UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K
(Mark One)
[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES  EXCHANGE
     ACT OF 1934

For the Fiscal Year Ended December 31, 2003
                                     - OR -

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from _______________________ to _____________________

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 incorporation  (I.R.S. Employer 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
                                                    ----------------------------

Securities registered pursuant to Section 12(b) of the Act:        None
                                                            --------------------

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.10 per share
                     --------------------------------------
                                (Title of Class)

         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  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. YES  X    NO    .
                                              ---      ---

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  Registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K.[ ]

         Indicate by check mark whether the registrant is an  accelerated  filer
(as defined in Exchange Act Rule 12b-2). YES       NO  X .
                                             ---      ---

         Based  on  the  closing   sales  price  of  $16.27  per  share  of  the
registrant's  common stock on June 30, 2003, as reported on the Nasdaq  National
Market System, the aggregate market value of voting stock held by non-affiliates
of the registrant was approximately  $49.3 million.  As of March 11, 2004, there
were 6,486,877 shares outstanding of the registrant's common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions of 2003 Annual Report to Stockholders (Parts II and IV)
2.   Portions of Proxy  Statement for the 2004 Annual  Meeting of  Stockholders.
     (Part III)

<PAGE>

                                     PART I

Forward-Looking Statements

         FMS Financial  Corporation (the "Corporation" or "Registrant") 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 Annual Report on Form 10-K 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.

Item 1.  Business
-----------------

General

         FMS Financial Corporation,  a New Jersey corporation,  headquartered in
Burlington,  New Jersey,  is the holding  company for Farmers and Mechanics Bank
(the "Bank").  The Corporation conducts no significant business or operations of
its own other than holding all of the outstanding common stock of the Bank. As a
result,  references to the  Corporation  or Registrant  generally  refers to the
consolidated entity which includes the main operating company,  the Bank, unless
the context indicates otherwise.

         The Registrant  principally  operates through its forty banking offices
located in Burlington, Camden and Mercer Counties, New Jersey. The Registrant is
primarily engaged in the business of attracting deposits from the general public
and originating  loans which are secured by residential real estate. To a lesser
extent, the Registrant also originates  consumer,  commercial business loans and
construction   loans   and   invests   in   U.S.   government   securities   and
mortgage-related securities.

                                        2

<PAGE>

Competition

         The Registrant's primary market area consists of Burlington, Camden and
Mercer Counties,  New Jersey, and is one of many financial  institutions serving
this market area. The competition for deposit  products comes from other insured
financial  institutions such as commercial banks, thrift institutions and credit
unions in the  Registrant's  market area.  Deposit  competition  also includes a
number of insurance  products sold by local agents and investment  products such
as mutual funds and other  securities sold by local and regional  brokers.  Loan
competition comes from other insured  financial  institutions such as commercial
banks, thrift institutions and credit unions.

Lending Activities

Analysis of Loan Portfolio

         The following table sets forth the composition of the Registrant's loan
portfolio in dollar amounts and in  percentages of the respective  portfolios at
the dates indicated.

<TABLE>
<CAPTION>
                                                                           December 31,
                               --------------------------------------------------------------------------------------------------
                                       2003                2002               2001                2000                1999
                               -------------------  ------------------  -----------------  ------------------  ------------------
                                Carrying  Percent   Carrying  Percent   Carrying Percent   Carrying  Percent   Carrying  Percent
                                  Value   of Total   Value    of Total    Value  of Total   Value    of Total   Value    of Total
                                -------   --------  -------   --------   ------- --------   ------   --------  -------   --------
                                                                           (In thousands)
<S>                           <C>         <C>     <C>         <C>     <C>       <C>     <C>         <C>     <C>         <C>
Mortgage loans:
  One-to-four family........    $280,664     68.84% $272,777     74.38% $259,970   76.11% $228,428     77.47% $236,912     77.82%
  Commercial real estate....     104,352     25.60    76,354     20.82    60,627   17.75    52,763     17.90    52,544     17.26
  Commercial construction...       5,994      1.47     1,157       .32     4,606    1.35     1,062       .36     3,935      1.29
  Construction..............       1,324       .32       306       .08     1,254     .37       163       .06       973       .32
                               ---------    ------  --------   -------  -------- -------  --------   -------  --------   -------
      Total mortgage loans..     392,334     96.23   350,594     95.60   326,457   95.58   282,416     95.79   294,364     96.69
                                 -------    ------   -------    ------  --------  ------   -------    ------   -------    ------
Consumer and other loans:
  Consumer..................       3,187       .78     3,522       .96     4,583    1.34     3,900      1.32     3,274      1.08
  Commercial business.......      12,180      2.99    12,621      3.44    10,521    3.08     8,522      2.89     6,790      2.23
                                 -------    ------  --------    ------  --------  ------  --------    ------  --------   -------
   Total consumer and other
         loans..............      15,367      3.77    16,143      4.40    15,104    4.42    12,422      4.21    10,064      3.31
                                 -------    ------  --------    ------  --------  ------   -------   -------  --------   -------
      Total loans...........    $407,701    100.00% $366,737    100.00% $341,561  100.00% $294,838    100.00% $304,428    100.00%
                                ========    ======  ========    ======  ========  ======  ========    ======  ========    ======
</TABLE>


         One- to Four- Family Loans. The  Registrant's  primary lending activity
consists of the  origination of one- to four-family  residential  mortgage loans
("residential  loans") secured by the property in the Registrant's  market area.
The Registrant's  residential loan portfolio also includes second mortgage loans
and home  equity  loans  (including  home  equity  lines of credit  loans).  The
Registrant  generally  originates  mortgage  loans with terms of 15 to 30 years,
amortized  on a monthly  basis,  with  principal  and  interest  due each month.
Typically,  residential  loans  remain  outstanding  for  significantly  shorter
periods than their  contractual  terms because borrowers may refinance or prepay
loans at their option.

         The Registrant  presently  offers  residential  loans that adjust every
year  after an  initial  fixed  term of one,  two,  five or seven  years,  at an
interest  rate indexed  higher than the  corresponding  U.S.  Treasury  security
index. The interest rates on these mortgages adjust annually after the one, two,
five or seven year anniversary date of the loan with an interest rate adjustment
cap of 1.5% per year and  presently  not to exceed a rate of 11.5% over the life
of the loan. At December 31, 2003,  adjustable-rate  residential  first mortgage
loans  amounted  to  $22.7  million  or  5.56%  of the  total  residential  loan
portfolio. These loans are

                                        3

<PAGE>

generally not originated under terms,  conditions and documentation which permit
their sale in the secondary mortgage market to FreddieMac and FannieMae.

         Fixed-rate  mortgage  loans are  generally  underwritten  according  to
FreddieMac and FannieMae guidelines.  The Registrant periodically sells selected
fixed-rate  residential loans, without recourse, to provide additional funds for
lending and to  restructure  the loan  portfolio to improve  interest rate risk.
Generally,  if the property is not owner-occupied,  a higher rate of interest is
charged on such loans. At December 31, 2003,  $228.1  million,  or 55.94% of the
total  residential  loan  portfolio,  consisted of long- term  fixed-rate  first
mortgage loans, none of which were classified as held for sale.

         The  Registrant's   lending   policies   generally  limit  the  maximum
loan-to-value  ratio on owner- occupied  residential first mortgage loans to 97%
of the lesser of the appraised value or purchase price,  with the condition that
private  mortgage  insurance is required on loans with  loan-to-value  ratios in
excess of 80%. Mortgage loans on investment properties are made at loan-to-value
ratios up to 70%. The loan-to- value ratio, maturity and other provisions of the
loans made by the Registrant have generally  reflected the policy of making less
than the maximum loan permissible  under applicable  regulations,  in accordance
with established lending practices, market conditions and underwriting standards
maintained  by  the  Registrant.  The  Registrant  requires  fire  and  casualty
insurance on all  properties  securing real estate loans and also performs title
searches to ensure its lien position.

         The Registrant  actively  solicits and originates home equity loans and
home  equity  lines of credit  secured by the equity in the  borrower's  primary
residence. These loans generally have terms of 10 to 15 years, some of which are
fixed rates and some of which have rates that adjust  based upon the prime rate.
At December  31,  2003,  the  Registrant  had home equity loans in the amount of
$13.3 million,  or 4.73%, of its  residential  loan portfolio and approved $39.8
million in home equity lines of credit, of which $16.7 million was outstanding.

         Commercial  Real Estate Loans.  Commercial  real estate loans are loans
secured by commercial real estate (e.g.,  shopping centers,  medical  buildings,
retail offices) and multi-family  dwelling units (e.g.,  apartment projects with
more than four units), in the Registrant's  market area.  Commercial real estate
loans and  multi-family  residential  loans have been made in amounts up to $4.0
million,  with most of such loans ranging in size from $100,000 to $1.0 million.
Loans on commercial  properties are generally originated in amounts up to 75% of
the  appraised  value  of  the  property.   Commercial  real  estate  loans  and
multi-family  residential  loans are generally  made at rates which adjust above
the prime  interest rate  (generally 1% to 2%) or a specified  treasury index or
are balloon loans with fixed  interest rates which mature in three to five years
with  principal  amortization  for a period of up to 25 years.  At December  31,
2003, the Registrant's commercial real estate loan portfolio consisted of $100.3
million of commercial real estate and $4.0 million of multi-family loans.

         Loans  secured  by  commercial  real  estate are  generally  larger and
involve a greater degree of risk than one- to four-family  residential  mortgage
loans. Of primary concern,  in commercial and multi-family  real estate lending,
is the borrower's  creditworthiness  and the feasibility and cash flow potential
of the property.  Loans secured by income  properties  are generally  larger and
involve greater risks than residential  mortgage loans because payments on loans
secured by income  properties  are often  dependent on  successful  operation or
management  of the  properties.  As a  result,  repayment  of such  loans may be
subject  to a greater  extent  than  residential  real  estate  loans to adverse
conditions in the real estate market or the economy.

                                        4

<PAGE>

         Construction  Loans.  The  Registrant  originates  loans to finance the
construction of one- to four- family  dwellings  and/or  commercial real estate.
Construction  loans to builders are generally made only if the Registrant  makes
the  permanent  mortgage  loan or if the builder has a contract for sale and the
purchaser has received a permanent  mortgage  commitment.  Interim  construction
loans to builders  generally  have terms of up to nine months and interest rates
which adjust above the prime interest rate (generally 1% to 2%).

         Construction  financing  is  generally  considered  to involve a higher
degree of risk of loss than long- term  financing  on  improved,  occupied  real
estate.  Risk of loss on a  construction  loan is  dependent  largely  upon  the
accuracy  of the initial  estimate  of the  property's  value at  completion  of
construction  and  development  and the estimated cost  (including  interest) of
construction. During the construction phase, a number of factors could result in
delays and cost  overruns.  If the estimate of  construction  costs proves to be
inaccurate,  the  Registrant  may be required to advance funds beyond the amount
originally committed to permit completion of the development. If the estimate of
value proves to be inaccurate,  the Registrant may be confronted, at or prior to
the maturity of the loan, with a project having a value which is insufficient to
assure full repayment.

         Consumer  Loans.   Regulations   permit   federally   chartered  thrift
institutions  to make  secured  and  unsecured  consumer  loans up to 35% of the
institution's  assets.  The  Registrant  makes  various  types  of  secured  and
unsecured consumer loans including education loans, lines of credit,  automobile
loans  (new and used) and loans  secured  by deposit  accounts.  Consumer  loans
generally  have  terms of six months to five  years,  some of which are at fixed
rates and some of which have rates that adjust periodically.

         Consumer  loans  may  entail  greater  risk  than  residential   loans,
particularly  in the case of  consumer  loans that are  unsecured  or secured by
assets that depreciate rapidly.  Repossessed collateral for a defaulted consumer
loan may not be  sufficient  for  repayment  of the  outstanding  loan,  and the
remaining deficiency may not be collectible.

         Commercial  Business Loans.  Commercial business loans are underwritten
on the basis of the borrower's  ability to service such debt from income and are
generally made to small and mid-sized  companies located within the Registrant's
primary lending area.  Generally,  the Registrant requires additional collateral
of equipment, chattel or other assets before making a commercial business loan.

         Loan Commitments. The Registrant issues loan origination commitments to
real estate developers and qualified  borrowers  primarily for the construction,
purchase and refinancing of residential  real estate and commercial real estate.
Such  commitments are made on specified terms and conditions,  including in most
cases, the payment of a  non-refundable  commitment fee based on a percentage of
the amount of committed funds.  Generally,  the commitment  requires  acceptance
within 15 days of the date of issuance. At December 31, 2003, the Registrant had
$15.9  million  of  commitments  to cover  originations  and  $32.4  million  in
undisbursed  funds on  outstanding  lines of credit.  Management  believes  that
virtually all of the Registrant's commitments will be funded.

Origination of Loans

         Commercial loan origination comes from a variety of sources,  including
the  Registrant's  existing  customer base,  referrals from real estate offices,
accountants,  financial  advisers,  attorneys,  builders and walk in business as
well  as  solicitations  by  the  Registrant's  business  development  officers.
Residential

                                        5

<PAGE>

mortgage loan  customers  are derived in a similar  manner.  Consumer  loans are
directly  obtained  through  the  Registrant's  network  of branch  offices  and
advertising.

         All applications are processed in accordance with established  policies
of the Registrant,  including the review of credit  references,  verification of
information  provided  and,  where  real  estate is  involved,  the review of an
appraisal  completed  by an  independent  third party  appraiser  from a list of
approved appraisers that the Registrant maintains.

         Loan   approvals   may  be  approved  by  loan  officers  up  to  their
individually   assigned  lending  limit,  which  are  established  and  modified
periodically to reflect the officer's expertise and experience. Certain officers
have joint lending  authorities  that exceed their individual  authorities.  The
Board of Directors  approves loans above the individual and joint authorities of
the  officers.   The  Board  reviews  on  an  annual  basis  the  loan  approval
authorities.

Non-Performing and Problem Assets

         When a loan is more than 30 days delinquent,  the borrower is contacted
by mail or  phone  and  payment  is  requested.  If the  delinquency  continues,
subsequent efforts will be made to contact the delinquent  borrower.  In certain
instances,  the Registrant may modify the loan or grant a limited  moratorium on
loan payments to enable the borrower to reorganize his financial affairs. If the
loan  continues  in a  delinquent  status  for 90 days or more,  the  Registrant
generally will initiate foreclosure proceedings.

         Loans are generally placed on non-accrual  status when either principal
or interest is 90 days or more past due. Interest accrued and unpaid at the time
a loan is placed on non-accrual status is charged against interest income.  Such
interest,  when  ultimately  collected,  is  credited  to income  in the  period
received.

         Non-Performing  Assets.  The  following  table sets  forth  information
regarding  impaired  loans,  troubled  debt  restructured  and real estate owned
assets by the Registrant at the dates indicated.

<TABLE>
<CAPTION>
                                                                               At December 31,
                                                        ------------------------------------------------------------------
                                                         2003           2002           2001          2000           1999
                                                        -------        -------        -------       -------        -------
                                                                              (Dollars in Thousands)
<S>                                                   <C>            <C>            <C>           <C>            <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
   One-to-four family............................       $   507        $   960        $ 1,348       $   778        $ 1,386
   Commercial real estate........................         1,189          1,786          1,634         1,409          1,510
   Consumer and other............................            --             12             --            24            237
                                                        -------        -------        -------       -------        -------
      Total mortgage non-accrual loans...........       $ 1,696        $ 2,758        $ 2,982       $ 2,211        $ 3,133
                                                        -------        -------        -------       -------        -------
Troubled debt restructuring......................       $ 1,027        $   987        $ 1,072       $   790        $   462
Real estate owned, net...........................            48            291            214           355            449
Other non-performing assets......................            --             88             88            88             88
                                                        -------        -------        -------       -------        -------
Total non-performing assets......................       $ 2,771        $ 4,124        $ 4,356       $ 3,444        $ 4,132
                                                        =======        =======        =======       =======        =======

 Total non-accrual loans to net loans............           .42%           .76%           .89%          .76%          1.05%
                                                        =======        =======        =======       =======        =======
Total non-accrual loans to total assets..........           .14%           .24%           .31%          .26%           .41%
                                                        =======        =======        =======       =======        =======
Total non-performing assets to total assets......           .23%           .37%           .45%          .41%           .53%
                                                        =======        =======        =======       =======         ======
</TABLE>

                                        6

<PAGE>

         Classified Assets. OTS regulations provide for a classification  system
for problem  assets of insured  institutions  which  covers all problem  assets.
Under this  classification  system,  problem assets of insured  institutions are
classified  as  "substandard,"  "doubtful,"  or "loss."  An asset is  considered
substandard if it is inadequately  protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard assets
include  those  characterized  by the  "distinct  possibility"  that the insured
institution  will sustain  "some loss" if the  deficiencies  are not  corrected.
Assets  classified  as  doubtful  have all of the  weaknesses  inherent in those
classified  substandard,  with the  added  characteristic  that  the  weaknesses
present  make  "collection  or  liquidation  in full," on the basis of currently
existing facts,  conditions,  and values,  "highly questionable and improbable."
Assets  classified  as loss are  those  considered  "uncollectible"  and of such
little value that their  continuance  as assets without the  establishment  of a
specific  loss  reserve  is not  warranted.  Assets may be  designated  "special
mention"  because  of  potential   weaknesses  that  do  not  currently  warrant
classification in one of the aforementioned categories.

         When an insured  institution  classifies  problem assets as loss, it is
required  either to establish a specific  allowance  for losses equal to 100% of
that  portion  of the asset so  classified  or to  charge  off such  amount.  An
institution's  determination  as to the  classification  of its  assets  and the
amount of its valuation allowances is subject to review by the OTS.

         Management's  evaluation  of  the  classification  of  assets  and  the
adequacy  of the  reserve  for loan losses is reviewed by the Board on a regular
basis and by the regulatory agencies as part of their examination process.

         The following table sets forth the  Registrant's  classified  assets in
accordance with its classification system.


                                              At December 31, 2003
                                              --------------------
                                                  (In thousands)
       Special mention..................           $    84
       Substandard......................             4,387
       Doubtful.........................                15
       Loss.............................                --
                                                   -------
                Total...................           $ 4,486
                                                   =======


         Provision  for Loan Losses.  A provision  for loan losses is charged to
operations  based on  management's  evaluation  of the  probable  losses  in the
Registrant's  loan portfolio.  Such  evaluation,  which includes a review of all
loans  of  which  full  collectibility  of  interest  and  principal  may not be
reasonably assured, considers the Registrant's past loan loss experience,  known
and inherent  risks in the  portfolio,  adverse  situations  that may affect the
borrower's ability to repay, estimated value of any underlying  collateral,  and
current economic conditions.

                                        7

<PAGE>

         Management  will  continue  to review  the  entire  loan  portfolio  to
determine the extent, if any, to which further additional loss provisions may be
deemed  necessary.  There can be no assurance that the allowance for losses will
be adequate to cover losses which may in fact be realized in the future and that
additional provisions for losses will not be required.

         The  following  table  sets  forth  an  analysis  of  the  Registrant's
allowance for loan losses for the periods indicated.

<TABLE>
<CAPTION>
                                                               For the Year Ended December 31,
                                                   -----------------------------------------------------
                                                     2003        2002        2001       2000       1999
                                                    ------      ------      ------     ------    ------
                                                                   (Dollars in Thousands)
<S>                                                 <C>         <C>         <C>        <C>       <C>
 Balance at beginning of period..............       $4,317      $4,231      $3,980     $3,841    $3,342
 Loans charged-off:
   One-to-four family........................           --         (10)        (42)       (40)      (77)
  Commercial real estate.....................           --          --          --        (83)       --
  Construction...............................           --          --          --         --      (128)
  Consumer...................................           (4)        (10)         (3)        (9)       --
  Commercial business........................         (184)        (58)         --         --       (28)
                                                    ------      ------      ------     ------    ------
    Total charge-offs........................         (188)        (78)        (45)      (132)     (233)
Recoveries...................................            9          15          13         31        78
                                                    ------      ------      ------     ------    ------
Net loans charged-off........................         (179)        (63)        (32)      (101)     (155)
                                                    ------      ------      ------     ------    ------
Provision for loan losses....................          270         149         221        240       654
                                                    ------      ------      ------     ------    ------
Increase as a result of merger...............           --          --          62         --        --
                                                    ------      ------      ------     ------    ------
Balance at end of period.....................       $4,408      $4,317      $4,231     $3,980    $3,841
                                                    ======      ======      ======     ======    ======
 Ratio of net charge-offs to average loans
   outstanding during the period.............         .046%       .017%       .010%      .034%     .051%
                                                    ======      ======      ======     ======    ======
</TABLE>

                                                          8

<PAGE>

Analysis of the Allowance for Loan Losses

         The following  table sets forth the breakdown of the allowance for loan
losses by loan category and the percent of loans in each category to total loans
receivable  for the periods  indicated.  The allocation of the allowance to each
category is not necessarily indicative of future losses.

<TABLE>
<CAPTION>
                                                                       At December 31,
                         --------------------------------------------------------------------------------------------------------
                              2003                    2002                 2001                 2000                 1999
                         --------------------  -------------------  --------------------  -------------------  ------------------
                                  Percent of            Percent of           Percent of           Percent of           Percent of
                                   Loans to              Loans to             Loans to             Loans to             Loans to
                          Amount  Total Loans   Amount Total Loans   Amount  Total Loans  Amount  Total Loans  Amount Total Loans
                          ------  -----------   ------ -----------   ------  -----------  ------  -----------  ------ -----------
                                                                    (Dollars in Thousands)
<S>                      <C>         <C>     <C>          <C>       <C>        <C>      <C>         <C>       <C>        <C>
Loans:

One- to four-family......  $1,446      68.84%  $1,672       74.38%    $1,339     76.11%   $2,912      77.48%    $2,506     77.82%
Commercial real estate...   2,540      25.60    2,284       20.82      2,311     17.75       887      17.90      1,063     17.26
Commercial construction..     194       1.47       69         .32        100      1.35         9        .36         39      1.29
Construction.............      25        .32       34         .08        222       .37         5        .05         10       .32
Consumer and other.......      24        .78       28         .96         33      1.34        31       1.32         65      1.08
Commercial business......     179       2.99      230        3.44        226      3.08       136       2.89        158      2.23
                           ------     ------   ------      ------     ------    ------    ------     ------     ------    ------
   Total allowance for
     loan losses.........  $4,408     100.00%  $4,317      100.00%    $4,231    100.00%   $3,980     100.00%    $3,841    100.00%
                           ======     ======   ======      ======     ======    ======    ======     ======     ======    ======

</TABLE>

                                        9

<PAGE>

Investment Activities

         The  Registrant  is required  under federal  regulations  to maintain a
minimum  amount of liquid  assets which may be invested in specified  short-term
securities  and certain  other  investments.  The level of liquid  assets varies
depending  upon  several  factors,  including:  (i)  the  yields  on  investment
alternatives,  (ii) management's judgment as to the attractiveness of the yields
then available in relation to other  opportunities,  (iii) expectation of future
yield levels, and (iv) management's  projections as to the short-term demand for
funds  to  be  used  in  loan  origination  and  other  activities.   Investment
securities,  including mortgage-backed securities, are classified at the time of
purchase,  based upon management's  intentions and abilities, as securities held
to maturity or securities  available for sale. Debt securities acquired with the
intent and ability to hold to maturity  are  classified  as held to maturity and
are stated at cost and adjusted  for  amortization  of premium and  accretion of
discount,  which are  computed  using the level yield method and  recognized  as
adjustments  of interest  income.  All other debt  securities  are classified as
available for sale to serve principally as a source of liquidity.

         Current  regulatory  and  accounting  guidelines  regarding  investment
securities  (including  mortgage  backed  securities)  require the Registrant to
categorize  securities as "held to maturity," "available for sale" or "trading."
As of December 31, 2003, the  Registrant  had securities  classified as "held to
maturity" and  "available  for sale" in the amount of $545.3  million and $149.2
million,  respectively and had no securities classified as "trading." Securities
classified as "available for sale" are reported for financial reporting purposes
at the fair market value with their net  unrealized  gain or loss  included as a
separate component of stockholders' equity, net of income taxes. At December 31,
2003, the  Registrant's  securities  available for sale had an amortized cost of
$147.9  million  and market  value of $149.2  million  (net  unrealized  gain of
$802,000,  net of deferred  income  taxes).  The changes in market  value in the
Registrant's  available for sale portfolio  reflect normal market conditions and
vary,  either  positively or negatively,  based  primarily on changes in general
levels  of market  interest  rates  relative  to the  yields  of the  portfolio.
Additionally,  changes in the market value of  securities  available for sale do
not affect  the  Corporation's  income nor does it affect the Bank's  regulatory
capital requirements or its loan-to-one borrower limit.

         The  Registrant's   investment  securities   "available-for-sale"   and
"held-to-maturity"  portfolios at December 31, 2003, did not contain  securities
of any issuer with an aggregate book value in excess of 10% of the  Registrant's
equity, excluding those issued by the United States government agencies.

         At December 31, 2003,  the  Registrant's  investment  portfolio  policy
allowed investments in instruments such as: (i) U.S. Treasury obligations,  (ii)
U.S.  federal  agency or federally  sponsored  agency  obligations,  (iii) local
municipal   obligations,   (iv)   mortgage-backed   securities,   (v)   banker's
acceptances,  (vi) certificates of deposit, and (vii) investment grade corporate
bonds,  and commercial  paper.  The board of directors may authorize  additional
investments.

         As a  source  of  liquidity  and  to  supplement  Registrant's  lending
activities,   the  Registrant   has  invested  in  residential   mortgage-backed
securities.  Mortgage-backed  securities  can serve as collateral for borrowings
and, through repayments,  as a source of liquidity.  Mortgage-backed  securities
represent a participation  interest in a pool of  single-family or other type of
mortgages.  Principal  and  interest  payments  are  passed  from  the  mortgage
originators, through intermediaries (generally quasi-governmental agencies) that
pool and repackage the  participation  interests in the form of  securities,  to
investors,  like us. The  quasi-governmental  agencies  guarantee the payment of
principal  and  interest to  investors  and include the  FreddieMac,  Government
National Mortgage Association ("GNMA"), and FannieMae.

                                       10

<PAGE>

         Mortgage-backed  securities  typically are issued with stated principal
amounts.  The  securities  are backed by pools of mortgages that have loans with
interest  rates that are  within a set range and have  varying  maturities.  The
underlying  pool of mortgages can be composed of either fixed rate or adjustable
rate mortgage  loans.  Mortgage-backed  securities are generally  referred to as
mortgage participation certificates or pass-through  certificates.  The interest
rate risk  characteristics of the underlying pool of mortgages (i.e., fixed rate
or adjustable  rate) and the prepayment  risk, are passed on to the  certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying  mortgages.  Expected  maturities will differ from contractual
maturities due to scheduled  repayments and because borrowers may have the right
to  call  or  prepay   obligations   with  or  without   prepayment   penalties.
Mortgage-backed  securities issued by FreddieMac,  GNMA, and FannieMae make up a
majority of the pass-through certificates market.

         The Registrant also invests in mortgage-related  securities,  primarily
collateralized  mortgage  obligations  ("CMOs"),  issued or  sponsored  by GNMA,
FannieMae and FreddieMac,  as well as private  issuers.  CMOs are a type of debt
security that aggregates pools of mortgages and  mortgage-backed  securities and
creates  different  classes  of  CMO  securities  with  varying  maturities  and
amortization  schedules  as well as a residual  interest  with each class having
different risk  characteristics.  The cash flows from the underlying  collateral
are usually divided into "tranches" or classes whereby  tranches have descending
priorities with respect to the distribution of principal and interest  repayment
of the  underlying  mortgages  and  mortgage  backed  securities  as  opposed to
pass-through  mortgage-backed  securities  where cash flows are  distributed pro
rata to all security holders. Unlike mortgage-backed  securities from which cash
flow is  received  and  prepayment  risk is  shared  pro rata by all  securities
holders,   cash  flows  from  the  mortgages  and  mortgage-  backed  securities
underlying  CMOs  are  paid  in  accordance  with a  predetermined  priority  to
investors  holding  various  tranches  of  such  securities  or  obligations.  A
particular  tranche or class may carry  prepayment  risk which may be  different
from that of the  underlying  collateral  and other  tranches.  CMOs  attempt to
moderate   reinvestment  risk  associated  with   conventional   mortgage-backed
securities resulting from unexpected  prepayment  activity.  Management believes
these securities represent attractive alternatives relative to other investments
due to the wide  variety  of  maturity,  repayment  and  interest  rate  options
available.

                                       11

<PAGE>

         The following  table sets forth the carrying value of the  Registrant's
investment  securities  held to maturity,  securities  available for sale,  FHLB
stock,  and interest  bearing  deposits and overnight  investments  at the dates
indicated.


                                                        At December 31,
                                                --------------------------------
                                                   2003        2002       2001
                                                 --------    --------   --------
                                                         (In Thousands)
Investment securities held to maturity:
  U.S. government and agency securities........  $ 72,256    $ 25,915   $ 82,190
  Reverse repurchase agreements................        --          --         --
  Municipal bonds..............................     2,400      14,503      7,721
  CMO's........................................   175,727     123,809    106,660
 Mortgage-backed securities....................   294,916     342,123    272,494
Investment securities available for sale:
  U.S. government and agency securities........    13,189      25,358     15,052
  CMO's........................................    48,419      22,108     12,565
 Mortgage-backed securities....................    87,623      71,147     24,352
                                                 --------    --------   --------
      Total investment securities..............   694,530     624,963    521,034
 FHLB stock....................................    11,810      12,062      8,314
  Interest bearing deposits and
    overnight investments......................    31,312      46,913     31,023
                                                 --------    --------   --------
     Total investments.........................  $737,652    $683,938   $560,371
                                                 ========    ========   ========

                                       12

<PAGE>

         The  following  table sets  forth the  scheduled  maturities,  carrying
values,  market  values  and  average  yields  for the  Registrant's  investment
securities  at  December  31,  2003.  The  following  table  does not take  into
consideration  the effects of unscheduled  repayments or the effects of possible
prepayments.

<TABLE>
<CAPTION>
                                                                              More than
                      One Year or Less One to Five Years Five to Ten Years    Ten Years         Total Investment Securities
                     ----------------- ----------------- ----------------- ----------------- ----------------------------------
                     Carrying  Average Carrying  Average  Carrying Average Carrying  Average  Carrying     Market   Average
                       Value    Yield   Value     Yield    Value    Yield    Value    Yield     Value       Value    Yield
                       -----    -----   -----     -----    -----    -----    -----    -----     -----       -----    -----
                                                           (Dollars in Thousands)
<S>                  <C>       <C>     <C>        <C>    <C>       <C>    <C>          <C>    <C>         <C>        <C>
Investment
securities
held to
maturity:
 U.S. government
   and agency
   obligations....   $    --     --%   $   --       --%  $ 23,072   5.95% $ 49,184     6.16%  $ 72,256    $ 72,994   6.10%
 Municipal
   bonds..........     2,300   1.71        --       --        100   4.30        --       --      2,400       2,405   1.71
 CMO's............        --     --        --       --     15,982   3.89   159,745     4.60    175,727     175,280   4.53
 Mortgage-
   backed
   securities.....        --     --     1,291     6.95     48,164   4.62   245,461     5.55    294,916     299,642   5.41
Investment
   securities
   available
   for sale:
 U.S. government
   and agency
   obligations.....       --     --        --       --      8,137   5.27     5,052     6.00     13,189      13,189   5.55
 CMO's.............       --     --        --       --     14,770   4.54    33,649     4.82     48,419      48,419   4.74
 Mortgage-
   backed
   securities......       --     --        --       --     12,342   5.00    75,281     5.48     87,623      87,623   5.42
 FHLB stock........       --     --        --       --         --     --    11,810       --     11,810      11,810     --
 Interest-
   bearing
   deposits and
   overnight
   investments.....    31,312   1.05        --       --         --     --        --       --     31,312      31,312   1.05
                      -------   ----    ------     ----   --------  ----   --------     ----   --------    --------   ----
       Total.......   $33,612   1.10%   $1,291     6.95%  $122,567  4.85%  $580,182     5.18%  $737,652    $742,674   4.95%
                      =======   ====    ======     ====   ========  ====   ========     ====   ========    ========   ====
</TABLE>

                                       13

<PAGE>

Sources of Funds

         General.  Deposits are the major  external  source of the  Registrant's
funds for  lending  and  other  investment  purposes.  Funds  are  derived  from
amortization  and  prepayment  of loans and, to a lesser  extent,  maturities of
investment securities,  borrowings,  mortgage-backed  securities and operations.
Scheduled  loan principal  repayments  are a relatively  stable source of funds,
while  deposit  inflows and  outflows  and loan  prepayments  are  significantly
influenced by general interest rates and market conditions.

         Deposits.  Deposits are attracted from within the  Registrant's  market
areas of  Burlington,  Camden and  Mercer  Counties,  New  Jersey,  through  the
offering of a broad selection of deposit instruments  including regular checking
accounts,   non-interest  checking  accounts,  money  market  accounts,  regular
passbook  accounts,  certificates  of deposit and IRA accounts.  Deposit account
terms vary according to the minimum balance required, the time periods the funds
must  remain  on  deposit  and the  interest  rate,  among  other  factors.  The
Registrant regularly evaluates the internal cost of funds, surveys rates offered
by competing  institutions,  reviews the Registrant's cash flow requirements for
lending and  liquidity and executes  rate changes when deemed  appropriate.  The
Registrant does not have any brokered  deposits and has no present  intention to
accept or solicit such deposits.

         Certificates  of Deposit in Excess of  $100,000.  The  following  table
indicates the amount of the Registrant's  certificates of deposit of $100,000 or
more by time remaining until maturity as of December 31, 2003.


                                                                 Certificates of
Maturity Period of Deposits                                          Deposit
---------------------------                                          -------
                                                                  (In Thousands)

Three months or less....................................             $13,280
Three through six months................................               5,550
Six through twelve months...............................               5,890
Over twelve months......................................               6,045
                                                                     -------
     Total..............................................             $30,765
                                                                     =======

                                       14
<PAGE>

         Deposit Rate. The following  table sets forth the  distribution  of the
Registrant's  average balance of deposit accounts at the dates indicated and the
weighted average nominal interest rates on each category of deposits presented.

<TABLE>
<CAPTION>
                                                                          At December 31,
                                    ----------------------------------------------------------------------------------------------
                                                 2003                            2002                           2001
                                    ------------------------------- -----------------------------   ------------------------------
                                                          Weighted                       Weighted                       Weighted
                                              Percent of   Average              Percent   Average               Percent  Average
                                     Average     Total     Nominal   Average   of Total   Nominal     Average  of Total  Nominal
                                     Balance   Deposits     Rate     Balance   Deposits    Rate       Balance  Deposits   Rate
                                     -------   --------    ------    -------   --------   ------      -------  --------  -----
                                                                        (Dollars In Thousands)
<S>                               <C>           <C>         <C>    <C>           <C>      <C>      <C>          <C>       <C>
Passbook and regular savings......  $167,936      19.78%      .57%   $141,705      18.93%   1.28%    $117,485     17.48%    2.19%
Checking accounts.................   313,492      36.92       .29     262,152      35.01     .62      229,598     34.15     1.18
Money market deposit accounts.....   130,822      15.40       .78     109,124      14.57    1.86       75,490     11.22     2.55
Certificates of deposit...........   225,240      26.52      2.40     233,975      31.25    3.58      248,637     36.97     5.14
Surrogate statement...............    11,737       1.38      2.55       1,772        .24    5.91        1,213       .18     6.02
                                    --------     ------      ----    --------     ------    ----     --------    ------     ----
  Total Deposits..................  $849,227     100.00%     1.01%   $748,728     100.00%   1.86%    $672,423    100.00%    2.99%
                                    ========     ======      ====    ========     ======    ====     ========    ======     ====
</TABLE>

                                       15

<PAGE>

Personnel

         As of December 31, 2003 the Registrant had 341 full-time  employees and
225  part-time  employees.  The employees  are not  represented  by a collective
bargaining  unit.  Management  believes its  relationship  with its employees is
good.

Regulation of the Corporation

         Set forth below is a brief  description of certain laws which relate to
the  regulation  of the  Corporation.  The  description  does not  purport to be
complete and is qualified  in its entirety by reference to  applicable  laws and
regulations.

         General.  The Corporation is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Corporation is required
to  register  and file  reports  with the OTS and is subject to  regulation  and
examination by the OTS. In addition,  the OTS has enforcement authority over the
Corporation  and  its   non-savings   association   subsidiaries,   should  such
subsidiaries  be formed,  which also  permits  the OTS to  restrict  or prohibit
activities  that are determined to be a serious risk to the  subsidiary  savings
association.  This  regulation  and  oversight  is  intended  primarily  for the
protection of the depositors of the Bank and not for the benefit of stockholders
of the Corporation.

         As  a  unitary  savings  and  loan  holding  company,  the  Corporation
generally is not subject to any restrictions on its business  activities.  While
the  Gramm-Leach-Bliley  Act (the "GLB  Act")  terminated  the  "unitary  thrift
holding company"  exemption from activity  restrictions on a prospective  basis,
the Corporation enjoys  grandfathered status under this provision of the GLB Act
because  it  acquired  the  Bank  prior  to  May  4,  1999.  As  a  result,  the
Corporation's  freedom from activity  restrictions as a unitary savings and loan
holding  company was not affected by the GLB Act.  However,  if the  Corporation
were to acquire  control of an  additional  savings  institution,  its  business
activities  would be subject to  restriction  under the Home  Owners'  Loan Act.
Furthermore,  if the Corporation  were in the future to sell control of the Bank
to any other  company,  such  company  would not  succeed  to the  Corporation's
grandfathered  status under the GLB Act and would be subject to the Home Owner's
Loan Act's activity restrictions.

         The continuation of the  Corporation's  exemption from  restrictions on
business  activities  as a unitary  savings  and loan  holding  company  is also
subject to the  Corporation's  continued  compliance  with the QTL Test.  See "-
Regulation of the Bank - Qualified Thrift Lender ("QTL") Test."

         Sarbanes-Oxley  Act of 2002.  On July 30, 2002,  President  Bush signed
into law the  Sarbanes-  Oxley  Act of 2002  (the  "Act").  The  Securities  and
Exchange Commission (the "SEC") has promulgated new regulations  pursuant to the
Act  and  may  continue  to  propose   additional   implementing  or  clarifying
regulations  as necessary in  furtherance of the Act. The passage of the Act and
the  regulations  implemented  by the SEC subject  publicly-traded  companies to
additional and more cumbersome reporting regulations and disclosure.  Compliance
with  the Act and  corresponding  regulations  may  increase  the  Corporation's
expenses.

Regulation of the Bank

         General.  Set forth below is a brief  description  of certain laws that
relate to the  regulation of the Bank.  The  description  does not purport to be
complete and is qualified  in its entirety by reference to  applicable  laws and
regulations.  As a  federally  chartered,  Savings  Association  Insurance  Fund
("SAIF")  insured  savings  association,   the  Bank  is  subject  to  extensive
regulation by the OTS and the FDIC. Lending

                                       16

<PAGE>

activities and other  investments must comply with various federal statutory and
regulatory   requirements.   The  Bank  is  also  subject  to  certain   reserve
requirements promulgated by the Federal Reserve Board.

         The OTS, in conjunction with the FDIC,  regularly examines the Bank and
prepares  reports for the  consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's  operations.  The Bank's  relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law,  especially in such matters as the ownership of savings  accounts
and the form and content of the Bank's mortgage documents.

         The Bank must file  reports  with the OTS and the FDIC  concerning  its
activities  and  financial  condition,   in  addition  to  obtaining  regulatory
approvals  prior to entering into certain  transactions  such as mergers with or
acquisitions  of other savings  institutions.  This  regulation and  supervision
establishes a comprehensive  framework of activities in which an institution can
engage and is intended  primarily for the protection of the SAIF and depositors.
The  regulatory  structure  also  gives  the  regulatory  authorities  extensive
discretion in connection with their  supervisory and enforcement  activities and
examination  policies,  including policies with respect to the classification of
assets and the  establishment  of adequate  loan loss  reserves  for  regulatory
purposes.

         Insurance of Deposit  Accounts.  The deposit  accounts held by the Bank
are insured by the SAIF to a maximum of  $100,000  for each  insured  member (as
defined by law and  regulation).  Insurance of deposits may be terminated by the
FDIC  upon a finding  that the  institution  has  engaged  in unsafe or  unsound
practices,  is in an unsafe or unsound  condition to continue  operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or the institution's primary regulator.

         The FDIC administers two separate deposit  insurance funds.  Generally,
the Bank Insurance Fund (the "BIF") insures the deposits of commercial banks and
the SAIF insures the deposits of savings institutions. The FDIC is authorized to
increase  deposit  insurance  premiums  if  it  determines  such  increases  are
appropriate  to maintain  the  reserves of either the SAIF or BIF or to fund the
administration  of the  FDIC.  In  addition,  the  FDIC  is  authorized  to levy
emergency  special  assessments  of BIF and SAIF  members.  The FDIC has set the
deposit  insurance  assessment rates for SAIF member  institutions for the first
six months of 2003 at 0% to 0.27% of insured  deposits on an  annualized  basis,
with the assessment rate for most savings institutions set at 0%.

         In addition,  all institutions  insured by the FDIC are required to pay
quarterly assessments to fund interest payments on bonds issued by the Financing
Corporation, an agency of the Federal government established to recapitalize the
predecessor  to the SAIF.  These  assessments  will continue until the Financing
Corporation bonds mature in 2017.

         Regulatory  Capital  Requirements.   OTS  capital  regulations  require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted  assets,  (2) a leverage ratio (core capital) equal to
at least 3% of total adjusted assets for savings  institutions  that receive the
highest  supervisory  rating  for  safety  and  soundness  and 4% for all  other
thrifts,  and (3) a  risk-based  capital  requirement  equal  to  8.0% of  total
risk-weighted  assets. At December 31, 2003, the Bank was in compliance with its
regulatory capital requirements.

         Dividend and Other Capital  Distribution  Limitations.  The OTS imposes
various  restrictions or requirements on the ability of savings  institutions to
make capital distributions, including cash dividends.

                                       17

<PAGE>

         A  savings  association  that is a  subsidiary  of a  savings  and loan
holding company,  such as the Bank must file an application or a notice with the
OTS at least 30 days before making a capital distribution.  Savings associations
are not  required  to file  an  application  for  permission  to make a  capital
distribution  and need only file a notice if the following  conditions  are met:
(1) they are eligible for expedited  treatment under OTS  regulations,  (2) they
would  remain  adequately  capitalized  after the  distribution,  (3) the annual
amount of capital  distribution does not exceed net income for that year to date
added to retained net income for the two  preceding  years,  and (4) the capital
distribution  would not violate any  agreements  between the OTS and the savings
association  or any OTS  regulations.  Any  other  situation  would  require  an
application to the OTS.

         The OTS may disapprove an application or notice if the proposed capital
distribution   would:  (i)  make  the  savings   association   undercapitalized,
significantly  undercapitalized,  or  critically  undercapitalized;  (ii)  raise
safety or  soundness  concerns;  or (iii)  violate  a  statute,  regulation,  or
agreement  with  the OTS (or  with  the  FDIC),  or a  condition  imposed  in an
OTS-approved application or notice. Further, a federal savings association, like
the  Bank,  cannot  distribute   regulatory  capital  that  is  needed  for  its
liquidation account.

         Qualified Thrift Lender Test.  Federal savings  institutions  must meet
one of two Qualified Thrift Lender ("QTL") tests. To qualify as a QTL, a savings
institution must either (i) be deemed a "domestic building and loan association"
under the Internal  Revenue Code by maintaining at least 60% of its total assets
in specified types of assets,  including cash,  certain  government  securities,
loans  secured  by and  other  assets  related  to  residential  real  property,
educational loans and investments in premises of the institution or (ii) satisfy
the statutory QTL test set forth in the Home Owner's Loan Act by  maintaining at
least 65% of its "portfolio  assets" in  certain"Qualified  Thrift  Investments"
(defined  to include  residential  mortgages  and  related  equity  investments,
certain  mortgage-related  securities,  small business loans,  student loans and
credit card loans, and 50% of certain community development loans). For purposes
of the Home Owners' Loan Act, portfolio assets are defined as total assets minus
intangible assets,  property used by the institution in conducting its business,
and liquid  assets  equal to 20% of total  assets.  A savings  institution  must
maintain its status as a QTL on a monthly basis in at least nine out of every 12
months.  A  failure  to  qualify  as a QTL  results  in a number  of  sanctions,
including the imposition of certain operating  restrictions and a restriction on
obtaining  additional advances from its FHLB. At December 31, 2003, the Bank was
in compliance with its QTL  requirement,  with 105.65% of its assets invested in
Qualified Thrift Investments.

         Federal Home Loan Bank System.  The Bank is a member of the FHLB of New
York,  which is one of 12 regional  FHLBs that  administers  the home  financing
credit  function  of  savings  associations.  Each FHLB  serves as a reserve  or
central bank for its members within its assigned region.  It is funded primarily
from  proceeds  derived from the sale of  consolidated  obligations  of the FHLB
System.  It makes loans to members (i.e.,  advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB.

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York in an  amount  equal to at  least  1% of its  aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the beginning of each year.

         Federal  Reserve Board System.  The Federal  Reserve Board requires all
depository  institutions to maintain  non-interest bearing reserves at specified
levels against their transaction  accounts (primarily  checking,  NOW, and Super
NOW checking accounts) and non-personal time deposits.  The balances  maintained
to meet the reserve  requirements  imposed by the Federal  Reserve  Board may be
used to satisfy

                                       18

<PAGE>

the  liquidity  requirements  that are imposed by the OTS. At December 31, 2003,
the Bank was in compliance with these Federal Reserve Board requirements.

Item 2.  Properties
-------------------

         The  Registrant  conducts its business  through its two  administrative
offices  located  in  Burlington,  New  Jersey  and its 40 branch  locations  in
Burlington,  Camden and Mercer  Counties,  New Jersey.  All of the  Registrant's
office  and  branch  facilities  are owned by the  Registrant,  except for eight
branch  office  locations,  two located in Lumberton  and the others  located in
Medford, Mt. Holly, Burlington,  Hamilton,  Cinnaminson and Marlton, New Jersey.
Management of the  Registrant  considers  the physical  condition of each of the
Registrant's  administrative  and branch offices to be good and adequate for the
conduct of the Registrant's business.

Item 3.  Legal Proceedings
--------------------------

         The Registrant is periodically  involved as a plaintiff or defendant in
various  legal  actions,   such  as  actions  to  enforce  liens,   condemnation
proceedings  on properties in which the  Registrant  holds  mortgage  interests,
matters  involving the making and servicing of mortgage  loans and other matters
incident to the  Registrant's  business.  In the opinion of management,  none of
these actions individually or in the aggregate is believed to be material to the
financial condition or results of operations of the Registrant.

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

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of the fiscal year ended December 31, 2003.

                                     Part II

Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
--------------------------------------------------------------------------------
         Matters
         -------

         The  information  contained under the section  captioned  "Stock Market
Information"  in the  Corporation's  2003  Annual  Report to  Stockholders  (the
"Annual Report") is incorporated herein by reference.

Item 6.  Selected Financial Data
--------------------------------

         The information contained in the table captioned "Financial Highlights"
in the Annual Report is incorporated herein by reference.

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
        of Operations
        -------------

         The  information  contained  in  the  section  captioned  "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
--------------------------------------------------------------------

         The information  contained in the sections  captioned  "Market Risk and
Liquidity  Risk"and  "Interest  Rate Risk" in the Annual Report is  incorporated
herein by reference.

                                       19

<PAGE>

Item 8.  Financial Statements and Supplementary Data
----------------------------------------------------

         The  Registrant's  financial  statements  listed in Item 15 herein  are
incorporated herein by reference.

Item 9.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
--------------------------------------------------------------------------------
         Financial Disclosure
         --------------------

         None.

Item 9A.  Controls and Procedures
---------------------------------

         The  Company's  management  evaluated,  with the  participation  of the
Company's Chief Executive Officer and Chief Financial Officer, the effectiveness
of the Company's disclosure controls and procedures, as of the end of the period
covered by this report.  Based on that evaluation,  the Chief Executive  Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information  required to be disclosed by
the  Company  in the  reports  that it files or  submits  under  the  Securities
Exchange Act of 1934 is recorded, processed,  summarized and reported within the
time periods  specified in the  Securities and Exchange  Commission's  rules and
forms.

         There were no changes in the Company's  internal control over financial
reporting  that  occurred  during the  Company's  last fiscal  quarter that have
materially  affected,  or  are  reasonably  likely  to  materially  affect,  the
Company's internal control over financial reporting.

                                    Part III

Item 10.  Directors and Executive Officers of the Registrant
------------------------------------------------------------

         The information  contained under the sections  captioned "Section 16(a)
Beneficial  Ownership  Reporting  Compliance"  and  "Proposal  I -  Election  of
Directors" in the 2004 Proxy Statement are incorporated herein by reference.

Executive Officers of the Corporation Who Are Not Directors


Name and Title                                       Age as of December 31, 2003
--------------                                       ---------------------------

Channing L. Smith                                                 60
Vice President and Chief Financial Officer

James E. Igo                                                      47
Senior Vice President and Chief Lending Officer

Thomas M. Topley                                                  43
Senior Vice President and Corporate Secretary


         Channing  L. Smith has  served as Vice  President  and Chief  Financial
Officer of the Corporation and the Bank since October 1994. In this capacity, he
is responsible for the management of the accounting,

                                       20

<PAGE>

treasury,  and  investments of the  Corporation and the Bank. From April 1994 to
October 1994, Mr. Smith served as controller of the Corporation and the Bank.

         James E. Igo has served as Senior Vice  President  and Senior  Mortgage
Lending Officer of the Corporation and the Bank since November 1991.

         Thomas M.  Topley has served as Senior  Vice  President  of  Operations
since April 1993 and as  Corporate  Secretary  of the  Corporation  and the Bank
since  April  1992.  From June 1990 to April  1993,  Mr.  Topley  served as Vice
President and Controller for the Bank.

         The Company has adopted a Code of Ethics that applies to its  principal
executive officer,  principal financial officer, principal accounting officer or
controller or persons performing similar functions.  A copy of the Corporation's
Code of Ethics will be  furnished,  without  charge,  to any person who requests
such copy by writing to the Secretary, FMS Financial Corporation, 3 Sunset Road,
Burlington, New Jersey 08016.

Item 11.  Executive Compensation
--------------------------------

         The information  contained under the section  captioned  "Proposal I --
Election of  Directors  -  Executive  Compensation"  in the Proxy  Statement  is
incorporated herein by reference.

Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management and
--------------------------------------------------------------------------------
          Related Stockholder Matters.
          ----------------------------

         (a)      Security Ownership of Certain Beneficial Owners

                  Information  required by this item is  incorporated  herein by
                  reference  to the Section  captioned  "Voting  Securities  and
                  Principal Holders Thereof" of the Proxy Statement.

         (b)      Security Ownership of Management

                  Information  required by this item is  incorporated  herein by
                  reference to the section captioned  "Proposal I -- Election of
                  Directors" of the Proxy Statement.

         (c)      Changes in Control

                  Management  of  the  Corporation  knows  of  no  arrangements,
                  including  any  pledge  by any  person  of  securities  of the
                  Corporation,  the operation of which may at a subsequent  date
                  result in a change in control of the registrant.

         (d)      Securities Authorized  for  Issuance Under Equity Compensation
                  Plans.


                                       21

<PAGE>
         Set forth below is  information as of December 31, 2003 with respect to
compensation   plans  under  which  equity  securities  of  the  Registrant  are
authorized for issuance.
<TABLE>
<CAPTION>
                                          EQUITY COMPENSATION PLAN INFORMATION
                                                    (a)                     (b)                  (c)

                                                                                                 Number of securities
                                                                                                 remaining available
                                            Number of securities       Weighted-average           for future issuance
                                             to be issued upon         exercise price of             under equity
                                                exercise of               outstanding             compensation plans
                                            outstanding options,       options, warrants        (excluding securities
                                            warrants and rights           and rights          reflected in column (a))
                                            --------------------          -----------         ------------------------
<S>                                              <C>                       <C>                  <C>
Equity compensation plans
  approved by shareholders

Stock Option and
  Incentive Plan........................           75,250                    $8.06                        --

Equity compensation plans
  not approved by shareholders                        N/A                      N/A                       N/A
                                                   ------                    -----                    ------
     TOTAL.............................            75,250                    $8.06                        --
                                                   ======                    =====                    ======
</TABLE>


Item 13.  Certain Relationships and Related Transactions
--------------------------------------------------------

         The  information  required  by this  item  is  incorporated  herein  by
reference  to  the  section   captioned   "Certain   Relationships  and  Related
Transactons" of the Proxy Statement.

Item 14.  Principal Accountant Fees and Services
------------------------------------------------

         The  information  called  for by this  item is  incorporated  herein by
reference to the section entitled  "Proposal II - Ratification of Appointment of
Auditors" in the Proxy Statement.

                                     Part IV

Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
--------------------------------------------------------------------------

         (a)      Listed below are all financial  statements  and exhibits filed
                  as part of this report, and are incorporated by reference.

                  1.       The consolidated statements of financial condition of
                           FMS  Financial   Corporation  and  subsidiary  as  of
                           December   31,   2003  and  2002,   and  the  related
                           consolidated   statements   of  income,   changes  in
                           stockholders'  equity  and cash flows for each of the
                           years in the three year  period  ended  December  31,
                           2003,   together  with  the  related  notes  and  the
                           independent         auditors'        report        of
                           PricewaterhouseCoopers LLP.

                                       22

<PAGE>

                  2. Schedules omitted as they are not applicable.

                  3.       Exhibits

                           The  following  Exhibits  are  filed  as part of this
                           report:
<TABLE>
<CAPTION>

<S>                             <C>
                           3.1      Certificate of Incorporation*
                           3.2      Bylaws*
                           4        Agreement to furnish copy to Securities and Exchange Commission
                                    upon request of Indenture dated July 28, 1994, relating to 10%
                                    Subordinated Debentures due 2004 in aggregate principal amount
                                    of $10 million**
                           10.1     Stock Option and Incentive Plan***
                           13       Portions of the 2003 Annual Report to Stockholders
                           21       Subsidiaries of the Registrant
                           23       Consent of Independent Accountants
                           31       Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
                           32       Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>

                    ---------------
                    *    Incorporated by reference to the Registrant's  Form S-1
                         Registration Statement No. 33-24340.
                    **   Incorporated  by reference to the  Registrant's  Annual
                         Report on Form 10-K for the fiscal year ended  December
                         31, 1994.
                    ***  Incorporated by reference to the Registrant's  Form S-8
                         Registration Statement No. 33-24340.

         (b) Reports on Form 8-K.

                  A Report on Form 8-K,  dated October 22, 2003,  was filed with
                  the SEC on  October  23,  2003 to  announce  earnings  for the
                  quarter ended September 30, 2003.

                                       23

<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) 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 as of March 25, 2004.

                                          FMS FINANCIAL CORPORATION


                                          By:   /s/ Craig W. Yates
                                                --------------------------------
                                                Craig W. Yates, President and
                                                Chief Executive Officer
                                                (Duly Authorized Representative)

         Pursuant to the  requirement  of the  Securities  Exchange Act of 1934,
this report has been signed below on March 25, 2004 by the following  persons on
behalf of the registrant and in the capacities indicated.

<TABLE>
<CAPTION>
<S>                                                     <C>
/s/ Craig W. Yates
-----------------------------------------------------         ------------------------------------------------------
Craig W. Yates                                                George J. Barber
President, Chief Executive Officer and Director               Director
(Principal Executive Officer)

/s/ Channing L. Smith                                         /s/ Edward J. Staats, Jr.
-----------------------------------------------------         ------------------------------------------------------
Channing L. Smith                                             Edward J. Staats, Jr.,
Vice President and Chief Financial Officer                    Director
(Principal Financial and Accounting Officer)

/s/ Wayne H. Page                                             /s/ Dominic W. Flamini
-----------------------------------------------------         ------------------------------------------------------
Wayne H. Page                                                 Dominic W. Flamini
Director                                                      Director

/s/ Vincent R. Farias                                         /s/ Roy D. Yates
-----------------------------------------------------         ------------------------------------------------------
Vincent R. Farias                                             Roy D. Yates
Director                                                      Chairman of the Board

/s/ Mary Wells                                                /s/ Joseph W. Clarke, Jr.
-----------------------------------------------------         ------------------------------------------------------
Mary Wells                                                    Joseph W. Clarke, Jr.
Director                                                      Director

</TABLE>

                                       24