying
amounts and tax basis of the Company's assets and liabilities. 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.
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.

Securities Sold under Agreements to Repurchase
     Securities sold under  agreements to repurchase are treated as debt and are
reflected as a liability in the Consolidated  Statements of Financial Condition.
The book value of securities pledged to secure the repurchase  agreements remain
in the securities portfolio.

Reclassifications
     Certain items in the 2004 and 2003 consolidated  financial  statements have
been  reclassified  to conform with the  presentation  in the 2005  consolidated
financial statements.  There was no impact on net income or stockholders' equity
for the reclassifications.

Earnings Per Share
     Statement  of  Financial  Accounting  Standards  No.  128 (SFAS  No.  128),
"Earnings  per  Share"  ("EPS"),  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 Statements of Operations.

Stock Repurchase Plan
     A Stock  Repurchase  Plan was announced by the Corporation on September 28,
2005. The Board of Directors of the Corporation  authorized the repurchase of up
to  200,000  shares of common  stock in the open  market.  The  timing of shares
repurchased will depend on a number of factors  including,  without  limitation,
price,  corporate and regulatory  requirements and market conditions.  The stock
repurchase  program  does not have an  expiration  date  and may be  limited  or
terminated without prior notice.

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

Recently Issued Accounting Standards
     In March 2005, Staff Accounting  Bulletin No. 107 (SAB 107) was issued. SAB
107  summarizes  the  views  of the  staff  regarding  the  interaction  between
Statement of Financial  Accounting Standards Statement No. 123R (SFAS No. 123R),
share-based  payment and certain  Securities and Exchange  Commission  rules and
regulations   and  provides  the  staff's  views   regarding  the  valuation  of
share-based payment arrangements for public companies. SFAS No. 123R, a revision
of SFAS No.123 "Accounting for Stock-Based Compensation",  establishes standards
for the  accounting  for  transactions  in which an entity  exchanges its equity
instruments  for goods and services.  The adoption of this standard will have no
effect on the Corporation's  Consolidated  Statements of Financial  Condition or
the Consolidated  Statements of Operation,  as all options that have been issued
are fully vested.

     In May 2005,  the  Financial  Accounting  Standard  Board  ("FASB")  issued
Statement of Financial  Standards No. 154 (SFAS No. 154) "Accounting Changes and
Errors  Corrections  - a  replacement  of  Accounting  Principles  Board ("APB")
Opinion No. 20 and FASB Statement No. 3", which changes the requirements for the
accounting  for and  reporting  of a change  in  accounting  principle.  It also
applies to all voluntary changes in accounting principle.  Opinion 20 previously
required that most changes in accounting principle be recognized by including in
net income of the period of the change, the cumulative effect of changing to the
new  principle.  This  Statement  requires  retrospective  application  to prior
period's financial statements of changes in accounting principle. This Statement
becomes  effective  for  accounting  changes and  corrections  of errors made in
fiscal years beginning after December 15, 2005. The adoption of this standard is
not  expected  to  have a  material  impact  on the  Corporation's  Consolidated
Statements of Financial Condition or the Consolidated Statements of Operations.

                                      -21-

<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, 2005 and 2004 are as follows:

<TABLE>
<CAPTION>
                                                 December 31, 2005
                         -------------------------------------------------------------------
                                                 Gross            Gross          Estimated
                               Amortized       Unrealized       Unrealized         Market
                                 Cost            Gains            Losses           Value
--------------------------------------------------------------------------------------------
<S>                       <C>                  <C>         <C>               <C>
U.S. Gov't agencies         $192,328,423         $20,699     $(2,164,668)      $190,184,454
CMOs                          71,621,287               0      (1,973,989)        69,647,298
Municipal bonds               11,390,725           2,302               0         11,393,027
--------------------------------------------------------------------------------------------
Total                       $275,340,435         $23,001     $(4,138,657)      $271,224,779
--------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                 December 31, 2004
                         -------------------------------------------------------------------
                                                 Gross            Gross          Estimated
                               Amortized       Unrealized       Unrealized         Market
                                 Cost            Gains            Losses           Value
--------------------------------------------------------------------------------------------
<S>                       <C>                  <C>         <C>               <C>
U.S. Gov't agencies         $164,381,425        $283,445       $(631,629)      $164,033,241
CMOs                          87,413,111         164,677        (804,188)        86,773,600
Municipal bonds                3,039,213           4,241               0          3,043,454
--------------------------------------------------------------------------------------------
Total                       $254,833,749        $452,363     $(1,435,817)      $253,850,295
--------------------------------------------------------------------------------------------
</TABLE>

     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, 2005 are shown in the following table. The contractual  maturity is
used for U.S. Government agency notes and Municipal bonds. The estimated average
life  based on  current  cash flows is used for CMOs.  Expected  maturities  may
differ as borrowers have the right to call certain obligations.

                                             December 31, 2005
                                 -----------------------------------------
                                       Amortized             Estimated
                                         Cost              Market Value
--------------------------------------------------------------------------
Due one year or less                   $11,326,059          $11,326,059
Due one to five years                   86,747,853           84,845,313
Due five to ten years                   88,879,117           87,479,171
Due after ten years                     88,387,406           87,574,236
--------------------------------------------------------------------------
                                      $275,340,435         $271,224,779
--------------------------------------------------------------------------

3. INVESTMENT SECURITIES AVAILABLE FOR SALE
     The  amortized  cost and estimated  market value of  investment  securities
available for sale at December 31, 2005 and 2004 are as follows:

<TABLE>
<CAPTION>
                                                 December 31, 2005
                         -------------------------------------------------------------------
                                                 Gross            Gross          Estimated
                               Amortized       Unrealized       Unrealized         Market
                                 Cost            Gains            Losses           Value
--------------------------------------------------------------------------------------------
<S>                       <C>                  <C>         <C>               <C>
U.S. Gov't agencies          $60,411,063              $0       $(829,667)      $59,581,396
CMOs                          22,350,620               0        (360,253)       21,990,367
MBSs                          52,082,272          79,909        (519,495)       51,642,686
Pass thru                     22,647,193           2,042        (231,589)       22,417,646
-------------------------------------------------------------------------------------------
Total                       $157,491,148         $81,951     $(1,941,004)     $155,632,095
-------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                 December 31, 2004
                         ---------------------------------------------------------------
                                              Gross            Gross         Estimated
                            Amortized       Unrealized       Unrealized        Market
                              Cost            Gains            Losses          Value
----------------------------------------------------------------------------------------
<S>                       <C>               <C>         <C>               <C>
U.S. Gov't agencies          $30,537,053      $37,975       $(258,293)      $30,316,735
CMOs                          37,677,754      201,851        (278,029)       37,601,576
MBSs                          61,557,132      820,480        (131,401)       62,246,211
Pass thru                     11,769,552       65,206               0        11,834,758
----------------------------------------------------------------------------------------
Total                       $141,541,491   $1,125,512       $(667,723)     $141,999,280
----------------------------------------------------------------------------------------
</TABLE>

     The amortized cost and estimated market value of investments  available for
sale at December  31, 2005 are shown in the  following  table.  The  contractual
maturity is used for U.S.  Government  agency  notes and MBSs.  The average life
based on current cash flows is used for CMOs.  Expected maturities may differ as
borrowers have the right to call or prepay certain obligations.

                                       December 31, 2005
                             -------------------------------------
                                 Amortized          Estimated
                                   Cost           Market Value
------------------------------------------------------------------
Due one year or less              $958,194          $955,786
Due one to five years          117,994,801       116,642,054
Due five to ten years           32,907,167        32,469,574
Due after ten years              5,630,986         5,564,680
------------------------------------------------------------------
Total                         $157,491,148      $155,632,094
------------------------------------------------------------------

      There were no sales of investment securities during 2005. During 2004, the
Bank sold $17.0 million of MBSs, CMOs and equity  securities  available for sale
in 2004,  which resulted in a realized gain of $683  thousand.  During 2003, the
Bank sold $7.2 million of MBSs and CMOs  available for sale which  resulted in a
realized gain of $286 thousand.

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

     The following table presents the gross unrealized  losses and fair value of
the  Bank's  investments  with  unrealized  losses  that  are not  deemed  to be
other-than-temporarily impaired, aggregated by investment category and length of
time that the  individual  securities  have been in continuous  unrealized  loss
position  at  December  31,  2005.  The Bank has the intent and  ability to hold
temporarily  impaired  available for sale  securities  either until  maturity or
until interest rates reach a level that would eliminate a loss on a sale.

<TABLE>
<CAPTION>
                                        Less than 12 Months             12 Months or Greater                  Total
                           --------------------------------------   ---------------------------   ---------------------------------
                                                      Unrealized                     Unrealized                        Unrealized
                                    Fair Value          Losses        Fair Value       Losses        Fair Value          Losses
                           --------------------     -------------   -------------    ----------   --------------    ---------------
<S>                              <C>               <C>             <C>               <C>          <C>              <C>
Investment Securities Available for Sale:

  U.S. Gov't agencies              $31,273,892        $(234,233)     $28,307,503     $(595,434)     $59,581,395        $(829,667)
  MBSs                              45,215,857         (491,240)       7,269,777      (259,844)      52,485,634         (751,084)
  CMOs                              14,535,813         (137,462)       7,454,554      (222,791)      21,990,367         (360,253)
----------------------------------------------------------------------------------------------------------------------------------
Total Available for Sale            91,025,562         (862,935)      43,031,834    (1,078,069)     134,057,396       (1,941,004)
----------------------------------------------------------------------------------------------------------------------------------

Investment Securities Held to Maturity:

  U.S. Gov't agencies              139,585,718       (1,357,242)      40,621,535      (807,426)     180,207,253       (2,164,668)
  MBSs                              79,679,792       (1,179,819)      58,463,468    (1,861,513)     138,143,260       (3,041,332)
  CMOs                              21,410,198         (348,401)      48,201,767    (1,625,588)      69,611,965       (1,973,989)
----------------------------------------------------------------------------------------------------------------------------------
Total Held to Maturity             240,675,708       (2,885,462)     147,286,770    (4,294,527)     387,962,478       (7,179,989)
----------------------------------------------------------------------------------------------------------------------------------
Total                             $331,701,270      $(3,748,397)    $190,318,604   $(5,372,596)    $522,019,374      $(9,120,993)
----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
     Mortgage-backed  securities  held to maturity at December 31, 2005 and 2004
are summarized as follows:

                                          December 31, 2005
                    --------------------------------------------------------
                                      Gross         Gross
                        Amortized   Unrealized    Unrealized     Estimated
                          Cost        Gains         Losses      Market Value
----------------------------------------------------------------------------
GNMA                   $4,837,341    $201,037           $0       $5,038,378
FNMA                  100,492,309     855,129     (960,873)     100,386,565
FHLMC                  51,765,939     254,570     (829,777)      51,190,732
Pass thru              51,100,285       9,879   (1,250,682)      49,859,482
----------------------------------------------------------------------------
Total                $208,195,874  $1,320,615  $(3,041,332)    $206,475,157
----------------------------------------------------------------------------

                                          December 31, 2004
                    --------------------------------------------------------
                                      Gross         Gross
                        Amortized   Unrealized    Unrealized     Estimated
                          Cost        Gains         Losses      Market Value
----------------------------------------------------------------------------
GNMA                   $7,598,918     $377,275        $(215)     $7,975,978
FNMA                  136,076,364    2,791,763     (147,922)    138,720,205
FHLMC                  63,157,460      840,775     (287,315)     63,710,920
Pass thru              62,389,155      262,887     (532,927)     62,119,115
----------------------------------------------------------------------------
Total                $269,221,897   $4,272,700    $(968,379)   $272,526,218
----------------------------------------------------------------------------


5. LOANS, NET
     Loans, net at December 31, 2005 and 2004 consist of the following:

                                    2005                2004
-------------------------------------------------------------------------
Mortgage Loans                    $286,476,251        $275,842,765
Construction Loans                   1,774,630             897,264
Commercial Construction              6,942,091          11,971,241
Consumer Loans                       2,355,697           2,471,624
Commercial Real Estate             127,704,281         116,380,045
Commercial Business                 22,550,190          16,311,618
-------------------------------------------------------------------------
Subtotal                           447,803,140         423,874,557
Less:
    Deferred loan fees                 168,998             356,732
    Allowance for loan losses        5,062,785           4,719,192
-------------------------------------------------------------------------
Total loans, net                  $442,571,357        $418,798,633
-------------------------------------------------------------------------

     At December  31, 2005 and 2004 the recorded  investment  in loans for which
impairment had been recognized in accordance  with SFAS No. 114,  "Accounting by
Creditors for  Impairment of a Loan",  amended by SFAS No. 118,  "Accounting  by
Creditors  for  Impairment  of a Loan -  Income  Recognition  and  Disclosures",
totaled  $1.8  million and $2.6  million,  respectively.  At December  31, 2005,
impaired loans of $985 thousand related to loans that were individually measured
for impairment with a valuation  allowance of $414 thousand and $794 thousand of
loans that were collectively  measured for impairment with a valuation allowance
of $16 thousand.  At December 31, 2004,  impaired loans of $985 thousand related
to loans  that  were  individually  measured  for  impairment  with a  valuation
allowance  of $414  thousand  and $1.7  million of loans that were  collectively
measured for  impairment  with a valuation  allowance of $33  thousand.  For the
years ended  December 31, 2005 and 2004,

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

the average recorded investment in impaired loans was approximately $2.2 million
and $2.1  million,  respectively.  During the years ended  December 31, 2005 and
2004, the Corporation recognized $231 thousand and $136 thousand,  respectively,
of interest on impaired loans.

      The principal  amount of  non-accrual  loans at December 31, 2005 and 2004
was $1.8 million and $2.6 million, respectively.  Interest income on non-accrual
loans that would have been  recorded  in 2005 under the  original  terms of such
loans was $133 thousand, and the interest income actually recognized in 2005 for
such loans was $101 thousand.  Interest  income on non-accrual  loans that would
have been  recorded  in 2004  under the  original  terms of such  loans was $130
thousand,  and the actual interest income  recognized in 2004 for such loans was
$106 thousand.

     The Bank  originates and purchases both  adjustable and fixed interest rate
loans. At December 31, 2005, the composition of these loans is as follows:

<TABLE>
<CAPTION>
                                             Maturing    Maturing
                                              during     from 2007      Maturing
(In Thousands)                                 2006     through 2010   after 2010      Total
---------------------------------------------------------------------------------------------
<S>                                        <C>          <C>          <C>          <C>
Mortgage Loans                                $4,847      $14,427      $267,202     $286,476
Construction Loans                             1,775            0             0        1,775
Commercial Construction                        3,442            0         3,500        6,942
Consumer Loans                                   980          877           499        2,356
Commercial Real Estate                         8,640        9,480       109,584      127,704
Commercial Business                           11,409        7,634         3,507       22,550
---------------------------------------------------------------------------------------------
    Total                                    $31,093      $32,418      $384,292     $447,803
---------------------------------------------------------------------------------------------
Interest sensitivity on the above loans:
Loans with
   predetermined rates                       $15,547      $27,810      $268,278     $311,635
Loans with adjustable
   or floating rates                          15,546        4,608       116,014      136,168
---------------------------------------------------------------------------------------------
    Total                                    $31,093      $32,418      $384,292     $447,803
---------------------------------------------------------------------------------------------
</TABLE>

      Loans  pledged as  collateral  for  advances  and lines of credit from the
Federal Home Loan Bank totaled $41.4 million at December 31, 2005.

     Changes in the allowance for loan losses are as follows:

                                       Years ended December 31,
                             -------------------------------------------------
                                  2005              2004              2003
------------------------------------------------------------------------------
Balance at beginning
   of year                     $4,719,192        $4,407,552        $4,317,475
Provision charged
   to operations                  360,000           330,000           270,000
Charge-offs                       (58,587)          (22,860)         (189,177)
Recoveries                         42,180             4,500             9,254
------------------------------------------------------------------------------
Balance at end of year         $5,062,785        $4,719,192        $4,407,552
------------------------------------------------------------------------------


6. OFFICE PROPERTIES AND EQUIPMENT, NET
     Office  properties  and  equipment  at  December  31,  2005  and  2004  are
summarized by major classification, as follows:

                                                   December 31,
                                        --------------------------------------
                                                2005                2004
------------------------------------------------------------------------------
Land, buildings and improvements              $39,687,711         $35,327,023
Furniture and equipment                         7,945,004           7,145,542
Computers                                       6,318,293           5,930,623
------------------------------------------------------------------------------
Total                                          53,951,008          48,403,188
Less accumulated depreciation                 (19,149,921)        (17,655,961)
------------------------------------------------------------------------------
Office properties and equipment, net          $34,801,087         $30,747,227
------------------------------------------------------------------------------

     Depreciation  expense  totaled $2.0 million,  $1.9 million and $2.0 million
for the years ended December 31, 2005, 2004 and 2003, respectively.

                                      -24-

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

7. DEPOSITS
     Deposits at December  31, 2005 and 2004  consisted of the  following  major
classifications and weighted average interest rates:

                                                 December 31, 2005
                              --------------------------------------------------
                                    Weighted                           Percent
                                  Average Rate           Amount        of Total
--------------------------------------------------------------------------------
Noninterest checking                   0.00%          $187,075,982       19.75%
Checking accounts                      1.88            226,271,954       23.89
Savings accounts                       0.59            188,866,936       19.94
Money market accounts                  0.89            132,960,782       14.04
Time deposits                          2.34            211,891,770       22.38
--------------------------------------------------------------------------------
Total                                  1.21%          $947,067,424      100.00%
--------------------------------------------------------------------------------


                                                 December 31, 2004
                              --------------------------------------------------
                                    Weighted                           Percent
                                  Average Rate           Amount        of Total
--------------------------------------------------------------------------------
Noninterest checking                   0.00%          $176,047,722       18.70%
Checking accounts                      0.86            214,059,142       22.74
Savings accounts                       0.55            195,039,302       20.71
Money market accounts                  0.72            145,612,332       15.47
Time deposits                          1.83            210,748,322       22.38
--------------------------------------------------------------------------------
Total                                  0.84%          $941,506,820      100.00%
--------------------------------------------------------------------------------

     The aggregate  amount of time  deposits in excess of $100 thousand  totaled
$36.0  million.  Deposits  from  related  parties  totaled $1.2 million and $1.5
million at December 31, 2005 and 2004, respectively.  A summary of time deposits
by maturity at December 31, 2005 is as follows:


Years ended December 31,                                  Amount
-------------------------------------------------------------------
2006                                                  $152,952,156
2007                                                    33,136,786
2008                                                    10,570,268
2009                                                     8,749,657
2010                                                     6,482,476
Thereafter                                                     427
-------------------------------------------------------------------
Total                                                 $211,891,770
-------------------------------------------------------------------

     A summary of interest expense on deposits is as follows:

                                          Years ended December 31,
                            -------------------------------------------------
                                    2005           2004             2003
-----------------------------------------------------------------------------
Checking accounts               $ 4,124,244     $1,717,164         $914,739
Savings accounts                  1,149,484      1,070,861        1,248,755
Money market accounts             1,266,737      1,001,238        1,020,353
Time deposits                     4,877,824      3,965,128        5,401,355
-----------------------------------------------------------------------------
Total interest expense          $11,418,289     $7,754,391       $8,585,202
-----------------------------------------------------------------------------


8. ADVANCES FROM FEDERAL HOME LOAN BANK
     At December 31, 2004, the Bank had advances from the Federal Home Loan Bank
of New York (FHLB) which were collateralized by certain first mortgage loans.

                           Years ended December 31,
--------------------------------------------------------------------------------
                 2005                                        2004
--------------------------------------------------------------------------------
                 Weighted                               Weighted
                 Average     Maturity                   Average        Maturity
  Amount          Rate         Date      Amount          Rate            Date
--------------------------------------------------------------------------------
 $     0         0.00%         n/a    $10,000,000        2.53%          4/15/05
--------------------------------------------------------------------------------


9.   SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
     At December 31, 2005, the Bank had securities  sold under the agreements to
repurchase  (repurchase  agreements) in the aggregate  amount of $175.0 million.
The repurchase  agreements are  collateralized by U.S.  Government agency notes,
MBSs,  CMOs and loans with a market value of $175.1  million.  Accrued  interest
payable totaled $1.0 million at December 31, 2005.

                         Year ended December 31, 2005
--------------------------------------------------------------------------------
                                          Weighted       Maturity      Call
Counterparty             Amount         Average Rate       Date      Feature
--------------------------------------------------------------------------------
FHLB                     $ 20,000,000       5.72%          12/19/07    03/19/06
FHLB                       20,000,000       5.13%          01/14/08    01/14/06
FHLB                       20,000,000       5.95%          08/30/10    03/01/06
FHLB                       20,000,000       5.54%          10/18/10    01/18/06
FHLB                       20,000,000       4.85%          12/20/10    03/20/06
FHLB                       20,000,000       5.22%          12/20/10    03/20/06
FHLB                       10,000,000       4.18%          02/28/11    02/28/06
FHLB                       15,000,000       3.84%          04/06/11    01/06/06
Merrill Lynch              10,000,000       3.81%          11/02/15    11/02/06
Merrill Lynch              10,000,000       3.89%          11/04/15    11/04/06
Merrill Lynch              10,000,000       3.91%          11/08/15    11/08/06
--------------------------------------------------------------------------------
Total                    $175,000,000       4.93%
--------------------------------------------------------------------------------


                         Year ended December 31, 2004
--------------------------------------------------------------------------------
                                          Weighted       Maturity      Call
Counterparty             Amount         Average Rate       Date      Feature
--------------------------------------------------------------------------------
FHLB                     $ 20,000,000       5.72%          12/19/07    12/19/05
FHLB                       20,000,000       5.13%          01/14/08    12/14/05
FHLB                       20,000,000       5.95%          08/30/10    08/30/05
FHLB                       20,000,000       5.54%          10/18/10    11/18/05
FHLB                       20,000,000       5.22%          12/20/10    12/20/05
FHLB                       20,000,000       4.85%          12/20/10    12/20/05
FHLB                       10,000,000       4.18%          02/28/11    02/28/05
FHLB                       15,000,000       3.84%          04/06/11    01/06/05
FHLB                       10,000,000       3.49%          08/10/11    08/10/05
FHLB                       10,000,000       1.98%          11/14/11    02/14/05
FHLB                       10,000,000       2.32%          01/31/12    01/31/05
FHLB                       10,000,000       2.28%          02/07/12    02/07/05
FHLB                       10,000,000       2.68%          04/24/07    04/24/05
--------------------------------------------------------------------------------
Total                    $195,000,000       4.49%
--------------------------------------------------------------------------------

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

10.  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:

<TABLE>
<CAPTION>
                                                                      2005                     2004                   2003
                                                            ----------------------    ---------------------   ----------------------
                                                               Amount      Percent      Amount     Percent      Amount      Percent
                                                               ------      -------      ------     -------      ------      -------
<S>                                                       <C>            <C>         <C>          <C>        <C>          <C>
Tax at federal tax rate:                                    $3,863,989     34.00%     $5,162,546    35.00%    $3,491,164    34.00%
Increase (Decrease) from:
  State income taxes, net of federal income tax benefit        813,465      7.16         925,297     6.27        678,950     6.61

  Tax exempt interest income                                   (45,275)    (0.40)        (10,680)   (0.07)       (53,353)   (0.52)
   Other                                                        14,262      0.13         (95,262)   (0.65)       (50,045)   (0.49)
                                                            ----------     -----      ----------    -----     ----------    -----
Total                                                       $4,646,441     40.89%     $5,981,901    40.55%    $4,066,716    39.60%
                                                            ==========     =====      ==========    =====     ==========    =====
</TABLE>

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

<TABLE>
<CAPTION>
                                                       December 31
                                                  -----------------------
                                                     2005         2004
-------------------------------------------------------------------------
<S>                                              <C>          <C>
Deferred income tax assets:
     Allowance for loan losses                    $2,068,148   $1,927,790
     Compensation and pension asset                   82,876       65,878
     Amortization of deposit premiums                635,674      482,086
     Post retirement benefits                        204,250      204,250
     Accrued expenses                                137,566      127,318
     Other                                            24,461       37,967
                                                  ----------   ----------
Deferred tax asset                                 3,152,975    2,845,289
                                                  ----------   ----------
Deferred income tax liabilities:
     Prepaid deposit insurance premium                13,129       13,129
     Depreciation                                    168,544      332,361
     Deferred loan fees, net                         363,661      349,357
                                                  ----------   ----------
Gross deferred tax liabilities:                      545,334      694,847
                                                  ----------   ----------
Deferred income tax asset, net                    $2,607,641   $2,150,442
                                                  ==========   ==========
</TABLE>

     There was no change in the valuation  allowance for the year ended December
31, 2005, 2004 and 2003.

     The following represents the components of income tax expense for the years
ended December 31, 2005, 2004 and 2003, respectively.

<TABLE>
<CAPTION>
                                               2005           2004           2003
------------------------------------------------------------------------------------
<S>                                       <C>            <C>            <C>
Current federal tax provision               $3,831,359     $4,645,184     $2,247,455
Current state tax provision                  1,272,280      1,443,252        890,598
------------------------------------------------------------------------------------
    Total current provision                  5,103,639      6,088,436      3,138,053

Deferred federal tax (benefit) provision      (417,440)       (86,817)       790,549
Deferred state tax (benefit) provision         (39,758)       (19,718)       138,114
------------------------------------------------------------------------------------
    Total deferred tax (benefit) provision    (457,198)      (106,535)       928,663
------------------------------------------------------------------------------------
    Total                                   $4,646,441     $5,981,901     $4,066,716
                                            ==========     ==========     ==========
</TABLE>

11.  LEASES
     The Bank leases eleven branch  locations under  noncancelable  leases which
expire over the next 18 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, 2005 are as
follows:

Fiscal Year                                          Amount
-----------------------------------------------------------------
2006                                              $   323,777
2007                                                  332,721
2008                                                  352,071
2009                                                  318,447
2010 and beyond                                     2,373,391
-----------------------------------------------------------------
Total                                             $ 3,700,407
-----------------------------------------------------------------

     The  leases  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 $363 thousand,  $329 thousand and $298 thousand for
fiscal years 2005, 2004 and 2003, respectively.

                                      -26-

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

12.  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 Bank is considered "well capitalized" by OTS regulation at December 31,
2005 and 2004.  The following  table  presents the capital ratios of the Bank at
December 31, 2005 and 2004.

<TABLE>
<CAPTION>
                                                                                          Minimum
                                                                                        to be Well
                                                                                        Capitalized
                                                                                       Under Prompt
                                                                    Minimum              Corrective
                                                                    Capital                Action
                                           Actual                 Requirement            Provisions
                               ------------------------------------------------------------------------
                                      Amount    Ratio          Amount     Ratio       Amount    Ratio
-------------------------------------------------------------------------------------------------------
December 31, 2005 (thousands)
-------------------------------------------------------------------------------------------------------
<S>  <C>                        <C>           <C>        <C>            <C>       <C>          <C>
Tier 1 (Core) Capital                $89,616     7.29%        $49,170      4.0%        $61,463    5.0%
Risk-Based Capital                   $94,265    18.13%        $41,572      8.0%        $51,966   10.0%
Tier 1 Risk-Based Capital            $89,616    17.24%        $20,794      4.0%        $31,191    6.0%
Tangible Equity                      $89,616     7.29%        $18,442      1.5%        $24,589    2.0%
-------------------------------------------------------------------------------------------------------
December 31, 2004 (thousands)
-------------------------------------------------------------------------------------------------------
Tier 1 (Core) Capital                $82,244     6.60%        $49,832      4.0%        $62,290    5.0%
Risk-Based Capital                   $86,554    17.21%        $40,235      8.0%        $50,294   10.0%
Tier 1 Risk-Based Capital            $82,244    16.35%        $20,117      4.0%        $30,176    6.0%
Tangible Equity                      $82,244     6.60%        $18,687      1.5%        $24,916    2.0%
-------------------------------------------------------------------------------------------------------
</TABLE>

13. RETIREMENT PLANS
     The Bank has a defined  benefit  pension  plan for  active  employees.  Net
pension  expense was $1.1  million,  $822  thousand and $800  thousand for years
ended  December 31, 2005,  2004 and 2003,  respectively.  The  components of net
pension cost are as follows:

                                         Years ended December 31,
                       ---------------------------------------------------------
                                2005                2004               2003
--------------------------------------------------------------------------------
Service cost                  $947,524            $871,039           $716,613
Interest cost                  742,271             563,963            486,386
Return on assets              (487,280)           (659,381)          (461,454)
Net amortization and deferral (191,135)             46,634             58,912
--------------------------------------------------------------------------------
Net periodic pension cost   $1,011,380            $822,255           $800,457
--------------------------------------------------------------------------------


     The following table presents a  reconciliation  of the funded status of the
defined benefit pension plan at December 31, 2005 and 2004:

                                                  December 31,
                                   -------------------------------------------
                                              2005                 2004
------------------------------------------------------------------------------
Projected benefit obligation               $13,952,999          $10,844,831
Fair value of plan assets                   12,146,662           10,712,030
------------------------------------------------------------------------------
Unfunded of plan assets over
    projected benefit obligation             1,806,337              132,801
Unrecognized net (loss) gain                   (21,883)             235,689
Unrecognized prior service cost             (1,551,445)             (47,537)
------------------------------------------------------------------------------
Accrued pension cost
    included in the consolidated
    balance sheet                             $233,009             $320,953
------------------------------------------------------------------------------

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

                                                    December 31,
                                         ----------------------------------
Change in Projected Benefit Obligation            2005            2004
---------------------------------------------------------------------------
Projected benefit obligation
  at beginning of year                        $10,844,831      $9,221,994
Service cost                                      947,524         871,039
Interest cost                                     742,271         563,963
Actuarial loss                                  1,570,345         356,986
Benefits paid                                    (151,972)       (169,151)
---------------------------------------------------------------------------
Projected benefit obligation
  at end of year                              $13,952,999     $10,844,831
---------------------------------------------------------------------------
Change in Plan Assets
---------------------------------------------------------------------------
Fair value of plan assets
  at beginning of year                        $10,712,030      $8,714,389
Actual return of plan assets                      487,280       1,300,467
Employer contribution                           1,099,324         866,325
Benefits paid                                    (151,972)       (169,151)
---------------------------------------------------------------------------
Fair value of plan assets
  at end of year                              $12,146,662     $10,712,030
---------------------------------------------------------------------------

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

     Actuarial assumptions used in determining pension amounts are as follows:

                                     Years ended December 31,
                              -------------------------------------
                                2005         2004       2003
-------------------------------------------------------------------
Discount rate for
    periodic pension cost       6.00%        6.00%         6.00%
Discount rate for
    benefit obligation          5.50%        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 accordance with the provisions to the Statement of Financial  Accounting
Standards  No. 132  (revised)  "Employer's  Disclosure  about  Pension and Other
Postretirement  Benefits"  disclosures have been increased to include investment
strategy, asset allocation mix, contributions, measurement dates and accumulated
benefit obligation levels for pension plans.

     The Pension Investment Committee of the Corporation in conjunction with the
Board of Directors oversees the investment of the plan assets.  During 2005, the
committee  conducted a review of the portfolio structure and the strategic asset
allocation  including the relationship of plan assets to plan  liabilities.  The
goals of the asset investment strategy are to:

     * Maximize the return on assets, over the long-term, by investing primarily
in equities.  The inclusion of additional  asset classes with differing rates of
return,  volatility  and  correlation  are  utilized to reduce risk by providing
diversification relative to equities.

     * Diversify  investments  within asset classes to maximize  preservation of
principal and minimize  over-exposure to any one investment,  thereby minimizing
the impact of losses in single investments.

     *Provide a total  return  that,  over the  long-term,  provides  sufficient
assets  to fund  its  liabilities  subject  to an  appropriate  level  of  risk,
contributions and pension expense.

     The plan asset allocation percentage and market values at December 31, 2005
are as follows:

                                                        Percent of
                                    Market Value          Assets
-----------------------------------------------------------------
Cash                                   $743,066             6.1%
Equity securities                    11,379,171            93.7
Preferred stock securities               24,564             0.2
-----------------------------------------------------------------
Total Plan Assets                   $12,146,801          100.00%
-----------------------------------------------------------------

     The Bank regularly monitors our pension asset allocation. Senior management
review  performance  results at least  quarterly.  As of December 31, 2005,  our
target asset allocation was 94% U.S. common stock equities, 0.5% preferred stock
equities and 5.5% in cash and cash equivalents.

     Funding policy for the qualified plan is to make annual  contributions that
satisfy the minimum funding  requirements of Employee Retirement Income Security
Act 1974 ("ERISA") but that do not exceed the maximum  deductible  limits of the
Internal Revenue Code. The contributions to the pension plan are determined each
year as a result of an actuarial  valuation of the plan. In 2005 and 2004,  $1.1
million and $866 thousand,  respectively  were contributed by the Corporation to
meet the pension funding requirements.  The contribution to the pension plan for
2006 is expected  to be  approximately  $802  thousand.  The  pension  plan will
maintain  compliance with the ERISA as amended,  and any applicable  regulations
and laws.  Total  pension  benefits  expected  to be paid in each year from 2006
through 2010 are $224 thousand, $356 thousand, $418 thousand, $440 thousand, and
$470 thousand,  respectively.  The aggregate expected benefits to be paid in the
five years from 2011 through 2015 are $2.9 million.

     The Bank also maintains a 401(k) plan, which is a defined contribution plan
established  in 2003.  All  employees are eligible to  participate  in this plan
after completing one year of service and are age twenty one or older. The Bank's
contribution  equals the first 3% of the employees'  contributions and match 50%
above 3% up to 7% of their  compensation  for the plan year.  Participant's  are
vested in their and the Bank's contribution immediately.  Plan expense, included
in salaries and  employee  benefits was $302  thousand,  $281  thousand and $239
thousand for the years ended December 31, 2005, 2004 and 2003.

     In  addition to  providing  retirement  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 Postretirement  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 postretirement benefit obligations
are not funded but are  reflected in the  statement of financial  condition as a
liability.

     The net  periodic  postretirement  benefit  costs  includes  the  following
components:

                                                      December 31,
                                      -----------------------------------------
                                          2005           2004           2003
-------------------------------------------------------------------------------
Interest cost                            $25,163         $51,547       $47,209
Amortization of prior service cost       (11,339)        (11,339)      (11,339)
Amortization of loss                      19,517          15,776        13,110
-------------------------------------------------------------------------------
Net periodic postretirement
    benefit costs                        $33,341         $55,984       $48,980
-------------------------------------------------------------------------------

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

     The  assumed  discount  rate  used  in the  calculation  for  net  periodic
postretirement  benefit costs was 5.50% for 2005 and 6.50% for 2004. The assumed
health  care cost  trend  rate for 2005 was 10.0%  and was  graded  down in 0.5%
increments  per year to an ultimate rate of 5.0% per year.  The impact of a 1.0%
increase  and  decreases  in the assumed  health care cost trend for each future
year would be as follows:

                                             December 31, 2005
                                    ------------------------------------
                                      1.0% Increase    1.0% Decrease
------------------------------------------------------------------------
Accumulated postretirement
  obligation                             $38,916         $(35,259)
Service and Interest Cost                 $2,029          $(1,838)
------------------------------------------------------------------------

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

                                                 December 31,
                                       -----------------------------
                                             2005            2004
--------------------------------------------------------------------
Accumulated postretirement
    benefit obligation                   $(480,053)      $(744,827)
Unrecognized prior service cost             (7,063)        (18,402)
Unrecognized net loss                      (70,969)        195,173
--------------------------------------------------------------------
Accrued postretirement benefit
    cost                                 $(558,085)      $(568,056)
--------------------------------------------------------------------

     The  assumed  discount  rate used in the  calculation  for the  accumulated
postretirement  benefit  obligations was 5.50% as of December 31, 2005 and 6.50%
for 2004.

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

                                                   December 31,
                                        ------------------------------------
Change in Projected Benefit Obligation             2005              2004
----------------------------------------------------------------------------
Projected benefit obligation
  at beginning of year                           $744,827          $687,004
Service cost                                            0                 0
Interest cost                                      25,163            51,547
Actuarial (gain) loss                            (246,625)           53,063
Benefits paid                                     (43,312)          (46,787)
----------------------------------------------------------------------------
Projected benefit obligation
  at end of year                                 $480,053          $744,827
----------------------------------------------------------------------------
Change in Plan Assets
--------------------------------
Fair value of plan assets
  at beginning of year                           $      0          $      0
Actual return of plan assets                            0                 0
Employer contribution                              43,312            46,787
Benefits paid                                     (43,312)          (46,787)
Fair value of plan assets
  at end of year                                 $      0          $      0
----------------------------------------------------------------------------

     The expected  cost of  postretirement  benefits for 2006 is estimated to be
approximately $47 thousand.

14.  LONG-TERM DEBT
     The Corporation  established FMS Statutory Trust 1 ("Trust") in March 2002.
The  trust  issued  $25.0  million  of  floating  rate  capital   securities  to
institutional   investors  and  $774  thousand  of  common   securities  to  the
Corporation.  The  proceeds  of  these  were  used  by  the  Trust  to  purchase
subordinated  debentures  issued by the  Corporation.  The Corporation  used the
debenture proceeds to pay down the $10.0 million of 10% subordinated debentures,
expansion of the Bank's operations and general corporate  purposes.  The Trust's
capital  securities are fully guaranteed by the  Corporation's  debentures.  The
interest  rates reset every three months to LIBOR plus 360 basis points and will
not exceed 11.0% through the first five years from issuance.  As of December 31,
2005 and  2004,  the  interest  rate was  8.12%  and  6.15%,  respectively.  The
debentures are redeemable at the Corporation's option any time after March 2007.
The redemption of the debentures would result in the mandatory redemption of the
Trust's capital and common securities at par.

     As a  result  of the  deconsolidation  of the  Trust  under  FIN  46R as of
December 31, 2003, the Corporation  recognized in its Consolidated  Statement of
Financial  Condition its investment in FMS Statutory Trust 1, which is presented
in other assets and the subordinated  debenture liability owed to the Trust. The
deconsolidation  of the Trust did not have any other impact in the  consolidated
financial statements.

                                      -29-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

15.  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 securities: 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 fixed rate 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 time 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.

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

FMS Statutory  Trust 1 debentures:  Fair value is estimated  using quoted market
prices for similar securities.

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

--------------------------------------------------------------------------------
At  December  31,  2005 and  December  31,  2004,  the  carrying  amount and the
estimated  market  value  of  the  Corporation's  financial  instruments  are as
follows:

<TABLE>
<CAPTION>
                                                                     December 31, 2005               December 31, 2004
                                                              -----------------------------   -------------------------------
                                                               Carrying        Estimated         Carrying        Estimated
                                                                Amount        Market Value        Amount        Market Value
                                                             ------------    --------------   ------------     --------------
<S>                                                       <C>              <C>              <C>              <C>
Financial assets:
    Cash and cash equivalents                               $  93,840,949    $  93,840,949    $ 110,577,356    $ 110,577,356
    Investment securities held to maturity and investment
       securities available for sale                        $ 430,972,530    $ 426,856,874    $ 396,833,029    $ 395,849,575
    Mortgage-backed securities                              $ 208,195,874    $ 206,475,158    $ 269,221,897    $ 272,526,218
    FHLB Stock                                              $   8,248,420    $   8,248,400    $  10,250,120    $  10,250,120

    Loans, net of unearned income                           $ 447,634,142    $ 445,616,000    $ 423,517,825    $ 425,138,000
       Less: Allowance for possible loan losses             $  (5,062,785)   $  (5,062,785)   $  (4,719,192)   $  (4,719,192)
    Loans, net                                              $ 442,571,357    $ 440,553,215    $ 418,798,633    $ 420,418,808

Financial liabilities:
    Deposits
       Checking, passbook, and money market accounts        $ 735,175,654    $ 735,175,655    $ 730,758,498    $ 730,758,498
       Time deposits                                        $ 211,891,770    $ 210,789,000    $ 210,748,322    $ 211,448,000
    Securities sold under agreements to repurchase          $ 175,000,000    $ 178,419,000    $ 195,000,000    $ 204,920,000
    Advances from the Federal Home Loan Bank                $           0    $           0    $  10,000,000    $  10,000,000
    FMS Statutory Trust 1 debentures                        $  25,774,000    $  26,670,935    $  25,774,000    $  26,660,625

Off-balance sheet financial instruments:
    Commitments to extend credit                            $  54,113,170    $  54,113,170    $  46,668,731    $  46,668,731
    Standby letters of credit                               $   6,905,486    $   6,905,486    $   7,030,943    $   7,030,943
</TABLE>
                                      -30-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

16.  COMMITMENTS AND CONTINGENCIES
     The Bank has outstanding  loan  commitments of $54.1 million as of December
31, 2005. Of these  commitments  outstanding,  the  breakdown  between fixed and
variable rate loans is as follows:

                                             December 31, 2005
                              ------------------------------------------------
                                  Fixed             Variable
                                  Rate                Rate            Total
------------------------------------------------------------------------------
Commitments to fund loans      $13,530,656         $9,259,100     $22,789,756
Unused lines:
   Construction                  3,218,348            895,823       4,114,171
   Equity line of credit loans           0         27,209,243      27,209,243
------------------------------------------------------------------------------
Total                          $16,749,004        $37,364,166     $54,113,170
------------------------------------------------------------------------------

     In addition to outstanding  loan  commitments,  the Bank as of December 31,
2005, issued $6.9 million in standby letters of credit to guarantee  performance
of bank customers to third parties.

     Commitments and standby letters of credit are issued in accordance with the
same loan policies and underwriting  standards,  including collateral 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.

17.  LITIGATION
     In the normal course of business,  the  Corporation is subjected to various
legal  proceedings.  There were no  significant  pending  legal  proceedings  at
December  31,  2005  which  are  expected  to  have  a  material  impact  on the
Corporation's financial position or results of operations.

18.  LOANS TO EXECUTIVE 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. However, executive officers are permitted to participate in rate
discount programs  available to all employees.  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,  2005 and  2004,  loans  made to  directors  and  executive  officers  whose
indebtedness  exceeded $60 thousand  amounted to $5.2 million and $5.6  million,
respectively.  During 2005, new loans to these individuals  totaled $85 thousand
and repayments totaled $465 thousand.

19.  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.

     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.  All stock  options
are dilutive and included in the  calculation  of earnings per share.  All stock
options have been  adjusted  for all stock  splits.  At December  31, 2005,  the
option  exercise  prices were  $10.00.  Options are fully  vested at the date of
grant and must be  exercised  within  ten years.  There were no options  granted
during 2005, 2004 and 2003.

     The following table summarizes  information about stock options outstanding
at December 31, 2005.


   Exercise          Outstanding        Average        Exercisable
     Price             Options           Life *          Options
----------------------------------------------------------------------
    $10.00             36,500            2.8             36,500
----------------------------------------------------------------------

* Average contractual life in years

     A  summary  of the  status of the  Corporation's  Stock  Option  Plan as of
December  31, 2005,  2004 and 2003 and changes  during the years ending on those
dates is presented below.

<TABLE>
<CAPTION>
                                                 Years Ended December 31,
                         ------------------------------------------------------------------------
                                 2005                    2004                    2003
                         ------------------------------------------------------------------------
<S>                       <C>        <C>         <C>            <C>      <C>             <C>
Outstanding at the
  Beginning of the year    65,600       $8.31     75,250        $8.06     115,000         $8.54
Options exercised         (15,100)       5.90     (4,650)        7.49     (25,250)         9.71
Options surrendered       (14,000)       6.50     (5,000)        5.33     (14,500)        10.00
-------------------------------------------------------------------------------------------------
Outstanding at the
  End of the year          36,500      $10.00     65,600        $8.31      75,250         $8.06
-------------------------------------------------------------------------------------------------
</TABLE>

                                      -31-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

20.  RISKS AND UNCERTAINTIES

     Generally  accepted  accounting   principles  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
loan losses, pension benefit obligations, postretirement benefits, income taxes,
and carrying values of real estate owned.

     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.

      Consideration  is  given to a  variety  of  factors  in  establishing  the
estimate for allowance for loan losses 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 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 loan losses and the carrying  values of the real
estate assets could differ materially in the near term.

     The Bank sponsors pension and other  retirement  plans. The Bank's external
actuarial  consultants  use certain  statistical  factors to estimate the future
benefit  obligations.  The assumptions used could differ  materially from actual
results and may impact the amount of pension expense recorded by the Bank.

     The Bank is self insured for a portion of its current years' losses related
to its medical programs.  In estimating the Bank's self insurance accruals,  the
Bank  utilize  estimates  of  expected  losses,  which are based on  statistical
analysis  of  historical  data.  These  assumptions  are closely  monitored  and
adjusted when  warranted by changing  circumstances.  Should a greater amount of
claims occur  compared to what was  estimated or medical costs  increase  beyond
what was expected, accruals might not be sufficient, and additional expenses may
be recorded.  Medical costs are  anticipated to increase very modestly in fiscal
year 2006.

     The Bank is subject to claims and  lawsuits in the  ordinary  course of its
business. A determination of the amount accrued, if any, for these contingencies
is made after  analysis of each  matter.  The Bank  continually  evaluates  such
accruals and may increase or decrease accrued amounts as we deem appropriate.

                                      -32-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

21.  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                                           2005               2004
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>               <C>
Assets:
    Cash                                                                                            $1,337,624        $1,692,495
    Investment in subsidiary                                                                        91,911,725        86,626,282
    Intercompany receivable, net                                                                     7,172,564         6,758,424
    FMS Statutory Trust 1 issue costs, net                                                             484,467           562,311
    Other                                                                                              174,423           688,127
                                                                                                  -------------------------------
Total Assets                                                                                      $101,080,803       $96,327,639
                                                                                                  ===============================
Liabilities:
    FMS Statutory Trust 1 debentures                                                               $25,774,000       $25,774,000
    Dividends payable                                                                                  195,486           195,029
    Accrued interest payable                                                                            29,041            21,991
                                                                                                  -------------------------------
Total Liabilities                                                                                   25,998,527        25,991,020
                                                                                                  -------------------------------
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 8,006,392 and 7,991,292 and shares outstanding 6,515,110 and 6,502,110 as
       of December 31, 2005 and 2004, respectively                                                     800,639           799,129
    Paid-in capital in excess of par                                                                 8,767,381         8,555,506
    Accumulated comprehensive income - net of deferred income taxes                                 (1,099,630)          270,784
    Retained earnings                                                                               77,583,683        71,646,199
    Less:Treasury Stock (1,491,282 and 1,489,182 shares, at cost at December 31, 2005 and
       2004, respectively)                                                                         (10,969,797)      (10,934,999)
                                                                                                  -------------------------------
Total Stockholders' Equity                                                                          75,082,276        70,336,619
                                                                                                  -------------------------------
Total Liabilities and Stockholders' Equity                                                        $101,080,803       $96,327,639
                                                                                                  ===============================
</TABLE>

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------
                                                                    Years Ended December 31,
                                                        --------------------------------------------
FMS Financial Corporation Statements of Operations         2005             2004              2003
----------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>               <C>
Intercompany interest income                              $414,140        $320,582          $329,366
Interest expense                                        (1,834,528)     (1,368,591)       (1,295,928)
Dividends from subsidiary                                1,200,000       2,400,000         2,400,000
Equity in undistributed income of subsidiary             6,442,469       7,056,742         4,439,345
----------------------------------------------------------------------------------------------------
Income before taxes                                      6,222,081       8,408,733         5,872,783
Income tax benefit                                         496,151         359,496           328,631
----------------------------------------------------------------------------------------------------
Net Income                                              $6,718,232      $8,768,229        $6,201,414
----------------------------------------------------------------------------------------------------
</TABLE>

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


                                      -33-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                For Years Ended December 31,
                                                          ---------------------------------------
FMS Financial Corporation Statements of Cash Flows             2005          2004         2003
-------------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>           <C>
Operating Activities
Net income                                                $ 6,718,232   $ 8,768,229   $ 6,201,414
Adjustments to reconcile net income to net cash provided
   by operating activities:
Equity in undistributed earnings of the subsidiary         (6,442,469)   (7,056,742)   (4,439,345)
Amortization of debt issue costs                               77,844        77,843        77,845
Increase (Decrease) in interest payable                         7,050         4,915          (823)
(Increase) Decrease in intercompany receivable, net          (414,140)   (1,320,582)    1,670,633
Other                                                         513,708      (359,496)      226,102
                                                          -----------   -----------   -----------
    Net cash provided by operating activities                 460,225       114,167     3,735,826
                                                          -----------   -----------   -----------
Financing Activities
Purchase of treasury stock                                    (34,798)            0       (48,419)
Investment in subsidiary                                     (213,385)      (49,796)   (2,230,331)
Cash dividends paid on common stock                          (780,298)     (779,240)     (776,929)
Proceeds from issuance of stock                               213,385        49,796       230,333
                                                          -----------   -----------   -----------

    Net cash used by financing activities                    (815,096)     (779,240)   (2,825,346)
                                                          -----------   -----------   -----------

(DECREASE) INCREASE IN CASH                                  (354,871)     (665,073)      910,480
CASH, BEGINNING OF YEAR                                     1,692,495     2,357,568     1,447,088
                                                          -----------   -----------   -----------

CASH, END OF YEAR                                         $ 1,337,624   $ 1,692,495   $ 2,357,568
                                                          ===========   ===========   ===========
</TABLE>
--------------------------------------------------------------------------------
These  statements  should be read in conjunction with the other notes related to
the consolidated financial statements.

                                      -34-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------


PRICEWATERHOUSECOOPERS [LOGO]


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



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, 2005 and 2004, and the results of their  operations and their cash flows for
each of the three years in the period ended  December 31,  2005,  in  conformity
with accounting  principles  generally accepted in the United States of America.
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 of America,  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 our opinion.




          /s/PricewaterhouseCoopers LLP

          PricewaterhouseCoopers LLP
          New York, NY
          March 24, 2006

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


                                MANAGEMENT REPORT

To  the  Federal  Deposit  Insurance   Corporation  and  the  Office  of  Thrift
Supervision:

FINANCIAL STATEMENTS

Management of FMS Financial  Corporation and Subsidiary  ("the  Corporation") is
responsible  for  the  preparation,  integrity,  and  fair  presentation  of its
published consolidated  financial statements,  and Thrift Financial Report (TFR)
filed with the Office of Thrift  Supervision,  as of December 31, 2005,  and for
the year then ended. The published  consolidated  financial statements have been
prepared in accordance with generally accepted  accounting  principles,  and the
Thrift  Financial  Report has been  prepared  in  accordance  with the Office of
Thrift Supervision  reporting  instructions,  and, as such, include some amounts
that are based upon judgments and estimates of management.

INTERNAL CONTROL STRUCTURE OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining an effective internal
control  structure  over financial  reporting.  The system  contains  monitoring
mechanisms and actions are taken to correct deficiencies identified.

There are inherent  limitations in the  effectiveness  of any system of internal
control,  including  the  possibility  of human error and the  circumvention  or
overriding of controls.  Accordingly,  even an effective internal control system
can provide only  reasonable  assurance with respect to  consolidated  financial
statement  preparation.   Further,   because  of  changes  in  conditions,   the
effectiveness of an internal control system may vary over time.

Management  assessed its internal control structure over financial  reporting as
of December  31,  2005.  This  assessment  was based on criteria  for  effective
internal   control   over   financial    reporting    described   in   "Internal
Control-Integrated Framework" issued by the Committee of Sponsoring Organization
of the Treadway Commission.  Based on this assessment,  management believes that
the  Corporation   maintained  an  effective  internal  control  structure  over
financial reporting as of December 31, 2005.

COMPLIANCE WITH LAWS AND REGULATIONS
Management is also  responsible  for compliance  with federal and state laws and
regulations  concerning  dividend  restrictions and federal laws and regulations
concerning loans to insiders  designated by the Office of Thrift  Supervision as
safety and soundness laws and regulations.

Management  assessed its  compliance  with the designated  laws and  regulations
relating to safety and soundness. Based on this assessment,  management believes
that  the  Corporation  has  complied,  in all  significant  respects,  with the
designated  laws and  regulations  related to safety and  soundness for the year
ended December 31, 2005.

/s/Craig W. Yates                     /s/Channing L. Smith

Craig W. Yates                        Channing L. Smith
President and Chief Executive Officer Vice President and Chief Financial Officer

FMS Financial Corporation
Burlington, New Jersey
March 10, 2006

                                      -36-

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

                             CORPORATE INFORMATION

ANNUAL MEETING

     The 2006 Annual Shareholders'  Meeting of FMS Financial Corporation will be
held at 10:30 a.m., on the 27th day of April, 2006 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
10, 2006 was  approximately  725, 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, 2005 and 2004:

                                      2005
                             ------------------------
QUARTER ENDED                HIGH              LOW
-----------------------------------------------------
March 31,                   $20.50           $19.72
June 30,                    $19.80           $16.52
September 30,               $18.00           $16.78
December 31,                $18.09           $16.02
-----------------------------------------------------

                                      2004
                             ------------------------
QUARTER ENDED                HIGH              LOW
-----------------------------------------------------
March 31,                   $19.70           $16.50
June 30,                    $18.99           $15.66
September 30,               $17.96           $15.15
December 31,                $21.00           $16.31
-----------------------------------------------------

     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 trust capital  securities  before payment of cash dividends to
its stockholders.

     As of December 31, 2005 the Bank was a Tier 1 capital compliant institution
and had available  $27.9 million for  dividends to the  Corporation,  subject to
nonobjection by the OTS. It is not likely that the  Corporation  would request a
dividend of that  magnitude.  The  Corporation  is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders,  but is subject to
the  requirements  of New Jersey  law,  which  permits  the  Corporation  to pay
dividends  in cash on shares out of the  Corporation's  surplus,  defined as the
excess of net assets of the Corporation over stated capital.

                                      -37-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

     MARKET MAKERS

     The following  companies were making a market in the  Corporation's  common
     stock at December 31, 2005:

     Advest, Inc.                         Ryan Beck & Co.
     280 Trumbull Street                  80 Main Street
     1 Commercial Plaza                   W. Orange, NJ 07052
     Hartford, CT 06103                   (973) 597-6000
     (203) 541-5441

     Robert W. Baird & Co., Inc.          Trident Securities
     4300 W. Cypress Street               1275 Peachtree Street, NE
     Tampa, FL 33607                      Suite 460
     (813) 877-4000                       Atlanta, GA (404) 249-7700


     FORM 10-K AND OTHER FINANCIAL INQUIRIES

     The  Corporation's  Annual  Report on Form 10-K for the  fiscal  year ended
     December 31, 2005,  as filed with the  Securities  and Exchange  Commission
     will be furnished to shareholders  of the Corporation  upon written request
     without  charge.  Shareholders,  analysts and others seeking this and other
     requests for information  relating to stock, annual  shareholders'  meeting
     and  related  matters on FMS  Financial  Corporation,  should  contact  the
     Corporate Secretary at the Executive Offices.

     Transfer  Agent  and  Registrar      Independent Accountants
     American  Stock Transfer and         PricewaterhouseCoopers LLP
     Trust Company                        300 Madison Avenue
     40 Wall Street                       New York, NY 10017
     New York, NY 10005

     Special Counsel
     Malizia Spidi & Fisch, PC
     901 New York Avenue, N.W.
     Suite 210 East
     Washington, D.C. 20001

                                      -38-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S>                                             <C>                                        <C>
FARMERS & MECHANICS BANK
EXECUTIVE AND ADMINISTRATIVE OFFICES               DELANCO                                    MOORESTOWN
3 Sunset Road and 811 Sunset Road                  801 Burlington Avenue                      53 East Main Street
Burlington NJ  08016                               Delanco, NJ  08075                         Moorestown, NJ 08057
(609) 386-2400                                     (856) 824-0067                             (856) 235-0544

MAIN BRANCH                                        DELRAN                                     MOUNT HOLLY
3 Sunset Road & Route 541                          3002 Route 130 North                       555 High Street
Burlington, NJ  08016                              Delran, NJ 08075                           Mount Holly, NJ 08060
(609) 387-2728                                     (856) 764-3740                             (609) 261-0975

AUDUBON                                            EASTAMPTON                                 MOUNT LAUREL
157 S. White Horse Pike                            1191 Woodlane Road                         4522 Church Road
Audubon, NJ 08106                                  Eastampton, NJ 08060                       Mount Laurel, NJ 08054
(856) 672-9070                                     (609) 261-6400                            (856) 235-4445

BEVERLY                                            EDGEWATER PARK                             MT. LAUREL - FELLOWSHIP
414 Cooper Street                                  1149 Cooper Street                         301 Fellowship Road
Beverly, NJ 08010                                  Edgewater Park, NJ 08010                   Mount Laurel, NJ 08054
(609) 239-4066                                     (609) 387-0046                             (856) 222-9364

BORDENTOWN                                         FLORENCE                                   PEMBERTON
335 Farnsworth Avenue                              220 West Front Street                      25 Fort Dix Road
Bordentown, NJ  08505                              Florence, NJ  08518                        Pemberton, NJ 08068
(609) 291-8200                                     (609) 499-4960                             (609) 726-9111

BROWNS MILLS                                       LARCHMONT                                  PENNSAUKEN
101 Pemberton-Browns Mills Road                    3220 Route 38                              Route 130 & Merchantville Avenue
Browns Mills, NJ 08015                             Mount Laurel, NJ 08054                     Pennsauken, NJ  08110
(609) 893-5540                                     (856) 235-6666                             (856) 663-9200

BURLINGTON CITY                                    LUMBERTON
352 High Street                                    1636-61 Route 38 & Eayrestown Road         RIVERSIDE
Burlington, NJ 08016                               Lumberton, NJ 08048                        2 Scott Street & Pavilion Avenue
(609) 386-4643                                     (609) 267-6811                             Riverside, NJ 08075
                                                                                              (856) 461-4333
BURLINGTON TOWNSHIP                                MARLTON
809 Sunset Road                                    42 Main Street                             RIVERTON
Burlington, NJ 08016                               Marlton, NJ 08053                          604 Main Street
(609) 387-1150                                     (856) 596-6555                             Riverton, NJ 08077
                                                                                              (856) 786-5333
BURLINGTON-NECK ROAD                               MEDFORD
1029 Neck Road                                     200 Tuckerton Road                         SOUTHAMPTON
Burlington, NJ 08016                               Medford, NJ 08055                          1841 Route 70
(609) 239-4500                                     (856) 596-4300                             Southampton, NJ 08088
                                                                                              (609) 859-2700
CHESTERFIELD                                       MEDFORD LAKES
305 Bordentown-Chesterfield Road                   700 Stokes Road                            TABERNACLE
Chesterfield, NJ 08620                             Medford, NJ 08055                          1484 Route 206
(609) 324-1256                                     (609) 654-6373                             Tabernacle, NJ 08088
                                                                                              (609) 268-5993
CINNAMINSON                                        MEDFORD VILLAGE
1703 Highland Avenue                               1 S. Main Street at Bank Street            WAL* MART AUDUBON
Cinnaminson, NJ 08077                              Medford, NJ 08055                          130 Blackhorse Pike
(856) 303-1870                                     (609) 714-1115                             Audubon, NJ  08106
                                                                                              (856) 310-0909
</TABLE>
                                      -39-

<PAGE>
 WAL* MART BURLINGTON
 2106 Burlington-Mt. Holly Road
 Burlington, NJ 08016
 (609) 386-5960

 WAL* MART CHERRY HILL
 500 Route 38 & Cuthbert Boulevard
 Cherry Hill, NJ  08002
 (856) 662-1450

 WAL* MART CINNAMINSON
 2501 Route 130 South
 Cinnaminson, NJ  08077
 (856) 303-1395

 WAL* MART HAMILTON
 700 Market Place Boulevard
 Hamilton, NJ  08691
 (609) 585-2252

 WAL* MART LUMBERTON
 1740 Route 38
 Lumberton, NJ 08048
 (609) 702-9800
 WAL* MART MARLTON
 150 Route 70
 Marlton, NJ 08053
 (856) 988-1442

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

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

 WILLINGBORO ROUTE 130
 4406 Route 130 & Van Sciver Parkway
 Willingboro, NJ  08046
 (609) 871-6009

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