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 $1.3
billion,  the Corporation  employs 339 full-time and 239 part-time employees who
service over 155 thousand deposit accounts.  The Bank, which currently  operates
41 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.
We continue to strive for  convenient,  personal,  full service banking so as to
remain your "Hometown Bank."

                               [GRAPHIC OMITTED]

                                      -1-
<PAGE>

To Our Shareholders:

         We are pleased to report another successful year at Farmers & Mechanics
Bank.  Earnings of $8.7  million or $1.34 per share set a new  record.  Interest
income  increased  with the growing asset base while interest  expense  declined
slightly because of continued low rates and an increase in transaction accounts.
Deposits have increased to $941 million and shareholder's equity is now over $70
million.

         Over the past  decade,  we have worked to attract  checking and savings
transactional  accounts.  Certificates  of  Deposit  used to be about 65% of our
deposits and now represent  less than 20% of a much larger  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,  with more branch visits and closer ties through
the use of direct deposit,  ATM's, check cards,  telephone and computer banking,
and internet bill paying. These accounts are considered core accounts.

         While our earnings have been very good in the low interest environment,
our deposit mix, with a lot of  transaction  accounts,  should also perform well
when rates increase.  Currently,  however, short term rates have been increasing
while long term rates have  stayed at low  levels,  which will  reduce  earnings
somewhat in early 2005.

         There continues to be a lot of refinancing activity at current interest
rates and our market area also has plenty of new  construction.  Both activities
should slow down if rates increase. We continue to add to our loan loss reserves
for possible future market conditions and portfolio growth,  even though we have
experienced  almost no loan losses for several  years and ended the year with no
real estate owned (REO) properties.

         The growth and success of Farmers & Mechanics Bank is the result of the
long term  efforts  of more than 500 people  working  together  to provide  good
community  banking  services to our friends and  neighbors.  It is a pleasure to
note  the  longevity,   diversity,   personal  and   professional   development,
cooperation,  and real  friendships in our staff.  Our work is for today and for
the future.  I will explain all this later to my  granddaughter,  Sophia,  shown
with me in the picture.

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

                                                     Sincerely,




                                                     /s/Craig W. Yates
                                                     -----------------
                                                     Craig W. Yates
                                                     President

                                      -2-
<PAGE>

                               [GRAPHIC OMITTED]


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

FINANCIAL HIGHLIGHTS
Financial Condition: (In Thousands)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
December 31,                   2004        2003        2002      2001     2000      1999      1998      1997      1996       1995
---------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>         <C>         <C>         <C>      <C>       <C>       <C>       <C>       <C>        <C>
Assets                   $1,250,006  $1,225,557  $1,126,557  $966,537 $839,076  $772,501  $691,812  $628,403  $541,710   $501,550
Loans receivable, net       418,799     402,606     361,674   336,544  290,179   299,695   298,603   302,831   306,871    288,400
Deposits                    941,507     893,006     800,340   729,506  648,539   603,892   536,310   489,440   453,277    428,809
Stockholders' equity         70,337      62,830      57,638    52,203   47,410    46,097    43,469    38,916    33,826     33,053

Operations: (In Thousands)
except per share data)
---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,        2004        2003        2002      2001     2000      1999      1998      1997      1996       1995
---------------------------------------------------------------------------------------------------------------------------------

Interest income          $   55,762  $   50,814  $   57,748  $ 55,300 $ 52,349  $ 47,863  $ 46,563  $ 40,813  $ 36,841   $ 35,201
Interest expense             18,414      19,362      24,756    28,752   27,398    24,742    24,869    20,879    18,978     18,041
Net interest income          37,348      31,452      32,992    26,548   24,951    23,120    21,694    19,934    17,863     17,160
Net income                    8,768       6,201       7,961     5,459    5,112     5,114     5,271     5,491     3,026(a)   4,343
Basic earnings per
common share                   1.35        0.96        1.22      0.81     0.74      0.71      0.73      0.77      0.41       0.58
Diluted earnings per
common share                   1.34        0.95        1.21      0.81     0.74      0.70      0.72      0.75      0.40       0.56
Dividends declared per
common share                   0.12        0.12        0.12      0.12     0.12      0.12      0.11      0.08(b)   0.07(b)    0.07(b)
Weighted average common
shares outstanding            6,495       6,477       6,548     6,701    6,888     7,210     7,204     7,165     7,411      7,512
Weighted average common
shares and common stock
equivalents outstanding       6,529       6,515       6,577     6,714    6,947     7,292     7,314     7,346     7,573      7,695

Other Selected Data:
---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,        2004        2003        2002      2001     2000      1999      1998      1997      1996       1995
---------------------------------------------------------------------------------------------------------------------------------

Net interest rate spread       3.28%       2.98%       3.44%     3.24%     3.40%    3.28%     3.50%     3.60%     3.50%      3.49%
Net interest margin            3.25        2.92        3.40      3.22      3.42     3.36      3.48      3.72      3.66       3.66
Return on average assets       0.71        0.49        0.77      0.56      0.66     0.61      0.79      0.98      0.60       0.89
Return on average equity      13.21        9.52       14.61     10.02     11.16    10.93     12.86     15.11      8.99      14.00
Dividend payout ratio          8.95       12.63        9.92     14.81     16.22    17.14     15.28     10.67     17.50      12.43
Equity-to-asset ratio          5.63        5.13        5.12      5.40      5.65     5.97      6.28      6.19      6.24       6.59
Number of employees
  (full-time equivalents)       515         522         480       439       427      382       335       299       236        209
</TABLE>

(a)  Includes $2.7 million for the one-time  special  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,  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  since 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,  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  2004,  the  total
investment  in MBS and CMO  amounted  to  $468.3  million,  or  63.3%  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  60% 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. MBS and CMOs of $45.4
million and $3.2 million were used to secure public funds on deposit at December
31, 2004 and 2003, 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 Bank's Asset Liability Management Committee
("ALCO"),  which  includes  senior  management.  The ALCO monitors and considers
methods of managing  interest  rate risk by  monitoring  changes in the interest
rate  repricing GAP ("GAP"),  the net portfolio  values ("NPV") and net interest
income under various  interest rate  scenarios.  The ALCO attempts to manage the
various  components of the Bank's balance sheet to minimize the impact of sudden
and sustained changes in interest rates through GAP, NPV and net interest income
scenarios.

     The Bank's  exposure to interest rate risk is reviewed on a periodic  basis
by the Board of Directors and the ALCO.  Interest rate  sensitivity is a measure
of   the   difference   between   amounts   of   interest-earning   assets   and
interest-bearing  liabilities  which  either  reprice  or mature  within a given
period of time.
                                      -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, 2004 the Bank's GAP position
for net  assets  repricing  for one year  cumulative  totaled a  positive  $83.8
million.

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

     The Bank has  developed  stategies  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, 2004, the Bank would experience a
379 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 decreases of 200 points or more have been omitted.

                              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           -           -         10.96%
    (100)       143,993        (145)          0%        10.88%

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

                              December 31, 2003
                -----------------------------------------------
                             Net Portfolio Value
                -----------------------------------------------
Changes in
Interest Rates    $ Amount   $ Change  % Change  NPV Ratio (a)
(basis points)  -----------------------------------------------


    +300       $ 36,320     (84,385)        (70%)        3.08%
    +200         66,957     (53,749)        (45%)        5.51%
    +100         97,597     (23,109)        (19%)        7.79%
       0        120,706           -           -          9.41%
    (100)       122,488       1,782           1%         9.47%

(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  increased  $24.4  million or 2.0% to $1.3
billion at December 31, 2004 from $1.2 billion at December 31, 2003.  Short-term
funds  increased  $32.9  million or 105.8% to $64.1 million at December 31, 2004
from $31.2  million  at  December  31,  2003  primarily  due to an  increase  in
short-term  money  market  accounts.  Investment  securities  held  to  maturity
increased  $69.2  million or 37.3% to $254.8  million at December  31, 2004 from
$185.6 million at December 31, 2003. The increase in investment  securities held
to maturity  during the year is due to  purchases of $218.4  million,  partially
offset  by  principal  paydowns  of  $49.0  million  and  investment  calls  and
maturities of $99.7 million.  Investment securities available for sale decreased
$7.2 million or 4.8% to $142.0  million  during the year ended December 31, 2004
from $149.2  million at December 31, 2003, as a result of principal  paydowns of
$39.8 million and calls and  maturities of $54.0  million,  partially  offset by
purchases of $24.0 million in CMO's,  $10.0 million in MBS's  available for sale
and $54.4  million

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

in U.S.  Agency notes.  Mortgage-backed  securities  held to maturity  decreased
$90.5 million or 25.2% to $269.2 million during the year ended December 31, 2004
from $359.7  million at December 31, 2003, as a result of principal  paydowns on
MBS's of $101.5 million,  partially  offset by purchases of $13.4 million in MBS
pass-thru securities. Loans receivable increased $16.2 million or 4.0% to $418.8
million at December  31, 2004 from $402.6  million at  December  31,  2003.  The
increase in loans receivable  during the year ended December 31, 2004 was due to
$126.7  million  of loans  originated,  partially  offset by $110.1  million  of
principal collected on loans.

     Total  liabilities  increased  $16.9  million  or 1.5% to $1.2  billion  at
December 31, 2004 from $1.2 billion at December  31,  2003.  Deposits  increased
$48.5 million or 5.4% to $941.5 million at December 31, 2004 from $893.0 million
at December  31,  2003.  The  increase  in  deposits  during the year was due to
increases in checking accounts of $45.9 million,  money market accounts of $12.9
million and savings  accounts of $6.8 million,  partially offset by decreases in
certificates  of deposit of $17.1  million.  Deposits  acquired in 2003 with the
purchase of branch  locations in Florence  and  Tabernacle,  New Jersey  totaled
$16.1 million and $24.1 million, respectively.  Securities sold under agreements
to repurchase decreased $30.0 million or 13.3% to $195.0 million at December 31,
2004 from $225.0  million at December  31, 2003 with a weighted  average rate of
4.49% and are collateralized by U.S. Agency Notes, MBSs and CMOs.

         Stockholders'  equity  increased $7.5 million or 11.9% to $70.3 million
at December 31, 2004 from $62.8  million at December 31, 2003.  The increase was
due to net  income of $8.8  million  and the  exercise  of stock  options of $50
thousand,  partially  offset by $780  thousand of  dividends  declared on common
stock and a decrease of $531 thousand in accumulated  comprehensive  income (net
unrealized gain 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  non-interest 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 non-interest income and expenses, such as gains (losses) on the sale of loans
and  investments,  provision  for loan  losses and real  estate  owned,  service
charges and other fees, and operating expenses.

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

Average Balances, Interest and Yields/Rates

<TABLE>
<CAPTION>
                                                                     Years Ended December 31,
                                    ------------------------------------------------------------------------------------------------
                                                  2004                            2003                             2002
                                    -------------------------------------------------------------------- ---------------------------
                                     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              $   418,354  $   24,577     5.87%   $   388,201  $ 24,363     6.28%   $  361,734   $ 25,659    7.09%
  Interest-bearing deposits          50,928         667     1.31%        33,529       462     1.38%       48,169        932    1.93%
  Mortgage-backed securities        396,962      16,156     4.07%       419,461    16,805     4.01%      339,059     18,565    5.48%
  Investment securities             281,314      14,362     5.11%       234,442     9,184     3.92%      219,994     12,593    5.72%
                                -----------  ----------   ------    -----------    ------    -----    ----------   --------  ------
Total interest-earning
   assets                         1,147,558      55,762     4.86%     1,075,633    50,814     4.72%      968,956     57,749    5.96%
                                -----------  ----------   ------    -----------    ------    -----    ----------   --------  ------

Interest-bearing
   liabilities:
  Checking deposits                 366,338       1,717      .47%       313,492       915      .29%      262,153      1,621     .62%
  Savings deposits                  194,246       1,071      .55%       179,673     1,249      .70%      143,476      1,921    1.34%
  Money market deposits             139,038       1,001      .72%       130,822     1,020      .78%      109,124      2,033    1.86%
  Time deposits                     216,906       3,965     1.83%       225,240     5,401     2.40%      233,975      8,370    3.58%
  Borrowings                        221,883       9,291     4.19%       236,199     9,481     4.01%      207,351      9,069    4.37%
  Long-term debt                     25,774       1,369     5.31%        25,774     1,296     5.03%       25,510      1,743    6.83%
                                -----------  ----------   ------    ----------- ---------    -----    ----------   --------  ------
Total interest-bearing
   liabilities                  $ 1,164,185      18,414     1.58%   $ 1,111,200    19,362     1.74%   $  981,589     24,757    2.52%
                                ===========  ----------  -------    =========== ---------    -----    ==========   --------  ------
Net interest income                          $   37,348                         $  31,452                          $ 32,992
                                             ==========                         =========                          ========
Interest rate spread                                        3.28%                             2.98%                            3.44%
                                                         =======                           =======                           ======

Net yield on average
   interest-earning assets                                  3.25%                             2.92%                            3.40%
                                                         =======                           =======                           ======
Ratio of average interest-
   earning assets to average
   interest -bearing liabiltites                           98.57%                            96.80%                           98.71%
                                                         =======                           =======                           ======
</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,
                                      ---------------------------------------------------------------------
                                                2004 vs. 2003                       2003 vs. 2002
                                      --------------------------------    ---------------------------------
                                             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                             $ (1,678)   $  1,892    $    214    $ (3,173)   $  1,877    $ (1,296)
    Interest-bearing deposits              (35)        240         205        (187)       (283)       (470)
    Mortgage-backed securities             252        (901)       (649)     (6,162)      4,402      (1,760)
    Investment securities                3,342       1,836       5,178      (4,236)        827      (3,409)
                                      --------    --------    --------    --------    --------    --------

    Total change - interest income       1,881       3,067       4,948     (13,758)      6,823      (6,935)
                                      --------    --------    --------    --------    --------    --------
Interest expense:
    Checking deposits                      648         154         802      (1,023)        317        (706)
    Savings deposits                      (279)        101        (178)     (1,157)        485        (672)
    Money market deposits                  (83)         64         (19)     (1,417)        404      (1,013)
    Time deposits                       (1,236)       (200)     (1,436)     (2,657)       (312)     (2,969)
    Borrowings                             385        (575)       (190)       (850)      1,262         412
    Long-term debt                          73           -          73        (465)         18        (447)
                                      --------    --------    --------    --------    --------    --------
    Total change - interest expense       (492)       (456)       (948)     (7,569)      2,174      (5,395)
                                      --------    --------    --------    --------    --------    --------
Net change in net interest income     $  2,373    $  3,523    $  5,896    $ (6,189)   $  4,649    $ (1,540)
                                      ========    ========    ========    ========    ========    ========
</TABLE>

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 $.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. Non-interest income remained constant at $6.1
million  in 2004 and  2003.  Total  non-interest  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 $.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 $5.2  million,  loans of $214 thousand and
interest-bearing  deposits of $205 thousand,  partially  offset by a decrease in
interest income on mortgage-backed securities of $649 thousand.


     Interest  income on investment  securities  increased $5.2 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
119 basis  points  to 5.11% in 2004 from  3.92% in 2003,  which  resulted  in an
increase  in  interest  income  of $3.3  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 CMO's.  These
increases were partially offset by principal  paydowns of CMO's of $49.1 million
and calls of $97.0 million of U.S.  Government Agency Notes. 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 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 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.

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

     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 income on  mortgage-backed  securities  decreased $649 thousand in
2004 due to volume  decreases  in the  portfolio.  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. The average yield on the portfolio increased 6
basis points to 4.07% in 2004 from 4.01% in 2003,  which resulted in an increase
in interest income of $252 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 of  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 of $648  thousand.  The average
balance of 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 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 2004 and
2003  totaled  $18  thousand  and $180  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 as economic  conditions
dictate.  Management continues to offer a wider variety of loan products coupled
with  the  continued  change  in the mix of the  products  offered  in the  loan
portfolio from lower  yielding loans (i.e.,  one to four family loans) to higher
yielding loans (i.e., commercial real estate mortgage,  commercial construction,
consumer,  and commercial  business) which have a higher degree of risk than one
to four family loans.  Although the 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.

Non-Interest Income
     Non-interest 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.

Non-Interest Expense
     Non-interest  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  primarily  due to annual  pay rate
increases of $732 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.

     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.

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

Comparisons of Years Ended December 31, 2003 and 2002.

Net Income
     The Corporation and its subsidiary  recorded net income of $6.2 million for
the year ended  December  31,  2003,  or $.95  diluted  earnings  per share,  as
compared to net income of $8.0 million,  or $1.21 diluted earnings per share for
the year ended December 31, 2002. Net interest  income was $31.5 million in 2003
compared to $33.0 million in 2002. In 2003,  interest  income was  significantly
reduced by increased  prepayments  on the investment  portfolio,  which required
faster than normal  amortization  of premiums  previously  paid on  investments.
Provisions for loan losses were $270 thousand in 2003 and $149 thousand in 2002.
Other income  totaled $6.1 million in 2003 compared to $4.5 million for the same
period in 2002.  Total  operating  expenses for the year ended December 31, 2003
were $27.0 million compared to $24.6 million in the previous year.  During 2003,
the  Corporation  declared  cash  dividends  which  totaled $.12 per share which
resulted in a dividend payout ratio of 12.63%.

Interest Income
     Total interest income  decreased $6.9 million to $50.8 million in 2003 from
$57.7  million in 2002.  The decrease is  attributable  to decreases in interest
income on investment securities of $3.4 million,  mortgage-backed  securities of
$1.8  million,  loans of $1.3  million  and  interest-bearing  deposits  of $470
thousand.

     Interest  income on investment  securities  decreased $3.4 million in 2003.
The decrease in interest  income on the  investment  securities  was due to rate
decreases in the  portfolio.  The average yield on the  portfolio  decreased 180
basis points to 3.92% in 2003 from 5.72% in 2002,  which  resulted in a decrease
in  interest  income of $4.2  million.  The  average  balance  of the  portfolio
increased  $14.4 million to $234.4  million in 2003 from $220.0 million in 2002.
The investment  portfolio increased primarily due to purchases of $282.0 million
of CMO's and $93.6 million of U. S.  Government  Agency Notes.  These  increases
were partially offset by principal paydowns of CMO's of $202.5 million and calls
of $58.8 million of U.S.  Government  Agency Notes.  The increase in the average
balance of investment  securities  resulted in an increase in interest income of
$827 thousand in 2003.

     Interest  income on  mortgage-backed  securities  decreased $1.8 million in
2003 due to rate decreases in the portfolio.  The average yield on the portfolio
decreased 147 basis points to 4.01% in 2003 from 5.48% in 2002,  which  resulted
in a decrease in interest  income of $6.2  million.  The average  balance of the
portfolio  increased $80.4 million to $419.5 million in 2003 from $339.1 million
in 2002,  resulting  in an  increase  in interest  income of $4.4  million.  The
increase in the average  balance was due to the  purchases of $226.5  million in
FHLMC and FNMA securities in 2003.

      Interest  income on loans  decreased  $1.3  million  to $24.4  million  at
December 31, 2003 from $25.7 million at December 31, 2002.  The average yield on
the loan  portfolio  decreased  81 basis  points to 6.28% in 2003 from  7.09% in
2002,  which  resulted  in a decrease in interest  income of $3.2  million.  The
average balance of the loan portfolio  increased $26.5 million to $388.2 million
in 2003 from $361.7 million in 2002. Loans originated totaled $179.4 million and
principal collected on loans totaled $137.6 million in 2003. The increase in the
loan  volume  during 2003  resulted  in an  increase in interest  income of $1.9
million.

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

Interest Expense
     Total interest expense decreased $5.4 million to $19.4 million in 2003 from
$24.8 million in 2002. The decrease in interest expense on time deposits,  money
market  deposits,  checking,  savings and long-term debt was partially offset by
increases in interest expense on borrowings.

     Interest expense on time deposits decreased $3.0 million to $5.4 million in
2003 from $8.4 million in 2002. The average rate on time deposits  decreased 118
basis points to 2.40% in 2003 from 3.58% in 2002,  which  resulted in a decrease
in interest  expense of $2.7 million from lower  rates.  The average  balance of
time  deposits  decreased  $8.8  million to $225.2  million in 2003 from  $234.0
million in 2002,  which  resulted  in a  decrease  in  interest  expense of $312
thousand.

     Interest  expense on money market  deposits  decreased $1.0 million to $1.0
million in 2003 from $2.0  million in 2002.  The  average  rate on money  market
deposits  decreased 108 basis points to 0.78% in 2003 from 1.86% in 2002,  which
resulted in a decrease in interest expense of $1.4 million.  The average balance
of money market deposits  increased $21.7 million to $130.8 million in 2003 from
$109.1  million in 2002,  which  resulted in an increase in interest  expense of
$404 thousand.

     Interest  expense on  checking  deposits  decreased  $706  thousand to $915
thousand  in 2003  from $1.6  million  in 2002.  The  average  rate on  checking
deposits  decreased 33 basis  points to 0.29% in 2003 from 0.62% in 2002,  which
resulted in a decrease in interest expense of $1.0 million.  The average balance
of checking  deposits  increased  $51.3  million to $313.5  million in 2003 from
$262.2  million in 2002,  which  resulted in an increase in interest  expense of
$317 thousand

     Interest  expense on long-term debt decreased $447 thousand to $1.3 million
in 2003 from $1.7 million in 2002.  The average rate on long-term debt decreased
180  basis  points  to 5.03% in 2003  from  6.83% in 2002,  resulting  in a $465
thousand  decrease in interest expense due to rate changes.  The average balance
of long-term  debt  increased  $264 thousand to $25.8 million in 2003 from $25.5
million in 2002.  The volume  increase  resulted in a $18  thousand  increase in
interest expense in 2003.

     Interest  expense on borrowings  increased $412 thousand to $9.5 million in
2003 from $9.1  million in 2002.  The average  balance of  borrowings  increased
$28.8 million to $236.2 million in 2003 from $207.4  million in 2002,  resulting
in a $1.3 million increase in interest  expense due to volume.  The average rate
on  borrowings  decreased  36 basis  points to 4.01% in 2003 from 4.37% in 2002,
resulting  in a $850  thousand  decrease in  interest  expense due to changes in
rate.

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 $121 thousand to $270 thousand
in 2003 from $149  thousand in 2002.  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 2003 and 2002 totaled $180
thousand and $63 thousand, respectively.

Non-Interest Income
     Non-interest income from operations  increased $1.6 million to $6.1 million
in 2003 compared with $4.5 million in 2002.

     During 2003,  various real estate owned was sold and resulted in a net gain
of $496 thousand.

     Loss on sale of fixed assets of $116 thousand primarily relates to the sale
of the Lake Pine branch office which was closed in 2002.

     During 2003,  the remaining real estate held for  development  was sold and
resulted in a net gain of $601 thousand.

     Service charges on accounts increased $600 thousand to $4.6 million in 2003
from $4.0  million in 2002.  The  increase  is the result of higher  transaction
volume on retail accounts during the year.

Non-Interest Expense
     Non-interest  expense  increased $2.4 million to $27.0 million in 2003 from
$24.6 million in 2002.

     Occupancy and equipment  expense increased $800 thousand to $5.4 million in
2003 from $4.6 million in 2002. The increase is due to additional  depreciation,
rent and occupancy  expenses on the five new branch  offices  opened in 2003, as
well as other facility and equipment additions and improvements during the year.

     Salaries and benefits  increased $1.3 million to $15.5 million in 2003 from
$14.2  million in 2002.  The  increase was due to  additional  staff in five new
branch  offices  opened  during the year and an  increase  of $257  thousand  in
retirement  and health  insurance  costs in 2003.  Average full time  equivalent
employees during 2003 were 522 as compared to 480 during 2002.

     Purchased services expense increased $253 thousand  to $2.8 million in 2003
from $2.6  million  in 2002.  ATM  charges  increased  $161  thousand  and check
processing costs increased $5 thousand due to higher transaction volume in 2003.

                                      -12-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

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

Liquidity and Capital Resources
     The Bank's liquidity is a measure of its ability to fund loans, withdrawals
of deposits  and other cash  outflows  in a cost  effective  manner.  The Bank's
primary sources of funds are deposits and scheduled amortization and prepayments
of loan  principal.  The Bank also  obtains  funds from the sale and maturity of
investment  securities  and  short-term  investments  as well as the maturity of
mortgage-backed  securities and funds  provided by  operations.  During the past
several  years,  the Bank has used  such  funds  primarily  to meet its  ongoing
commitments  to fund  maturing time  deposits and savings  withdrawals,  to fund
existing and continuing loan commitments and to maintain liquidity. The Bank has
periodically   supplemented   its  funding  needs  with  securities  sold  under
agreements to repurchase  (repurchase  agreements) and advances from the Federal
Home Loan Bank of New York  (FHLB).  At  December  31,  2004 the Bank had $195.0
million in repurchase  agreements and $10.0 million in advances from the FHLB of
New  York.  While  loan  payments,   maturing  investments  and  mortgage-backed
securities are relatively  predictable sources of funds,  deposit flows and loan
prepayments  are  greatly   influenced  by  general  interest  rates,   economic
conditions and competition. The Bank's liquidity is also influenced by the level
of demand for funding loan originations.  Liquidity may be adversely affected by
unexpected  deposit  outflows,  excessive  interest  rates paid by  competitors,
adverse  publicity  relating  to  the  Banking  industry  and  similar  matters.
Management   monitors  projected   liquidity  needs  and  determines  the  level
desirable,  based  in  part  on the  Company's  commitment  to  make  loans  and
management's  assessment of the Company's ability to generate funds. The Company
is also  subject to federal  regulations  that impose  certain  minimum  capital
requirements.

     The amount of certificate accounts which are scheduled to mature during the
twelve months ending December 31, 2005 is approximately  $150.6 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   continuing   contractual
obligations at December 31, 2004 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   $ 30,000   $ 20,000   $145,000   $195,000
Advances from Federal Home Loan Bank*               10,000          0          0          0     10,000
FMS Statutory Trust 1 debentures                         0          0          0     25,774     25,774
Operating leases                                       289        580        594      2,390      3,853
Commitments to fund loans                           14,549          0          0          0     14,549
Unused lines of credit                                   0          0          0     32,120     32,120
Standby letters of credit                            7,031          0          0          0      7,031
Software maintenance contracts                         113          0          0          0        113
</TABLE>

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

                                      -13-

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

Consolidated Summary of Quarterly Earnings (Unaudited)
<TABLE>
<CAPTION>
 The following table presents summarized quarterly data for 2004 and 2003:

--------------------------------------------------------------------------------------
                                        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 non-interest income               1,362     1,430     1,799     1,526     6,117
Total non-interest 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>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                        1st       2nd       3rd       4th     Total
                2003                  Quarter   Quarter   Quarter   Quarter    Year
--------------------------------------------------------------------------------------
                                         (In Thousands, except per share amounts)
<S>                                  <C>       <C>       <C>       <C>       <C>
Total interest income                 $13,432   $12,438   $11,668   $13,276   $50,814
Total interest expense                  5,275     4,929     4,618     4,540    19,362
                                      -------   -------   -------   -------   -------
Net interest income                     8,157     7,509     7,050     8,736    31,452
Provision for loan losses                  60        60        75        75       270
                                      -------   -------   -------   -------   -------
Net interest income after provision
    for loan losses                     8,097     7,449     6,975     8,661    31,182
Total non-interest income               1,572     1,501     1,271     1,712     6,056
Total non-interest expenses             6,633     6,813     6,758     6,766    26,970
                                      -------   -------   -------   -------   -------
Income before income taxes              3,036     2,137     1,488     3,607    10,268
Income taxes                            1,196       837       588     1,446     4,067
                                      -------   -------   -------   -------   -------

Net income                            $ 1,840   $ 1,300   $   900   $ 2,161   $ 6,201
                                      =======   =======   =======   =======   =======

Basic earnings per common share       $  0.28   $  0.20   $  0.14   $  0.34   $  0.96
                                      =======   =======   =======   =======   =======

Diluted earnings per common share     $  0.28   $  0.20   $  0.14   $  0.33   $  0.95
                                      =======   =======   =======   =======   =======
</TABLE>

                                      -14-

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

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------

December 31,                                                                        2004              2003
-----------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                <C>
ASSETS

  Cash and amounts due from depository institutions                          $    46,410,744    $    41,022,232
  Interest-bearing deposits                                                           30,950            142,929
  Short-term funds                                                                64,135,662         31,169,476
                                                                             ---------------    ---------------

  Total cash and cash equivalents                                                110,577,356         72,334,637
  Investment securities held to maturity                                         254,833,749        185,629,004
  Investment securities available for sale                                       141,999,280        149,230,862
  Mortgage-backed securities held to maturity                                    269,221,897        359,669,864
  Loans, net                                                                     418,798,633        402,606,056
  Accrued interest receivable                                                      6,322,107          5,203,748
  Federal Home Loan Bank stock                                                    10,250,120         11,809,620
  Real estate owned, net                                                                   0             48,294
  Office properties and equipment, net                                            30,747,227         31,429,069
  Deferred income taxes                                                            2,150,442          2,043,909
  Core deposit intangible                                                          2,592,030          3,308,238
  Prepaid expenses and other assets                                                1,950,913          1,603,294
  FMS Statutory Trust 1 issue costs, net                                             562,311            640,154
                                                                             ---------------    ---------------

TOTAL ASSETS                                                                 $ 1,250,006,065    $ 1,225,556,749
                                                                             ===============    ===============

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Deposits                                                                   $   941,506,820    $   893,006,498
  Securities sold under agreements to repurchase                                 195,000,000        225,000,000
  Advances from the Federal Home Loan Bank                                        10,000,000         11,191,047
  FMS Statutory Trust 1 debentures                                                25,774,000         25,774,000
  Advances by borrowers for taxes and insurance                                    2,200,357          2,142,499
  Accrued interest payable                                                         1,246,661          1,319,501
  Dividends payable                                                                  195,029            194,576
  Other liabilities                                                                3,746,579          4,098,885
                                                                             ---------------    ---------------
  Total liabilities                                                            1,179,669,446      1,162,727,006
                                                                             ---------------    ---------------

Commitments and contingencies
Stockholders' Equity:
   Preferred stock - $.10 par value 5,000,000 shares authorized; none issued
   Common stock - $.10 par value 10,000,000 shares authorized; shares
     issued 7,991,292 and 7,975,059 and shares outstanding 6,502,110
     and 6,485,877 as of December 31, 2004 and 2003, respectively                     799,129            797,506
   Paid-in capital in excess of par                                                 8,555,506          8,507,333
   Accumulated comprehensive income - net of taxes                                    270,784            802,239
   Retained earnings                                                               71,646,199         63,657,664
   Less:  Treasury stock (1,489,182 shares, at cost, as of
     December 31, 2004 and 2003, respectively)                                    (10,934,999)       (10,934,999)
                                                                              ---------------    ---------------
Total stockholders' equity                                                         70,336,619         62,829,743
                                                                               ---------------    ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $1,250,006,065     $1,225,556,749
                                                                               ===============    ===============
</TABLE>
See notes to consolidated financial statements.

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

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------

Years Ended December 31,                                          2004            2003            2002
-----------------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>             <C>
INTEREST  INCOME:
Interest income on:
 Loans                                                       $ 24,576,705    $ 24,362,749    $ 25,658,517
 Mortgage-backed securities                                    16,156,135      16,805,015      18,564,795
 Investments                                                   15,028,813       9,646,233      13,525,357
                                                             ------------    ------------    ------------
Total interest income                                          55,761,653      50,813,997      57,748,669
                                                             ------------    ------------    ------------
INTEREST EXPENSE:
Interest expense on:
 Deposits                                                       7,754,391       8,585,202      13,944,396
 Borrowings                                                     9,290,862       9,480,985       9,069,402
 Long-term debt                                                 1,368,591       1,295,928       1,742,660
                                                             ------------    ------------    ------------
Total interest expense                                         18,413,844      19,362,115      24,756,458
                                                             ------------    ------------    ------------
NET INTEREST INCOME                                            37,347,809      31,451,882      32,992,211
PROVISION FOR LOAN LOSSES                                         330,000         270,000         149,000
                                                             ------------    ------------    ------------
NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                            37,017,809      31,181,882      32,843,211
                                                             ------------    ------------    ------------
NON-INTEREST INCOME:
 Loan service charges and other fees                              105,828          85,759         125,806
 Gain on sale of real estate owned                                    229         495,831          18,261
 Gain (loss) on sale/disposal of fixed assets                      46,080        (115,658)        100,767
 Gain on sale of investment securities                            682,880         285,846               0
 Gain on sale of real estate held for development                       0         600,780               0
 Real estate owned operations, net                                 (4,586)        (20,365)        (40,156)
 Service charges on accounts                                    5,149,878       4,592,540       3,992,890
 Other income                                                     137,136         131,805         306,907
                                                             ------------    ------------    ------------
Total non-interest income                                       6,117,445       6,056,538       4,504,475
                                                             ------------    ------------    ------------
NON-INTEREST EXPENSE:
 Salaries and employee benefits                                16,877,722      15,512,202      14,161,356
 Occupancy and equipment                                        5,383,883       5,399,414       4,599,750
 Purchased services                                             2,850,118       2,841,868       2,589,186
 Federal deposit insurance premiums                               129,945         127,387         123,493
 Professional fees                                                662,180         654,197         846,880
 Advertising                                                      429,093         469,070         459,183
 Amortization of core deposit intangible                          716,208         272,802               0
 Other                                                          1,335,975       1,693,350       1,800,868
                                                             ------------    ------------    ------------
Total non-interest expenses                                    28,385,124      26,970,290      24,580,716
                                                             ------------    ------------    ------------
INCOME BEFORE INCOME TAXES                                     14,750,130      10,268,130      12,766,970

INCOME TAXES                                                    5,981,901       4,066,716       4,806,226
                                                             ------------    ------------    ------------

NET INCOME                                                   $  8,768,229    $  6,201,414    $  7,960,744
                                                             ============    ============    ============

BASIC EARNINGS PER COMMON SHARE                              $       1.35    $       0.96    $       1.22
                                                             ============    ============    ============
DILUTED EARNINGS PER COMMON SHARE                            $       1.34    $       0.95    $       1.21
                                                             ============    ============    ============

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

Weighted average common shares outstanding                      6,495,218       6,476,938       6,548,313
Potential dilutive effect of the exercise of stock options         34,251          37,996          28,956
                                                             ------------    ------------    ------------
Adjusted weighted average common shares outstanding             6,529,469       6,514,934       6,577,269
                                                             ============    ============    ============
</TABLE>

See notes to consolidated financial statements.

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

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                                 2004             2003             2002
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>              <C>              <C>
OPERATING ACTIVITIES:
Net income                                                                         $   8,768,229    $   6,201,414    $   7,960,744
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses                                                                330,000          270,000          149,000
Depreciation and amortization                                                          7,117,032        7,596,574        5,163,734

Realized (gains) and losses on:
   Sale of loans and loans held for sale                                                    (229)            (335)            (881)
   Sale and disposal of fixed assets                                                     (46,080)         115,658         (100,767)
   Loss on retirement of debt                                                                  0                0          133,682
   Investment securities                                                                (682,880)        (285,846)               0
   Sale of real estate owned                                                                (654)        (495,496)         (17,380)
   Sale of real estate held for development                                                    0         (600,780)               0
(Increase) Decrease in accrued interest receivable                                    (1,118,359)          75,910          263,442
(Increase) Decrease in prepaid expenses and other assets                                (347,619)         176,528          761,872
Decrease in accrued interest payable                                                     (72,840)         (63,553)        (399,454)
Increase (Decrease) in other liabilities                                                 (21,078)         653,619         (606,392)
(Benefit) Provision for deferred income taxes                                           (106,533)         928,663         (443,368)
                                                                                   -------------    -------------    -------------
  Net cash provided by operating activities                                           13,818,989       14,572,356       12,864,232
                                                                                   -------------    -------------    -------------
INVESTING ACTIVITIES:
Proceeds from sale of:
   Education loans                                                                        60,279          103,399          190,785
   Real estate held for development                                                            0          688,706                0
   Real estate owned                                                                      48,948        1,192,294          107,097
   Office property and equipment                                                         238,871          308,814          208,941
   Investment securities available for sale                                           22,870,336                0                0
Principal collected and proceeds from maturities of
  investment securities held to maturity                                             148,740,093      206,997,534      214,877,925
Principal collected and proceeds from maturities of
  investment securities available for sale                                            71,614,876      123,532,241       73,690,189
Principal collected and proceeds from maturities
  of mortgage-backed securities                                                      101,548,462      202,995,009      125,440,105
Principal collected on loans, net                                                    110,121,450      137,639,469       89,481,147
Loans originated or acquired                                                        (126,679,593)    (179,403,933)    (115,141,777)
Purchase of investment securities and mortgage-backed
  securities held to maturity                                                       (232,157,961)    (455,768,535)    (380,298,789)
Purchase of investment securities and mortgage-backed
  securities available for sale                                                      (88,703,074)    (156,532,806)    (139,179,153)
Redemption (Purchase) of Federal Home Loan Bank stock                                  1,559,500          252,100       (3,748,100)
Purchase of office property and equipment                                             (1,476,146)      (4,775,248)      (4,559,726)
Net cash received from deposit purchase                                                        0       36,540,170                0
                                                                                   -------------    -------------    -------------
  Net cash provided (used) by investing activities                                     7,786,041      (86,230,786)    (138,931,356)
                                                                                   -------------    -------------    -------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts                                  65,584,898       67,749,707      103,019,001
Net decrease in time deposits                                                        (17,084,576)     (11,623,601)     (32,184,508)
Net (decrease) increase in FHLB advances                                              (1,191,047)         (41,056)       9,961,790
(Repayment) Proceeds from securities sold under agreement to repurchase              (30,000,000)               0       60,000,000
Net proceeds from issuance of trust capital debentures                                         0                0       24,221,532
Repayment of subordinated debentures                                                           0                0      (10,100,000)
Increase (decrease) in advances from borrowers for taxes and insurance                    57,858           92,686         (197,189)
Purchase of treasury stock                                                                     0          (48,419)      (2,813,136)
Dividends paid on common stock                                                          (779,240)        (776,929)        (790,339)
Net proceeds from issuance of common stock                                                49,796          230,333            1,195
                                                                                   -------------    -------------    -------------
 Net cash provided by financing activities                                            16,637,689       55,582,721      151,118,346
                                                                                   -------------    -------------    -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      38,242,719      (16,075,709)      25,051,222
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                          72,334,637       88,410,346       63,359,124
                                                                                   -------------    -------------    -------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                             $ 110,577,356    $  72,334,637    $  88,410,346
                                                                                   =============    =============    =============
Supplemental Disclosures:
  Cash paid for:
    Interest on deposits, advances, and other borrowings                           $  18,486,684    $  19,425,668    $  25,155,912
    Income taxes                                                                       5,450,000        2,469,200        5,679,482
  Non-cash investing and financing activities:
    Dividends declared and not paid at year end                                          195,063          194,576          193,914
    Non-monetary transfers from loans to real estate owned through foreclosure                 0          453,892          166,668
</TABLE>

See notes to consolidated financial statements.

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

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------


                                   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, 2001    6,717,705     $794,888   $8,278,423   $   147,496    $51,055,818   $ (8,073,444)       $52,203,181
Net Income                                                                              7,960,744                         7,960,744
Other comprehensive
  income, net of tax
  benefit of $710,591
  Unrealized gain
  on securities
  available for sale                                                     1,068,557                                        1,068,557
                                                                                                                        -----------
Total comprehensive income                                                                                                9,029,301
Dividends declared                                                                       (782,722)                         (782,722)
Exercise of stock options              925           93        1,102                                                          1,195
Purchase of common stock          (254,819)                                                           (2,813,136)        (2,813,136)
------------------------------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------------------------------
</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, 2004, 2003, and 2002

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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,  its  wholly-owned
subsidiary ("Bank").  Material  intercompany accounts and transactions have been
eliminated from the consolidated financial statements.

     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.

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

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

Cash and Cash Equivalents
     Cash and cash  equivalents  include  cash and amounts  due from  depository
institutions,  interest-bearing deposits with an original maturity of 90 days or
less,  money  market  funds and federal  funds sold.  Cash and cash  equivalents
exclude  reverse  repurchase   agreements  which  are  generally  classified  as
investments  held to maturity.  Generally,  federal funds are purchased and sold
for one-day  periods.  The Bank is required to maintain  certain average reserve
balances  as  established  by the  Federal  Reserve  Bank.  The  amount of those
balances for the reserve computation periods which include December 31, 2004 and
2003 were $22.4 million and $19.5 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.

Allowance for Loan Losses
     An  allowance  for loan  losses is  maintained  at a level that  management
considers  adequate to provide for losses based upon the  portfolio's  past loss
experience,  current  economic  conditions  and  other  relevant  factors.  When
collection  of a loan's  principal  balance  or portion  thereof  is  considered
doubtful,  management  charges  the  allowance  for 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.

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

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.

                                      -19-

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

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

Office Properties and Equipment
     Office  properties  and  equipment  are recorded at cost.  Depreciation  is
computed using the  straight-line  method over the expected  useful lives of the
assets.  The  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 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.

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.

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 2003 and 2002 consolidated  financial  statements have
been  reclassified  to conform with the  presentation  in the 2004  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", 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.

Recently Issued Accounting Standards
     In 2003, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting  Standards  No. 132R (SFAS No.  132R),  which  requires
additional  disclosures  in addtion to those still required in the original SFAS
No.  132  "Employees   Disclosures  about  Pensions  and  Other   Postretirement
Benefits".  This statement  became  effective  during 2004. The adoption of this
standard had no effect on the Consolidated  Statements of Financial Condition or
the Consolidated Statements of Operations.

     In 2003, the American  Institute of Certified  Public  Accountants  (AICPA)
issued  Statement  of  Position  03-3  "Accounting  for  Certain  Loans  or Debt
Securities  Acquired in a Transfer" (SOP 03-3),  that  addresses  accounting for
differences  between  contractual  cash  flows  and cash  flows  expected  to be
collected  from an investor's  initial  investment  in loans or debt  securities
acquired in a transfer if those differences are attributable,  at least in part,
to credit  quality.  SOP 03-3 does not apply to loans  originated by the entity.
SOP 03-3 limits the accretable yield to the excess of the investor's estimate of
undiscounted  expected  principal,  interest,  and other cash flows (expected at
acquistition to be collected) over the investor's initial investment in the loan
and it  prohibits  "carrying  over" or  creating a valuation  allowance  for the
excess of contractual cash flows over cash flows expected to be collected in the
inital  accounting of a loan  acquired in a transfer.  SOP 03-3 and the required
disclosures  are effective for loans  acquired in fiscal years  beginning  after
December  14,  2004.  Adoption  of SOP 03-3 is not  expected  to have a material
impact  on  the   Consolidated   Statements  of  Financial   Condition  and  the
Consolidated Statements of Operations, however, there are additional disclosures
that will be required in 2005.

                                      -20-

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

     In 2004, FASB issued Statement of Financial  Accounting  Standards No. 123R
(SFAS  No.  123R) a  revision  of  SFAS  No.  123  "Accounting  for  Stock-Based
Compensation".  This  statement  establishes  standards for the  accounting  for
transactions  in which an entity  exchanges its equity  instruments for goods or
services.  This statement  becomes effective June 15, 2005. The adoption of this
standard  will  have no  effect  on the  Consolidated  Statements  of  Financial
Condition or the Consolidated  Statements of Operations for the Corporation,  as
all options that have been issued are fully vested.

     In 2004, the FASB~issued FSP 106-2,  Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug,  Improvement and Modernization Act of
2003,  which supercedes FSP 106-1.  FSP 106-2 discusses  certain  accounting and
disclosure  requirements related to the Medicare Prescription Drug,  Improvement
and  Modernization Act of 2003. This statement was established based on Medicare
legislation enacted on December 8, 2003, which introduced a federal prescription
drug  subsidy to sponsors of retiree  health care plans that  provided a benefit
that is at least as  actuarially  equivalent to the Medicare  prescription  drug
benefit.  The  Corporation's   postretirement  health  care  plan  provides  for
prescription drug benefits.  The Corporation has not yet determined  whether the
prescription  drug  benefits  provided  under our  postretirement  plan meet the
requirements to receive the federal subsidy.  We do not believe the subsidy,  if
any,  will have a material  impact on the  Consolidated  Statements of Financial
Condition or the Consolidated Statements of Operations.

     In March 2004, the Emerging Issues Task Force released EITF Issue No. 03-1,
"The Meaning of Other Than Temporary  Impairment and Its  Application to Certain
Investments  (EITF 03-1)".  EITF 03-1 provides  guidance for determining when an
investment  is other  than  temporarily  impaired  and  applies  to  investments
classified  as either  available  for sale or held to  maturity  under  SFAS 115
(including   individual   securities  and  investments  in  mutual  funds),  and
investments accounted for under the cost method. In addition, EITF 03-1 contains
disclosure  requirements  for impairments that have not been recognized as other
than  temporary.  In October 2004, the FASB voted to delay the effective date of
the  recognition and measurement  provisions  related to determining  other than
temporary impairment on available for sale securities.  The Corporation however,
adopted  EITF 03-1  during  the third  quarter  of 2004.  The  adoption  of this
standard had no effect on the 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, 2004 and 2003 are as follows:

                                          December 31, 2004
                       ---------------------------------------------------------
                                       Gross         Gross          Estimated
                       Amortized     Unrealized    Unrealized         Market
                         Cost          Gains         Losses           Value
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------


                                          December 31, 2003
                       ---------------------------------------------------------
                                       Gross         Gross          Estimated
                       Amortized     Unrealized    Unrealized         Market
                         Cost          Gains         Losses           Value
--------------------------------------------------------------------------------
U.S. Gov't Agencies   $ 72,256,272   $  810,767    $ (72,852)     $ 72,994,187
CMOs                   110,973,192      309,320     (852,877)      110,429,635
Municipal bonds          2,399,540        5,023            0         2,404,563
------------------------------------------------------------------------------
Total                 $185,629,004   $1,125,110    $(925,729)     $185,828,385
--------------------------------------------------------------------------------


     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, 2004 are shown in the following table. The contractual  maturity is
used for U.S.  Government  Agencies 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, 2004
                                 --------------------------------------
                                     Amortized            Estimated
                                        Cost             Market Value
-----------------------------------------------------------------------
Due one year or less               $  7,251,826          $  7,263,641
Due one to five years                65,586,097            65,262,264
Due five to ten years                         0                     0
Due after ten years                 181,995,826           181,324,390
-----------------------------------------------------------------------
Total                              $254,833,749          $253,850,295
-----------------------------------------------------------------------


3.   INVESTMENT SECURITIES AVAILABLE FOR SALE

     The  amortized  cost and estimated  market value of  investment  securities
available for sale at December 31, 2004 and 2003 are as follows:

                                          December 31, 2004
                       ---------------------------------------------------------
                                       Gross         Gross          Estimated
                       Amortized     Unrealized    Unrealized         Market
                         Cost          Gains         Losses           Value
--------------------------------------------------------------------------------
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                    73,326,684       885,686    (131,401)       74,080,969
-------------------------------------------------------------------------------
Total                 $141,541,491    $1,125,512   $(667,723)     $141,999,280
-------------------------------------------------------------------------------


                                          December 31, 2003
                       ---------------------------------------------------------
                                       Gross         Gross          Estimated
                       Amortized     Unrealized    Unrealized         Market
                         Cost          Gains         Losses           Value
--------------------------------------------------------------------------------
U.S. Gov't Agencies  $ 13,100,525  $   88,000      $       0      $ 13,188,525
CMOs                   33,367,088     236,720         (7,016)       33,596,792
MBSs                  101,442,775   1,274,676       (271,906)      102,445,545
-------------------------------------------------------------------------------
Total                $147,910,388  $1,599,396      $(278,922)     $149,230,862
--------------------------------------------------------------------------------


     The amortized cost and estimated market value of investments  available for
sale at December  31, 2004 are shown in the  following  table.  The  contractual
maturity is used for U.S.  Government  Agencies 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, 2004
                                 --------------------------------------
                                     Amortized            Estimated
                                        Cost             Market Value
-----------------------------------------------------------------------
Due one year or less              $ 21,735,433           $ 21,906,732
Due one to five years               20,309,876             20,091,530
Due five to ten years               19,640,011             19,607,181
Due after ten years                 79,856,171             80,393,837
-----------------------------------------------------------------------
Total                             $141,541,491           $141,999,280
-----------------------------------------------------------------------


     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. 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.  There
were no sales of investment securities during 2002.




                                      -22-

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

<TABLE>
<CAPTION>

     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-temporary  impaired,  aggregated by investment category and length of
time that the  individual  securities  have been in continuous  unrealized  loss
position at December 31, 2004.



                                                Less than 12 Months           12 Months or Greater                Total
                                         -----------------------------   ----------------------------   ----------------------------
                                                           Unrealized                      Unrealized                    Unrealized
                                            Fair Value       Losses       Fair Value         Losses      Fair Value        Losses
                                         -----------------------------   ----------------------------   ----------------------------
Investment Securities Available for Sale:
<S>                                     <C>            <C>             <C>            <C>             <C>            <C>
   U.S. Agency Notes                      $ 13,927,264   $   (258,293)   $          0   $          0    $ 13,927,264   $   (258,293)
   MBSs                                      4,824,236        (89,617)      3,873,821        (41,784)      8,698,057       (131,401)
   CMOs                                     14,063,459       (179,551)      4,568,581        (98,478)     18,632,040       (278,029)
------------------------------------------------------------------------------------------------------------------------------------
Total Available for Sale                    32,814,959       (527,461)      8,442,402       (140,262)     41,257,361       (667,723)
------------------------------------------------------------------------------------------------------------------------------------

Investment Securities Held to Maturity:
   U.S. Agency Notes                        60,275,436       (602,015)      4,968,750        (29,614)     65,244,186       (631,629)
   MBSs                                     37,167,703       (540,246)     40,777,220       (428,133)     77,944,923       (968,379)
   CMOs                                     49,199,714       (695,555)     16,625,450       (108,633)     65,825,164       (804,188)
------------------------------------------------------------------------------------------------------------------------------------
Total Held to Maturity                     146,642,853     (1,837,816)     62,371,420       (566,380)    209,014,273     (2,404,196)
------------------------------------------------------------------------------------------------------------------------------------
TOTAL                                     $179,457,812   $ (2,365,277)   $ 70,813,822   $   (706,642)   $250,271,634   $ (3,071,919)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

4.   MORTGAGE-BACKED SECURITIES HELD TO MATURITY

     Mortgage-backed  securities  held to maturity at December 31, 2004 and 2003
are summarized as follows:

                                          December 31, 2004
                       ---------------------------------------------------------
                                       Gross         Gross          Estimated
                       Amortized     Unrealized    Unrealized         Market
                         Cost          Gains         Losses           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
--------------------------------------------------------------------------------


                                          December 31, 2003
                       ---------------------------------------------------------
                                       Gross         Gross          Estimated
                       Amortized     Unrealized    Unrealized         Market
                         Cost          Gains         Losses           Value
--------------------------------------------------------------------------------
GNMA                 $ 13,948,013   $  737,203     $    (676)     $ 14,684,540
FNMA                  194,437,708    3,758,600      (314,904)      197,881,404
FHLMC                  86,529,885    1,017,002      (470,799)       87,076,088
Pass Thru              64,754,258      301,744      (205,817)       64,850,185
--------------------------------------------------------------------------------
Total                $359,669,864   $5,814,549     $(992,196)     $364,492,217
--------------------------------------------------------------------------------

     The Bank has the intent and ability to hold these  securities  to maturity.
At December 31, 2004,  neither a disposal,  nor a condition that could lead to a
decision not to hold these securities to maturity were reasonably foreseen.

5.   LOANS, NET

     Loans, net at December 31, 2004 and 2003 consist of the following:

                                               2004                    2003
-------------------------------------------------------------------------------
Mortgage Loans                            $275,842,765            $280,663,785
Construction Loans                             897,264               1,324,699
Commercial Construction                     11,971,241               5,993,838
Consumer Loans                               2,471,624               3,186,549
Commercial Real Estate                     116,380,045             104,352,118
Commercial Business                         16,311,618              12,180,496
-------------------------------------------------------------------------------
Subtotal                                   423,874,557             407,701,485
Less:
    Deferred loan fees                         356,732                 687,877
    Allowance for
       loan losses                           4,719,192               4,407,552
-------------------------------------------------------------------------------
Total loans, net                          $418,798,633            $402,606,056
-------------------------------------------------------------------------------

     At December  31, 2004 and 2003 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  $2.6  million and $1.8  million,  respectively.  Loans are measured for
impairment based on the loans underlying collateral, if collateral dependent, or
present  value of estimated  future cash flows.  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. At December 31, 2003, impaired loans of $984 thousand related to loans
that were  individually  measured for impairment  with a valuation  allowance of
$414  thousand and $804  thousand of loans that were  collectively  measured for
impairment  with

                                      -23-

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

a valuation allowance of $22 thousand. For the years ended December 31, 2004 and
2003, the average recorded  investment in impaired loans was approximately  $2.1
million and $1.8 million, respectively. During the years ended December 31, 2004
and  2003,  the   Corporation   recognized   $136  thousand  and  $71  thousand,
respectively, of interest on impaired loans.

     Loans classified as impaired or trouble debt restructured,  excluding loans
classified  as  non-accrual,  accrue  interest  daily  under  their  original or
modified terms.  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.  The principal amount of non-accrual loans at December 31, 2004 and
2003 was $2.6  million  and  $1.8  million,  respectively.  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 interest income actually recognized  in
2004 for such loans was $106 thousand. Interest income on non-accrual loans that
would have been recorded in 2003 under the original terms of such loans was $121
thousand,  and the actual interest income  recognized in 2003 for such loans was
$59 thousand.

     The Bank  originates and purchases both  adjustable and fixed interest rate
loans. At December 31, 2004, the composition of these loans is as follows:

<TABLE>
<CAPTION>
                                                           Maturing
                                              Maturing     from 2006     Maturing
                                               during       through        after
(In Thousands)                                   2005        2009          2009        Total
------------------------------------------------------------------------------------------------
<S>                                        <C>          <C>            <C>         <C>
Mortgage Loans
   (1-4 dwelling)                            $  2,105     $ 16,186       $ 257,552   $ 275,843
Construction Loans                                897            0               0         897
Commercial Construction                        10,142            0           1,829      11,971
Consumer Loans                                  1,025          916             531       2,472
Commercial Real Estate                          5,331        7,679         103,370     116,380
Commercial Business                             7,625        5,915           2,772      16,312
------------------------------------------------------------------------------------------------
              Total                          $ 27,125     $ 30,696       $ 366,054   $ 423,875
------------------------------------------------------------------------------------------------

Interest sensitivity on the above loans:
Loans with predetermined rates        $  8,771     $ 24,326       $ 251,548   $ 284,645
Loans with adjustable or
  floating rates                        18,354        6,370         114,506     139,230
------------------------------------------------------------------------------------------------
              Total                   $ 27,125     $ 30,696       $ 366,054   $ 423,875
------------------------------------------------------------------------------------------------
</TABLE>

     Construction,  commercial and land loans are generally indexed to the prime
rate plus a percentage  (generally 1% to 2%). The adjustable rate mortgage loans
have interest rate adjustment  limitations and are generally  indexed to the one
year U.S. Treasury constant maturity yield. Future market factors may affect the
correlation of the interest rate  adjustment with the rates the Bank pays on the
short-term deposits that have been primarily utilized to fund these loans. Loans
pledged as  collateral  for  advances  and lines of credit from the Federal Home
Loan Bank totaled $53.1 million at December 31, 2004.

     Changes in the allowance for loan losses are as follows:

                                          Years ended December 31,
                             ---------------------------------------------------
                                   2004              2003             2002
--------------------------------------------------------------------------------

Balance at beginning
    of year                 $ 4,407,552       $ 4,317,475      $ 4,230,563
Provision charged to
    operations                  330,000           270,000          149,000
Charge-offs                     (22,860)         (189,177)         (77,052)
Recoveries                        4,500             9,254           14,964
---------------------------------------------------------------------------
Balance at end of year      $ 4,719,192       $ 4,407,552      $ 4,317,475
---------------------------------------------------------------------------

6.   OFFICE PROPERTIES AND EQUIPMENT, NET

     Office  properties  and  equipment  at  December  31,  2004  and  2003  are
summarized by major classification, as follows:

                                                           December 31,
                                                --------------------------------
                                                        2004             2003
--------------------------------------------------------------------------------
Land, buildings and improvements                $   35,327,023    $  34,361,472
Furniture and equipment                              7,145,542        7,028,117
Computers                                            5,930,623        5,808,166
--------------------------------------------------------------------------------
Total                                               48,403,188       47,197,755
Less accumulated depreciation                      (17,655,961)     (15,768,686)
--------------------------------------------------------------------------------
Office properties and equipment, net            $   30,747,227    $  31,429,069
--------------------------------------------------------------------------------


   Depreciation expense totaled $1.9 million,  $2.0 million and $1.7 million for
the years ended December 31, 2004, 2003 and 2002, respectively.

7.   REAL ESTATE HELD FOR DEVELOPMENT, NET

     The Bank,  through its wholly-owned  subsidiary,  Land Financial  Services,
Inc.,  had entered into several real estate  investments.  In January 2003,  the
remaining land was sold which resulted in a gain of $601 thousand.

8.   REAL ESTATE OWNED, NET

     Real  estate  owned,  which  was  acquired  through  foreclosure  and deeds
in-lieu of  foreclosure,  totaled $0 and $48 thousand,  net at December 31, 2004
and 2003, respectively.

                                      -24-

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

9.   DEPOSITS

     Deposits at December  31, 2004 and 2003  consisted of the  following  major
classifications and weighted average interest rates:


                                                 December 31, 2004
                              --------------------------------------------------
                                    Weighted                           Percent
                                  Average Rate           Amount        of Total
--------------------------------------------------------------------------------
Non-interest checking                  0.00%          $176,047,722       18.70%
Checking accounts                      0.55            214,059,142       22.74
Savings accounts                       0.86            195,039,302       20.71
Money market accounts                  0.72            145,612,332       15.47
Certificates                           1.82            210,748,322       22.38
--------------------------------------------------------------------------------
Total                                  0.84%          $941,506,820      100.00%
--------------------------------------------------------------------------------


                                                 December 31, 2003
                              --------------------------------------------------
                                    Weighted                           Percent
                                  Average Rate           Amount        of Total
--------------------------------------------------------------------------------

Non-interest checking                  0.00%          $157,637,346        17.65%
Checking accounts                      0.55            186,572,464        20.89
Savings accounts                       0.69            188,235,776        21.08
Money market accounts                  0.78            132,728,015        14.87
Certificates                           2.40            227,832,897        25.51
--------------------------------------------------------------------------------
Total                                  1.01%          $893,006,498       100.00%
--------------------------------------------------------------------------------

      The aggregate amount of certificates of deposit in excess of $100 thousand
totaled $32.0 million.  Deposits from related  parties  totaled $1.5 million and
$1.8  million  at  December  31,  2004 and  2003,  respectively.  A  summary  of
certificates by maturity at December 31, 2004 is as follows:

Years ended December 31,                                           Amount
-------------------------------------------------------------------------------
2005                                                              $150,588,048
2006                                                                31,201,405
2007                                                                12,867,920
2008                                                                 7,533,096
2009                                                                 8,553,580
Thereafter                                                               4,273
-------------------------------------------------------------------------------
Total                                                             $210,748,322
-------------------------------------------------------------------------------

     A summary of interest expense on deposits is as follows:


                                           Years ended December 31,
                                ----------------------------------------------
                                   2004             2003            2002
------------------------------------------------------------------------------
Checking accounts               $1,717,164      $  914,739       $ 1,620,862
Savings accounts                 1,070,861       1,248,755         1,920,339
Money market accounts            1,001,238       1,020,353         2,033,447
Certificates                     3,965,128       5,401,355         8,369,748
------------------------------------------------------------------------------
Total interest expense          $7,754,391      $8,585,202       $13,944,396
------------------------------------------------------------------------------


10.  ADVANCES FROM FEDERAL HOME LOAN BANK

     At December 31, 2004 and 2003,  the Bank had advances from the Federal Home
Loan Bank of New York (FHLB) which are  collateralized by certain first mortgage
loans.

                              Years ended December 31,
--------------------------------------------------------------------------------
                       2004                                     2003
--------------------------------------------------------------------------------
                     Weighted                                 Weighted
                     Average    Maturity                      Average  Maturity
        Amount         Rate       Date         Amount           Rate     Date
--------------------------------------------------------------------------------
   $  10,000,000       2.53%   4/15/05     $  10,000,000      1.15%   4/15/05
                                               1,191,047      5.00%   10/9/07
--------------------------------------------------------------------------------
   $  10,000,000       2.53%               $  11,191,047      1.56%
--------------------------------------------------------------------------------


11.  SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

     At December 31, 2004, the Bank had securities  sold under the agreements to
repurchase  (repurchase  agreements) in the aggregate  amount of $195.0 million.
The repurchase  agreements are collateralized by U.S. Agency Notes, MBS and CMOs
with a market value of $189.3  million.  Accrued  interest  payable totaled $1.0
million at December 31, 2004.

                         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%
--------------------------------------------------------------------------------


                         Year ended December 31, 2003
--------------------------------------------------------------------------------
                                           Weighted        Maturity      Call
Counterparty                  Amount     Average Rate        Date      Feature
--------------------------------------------------------------------------------
FHLB                     $ 20,000,000       5.72%          12/19/07    03/19/04
FHLB                       20,000,000       5.13%          01/14/08    01/01/04
FHLB                       20,000,000       5.95%          08/30/10    02/29/04
FHLB                       20,000,000       5.54%          10/18/10    01/17/04
FHLB                       20,000,000       5.22%          12/20/10    03/19/04
FHLB                       20,000,000       4.85%          12/20/10    03/19/04
FHLB                       10,000,000       4.18%          02/28/11    02/02/04
FHLB                       15,000,000       3.84%          04/06/11    01/19/04
FHLB                       10,000,000       3.49%          08/10/11    02/29/04
FHLB                       10,000,000       1.98%          11/14/11    02/14/04
FHLB                       10,000,000       2.32%          01/31/12    01/01/04
FHLB                       10,000,000       2.28%          02/07/12    02/01/04
FHLB                       10,000,000       2.68%          04/24/07    01/24/04
FHLB                       10,000,000       1.64%          08/22/12    02/22/04
FHLB                       20,000,000       1.30%          10/04/12    01/04/04
--------------------------------------------------------------------------------
Total                    $225,000,000       4.08%
--------------------------------------------------------------------------------

                                      -25-

<PAGE>
FMS FINANCIAL CORPORATIOn
--------------------------------------------------------------------------------

12.      INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                           2004                   2003                 2002
                                                                  --------------------   -------------------  ----------------------

                                                                     Amount    Percent      Amount   Percent    Amount      Percent
                                                                     ------    -------      ------   -------    ------      -------
<S>                                                             <C>           <C>      <C>          <C>     <C>           <C>
Tax at federal tax rate:                                          $5,162,546    35.00%   $3,491,164   34.00%  $4,340,770    34.00%
Increase (Decrease) from:
  State income taxes, net of federal income tax benefit              925,297     6.27       678,950    6.61      859,765     6.73
  Change in state tax rate on deferred tax assets & liabilities            0     0.00             0    0.00     (250,965)   (1.97)
  Tax exempt interest income                                         (10,680)   (0.07)      (53,353)  (0.52)     (82,791)   (0.65)
  Other                                                              (95,262)   (0.65)      (50,045)  (0.49)     (60,553)   (0.47)
                                                                  ----------    -----    ----------   -----   ----------    -----
Total                                                             $5,981,901    40.55%   $4,066,716   39.60%  $4,806,226    37.64%
                                                                  ==========    =====    ==========   =====   ==========    =====
</TABLE>


     In  accordance  with the  provisions  of Statement of Financial  Accounting
Standards No. 109,  "Accounting  for Income Taxes" (SFAS No. 109),  deferred tax
assets and liabilities are  established  for the temporary  differences  between
accounting bases and tax bases of the  Corporation's  assets and liabilities are
at the tax rates  expected to be in effect when the  temporary  differences  are
realized or settled.  Management believes the existing net deductible  temporary
differences which give rise to the net deferred income tax assets are realizable
on a more likely than not basis.

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


                                                         December 31
                                                 -------------------------------
                                                      2004         2003
--------------------------------------------------------------------------------
Deferred income tax assets:
     Allowance for loan losses                    $1,927,790   $1,760,377
     Compensation and pension asset                   65,878       73,490
     Amortization of deposit premiums                482,086      321,180
     Post retirement benefits                        204,250      199,700
     Accrued  expenses                               127,318      252,662
     Other                                            37,967       22,751
--------------------------------------------------------------------------------
Deferred tax asset                                 2,845,289    2,630,160
--------------------------------------------------------------------------------
Deferred income tax liabilities:
     Prepaid deposit insurance premium                13,129       12,847
     Depreciation                                    332,361      317,958
     Deferred loan fees, net                         349,357      255,446
--------------------------------------------------------------------------------
Gross deferred tax liabilities                       694,847      586,251
--------------------------------------------------------------------------------
Deferred income tax asset, net                    $2,150,442   $2,043,909
--------------------------------------------------------------------------------


     There was no change in the valuation  allowance for the year ended December
31, 2004, 2003 and 2002.

     The following represents the components of income tax expense for the years
ended December 31, 2004, 2003 and 2002, respectively.

<TABLE>
<CAPTION>

                                                      2004           2003          2002
------------------------------------------------------------------------------------------
<S>                                             <C>            <C>           <C>
Current federal tax provision                    $ 4,645,184    $ 2,247,455   $ 3,369,485
Current state tax provision                        1,443,252        890,598     1,389,574
------------------------------------------------------------------------------------------
        Total Current provision                    6,088,436      3,138,053     4,759,059
------------------------------------------------------------------------------------------
Deferred federal tax provision (benefit)             (86,817)       790,549       384,346
Deferred state tax provision (benefit)               (19,718)       138,114      (337,179)
------------------------------------------------------------------------------------------
        Total Deferred tax provision (benefit)      (106,535)       928,663        47,167
------------------------------------------------------------------------------------------
Total                                            $ 5,981,901    $ 4,066,716   $ 4,806,226
------------------------------------------------------------------------------------------
</TABLE>

13.  LEASES

     The Bank  leases ten 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, 2004 are as
follows:

Fiscal Year                                                           Amount
--------------------------------------------------------------------------------
2005                                                             $    288,771
2006                                                                  285,541
2007                                                                  294,491
2008                                                                  313,841
2009 and beyond                                                     2,669,942
--------------------------------------------------------------------------------
Total                                                            $  3,852,586
--------------------------------------------------------------------------------


     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 $329 thousand, $298  thousand and $275 thousand for
fiscal years 2004, 2003 and 2002, respectively.

                                      -26-

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

14.  STOCKHOLDERS' EQUITY

     On December 14, 1988, the Bank converted to a state chartered stock savings
bank  and  simultaneously  formed  FMS  Financial  Corporation.  At the  time of
conversion,  eligible  deposit  account  holders  were  granted  priority in the
unlikely event of a future liquidation of the Bank. The special reserve has been
decreased  to the extent  that the  balances of eligible  account  holders  were
reduced at annual determination dates. The Bank converted its charter to that of
a Federal savings bank on October 15, 1993.

     The ability of the Corporation to pay dividends to stockholders is directly
dependent upon the ability of the Bank to pay dividends to the Corporation.  OTS
regulations restrict the ability of the Bank to pay dividends to the Corporation
if such dividends  reduce the net worth of the Bank below the amount required in
the  special  reserve  account  and based on the Bank's  net income and  capital
position.

     The Bank is considered "well capitalized" by OTS regulation at December 31,
2004 and 2003.  The following  table  presents the capital ratios of the Bank at
December 31, 2004 and 2003.

<TABLE>
<CAPTION>
                                                                                         Minimum
                                                                                       to be Well
                                                                                       Captilaized
                                                                                      Under Prompt
                                                               Mimimum                 Corrective
                                                               Capital                   Action
                                         Actual               Requirement              Provisions
                               ----------------------------------------------------------------------
                                   Amount       Ratio     Amount        Ratio       Amount       Ratio
-----------------------------------------------------------------------------------------------------
<S>                            <C>            <C>     <C>              <C>      <C>           <C>
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 Risked-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%
-----------------------------------------------------------------------------------------------------
December 31, 2003 (thousands)
-----------------------------------------------------------------------------------------------------
Tier 1 (Core) Capital            $  74,421      6.10%   $  48,802        4.0%     $  61,003     5.0%
Risk-Based Capital               $  78,401     16.43%   $  38,168        8.0%     $  47,710    10.0%
Tier 1 Risked-Based Capital      $  74,421     15.60%   $  19,084        4.0%     $  28,626     6.0%
Tangible Equity                  $  74,421      6.10%   $  18,301        1.5%     $  24,401     2.0%
-----------------------------------------------------------------------------------------------------
</TABLE>

15.  PENSION PLAN

     The Bank has a defined  benefit  pension  plan for  active  employees.  Net
pension  expense was $822  thousand,  $800  thousand and $621 thousand for years
ended  December 31, 2004,  2003 and 2002,  respectively.  The  components of net
pension cost are as follows:

                                          Years ended  December 31,
                       ------------------------------------------------------
                                     2004             2003           2002
-----------------------------------------------------------------------------
Service cost                      $ 871,039        $ 716,613      $ 641,336
Interest cost                       563,963          486,386        448,782
Return on assets                   (659,381)        (461,454)      (504,790)
Net amortization and deferral        46,634           58,912         35,585
-----------------------------------------------------------------------------
Net periodic pension cost         $ 822,255        $ 800,457      $ 620,913
-----------------------------------------------------------------------------


     The following table presents a  reconciliation  of the funded status of the
defined benefit pension plan at December 31, 2004 and 2003:

                                                  December 31,
                                        ------------------------------------
                                            2004                 2003
----------------------------------------------------------------------------
Projected benefit obligation                 $ 10,844,831    $  9,221,994
Fair value of plan assets                      10,712,030       8,714,389
----------------------------------------------------------------------------
Unfunded (Excess) of plan assets over
    projected benefit obligation                  132,801         507,605
Unrecognized net gain (loss)                      235,689         (82,778)
Unrecognized prior service cost                   (47,537)        (51,765)
Unrecognized net transition obligation                  0          (8,039)
----------------------------------------------------------------------------
Accrued pension cost
    included in the consolidated
    balance sheet                            $    320,953    $    365,023
----------------------------------------------------------------------------


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


                                                   December 31,
                                         ----------------------------------
Change in Projected Benefit Obligation        2004             2003
---------------------------------------------------------------------------
Projected benefit obligation
  at beginning of year                       $ 9,221,994       $8,491,179
Service cost                                     871,039          716,613
Interest cost                                    563,963          486,386
Actuarial loss (gain)                            356,986         (284,665)
Benefits paid                                   (169,151)        (187,519)
---------------------------------------------------------------------------
Projected benefit obligation
  at end of year                             $10,844,831       $9,221,994
---------------------------------------------------------------------------
Change in Plan Assets
---------------------------------------------------------------------------
Fair value of plan assets
  at beginning of year                       $ 8,714,389       $6,512,856
Actual return of plan assets                   1,300,467        1,600,052
Employer contribution                            866,325          789,000
Benefits paid                                   (169,151)        (187,519)
---------------------------------------------------------------------------
Fair value of plan assets
  at end of year                             $10,712,030       $8,714,389
---------------------------------------------------------------------------

                                      -27-

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

     Actuarial assumptions used in determining pension cost are as follows:

                                  Years ended December 31,
                          -----------------------------------------
                                 2004      2003          2002
-------------------------------------------------------------------
Discount rate for
    benefit obligation          6.00%        6.00%         6.00%
Rate of increase in
    compensation levels
    and social security
    wage base                   4.00%        4.00%         4.00%
Expected long-term
    rate of return on
    plan assets                 7.00%        7.00%         7.00%
-------------------------------------------------------------------


     In 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 2004, 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,
2004 are as follows:

                                                                        % of
                                                     Market Value      Assets
--------------------------------------------------------------------------------
Cash                                                  $   876,493        8.2%
Equity securities                                       9,455,346       88.2
Preferred stock securities                                231,359        2.2
REIT's                                                    148,832        1.4
--------------------------------------------------------------------------------
Total Plan Assets                                     $10,712,030     100.00%
--------------------------------------------------------------------------------


     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 2004 and 2003,  $866
thousand and $789 thousand,  respectivley were contributed by the Corporation to
meet the pension funding requirements.  The contribution to the pension plan for
2005 is expected  to be  approximately  $995  thousand.  The  pension  plan will
maintain  compliance with the ERISA as amended,  and any applicable  regulations
and laws.

     In addition to providing  pension plan benefits,  the Bank provides certain
health  care and life  insurance  benefits  to  certain  retired  employees.  In
accordance  with the provisions of Statement of Financial  Accounting  Standards
No. 106, "Employer  Accounting for 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 obligation
is not funded but is  reflected in the  statement  of  financial  condition as a
liability.

     The  net  periodic  postretirement  benefit  cost  includes  the  following
components:

                                                        December 31,
                                      -----------------------------------------
                                            2004            2003          2002
-------------------------------------------------------------------------------
Interest cost                         $   51,547       $  47,209     $  54,000
Amortization of prior service cost       (11,339)        (11,339)      (14,499)
Amortization of loss                      15,776          13,110        29,561
-------------------------------------------------------------------------------
Net periodic post retirement
    benefit cost                      $   55,984       $  48,980     $  69,062
-------------------------------------------------------------------------------


     The  assumed  discount  rate  used  in the  calculation  for  net  periodic
post retirement  benefit  cost was 6.50% for 2004 and 2003.  The assumed  health
care cost trend rate for 2004 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 in
the assumed health care cost trend for each future year would be as follows:

                                                            December 31, 2004
--------------------------------------------------------------------------------
Accumulated post retirement obligation
    at year end                                                    $45,585
Service and Interest Cost                                           $2,782

                                      -28-

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

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

                                                            December 31,
                                                  ------------------------------
                                                       2004            2003
--------------------------------------------------------------------------------
Accumulated post retirement
    benefit obligation                            $   (744,827)   $   (687,004)
Unrecognized prior service cost                        (18,402)        (29,741)
Unrecognized net loss                                  195,173         157,886
--------------------------------------------------------------------------------
Accrued post retirement benefit cost              $   (568,056)   $   (558,859)
--------------------------------------------------------------------------------


     The  assumed  discount  rate used in the  calculation  for the  accumulated
postretirement benefit obligation as of December 31, 2004 and 2003 was 6.50%.


16.  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,
2004 and  2003,  the  interest  rate was  6.15%  and  4.77%,  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.

     On August 1, 2002, the Corporation  redeemed its $10.0 million subordinated
debentures.  The early redemption was at a price of 101%. The cost of redemption
and the remaining  unamortized  bond issuance  costs were recorded as a one-time
charge to net income of $134 thousand, net of $81 thousand in tax benefits.

                                      -29-

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

17.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The disclosure of the fair value of all financial  instruments is required,
whether or not  recognized  on the balance  sheet,  for which it is practical to
estimate fair value.  In cases where quoted  market  prices are not   available,
fair values are based on  assumptions  including  future cash flows and discount
rates. Accordingly, the fair value estimates cannot be substantiated, may not be
realized, and do not represent the underlying value of the Corporation.

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

Cash and cash equivalents:  The carrying value is a reasonable  estimate of fair
value.

Investment  securities  held to  maturity,  securities  available  for  sale and
mortgage-backed 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 residential  mortgages,  commercial and consumer loans, fair value
is estimated  based on  discounting  the  estimated  future cash flows using the
current  rates at which  similar  loans would be made to borrowers  with similar
collateral and credit ratings and for similar remaining maturities.

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

Securities sold under agreements to repurchase: For investment securities with a
quoted market price,  fair value is equal to quoted market  prices.  If a quoted
market  price is not  available,  fair value is estimated  using  quoted  market
prices for similar securities.

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, 2004 and December  31,  2003,  the carrying  amount and the
estimated  market  value  of  the  Corporation's  financial  instruments  are as
follows:

<TABLE>
<CAPTION>
                                                                          December 31, 2004                December 31, 2003
                                                               ----------------------------------  --------------------------------

                                                                    Carrying          Estimated         Carrying       Estimated
                                                                     Amount          Market Value        Amount       Market Value
                                                               -----------------  ---------------  ----------------  --------------
<S>                                                           <C>                <C>              <C>               <C>
Financial assets:
    Cash and cash equivalents                                  $     110,577,356  $   110,577,356  $     72,334,637  $   72,334,637
    Investment securities held to maturity and investment
     securities available for sale                             $     396,833,029  $   395,849,575  $    334,859,866  $  335,059,247
    Mortgage-backed securities                                 $     269,221,897  $   272,526,218  $    359,669,864  $  364,492,217
    FHLB Stock                                                 $      10,250,120  $    10,250,120  $     11,809,620  $   11,809,620

    Loans, net of unearned income                              $     423,517,825  $   425,138,000  $    407,013,608  $  409,909,325
     Less: Allowance for possible loan losses                  $      (4,719,192) $    (4,719,192) $     (4,407,552) $   (4,407,552)
    Loans, net                                                 $     418,798,633  $   420,418,808  $    402,606,056  $  405,501,773


Financial liabilities:
    Deposits
     Checking, passbook, and money market accounts             $     730,758,498  $   730,758,498  $    665,173,602  $  665,173,602
     Certificates                                              $     210,748,322  $   211,448,000  $    227,832,896  $  227,935,000
    Securities sold under agreements to repurchase             $     195,000,000  $   204,920,000  $    225,000,000  $  241,239,750
    Advances from the Federal Home Loan Bank                   $      10,000,000  $    10,000,000  $     11,191,047  $   11,112,215
    FMS Statutory Trust 1 debentures                           $      25,774,000  $    26,660,625  $     25,774,000  $   26,410,618

Off-balance sheet financial instruments:
    Commitments to extend credit                               $      46,668,731  $    46,668,731  $     48,270,583  $   48,270,583
    Standby letters of credit                                  $       7,030,943  $     7,030,943  $      3,776,381  $    3,776,381
</TABLE>

                                      -30-

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

18.  COMMITMENTS AND CONTINGENCIES

     The Bank has outstanding  loan  commitments of $46.7 million as of December
31, 2004. Of these  commitments  outstanding,  the  breakdown  between fixed and
variable rate loans is as follows:


                                            December 31, 2004
                          -----------------------------------------------------
                                Fixed            Variable
                                 Rate              Rate               Total
-------------------------------------------------------------------------------
Commitments to
       fund loans            $ 4,088,550       $ 10,460,225       $ 14,548,775
Unused lines:
       Construction                    0          5,465,685          5,465,685
       Equity line of
         credit loans                  0         26,654,271         26,654,271
    ---------------------------------------------------------------------------
Total                        $ 4,088,550       $ 42,580,181       $ 46,668,731
-------------------------------------------------------------------------------


     In addition to outstanding  loan  commitments,  the Bank as of December 31,
2004, issued $7.0 million in standby letters of credit to guarantee  performance
of a bank customer to a third party.

     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.

19.  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,  2004  which  are  expected  to  have  a  material  impact  on the
Corporation's financial position or results of operations.

20.  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, 2004 and 2003,  loans  made to  directors  and  executive  officers
whose  indebtedness  exceeded  $60  thousand  amounted to $5.6  million and $5.6
million, respectively.  During 2004, new loans to these individuals totaled $280
thousand and repayments totaled $241 thousand.

21.  STOCK OPTIONS

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

     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, 2004,  the
option  exercise  prices were $5.33 and $10.00.  Options are fully vested at the
date of grant and must be exercised within ten years.

         The  following  table  summarizes   information   about  stock  options
outstanding at December 31, 2004.


      Exercise              Outstanding         Average        Exercisable
        Price                 Options            Life *          Options
-------------------------------------------------------------------------------
    $        5.33              23,750             0.9            23,750
    $       10.00              41,850             3.8            41,850
-------------------------------------------------------------------------------
    $        8.31              65,600             2.8            65,600
-------------------------------------------------------------------------------
* Average contractual life in years


     A  summary  of the  status of the  Corporation's  Stock  Option  Plan as of
December  31, 2004,  2003 and 2002 and changes  during the years ending on those
dates is presented below.

<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                      ----------------------------------------------------------------------------
                                     2004                     2003                    2002
--------------------------------------------------------------------------------------------------
<S>                       <C>         <C>          <C>          <C>        <C>        <C>
Outstanding at the
  Beginning of the year    75,250      $  8.06     115,000       $  8.54    121,925    $  8.56
Options exercised          (4,650)        7.49     (25,250)         9.71       (925)      1.29
Options surrendered        (5,000)        5.33     (14,500)        10.00     (6,000)     10.00
--------------------------------------------------------------------------------------------------
Outstanding at the
  End of the year          65,600      $  8.31      75,250       $  8.06    115,000    $  8.54
--------------------------------------------------------------------------------------------------
</TABLE>


         On January 1, 1996,  the  Corporation  adopted  Statement  of Financial
Accounting Standard No. 123, "Accounting for Stock Based Compensation" (SFAS No.
123).  As permitted by SFAS No. 123, the  Corporation  has chosen to continue to
apply APB Opinion No. 25,  "Accounting  for Stock Issued to Employees"  (APB No.
25) and related  interpretations  in accounting  for its Plan.  Accordingly,  no
compensation  cost has been recognized for options granted under the Plan. There
were no options granted during 2004, 2003 and 2002.

                                      -31-

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


22.  RISKS AND UNCERTAINTIES

     The earnings of the  Corporation  depend on the  earnings of the Bank.  The
earnings of the Bank depend  primarily  upon the level of net  interest  income,
which is the difference between interest earned on its interest-earning  assets,
such as loans and  investments  and the  interest  paid on its  interest-bearing
liabilities, such as deposits and borrowings. Accordingly, the operations of the
Bank are subject to risks and uncertainties  surrounding its exposure to changes
in the interest rate environment.

     Significant  estimates are made by management in determining  the allowance
for loan losses and  carrying  values of real estate  owned and real estate held
for development.  Consideration is given to a variety of factors in establishing
these estimates  including current economic  conditions,  diversification of the
loan  portfolio,  delinquency  statistics,  results of loan reviews,  borrowers'
perceived  financial  and  managerial  strengths,  the   adequacy of  underlying
collateral,  if collateral dependent,  or present value of future cash flows and
other relevant  factors.  Since the allowance for 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.

                                      -32-


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

23.  PARENT COMPANY FINANCIAL INFORMATION
     The financial statements for FMS Financial Corporation are as follows:

<TABLE>
<CAPTION>
                                                                                                    December 31,
                                                                                           -----------------------------
FMS Financial Corporation Statements of Financial Condition                                      2004            2003
                                                                                           -----------------------------
<S>                                                                                        <C>             <C>
Assets:
    Cash                                                                                    $  1,692,495    $  2,357,568
    Investment in subsidiary                                                                  86,626,282      80,051,200
    Intercompany receivable, net                                                               6,758,424       5,437,842
    FMS Statutory Trust 1 issue costs, net                                                       562,311         640,154
    Other                                                                                        688,127         328,631
                                                                                            ------------    ------------
Total Assets                                                                                $ 96,327,639    $ 88,815,395
                                                                                            ============    ============
Liabilities:
    FMS Statutory Trust 1 debentures                                                        $ 25,774,000    $ 25,774,000
    Dividends payable                                                                            195,029         194,576
    Accrued interest payable                                                                      21,991          17,076
                                                                                            ------------    ------------
Total Liabilities                                                                             25,991,020      25,985,652
                                                                                            ------------    ------------
Stockholders' Equity:
    Preferred stock - $.10 par value 5,000,000  shares  authorized;  none issued
    Common stock - $.10 par value 10,000,000 shares authorized; shares
       issued 7,991,292 and 7,975,059 and shares outstanding 6,502,110 and 6,485,877 as
       of December 31, 2004 and 2003, respectively                                               799,129         797,506
    Paid-in capital in excess of par                                                           8,555,506       8,507,333
    Accumulated comprehensive income - net of deferred income taxes                              270,784         802,239
    Retained earning                                                                          71,646,199      63,657,664
    Less:Treasury Stock (1,489,182 shares, at cost at December 31, 2004 and 2003)            (10,934,999)    (10,934,999)
                                                                                            ------------    ------------
Total Stockholders' Equity                                                                    70,336,619      62,829,743
                                                                                            ------------    ------------
Total Liabilities and Stockholders' Equity                                                  $ 96,327,639    $ 88,815,395
                                                                                            ============    ============
</TABLE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                                                              Years Ended December 31,
-----------------------------------------------------------------------------------------------
FMS Financial Corporation Statements of Operations       2004           2003           2002
-----------------------------------------------------------------------------------------------
<S>                                                <C>            <C>            <C>
Intercompany interest income                         $   320,582    $   329,366    $   848,662
Interest expense                                      (1,368,591)    (1,295,928)    (1,742,660)
Dividends from subsidiary                              2,400,000      2,400,000      2,400,000
Other expense                                                  0              0       (215,078)
Equity in undistributed income of subsidiary           7,056,742      4,439,345      6,284,466
-----------------------------------------------------------------------------------------------
Income before taxes                                    8,408,733      5,872,783      7,575,390
Income tax benefit                                       359,496        328,631        385,354
-----------------------------------------------------------------------------------------------
Net Income                                           $ 8,768,229    $ 6,201,414    $ 7,960,744
-----------------------------------------------------------------------------------------------
</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             2004           2003           2002
                                                            ----------    -----------   ------------
<S>                                                        <C>            <C>
Operating Activities
Net income                                                 $ 8,768,229    $ 6,201,414   $   7,960,744
Adjustments to reconcile net income to net cash provided
   by operating activities:
Equity in undistributed earnings of the subsidiary          (7,056,742)    (4,439,345)    (6,284,466)
Amortization of debt issue costs                                77,843         77,845         94,462
Increase (Decrease) in interest payable                          4,915           (823)      (398,768)
Increase (Decrease) in intercompany receivable, net         (1,320,582)     1,670,633     (8,173,654)
Other                                                         (359,496)       226,102       (170,816)
                                                            ----------    -----------   ------------

    Net cash provided (used) by operating activities           114,167      3,735,826     (6,972,498)

Investing Activities
Proceeds from maturities of investment securities                    0              0      1,000,000
                                                            ----------    -----------   ------------
    Net cash provided by investing activities                        0              0      1,000,000

Financing Activities
Purchase of treasury stock                                           0        (48,419)    (2,813,136)
Repayment of subordinated debentures                                 0              0    (10,100,000)
Proceeds from issuance of trust capital securities                   0              0     24,221,532
Investment in subsidiary                                       (49,796)    (2,230,331)    (5,001,195)
Cash dividends paid on common stock                           (779,240)      (776,929)      (790,339)
Proceeds from issuance of stock                                 49,796        230,333          1,195
                                                            ----------    -----------   ------------
    Net cash (used) provided by financing activities          (779,240)    (2,825,346)     5,518,057
                                                            ----------    -----------   ------------

(DECREASE) INCREASE IN CASH                                   (665,073)       910,480       (454,441)
CASH, BEGINNING OF YEAR                                      2,357,568      1,447,088      1,901,529
                                                            ----------    -----------   ------------
CASH, END OF YEAR                                           $1,692,495    $ 2,357,568   $  1,447,088
                                                            ==========    ===========   ============
</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, 2004 and 2003, and the results of their  operations and their cash flows for
each of the three years in the period ended  December 31,  2004,  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

Harrisburg, PA
March 17, 2005

                                      -35-

<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, 2004,  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,  2004.  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, 2004.

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, 2004.

<TABLE>
<CAPTION>
<S>                                     <C>

/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
</TABLE>


FMS Financial Corporation
Burlington, New Jersey
March 10, 2005


                                      -36-

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

                             CORPORATE INFORMATION



ANNUAL MEETING

     The 2005 Annual Shareholders'  Meeting of FMS Financial Corporation will be
held at 10:30 a.m., on the 28th day of April, 2005 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, 2005 was  approximately  747, 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, 2004 and 2003:


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

                                                   2003
                                 ------------------------------------------
QUARTER ENDED                            HIGH                LOW
---------------------------------------------------------------------------
March 31,                              $ 14.50             $ 12.30
June 30,                               $ 20.40             $ 13.99
September 30,                          $ 18.50             $ 13.15
December 31,                           $ 20.50             $ 16.75
---------------------------------------------------------------------------


     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, 2004 the Bank was a Tier 1 capital compliant institution
and had available  $25.7 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>


         MARKET MAKERS
         The  following  companies  were  making a market  in the  Corporation's
         common stock at December 31, 2004:

         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, 2004,  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                Auditors
         American Stock Transfer and                 PricewaterhouseCoopers LLP
           Trust Company                             One South Market Square
         40 Wall Street                              Harrisburg, PA  17101
         New York, NY  10005


         Special Counsel
         Malizia Spidi & Fisch, PC
         1100 New York Avenue, N.W.
         Suite 340 West
         Washington, D.C. 20005

                                      -38-

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

         BOARD OF DIRECTORS

         ROY D. YATES
         Chairman of the Board

         WAYNE H. PAGE
         Vice Chairman

         GEORGE J. BARBER

         JOSEPH W. CLARKE, JR

         VINCENT R. FARIAS

         DOMINIC W. FLAMINI

         EDWARD J. STAATS, JR

         MARY WELLS

         CRAIG W. YATES

         DIRECTOR EMERITUS
         HILYARD S. SIMPKINS

         BANK OFFICERS

         CRAIG W. YATES*
         President

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

         CHANNING L. SMITH*
         Vice President and Chief Financial Officer

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

         MERLE A. BROWN
         Vice President, Branch Administration and Security Officer

         DOUGLAS B. HALEY
         Vice President, Consumer Lending

         AMY J. HANNIGAN
         Vice President and Controller

         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

         *    Officers of Bank and Holding Corporation

<PAGE>

<TABLE>
<CAPTION>
<S>                                             <C>                                  <C>
     FARMERS & MECHANICS BANK                    EDGEWATER PARK                         RIVERSIDE
     EXECUTIVE AND ADMINISTRATIVE OFFICES        1149 Cooper Street                     2 Scott Street & Pavilion Avenue
     3 Sunset Road and 811 Sunset Road           Edgewater Park, NJ 08010               Riverside, NJ 08075
     Burlington NJ  08016                        (609) 387-0046                         (856) 461-4333
     (609) 386-2400
                                                 FLORENCE                               RIVERTON
                                                 220 West Front Street                  604 Main Street
     MAIN BRANCH                                 Florence, NJ  08518                    Riverton, NJ 08077
     3 Sunset Road & Route 541                   (609) 499-4960                         (856) 786-5333
     Burlington, NJ  08016
     (609) 387-2728                              LARCHMONT                              SOUTHAMPTON
                                                 3220 Route 38                          1841 Route 70
     AUDUBON                                     Mount Laurel, NJ 08054                 Southampton, NJ 08088
     157 S. White Horse Pike                     (856) 235-6666                         (609) 859-2700
     Audubon, NJ 08106
     (856) 672-9070                              LUMBERTON                              TABERNACLE
                                                 1636-61 Route 38 & Eayrestown Road     1484 Route 206
     BEVERLY                                     Lumberton, NJ 08048                    Tabernacle, NJ 08088
     414 Cooper Street                           (609) 267-6811                         (609) 268-5993
     Beverly, NJ 08010
     (609) 239-4066                              MARLTON                                WAL*MART BURLINGTON
                                                 42 Main Street                         2106 Burlington-Mt. Holly Road
     BORDENTOWN                                  Marlton, NJ 08053                      Burlington, NJ 08016
     335 Farnsworth Avenue                       (856) 596-6555                         (609) 386-5960
     Bordentown, NJ  08505
     (609) 291-8200                              MEDFORD                                WAL*MART CHERRY HILL
                                                 200 Tuckerton Road                     Route 38 & Cuthbert Boulevard
     BROWNS MILLS                                Medford, NJ 08055                      Cherry Hill, NJ  08002
     101 Pemberton-Browns Mills Road             (856) 596-4300                         (856) 662-1450
     Browns Mills, NJ 08015
     (609) 893-5540                              MEDFORD LAKES                          WAL*MART CINNAMINSON
                                                 700 Stokes Road                        2501 Route 130 South
     BURLINGTON CITY                             Medford, NJ 08055                      Cinnaminson, NJ  08077
     352 High Street                             (609) 654-6373                         (856) 303-1395
     Burlington, NJ 08016
     (609) 386-4643                              MEDFORD VILLAGE                        WAL*MART HAMILTON
                                                 1 S. Main Street at Bank Street        700 Market Place Boulevard
     BURLINGTON TOWNSHIP                         Medford, NJ 08055                      Hamilton, NJ  08691
     809 Sunset Road                             (609) 714-1115                         (609) 585-2252
     Burlington, NJ 08016
     (609) 387-1150                              MOORESTOWN                             WAL*MART LUMBERTON
                                                 53 East Main Street                    1740 Route 38
     BURLINGTON-NECK ROAD                        Moorestown, NJ 08057                   Mount Holly, NJ 08060
     1029 Neck Road                              (856) 235-0544                         (609) 702-9800
     Burlington, NJ 08016
     (609) 239-4500                              MOUNT HOLLY                            WAL*MART MARLTON
                                                 555 High Street                        150 Route 70
     CHESTERFIELD                                Mount Holly, NJ 08060                  Marlton, NJ 08053
     305 Bordentown-Chesterfield Road            (609) 261-0975                         (856) 988-1442
     Chesterfield, NJ 08620
     (609) 324-1256                              MOUNT LAUREL                           WILLINGBORO
                                                 4522 Church Road                       399 Charleston Road
     CINNAMINSON                                 Mount Laurel, NJ 08054                 Willingboro, NJ 08046
     1703 Highland Avenue                        (856) 235-4445                         (609) 877-2888
     Cinnaminson, NJ 08077
     (856) 303-1870                              MT. LAUREL - FELLOWSHIP                WILLINGBORO EAST
                                                 301 Fellowship Road                    611 Beverly-Rancocas Road
     DELANCO                                     Mount Laurel, NJ 08054                 Willingboro, NJ 08046
     801 Burlington Avenue                       (856) 222-9364                         (609) 871-4900
     Delanco, NJ  08075
     (856) 824-0067                              PEMBERTON                              WILLINGBORO ROUTE 130
                                                 25 Fort Dix Road                       Route 130 & Van Sciver Parkway
     DELRAN                                      Pemberton, NJ 08068                    Willingboro, NJ  08046
     3002 Route 130 North                        (609) 726-9111                         (609) 871-6009
     Delran, NJ 08075
     (856) 764-3740                              PENNSAUKEN                             WILLINGBORO WEST
                                                 Route 130 & Merchantville Avenue       1 Rose Street & Beverly-Rancocas Road
     EASTAMPTON                                  Pennsauken, NJ  08110                  Willingboro, NJ 08046
     1191 Woodlane Road                          (856) 663-9200                         (609) 835-4700
     Eastampton, NJ 08060
     (609) 261-6400
</TABLE>