UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

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


                                    FORM 10-Q

(Mark One)

  X          Quarterly report pursuant to Section 13 or 15(d) of the  Securities
------       Exchange Act of 1934

             For the quarterly period ended September 30, 2005

                                       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
                                                               ---     ---

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

         Indicate by check mark whether the  registrant  is a shell  company (as
defined in Rule 12b-2 of the Exchange Act).      YES      NO  X
                                                     ---     ---

         As of  November  4, 2005 there were  issued and  outstanding  6,502,960
shares of the registrant's Common Stock, par value $.10 per share.

<PAGE>

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

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

                               SEPTEMBER 30, 2005
                               ------------------

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

<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----
<S>                                                                                                    <C>
PART I - Financial Information
-------------------------------

         Item 1 - Financial Statements
                  Consolidated Statements of Financial Condition as of
                       September 30, 2005 (unaudited) and December 31, 2004................................1

                  Consolidated Statements of Operations (unaudited)
                       for the three and nine months ended
                       September 30, 2005 and September 30, 2004...........................................2

                  Consolidated Statements of Cash Flows (unaudited)
                       for the nine months ended September 30, 2005
                       and September 30, 2004..............................................................3

                  Consolidated Statements of Changes in Stockholders' Equity
                       (unaudited) for the nine months ended Septemeber 30, 2005 and
                       September 30, 2004..................................................................4

                  Notes to Consolidated Financial Statements.............................................5-6

         Item 2 - Management's Discussion and Analysis of
                  Financial Condition and Results of Operations.........................................7-17

         Item 3 - Quantitative and Qualitative Disclosure about Market Risk...............................17

         Item 4 - Controls and Procedures..............................................................17-18

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

         Item 1 - Legal Proceedings.......................................................................18
         Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.............................18
         Item 3 - Defaults Upon Senior Securities.........................................................18
         Item 4 - Submission of Matters to a Vote of Security of Holders..................................18
         Item 5 - Other Information.......................................................................18
         Item 6 - Exhibits ...............................................................................18
</TABLE>

<PAGE>

PART I.         FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
-------------------------------------------------------------------------------------------------------------------------------
                                                                                         September 30, 2005  December 31, 2004
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>                <C>
ASSETS
-------------------------------------------------------------------------------------------------------------------------------
   Cash and amounts due from depository institutions                                       $    49,910,908    $    46,410,744
   Interest-bearing deposits                                                                        28,349             30,950
   Short term funds                                                                             51,864,635         64,135,662
                                                                                           ---------------    ---------------

   Total cash and cash equivalents                                                             101,803,892        110,577,356
   Investment securities held to maturity                                                      242,442,079        254,833,749
   Investment securities available for sale                                                    161,037,070        141,999,280
   Mortgage-backed securities held to maturity                                                 218,641,767        269,221,897
   Loans, net                                                                                  437,505,725        418,798,633
   Accrued interest receivable                                                                   6,365,942          6,322,107
   Federal Home Loan Bank stock                                                                  7,750,020         10,250,120
   Office properties and equipment, net                                                         31,291,304         30,747,227
   Deferred income taxes                                                                         2,416,169          2,150,442
   Core deposit intangible                                                                       2,054,874          2,592,030
   Prepaid expenses and other assets                                                             2,181,907          2,513,224
                                                                                           ---------------    ---------------
TOTAL ASSETS                                                                               $ 1,213,490,749    $ 1,250,006,065
                                                                                           ===============    ===============

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

Liabilities:
   Deposits                                                                                $   951,356,203    $   941,506,820
   Securities sold under agreements to repurchase                                              155,000,000        195,000,000
   Advances from the Federal Home Loan Bank                                                              0         10,000,000
   FMS Statutory Trust 1 debentures                                                             25,774,000         25,774,000
   Advances by borrowers for taxes and insurance                                                 2,179,179          2,200,357
   Accrued interest payable                                                                      1,152,093          1,246,661
   Dividends payable                                                                               195,089            195,029
   Other liabilities                                                                             3,553,710          3,746,579
                                                                                           ---------------    ---------------
   Total liabilities                                                                         1,139,210,274      1,179,669,446
                                                                                           ---------------    ---------------

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
                  7,992,142 and 7,991,292 and shares outstanding 6,502,960 and
                  6,502,110 as of September 30, 2005 and December 31, 2004, respectively           799,214            799,129
   Paid-in capital in excess of par                                                              8,688,136          8,555,506
   Accumulated other comprehensive income - net of income taxes                                   (582,669)           270,784
   Retained earnings                                                                            76,310,793         71,646,199
   Less:  Treasury stock (1,489,182 shares, at cost, as of September 30, 2005
             and December 31, 2004)                                                            (10,934,999)       (10,934,999)
                                                                                           ---------------    ---------------
Total stockholders' equity                                                                      74,280,475         70,336,619
                                                                                           ---------------    ---------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                 $ 1,213,490,749    $ 1,250,006,065
                                                                                           ===============    ===============
</TABLE>

See notes to consolidated financial statements.

                                       1

<PAGE>
<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
---------------------------------------------------------------------------------------------------------------------------
                                                                      Three Months ended           Nine Months ended
                                                                         September 30,               September 30,
                                                                ---------------------------    ----------------------------
                                                                     2005           2004            2005           2004
---------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>             <C>            <C>
INTEREST  INCOME:
Interest income on:
  Loans                                                         $  6,551,661   $  6,219,024    $ 19,119,549   $ 18,329,907
  Mortgage-backed securities                                       3,683,402      4,224,347      11,061,882     12,237,351
  Investments                                                      4,350,829      3,706,263      12,715,465     10,808,357
                                                                ------------   ------------    ------------   ------------
Total interest income                                             14,585,892     14,149,634      42,896,896     41,375,615
                                                                ------------   ------------    ------------   ------------

INTEREST EXPENSE:
Interest expense on:
  Deposits                                                         2,951,433      1,942,196       8,037,622      5,548,386
  Borrowings                                                       1,998,801      2,305,113       6,162,057      7,006,011
  Long term debt                                                     469,752        353,489       1,321,428        992,527
                                                                ------------   ------------    ------------   ------------
Total interest expense                                             5,419,986      4,600,798      15,521,107     13,546,924
                                                                ------------   ------------    ------------   ------------

NET INTEREST INCOME                                                9,165,906      9,548,836      27,375,789     27,828,691
PROVISION FOR LOAN LOSSES                                             90,000         90,000         270,000        240,000
                                                                ------------   ------------    ------------   ------------

NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                                9,075,906      9,458,836      27,105,789     27,588,691
                                                                ------------   ------------    ------------   ------------

NON-INTEREST INCOME:
  Loan service charges and other fees                                 15,454         21,384          56,625         80,560
  Gain on sale of investment securities                                    0        433,518               0        533,574
  Gain on sale of fixed assets                                             0              0               0         46,080
  Real estate owned operations, net                                        0            (39)              0         (4,586)
  Service charges on accounts                                      1,328,612      1,308,036       3,969,753      3,834,588
  Other income                                                        41,290         35,861         116,107        100,177
                                                                ------------   ------------    ------------   ------------
Total non-interest income                                          1,385,356      1,798,760       4,142,485      4,590,393
                                                                ------------   ------------    ------------   ------------

NON-INTEREST EXPENSE:
  Salaries and employee benefits                                   4,534,246      4,209,679      13,369,108     12,409,459
  Occupancy and equipment                                          1,405,837      1,361,072       4,227,445      4,043,164
  Purchased services                                                 685,900        699,781       2,084,823      2,144,793
  Federal deposit insurance premiums                                  31,167         32,412          95,580         97,959
  Professional fees                                                  193,792        161,864         565,800        495,542
  Advertising                                                        109,814        106,565         323,057        322,591
  Amortization of core deposit intangible                            179,052        179,052         537,156        537,156
  Other                                                              444,909        319,439       1,158,840      1,020,789
                                                                ------------   ------------    ------------   ------------

Total non-interest expenses                                        7,584,717      7,069,864      22,361,809     21,071,453
                                                                ------------   ------------    ------------   ------------

INCOME BEFORE INCOME TAXES                                         2,876,545      4,187,732       8,886,465     11,107,631

INCOME TAXES                                                       1,170,210      1,679,599       3,636,604      4,448,954
                                                                ------------   ------------    ------------   ------------

NET INCOME                                                      $  1,706,335   $  2,508,133    $  5,249,861   $  6,658,677
                                                                ============   ============    ============   ============


 BASIC EARNINGS PER COMMON SHARE                                $       0.26   $       0.39    $       0.81   $       1.03
                                                                ============   ============    ============   ============

 DILUTED EARNINGS PER COMMON SHARE                              $       0.26   $       0.38    $       0.80   $       1.02
                                                                ============   ============    ============   ============


  Dividends declared per common share                           $       0.03   $       0.03    $       0.09   $       0.09
                                                                ------------   ------------    ------------   ------------


Weighted average common shares outstanding                         6,502,960      6,500,960       6,502,516      6,493,267

Potential dilutive effect of the exercise of stock options            33,173         36,763          35,397         38,020
                                                                ------------   ------------    ------------   ------------

Adjusted weighted average common shares outstanding                6,536,133      6,537,723       6,537,913      6,531,287
                                                                ============   ============    ============   ============
</TABLE>

See notes to consolidated financial statements.

                                       2

<PAGE>

<TABLE>
<CAPTION>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------------------------------------
Nine Months ended September 30,                                                     2005             2004
--------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>
OPERATING ACTIVITIES:
Net income                                                                    $   5,249,861    $   6,658,677
Adjustments to reconcile net income to net cash provided
   by operating activities:
 Provision for loan losses                                                          270,000          240,000
 Amortization and accretion of premiums and discounts on investments, net         1,476,011        3,510,659
 Amortization and accretion of other fees and costs                                 613,170          648,859
 Depreciation                                                                     1,520,704        1,477,828

Realized (gains) and losses on:
 Sale of loans                                                                            0             (229)
 Disposal and sale of fixed assets                                                      115          (46,080)
 Sale of investment securities                                                            0         (533,574)
 Sale of real estate owned                                                                0             (654)
 Increase in accrued interest receivable                                            (43,835)      (1,237,544)
 Decrease (Increase) in prepaid expenses and other assets                           272,934         (494,225)
 Decrease in accrued interest payable                                               (94,568)        (111,685)
 Increase in other liabilities                                                      396,539          485,327
 Benefit for deferred income taxes                                                 (265,727)         (71,580)
                                                                              -------------    -------------
 Net cash provided by operating activities                                        9,395,204       10,525,779
                                                                              -------------    -------------
INVESTING ACTIVITIES:
Proceeds from sale of:
 Education loans                                                                          0           60,279
 Real estate owned                                                                        0           48,948
 Property and equipment                                                                   0          238,871
 Investment securities available for sale                                                 0       17,723,462
 Principal collected and proceeds from maturities of investment
   securities held to maturity                                                  246,714,459       88,067,249
 Principal collected and proceeds from maturities of investment securities
   available for sale                                                            99,587,558       39,787,375
 Principal collected from mortgage-backed securities held to maturity            49,731,095       82,180,283
 Principal collected on loans, net                                               67,473,299       83,858,710
 Loans originated or acquired, net                                              (86,468,022)    (102,474,901)
 Purchase of investment securities and mortgage-backed securities held to
   maturity                                                                    (234,489,547)    (136,349,712)
 Purchase of investment securities and mortgage-backed securities available
   for sale                                                                    (120,528,427)     (83,735,389)
 Redemption of Federal Home Loan Bank stock                                       2,500,100        1,559,500
 Purchase of office property and equipment                                       (2,064,894)      (1,261,120)
                                                                              -------------    -------------
Net cash provided (used) by investing activities                                 22,455,621      (10,296,445)
                                                                              -------------    -------------
FINANCING ACTIVITIES:
 Net increase in demand deposits and savings accounts                            12,153,538       43,869,502
 Net decrease in time deposits                                                   (2,304,155)     (13,170,489)
 Net decrease in FHLB advances                                                  (10,000,000)      (1,191,047)
 Repayment from securities sold under agreement to repurchase                   (40,000,000)     (30,000,000)
 (Decrease) Increase in advances from borrowers for taxes and insurance             (21,178)          96,440
 Dividends paid on common stock                                                    (585,209)        (584,219)
 Net proceeds from issuance of common stock                                         132,715           38,296
                                                                              -------------    -------------
 Net cash used by financing activities                                          (40,624,289)        (941,517)
                                                                              -------------    -------------
DECREASE IN CASH AND CASH EQUIVALENTS                                            (8,773,464)        (712,183)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                    110,577,356       72,334,637
                                                                              -------------    -------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                        $ 101,803,892    $  71,622,454
                                                                              =============    =============
Supplemental Disclosures:
 Cash paid for:
 Interest on deposits, advances, and other borrowings                         $  15,615,675    $  13,658,609
 Income taxes                                                                     4,417,629        4,243,000
 Non-cash investing and financing activities:
 Dividends declared and not paid at quarter end                                     195,077          195,029

</TABLE>

See notes to consolidated financial statements.

                                       3

<PAGE>
<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
--------------------------------------------------------------------------------------------------------------------------------
                                                                          Accumulated                                     Total
                               Common shares    Common       Paid-in    comprehensive     Retained      Treasury   Stockholders'
                                outstanding      stock       capital    income (loss)     earnings         stock         Equity
--------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>         <C>        <C>           <C>           <C>           <C>             <C>
Balances at December 31, 2003      6,485,877   $797,506   $8,507,333    $   802,239   $ 63,657,664  $(10,934,999)   $62,829,743
Net Income                                                                               6,658,677                    6,658,677
Other comprehensive income
  Unrealized loss on
      securities available
      for sale, net of taxes
      of ($153,075)                                                        (230,194)                                   (230,194)
                                                                                                                    -----------
Total comprehensive income                                                                                            6,428,483
                                                                                                                    -----------

Dividends declared ($.09)                                                                 (584,672)                    (584,672)
Exercise of stock options             15,083      1,508       36,788                                                     38,296

--------------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 2004     6,500,960   $799,014   $8,544,121    $   572,045   $ 69,731,669  $(10,934,999)   $68,711,850
--------------------------------------------------------------------------------------------------------------------------------

Balances at December 31, 2004      6,502,110   $799,129   $8,555,506    $   270,784   $ 71,646,199  $(10,934,999)   $70,336,619
Net Income                                                                               5,249,861                    5,249,861
Other comprehensive income
  Unrealized loss on
      securities available
      for sale, net of taxes
      of ($589,408)                                                        (853,453)                                   (853,453)
                                                                                                                    -----------
Total comprehensive income                                                                                            4,396,408
                                                                                                                    -----------

Dividends declared ($.09)                                                                 (585,267)                    (585,267)
Exercise of stock options                850         85      132,630                                                    132,715

--------------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 2005     6,502,960   $799,214   $8,688,136    $  (582,669)  $ 76,310,793  $(10,934,999)   $74,280,475
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.

                                       4

<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2005 (UNAUDITED).

1-GENERAL
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 its 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 and
nine months  ended  September  30, 2005 are not  necessarily  indicative  of the
operating results for the full fiscal year or any other interim period.

The accompanying  unaudited consolidated financial statements have been prepared
in accordance with the instructions for Form 10-Q, and therefore, do not include
all  information  and  notes  necessary  for a fair  presentation  of  financial
condition, results of operations and statements of cash flows in conformity with
generally  accepted  accounting  principles.  These statements should be read in
conjunction  with the  consolidated  statements  and  related  notes,  which are
incorporated  by reference to the  Corporation's  annual report on Form 10-K for
the year ended December 31, 2004. The consolidated  financial statements include
the Corporation's principle subsidiary, Farmers & Mechanics Bank (the "Bank").


2-LONG-TERM DEBT
Long-Term  Debt at September  30, 2005 and December 31, 2004  consisted of $25.8
million of FMS  Statutory  Trust 1  debentures.  The interest  rate resets every
three months to LIBOR plus 360 basis points and will not exceed  11.00%  through
March 2007.  At September  30, 2005 and December 31, 2004 the interest  rate was
7.56% and 6.15%, respectively.  The proceeds were used for the paydown in August
2002 of the $10.0  million  subordinated  debentures,  expansion  of the  Bank's
operations and general corporate purposes.


3-REGULATORY CAPITAL REQUIREMENTS
The Bank is considered  "well  capitalized"  by OTS regulations at September 30,
2005. The Bank's regulatory  tangible and tier 1 (core) capital ratios are $87.6
million or 7.24% of total bank assets and $92.1 million or 18.13% for risk-based
capital. FMS's consolidated capital ratio at September 30, 2005 totaled 6.12%.

4-STOCK OPTIONS
The  Corporation  maintains  an incentive  stock  option  plan.  As permitted by
Statement of  Financial  Accounting  Standards  (SFAS) No. 148  "Accounting  for
Stock-Based   Compensation-Transition   and  Disclosure"  the  Corporation  will
continue to use the intrinsic  value method of accounting for stock options.  No
options have been granted  during the nine months ended  September  30, 2005 and
2004.

5-PENSION  PLAN- The  Corporation  maintains a defined  benefit Pension Plan for
active  employees.  The  Corporation  expects to contribute  approximately  $1.1
million to its pension plan in 2005 and has contributed $605 thousand during the
nine months ended September 30, 2005. The components of the net pension cost are
as follows:

                                               Nine Months ended September 30,
           ---------------------------------------------------------------------
                                                  2005            2004
           ---------------------------------------------------------------------

           Service cost                         $691,065        $653,280

           Interest cost                         511,881         423,276
           Return on assets                     (610,218)       (474,150)
           Net amortization and deferral           3,081           9,201
          ----------------------------------------------------------------------
           Net periodic pension cost            $595,809        $611,607
          ----------------------------------------------------------------------

                                       5

<PAGE>

6-RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2005, Staff Accounting  Bulletin No. 107 (SAB 107) was issued.  SAB 107
summarizes the views of the staff regarding the interaction between Statement of
Financial  Accounting  Standards Statement No. 123 (SFAS No. 123R),  share-based
payment and certain Securities and Exchange Commission rules and regulations and
provides  the staff's  views  regarding  the  valuation of  share-based  payment
arrangements  for public  companies.  SFAS No.  123R,  a revision of SFAS No.123
"Accounting  for  Stock-Based  Compensation",   establishes  standards  for  the
accounting for  transaction in which a entity  exchanges its equity  instruments
for goods and services. The adoption of this standard will have no effect on the
Corporation's Consolidated Statements of Financial Condition or the Consolidated
Statements of Operation, as all options that have been issued are fully vested.

In May 2005, the Financial  Accounting Standard Board (FASB) issued Statement of
Financial  Standards  No.  154 (SFAS No.  154)  "Accounting  Changes  and Errors
Corrections - a replacement of Accounting  Principles Board (APB) Opinion No. 20
and FASB Statement No. 3", which changes the requirements for the accounting for
and  reporting  of a change in  accounting  principle.  It also  applies  to all
voluntary changes in accounting  principle.  Opinion 20 previously required that
most changes in accounting principle be recognized by including in net income of
the  period  of the  change,  the  cumulative  effect  of  changing  to the  new
principle.  This Statement requires retrospective  application to prior period's
financial statements of changes in accounting principle.  This Statement becomes
effective for accounting  changes and corrections of errors made in fiscal years
beginning after December 15, 2005. The adoption of this standard is not expected
to have a  material  impact  on the  Corporation's  Consolidated  Statements  of
Financial Condition or the Consolidated Statements of Operations.

                                       6

<PAGE>

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005.
The  following  discussion  and  analysis  should  be read  with  our  financial
statements and related notes included elsewhere in this report on Form 10-Q. 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. The discussion and analysis in
this  report may  contain  "forward-looking  statements"  within the  meaning of
Section 21A of the Securities and Exchange Act of 1934.

These  forward-looking  statements  involve  risk  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 cautionary statements made
in this  report  should  be  read as  applying  to all  related  forward-looking
statements  wherever they appear in this report.  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.  Such risks and  uncertainties  could  cause  actual
results to differ  materially  from any  future  performance  suggested  in this
report. The Corporation cautions that the foregoing list of important factors is
not exclusive.  The Corporation undertakes no obligation to release publicly the
results of any revisions to these  forward-looking  statements to reflect events
or  circumstances  arising  after the date of this report.  This caution is made
under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995.

                                       7

<PAGE>

FINANCIAL CONDITION

Total Assets - at September  30, 2005 were $1.21  billion as compared with total
assets at December 31, 2004 of $1.25 billion.

Short Term Funds - decreased  $12.2  million to $51.9  million at September  30,
2005 from $64.1  million at December 31, 2004 due to the purchase of  investment
securities and the originations of loans.

Investment  Securities  Held to  Maturity -  decreased  $12.4  million to $242.4
million at  September  30,  2005 from  $254.8  million  at  December  31,  2004,
primarily due to calls of $94.7 million in U.S. Agency Notes, principal paydowns
of $19.8  million in CMO's and the maturity of $2.1 million of Municipal  Bonds,
partially offset by purchases of $88.0 million in U.S Agency Notes, $9.4 million
in CMO's and $7.1  million  of  Municipal  Bonds  during the nine  months  ended
September 30, 2005. All investment  securities held to maturity at September 30,
2005 are fixed rate  securities.  A comparison  of cost and  approximate  market
values of  investment  securities  held to maturity as of September 30, 2005 and
December 31, 2004 follows:

<TABLE>
<CAPTION>
                                                   September 30, 2005                             December 31, 2004
-----------------------------------------------------------------------------------------  -------------------------------
                                                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. Agency Notes          $157,485,269       $29,329       $(1,205,335)    $156,309,263    $164,381,425    $164,033,241
CMO's                         76,960,372         8,194        (1,711,006)      75,257,560      87,413,111      86,773,600
Municipal bonds                7,996,438         3,082                 0        7,999,520       3,039,213       3,043,454
-----------------------------------------------------------------------------------------  -------------------------------
Total                       $242,442,079       $40,605       $(2,916,341)    $239,566,343    $254,833,749    $253,850,295
=========================================================================================  ===============================
</TABLE>

Investment  Securities  Available  for Sale - increased  $19.0 million to $161.0
million at September  30, 2005 from $142.0  million at December  31,  2004.  The
increase is the result of  purchases  of $61.8  million of  Governmental  Bonds,
$39.0 million of U.S.  Agency Notes,  $14.6 million of MBS's and $5.0 million of
CMO's,  partially  offset by the  redemption  of $58.5  million of  Governmental
Bonds,  principal paydowns of $27.0 million of CMO's and MBS's and $14.0 million
in calls of U.S.  Agency Notes at  September  30,  2005.  Investment  securities
available for sale consisted of $153.2 million in fixed rate securities and $7.8
million in  adjustable  rate  securities  at September 30, 2005. A comparison of
cost and approximate market values of investment  securities  available for sale
as of September 30, 2005 and December 31, 2004 follows:

<TABLE>
<CAPTION>
                                                   September 30, 2005                             December 31, 2004
-------------------------------------------------------------------------------------------  -----------------------------
                                                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. Agency Notes          $ 55,423,670      $    254     $  (494,922)       $ 54,929,002    $ 30,537,053    $ 30,316,735
CMO's                         28,249,293        14,681        (259,026)         28,004,948      37,677,754      37,601,576
MBS's                         75,099,177       252,155        (498,212)         74,853,120      73,326,684      74,080,969
Governmental Bonds             3,250,000             0               0           3,250,000               0               0
-------------------------------------------------------------------------------------------  -----------------------------
Total                       $162,022,140      $267,090     $(1,252,160)       $161,037,070    $141,541,491    $141,999,280
===========================================================================================  =============================
</TABLE>

                                       8

<PAGE>

Mortgage-Backed  Securities  Held to Maturity - MBS's decreased $50.6 million to
$218.6  million at September 30, 2005 from $269.2  million at December 31, 2004.
The decrease is  primarily  the result of  principal  paydowns of $49.7  million
during the nine months ended September 30, 2005.  Mortgage-backed  securities at
September  30, 2005  consisted of $189.1  million in fixed rate  securities  and
$29.5 million in adjustable rate securities.  Mortgage-backed securities held to
maturity at September 30, 2005 and December 31, 2004 are summarized below:

<TABLE>
<CAPTION>
                                         September 30, 2005                                December 31, 2004
-------------------------------------------------------------------------------    ----------------------------------
                                  Gross          Gross             Estimated                            Estimated
                Amortized       Unrealized      Unrealized           Market            Amortized          Market
                  Cost            Gains          Losses              Value                Cost            Value
-------------------------------------------------------------------------------    ----------------------------------
<S>              <C>                <C>           <C>             <C>                <C>             <C>
GNMA         $  5,437,070       $  225,395     $         0         $  5,662,465      $  7,598,918       $  7,975,978
FNMA          107,947,009        1,197,450        (559,583)         108,584,876       136,076,364        138,720,205
FHLMC          51,896,349          358,272        (560,280)          51,694,341        63,157,460         63,710,920
Pass Thru      53,361,339           35,905        (936,940)          52,460,304        62,389,155         62,119,115
--------------------------------------------------------------------------------   ----------------------------------
Total        $218,641,767       $1,817,022     $(2,056,803)        $218,401,986      $269,221,897       $272,526,218
================================================================================   ==================================
</TABLE>

The  following  table  shows the gross  unrealized  losses and fair value of the
Bank's   investments   with  unrealized   losses  that  are  not  deemed  to  be
other-than-temporarily impaired, aggregated by investment category and length of
time that individual securities have been in continuous unrealized loss position
at September 30, 2005:

<TABLE>
<CAPTION>
                                Less Than 12 Months               12 Months or Greater                       Total
                          ----------------------------------------------------------------------------------------------------
                                            Unrealized                           Unrealized                         Unrealized
Description of Security     Fair Value       Losses           Fair Value           Losses           Fair Value        Losses
------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>             <C>                <C>               <C>                <C>              <C>
Investement Securities Available for Sale:
------------------------------------------
U.S. Agency Notes         $ 29,522,352    $  (266,884)       $ 13,918,207      $  (228,038)       $ 43,440,559     $ (494,922)
CMO's                       19,376,210        (55,580)          5,858,800         (203,446)         25,235,010       (259,026)
MBS's                       27,974,134       (292,082)          7,645,826         (206,130)         35,619,960       (498,212)
------------------------------------------------------------- ---------------------------------   ---------------------------
Total Available for Sale    76,872,696       (614,546)         27,422,833         (637,614)        104,295,529     (1,252,160)
------------------------------------------------------------- ---------------------------------   ---------------------------

Investment Securities Held to Maturity:
---------------------------------------
U.S. Agency Notes           83,308,208       (578,101)         34,627,153         (627,234)        117,935,361     (1,205,335)
CMO's                       26,140,625       (384,949)         46,604,428       (1,326,057)         72,745,053     (1,711,006)
MBS's                       74,818,900       (675,298)         52,850,758       (1,381,505)        127,669,658     (2,056,803)
------------------------------------------------------------- ---------------------------------   ---------------------------
Total Held to Maturity     184,267,733     (1,638,348)        134,082,339       (3,334,796)        318,350,072     (4,973,144)
------------------------------------------------------------- ---------------------------------   ---------------------------
Total                     $261,140,429    $(2,252,894)       $161,505,172      $(3,972,410)       $422,645,601    $(6,225,304)
============================================================= =================================   ===========================
</TABLE>
                                       9

<PAGE>

Loans,  net - increased  $18.7  million to $437.5  million at September 30, 2005
from $418.8 million at December 31, 2004. This increase was primarily the result
of $86.5 million of loans  originated,  partially offset by approximately  $67.5
million of principal  collected on loans during the nine months ended  September
30, 2005. The following table shows loans  receivable by major categories at the
dates indicated.

                                    September 30,         December 31,
                                        2005                 2004
-----------------------------------------------------------------------------

Mortgage Loans                      $287,358,313         $275,842,765
Construction Loans                     1,047,515              897,264
Commercial Construction                9,358,456           11,971,241
Consumer Loans                         2,626,443            2,471,624
Commercial Real Estate               120,977,883          116,380,045
Commercial Business                   21,308,874           16,311,618
-----------------------------------------------------------------------------

Subtotal                             442,677,484          423,874,557
-----------------------------------------------------------------------------
Less:
    Deferred loan fees                   201,464              356,732
    Allowance for
     loan losses                       4,970,295            4,719,192
-----------------------------------------------------------------------------

Total loans, net                    $437,505,725         $418,798,633
-----------------------------------------------------------------------------

At September 30, 2005, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS Nos. 114 and 118 totaled $3.4 million of
which  $985  thousand  related  to loans  that were  individually  measured  for
impairment with a valuation allowance of $414 thousand and $2.4 million of loans
that were collectively measured for impairment with a valuation allowance of $93
thousand.  The Bank had  $5.0  million  in total  reserves  for loan  losses  at
September 30, 2005, representing  approximately 135% of non-performing loans and
1.1% of total loans.  For the nine months ended  September 30, 2005, the average
recorded  investment in impaired loans was approximately $2.3 million.  The Bank
recognized  $115  thousand  of interest  income on  impaired  loans for the nine
months ended September 30, 2005, all of which was recognized on the cash basis.

As of September 30, 2005,  the Bank had  outstanding  loan  commitments of $14.7
million, of which $5.6 million represented  variable rate loans and $9.1 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.

                                       10

<PAGE>

Non-Performing  Assets - The following  table sets forth  information  regarding
non-accrual  loans,  troubled debt  restructured and real estate owned assets by
the Bank.

                                                 September 30,     December 31,
                                                     2005             2004
                                                  ----------       ----------

Loans accounted for on a non-accrual basis:
Mortgage loans:
    One-to-four family                            $  925,989       $  819,076
    Commercial real estate                         2,437,439          984,924
    Consumer and other                                     0                0
                                                  ----------       ----------
    Total non-accrual loans                       $3,363,428       $1,804,000
                                                  ----------       ----------

    Troubled debt restructuring                   $  308,124       $  718,047
    Real estate owned, net                                 0                0
                                                  ----------       ----------
    Total non-performing assets, net              $3,671,552       $2,522,047
                                                  ----------       ----------


    Total non-accrual loans to net loans                0.77%            0.43%
                                                  ==========       ==========
    Total non-accrual loans to total assets             0.28%            0.14%
                                                  ==========       ==========
    Total non-performing assets to total assets         0.30%            0.20%
                                                  ==========       ==========


Deposits - increased  $9.9 million to $951.4  million at September 30, 2005 from
$941.5 million at December 31, 2004. Increases in non-interest checking accounts
of $11.8 million and checking accounts of $9.5 million, were partially offset by
decreases in money market accounts of $7.3 million,  certificates of deposits of
$2.3  million and savings  accounts  of $1.9  million for the nine months  ended
September 30, 2005. Interest credited to depositors accounts for the nine months
ended  September  30, 2005 amounted to $7.9  million.  The following  table sets
forth certain information concerning deposits at the dates indicated.

<TABLE>
<CAPTION>
                                          September 30, 2005                         December 31, 2004
--------------------------------------------------------------------------------------------------------------------
                                               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            $187,895,443   19.76%       0.00%          $176,047,722   18.70%        0.00%
Checking accounts                 223,585,170   23.50%       1.72%           214,059,142   22.74%        0.55%
Savings accounts                  193,101,507   20.30%       0.59%           195,039,302   20.71%        0.86%
Money market accounts             138,329,916   14.53%       0.84%           145,612,332   15.47%        0.72%
Certificates                      208,444,167   21.91%       2.22%           210,748,322   22.38%        1.82%
--------------------------------------------------------------------------------------------------------------------
   Total Deposits                $951,356,203  100.00%       1.13%          $941,506,820  100.00%        0.84%
====================================================================================================================
</TABLE>

                                       11

<PAGE>

Borrowings - at September  30, 2005  consisted of $155.0  million in  securities
sold under the agreement to repurchase with a weighted  average interest rate of
5.05%.  At  December  31,  2004,  borrowings  consisted  of  $195.0  million  in
securities sold under  agreements to repurchase with a weighted  average rate of
4.49% and $10.0  million  in  Federal  Home Loan Bank  Advances  with a weighted
average interest rate of 2.53%.

Long-term  debt - at September 30, 2005 and December 31, 2004 consisted of $25.8
million of FMS  Statutory  Trust 1  debentures.  The interest  rate resets every
three months to LIBOR plus 360 basis points and will not exceed  11.00%  through
March 2007. At September  30, 2005 and December 31, 2004,  the interest rate was
7.56% and 6.15%, respectively.

RESULTS OF OPERATIONS

General
The earnings of the Corporation  depend primarily upon the level of net interest
income,  which is the difference between interest earned on its interest-earning
assets such as loans and investments,  and the interest paid on interest-bearing
liabilities,   such  as  deposits  including   non-interest  checking  accounts,
long-term debt and borrowings. Net interest income is a function of the interest
rate spread,  which is the difference  between the weighted average yield earned
on   interest-earning   assets   and  the   weighted   average   rate   paid  on
interest-bearing liabilities, as well as the average balance of interest-earning
assets as compared to interest-bearing  liabilities. Net income is also affected
by  non-interest  income,  such as  gains  (losses)  on the  sale of  loans  and
investments,  provision for loan losses and real estate owned,  service  charges
and other fees, and operating  expenses,  such as: salaries,  employee benefits,
deposit insurance  premiums,  depreciation,  occupancy and equipment expense and
purchased services expense.

The  Corporation  recorded net income for the three months ended  September  30,
2005 of $1.7  million,  or $.26  diluted  earnings per share as compared to $2.5
million,  or $.38 diluted earnings per share for the comparable  period in 2004.
The Corporation recorded net income for the nine months ended September 30, 2005
of $5.2 million, or $.80 diluted earnings per share as compared to $6.7 million,
or $1.02 diluted earnings per share for the comparable period in 2004.

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  average  yields  and rates are  derived by
dividing income or expense by the average balance of interest-earning  assets or
interest-bearing liabilities, respectively, for the periods presented.

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

                                       12

<PAGE>

<TABLE>
<CAPTION>
                                                    Three Months Ended September 30,
---------------------------------------------------------------------------------------------------------
                                                 2005                                 2004
--------------------------------------------------------------------     --------------------------------
                                  Average                  Average         Average             Average
                                  Balance     Interest   Yield/Rate        Balance  Interest  Yield/Rate
                                  -------     --------   ----------        -------  --------  ----------
                                                            (Dollars in Thousands)
<S>                           <C>            <C>           <C>         <C>         <C>          <C>
Interest-earning assets:
   Loans receivable            $  440,621     $ 6,552       5.95%       $  424,548  $ 6,219      5.86%
   Interest-bearing deposit        31,739         253       3.19%           49,734      174      1.40%
   Mortgage-backed securities     301,510       3,683       4.89%          377,060    4,224      4.48%
   Investment securities          342,736       4,098       4.78%          293,920    3,533      4.81%
                               ----------------------  ----------       ----------  -------  --------
Total interest-earning
     assets                     1,116,606      14,586       5.23%        1,145,262   14,150      4.94%
                               ----------------------  ---------        ----------  -------  --------

Interest-bearing liabilities:
   Checking deposits              398,902       1,071       1.07%          369,586      444      0.48%
   Savings deposits               196,328         289       0.59%          196,151      272      0.55%
   Money Market deposits          143,077         317       0.89%          143,936      270      0.75%
   Time deposit                   207,825       1,275       2.45%          214,861      956      1.78%
   Borrowings                     155,000       1,995       5.15%          211,989    2,305      4.35%
   Long-Term Debt                  25,774         473       7.34%           25,774      354      5.49%
                               ----------------------  ---------        ----------  -------  --------
Total interest-bearing
     liabilities               $1,126,906       5,420       1.92%       $1,162,297    4,601      1.58%
                               ===========-----------  ---------        ==========  -------  --------

Net interest income                           $ 9,166                                $9,549
                                              =======                                ======
Interest rate spread                                        3.31%                                3.36%
                                                           =====                                =====

Net yield on average interest-earning assets                3.28%                                3.34%
                                                           =====                                =====

Ratio of average interest-
   earning assets to average interest -bearing liabilities 99.09%                               98.53%
                                                           =====                                =====
</TABLE>


<TABLE>
<CAPTION>
                                                     Nine Months Ended September 30,
---------------------------------------------------------------------------------------------------------
                                                 2005                                 2004
--------------------------------------------------------------------     --------------------------------
                                  Average                  Average         Average             Average
                                  Balance     Interest   Yield/Rate        Balance  Interest  Yield/Rate
                                  -------     --------   ----------        -------  --------  ----------
                                                            (Dollars in Thousands)
<S>                           <C>            <C>           <C>         <C>         <C>          <C>
Interest-earning assets:
   Loans receivable            $  433,503     $19,120        5.88%      $  416,519  $18,330       5.87%
   Interest-bearing deposit        44,657         844        2.52%          25,644      438       2.28%
   Mortgage-backed securities     315,842      11,062        4.67%         412,464   12,237       3.95%
   Investment securities          339,783      11,871        4.66%         265,187   10,371       5.21%
                               ----------------------  -----------      ----------  -------  ---------
Total interest-earning
     assets                     1,133,785      42,897        5.04%       1,119,814   41,376       4.93%
                               ----------------------  ----------       ----------  -------  ---------

Interest-bearing liabilities:
   Checking deposits              398,619       2,804        0.94%         359,829    1,059       0.39%
   Savings deposits               197,913         868        0.58%         194,071      803       0.55%
   Money Market deposits          144,060         907        0.84%         135,745      698       0.69%
   Time deposit                   208,438       3,459        2.21%         218,550    2,988       1.82%
   Borrowings                     167,202       6,162        4.91%         227,511    7,006       4.10%
   Long-Term Debt                  25,774       1,321        6.83%          25,774      993       5.14%
                               ----------------------  ----------       ----------  -------  ---------
Total interest-bearing
     liabilities               $1,142,006      15,521        1.81%      $1,161,480   13,547       1.55%
                               ===========-----------  ----------       ==========  -------  ---------
Net interest income                           $27,376                               $27,829
                                              =======                               =======
Interest rate spread                                          3.23%                               3.38%
                                                             =====                               =====

Net yield on average interest-earning assets                  3.22%                               3.31%
                                                             =====                               =====

Ratio of average interest-
   earning assets to average interest -bearing liabilities   99.28%                              96.41%
                                                             =====                               =====
</TABLE>

                                       13

<PAGE>

Rate/Volume Analysis

The following  table describes the extent to which changes in interest rates and
changes in volume of interest-earning  assets and  interest-bearing  liabilities
have affected the Bank's interest income and interest expense during the periods
indicated.  For each category of  interest-earning  assets and  interest-bearing
liabilities,  information is provided on changes  attributable to (i) changes in
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). A higher level of non-performing  loans affects the
changes in both volume and rate.

<TABLE>
<CAPTION>
                                      Three Months Ended September 30,            Nine Months Ended September 30,
                                              2005 vs. 2004                             2005 vs. 2004
                                    Increase (Decrease) due to Change in:     Increase (Decrease) due to Change in:
                                    -------------------------------------     -------------------------------------
                                         Rate      Volume     Total                  Rate     Volume      Total
                                               (In Thousands)                              (In Thousands)
                                      ------------------------------             -------------------------------
<S>                                  <C>        <C>        <C>                   <C>        <C>        <C>
Interest income:
    Loans                             $    98    $   235    $   333               $    43    $   747    $   790
    Interest-bearing deposits             142        (63)        79                    81        325        406
    Mortgage-backed securities            305       (846)      (541)                1,692     (2,867)    (1,175)
    Investment securities                 (22)       587        565                (1,417)     2,917      1,500
                                      -------    -------    -------               -------    -------    -------

    Total change - interest income        523        (87)       436                   399      1,122      1,521
                                      -------    -------    -------               -------    -------    -------
Interest expense:
    Checking deposits                     592         35        627                 1,631        114      1,745
    Savings deposit                        17          0         17                    49         16         65
    Money market deposit                   49         (2)        47                   166         43        209
    Time deposit                          350        (31)       319                   609       (138)       471
    Borrowings                            310       (620)      (310)                1,013     (1,857)      (844)
    Long-Term Debt                        119          0        119                   328          0        328
                                      -------    -------    -------               -------    -------    -------

    Total change - interest expense     1,437       (618)       819                 3,796     (1,822)     1,974
                                      -------    -------    -------               -------    -------    -------

Net change in net interest income     $  (914)   $   531    $  (383)              $(3,397)   $ 2,944    $  (453)
                                      =======    =======    =======               =======    =======    =======
</TABLE>

Net Interest  Income - Net interest  income for the three months ended September
30, 2005  decreased  $383 thousand to $9.2 million  compared to $9.5 million for
the same period in 2004.  This was primarily due to decreases in interest income
on mortgage-backed securities (MBS's) of $541 thousand and increases in interest
expense  on  checking  deposits  of $627  thousand  and  time  deposits  of $319
thousand,  partially  offset by  increases  in  interest  income  on  investment
securities  of $565  thousand  and  loans of $333  thousand  and a  decrease  in
interest expense on borrowings of $310 thousand.

The  decrease  in  interest  income was  primarily  the result of a decrease  in
interest  income on MBS's of $541  thousand to $3.7 million for the three months
ended  September  30, 2005 from $4.2  million  for the same period in 2004.  The
average balance of MBS's decreased $75.6 million to $301.5 million for the three
months ended September 30, 2005 from $377.1 million for the same period in 2004,
which resulted in a volume  decrease in interest  income of $846  thousand.  The
average  yield of the MBS  portfolio  increased 41 basis points to 4.89% for the
quarter ended  September 30, 2005 from 4.48% for the same period in 2004,  which
resulted in an interest income increase of $305 thousand due to rate changes.

                                       14

<PAGE>

Interest  expense on checking  deposits  increased $627 thousand to $1.1 million
for the three months ended  September  30, 2005 from $444  thousand for the same
period in 2004. The average rate on checking deposits  increased 59 basis points
to 1.07% for the quarter ended September 30, 2005 from 0.48% for the same period
in 2004, which resulted in an increase in interest expense of $592 thousand. The
average balance of checking  deposits  increased $29.4 million to $399.0 million
for the three months ended  September 30, 2005 from $369.6  million for the same
period in 2004,  which resulted in a volume increase in interest  expense of $35
thousand.

Interest  expense on time deposits  increased  $319 thousand to $1.3 million for
the three months ended September 30, 2005 from $956 thousand for the same period
in 2004.  The average rate on time  deposits  increased 67 basis points to 2.45%
for the quarter ended September 30, 2005 from 1.78% for the same period in 2004,
which resulted in an increase in interest expense of $350 thousand.  The average
balance of time deposits  decreased $7.1 million to $207.8 million for the three
months ended September 30, 2005 from $214.9 million for the same period in 2004,
which resulted in a volume decrease in interest expense of $31 thousand.

Interest income on investment securities increased $565 thousand to $4.1 million
for the three  months  ended  September  30, 2005 from $3.5 million for the same
period in 2004. The average  balance on investment  securities  increased  $48.8
million to $342.7  million for the three  months ended  September  30, 2005 from
$293.9 million for the same period in 2004, which resulted in an interest income
volume increase of $587 thousand.  The average yield of the investment portfolio
decreased 3 basis points to 4.78% for the quarter ended  September 30, 2005 from
4.81% for the same period in 2004, which resulted in an interest income decrease
of $22 thousand due to rate changes.

Interest  income on loans  increased $333 thousand to $6.6 million for the three
months ended  September  30, 2005 from $6.2 million for the same period in 2004.
The average  balance of loans  increased $16.1 million to $440.6 million for the
three months ended September 30, 2005 from $424.5 million for the same period in
2004, which resulted in an interest income volume increase of $235 thousand. The
average  yield of loans  increased 9 basis points to 5.95% for the quarter ended
September 30, 2005 from 5.86% for the same period in 2004,  which resulted in an
interest income increase of $98 thousand due to changes in rates.

Interest  expense on borrowings  decreased $310 thousand to $2.0 million for the
three months ended  September  30, 2005 from $2.3 million for the same period in
2004.  The  average  balance of  borrowings  decreased  $57.0  million to $155.0
million for the quarter  ended  September  30, 2005 from $212.0  million for the
same period in 2004,  which resulted in a volume decrease in interest expense of
$620 thousand. The average rate of borrowings increased 81 basis points to 5.16%
for the three months ended  September 30, 2005 from 4.35% for the same period in
2004, which resulted in an increase in interest expense of $310 thousand.

Net interest  income for the nine months ended September 30, 2005 decreased $453
thousand to $27.4 million compared to $27.8 million for the same period in 2004,
primarily  due to an increase in interest  expense on checking  deposits of $1.7
million and a decrease in interest income on mortgage-backed  securities of $1.2
million,  partially  offset by an  increase  in  interest  income on  investment
securities of $1.5 million,  loans of $790 thousand,  and a decrease in interest
expense on borrowings of $844 thousand as compared to the same nine month period
in 2004.

Interest  expense on checking  account  deposits  increased $1.7 million to $2.8
million for the nine months ended  September  30, 2005 from $1.1 million for the
same  period in 2004.  The  increase in  interest  expense on  checking  account
deposits  was due to an increase in the average rate of 55 basis points to 0.94%
for the nine months ended  September  30, 2005 from 0.39% for the same period in
2004,  which resulted in an increase in interest  expense of $1.6 million due to
interest rate changes.  The average balance of the checking  deposits  increased
$38.8  million to $398.6  million for the nine months ended  September  30, 2005
from  $359.8  million for the same  period in 2004,  which  resulted in a volume
increase in interest income of $114 thousand.

                                       15

<PAGE>

Interest  income on  mortgage-backed  securities  decreased $1.1 million for the
nine months ended September 30, 2005 to $11.1 million from $12.2 million for the
same period in 2004.  The  decrease in interest  income was due to a decrease in
the average  balance on the portfolio of $96.7 million to $315.8 million for the
nine months ended  September 30, 2005 from $412.5 million for the same period in
2004, which resulted in an interest income volume decrease of $2.9 million.  The
decrease in the average  balance was primarily due to $69.1 million of principal
paydowns from  September 2004 through  September  2005. The average yield on the
portfolio increased 72 basis points to 4.67% for the nine months ended September
30,  2005 from  3.95%  for the same  period in 2004,  which  resulted  in a $1.7
million increase in interest income due to interest rate changes.

Interest income on investment securities increased $1.5 million to $11.9 million
for the nine months  ended  September  30, 2005 from $10.4  million for the same
period in 2004.  The  average  balance of the  investment  securities  portfolio
increased  $74.6 million to $339.8  million for the nine months ended  September
30, 2005 from $265.2  million for the same period in 2004,  which  resulted in a
volume increase in interest income of $2.9 million.  The increase in the average
balance was primarily due to purchases of $216.5  million of U.S.  Agency Notes,
$61.8 million of Governmental  Bonds, $24.3 of CMO's, $14.6 million of MBS's and
$8.0  million of  Municipal  Bonds,  partially  offset by  investment  calls and
maturities of $250.9  million and  principal  paydowns on  investments  of $62.9
million from September 30, 2004 through September 30, 2005. The average yield on
the investment  portfolio decreased 55 basis points to 4.66% for the nine months
ended September 30, 2005 from 5.21% for the same period in 2004,  which resulted
in a decrease in interest income of $1.4 million due to rate changes.

Interest  income on loans  increased $790 thousand to $19.1 million for the nine
months ended  September 30, 2005 from $18.3 million for the same period in 2004.
The  average  balance  increased  $17.0  million to $433.5  million for the nine
months ended September 30, 2005 from $416.5 million for the same period in 2004,
which resulted in a volume  increase in interest  income of $747  thousand.  The
increase  in the  average  balance  was the  result of $110.7  million  of loans
originated,  partially  offset  by  approximately  $93.7  million  of  principal
collected on loans during the period from  September 30, 2004 through  September
30, 2005.  The average  rate on loans  increased 1 basis points to 5.88% for the
nine  months  ended  September  30, 2005 from 5.87% for the same period in 2004,
which  resulted in an increase in interest  income of $43  thousand  due to rate
changes.

Interest  expense on borrowings  decreased $844 thousand to $6.2 million for the
nine months  ended  September  30, 2005 from $7.0 million for the same period in
2004.  The  average  balance of  borrowings  decreased  $60.3  million to $167.2
million for the nine months ended September 30, 2005 from $227.5 million for the
same period in 2004,  which resulted in an interest  expense volume  decrease of
$1.9 million.  The average rate paid on borrowings  increased 81 basis points to
4.91% from 4.10% for the same period in 2004,  which  resulted in an increase in
interest expense of $1.0 million due to rate changes.

Non-Interest  Income - for the three and nine month periods ended  September 30,
2005 was $1.4  million  and $4.1  million,  respectively,  as  compared  to $1.8
million  and  $4.6  million  for the  same  periods  in 2004.  The  decrease  in
non-interest  income during the three and nine month periods ended September 30,
2005 is due to the gain on the sale of  investment  securities  of $434 thousand
and $534 thousand recorded during these same periods of 2004.

Salaries  and  Employee  Benefits - for the three and nine month  periods  ended
September  30,  2005  were $4.5  million  and $13.4  million,  respectively,  as
compared to $4.2  million and $12.4  million for the same  periods in 2004.  The
increase is primarily  due to annual  compensation  increases,  a $237  thousand
increase in retirement  benefits expense and a $174 thousand  increase in health
insurance cost for the nine months ended September 30, 2005.

                                       16

<PAGE>

Average  full  time  equivalent  employees  at  September  30,  2005 were 525 as
compared to 514 at September 30, 2004.

Purchased  Services - for the three and nine month periods  ended  September 30,
2005 totaled $686  thousand and $2.1  million,  as compared to $700 thousand and
$2.1  million for the same periods in 2004.  The decrease is primarily  due to a
decline in ATM processing costs of $35 thousand and payroll  processing costs of
$44 thousand for the nine months ended  September  30, 2005 compared to the same
period in 2004.

Other Expense - for the three and nine month  periods  ended  September 30, 2005
totaled $445  thousand  and $1.2  million as compared to $319  thousand and $1.0
million for the same periods in 2004.  The increase is a result of upgrading the
communication lines used for voice and data services offered to our customers.

Critical Accounting  Estimate-Provision  for Loan Losses - A critical accounting
estimate is the provision  for loan losses which  increased $30 thousand to $270
thousand for the nine months ended September 30, 2005 from $240 thousand for the
same  period in 2004.  At  September  30,  2005 the  allowance  for loan  losses
amounted to $5.0 million  compared to $4.7  million at December  31,  2004.  The
determination  of the allowance  level for loan losses is based on  management's
analysis  of the risk  characteristics  of  various  types of  loans,  levels of
classified loans, previous loan loss experience, the estimated fair market value
of the underlying collateral and current economic conditions.  Additionally, the
mix within the Bank's  portfolio  continues to change as the Bank offers a wider
variety of products.  Within the loan portfolio, a change is also occurring as a
shift is made from lower  yielding  loans (i.e.,  one-to-four  family  loans) to
higher  yielding  loans  (i.e.,  commercial  real estate  mortgages,  commercial
construction,  consumer and  commercial  business  loans).  These types of loans
contain a higher degree of risk. The Bank will continue to monitor its allowance
for loan  losses  and make  future  adjustments  to the  allowance  through  the
provision  for loan losses as changing  conditions  dictate.  Although  the Bank
maintains  its  allowance  for loan  losses at a level that it  considers  to be
adequate to provide for the inherent risk of loss in its loan  portfolio,  there
can be no assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods due
to the higher  degree of credit risk which  might  result from the change in the
mix of the loan portfolio or changes in economic conditions.  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.

ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There were no significant  changes for the nine months ended  September 30, 2005
from the  information  presented in the annual  report on Form 10-K for the year
ended December 31, 2004.

ITEM 4:  CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.  Based on their evaluation
of the  Company's  disclosure  controls  and  procedures  (as  defined  in  Rule
13a-15(e) under the Securities  Exchange Act of 1934 (the "Exchange Act")),  the
Company's  principal  executive  officer and  principal  financial  officer have
concluded that as of the end of the period  covered by this Quarterly  Report of
Form 10-Q such  disclosure  controls and procedures are effective to ensure that
information required to be disclosed by the Corporation in reports that it files
or  submits  under the  Exchange  Act is  recorded,  processed,  summarized  and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.

                                       17

<PAGE>

(b) Changes in internal  control over  financial  reporting.  During the quarter
under  report,  there was no  change  in the  Company's  internal  control  over
financial  reporting that has materially  affected,  or is reasonably  likely to
materially affect, the Company's internal control over financial reporting.


PART II.          OTHER INFORMATION

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

                  None


      Item 2:     Unregistered Sales of Equity Securities and Use of Proceeds
      -------     -----------------------------------------------------------

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

                  31 Certifications required by Rule 13a-14(a) or Rule 15d-14(a)

                  32 Certification required by Rule 13a-14(b) or Rule 15d-14(b)
                       and 18 U.S.C. 1350

                                       18

<PAGE>

                               S I G N A T U R E S


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

FMS FINANCIAL CORPORATION




Date: November 14, 2005               /s/Craig W. Yates
                                      ------------------------------------------
                                      Craig W. Yates
                                      President and Chief Executive Officer
                                      (Principal Executive Officer)



Date: November 14, 2005               /s/Channing L. Smith
                                      ------------------------------------------
                                      Channing L. Smith
                                      Vice President and Chief Financial Officer
                                      (Principal Financial Officer)