EXHIBIT 13


<PAGE>


To Our Shareholders:

         We continue to believe  that a local  community  bank can compete  very
successfully  against the larger financial  institutions.  During the year 2000,
Farmers & Mechanics  Bank made  considerable  progress in  expanding  our branch
system and improving customer service.

         Our  financial  performance  has  been  steady.   Deposits  and  assets
continued to increase but earnings have been flat because increased net interest
income was offset by higher  operating  expenses.  Our  spending to operate more
branches  has  reduced  current  earnings,  but  should  really  be viewed as an
investment in growing our franchise.

         During 2000, we opened five additional  branches,  expanding our system
to 31  branches.  In  Burlington  and  Pemberton  we  opened  newly  constructed
branches. In Mt. Laurel and Marlton we opened branches in buildings we purchased
from larger banks that were reducing or consolidating  their branch systems.  We
also  opened our first  in-store  branch at the new  Lumberton  Wal-Mart,  which
serves an area where we already have a number of freestanding  branches in local
communities.  The Wal-Mart branch provides even more convenience to our existing
customers,  as well as an opportunity to market  ourselves to shoppers who don't
bank  with us. We have an  agreement  for a second  in-store  branch at a future
Wal-Mart in Cinnaminson, which is expected to open in 2002.

         Our  operations  department  significantly  expanded its check  sorting
capacity and installed advanced mailing machinery to handle our continued growth
in accounts.  Construction  should get underway this year on our new  operations
center on Route 130 in Burlington.

         Early in 2001,  we reached an  agreement  to merge with  CloverBank,  a
neighboring  institution  with  branches  in  Pennsauken  and  Audubon in Camden
County.  Clover has  approximately  $26 million in  deposits  and $30 million in
assets.  It is a good fit with our existing  branch system and begins the growth
of our  franchise  out  from  Burlington  County.  The  transaction  is a merger
conversion and is subject to regulatory approval.

         It is with  great  sorrow  that we must note the  death of my  brother,
Charles  Yates,  Chairman of the Board,  who died in a plane crash on October 7,
2000, along with his wife, Anya, and two children.  Charles was the most capable
individual I have known.  He graduated  college,  magna cum laude, at the age of
20, as a chemical  engineer,  and was also  Captain  of the  lacrosse  team.  In
business,   he  could  design   machinery   and  processes  as  well  as  handle
international  negotiations and manage multiplant manufacturing  operations.  He
served for ten years in the New Jersey Legislature. At the age of fifty, he went
to law school and became an attorney. He could fix cars and explain calculus.

         Among all his  activities,  I know that Charles really enjoyed his work
at the bank and his many friends here. He contributed  greatly to our direction,
purpose, and success.

         It  reminds  me that we should all think of our  family,  friends,  and
people we work with, every day, and cherish them.

                                                      Sincerely,


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


<PAGE>
                                CORPORATE PROFILE

   FMS  Financial  Corporation  is the  holding  company for Farmers & Mechanics
   Bank.  Farmers & Mechanics  Bank,  with total assets of $839 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 thirty-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.

                                      -1-

<PAGE>



<TABLE>
<CAPTION>

FINANCIAL HIGHLIGHTS
Financial Condition: (In Thousands)
------------------------------------------------------------------------------------------------------------------------------
December 31,                                                     2000          1999         1998          1997         1996
------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>          <C>          <C>           <C>          <C>
Assets                                                          $839,076     $772,501     $691,812      $628,403     $541,710

Loans receivable and loans held for sale, net                    290,179      299,695      298,603       302,831      306,871

Deposits                                                         648,539      603,892      536,310       489,440      453,277

Stockholders' equity                                              47,410       46,097       43,469        38,916       33,826



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

Interest income                                                 $52,349      $47,863      $46,563       $40,813      $36,841

Interest expense                                                 27,398       24,742       24,869        20,879       18,978

Net interest income                                              24,951       23,120       21,694        19,934       17,863

Net income                                                        5,112        5,114        5,271         5,491        3,026(a)

Basic earnings per common share                                    0.74         0.71         0.73          0.77         0.41

Diluted earnings per common share                                  0.74         0.70         0.72          0.75         0.40

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

Weighted average common shares outstanding                        6,888        7,210        7,204         7,165        7,411

Weighted average common shares and common
stock equivalents outstanding                                     6,947        7,292        7,314         7,346        7,573



Other Selected Data:
-----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,                                            2000        1999          1998          1997         1996
-----------------------------------------------------------------------------------------------------------------------------------

Net interest rate spread                                           3.40%        3.28%        3.50%         3.60%        3.50%

Net interest margin                                                3.42         3.36         3.48          3.72         3.66

Return on average assets                                           0.66         0.61         0.79          0.98         0.60

Return on average equity                                          11.16        10.93        12.86         15.11         8.99

Dividend payout ratio                                             16.22        17.14        15.28         10.67        17.50

Equity-to-asset ratio                                              5.65         5.97         6.28          6.19         6.24

</TABLE>


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

                                      -2-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------

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


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

         FMS Financial  Corporation (the "Corporation") is the parent company of
Farmers & Mechanics  Bank (the  "Bank"),  its only  subsidiary.  Earnings of the
Corporation  are  primarily  dependent  on  the  earnings  of  the  Bank  as the
Corporation  has engaged in no significant  operations of its own.  Accordingly,
the earnings of the Corporation are largely dependent on the receipt of earnings
from the Bank in the form of dividends.

   The earnings of the Bank depend  primarily on its net  interest  income.  Net
interest  income is affected by: (i) the volume of  interest-earning  assets and
interest-bearing  liabilities  (see  "Rate  Volume  Analysis"),  (ii)  rates  of
interest earned on  interest-earning  assets and rates paid on  interest-bearing
liabilities and (iii) the difference  ("interest  rate spread")  between average
rates of interest  earned on  interest-earning  assets and average rates paid on
interest-bearing liabilities. When interest-earning assets approximate or exceed
interest-bearing  liabilities,  any positive  interest rate spread will generate
net interest income.

    The Bank also  derives  income  from  service  charges on  customer  deposit
accounts  and fees on loans.  In addition to interest  expense,  the Bank incurs
operating  expenses  such as  salaries,  employee  benefits,  deposit  insurance
premiums, depreciation, property maintenance and advertising.

Market Risk
         Market risk is the risk of loss from adverse  changes in market  prices
and rates.  The Bank's  market risk arises  primarily  from  interest  rate risk
inherent in its lending,  investment and deposit taking  activities.  The Bank's
profitability  is  affected by  fluctuations  in  interest  rates.  A sudden and
substantial  increase in interest rates may adversely impact the Bank's earnings
to the extent that the  interest  rates borne by assets and  liabilities  do not
change at the same speed,  to the same extent or on the same basis. To that end,
management  actively  monitors and manages its interest rate risk exposure.  The
Bank does not  participate  in hedging  programs,  interest  rate swaps or other
activities   involving  the  use  of  off-balance  sheet  derivative   financial
instruments,  but may do so in the future to mitigate  interest  rate risk.  The
Bank's policy allows  investment only in securities which have a rating of AA or
better.  The Bank holds a substantial  component of its investment  portfolio in
mortgage-backed    securities   and    collateralized    mortgage    obligations
(collectively,  "MBS and CMO"). At the end of 2000, the total  investment in MBS
and CMO amounted to $218.4  million,  or 46.8% of total  investments.  These are
instruments  collateralized  by pools of residential  and  commercial  mortgages
which return interest and principal  payments to the investor when performing in
accordance with their terms.  Approximately 65.8% of the Bank's MBS holdings are
U.S.  Government Agency  securities  (GNMA, FNMA and FHLMC),  which carry either
direct government or  quasi-government  guarantees and are rated AAA in terms of
credit quality.  The Bank also owns non-agency  CMOs,  issued by major financial
institutions,  which are rated AAA or AA. CMOs are generally  very liquid issues
with major brokerage houses providing ready markets.  However,  CMOs are subject
to  prepayment  and extension  risk which can adversely  affect their yields and
expected maturities. MBS and CMOs of $15.1 million and $1.4 million were used to
secure  public  funds on deposit at December  31,  2000 and 1999,  respectively,
which  increased  as a function of  additional  public funds on deposit with the
Bank at December 31, 2000.

         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.

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

     The  difference,   or  the  interest  rate  repricing  "GAP",  provides  an
indication of the extent to which an institution's  interest rate spread will be
affected by changes in interest rates over a period of time. A GAP is considered
positive when the amount of interest-rate sensitive assets maturing or repricing
over a specified  period of time exceeds the amount of  interest-rate  sensitive
liabilities  maturing or repricing within that period and is considered negative
when the amount of  interest-rate  sensitive  liabilities  maturing or repricing
over a specified  period of time exceeds the amount of  interest-rate  sensitive
assets maturing or repricing within that period.  Generally,  during a period of
rising  interest  rates,  a  negative  GAP  within a given  period of time would
adversely affect net interest income, while a positive GAP within such period of
time may  result  in an  increase  in net  interest  income;  during a period of
falling  interest rates, a negative GAP within a given period of time may result
in an increase in net interest income while a positive GAP within such period of
time may have the opposite effect.  At December 31, 2000 the Bank's GAP position
for net assets repricing for one year totaled $19.3 million.

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

        The Bank has developed  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.

         The Bank  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, 2000,  the Bank would  experience a 50 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 192 basis  point  decrease in NPV if
rates decline 200 basis points.

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

Changes in           Net Portfolio Value
Market
                  ----------------------------------------------------

Interest Rates       $ Amount      $ Change  % Change    NPV Ratio (a)
(basis points)
                  ----------------------------------------------------

    +300               $50,546      (22,344)    -31%        6.21%
    +200                61,922      (10,968)    -15%        7.45%
    +100                71,761       (1,129)     -2%        8.47%
      0                $72,890                              8.51%
    -100                66,921       (5,969)     -8%        7.78%
    -200                57,695      (15,195)    -21%        6.69%
    -300               $48,309      (24,581)    -34%        5.57%

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

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.

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

 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,
                          ----------------------------------------------------------------------------------------------------------
                                      2000                                   1999                                  1998
                          -------------------------------  -------------------------------------  ----------------------------------
                           Average              Average      Average                   Average      Average                 Average
                           Balance    Interest  Yield/Rate   Balance      Interest     Yield/Rate   Balance      Interest Yield/Rate
                          ----------- --------- ---------  -----------  ------------  ----------  ------------- ------------ -------
                                                            (Dollars in Thousands)
Interest-earning assets:
<S>                      <C>        <C>          <C>        <C>           <C>           <C>       <C>            <C>       <C>
    Loans receivable       $ 301,199  $ 23,445     7.78%      $ 301,257     $ 23,408      7.77%     $  303,330    $ 24,316     8.02%
    Mortgage-backed          118,435     8,063     6.81%         97,899        6,568      6.71%         88,339       6,376     7.22%
    securities
    Investment securities    310,558    20,841     6.71%        289,359       17,887      6.18%        231,610      15,871     6.85%
                           ---------- --------- ---------     ----------    ---------  ---------    ------------  --------- --------
Total interest-earning
      assets                 730,192    52,349     7.17%        688,515       47,863      6.95%        623,279      46,563     7.47%
                           ---------- --------- ---------     ----------    ---------  ---------    ------------  --------- --------

Interest-bearing
liabilities:
    Deposits                 621,227    20,892     3.36%        567,001       18,172      3.20%        518,023      18,091     3.49%
    Borrowings                95,774     5,449     5.69%         96,531        5,513      5.71%         98,459       5,721     5.81%
    Subordinated              10,000     1,057    10.57%         10,000        1,057     10.57%         10,000       1,057    10.57%
    debentures
                           ---------- --------- ---------     ----------    --------   --------     -----------   --------  --------
Total interest-bearing
      liabilities          $ 727,001    27,398     3.77%      $ 673,532       24,742      3.67%     $  626,482      24,869     3.97%
                           ========== --------- ---------     ==========    --------   --------     ==========    --------  --------
Net interest income                   $ 24,951                              $ 23,121                              $ 21,694
                                      =========                             ========                              ========
Interest rate spread                               3.40%                                  3.28%                                3.50%
                                                =========                              =========                            ========
Net yield on average interest-earning assets       3.42%                                  3.36%                                3.48%
                                                =========                              =========                            ========
Ratio of average interest earning assets
    to average interest-bearing liabilities      100.44%                                102.22%                               99.49%
                                                =========                              =========                            ========
</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,
                                       -----------------------------------------------------------------------------------------
                                                      2000 vs. 1999                                  1999 vs. 1998
                                       --------------------------------------------   --------------------------------------------
                                                   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                             $         42   $          (5)  $         37    $      (742)   $        (166)  $       (908)
     Mortgage-backed securities                 117           1,378          1,495           (498)             690            192
     Investment securities                    1,644           1,310          2,954         (1,941)           3,957          2,016
                                       -------------  --------------  -------------   -------------  --------------  -------------
     Total change - interest
     income                                   1,803           2,683          4,486         (3,181)           4,481          1,300
                                       -------------  --------------  -------------   -------------  --------------  -------------
Interest expense:
     Deposits                                   982           1,738          2,720         (1,629)           1,710             81
     Borrowings                                 (21)            (43)           (64)           (96)            (112)          (208)
     Subordinated debentures                      -               -              -              -                -              -
                                       -------------  --------------  -------------   -------------  --------------  -------------
     Total change - interest
     expense                                    961           1,695          2,656         (1,725)           1,598          (127)
                                       -------------  --------------  -------------   -------------  --------------  -------------
Net change in net interest
income                                 $        842   $         988   $      1,830    $    (1,456)   $       2,883   $      1,427
                                       =============  ==============  =============   =============  ==============  =============
</TABLE>

Comparisons of Years Ended December 31, 2000 and 1999.

Net Income
    The Corporation  and its subsidiary  recorded net income of $5.1 million for
the year ended December 31, 2000, or $.74 diluted earnings per share as compared
to net income of $5.1 million,  or $.70 diluted  earnings per share for the year
ended December 31, 1999. Net interest  income was $25.0 million in 2000 compared
to $23.1 million in 1999.  Provisions for loan losses were $240 thousand in 2000
and $654 thousand in 1999. Other income totaled $3.0 million in 2000 compared to
$3.1 million for the same period in 1999. Total operating  expenses for the year
ended  December  31, 2000 were $19.7  million  compared to $17.6  million in the
previous year.  During 2000, the  Corporation  declared  dividends which totaled
$.12 per share which resulted in a dividend payout ratio of 16.22%.

Interest Income
         Total interest  income  increased $4.5 million to $52.3 million in 2000
from $47.9  million in 1999.  The  increase  is  attributable  to  increases  in
interest  income on investment  securities  of $3.0 million and  mortgage-backed
securities of $1.5 million.

         The increase in interest  income on investment  securities was due to a
$21.2 million increase in the average balance of investment securities to $310.6
million in 2000 from $289.4 million in 1999. The investment  portfolio increased
primarily due to an $8.1 million  increase in the average  balance of short term
repurchase  investment  agreements  and a $43.2 million  increase in the average
balance of U.S.  Government  Agency notes,  partially offset by $13.6 million in
principal  paydowns of CMO's. The increases in the average balance of investment
securities  resulted in an increase in interest  income of $1.3  million in 2000
from the previous year.  Average  investment  yields  increased to 6.71% in 2000
from 6.18% in 1999,  which  resulted in an  increase in interest  income of $1.6
million on investment securities.

         Interest income on mortgage-backed securities increased $1.5 million in
2000 primarily due to volume increases in the portfolio.  The average balance of
the  portfolio  increased  $20.5  million  to $118.4  million in 2000 from $97.9
million in 1999,  resulting in an increase in interest  income of $1.4  million.
The increase in the average  balance was due to the purchase of $49.0 million in
FHLMC, FNMA and GNMA securities in 2000,  partially offset by principal paydowns
of $26.7 million.  The average yield on the portfolio increased to 6.81% in 2000
from 6.71% in 1999,  which  resulted in an  increase in interest  income of $117
thousand.

         The average  balance of the loan  portfolio  decreased  $58 thousand to
$301.2  million in 2000 from $301.3  million in 1999. The decline in loan volume
during  2000  resulted  in a decrease in  interest  income of $5  thousand.  The
average  yield on the loan  portfolio  increased  to 7.78% in 2000 from 7.77% in
1999 which resulted in an increase in interest income of $42 thousand.

Interest Expense
         Total interest expense  increased $2.7 million to $27.4 million in 2000
from $24.7  million in 1999.  The  increase  was due to an  increase in interest
expense on deposits.

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

         Interest expense on deposits increased $2.7 million to $20.9 million in
2000 from $18.2 million in 1999. The average balance of deposits increased $54.2
million to $621.2 million in 2000 from $567.0  million in 1999,  resulting in an
increase in interest expense of $1.7 million.  Increases in deposits in 2000 are
primarily  due to an increase in the  average  balances of checking  accounts of
$21.7 million, savings accounts of $7.6 million, certificates of deposit of $7.7
million and money  market  accounts of $1.5  million.  The rate paid on deposits
increased 16 basis points to 3.36% in 2000 from 3.20% in 1999, which resulted in
an increase in interest  expense of $982  thousand.  The increase of the average
rate on deposits was due to overall  higher  average  interest  rates on deposit
products in 2000.

         Interest  expense on borrowings  decreased $64 thousand to $5.4 million
in 2000 from $5.5  million in 1999.  This  decrease was due to a decline in both
the  average  balance  of  borrowings  and the  rate.  The  average  balance  of
borrowings  decreased  $757 thousand to $95.8 million in 2000 from $96.5 million
in 1999, resulting in a $43 thousand decrease in interest expense due to volume.
The average  rate on  borrowings  decreased to 5.69% in 2000 from 5.71% in 1999,
resulting in a $21 thousand decrease in interest expense due to changes in rate.

Provision For Loan Losses
         The provision for loan losses  decreased $414 thousand to $240 thousand
in 2000 from $654 thousand in 1999.  The amount of the allowance for loan losses
is  based  on  management's   analysis  of  risk   characteristics   of  various
classifications of loans, previous loan loss experience, estimated fair value of
the underlying collateral and current economic conditions.  The Corporation will
continue to monitor its allowance for loan losses and make future adjustments to
the  allowance  through the  provision  for loan  losses as economic  conditions
dictate.  Management continues to offer a wider variety of loan products coupled
with  the  continued  change  in the mix of the  products  offered  in the  loan
portfolio from lower  yielding loans (i.e.,  one to four family loans) to higher
yielding loans (i.e., commercial real estate mortgage,  commercial construction,
consumer,  and commercial  business) which have a higher degree of risk than one
to four family loans.  Although the Bank maintains its allowance for loan losses
at a level that it considers to be adequate to provide for the inherent  risk of
loss in its loan  portfolio,  there can be no assurance  that future losses will
not exceed estimated amounts or that additional  provisions for loan losses will
not be required in future  periods due to the higher degree of credit risk which
might result from the change in the mix of the loan portfolio.

Other Income (Expense)
         Other income from operations decreased $130 thousand to $3.0 million in
2000 compared with $3.1 million in 1999.

         Gain on the sale of fixed  assets of $9 thousand in 2000 relates to the
disposal of a motor  vehicle.  The gain on sale of fixed assets of $245 thousand
in 1999 relates to the sale of a parcel of land located in Burlington Township.

         Real estate owned  operations,  net, in 2000  resulted in a loss of $42
thousand,  which was  comprised of $73  thousand in real estate owned  operating
expenses and of $31 thousand in gains  realized on the sale of real estate owned
properties.

         Service charges on accounts  increased $168 thousand to $2.7 million in
2000 from $2.5 million in 1999. The increase is the result of higher transaction
volume on retail accounts during the year.

         Federal deposit insurance premiums decreased $187 thousand in 2000. The
FDIC lowered the premium rate for all savings institutions beginning in 2000.

 Operating Expenses
                  Total  operating  expenses  increased  $2.1  million  to $19.7
million in 2000 from $17.6 million in 1999.

                  Salaries and benefits  increased $1.4 million to $11.6 million
in 2000 from $10.2 million in 1999. The increase was due to additional  staff in
five new branch  offices  opened during the year.  Average full time  equivalent
employees  during  2000  were 439 as  compared  to 382  during  1999.  Operating
expenses  are  expected to  continue  increasing  in future  periods as the Bank
pursues its branch expansion strategy.

                  Occupancy and  equipment  expense  increased  $614 thousand to
$4.1  million  in 2000  from  $3.5  million  in 1999.  This  increase  is due to
additional depreciation and occupancy expenses on five new branch offices opened
in 2000,  as well as other  facility and equipment  additions  and  improvements
during the year.

Purchased  services expense increased $308 thousand to $1.8 million in 2000 from
$1.5 million in 1999.  Check  processing  costs  increased  $85 thousand and ATM
charges increased $181 thousand due to higher transaction volume in 2000.

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

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

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

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

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

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

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

         Interest expense on borrowings  decreased $208 thousand to $5.5 million
in 1999 from $5.7  million in 1998.  This  decrease was due to a decline in both
the  average  balance  of  borrowings  and the  rate.  The  average  balance  of
borrowings decreased $2.0 million to $96.5 million in 1999 from $98.5 million in
1998,  resulting in a $112 thousand  decrease in interest expense due to volume.
The average  rate on  borrowings  decreased to 5.71% in 1999 from 5.81% in 1998,
resulting in a $96 thousand decrease in interest expense due to changes in rate.

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

Provision For Loan Losses
         The provision for loan losses  increased $414 thousand to $654 thousand
in 1999 from $240 thousand in 1998. The increase in 1999 was attributable to the
continued  change in the mix of the loan  portfolio.  The  determination  of the
allowance  level  for loan  losses  is based on  management's  analysis  of risk
characteristics  of  various   classifications  of  loans,  previous  loan  loss
experience,  estimated  fair  value of the  underlying  collateral  and  current
economic conditions.  The Corporation will continue to monitor its allowance for
loan losses and make future  adjustments to the allowance  through the provision
for loan  losses  as  economic  conditions  dictate.  Although  the  Corporation
maintains  its  allowance  for loan  losses at a level that it  considers  to be
adequate to provide for the inherent risk of loss in its loan  portfolio,  there
can be no assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods due
to the higher  degree of credit risk which  might  result from the change in the
mix of the loan portfolio.

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

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

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

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

                                      -9-
<PAGE>

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

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

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

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

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

Liquidity and Capital Resources
         The  Bank's  liquidity  is a  measure  of its  ability  to fund  loans,
withdrawals of deposits and other cash outflows in a cost effective manner.  The
Bank's  primary  sources of funds are deposits and  scheduled  amortization  and
prepayments  of loan  principal.  The Bank also obtains  funds from the sale and
maturity of investment  securities  and  short-term  investments  as well as the
maturity of mortgage-backed securities and funds provided by operations.  During
the past  several  years,  the Bank has used such  funds  primarily  to meet its
ongoing commitments to fund maturing time deposits and savings  withdrawals,  to
fund existing and continuing loan commitments and to maintain  liquidity.  While
the Bank has been able to fund its operations  internally during recent periods,
it has  periodically  supplemented  its funding needs with securities sold under
agreements to repurchase  (repurchase  agreements) and advances from the Federal
Home Loan Bank of New York  (FHLB).  At  December  31,  2000 the Bank had $120.0
million in repurchase  agreements  and $6.3 million in advances from the FHLB of
New  York.  While  loan  payments,   maturing  investments  and  mortgage-backed
securities are relatively  predictable sources of funds,  deposit flows and loan
prepayments  are  greatly   influenced  by  general  interest  rates,   economic
conditions and competition. The Bank's liquidity is also influenced by the level
of demand for funding loan originations.  Liquidity may be adversely affected by
unexpected  deposit  outflows,  excessive  interest  rates paid by  competitors,
adverse  publicity  relating  to  the  Banking  industry  and  similar  matters.
Management   monitors  projected   liquidity  needs  and  determines  the  level
desirable,  based  in  part  on the  Company's  commitment  to  make  loans  and
management's  assessment of the Company's ability to generate funds. The Company
is also  subject to federal  regulations  that impose  certain  minimum  capital
requirements.

         The amount of certificate accounts which are scheduled to mature during
the twelve months ending December 31, 2001 is approximately  $139.4 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, 2000,  the Bank had loan  commitments  outstanding  of
$22.5 million, of which $2.2 million were for fixed-rate loans and $20.3 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.

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

Consolidated Summary of Quarterly Earnings (Unaudited)

The following table presents summarized quarterly data for 2000 and 1999:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                       1st             2nd              3rd             4th            Total
              2000                                   Quarter         Quarter          Quarter         Quarter           Year
--------------------------------------------------------------------------------------------------------------------------------
                                                                    (In Thousands, except per share amounts)
<S>                                            <C>             <C>              <C>             <C>             <C>
Total interest income                             $     12,777    $     12,992     $     13,128    $     13,452    $     52,349
Total interest expense                                   6,616           6,650            6,846           7,286          27,398
                                                  -------------   -------------    -------------   -------------   -------------
Net interest income                                      6,161           6,342            6,282           6,166          24,951
Provision for loan losses                                   60              60               60              60             240
                                                  -------------   -------------    -------------   -------------   -------------
Net interest income after provision
     for loan losses                                     6,101           6,282            6,222           6,106          24,711
Total other income                                         715             707              754             799           2,975
Total operating expenses                                 4,750           4,922            5,022           5,030          19,724
                                                  -------------   -------------    -------------   -------------   -------------
Income before income taxes                               2,066           2,067            1,954           1,875           7,962
Federal and state income taxes                             741             743              682             684           2,850
                                                  -------------   -------------    -------------   -------------   -------------

Net income                                        $      1,325    $      1,324     $      1,272    $      1,191    $      5,112
                                                  =============   =============    =============   =============   =============
Basic earnings per common share                   $       0.18    $       0.19     $       0.19    $       0.18    $       0.74
                                                  =============   =============    =============   =============   =============
Diluted earnings per common share                 $       0.18    $       0.19     $       0.19    $       0.18    $       0.74
                                                  =============   =============    =============   =============   =============
</TABLE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                       1st             2nd              3rd             4th            Total
              1999                                   Quarter         Quarter          Quarter         Quarter           Year
--------------------------------------------------------------------------------------------------------------------------------
                                                                  (In Thousands, except per share amounts)

<S>                                             <C>             <C>              <C>             <C>             <C>
Total interest income                             $     11,154    $     11,699     $     12,385    $     12,625    $     47,863
Total interest expense                                   5,958           6,046            6,234           6,504          24,742
                                                  -------------   -------------    -------------   -------------   -------------
Net interest income                                      5,196           5,653            6,151           6,121          23,121
Provision for loan losses                                   60              60              474              60             654
                                                  -------------   -------------    -------------   -------------   -------------
Net interest income after provision
     for loan losses                                     5,136           5,593            5,677           6,061          22,467
Total other income                                         651             953              754             747           3,105
Total operating expenses                                 4,238           4,367            4,387           4,575          17,567
                                                  -------------   -------------    -------------   -------------   -------------
Income before income taxes                               1,549           2,179            2,044           2,233           8,005
Federal and state income taxes                             562             787              736             806           2,891
                                                  -------------   -------------    -------------   -------------   -------------
Net income                                        $        987    $      1,392     $      1,308    $      1,427    $      5,114
                                                  =============   =============    =============   =============   =============
Basic earnings per common share                   $       0.14    $       0.19     $       0.18    $       0.20    $       0.71
                                                  =============   =============    =============   =============   =============
Diluted earnings per common share                 $       0.13    $       0.19     $       0.18    $       0.20    $       0.70
                                                  =============   =============    =============   =============   =============
</TABLE>

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

<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                                                         2000                  1999
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>                    <C>
     Cash and amounts due from depository institutions                                     $       30,089,526     $      20,489,516
     Interest-bearing deposits                                                                        169,076                82,493
     Federal funds sold                                                                             1,500,000                     0
     Short term funds                                                                              13,192,697            25,703,862
                                                                                         ---------------------   -------------------
         Total cash and cash equivalents                                                           44,951,299            46,275,871
     Investment securities held to maturity                                                       276,107,634           220,307,242
     Investment securities available for sale                                                      40,878,963            49,307,116
     Loans, net                                                                                   290,178,635           299,694,517
     Mortgage-backed securities held to maturity                                                  143,751,707           121,424,419
     Accrued interest receivable:
         Loans                                                                                      1,578,956             1,398,470
         Mortgage-backed securities                                                                 1,043,113               836,699
         Investments                                                                                3,527,657             3,628,622
     Federal Home Loan Bank stock                                                                   6,315,310             4,861,410
     Real estate held for development, net                                                             87,926                87,926
     Real estate owned, net                                                                           354,758               448,541
     Office properties and equipment, net                                                          26,312,709            20,686,272
     Deferred income taxes                                                                          2,360,701             2,264,587
     Excess cost over fair value of net assets acquired                                                27,664                55,328
     Prepaid expenses and other assets                                                              1,392,671               959,819
     Subordinated debentures issue costs, net                                                         206,417               263,765
                                                                                         ---------------------   -------------------
TOTAL ASSETS                                                                               $      839,076,120     $     772,500,604
                                                                                         =====================   ===================

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

Liabilities:
     Deposits                                                                              $      648,539,355     $     603,892,117
     Securities sold under agreements to repurchase                                               120,000,000            90,000,000
     Advances from the Federal Home Loan Bank                                                       6,305,644            16,337,031
     10% Subordinated debentures, due 2004                                                         10,000,000            10,000,000
     Advances by borrowers for taxes and insurance                                                  2,076,165             2,204,704
     Accrued interest payable                                                                       1,950,205             1,437,348
     Dividends payable                                                                                201,831               215,519
     Other liabilities                                                                              2,593,331             2,316,882
                                                                                         ---------------------   -------------------
     Total liabilities                                                                            791,666,531           726,403,601
                                                                                         ---------------------   -------------------
Commitments and contingencies
Stockholders' Equity:
     Preferred stock - $.10 par value 5,000,000 shares  authorized;  none issued
     Common stock - $.10 par value 10,000,000 shares authorized; shares
         issued 7,897,891 and 7,897,791, and shares outstanding 6,727,702
         and 7,183,978 as of December 31, 2000 and 1999, respectively                                 789,789               789,779
     Paid-in capital  in excess of par                                                              8,217,654             8,217,535
     Accumulated comprehensive loss - net of deferred income taxes                                   (358,352)           (1,167,810)
     Retained earnings                                                                             46,401,102            42,108,955
     Less:  Treasury stock (1,170,189 and 713,813 shares, at cost,  as of
         December 31, 2000 and 1999, respectively)                                                 (7,640,604)           (3,851,456)
                                                                                         ---------------------   -------------------
Total stockholders' equity                                                                         47,409,589            46,097,003
                                                                                         ---------------------   -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                 $      839,076,120     $     772,500,604
                                                                                         =====================   ===================
</TABLE>

See notes to consolidated financial statements.

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

<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                   2000                      1999                  1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                        <C>                      <C>
INTEREST  INCOME:
Interest income on:
     Loans                                                   $            23,445,624    $          23,408,176    $       24,315,646
     Mortgage-backed securities                                            8,062,704                6,567,956             6,375,729
     Investments                                                          20,840,862               17,886,682            15,871,239
                                                             ------------------------   ----------------------   -------------------
Total interest income                                                     52,349,190               47,862,814            46,562,614
                                                             ------------------------   ----------------------   -------------------
INTEREST EXPENSE:
Interest expense on:
     Deposits                                                             20,892,189               18,171,523            18,090,683
     Borrowings                                                            5,448,721                5,513,478             5,720,876
     Subordinated debentures                                               1,057,348                1,057,348             1,057,348
                                                             ------------------------   ----------------------   -------------------
Total interest expense                                                    27,398,258               24,742,349            24,868,907
                                                             ------------------------   ----------------------   -------------------
NET INTEREST INCOME                                                       24,950,932               23,120,465            21,693,707
PROVISION FOR LOAN LOSSES                                                    240,000                  653,579               240,000
                                                             ------------------------   ----------------------   -------------------
NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                                       24,710,932               22,466,886            21,453,707
                                                             ------------------------   ----------------------   -------------------
OTHER INCOME (EXPENSE):
     Loan service charges and other fees                                     122,144                  152,856               147,080
     Gain on sale of loans                                                     2,480                    3,849                 5,423
     Gain (Loss) on sale/disposal of fixed assets                              8,586                  244,731              (209,935)
     Real estate owned operations, net                                       (41,904)                 (11,802)              (64,215)
     Service charges on accounts                                           2,688,914                2,520,929             2,369,112
     Other income                                                            194,520                  194,041               133,584
                                                             ------------------------   ----------------------   -------------------
Total other income                                                         2,974,740                3,104,604             2,381,049
                                                             ------------------------   ----------------------   -------------------
OPERATING EXPENSES:
     Salaries and employee benefits                                       11,617,550               10,182,540             8,971,707
     Occupancy and equipment                                               4,111,393                3,497,537             2,996,435
     Purchased services                                                    1,820,308                1,512,112             1,303,637
     Federal deposit insurance premiums                                      122,516                  309,679               294,912
     Professional fees                                                       468,798                  461,378               369,987
     Advertising                                                             216,896                  215,281               206,120
     Other                                                                 1,366,533                1,388,071             1,436,937
                                                             ------------------------   ----------------------   -------------------
Total operating expenses                                                  19,723,994               17,566,598            15,579,735
                                                             ------------------------   ----------------------   -------------------
INCOME BEFORE INCOME TAXES                                                 7,961,678                8,004,892             8,255,021

INCOME TAXES:
Current                                                                    3,362,057                2,336,374             3,293,115
Deferred                                                                    (511,981)                 555,012              (309,582)
                                                             ------------------------   ----------------------   -------------------
Total income taxes                                                         2,850,076                2,891,386             2,983,533

NET INCOME                                                   $             5,111,602    $           5,113,506    $        5,271,488
                                                             ========================   ======================   ===================
BASIC EARNINGS PER COMMON SHARE                                                $0.74                    $0.71                 $0.73
                                                             ========================   ======================   ===================
DILUTED EARNINGS PER COMMON SHARE                                              $0.74                    $0.70                 $0.72
                                                             ========================   ======================   ===================
Weighted average common shares outstanding                                 6,887,986                7,210,038             7,203,862
Potential dilutive effect of the exercise of stock options                    58,544                   81,554               109,779
                                                               ----------------------   ----------------------   -------------------
Adjusted weighted average common shares outstanding                        6,946,530                7,291,592             7,313,641
                                                               ======================   ======================   ===================
</TABLE>

See notes to consolidated financial statements.

                                      -13-
<PAGE>
FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                              2000             1999             1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>               <C>             <C>
OPERATING ACTIVITIES:
Net income                                                                       $   5,111,602    $   5,113,506    $   5,271,488
Adjustments  to  reconcile net income to net cash
   provided by operating activities:
Provision for loan losses                                                              240,000          653,579          240,000
Depreciation and amortization                                                        2,082,103        2,016,259        1,999,005
Provision for real estate owned                                                              0                0          108,102
Realized (gains) and losses on:
    Sale of loans and loans held for sale                                               (2,480)          (3,849)          (5,423)
    (Sale) and Disposal of fixed assets                                                 (8,586)        (244,731)         209,935
    Sale of real estate owned                                                          (31,416)         (25,097)        (101,349)
Increase in accrued interest receivable                                               (285,935)      (1,019,497)        (442,422)
(Increase) Decrease in prepaid expenses and other assets                              (432,852)         196,754          (95,448)
Increase in accrued interest payable                                                   512,857          132,606          190,438
Increase (Decrease) in other liabilities                                               276,449          446,775          (61,539)
Provision for deferred income taxes                                                   (550,773)         395,258         (465,972)
Other                                                                                   48,680                0           33,481
                                                                                 -------------    -------------    -------------
    Net cash provided by operating activities                                        6,959,649        7,661,563        6,880,296
                                                                                 -------------    -------------    -------------
INVESTING ACTIVITIES:
Proceeds from sale of:
    Education loans                                                                    456,651          750,565        1,658,700
    Real estate held for development                                                         0          556,561                0
    Real estate owned                                                                  570,073          110,097          603,095
    Office property and equipment                                                       12,436          353,410                0
Principal collected and proceeds from maturities of investment securities
  held to maturity                                                                 239,765,750       62,682,095      294,889,937
Proceeds from maturities of investment securities available for sale                 9,679,098      107,709,603       86,593,751
Principal collected and proceeds from maturities of mortgage-backed securities      26,691,733       26,545,021       32,754,399
Principal collected on loans, net                                                   56,262,434       54,487,510       60,258,471
Longer-term loans originated or acquired, net                                      (47,895,284)     (57,275,106)     (58,185,394)
Purchase of investment securities and mortgage-backed securities
  held to maturity                                                                (344,856,122)    (256,292,451)    (343,502,524)
Purchase of investment securities available for sale                                         0       (4,056,041)    (116,472,554)
Purchase of Federal Home Loan Bank stock                                            (1,453,900)               0       (1,230,610)
Purchase of office property and equipment                                           (7,382,240)      (3,009,232)      (4,912,791)
                                                                                 -------------    -------------    -------------
    Net cash used by investing activities                                          (68,149,371)     (67,437,968)     (47,545,520)
                                                                                 -------------    -------------    -------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts                                44,603,673       53,936,730       61,509,157
Net increase (decrease) in time deposits                                                43,565       13,645,764      (14,639,514)
Net decrease in FHLB advances                                                      (10,031,387)         (31,290)      (8,128,155)
Proceeds from securities sold under agreement to repurchase                         30,000,000       10,000,000       20,000,000
Principal repayment of employee stock ownership plan debt                                    0                0          (33,481)
(Decrease) Increase in advances from borrowers for taxes and insurance                (128,539)         (54,731)          66,894
Purchase of treasury stock                                                          (3,789,148)        (475,084)        (186,051)
Dividends paid on common stock                                                        (833,143)        (866,279)        (767,461)
Net proceeds from issuance of common stock                                                 129              775          108,604
                                                                                 -------------    -------------    -------------
    Net cash provided by financing activities                                       59,865,150       76,155,885       57,929,993
                                                                                 -------------    -------------    -------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                    (1,324,572)      16,379,480       17,264,769
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                        46,275,871       29,896,391       12,631,622
                                                                                 -------------    -------------    -------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                           $  44,951,299    $  46,275,871    $  29,896,391
                                                                                 =============    =============    =============
Supplemental Disclosures:
    Cash paid for:
       Interest on deposits, advances, and other borrowings                      $  26,885,401    $  24,113,145    $  24,678,469
       Income taxes                                                                  2,919,839        2,689,262        2,906,347
    Non cash investing and financing activities:
       Dividends declared and not paid at year end                                     201,831          215,519          216,953
       Non-monetary transfers from loans to real estate acquired
         through foreclosure                                                           493,554          366,000          331,028
</TABLE>
See notes to consolidated financial statements.

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
                                                                               Guarantee
                                                                                  of
                                                                               employee
                                                               Accumulated       stock                                   Total
                          Common shares   Common     Paid-in   comprehensive   ownership     Retained      Treasury    Stockholders'
                          outstanding      stock     capital   income (loss)   plan debt     earnings       stock        Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>           <C>        <C>         <C>            <C>        <C>          <C>            <C>
Balances at
  December 31, 1997         2,387,916    $260,437   $8,419,167  $    53,955    $ (33,481) $33,406,060  $(3,190,321)   $38,915,817
Net Income                                                                                  5,271,488                   5,271,488
Other comprehensive
  income, net of tax
  benefit of $42,492
  Unrealized gain
  (loss) on securities
  available for sale                                                (75,748)                                              (75,748)
                                                                                                                      -----------
Total comprehensive
  income (loss)                                                                                                         5,195,740

Dividends declared                                                                           (817,257)                   (817,257)
Decrease in
  guarantee of
  employee stock
  ownership plan debt                                                             33,481                                   33,481
Exercise of stock
  options                      47,451       4,745      103,859                                                            108,604
Tax benefit from
  gains on stock
  options exercised                                    218,331                                                            218,331
Purchase of common
  stock                        (5,354)                                                                    (186,051)      (186,051)
Three-for-one
  stock split               4,801,754     524,537     (524,537)                                                                 0
---------------------------------------------------------------------------------------------------------------------------------

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

Dividends declared                                                                           (864,842)                   (864,842)
Exercise of stock
  options                         600          60          715                                                                775
Purchase of common
  stock                       (48,389)                                                                    (475,084)      (475,084)
---------------------------------------------------------------------------------------------------------------------------------
Balances at
  December 31, 1999         7,183,978     789,779    8,217,535   (1,167,810)           0   42,108,955   (3,851,456)    46,097,003
Net Income                                                                                  5,111,602                   5,111,602
Other comprehensive
  income, net of tax
  of $454,659
  Unrealized gain
   (loss) on
   securities
   available for
   sale                                                             809,458                                               809,458
                                                                                                                      -----------
Total comprehensive
  income (loss)                                                                                                         5,921,060

Dividends declared                                                                           (819,455)                   (819,455)
Exercise of stock
  options                         100          10          119                                                                129
Purchase of common
  stock                      (456,376)                                                                  (3,789,148)    (3,789,148)
---------------------------------------------------------------------------------------------------------------------------------
Balances at
  December 31, 2000         6,727,702    $789,789   $8,217,654  $  (358,352)   $       0  $46,401,102  $(7,640,604)   $47,409,589
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.

                                      -15-


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

FMS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, and 1998

--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING
   POLICIES

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

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

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

Cash and Cash Equivalents
         Cash and cash equivalents  include cash and amounts due from depository
institutions,  interest-bearing deposits with an original maturity of 90 days or
less,  money  market  funds and federal  funds sold.  Cash and cash  equivalents
exclude  reverse  repurchase   agreements  which  are  generally  classified  as
investments  held to maturity.  Generally,  federal funds are purchased and sold
for one-day  periods.  The Bank is required to maintain  certain average reserve
balances  as  established  by the  Federal  Reserve  Bank.  The  amount of those
balances for the reserve computation periods which include December 31, 2000 and
1999 were $19.5 million and $15.5 million, respectively. These requirements were
satisfied  through the  balance of vault cash and a balance at the Federal  Home
Loan Bank.

Investments and Mortgage-Backed Securities
         Investments  classified  as  available  for  sale are  reported  at the
current  market value with net  unrealized  gains and losses,  net of applicable
deferred  tax  effects,  added  to or  deducted  from  the  Corporation's  total
stockholders' equity and comprehensive  income until realized.  Gains and losses
on the sale of  investment  securities  are  recognized  utilizing  the specific
identification method.

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

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

Allowance for Possible Loan Losses
         An allowance  for possible  loan losses is  maintained  at a level that
management  considers  adequate to provide for  potential  losses based upon the
portfolio's past loss experience, current economic conditions and other relevant
factors.  When  collection of a loan's  principal  balance or portion thereof is
considered  doubtful,  management charges the allowance for possible loan losses
based on their  assessment of the loan's  underlying  collateral,  if collateral
dependent,  or present value of estimated  future cash flows.  While  management
uses the best information  available to make  evaluations  about the adequacy of
the  allowance  for loan losses,  future  adjustments  to the  allowance  may be
necessary if conditions differ substantially from the assumptions used in making
the 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.

                                      -16-
<PAGE>
                                                       FMS FINANCIAL CORPORATION
--------------------------------------------------------------------------------
Real Estate Held for Development
         Real estate held for  development  is carried at cost not to exceed net
realizable  value.  Net  realizable  value is  determined  based on a discounted
estimate of the fair market value.

Office Properties and Equipment
         Office  properties and equipment are recorded at cost.  Depreciation is
computed using the  straight-line  method over the expected  useful lives of the
assets.  The  expected  useful  lives of assets are as  follows:  buildings  and
improvements range from 10 to 30 years, furniture, fixtures, and equipment range
from 3 to 10 years,  computers are 3 years and leasehold  improvements  are over
the term of the lease. The costs of maintenance and repairs are expensed as they
are incurred. Renewal and improvement costs are capitalized.

Deferred Loan Fees
         All loan fees and related direct loan  origination  costs are deferred.
Deferred loan fees and costs are generally  capitalized and amortized as a yield
adjustment over the life of the loan using the interest method.

Loans Serviced for Others
         Servicing loans for others  generally  consists of collecting  mortgage
payments,  disbursing  payments to investors and processing  foreclosures.  Loan
servicing  income is recorded  upon  receipt and  includes  servicing  fees from
investors and certain  charges  collected from  borrowers,  such as late payment
fees.  The total  amount of loans being  serviced  for the benefit of others was
$14.6  million and $16.7  million at December  31, 2000 and 1999,  respectively.
Loan servicing fee income was approximately  $48 thousand,  $56 thousand and $68
thousand for the years ended December 31, 2000, 1999 and 1998, respectively.

Excess Cost over Fair Value of Net Assets Acquired
         The  excess  costs  over the fair  value of assets  acquired  are being
amortized over a five year period using the straight-line method.

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

Reclassifications
         Certain items in the 1999 and 1998  consolidated  financial  statements
have been reclassified to conform with the presentation in the 2000 consolidated
financial statements.

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

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

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

2. INVESTMENT SECURITIES HELD TO MATURITY
         A comparison of amortized cost and estimated market value of investment
securities held to maturity at December 31, 2000 and 1999 are as follows:

                               December 31, 2000
           -----------------------------------------------------------
                            Gross         Gross          Estimated
            Amortized     Unrealized   Unrealized         Market
               Cost         Gains       (Losses)           Value
----------------------------------------------------------------------
Reverse
Repos       $60,341,969 $         0 $             0       $60,341,969
U.S.
Gov't
Agencies    167,923,406     105,364      (1,650,157)      166,378,613
Municipal
bonds         3,887,840       8,540               0         3,896,380
CMOs         43,954,419      10,760        (504,451)       43,460,728
----------------------------------------------------------------------
Total    $  276,107,634 $   124,664 $    (2,154,608) $    274,077,690
======================================================================

                               December 31, 1999
           -----------------------------------------------------------
                            Gross         Gross          Estimated
            Amortized     Unrealized   Unrealized         Market
               Cost         Gains       (Losses)           Value
----------------------------------------------------------------------
U.S.
Gov't
Agencies  $ 170,610,811 $    51,318  $   (8,810,677) $    161,851,452
Municipal
bonds         1,509,310         644               0         1,509,954
CMOs         48,187,121           0      (1,705,654)       46,481,467
----------------------------------------------------------------------
Total    $  220,307,242 $    51,962  $  (10,516,331)  $   209,842,873
======================================================================

         The Bank  has the  intent  and  ability  to hold  these  securities  to
maturity.  During  December  2000 the Bank  purchased  $60.3  million of reverse
repurchase  agreements with Morgan Stanley Dean Witter and First Union,  with an
average maturity of 34 days and a weighted average yield of 6.59%. The amortized
cost and estimated  market value of investments held to maturity at December 31,
2000, by contractual maturity period are shown in the following table.  Expected
maturities may differ as borrowers  have the right to call certain  obligations.
CMOs are shown  separately due to the  amortization  and prepayment of principal
occurring throughout the life of these instruments.

                                       December 31, 2000
                              -----------------------------------
                                 Amortized          Estimated
                                   Cost            Market Value
-----------------------------------------------------------------
Due one year or less          $  63,999,809     $  63,999,809
Due one to five years            27,139,841        27,042,754
Due five to ten years            94,277,547        93,167,886
Due after ten years              46,736,018        46,406,513
CMOs                             43,954,419        43,460,728
-----------------------------------------------------------------
        Total                 $ 276,107,634     $ 274,077,690
=================================================================

3. INVESTMENT SECURITIES AVAILABLE FOR SALE
         The amortized cost and estimated market value of investment  securities
available for sale at December 31, 2000 and 1999 are as follows:

                               December 31, 2000
            ---------------------------------------------------------
                             Gross         Gross         Estimated
              Amortized    Unrealized   Unrealized        Market
                Cost         Gains        Losses           Value
---------------------------------------------------------------------
U.S.
Gov't
Agencies  $    10,292,370    $      0    $  (85,906) $    10,206,464
CMOs           28,657,931      23,332      (525,463)      28,155,800
MBSs            2,490,974      25,725             0        2,516,699
---------------------------------------------------------------------
Total     $    41,441,275    $ 49,057    $ (611,369) $    40,878,963
=====================================================================

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

---------------------------------------------------------------------
Total     $    51,133,543     $ 4,699   $(1,831,126) $    49,307,116
=====================================================================

   The amortized cost and estimated  market value of  investments  available for
sale at December  31,  2000,  by  contractual  maturity  period are shown in the
following table.  Expected  maturities may differ as borrowers have the right to
call or  prepay  certain  obligations.  CMOs  are  shown  separately  due to the
amortization and prepayment of principal occurring  throughout the life of these
instruments.

                                  December 31, 2000
                           --------------------------------
                            Amortized          Estimated
                               Cost          Market Value
-----------------------------------------------------------
Due one to five years    $    5,295,000    $     5,269,304
Due five to ten years         2,997,370          2,979,660
Due after ten years           4,490,974          4,474,199
CMOs                         28,657,931         28,155,800
-----------------------------------------------------------
Total                    $   41,441,275    $    40,878,963
===========================================================

     There were no sales of investment securities during 2000, 1999 and 1998.

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

4. LOANS, NET
         Loans, net at December 31, 2000 and 1999 consist of the following:

                                 2000              1999
---------------------------------------------------------------
Mortgage Loans               $ 228,427,960     $ 236,912,182
Construction Loans                 163,493           972,533
Commercial Construction          1,061,799         3,934,937
Consumer Loans                   3,899,549         3,273,792
Commercial Real Estate          52,763,358        52,543,711
Commercial Business              8,521,769         6,790,348
---------------------------------------------------------------
Subtotal                       294,837,928       304,427,503
Less:
     Deferred loan fees            678,946           892,019
     Allowance for
       possible loan losses      3,980,347         3,840,967
---------------------------------------------------------------
Total loans, net             $ 290,178,635     $ 299,694,517
===============================================================

         At December  31,  2000 and 1999 the  recorded  investment  in loans for
which  impairment had been  recognized in accordance  with SFAS Nos. 114 and 118
totaled  $2.2  million and $3.1  million,  respectively.  At December  31, 2000,
impaired loans of $1.1 million related to loans that were individually  measured
for impairment  with a valuation  allowance of $425 thousand and $1.1 million of
loans that were collectively  measured for impairment with a valuation allowance
of $56 thousand.  At December 31, 1999 impaired loans of $1.7 million related to
loans that were individually  measured for impairment with a valuation allowance
of $516 thousand and $1.5 million of loans that were  collectively  measured for
impairment  with a  valuation  allowance  of $63  thousand.  For the years ended
December 31, 2000 and 1999,  the average  recorded  investment in impaired loans
was approximately $2.6 million and $3.6 million, respectively.  During the years
ended December 31, 2000 and 1999 the  Corporation  recognized  $190 thousand and
$575 thousand, respectively, of interest on impaired loans.

         Loans which are 90 days delinquent as to principal  and/or interest are
placed on a non-accrual  status and all previously accrued interest is reversed.
The principal amount of non-accrual loans at December 31, 2000 and 1999 was $2.0
million and $3.1 million,  respectively.  Interest  income on non-accrual  loans
that would have been recorded in 2000 under the original terms of such loans was
$156  thousand,  and the interest  income  actually  recognized in 2000 for such
loans was $122 thousand.  Interest  income on non-accrual  loans that would have
been recorded in 1999 under the original  terms of such loans was $265 thousand,
and the  actual  interest  income  recognized  in 1999 for such  loans  was $556
thousand.

         The Bank  originates and purchases  both  adjustable and fixed interest
rate loans. At December 31, 2000, the composition of these loans is as follows:

                               Maturing    Maturing
                                during     from 2002    Maturing
(In Thousands)                   2001    through 2005  after 2005      Total
--------------------------------------------------------------------------------
Mortgage Loans(1-4 dwelling)  $  2,069    $ 16,414     $ 209,945     $ 228,428
Construction Loans                 163           0             0           163
Commercial Construction            712           0           350         1,062
Consumer Loans                     993       2,412           494         3,899
Commercial Real Estate           4,698      13,083        34,983        52,764
Commercial Business              3,136       3,875         1,511         8,522
--------------------------------------------------------------------------------
            Total             $ 11,771    $ 35,784     $ 247,283     $ 294,838
================================================================================

Interest sensitivity on the above loans:

  Loans with
    predetermined rates    $  6,360    $ 33,852     $ 181,622     $ 221,834
  Loans with adjustable or
    floating rates            5,411       1,932        65,661        73,004
--------------------------------------------------------------------------------
            Total          $ 11,771    $ 35,784     $ 247,283     $ 294,838
================================================================================

         Construction,  commercial  and land loans are generally  indexed to the
prime rate plus a percentage  (generally 1% to 2%). The adjustable rate mortgage
loans have interest rate adjustment limitations and are generally indexed to the
one year U.S. Treasury constant maturity yield. Future market factors may affect
the  correlation of the interest rate adjustment with the rates the Bank pays on
the short-term  deposits that have been primarily  utilized to fund these loans.
Loans  pledged as  collateral  for advances and lines of credit from the Federal
Home Loan Bank totaled $37.0 million at December 31, 2000.

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

                            Years ended December 31,
                    ------------------------------------------
                       2000           1999           1998
--------------------------------------------------------------
Balance at beginning
  of year           $ 3,840,967     $ 3,342,274    $ 3,137,781
Provision charged
  to operations         240,000         653,579        240,000
Charge-offs            (131,740)       (232,828)       (37,876)
Recoveries               31,120          77,942          2,369
--------------------------------------------------------------
Balance at end
  of year           $ 3,980,347     $ 3,840,967    $ 3,342,274
==============================================================

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

5. MORTGAGE-BACKED SECURITIES
     Mortgage-backed  securities  held to maturity at December 31, 2000 and 1999
are summarized as follows:

                           December 31, 2000
      -------------------------------------------------------------
                           Gross          Gross        Estimated
           Amortized    Unrealized      Unrealized      Market
             Cost          Gains          Losses         Value
-------------------------------------------------------------------
GNMA    $  35,868,102   $   413,790  $    (152,184)  $  36,129,708
FNMA       67,927,876       651,806       (136,510)     68,443,172
FHLMC      39,955,729       685,962        (10,155)     40,631,536
-------------------------------------------------------------------
Total   $ 143,751,707   $ 1,751,558  $    (298,849)  $ 145,204,416
===================================================================


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

         The Bank  has the  intent  and  ability  to hold  these  securities  to
maturity.  At December 31, 2000, neither a disposal,  nor a condition that could
lead to a decision  not to hold these  securities  to maturity  were  reasonably
foreseen.


6. OFFICE PROPERTIES AND EQUIPMENT, NET

     Office  properties  and  equipment  at  December  31,  2000  and  1999  are
summarized by major classification, as follows:

                                                December 31,
                                   ---------------------------------------------
                                            2000               1999
--------------------------------------------------------------------------------
Land, buildings and improvements      $  26,961,157      $  21,036,089
Furniture and equipment                   5,498,144          4,356,086
Computers                                 4,424,183          4,128,761
--------------------------------------------------------------------------------
Total                                    36,883,484         29,520,936
Less accumulated depreciation           (10,570,775)        (8,834,664)
--------------------------------------------------------------------------------
Office properties and equipment, net  $  26,312,709      $  20,686,272
================================================================================

7. REAL ESTATE HELD FOR DEVELOPMENT, NET
     The Bank,  through its wholly-owned  subsidiary,  Land Financial  Services,
Inc.,  had entered into several  real estate  investments.  Real estate held for
development is carried at the lower of cost or estimated net  realizable  value.
Intercompany  loans from the Bank are the  primary  sources of funding  and have
been eliminated in  consolidation.  Such  investments in real estate at December
31, 2000 and 1999, are summarized as follows:

                                                 December 31,
                                      -------------------------------
                                             2000          1999
---------------------------------------------------------------------
Real estate held for development     $      376,694     $    376,694
Valuation allowance                        (288,768)        (288,768)
---------------------------------------------------------------------
Net                                  $       87,926     $     87,926
=====================================================================

8. REAL ESTATE OWNED, NET
         Real estate owned, which was acquired through  foreclosure and deeds in
lieu of  foreclosure,  totaled $355 thousand and $449 thousand,  net at December
31, 2000 and 1999, respectively.  Changes in the allowance for real estate owned
is as follows:

                                Years ended December 31,
                       -----------------------------------------
                           2000           1999            1998
----------------------------------------------------------------
Balance at beginning
  of year              $ 668,239      $ 668,239      $ 560,137
Provisions charged
  to operations                0              0        108,102
Charge-offs               (9,962)             0              0
Recoveries                58,642              0              0
----------------------------------------------------------------
Balance at end of year $ 716,919      $ 668,239      $ 668,239
================================================================

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

9. DEPOSITS
     Deposits at December  31, 2000 and 1999  consisted of the  following  major
classifications and weighted average rates:

                                    December 31, 2000
                      -------------------------------------------------
                        Weighted                            Percent
                        Average Rate        Amount          of Total
-----------------------------------------------------------------------
Non-interest checking     0.00 %     $       103,544,519       15.97 %
Checking accounts         3.17               131,054,687       20.20
Savings accounts          2.72               103,072,351       15.90
Money market accounts     2.75                68,768,257       10.60
Certificates              5.14               242,099,541       37.33
-----------------------------------------------------------------------
Total                     3.35 %     $       648,539,355      100.00 %
=======================================================================

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

     A summary of certificates by maturity at December 31, 2000 is as follows:


Years ended December 31,                             Amount
-----------------------------------------------------------------
2001                                          $      139,445,251
2002                                                  66,359,319
2003                                                  27,660,978
Thereafter                                             8,633,993
-----------------------------------------------------------------
Total                                         $      242,099,541
-----------------------------------------------------------------

     A summary of interest expense on deposits is as follows:

                                   Years ended December 31,
                       ---------------------------------------------------
                             2000            1999              1998
--------------------------------------------------------------------------
Checking accounts       $  3,508,791     $  2,029,980       $  1,263,105
Savings accounts           3,045,369        2,787,185          2,591,626
Money market accounts      1,864,489        1,817,465          1,697,154
Certificates              12,473,540       11,536,893         12,538,798
--------------------------------------------------------------------------
Total interest expense $  20,892,189     $ 18,171,523       $ 18,090,683
==========================================================================

10. ADVANCES FROM FEDERAL HOME LOAN BANK
         At December 31, 2000,  the Bank had advances from the Federal Home Loan
Bank of New York (FHLB) in the amount of $6.3  million  with a weighted  average
interest rate of 5.49%.  Advances are  collateralized  by certain first mortgage
loans.

                         Years ended December 31,

------------------------------------------------------------------
                 2000                          1999
------------------------------------------------------------------
                 Weighted                       Weighted
                 Average  Maturity              Average  Maturity
       Amount      Rate    Date      Amount      Rate      Date
------------------------------------------------------------------
   $           0                   $10,000,000     6.32%   6/6/00
       5,000,000    5.62% 2/15/01    5,000,000     5.62%  2/15/01
       1,305,644    5.00% 10/9/07    1,337,031     5.00%  10/9/07
------------------------------------------------------------------
   $   6,305,644    5.49%          $16,337,031     6.00%
==================================================================

11. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
         At December 31, 2000, the Bank had securities sold under the agreements
to repurchase (repurchase agreements) in the aggregate amount of $120.0 million.
The repurchase  agreements are collateralized by U.S. Agency Notes and CMOs with
a market value of $124.2 million. Accrued interest payable totaled $670 thousand
at December 31, 2000.

                  Year ended December 31, 2000
-----------------------------------------------------------------
                                Weighted     Maturity    Call
Counterparty    Amount        Average Rate     Date     Feature
-----------------------------------------------------------------
FHLB           $  20,000,000      5.72%       12/19/07  12/19/02
FHLB              20,000,000      5.13%        1/14/08   1/14/01
FHLB              20,000,000      5.95%        8/30/10   8/30/02
FHLB              20,000,000      5.54%       10/18/10  10/18/01
FHLB              20,000,000      5.22%       12/20/10  12/20/03
FHLB              20,000,000      4.85%       12/20/10  12/20/01
-----------------------------------------------------------------
Total          $ 120,000,000      5.40%
=================================================================

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

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

12. INCOME TAXES
     The Corporation's  provision for income taxes differs from that computed by
applying the statutory  federal income tax rate to income before income taxes as
follows:
<TABLE>
<CAPTION>
                                               2000                             1999                      1998
                                -------------------------------  ---------------------------  --------------------------
                                      Amount         Percent          Amount       Percent     Amount         Percent
                                  ---------------   -----------  ---------------  ----------  -------------  -----------
<S>                             <C>                  <C>         <C>              <C>        <C>              <C>
Tax at federal tax rate           $    2,706,971        34.00%     $ 2,721,663      34.00%     $ 2,806,707      34.00%
Increase (Decrease) from:
     State income taxes, net
         of federal income tax
         benefit                         163,163         2.05%         165,583       2.07%         170,531       2.07%
     Other                               (20,058)       (0.25%)          4,140       0.05%           6,295       0.08%
                                  ---------------   -----------  -------------  ----------   ------------- -----------
     Total                        $    2,850,076        35.80%     $ 2,891,386      36.12%     $ 2,983,533      36.15%
                                  ===============   ===========  =============  ==========   ============= ===========
</TABLE>

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

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

                                                         December 31,
                                          --------------------------------------
                                                      2000             1999
--------------------------------------------------------------------------------
Deferred income tax assets:
  Allowance for possible loan losses             $ 1,360,793       $ 1,111,262
  Real estate losses                                 447,747           482,409
  Amortization of deposit premium                    249,733           277,049
  Post retirement benefits                           185,000           185,000
  Capitalized interest                               271,408           305,209
  Other                                              170,516           143,273
--------------------------------------------------------------------------------
Gross deferred tax assets                          2,685,197         2,504,202
Deferred income tax liabilities:
  Prepaid deposit insurance premium                   22,466            11,148
  Depreciation                                       190,661           178,641
  Deferred loan fees, net                             86,190            24,926
  Compensation and pension (asset) liability          25,179            24,900
--------------------------------------------------------------------------------
Gross deferred tax liabilities:                      324,496           239,615
--------------------------------------------------------------------------------
Deferred income tax assets, net                  $ 2,360,701       $ 2,264,587
--------------------------------------------------------------------------------

         The following  represents  the components of income tax expense for the
years ended December 31, 2000, 1999 and 1998, respectively.

                                          2000           1999            1998
--------------------------------------------------------------------------------
Current federal tax
  provision                           $ 3,072,152    $ 2,131,769    $ 3,008,922
Current state tax
  provision                               289,905        204,605        284,193
--------------------------------------------------------------------------------
   Total current provision              3,362,057      2,336,374      3,293,115
--------------------------------------------------------------------------------
Deferred federal tax
  (benefit)                              (469,292)       508,734       (283,771)
Deferred state tax (benefit)              (42,689)        46,278        (25,811)
--------------------------------------------------------------------------------
   Total deferred tax (benefit)          (511,981)       555,012       (309,582)
--------------------------------------------------------------------------------
Total                                 $ 2,850,076    $ 2,891,386    $ 2,983,533
================================================================================

13. Leases
         The Bank leases three buildings and land to operate four branches under
noncancelable leases which expire over the next 19 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, 2000 are as follows:

Fiscal Year                            Amount
--------------------------------------------------
2001                             $        102,626
2002                                      102,626
2003                                      102,626
2004                                      113,834
2005 and beyond                         1,350,948
--------------------------------------------------
Total                            $      1,772,660
==================================================

                                      -22-


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

         The leases for the buildings  contain cost of living  adjustments based
on changes in the consumer  price index.  The minimum lease payments shown above
include base rentals exclusive of any future adjustments. Total rent expense for
all operating leases amounted to $197 thousand,  $157 thousand and $105 thousand
for fiscal years 2000, 1999 and 1998, respectively.

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

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

         The following is a reconciliation of the Bank's capital under generally
accepted  accounting  principles  ("GAAP") to regulatory capital at December 31,
2000:

<TABLE>
<CAPTION>
                                       Tangible             Core           Risk-based
                                       Capital            Capital            Capital
----------------------------------------------------------------------------------------
<S>                               <C>                <C>               <C>
Bank's GAAP Capital                 $ 56,708,358       $ 56,708,358      $ 56,708,358
Add:
    Unrealized loss on
      investments AFS                    358,352            358,352           358,352
Less:
    Subsidiary investments
      not eligible                       (87,926)           (87,926)          (87,926)
    Goodwill                             (27,664)           (27,664)          (27,664)
    REO greater than 5 years            (100,860)          (100,860)         (100,860)
Supplementary
    qualifying capital item:
      General valuation allowance              0                  0         3,529,153
----------------------------------------------------------------------------------------
Regulatory capital computed           56,850,260         56,850,260        60,379,413
Minimum regulatory caital
  requirement                         16,780,232         33,560,464        29,458,753
----------------------------------------------------------------------------------------
Regulatory capital excess           $ 40,070,028   $     23,289,796   $    30,920,660
========================================================================================
</TABLE>

15. PENSION PLAN
         The Bank has a defined benefit pension plan for active  employees.  Net
pension  expense was $395  thousand,  $462  thousand and $371 thousand for years
ended  December 31, 2000,  1999 and 1998,  respectively.  The  components of net
pension cost are as follows:

                                     Years ended December 31,
                   -------------------------------------------------------------
                                     2000          1999          1998
--------------------------------------------------------------------------------
Service cost                    $ (578,116)   $ (513,260)   $ (435,047)
Interest cost                     (362,856)     (336,799)     (270,772)
Return on assets                   527,031       418,356       359,216
Net amortization and deferral       18,563       (30,675)      (23,921)
--------------------------------------------------------------------------------
Net periodic pension cost       $ (395,378)   $ (462,378)   $ (370,524)
================================================================================

         The following table presents a  reconciliation  of the funded status of
the defined benefit pension plan at December 31, 2000 and 1999:

                                                 December 31,
                                --------------------------------------
                                             2000             1999
----------------------------------------------------------------------
Projected benefit obligation           $  6,813,938     $   6,406,113
Fair value of plan assets                 7,310,672         7,520,267
----------------------------------------------------------------------
Excess of plan assets over
     projected benefit obligation           496,734         1,114,154
Unrecognized net gain                      (879,573)       (1,423,841)
Unrecognized prior service cost              65,618            70,794
Unrecognized net transition obligation      100,757           131,663
----------------------------------------------------------------------
Accrued pension cost
     included in the consolidated
     balance sheet                      $  (216,464)    $    (107,230)
======================================================================

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

                                             December 31,
                                    -----------------------------------
Change in Projected Benefit Oblitation   2000             1999
-----------------------------------------------------------------------
Projected benefit obligation
  at beginning of year                 $ 6,406,113      $ 5,200,545
Service cost                               578,116          513,260
Interest cost                              362,856          336,799
Actuarial (gain) loss                     (307,401)         464,723
Benefits paid                             (225,746)        (109,214)
-----------------------------------------------------------------------
Projected benefit obligation
  at end of year                       $ 6,813,938      $ 6,406,113
=======================================================================
Change in Plan Assets
-----------------------------------------------------------------------
Fair value of plan assets
  at beginning of year                 $ 7,520,267      $ 5,895,741
Actual return of plan assets              (269,993)       1,158,675
Employer contribution                      286,144          575,065
Benefits paid                             (225,746)        (109,214)
-----------------------------------------------------------------------
Fair value of plan assets
  at end of year                       $ 7,310,672      $ 7,520,267
=======================================================================

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

     Actuarial assumptions used in determining pension cost are as follows:

                                     Years ended December 31,
                               -----------------------------------
                                  2000       1999        1998
------------------------------------------------------------------
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,
                            --------------------------------------
                               2000          1999         1998
------------------------------------------------------------------
Interest cost                $  34,748    $  29,149    $   30,514
Amortization of prior
  service cost                 (14,499)     (14,499)      (14,499)
Amortization of gain                 0         (934)       (1,763)
------------------------------------------------------------------
Net periodic post-retirement
  benefit cost               $  20,249    $  13,716    $   14,252
==================================================================

         The assumed  discount  rate used in the  calculation  for net  periodic
post-retirement benefit cost was 7.50% and 8.0% for 2000 and 1999, respectively.
The assumed health care cost trend rate for 2000 was 9.0% and was graded down in
 .5%  increments  per year to an ultimate rate of 5.0% 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, 2000
-------------------------------------------------------------------
Accumulated post-retirement obligation at year end     $730,777
Service and interest Cost                               $40,002
-------------------------------------------------------------------

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

                                             December 31,
                                     -----------------------------
                                         2000            1999
------------------------------------------------------------------
Accumulated post-retirement
     benefit obligation               $ (687,352)     $ (403,766)
Unrecognized prior service cost          (70,078)        (84,577)
Unrecognized net loss (gain)             206,089         (89,647)
------------------------------------------------------------------
Accrued post-retirement benefit cost  $ (551,341)     $ (577,990)
==================================================================

     The  assumed  discount  rate used in the  calculation  for the  accumulated
post-retirement  benefit  obligation  as of December 31, 2000 and 1999 was 7.50%
and 8.0%, respectively.

16. SUBORDINATED DEBENTURES
     The Corporation  issued $10.0 million of  subordinated  debentures in 1994.
The  debentures  are  unsecured,  bear  interest  at a rate of 10% per annum and
mature on July 28, 2004.  Interest  payments are due  semiannually on February 1
and August 1 commencing  February 1, 1995.  The debentures  are  redeemable,  in
whole or in part,  at any time at the option of the  Corporation  at  redemption
prices  ranging from 103% down to 100%.  The net  proceeds  from the sale of the
debentures  totaled $9.4  million and were used for the  expansion of the Bank's
operations  through branch  acquisitions  and general  corporate  purposes.  The
Corporation  is  required  to retain  at all times  cash,  cash  equivalents  or
marketable  securities  in an amount not less than the  aggregate  amount of two
consecutive  semi-annual  interest  payments that will be due and payable on the
debentures following such declaration date or redemption date.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     At December 31, 2000 and December  31,  1999,  the carrying  amount and the
estimated  market  value  of  the  Corporation's  financial  instruments  are as
follows:

<TABLE>
<CAPTION>
                                                                     December 31, 2000                     December 31, 1999
                                                          --------------------------------------   ---------------------------------
                                                               Carrying            Estimated          Carrying          Estimated
                                                                Amount            Market Value         Amount          Market Value
                                                           ------------------   -----------------  ---------------   ---------------
<S>                                                       <C>                  <C>                <C>               <C>
Financial assets:
     Cash and cash equivalents                              $   44,951,299       $  44,951,299      $   46,275,871    $  46,275,871
     Investment securities held to maturity and
        investment securities available for sale            $  316,986,597       $ 314,956,653      $  269,614,358    $ 259,149,989
     Mortgage-backed securities                             $  143,751,707       $ 145,204,416      $  121,424,419    $ 119,815,032
     FHLB Stock                                             $    6,315,310       $   6,315,310      $    4,861,410    $   4,861,410

     Loans, net of unearned income                          $  294,158,982       $ 298,838,000      $  303,535,484    $ 295,018,000
        Less: Allowance for possible loan losses            $   (3,980,347)      $  (3,980,347)     $   (3,840,967)   $  (3,840,967)
     Loans, net                                             $  290,178,635       $ 294,857,653      $  299,694,517    $ 291,177,033

Financial liabilities:
     Deposits
        Checking, passbook, and money market accounts       $  406,439,814       $ 406,439,814      $  361,836,141    $ 361,836,141
        Certificates                                        $  242,099,541       $ 241,693,000      $  242,055,976    $ 239,077,000
     Securities sold under agreements to repurchase         $  120,000,000       $ 122,368,000      $   90,000,000    $  88,806,000
     Subordinated debentures                                $   10,000,000       $  10,250,000      $   10,000,000    $  10,300,000
     Advances from the Federal Home Loan Bank               $    6,305,644       $   6,305,620      $   16,337,031    $  16,120,000

Off-balance sheet financial instruments:
     Commitments to extend credit                           $   22,526,356       $  22,526,356      $   24,663,153    $  24,663,153
     Standby letters of credit                              $    1,351,712       $   1,351,712      $    1,887,175    $   1,887,175

</TABLE>

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

18.  COMMITMENTS AND CONTINGENCIES
         The Bank has  outstanding  loan  commitments  of  $22.5  million  as of
December 31, 2000. Of these commitments outstanding, the breakdown between fixed
and variable rate loans is as follows:

--------------------------------------------------------------------------------
                                             December 31, 2000
                                 -----------------------------------------------
                                      Fixed         Variable
                                      Rate            Rate            Total
--------------------------------------------------------------------------------
Commitments to fund loans        $   2,252,625   $   5,635,000   $   7,887,625
Unused lines:
  Construction                               0       2,115,827       2,115,827
  Equity line of credit loans                0      12,522,904      12,522,904
--------------------------------------------------------------------------------
Total                            $   2,252,625   $  20,273,731   $  22,526,356
--------------------------------------------------------------------------------

         In addition to outstanding  loan  commitments,  the Bank as of December
31,  2000,  issued  $1.4  million  in  standby  letters  of credit to  guarantee
performance of a customer to a third party.

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

19. LITIGATION
         There are no significant pending legal proceedings at December 31, 2000
which will have a material  impact on the  Corporation's  financial  position or
results of operations.

20.  LOANS TO OFFICERS AND DIRECTORS
         Regulation  O  provides  that  all  loans  to  executive  officers  and
directors  be made  on  substantially  the  same  terms  and  conditions  as are
available to the general  public.  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, 2000 and 1999,
loans made to directors and executive officers whose  indebtedness  exceeded $60
thousand  amounted to $2.0 million and $1.9 million,  respectively.  During 2000
new loans to these individuals totaled $199 thousand and repayments totaled $107
thousand.

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

         A total of 249,926  shares of authorized  but unissued  common stock of
the Corporation has been reserved for future issuance under the Plan. The option
price per share for options  granted may not be less than the fair market  value
of the common  stock on the date of grant.  At  December  31,  2000,  the option
exercise prices were $1.292, $5.333 and $10.00.  Options are fully vested at the
date of grant and must be exercised within ten years.

         The  following  table  summarizes   information   about  stock  options
outstanding at December 31, 2000

        Exercise      Outstanding     Average        Exercisable
         Price          Options       Life (1)         Options
-----------------------------------------------------------------
       $    1.29        54,418         1.2             54,418
       $    5.33        36,000         4.9             36,000
       $   10.00        85,000         7.9                  0
----------------------------------------------------------------
       $    6.34       175,418         5.2             90,418
================================================================
(1)  Average contractual life in years

         A summary of the status of the  Corporation's  Stock  Option Plan as of
December  31, 2000,  1999 and 1998 and changes  during the years ending on those
dates is presented below.



<TABLE>
<CAPTION>
                                                Years Ended December 31,
                         -----------------------------------------------------------------------
                               2000                    1999                     1998
------------------------------------------------------------------------------------------------
                                    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  205,518    $  5.94        210,618    $  5.83       235,995    $  1.91
Options granted                0       0.00              0       0.00        93,000      10.00
Options exercised           (100)      1.29           (600)      1.29       (84,081)      1.29
Options surrendered      (30,000)      3.61         (4,500)      1.29       (34,296)      1.29
------------------------------------------------------------------------------------------------
Outstanding at the
  End of the year        175,418    $  6.34        205,518    $  5.94       210,618    $  5.83
================================================================================================
</TABLE>

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

                                  December 31, 1998
-----------------------------------------------------------
                               As Reported      Pro Forma
-----------------------------------------------------------
Net Income                     $ 5,271,488    $  5,042,974
Basic Earnings per share             $0.73           $0.70
Diluted Earnings per share           $0.72           $0.69
-----------------------------------------------------------

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

         The fair value of each option  grant is  estimated on the date of grant
using the  Black-Scholes  option  pricing model with the following  assumptions:
dividend yield of .86%, expected volatility of 26.11%, discount rate of 6.0% and
an expected life of 10 years at December 31, 1998. There were no options granted
in 2000 or 1999.

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

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

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

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


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

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

<TABLE>
<CAPTION>
                                                                                                  December 31,
                                                                                          -----------------------------
FMS Financial Corporation Statements of Financial Condition                                    2000            1999
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>            <C>
Assets:
    Cash                                                                                   $ 1,037,560     $   501,861
    Investment in subsidiary                                                                56,708,355      52,609,414
    Investment securities                                                                    1,000,000       1,000,000
    Intercompany (payable) receivable, net                                                  (1,093,088)      2,185,306
    Subordinated debentures issue costs, net                                                   206,417         263,765
    Other                                                                                      168,843         168,843
                                                                                           -----------     -----------
Total Assets                                                                               $58,028,087     $56,729,189
                                                                                           ===========     ===========

Liabilities:
    10% Subordinated debentures due 2004                                                   $10,000,000     $10,000,000
    Dividends payable                                                                          201,831         215,519
    Accrued interest payable                                                                   416,667         416,667
                                                                                           -----------     -----------
Total liabilities                                                                           10,618,498      10,632,186
                                                                                           -----------     -----------

Stockholders' Equity:
    Preferred stock - $.10 par value 5,000,000  shares  authorized;  none issued
    Common stock - $.10 par value 10,000,000 shares authorized; shares
       issued 7,897,891 and 7,897,791 and shares outstanding 6,727,702 and 7,183,978 as
       of December 31, 2000 and 1999, respectively                                             789,789         789,779
    Paid-in capital in excess of par                                                         8,217,654       8,217,535
    Accumulated comprehensive loss - net of deferred income taxes                             (358,352)     (1,167,810)
    Retained earnings                                                                       46,401,102      42,108,955
    Less:Treasury Stock (1,170,189 and 713,813 shares, at cost at December 31, 2000 and
       1999, respectively)                                                                  (7,640,604)     (3,851,456)
                                                                                           -----------     -----------
Total Stockholders' Equity                                                                  47,409,589      46,097,003
                                                                                           -----------     -----------
Total Liabilities and Stockholders' Equity                                                 $58,028,087     $56,729,189
                                                                                           ===========     ===========
</TABLE>

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                             ---------------------------------------------------------
FMS Financial Corporation Statements of Operations                 2000                1999                 1998
----------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                 <C>                 <C>
Intercompany interest income                                 $       560,750     $       560,750     $        560,750
Interest expense                                                  (1,057,348)         (1,057,348)          (1,057,348)
Dividends from subsidiary                                          2,150,000           1,600,000            1,600,000
Equity in undistributed income of subsidiary                       3,289,357           3,841,261            3,999,243
----------------------------------------------------------------------------------------------------------------------
Income before taxes                                                4,942,759           4,944,663            5,102,645
Income tax benefit                                                   168,843             168,843              168,843
----------------------------------------------------------------------------------------------------------------------
Net Income                                                   $     5,111,602     $     5,113,506     $      5,271,488
======================================================================================================================
</TABLE>

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

                                      -28-

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

<TABLE>
<CAPTION>
                                                                   For Years Ended December 31,
                                                            -------------------------------------------
FMS Financial Corporation Statements of Cash Flows              2000           1999          1998
-------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>
Operating Activities
Net income                                                  $ 5,111,602    $ 5,113,506    $ 5,271,488
Adjustments to reconcile net income to net cash provided
   by operating activities:
Equity in undistributed earnings of the subsidiary           (3,289,357)    (3,841,261)    (3,999,243)
Amortization of bond issue costs                                 57,348         57,348         57,347
Decrease (Increase) in intercompany receivable, net           3,278,397         14,337       (274,698)
Other operating activities                                            0              0         33,481
                                                            -----------    -----------    -----------
     Net cash  provided by operating activities               5,157,990      1,343,930      1,088,375

Financing Activities
Purchase of treasury stock                                   (3,789,148)      (475,084)      (186,055)
Investment in subsidiary                                           (129)          (775)      (108,603)
Cash dividends paid on common stock                            (833,143)      (866,278)      (767,457)
Principal repayment of employee stock ownership plan debt             0              0        (33,481)
Proceeds from issuance of stock                                     129            775        108,603
                                                            -----------    -----------    -----------
     Net cash used by financing activities                   (4,622,291)    (1,341,362)      (986,993)
                                                            -----------    -----------    -----------
INCREASE IN CASH AND CASH EQUIVALENTS                           535,699          2,568        101,382
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                    501,861        499,293        397,911
                                                            -----------    -----------    -----------
CASH AND CASH EQUIVALENTS, END OF YEAR                      $ 1,037,560    $   501,861    $   499,293
=====================================================================================================
</TABLE>

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

                                      -29-
<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, 2000,  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,  2000.  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, 2000.

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, 2000.

<TABLE>
<CAPTION>

<S>                                      <C>
/s/Craig W. Yates                                    /s/Channing L. Smith
Craig W. Yates                                        Channing L. Smith
President and Chief Executive Officer                 Vice President and Chief Financial Officer

FMS Financial Corporation
Burlington, New Jersey
February 9, 2001


                                      -30-
</TABLE>


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



[LOGO]
PRICEWATERHOUSECOOPERS PWC



                        REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying  consolidated statements of financial condition
and the related consolidated statements of operations,  changes in stockholders'
equity, and cash flows present fairly, in all material  respects,  the financial
position of FMS Financial Corporation and Subsidiary ("the Company") at December
31, 2000 and 1999, and the results of their  operations and their cash flows for
each of the three years in the period ended  December 31,  2000,  in  conformity
with accounting  principles  generally accepted in the United States of America.
These financial  statements are the responsibility of the Company's  management;
our responsibility is to express an opinion on these financial  statements based
on our audits.  We conducted our audits of these  statements in accordance  with
auditing  standards  generally  accepted in the United States of America,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.







/s/PricewaterhouseCoopers LLP


Philadelphia, PA
February 9, 2001



                                      -31-

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


                              CORPORATE INFORMATION


ANNUAL MEETING
         The 2001 Annual Shareholders' Meeting of FMS Financial Corporation will
be held at 10:00 a.m.,  on the 26th day of April,  2001 at the Riverton  Country
Club, Highland Avenue off of Route 130, Riverton, New Jersey.

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

         The number of record  holders of common stock of the  Corporation as of
March 1, 2001 was  approximately  749, 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, 2000 and 1999:

                                          2000
                         ---------------------------------
QUARTER ENDED                  HIGH             LOW
----------------------------------------------------------
March 31,                      $     9.375     $    6.750
June 30,                       $     8.250     $    7.000
September 30,                  $     9.500     $    7.345
December 31,                   $     9.750     $    8.375
----------------------------------------------------------

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

         The   Corporation's   sole  operating   assets  are  derived  from  its
subsidiary,   Farmers  &  Mechanics  Bank.  Consequently,  the  ability  of  the
Corporation to accumulate  cash for payment of cash dividends to stockholders is
directly  dependent  upon  the  ability  of the  Bank  to pay  dividends  to the
Corporation. The Bank may not declare or pay a cash dividend on any of its stock
if the effect of the  declaration  or payment of  dividends  would  cause  their
regulatory  capital  to be  reduced  below  (1)  the  amount  required  for  the
liquidation  account  established in connection with the mutual stock conversion
or (2) the regulatory capital requirements imposed by the OTS. Additionally, the
Corporation  must pay interest to holders of its  debentures  before  payment of
cash dividends to its stockholders.

                  As of December 31, 2000 the Bank was a Tier 1 institution  and
had  available  $17.1  million  for  dividends  to the  Corporation,  subject to
nonobjection by the OTS. It is not likely that the  Corporation  would request a
dividend of that  magnitude.  The  Corporation  is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders,  but is subject to
the  requirements  of New Jersey  law,  which  permits  the  Corporation  to pay
dividends  in cash or shares out of the  Corporation's  surplus,  defined as the
excess of net assets of the Corporation over stated capital.

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


BOARD OF DIRECTORS                 BANK OFFICERS

EDWARD J. STAATS, JR.              CRAIG W. YATES*
Chairman of the Board              President

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

GEORGE J. BARBER                   CHANNING L. SMITH*
                                   Vice President and Chief Financial Officer
DOMINIC W. FLAMINI
                                   THOMAS M. TOPLEY*
VINCENT R. FARIAS                  Sr. Vice President of Operations and
                                   Corporate Secretary
JAMES C. LIGNANA
                                   DOUGLAS B. HALEY
MARY WELLS                         Vice President, Consumer Lending

CRAIG W. YATES                     KAREN R. KOENIG
                                   Vice President, Business Development
ROY D. YATES
                                   URSULA YATES NISONOFF
DIRECTORS EMERITUS                 Vice President, Administration

ADOLPH N. BRIGHT                   NANCY L. PARKER
                                   Vice President, Human Resources
KAREN S. OLEKSA
                                   PETER S. SCHOENFELD
HILYARD S. SIMPKINS                Vice President, Investments

                                   KAREN D. SHINN
                                   Vice President,  Operations

                                   FRANK E. SMITH
                                   Vice President, Facilities and Design

                                   MERLE A. BROWN
                                   Branch Administrator and Security Officer

                                   AMY J. HANNIGAN
                                   Controller

                                   MARCELLA F. HATCHER*
                                   Assistant Secretary


                                   * Officers of Bank and Holding Company

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

MARKET MAKERS
The following  companies were making a market in the Corporation's  common stock
at December 31, 2000:

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

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


FORM 10-K AND OTHER FINANCIAL INQUIRIES
The Corporation's  Annual Report on Form 10-K for the fiscal year ended December
31, 2000, 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        PricewaterhouseCoopers LLP
40 Wall Street                                   Two Commerce Square, Suite 1700
New York, NY  10005                              2001 Market St.
                                                 Philadelphia, PA 19103


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

                                      -34-

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

<TABLE>
<CAPTION>
                                             OFFICE LOCATIONS

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

<S>                                     <C>                                    <C>
MAIN BRANCH                                EASTAMPTON                            MOUNT LAUREL
3 Sunset Road & Route 541                  1191 Woodlane Road                    4522 Church Road
Burlington, NJ  08016                      Eastampton, NJ 08060                  Mount Laurel, NJ 08054
(609) 387-2728                             (609) 261-6400                        (856) 235-4445

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

BORDENTOWN                                 LAKE PINE                             PEMBERTON
335 Farnsworth Ave.                        239 Taunton Blvd.                     25 Fort Dix Road
Bordentown, NJ  08505                      Medford, NJ 08055                     Pemberton, NJ 08068
(609) 291-8200                             (856) 988-3330                        (609) 726-9111

BROWNS MILLS                               LARCHMONT                             RIVERSIDE
93 Pemberton-Browns Mills Road             3220 Route 38                         2 Scott Street & Pavilion Avenue
Browns Mills, NJ 08015                     Mount Laurel, NJ 08054                Riverside, NJ 08075
(609) 893-5540                             (856) 235-6666                        (856) 461-4333

BURLINGTON CITY                            LUMBERTON                             RIVERTON
352 High Street                            1636-61 Route 38 & Eayrestown Road    604 Main Street
Burlington, NJ 08016                       Lumberton, NJ 08048                   Riverton, NJ 08077
(609) 386-4643                             (609) 267-6811                        (856) 786-5333

BURLINGTON TOWNSHIP                        MARLTON                               SOUTHAMPTON
809 Sunset Road                            42 Main Street                        1841 Route 70
Burlington, NJ 08016                       Marlton, NJ 08053                     Southampton, NJ 08088
(609) 387-1150                             (856) 596-6555                        (609) 859-2700

BURLINGTON-NECK ROAD                       MEDFORD                               TABERNACLE
1029 Neck Road                             200 Tuckerton Road                    1507 Route 206
Burlington, NJ 08016                       Medford, NJ 08055                     Tabernacle, NJ 08088
(609) 239-4500                             (856) 596-4300                        (609) 268-5993

CHESTERFIELD                               MEDFORD LAKES                         WAL-MART LUMBERTON
305 Bordentown-Chesterfield Road           712 Stokes Road                       1740 Rt. 38
Chesterfield, NJ 08620                     Medford, NJ 08055                     Mt. Holly, NJ 08060
(609) 324-1256                             (609) 654-6373                        (609) 702-9800

CINNAMINSON                                MEDFORD VILLAGE                       WILLINGBORO
1703 Highland Avenue                       1 S. Main Street at Bank Street       399 Charleston Rd.
Cinnaminson, NJ 08077                      Medford, NJ 08055                     Willingboro, NJ 08046
(856) 303-1870                             (609) 714-1115                        (609) 877-2888

DELRAN                                     MOORESTOWN                            WILLINGBORO EAST
3002 Route 130 North                       53 East Main Street                   611 Beverly-Rancocas Road
Delran, NJ 08075                           Moorestown, NJ 08057                  Willingboro, NJ 08046
(856) 764-3740                             (856) 235-0544                        (609) 871-4900

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

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