EXHIBIT 13






                               CORPORATE PROFILE

 FMS Financial Corporation is the holding company for Farmers & Mechanics Bank.
 Farmers & Mechanics Bank, with total assets of $628 million, is the largest
 community bank headquartered in its primary market area of Burlington County,
 New Jersey.

 Founded in Burlington City in 1871 under the name of Farmers' and Mechanics'
 Building and Loan Association, the Bank operates twenty-one banking offices,
 all of which are in Burlington County, New Jersey.

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

 About our cover -
 During 1997 Farmers & Mechanics initiated an advertising campaign to increase
 awareness among our present customers and to encourage new accounts.  Shown on
 our cover are three of our more popular advertisements used during the year.



                                      -1-
<PAGE>
FMS FINANCIAL CORPORATION
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FINANCIAL CONDITION: (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,                                              1997        1996 (A)      1995         1994         1993
------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>           <C>          <C>          <C>          <C>
Assets                                                  $628,403      $541,710     $501,550     $483,776     $445,029

Loans, net                                               302,831       306,871      288,400      283,260      269,264

Deposits                                                 489,440       453,277      428,809      429,431      406,017

Stockholders' equity                                      38,916        33,826       33,053       29,159       25,906
</TABLE>

<TABLE>
<CAPTION>
OPERATIONS: (IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,                                    1997       1996 (A)       1995         1994         1993
------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>          <C>          <C>          <C>
Interest income                                          $40,813       $36,841      $35,201      $32,270      $31,510

Interest expense                                          20,879        18,978       18,041       15,336       16,100

Net interest income                                       19,934        17,863       17,160       16,934       15,410

Net income                                                 5,491         3,026        4,343        4,455        4,215

Basic earnings per common share                             2.30          1.22         1.73         1.73         1.63

Diluted earnings per common share                           2.24          1.20         1.69         1.69         1.59

Dividends declared per common share                         0.24          0.20         0.20            0            0

Weighted average common shares outstanding                 2,388         2,470        2,504        2,576        2,580

Weighted average common shares and common
stock equivalents outstanding                              2,449         2,524        2,565        2,642        2,647
</TABLE>

<TABLE>
<CAPTION>
OTHER SELECTED DATA:
------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,                                   1997          1996 (A)      1995         1994         1993
------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>          <C>          <C>          <C>
Net interest rate spread                                    3.60%         3.50%        3.49%        3.64%        3.49%

Net interest margin                                         3.72          3.66         3.66         3.72         3.62

Return on average assets                                    0.98          0.60         0.89         0.94         0.96

Return on average equity                                   15.14          8.99        14.00        16.01        17.80

Dividend payout ratio                                      10.71         16.67        11.83         0.00         0.00

Equity-to-asset ratio                                       6.19          6.24         6.59         6.03         5.82

</TABLE>

 (a) Includes $2.7 million for the one-time special assessment  to  recapitalize
     the SAIF.

                                      -2-
<PAGE>
                                                         FMS FINANCIAL CONDITION
--------------------------------------------------------------------------------

To Our Shareholders:

Farmers & Mechanics Bank had very satisfactory financial results for 1997 and
made significant progress in expanding our branch system and improving customer
service.

     Earnings for 1997 look particularly strong because the prior year earnings
were reduced by the assessment required to recapitalize the deposit insurance
fund.  Earnings before the assessment were quite good in both years.  Deposits
and assets have increased significantly and our interest margin has continued to
be satisfactory due to the growth of low cost core deposits.  However, interest
rate spreads are narrowing in the current low interest environment.

     Our goal is to improve our coverage of the Burlington County market with
more branch convenience.  During 1997, we purchased and reopened existing bank
buildings in Beverly and Tabernacle.  We also purchased properties in Browns
Mills and Pemberton for future new branches.  In early 1998, we opened a
temporary branch at the Browns Mills location and began construction of a new
branch in Cinnaminson, New Jersey.

     During 1997, we introduced free business checking with no balance
requirement and no per check charges.  Business accounts have increased
significantly.  We also extended banking hours to 9 p.m. weekdays at our main
branch and all drive-thru locations.  More branches, longer hours, and
additional services increase our cost of operations and reduce current
profitability, but we view it as a good investment in our franchise.

     The trend of mergers and consolidations of banks continues in our market
area, creating new opportunities to attract customers and obtain additional
branch locations.  We are convinced that a community bank with real convenience,
good service, and local decision making can compete very effectively against the
larger institutions.

     Once again, we wish to thank our customers, our staff, and our shareholders
for their continued support.


     Sincerely,


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

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

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

GENERAL
       Certain forward-looking statements contained herein are subject to risks
and uncertainties. The Corporation's actual results may differ materially from
those set forth in such forward-looking statements. Reference is made to the
Corporation's reports filed with the Securities and Exchange Commission for a
discussion of factors that may cause such differences to occur.
     FMS Financial Corporation ("the Corporation") is the parent company of
Farmers & Mechanics Bank ("the Bank"), its only subsidiary.  Earnings of the
Corporation are primarily dependent on the earnings of the Bank as the
Corporation has engaged in no significant operations of its own.  Accordingly,
the earnings of the Corporation are largely dependent on the receipt of earnings
from the Bank in the form of dividends.
   The earnings of the Bank depend primarily on its net interest income.  Net
interest income is affected by: (i) the volume of interest-earning assets and
interest-bearing liabilities (see "Rate Volume Analysis"), (ii) rates of
interest earned on interest-earning assets and rates paid on interest-bearing
liabilities and (iii) the difference ("interest rate spread") between average
rates of interest earned on interest-earning assets and average rates paid on
interest-bearing liabilities.  When interest-earning assets approximate or
exceed interest-bearing liabilities, any positive interest rate spread will
generate net interest income.
    The Bank also derives income from service charges on customer deposit
accounts and fees on loans.  In addition to interest expense, the Bank incurs
operating expenses such as salaries, employee benefits, deposit insurance
premiums, depreciation, property maintenance and advertising.

ASSET AND LIABILITY MANAGEMENT
    The Bank's financial performance is impacted by, among other factors,
interest rate risk and credit risk. The Bank utilizes no derivatives to mitigate
its credit risk, relying instead on loan review and an adequate loan loss
reserve. The Bank's policy allows investment only in securities which have a
rating of AA or better. The Bank holds a substantial component of its investment
portfolio in mortgage-backed securities and collateralized mortgage obligations
(collectively, "MBS").  At the end of 1997, the total investment in MBS
amounted to $164.5 million, or 57% of total investments.  These are instruments
collateralized by pools of residential and commercial mortgages which return
interest and principal payments to the investor.  Approximately 56% of the
Bank's MBS holdings are U.S. Government Agency securities (GNMA, FNMA and
FHLMC), which carry either direct government or quasi-government guarantees and
are rated AAA in terms of quality.  The Bank also owns non-agency MBS, issued by
major financial institutions, which are rated AAA and AA. MBSs are generally
very liquid issues with major brokerage houses providing ready markets.
However, MBS are subject to prepayment and extension risk which can adversely
affect their yields and expected maturities.
     Interest rate risk is the risk of loss in value due to changes in interest
rates. This risk is addressed by the Bank's Asset Liability Management Committee
("ALCO"), which includes senior management. The ALCO monitors and considers
methods of managing interest rate risk by monitoring changes in the interest
rate repricing GAP ("GAP"), the net portfolio values ("NPV") and net interest
income under various interest rate scenarios. The ALCO attempts to manage the
various components of the Bank's balance sheet to minimize the impact of sudden
and sustained changes in interest rates through GAP, NPV and net interest income
scenarios.
     The Bank's exposure to interest rate risk is reviewed on a  periodic  basis
by the Board of Directors and the ALCO.  Interest rate  sensitivity is a measure
of the  difference  between  amounts of  interest-earning  assets and  interest-
bearing  liabilities  which  either  reprice or mature  within a given period of
time.
     The difference, or the interest rate repricing "GAP", provides an
indication of the extent to which an institution's interest rate spread will be
affected by changes in interest rates over a period of time.  A GAP is
considered positive when the amount of interest-rate sensitive assets maturing
or repricing over a specified period of time exceeds the amount of interest-rate
sensitive liabilities maturing or repricing within that period and is considered
negative when the amount of interest-rate sensitive liabilities maturing or
repricing over a specified period of time exceeds the amount of interest-rate
sensitive assets maturing or repricing within that period. Generally, during a
period of rising interest rates, a negative GAP within a given period of time
would adversely affect net interest income, while a positive GAP within such
period of time may result in an increase in net interest income; during a period
of falling interest rates, a negative GAP within a given period of time may
result in an increase in net interest income while a positive GAP within such
period of time may have the opposite effect.

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

GAP TABLE
    The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities and borrowings outstanding at December 31, 1997,
which are expected to reprice or mature in each of the future time periods
shown.  The amount of assets or liabilities shown which reprice or mature during
a particular period were determined by the contractual terms or assumed decay
rates of the asset or liability. The table assumes prepayments and scheduled
principal amortization of fixed-rate loans and mortgage-backed securities, and
assumes that adjustable-rate mortgage loans will reprice at contractual
repricing intervals.  There has been no adjustment for the impact of future loan
commitments and loans in process.

<TABLE>
<CAPTION>
FARMERS & MECHANICS BANK        3 MONTHS          3 MONTHS        1 TO 3          3 TO 5          OVER 5
GAP TABLE                        OR LESS          TO 1 YEAR       YEARS            YEARS          YEARS        TOTAL
---------                        -------          ---------       -----            -----          -----        -----
                                                                   (DOLLARS IN THOUSANDS)
<S>                            <C>             <C>             <C>                  <C>            <C>          <C>
Interest-earning assets:
Investment securities          $   62,768      $     33,657    $   17,268      $  12,065      $   71,555   $  197,313
Loans                              56,686            43,466        68,799         42,337          94,681      305,969
Mortgage-backed securities         11,320            28,109        18,087         10,599          23,906       92,021
                                  -------           -------       -------         ------         -------      -------
 Total                            130,774           105,232       104,154         65,001         190,142      595,303
                                  -------           -------       -------         ------         -------      -------
Interest-bearing liabilities:
Now, Super Now, Passbook and
 Club accounts                      9,704            28,939        38,509         24,462          36,899      138,513
Money market accounts              11,873            23,019        19,585          3,031             493       58,001
Certificates of Deposit            50,894           104,704        66,534         20,661             257      243,050
Borrowings                          2,384             5,750        50,000         25,000           4,321       87,455
                                  -------           -------       -------         ------         -------      -------
 Total                             74,855           162,412       174,628         73,154          41,970      527,019
                                  -------           -------       -------         ------         -------      -------
Interest Rate Sensitivity GAP  $   55,919      $   (57,180)    $ (70,474)      $ (8,153)      $  148,172   $   68,284
                               ==========      ===========     =========       ========       ==========   ==========
Cumulative Interest Rate       $   55,919      $    (1,261)    $ (71,735)      $(79,888)      $   68,284
Sensitivity GAP                ==========      ===========     =========       ========       ==========

Ratio of Interest Rate
Sensitive Assets to Interest
  Rate Sensitive Liabilities       174.70%           64.79%        59.64%         88.86%         453.04%      112.96%
                                   ======            =====         =====          =====          ======       ======

RATIO OF CUMULATIVE GAP TO TOTAL     8.90%           -0.20%       -11.42%        -12.71%          10.87%
BANK ASSETS                          ====             ====         =====          =====           =====
</TABLE>

   The Bank's analysis of its interest-rate sensitivity incorporates certain
assumptions concerning the amortization of loans and other interest-earning
assets and the repricing characteristics of deposits.  The Bank has made the
following assumptions in calculating the values in the GAP table:  adjustable-
rate mortgage loans have a constant prepayment rate of 15%; fixed-rate mortgage
loans have a prepayment rate that is constant through time at 8.0%; fixed and
adjustable rate commercial loans have a constant prepayment rate of 10%;
consumer loans have a prepayment rate that is constant over time at 12%;
mortgage-backed securities and CMOs and REMICs have a prepayment rate that is
constant over time at 12%. Core savings and NOW checking deposits have a decay
rate of 17% and money market accounts have a decay rate of 80%. These decay
rates are based on FHLB assumption rates using industry experience adjusted by
the Bank as needed to reflect our individual experience. The interest-rate
sensitivity of the Bank's assets and liabilities illustrated in the table could
vary substantially if different assumptions were used or if actual experience
differs from the assumptions used.

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

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

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

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

       The Bank also measures its interest rate risk using the OTS's NPV method.
NPV is calculated based on the net present value of estimated cash flows
utilizing market prepayment assumptions and market rates of interest provided by
independent broker quotations and other public sources. An institution's
interest rate risk is measured as the change to its NPV as a result of a
hypothetical immediate 200 basis point change in market interest rates. Based on
this analysis at December 31, 1997, the Bank would experience a 227 basis point
decrease in its NPV as a percent of assets if rates rise by 200 basis points in
comparison to a flat rate scenario and a 93 basis point increase in NPV if rates
decline 200 basis points.

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

RESULTS OF OPERATIONS
Net Interest Income
      The earnings of the Corporation depend primarily upon the level of net
interest income, which is the difference between interest earned on its
interest-earning assets, such as loans and investments, and the interest paid on
interest-bearing liabilities, such as deposits including non-interest checking
accounts and  borrowings.  Net interest income is a function of the interest
rate spread, which is the difference between the weighted average yield earned
on interest-earning assets and the weighted average rate paid on interest-
bearing liabilities, as well as the average balance of interest-earning assets
as compared to interest-bearing liabilities.  Net income is also affected by
non-interest income, such as gains (losses) on the sale of loans and
investments, provision for loan losses and real estate owned, service charges
and other fees, and operating expenses.

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

AVERAGE BALANCES, INTEREST AND YIELDS/RATES
<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                ----------------------------------------------------------------------------------------------------
                                              1997                             1996                               1995
                                -------------------------------- --------------------------------  ---------------------------------
                                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                         $ 310,540   $ 25,038      8.06%  $ 296,276   $  23,797      8.03%   $  289,665  $  23,572      8.14%
 Mortgage-backed securities       97,013      7,062      7.28%    107,268       7,499      6.99%      122,838      8,034      6.54%
 Investment securities           127,937      8,713      6.81%     84,762       5,545      6.54%       55,798      3,595      6.44%
                               ---------   --------      ----   ---------   ---------      ----    ----------  ---------      ----
Total interest-earning
   assets                        535,490     40,813      7.62%    488,306      36,841      7.54%      468,301     35,201      7.52%
                               ---------   --------      ----   ---------   ---------      ----    ----------  ---------      ----
Interest-bearing liabilities:
 Deposits                        474,258     17,755      3.74%    429,413      16,176      3.77%      419,394     15,961      3.81%
 Borrowings                       34,776      2,067      5.94%     29,450       1,745      5.93%       17,889      1,031      5.76%
 Subordinated Debentures          10,000      1,057     10.57%     10,000       1,057     10.57%       10,000      1,049     10.49%
                               ---------   --------      ----   ---------   ---------      ----    ----------  ---------      ----
Total interest-bearing
   liabilities                 $ 519,034     20,879      4.02%    468,863      18,978      4.05%   $  447,283     18,041      4.03%
                               =========     ======      ====     =======      ======      ====    ==========     ======      ====
Net interest income                        $ 19,934                         $  17,863                          $  17,160
                                           ========                         =========                          =========
Interest rate spread                                     3.60%                             3.50%                              3.49%
                                                         ====                              ====                               ====
Net yield on average interest-
 earning assets                                          3.72%                             3.66%                              3.66%
                                                         ====                              ====                               ====
Ratio of average interest-
 earning assets to average
 interest-bearing liabiltites                          103.17%                           104.15%                            104.70%
                                                       ======                            ======                             ======
</TABLE>

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

RATE VOLUME ANALYSIS
    The following table sets forth certain information regarding changes in
interest income and interest expense of the Corporation for the periods
indicated.  For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
rates; (ii) changes  in  volume; (iii)  total  change  in  rate  and volume (the
combined effect of changes in both volume and rate, not separately identified,
has been allocated to rate). Because average balances on loans include non-
performing loans which reduce the computed yield, a higher level of non-
performing loans affects both the changes due to volume and rate.
<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                              ------------------------------------------------------------------------------
                                           1997 VS. 1996                            1996 VS. 1995
                              --------------------------------------    ------------------------------------
                                        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                       $        95    $    1,146    $     1,241   $     (313) $       538 $    225
  Mortgage-backed securities          280          (717)          (437)         483       (1,018)    (535)
  Investment securities               344         2,824          3,168           84        1,866    1,950
                              -----------    ----------    -----------   ----------  ----------- --------
  Total change - interest
    income                            719         3,253          3,972          254        1,386    1,640

Interest expense:
  Deposits                           (110)        1,689          1,579         (166)         381      215
  Borrowings                            6           316            322           48          666      714
  Subordinated Debentures               0             0              0            8            0        8
                              -----------    ----------    -----------   ----------  ----------- --------
  Total change - interest
    expense                          (104)        2,005          1,901         (110)       1,047      937
                              -----------    ----------    -----------   ----------  ----------- --------

Net change in net interest
  income                      $       823      $  1,248    $     2,071   $      364  $       339 $    703
                              ===========      ========    ===========   ==========  =========== ========
</TABLE>

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

YEAR 2000
     The Year 2000 issue concerns the potential impact of historic computer
software code that only utilizes two digits to represent the calendar year (e.g.
"98" for "1998"). Software so developed could produce inaccurate or
unpredictable results upon the change to January 1, 2000, when current and
future dates represent a lower two digit year number than dates in the prior
century. The Bank, similar to most financial institutions, is significantly
subject to the potential impact of the "Year 2000 issue" due to the nature of
financial information. Potential impact to the Bank may arise from software,
hardware, and equipment both within the Bank's direct control and outside of the
Bank's ownership, yet with which the Bank electronically or operationally
interfaces (e.g. vendors providing credit bureau information). The Bank has a
year 2000 compliance program in place to ensure that all software applications
will be year 2000 certified compliant. Management expects that it will be able
to satisfy year 2000 compliance issues by the end of 1998. Management intends to
perform testing on all systems throughout 1998 and 1999. The Bank does not
expect that the costs of its year 2000 compliance program will be material to
its financial condition or results of operations. Non-compliance with the year
2000 issue could have an adverse affect on the operations of the business.

RECENTLY ISSUED ACCOUNTING STANDARDS
     In March 1997, the FASB issued Statement of Financial Accounting Standards
No. 128 (SFAS No. 128), "Earnings per Share", which supersedes Accounting
Principles Board Opinion No. 15, "Earnings per Share", and was adopted by the
Corporation for the fiscal year ended December 31, 1997.  This statement
requires restatement of all prior-period earnings per share data presented.
SFAS No. 128 establishes standards by simplifying the computation and
presentation of earnings per share (EPS), and applies to entities with publicly
held common stock or potential common stock.  It replaces the presentation of
primary EPS with a presentation of basic EPS.  It also requires 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

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

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.  Diluted EPS is computed  similarly to fully diluted EPS
pursuant to Opinion 15. The  Corporation  has  presented  both basic and diluted
earnings  per  share as well as the  reconciliation  of the  denominator  in the
consolidated statement of operations.

     In June 1996, the FASB issued the Statement of Financial Accounting
Standards No. 125 (SFAS No. 125), "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" for which certain
provisions are applicable January 1, 1997. This statement was amended by
Statement of Financial Accounting Standards No. 127 (SFAS No. 127) "Deferral of
the Effective Date of Certain Provisions of FASB No. 125" which deferred the
effective date of a portion of SFAS No. 125 until January 1, 1998. SFAS No. 125,
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on the concept of
control. The adoption of SFAS No. 125 did not have a material effect on the
financial position or results of operation of the Corporation.

     In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 (SFAS No. 130), "Reporting Comprehensive Income", which is effective
for the Corporation beginning January 1, 1998, and requires restatement of all
prior-period financial statements presented for comparative purposes.  This
Statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements.  This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.  It is anticipated that the
adoption of SFAS No. 130 in 1998 will not have a material effect on the
financial position or results of operation of the Corporation.

COMPARISONS OF YEARS ENDED DECEMBER 31, 1997 AND 1996.
Net Income
    The Corporation and its subsidiary recorded net income of $5.5 million for
the year ended December 31, 1997, or $2.24 diluted earnings per share as
compared to net income of $3.0 million, or $1.20 diluted earnings per share for
the year ended December 31, 1996.  Net interest income was $19.9 million in 1997
compared to $17.9 million in 1996.  Provisions for loan losses were $400
thousand in 1997 compared to $120 thousand in 1996.  Other income totaled $2.1
million in 1997 compared to $2.3 million for the same period in 1996.  Total
operating expenses for the year ended December 31, 1997 were $13.0 million
compared to $15.7 million in the previous year which included $2.7 million for
the one-time special assessment to recapitalize the Savings Association
Insurance Fund. During 1997, the Corporation declared dividends which totaled
$.24 per share which resulted in a dividend payout ratio of 10.71%.  The ability
of the Corporation to pay dividends to shareholders is directly dependent upon
the ability of the Bank to pay dividends to the Corporation.  See Stockholders'
Equity footnote.

Interest Income
     Total interest income increased $4.0 million to $40.8 million in 1997 from
$36.8 million in 1996.  The increase is attributable to increases in interest
income on investment securities of $3.2 million and loans of $1.2 million,
partially offset by a decrease in interest income on mortgage-backed securities
of $437 thousand.

     The increase in interest income on investment securities was due to a $43.1
million increase in the average balance of investment securities to $127.9
million in 1997 from $84.8 million in 1996. The investment portfolio increased
primarily due to the net purchase in 1997 of $59.0 million in collateralized
mortgage obligations (CMOs), partially offset by $10.3 million in principal
paydowns, $35.4 million in U.S. Agency notes and $10.2 million in reverse
repurchase agreements.  The increases in the average balance of investment
securities resulted in an increase in interest income of $2.8 million in 1997
from the previous year. Average yields increased to 6.81% in 1997 from 6.54% in
1996, which resulted in an increase in interest income of $344 thousand.

     The average balance of the loan portfolio increased $14.2 million to $310.5
million in 1997 from $296.3 million in 1996. In August 1996 the Bank purchased
$14.5 million of adjustable rate mortgages from First Tennessee Bank. These
loans are residential mortgages on properties primarily located within the
Bank's lending area of Burlington County, NJ. The 1997 increase in loan volume
resulted in a $1.1 million increase in interest income.  The average yield on
the loan portfolio increased to 8.06% in 1997 from 8.03% in 1996 which resulted
in an increase in interest income of $95 thousand.

     Interest income on mortgage-backed securities decreased $437 thousand in
1997 due to volume decreases in the portfolio,  partially offset by increases in
the yield on the portfolio. The average balance of the portfolio decreased $10.3
million to $97.0 million in 1997 from $107.3 million in 1996, resulting in a
decrease in interest income of $717 thousand. The decline in the average balance
is primarily due to principal paydowns of $21.6 million, partially offset by
purchases of $9.4 million during the year. The average yield on the portfolio
increased to 7.28% in 1997 from 6.99% in 1996, which resulted in an increase in
interest income of $280 thousand.

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

Interest Expense
     Total interest expense increased $1.9 million to $20.9 million in 1997 from
$19.0 million in 1996.  The increase was due to an increase in interest expense
on deposits and borrowings.

     Interest expense on deposits increased $1.6 million to $17.8 million in
1997 from $16.2 million in 1996. The average balance of deposits increased $44.8
million to $474.2 million in 1997 from $429.4 million in 1996, resulting in an
increase in interest expense of $1.7 million.  Increases in deposits in 1997 are
primarily due to  increases in the average balances of checking accounts of
$17.2 million, certificates of deposit accounts of $14.4 million and savings
accounts of $11.0 million. These increases were partially offset by a decline in
the average rate paid on deposits of 3 basis points to 3.74% in 1997 from 3.77%
in 1996, resulting in a decrease in interest expense of $110 thousand. The
lowering of the average rate on deposits in 1997 was due to an increase in the
average balance of non-interest "Free Checking" accounts of $12.7 million.

     Interest expense on borrowings increased $322 thousand to $2.1 million in
1997 from $1.7 million in 1996.  This increase was due to an increase in the
average balance of borrowings as well as an increase in the average rate. The
average balance of borrowings increased $5.3 million to $34.8 million in 1997
from $29.5 million in 1996, resulting in a $316 thousand increase in interest
expense due to volume. This was primarily the result of a $8.9 million increase
in the average balance of repurchase agreements during the year. The average
rate on borrowings increased to 5.94% in 1997 from 5.93% in 1996, resulting in a
$6 thousand increase in interest expense due to rate.

Provision For Loan Losses
     The provision for loan losses increased $280 thousand to $400 thousand in
1997 from $120 thousand in 1996. At December 31, 1997 the allowance for possible
loan losses amounted to $3.1 million or 1.0% of the total loan compared to $2.8
million or .9% at December 31, 1996.  The determination of the allowance level
for loan losses is based on management's analysis of risk characteristics of
various classifications of loans, previous loan loss experience, estimated fair
value of the underlying collateral and current economic conditions.

Other Income (Expense)
     Other income from operations decreased $152 thousand to $2.1 million in
1997 compared with $2.3 million in 1996.

     Loss from real estate held for development of $200 thousand was the result
of an increase in the valuation allowance for the loss on the sale of one of the
land development properties in 1997.

     Real estate owned operations, net in 1997 resulted in a loss of $180
thousand, which was comprised of $48 thousand in real estate owned operating
expenses, $123 thousand of provisions for loss on real estate, net of charge-
offs, and realized gains of $11 thousand on the sale of real estate owned
properties.

          Service charges on accounts increased $258 thousand to $2.2 million in
1997 from $1.9 million in 1996.  The increase is the result of additional retail
banking fees due to higher transaction volume during the year.

 Operating Expenses
     Total operating expenses decreased $2.7 million to $13.0 million in 1997
from $15.7 million in 1996.  The decrease in operating expenses was primarily
due to the absence in 1997 of the one-time special assessment of $2.7 million in
1996 charged in connection with the federal legislation requiring the
recapitalization of the Savings Association Insurance Fund (SAIF).

     Salaries and benefits increased $276 thousand to $7.3 million in 1997 from
$7.0 million in 1996.  The increase was due to additional staff in the new
branches opened during the year as well as an increase in branch staff for
additional operating hours, principally for "Sunday Banking" and extended
weekday hours until 9:00 p.m.  Average full time equivalent employees during
1997 were 299 as compared to 236 during 1996.

     Occupancy and equipment expense increased $174 thousand to $2.7
million in 1997 from $2.5 million in 1996.  This increase is due to additional
depreciation and occupancy expenses on two new branches opened in 1997, as well
as other facility and equipment additions and improvements during the year.

     Federal deposit insurance premiums decreased $714 thousand to $233 thousand
in 1997 from $947 thousand in 1996. The decrease reflects the reduction in rates
charged by the FDIC to $.065 per $100 of deposits during 1997 from $.23 per $100
in 1996, partially offset by an increase in average deposits of the Bank.

     Purchased services expense increased $155 thousand to $1.1 million in
1997 from $917 thousand in 1996. This increase is primarily the result of an
increase in check processing costs of $59 thousand and MAC charges of $53
thousand.

     Advertising expense increased by $86 thousand to $129 thousand in 1997 from
$43 thousand in 1996. The Bank has initiated  a newspaper and television
advertising campaign emphasizing our twenty-one branch locations and increased
hours of operations.

COMPARISONS OF YEARS ENDED DECEMBER 31, 1996 AND 1995.
Net Income
     The Corporation and its subsidiary recorded net income of $3.0 million for
the year ended December 31, 1996, or $1.20 diluted earnings per share as
compared to net income of $4.3 million, or $1.69 diluted earnings per share for
the year ended December 31, 1995.  Net interest income was $17.9 million in 1996
compared to $17.2 million in 1995.  Provisions for loan losses remained
consistent at $120 thousand during 1996 and 1995.  Other income totaled $2.3
million in 1996 compared to $1.7 million for the same period in 1995.  Total
operating expenses for the year ended December 31, 1996 were

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

$15.7  million  (includes  $2.7 million for the one-time  special  assessment to
recapitalize the Savings  Association  Insurance Fund) compared to $11.9 million
in the previous year.  During 1996, the  Corporation  declared  dividends  which
totaled $.20 per share which resulted in a dividend payout ratio of 16.67%.

Interest Income
     Total interest income increased $1.6 million to $36.8 million in 1996 from
$35.2 million in 1995.  The increase is attributable to increases in interest
income on investment securities of $1.9 million and loans of $225 thousand,
partially offset by a decrease in interest income on mortgage-backed securities
of $535 thousand.

     The increase in interest income on investment securities was due to a $29.0
million increase in the average balance of investment securities to $84.8
million in 1996 from $55.8 million in 1995. The investment portfolio increased
due to the net purchase of $9.7 million in U.S. Agency notes and net increase of
$11.0 million in reverse repurchase agreements and $7.5 million in
collateralized mortgage obligations. The increase in the average balance of
investment securities resulted in an increase in interest income of $1.9
million. The average yield increased to 6.54% in 1996 from 6.44% in 1995, which
resulted in an increase in interest income of $84 thousand.

     The average balance of the loan portfolio increased $6.6 million to $296.3
million in 1996 from $289.7 million in 1995. During the year, the Bank purchased
$14.5 million of adjustable rate mortgages from First Tennessee Bank. These
loans are residential mortgages on properties primarily located within the
Bank's lending area of Burlington County, NJ. The loan volume increase resulted
in a $538 thousand increase in interest income, partially offset by a $313
thousand decrease in interest income attributed to an 11 basis point decrease in
the average yield on the loan portfolio. The average yield on the loan portfolio
decreased to 8.03% in 1996 from 8.14% in 1995.

     Interest income on mortgage-backed securities decreased $535 thousand in
1996 due to a volume decrease of the portfolio,  partially offset by an increase
in the yield on the portfolio. The average balance of the portfolio decreased
$15.5 million to $107.3 million in 1996 from $122.8 million in 1995, resulting
in a decrease in interest income of $1.0 million. The decline in the average
balance is due to $24.4 million of principal paydowns, partially offset by
mortgage-backed securities purchases of $17.5 million during the year. The
average yield on the portfolio increased to 6.99% in 1996 from 6.54% in 1995,
which resulted in an increase in interest income of $483 thousand.

Interest Expense
     Total interest expense increased $937 thousand to $19.0 million in 1996
from $18.0 million in 1995.  The increase was due to an increase in interest
expense on deposits and borrowings.

     Interest expense on deposits increased $215 thousand to $16.2 million in
1996 from $16.0 million in 1995. The average balance of deposits increased $10.0
million to $429.4 million in 1996 from $419.4 million in 1995, resulting in an
increase in interest expense of $381 thousand. The increase in deposits is
primarily due to an increase in the average balance of checking accounts in 1996
of $9.2 million to $72.8 million. This increase was partially offset by a
decline in the average rate paid on deposits of 4 basis points to 3.77% in 1996
from 3.81% in 1995, resulting in a decrease in interest expense of $166
thousand.

     Interest expense on borrowings increased $714 thousand to $1.7 million in
1996 from $1.0 million in 1995.  This increase was due to an increase in the
average balance of borrowings as well as an increase in the average rate. The
average balance of borrowings increased to $29.5 million in 1996 from $17.9
million in 1995, resulting in a $666 thousand increase in interest expense due
to volume. This was primarily the result of a $11.7 million increase in the
average balance of advances from the Federal Home Loan Bank during the year. The
average rate on borrowings increased to 5.93% during 1996 from 5.76% during
1995, resulting in a $48 thousand increase in interest expense due to rate.

Provision For Loan Losses
     The provision for loan losses remained constant at $120 thousand during
1996 and 1995. The determination of the allowance level for loan losses is based
on management's analysis of risk characteristics of various classifications of
loans, previous loan loss experience, estimated fair value of the underlying
collateral and current economic conditions.

Other Income (Expense)
     Other income from operations was $2.3 million in 1996 compared with $1.7
million in 1995.

     Real estate owned operations, net in 1996 resulted in a loss of $175
thousand, which was comprised of $43 thousand in real estate owned operating
expenses, $124 thousand of provisions for loss on real estate, net of charge-
offs, and a $8 thousand loss on the sale of real estate owned properties.

     Service charges on accounts increased $427 thousand to $1.9 million in 1996
from $1.5 million in 1995.  The increase is the result of additional retail
banking fees due to higher transaction volume during the year.

 Operating Expenses
     Total operating expenses increased $3.8 million to $15.7 million in 1996
from $11.9 million in 1995.  The increase in operating expenses was primarily
due to the one-time special assessment of $2.7 million charged in connection
with the federal legislation requiring the recapitalization of the Savings
Association Insurance Fund. Operating expenses also increased as a result of
opening  four additional branches during 1996.

     On September 30, 1996, the President signed legislation which required
savings institutions with SAIF insured deposits to pay a one-time special
assessment to facilitate the recapitalization of the SAIF. The assessment

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

was based on 65.7 cents per $100 of deposits at March 31, 1995.  This assessment
resulted in a charge of approximately  $2.7 million to operating  expense during
the year ended  December 31, 1996.  The  legislation  also  includes  provisions
whereby at such time as the SAIF is adequately recapitalized,  the Bank's future
deposit  premiums  will decrease from $.23 per $100 of deposits paid during 1996
to  approximately  $.065 in 1997 through the year 2000 and  approximately  $.025
through the year 2017.

     Salaries and benefits increased $758 thousand to $7.0 million in 1996 from
$6.3 million in 1995.  The increase was due to additional staff in the new
branches opened during the year as well as an increase in branch staff for
additional operating hours, principally for "Sunday Banking".  Average full
time equivalent employees during 1996 were 236 as compared to 209 during 1995.

     Occupancy and equipment expense increased $488 thousand to $2.5 million in
1996 from $2.1 million in 1995.  This increase is due to additional depreciation
and occupancy expenses on four new branches opened in 1996, as well as other
facility and equipment additions and improvements during the year.

     Purchased services expense decreased $105 thousand to $917 thousand in 1996
from $1.0 million in 1995. This decrease includes a reduction in check
processing costs attributed to the implementation of an in-house check
processing system in October 1995. The decrease in check processing costs were
partially offset by an increase in MAC charges of $83 thousand.

LIQUIDITY AND CAPITAL RESOURCES
     The Bank's liquidity is a measure of its ability to fund loans, withdrawals
of deposits and other cash outflows in a cost effective manner.  The Bank's
primary sources of funds are deposits and scheduled amortization and prepayments
of loan principal.  The Bank also obtains funds from the sale and maturity of
investment securities and short-term investments as well as the maturity of
mortgage-backed securities and funds provided by operations.  During the past
several years, the Bank has used such funds primarily to meet its ongoing
commitments to fund maturing time deposits and savings withdrawals, to fund
existing and continuing loan commitments and to maintain liquidity.  While the
Bank has been able to fund its operations internally during recent periods, it
has periodically supplemented its liquidity needs with securities sold under
agreements to repurchase (repurchase agreements) and advances from the Federal
Home Loan Bank of New York (FHLB).   At December 31, 1997 the Bank had $60.0
million in repurchase agreements and $24.5 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.

     The Bank is required under applicable federal regulations to maintain a
specified level of "liquid investments", which include certain United States
government and federal agency securities and other approved investments.
Regulations currently in effect require the Bank to maintain liquid assets of
not less than 4% of its withdrawable accounts plus short-term borrowings.  These
levels are changed from time to time by the regulators to reflect the current
economic conditions.  The Bank has generally maintained liquidity in excess of
the required level.  The Bank's regulatory liquidity was 11.46% at December 31,
1997.

         The amount of certificate accounts which are scheduled to mature during
the twelve months ending December 31, 1998 is approximately  $102.3 million.  To
the extent  these  deposits  do not remain at the Bank upon  maturity,  the Bank
believes it can  replace  these funds with  deposits,  FHLB  advances or outside
borrowings. It has been the Bank's experience that a substantial portion of such
maturing deposits remain with the Bank.

     At December 31, 1997, the Bank had loan commitments outstanding of $25.5
million, of which $3.6 million were for fixed-rate loans and $21.9 million were
for adjustable-rate loans.  Funds required to fulfill the commitments are
derived primarily from loan repayments, net deposit inflows or, when
appropriate, borrowings.

     Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") the Bank must have core capital equal to 3% of assets, of
which 1.5% must be tangible capital, excluding goodwill.  FIRREA also
established risk-based capital standards. In measuring the Bank's compliance
with FIRREA capital standards, the Bank must deduct from its regulatory capital
calculation investments in, and advances to, subsidiaries engaged in activities
not permissible for national banks.  At December 31, 1997, the Bank exceeded all
three required regulatory capital levels.  At December 31, 1997, the Bank's
regulatory tangible and core capital was $44.1 million or 7.05% of total bank
assets and risk-based capital was $47.0 million or 15.85% of risk-weighted
assets.

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

CONSOLIDATED SUMMARY OF QUARTERLY EARNINGS (UNAUDITED)

The following table presents summarized quarterly data for 1997 and 1996:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                           1ST         2ND         3RD         4TH        TOTAL
1997                                     QUARTER     QUARTER     QUARTER     QUARTER       YEAR
-------------------------------------------------------------------------------------------------
                                                (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                    <C>          <C>        <C>          <C>       <C>
Total interest income                  $    9,744   $ 10,080   $  10,267    $ 10,722  $     40,813
Total interest expense                      4,978      5,092       5,184       5,625        20,879
                                       ----------   --------   ---------    --------  ------------
Net interest income                         4,766      4,988       5,083       5,097        19,934
Provision for loan losses                      30         50          60         260           400
                                       ----------   --------   ---------    --------  ------------
Net interest income after provision
     for loan losses                        4,736      4,938       5,023       4,837        19,534
Total other income                            582        569         542         408         2,101
Total operating expenses                    3,204      3,221       3,384       3,208        13,017
                                       ----------   --------   ---------    --------  ------------
Income before income taxes                  2,114      2,286       2,181       2,037         8,618
Federal and state income taxes                766        829         787         745         3,127
                                       ----------   --------   ---------    --------  ------------
Net income                             $    1,348   $  1,457   $   1,394    $  1,292  $      5,491
                                       ==========   ========   =========    ========  ============
Basic earnings per common share        $     0.56   $   0.61   $    0.58    $   0.55  $       2.30
                                       ==========   ========   =========    ========  ============
Diluted earnings per common share      $     0.55   $   0.60   $    0.57    $   0.52  $       2.24
                                       ==========   ========   =========    ========  ============

</TABLE>


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                           1st         2nd         3rd         4th        Total
1996                                     Quarter     Quarter     Quarter     Quarter       Year
-------------------------------------------------------------------------------------------------
                                                (In Thousands, except per share amounts)
<S>                                    <C>          <C>        <C>          <C>       <C>
Total interest income                  $    8,847   $  9,028   $   9,415    $  9,551  $     36,841
Total interest expense                      4,657      4,663       4,834       4,824        18,978
                                       ----------   --------   ---------    --------  ------------
Net interest income                         4,190      4,365       4,581       4,727        17,863
Provision for loan losses                      30         30          30          30           120
                                       ----------   --------   ---------    --------  ------------
Net interest  income after provision
     for loan losses                        4,160      4,335       4,551       4,697        17,743
Total other income                            497        484         601         671         2,253
Total operating expenses                    3,088      3,222       6,007(a)    3,374        15,691(a)
                                       ----------   --------   ---------    --------  ------------
Income before income taxes                  1,569      1,597        (855)      1,994         4,305
Federal and state income taxes                567        485        (385)        612         1,279
                                       ----------   --------   ---------    --------  ------------
Net income                             $    1,002   $  1,112   $    (470)   $  1,382  $      3,026
                                       ==========   ========   =========    ========  ============
Basic earnings per common share        $     0.40   $   0.45   $   (0.19)   $   0.56  $       1.22
                                       ==========   ========   =========    ========  ============
Diluted earnings per common share      $     0.39   $   0.44   $   (0.19)   $   0.56  $       1.20
                                       ==========   ========   =========    ========  ============

</TABLE>

 (a) Includes $2.7 million for the one-time special assessment to recapitalize
     the SAIF.

                                      -12-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
DECEMBER 31,                                                                                       1997                  1996
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>                 <C>
ASSETS
----------------------------------------------------------------------------------------------------------------------------------
  Cash and amounts due from depository institutions                                         $   11,637,181      $      9,572,347
  Interest-bearing deposits                                                                        826,823               296,702
  Short term funds                                                                                 167,618                50,500
                                                                                            --------------      ----------------

   Total cash and cash equivalents                                                              12,631,622             9,919,549
                                                                                            --------------      ----------------

  Investment securities held to maturity                                                       112,349,476            67,601,343
  Investment securities available for sale                                                      80,338,661            25,446,520
  Loans, net                                                                                   302,831,031           306,870,816
  Mortgage-backed securities held to maturity                                                   92,020,517           104,312,581
  Accrued interest receivable:
   Loans                                                                                         1,750,966             1,754,117
   Mortgage-backed securities                                                                      715,981               831,821
   Investments                                                                                   1,934,925             1,045,097
  Federal Home Loan Bank stock                                                                   3,630,800             3,620,600
  Real estate held for development, net                                                            644,487             1,227,732
  Real estate owned, net                                                                           446,361               621,556
  Office properties and equipment, net                                                          15,692,055            14,756,238
  Deferred income taxes                                                                          1,507,307             1,563,480
  Excess cost over fair value of net assets acquired                                               469,444               812,599
  Prepaid expenses and other assets                                                              1,061,125               889,899
  Subordinated Debentures issue costs, net                                                         378,460               435,809
                                                                                            --------------      ----------------
TOTAL ASSETS                                                                                $  628,403,218      $    541,709,757
                                                                                            ==============      ================



LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
  Deposits                                                                                  $  489,439,980      $    453,276,534
  Securities sold under agreements to repurchase                                                60,000,000                     0
  Advances from the Federal Home Loan Bank                                                      24,496,476            32,550,000
  Advances from Bank                                                                                     0             6,691,758
  10% Subordinated Debentures, due 2004                                                         10,000,000            10,000,000
  Guarantee of employee stock ownership plan debt                                                   33,481               106,463
  Advances by borrowers for taxes and insurance                                                  2,192,541             2,138,638
  Accrued interest payable                                                                       1,114,304               860,545
  Dividends payable                                                                                167,154               119,636
  Other liabilities                                                                              2,043,465             2,140,009
                                                                                            --------------      ----------------
  Total liabilities                                                                            589,487,401           507,883,583
                                                                                            --------------      ----------------

Commitments and contingencies
Stockholders' Equity:
  Preferred stock - $.10 par value 5,000,000 shares authorized; none issued
  Common stock - $.10 par value 10,000,000 shares authorized; shares
   issued 2,604,370 and 2,602,884, and shares outstanding 2,387,916
   and 2,392,707 as of December 31, 1997 and 1996, respectively                                    260,437               260,288
  Paid-in capital                                                                                8,419,167             8,413,558
  Unrealized gain(loss) on securities available for sale, net of deferred income taxes              53,955              (166,152)
  Guarantee of employee stock ownership plan debt                                                  (33,481)             (106,463)
  Retained earnings                                                                             33,406,060            28,487,903
  Less:  Treasury stock (216,454 and 210,177 shares, at cost,  as of
   December 31, 1997 and 1996, respectively)                                                    (3,190,321)           (3,062,960)
                                                                                            --------------      ----------------
Total stockholders' equity                                                                      38,915,817            33,826,174
                                                                                            --------------      ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                  $  628,403,218      $    541,709,757
                                                                                            ==============      ================
</TABLE>

See notes to consolidated financial statements.

                                      -13-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,                                             1997                 1996            1995
-------------------------------------------------------------------------------------------------------------------
INTEREST  INCOME:
Interest income on:
<S>                                                            <C>                   <C>            <C>
  Loans                                                        $  25,037,855  $        23,797,512   $   23,572,092
  Mortgage-backed securities                                       7,062,459            7,499,231        8,033,982
  Investments                                                      8,712,928            5,544,668        3,594,867
                                                               -------------  -------------------   --------------
Total interest income                                             40,813,242           36,841,411       35,200,941
                                                               -------------  -------------------   --------------
INTEREST EXPENSE:
Interest expense on:
  Deposits                                                        17,754,531           16,176,223       15,961,110
  Subordinated Debentures                                          1,057,348            1,057,348        1,049,015
  Borrowings                                                       2,066,929            1,745,032        1,031,043
                                                               -------------  -------------------   --------------
Total interest expense                                            20,878,808           18,978,603       18,041,168
                                                               -------------  -------------------   --------------
NET INTEREST INCOME                                               19,934,434           17,862,808       17,159,773
PROVISION FOR LOAN LOSSES                                            400,000              120,000          120,000
                                                               -------------  -------------------   --------------
NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                               19,534,434           17,742,808       17,039,773
                                                               -------------  -------------------   --------------
OTHER INCOME (EXPENSE):
  Loan service charges and other fees                                170,766              219,639          269,977
  Gain on sale of loans                                                9,804                8,432            8,836
  Gain on sale of investment securities                                1,711               54,406                0
  Loss from real estate held for development                       (200,000)                    0        (200,000)
  Real estate owned operations, net                                (179,879)            (174,503)         (91,986)
  Service charges on  accounts                                     2,204,167            1,946,307        1,519,078
  Other income                                                        94,664              199,097          184,687
                                                               -------------  -------------------   --------------
Total other income (expense)                                       2,101,233            2,253,378        1,690,592
                                                               -------------  -------------------   --------------
OPERATING EXPENSES:
  Salaries and employee benefits                                   7,319,822            7,043,584        6,285,898
  Occupancy and equipment                                          2,715,513            2,541,296        2,053,513
  Purchased services                                               1,071,697              916,803        1,021,442
  Federal deposit insurance premiums                                 232,739              946,594          973,503
  SAIF recapitalization assessment                                         0            2,720,765                0
  Professional fees                                                  331,436              285,972          367,160
  Advertising                                                        129,278               42,956           25,250
  Other                                                            1,216,951            1,192,896        1,189,114
                                                               -------------  -------------------   --------------
Total operating expenses                                          13,017,436           15,690,866       11,915,880
                                                               -------------  -------------------   --------------
INCOME BEFORE INCOME TAXES                                         8,618,231            4,305,320        6,814,485
                                                               -------------  -------------------   --------------
INCOME TAXES:
Current                                                            3,195,477            2,044,225        2,526,805
Deferred                                                            (68,400)            (764,726)         (55,724)
                                                               -------------  -------------------   --------------
Total income taxes                                                 3,127,077            1,279,499        2,471,081
                                                               -------------  -------------------   --------------
NET INCOME                                                     $   5,491,154  $         3,025,821   $    4,343,404
                                                               =============  ===================   ==============
 BASIC EARNINGS PER COMMON SHARE                                       $2.30                $1.22            $1.73
                                                                       =====                =====            =====
 DILUTED EARNINGS PER COMMON SHARE                                     $2.24                $1.20            $1.69
                                                                       =====                =====            =====
Weighted average common shares outstanding                         2,388,485             2,470,361        2,504,322

 Potential dilutive effect of the exercise of stock options           60,288                53,954           60,844
                                                                   ---------             ---------        ---------
Adjusted weighted average common shares outstanding                2,448,773             2,524,315        2,565,166
                                                                   =========             =========        =========
</TABLE>
See notes to consolidated financial statements.

                                      -14-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                                 1997           1996            1995
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>             <C>               <C>
OPERATING ACTIVITIES:
Net income                                                                       $     5,491,154 $     3,025,821   $   4,343,404
Adjustments to reconcile net income to net cash provided
   by operating activities:
Provision for loan losses                                                                400,000         120,000         120,000
Depreciation and amortization                                                          1,876,773       1,639,469       1,622,710
Provision for real estate owned                                                          142,630         124,315         354,453
Provision for real estate held for development                                           200,000               0         200,000
Realized (gains) and losses on:
 Sale of loans and loans held for sale                                                    (9,804)         (8,432)         (8,836)
 Sale of investments available for sale                                                   (1,711)        (54,406)              0
 Disposal and sale of fixed assets                                                         7,122           7,240           3,836
 Sale of real estate owned                                                               (10,630)          8,235        (177,197)
Proceeds from sale of loans held for sale                                                101,625         112,226         257,989
Loans originated for sale                                                               (100,000)       (110,000)       (254,000)
Increase in accrued interest receivable                                                 (770,837)        (24,702)       (533,227)
(Increase) Decrease in prepaid expenses and other assets                                (171,226)       (120,213)        348,840
Increase (Decrease) in accrued interest payable                                          253,759         (27,911)         50,762
(Decrease) Increase in other liabilities                                                 (46,544)        241,148         (15,899)
Provision for deferred income taxes                                                      (67,530)       (705,382)        (55,724)
Other                                                                                     72,982          75,981          75,981
                                                                                 --------------- ---------------   -------------
 Net cash provided by operating activities                                             7,367,763       4,303,389       6,333,092
                                                                                 --------------- ---------------   -------------
INVESTING ACTIVITIES:
Proceeds from sale of:
 Education loans                                                                         953,442         846,443         868,725
 Real estate held for development                                                        333,245               0               0
 Real estate owned                                                                        75,630         396,519       1,022,006
 Office properties and equipment                                                               0           1,700               0
Proceeds from maturities of investment securities held to maturity                   265,776,982     157,566,650      35,549,229
Proceeds from maturities of investment securities available for sale                  11,942,666      16,327,791      13,767,144
Principal collected and proceeds from sale of mortgage-backed securities              33,458,783      32,335,567      21,454,381
Principal collected on loans, net                                                     53,020,808      52,372,663      40,393,832
Longer-term loans originated or acquired, net                                        (50,305,474)    (72,113,495)    (46,373,552)
Purchase of investment securities and mortgage-backed securities held to maturity   (320,005,763)   (199,107,774)    (62,865,500)
Purchase of investment securities available for sale                                 (78,570,231)    (26,797,361)    (21,317,509)
(Purchase) Redemption of Federal Home Loan Bank stock                                    (10,200)         437,500       (329,700)
Purchase of office property and equipment                                             (2,077,581)     (3,271,960)     (3,037,422)
Net cash received from deposit and branch purchase, net                                        0       9,044,846               0
                                                                                 --------------- ---------------   -------------
 Net cash used by investing activities                                               (85,407,693)    (31,960,911)    (20,868,366)
                                                                                 --------------- ---------------   -------------

FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits and savings accounts                       27,376,384       3,813,048      (5,609,287)
Net increase in time deposits                                                          2,095,304      11,470,940       4,987,853
Net (decrease) increase in FHLB advances and advances from Bank                       (8,053,524)     14,741,758      14,430,000
Proceeds from securities sold under agreements to repurchase                          60,000,000               0               0
Principal repayment of employee stock ownership plan debt                                (72,982)        (75,981)        (75,981)
Increase (Decrease) in advances from borrowers for taxes and insurance                    53,903          45,508        (12,151)
Purchase of treasury stock                                                              (127,361)     (1,913,191)       (249,219)
Dividends paid on common stock                                                          (525,479)       (495,434)       (375,213)
Net proceeds from issuance of common stock                                                 5,758           4,843          44,307
                                                                                 --------------- ---------------   -------------
 Net cash provided by financing activities                                            80,752,003      27,591,491      13,140,309
                                                                                 --------------- ---------------   -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                       2,712,073         (66,031)     (1,394,965)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                           9,919,549       9,985,580      11,380,545
                                                                                 --------------- ---------------   -------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                           $    12,631,622 $     9,919,549   $   9,985,580
                                                                                 =============== ===============   =============
Supplemental Disclosures:
 Cash paid for:
         Interest on deposits, advances, and other borrowings                    $    20,625,049 $    19,006,514   $  17,990,406
         Income taxes                                                                  3,456,506       1,647,476       2,503,591
 Non cash investing and financing activities:
         Transfer of securities to available for sale during FASB 115
         suspension period                                                                     0               0       4,979,408
         Dividends declared and not paid at year end                                     167,154         119,636         125,288
         Non-monetary transfers from loans to real estate acquired
         through foreclosure                                                              32,435         481,833          56,527
</TABLE>

See notes to consolidated financial statements.

                                      -15-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                 UNREALIZED   GUARANTEE OF
                                                                 GAIN (LOSS)  ON EMPLOYEE
                                                                  SECURITIES      STOCK                                  TOTAL
                                          COMMON     PAID-IN       AVAILABLE    OWNERSHIP   RETAINED      TREASURY   STOCKHOLDER
                                          STOCK      CAPITAL     FOR SALE, NET  PLAN DEBT   EARNINGS       STOCK         EQUITY
------------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>            <C>        <C>            <C>        <C>          <C>           <C>
Balances at December 31, 1994        $     129,510  $8,495,186 $     (415,872)$ (258,425)$ 22,108,961 $   (900,550) $   29,158,810
Net Income                                                                                  4,343,404                    4,343,404
Dividends declared                                                                           (500,501)                    (500,501)
Gain on securities available
 for sale, net                                                        179,718                                              179,718
Decrease in guarantee of
 employee stock ownership plan debt                                               75,981                                    75,981
Exercise of stock options                      572      43,735                                                              44,307
Purchase of common stock                                                                                  (249,219)       (249,219)
Two-for-one stock split                    130,081    (130,081)                                                                  0
------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1995              260,163   8,408,840       (236,154)  (182,444)  25,951,864   (1,149,769)     33,052,500
Net Income                                                                                  3,025,821                    3,025,821
Dividends declared                                                                           (489,782)                    (489,782)
Gain on securities available
 for sale, net                                                         70,002                                               70,002
Decrease in guarantee of
 employee stock ownership plan debt                                                75,981                                   75,981
Exercise of stock options                      125       4,718                                                               4,843
Purchase of common stock                                                                                (1,913,191)     (1,913,191)
------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1996              260,288   8,413,558       (166,152)  (106,463)  28,487,903   (3,062,960)     33,826,174
Net Income                                                                                  5,491,154                    5,491,154
Dividends declared                                                                          (572,997)                     (572,997)
Gain on securities available
  for sale, net                                                       220,107                                              220,107
Decrease in guarantee of
 employee stock ownership plan debt                                               72,982                                    72,982
Exercise of stock options                      149       5,609                                                               5,758
Purchase of common stock                                                                                  (127,361)       (127,361)
------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997        $     260,437  $8,419,167 $       53,955   $(33,481)$ 33,406,060 $ (3,190,321) $   38,915,817
====================================================================================================================================

</TABLE>
See notes to consolidated financial statements.

                                      -16-

<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------
FMS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
--------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

SAIF RECAPITALIZATION ASSESSMENT
     Legislation was signed by the President on September 30, 1996 requiring
savings institutions with SAIF insured deposits to pay a one-time special
assessment to facilitate the recapitalization of the SAIF. The assessment was
based on 65.7 cents per $100 of deposits at March 31, 1995. This assessment
resulted in a charge of approximately $2.7 million to operating expenses during
the year ended December 31, 1996.

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, 1997 and
1996 were $6.8 million and $4.7 million, respectively. These requirements were
satisfied through the balance of vault cash and a balance at the Federal Home
Loan Bank.

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

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

SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
     The Bank invests excess funds in securities purchased under agreements to
resell (reverse repurchase agreements). Generally, the maturity date of the
reverse repurchase agreement is less than 90 days. Due to the short-term nature
of the agreement, the Bank does not take possession of the securities, instead,
the securities are held in safekeeping by the Bank's agent. The carrying value
of the agreements approximates fair market value because of the short maturity
of the investment.

ALLOWANCE FOR POSSIBLE LOAN LOSSES
     An allowance for possible loan losses is maintained at a level that
management considers adequate to provide for potential losses based upon the
portfolio's past loss experience, current economic conditions and other relevant
factors.  When collection of a loan's principal balance or portion thereof is
considered doubtful, management charges the allowance for possible loan losses
based on their assessment of the loan's underlying collateral, if collateral
dependent, or present value of estimated future cash flows. While management
uses the

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

best  information  available  to make  evaluations  about  the  adequacy  of the
allowance for loan losses,  future adjustments to the allowance may be necessary
if  conditions  differ   substantially  from  the  assumptions  used  in  making
evaluations.

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

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

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

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

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

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

LOANS SERVICED FOR OTHERS
     Servicing loans for others generally consists of collecting mortgage
payments, disbursing payments to investors and processing foreclosures.  Loan
servicing income is recorded upon receipt and includes servicing fees from
investors and certain charges collected from borrowers, such as late payment
fees.  The total amount of loans being serviced for the benefit of others was
$25.6 million and $29.3 million at December 31, 1997 and 1996, respectively.
Loan servicing fee income was approximately $83 thousand, $98 thousand and $113
thousand for the years ended December 31, 1997, 1996 and 1995, respectively.

EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
     The excess costs over the fair value of assets acquired are being amortized
over a five year period using the straight-line method.

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

RECENTLY ISSUED ACCOUNTING STANDARDS
     In June 1996, the FASB issued the Statement of Financial Accounting
Standards No. 125 (SFAS No. 125), "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" for which certain
provisions are applicable January 1, 1997. This statement was amended by
Statement of Financial Accounting Standards No. 127 (SFAS No. 127) "Deferral of
the Effective Date of Certain Provisions of FASB No. 125" which deferred the
effective date of a portion of SFAS No. 125 until January 1, 1998. SFAS No. 125,
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on the concept of
control. The adoption of SFAS No. 125 did not have a material effect on the
financial position or results of operation of the Corporation.

     In March 1997, the FASB issued the Statement of Financial Accounting
Standards No. 128 (SFAS No. 128), "Earnings per Share", which supersedes
Accounting Principles Board Opinion No. 15, "Earnings per Share", was adopted
by the Corporation for the fiscal year ended December 31, 1997.  This statement
requires restatement of all prior-period Earnings per Share data presented.
SFAS No. 128 establishes standards by simplifying the computation and
presentation of earnings per share (EPS), and applies to entities with publicly
held common stock or potential common stock.  It replaces the presentation of
primary EPS with a presentation of basic EPS.  It also requires 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

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

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.  Diluted EPS is computed
similarly  to fully  diluted EPS  pursuant to Opinion  15. The  Corporation  has
presented   both  basic  and  diluted   earnings   per  share  as  well  as  the
reconciliation of the denominator in the consolidated statement of operations.

     In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 (SFAS No. 130), "Reporting Comprehensive Income", which is effective
for the Corporation beginning January 1, 1998, and requires restatement of all
prior-period financial statements presented for comparative purposes.  This
Statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general purpose financial statements.  This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.  It is anticipated that the
adoption of SFAS No. 130 in 1998 will not have a material effect on the combined
financial position or results of operation of the Corporation.

RECLASSIFICATIONS
     Certain items in the 1996 and 1995 consolidated financial statements have
been reclassified to conform with the presentation in the 1997 consolidated
financial statements.

EARNINGS PER COMMON SHARE
     Basic and diluted earnings per common share and weighted average common
shares outstanding and common stock equivalents have been retroactively restated
to reflect the increased number of common shares resulting from a two-for-one
stock split paid to shareholders on January 12, 1996. A total of 1,300,817
additional shares were issued in conjunction with the stock split. The par value
of the Corporation's stock remained unchanged. As a result, $130,081 was
transferred from paid-in capital in excess of par to common stock.


                                      -19-
<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, 1997 and 1996 are as follows:

                                             DECEMBER 31, 1997
                           -----------------------------------------------------
                                               GROSS        GROSS     ESTIMATED
                             AMORTIZED      UNREALIZED   UNREALIZED    MARKET
                                COST           GAINS       LOSSES       VALUE
                          --------------  ------------- ----------  ------------

U.S. Gov't Agencies       $   79,347,265  $     220,876 $  (70,550) $ 79,497,591
Reverse Repos                 30,185,402              0          0    30,185,402
Municipal bonds                2,801,809         14,609          0     2,816,418
U.S. Treasury                     15,000              0       (500)       14,500
                          --------------  ------------- ----------  ------------

Total                     $  112,349,476  $     235,485 $  (71,050) $112,513,911
                          ==============  ============= ==========  ============



                                             December 31, 1996
                          ------------------------------------------------------
                                               Gross        Gross     Estimated
                             Amortized      Unrealized   Unrealized    Market
                                Cost           Gains       Losses       Value
                          --------------  ------------- ----------  ------------

U.S. Gov't Agencies       $   46,791,618  $      39,819 $ (675,831) $ 46,155,606
Reverse Repos                 20,000,000              0          0    20,000,000
Municipal bonds                  794,725          5,734        (26)      800,433
U.S. Treasury                     15,000              0     (1,000)       14,000
                          --------------  ------------- ----------  ------------

Total                     $   67,601,343  $      45,553 $ (676,857) $ 66,970,039
                          ==============  ============= ==========  ============

     The Bank has the intent and ability to hold these securities to maturity.
During December 1997 the Bank purchased $30.2 million of reverse repurchase
agreements with Paine Webber and Merrill Lynch, with an average maturity of 29
days and a weighted average yield of 6.17%.

     The amortized cost and estimated market value of investments held to
maturity at December 31, 1997, by contractual maturity are shown in the
following table. Expected maturities may differ as borrowers have the right to
call certain obligations.

                                         DECEMBER 31, 1997
                            -----------------------------------------
                                 AMORTIZED             ESTIMATED
                                    COST             MARKET VALUE
                            ------------------  ---------------------

Due one year or less        $       33,672,042  $          33,669,042
Due one to five years                  101,481                102,220
Due five to ten years               38,163,527             38,260,220
Due after ten years                 40,412,426             40,482,429
                            ------------------  ---------------------
                            $      112,349,476  $         112,513,911
                            ==================  =====================

3. INVESTMENT SECURITIES AVAILABLE FOR SALE
     The amortized cost and estimated market value of investment securities
available for sale at December 31, 1997 and 1996 are as follows:

                                           DECEMBER 31, 1997
                          -----------------------------------------------------
                                             GROSS         GROSS     ESTIMATED
                          AMORTIZED        UNREALIZED   UNREALIZED     MARKET
                             COST            GAINS        LOSSES       VALUE
                      ----------------  -------------- ----------  ------------

U.S. Gov't Agencies   $      7,850,135  $       21,646 $   (1,200) $  7,870,581
CMOs                        62,033,734         278,936    (42,546)   62,270,124
REMICs                      10,372,889           5,784   (180,717)   10,197,956
                      ----------------  -------------- ----------  ------------

Total                 $     80,256,758  $      306,366 $ (224,463) $ 80,338,661
                      ================  ============== ==========  ============

                                           December 31, 1996
                      ---------------------------------------------------------
                                             Gross         Gross     Estimated
                          Amortized        Unrealized   Unrealized     Market
                             Cost            Gains        Losses       Value
                      ----------------  -------------- ----------  ------------

U.S. Gov't Agencies   $      5,000,000  $       10,060 $  (13,100) $  4,996,960
U.S. Treasury                1,997,757             803          0     1,998,560
CMOs                        12,683,603          24,400    (86,504)   12,621,499
REMICs                       6,027,067               0   (197,566)    5,829,501
                      ----------------  -------------- ----------  ------------

Total                 $     25,708,427  $       35,263 $ (297,170) $ 25,446,520
                      ================  ============== ==========  ============

     The amortized cost and estimated market value of investments available for
sale at December 31, 1997, by contractual maturity are shown in the following
table. Expected maturities may differ as borrowers have the right to call or
prepay certain obligations. CMOs and REMICs are shown separately due to the
amortization and prepayment of principal occurring throughout the life of these
instruments.

                                   DECEMBER 31, 1997
                         -----------------------------------
                            AMORTIZED           ESTIMATED
                               COST           MARKET VALUE
                        ----------------   -----------------

Due one year or less    $      1,000,000   $         998,800
Due one to five years          2,000,000           2,008,750
Due five to ten years          4,850,135           4,863,031
CMOs                          62,033,734          62,270,124
REMICs                        10,372,889          10,197,956
                        ----------------   -----------------
                        $     80,256,758   $      80,338,661
                        ================   =================

     During 1997,  FNMA-mortgage-backed  securities available for sale were sold
which resulted in a realized gain of $2 thousand.  During 1996, Common Stock and
FHLMC-REMICs  were sold which  resulted in realized gains of $51 thousand and $3
thousand, respectively.

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

4. LOANS, NET
     Loans, net at December 31, 1997 and 1996 consist of the following:

                                               1997              1996
                                          -------------   ----------------

Mortgage Loans                            $ 253,000,504   $    257,450,607
Construction Loans                            3,257,798          3,711,666
Commercial Construction                       2,385,192          4,394,901
Consumer Loans                                3,609,033          4,015,403
Commercial Real Estate                       42,974,261         39,177,194
Commercial Business                           1,712,099          1,829,956
                                          -------------   ----------------

Subtotal                                    306,938,887        310,579,727
                                          -------------   ----------------
Less:
   Deferred loan fees                           970,075            926,974
   Allowance for
   possible loan losses                       3,137,781          2,781,937
                                          -------------   ----------------

Total loans, net                          $ 302,831,031   $    306,870,816
                                          =============   ================

     The Corporation adopted SFAS Nos. 114 and 118, "Accounting by Creditors
for Impairment of a Loan" during the first quarter of 1995.  At December 31,
1997 and 1996 the recorded investment in loans for which impairment had been
recognized in accordance with SFAS Nos. 114 and 118 totaled $3.6 million and
$4.1 million, respectively. At December 31, 1997, impaired loans of $1.6 million
related to loans that were individually measured for impairment with a valuation
allowance of $319 thousand and $2.0 million of loans that were collectively
measured for impairment with a valuation allowance of $97 thousand. At December
31, 1996 impaired loans of $1.8 million related to loans that were individually
measured for impairment with a valuation allowance of $274 thousand and $2.3
million of loans that were collectively measured for impairment with a valuation
allowance of $130 thousand. For the years ended December 31, 1997 and 1996, the
average recorded investment in impaired loans was approximately $3.5 million and
$4.0 million, respectively. During the years ended December 31, 1997 and 1996
the Corporation recognized $192 thousand and $296 thousand, respectively, of
interest on impaired loans, all of which was recognized on the cash basis.

     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, 1997 and 1996 was $3.6
million and $4.1 million, respectively.  Interest income on non-accrual loans
that would have been recorded in 1997 under the original terms of such loans was
$354 thousand, and the interest income actually recognized in 1997 for such
loans was $185 thousand.  Interest income on non-accrual loans that would have
been recorded in 1996 under the original terms of such loans was $364 thousand,
and the actual interest income recognized in 1996 for such loans was $201
thousand.


     The Bank  originates and purchases both  adjustable and fixed interest rate
loans.  At December  31,  1997,  the  composition  of the loan  portfolio  is as
follows:
<TABLE>
<CAPTION>
                                                          Maturing
                                              Maturing     from 1999  Maturing
(In Thousands)                                 during       through     after
                                                1998          2002      2002       Total
                                            -----------  ---------- ----------- ---------
<S>                                         <C>          <C>        <C>         <C>
Mortgage Loans (1-4 dwelling)               $     1,332  $   13,907 $   237,762 $ 253,001
Construction Loans                                3,258           0           0     3,258
Commercial Construction                           1,844          11         530     2,385
Consumer Loans                                    1,471         740       1,398     3,609
Commercial Real Estate                            9,240      16,366      17,368    42,974
Commercial Business                               1,138         361         213     1,712
                                            -----------  ---------- ----------- ---------
        Total                               $    18,283  $   31,385 $   257,271 $ 306,939
                                            ===========  ========== =========== =========
Interest sensitivity on the
  above loans:
    Predetermined rates                     $    18,086  $   29,688 $   172,223 $ 219,997
    Adjustable or
      floating rates                                197       1,697      85,048    86,942
                                            -----------  ---------- ----------- ---------
        Total                               $    18,283  $   31,385 $   257,271 $ 306,939
                                            ===========  ========== =========== =========

</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.

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

                                  YEARS ENDED DECEMBER 31,
                          ---------------------------------------
                                1997         1996         1995
                          --------------  ----------- -----------
Balance at beginning
  of year                 $    2,781,937  $ 2,766,779 $ 2,621,512
Provision charged to
  operations                     400,000      120,000     120,000
Charge-offs                      (49,042)    (115,253)    (18,475)
Recoveries                         4,886       10,411      43,742
                          --------------  ----------- -----------
Balance at end of year    $    3,137,781  $ 2,781,937 $ 2,766,779
                          ==============  =========== ===========

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

5. MORTGAGE-BACKED SECURITIES
     Mortgage-backed securities held to maturity at December 31, 1997 and 1996
are summarized as follows:
<TABLE>
<CAPTION>
                                     DECEMBER 31, 1997
          --------------------------------------------------------------------
                                  GROSS            GROSS
              AMORTIZED         UNREALIZED      UNREALIZED          ESTIMATED
                 COST             GAINS           LOSSES          MARKET VALUE
          ----------------  ----------------  ------------     ---------------
<S>       <C>               <C>               <C>              <C>
GNMA      $     22,586,373  $        785,155  $         (6)    $    23,371,522
FNMA            35,648,943           604,826       (54,848)         36,198,921
FHLMC           33,379,272           968,264       (23,500)         34,324,036
PRIVATE            405,929             6,221             0             412,150
          ----------------  ----------------  ------------     ---------------
TOTAL     $     92,020,517  $      2,364,466  $    (78,354)    $    94,306,629
          ================  ================  ============     ===============
</TABLE>

<TABLE>
<CAPTION>
                                     December 31, 1996
          ----------------------------------------------------------------------
                                  Gross            Gross
              Amortized         Unrealized      Unrealized          Estimated
                 Cost             Gains           Losses          Market Value
          ----------------  ----------------  ------------     ---------------
<S>       <C>               <C>               <C>              <C>
GNMA      $     23,216,175  $        548,034  $    (19,890)    $    23,744,319
FNMA            37,958,391           308,922      (244,978)         38,022,335
FHLMC           42,586,038           752,658      (104,912)         43,233,784
Private            551,977             6,041             0             558,018
          ----------------  ----------------  ------------     ---------------
Total     $    104,312,581  $      1,615,655  $   (369,780)    $   105,558,456
          ================  ================  ============     ===============
</TABLE>

     The Bank has the intent and ability to hold these securities to maturity.
At December 31, 1997, neither a disposal, nor a condition that could lead to a
decision not to hold these securities to maturity were reasonably foreseen.
Mortgage-backed securities of $1.2 million and $859 thousand were used to secure
public funds on deposit at December 31, 1997 and 1996, respectively.

6. OFFICE PROPERTIES AND EQUIPMENT, NET
     Office properties and equipment at December 31, 1997 and 1996 are
summarized by major classification, as follows:

                                                DECEMBER 31,
                                       -----------------------------
                                             1997           1996
                                       --------------   ------------
Land, buildings and improvements       $   16,269,867   $ 14,675,111
Furniture and equipment                     3,665,361      3,413,347
Computers                                   2,316,398      2,285,858
                                       --------------   ------------
Total                                      22,251,626     20,374,316
                                       --------------   ------------
Less accumulated depreciation              (6,559,571)    (5,618,078)
                                       --------------   ------------
Office properties and equipment, net   $   15,692,055   $ 14,756,238
                                       ==============   ============

7. REAL ESTATE HELD FOR DEVELOPMENT, NET
     The Bank, through its wholly-owned subsidiary, Land Financial Services,
Inc., has entered into several real estate investments.  Real estate held for
development is carried at the lower of cost or estimated net realizable value.
Intercompany loans from the Bank are the primary sources of funding and have
been eliminated in consolidation. Such investments in real estate at December
31, 1997 and 1996, are summarized as follows:

                                                DECEMBER 31,
                                       --------------------------------
                                            1997              1996
                                       --------------   ---------------
Real Estate held for
  development                         $      933,256    $     4,898,782
Valuation allowance                         (288,769)        (3,671,050)
                                       --------------   ---------------
Net                                   $      644,487    $     1,227,732
                                      ==============    ===============

     During 1997, the Bank recorded an additional $200 thousand provision on the
real estate held for development. The  losses were reflected as a charge to
income in the other income section of the consolidated statements of operations.

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

8. REAL ESTATE OWNED, NET
     Real estate owned, which was acquired through foreclosure and deeds in lieu
of  foreclosure,  totaled $446 thousand and $622  thousand,  net at December 31,
1997 and 1996,  respectively.  The Bank  maintains  an  allowance  for  possible
losses, on real estate owned. The changes in the allowance for real estate owned
is as follows:

                                     YEARS ENDED DECEMBER 31,
                             ----------------------------------------
                                  1997          1996          1995
                             -------------  -----------  ------------
Balance at
  beginning of year          $     437,507  $   313,192  $     79,000
Provisions charged
  to operations                    142,630      153,482       354,453
Charge-offs                        (20,000)     (29,717)     (120,261)
Recoveries                               0          550             0
                             -------------  -----------  ------------
Balance at end
  of year                    $     560,137  $   437,507  $    313,192
                             =============  ===========  ============

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

9. DEPOSITS
     Deposits at December 31, 1997 and 1996 consisted of the following major
classifications and weighted average rates:


                                                  DECEMBER 31, 1997
                                      ------------------------------------
                                        WEIGHTED                  PERCENT
                                      AVERAGE RATE      AMOUNT    OF TOTAL
                                      ------------      ------    --------
Non-interest checking                     0.00 %  $   49,875,981    10.19%
Checking accounts                         1.69        54,688,332    11.17
Savings accounts                          2.87        83,824,897    17.13
Money market accounts                     2.72        58,001,044    11.85
Certificates                              5.32       243,049,726    49.66
                                          ----    --------------   ------
Total                                     3.74 %  $  489,439,980   100.00%
                                          ====    ==============   ======


                                               December 31, 1996
                                     -------------------------------------
                                       Weighted                   Percent
                                     Average Rate      Amount     of Total
                                     ------------      ------     --------

Non-interest checking                     0.00 %  $   37,552,269     8.28%
Checking accounts                         1.57        46,750,659    10.31
Savings accounts                          2.57        71,057,835    15.68
Money market accounts                     2.65        56,961,349    12.57
Certificates                              5.30       240,954,422    53.16
                                          ----    --------------   ------
Total                                     3.77 %  $  453,276,534   100.00%
                                          ====    ==============   ======

     A summary of certificates by maturity at December 31, 1997 is as follows:

YEARS ENDED DECEMBER 31,               AMOUNT
------------------------               ------
1998                             $    102,252,316
1999                                   47,425,121
2000                                   18,809,243
Thereafter                             74,563,046
                                 ----------------
Total                            $    243,049,726
                                 ================

     A summary of interest expense on deposits is as follows:

                                   YEARS ENDED DECEMBER 31,
                         ---------------------------------------------
                              1997           1996            1995
                         -------------  ------------   ---------------
Checking accounts        $     825,672  $    693,879   $       704,815
Savings accounts             2,347,193     1,816,081         1,750,873
Money market accounts        1,629,248     1,519,789         1,571,079
Certificates                12,952,418    12,146,474        11,934,343
                         -------------  ------------   ---------------
Total interest expense   $  17,754,531  $ 16,176,223   $    15,961,110
                         =============  ============   ===============

10. ADVANCES FROM FEDERAL HOME LOAN BANK
     At December 31, 1997, the Bank had advances from the Federal Home Loan Bank
of New York (FHLB) in the amount of $24.5 million with a weighted average
interest rate of 6.08%. Advances are collateralized by certain first mortgage
loans.

                                   DECEMBER 31,
-----------------------------------------------------------------------------
                   1997                                    1996
--------------------------------------- -------------------------------------
                    WEIGHTED                              WEIGHTED
                    AVERAGE    MATURITY                   AVERAGE  MATURITY
       AMOUNT        RATE        DATE          AMOUNT      RATE      DATE
       ------        ----        ----          ------      ----      ----
                                        $     4,050,000   7.13%     1/2/97
$     2,100,000       7.13%     1/2/98        5,000,000   6.05%     6/6/97
      1,000,000       4.95%   10/13/98        2,000,000   4.81%   10/13/98
      5,000,000       6.14%     6/8/98        5,000,000   6.14%     6/8/98
     10,000,000       6.32%     6/6/00       10,000,000   6.32%     6/6/00
      5,000,000       5.62%    2/15/01        5,000,000   5.62%    2/15/01
      1,396,476       5.00%    10/9/07        1,500,000   5.00%    10/9/07
---------------       ----              ---------------   ----
$    24,496,476       6.08%             $    32,550,000   6.09%
===============       ====              ===============   ====

11. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
     At December 31, 1997, the Bank had securities sold under the agreements to
repurchase (repurchase agreements)  in the aggregate amount of $60.0 million.
The repurchase agreements are collateralized by U.S. Agency Notes and CMOs with
a market value of $63.0 million. Accrued interest payable totaled $221 thousand
at December 31, 1997.

                           DECEMBER 31,
                              1997
-------------------------------------------------------------------
                               WEIGHTED     MATURITY      CALL
COUNTERPARTY       AMOUNT    AVERAGE RATE     DATE      FEATURE
------------       ------    ------------     ----      -------
Merrill Lynch    $20,000,000     5.79%       9/19/02    9/19/00
FHLB              20,000,000     5.65%      11/18/02   11/18/00
FHLB              20,000,000     5.72%      12/19/07   12/19/02
                 -----------     ----
Total            $60,000,000     5.72%
                 ===========     ====

12. ADVANCES FROM BANK
     At December 31, 1996, the Bank had advances from financial institutions of
$6.7 million. These advances matured in 1997 and were used to fund the
acquisition of deposits.

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

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

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

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

                                                DECEMBER 31,
                                       ------------------------------
                                            1997            1996
                                       -------------  ---------------
Deferred income tax assets:
  Allowance for possible loan losses   $     677,181  $       508,394
  Real estate losses                         435,010          339,600
  Deferred loan fees, net                    (11,113)          27,927
  Compensation and pension liability          49,822           78,652
  Amortization of deposit premium            259,723          201,791
  Post retirement benefits                   185,000          185,000
  Capitalized interest                       274,951          540,411
  Other                                       61,287           44,829
                                       -------------  ---------------
Gross deferred tax assets                  1,931,861        1,926,604
                                       -------------  ---------------
Deferred income tax liabilities:
  Prepaid deposit insurance premium           26,936            5,839
  Depreciation                               397,618          357,285
                                       -------------  ---------------
Gross deferred tax liabilities:              424,554          363,124
                                       -------------  ---------------
Deferred income tax assets, net        $   1,507,307  $     1,563,480
                                       =============  ===============

     The following represents the components of income tax expense for the years
ended December 31, 1997, 1996 and 1995, respectively.

                                      1997          1996          1995
                                 ------------- ------------  -------------
Current Federal tax provision    $   2,903,256 $  1,862,681  $   2,305,857
Current State tax provision            292,221      181,544        220,948
                                 ------------- ------------  -------------
       Total Current provision       3,195,477    2,044,225      2,526,805
                                 ------------- ------------  -------------
Deferred Federal tax benefit           (62,697)    (725,109)       (51,078)
Deferred State tax benefit              (5,703)     (39,617)        (4,646)
                                 ------------- ------------  -------------
       Total Deferred benefit          (68,400)    (764,726)       (55,724)
                                 ------------- ------------  -------------
Total                            $   3,127,077 $  1,279,499  $   2,471,081
                                 ============= ============  =============


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

     On August 21, 1996, the Small Business Job Protection Act was signed into
law which repealed the favorable reserve method available to savings banks. The
Bank was required to change its tax bad debt method to the specific charge-off
method effective for the fiscal year ended December 31, 1996. The change in
method resulted in taxable income of approximately $2.4 million representing the
excess of the Bank's tax bad debt reserve at December 31, 1995 over the base
year reserve amount that arose in tax years beginning before December 31, 1987.
The income will be recognized for tax purposes ratably over a six year period.

     The Company has not provided deferred income taxes for the Bank's tax
return reserve for bad debts that arose in tax years beginning before December
31, 1987 because it is not expected that this difference will reverse in the
foreseeable future. A deferred tax liability has been recognized for the portion
of the tax bad debt reserves which arose in years 1988 through 1995.

     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>
                                                       1997                        1996                        1995
                                            -----------------------      ---------------------     -----------------------
                                                AMOUNT     PERCENT           AMOUNT    PERCENT         AMOUNT     PERCENT
                                                ------     -------           ------    -------         ------     -------
<S>                                         <C>             <C>           <C>           <C>         <C>            <C>
Tax at federal tax rate                     $  2,930,199    34.00%        $1,463,808    34.00%      $ 2,316,925    34.00%
Increase (Decrease) from:
  State income taxes, net
    of federal income tax
    benefit                                      189,102     2.19             93,672     2.18           142,759     2.09
  Change in valuation
    allowance                                          0     0.00          (289,588)    -6.73                 0     0.00
  Other                                            7,776     0.09             11,607     0.27            11,397     0.17
                                            ------------    -----         ----------    -----       -----------    -----
  Total                                     $  3,127,077    36.28%        $1,279,499    29.72%      $ 2,471,081    36.26%
                                            ============    =====         ==========    =====       ===========    =====
</TABLE>

15. LEASES
     The Bank leases a building and land to operate two branches and certain
equipment under noncancelable leases which expire over the next 25 years.  These
leases generally provide for the payment of taxes and maintenance by the lessee.
Most of these operating leases provide the Bank with the option to renew the
lease after the initial lease term.  Future minimum rental payments under
existing leases as of December 31, 1997 are as follows:

             FISCAL YEAR                  AMOUNT
             -----------                  ------

             1998                  $     104,084
             1999                         53,708
             2000                         53,708
             2001                         53,708
             2002 and beyond             984,647
                                   -------------
             Total                 $   1,249,855
                                   =============

     The leases for the buildings contain cost of living adjustments based on
changes in the consumer price index.  The minimum lease payments shown above
include base rentals exclusive of any future adjustments.  Total rent expense
for all operating leases amounted to $104 thousand, $107 thousand and $104
thousand for fiscal years 1997, 1996 and 1995, respectively.

16. 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.

     Under FIRREA the Bank must have core capital equal to 3%, tangible capital
equal to 1.5% and risk-based capital equal to 8%. At December 31, 1997, the Bank
exceeded all three regulatory capital levels required under FIRREA.  The Bank's
regulatory tangible and core capital was $44.1 million or 7.05% of total bank
assets and risk-based capital was $47.0 million or 15.85% of risk-weighted
assets.

The following is a reconciliation of the Bank's capital under generally
accepted accounting principles ("GAAP") to regulatory capital at December 31,
1997:

                                        TANGIBLE        CORE       RISK-BASED
                                        CAPITAL       CAPITAL       CAPITAL
                                     ------------    ----------    ----------

Bank's GAAP Capital                  $ 45,629,479  $ 45,629,479  $ 45,629,479
                                     ------------    ----------    ----------
Less:
  Unrealized gain on
       investments AFS                    (53,955)      (53,955)      (53,955)
  Subsidiary
       investments not
       eligible                          (976,125)     (976,125)     (976,125)
  Goodwill                               (469,444)     (469,444)     (469,444)
Supplementary
  qualifying capital item:
       General valuation
       allowance                                0             0     2,881,819
                                     ------------    ----------    ----------
Regulatory capital
  computed                             44,129,955    44,129,955    47,011,774
Minimum regulatory
  capital requirement                   9,395,346    18,790,692    23,731,073
                                     ------------    ----------    ----------
Regulatory capital
  excess                             $ 34,734,609  $ 25,339,263 $  23,280,701
                                     ============  ============ =============

17. PENSION PLAN
     The Bank has a defined benefit pension plan for active employees.  Net
pension expense was $385 thousand, $412 thousand and $279 thousand for years
ended December 31, 1997, 1996 and 1995, respectively.  The components of net
pension cost are as follows:

                                    YEARS ENDED DECEMBER 31,
                            --------------------------------------
                                 1997          1996        1995
                            -------------  ----------  -----------

Service Cost                $     401,818  $  397,001  $   253,640
Interest Cost                     232,376     204,457      163,002
Return on Assets              (1,022,934)   (596,276)    (616,173)
Net Amortization
  and Deferral                    774,004     406,357      478,773
                            -------------  ----------  -----------
Net periodic
  pension cost              $     385,264  $  411,539  $   279,242
                            =============  ==========  ===========

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

     The following table presents a reconciliation of the funded status of the
defined benefit pension plan at December 31, 1997 and 1996:

                                                     DECEMBER 31,
                                       --------------------------------------
                                              1997                 1996
                                       ----------------     -----------------
Actuarial present value of
  benefit obligation:
    Vested                             $      3,114,197     $       2,689,892
    Nonvested                                   244,101               265,891
                                       ----------------     -----------------
Accumulated benefit obligation                3,358,298             2,955,783
Projected benefit obligation                  4,419,723             3,959,973
Fair value of plan assets                     5,171,488             4,105,395
                                       ----------------     -----------------
Excess of plan assets over
  projected benefit obligation                  751,765               145,422
Unrecognized net gain                         (876,493)              (91,026)
Unrecognized prior service cost                  81,860                88,094
Unrecognized net transition
  obligation                                    193,475               224,381
                                       ----------------     -----------------
Prepaid pension liability
  included in the consolidated
  balance sheets                       $        150,607     $         366,871
                                       ================     =================




     Actuarial assumptions used in determining pension cost are as follows:

                               YEARS ENDED DECEMBER 31,
                               ------------------------
                               1997    1996       1995
                               ----    ----       ----



Discount rate for
  benefit obligation           6.00%   6.00%      6.00 %
Rate of increase in
  compensation levels
  and social security
  wage base                    4.00%   4.00%      4.00 %
Expected long-term
  rate of return on
  plan assets                  7.00%   7.00%      7.00 %

     In addition to providing pension plan benefits, the Bank provides certain
health care and life insurance benefits to certain retired employees.  In
accordance with the provisions of Statement of Financial Accounting Standards
No. 106, "Employer Accounting for Post Retirement Benefits other than
Pensions" (SFAS No. 106) the expected cost of such benefits must be actuarially
determined and accrued ratably from the date of hire to the date the employee is
fully eligible to receive benefits. The accumulated post-retirement benefit
obligation is not funded but is reflected in the statement of financial
condition as a liability.

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

                                                   DECEMBER 31,
                                           ---------------------------
                                               1997          1996
                                           -----------  --------------
Service Cost                               $         0  $            0
Interest Cost                                   31,938          33,489
Amortization of prior service cost             (10,854)         (9,123)
Amortization of Gain                            (5,229)         (3,677)
                                           -----------  --------------
Net periodic post-retirement
  benefit cost                             $    15,855  $       20,689
                                           ===========  ==============

     The assumed discount rate used in the calculation for net periodic post-
retirement benefit cost was 7.5% and 7.0% for 1997 and 1996, respectively.  The
assumed health care cost trend rate for 1997 was 6% and was graded down in 1%
increments per year to an ultimate rate of 5% per year.  The impact of a 1%
increase in the assumed health care cost trend for each future year would be as
follows:
                                                           December 31, 1997
                                                           -----------------
Accumulated post-retirement obligation
  at year end                                                    $471,634
Service Cost                                                     $      0
Interest Cost                                                    $ 34,387





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

                                                  DECEMBER 31,
                                          --------------------------------
                                               1997              1996
                                          ------------     ---------------
Accumulated post-retirement
  benefit obligation                      $   (435,729)    $      (472,895)
Unrecognized prior service cost               (113,575)            (89,709)
Unrecognized net gain                          (89,205)           (103,217)
                                          ------------     ---------------
Accrued post-retirement benefit cost      $   (638,509)    $      (665,821)
                                          ============     ===============

     The assumed discount rate used in the calculation for the accumulated post-
retirement benefit obligation as of December 31, 1997 and 1996 was 7.0% and
7.5%, respectively.

                                      -26-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
     The disclosure of the fair value of all financial instruments is required,
whether or not recognized on the balance sheet, for which it is practical to
estimate fair value.  In cases where quoted market prices are not available,
fair values are based on assumptions including future cash flows and discount
rates.  Accordingly, the fair value estimates cannot be substantiated, may not
be realized, and do not represent the underlying value of the Corporation.

     The Corporation uses the following methods and assumptions to estimate the
fair value of each class of financial instruments for which it is practicable to
estimate that value:
CASH AND CASH EQUIVALENTS:  The carrying value is a reasonable estimate of fair
value.

INVESTMENT SECURITIES  HELD TO MATURITY, SECURITIES AVAILABLE FOR SALE AND
MORTGAGE-BACKED SECURTIES:  Fair value is equal to quoted market prices.

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

LOANS:  For variable-rate loans that reprice frequently  and with no significant
change in credit risk, fair value is  the carrying value.  For   other
categories of loans such as residential mortgages, commercial and consumer
loans, fair value is estimated based on discounting the estimated future cash
flows using the current rates at which similar loans would be made to borrowers
with similar collateral and credit ratings and for similar remaining maturities.

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

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE: For investment securities with a
quoted market price, fair value is equal to quoted market prices.  If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities.

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

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

ADVANCES FROM BANK:  The carrying value is a reasonable estimate of fair value
due to the short term nature of these obligations.

COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT:  For commitments and
standby letters of credit expiring within 90 days or with a variable rate, the
settlement amount is a reasonable estimate of fair value.  For commitments and
standby letters of credit expiring beyond 90 days or with a fixed rate, the fair
value is the present value of the obligations based on current loan rates.

--------------------------------------------------------------------------------
At  December  31,  1997 and  December  31,  1996,  the  carrying  amount and the
estimated  market  value  of  the  Corporation's  financial  instruments  are as
follows:
<TABLE>
<CAPTION>
                                                              DECEMBER 31, 1997                 DECEMBER 31, 1996
                                                    ------------------------------------- ----------------------------
                                                         CARRYING          ESTIMATED         CARRYING      ESTIMATED
                                                          AMOUNT          MARKET VALUE        AMOUNT     MARKET VALUE
                                                    ------------------  ----------------- -------------  -------------
<S>                                                 <C>                 <C>               <C>            <C>
Financial assets:
 Cash and cash equivalents                          $       12,631,622  $      12,631,622 $   9,919,549  $   9,919,549
 Investment securities held to maturity and
 investment securities available for sale           $      192,688,137  $     192,852,572 $  93,047,863  $  92,416,559
 Mortgage-backed securities                         $       92,020,517  $      94,306,629 $ 104,312,581  $ 105,558,456
 FHLB Stock                                         $        3,630,800  $       3,630,800 $   3,620,600  $   3,620,600

 Loans, net of unearned income                      $      305,968,812  $     310,340,000 $ 309,652,753  $ 311,325,000
   Less: Allowance for possible loan losses                 (3,137,781)        (3,137,781)   (2,781,937)    (2,781,937)
 Loans, net                                         $      302,831,031  $     307,202,219 $ 306,870,816  $ 308,543,063
Financial liabilities:
 Deposits
   Checking, passbook, and money market accounts    $      246,390,254  $     246,390,254 $ 212,322,112  $ 212,322,112
   Certificates                                     $      243,049,726  $     241,393,000 $ 240,954,422  $ 238,005,000
 Securities sold under agreements to repurchase     $       60,000,000  $      58,560,000 $           0  $           0
 Subordinated debentures                            $       10,000,000  $      10,600,000 $  10,000,000  $  10,300,000
 Other borrowings                                   $       24,529,957  $      23,941,238 $  32,656,463  $  32,343,000
 Advances from Bank                                 $                0  $               0 $   6,691,758  $   6,691,758

Off-balance sheet financial instruments:
 Commitments to extend credit                       $       25,528,246  $      25,528,246 $  26,199,447  $  26,199,447
 Standby letters of credit                          $          761,522  $         761,522 $   1,094,381  $   1,094,381
</TABLE>

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

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

     FDICIA also requires each regulatory agency to institute non-capital safety
and soundness standards for each institution it regulates.  These standards
cover (1) internal controls, (2) loan documentation,  (3) credit underwriting,
(4) interest rate exposure, (5) asset growth, (6) compensation, fees and
benefits paid to employees, officers and directors, (7) operational and
managerial standards, and (8) asset quality, earnings and stock valuation
standards for preserving a minimum ratio of market value to book value for
publicly traded shares (if feasible).  Many of the regulations required by
FDICIA have been promulgated by federal regulators.  As of December 31, 1997
management of the Bank believes that it is in compliance with the regulations
adopted pursuant to FDICIA.

20.  COMMITMENTS AND CONTINGENCIES
     The Bank has outstanding loan commitments of $25.5 million as of December
31, 1997.  Of these commitments outstanding, the breakdown between fixed and
variable rate loans is as follows:

                                                 DECEMBER 31, 1997
                                   --------------------------------------------
                                        FIXED        VARIABLE
                                        RATE           RATE           TOTAL
                                   -------------  ------------  ---------------
Commitments to fund loans          $   3,647,376  $  1,142,495  $     4,789,871
Unused lines:
    Construction                               0     3,336,430        3,336,430
    Equity line of credit loans                0    17,401,945       17,401,945
                                   -------------  ------------  ---------------
Total                              $   3,647,376  $ 21,880,870  $    25,528,246
                                   =============  ============  ===============

     In addition to outstanding loan commitments, the Bank as of December 31,
1997, issued $762 thousand in standby letters of credit to guarantee performance
of a customer to a third party.

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

21. LITIGATION
     There are no significant pending legal proceedings at December 31, 1997
which will have a material impact on the Corporation's financial position or
results of operations.

22.  LOANS TO OFFICERS AND DIRECTORS
     Regulation O provides that all loans to executive officers and directors be
made on substantially the same terms and conditions as are available to the
general public. On November 11, 1996, Regulation O was amended to allow
executive officers to participate in any employee loan rate discount benefit
program available to all full-time employees. Since the Bank offers such an
employee benefit program, the policy governing loans to executive officers was
amended to allow the executive officers to participate in this loan program and
thereby receive rate discounts. These changes went into effect on January 1,
1997. The rate discounts are available to employees as long as they are employed
at the Bank. If employment is terminated, the rate discount ceases from the date
of termination. At December 31, 1997 and 1996, loans made to directors and
executive officers whose indebtedness exceeded $60 thousand amounted to $764
thousand and $770 thousand, respectively. During 1997 new loans to these
individuals totaled $18 thousand and repayments totaled $24 thousand.

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

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

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

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

     A total of 111,642 shares of authorized but unissued common stock of the
Corporation has been reserved for future issuance under the Plan.  The option
price per share for options granted may not be less than the fair market value
of the common stock on the date of grant. At December 31, 1997, the option
exercise prices are $3.88 and $16.00.  Options are fully vested at the date of
grant and must be exercised within ten years.

     A summary of the status of the Bank's Stock Option Plan as of December 31,
1997, 1996 and 1995 and changes during the years ending on those dates is
presented below.

<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                               ---------------------------------------------------------------------------
                                     1997                      1996                        1995
                               --------------------    -------------------------     ---------------------
                                          WEIGHTED                    WEIGHTED                   WEIGHTED
                                          AVERAGE                     AVERAGE                    AVERAGE
                                          EXERCISE                    EXERCISE                   EXERCISE
                               SHARES      PRICE           SHARES      PRICE          SHARES      PRICE
                               ------    ----------        ------   ----------        ------   ----------
<S>                           <C>       <C>               <C>      <C>              <C>       <C>

Outstanding at the
  Beginning of the year        82,151    $     5.65        95,823   $     5.40       100,958   $     3.88
Options granted                     0             0             0            0        12,000        16.00
Options exercised              (1,486)         3.88        (1,250)        3.88       (11,435)        3.88
Options surrendered            (2,000)         3.88       (12,422)        3.88        (5,700)        3.88
                               ------    ----------        ------   ----------        ------   ----------
Outstanding at the
  End of the year              78,665    $     5.72        82,151   $     5.65        95,823   $     5.40
                               ======    ==========        ======   ==========        ======   ==========
</TABLE>

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

                                                    DECEMBER 31, 1995
                                        ---------------------------------------
                                            AS REPORTED        PRO FORMA
                                            -----------        ---------
Net Income                               $     4,343,404     $  4,300,435

Basic Earnings per share                           $1.73            $1.72
Diluted Earnings per share                         $1.69            $1.68

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions: dividend
yield of 2.35%, expected volatility of 20.64%, discount rate of 6.0% and an
expected life of 10 years at December 31, 1995. There were no options granted in
1997 or 1996.

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

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

     The financial statements of the Corporation are prepared in conformity with
generally accepted accounting principles that require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from these estimates.

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

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

26.  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                     1997                1996
-----------------------------------------------------------                     ----                ----
ASSETS:
<S>                                                                            <C>            <C>
 Cash                                                                          $     397,911  $      254,546
 Investment in subsidiary                                                         45,662,960      41,018,186
 Investment securities                                                             1,000,000       1,000,000
 Intercompany receivable, net                                                      1,924,945       1,591,556
 Subordinated Debentures issue costs, net                                            378,460         435,809
 Other                                                                               168,843         168,843
                                                                               -------------  --------------
TOTAL ASSETS                                                                   $  49,533,119  $   44,468,940
                                                                               =============  ==============
LIABILITIES:
 10% Subordinated Debentures due 2004                                          $  10,000,000  $   10,000,000
 Guarantee of employee stock ownership plan debt                                      33,481         106,463
 Dividends payable                                                                   167,154         119,636
 Accrued interest payable                                                            416,667         416,667
                                                                               -------------  --------------
TOTAL LIABILITIES                                                                 10,617,302      10,642,766
                                                                               -------------  --------------

STOCKHOLDERS' EQUITY:
 Preferred stock - $.10 par value 5,000,000 shares authorized; none issued
 Common stock - $.10 par value 10,000,000 shares authorized; shares
    issued 2,604,370 and 2,602,884 and shares outstanding 2,387,916 and
    2,392,707 as of December 31, 1997 and 1996, respectively                         260,437         260,288
 Paid-in capital in excess of par                                                  8,419,167       8,413,558
 Unrealized gain (loss) on securities available for sale,
    net of deferred income taxes                                                      53,955        (166,152)
 Guarantee of employee stock ownership plan debt                                     (33,481)       (106,463)
 Retained earnings                                                                33,406,060      28,487,903
 Less:Treasury Stock (216,454 and 210,177 shares, at cost at
   December 31, 1997 and 1996, respectively)                                      (3,190,321)     (3,062,960)
                                                                               -------------  --------------
TOTAL STOCKHOLDERS' EQUITY                                                        38,915,817      33,826,174
                                                                               -------------  --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $  49,533,119  $   44,468,940
                                                                               =============  ==============
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                    -----------------------------------------------
FMS FINANCIAL CORPORATION STATEMENTS OF OPERATIONS       1997           1996             1995
                                                    -------------  ------------   -----------------

<S>                                                 <C>            <C>            <C>
Intercompany interest income                        $     560,750  $    560,750   $         537,030
Interest expense                                       (1,057,348)   (1,057,348)         (1,049,013)
Dividends from subsidiary                               1,400,000     1,400,000           1,350,000
Equity in undistributed income of subsidiary            4,418,909     1,953,576           3,337,233
                                                    -------------  ------------   -----------------
Income before taxes                                     5,322,311     2,856,978           4,175,250
Income tax benefit                                        168,843       168,843             168,154
                                                    -------------  ------------   -----------------
NET INCOME                                          $   5,491,154  $  3,025,821   $       4,343,404
                                                    =============  ============   =================
</TABLE>

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

                                      -30-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                         FOR YEARS ENDED DECEMBER 31,
                                                            ------------------------------------------------------
FMS FINANCIAL CORPORATION STATEMENTS OF CASH FLOWS                1997                1996              1995
                                                            ----------------      --------------   ---------------
OPERATING ACTIVITIES
<S>                                                         <C>                   <C>              <C>
Net income                                                  $      5,491,154      $    3,025,821   $     4,343,404
Adjustments to reconcile net income to net cash provided
   by operating activities:
Equity in undistributed earnings of the subsidiary                (4,418,909)         (1,953,576)       (3,337,233)
Amortization of bond issue costs                                      57,349              57,348            57,348
Decrease in interest payable                                               0                   0           (16,666)
 Decrease (Increase) in intercompany receivable, net                (333,389)          1,452,440          (229,477)
Other operating activities                                            72,982              75,292           (35,136)
                                                                 -----------      --------------   ---------------
 Net cash  provided by operating activities                          869,187           2,657,325           782,240
                                                                 -----------      --------------   ---------------
INVESTING ACTIVITIES
Purchase of marketable security                                            0                   0        (1,000,000)
                                                                 -----------      --------------   ---------------
 Net cash used by investing activities                                     0                   0        (1,000,000)
                                                                 -----------      --------------   ---------------
FINANCING ACTIVITIES
Purchase of treasury stock                                          (127,361)         (1,913,191)         (249,219)
Investment in subsidiary                                              (5,758)             (4,843)          (44,307)
Cash dividends paid on common stock                                 (525,479)           (495,434)         (375,213)
Principal repayment of employee stock ownership plan debt            (72,982)            (75,981)          (75,981)
Proceeds from issuance of stock                                        5,758               4,843            44,307
                                                                 -----------      --------------   ---------------

 Net cash used by financing activities                              (725,822)         (2,484,606)         (700,413)
                                                                 -----------      --------------   ---------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                     143,365             172,719          (918,173)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                         254,546              81,827         1,000,000
                                                                 -----------      --------------   ---------------
CASH AND CASH EQUIVALENTS, END OF YEAR                           $   397,911      $      254,546   $        81,827
                                                                 ===========      ==============   ===============
</TABLE>
--------------------------------------------------------------------------------

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

                                      -31-
<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, 1997, 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, 1997.  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, 1997.

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 Federal Deposit Insurance
Corporation 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, 1997.



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

FMS Financial Corporation
Burlington, New Jersey
February 9, 1998

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

COOPERS                                           Coopers & Lybrand, L.L.P.
& LYBRAND                                         a professional services firm


REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS OF FMS FINANCIAL CORPORATION:

We have audited the accompanying consolidated statements of financial condition
of FMS Financial Corporation and Subsidiary as of December 31, 1997 and 1996,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997.  These consolidated financial statements are the responsibility of the
Corporation's management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of FMS
Financial Corporation and Subsidiary as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.

/s/Coopers & Lybrand L.L.P.
---------------------------
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 9, 1998

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

                             CORPORATE INFORMATION

ANNUAL MEETING
     The 1998 Annual Shareholders' Meeting of FMS Financial Corporation will be
held at 10:00 a.m., on the 30th day of April, 1998 at the Riverton Country Club,
Highland Avenue off of Route 130, Cinnaminson, New Jersey.

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

     The number of record holders of common stock of the Corporation as of March
2, 1998 was approximately 790, 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, 1997 and 1996:

                                                  1997
                                   ------------------------------------
QUARTER ENDED                          HIGH                   LOW
-------------                          ----                   ---
March 31,                          $        20.750         $     18.375
June 30,                           $        25.500         $     18.750
September 30,                      $        31.500         $     23.500
December 31,                       $        35.500         $     27.250


                                                   1996
                                  -------------------------------------
QUARTER ENDED                          HIGH                   LOW
-------------                          ----                   ---
March 31,                          $        17.500         $     16.250
June 30,                           $        17.500         $     14.750
September 30,                      $        16.500         $     15.500
December 31,                       $        18.250         $     15.500


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

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

     The Bank's ability to pay  dividends or make other capital
distributions to the Corporation is also governed by OTS regulations.  Under
these regulations, "capital distributions" are defined as cash dividends,
payments by savings associations to repurchase or otherwise acquire its shares,
payments to shareholders of another entity in a cash-out merger, and other
distributions charged against capital.  An institution that has regulatory
capital that is at least equal to its capital requirement and that has not been
notified that it "is in need of more than normal supervision," is a Tier 1
institution.  A Tier 1 institution is permitted under OTS regulations, after
prior notice to (and no objection by) the OTS, to make capital distributions
during a calendar year up to 100% of its year to date net income plus the amount
that would reduce by one-half its "surplus capital ratio", which is the
percentage by which the ratio of its regulatory capital to assets exceeds the
ratio of its fully phased-in capital requirement to assets at the beginning of
the calendar year.  As of December 31, 1997 the Bank was a Tier 1 institution
and had available $17.2 million for dividends to the Corporation, subject to
nonobjection by the OTS.  It is not likely that the Corporation would request a
dividend of that magnitude.

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

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

BOARD OF DIRECTORS

CHARLES B. YATES
Chairman of the Board

WAYNE H. PAGE
Vice Chairman

GEORGE J. BARBER

DOMINIC W. FLAMINI

VINCENT R. FARIAS

JAMES C. LIGNANA

EDWARD J. STAATS, JR.

CRAIG W. YATES



DIRECTORS EMERITUS

ADOLPH N. BRIGHT

KAREN S. OLEKSA

HILYARD S. SIMPKINS




BANK OFFICERS

CHARLES B. YATES*
Chairman of the Board

CRAIG W. YATES*
President

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

CHANNING L. SMITH*
Vice President and Chief Financial Officer

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

MICHAEL J. HAGELGANS
Vice President, Commercial Lending

DOUGLAS B. HALEY
Vice President, Consumer Lending

KAREN R. KOENIG
Vice President, Business Development

NANCY L. PARKER
Vice President, Human Resources

PETER S. SCHOENFELD
Vice President, Investments

KAREN D. SHINN
Vice President,  Operations

FRANK E. SMITH
Vice President, Facilities and Design

MERLE A. BROWN
Security Officer

AMY J. HANNIGAN
Controller

MARCELLA F. HATCHER*
Assistant Secretary

* Officers of Bank and Holding Company

                                      -35-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

MARKET MAKERS
The following companies were making a market in the Corporation's common stock
at December 31, 1997:

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  30309
                                             (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, 1997, 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 Trust Company    Coopers & Lybrand L.L.P.
40 Wall Street                               2400 Eleven Penn Center
New York, NY  10005                          Philadelphia, PA 19103


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


                                      -36-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

                                OFFICE LOCATIONS

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

     MAIN BRANCH
     3 Sunset Road & Route 541
     Burlington,  NJ  08016
     (609) 387-2728

     BEVERLY
     414 Cooper Street
     Beverly, NJ 08010
     (609) 239-4066

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

     BROWNS MILLS
     93 Pemberton-Browns Mills Road
     Browns Mills, NJ 08015
     (609) 893-5540

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

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

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

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

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

     LARCHMONT
     3220 Route 38
     Mount Laurel, NJ 08054
     (609) 235-6666

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

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

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

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

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

     RIVERTON
     604 Main Street
     Riverton, NJ 08077
     (609)786-5333

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

     TABERNACLE
     1507 Route 206
     Tabernacle, NJ 08088
     (609) 268-5993

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

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

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

                                      -37-


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