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 March 31, 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 May 7, 1999 there were issued and  outstanding  shares  7,210,966
shares of the registrant's Common Stock, par value $.10 per share.


<PAGE>

                    FMS FINANCIAL CORPORATION AND SUBSIDIARY
                    ----------------------------------------

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

                                 MARCH 31, 1999
                                 --------------

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

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

         Item 1 - Financial Statements

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

               Consolidated Statements of Income (unaudited)
                       for the three months ended
                       March 31, 1999 and March 31, 1998.......................2

               Consolidated Statements of Cash Flows (unaudited)
                       for the three months ended March 31, 1999
                       and March 31, 1998......................................3
               Consolidated Statements of Changes in Stockholders' Equity
                       for the three months ended March 31, 1999 (unaudited)...4

         Item 2 - Management's Discussion and Analysis of
                     Financial Condition and Results of Operations....... 5 - 14

         Item 3 - Disclosure about Market Risk................................14

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

         Item 1 - Legal Proceedings...........................................15

         Item 2 - Changes in Securities.......................................15

         Item 3 - Defaults Upon Senior Securities.............................15

         Item 4 - Submission of Matters to a Vote of Security Holders.........15

         Item 5 - Other Information...........................................15

         Item 6 - Exhibits and Reports on Form 8-K............................15



<PAGE>


FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                                                               March 31, 1999          December 31, 1998
------------------------------------------------------------------------------------------------------------
                                                              (Unaudited)
ASSETS
------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                      <C>            
     Cash and amounts due from depository institutions            $  13,350,385            $    18,142,316
     Interest-bearing deposits                                           55,461                          0
     Federal Fund Sold                                                        0                          0
     Short term funds                                                38,263,004                 11,754,075
                                                                  -------------            --------------- 
        Total cash and cash equivalents                              51,668,850                 29,896,391
     Investment securities held to maturity                         145,409,391                129,417,826
     Investment securities available for sale                        79,557,961                109,833,133
     Loans, net                                                     297,495,386                298,603,223
     Mortgage-backed securities held to maturity                     93,976,502                 90,592,647
     Accrued interest receivable:
        Loans                                                         1,638,507                  1,839,217
        Mortgage-backed securities                                      636,453                    633,667
        Investments                                                   2,280,738                  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                                            167,541                    167,541
     Office properties and equipment, net                            19,675,476                 19,292,247
     Deferred income taxes                                            2,068,216                  2,015,772
     Excess cost over fair value of net assets acquired                  88,851                    164,969
     Prepaid expenses and other assets                                1,006,213                  1,156,573
     Subordinated debentures issue cost,  net                           306,776                    321,113
                                                                  -------------            --------------- 
TOTAL ASSETS                                                      $ 701,482,758            $   691,811,626
                                                                  =============            =============== 

LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------------- 
Liabilities:
     Deposits                                                     $ 545,904,151            $   536,309,623
     Securities sold under agreements to repurchase                  80,000,000                 80,000,000
     Advances from the Federal Home Loan Bank                        16,337,031                 16,368,321
     10% Subordinated debentures, due 2004                           10,000,000                 10,000,000
     Advances by borrowers for taxes and insurance                    2,300,143                  2,259,435
     Accrued interest payable                                         1,066,113                  1,304,742
     Dividends payable                                                  216,953                    216,953
     Other liabilities                                                1,750,807                  1,883,887
                                                                  -------------            --------------- 
Total liabilities                                                   657,575,198                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 7,897,191 and 7,897,191 and shares 
        outstanding 7,210,966 and 7,231,767 as of 
        March 31, 1999 and December 31, 1998, respectively              789,719                    789,719
     Paid-in capital in excess of par                                 8,216,820                  8,216,820
     Unrealized loss on securities available for sale 
     - net of deferred income taxes                                    (144,565)                   (21,793)
     Retained earnings                                               38,629,968                 37,860,291
     Less:  Treasury stock (686,225 and 665,424 shares, 
     at cost, as of March 31, 1999 and December 31, 
     1998, respectively)                                             (3,584,382)                (3,376,372)
                                                                   ------------            ---------------
Total stockholders' equity                                           43,907,560                 43,468,665
                                                                   ------------            ---------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        $ 701,482,758            $   691,811,626
                                                                  =============           ================
</TABLE>

See notes to consolidated financial statements.


<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                                         Three Months ended
                                                                              March 31,
                                                                --------------------------------------
                                                                      1999                 1998
-----------------------------------------------------------------------------------------------------
INTEREST  INCOME:                                                 (Unaudited)
<S>                                                          <C>                  <C>              
Interest income on:
     Loans                                                    $        5,659,643   $       6,089,704
     Mortgage-backed securities                                        1,496,043           1,655,563
     Investments                                                       3,997,879           3,678,814
                                                                -----------------  ------------------
Total interest income                                                 11,153,565          11,424,081
                                                                -----------------  ------------------
INTEREST EXPENSE:
Interest expense on:
     Deposits                                                          4,333,906           4,434,238
     Subordinated debentures                                             264,337             264,337
     Borrowings                                                        1,359,622           1,437,056
                                                                -----------------  ------------------
Total interest expense                                                 5,957,865           6,135,631
                                                                -----------------  ------------------
NET INTEREST INCOME                                                    5,195,700           5,288,450
PROVISION FOR LOAN LOSSES                                                 60,000              60,000
                                                                -----------------  ------------------
NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                                    5,135,700           5,228,450
                                                                -----------------  ------------------
OTHER INCOME (EXPENSE):
     Loan service charges and other fees                                  33,145              36,908
     Gain on sale of loans                                                   113                 145
     Loss on disposal of fixed assets                                          0            (30,000)
     Real estate owned operations, net                                   (6,965)            (27,033)
     Service charges on accounts                                         572,508             593,865
     Other income (expense)                                               52,402              31,364
                                                                -----------------  ------------------
Total other income (expense)                                             651,203             605,249
                                                                -----------------  ------------------
OPERATING EXPENSES:
     Salaries and employee benefits                                    2,419,921           2,319,797
     Occupancy and equipment                                             884,126             720,007
     Purchased services                                                  366,996             301,582
     Federal deposit insurance premiums                                   75,388              72,801
     Professional fees                                                    78,611             102,972
     Advertising                                                          48,448              40,737
     Other                                                               364,415             334,606
                                                                -----------------  ------------------
Total operating expenses                                               4,237,905           3,892,502
                                                                -----------------  ------------------
INCOME BEFORE INCOME TAXES                                             1,548,998           1,941,197

INCOME TAXES:
  Current                                                                469,997             746,587
  Deferred                                                                92,371            (46,271)
                                                                -----------------  ------------------
Total income taxes                                                       562,368             700,316

NET INCOME                                                    $          986,630   $       1,240,881
                                                                =================  ==================
 BASIC EARNINGS PER COMMON SHARE                              $             0.14   $            0.17
                                                                =================  ==================
 DILUTED EARNINGS PER COMMON SHARE                            $             0.13   $            0.17
                                                                =================  ==================
Weighted average common shares outstanding                             7,231,767           7,173,321
Potential dilutive effect of the exercise of stock options                89,409             161,181
                                                                -----------------  ------------------
 Adjusted weighted average common shares outstanding                   7,321,176           7,334,502
                                                                =================  ==================
</TABLE>
See notes to consolidated financial statements.
<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY                               
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Three Months ended
                                                                                                          March 31
                                                                                       ---------------------------------------------
                                                                                                1999                    1998
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         (Unaudited)
OPERATING ACTIVITIES:
<S>                                                                                   <C>                     <C>                 
Net income                                                                             $            986,630    $          1,240,881
Adjustments to reconcile net income to net cash provided
   by operating activities:
Provision for loan losses                                                                            60,000                  60,000
Depreciation and amortization                                                                       638,767                 470,344
Provision for real estate owned                                                                           0                  24,319
Realized (gains) and losses on:                                                                                   
     Sale of loans and loans held for sale                                                              (13)                   (145)
     Disposal and sale of fixed assets                                                               11,756                       0
     Sale of real estate owned                                                                            0                (433,182)
Increase in prepaid expenses and other assets                                                       150,360                (286,053)
Decrease in accrued interest payable                                                               (238,629)                 23,984
Decrease in other liabilities                                                                      (133,080)              1,202,969
Deferred income taxes                                                                                16,556                 (89,109)
                                                                                       --------------------    --------------------
     Net cash provided by operating activities                                                    1,780,943               2,196,443
                                                                                       --------------------    --------------------
INVESTING ACTIVITIES:
Proceeds from sale of:
     Education loans                                                                                    126                 151,185
     Real estate owned                                                                                    0                 245,848
Principal collected and proceeds from maturities of investment securities held to                
maturity                                                                                         21,961,317              83,642,082
Proceeds from maturities of investment securities available for sale                             31,033,583              19,137,407
Principal collected on mortgage-backed securities held to maturity                                7,684,565               6,187,753
Principal collected on longer-term loans, net                                                    14,310,843              14,208,928
Longer-term loans originated or acquired, net                                                   (13,231,290)            (11,287,897)
Purchase of investment securities and mortgage-backed securities held to maturity               (49,165,133)           (109,370,061)
Purchase of investment securities and mortgage-backed securities available for sale              (1,000,000)            (41,009,945)
Purchase of Federal Home Loan Bank stock                                                                  0              (1,230,600)
Purchase of office property and equipment                                                          (781,478)               (341,589)
                                                                                       ---------------------   ---------------------
     Net cash used in investing activities                                                       10,812,533             (39,666,889)
                                                                                       ---------------------   ---------------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts                                              5,656,165              14,611,346
Net (decrease) increase in time deposits                                                          3,938,363               5,754,354
Net decrease in FHLB advances                                                                       (31,290)             (2,350,000)
Proceeds from securities sold under agreements to repurchase                                              0              20,000,000
Increase in advances from borrowers for taxes and insurance                                          40,708                 136,926
Purchase of treasury stock                                                                         (208,010)               (186,051)
Dividends paid on common stock                                                                     (216,953)               (167,154)
Net proceeds from issuance of common stock                                                                0                  46,694
                                                                                       ---------------------   ---------------------
     Net cash provided by financing activities                                                    9,178,983              37,846,115
                                                                                       ---------------------   ---------------------
INCREASE IN CASH AND CASH EQUIVALENTS                                                            21,772,459                 375,669
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                   29,896,391              12,631,622
                                                                                       ---------------------   ---------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                               $         51,668,850    $         13,007,291
                                                                                       =====================   =====================
Supplemental Disclosures:
     Cash paid for:
        Interest on deposits, advances, and other borrowings                           $          4,572,535    $          6,111,647
        Income taxes                                                                                425,238                 445,787
     Non-cash investing and financing activities:
        Dividends declared and not paid at quarter end                                              216,953                 167,623
        Non-monetary transfers from loans to real estate acquired
        through foreclosure                                                                               0                 316,949

</TABLE>

See notes to consolidated financial statements.


<PAGE>


FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                                                               
                                                                   Accumulated                                Total
                            Common shares    Common    Paid-in    comprehensive   Retained     Treasury    Stockholders'
                             outstanding     stock     capital       income       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                                                                          986,630                      986,630
Other comprehensive income,
  net of tax                                                                      
  Unrealized gain on securities 
available for sale                                                    (122,772)                                 (122,772)
                                                                                                                 -------          
 Total comprehensive                                                                                             863,858
income                                                                                                           -------

Dividends declared                                                                 (216,953)                    (216,953)

Exercise of stock options              0           0          0                                            
                                                                                                                       -
Purchase of common stock         (20,801)          0          0                                 (208,010)       (208,010)
                                                                                                          
                                                                                                                       -
-------------------------------------------------------------------------------------------------------------------------

Balances at March 31, 1999     7,210,966     789,719  8,216,820       (144,565)  38,629,968   (3,584,382)   $  43,907,560
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

ITEM 2: MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999.

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  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, cash flows and changes in stockholders' equity
for the periods and dates  indicated.  The results of  operations  for the three
months  ended March 31, 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



<PAGE>

consolidated statements and related notes which are incorporated by reference to
the  Corporation's  annual  report on Form 10K for the year ended  December  31,
1998.

FINANCIAL CONDITION -

Total  Assets - at March 31,  1999 were $701.5  million as  compared  with total
assets at December 31, 1998 of $691.8
million.

Investment  Securities  Held to  Maturity -  increased  $16.0  million to $145.4
million at March 31, 1999 from $129.4 million at December 31, 1998 primarily due
to the net  purchase  of $17.2  million in U.S.  Agency  notes  during the three
months ended March 31, 1999. Investment securities held to maturity at March 31,
1999  consisted  entirely of fixed rate  securities.  A  comparison  of cost and
approximate market values of investment  securities held to maturity as of March
31, 1999 and December 31, 1998 follows:
<TABLE>
<CAPTION>
                                                    March 31, 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     $      95,455,088  $       69,782 $     (571,947)  $      94,952,923   $      78,291,686  $      78,241,778
CMOs                            46,130,502          27,865       (265,721)         45,892,646          47,302,338         47,297,209
Municipal bonds                  3,823,801             183               0          3,823,984           3,823,802          3,826,635
                         ---------------------------------------------------------------------  ------------------------------------
Total                    $     145,409,391  $       97,830 $     (837,668)  $     144,669,553   $     129,417,826  $     129,365,622
                         =====================================================================  ====================================
</TABLE>


Investment  Securities  Available  for Sale - decreased  $30.2  million to $79.6
million at March 31, 1999 from $109.8  million at December  31, 1998 as a result
of $7.2 million of U.S.  Agency  notes  called,  and $23.8  million of principal
paydowns  on CMOs  during the three  months  ended  March 31,  1999.  Investment
securities  available  for  sale  consisted  of  $74.5  million  in  fixed  rate
securities and $5.1 million in adjustable  rate  securities at March 31, 1999. A
comparison  of cost and  approximate  market  values  of  investment  securities
available for sale as of March 31, 1999 and December 31, 1998 follows:
<TABLE>
<CAPTION>
                                              March 31, 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    $   12,289,736     $         130    $   (57,836)    $  12,232,030     $        18,492,035   $    18,500,616

CMOs                       67,496,335           134,641       (305,045)       67,325,931              91,377,435        91,332,517

                  ======================================================================= =========================================
Total                  $   79,786,071     $     134,771    $  (362,881)    $  79,557,961     $       109,869,470   $   109,833,133
                  ======================================================================= =========================================
</TABLE>

<PAGE>

Loans,  net - decreased  $1.1  million to $297.5  million at March 31, 1999 from
$298.6  million  at  December  31,  1998.   This  decrease  was  the  result  of
approximately $14.3 million of principal collected on loans, partially offset by
$13.2 million of loans originated  during the three months ended March 31, 1999.
The  following  table shows loans  receivable  by major  categories at the dates
indicated.

Table 1                                     March 31,          December 31,
                                               1999                1998
                                      ----------------------------------------

Mortgage loans ( 1-4  dwelling)        $      244,344,195  $      246,071,511
Construction loans                              1,308,738           1,410,456
Commercial construction                           548,844           2,609,315
Consumer loans                                  3,213,479           3,237,176
Commercial real estate                         47,931,907          45,937,998
Commercial business                             4,520,213           4,120,967
                                      ----------------------------------------
Subtotal                                      301,867,376         303,387,423
                                      ----------------------------------------
Less:
    Deferred loan fees                            949,321           1,441,926
    Allowance for possible
     loan losses                                3,422,669           3,342,274
                                      ----------------------------------------
Net Loans Receivable                   $      297,495,386  $      298,603,223
                                      ========================================




As of March 31, 1999 the Bank had outstanding loan commitments of $12.4 million,
of  which  $5.1  million  represented  variable  rate  loans  and  $7.3  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  $3.4 million to $94.0
million at March 31, 1999 from $90.6 million at December 31, 1998.  The increase
is the  result  of the  purchase  of $10.9  million  GNMA  and  FNMA  securities
partially offset by principal paydowns of $7.6 million in principal  repayments.
Mortgage-backed securities at March 31, 1999 consisted of $71.9 million in fixed
rate securities and $22.1 million in adjustable rate securities. Mortgage-backed
securities  held to  maturity  at March  31,  1999  and  December  31,  1998 are
summarized below:
<TABLE>
<CAPTION>
                                  March 31, 1999                              December 31, 1998
            ------------------------------------------------------------------------------------------
                                 Gross         Gross
                Amortized     Unrealized    Unrealized    Estimated       Amortized       Estimated
                  Cost           Gains        Losses     Market Value       Cost        Market Value
            ------------------------------------------------------------------------------------------
<S>         <C>            <C>           <C>             <C>          <C>            <C>             
GNMA         $  34,439,408  $     745,083 $    (50,917)   35,133,574   $  31,716,739  $    32,312,889                      

FNMA            40,704,656        565,132      (81,603)   41,188,185      37,531,455       38,079,458

FHLMC           18,811,506        535,887       (7,732)   19,339,661      21,255,729       21,779,645

Private             20,932                         (13)       20,919          88,724           90,301

            -----------------------------------------------------------------------------------------
Total        $  93,976,502  $   1,846,102 $   (140,265)   95,682,339   $  90,592,647  $    92,262,293   
            =========================================================================================
</TABLE>

<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 increased $561 thousand to
$7.4  million  during the three months  ended March 31, 1999  resulting  from an
increase in one-to-four family of $424 thousand and a doubtful construction loan
of $232 thousand. The following table sets forth information with respect to the
Bank's classified assets at the dates indicated:
<TABLE>
<CAPTION>
                                               March 31,              December 31,
                                                 1999                     1998
                                           -----------------       -------------------
<S>                                             <C>                       <C>       
Classified Assets:
Substandard Loans:
  One-to-four family                             $2,368,910                $1,945,059
  Commercial real estate                          3,704,629                 3,756,181
  Consumer and other                                239,905                   282,740
                                           -----------------       -------------------
       Total loans                                6,313,444                 5,983,980

Real estate held for development, net               644,488                   644,487
Real Estate Owned, net                              167,541                   167,541
                                           -----------------       -------------------
   Total Substandard                              7,125,473                 6,796,008
                                           -----------------       -------------------

   Doubtful loans                                   232,126                         0
                                           -----------------       -------------------
Total Doubtful                                      232,126                         0
                                           -----------------       -------------------

   Loss - Commercial Real Estate                      8,099                     9,121
                                           -----------------       -------------------
Total Loss                                            8,099                     9,121
                                           -----------------       -------------------

TOTAL CLASSIFIED ASSETS                          $7,365,698                $6,805,129
                                           =================       ===================
</TABLE>


Deposits  -  increased  $9.6  million to $545.9  million at March 31,  1999 from
$536.3  million  at  December  31,  1998 as a result  of an  increase  in saving
accounts of $5.2 million,  interest bearing  checking  accounts of $1.5 million,
non-interest checking accounts of $1.0 million, and certificate accounts of $3.9
million partially offset by a decrease in money market accounts of $2.0 million.
Non-interest  checking  accounts  increased  due  to  the  promotions  of  "Free
Personal"  and  "Free  Business"   checking   accounts.   Interest  credited  to
depositor's  accounts for the three months ended March 31, 1999 amounted to $4.3
million. The following tables set forth certain information  concerning deposits
at the dates indicated.
<TABLE>
<CAPTION>
                                           March 31, 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              $70,337,410   12.88%       0.00%           $69,336,887   12.93%       0.00%
Checking accounts                   76,735,565   14.06%       2.07%            75,280,395   14.04%       1.89%
Savings accounts                   100,827,385   18.47%       2.64%            95,591,907   17.82%       2.83%
Money market accounts               65,655,216   12.03%       2.78%            67,690,222   12.62%       2.64%
Certificates                       232,348,575   42.56%       5.05%           228,410,212   42.59%       5.35%
                             -------------------------------------------------------------------------------------
   Total Deposits                 $545,904,151   100.00%      3.25%          $536,309,623   100.00%      3.49%
                             =====================================================================================

</TABLE>

There are three (3) standards that a savings  institution  must satisfy in order
to meet its capital  requirements  under "FDICIA".  The  requirements  include a
leverage ratio of tier 1 (core) capital to




<PAGE>

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.  At March 31, 1999, the Bank exceeded all
three  regulatory  capital levels required under FIRREA.  The Bank's  regulatory
tangible  and core  capital was $48.9  million or 6.98% of total bank assets and
risk-based capital was $52.3 million or 18.46% of risk weighted assets.



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 (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,  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 March 31, 1999 of
$987 thousand,  or $.13 diluted  earnings per share as compared to $1.2 million,
or $.17 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 received 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:
                                                      Three Months Ended
                                                           March 31,
                                                --------------------------------
                                                     1999            1998
                                                --------------------------------
Weighted-Average Yields Earned on:
  Loans, net                                         7.53 %          8.00 %
  Mortgage-Backed Securities                         6.95            7.27
  Investment Securities                              6.22            6.65
                                                ------------------------------
  Total Interest-Earning Assets                      6.93            7.41
                                                ------------------------------
Weighted-Average Interest Rates Paid on:
  Deposits                                           3.25            3.68
  Borrowings                                         5.63            5.72
  Subordinated debentures                           10.56           10.56
                                                ------------------------------
  Total Interest-Bearing Liabilities                 3.72            4.14
                                                ------------------------------
Weighted-Average Interest Rate Spread
                                                ==============================
  for the Period                                     3.21 %          3.27 %
                                                ==============================

<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:

                                                 Three Months Ended
                                                      March 31,
                                        ----------------------------------
                                              1999               1998
                                        ----------------------------------
                                                   (In Thousands)
Average Interest-Earning Assets:
  Loans, net                             $    300,466       $     304,492
  Mortgage-Backed Securities                   86,147              91,173
  Investment Securities                       257,112             221,298
                                        ----------------------------------
  Total                                       643,725             616,963
                                        ----------------------------------

Average Interest-Bearing Liabilities:
  Deposits                                    534,038             489,099
  Borrowings                                   96,572             101,924
  Subordinated debentures                      10,000              10,000
                                        ----------------------------------
  Total                                       640,610             601,023
                                        ----------------------------------
Excess of Interest-Earning Assets
  over Interest-Bearing Liabilities      $      3,115       $      15,940
                                        ==================================


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
rate,  (ii)  changes in volume 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).

                                                  Three Months Ended
                                                       March 31,
                                                 1999 compared to 1998
                                        ---------------------------------------
                                             Increase (Decrease) due to:
                                            Rate        Volume         Total
                                        ---------------------------------------
                                                    (In Thousands)
Interest income:
  Loans receivable                      $   (350)  $     (80)       $    (430)
  Mortgage-backed securities                 (69)        (91)            (160)
  Investment securities                     (276)         595              319
                                        ---------------------------------------

   Total change - interest income           (695)         424            (271)
                                        ---------------------------------------
Interest expense:
  Deposits                                  (507)         407            (100)
  Borrowings                                  (2)        (76)             (78)
  Subordinated debentures                      0           0                0
                                        ---------------------------------------

   Total change - interest expense          (509)         331            (178)
                                        ---------------------------------------

Net change in net interest income       $   (186)  $       93       $     (93)
                                        =======================================

<PAGE>

Net Interest  Income - the decrease in net interest  income for the three months
ended  March 31,  1999  totaled  $93  thousand  from the same period in 1998 was
primarily  due to a decrease  in  interest  income of $271  thousand,  partially
offset by a decrease in interest expense of $178 thousand.

The  decrease  in  interest  income was  primarily  the result of a decrease  in
interest  income on loans of $430  thousand.  The  average  balance  of the loan
portfolio  decreased  $4.0 million to $300.5  million for the three months ended
March 31, 1999 from $304.5  million for the same period in 1998,  which resulted
in a volume  decrease in interest  income of $80 thousand.  The average yield on
the loan portfolio decreased 47 basis points to 7.53% for the three months ended
March 31, 1999 from 8.00% during the three  months  ended March 31, 1998,  which
resulted in a decrease of $350 thousand in interest income due to rate changes.

Interest income increased $319 thousand on the investment portfolio. The Average
balance of the portfolio increased $35.8 million to $257.1 million for the three
months  ended March 31,  1999 from  $221.3  million for the same period in 1998,
which resulted in a volume  increase in interest  income of $595  thousand.  The
average  balance  increase in  investment  was due to the net  purchase of $37.4
million of CMOs.  The average  yield on the  investment  portfolio  decreased 43
basis  points to 6.22% for the three  months  ended  March 31,  1999 from  6.65%
during the three months ended March 31,  1998,  which  resulted in a decrease in
interest income of $276 thousand due to rate changes.

The  decrease in  interest  expense  was  primarily  the result of a decrease in
interest  expense on deposits of $100 thousand.  The average balance of deposits
increased $44.9 million.  Account balances in savings, money market and checking
increased a total of $52.6  million  partially  offset by declining  balances in
CD's between  March 31, 1999 and 1998,  which  resulted in a volume  increase in
interest  income of $407  thousand for the three months ended March 31, 1999 and
1998. The weighted  average rates paid on deposits  decreased 43 basis points to
3.25% for the three  months  ended March 31, 1999 from 3.68% for the same period
in 1998, which resulted in a decrease in interest expense of $507 thousand.


Provision  for Loan  Losses - for the  first  quarter  of 1999  remained  at $60
thousand. At March 31, 1999 the allowance for possible loan losses amounted $3.4
million or 1.13% of the total  loans  compared  to $3.2  million or 1.05% of the
total loans at March 31, 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 loans 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.

Operating  Expenses - for the first  quarter of 1999  totaled $4.2  million,  as
compared to $3.9 million for the same period in 1998.

Salaries  and  Employee  Benefits  - for the  first  quarter  of 1999  were $2.4
million,  as compared to $2.3 million for the same period in 1998.  The increase
was due to  additional  staff in the three new  branches  opened since the first
quarter of 1998.  Average full time  equivalent  employees at March 31 1999 were
378 as compared to 323 at March 31, 1998.


<PAGE>

Occupancy  and  Equipment  - for the  first  quarter  of 1999  amounted  to $884
thousand,  compared  to $720  thousand  for the same  period  in 1998.  The $164
thousand  increase  is the  result of  additional  depreciation  and  occupation
expenses on the new branches opened as well as other facility  improvements  and
new computer  equipment  additions between the quarters ended March 31, 1999 and
March 31, 1998.

Purchased  Services - for the first quarter of 1999  amounted to $367  thousand,
compared to $302 thousand for the same period of 1998. MAC charges increased $30
thousand,  compared to the same time period in 1998. Check processing costs have
increased  $34  thousand  for three  months  ended  March 31, 1999 due to higher
transaction volumes from an increase in the number of checking accounts opened.

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 originations.

<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. "98" for
"1998"). Software so developed could produce inaccurate or unpredictable results
upon the change to January 1, 2000,  when current and future  dates  represent a
lower two digit year number than dates in the prior century.  The Bank,  similar
to most financial institutions, is significantly subject to the potential impact
of the "Year 2000 issue" due to the nature of financial  information.  Potential
impact to the Bank may arise from software,  hardware, and equipment both within
the Bank's direct  control and outside of the Bank's  ownership,  yet with which
the Bank  electronically  or operationally  interfaces (e.g.  vendors  providing
credit bureau information).  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 85%.  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                90%           June 1999         On Schedule
  Renovation                85%           June 1999         On Schedule
  Validation                85%           June 1999         On Schedule
  Implementation            80%           June 1999         On Schedule
  Overall Completion        85%           June 1999         On Schedule



At this time management currently estimates Year 2000 compliance cost at between
$50,000 and $150,000 of which $24,000 was expensed during the three months ended
March 31,  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  plans to provide  resources during the weekend of December 31, 1999
and for the period of time  afterward.  It is anticipated  that the Bank, and or
its vendors will be able to overcome any unforeseen problems associated with the
millennium change.

<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  three  months  ended  March  31,  1999  from  the
information  presented  in the  annual  report on Form  10-K for the year  ended
December 31, 1998.


<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
         -------       --------------------------------

                    (a)  (27)  Financial Data Schedule  (Electronic  data filing
                         only)

                    (b)  On April 29, 1999,the Company filed a form 8-K (item 5)
                         disclosing  its  intent to  repurchase up  to 5% of its
                         outstanding shares of common stock in the open market.


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



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