SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

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


                                    FORM 10-Q

(Mark One)

[X]  Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
     Act of 1934

     For the quarterly period ended September 30, 1999

                                       OR

[ ]  Transition  report  pursuant  to  section  13 or  15(d)  of the  Securities
     Exchange Act of 1934


                         Commission file number 0-17353

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

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

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

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

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

         As of November 5, 1999 there were 7,190,978  shares  outstanding of the
registrant's Common Stock, par value $.10 per share.


<PAGE>
                    FMS FINANCIAL CORPORATION AND SUBSIDIARY
                    ----------------------------------------

                          QUARTERLY REPORT ON FORM 10-Q
                          -----------------------------

                               SEPTEMBER 30, 1999
                               ------------------

                                TABLE OF CONTENTS
                                -----------------

                                                                            Page
                                                                            ----
PART I - Financial Information
------------------------------

         Item 1 - Financial Statements

               Consolidated Statements of Financial Condition as of
                       September 30, 1999 (unaudited) and December 31, 1998....1

               Consolidated Statements of Income (unaudited)
                       for the three and nine month periods ended
                       September 30, 1999 and September 30, 1998...............2

               Consolidated  Statements of Cash Flows (unaudited)
                       for the nine month periods ended September 30, 1999
                       and September 30, 1998..................................3

               Consolidated Statements of Changes in Stockholders' Equity
                       for the nine months ended September 30, 1999
                       (unaudited).............................................4


         Item 2 - Management's Discussion and Analysis of
                     Financial Condition and Results of Operations........5 - 16

         Item 3 - Disclosure about Market Risk................................17

PART II - Other Information
---------------------------

         Item 1 - Legal Proceedings...........................................18

         Item 2 - Changes in Securities.......................................18

         Item 3 - Defaults Upon Senior Securities.............................18

         Item 4 - Submission of Matters to a Vote of Security Holders.........18

         Item 5 - Other Information...........................................18

         Item 6 - Exhibits and Reports on Form 8-K............................18




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

                                                                                    September 30,    December 31,
                                                                                       1999              1998
--------------------------------------------------------------------------------------------------------------------
                                                                                    (Unaudited)
ASSETS
--------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>              <C>
     Cash and amounts due from depository institutions                             $  13,539,038    $  18,142,316
     Interest-bearing deposits                                                           165,086                0
     Short term funds                                                                 19,505,243       11,754,075
                                                                                   -------------    -------------
         Total cash and cash equivalents                                              33,209,367       29,896,391
     Investment securities held to maturity                                          217,765,525      129,417,826
     Investment securities and mortgage-backed securities available for sale          54,193,207      109,833,133
     Loans receivable  - net                                                         296,250,428      298,603,223
     Mortgage-backed securities held to maturity                                     104,805,335       90,592,647
     Accrued interest receivable:
         Loans                                                                         1,648,280        1,839,217
         Mortgage-backed securities                                                      703,630          633,667
         Investments                                                                   2,922,554        2,371,410
     Federal Home Loan Bank stock                                                      4,861,410        4,861,410
     Real estate held for development - net                                              644,487          644,487
     Real estate owned - net                                                             313,541          167,541
     Office properties and equipment - net                                            19,647,090       19,292,247
     Deferred income taxes                                                             2,329,210        2,015,772
     Excess cost over fair value of net assets acquired                                   64,069          164,969
     Prepaid expenses and other assets                                                   923,629        1,156,573
     Subordinated debentures issue cost - net                                            278,102          321,113
                                                                                   =============    =============
TOTAL ASSETS                                                                       $ 740,559,864    $ 691,811,626
                                                                                   =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY


Liabilities:
     Deposits                                                                      $ 582,447,822    $ 536,309,623
     Advances from the Federal Home Loan Bank                                         16,337,031       16,368,321
     Securities sold under agreements to repurchase                                   80,000,000       80,000,000
     10% Subordinated debentures, due 2004                                            10,000,000       10,000,000
     Advances by borrowers for taxes and insurance                                     2,125,555        2,259,435
     Accrued interest payable                                                          1,133,164        1,304,742
     Dividends payable                                                                   216,104          216,953
     Other liabilities                                                                 2,685,577        1,883,887
                                                                                   -------------    -------------
Total liabilities                                                                    694,945,253      648,342,961
                                                                                   -------------    -------------
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 7,897,691 and 7,897,191 and shares outstanding 7,203,478 and
         7,231,767 as of September 30, 1999 and December 31, 1998, respectively          789,769          789,719
     Paid-in capital in excess of par                                                  8,217,415        8,216,820
     Accumulated other comprehensive loss                                               (630,061)         (21,793)
     Retained earnings                                                                40,898,197       37,860,291
     Less:  Treasury stock (694,213 and 665,424 shares, at cost,  as of
         September 30, 1999 and December 31, 1998, respectively)                      (3,660,709)      (3,376,372)
                                                                                   -------------    -------------
Total stockholders' equity                                                            45,614,611       43,468,665
                                                                                   -------------    -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                         $ 740,559,864    $ 691,811,626
                                                                                   =============    =============
</TABLE>
See notes to consolidated financial statements.

                                       1
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                          Three Months ended               Nine Months ended
                                                            September 30,                    September 30,
                                                     -----------------------------  ---------------------------------
                                                        1999              1998          1999                1998
----------------------------------------------------------------------------------  ---------------------------------
INTEREST  INCOME:                                            (Unaudited)                      (Unaudited)
<S>                                                 <C>             <C>             <C>             <C>
Interest income on:
    Loans                                             $  5,658,203    $  6,084,380    $ 17,232,423    $ 18,215,681
    Mortgage-backed securities                           1,628,239       1,558,480       4,687,392       4,876,675
    Investments                                          4,684,824       4,104,943      12,904,158      11,884,491
                                                      ------------    ------------    ------------    ------------
Total interest income                                   11,971,266      11,747,803      34,823,973      34,976,847
                                                      ------------    ------------    ------------    ------------
INTEREST EXPENSE:
Interest expense on:
    Deposits                                             4,581,534       4,620,432      13,326,141      13,700,298
    Subordinated debentures                                264,337         264,337         793,011         793,011
    Borrowings                                           1,388,165       1,405,058       4,118,938       4,297,072
                                                      ------------    ------------    ------------    ------------
Total interest expense                                   6,234,036       6,289,827      18,238,090      18,790,381
                                                      ------------    ------------    ------------    ------------

NET INTEREST INCOME                                      5,737,230       5,457,976      16,585,883      16,186,466
PROVISION FOR LOAN LOSSES                                   60,000          60,000         180,000         180,000
                                                      ------------    ------------    ------------    ------------
NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                      5,677,230       5,397,976      16,405,883      16,006,466
                                                      ------------    ------------    ------------    ------------
OTHER INCOME (EXPENSE):
    Loan service charges and other fees                     65,023          35,415         126,298         106,685
    Gain on sale of loans                                    2,235           4,065           3,568           5,420
    Gain on disposal of fixed assets                             0               0         244,731               0
    Real estate owned operations, net                       (3,823)        (11,634)        (16,662)        (59,249)
    Service charges on accounts                            647,401         619,751       1,864,005       1,791,192
    Other income (expense)                                  42,891         (57,111)        136,408        (111,942)
                                                      ------------    ------------    ------------    ------------
Total other income (expense)                               753,727         590,486       2,358,348       1,732,106
                                                      ------------    ------------    ------------    ------------
OPERATING EXPENSES:
    Salaries and employee benefits                       2,581,629       2,142,833       7,496,118       6,709,130
    Occupancy and equipment                                872,138         740,620       2,615,541       2,173,092
    Purchased services                                     387,286         333,648       1,120,055         949,104
    Federal deposit insurance premiums                      77,108          75,291         229,240         221,798
    Professional fees                                       81,413          95,965         360,163         273,520
    Advertising                                             57,885          51,798         161,341         152,581
    Other                                                  329,467         374,332       1,009,247       1,047,649
                                                      ------------    ------------    ------------    ------------
Total operating expenses                                 4,386,926       3,814,487      12,991,705      11,526,874
                                                      ------------    ------------    ------------    ------------

INCOME BEFORE INCOME TAXES                               2,044,031       2,173,975       5,772,526       6,211,698

INCOME TAXES:
Current                                                    896,267         873,851       1,897,126       2,499,037
Deferred                                                  (160,543)        (89,332)        188,170        (253,202)
                                                      ------------    ------------    ------------    ------------
Total income taxes                                         735,724         784,519       2,085,296       2,245,835

NET INCOME                                            $  1,308,307    $  1,389,456    $  3,687,230    $  3,965,863
                                                      ============    ============    ============    ============
BASIC EARNINGS PER COMMON SHARE                       $       0.18    $       0.19    $       0.51    $       0.55
                                                      ============    ============    ============    ============
 DILUTED EARNINGS PER COMMON SHARE                    $       0.18    $       0.19    $       0.51    $       0.54
                                                      ============    ============    ============    ============

Weighted average common shares outstanding               7,206,340       7,216,619       7,215,877       7,195,890

Potential dilutive effect of the exercise of stock
options                                                     83,100         104,696          82,393         105,186
                                                      ------------    ------------    ------------    ------------
Adjusted weighted average common shares outstanding      7,289,440       7,321,315       7,298,270       7,301,076
                                                      ============    ============    ============    ============
</TABLE>

See notes to consolidated financial statements.

                                       2
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                                                                             Nine Months Ended
                                                                                               September 30,
                                                                                     -----------------------------------
                                                                                           1999              1998
------------------------------------------------------------------------------------------------------------------------
                                                                                               (Unaudited)
<S>                                                                                  <C>              <C>
OPERATING ACTIVITIES:
Net income                                                                            $   3,687,230    $   3,965,863
Adjustments to reconcile net income to net cash provided
   by operating activities:
Provision for loan losses                                                                   180,000          180,000
Depreciation and amortization                                                             1,547,985        1,425,869
Provision for real estate owned                                                                   0          110,298
Realized (gains) and losses on:
     Sale of loans and loans held for sale                                                   (3,568)          (5,419)
     Disposal of fixed assets                                                              (244,731)               0
     Sale of real estate owned                                                                    0         (103,544)
Increase in accrued interest receivable                                                    (430,170)        (529,447)
Decrease (Increase) in prepaid expenses and other assets                                    232,945          (80,287)
Decrease in accrued interest payable                                                       (171,578)         (64,879)
Increase in other liabilities                                                               815,471        1,535,142
Deferred income taxes                                                                        28,416         (410,138)
                                                                                      -------------    -------------
     Net cash provided by operating activities                                            5,642,000        6,023,458
                                                                                      -------------    -------------
INVESTING ACTIVITIES:
Proceeds from sale of:
     Education loans                                                                        707,172        1,658,696
     Real estate owned                                                                            0          529,461
     Office property and equipment                                                          348,731            1,010
Proceeds from maturities of investment securities held to maturity                       78,984,657      239,685,761
Proceeds from maturities of investment securities available for sale                     58,642,554       57,315,458
Principal collected on mortgage-backed securities                                        20,911,988       23,633,601
Principal collected on longer-term loans, net                                            41,822,212       44,520,089
Longer-term loans originated or acquired, net                                           (40,431,102)     (42,581,714)
Purchase of investment securities and mortgage-backed securities held to maturity      (202,705,135)    (250,358,332)
Purchase of investment securities and mortgage-backed securities available for sale      (4,056,040)    (112,472,554)
Purchase of Federal Home Loan Bank stock                                                          0       (1,230,610)
Purchase of office property and equipment                                                (1,593,223)      (3,352,173)
                                                                                      -------------    -------------
     Net cash used by investing activities                                              (47,368,186)     (42,651,307)
                                                                                      -------------    -------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts                                     34,025,274       32,756,138
Net increase (decrease) in time deposits                                                 12,112,925      (10,976,303)
Net decrease in FHLB advances                                                               (31,290)      (7,878,155)
Increase in securities sold under agreement to repurchase                                         0       20,000,000
(Decrease) Increase in advances from borrowers for taxes and insurance                     (133,880)         102,482
Purchase of treasury stock                                                                 (284,337)        (186,051)
Dividends paid on common stock                                                             (650,175)        (550,856)
Net proceeds from issuance of common stock                                                      645           93,643
                                                                                      -------------    -------------
     Net cash provided by financing activities                                           45,039,162       33,360,898
                                                                                      -------------    -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                          3,312,976       (3,266,951)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                           29,896,391       12,631,622
                                                                                      -------------    -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                              $  33,209,367    $   9,364,671
                                                                                      =============    =============
Supplemental Disclosures:
     Cash paid for:
        Interest on deposits, advances, and other borrowings                          $  18,409,668    $  18,855,260
        Income taxes                                                                      1,985,238        2,300,558
     Non cash investing and financing activities:
        Dividends declared and not paid at quarter end                                      216,104          216,606
        Non-monetary transfers from loans to real estate acquired
        through foreclosure                                                                 146,000          331,028

</TABLE>

See notes to consolidated financial statements

                                       3
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------------
                                                                        Accumulated
                                                                           other                                       Total
                                Common shares  Common    Paid-in     comprehensive      Retained      Treasury   Stockholders'
                                 outstanding   stock     capital          loss          earnings        stock       Equity
--------------------------------------------------------------------------------------------------------------------------------

<S>                               <C>        <C>         <C>          <C>            <C>           <C>             <C>
Balances at December 31, 1998      7,231,767  $ 789,719   $8,216,820   $   (21,793)   $ 37,860,291  $(3,376,372)    $43,468,665

Net Income                                                                               3,687,230                    3,687,230
Other comprehensive income
  Unrealized loss on securities
    available for  sale                                                   (608,268)                                    (608,268)
                                                                                                                    ------------
Total comprehensive income                                                                                            3,078,962
                                                                                                                    ------------
Dividends declared                                                                        (649,324)                    (649,324)
Exercise of stock options                500         50          595                                                        645
Purchase of common stock             (28,789)                                                          (284,337)       (284,337)
--------------------------------------------------------------------------------------------------------------------------------

Balances at September 30, 1999     7,203,478  $ 789,769   $8,217,415   $  (630,061)   $ 40,898,197  $(3,660,709)    $45,614,611

--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.

                                       4
<PAGE>
ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS FOR THE NINE MONTHS
               ENDED SEPTEMBER 30, 1999 AND 1998.

FMS Financial Corporation (the "Corporation") may from time to time make written
or oral  "forward-looking  statements",  including  statements  contained in the
Corporation's  filings with the  Securities and Exchange  Commission  (including
this quarterly report on form 10-Q and the exhibits thereto),  in its reports to
stockholders and in other  communications by the Corporation,  which are made in
good faith by the  Corporation  pursuant to the "safe harbor"  provisions of the
Private Securities Litigation Reform Act of 1995.

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

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

General

FMS Financial Corporation ("the Corporation") is the parent company of Farmers &
Mechanics Bank ("the Bank"), its only subsidiary.

In the opinion of management,  the accompanying unaudited consolidated financial
statements of FMS Financial  Corporation contain all adjustments,  consisting of
normal recurring accruals,  necessary for a fair presentation of FMS's financial
condition,  results  of  operations  and cash  flows for the  periods  and dates
indicated.  The results of  operations  for the nine months ended  September 30,
1999 are not necessarily indicative of the operating results for the full fiscal
year or any other interim period.

The accompanying  unaudited consolidated financial statements have been prepared
in accordance with the instructions for FORM 10-Q, and therefore, do not include
all  information  and  notes  necessary  for a fair  presentation  of  financial
condition, results of operations and statements of cash flows in conformity with
generally  accepted  accounting  principles.  These statements should be read in
conjunction  with the  consolidated  statements  and  related  notes  which  are
incorporated  by reference to the  Corporation's  annual report on Form 10-K for
the year ended December 31, 1998.

                                       5
<PAGE>

YEAR 2000

The Year 2000 issue concerns the potential impact of historic  computer software
code that only utilizes two digits to represent the calendar year (e.g. "99" for
"1999"). Software so developed could produce inaccurate or unpredictable results
upon the change to January 1, 2000,  when current and future  dates  represent a
lower two digit year number than dates in the prior century.  The Bank,  similar
to most financial institutions, is significantly subject to the potential impact
of the "Year 2000 issue" due to the nature of financial  information.  Potential
impact to the Bank may arise from software,  hardware, and equipment both within
the Bank's direct  control and outside of the Bank's  ownership,  yet with which
the Bank  electronically  or operationally  interfaces (e.g.  vendors  providing
credit bureau information).  Financial  institution  regulators have intensively
focused upon Year 2000 exposures,  issuing guidance  concerning an adequate Year
2000 program and the  responsibilities  of senior management and directors.  The
Bank has a Year 2000  compliance  program in place to ensure  that all  software
applications  will be Year 2000 certified  compliant.  The program includes Year
2000 committees  consisting of directors and executive officers of the Bank. The
purposes of the  committees  are to oversee and manage the Year 2000  compliance
program providing regular reports to the Board of Directors  detailing  progress
with the Year 2000 issue.  The Bank has  contacted all  significant  vendors and
suppliers  regarding their Year 2000  readiness.  These third party vendors have
delivered  written  assurance  that they are or expect to be Year 2000 compliant
prior to the end of 1999. At the current time management estimates its Year 2000
readiness  is at 97%.  The  following  table  provides a summary of the  current
status of the five phases involved in our Year 2000 readiness plan.

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

              Project Phase      Percent          Projected Date      Comments
                                 Complete         of Completion
          ----------------------------------------------------------------------

          Awareness                100%              Complete
          Assessment               100%              Complete
          Renovation               100%              Complete
          Validation               100%              Complete
          Implementation            95%            October 1999     On Schedule
          Overall Completion        97%           November 1999     On Schedule


 At this  time  management  currently  estimates  Year 2000  compliance  cost at
between  $50,000 and  $150,000 of which  $72,000  was  expensed  during the nine
months ended  September 30, 1999. The Bank does not expect that these costs will
be material to its financial condition or results of operations.  Non-compliance
with the Year 2000 issue could have an adverse  affect on the  operations of the
business. Successful and timely completion of Year 2000 compliance is based upon
management's  best estimate  derived from various  assumptions  of future events
which are inherently uncertain, including the progress and results of the Bank's
testing  plans,  and all vendors,  suppliers and customers  readiness.  The Bank
continues in the process of updating contingency plans for each critical system,
in the event one of those  systems fail,  despite our best  efforts.  The Bank's
contingency plan is to provide resources during the weekend of December 31, 1999
and for the period of time afterward.  It is anticipated  that the Bank, and its
vendors will be able to overcome any  unforeseen  problems  associated  with the
millennium  change.

Despite  management's  best efforts to  address  the  Year  2000 issue, the vast
number of external entities that have direct and indirect business relationships
with the Bank, such as, customers,  vendors, payments system providers,  utility
companies, and other financial institutions, make it impossible to assure that a
failure to achieve  compliance by one or more of these entities would not have a
material adverse impact on the Bank's business or on the Company's  consolidated
statements.

                                       6
<PAGE>

FINANCIAL CONDITION -

Total Assets - at September 30, 1999 were $740.6  million as compared with total
assets at December 31, 1998 of $691.8 million.

Investment  Securities  Held to  Maturity -  increased  $88.4  million to $217.8
million at  September  30,  1999 from $129.4  million at December  31, 1998 as a
result of the purchase of $103.1 million of U.S.  Agency notes and $23.1 million
of CMOs, partially offset by $16.9 of U.S. Agency notes maturities and calls and
$17.3  million of  principal  paydowns  on CMOs,  during the nine  months  ended
September 30, 1999.  Investments  held to maturity  consisted  entirely of fixed
rate  securities  at September  30, 1999. A comparison  of cost and  approximate
market  values of investment  securities  available for sale as of September 30,
1999 and December 31, 1998 follows:

<TABLE>
<CAPTION>
                                           September 30, 1999                              December 31, 1998
                       ------------------------------------------------------------  -------------------------------
                                           Gross          Gross        Estimated                        Estimated
                          Amortized     Unrealized     Unrealized       Market          Amortized        Market
                             Cost          Gains         Losses          Value             Cost           Value
                       ------------------------------------------------------------  -------------------------------
<S>                   <C>            <C>           <C>            <C>               <C>            <C>
U. S. Gov't Agencies   $  164,358,478 $      71,809 $  (5,417,835) $   159,012,452   $   78,291,686 $    78,241,778
CMOs                       50,832,261             0    (1,141,880)      49,690,381       47,302,338      47,297,209
Municipal bonds             2,574,786             0        (1,157)       2,573,629        3,823,802       3,826,635
                         ----------------------------------------------------------    -----------------------------
Total                  $  217,765,525 $      71,809 $  (6,560,872) $   211,276,462   $  129,417,826 $   129,365,622
                       ============================================================  ===============================
</TABLE>

Investment  Securities  and  Mortgage-Backed  Securities  Available  for  Sale -
decreased  $55.6  million to $54.2  million at  September  30,  1999 from $109.8
million at December 31, 1998 as a result $49.4 million of principal  paydowns on
CMOs and MBSs and $9.2 million of maturities and calls on U.S. Treasury and U.S.
Agency notes, partially offsetting the purchase of $3.0 million of MBSs and $1.0
million of U.S.  Agency notes during the nine months ended  September  30, 1999.
Investments  available  for sale  consisted of $4.1 million in  adjustable  rate
securities  and $50.1 million in fixed rate  securities at September 30, 1999. A
comparison  of cost and  approximate  market  values  of  investment  securities
available for sale as of September 30, 1999 and December 31, 1998 follows:

<TABLE>
<CAPTION>
                                          September 30, 1999                                December 31, 1998
                       ----------------------------------------------------------  -------------------------------
                                           Gross          Gross       Estimated                       Estimated
                          Amortized     Unrealized     Unrealized      Market         Amortized        Market
                             Cost          Gains         Losses         Value            Cost           Value
                       ----------------------------------------------------------  -------------------------------
<S>                   <C>            <C>           <C>            <C>             <C>            <C>
U. S. Gov't Agencies   $   10,291,009 $           0 $    (317,053) $   9,973,956   $   18,492,035 $    18,500,616
CMOs                       41,972,355        19,579      (681,595)    41,310,339       91,377,435      91,332,517
GNMAs                       2,916,303             0        (7,391)     2,908,912                0               0
                       ----------------------------------------------------------  -------------------------------
Total                  $   55,179,667 $      19,579 $  (1,006,039) $  54,193,207   $  109,869,470 $   109,833,133
                       ==========================================================  ===============================

</TABLE>
                                       7
<PAGE>
Loans  Receivable  and Loans Held for Sale -  decreased  $2.3  million to $296.3
million at September  30, 1999 from $298.6  million at December  31, 1998.  This
decrease was the result of approximately $41.8 million of principal collected on
loans,  partially  offset by $40.4 million of loans  originated  during the nine
months  ended  September  30,  1999.  The  following  table sets  forth  certain
information concerning the loan portfolio at the dates indicated.


Table 1                                 September 30,    December 31,
                                           1999              1998
                                   ------------------------------------

Mortgage loans ( 1-4  dwelling)     $    238,991,699  $    246,071,511
Construction loans                           397,345         1,410,456
Commercial construction                    2,975,028         2,609,315
Consumer loans                             3,098,868         3,237,176
Commercial real estate                    51,010,794        45,937,998
Commercial business                        4,560,500         4,120,967
                                   ------------------------------------
Subtotal                                 301,034,234       303,387,423
                                   ------------------------------------
Less:
    Deferred loan fees                       979,333         1,441,926
    Allowance for possible
     loan losses                           3,804,473         3,342,274
                                   ------------------------------------
Net Loans Receivable                $    296,250,428  $    298,603,223
                                   ====================================


At September 30, 1999, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS Nos. 114 and 118 totaled $3.5 million of
which  $1.7  million  related  to loans  that  were  individually  measured  for
impairment with a valuation allowance of $686 thousand and $1.8 million of loans
that were collectively measured for impairment with a valuation allowance of $83
thousand.  For the nine months ended  September 30, 1999,  the average  recorded
investment in impaired loans was approximately $3.8 million. The Bank recognized
$113 thousand of interest income on impaired loans,  all of which was recognized
on the cash basis. The Bank had $3.8 million in total reserves for possible loan
losses at September 30, 1999,  representing  approximately  108% of  non-accrual
loans and 1% of total loans.

As of September 30,  1999 the Bank had  outstanding  loan  commitments  of $26.1
million, of which $19.3 million represented variable rate loans and $6.8 million
represented fixed rate loans. The Bank intends to fund these commitments through
scheduled  amortization  of loans  and  mortgage-backed  securities,  additional
borrowings  and if necessary  the sale of  investment  securities  available for
sale.

Mortgage-Backed  Securities Held to Maturity - increased $14.2 million to $104.8
million at  September  30, 1999 from $90.6  million at December  31,  1998.  The
increase is the result of the purchase of $35.1 million in FHLMC,  GNMA and FNMA
securities,   partially  offset  by  $20.9  million  in  principal   repayments.
Mortgage-backed  securities  at September  30, 1999  consisted of $75.7 in fixed
rate securities and $29.1 adjustable rate securities. Mortgage-backed securities
held to maturity at  September  30, 1999 and  December  31, 1998 are  summarized
below:

<TABLE>
<CAPTION>
                                 September 30, 1999                            December 31, 1998
             ----------------------------------------------------------  -----------------------------
                                  Gross       Gross
                 Amortized      Unrealized  Unrealized      Estimated       Amortized      Estimated
                   Cost           Gains       Losses         Market            Cost         Market
                                                              Value                          Value
             ----------------------------------------------------------  -----------------------------

<S>          <C>             <C>         <C>            <C>             <C>            <C>
GNMA          $  36,756,981   $   394,951 $  (702,481)   $  36,449,451   $   31,716,739 $  32,312,889

FNMA             49,711,858       197,255    (610,069)      49,299,044       37,531,455    38,079,458

FHLMC            18,336,496       319,063     (61,263)      18,594,296       21,255,729    21,779,645

Private                   0             0            0               0           88,724        90,301

             ----------------------------------------------------------  -----------------------------
Total         $ 104,805,335   $   911,269 $ (1,373,813)  $ 104,342,791   $   90,592,647 $  92,262,293
             ==========================================================  =============================
</TABLE>

                                       8
<PAGE>

Asset  Classifications  -  are  monitored  by  management  on a  regular  basis.
Classified  assets  generally  consist of assets which have possible credit risk
and/or  have a  sufficient  degree  of risk or  potential  weakness  to  warrant
management's  close attention.  Total classified  assets decreased $226 thousand
during the nine months ended  September  30, 1999  resulting  from a decrease in
commercial  real  estate  of $165  thousand,  one-to-four  family  loans of $140
thousand,  consumer loans of $83 thousand and $9 thousand of loans classified as
loss,  partially offset by an increase in real estate owned of $146 thousand and
doubtful loans of $25 thousand.  The following table sets forth information with
respect to the Bank's classified assets at the dates indicated:

                                          September 30,    December 31,
                                           1999                1998
                                       --------------      --------------
Classified Assets:
Substandard Loans:
  One-to-four family                      $1,804,945          $1,945,059
  Commercial real estate                   3,591,484           3,756,181
  Consumer and other                         200,000             282,740
                                       --------------      --------------
      Total loans                          5,596,429           5,983,980

Real estate held for development, net        644,487             644,487
Real Estate Owned, net                       313,541             167,541
                                       --------------      --------------
   Total Substandard                       6,554,457           6,796,008
                                       --------------      --------------

   Doubtful loans                             25,000                   0
                                       --------------      --------------
Total Doubtful                                25,000                   0
                                       --------------      --------------

   Loss - Commercial Real Estate                   0               9,121
                                       --------------      --------------
Total Loss                                         0               9,121
                                       --------------      --------------

TOTAL CLASSIFIED ASSETS                   $6,579,457          $6,805,129
                                       ==============      ==============





                                       9
<PAGE>

Deposits - increased  $46.1 million to $582.4 million at September 30, 1999 from
$536.3  million at  December  31,  1998 as a result of an  increase  in interest
bearing  checking  accounts of $21.0  million,  certificate of deposits of $12.1
million,  savings  accounts  of $10.1  million,  non-interest  bearing  checking
accounts  of $4.9  million,  partially  offset  by a  decrease  in money  market
accounts of $2.0 million.  Non-interest  checking accounts  increased due to the
promotion of "Free Personal" and "Free  Business"  checking  accounts.  Interest
credited to  depositor's  accounts for the nine months ended  September 30, 1999
amounted to $13.0  million.  The following  table set forth certain  information
concerning deposits at the dates indicated:

<TABLE>
<CAPTION>
                                        September 30, 1999                         December 31, 1998
                             -------------------------------------------------------------------------------------
                                               Percent     Weighted                       Percent     Weighted
                                               of Total    Average                       of Total      Average
                                  Amount       Deposits      Rate          Amount        Deposits       Rate
                             -------------------------------------------------------------------------------------
<S>                               <C>           <C>         <C>             <C>           <C>           <C>
Non-interest checking             $74,287,944   12.75%      0.00%           $69,336,887   12.93%        0.00%
Checking accounts                  96,250,960   16.53%      2.11%            75,280,395   14.04%        1.89%
Savings accounts                  105,717,003   18.15%      2.67%            95,591,907   17.82%        2.83%
Money market accounts              65,668,778   11.27%      2.76%            67,690,222   12.62%        2.64%
Certificates                      240,523,137   41.30%      4.94%           228,410,212   42.59%        5.35%
                             -------------------------------------------------------------------------------------
   Total Deposits                $582,447,822  100.00%      3.19%          $536,309,623   100.00%       3.49%
                             =====================================================================================

</TABLE>

Borrowings  - at  September  30,  1999  amounted  to $26.3  million.  Borrowings
included $10.0 million of 10% subordinated  debentures, $16.3 million in Federal
Home Loan Bank Advances with a weighted average interest rate of 6.00%.

Securities  Sold Under the Agreements to Repurchase - totaled $80.0 million with
an average  interest rate of 5.57%,  an average term of 5.7 years and an average
call of 1.7 years.


There are three (3) standards that a savings  institution  must satisfy in order
to meet its capital requirements under the Federal Deposit Insurance Corporation
Improvement Act of 1991 "FDICIA".  The requirements  include a leverage ratio of
tier 1 (core)  capital  to  adjusted  total  assets of 4.0  percent,  a tangible
capital  standard  requirement  of 2.0 percent of total adjusted  assets,  and a
risk-based  capital  standard set at 8.0 percent of risk-weighted  assets.  If a
savings institution is not in compliance with applicable capital standards,  the
Office of Thrift  Supervision (OTS) can restrict the institutions  asset growth,
require the submission of a capital plan, and require  compliance with a capital
directive,  which may  include  restrictions  on the  payment of  dividends  and
compensation, and other restrictions determined to be appropriate by the OTS. At
September 30, 1999 the Bank exceeds all three current  capital  requirements  as
the Bank's core, tangible,  and risk-based capital ratios were 6.95%, 6.95%, and
18.72%, respectively.

                                       10
<PAGE>

RESULTS OF OPERATIONS -

General

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  interest-bearing
liabilities,  such as deposits 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 the provision  for loan losses and real estate  owned,  non-interest
income,  such as gains  (losses)  on sales of  loans  and  investments,  service
charges  and other  fees.  In  addition  to  interest  expense,  the Bank incurs
operating  expenses such as salaries and employee  benefits,  deposit  insurance
premiums,  depreciation,  occupancy and equipment expense and purchased services
expense.

The  Corporation  recorded net income for the three months ended  September  30,
1999 of $1.3  million,  or $.18  diluted  earnings per share as compared to $1.4
million,  or $.19  diluted  earnings  per share for the  comparable  three month
period in 1998.  Earnings for the nine months ended September 30, 1999 were $3.7
million, or $.51 diluted earnings per share as compared to $4.0 million, or $.54
diluted earnings per share for the comparable period in 1998.

Interest Rate Spread

The Bank's  interest  income is affected by the  difference  or  "interest  rate
spread" between yields earned by the Bank on its interest-earning assets and the
interest rates paid by the Bank on its  interest-bearing  liabilities  including
non-interest  checking  accounts.  Net  interest  income is  affected by (i) the
spread  between the yield  earned on  interest-earning  assets and the  interest
rates paid on interest-bearing  savings deposits including non-interest checking
accounts  and  borrowings  (liabilities),  and  (ii)  the  relative  amounts  of
interest-earning assets versus interest-bearing liabilities. The Bank's interest
rate spread varies over time because money fund accounts and other flexible rate
accounts  have  become  significant  sources of savings  deposits.  Income  from
investment  securities and  mortgage-backed  securities  depends upon the amount
invested during the period and the yields earned on such  securities.  The yield
on loans receivable  changes  principally as a result of existing  mortgage loan
repayments,  adjustable rate loan adjustments,  sales and the interest rates and
volume of new mortgage loans.

The  following  table  sets  forth  the  Bank's  weighted-average  yields on its
interest-earning   assets,   weighted-average   interest   rates   paid  on  its
interest-bearing  liabilities and weighted-average interest rate spreads for the
periods indicated:

<TABLE>
<CAPTION>

                                              Three Months Ended            Nine Months Ended
                                                September 30,                 September 30,
                                          ---------------------------   ---------------------------
                                               1999         1998           1999          1998
                                          ---------------------------   ---------------------------
<S>                                          <C>            <C>               <C>          <C>
Weighted-Average Yields Earned on:
  Loans, net                                  7.51 %         8.02 %            7.63 %       7.99 %
  Mortgage-Backed Securities                  6.73           6.97              6.83         7.10
  Investment Securities                       6.37           6.60              5.95         6.61
                                          ---------------------------   ---------------------------
  Total Interest-Earning Assets               6.92           7.32              6.81         7.34
                                          ---------------------------   ---------------------------

Weighted-Average Interest Rates Paid on:
  Deposits                                    3.15           3.57              3.19         3.59
  Borrowings                                  5.76           5.76              5.69         5.70
  Subordinated Debentures                    10.56          10.56             10.57        10.57
                                          ---------------------------   ---------------------------
  Total Interest-Bearing Liabilities          3.63           4.02              3.67         4.05
                                          ---------------------------   ---------------------------

Weighted-Average Interest Rate Spread
                                          ===========================   ===========================
  for the Period                              3.29 %         3.31 %            3.14 %       3.30 %
                                          ===========================   ===========================
</TABLE>
                                       11
<PAGE>

Average Balance of Interest-Earning Assets and Interest-Bearing Liabilities

The following  table sets forth the Bank's average  balance of  interest-earning
assets in  comparison  to its average  balance of  interest-bearing  liabilities
during the periods indicated:

<TABLE>
<CAPTION>
                                          Three Months Ended               Nine Months Ended
                                            September 30,                    September 30,
                                     -----------------------------   -----------------------------
                                          1999            1998            1999           1998
                                     -----------------------------   -----------------------------
                                            (In Thousands)                  (In Thousands)
<S>                                  <C>             <C>            <C>            <C>
Average Interest-Earning Assets:
  Loans, net                          $  301,303      $   303,449    $     301,127  $     304,079
  Mortgage-Backed Securities              96,719           89,381           91,468         91,522
  Investment Securities                  294,038          248,701          289,058        239,523
                                     -----------------------------   -----------------------------
  Total                                  692,060          641,531          681,653        635,124
                                     -----------------------------   -----------------------------

Average Interest-Bearing
Liabilities:
  Deposits                               581,169          518,300          556,860        508,550
  Borrowings                              96,434           97,579           96,448        100,527
  Subordinated Debentures                 10,000           10,000           10,000         10,000
                                     -----------------------------   -----------------------------
  Total                                  687,603          625,879          663,308        619,077
                                     -----------------------------   -----------------------------
Excess of Interest-Earning Assets
  over Interest-Bearing Liabilities   $    4,457      $    15,652    $      18,345  $      16,047
                                     =============================   =============================
</TABLE>
                                       12
<PAGE>

Rate/Volume Analysis

The following  table describes the extent to which changes in interest rates and
changes in volume of interest-earning  assets and  interest-bearing  liabilities
have affected the Bank's interest income and interest expense during the periods
indicated.  For each category of  interest-earning  assets and  interest-bearing
liabilities,  information is provided on changes  attributable to (i) changes in
volume,  (ii)  changes in rate and (iii)  total  changes in rate and volume (the
combined  effect of changes in both volume and rate, not separately  identified,
has been allocated to rate).

<TABLE>
<CAPTION>
                                                        Three Months Ended                   Nine Months Ended
                                                           September 30,                       September 30,
                                                       1999 compared to 1998               1999 compared to 1998
                                               ------------------------------------  -----------------------------------
                                                    Increase (Decrease) due to:         Increase (Decrease) due to:
                                                   Rate         Volume      Total       Rate      Volume       Total
                                               ------------------------------------  -----------------------------------
                                                          (In Thousands)                        (In Thousands)
<S>                                           <C>           <C>          <C>        <C>       <C>         <C>
         Interest income:
           Loans receivable                    $   (383)     $    (43)    $   (426)   $   (807) $     (177) $      (984)
           Mortgage-backed securities               (58)          128           70        (187)         (3)        (190)
           Investment securities                   (168)          748          580      (1,438)      2,458        1,020
                                               ------------------------------------  -----------------------------------

            Total change - interest income         (609)          833          224      (2,432)      2,278         (154)
                                               ------------------------------------  -----------------------------------
         Interest expense:
           Deposits                                (598)          560          (38)     (1,675)      1,301         (374)
           Borrowings                                (1)          (16)         (17)         (4)       (174)        (178)
           Subordinated Debentures                    0             0            0           0           0            0
                                               ------------------------------------  -----------------------------------

            Total change - interest expense        (599)          544          (55)     (1,679)      1,127         (552)
                                               ------------------------------------  -----------------------------------

         Net change in net interest income     $    (10)     $    289     $    279   $    (753) $    1,151 $        398
                                               ====================================  ===================================
</TABLE>

Net  Interest  Income - for the three and nine months ended  September  30, 1999
totaled $5.7 million and $16.6 million,  respectively.  Net interest  income for
the three months ended September 30, 1999 increased $279 thousand as compared to
the same period in 1998 due  primarily  to an  increase  in  interest  income on
investment   securities  of  $580  thousand,  an  increase  in  mortgage  backed
securities of $70 thousand and a decrease in interest expense on deposits of $38
thousand,  partially  offset by a decrease in  interest  income on loans of $426
thousand.

The increase in interest income on investment  securities was due to an increase
in the average  balance of the portfolio of $45.3 million to $294.0  million for
the three  months  ended  September  30, 1999 from  $248.7  million for the same
period in 1998,  which resulted in a volume  increase in interest income of $748
thousand.  The average balance  increase in investments was primarily due to the
net purchase of $41.5  million of U.S.  Agency  notes.  The average yield on the
investment  portfolio  decreased  23 basis  points to 6.37% for the three months
ended  September  30, 1999 from 6.60% for the three months ended  September  30,
1998, which resulted in a decrease in interest income of $168 thousand.

Interest  income on loans decreased a total of $426 thousand to $5.7 million for
the three months ended  September 30, 1999 from $6.1 million for the same period
in 1998  principally due to a 51 basis points  decrease in the loan  portfolio's
average rate to 7.51% for the three months ended  September  30, 1999 from 8.02%
for the three months ended  September 30, 1998,  which resulted in a decrease in
interest  income of $383  thousand.  The average  balance of the loan  portfolio
decreased  $2.1 million to $301.3  million for the three months ended  September
30, 1999 from $303.4  million for the same period in 1998,  which  resulted in a
decrease in interest income of $43 thousand.

                                       13
<PAGE>

Interest  income on mortgage  backed  securities  increased $70 thousand to $1.6
million for the three  months ended  September  30, 1999 as compared to the same
period in 1998,  which  was  primarily  due to a $7.3  million  increase  in the
average  balance of the  portfolio  to $96.7  million for the three months ended
September  30, 1999.  This resulted in a volume  increase in interest  income of
$128 thousand.  The average yield of the portfolio  decreased 24 basis points to
6.73% for the three  months  ended  September  30,  1999 from 6.97% for the same
period in 1998, which resulted in a decrease in interest income of $58 thousand.

Interest  expense on deposits  decreased $38 thousand for the three months ended
September  30, 1999 compared to the same period in 1998 which was due to a lower
average rate paid on deposits,  principally  lower CD rates  coupled with higher
relative  balances  in our  non-interest  "Free  Checking"  and  "Free  Business
Checking" products. Overall deposit rates decline 42 basis points to 3.15% which
decreased  interest  expense $598 thousand for the three months ended  September
30, 1999 from the  comparable  period in 1998.  Higher overall  average  deposit
balances increased interest expense $560 thousand.

Net interest  income for the nine months ended September 30, 1999 increased $398
thousand  to $16.6  million  from $16.2  million for the same period in 1998 due
primarily to an increase in interest  income on  investment  securities  of $1.0
million  and a decrease in interest  expense on  deposits of $374  thousand  and
borrowings of $178  thousand,  partially  offset by a $984 thousand  decrease in
interest income on loans.

The increase in interest  income on  investment  securities  for the nine months
ended  September  30,  1999 as compared to the same period in 1998 was due to an
increase in the average balance of the investment  portfolio of $49.6 million to
$289.1 million for the nine months ended  September 30, 1999 from $239.5 million
for the same period in 1998, which resulted in an increase in interest income of
$2.5 million.  The average yield on the investment  portfolio decreased 66 basis
points to 5.95% for the nine months ended  September 30, 1999 from 6.61% for the
same period in 1998, which resulted  in a decrease  in  interest  income of $1.4
million.

Interest income on loans decreased a total of $984 thousand to $17.2 million for
the nine months ended  September 30, 1999 from $18.2 million for the same period
in  1998.  This was  principally  due to a 36 basis  point  decline  in the loan
portfolio's  average yield to 7.63% for the nine months ended September 30, 1999
from 7.99% for the same period in 1998 which  resulted in a decrease in interest
income of $807 thousand.  The average balance of loans decreased $3.0 million to
$301.1  million for the month ended  September 30, 1999 from $304.1  million for
the same period in 1998,  which resulted in a volume decrease in interest income
of $177 thousand.

Interest  expense on deposits  decreased  $374 thousand to $13.3 million for the
nine months  ended  September  30, 1999  compared to $13.7  million for the same
period in 1998.  Average interest rates on deposits decreased 40 basis points to
3.19% for the nine  months  ended  September  30,  1999 from  3.59% for the same
period in 1998 which resulted in a decrease in interest expense of $1.7 million.
The average  balance on deposits  increased  $48.3 million to $556.9 million for
the nine months ended September 30, 1999 from $508.6 million for the nine months
ended  September 30, 1998 which  resulted in an  increase in interest expense of
$1.3 million.

                                       14
<PAGE>

The decrease in interest  expense on  borrowings  of $178  thousand for the nine
months  ended  September  30,  1999  compared  to the  same  period  in 1998 was
primarily due to a decrease in the average balance of borrowings of $4.1 million
to $96.4  million  for the nine  months  ended  September  30,  1999 from $100.5
million  for the same period in 1998,  which  resulted in a decrease in interest
expense of $174 thousand.

Provision  for Loan Losses - for the three and nine months ended  September  30,
1999 remained constant at $60 thousand and $180 thousand,  respectively compared
to 1998. The  determination  of the allowance  level for loan losses is based on
management's analysis of the risk characteristics of various  classifications of
loans,  previous loan loss  experience,  estimated  fair value of the underlying
collateral  and  current  economic  conditions.  Accordingly,  there  can  be no
assurance  that  future  provisions  for loan  losses  will not  increase  or be
necessary.  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.

Other  Income - for the three and nine months ended  September  30, 1999 totaled
$754 thousand and $2.4 million,  respectively,  increasing  $163 thousand during
the three month period and $626  thousand in the first nine month period of 1999
when compared to the same periods in 1998.

Operating  Expenses - for the three month and nine months  ended  September  30,
1999  amounted to $4.4 million and $13.0  million,  respectively  as compared to
$3.8 million and $11.5 million for the same periods in 1998.


                                       15
<PAGE>

Salaries  and  Employee  Benefits - for the three and nine month  periods  ended
September 30, 1999 were $2.6 million and $7.5 million, respectively, as compared
to $2.1 million and $6.7 million for the same periods in 1998.  The increase was
due to additional  staff in the 3 new branches opened since the third quarter of
1998, as well as an increase in branch staff for additional  hours,  principally
additional  "Sunday Banking" hours from 9:00 a.m. to 3:00 p.m. Average full time
equivalent  employees  at  September  30,  1999 were 374 as  compared  to 331 at
September 30, 1998.

Occupancy and  Equipment - for the three and nine month periods ended  September
30, 1999 amounted to $872 thousand and $2.6 million,  respectively,  as compared
to $741 thousand and $2.2 million for the same periods in 1998.  The increase is
the  result  of  additional  depreciation  and  occupancy expenses  on  the  new
branches opened, as well as other facility  improvements and equipment additions
since September 30, 1998.

Purchased  Services - for the three and nine month periods  ended  September 30,
1999 amounted to $387 thousand and $1.1  million,  respectively,  as compared to
$334  thousand  and $949  thousand  for the same  periods in 1998.  MAC  charges
increased $77 thousand and check  processing  costs have  increased $73 thousand
for the nine months ended  September 30, 1999 due to higher  transaction  volume
from an increase in the number of checking accounts.

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.  To a lesser extent, the Bank obtains funds from sales and maturities
of mortgage-backed securities, investment securities, and short-term investments
and  borrowings.  During the past  several  years,  the Bank has used such funds
primarily to meet ongoing  commitments to fund maturing time deposits and saving
withdrawals,  fund  existing and  continuing  loan  commitments  and to maintain
liquidity.  While  loan  payments,   maturing  investments  and  mortgage-backed
securities are a relatively  predictable source 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 organizations.

The Bank is required under applicable federal  regulations to maintain specified
levels of "liquid  assets",  which  include  obligations  of the  United  States
government  and federal  agencies and other  approved  investments.  Regulations
currently in effect require the Bank to maintain  liquid assets of not less than
4% of its net  withdrawable  accounts plus short-term  borrowings.  The Bank has
generally  maintained  liquidity  in  excess  of  required  levels.  The  Bank's
regulatory liquidity was 53.27% at September 30, 1999 and 31.35% at December 31,
1998.

                                       16
<PAGE>

ITEM 3:  DISCLOSURE ABOUT MARKET RISK

MARKET RISK

The Bank's financial  performance is impacted by, among other factors,  interest
rate  risk.  Interest  rate risk is the risk of loss in value due to  changes in
interest rates. This risk is addressed by the Bank's Asset Liability  Management
Committee  ("ALCO"),  which includes  senior  management.  The ALCO monitors and
considers  methods of managing  interest rate risk by monitoring  changes in the
interest rate repricing  GAP, 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.  The  principal  objective of the
ALCO is to maximize income within  acceptable  levels as established by the risk
policy.  The Board of Directors  may direct  management  to adjust its asset and
liability mix to bring interest rate risk within Board approved limits. The Bank
has  developed  strategies  to  manage  its  liquidity,  shorten  the  effective
maturities  of  certain  interest-earning  assets  and  increase  the  effective
maturities  of certain  liabilities,  to reduce the  exposure to  interest  rate
fluctuations.  These strategies  include  focusing its investment  activities on
short and  medium-term  securities,  maintaining  and increasing the transaction
deposit accounts, as these accounts are considered to be relatively resistant to
changes in interest  rates and utilizing FHLB  borrowings and deposit  marketing
programs  to adjust  the term or  repricing  of its  liabilities.  There were no
significant  changes  for the nine  months  ended  September  30,  1999 from the
information  presented  in the  annual  report on Form  10-K for the year  ended
December 31, 1998.


                                       17
<PAGE>



PART II.               OTHER INFORMATION
                       -----------------


         Item 1:       Legal Proceedings
         -------       -----------------

                       None


         Item 2:       Changes in Securities
         -------       ---------------------

                       None


         Item 3:       Defaults Upon Senior Securities
         -------       -------------------------------

                       None


         Item 4:       Submission of Matters to Vote of Security of Holders
         -------       ----------------------------------------------------

                       None

         Item 5:       Other Information
         -------       -----------------

                       None


         Item 6:       Exhibits and Reports on Form 8-K
         -------       --------------------------------

                       None






                                       18
<PAGE>
                                S I G N A T U R E





     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.





                                         FMS FINANCIAL CORPORATION





Date: November 12, 1999                  /s/ Craig W. Yates
                                         ---------------------------------------
                                         Craig W. Yates
                                         President and Chief Executive Officer
                                         (Principal Executive Officer)


Date: November 12, 1999                  /s/ Channing L. Smith
                                         ---------------------------------------
                                         Channing L. Smith
                                         Vice President and
                                         Chief Financial Officer
                                         (Principal Financial Officer)