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 June 30, 2001

                                       OR

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


                         Commission file number 0-17353

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

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

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

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

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

         As of July 31, 2001 there were issued and outstanding  6,681,705 shares
of the registrant's Common Stock, par value $.10 per share.


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

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

                                  JUNE 30, 2001
                                  -------------

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

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

         Item 1 - Financial Statements

               Consolidated Statements of Financial Condition as of
                    June 30, 2001 (unaudited) and December 31, 2000............1

               Consolidated Statements of Income (unaudited)
                    for the three and six months ended
                    June 30, 2001 and June 30, 2000............................2

               Consolidated Statements of Cash Flows (unaudited)
                    for the six months ended June 30, 2001
                    and June 30, 2000..........................................3

               Consolidated Statements of Changes in Stockholders' Equity
                    (unaudited) for the six months ended June 30, 2001. .......4

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

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

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

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

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

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

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

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

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

<PAGE>

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

                                                                                 June 30, 2001 December 31, 2000
ASSETS                                                                            (Unaudited)
----------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>              <C>
     Cash and amounts due from depository institutions                           $  30,083,067    $  30,089,526
     Interest-bearing deposits                                                         468,072          169,076
     Federal funds sold                                                                      0        1,500,000
     Short term funds                                                               43,664,350       13,192,697
                                                                                 -------------    -------------
        Total cash and cash equivalents                                             74,215,489       44,951,299
     Investment securities held to maturity                                        221,449,704      276,107,634
     Investment securities available for sale                                       38,018,722       40,878,963
     Loans, net                                                                    317,023,539      290,178,635
     Mortgage-backed securities held to maturity                                   211,439,168      143,751,707
     Accrued interest receivable:
        Loans                                                                        1,629,547        1,578,956
        Mortgage-backed securities                                                   1,374,541        1,043,113
        Investments                                                                  2,964,791        3,527,657
     Federal Home Loan Bank stock                                                    7,563,620        6,315,310
     Real estate held for development, net                                              87,926           87,926
     Real estate owned, net                                                            277,178          354,758
     Office properties and equipment, net                                           26,709,650       26,312,709
     Deferred income taxes                                                           2,292,502        2,360,701
     Excess cost over fair value of net assets acquired                                 13,832           27,664
     Prepaid expenses and other assets                                               1,347,111        1,392,671
     Subordinated debentures issue costs, net                                          177,743          206,417
                                                                                 -------------    -------------
TOTAL ASSETS                                                                     $ 906,585,063    $ 839,076,120
                                                                                 =============    =============
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------------------

Liabilities:
     Deposits                                                                    $ 678,626,581    $ 648,539,355
     Securities sold under agreements to repurchase                                145,000,000      120,000,000
     Advances from the Federal Home Loan Bank                                        1,270,313        6,305,644
     10% Subordinated debentures, due 2004                                          10,000,000       10,000,000
     Advances by borrowers for taxes and insurance                                   2,305,230        2,076,165
     Accrued interest payable                                                        1,688,922        1,950,205
     Dividends payable                                                                 200,703          201,831
     Other liabilities                                                              18,200,081        2,593,331
                                                                                 -------------    -------------
     Total liabilities                                                             857,291,830      791,666,531
                                                                                 -------------    -------------
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 7,912,384 and 7,897,891, and shares outstanding 6,689,605
        and 6,727,702 as of June 30, 2001 and December 31, 2000, respectively          791,238          789,789
     Paid-in capital in excess of par                                                8,234,925        8,217,654
     Accumulated comprehensive loss - net of deferred income taxes                    (145,463)        (358,352)
     Retained earnings                                                              48,418,357       46,401,102
     Less:  Treasury stock (1,222,779 and 1,170,189 shares, at cost,  as of
        June 30, 2001 and December 31, 2000, respectively)                          (8,005,824)      (7,640,604)
                                                                                 -------------    -------------
Total stockholders' equity                                                          49,293,233       47,409,589
                                                                                 -------------    -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                       $ 906,585,063    $ 839,076,120
                                                                                 =============    =============
</TABLE>

See notes to consolidated financial statements.

                                       1
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                            Three Months ended             Six Months ended
                                                                 June 30,                      June 30,
                                                      ----------------------------    ----------------------------
                                                           2001            2000            2001           2000
----------------------------------------------------------------------------------    ----------------------------
                                                              (Unaudited)                     (Unaudited)
<S>                                                 <C>             <C>             <C>             <C>
INTEREST  INCOME:
Interest income on:
    Loans                                             $  5,818,673    $  5,889,175    $ 11,519,582    $ 11,644,715
    Mortgage-backed securities                           3,287,694       1,974,460       6,166,275       4,018,311
    Investments                                          4,578,909       5,128,211       9,461,019      10,105,440
                                                      ------------    ------------    ------------    ------------
Total interest income                                   13,685,276      12,991,846      27,146,876      25,768,466
                                                      ------------    ------------    ------------    ------------
INTEREST EXPENSE:
Interest expense on:
    Deposits                                             5,139,735       5,059,084      10,349,884      10,000,347
    Subordinated debentures                                264,337         264,337         528,674         528,674
    Borrowings                                           1,892,840       1,326,777       3,606,437       2,736,997
                                                      ------------    ------------    ------------    ------------
Total interest expense                                   7,296,912       6,650,198      14,484,995      13,266,018
                                                      ------------    ------------    ------------    ------------

NET INTEREST INCOME                                      6,388,364       6,341,648      12,661,881      12,502,448
PROVISION FOR LOAN LOSSES                                   60,000          60,000         120,000         120,000
                                                      ------------    ------------    ------------    ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES                                          6,328,364       6,281,648      12,541,881      12,382,448
                                                      ------------    ------------    ------------    ------------
OTHER INCOME (EXPENSE):
    Loan service charges and other fees                     26,482          25,919          53,476          61,663
    Gain on sale of loans                                      306             547             509             805
    Gain (Loss) on disposal of fixed assets                    356               0          50,799            (122)
    Real estate owned operations, net                      (11,524)        (14,368)        (25,210)         (1,167)
    Service charges on accounts                            841,575         650,633       1,559,834       1,267,215
    Other income                                            67,814          44,680         137,124          93,717
                                                      ------------    ------------    ------------    ------------
Total other income                                         925,009         707,411       1,776,532       1,422,111
                                                      ------------    ------------    ------------    ------------
OPERATING EXPENSES:
    Salaries and employee benefits                       3,089,322       2,928,504       6,087,345       5,738,291
    Occupancy and equipment                              1,103,112         979,910       2,280,116       1,953,033
    Purchased services                                     525,211         447,317       1,011,333         876,262
    Federal deposit insurance premiums                      37,648          30,589          67,636          60,717
    Professional fees                                      131,333         116,539         251,183         234,262
    Advertising                                             60,003          55,366         117,635         111,235
    Other                                                  408,181         363,345         751,645         697,226
                                                      ------------    ------------    ------------    ------------
Total operating expenses                                 5,354,810       4,921,570      10,566,893       9,671,026
                                                      ------------    ------------    ------------    ------------
INCOME BEFORE INCOME TAXES                               1,898,563       2,067,489       3,751,520       4,133,533

INCOME TAXES:
Current                                                    533,005         729,931       1,383,894       1,491,557
Deferred                                                   139,104          13,703         (51,711)         (7,068)
                                                      ------------    ------------    ------------    ------------
Total income taxes                                         672,109         743,634       1,332,183       1,484,489

NET INCOME                                            $  1,226,454    $  1,323,855    $  2,419,337    $  2,649,044
                                                      ============    ============    ============    ============
BASIC EARNINGS PER COMMON SHARE                       $       0.18    $       0.19    $       0.36    $       0.38
                                                      ============    ============    ============    ============
DILUTED EARNINGS PER COMMON SHARE                     $       0.18    $       0.19    $       0.36    $       0.37
                                                      ============    ============    ============    ============

Weighted average common shares outstanding               6,680,341       6,894,205       6,702,997       7,022,678

Potential dilutive effect of the
  exercise of stock options                                 42,825          67,933          44,449          70,377
                                                      ------------    ------------    ------------    ------------
Adjusted weighted average common shares outstanding      6,723,166       6,962,138       6,747,446       7,093,055
                                                      ============    ============    ============    ============
</TABLE>

See notes to consolidated financial statements.

                                       2
<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                                                 Six Months ended
                                                                                     June 30,
                                                                         ------------------------------
                                                                                2001             2000
-------------------------------------------------------------------------------------------------------
                                                                                   (Unaudited)
<S>                                                                    <C>              <C>
OPERATING ACTIVITIES:
Net income                                                               $   2,419,337    $   2,649,044
Adjustments to reconcile net income to net cash provided
   by operating activities:
Provision for loan losses                                                      120,000          120,000
Depreciation and amortization                                                1,598,023        1,003,199
Realized (gains) and losses on:
     Sale of loans and loans held for sale                                        (509)            (805)
     Disposal and sale of fixed assets                                         (50,799)             122
     Sale of real estate owned                                                       0          (26,260)
Decrease (Increase) in accrued interest receivable                             342,003         (116,968)
Decrease (Increase) in prepaid expenses and other assets                        84,593         (187,265)
Decrease in accrued interest payable                                          (286,885)         (71,833)
Decrease in other liabilities                                               (1,404,343)        (310,007)
Decrease in deferred income taxes                                              (51,711)          (7,067)
Other                                                                                0           28,049
                                                                         -------------    -------------
     Net cash provided by operating activities                               2,769,709        3,080,209
                                                                         -------------    -------------
INVESTING ACTIVITIES:
Proceeds from sale of:
     Education loans                                                            67,417          180,041
     Real estate owned                                                          77,580          335,349
     Office property and equipment                                              84,433              403
Principal collected and proceeds from maturities of
  investment securities held to maturity                                   172,011,796       62,875,873
Proceeds from maturities of investment securities available for sale        21,826,670        5,367,035
Principal collected on mortgage-backed securities held to maturity          38,562,762       10,714,226
Principal collected on loans, net                                           31,346,540       25,899,642
Loans originated or acquired                                               (33,371,384)     (24,517,726)
Purchase of investment securities and mortgage-backed
  securities held to maturity                                             (206,151,398)     (76,013,447)
Purchase of investment securities and mortgage-backed
  securities available for sale                                            (18,712,168)               0
Purchase of Federal Home Loan Bank Stock                                      (998,310)               0
Purchase of office property and equipment                                   (1,023,791)      (3,589,013)
Net cash received from bank merger, net                                      1,466,726                0
                                                                         -------------    -------------
     Net cash provided by investing activities                               5,186,873        1,252,383
                                                                         -------------    -------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts                         3,088,146       15,408,288
Net decrease in time deposits                                               (1,103,611)      (4,863,730)
Net decrease in FHLB advances                                               (5,035,331)     (10,031,387)
Purchase (repayment) of securities sold under agreements to repurchase      25,000,000      (10,000,000)
Increase in advances from borrowers for taxes and insurance                    108,114           55,885
Purchase of treasury stock                                                    (365,220)      (3,485,510)
Dividends paid on common stock                                                (403,210)        (427,408)
Net proceeds from issuance of common stock                                      18,720              129
                                                                         -------------    -------------
     Net cash provided (used) by financing activities                       21,307,608      (13,343,733)
                                                                         -------------    -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            29,264,190       (9,011,141)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                              44,951,299       46,275,871
                                                                         -------------    -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                 $  74,215,489    $  37,264,730
                                                                         =============    =============
Supplemental Disclosures:
     Cash paid for:
        Interest on deposits, advances, and other borrowings             $  14,755,278    $  13,337,851
        Income taxes                                                         2,347,398        1,559,143
        Deposits acquired in connection with merger                         28,102,691                0
        Assets acquired in connection with merger                           28,260,337                0
     Non-cash investing and financing activities:
        Dividends declared and not paid at quarter end                         200,703          202,868
        Non-monetary transfers from loans to real estate acquired
          through foreclosure                                                        0          324,657

</TABLE>

See notes to consolidated financial statements.

                                       3
<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

                                                                           Accumulated                                  Total
                                 Common shares   Common      Paid-in      comprehensive   Retained        Treasury   Stockholders'
                                  outstanding    stock       capital         loss         earnings         stock        Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>           <C>        <C>             <C>         <C>             <C>            <C>
Balances at December 31, 2000     6,727,702     $789,789   $ 8,217,654     $(358,352)  $ 46,401,102    $(7,640,604)   $47,409,589
Net Income                                                                                2,419,337                     2,419,337
Other comprehensive income
  Unrealized gain on securities
    available for sale                                                       212,889                                      212,889
                                                                                                                      -----------
Total comprehensive income                                                                                              2,632,226
                                                                                                                      -----------
Dividends declared                                                                         (402,082)                     (402,082)
Exercise of stock options            14,493        1,449        17,271                                                     18,720
Purchase of common stock            (52,590)                                                              (365,220)      (365,220)
------------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 2001         6,689,605     $791,238   $ 8,234,925     $(145,463)  $ 48,418,357    $(8,005,824)   $49,293,233
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.

                                       4
<PAGE>

ITEM 2: MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001.

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

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

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

GENERAL

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
six months ended June 30, 2001 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, 2000. The consolidated  financial statements include
the Corporation's sole subsidiary, Farmers & Mechanics Bank ("Bank").

FINANCIAL CONDITION

Total  Assets - at June 30,  2001 were  $906.6  million as  compared  with total
assets at December 31, 2000 of $839.1  million.  The  Corporation  finalized its
merger  of  CloverBank  into  Farmers  &  Mechanics  Bank on June 1,  2001.  The
acquisition  was accounted for utilizing the purchase  method and included $28.3
million in assets and $28.1 million of deposits.

                                       5
<PAGE>

Investment  Securities  Held to  Maturity -  decreased  $54.7  million to $221.4
million at June 30, 2001 from $276.1  million at December 31, 2000 primarily due
to calls of $80.4 million and principal paydowns of $14.4 million in U.S. Agency
Notes and the net  maturity  of $60.3  million of reverse  repurchase  agreement
investments,  partially  offset by  purchases  of $51.0  million in U.S.  Agency
Notes, $44.2 million in CMO's and $5.6 million in Municipal Bonds during the six
months ended June 30, 2001.  Investment  securities held to maturity at June 30,
2001  consisted  entirely of fixed rate  securities.  A  comparison  of cost and
approximate  market values of investment  securities held to maturity as of June
30, 2001 and December 31, 2000 follows:

<TABLE>
<CAPTION>
                                                June 30, 2001                                    December 31, 2000
                      ------------------------------------------------------------------ ----------------------------------
                                              Gross          Gross          Estimated                          Estimated
                           Amortized       Unrealized      Unrealized         Market          Amortized          Market
                             Cost             Gains          Losses           Value              Cost            Value
                      ------------------------------------------------------------------ ----------------------------------
<S>                  <C>                   <C>             <C>         <C>              <C>              <C>
U. S. Gov't Agencies  $     139,346,511      $234,117        $(751,454) $   138,829,174  $    167,923,406 $    166,378,613
CMO's                        73,883,709       364,897         (160,550)      74,088,056        43,954,419       43,460,728
Reverse Repurchase                    0             0                0                0        60,341,969       60,341,969
Municipal bonds               8,219,484         8,032                0        8,227,516         3,887,840        3,896,380
                      -----------------------------------------------------------------------------------------------------
Total                 $     221,449,704      $607,046        $(912,004) $   221,144,746  $    276,107,634 $    274,077,690
                      ================================================================== ==================================
</TABLE>


Investment  Securities  Available  for Sale -  decreased  $2.9  million to $38.0
million at June 30, 2001 from $40.9  million at December 31, 2000 as a result of
$13.3 million in U.S. Agency Notes called and principal paydowns of $8.5 million
on CMO's and  MBS's,  partially  offset by  purchases  of $10.0  million of U.S.
Agency  Notes,  $5.0  million of MBS's and $3.6  million of CMO's during the six
months ended June 30, 2001.  Investment  securities available for sale consisted
of $35.0 million in fixed rate  securities  and $3.0 million in adjustable  rate
securities at June 30, 2001. A comparison of cost and approximate  market values
of investment securities available for sale as of June 30, 2001 and December 31,
2000 follows:

<TABLE>
<CAPTION>
                                                 June 30, 2001                                           December 31, 2000
                      --------------------------------------------------------------------- ---------------------------------------
                                             Gross           Gross           Estimated                               Estimated
                           Amortized      Unrealized      Unrealized           Market            Amortized            Market
                               Cost          Gains          Losses             Value                Cost               Value
                      --------------------------------------------------------------------- ---------------------------------------
<S>                  <C>               <C>           <C>               <C>                 <C>                <C>
U. S. Gov't Agencies  $       6,975,171 $           0 $       (98,701)  $        6,876,470  $       10,292,370 $        10,206,464
CMO's                        24,875,846       184,663        (375,670)          24,684,839          28,657,931          28,155,800
MBS's                         6,397,216        60,197               0            6,457,413           2,490,974           2,516,699
                      --------------------------------------------------------------------- ---------------------------------------
Total                 $      38,248,233 $     244,860 $      (474,371)  $       38,018,722  $       41,441,275 $        40,878,963
                      ===================================================================== =======================================

</TABLE>

                                       6
<PAGE>

Loans,  net - increased  $26.8  million to $317.0  million at June 30, 2001 from
$290.2  million at December  31,  2000.  This  increase  was the result of $25.0
million of loans acquired from the CloverBank  merger and $33.4 million of loans
originated,  partially  offset  by  approximately  $31.3  million  of  principal
collected  on loans during the six months  ended June 30,  2001.  The  following
table shows loans receivable by major categories at the dates indicated.

                                             June 30,         December 31,
                                               2001                2000
                                        --------------------------------------

Mortgage loans (1-4  dwelling)           $     250,799,657  $     228,427,960
Construction loans                                  71,225            163,493
Commercial construction                          2,465,643          1,061,799
Consumer loans                                   4,226,984          3,899,549
Commercial real estate                          53,326,709         52,763,358
Commercial business                             11,056,931          8,521,769
                                        --------------------------------------
Subtotal                                       321,947,149        294,837,928
                                        --------------------------------------
Less:
    Deferred loan fees                             757,797            678,946
    Allowance for possible
     loan losses                                 4,165,813          3,980,347
                                        --------------------------------------
Net Loans Receivable                     $     317,023,539  $     290,178,635
                                        ======================================


At June 30, 2001, the recorded investment in loans for which impairment has been
recognized  in  accordance  with SFAS Nos.  114 and 118 totaled  $3.5 million of
which  $1.1  million  related  to loans  that  were  individually  measured  for
impairment with a valuation allowance of $424 thousand and $2.4 million of loans
that were  collectively  measured for impairment  with a valuation  allowance of
$122  thousand.  The Bank had $4.2 million in total  reserves for possible  loan
losses at June 30, 2001,  representing  approximately  118% of non-accrual loans
and 1.3% of total loans.  For the six months  ended June 30,  2001,  the average
recorded  investment in impaired loans was approximately $3.1 million.  The Bank
recognized $106 thousand of interest income on impaired loans,  all of which was
recognized on the cash basis.

As of June 30, 2001 the Bank had outstanding  loan  commitments of $8.5 million,
of  which  $3.1  million  represented  variable  rate  loans  and  $5.4  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.


                                       7
<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.

Non-Performing Assets:
                                                    June 30,      December 31,
                                                      2001            2000
                                                   -----------     -----------
Loans accounted for on a non-accrual basis:
Mortgage loans:
     One-to-four family                            $ 1,926,477     $   778,042
     Commercial real estate                          1,603,205       1,408,944
     Consumer and other                                  3,861          24,033
                                                   -----------     -----------
         Total mortgage non-accrual loans          $ 3,533,543     $ 2,211,019
                                                   -----------     -----------

     Troubled debt restructuring                   $   796,992     $   790,364
     Real estate owned, net                            277,178         354,758
     Other non-performing assets                        87,926          87,926
                                                   -----------     -----------
     Total non-performing assets, net              $ 4,695,639     $ 3,444,067
                                                   -----------     -----------


     Total non-accrual loans to net loans                1.11%           0.76%
                                                   ===========     ===========
     Total non-accrual loans to total assets             0.39%           0.26%
                                                   ===========     ===========
     Total non-performing assets to total assets         0.52%           0.41%
                                                   ===========     ===========


Mortgage-Backed  Securities Held to Maturity - increased $67.6 million to $211.4
million at June 30, 2001 from $143.8  million at December 31, 2000. The increase
is the result of the  purchases of $99.8  million of FNMA,  FHLMC and GNMA fixed
rate securities and $5.3 million of FNMA adjustable rate  securities,  partially
offset by principal  paydowns of $38.5  million.  Mortgage-backed  securities at
June 30, 2001  consisted of $158.5  million in fixed rate  securities  and $52.9
million  in  adjustable  rate  securities.  Mortgage-backed  securities  held to
maturity at June 30, 2001 and December 31, 2000 are summarized below:

<TABLE>
<CAPTION>
                                     June 30, 2001                                        December 31, 2000
---------------------------------------------------------------------------------------------------------------------
                                Gross           Gross
            Amortized         Unrealized     Unrealized          Estimated           Amortized          Estimated
               Cost             Gains          Losses           Market Value           Cost           Market Value
-------------------------------------------------------------------------------  ------------------------------------
<S>    <C>                <C>            <C>               <C>                   <C>              <C>
GNMA    $     69,526,151          763,578       (168,241)   $       70,121,488    $    35,868,102  $      36,129,708

FNMA         108,954,614          964,474       (186,319)          109,732,769         67,927,876         68,443,172

FHLMC         32,958,403          772,791             (8)           33,731,186         39,955,729         40,631,536

-------------------------------------------------------------------------------  ------------------------------------
Total   $    211,439,168   $    2,500,843 $     (354,568)   $      213,585,443    $   143,751,707  $     145,204,416
===============================================================================  ====================================
</TABLE>

                                       8
<PAGE>

Deposits  -  increased  $30.1  million to $678.6  million at June 30,  2001 from
$648.5  million  at  December  31,  2000  primarily  due  to  the  inclusion  of
CloverBank's deposit balances of $28.1 million. Savings accounts increased $19.6
million,  certificates of deposit increased $12.1 million,  non-interest bearing
checking  accounts  increased $5.8 million and money market  accounts  increased
$3.1 million.  These  increases were partially  offset by a decrease in interest
bearing  checking  accounts of $10.5  million.  Interest  credited to depositors
accounts for the six months ended June 30, 2001 amounted to $10.7  million.  The
following tables set forth certain information  concerning deposits at the dates
indicated.

<TABLE>
<CAPTION>
                                             June 30, 2001                               December 31, 2000
                               ------------------------------------------------------------------------------------------
                                                  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              $109,345,471   16.11%        0.00%           $103,544,519    15.97%        0.00%
Checking accounts                   120,528,497   17.76%        2.62%            131,054,687    20.20%        3.17%
Savings accounts                    122,639,514   18.07%        2.49%            103,072,351    15.90%        2.72%
Money market accounts                71,922,682   10.60%        2.78%             68,768,257    10.60%        2.75%
Certificates                        254,190,417   37.46%        5.37%            242,099,541    37.33%        5.14%
                               ------------------------------------------------------------------------------------------
   Total Deposits                  $678,626,581   100.00%       3.25%           $648,539,355   100.00%        3.35%
                               ==========================================================================================
</TABLE>


Borrowings - at June 30, 2001 amounted to $156.3 million.  Borrowings  consisted
of $10.0 million of 10%  Subordinated  Debentures,  $145.0 million in securities
sold under the agreement to repurchase with a weighted  average interest rate of
5.15% and $1.3  million  in  Federal  Home Loan Bank  Advances  with a  weighted
average  interest rate of 5.00%.  At December 31, 2000  borrowings  consisted of
$10.0 million of 10% Subordinated Debentures,  $120.0 million in securities sold
under  agreements to repurchase  with a weighted  average rate of 5.40% and $6.3
million in Federal Home Loan Bank Advances with a weighted average interest rate
of 5.49%.

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  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 June 30, 2001 of
$1.2 million, or $.18 diluted earnings per share as compared to $1.3 million, or
$.19 diluted earnings per share for the comparable period in 2000.  Earnings for
the six months ended June 30, 2001 were $2.4 million,  or $.36 diluted  earnings
per share as compared to $2.6  million,  or $.37 diluted  earnings per share for
the  comparable  periods  in 2000.  The  income  and  expenses  reported  by the
Corporation  includes one month of financial  results of  CloverBank,  which was
merged into Farmers & Mechanics Bank on June 1, 2001.

                                       9
<PAGE>

Interest Rate Spread

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

The following table sets forth 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:
<TABLE>
<CAPTION>
                                                                     Three Months Ended June 30,
                                  -----------------------------------------------------------------------------------------
                                                     2001                                             2000
                                  ----------------------------------------------    ---------------------------------------
                                   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           $      304,958   $         5,819          7.63%     $    302,691   $    5,889        7.78%
     Mortgage-backed securities        200,420             3,288          6.56%          117,653        1,975        6.71%
     Investment securities             293,838             4,579          6.23%          304,911        5,128        6.73%
                                ---------------  ----------------    -----------    -------------  ----------- ------------
Total interest-earning
        assets                         799,216            13,686          6.85%          725,255       12,992        7.17%
                                ---------------  ----------------    -----------    -------------  ----------- ------------
Interest-bearing liabilities:
     Deposits                          653,262             5,140          3.15%          618,582        5,059        3.27%
     Borrowings                        145,437             1,893          5.21%           93,551        1,327        5.67%
     Subordinated debentures            10,000               264         10.56%           10,000          264       10.56%
                                ---------------  ----------------    -----------    -------------  ----------- ------------
Total interest-bearing
        liabilities             $      808,699             7,297          3.61%     $    722,133        6,650        3.68%
                                ===============  ----------------    -----------    =============  ----------- ------------
Net interest income                              $         6,389                                   $    6,342
                                                 ================                                  ===========
Interest rate spread                                                      3.24%                                      3.48%
                                                                        ========                                 ==========

Net yield on average interest-earning assets                              3.20%                                      3.50%
                                                                        ========                                 ==========
Ratio of average interest-
     earning assets to average interest-
     bearing liabilities                                                 98.83%                                    100.43%
                                                                        ========                                 ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                     Six Months Ended June 30,
                                 ---------------------------------------------------------------------------------------------------
                                                    2001                                                  2000
                                 ----------------------------------------------    -------------------------------------------------
                                  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           $     300,047   $        11,520          7.68%     $        302,734   $        11,645          7.69%
     Mortgage-backed securities       185,244             6,166          6.66%              120,102             4,018          6.69%
     Investment securities            312,750             9,461          6.05%              307,756            10,105          6.57%
                                --------------  ----------------    -----------    -----------------  ----------------  ------------
Total interest-earning assets         798,041            27,147          6.80%              730,592            25,768          7.05%
                                --------------  ----------------    -----------    -----------------  ----------------  ------------
Interest-bearing liabilities:
     Deposits                         641,773            10,350          3.23%              612,251            10,000          3.27%
     Borrowings                       136,727             3,606          5.27%               96,615             2,737          5.67%
     Subordinated debentures           10,000               529         10.58%               10,000               529         10.58%
                                --------------  ----------------    -----------    -----------------  ----------------  ------------
Total interest-bearing
        liabilities             $     788,500            14,485          3.67%     $        718,866            13,266          3.69%
                                ==============  ----------------    -----------    =================  ----------------  ------------
Net interest income                             $        12,662                                       $        12,502
                                                ================                                      ================
Interest rate spread                                                     3.13%                                                 3.36%
                                                                    ===========                                         ============

Net yield on average interest-earning assets                             3.17%                                                 3.42%
                                                                    ===========                                         ============

Ratio of average interest-
     earning assets to average interest-
     bearing liabilities                                               101.21%                                               101.63%
                                                                    ===========                                         ============
</TABLE>

                                       10
<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              Six Months Ended
                                                  June 30,                         June 30,
                                            2001 compared to 2000           2001 compared to 2000
                                       -----------------------------    -----------------------------
                                        Increase (Decrease) due to:      Increase (Decrease) due to:
                                        Rate      Volume      Total      Rate      Volume      Total
                                       -------    -------    -------    -------    -------    -------
                                              (In Thousands)                    (In Thousands)
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>
Interest income:
     Loans                             $  (114)   $    44    $   (70)   $   (22)   $  (103)   $  (125)
     Mortgage-backed securities            (76)     1,389      1,313        (31)     2,179      2,148
     Investment securities                (363)      (186)      (549)      (808)       164       (644)
                                       -------    -------    -------    -------    -------    -------
     Total change - interest income       (553)     1,247        694       (861)     2,240      1,379
                                       -------    -------    -------    -------    -------    -------
Interest expense:
     Deposits                             (203)       284         81       (132)       482        350
     Borrowings                           (170)       736        566       (267)     1,136        869
     Subordinated debentures                 -          -          -          -          -          -
                                       -------    -------    -------    -------    -------    -------
     Total change - interest expense      (373)     1,020        647       (399)     1,618      1,219
                                       -------    -------    -------    -------    -------    -------
Net change in net interest income      $  (180)   $   227    $    47    $  (462)   $   622    $   160
                                       =======    =======    =======    =======    =======    =======
</TABLE>


Net  Interest  Income - for the three and six months ended June 30, 2001 totaled
$6.4 million and $12.7 million,  respectively. Net interest income for the three
months ended June 30, 2001 increased $47 thousand as compared to the same period
in 2000 due  primarily  to an  increase in  interest  income on  mortgage-backed
securities of $1.3 million, partially offset by a decrease in interest income on
investment  securities of $549  thousand and an increase in interest  expense on
borrowings of $566 thousand.

The  increase  in  interest  income was  primarily  the result of an increase in
mortgage-backed   securities   of  $1.3   million.   The   average   balance  of
mortgage-backed  securities  increased  $82.7 million to $200.4  million for the
three  months  ended June 30,  2001 from  $117.7  million for the same period in
2000,  which resulted in a volume increase of $1.4 million.  The increase in the
average  volume  during  this  period  was  primarily  due to $105.1  million in
purchases of  mortgage-backed  securities,  partially offset by $38.5 million of
principal  paydowns.  The average yield of the MBS portfolio  decreased 15 basis
points to 6.56% for the  quarter  ended  June 30,  2001 from  6.71% for the same
period in 2000,  which resulted in an interest  income  decrease of $76 thousand
due to rate changes.

Interest income on investment securities decreased $549 thousand to $4.6 million
for the three  months  ended June 30, 2001 from $5.1 million for the same period
in 2000. The average yield of the investment portfolio decreased 50 basis points
to 6.23% for the  quarter  ended June 30, 2001 from 6.73% for the same period in
2000, which resulted in an interest income decrease of $363 thousand due to rate
changes. The average balance of investment securities decreased $11.1 million to
$293.8  million for the three months ended June 30, 2001 from $304.9 million for
the same period in 2000,  which resulted in a volume decrease in interest income
of $186 thousand.

                                       11
<PAGE>
The decrease in the average  balance of  investments  for the quarter ended June
30, 2001 was primarily due to calls of U.S. Agency Notes of $34.5 million and by
$16.5  million of  principal  paydowns,  partially  offset by purchases of $26.8
million in U.S. Agency Notes and $15.2 million in CMO's.

Interest  income on loans  decreased  $70 thousand to $5.8 million for the three
months  ended June 30, 2001 from $5.9  million for the same period in 2000.  The
average  balance of the loan portfolio  increased $2.3 million to $305.0 million
for the three months ended June 30, 2001 from $302.7 million for the same period
in 2000,  which resulted in an increase in interest income of $44 thousand.  The
increase in the balance is principally due to $25.0 million of CloverBank  loans
acquired through the merger finalized on June 1, 2001. The average rate on loans
decreased 15 basis points to 7.63% for the three months ended June 30, 2001 from
7.78% for the same  period in 2000,  which  resulted  in a decrease  in interest
income of $114 thousand.

The  increase in interest  expense  was  primarily  the result of an increase in
interest  expense on borrowings of $566 thousand for the three months ended June
30, 2001 compared to the same period in 2000. The average  balance of borrowings
increased  $51.8  million to $145.4  million at June 30, 2001 from $93.6 million
for the same period in 2000,  which resulted in an increase in interest  expense
of $736 thousand.  The average yield of borrowings  decreased 46 basis points to
5.21% for the quarter ended June 30, 2001 from 5.67% for the same period in 2000
which resulted in a decrease in interest expense of $170 thousand.

The  increase in interest  expense on deposits of $81 thousand was the result of
an  increase  in the  average  balance of  deposits  of $34.7  million to $653.3
million for the three  months  ended June 30,  2001 from $618.6  million for the
same period in 2000,  which resulted in a volume increase in interest expense of
$284 thousand. The average yield on deposits decreased 12 basis points  to 3.15%
for the  quarter  ended June 30,  2001 from  3.27% for the same  period in 2000,
which  resulted in a decrease in interest  expense of $203  thousand due to rate
changes.

Net  interest  income for the six  months  ended June 30,  2001  increased  $160
thousand  primarily  due to an increase in  interest  income on  mortgage-backed
securities of $2.1 million, partially offset by a decrease in interest income on
investment  securities of $644  thousand and an increase in interest  expense on
borrowings  of $869  thousand and  deposits of $350  thousand as compared to the
same period in 2000.

The  increase in interest  income on  mortgage-backed  securities  was due to an
increase  in the average  balance of the  portfolio  of $65.1  million to $185.2
million for the six months  ended June 30, 2001 from $120.1  million for the six
months ended June 30, 2000. The increase in the average balance of the portfolio
resulted in a $2.2 million increase in interest income. The average yield on the
portfolio  decreased 3 basis  points to 6.66% for the six months  ended June 30,
2001 from 6.69% for the same  period in 2000,  which  resulted  in a decrease in
interest income of $31 thousand due to rate changes. The increase in the average
balance was due to  purchases  during this period of $101.9  million,  partially
offset by $27.8 million of principal paydowns from June 2000 through June 2001.

The decrease in interest  income on investment  securities was due to a decrease
in the average yield on the investment portfolio of 52 basis points to 6.05% for
the six months ended June 30, 2001 from 6.57% for the same period in 2000, which
resulted in a decrease in interest  income of $808 thousand due to rate changes.
The average  balance of the portfolio  increased  $5.0 million to $312.8 million
for the six months  ended June 30, 2001 from $307.8  million for the same period
in 2000,  which  resulted  in a  volume  increase  in  interest  income  of $164
thousand.  The increase  was  primarily  due to purchases  during this period of
$59.0 million of U.S. Agency Notes and $47.8 million of CMO's,  partially offset
by $93.7  million in calls of U.S.  Agency Notes and $15.3  million of principal
paydowns.

                                       12
<PAGE>

The increase in interest  expense on borrowings was the result of an increase in
the average  balance of $40.1 million to $136.7 million for the six months ended
June 30, 2001 from $96.6 million for the same period in 2000,  which resulted in
a volume  increase in interest  expense of $1.1  million.  The average  yield on
borrowings  decreased 40 basis points to 5.27% for the six months ended June 30,
2001 from 5.67% for the same  period in 2000,  which  resulted  in a decrease in
interest expense of $267 thousand due to rate changes.

The  increase in interest  expense on deposits  was the result of an increase in
the average  balance of deposits of $29.5 million to $641.8  million for the six
months  ended June 30,  2001 from  $612.3  million  for the same period in 2000,
which resulted in a volume  increase in interest  expense of $482 thousand.  The
average  yield on deposits  decreased 4 basis points to 3.23% for the six months
ended June 30, 2001 from 3.27% for the same period in 2000,  which resulted in a
decrease in interest expense of $132 thousand due to rate changes.

Provision  for Loan Losses - for the three months  ended June 30, 2001  remained
constant at $60 thousand  from 2000 to 2001.  The total  provision for potential
loan losses remained constant at $120 thousand for the six months ended June 30,
2001 and 2000. At June 30, 2001 the allowance for possible loan losses  amounted
to $4.2 million compared to $3.9 million at June 30, 2000. 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 the
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.

Other Income - for the three and six month  periods ended June 30, 2001 was $925
thousand and $1.8 million, as compared to $707 thousand and $1.4 million for the
same periods in 2000.  The increase was  primarily  due to an increase in retail
banking fees and two additional  rental  properties  since the second quarter of
2000.

Operating  Expenses - for the three and six month  periods  ended June 30,  2001
totaled $5.4 million and $10.6 million, respectively as compared to $4.9 million
and $9.7 million for the same periods in 2000.

Salaries and Employee  Benefits - for the three and six month periods ended June
30, 2001 were $3.1  million and $6.1  million,  as compared to $2.9  million and
$5.7 million for the same periods in 2000.  The increases were due to additional
staff in three new branches opened and two branches  acquired through the merger
with CloverBank  since the second quarter of 2000.  Average full time equivalent
employees at June 30, 2001 were 425 as compared to 418 at June 30, 2000.

                                       13
<PAGE>

Occupancy  and  Equipment - for the three and six month  periods  ended June 30,
2001 amounted to $1.1 million and $2.3 million, as compared to $980 thousand and
$2.0 million for the same period  since 2000.  The  increases  are the result of
additional  depreciation  and occupancy  expenses on the new branches  opened as
well as other facility improvements and new computer equipment additions between
the quarters ended June 30, 2001 and June 30, 2000.

Purchased  Services - for the three and six month  periods  ended June 30,  2001
totaled $525  thousand and $1.0  million,  as compared to $447 thousand and $876
thousand for the same periods in 2000.  ATM charges  increased  $93 thousand for
the  first  six  months  of 2001  compared  to the same  period  in 2000.  Check
processing  costs  increased $34 thousand for the six months ended June 30, 2001
compared to the same period in 2000 due to higher transaction volumes.

Federal Deposit Insurance  Premiums - increased $7 thousand compared to the same
period in 2000. The increase is due to the merger with CloverBank.

ITEM 3:  DISCLOSURE ABOUT MARKET RISK

There were no  significant  changes for the six months  ended June 30, 2001 from
the  information  presented in the annual report on Form 10-K for the year ended
December 31, 2000.

                                       14
<PAGE>


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


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

                       None


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

                       None


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

                       None


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

                       None

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

                       None


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

                       None

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<PAGE>

                           S I G N A T U R E





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





FMS FINANCIAL CORPORATION




Date: August 10, 2001            /s/ Craig W. Yates
                                 -------------------------------------
                                 Craig W. Yates
                                 President and Chief Executive Officer
                                 (Principal Executive Officer)



Date: August 10, 2001            /s/ Channing L. Smith
                                 ----------------------------------------
                                 Channing L. Smith
                                 Vice President and
                                 Chief Financial Officer
                                 (Principal Financial Officer)


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