SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549
                             ______________________

                                    FORM 10-Q

(Mark One)

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

     For the quarterly period ended September 30, 2001

     OR

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


                         Commission file number 0-17353

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

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

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

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

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

         As of October  31,  2001 there were  issued and  outstanding  6,710,705
shares of the registrant's Common Stock, par value $.10 per share.

<PAGE>

                    FMS FINANCIAL CORPORATION AND SUBSIDIARY

                          QUARTERLY REPORT ON FORM 10-Q

                               SEPTEMBER 30, 2001

                                TABLE OF CONTENTS

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

         Item 1 - Financial Statements

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

                  Consolidated Statements of Operations (unaudited)
                           for the three and nine months ended
                           September 30, 2001 and September 30, 2000                     2

                  Consolidated Statements of Cash Flows (unaudited)
                           for the nine months ended September 30, 2001
                           and September 30, 2000                                        3

                  Consolidated Statements of Changes in Stockholders' Equity
                           (unaudited) for the nine months ended September 30, 2001      4

         Item 2 - Management's Discussion and Analysis of
                           Financial Condition and Results of Operations            5 - 15

         Item 3 - Disclosure about Market Risk                                          15

PART II - Other Information

         Item 1 - Legal Proceedings                                                     16

         Item 2 - Changes in Securities                                                 16

         Item 3 - Defaults Upon Senior Securities                                       16

         Item 4 - Submission of Matters to a Vote of Security Holders                   16

         Item 5 - Other Information                                                     16

         Item 6 - Exhibits and Reports on Form 8-K                                      16
</TABLE>

<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                                     September 30,       December 31,
                                                                                          2001              2000
ASSETS                                                                                (Unaudited)
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>              <C>
     Cash and amounts due from depository institutions                               $  26,382,649    $  30,089,526
     Interest-bearing deposits                                                              51,941          169,076
     Federal funds sold                                                                          0        1,500,000
     Short term funds                                                                   69,025,460       13,192,697
                                                                                     -------------    -------------
        Total cash and cash equivalents                                                 95,460,050       44,951,299
     Investment securities held to maturity                                            204,208,756      276,107,634
     Investment securities available for sale                                           50,829,551       40,878,963
     Loans, net                                                                        325,789,105      290,178,635
     Mortgage-backed securities held to maturity                                       238,175,521      143,751,707
     Accrued interest receivable:
        Loans                                                                            1,707,475        1,578,956
        Mortgage-backed securities                                                       1,539,271        1,043,113
        Investments                                                                      1,888,822        3,527,657
     Federal Home Loan Bank stock                                                        7,813,620        6,315,310
     Real estate held for development, net                                                  87,926           87,926
     Real estate owned, net                                                                 11,562          354,758
     Office properties and equipment, net                                               26,635,113       26,312,709
     Deferred income taxes                                                               2,275,130        2,360,701
     Excess cost over fair value of net assets acquired                                      6,916           27,664
     Prepaid expenses and other assets                                                   1,235,815        1,392,671
     Subordinated debentures issue costs, net                                              163,405          206,417
                                                                                     -------------    -------------
TOTAL ASSETS                                                                         $ 957,828,038    $ 839,076,120
                                                                                     =============    =============
LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------------------
Liabilities:
     Deposits                                                                        $ 700,367,034    $ 648,539,355
     Securities sold under agreements to repurchase                                    155,000,000      120,000,000
     Advances from the Federal Home Loan Bank                                            1,270,313        6,305,644
     10% subordinated debentures, due 2004                                              10,000,000       10,000,000
     Advances by borrowers for taxes and insurance                                       2,231,049        2,076,165
     Accrued interest payable                                                            1,532,773        1,950,205
     Dividends payable                                                                     200,961          201,831
     Other liabilities                                                                  36,252,550        2,593,331
                                                                                     -------------    -------------
     Total liabilities                                                                 906,854,680      791,666,531
                                                                                     -------------    -------------
Commitments and contingencies
Stockholders' Equity:
     Preferred stock - $.10 par value 5,000,000 shares authorized; none issued
     Common stock - $.10 par value 10,000,000 shares authorized; shares
        issued 7,929,884 and 7,897,891, and shares outstanding 6,698,705
        and 6,727,702 as of September 30, 2001 and December 31, 2000, respectively         792,988          789,789
     Paid-in capital in excess of par                                                    8,255,780        8,217,654
     Accumulated comprehensive gain (loss) - net of deferred income taxes                  424,074         (358,352)
     Retained earnings                                                                  49,573,960       46,401,102
     Less:  Treasury stock (1,231,179 and 1,170,189 shares, at cost,  as of
        September 30, 2001 and December 31, 2000, respectively)                         (8,073,444)      (7,640,604)
                                                                                     -------------    -------------
Total stockholders' equity                                                              50,973,358       47,409,589
                                                                                     -------------    -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                           $ 957,828,038    $ 839,076,120
                                                                                     =============    =============
</TABLE>

See notes to consolidated financial statements.

                                       1
<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                               Three Months ended                 Nine Months ended
                                                                  September 30,                     September 30,
                                                     ---------------------------------       -----------------------------
                                                           2001              2000               2001             2000
--------------------------------------------------------------------------------------       -----------------------------
INTEREST  INCOME:                                                  (Unaudited)                       (Unaudited)
<S>                                                <C>               <C>                <C>               <C>
Interest income on:
    Loans                                            $    6,256,589    $    5,954,472     $   17,776,171    $  17,599,187
    Mortgage-backed securities                            3,451,146         1,907,189          9,617,421        5,925,500
    Investments                                           4,457,085         5,266,485         13,918,104       15,371,925
                                                     ---------------   ---------------    ---------------   --------------
Total interest income                                    14,164,820        13,128,146         41,311,696       38,896,612
                                                     ---------------   ---------------    ---------------   --------------
INTEREST EXPENSE:
Interest expense on:
    Deposits                                              5,154,265         5,278,804         15,504,149       15,279,151
    Subordinated debentures                                 264,337           264,337            793,011          793,011
    Borrowings                                            1,974,566         1,303,072          5,581,003        4,040,069
                                                     ---------------   ---------------    ---------------   --------------
Total interest expense                                    7,393,168         6,846,213         21,878,163       20,112,231
                                                     ---------------   ---------------    ---------------   --------------

NET INTEREST INCOME                                       6,771,652         6,281,933         19,433,533       18,784,381
PROVISION FOR LOAN LOSSES                                    60,000            60,000            180,000          180,000
                                                     ---------------   ---------------    ---------------   --------------

NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                       6,711,652         6,221,933         19,253,533       18,604,381
                                                     ---------------   ---------------    ---------------   --------------
OTHER INCOME (EXPENSE):
    Loan service charges and other fees                      36,700            27,298             90,176           88,961
    Gain on sale of loans                                       765             1,437              1,274            2,242
    Loss on sale of investment securities                   (17,153)                0            (17,153)               0
    Gain on disposal of fixed assets                              0             8,708             50,799            8,586
    Real estate owned operations, net                        58,712           (14,784)            33,502          (15,951)
    Service charges on accounts                             852,763           682,270          2,412,597        1,949,485
    Other income                                             71,864            49,491            208,988          143,208
                                                     ---------------   ---------------    ---------------   --------------
Total other income                                        1,003,651           754,420          2,780,183        2,176,531
                                                     ---------------   ---------------    ---------------   --------------
OPERATING EXPENSES:
    Salaries and employee benefits                        3,143,500         2,936,824          9,230,845        8,675,115
    Occupancy and equipment                               1,130,813         1,086,736          3,410,929        3,039,769
    Purchased services                                      556,075           477,505          1,567,408        1,353,767
    Federal deposit insurance premiums                       48,151            31,650            115,787           92,367
    Professional fees                                       300,386           117,956            551,569          352,218
    Advertising                                              88,614            53,494            206,249          164,729
    Other                                                   366,369           317,822          1,118,014        1,015,048
                                                     ---------------   ---------------    ---------------   --------------
Total operating expenses                                  5,633,908         5,021,987         16,200,801       14,693,013
                                                     ---------------   ---------------    ---------------   --------------

INCOME BEFORE INCOME TAXES                                2,081,395         1,954,366          5,832,915        6,087,899

INCOME TAXES:
  Current                                                 1,027,548           972,233          2,411,442        2,463,790
  Deferred                                                 (302,716)         (290,229)          (354,427)        (297,297)
                                                     ---------------   ---------------    ---------------   --------------
Total income taxes                                          724,832           682,004          2,057,015        2,166,493

NET INCOME                                           $    1,356,563    $    1,272,362     $    3,775,900    $   3,921,406
                                                     ===============   ===============    ===============   ==============
BASIC EARNINGS PER COMMON SHARE                      $         0.20    $         0.19     $         0.56    $        0.57
                                                     ===============   ===============    ===============   ==============
DILUTED EARNINGS PER COMMON SHARE                    $         0.20    $         0.19     $         0.56    $        0.56
                                                     ===============   ===============    ===============   ==============
Dividends declared per common share                  $         0.03    $         0.03     $         0.09    $        0.09
                                                     ===============   ===============    ===============   ==============
Weighted average common shares outstanding                6,686,917         6,761,942          6,697,658        6,935,764

Potential dilutive effect of the exercise of stock
  options                                                    29,505            69,075             29,364           69,951
                                                     ---------------   ---------------    ---------------   --------------

Adjusted weighted average common shares outstanding       6,716,422         6,831,017          6,727,022        7,005,715
                                                     ===============   ===============    ===============   ==============
</TABLE>

See notes to consolidated financial statements.

                                       2
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                                                      Nine Months ended
                                                                                        September 30,
                                                                         ---------------------------------------------
                                                                                  2001                  2000
----------------------------------------------------------------------------------------------------------------------
                                                                                         (Unaudited)
<S>                                                                     <C>                    <C>
OPERATING ACTIVITIES:
Net income                                                               $         3,775,900    $        3,921,406
Adjustments to reconcile net income to net cash provided
   by operating activities:
Provision for loan losses                                                            180,000               180,000
Depreciation and amortization                                                      2,335,181             1,511,021
Realized (gains) and losses on:
     Sale of loans and loans held for sale                                            (1,274)               (2,242)
     Disposal and sale of fixed assets                                               (50,799)               (8,586)
     Investment securities available for sale                                         17,153                     0
     Sale of real estate owned                                                       (70,658)              (31,416)
Decrease in accrued interest receivable                                            1,175,314               330,093
Decrease (Increase) in prepaid expenses and other assets                             195,889              (145,837)
Decrease in accrued interest payable                                                (443,034)             (285,032)
Increase in other liabilities                                                        453,126               456,215
Provision for deferred income taxes                                                 (354,427)             (336,091)
Other                                                                                      0                48,679
                                                                         --------------------   -------------------
     Net cash provided by operating activities                                     7,212,371             5,638,210
                                                                         --------------------   -------------------
INVESTING ACTIVITIES:
Proceeds from sale of:
     Education loans                                                                 215,194               438,075
     Real estate owned                                                               413,854               570,073
     Property and equipment                                                           84,432                12,436
Proceeds from maturities of investment securities held to maturity               274,872,465           119,660,360
Principal collected and proceeds from sale of investment securities               38,149,514             7,755,993
  available for sale
Principal collected and proceeds from sale of mortgage-backed                     60,154,539            17,484,504
  securities held to maturity
securities available for sale
Principal collected on loans, net                                                 48,520,794            40,097,204
Longer-term loans originated or acquired, net                                    (59,483,824)          (37,245,081)
Purchase of investment securities and mortgage-backed securities                (334,244,331)         (154,126,954)
  held to maturity
Purchase of investment securities available for sale                             (36,920,030)                    0
Purchase of Federal Home Loan Bank Stock                                          (1,248,310)                    0
Purchase of office property and equipment                                         (1,412,804)           (5,588,090)
Net cash received from branch purchases, net                                       1,466,726                     0
                                                                         --------------------   -------------------
     Net cash used by investing activities                                        (9,431,781)          (10,941,480)
                                                                         --------------------   -------------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts                              23,048,231            24,289,506
Net increase in time deposits                                                        676,756             1,283,297
Net decrease in FHLB advances and advances from Bank                              (5,035,331)          (10,031,387)
Proceeds (Repayment) from securities sold under agreements to repurchase          35,000,000           (10,000,000)
Increase (Decrease) in advances from borrowers for taxes and                          33,933               (92,395)
  insurance
Purchase of treasury stock                                                          (432,840)           (3,568,710)
Dividends paid on common stock                                                      (603,913)             (630,275)
Net proceeds from issuance of common stock                                            41,325                   129
                                                                         --------------------   -------------------
     Net cash provided by financing activities                                    52,728,161             1,250,165
                                                                         --------------------   -------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  50,508,751            (4,053,105)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                    44,951,299            46,275,871
                                                                         --------------------   -------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                 $        95,460,050    $       42,222,766
                                                                         ====================   ===================
Supplemental Disclosures:
     Cash paid for:
        Interest on deposits, advances, and other borrowings             $        22,304,595    $       20,397,263
        Income taxes                                                               2,697,733             1,969,143
        Deposits acquired in connection with merger                               28,102,691                     0
        Assets acquired in connection with merger                                 28,260,337                     0
     Non-cash investing and financing activities:
        Dividends declared and not paid at quarter end                               200,961               202,868
        Non-monetary transfers from loans to real estate acquired
           through foreclosure                                                             0               445,722
</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                                                                                   3,775,900                   3,775,900
Other comprehensive income
  Unrealized gain on
    securities available
    for sale, net of taxes                                                      782,426                                    782,426
                                                                                                                       ------------
Total comprehensive income                                                                                               4,558,326
                                                                                                                       ------------
Dividends declared                                                                            (603,042)                   (603,042)
Exercise of stock options               31,993         3,199      38,126                                                    41,325
Purchase of common stock               (60,990)                                                            (432,840)      (432,840)

-----------------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 2001       6,698,705      $792,988  $8,255,780      $ 424,074    $49,573,960  $(8,073,444)   $50,973,358
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.

                                       4
<PAGE>

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

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

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

GENERAL

In the opinion of management,  the accompanying unaudited consolidated financial
statements of FMS Financial  Corporation contain all adjustments,  consisting of
normal recurring  accruals,  necessary for a fair  presentation of its financial
condition, results of operations, cash flows and changes in stockholders' equity
for the periods and dates indicated. The results of operations for the three and
nine months  ended  September  30, 2001 are not  necessarily  indicative  of the
operating results for the full fiscal year or any other interim period.

The accompanying  unaudited consolidated financial statements have been prepared
in accordance with the instructions for FORM 10-Q, and therefore, do not include
all  information  and  notes  necessary  for a fair  presentation  of  financial
condition, results of operations and statements of cash flows in conformity with
generally  accepted  accounting  principles.  These statements should be read in
conjunction  with the  consolidated  statements  and  related  notes  which  are
incorporated  by reference to the  Corporation's  annual report on FORM 10-K for
the year ended December 31, 2000. The consolidated  financial statements include
the Corporation's sole subsidiary, Farmers & Mechanics Bank ("the Bank").

                                       5
<PAGE>

FINANCIAL CONDITION

Total Assets - at September 30, 2001 were $957.8  million as compared with total
assets at December 31, 2000 of $839.1 million.

Investment  Securities  Held to  Maturity -  decreased  $71.9  million to $204.2
million at September 30, 2001 from $276.1 million at December 31, 2000 primarily
due to calls in U.S. Agency Notes of $156.6 million, principal paydowns of $30.1
million in collateralized  mortgage  obligations (CMO's) and the net maturity of
$62.5 million of reverse repurchase  agreement  investments and Municipal Bonds,
partially  offset by  purchases of $69.0  million in U.S.  Agency  Notes,  $89.1
million in CMO's,  $6.0 million in Municipal  Bonds and $13.2 million in forward
commitments  to purchase  U.S.  Agency Notes at September  30, 2001.  Investment
securities  held to maturity at September 30, 2001  consisted  entirely of fixed
rate  securities.  A  comparison  of  cost  and  approximate  market  values  of
investment securities held to maturity as of September 30, 2001 and December 31,
2000 follows:

<TABLE>
<CAPTION>
                                             September 30, 2001                                  December 31, 2000
                      ------------------------------------------------------------- ----------------------------------
                                             Gross          Gross        Estimated                          Estimated
                           Amortized      Unrealized      Unrealized       Market          Amortized          Market
                             Cost            Gains          Losses         Value              Cost            Value
                      ------------------------------------------------------------- ----------------------------------
<S>                  <C>               <C>           <C>          <C>               <C>              <C>
U. S. Agency Notes    $      93,551,193 $   1,251,405 $         0  $     94,802,598  $    167,923,406 $    166,378,613
CMO's                       102,929,729     1,349,522      (8,893)      104,270,358        43,954,419       43,460,728
Reverse Repurchase                    0             0           0                 0        60,341,969       60,341,969
Municipal Bonds               7,727,834         8,830           0         7,736,664         3,887,840        3,896,380
                      ------------------------------------------------------------- ----------------------------------
Total                 $     204,208,756 $   2,609,757 $    (8,893) $    206,809,620  $    276,107,634 $    274,077,690
                      ============================================================= ==================================
</TABLE>

Investment  Securities  Available  for Sale - increased  $10.0  million to $50.8
million at  September  30,  2001 from $40.9  million at  December  31, 2000 as a
result of purchases of $16.0  million of U.S.  Agency  Notes,  $15.0  million of
MBS's,  $5.6  million  of CMO's and $10.0  million  of  forward  commitments  to
purchase U.S. Agency Notes at September 30, 2001,  partially  offset by calls of
$21.3 million in U.S.  Agency Notes and  principal  paydowns of $16.9 million on
CMO's and mortgage-backed  securities (MBS's).  Investment  securities available
for sale consisted of $49.8 million in fixed rate securities and $1.0 million in
adjustable  rate  securities  at September  30,  2001. A comparison  of cost and
approximate  market  values of  investment  securities  available for sale as of
September 30, 2001 and December 31, 2000 follows:

<TABLE>
<CAPTION>
                                             September 30, 2001                                     December 31, 2000
                      -------------------------------------------------------------------- ----------------------------------
                                             Gross          Gross            Estimated                          Estimated
                           Amortized      Unrealized      Unrealized           Market          Amortized          Market
                             Cost            Gains          Losses             Value              Cost            Value
                      -------------------------------------------------------------------- ----------------------------------
<S>                  <C>               <C>           <C>               <C>               <C>              <C>
U. S. Agency Notes    $       9,996,915 $     153,085 $              0   $     10,150,000  $     10,292,370 $     10,206,464
CMO's                        19,327,390       251,673          (41,437)        19,537,626        28,657,931       28,155,800
MBS's                        20,845,132       296,793                0         21,141,925         2,490,974        2,516,699
                      -------------------------------------------------------------------- ----------------------------------
Total                 $      50,169,437 $     701,551 $        (41,437)  $     50,829,551  $     41,441,275 $     40,878,963
                      ==================================================================== ==================================
</TABLE>
                                       6
<PAGE>

Loans,  net - increased  $35.6  million to $325.8  million at September 30, 2001
from $290.2 million at December 31, 2000.  This increase was the result of $25.0
million of loans acquired from the CloverBank  merger and $59.5 million of loans
originated,  partially  offset  by  approximately  $48.5  million  of  principal
collected  on loans  during  the nine  months  ended  September  30,  2001.  The
following  table  shows  loans  receivable  by  major  categories  at the  dates
indicated.

                                         September 30,        December 31,
                                             2001                 2000
                                    ------------------------------------------

Mortgage loans (1-4  dwelling)      $       255,168,758  $       228,427,960
Construction loans                              458,935              163,493
Commercial construction                       3,964,250            1,061,799
Consumer loans                                4,569,559            3,899,549
Commercial real estate                       55,375,288           52,763,358
Commercial business                          11,169,665            8,521,769
                                   ------------------------------------------
Subtotal                                    330,706,455          294,837,928
                                   ------------------------------------------
Less:
    Deferred loan fees                          691,566              678,946
    Allowance for possible
     loan losses                              4,225,784            3,980,347
                                   ------------------------------------------
Net Loans Receivable                $       325,789,105  $       290,178,635
                                   ==========================================


At September 30, 2001, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS Nos. 114 and 118 totaled $2.3 million of
which  $1.1  million  related  to loans  that  were  individually  measured  for
impairment with a valuation allowance of $424 thousand and $1.2 million of loans
that were collectively measured for impairment with a valuation allowance of $76
thousand.  The Bank had $4.2 million in total  reserves for possible loan losses
at September 30, 2001, representing  approximately 182% of non-accrual loans and
1.3% of total loans.  For the nine months ended  September 30, 2001, the average
recorded  investment in impaired loans was approximately $2.9 million.  The Bank
recognized $261 thousand of interest income on impaired loans,  all of which was
recognized on the cash basis.

As of September  30, 2001 the Bank had  outstanding  loan  commitments  of $13.0
million, of which $5.4 million represented  variable rate loans and $7.6 million
represented fixed rate loans. The Bank intends to fund these commitments through
scheduled  amortization  of loans  and  mortgage-backed  securities,  additional
borrowings,  and if necessary,  the sale of investment  securities available for
sale.

                                       7

<PAGE>

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

<TABLE>
<CAPTION>
Non-Performing Assets:
                                                         September 30,         December 31,
                                                             2001                 2000
                                                           -----------          -----------
<S>                                                      <C>                  <C>
Loans accounted for on a non-accrual basis:
     One-to-four family mortgage                           $ 1,057,079          $   778,042
     Commercial real estate                                  1,269,321            1,408,944
     Consumer and other                                              0               24,033
                                                           -----------          -----------
         Total non-accrual loans                           $ 2,326,400          $ 2,211,019
                                                           -----------          -----------
     Troubled debt restructuring                           $ 1,069,059          $   790,364
     Real estate owned, net                                     11,562              354,758
     Other non-performing assets                                87,926               87,926
                                                           -----------          -----------
     Total non-performing assets, net                      $ 3,494,947          $ 3,444,067
                                                           ===========          ===========

     Total non-accrual loans to net loans                         0.71%                0.76%
                                                           ===========          ===========
     Total non-accrual loans to total assets                      0.24%                0.26%
                                                           ===========          ===========
     Total non-performing assets to total assets                  0.36%                0.41%
                                                           ===========          ===========
</TABLE>

Mortgage-Backed  Securities Held to Maturity - increased $94.4 million to $238.2
million at September  30, 2001 from $143.8  million at December  31,  2000.  The
increase is the result of the  purchases  of $137.8  million of FNMA,  FHLMC and
GNMA fixed rate securities,  $5.3 million of FNMA adjustable rate securities and
$10.0 million of forward  commitments  to purchase  FNMA fixed rate  securities,
partially  offset  by  principal  paydowns  of  $60.1  million.  Mortgage-backed
securities  at  September  30, 2001  consisted  of $193.9  million in fixed rate
securities  and $44.3 million in  adjustable  rate  securities.  Mortgage-backed
securities  held to maturity at  September  30, 2001 and  December  31, 2000 are
summarized below:

<TABLE>
<CAPTION>
                               September 30, 2001                              December 31, 2000
           ----------------------------------------------------------- -------------------------------
                               Gross        Gross
              Amortized       Unrealized   Unrealized     Estimated        Amortized      Estimated
                 Cost          Gains        Losses       Market Value         Cost       Market Value
           ----------------------------------------------------------- ------------------------------

<S>       <C>             <C>          <C>   <C>     <C>               <C>            <C>
GNMA       $   62,938,694  $  1,778,341 $      (189)  $    64,716,846   $   35,868,102 $   36,129,708
FNMA          147,751,814     3,304,873        (344)      151,056,343       67,927,876     68,443,172
FHLMC          27,485,013       796,708           0        28,281,721       39,955,729     40,631,536
           -----------------------------------------------------------  ------------------------------
Total      $  238,175,521  $  5,879,922 $      (533)  $   244,054,910   $  143,751,707 $  145,204,416
           ===========================================================  ==============================
</TABLE>
                                       8
<PAGE>

Deposits - increased  $51.9 million to $700.4 million at September 30, 2001 from
$648.5  million  at  December  31,  2000  primarily  due  to  the  inclusion  of
CloverBank's deposit balances of $28.1 million. Savings accounts increased $24.6
million,  certificates of deposit increased $13.9 million,  non-interest bearing
checking  accounts  increased $8.5 million and money market  accounts  increased
$9.7 million.  These  increases were partially  offset by a decrease in interest
bearing  checking  accounts of $4.8  million.  Interest  credited to  depositors
accounts for the nine months ended September 30, 2001 amounted to $15.9 million.
The following table sets forth certain  information  concerning  deposits at the
dates indicated.

<TABLE>
<CAPTION>
                                           September 30, 2001                            December 31, 2000
                               ------------------------------------------------------------------------------------------
                                                  Percent     Weighted                         Percent       Weighted
                                                 of Total      Average                         of Total      Average
                                    Amount       Deposits       Rate            Amount         Deposits        Rate
                               ------------------------------------------------------------------------------------------
<S>                              <C>            <C>           <C>             <C>             <C>           <C>
Non-interest checking              $112,023,858   16.00%        0.00%           $103,544,519    15.97%        0.00%
Checking accounts                   126,201,939   18.02%        2.43%            131,054,687    20.20%        3.17%
Savings accounts                    127,688,295   18.23%        2.43%            103,072,351    15.90%        2.72%
Money market accounts                78,482,157   11.21%        2.71%             68,768,257    10.60%        2.75%
Certificates                        255,970,785   36.54%        5.29%            242,099,541    37.33%        5.14%
                               ------------------------------------------------------------------------------------------
   Total Deposits                  $700,367,034  100.00%        3.16%           $648,539,355    100.00%       3.35%
                               ==========================================================================================
</TABLE>

Borrowings  - at  September  30,  2001  amounted to $166.3  million.  Borrowings
consisted of $10.0 million of 10%  subordinated  debentures,  $155.0  million in
securities  sold under the  agreement  to  repurchase  with a  weighted  average
interest  rate of 5.05% and $1.3 million in Federal Home Loan Bank Advances with
a weighted  average  interest  rate of 5.00%.  At December  31, 2000  borrowings
consisted of $10.0 million of 10%  subordinated  debentures,  $120.0  million in
securities sold under  agreements to repurchase with a weighted  average rate of
5.40% and $6.3  million  in  Federal  Home Loan Bank  Advances  with a  weighted
average interest rate of 5.49%.

Other  Liabilities  - increased  $33.7 million to $36.3 million at September 30,
2001 from $2.6  million at  December  31,  2000 as a result of $33.2  million in
payables for investments purchased and recorded on their trade date in September
2001 with settlement dates in October 2001.

RESULTS OF OPERATIONS

General

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

                                       9
<PAGE>

The  Corporation  recorded net income for the three months ended  September  30,
2001 of $1.4  million,  or $.20  diluted  earnings per share as compared to $1.3
million,  or $.19 diluted earnings per share for the comparable  period in 2000.
Earnings for the nine months ended September 30, 2001 were $3.8 million, or $.56
diluted earnings per share as compared to $3.9 million, or $.56 diluted earnings
per share for the comparable periods in 2000.

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.

                                       10
<PAGE>

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 September 30,
                                   -------------------------------------------------------------------------------
                                                    2001                                        2000
                                   --------------------------------------   --------------------------------------
                                      Average                   Average         Average                  Average
                                      Balance      Interest    Yield/Rate       Balance       Interest  Yield/Rate
                                   ----------   ------------   ----------   ----------------- --------- ----------
                                                                (Dollars in Thousands)
<S>                           <C>             <C>             <C>         <C>            <C>           <C>
Interest-earning assets:
     Loans receivable           $     326,566   $     6,257       7.66%     $    301,532   $     5,954     7.90%
     Mortgage-backed securities       213,921         3,451       6.45%          111,323         1,907     6.85%
     Investment securities            299,293         4,457       5.96%          313,670         5,267     6.72%
                                --------------  ------------    --------    -------------  ------------  --------
Total interest-earning
        assets                        839,780        14,165       6.75%          726,525        13,128     7.23%
                                --------------  ------------    --------    -------------  ------------  --------

Interest-bearing liabilities:
     Deposits                         687,331         5,154       3.00%          622,169         5,279     3.39%
     Borrowings                       152,046         1,975       5.20%           90,521         1,303     5.76%
     Subordinated debentures           10,000           264      10.56%           10,000           264    10.56%
                                --------------  ------------    --------    -------------  ------------  --------
Total interest-bearing
        liabilities             $     849,377         7,393       3.48%     $    722,690         6,846     3.79%
                                ==============  ------------    --------    =============  ------------  --------
Net interest income                             $     6,772                                $     6,282
                                                ============                               ============
Interest rate spread                                              3.27%                                    3.44%
                                                                ========                                 ========
Net yield on average interest-earning assets                      3.23%                                    3.46%
                                                                ========                                 ========
Ratio of average interest-
     earning assets to average interest-                         98.87%                                  100.53%
     bearing liabilities                                        ========                                 ========

</TABLE>

<TABLE>
<CAPTION>
                                                         Nine Months Ended September 30,
                                   -------------------------------------------------------------------------
                                                   2001                                   2000
                                   ---------------------------------    ------------------------------------
                                    Average                 Average       Average                 Average
                                    Balance      Interest  Yield/Rate     Balance     Interest  Yield/Rate
                                   ----------  ----------- ----------   ------------  ----------- ----------
                                                           (Dollars in Thousands)
<S>                             <C>            <C>         <C>         <C>           <C>           <C>
Interest-earning assets:
     Loans receivable           $    308,887   $   17,776     7.67%     $   302,333   $   17,599      7.76%
     Mortgage-backed securities      194,803        9,618     6.58%         117,176        5,925      6.74%
     Investment securities           297,492       13,918     6.24%         309,750       15,372      6.62%
                                -------------  -----------  --------    ------------  -----------  ---------
Total interest-earning
        assets                       801,182       41,312     6.87%         729,259       38,896      7.11%
                                -------------  -----------  --------    ------------  -----------  ---------

Interest-bearing liabilities:
     Deposits                        656,959       15,504     3.15%         615,557       15,279      3.31%
     Borrowings                      141,833        5,581     5.25%          94,583        4,040      5.69%
     Subordinated debentures          10,000          793    10.57%          10,000          793     10.57%
                                -------------  -----------  --------    ------------  -----------  ---------
Total interest-bearing
        liabilities             $    808,792       21,878     3.61%     $   720,140       20,112      3.72%
                                =============  -----------  --------    ============  -----------  ---------
Net interest income                            $   19,434                             $   18,784
                                               ===========                            ===========
Interest rate spread                                          3.26%                                   3.39%
                                                            ========                               =========
Net yield on average interest-earning assets                  3.23%                                   3.43%
                                                            ========                               =========
Ratio of average interest-
     earning assets to average interest -                    99.06%                                 101.27%
     bearing liabilities                                    ========                               =========

</TABLE>
                                       11
<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                             Nine Months Ended
                                                         September 30,                                  September 30,
                                                     2001 compared to 2000                          2001 compared to 2000
                                           -------------------------------------------    ------------------------------------------
                                                  Increase (Decrease) due to:                    Increase (Decrease) due to:
                                               Rate          Volume         Total            Rate           Volume         Total
                                           -------------  -------------  -------------    ------------   -------------  -----------
                                                         (In Thousands)                                 (In Thousands)
<S>                                      <C>            <C>             <C>             <C>            <C>            <C>
Interest income:
     Loans receivable                      $      (191)   $        494    $       303     $      (205)   $        382   $      177
     Mortgage-backed securities                   (214)          1,758          1,544            (232)          3,925        3,693
     Investment securities                        (569)           (241)          (810)           (846)           (608)      (1,454)
                                           -------------  -------------  -------------    ------------   -------------  -----------

     Total change - interest income               (974)          2,011          1,037          (1,283)          3,699        2,416
                                           -------------  -------------  -------------    ------------   -------------  -----------
Interest expense:
     Deposits                                     (678)            553           (125)           (803)          1,028          225
     Borrowings                                   (214)            886            672            (477)          2,018        1,541
     Subordinated debentures                         0               0              0               0               0            0
                                           -------------  -------------  -------------    ------------   -------------  -----------
     Total change - interest expense              (892)          1,439            547          (1,280)          3,046        1,766
                                           -------------  -------------  -------------    ------------   -------------  -----------
Net change in net interest income          $       (82)    $       572    $       490     $        (3)   $        653   $      650
                                           =============  =============  =============    ============   =============  ===========
</TABLE>

Net  Interest  Income - for the three and nine months ended  September  30, 2001
totaled $6.8 million and $19.4 million,  respectively.  Net interest  income for
the three months ended September 30, 2001 increased $490 thousand as compared to
the same period in 2000 due  primarily  to an  increase  in  interest  income on
mortgage-backed securities of $1.5 million and an increase in interest income on
loans of $303  thousand,  partially  offset by a decrease in interest  income on
investment  securities of $810  thousand and an increase in interest  expense on
borrowings of $672 thousand.

The  increase  in  interest  income was  primarily  the result of an increase in
mortgage-backed  securities income of $1.5 million to $3.5 million for the three
months ended  September  30, 2001 from $1.9 million for the same period in 2000.
The average balance of MBS's increased  $102.6 million to $213.9 million for the
three months ended September 30, 2001 from $111.3 million for the same period in
2000, which resulted in a volume increase of $1.8 million.  The average yield of
the MBS  portfolio  decreased  40 basis  points to 6.45% for the  quarter  ended
September 30, 2001 from 6.85% for the same period in 2000,  which resulted in an
interest income decrease of $214 thousand due to rate changes.

                                       12
<PAGE>

Interest  income on loans  increased $303 thousand to $6.3 million for the three
months ended  September  30, 2001 from $6.0 million for the same period in 2000.
The average  balance of the loan  portfolio  increased  $25.1  million to $326.6
million for the three months ended  September  30, 2001 from $301.5  million for
the same period in 2000,  which resulted in a volume increase in interest income
of $494  thousand.  The increase in the average  balance is  principally  due to
$25.0 million of CloverBank  loans acquired through the merger finalized on June
1, 2001.  The average  rate on loans  decreased 24 basis points to 7.66% for the
three  months ended  September  30, 2001 from 7.90% for the same period in 2000,
which  resulted in a decrease in interest  income of $191  thousand  due to rate
changes.

Interest income on investment securities decreased $810 thousand to $4.5 million
for the three  months  ended  September  30, 2001 from $5.3 million for the same
period in 2000. The average yield of the investment portfolio decreased 76 basis
points to 5.96% for the quarter ended September 30, 2001 from 6.72% for the same
period in 2000,  which resulted in an interest  income decrease of $569 thousand
due to rate  changes.  The average  balance of investment  securities  decreased
$14.4  million to $299.3  million for the three months ended  September 30, 2001
from  $313.7  million for the same  period in 2000,  which  resulted in a volume
decrease in interest income of $241 thousand.

The  increase in interest  expense  was  primarily  the result of an increase in
interest  expense on  borrowings  of $672 thousand to $2.0 million for the three
months ended  September  30, 2001 from $1.3 million for the same period in 2000.
The average  balance of borrowings  increased $61.5 million to $152.0 million at
September  30,  2001 from  $90.5  million  for the same  period  in 2000,  which
resulted in a volume increase in interest expense of $886 thousand.  The average
rate paid on borrowings decreased 56 basis points to 5.20% for the quarter ended
September  30, 2001 from 5.76% for the same  period in 2000 which  resulted in a
decrease in interest expense of $214 thousand due to rate changes.

Interest  expense on deposits  decreased  $125  thousand to $5.2 million for the
three months ended  September  30, 2001 from $5.3 million for the same period in
2000.  The average rate paid on deposits  decreased 39 basis points to 3.00% for
the  quarter  ended  September  30, 2001 from 3.39% for the same period in 2000,
which  resulted in a decrease in interest  expense of $678  thousand due to rate
changes.  The average  balance of  deposits  increased  $65.1  million to $687.3
million for the three months ended  September  30, 2001 from $622.2  million for
the same period in 2000, which resulted in a volume increase in interest expense
of $553  thousand.  The increase in the average  balance is  principally  due to
$28.1 million of  CloverBank  deposits  acquired and growth in  interest-bearing
deposit accounts.

Net interest  income for the nine months ended September 30, 2001 increased $650
thousand  primarily  due to an increase in  interest  income on  mortgage-backed
securities of $3.7 million, partially offset by a decrease in interest income on
investment  securities  of $1.5  million and an increase in interest  expense on
borrowings of $1.5 million and deposits of $225 thousand as compared to the same
period in 2000.

The  increase in interest  income on  mortgage-backed  securities  was due to an
increase  in the average  balance of the  portfolio  of $77.6  million to $194.8
million for the nine months ended September 30, 2001 from $117.2 million for the
nine months ended September 30, 2000. The increase in the average balance of the
portfolio  resulted in a $3.9 million increase in interest income. The portfolio
increase was due to purchases  during this period of $190.6  million,  partially
offset by $69.3  million of  principal  paydowns  from  September  2000  through
September 2001. The average yield on the portfolio  decreased 16 basis points to
6.58% for the nine  months  ended  September  30,  2001 from  6.74% for the same
period in 2000, which resulted in a decrease in interest income of $232 thousand
due to rate changes.

                                       13
<PAGE>

The decrease in interest  income on investment  securities was due to a decrease
in the average yield on the investment portfolio of 38 basis points to 6.24% for
the nine months ended September 30, 2001 from 6.62% for the same period in 2000,
which  resulted in a decrease in interest  income of $846  thousand  due to rate
changes.  The average balance of the portfolio decreased $12.3 million to $297.5
million for the nine months ended September 30, 2001 from $309.8 million for the
same period in 2000,  which resulted in a volume  decrease in interest income of
$608  thousand.  The decrease was  primarily  due to calls during this period of
$188.2  million  of U.S.  Agency  Notes,  sales of $2.0  million  of CMO's,  the
maturity of $2.7  million of  municipal  bonds and  principal  paydowns of $47.7
million,  partially  offset by  purchases  of $235.7  million  primarily in U.S.
Agency Notes and CMO's.

The increase in interest  expense on borrowings was the result of an increase in
the average balance of $47.2 million to $141.8 million for the nine months ended
September  30,  2001 from  $94.6  million  for the same  period  in 2000,  which
resulted in a volume increase in interest  expense of $2.0 million.  The average
rate paid on  borrowings  decreased 44 basis points to 5.25% for the nine months
ended September 30, 2001 from 5.69% for the same period in 2000,  which resulted
in a decrease in interest expense of $477 thousand due to rate changes.

The  increase in interest  expense on deposits  was the result of an increase in
the average  balance of deposits of $41.4 million to $657.0 million for the nine
months ended September 30, 2001 from $615.6 million for the same period in 2000,
which  resulted in a volume  increase in interest  expense of $1.0 million.  The
average  rate paid on deposits  decreased  16 basis points to 3.15% for the nine
months ended  September  30, 2001 from 3.31% for the same period in 2000,  which
resulted in a decrease in interest expense of $803 thousand due to rate changes.

Provision  for Loan  Losses - for the three  months  ended  September  30,  2001
remained  constant at $60 thousand  from 2000 to 2001.  The total  provision for
potential  loan losses  remained  constant at $180  thousand for the nine months
ended  September  30, 2001 and 2000.  At September  30, 2001 the  allowance  for
possible  loan losses  amounted  to $4.2  million  compared  to $3.9  million at
September 30, 2000. The  determination of the allowance level for loan losses is
based on management's  analysis of the risk  characteristics of various types of
loans, levels of classified loans, previous loan loss experience,  the estimated
fair market value of the underlying  collateral and current economic conditions.
Additionally,  the mix within the Bank's  portfolio  continues  to change as the
Bank offers a wider variety of products.  Within the loan portfolio, a change is
also occurring as a shift is made from lower  yielding loans (i.e.,  one-to-four
family loans) to higher yielding loans (i.e.,  commercial real estate mortgages,
commercial construction, consumer and commercial business loans). These types of
loans  contain a higher  degree of risk.  The Bank will  continue to monitor its
allowance for loan losses and make future  adjustments to the allowance  through
the provision for loan losses as changing conditions dictate.  Although the Bank
maintains  its  allowance  for loan  losses at a level that it  considers  to be
adequate to provide for the inherent risk of loss in its loan  portfolio,  there
can be no assurance that 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.

                                       14
<PAGE>

Other Income - for the three and nine month  periods  ended  September  30, 2001
were $1.0  million  and $2.8  million,  as compared  to $754  thousand  and $2.2
million for the same  periods in 2000.  The  increase  was  primarily  due to an
increase  in retail  banking  fees for the  three  branches  opened  and the two
branches acquired since the third quarter of 2000, the amount received on rental
properties  acquired  since  the third  quarter  of 2000 and  proceeds  from the
condemnation of land in Chesterfield for a gain of $50 thousand.

Operating  Expenses - for the three and nine month periods  ended  September 30,
2001 totaled $5.6 million and $16.2  million,  respectively  as compared to $5.0
million and $14.7 million for the same periods in 2000.

Salaries  and  Employee  Benefits - for the three and nine month  periods  ended
September  30,  2001 were $3.1  million  and $9.2  million,  as compared to $2.9
million  and $8.7  million  for the same  periods in 2000.  The  increases  were
primarily  due to  additional  staff in the three new  branches  opened  and two
branches acquired since the third quarter of 2000.  Average full time equivalent
employees  at September  30, 2001 were 437 as compared to 423 at  September  30,
2000.

Occupancy and  Equipment - for the three and nine month periods ended  September
30, 2001 amounted to $1.1 million and $3.4 million,  as compared to $1.1 million
and $3.0 million for the same period since 2000. The increases are the result of
additional  depreciation  and occupancy  expenses on the new branches  opened as
well as other facility improvements and new computer equipment additions between
the quarters ended September 30, 2001 and September 30, 2000.

Purchased  Services - for the three and nine month periods  ended  September 30,
2001 totaled $556  thousand and $1.6  million,  as compared to $478 thousand and
$1.4 million for the same periods in 2000.  ATM charges  increased $128 thousand
for the first nine months of 2001  compared  to the same  period in 2000.  Check
processing  costs increased $56 thousand for the nine months ended September 30,
2001 compared to the same period in 2000 due to higher transaction volumes.

Federal Deposit Insurance  Premiums - increased $23 thousand for the nine months
ended September 30, 2001 as compared to the same period in 2000. The increase is
due to the three new  branches  opened and two  branches  acquired  through  the
merger with CloverBank since the third quarter of 2000.

ITEM 3:  DISCLOSURE ABOUT MARKET RISK

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

                                       15
<PAGE>

PART II.          OTHER INFORMATION



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

                           None


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

                           None


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

                           None


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

                           None

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

                           None


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

                           None


                                       16
<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: November 13, 2001                   /s/ Craig W. Yates
                                          --------------------------------------
                                          Craig W. Yates
                                          President and Chief Executive Officer
                                          (Principal Executive Officer)



Date: November 13, 2001                   /s/ Channing L. Smith
                                          --------------------------------------
                                          Channing L. Smith
                                          Vice President and
                                          Chief Financial Officer
                                          (Principal Financial Officer)