UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                             ______________________

                                    FORM 10-Q

(Mark One)
[X]  Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
     Act of 1934

     For the quarterly period ended March 31, 2006

                                       OR

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

                         Commission file number 0-17353

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

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

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

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

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

         Indicate by check mark whether the  registrant  is a large  accelerated
filer,  an accelerated  filer,  or a  non-accelerated  filer.  See definition of
"accelerated  filer and large  accelerated  filer" in Rule 12b-2 of the Exchange
Act. Large accelerated filer     Accelerated filer     Non-accelerated filer  X
                             ---                   ---                       ---

         Indicate  the  number of  shares  outstanding  to each of the  issuer's
classes of common stock as of the latest practicable date : May 5, 2006.

            Class                                           6,515,110
            -----                                           ---------
   $.10 par value common stock                          Outstanding Shares

<PAGE>

                    FMS FINANCIAL CORPORATION AND SUBSIDIARY
                         QUARTERLY REPORT ON FORM 10-Q
                                 MARCH 31, 2006


                               TABLE OF CONTENTS

                                                                            Page
                                                                            ----

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

Item 1 - Financial Statements
         Consolidated Statements of Financial Condition as of
              March 31, 2006 (unaudited) and December 31, 2005                 1

         Consolidated Statements of Operations (unaudited)
              for the three months ended March 31, 2006 and
              March 31, 2005                                                   2

         Consolidated Statements of Cash Flows (unaudited)
              for the three months ended March 31, 2006 and
              March 31, 2005                                                   3

         Consolidated Statements of Changes in Stockholders' Equity
              (unaudited) for the three months ended March 31, 2006 and
              March 31, 2005                                                   4

         Notes to Consolidated Financial Statements                            5

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

Item 3 - Quantitative and Qualitative Disclosures About Market Risk           18

Item 4 - Controls and Procedures                                              18

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

Item 1 - Legal Proceedings                                                    19

Item 1A- Risk Factors                                                         19

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds          19

Item 3 - Defaults Upon Senior Securities                                      19

Item 4 - Submission of Matters to a Vote of Security Holders                  19

Item 5 - Other Information                                                    19

Item 6 - Exhibits                                                             19

<PAGE>

<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------------------------------------------------------------------------------------
                                                                                    March 31, 2006         December 31, 2005
                                                                                      (Unaudited)
----------------------------------------------------------------------------------------------------------------------------

ASSETS
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                    <C>
     Cash and amounts due from depository institutions                            $       48,076,703     $       54,479,491
     Interest-bearing deposits                                                               182,254                 93,076
     Short term funds                                                                     39,532,736             39,268,382
                                                                                  ------------------     ------------------

        Total cash and cash equivalents                                                   87,791,693             93,840,949
     Investment securities held to maturity                                              276,265,037            275,340,435
     Investment securities available for sale                                            154,981,618            155,632,095
     Loans, net                                                                          450,659,763            442,571,357
     Mortgage-backed securities held to maturity                                         199,241,631            208,195,874
     Accrued interest receivable                                                           7,298,554              6,224,371
     Federal Home Loan Bank stock                                                          7,348,420              8,248,420
     Office properties and equipment, net                                                 34,837,290             34,801,087
     Deferred income taxes                                                                 2,663,643              2,607,641
     Core deposit intangible                                                               1,696,770              1,875,822
     Prepaid expenses and other assets                                                     3,033,677              1,440,857
     FMS Statutory Trust 1 issue costs, net                                                  432,201                484,467
                                                                                  ------------------     ------------------
TOTAL ASSETS                                                                      $    1,226,250,297     $    1,231,263,375
                                                                                  ==================     ==================

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

Liabilities:
     Interest-bearing deposits                                                    $      755,149,781     $      759,991,442
     Noninterest-bearing deposits                                                        197,424,715            187,075,982
                                                                                  ------------------     ------------------
        Total deposits                                                                   952,574,496            947,067,424
     Securities sold under agreements to repurchase                                      165,000,000            175,000,000
     FMS Statutory Trust 1 debentures                                                     25,774,000             25,774,000
     Advances by borrowers for taxes and insurance                                         2,286,633              2,132,320
     Accrued interest payable                                                              1,413,009              1,378,353
     Dividends payable                                                                       195,453                195,486
     Other liabilities                                                                     3,910,267              4,633,516
                                                                                  ------------------     ------------------
     Total liabilities                                                                 1,151,153,858          1,156,181,099
                                                                                 --------------------    ------------------

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 8,006,392 and shares outstanding
        6,515,110 as of March 31, 2006 and December 31, 2005.                                800,639                800,639
     Paid-in capital in excess of par                                                      8,767,381              8,767,381
     Accumulated other comprehensive income - net of deferred income taxes                (2,224,087)            (1,099,630)
     Retained earnings                                                                    78,722,303             77,583,683
     Less:  Treasury stock (1,491,282 shares, at cost, as of March 31, 2006
        and December 31, 2005, respectively)                                             (10,969,797)           (10,969,797)
                                                                                  ------------------     ------------------
Total stockholders' equity                                                                75,096,439             75,082,276
                                                                                  ------------------     ------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                        $    1,226,250,297     $    1,231,263,375
                                                                                  ==================     ==================
</TABLE>

See notes to consolidated financial statements.

                                       1
<PAGE>

<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------------------------------------------------
                                                                                       Three Months ended
                                                                                            March 31,
                                                                           --------------------------------------------
                                                                                    2006                   2005
-----------------------------------------------------------------------------------------------------------------------
INTEREST  INCOME:                                                                         (Unaudited)
<S>                                                                      <C>                    <C>
Interest income on:
     Loans                                                                 $          6,792,143   $          6,188,264
     Mortgage-backed securities                                                       3,472,078              3,726,015
     Investments                                                                      4,899,636              4,088,509
                                                                           ---------------------  ---------------------
Total interest income                                                                15,163,857             14,002,788
                                                                           ---------------------  ---------------------

INTEREST EXPENSE:
Interest expense on:
     Deposits                                                                         3,654,097              2,403,790
     Borrowings                                                                       2,123,725              2,154,778
     Long-term debt                                                                     566,910                408,499
                                                                           ---------------------  ---------------------
Total interest expense                                                                6,344,732              4,967,067
                                                                           ---------------------  ---------------------

NET INTEREST INCOME                                                                   8,819,125              9,035,721
PROVISION FOR LOAN LOSSES                                                                90,000                 90,000
                                                                           ---------------------  ---------------------

NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                                                   8,729,125              8,945,721
                                                                           ---------------------  ---------------------

NONINTEREST INCOME:
     Service charges on accounts                                                      1,358,662              1,268,002
     Other income                                                                        37,581                 36,882
     Loan service charges and other fees                                                 14,590                 17,180
                                                                           ---------------------  ---------------------
Total noninterest income                                                              1,410,833              1,322,064
                                                                           ---------------------  ---------------------

NONINTEREST EXPENSE:
     Salaries and employee benefits                                                   4,821,585              4,376,028
     Occupancy and equipment                                                          1,466,688              1,436,536
     Purchased services                                                                 717,024                697,183
     Professional fees                                                                  196,847                187,250
     Amortization of core deposit intangible                                            179,052                179,052
     Office supplies                                                                    164,404                166,270
     Other expenses                                                                     150,560                152,467
     Telecommunications                                                                 138,969                 78,536
     Advertising                                                                        108,918                108,818
                                                                           ---------------------  ---------------------
Total noninterest expense                                                             7,944,047              7,382,140
                                                                           ---------------------  ---------------------

INCOME BEFORE INCOME TAXES                                                            2,195,911              2,885,645

INCOME TAXES                                                                            861,825              1,184,411
                                                                           ---------------------  ---------------------

NET INCOME                                                                 $          1,334,086   $          1,701,234
                                                                           =====================  =====================

 BASIC EARNINGS PER COMMON SHARE                                           $               0.20   $               0.26
                                                                           =====================  =====================

 DILUTED EARNINGS PER COMMON SHARE                                         $               0.20   $               0.26
                                                                           =====================  =====================

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

 Weighted average common shares outstanding                                           6,515,110              6,502,223
 Potential dilutive effect of the exercise of stock options                              15,249                 38,666
                                                                           ---------------------  ---------------------
 Adjusted weighted average common shares outstanding                                  6,530,359              6,540,889
                                                                           =====================  =====================
</TABLE>

See notes to consolidated financial statements.

                                       2
<PAGE>

<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------------------
                                                                          Three Months ended March 31,
                                                                              2006             2005
---------------------------------------------------------------------------------------------------------
<S>                                                                     <C>              <C>
OPERATING ACTIVITIES:
Net income                                                                $1,334,086       $1,701,234
Adjustments to reconcile net income to net cash provided
   by operating activities:
    Provision for loan losses                                                 90,000           90,000
    Amortization and accretion of premiums and discounts on
      investments, net                                                       156,331          601,182
    Amortization and accretion of other fees and costs                       234,169          209,436
    Depreciation                                                             496,495          496,416
Realized losses on:
    Sale Disposal of fixed assets                                              3,084              115
(Increase) Decrease in accrued interest receivable                        (1,074,183)         747,705
Increase in prepaid expenses and other assets                             (1,592,820)        (149,128)
Increase (Decrease) in accrued interest payable                               34,656         (119,445)
Increase in other liabilities                                                 53,319        1,557,358
Benefit for deferred income taxes                                            (56,002)         (73,819)
                                                                   --------------------------------------
    Net cash (used) provided by operating activities                        (320,865)       5,061,054
                                                                   --------------------------------------
INVESTING ACTIVITIES:
Principal collected and proceeds from maturities of
  investment securities held to maturity                                   8,890,313      182,464,599
Principal collected and proceeds from maturities of
  investment securities available for sale                                 3,703,113       12,252,427
Principal collected and proceeds on mortgage-backed
  securities held  to maturity                                             8,873,072       15,700,055
Principal collected on loans, net                                         25,749,636       19,817,106
Loans originated or acquired                                             (33,930,926)     (23,088,936)
Purchase of investment securities and mortgage-backed
  securities held to maturity                                             (9,843,737)    (155,443,243)
Purchase of investment securities and mortgage-backed
  securities available for sale                                           (5,000,000)     (40,254,142)
Redemption of Federal Home Loan Bank stock                                   900,000        1,500,100
Purchase of office property and equipment                                   (535,781)        (482,274)
                                                                   --------------------------------------
    Net cash (used) provided by investing activities                      (1,194,310)      12,465,692
                                                                   --------------------------------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts                       4,512,894       26,545,130
Net increase (decrease) in time deposits                                     994,178       (2,772,746)
Repayment of securities sold under agreement to repurchase               (10,000,000)     (30,000,000)
Increase in advances from borrowers for taxes and insurance                  154,313          116,488
Dividends paid on common stock                                              (195,466)        (195,063)
Net proceeds from issuance of common stock                                         0          126,115
                                                                   --------------------------------------
    Net cash used by financing activities                                 (4,534,081)      (6,180,076)
                                                                   --------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                          (6,049,256)      11,346,670
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                              93,840,949      110,577,356
                                                                   --------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                   $87,791,693     $121,924,026
                                                                   ======================================
Supplemental Disclosures:
    Cash paid for:
       Interest on deposits, advances, and other borrowings               $6,310,076       $5,086,512
       Income taxes                                                          275,000           75,000
    Non-cash investing and financing activities:
       Dividends declared and not paid at year end                           195,453          195,103
</TABLE>

See notes to consolidated financial statements.

                                       3

<PAGE>

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

                                                          Accumulated                                 Total
                     Common shares   Common     Paid-in   comprehensive    Retained      Treasury   Stockholders'
                      outstanding    stock      capital   income (loss)    earnings        stock      Equity
-----------------------------------------------------------------------------------------------------------------
<S>                    <C>         <C>       <C>           <C>          <C>           <C>            <C>
Balances at
  December 31, 2004     6,502,110   $799,129  $8,555,506    $270,784     $71,646,199   ($10,934,999)  $70,336,619
Net Income                                                                 1,701,234                    1,701,234
Other comprehensive
  income
    Unrealized loss on
      securities
      available
      for sale,
      net of taxes
      of $700,674                                         (1,014,563)                                  (1,014,563)
                                                                                                      -----------
Total comprehensive income                                                                                686,671
                                                                                                      -----------

Dividends declared ($.03)                                                   (195,103)                    (195,103)
Exercise of stock options     190         19     126,096                                                  126,115

-----------------------------------------------------------------------------------------------------------------
Balances at
  March 31, 2005        6,502,300   $799,148  $8,681,602   ($743,779)    $73,152,330   ($10,934,999)  $70,954,302
-----------------------------------------------------------------------------------------------------------------

Balances at
  December 31, 2005     6,515,110   $800,639  $8,767,381 ($1,099,630)    $77,583,683   ($10,969,797)  $75,082,276
Net Income                                                                 1,334,086                    1,334,086
Other comprehensive income
  Unrealized loss on
    securities
    available
    for sale,
    net of taxes
    of $776,568                                           (1,124,457)                                  (1,124,457)
                                                                                                      -----------
Total comprehensive income                                                                                209,629
                                                                                                      -----------

Dividends declared ($.03)                                                   (195,466)                    (195,466)

-----------------------------------------------------------------------------------------------------------------
Balances at
  March 31, 2006        6,515,110   $800,639  $8,767,381 ($2,224,087)    $78,722,303   ($10,969,797)  $75,096,439
-----------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.

                                       4

<PAGE>

FMS  FINANCIAL   CORPORATION  AND  SUBSIDIARY NOTES  TO  CONSOLIDATED  FINANCIAL
STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2006  (UNAUDITED).

1-GENERAL
In the opinion of management,  the accompanying unaudited consolidated financial
statements  of  FMS  Financial  Corporation  (the  "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  months  ended March 31, 2006 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 fiscal year ended  December  31,  2005.  The 2005  comparative  Statement of
Financial  Condition  was derived  from the audited  financial  statements.  The
consolidated   financial   statements   include  the   Corporation's   principle
subsidiary, Farmers & Mechanics Bank (the "Bank").

2-LONG-TERM DEBT
Long-Term  Debt at March 31,  2006 and  December  31,  2005  consisted  of $25.8
million of FMS  Statutory  Trust 1  debentures.  The interest  rate resets every
three months to LIBOR plus 360 basis points and will not exceed  11.00%  through
March 2007. As of March 31, 2006 and 2005 the interest rate was 8.56% and 6.69%,
respectively.

3-REGULATORY CAPITAL REQUIREMENTS
The Bank is considered "well  capitalized" by OTS regulations at March 31, 2006.
The  Bank's  regulatory  tangible  and tier 1 (core)  capital  ratios  are $91.4
million,  or 7.46% of total  bank  assets,  and  $96.2  million  or  18.48%  for
risk-based capital.  FMS's consolidated  capital ratio at March 31, 2006 totaled
6.12%.

4-STOCK  OPTIONS The  Corporation  maintains an incentive stock option plan. The
Financial  Accounting  Standards  Board ("FASB")  issued  Statement of Financial
Standards  No.  123R in  December  2004,  (SFAS  No.  123R),  which  establishes
standards  for  share-based  payments.  This  statement  has  no  effect  on the
Corporation's  Consolidated  Statements of Financial  Condition or  Consolidated
Statements of Operations as no options have been granted during the three months
ended March 31, 2006 or the year ending December 31, 2005.

                                       5

<PAGE>


5-RETIREMENT  PLANS
The Bank  maintains a defined  benefit  pension plan for active  employees.  The
Corporation  expects to  contribute  approximately  $955 thousand to our pension
plan in 2006. The components of the net pension cost are as follows:

                                                Three Months ended March 31,
--------------------------------------------------------------------------------
                                                   2006                 2005
--------------------------------------------------------------------------------
Service cost                                     $256,462             $230,355
Interest cost                                     205,876              170,627
Return on assets                                 (219,864)            (203,406)
Net amortization and deferral                       5,008                1,027
--------------------------------------------------------------------------------
Net periodic pension cost                        $247,482             $198,603
--------------------------------------------------------------------------------



In addition to providing  retirement  plan  benefits the Bank  provides  certain
health  care and life  insurance  benefits  to certain  retired  employees.  The
expected  cost  of   postretirement   benefits  for  2006  is  estimated  to  be
approximately  $43  thousand.  The  components  of net  periodic  postretirement
benefit cost are as follows:


                                                 Three Months ended March 31,
-------------------------------------------------------------------------------
                                                    2006              2005
-------------------------------------------------------------------------------
Interest cost                                     $6,463            $6,291
Amortization of prior service cost                (1,766)           (2,835)
Amortization of (gain) loss                         (965)            4,879
-------------------------------------------------------------------------------
Net periodic postretirement
benefit costs                                     $3,732            $8,335
-------------------------------------------------------------------------------

                                       6

<PAGE>

ITEM 2: MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF  OPERATIONS  FOR THE  THREE  MONTHS  ENDED  MARCH  31,  2006.

The  following  discussion  and  analysis  should  be read  with  our  financial
statements and related notes included elsewhere in this report on Form 10-Q. The
Corporation  may  from  time  to time  make  written  or  oral  "forward-looking
statements,"  including statements  contained in the Corporation's  filings with
the Securities and Exchange Commission  (including this quarterly report on Form
10-Q and the  exhibits  thereto),  in its reports to  stockholders  and in other
communications  by  the  Corporation,  which  are  made  in  good  faith  by the
Corporation  pursuant to the "safe harbor"  provisions of the Private Securities
Litigation  Reform Act of 1995.  The  discussion and analysis in this report may
contain  "forward-looking  statements"  within the meaning of Section 21A of the
Securities  and Exchange Act of 1934.

These  forward-looking  statements  involve  risk  and  uncertainties,  such  as
statements of the Corporation's plans, objectives,  expectations,  estimates and
intentions,  that are subject to change based on various important factors (some
of which are beyond the Corporation's  control).  The cautionary statements made
in this  report  should  be  read as  applying  to all  related  forward-looking
statements  wherever they appear in this report.  The following  factors,  among
others, could cause the Corporation's financial performance to differ materially
from the plans, objectives,  expectations, estimates and intentions expressed in
such  forward-looking  statements:  the strength of the United States economy in
general  and the  strength  of the  local  economies  in which  the  Corporation
conducts operations;  the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the board of governors of
the federal  reserve  system,  inflation,  interest  rate,  market and  monetary
fluctuations;  the timely  development  of and  acceptance  of new  products and
services of the  Corporation  and the perceived  overall value of these products
and services by users,  including the features,  pricing and quality compared to
competitors'  products and  services;  the  willingness  of users to  substitute
competitors' products and services for the Corporation's  products and services;
the success of the  Corporation in gaining  regulatory  approval of its products
and services,  when required;  the impact of changes in financial  services laws
and  regulations  (including  laws  concerning  taxes,  banking,  securities and
insurance);  technological changes;  acquisitions;  changes in consumer spending
and saving  habits;  and the success of the  Corporation  at managing  the risks
involved in the  foregoing.  Such risks and  uncertainties  could  cause  actual
results to differ  materially  from any  future  performance  suggested  in this
report. The Corporation cautions that the foregoing list of important factors is
not exclusive.  The Corporation undertakes no obligation to release publicly the
results of any revisions to these  forward-looking  statements to reflect events
or  circumstances  arising  after the date of this report.  This caution is made
under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995.

                                       7

<PAGE>

FINANCIAL  CONDITION

Total Assets - at March 31, 2006 were $1.2 billion as compared with total assets
at December 31, 2005 of $1.2 billion.

Investment  Securities  Held to  Maturity -  increased  $925  thousand to $276.3
million at March 31, 2006 from $275.3 million at December 31, 2005 primarily due
to purchases of $5.0 million in U.S.  Agency Notes and $4.8 million of Municipal
Bonds,  partially offset by principal  paydowns of $3.4 million in CMO's and the
maturity of $5.5 million of Municipal  Bonds during the three months ended March
31, 2006.  Investment securities held to maturity at March 31, 2006 consisted of
$276.3 million in fixed rate  securities.  A comparison of cost and  approximate
market values of investment securities held to maturity as of March 31, 2006 and
December 31, 2005 follows:

<TABLE>
<CAPTION>

                                             March 31, 2006                                       December 31, 2005
                     ------------------------------------------------------------------   ---------------------------------
                                           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      $197,309,978             $0     ($4,482,878)      $192,827,100      $192,328,423      $190,184,454
CMO's                     68,244,334              0      (2,773,681)        65,470,653        71,621,287        69,647,298
Municipal bonds           10,710,725          1,584                0        10,712,309        11,390,725        11,393,027
                     ------------------------------------------------------------------   ---------------------------------
Total                   $276,265,037         $1,584     ($7,256,559)      $269,010,062      $275,340,435      $271,224,779
                     ==================================================================   =================================
</TABLE>


Investment  Securities  Available  for Sale - decreased  $650 thousand to $155.0
million at March 31, 2006 from $155.6 million at December 31, 2005. The decrease
is the result of principal  paydowns of $3.7 million of CMO's and MBS's and $1.9
million in market adjustments,  partially offset by purchases of $5.0 million of
U.S.  Agency Notes  during the three  months  ended March 31,  2006.  Investment
securities  available  for sale  consisted  of  $151.1  million  in  fixed  rate
securities and $3.9 million in adjustable  rate  securities at March 31, 2006. A
comparison  of cost and  approximate  market  values  of  investment  securities
available for sale as of March 31, 2006 and December 31, 2005 follows:

<TABLE>
<CAPTION>

                                                  March 31, 2006                                December 31, 2005
---------------------------------------------------------------------------------------   --------------------------------
                                                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            $65,400,056            $0   ($1,447,206)     $63,952,850       $60,411,063      $59,581,396
CMO's                          21,262,922             0      (660,470)      20,602,452        22,350,620       21,990,367
MBS's                          50,078,569        28,891    (1,155,054)      48,952,406        52,082,272       51,642,686
Pass thru                      22,000,151             0      (526,241)      21,473,910        22,647,193       22,417,646
---------------------------------------------------------------------------------------   --------------------------------
Total                        $158,741,698       $28,891   ($3,788,971)    $154,981,618      $157,491,148     $155,632,095
=======================================================================================   ================================
</TABLE>

                                       8

<PAGE>

Mortgage-Backed  Securities  Held to Maturity - decreased $9.0 million to $199.2
million at March 31, 2006 from $208.2 million at December 31, 2005. The decrease
is primarily the result of principal  paydowns of $8.9 million.  Mortgage-backed
securities  at March  31,  2006  consisted  of  $173.5  million  in  fixed  rate
securities  and $25.7 million in  adjustable  rate  securities.  Mortgage-backed
securities  held to  maturity  at March  31,  2006  and  December  31,  2005 are
summarized below:

<TABLE>
<CAPTION>

                                               March 31, 2006                                          December 31, 2005
------------------------------------------------------------------------------------------    ------------------------------------
                                           Gross             Gross                                                    Estimated
                       Amortized        Unrealized        Unrealized          Estimated             Amortized           Market
                         Cost              Gains             Losses          Market Value              Cost             Value
------------------------------------------------------------------------------------------    ------------------------------------
<S>                 <C>                  <C>            <C>                 <C>                  <C>                <C>
GNMA                   $4,401,876         $177,642                 $0          $4,579,518           $4,837,341         $5,038,378
FNMA                   95,729,181          542,965        (1,798,962)          94,473,184          100,492,309        100,386,565
FHLMC                  49,392,590          127,386        (1,239,447)          48,280,529           51,765,939         51,190,732
Pass Thru              49,717,984            5,689        (2,045,365)          47,678,308           51,100,285         49,859,482
------------------------------------------------------------------------------------------    ------------------------------------
Total                $199,241,631         $853,682       ($5,083,774)        $195,011,539         $208,195,874       $206,475,157
==========================================================================================    ====================================
</TABLE>


The  following  table  shows the gross  unrealized  losses and fair value of the
Bank's   investments   with  unrealized   losses  that  are  not  deemed  to  be
other-than-temporarily impaired, aggregated by investment category and length of
time that individual securities have been in continuous unrealized loss position
at March 31,  2006.  The Bank has the  intent and  ability  to hold  temporarily
impaired  securities either until maturity or until interest rates reach a level
that would eliminate a loss on sale.

<TABLE>
<CAPTION>
                                Less Than 12 Months              12 Months or Greater                Total
                            ------------------------------------------------------------------------------------------
                                             Unrealized                      Unrealized                    Unrealized
Description of Security       Fair Value       Losses        Fair Value        Losses       Fair Value       Losses
----------------------------------------------------------------------------------------------------------------------
<S>                        <C>             <C>            <C>            <C>            <C>             <C>
Available for Sale:
------------------
U.S. Gov't agencies         $ 35,859,371      ($649,629)   $ 28,093,479      ($797,577)   $ 63,952,850    ($1,447,206)
MBSs including pass thrus     57,666,130     (1,157,453)     11,119,154       (523,842)     68,785,284     (1,681,295)
CMOs                          13,171,481       (325,625)      7,430,971       (334,845)     20,602,452       (660,470)
                            ---------------------------    ---------------------------    ---------------------------
Total Available for Sale    $106,696,982    ($2,132,707)   $ 46,643,604    ($1,656,264)   $153,340,586    ($3,788,971)
                            ---------------------------    ---------------------------    ---------------------------
Held to Maturity:
----------------
U.S. Gov't agencies         $147,839,484    ($3,036,765)   $ 44,987,616    ($1,446,113)   $192,827,100    ($4,482,878)
MBSs                         100,954,609     (2,712,107)     51,592,197     (2,371,667)    152,546,806     (5,083,774)
CMOs                          16,551,985       (619,747)     48,988,054     (2,153,934)     65,540,039     (2,773,681)
                            ---------------------------    ---------------------------    ---------------------------
Total Held to Maturity      $265,346,078    ($6,368,619)   $145,567,867    ($5,971,714)   $410,913,945   ($12,340,333)
                            ---------------------------    ---------------------------    ---------------------------
Total                       $372,043,060    ($8,501,326)   $192,211,471    ($7,627,978)   $564,254,531   ($16,129,304)
                            ============    ===========    ============    ===========    ============   ============
</TABLE>

                                       9

<PAGE>

Loans,  net - increased  $8.1  million to $450.7  million at March 31, 2006 from
$442.6  million at December 31, 2005.  This increase was primarily the result of
$33.9  million of loans  originated,  partially  offset by  approximately  $25.7
million of principal  collected on loans during the three months ended March 31,
2006.  The following  table shows loans  receivable  by major  categories at the
dates indicated.



                                      March 31,            December 31,
                                        2006                   2005
------------------------------------------------------------------------------
Mortgage Loans                      $288,661,637           $286,476,251
Construction Loans                     3,147,606              1,774,630
Commercial Construction                7,151,026              6,942,091
Consumer Loans                         2,686,851              2,355,697
Commercial Real Estate               131,561,846            127,704,281
Commercial Business                   22,722,237             22,550,190
------------------------------------------------------------------------------
Subtotal                             455,931,203            447,803,140
Less:
     Deferred loan fees                  117,781                168,998
     Allowance for
      loan losses                      5,153,659              5,062,785
------------------------------------------------------------------------------
Total loans, net                    $450,659,763           $442,571,357
------------------------------------------------------------------------------


At March 31, 2006,  the recorded  investment in loans for which  impairment  has
been recognized in accordance with SFAS Nos. 114 and 118 totaled $1.7 million of
which  $985  thousand  related  to loans  that were  individually  measured  for
impairment  with a valuation  allowance of $414  thousand  and $755  thousand of
loans that were collectively  measured for impairment with a valuation allowance
of $15 thousand.  The Bank had $5.2 million in total reserves for loan losses at
March 31, 2006,  representing  approximately  269% of non-performing  assets and
1.1% of total loans.  For the three  months  ended March 31,  2006,  the average
recorded  investment in impaired loans was approximately $1.7 million.  The Bank
recognized  $30  thousand  of interest  income on  impaired  loans for the three
months ended March 31, 2006, all of which was  recognized on the cash basis.

As of March 31, 2006 the Bank had outstanding loan commitments of $14.2 million,
of which  $10.0  million  represented  variable  rate  loans  and  $4.2  million
represented fixed rate loans. The Bank intends to fund these commitments through
scheduled  amortization  of loans  and  mortgage-backed  securities,  additional
borrowings,  and if necessary,  the sale of investment  securities available for
sale.

                                       10

<PAGE>

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

<TABLE>
<CAPTION>
                                                    March 31,      December 31,
                                                      2006            2005
                                                   ----------      ------------
<S>                                              <C>              <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
     One-to-four family                            $  754,450       $  794,154
     Commercial real estate                           984,924          984,924
     Consumer and other                                   178                0
                                                   ----------       ----------
     Total non-accrual loans                       $1,739,552       $1,779,078
                                                   ----------       ----------

     Troubled debt restructuring                      175,408          175,802
     Real estate owned, net                                 0                0
                                                   ----------       ----------
     Total non-performing assets, net              $1,914,960       $1,954,880
                                                   ----------       ----------

     Total non-accrual loans to net loans                0.39%            0.40%
                                                   ==========       ==========
     Total non-accrual loans to total assets             0.14%            0.14%
                                                   ==========       ==========
     Total non-performing assets to total assets         0.16%            0.16%
                                                   ==========       ==========
</TABLE>


Deposits  -  increased  $5.5  million to $952.6  million at March 31,  2006 from
$947.1 million at December 31, 2005.  Non-interest  checking accounts  increased
$10.3 million, savings accounts increased $6.8 million and time deposit accounts
increased  $994  thousand  for the three  months  ended  March 31,  2006.  These
increases  were  partially  offset by  decreases  in checking  accounts of $11.9
million and money market accounts of $673 thousand during this period.  Interest
credited  to  depositors  accounts  for the three  months  ended  March 31, 2006
amounted to $2.0  million.  The following  table sets forth certain  information
concerning deposits at the dates indicated.

<TABLE>
<CAPTION>
                                             March 31, 2006                              December 31, 2005
-------------------------------------------------------------------------------------------------------------------------
                                                 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              $197,424,715   20.72%        0.00%           $187,075,982    19.75%        0.00%
Checking accounts                   214,329,256   22.50%        2.69%            226,271,954    23.89%        1.88%
Savings accounts                    195,646,943   20.54%        0.59%            188,866,936    19.94%        0.59%
Money market accounts               132,287,635   13.89%        1.07%            132,960,782    14.04%        0.89%
Time deposits                       212,885,947   22.35%        2.98%            211,891,770    22.38%        2.34%
-------------------------------------------------------------------------------------------------------------------------
   Total Deposits                  $952,574,496   100.00%       1.59%           $947,067,424   100.00%        1.21%
=========================================================================================================================
</TABLE>

                                       11
<PAGE>

Borrowings - at March 31, 2006  amounted to $165.0  million in  securities  sold
under the  agreement to  repurchase  with a weighted  average  interest  rate of
4.98%.  At  December  31,  2005,  borrowings  consisted  of  $175.0  million  in
securities sold under  agreements to repurchase with a weighted  average rate of
4.93%.

Long-term  debt - at March 31, 2006 and  December  31, 2005  consisted  of $25.8
million of FMS  Statutory  Trust 1  debentures.  The interest  rate resets every
three months to LIBOR plus 360 basis points and will not exceed  11.00%  through
March 2007.  At March 31, 2006 and 2005,  the interest rate was 8.56% and 6.69%,
respectively.

RESULTS OF OPERATIONS

General
The earnings of the Corporation  depend primarily upon the level of net interest
income,  which is the difference between interest earned on its interest-earning
assets such as loans and investments,  and the interest paid on interest-bearing
liabilities,   such  as  deposits  including   non-interest  checking  accounts,
long-term  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 March 31, 2006 of
$1.3 million, or $.20 diluted earnings per share as compared to $1.7 million, or
$.26 diluted earnings per share for the comparable period in 2005.

                                       12

<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 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.

<TABLE>
<CAPTION>
                                                             Three Months Ended March 31,
--------------------------------------------------------------------------------------------------------------------
                                                    2006                                    2005
--------------------------------------------------------------------------  ----------------------------------------
                                    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             $  454,145     $    6,792        5.98%    $  426,983     $    6,188        5.80%
     Interest-bearing deposits        24,108            260        4.31%        54,859            315        2.30%
     Mortgage-backed securities      274,898          3,472        5.05%       328,965          3,726        4.53%
     Investment securities           375,518          4,640        4.94%       332,657          3,774        4.54%
                                  ----------     ----------        ----     ----------     ----------        ----
Total interest-earning
        assets                     1,128,669         15,164        5.37%     1,143,464         14,003        4.90%
                                  ----------     ----------        ----     ----------     ----------        ----
Interest-bearing liabilities:
     Checking deposits               401,228          1,469        1.46%       386,170            797        0.83%
     Savings deposits                189,662            279        0.59%       196,190            286        0.58%
     Money market deposits           130,297            344        1.06%       144,194            284        0.79%
     Time deposits                   212,554          1,562        2.94%       210,504          1,036        1.97%
     Borrowings                      171,614          2,124        4.95%       187,273          2,155        4.60%
     Long-Term Debt                   25,774            567        8.80%        25,774            409        6.35%
                                  ----------     ----------        ----     ----------     ----------        ----
Total interest-bearing
        liabilities               $1,131,129          6,345        2.24%    $1,150,105          4,967        1.73%
                                  ==========     ----------        ----     ==========     ----------        ----
Net interest income                              $    8,819                                $    9,036
                                                 ==========                                ==========
Interest rate spread                                               3.13%                                     3.17%
                                                                   =====                                     ====

Net yield on average interest-earning assets                       3.13%                                     3.16%
                                                                   ====                                      ====
Ratio of average interest-earning assets
     to average interest -bearing liabilities                     99.78%                                    99.42%
                                                                  =====                                     =====
</TABLE>

                                       13

<PAGE>

Rate/Volume Analysis

The following  table describes the extent to which changes in interest rates and
changes in volume of interest-earning  assets and  interest-bearing  liabilities
have affected the Bank's interest income and interest expense during the periods
indicated.  For each category of  interest-earning  assets and  interest-bearing
liabilities,  information is provided on changes  attributable to (i) changes in
rate,  (ii)  changes in volume and (iii)  total  changes in rate and volume (the
combined  effect of changes in both volume and rate, not separately  identified,
has been allocated to rate). A higher level of non-performing  loans affects the
changes in both volume and rate.

<TABLE>
<CAPTION>
                                              Three Months Ended March 31,
                                                      2006 vs. 2005
                                         Increase (Decrease) due to Change in:
                                           -------------------------------
                                                 Rate    Volume     Total
                                                     (In Thousands)
                                           -------------------------------
<S>                                            <C>       <C>       <C>
Interest income:
    Loans receivable                             $210      $394      $604
    Interest-bearing deposits                     122      (177)      (55)
    Mortgage-backed securities                    358      (612)     (254)
    Investment securities                         380       486       866
                                           -------------------------------

    Total change - interest income              1,070        91     1,161
                                           -------------------------------
Interest expense:
    Checking deposits                             641        31       672
    Savings deposits                                3       (10)       (7)
    Money market deposits                          87       (27)       60
    Time deposits                                 516        10       526
    Borrowings                                    149      (180)      (31)
    Long-Term Debt                                158         0       158
                                           -------------------------------

    Total change - interest expense             1,554     (176)     1,378
                                           -------------------------------

Net change in net interest income              ($484)      $267    ($217)
                                           ===============================
</TABLE>

                                       14

<PAGE>

Net Income
The Corporation  and its subsidiary  recorded net income of $1.3 million for the
quarter ended March 31, 2006, or $0.20 diluted  earnings per share,  as compared
to net  income of $1.7  million,  or $0.26  diluted  earnings  per share for the
quarter ended March 31, 2005. Net interest income was $8.8 million for the three
months  ended  March 31, 2006  compared  to $9.0  million for the same period in
2005.  Provisions  for loan losses were $90 thousand for the quarter ended March
31, 2006 and for the same period in 2005.  Noninterest  income was $1.4  million
for the three months ended March 31, 2006  compared to $1.3 million for the same
period in 2005. Total  noninterest  expense for the quarter ended March 31, 2006
was $7.9 million compared to $7.4 million for the same quarter in 2005.

Interest Income
Total  interest  income  increased $1.2 million to $15.2 million for the quarter
ended  March 31,  2006  from  $14.0  million  for the same  period in 2005.  The
increase  is   attributable  to  increases  in  interest  income  on  investment
securities  of $866  thousand and loans of $604  thousand,  partially  offset by
decreases in interest income on mortgage-backed  securities of $254 thousand and
interest-bearing deposits of $55 thousand.

Interest income on investment securities increased $866 thousand to $4.6 million
for the three  months ended March 31, 2006 from $3.8 million for the same period
in 2005. The average balance of investment securities increased $42.8 million to
$375.5 million for the three months ended March 31, 2006 from $332.7 million for
the same period in 2005,  which resulted in a volume increase in interest income
of $486  thousand.  The increase in the average volume during this period is due
to investment purchases of $221.8 million,  partially offset by investment calls
and maturities of $107.7  million and principal  paydowns of $55.8 million since
the first quarter 2005. The average yield of the investment  portfolio increased
40 basis points to 4.94% for the quarter ended March 31, 2006 from 4.54% for the
same  period in 2005,  which  resulted in an  interest  income  increase of $380
thousand due to rate changes.

Interest  income on loans  increased $604 thousand to $6.8 million for the three
months ended March 31, 2006 from $6.2  million for the same period in 2005.  The
average balance of the loan portfolio  increased $27.1 million to $454.1 million
for the three  months  ended  March 31,  2006 from  $427.0  million for the same
period in 2005,  which resulted in a volume  increase in interest income of $394
thousand.  The  increase  in the  average  balance  is  principally  due to loan
originations of $128.3 million since the first quarter of 2005, partially offset
by principal collected on loans of $99.2 million during this period. The average
rate on loans  increased  18 basis  points to 5.98% for the three  months  ended
March 31,  2006 from 5.80% for the same  period in 2005,  which  resulted  in an
increase in interest income of $210 thousand due to rate changes.

Interest income on mortgage-backed securities decreased by $254 thousand to $3.5
million for the three months ended March 31, 2006 from $3.7 million for the same
period in 2005. The average  balance of MBS's  decreased $54.1 million to $274.9
million for the three  months  ended March 31, 2006 from $329.0  million for the
same period in 2005,  which  resulted in an interest  income volume  decrease of
$612 thousand. The decrease in the average balance during this period was due to
principal  paydowns of $47.7 million,  partially offset by purchases of MBS's of
$3.0  million  from the first  quarter  of 2005.  The  average  yield of the MBS
portfolio  increased  52 basis  points to 5.05% for the quarter  ended March 31,
2006 from  4.53% for the same  period in 2005,  which  resulted  in an  interest
income increase of $358 thousand due to changes in rates.

Interest income on interest-bearing  deposit investments  decreased $55 thousand
to $260  thousand for the three  months ended March 31, 2006 from $315  thousand
for the same period in 2005.  The average  balance of  interest-bearing  deposit
investments decreased $30.8 million to $24.1 million for the quarter ended March
31, 2006 from $54.9  million for the same  period in 2005,  which  resulted in a
volume  decrease  in interest  income of $177  thousand.  The  average  yield of
interest-bearing deposit investments increased 201 basis points to 4.31% for the
three months ended March 31, 2006 from 2.30% for the same period in 2005,  which
resulted in an increase in interest income of $122 thousand due to rate changes.

                                       15

<PAGE>

Interest Expense
Total  interest  expense  increased  $1.3  million to $6.3 million for the three
months ended March 31, 2006 from $5.0  million for the same period in 2005.  The
increases in interest  expense on checking  deposits,  time deposits,  long-term
debt and money market  deposits,  were partially offset by decreases in interest
expense on borrowings and savings deposits.

Interest  expense on checking  deposits  increased $672 thousand to $1.5 million
for the three months ended March 31, 2006 from $797 thousand for the same period
in 2005.  The average  rate on checking  deposits  increased  63 basis points to
1.46% for the  quarter  ended  March 31,  2006 from 0.83% for the same period in
2005, which resulted in an increase in interest  expense of $641 thousand.  This
increase was due to an increase in the average rate paid on municipal government
checking  accounts to 4.67% for the three months ended March 31, 2006 from 3.03%
for the same period in 2005. The average balance of checking deposits  increased
$15.1  million to $401.2  million for the three months ended March 31, 2006 from
$386.2 million for the same period in 2005,  which resulted in a volume increase
in interest expense of $31 thousand.

Interest  expense on time deposits  increased  $526 thousand to $1.6 million for
the three  months  ended March 31, 2006 from $1.0 million for the same period in
2005.  The average rate on time deposits  increased 97 basis points to 2.94% for
the quarter  ended March 31, 2006 from 1.97% for the same period in 2005,  which
resulted in a rate increase in interest  expense of $516  thousand.  The average
balance  of time  deposits  increased  $2.1  million to $212.6  million  for the
quarter  ended March 31,  2006 from $210.5  million for the same period in 2005,
which resulted in an increase in interest expense of $10 thousand.

Interest  expense on long-term debt increased $158 thousand to $567 thousand for
the three months ended March 31, 2006 from $409  thousand for the same period in
2005.  The average rate increased 245 basis points to 8.80% for the three months
ended  March 31, 2006 from 6.35% for the same  period in 2005,  which  increased
interest  expense  on  long-term  debt $158  thousand.

Interest  expense  on money  market  deposits  increased  $60  thousand  to $344
thousand for the three  months  ended March 31, 2006 from $284  thousand for the
same period in 2005.  The average  rate on money  market  deposits  increased 27
basis  points to 1.06% for the  quarter  ended March 31, 2006 from 0.79% for the
same period in 2005,  which  resulted in an increase in interest  expense of $87
thousand.  The average balance of money market deposits  decreased $13.9 million
to $130.3  million for the three months ended March 31, 2006 from $144.2 million
for the same period in 2005,  which  resulted  in a volume  decrease in interest
expense of $27 thousand.

Interest  expense on  borrowings  decreased $31 thousand to $2.1 million for the
three months ended March 31, 2006 from $2.2 million for the same period in 2005.
The average  balance of borrowings  decreased $15.7 million to $171.6 million at
March 31, 2006 from $187.3  million for the same period in 2005,  which resulted
in a volume decrease in interest expense of $180 thousand. The average rate paid
on borrowings increased 35 basis points to 4.95% for the quarter ended March 31,
2006 from 4.60% for the same  period in 2005,  which  resulted in an increase in
interest  expense of $149  thousand  due to rate  changes.

Interest expense on savings deposits  decreased $7 thousand to $279 thousand for
the three months ended March 31, 2006 from $286  thousand for the same period in
2005. The average balance of savings  deposits  decreased $6.5 million to $189.7
million for the three  months  ended March 31, 2006 from $196.2  million for the
same period in 2005,  which resulted in a volume decrease in interest expense of
$10 thousand.  The average rate on savings  deposits  increased 1 basis point to
0.59% for the  quarter  ended  March 31,  2006 from 0.58% for the same period in
2005, which resulted in an increase in interest expense of $3 thousand.

                                       16

<PAGE>

Critical Accounting  Estimate-Provision  for Loan Losses - A critical accounting
estimate is the provision for loan losses.  The provision  remained  constant at
$90  thousand  for the three  months  ended March 31, 2006  compared to the same
period in 2005. At March 31, 2006 the allowance for loan losses amounted to $5.2
million compared to $5.1 million at December 31, 2005. 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.

Noninterest  Income - for the three month  period  ended March 31, 2006 was $1.4
million  compared to $1.3 million for the same period in 2005. The increase from
2005 is primarily due to a new fee structure for retail banking fees, which took
effect  March 1,  2006.

Noninterest  Expenses - for the three month  period ended March 31, 2006 totaled
$7.9 million  compared to $7.4 million for the same period in 2005. The increase
in operating  expenses was primarily due to an increase in salaries and employee
benefits,  telecommunications  and occupancy and equipment  expense.

Salaries and Employee Benefits - increased $446 thousand to $4.8 million for the
three month  period  ended March 31, 2006  compared to $4.4 million for the same
period in 2005. The increase was primarily due to annual compensation  increases
and additional staff in back office  departments and one new branch opened since
the first quarter of 2005.  Average full time  equivalent  employees were 547 at
March 31, 2006 as compared to 518 at March 31, 2005.

Telecommunications  -  increased  $60  thousand to $139  thousand  for the three
months  ending  March 31, 2006  compared to $79  thousand for the same period in
2005.   Enhanced   computer  network   communications   services  and  a  faster
reconfigured   ATM   network   were  the   principal   reasons  for  the  higher
telecommunication  expenses.

Occupancy  and  Equipment-  increased $30 thousand to $1.5 million for the three
month period  ended March 31, 2006  compared to $1.4 million for the same period
in 2005 due  primarily to increases in rent expense of $22 thousand and property
taxes of $19 thousand.

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<PAGE>

ITEM 3: DISCLOSURE ABOUT MARKET RISK

There were no significant changes for the three months ended March 31, 2006 from
the  information  presented in the annual report on Form 10-K for the year ended
December 31, 2005.

ITEM 4: CONTROLS AND PROCEDURES

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

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

                                       18

<PAGE>

PART II. OTHER INFORMATION

Item 1:  Legal Proceedings

               Not  Applicable

Item 1A: Risk Factors

               Not Applicable

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

               Not Applicable

Item 3:  Defaults Upon Senior Securities

               Not Applicable

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

     The Annual  Meeting of  Stockholders  of the  Company was held on April 27,
2006 and the  following  matters  were  presented:

     The  Election  of  Directors:  Vincent  R.  Farias  and  Wayne H. Page were
re-elected  as  directors  for terms of three years  ending 2009 and until their
successors are elected and qualified.  Mr. Farias  received  5,893,776  votes in
favor and 17,136 votes were withheld; Mr. Page received 5,884,351 votes in favor
and 26,561 were witheld.

Ratification  of the  appointment  of  PricewaterhouseCoopers  LLP the Company's
independent accountants,  for the 2006 fiscal year.  PricewaterhouseCoopers  LLP
was ratified as the Company's  auditors with 5,869,857  votes for,  24,591 votes
against and 16,464 abstentions.

Item 5:  Other  Information

               Not Applicable

Item 6:  Exhibits

(a)  31  Certifications  pursuant  to Section 302 of the  Sarbanes-Oxley  Act of
     2002.
(b)  32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


                                       19

<PAGE>

                                S I G N A T U R E

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

FMS FINANCIAL CORPORATION


Date: May 12, 2006                         /s/ Craig W. Yates
                                           -------------------------------------
                                           Craig W. Yates
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)



Date: May 12, 2006                         /s/ Channing L. Smith
                                           -------------------------------------
                                           Channing L. Smith
                                           Vice President and
                                           Chief Financial Officer
                                           (Principal Financial Officer)



                                       20