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, 2002

                                       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, 2002 there were issued and outstanding  6,463,811 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, 2002
                                  -------------

                                TABLE OF CONTENTS
                                -----------------
                                                                          Page
                                                                          ----
PART I - Financial Information
------------------------------

     Item 1 - Financial Statements

           Consolidated Statements of Financial Condition as of
                   June 30, 2002 (unaudited) and December 31, 2001..........1

           Consolidated Statements of Operations (unaudited)
                   for the three and six months ended
                   June 30, 2002 and June 30, 2001..........................2

           Consolidated Statements of Cash Flows (unaudited)
                   for the six months ended June 30, 2002
                   and June 30, 2001........................................3

           Consolidated  Statements  of  Changes  in  Stockholders'
                   Equity (unaudited) for the six months ended
                   June 30, 2002 and June 30, 2001..........................4

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

     Item 2 - Management's Discussion and Analysis of
                   Financial Condition and Results of Operations.........6-17

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

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

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

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

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

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

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

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

<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                             June 30, 2002     December 31, 2001
----------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                    <C>
ASSETS                                                                         (Unaudited)
----------------------------------------------------------------------------------------------------------------

     Cash and due from banks                                             $       27,994,194     $    32,336,279
     Interest-bearing deposits                                                       22,587             153,133
     Short term funds                                                            93,418,588          30,869,712

                                                                         -------------------    ----------------
        Total cash and cash equivalents                                         121,435,369          63,359,124
     Investment securities held to maturity                                     149,715,775         196,571,299
     Investment securities available for sale                                    95,141,981          51,969,422
     Loans, net                                                                 359,760,312         336,544,004
     Mortgage-backed securities held to maturity                                275,974,360         272,494,220
     Accrued interest receivable:
        Loans                                                                     1,777,736           1,591,276
        Mortgage-backed securities                                                1,825,174           1,757,572
        Investments                                                               2,079,653           2,194,252
     Federal Home Loan Bank stock                                                10,339,220           8,313,620
     Real estate held for development, net                                           87,926              87,926
     Real estate owned, net                                                         201,329             214,249
     Premises and equipment, net                                                 26,373,302          26,364,980
     Deferred income taxes                                                        3,138,402           3,158,402
     Prepaid expenses and other assets                                            1,151,804           1,767,694
     Trust Capital securities issue costs, net                                      756,921                   0
     Subordinated debentures issue costs, net                                       120,394             149,069

                                                                         -------------------    ----------------
TOTAL ASSETS                                                             $    1,049,879,658     $   966,537,109
                                                                         ===================    ================

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

Liabilities:
     Deposits                                                            $      746,901,242     $   729,505,729
     Securities sold under agreements to repurchase                             195,000,000         165,000,000
     Advances from the Federal Home Loan Bank                                    11,232,103           1,270,313
     10% Subordinated debentures, due 2004                                       10,000,000          10,000,000
     Trust Capital Securities - FMS Statutory Trust 1                            25,000,000                   0
     Advances by borrowers for taxes and insurance                                2,449,314           2,247,002
     Accrued interest payable                                                     1,767,318           1,782,508
     Dividends payable                                                              193,914             201,531
     Other liabilities                                                            3,409,584           4,326,845

                                                                         -------------------    ----------------
     Total liabilities                                                          995,953,475         914,333,928
                                                                         -------------------    ----------------
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 7,949,809 and 7,948,884 and shares outstanding 6,463,811
        and 6,717,705 as of June 30, 2002 and December 31, 2001, respectively       794,981             794,888
     Paid-in capital in excess of par                                             8,279,525           8,278,423
     Accumulated other comprehensive gain (loss) -
        net of deferred income taxes                                                687,942             147,496
     Retained earnings                                                           55,050,315          51,055,818
     Less:  Treasury stock (1,485,998 and 1,231,179 shares,
        at cost, as of June 30, 2002 and December 31, 2001, respectively)       (10,886,580)         (8,073,444)

                                                                         -------------------    ----------------
Total stockholders' equity                                                       53,926,183          52,203,181
                                                                         -------------------    ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                               $    1,049,879,658     $   966,537,109
                                                                         ===================    ================
</TABLE>
See notes to consolidated financial statements.

                                       1
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------------------------------------------------------
                                                             Three Months ended                           Six Months ended
                                                                  June 30,                                     June 30,
                                                          2002                     2001             2002                2001
--------------------------------------------------------------------------------------------------------------------------------
INTEREST  INCOME:                                                (Unaudited)                              (Unaudited)
Interest income on:
<S>                                             <C>                    <C>                <C>                <C>
    Loans                                           $     6,385,849       $     5,818,673    $    12,742,333    $    11,519,582
    Mortgage-backed securities                            4,535,948             3,287,694          8,834,263          6,166,275
    Investments                                           3,917,284             4,578,909          7,573,931          9,461,019
                                                    ---------------       ---------------    ---------------    ---------------
Total interest income                                    14,839,081            13,685,276         29,150,527         27,146,876
                                                    ---------------       ---------------    ---------------    ---------------

INTEREST EXPENSE:
Interest expense on:
    Deposits                                              3,570,208             5,139,735          7,495,539         10,349,884
    Long term debt                                          648,249               264,337            934,082            528,674
    Borrowings                                            2,256,465             1,892,840          4,352,318          3,606,437
                                                    ---------------       ---------------    ---------------    ---------------
Total interest expense                                    6,474,922             7,296,912         12,781,939         14,484,995
                                                    ---------------       ---------------    ---------------    ---------------
NET INTEREST INCOME                                       8,364,159             6,388,364         16,368,588         12,661,881
PROVISION FOR LOAN LOSSES                                    26,000                60,000             29,000            120,000
                                                    ---------------       ---------------    ---------------    ---------------

NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                       8,338,159             6,328,364         16,339,588         12,541,881
                                                    ---------------       ---------------    ---------------    ---------------

OTHER INCOME (EXPENSE):
    Loan service charges and other fees                      24,653                26,482             52,663             53,476
    Gain on sale of loans                                       388                   306                463                509
    Gain on disposal of fixed assets                        100,113                   356            100,113             50,799
    Real estate owned operations, net                       (8,013)              (11,524)           (15,867)           (25,210)
    Service charges on accounts                             997,390               841,575          1,862,178          1,559,834
    Other income                                             66,849                67,814            151,469            137,124
                                                    ---------------       ---------------    ---------------    ---------------
Total other income                                        1,181,380               925,009          2,151,019          1,776,532
                                                    ---------------       ---------------    ---------------    ---------------

OPERATING EXPENSES:
    Salaries and employee benefits                        3,409,715             3,089,322          6,858,401          6,087,345
    Occupancy and equipment                               1,113,836             1,103,112          2,220,244          2,280,116
    Purchased services                                      649,041               525,211          1,263,939          1,011,333
    Federal deposit insurance premiums                       31,146                37,648             62,124             67,636
    Professional fees                                       205,823               131,333            404,036            251,183
    Advertising                                             121,381                60,003            204,583            117,635
    Other                                                   382,664               408,181            696,218            751,645
                                                    ---------------       ---------------    ---------------    ---------------
Total operating expenses                                  5,913,606             5,354,810         11,709,545         10,566,893
                                                    ---------------       ---------------    ---------------    ---------------

INCOME BEFORE INCOME TAXES                                3,605,933             1,898,563          6,781,062          3,751,520

INCOME TAXES:
    Current                                               1,677,070               533,005          2,674,939          1,383,894
    Deferred                                              (408,415)               139,104          (283,737)           (51,711)
                                                    ---------------       ---------------    ---------------    ---------------
Total income taxes                                        1,268,655               672,109          2,391,202          1,332,183

NET INCOME                                          $     2,337,278       $     1,226,454    $     4,389,860    $     2,419,337
                                                    ===============       ===============    ===============    ===============
BASIC EARNINGS PER COMMON SHARE                     $          0.36       $          0.18    $          0.66    $          0.36
                                                    ===============       ===============    ===============    ===============
DILUTED EARNINGS PER COMMON SHARE                   $          0.36       $          0.18    $          0.66    $          0.36
                                                    ===============       ===============    ===============    ===============
Dividends declared per common share                 $          0.03       $          0.03    $          0.06    $          0.06
                                                    ===============       ===============    ===============    ===============
Weighted average common shares outstanding                6,547,961             6,680,341          6,632,815          6,702,997
Potential dilutive effect of the exercise of
     stock options                                           30,445                42,825             20,616             44,449
                                                    ---------------       ---------------    ---------------    ---------------
Adjusted weighted average common shares outstanding       6,578,406             6,723,166          6,653,431          6,747,446
                                                    ===============       ===============    ===============    ===============
</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,
                                                                   ---------------------------------------
                                                                            2002                   2001
----------------------------------------------------------------------------------------------------------
                                                                                (Unaudited)
<S>                                                             <C>                   <C>
OPERATING ACTIVITIES:
Net income                                                          $      4,389,860      $     2,419,337
Adjustments to reconcile net income to net cash provided
         by operating activities:
Provision for loan losses                                                     29,000              120,000
Depreciation and amortization                                              1,952,609            1,598,023
Realized (gains) and losses on:
    Sale of loans and loans held for sale                                       (463)                (509)
    Disposal and sale of fixed assets                                       (100,113)             (50,799)
(Increase) Decrease in accrued interest receivable                          (139,463)             342,003
Decrease in prepaid expenses and other assets                                615,890               84,593
Decrease in accrued interest payable                                         (15,190)            (286,885)
Decrease in other liabilities                                               (917,261)          (1,404,343)
Decrease in deferred income taxes                                           (283,735)             (51,711)
                                                                    -----------------     ----------------
    Net cash provided by operating activities                              5,531,134            2,769,709
                                                                   ------------------    -----------------
INVESTING ACTIVITIES:
Proceeds from sale of:
    Education loans                                                          127,226               67,417
    Real estate owned                                                         12,920               77,580
    Property and equipment                                                   213,656               84,433
Principal collected and proceeds from maturities of investment
         securities held to maturity                                      94,078,801          172,011,796
Proceeds from maturities of investment securities available for sale      20,811,995           21,826,670
Principal collected on mortgage-backed securities held to maturity        49,711,717           38,562,762
Principal collected on loans, net                                         44,425,599           31,346,540
Loans originated or acquired                                             (67,830,736)         (33,371,384)
Purchase of investment securities and mortgage-backed securities
         held to maturity                                               (101,362,139)        (206,151,398)
Purchase of investment securities and mortgage-backed securities
         available for sale                                              (63,239,425)         (18,712,168)
Purchase of Federal Home Loan Bank stock                                  (2,025,600)            (998,310)
Purchase of office property and equipment                                   (966,676)          (1,023,791)
Net cash received from bank merger                                                 0            1,466,726
                                                                    -----------------     ----------------
    Net cash (used) provided by investing activities                     (26,042,662)           5,186,873
                                                                    -----------------     ----------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts                      42,968,282            3,088,146
Net decrease in time deposits                                            (25,572,769)          (1,103,611)
Net increase (decrease)  in FHLB advances                                  9,961,790           (5,035,331)
Proceeds from (Repayment of) securities sold under agreements
         to repurchase                                                    30,000,000           25,000,000
Net proceeds from issuance of trust capital securities                    24,243,079                    0
Increase in advances from borrowers for taxes and insurance                  202,312              108,114
Purchase of treasury stock                                                (2,813,136)            (365,220)
Dividends paid on common stock                                              (402,980)            (403,210)
Net proceeds from issuance of common stock                                     1,195               18,720
                                                                    -----------------     ----------------
    Net cash provided by financing activities                             78,587,773           21,307,608
                                                                    -----------------     ----------------
INCREASE  IN CASH AND CASH EQUIVALENTS                                    58,076,245           29,264,190
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                            63,359,124           44,951,299
                                                                    -----------------     ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                            $    121,435,369      $    74,215,489
                                                                    =================     ================
Supplemental Disclosures:
    Cash paid for:
       Interest on deposits, advances, and other borrowings         $     12,797,129      $    14,755,278
       Income taxes                                                        2,879,982            2,347,398
    Non-cash investing and financing activities:
       Dividends declared and not paid at quarter end                        193,914              200,703
       Deposits acquired in connection with merger                                 0           28,102,691
       Assets acquired in connection with merger                                   0           28,260,337
</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) gain     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, net
      of taxes of $119,910                                                  212,889                                     212,889
                                                                                                                   -------------
Total comprehensive income                                                                                            2,632,226
                                                                                                                   -------------
Dividends declared ($.06)                                                                 (402,082)                    (402,082)
Exercise of 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
--------------------------------------------------------------------------------------------------------------------------------

Balances at December 31, 2001   6,717,705    $794,888     $8,278,423      $ 147,496   $ 51,055,818  $(8,073,444)   $ 52,203,181
Net Income                                                                               4,389,860                    4,389,860
Other comprehensive income
  Unrealized loss on securities
      available for sale,
      net of taxes of $303,736                                              540,446                                     540,446
                                                                                                                   -------------
Total comprehensive income                                                                                            4,930,306
                                                                                                                   -------------

Dividends declared ($.06)                                                                 (395,363)                    (395,363)
Exercise of stock options             925          93          1,102                                                      1,195
Purchase of common stock         (254,819)                                                           (2,813,136)     (2,813,136)

--------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 2002       6,463,811    $794,981     $8,279,525      $ 687,942   $ 55,050,315 $(10,886,580)   $ 53,926,183
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.



                                       4

<PAGE>


FMS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX
MONTHS ENDED JUNE 30, 2002 (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
six months ended June 30, 2002 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, 2001. The consolidated  financial statements include
the Corporation's principle subsidiary, Farmers & Mechanics Bank ("the Bank").

2-RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2002,  the FASB  issued  SFAS No. 145 ("FAS  145"),  "Rescission  of FASB
Statements  No. 4, 44 and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections."  FAS 145  rescinds  FASB No. 4  "Reporting  Gains and Losses  from
Extinguishment of Debt" which required all gains and losses from  extinguishment
of debt to be aggregated and, if material,  classified as an extraordinary item,
net of related income tax effect.  As a result of FAS 145, gains and losses from
extinguishments of debt should be classified as extraordinary items only if they
meet the criteria of Accounting  Principles  Board Opinion No. 30 "Reporting the
Effects of Disposal of a Segment of a Business , and Extraordinary , Unusual and
Infrequently  Occurring Events and  Transactions"  ("APB 30"). The provisions of
FAS 145 related to the  rescission of FAS 4 are required to be applied in fiscal
years beginning after May 15, 2002, with early application  encouraged.  FAS 145
also  rescinds an amendment to FAS 4,  "Extinguishments  of Debt Made to Satisfy
Sinking-Fund  Requirements"  ("FAS 64"),  rescinds  "Accounting  for  Intangible
Assets of Motor  Carriers"  ("FAS 44") and amends  "Accounting  for Leases ("FAS
13"). FAS 145 makes technical  corrections to existing  pronouncements which are
not  substantive  in nature.  The  adoption by the  Corporation  of SFAS No. 145
effective  June 30,  2002 did not have a  material  effect  on the  Consolidated
Statement of Financial Condition or Statement of Operation.

3-LONG-TERM DEBT
Long-Term Debt at June 30, 2002  consisted of $10.0 million of 10%  subordinated
debentures  and $25.0  million of Trust  Capital  Securities.  In March 2002 the
Corporation  formed  a  wholly-owned  subsidiary,  FMS  Statutory  Trust 1 ("the
Trust").  On March 26, 2002,  the Trust issued  $25.0  million of floating  rate
capital  securities.  The interest  rate resets every three months to LIBOR plus
360%,  with an initial  rate of 5.59%,  and will not exceed  11.00%  through the
first five years from its issuance. The proceeds will be used for the paydown of
the $10.0 million  subordinated  debentures,  expansion of the Bank's operations
and general corporate purposes. At December 31, 2001 long-term debt consisted of
$10.0 million of 10% subordinated debentures.

                                       5
<PAGE>

4-SUBSEQUENT EVENT
On August 1, 2002 the  Corporation  redeemed its $10.0 million 10%  Subordinated
Debentures.  The early redemption was at a price of 101%. The additional cost of
redemption and the remaining unamortized bond issuance costs will be recorded as
a one-time extraordinary charge to the Corporation's net income.

5-REGULATORY CAPITAL REQUIREMENTS
The Bank is considered  "well  capitalized" by OTS regulations at June 30, 2002.
The  Bank's  regulatory  tangible  and tier 1 (core)  capital  ratios  are $68.5
million or 6.54% of total bank assets and $72.3 million or 18.35% for risk-based
capital.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002.
FMS Financial Corporation ("the Corporation") may from time to time make written
or oral  "forward-looking  statements,"  including  statements  contained in the
Corporation's  filings with the  Securities and Exchange  Commission  (including
this quarterly report on FORM 10-Q and the exhibits thereto),  in its reports to
stockholders and in other  communications by the Corporation,  which are made in
good faith by the  Corporation  pursuant to the "safe harbor"  provisions of the
Private Securities Litigation Reform Act of 1995.

These  forward-looking  statements  involve  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 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.

                                       6
<PAGE>


FINANCIAL CONDITION

Total Assets - at June 30, 2002 were $1.05 billion as compared with total assets
at December 31, 2001 of $966.5 million.

Investment  Securities  Held to  Maturity -  decreased  $46.9  million to $149.7
million at June 30, 2002 from $196.6  million at December 31, 2001 primarily due
to calls in U.S.  Agency  Notes of $48.6  million,  principal  paydowns of $39.7
million in collateralized  mortgage obligations (CMO's) and the maturity of $5.7
million of Municipal  Bonds,  partially  offset by purchases of $25.0 million in
U.S.  Agency Notes,  $20.3 million in CMO's and $2.2 million in Municipal  Bonds
during the  period.  Investment  securities  held to  maturity  at June 30, 2002
consisted  entirely  of  fixed  rate  securities.   A  comparison  of  cost  and
approximate  market values of investment  securities held to maturity as of June
30, 2002 and December 31, 2001 follows:
<TABLE>
<CAPTION>

                                                June 30, 2002                                    December 31, 2001
                      ------------------------------------------------------------------  ---------------------------------
                                             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    $      58,472,093 $     350,841 $      (121,047) $     58,701,887   $    82,190,157   $   82,827,324
CMO's                        87,038,933       756,014        (156,091)       87,638,856       106,659,768      106,350,004
Municipal bonds               4,204,749         7,615               0         4,212,364         7,721,374        7,728,414
                      ------------------------------------------------------------------  ---------------------------------
Total                 $     149,715,775 $   1,114,470 $      (277,138) $    150,553,107   $   196,571,299   $  196,905,742
                      ==================================================================  =================================
</TABLE>

Short term funds -  increased  $62.5  million to $93.4  million at June 30, 2002
from $30.9 million at December 31, 2001. The increase is the result of purchases
of overnight and  short-term  money market  investment  funds from the increased
prepayment and calls of our investment and loan portfolios.

Investment  Securities  Available  for Sale - increased  $43.1  million to $95.1
million at June 30, 2002 from $52.0  million at December 31, 2001.  The increase
is the result of purchases of $30.8 million in U.S. Agency Notes,  $19.2 million
of MBS's and $13.0 million of CMO's,  partially offset by calls of $10.6 million
in U.S.  Agency  Notes,  principal  paydowns  of  $10.2  million  of  CMO's  and
mortgage-backed  securities  (MBS's)  at June 30,  2002.  Investment  securities
available for sale consisted of $94.4 million in fixed rate  securities and $727
thousand in  adjustable  rate  securities at June 30, 2002. A comparison of cost
and approximate market values of investment  securities available for sale as of
June 30, 2002 and December 31, 2001 follows:
<TABLE>
<CAPTION>

                                                June 30, 2002                                      December 31, 2001
                      ------------------------------------------------------------------  ---------------------------------
                                             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    $      35,188,634 $     389,640 $     (48,986) $     35,529,288     $  14,990,181   $   15,051,850
CMO's                        19,279,246       210,542       (22,511)       19,467,277        12,377,010       12,565,404
MBS's                        39,599,592       545,824             0        40,145,416        24,371,904       24,352,168
                      ----------------------------------------------------------------    -------------------------------
Total                 $      94,067,472 $   1,146,006 $     (71,497) $     95,141,981     $  51,739,095   $   51,969,422
                      ================================================================    ===============================

</TABLE>
                                       7
<PAGE>

Loans,  net - increased  $23.2  million to $359.8  million at June 30, 2002 from
$336.5  million at December 31, 2001.  This increase was primarily the result of
$67.8  million of loans  originated,  partially  offset by  approximately  $44.4
million of  principal  collected  on loans  during the six months ended June 30,
2002.  The following  table shows loans  receivable  by major  categories at the
dates indicated.

                                      June 30,           December 31,
                                        2002                2001

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

Mortgage Loans                  $    276,593,715     $   259,970,571
Construction Loans                     1,412,699           1,254,191
Commercial Construction                2,724,934           4,605,752
Consumer Loans                         3,949,341           4,582,734
Commercial Real Estate                70,022,876          60,626,659
Commercial Business                    9,999,564          10,520,704

                                ------------------------------------
Subtotal                             364,703,129         341,560,611
                                ------------------------------------
Less:
     Deferred loan fees                  683,747             786,044
     Allowance for
        loan losses                    4,259,070           4,230,563

                                ------------------------------------
Total loans, net                $    359,760,312     $   336,544,004
                                ====================================


At June 30, 2002, the recorded investment in loans for which impairment has been
recognized  in accordance  with SFAS Nos. 114 and 118 totaled $2.5  million,  of
which  $1.1  million  related  to loans  that  were  individually  measured  for
impairment with a valuation allowance of $479 thousand and $1.4 million of loans
that were collectively measured for impairment with a valuation allowance of $46
thousand.  The Bank had $4.3  million in total  reserves for loan losses at June
30, 2002, representing approximately 167% of non-accrual loans and 1.2% of total
loans. For the six months ended June 30, 2002, the average  recorded  investment
in impaired  loans was  approximately  $2.3  million.  The Bank  recognized  $68
thousand of interest  income for the six months  ended June 30, 2002 on impaired
loans, all of which was recognized on the cash basis.

As of June 30, 2002 the Bank had outstanding  loan commitments of $13.5 million,
of  which  $5.4  million  represented  variable  rate  loans  and  $8.1  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.

                                       8
<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.
<TABLE>
<CAPTION>

                                                        June 30,           December 31,
                                                          2002                 2001
                                                       -----------         ------------

<S>                                                 <C>                  <C>
Loans accounted for on a non-accrual basis:
     One-to-four family mortgage                       $   892,198          $ 1,347,705
     Commercial real estate                              1,718,264            1,633,940
     Consumer and other                                          0                    0
                                                       -----------          -----------
     Total non-accrual loans                           $ 2,610,462          $ 2,981,645
                                                       -----------          -----------

     Troubled debt restructuring                       $ 1,045,940          $ 1,072,393
     Real estate owned, net                                201,329              214,249
     Other non-performing assets                            87,926               87,925
                                                       -----------          -----------
     Total non-performing assets, net                  $ 3,945,657          $ 4,356,212
                                                       ===========          ===========

     Total non-accrual loans to net loans                     0.73%                0.89%
                                                       ===========          ===========
     Total non-accrual loans to total assets                  0.25%                0.31%
                                                       ===========          ===========
     Total non-performing assets to total assets              0.38%                0.45%
                                                       ===========          ===========
</TABLE>

Mortgage-Backed  Securities  Held to Maturity - increased $3.5 million to $276.0
million at June 30, 2002 from $272.5  million at December 31, 2001. The increase
is the result of purchases of $43.7  million of FNMA,  FHLMC and GNMA fixed rate
securities and $9.5 million of FNMA adjustable rate securities, partially offset
by the principal paydowns of $49.7 million.  Mortgage-backed  securities at June
30, 2002 consisted of $234.5 million in fixed rate  securities and $41.5 million
in adjustable rate  securities.  Mortgage-backed  securities held to maturity at
June 30, 2002 and December 31, 2001 are summarized below:
<TABLE>
<CAPTION>

                                  June 30, 2002                               December 31, 2001
           -----------------------------------------------------------  -----------------------------
                               Gross        Gross
              Amortized      Unrealized   Unrealized      Estimated       Amortized      Estimated
                 Cost          Gains        Losses      Market Value         Cost       Market Value
           -----------------------------------------------------------  -----------------------------

<S>       <C>             <C>          <C>         <C>                <C>           <C>
GNMA       $   46,242,417  $  1,703,621 $      (120)  $    47,945,918   $  54,266,773 $   55,391,045

FNMA          192,636,906     3,408,241    (206,202)      195,838,945     196,556,532    197,118,792

FHLMC          37,095,037       748,086     (33,145)       37,809,978      21,670,915     22,330,681

           -----------------------------------------------------------  -----------------------------
Total      $  275,974,360  $  5,859,948 $  (239,467)  $   281,594,841   $ 272,494,220 $  274,840,518
           ===========================================================  =============================
</TABLE>
                                       9
<PAGE>

Deposits  -  increased  $17.4  million to $746.9  million at June 30,  2002 from
$729.5  million at December 31,  2001.  Money market  accounts  increased  $22.3
million,  savings  accounts  increased  $16.0 million and  non-interest  bearing
checking accounts increased $12.6 million. These increases were partially offset
by decreases in certificates of deposits of $25.6 million and checking  accounts
of $7.9 million.  Interest  credited to  depositors  accounts for the six months
ended June 30, 2002  amounted to $7.6 million.  The  following  table sets forth
certain information concerning deposits at the dates indicated.
<TABLE>
<CAPTION>

                                             June 30, 2002                          December 31, 2001
                               ---------------------------------------------------------------------------------
                                                   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              $133,546,602     17.88%     0.00%        $120,954,278    16.57%     0.00%
Checking accounts                   126,679,979     16.96%     1.28%         134,601,630    18.45%     2.16%
Savings accounts                    147,524,324     19.75%     1.43%         131,524,016    18.04%     2.23%
Money market accounts               109,152,050     14.61%     2.05%          86,854,749    11.91%     2.55%
Certificates                        229,998,287     30.80%     3.91%         255,571,056    35.03%     5.12%
                               ---------------------------------------------------------------------------------
   Total Deposits                  $746,901,242    100.00%     2.07%        $729,505,729   100.00%     2.99%
                               =================================================================================
</TABLE>

Borrowings - at June 30, 2002 amounted to $206.2 million.  Borrowings  consisted
of $195.0  million in securities  sold under the agreement to repurchase  with a
weighted  average  interest rate of 4.49% and $11.2 million in Federal Home Loan
Bank Advances with a weighted  average  interest rate of 2.18%.  At December 31,
2001 borrowings  consisted of $165.0 million in securities sold under agreements
to repurchase with a weighted  average rate of 4.86% and $1.3 million in Federal
Home Loan Bank Advances with a weighted average interest rate of 5.00%.

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  debts  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, 2002 of
$2.3 million, or $.36 diluted earnings per share as compared to $1.2 million, or
$.18 diluted earnings per share for the comparable period in 2001.  Earnings for
the six months ended June 30, 2002 were $4.4 million,  or $.66 diluted  earnings
per share as compared to $2.4  million,  or $.36 diluted  earnings per share for
the comparable periods in 2001.

                                       10
<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  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:

                                       11
<PAGE>
<TABLE>
<CAPTION>

                                                                   Three Months Ended June 30,
                                   ---------------------------------------------------------------------------------------------
                                                       2002                                               2001
                                   ---------------------------------------------   ---------------------------------------------
                                        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           $        364,113   $      6,386           7.02%    $       304,958   $       5,819        7.63%
     Mortgage-backed securities          304,900          4,536           5.95%            200,420           3,288        6.56%
     Investment securities               301,482          3,917           5.20%            293,838           4,579        6.23%
                                -----------------  -------------    ------------   ----------------  --------------   ----------
Total interest-earning assets            970,495         14,839           6.12%            799,216          13,686        6.85%
                                -----------------  -------------    ------------   ----------------  --------------   ----------

Interest-bearing liabilities:
     Deposits                            738,412          3,570           1.93%            653,262           5,140        3.15%
     Borrowings                          203,677          2,256           4.43%            145,437           1,893        5.21%
     Long-Term Debt                       35,774            648           7.25%             10,000             264       10.56%
                                -----------------  -------------    ------------   ----------------  --------------   ----------
Total interest-bearing
     liabilities                $        977,863          6,474           2.65%    $       808,699           7,297        3.61%
                                =================  -------------    ------------   ================  --------------   ----------
Net interest income                                $      8,365                                      $       6,389
                                                   =============                                     ==============
Interest rate spread                                                      3.47%                                           3.24%
                                                                    ============                                      ==========

Net yield on average interest-earning assets                              3.45%                                           3.20%
                                                                    ============                                      ==========

Ratio of average interest-
     earning assets to average interest
     -bearing liabilities                                                99.25%                                          98.83%
                                                                    ============                                      ==========
</TABLE>


<TABLE>
<CAPTION>


                                                                    Six Months Ended June 30,
                                   ---------------------------------------------------------------------------------------------
                                                      2002                                               2001
                                   ---------------------------------------------   ---------------------------------------------
                                      Average                         Average          Average                         Average
                                      Balance        Interest       Yield/Rate         Balance         Interest       Yield/Rate
                                   --------------  -------------    ------------   ----------------  --------------   ----------
                                                                      (Dollars in Thousands)
Interest-earning assets:
<S>                           <C>                <C>                <C>          <C>               <C>                  <C>
     Loans receivable           $        358,999   $     12,742           7.10%    $       300,047   $      11,520        7.68%
     Mortgage-backed securities          294,259          8,834           6.00%            185,244           6,166        6.66%
     Investment securities               275,774          7,574           5.49%            312,750           9,461        6.05%
                                -----------------  -------------    ------------   ----------------  --------------   ----------
Total interest-earning
        assets                           929,032         29,150           6.28%            798,041          27,147        6.80%
                                -----------------  -------------    ------------   ----------------  --------------   ----------

Interest-bearing liabilities:
     Deposits                            731,667          7,496           2.05%            641,773          10,350        3.23%
     Borrowings                          191,545          4,352           4.54%            136,727           3,606        5.27%
     Long-Term Debt                       23,580            934           7.92%             10,000             529       10.58%
                                -----------------  -------------    ------------   ----------------  --------------   ----------
Total interest-bearing
        liabilities             $        946,792         12,782           2.70%    $       788,500          14,485        3.67%
                                =================  -------------    ------------   ================  --------------   ----------
Net interest income                                $     16,368                                      $      12,662
                                                   =============                                     ==============
Interest rate spread                                                      3.58%                                           3.13%
                                                                    ============                                      ==========

Net yield on average interest-earning assets                              3.52%                                           3.17%
                                                                    ============                                      ==========

Ratio of average interest-
     earning assets to average interest
     -bearing liabilities                                                98.12%                                         101.21%
                                                                    ============                                      ==========
</TABLE>
                                       12
<PAGE>


Rate/Volume Analysis

The following  table describes the extent to which changes in interest rates and
changes in volume of interest-earning  assets and  interest-bearing  liabilities
have affected the Bank's interest income and interest expense during the periods
indicated.  For each category of  interest-earning  assets and  interest-bearing
liabilities,  information is provided on changes  attributable to (i) changes in
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,
                                                   2002 vs 2001                              2002 vs 2001
                                                Increase (Decrease)                      Increase (Decrease)
                                                  Due to Change in:                        Due to Change in:
                                      ---------------------------------------    ---------------------------------------
                                          Rate         Volume         Total         Rate          Volume        Total
                                                   (In Thousands)                             (In Thousands)
                                      ----------------------------------------   ---------------------------------------
<S>                                 <C>           <C>           <C>            <C>           <C>           <C>
Interest income:
Loans                                  $    (562)    $    1,129    $      567     $ (1,041)     $    2,263    $   1,222
Mortgage-backed securities                  (466)         1,714         1,248         (961)          3,629        2,668
Investment securities                       (781)           119          (662)        (768)         (1,119)      (1,887)
                                      ----------------------------------------   ---------------------------------------
Total change interest income              (1,809)         2,962         1,153       (2,770)          4,773        2,003
                                      ----------------------------------------   ---------------------------------------
Interest expense:
Deposits                                  (2,240)           670        (1,570)      (4,304)          1,450       (2,854)
Borrowings                                  (395)           758           363         (700)          1,446          746
Long-Term Debt                              (296)           680           384         (313)            718          405
                                      ----------------------------------------   ---------------------------------------

Total change - interest expense           (2,931)         2,108          (823)      (5,317)          3,614       (1,703)
                                      ----------------------------------------   ---------------------------------------

Net change in net interest income      $   1,122     $      854    $    1,976     $  2,547      $    1,159    $   3,706
                                      ========================================   =======================================
</TABLE>

Net  Interest  Income - for the three and six months ended June 30, 2002 totaled
$8.4 million and $16.4 million,  respectively. Net interest income for the three
months ended June 30, 2002 increased $2.0 million compared to the same period in
2001  due  primarily  to an  increase  in  interest  income  on  mortgage-backed
securities  of $1.2  million,  an increase  in interest  income on loans of $567
thousand  and a decrease  in  interest  expense  on  deposits  of $1.5  million,
partially  offset by a decrease in interest  income on investment  securities of
$662  thousand,  an  increase  in  interest  expense on  long-term  debt of $384
thousand and an increase in interest expense on borrowings of $363 thousand.

The  increase  in  interest  income was  primarily  the result of an increase in
mortgage-backed  securities  interest income of $1.2 million to $4.5 million for
the three  months  ended June 30, 2002 from $3.3  million for the same period in
2001. The average  balance of MBS's  increased  $104.5 million to $304.9 million
for the three months ended June 30, 2002 from $200.4 million for the same period
in 2001,  which resulted in an interest  income volume increase of $1.7 million.
The increase in the average  balance during this period was due to MBS purchases
of $53.2 million,  partially offset by principal paydowns of $49.7 million.  The
average  yield of the MBS  portfolio  decreased 61 basis points to 5.95% for the
quarter  ended  June 30,  2002  from  6.56% for the same  period in 2001,  which
resulted in an interest income decrease of $466 thousand due to rate changes.

                                       13
<PAGE>

Interest  income on loans  increased $567 thousand to $6.4 million for the three
months  ended June 30, 2002 from $5.8  million for the same period in 2001.  The
average balance of the loan portfolio  increased $59.2 million to $364.1 million
for the three months ended June 30, 2002 from $305.0 million for the same period
in 2001, which resulted in a volume increase in interest income of $1.1 million.
The increase in the average  balance is  principally  due to an increase in loan
originations  during this period and $25.0 million of CloverBank  loans acquired
through  the  merger  finalized  on June 1,  2001.  The  average  rate on  loans
decreased 61 basis points to 7.02% for the three months ended June 30, 2002 from
7.63% for the same  period in 2001,  which  resulted  in a decrease  in interest
income of $562 thousand due to rate changes.

Interest income on investment securities decreased $662 thousand to $3.9 million
for the three  months  ended June 30, 2002 from $4.6 million for the same period
in 2001.  The average  yield of the  investment  portfolio  decreased  103 basis
points to 5.20% for the  quarter  ended  June 30,  2002 from  6.23% for the same
period in 2001,  which resulted in an interest  income decrease of $781 thousand
due to rate changes. The average balance of investment securities increased $7.6
million to $301.5  million for the three  months ended June 30, 2002 from $293.8
million for the same  period in 2001,  which  resulted  in a volume  increase in
interest income of $119 thousand. The increase in the average volume during this
period is due to purchases of $110.4  million in U.S.  Agency  Notes,  partially
offset by  investment  calls  and  maturities  of $64.9  million  and  principal
paydowns of $50.0 million.

Interest  expense on deposits  decreased  $1.5  million to $3.6  million for the
three  months ended June 30, 2002 from $5.1 million for the same period in 2001.
The average  rate paid on deposits  decreased  122 basis points to 1.93% for the
quarter  ended  June 30,  2002  from  3.15% for the same  period in 2001,  which
resulted in a decrease in interest  expense of $2.2 million due to rate changes.
The average  balance of deposits  increased  $85.2 million to $738.4 million for
the three months ended June 30, 2002 from $653.3  million for the same period in
2001, which resulted in a volume increase in interest expense of $670 thousand.

Interest  expense on long term debt increased $384 thousand to $648 thousand for
the three months  ended June 30, 2002 from $264  thousand for the same period in
2001. The $25.0 million in Trust capital  securities  issued in March 2002 at an
initial  floating rate of 5.59% increased  interest expense from the same period
in 2001.

Interest  expense on borrowings  increased $363 thousand to $2.3 million for the
three  months ended June 30, 2002 from $1.9 million for the same period in 2001.
The average  balance of borrowings  increased $58.2 million to $203.7 million at
June 30, 2002 from $145.4 million for the same period in 2001, which resulted in
a volume increase in interest expense of $758 thousand. The average rate paid on
borrowings  decreased  78 basis  points to 4.43% for the quarter  ended June 30,
2002 from 5.21% for the same  period in 2001  which  resulted  in a decrease  in
interest expense of $395 thousand due to rate changes.

Net  interest  income for the six  months  ended June 30,  2002  increased  $3.7
million  primarily  due to an  increase in  interest  income on  mortgage-backed
securities  of $2.7  million,  an increase  in interest  income on loans of $1.2
million  and a  decrease  in  interest  expense  on  deposits  of $2.9  million,
partially  offset by a decrease in interest  income on investment  securities of
$1.9 million, an increase in interest expense on borrowings of $746 thousand and
an increase in interest  expense on long-term  debt of $405 thousand as compared
to the same six month period in 2001.

                                       14
<PAGE>

The  increase in interest  income on  mortgage-backed  securities  was due to an
increase in the average  balance of the  portfolio  of $109.0  million to $294.3
million for the six months  ended June 30, 2002 from $185.2  million for the six
months ended June 30, 2001. The increase in the average balance of the portfolio
resulted in a $3.6 million increase in interest income. The average yield on the
portfolio  decreased  66 basis points to 6.00% for the six months ended June 30,
2002 from 6.66% for the same  period in 2001,  which  resulted  in a decrease in
interest  income of $961  thousand  due to rate  changes.  The  increase  in the
average  balance was due to  purchases  during  this  period of $165.2  million,
partially offset by $101.5 million of principal  paydowns from June 2001 through
June 2002.

The  increase in interest  income on loans was due to an increase in the average
balance of $59.0  million to $359.0  million  for the six months  ended June 30,
2002 from $300.0 million for the six months ended June 30, 2001. The increase in
the average  balance  resulted  in a $2.3  million  volume  increase in interest
income.  The increase in the average  balance is primarily due to an increase in
loan  originations  and $25.0 million of CloverBank  loans acquired  through the
merger  finalized on June 1, 2001. The average yield on loans decreased 58 basis
points to 7.10% for the six months  ended June 30,  2002 from 7.68% for the same
period in 2001,  which resulted in a decrease in interest income of $1.0 million
due to rate changes.

The decrease in interest  income on investment  securities was due to a decrease
in the the average  balance of the portfolio of $37.0 million to $275.8  million
for the six months  ended June 20, 2002 from $312.8  million for the same period
in 2001, which resulted in a volume decrease in interest income of $1.1 million.
The decrease in the average balance was primarily due to $188.3 million in calls
on U.S. Agency Notes and $102.4 million of principal paydowns,  partially offset
by purchases of $274.7 million in U.S. Agency Notes and CMO's. The average yield
on the  investment  portfolio  decreased  56 basis  points  to 5.49% for the six
months  ended  June 30,  2002  from  6.05% for the same  period  in 2001,  which
resulted in a decrease in interest income of $768 thousand due to rate changes.

The decrease in interest expense on deposits was the result of a decrease in the
average  yield of 118 basis  points to 2.05% for the six  months  ended June 30,
2002 from 3.23% for the same  period in 2001,  which  resulted  in a decrease in
interest  expense of $4.3 million due to rate  changes.  The average  balance of
deposits increased $89.9 million to $731.7 million for the six months ended June
30, 2002 from $641.8  million for the same period in 2001,  which  resulted in a
volume increase in interest expense of $1.5 million.

The increase in interest  expense on borrowings was the result of an increase in
the average  balance of $54.8 million to $191.5 million for the six months ended
June 30, 2002 from $136.7 million for the same period in 2001, which resulted in
a volume  increase in interest  expense of $1.4  million.  The average  yield on
borrowings  decreased 73 basis points to 4.54% for the six months ended June 30,
2002 from 5.27% for the same  period in 2001,  which  resulted  in a decrease in
interest expense of $700 thousand due to rate changes.

Interest  expense on long-term debt increased $405 thousand to $934 thousand for
the six months  ended June 30,  2002 from $529  thousand  for the same period in
2001. The $25.0 million in Trust capital  securities  issued in March 2002 at an
initial  floating rate of 5.59% increased  interest expense from the same period
in 2001.

                                       15
<PAGE>

Most Significant Accounting  Estimate-Provision for Loan Losses - The Banks most
significant accounting estimate is the provision for loan losses which decreased
$34  thousand to $26  thousand for the three months ended June 30, 2002 from $60
thousand for the same period in 2001.  At June 30, 2002 the  allowance  for loan
losses  amounted to $4.3 million  compared to $4.2 million at June 30, 2001. 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.

Other Income - for the three and six month  periods ended June 30, 2002 was $1.2
million and $2.2 million,  as compared to $925 thousand and $1.8 million for the
same periods in 2001.  The increase was  primarily  due to a gain on the sale of
the 712 Stokes Road branch of $160 thousand,  an increase in retail banking fees
for the two branches  opened since the second quarter of 2001 and an increase in
the amount  received on rental  properties  acquired since the second quarter of
2001.

Operating  Expenses - for the three and six month  periods  ended June 30,  2002
totaled $5.9 million and $11.7 million, respectively as compared to $5.4 million
and $10.6 million for the same periods in 2001.

Salaries and Employee  Benefits - for the three and six month periods ended June
30, 2002 were $3.4  million and $6.9  million,  as compared to $3.1  million and
$6.1 million for the same period in 2001.  The increases  were  primarily due to
additional staff in the two new branches opened since the second quarter of 2001
and  annual  compensation  adjustments,  effective  the  beginning  of the year.
Average full time equivalent  employees at June 30, 2002 were 477 as compared to
425 at June 30, 2001.

Purchased  Services - for the three and six month  periods  ended June 30,  2002
totaled $649  thousand and $1.3  million,  as compared to $525 thousand and $1.0
million for the same periods in 2001.  ATM charges  increased  $163 thousand for
the  first  six  months  of 2002  compared  to the same  period  in 2001.  Check
processing  costs  increased $56 thousand for the six months ended June 30, 2002
compared to the same period in 2001 due to higher transaction volumes.

Professional  Fees - for the three and six month  periods  ended  June 30,  2002
totaled $206  thousand and $404  thousand as compared to $131  thousand and $251
thousand  for the  same  periods  in 2001.  Costs  associated  with  nonmaterial
litigation and data network  consulting  fees are the principle  reasons for the
increases.

                                       16

<PAGE>

Advertising - for the three and six month periods ended June 30, 2002  increased
$61 thousand and $87 thousand  respectively.  Additional  newspaper and cable TV
ads increased advertising costs.

ITEM 3:  DISCLOSURE ABOUT MARKET RISK

There were no  significant  changes for the six months  ended June 30, 2002 from
the  information  presented in the annual report on Form 10-K for the year ended
December 31, 2001.











                                       17

<PAGE>

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


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

                       None


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

                       None


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

                       None


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

                       None

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

                       None


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

                       (a)   Exhibit 99.1 certification

                       (b)   No reports on Form 8-K were filed during the period
                             under report



                                       18
<PAGE>

                                S I G N A T U R E



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





FMS FINANCIAL CORPORATION




Date: August 9, 2002             /s/ Craig W. Yates
                                 ------------------
                                 Craig W. Yates
                                 President and Chief Executive Officer
                                 (Principal Executive Officer)



Date: August 9, 2002             /s/ Channing L. Smith
                                 ---------------------
                                 Channing L. Smith
                                 Vice President and
                                 Chief Financial Officer
                                 (Principal Financial Officer)