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, 2005

     OR

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


                         Commission file number 0-17353

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

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

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

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

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

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

         As of May 6, 2005 there were issued and outstanding 6,502,505 shares of
the registrant's Common Stock, par value $.10 per share.

<PAGE>

                    FMS FINANCIAL CORPORATION AND SUBSIDIARY

                          QUARTERLY REPORT ON FORM 10-Q

                                 MARCH 31, 2005

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

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

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

                  Consolidated Statements of Operations (unaudited)
                    for the three months ended
                    March 31, 2005 and March 31, 2004                                   2

                  Consolidated Statements of Cash Flows (unaudited)
                    for the three months ended March 31, 2005
                    and March 31, 2004                                                  3

                  Consolidated Statements of Changes in Stockholders' Equity
                    (unaudited) for the three months ended March 31, 2005 and
                    March 31, 2004                                                      4

                  Notes to Consolidated Financial Statements                            5

         Item 2 - Management's Discussion and Analysis of
                    Financial Condition and Results of Operations                  6 - 16

         Item 3 - Disclosure about Market Risk                                         16

         Item 4 - Controls and Procedures                                              16


PART II - Other Information

         Item 1 - Legal Proceedings                                                    17

         Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds          17

         Item 3 - Defaults Upon Senior Securities                                      17

         Item 4 - Submission of Matters to a Vote of Security Holders                  17

         Item 5 - Other Information                                                    17

         Item 6 - Exhibits                                                             17
</TABLE>

<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                  March 31, 2005  December 31, 2004
                                                                                                           (Unaudited)
-----------------------------------------------------------------------------------------------------------------------------------

ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>                <C>
   Cash and amounts due from depository institutions                                             $    55,946,208    $    46,410,744
   Interest-bearing deposits                                                                             141,792             30,950
   Short term funds                                                                                   65,836,026         64,135,662
                                                                                                 ---------------    ---------------
                        Total cash and cash equivalents                                              121,924,026        110,577,356
   Investment securities held to maturity                                                            227,753,915        254,833,749
   Investment securities available for sale                                                          168,113,061        141,999,280
   Mortgage-backed securities held to maturity                                                       253,151,834        269,221,897
   Loans, net                                                                                        421,969,540        418,798,633
   Accrued interest receivable                                                                         5,574,402          6,322,107
   Federal Home Loan Bank stock                                                                        8,750,020         10,250,120
   Office properties and equipment, net                                                               30,732,971         30,747,227
   Deferred income taxes                                                                               2,224,261          2,150,442
   Core deposit intangible                                                                             2,412,978          2,592,030
   Prepaid expenses and other assets                                                                   2,642,891          2,513,224
                                                                                                 ---------------    ---------------
TOTAL ASSETS                                                                                     $ 1,245,249,899    $ 1,250,006,065
                                                                                                 ===============    ===============

LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
    Deposits                                                                                      $   965,279,204   $   941,506,820
    Securities sold under agreements to repurchase                                                    165,000,000       195,000,000
    Advances from the Federal Home Loan Bank                                                           10,000,000        10,000,000
    FMS Statutory Trust 1 debentures                                                                   25,774,000        25,774,000
    Advances by borrowers for taxes and insurance                                                       2,316,845         2,200,357
    Accrued interest payable                                                                            1,127,216         1,246,661
    Dividends payable                                                                                     195,069           195,029
    Other liabilities                                                                                   4,603,263         3,746,579
                                                                                                  ---------------   ---------------
    Total liabilities                                                                               1,174,295,597     1,179,669,446
                                                                                                  ---------------   ---------------

Commitments and contingencies
Stockholders' Equity:
    Preferred stock - $.10 par value 5,000,000  shares  authorized; none issued
    Common  stock - $.10 par value 10,000,000 shares authorized; shares
                         issued 7,991,482 and 7,991,292 and shares outstanding 6,502,300
                         and 6,502,110 as of March 31, 2005 and December 31, 2004, respectively           799,148           799,129
    Paid-in capital in excess of par                                                                    8,681,602         8,555,506
    Accumulated comprehensive income - net of taxes                                                      (743,779)          270,784
    Retained earnings                                                                                  73,152,330        71,646,199
    Less:  Treasury stock (1,489,182 shares, at cost, as of March 31, 2005
                         and December 31, 2004)                                                       (10,934,999)      (10,934,999)
                                                                                                  ---------------   ---------------
Total stockholders' equity                                                                             70,954,302        70,336,619
                                                                                                  ---------------   ---------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                        $ 1,245,249,899   $ 1,250,006,065
                                                                                                  ===============   ===============
</TABLE>

See notes to consolidated financial statements.

                                       1

<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                                                          Three Months ended
                                                                               March 31,
                                                                      ---------------------------
                                                                            2005          2004
-------------------------------------------------------------------------------------------------
                                                                              (Unaudited)
<S>                                                                  <C>            <C>
INTEREST  INCOME:
Interest income on:
  Loans                                                               $  6,188,264   $  6,051,776
  Mortgage-backed securities                                             3,726,015      3,940,565
  Investments                                                            4,088,509      3,648,937
                                                                      ------------   ------------
Total interest income                                                   14,002,788     13,641,278
                                                                      ------------   ------------
INTEREST EXPENSE:
Interest expense on:
  Deposits                                                               2,403,790      1,780,209
  Borrowings                                                             2,154,778      2,354,914
  Long-term debt                                                           408,499        303,798
                                                                      ------------   ------------
Total interest expense                                                   4,967,067      4,438,921
                                                                      ------------   ------------

NET INTEREST INCOME                                                      9,035,721      9,202,357
PROVISION FOR LOAN LOSSES                                                   90,000         75,000
                                                                      ------------   ------------
NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                                      8,945,721      9,127,357
                                                                      ------------   ------------
NON-INTEREST INCOME:
  Loan service charges and other fees                                       17,180         29,244
  Gain on sale of investment securities                                          0        100,056
  Real estate owned operations, net                                              0         (1,263)
  Service charges on accounts                                            1,268,002      1,204,240
  Other income                                                              36,882         29,136
                                                                      ------------   ------------
Total non-interest income                                                1,322,064      1,361,413
                                                                      ------------   ------------
NON-INTEREST EXPENSE:
  Salaries and employee benefits                                         4,376,028      4,125,632
  Occupancy and equipment                                                1,436,536      1,379,656
  Purchased services                                                       697,183        696,722
  Federal deposit insurance premiums                                        32,139         32,265
  Professional fees                                                        187,250        165,783
  Advertising                                                              108,818        111,963
  Amortization of core deposit intangible                                  179,052        179,052
  Other                                                                    365,134        337,184
                                                                      ------------   ------------
Total non-interest expenses                                              7,382,140      7,028,257
                                                                      ------------   ------------

INCOME BEFORE INCOME TAXES                                               2,885,645      3,460,513

INCOME TAXES                                                             1,184,411      1,382,626
                                                                      ------------   ------------
NET INCOME                                                            $  1,701,234   $  2,077,887
                                                                      ============   ============

 BASIC EARNINGS PER COMMON SHARE                                      $       0.26   $       0.32
                                                                      ============   ============
 DILUTED EARNINGS PER COMMON SHARE                                    $       0.26   $       0.32
                                                                      ============   ============
 Dividends per common share                                           $       0.03   $       0.03
                                                                      ============   ============

 Weighted average common shares outstanding                              6,502,223      6,486,325
 Potential  dilutive  effect  of  the  exercise  of  stock  options         38,668         41,033
                                                                      ------------   ------------
 Adjusted  weighted  average  common  shares  outstanding                6,540,891      6,527,358
                                                                      ============   ============

</TABLE>

See notes to consolidated financial statements.

                                       2
<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Three Months ended
                                                                                                              March 31,
                                                                                                         2005           2004
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                             (Unaudited)
<S>                                                                                          <C>              <C>
OPERATING ACTIVITIES:
Net income                                                                                     $   1,701,234    $   2,077,887
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses                                                                             90,000           75,000
Amortization and accretion of premiums and discounts on investments, net                             601,182        1,275,256
Amortization and other fees and costs                                                                209,436          215,969
Depreciation                                                                                         496,416          490,654
Realized (gains) and losses on:
  Sale of loans and loans held for sale of fixed assets                                                    0               (1)
  Disposal and sale of fixed assets                                                                      115                0
  Sale of investment securities                                                                            0         (100,056)
  Sale of real estate owned                                                                                0             (654)
Decrease (increase) in accrued interest receivable                                                   747,705         (454,190)
Increase in prepaid expenses and other assets                                                       (149,128)        (768,244)
Decrease in accrued interest payable                                                                (119,445)         (67,935)
Increase in other liabilities                                                                      1,557,358          924,806
(Benefit) Provision for deferred income taxes                                                        (73,819)         (78,163)
                                                                                               -------------    -------------
       Net cash provided by operating activities                                                   5,061,054        3,590,329
                                                                                               -------------    -------------
INVESTING ACTIVITIES:
Proceeds from sale of:
  Education loans                                                                                          0           15,301
  Real estate owned                                                                                        0           48,948
Principal collected and proceeds from maturities of investment securities held to maturity       182,464,599       32,485,161
Proceeds from maturities of investment securities available for sale                              12,252,427       16,577,021
Principal collected on mortgage-backed securities held to maturity                                15,700,055       20,763,373
Principal collected on loans, net                                                                 19,817,106       25,135,645
Loans originated or acquired, net                                                                (23,088,936)     (27,955,402)
Purchase of investment securities and mortgage-backed securities held to maturity               (155,443,243)     (50,184,757)
Purchase of investment securities and mortgage-backed securities available for sale              (40,254,142)     (26,138,938)
Redemption of Federal Home Loan Bank stock                                                         1,500,100           59,500
Purchase of office property and equipment                                                           (482,274)        (380,585)
                                                                                               -------------    -------------
       Net cash provided (used) by investing activities                                           12,465,692       (9,574,733)
                                                                                               -------------    -------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts                                              26,545,130       21,486,365
Net decrease in time deposits                                                                     (2,772,746)      (8,574,601)
Net decrease in FHLB advances                                                                              0       (1,191,047)
(Repayment) Proceeds from securities sold under agreement to repurchase                          (30,000,000)               0
Increase in advances from borrowers for taxes and insurance                                          116,488          154,412
Dividends paid on common stock                                                                      (195,063)        (194,576)
Net proceeds from issuance of common stock                                                           126,115           10,000
                                                                                               -------------    -------------
       Net cash (used) provided by financing activities                                           (6,180,076)      11,690,553
                                                                                               -------------    -------------
INCREASE IN CASH AND CASH EQUIVALENTS                                                             11,346,670        5,706,149
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                   110,577,356       72,334,637
                                                                                               -------------    -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                                       $ 121,924,026    $  78,040,786
                                                                                               =============    =============
Supplemental Disclosures:
 Cash paid for:
    Interest on deposits, advances, and other borrowings                                       $   5,086,512    $   4,506,856
    Income taxes                                                                                      75,000        1,050,000
 Non-cash investing and financing activities:
    Dividends declared and not paid at quarter end                                                   195,103          194,606
    Investments purchased and not yet settled                                                              0       10,000,000
</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    income (loss)   earnings          stock          Equity
---------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>         <C>        <C>              <C>         <C>           <C>              <C>
Balances at December 31, 2003      6,485,877   $797,506   $ 8,507,333      $  802,239  $63,657,664   $(10,934,999)    $62,829,743
Net Income                                                                               2,077,887                      2,077,887
Other comprehensive income
  Unrealized gain on
    securities available
    for sale, net of taxes
    of $234,994                                                               353,368                                     353,368
                                                                                                                      -----------
Total comprehensive income                                                                                              2,431,255
                                                                                                                      -----------
Dividends declared ($.03)                                                                 (194,606)                      (194,606)
Exercise of stock options              1,000        100         9,900                                                      10,000
                               --------------------------------------------------------------------------------------------------
Balances at March 31, 2004         6,486,877   $797,606   $ 8,517,233     $ 1,155,607  $65,540,945   $(10,934,999)    $65,076,392
---------------------------------------------------------------------------------------------------------------------------------

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
---------------------------------------------------------------------------------------------------------------------------------
</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, 2005 (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, 2005 are not  necessarily
indicative  of the  operating  results  for the full  fiscal  year or any  other
interim period.

The accompanying  unaudited consolidated financial statements have been prepared
in accordance with the instructions for Form 10-Q, and therefore, do not include
all  information  and  notes  necessary  for a fair  presentation  of  financial
condition, results of operations and statements of cash flows in conformity with
generally  accepted  accounting  principles.  These statements should be read in
conjunction  with the  consolidated  statements  and  related  notes  which  are
incorporated  by reference to the  Corporation's  Annual Report on Form 10-K for
the fiscal year ended  December  31,  2004.  The 2004  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,  2005 and  December  31,  2004  consisted  of $25.8
million of FMS  Statutory  Trust 1  debentures.  The interest  rate resets every
three months to LIBOR plus 360 basis points and will not exceed  11.00%  through
March 2007. As of March 31, 2005 and 2004 the interest rate was 6.69% and 4.71%,
respectively. The proceeds were used for the paydown in August 2002 of the $10.0
million subordinated debentures, expansion of the Bank's operations, and general
corporate purposes.

3-REGULATORY CAPITAL REQUIREMENTS
The Bank is considered "well  capitalized" by OTS regulations at March 31, 2005.
The  Bank's  regulatory  tangible  and tier 1 (core)  capital  ratios  are $83.3
million,  or 6.70% of total  bank  assets,  and  $87.0  million  or  16.70%  for
risk-based capital.  FMS's consolidated  capital ratio at March 31, 2005 totaled
5.70%.

4-STOCK OPTIONS
The  Corporation  maintains an incentive stock option plan. As permitted by SFAS
No. 148 "Accounting for Stock-Based Compensation-Transition and Disclosure"  the
Corporation  will continue to use the intrinsic  value method of accounting  for
stock options.  No options have been granted during the three months ended March
31, 2005 and 2004.

5-PENSION PLAN
The Corporation  maintains a defined benefit Pension Plan for active  employees.
The Corporation expects to contribute approximately $986 thousand to our pension
plan in 2005 and has  contributed  $205  thousand  during the three months ended
March 31, 2005. The components of the net pension cost are as follows:

                                       Three Months ended March 31,
                                       ----------------------------
                                              2005         2004
                                              ----         ----
         Service cost                    $ 230,355    $ 217,760
         Interest cost                     170,627      141,092
         Return on assets                 (203,406)    (158,050)
         Net amortization and deferral       1,027        3,067
                                         ---------    ---------
         Net periodic pension cost       $ 198,603    $ 203,869
                                         =========    =========

                                        5

<PAGE>

ITEM 2: MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005.

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

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

                                       6

<PAGE>

FINANCIAL CONDITION

Total Assets - at March 31, 2005 were $1.2 billion as compared with total assets
at December 31, 2004 of $1.3 billion.

Investment  Securities  Held to  Maturity -  decreased  $27.0  million to $227.8
million at March 31, 2005 from $254.8 million at December 31, 2004 primarily due
to calls of $65.4  million in U.S.  Agency  Notes,  principal  paydowns  of $6.1
million in CMO's and the maturity of $1.0 million of Municipal Bonds,  partially
offset by  purchases  of $20.0  million of U.S.  Agency  Notes,  $5.5 million of
Municipal Bonds and a net increase of $20.0 million of Repurchase  Agreements in
the first quarter of 2005.  Investment  securities held to maturity at March 31,
2005 consisted of $227.8 million in fixed rate securities.  A comparison of cost
and  approximate  market values of investment  securities held to maturity as of
March 31, 2005 and December 31, 2004 follows:

<TABLE>
<CAPTION>
                                               March 31, 2005                              December 31, 2004
----------------------------------------------------------------------------------   ----------------------------
                                           Gross          Gross         Estimated                     Estimated
                          Amortized      Unrealized     Unrealized        Market       Amortized        Market
                            Cost           Gains          Losses          Value          Cost           Value
----------------------------------------------------------------------------------   ----------------------------
<S>                    <C>            <C>            <C>             <C>            <C>            <C>
Repurchase Agreements   $ 20,000,000   $          0   $          0    $ 20,000,000   $          0   $          0
U. S. Agency Notes       118,883,481         43,840     (1,284,217)    117,643,104    164,381,425    164,033,241
CMO's                     81,302,796         45,070     (1,578,969)     79,768,897     87,413,111     86,773,600
Municipal bonds            7,567,638          3,270              0       7,570,908      3,039,213      3,043,454
----------------------------------------------------------------------------------   ---------------------------
Total                   $227,753,915   $     92,180   $ (2,863,186)   $224,982,909   $254,833,749   $253,850,295
==================================================================================   ===========================
</TABLE>


Investment  Securities  Available  for Sale - increased  $26.1 million to $168.1
million at March 31, 2005 from $142.0 million at December 31, 2004. The increase
is the result of purchases of $15.5 million of Governmental Bonds, $14.8 million
of U.S. Agency Notes, $5.0 million of CMO's and $5.0 million of  mortgage-backed
securities,  partially offset by principal paydowns of $7.1 million of CMO's and
MBS's and $5.2  million in calls of U.S.  Agency  Notes in the first  quarter of
2005.  Investment  securities  available for sale consisted of $147.4 million in
fixed rate  securities and $20.7 million in adjustable  rate securities at March
31, 2005. A  comparison  of cost and  approximate  market  values of  investment
securities  available  for  sale as of March  31,  2005 and  December  31,  2004
follows:

<TABLE>
<CAPTION>
                                             March 31, 2005                              December 31, 2004
--------------------------------------------------------------------------------  ---------------------------
                                        Gross          Gross         Estimated                     Estimated
                        Amortized     Unrealized     Unrealized        Market       Amortized        Market
                          Cost          Gains          Losses          Value          Cost           Value
--------------------------------------------------------------------------------  ---------------------------
<S>                <C>            <C>            <C>             <C>            <C>            <C>
Governmental Bonds   $ 15,475,000   $          0   $          0    $ 15,475,000   $          0   $          0
U. S. Agency Notes     40,114,655              0       (589,254)     39,525,401     30,537,053     30,316,735
CMO's                  39,255,549          6,731       (585,459)     38,676,821     37,677,754     37,601,576
MBS's                  74,525,303        348,414       (437,878)     74,435,839     73,326,684     74,080,969
--------------------------------------------------------------------------------  ---------------- ----------
Total                $169,370,507   $    355,145   $ (1,612,591)   $168,113,061   $141,541,491   $141,999,280
================================================================================  ================= ==========
</TABLE>

                                       7

<PAGE>

Mortgage-Backed  Securities Held to Maturity - decreased $16.0 million to $253.2
million at March 31, 2005 from $269.2 million at December 31, 2004. The decrease
is the result of  principal  paydowns of $15.7  million in the first  quarter of
2005.  Mortgage-backed  securities at March 31, 2005 consisted of $219.1 million
in fixed rate  securities  and $34.0 million in adjustable  rate  securities.  A
comparison of cost and approximate market values of  mortgage-backed  securities
as of March 31, 2005 and December 31, 2004 follows:

<TABLE>
<CAPTION>
                                  March 31, 2005                              December 31, 2004
-----------------------------------------------------------------------  ----------------------------
                               Gross          Gross         Estimated                     Estimated
              Amortized      Unrealized     Unrealized        Market       Amortized        Market
                Cost           Gains          Losses          Value          Cost           Value
-----------------------------------------------------------------------  ----------------------------
<S>       <C>            <C>            <C>             <C>            <C>            <C>
GNMA        $  6,816,797   $    320,493   $       (135)   $  7,137,155   $  7,598,918   $  7,975,978
FNMA         127,169,919      1,701,441       (684,788)    128,186,572    136,076,364    138,720,205
FHLMC         59,510,021        518,275       (658,541)     59,369,755     63,157,460     63,710,920
Pass Thru     59,655,097         78,728     (1,011,862)     58,721,963     62,389,155     62,119,115
-----------------------------------------------------------------------  ----------------------------
Total       $253,151,834   $  2,618,937   $ (2,355,326)   $253,415,445   $269,221,897   $272,526,218
=======================================================================  ============================
</TABLE>


The  following  table  shows the gross  unrealized  losses and fair value of the
Bank's   investments   with  unrealized   losses  that  are  not  deemed  to  be
other-than-temporarily impaired, aggregated by investment category and length of
time that individual securities have been in continuous unrealized loss position
at March 31, 2005:

<TABLE>
<CAPTION>
                                 Less Than 12 Months          12 Months or Greater                  Total
                          -------------------------------------------------------------------------------------------
                                             Unrealized                     Unrealized                     Unrealized
Description of Security      Fair Value        Losses       Fair Value        Losses       Fair Value        Losses
---------------------------------------------------------------------------------------------------------------------
<S>                      <C>            <C>             <C>            <C>             <C>            <C>
Available for Sale:
-------------------
U.S. Agency Notes          $ 39,525,401   $   (589,254)   $          0   $          0    $ 39,525,401   $   (589,254)
CMO's                        26,757,507       (398,336)      4,330,421       (187,123)     31,087,928       (585,459)
MBS's                        25,356,267       (286,797)      7,551,521       (151,081)     32,907,788       (437,878)
                           ------------   ------------    ------------   ------------    ------------   ------------
Total Available for Sale     91,639,175     (1,274,387)     11,881,942       (338,204)    103,521,117     (1,612,591)
                           ------------   ------------    ------------   ------------    ------------   ------------
Held to Maturity:
-----------------
U.S. Agency Notes            98,709,697     (1,047,313)     10,216,506       (236,904)    108,926,203     (1,284,217)
CMO's                        36,943,573       (592,819)     35,057,586       (986,150)     72,001,159     (1,578,969)
MBS's                       103,768,932     (1,369,167)     40,913,729       (986,159)    144,682,661     (2,355,326)
                           ------------   ------------    ------------   ------------    ------------   ------------
Total Held to Maturity      239,422,202     (3,009,299)     86,187,821     (2,209,213)    325,610,023     (5,218,512)
                           ------------   ------------    ------------   ------------    ------------   ------------
Total                      $331,061,377   $ (4,283,686)   $ 98,069,763   $ (2,547,417)   $429,131,140   $ (6,831,103)
                           ============   ============    ============   ============    ============   ============
</TABLE>

                                       8

<PAGE>

Loans,  net - increased  $3.2  million to $422.0  million at March 31, 2005 from
$418.8  million at December 31, 2004.  This increase was primarily the result of
$23.1  million of loans  originated,  partially  offset by  approximately  $19.8
million of principal  collected on loans during the three months ended March 31,
2005.  The following  table shows loans  receivable  by major  categories at the
dates indicated.

                                      March 31,         December 31,
                                       2005                2004
---------------------------------------------------------------------

Mortgage Loans                     $ 275,986,354       $ 275,842,765
Construction Loans                       405,967             897,264
Commercial Construction               11,742,995          11,971,241
Consumer Loans                         2,602,940           2,471,624
Commercial Real Estate               119,034,542         116,380,045
Commercial Business                   17,284,842          16,311,618
---------------------------------------------------------------------
Subtotal                             427,057,640         423,874,557
---------------------------------------------------------------------
Less:
    Deferred loan fees                   298,003             356,732
    Allowance for
     loan losses                       4,790,097           4,719,192
---------------------------------------------------------------------
Total loans, net                   $ 421,969,540       $ 418,798,633
---------------------------------------------------------------------


At March 31, 2005,  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 $745  thousand of
loans that were collectively  measured for impairment with a valuation allowance
of $17 thousand.  The Bank had $4.8 million in total reserves for loan losses at
March 31, 2005,  representing  approximately  200% of non-performing  assets and
1.1% of total loans.  For the three  months  ended March 31,  2005,  the average
recorded  investment in impaired loans was approximately $1.7 million.  The Bank
recognized  $20  thousand  of interest  income on  impaired  loans for the three
months ended March 31, 2005, all of which was recognized on the cash basis.

As of March 31, 2005 the Bank had outstanding loan commitments of $15.5 million,
of  which  $8.9  million  represented  variable  rate  loans  and  $6.6  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.

                                       9

<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.

                                                    March 31,   December 31,
                                                     2005          2004
                                                  -----------  -------------

Loans accounted for on a non-accrual basis:
Mortgage loans:
    One-to-four family                            $  745,285    $  819,076
    Commercial real estate                           984,924       984,924
                                                  ----------    ----------
    Total non-accrual loans                       $1,730,209    $1,804,000
                                                  ----------    ----------

    Troubled debt restructuring                   $  668,818    $  718,047
    Real estate owned, net                                 0             0
                                                  ----------    ----------
    Total non-performing assets, net              $2,399,027    $2,522,047
                                                  ----------    ----------

    Total non-accrual loans to net loans                0.41%         0.43%
                                                  ==========    ==========
    Total non-accrual loans to total assets             0.14%         0.14%
                                                  ==========    ==========
    Total non-performing assets to total assets         0.19%         0.20%
                                                  ==========    ==========


Deposits -  increased  $23.8  million to $965.3  million at March 31,  2005 from
$941.5 million at December 31, 2004.  Non-interest  checking accounts  increased
$18.6 million,  savings  accounts  increased $6.5 million and checking  accounts
increased  $2.3  million  for the  three  months  ended  March 31,  2005.  These
increases were partially offset by a decrease in certificate of deposit accounts
of $2.8 million during this period. Interest credited to depositors accounts for
the three months ended March 31, 2005  amounted to $1.4  million.  The following
table sets forth certain information concerning deposits at the dates indicated.

<TABLE>
<CAPTION>

                                            March 31, 2005                            December 31, 2004
----------------------------------------------------------------------------------------------------------------
                                               Percent     Weighted                       Percent      Weighted
                                               of Total     Average                       of Total      Average
                                     Amount    Deposits      Rate               Amount    Deposits       Rate
----------------------------------------------------------------------------------------------------------------
<S>                            <C>            <C>          <C>            <C>            <C>           <C>
Non-interest checking            $194,733,218   20.17%       0.00%          $176,047,722   18.70%        0.00%
Checking accounts                 216,365,133   22.41%       1.50%           214,059,142   22.74%        0.55%
Savings accounts                  201,622,665   20.89%       0.58%           195,039,302   20.71%        0.86%
Money market accounts             144,582,614   14.98%       0.80%           145,612,332   15.47%        0.72%
Certificates                      207,975,574   21.55%       2.00%           210,748,322   22.38%        1.82%
----------------------------------------------------------------------------------------------------------------
   Total Deposits                $965,279,204  100.00%       1.04%          $941,506,820  100.00%        0.84%
================================================================================================================
</TABLE>

                                       10

<PAGE>

Borrowings - at March 31, 2005 amounted to $175.0 million.  Borrowings consisted
of $165.0  million in securities  sold under the agreement to repurchase  with a
weighted  average  interest rate of 4.90% and $10.0 million in Federal Home Loan
Bank Advances with a weighted  average  interest rate of 3.07%.  At December 31,
2004, borrowings consisted of $195.0 million in securities sold under agreements
to  repurchase  with a  weighted  average  rate of 4.49%,  and $10.0  million in
Federal Home Loan Bank Advances with a weighted average interest rate of 2.53%.

Long-term  debt - at March 31, 2005 and  December  31, 2004  consisted  of $25.8
million of FMS  Statutory  Trust 1  debentures.  The interest  rate resets every
three months to LIBOR plus 360 basis points and will not exceed  11.00%  through
March 2007.  At March 31, 2005 and 2004 the  interest  rate was 6.69% and 4.71%,
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, 2005 of
$1.7 million, or $.26 diluted earnings per share as compared to $2.1 million, or
$.32 diluted earnings per share for the comparable period in 2004.

Interest Rate Spread

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

                                       11

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

<TABLE>
<CAPTION>
                                                                      Year-to-Date Ended March 31,
----------------------------------------------------------------------------------------------------------------------------------
                                                             2005                                                    2004
----------------------------------------------------------------------------------------------------------------------------------
                                                Average                  Average                 Average                  Average
                                                Balance      Interest   Yield/Rate               Balance       Interest Yield/Rate
                                            --------------------------------------------------------------------------------------
                                                                              (Dollars in Thousands)
<S>                                       <C>               <C>           <C>              <C>                            <C>
Interest-earning assets:
    Loans                                   $   426,983       $ 6,188       5.80%            $   408,995       $ 6,052      5.92%
    Interest-bearing deposits                    54,859           315       2.30%                 41,206           105      1.02%
    Mortgage-backed securities                  328,965         3,726       4.53%                361,008         3,941      4.37%
    Investment securities                       332,657         3,774       4.54%                318,363         3,543      4.45%
                                            --------------------------------------------------------------------------------------
Total interest-earning
        assets                                1,143,464        14,003       4.90%              1,129,572        13,641      4.83%
                                            --------------------------------------------------------------------------------------
Interest-bearing liabilities:
    Checking deposits                           386,170           797       0.83%                342,684           256      0.30%
    Savings deposits                            196,190           286       0.58%                189,026           260      0.55%
    Money market deposits                       144,194           284       0.79%                131,104           213      0.65%
    Time deposits                               210,504         1,036       1.97%                222,907         1,051      1.89%
    Borrowings                                  187,273         2,155       4.60%                235,545         2,355      4.00%
    Long-term Debt                               25,774           409       6.35%                 25,774           304      4.72%
                                            --------------------------------------------------------------------------------------
Total interest-bearing
        liabilities                         $ 1,150,105         4,967       1.73%            $ 1,147,040         4,439      1.55%
                                            ============-------------------------=======================--------------------------
Net interest income                                           $ 9,036                                          $ 9,202
                                                              ========                                         ========
Interest rate spread                                                        3.17%                                           3.28%
                                                                         =========                                       =========

Net yield on average interest-earning assets                                3.16%                                           3.26%
                                                                         =========                                       =========
Ratio of average interest-earning assets
    to average interest-bearing liabilities                                99.42%                                          98.48%
                                                                         =========                                       =========
</TABLE>

                                       12

<PAGE>

Rate/Volume Analysis

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

                                         Three Months Ended March 31,
                                               2005 vs. 2004
                                    Increase (Decrease) due to Change in:
                                    -------------------------------------
                                         Rate      Volume     Total
                                              (In Thousands)
                                      ------------------------------
Interest income:
    Loans                             $  (130)   $   266    $   136
    Interest-bearing deposits             175         35        210
    Mortgage-backed securities            135       (350)      (215)
    Investment securities                  72        159        231
                                      -------    -------    -------
    Total change - interest income        252        110        362
                                      -------    -------    -------
Interest expense:
    Checking deposits                     509         32        541
    Savings deposits                       16         10         26
    Money market deposits                  50         21         71
    Time deposits                          43        (58)       (15)
    Borrowings                            283       (483)      (200)
    Long-Term Debt                        105          0        105
                                      -------    -------    -------
    Total change - interest expense     1,006       (478)       528
                                      -------    -------    -------
Net change in net interest income     $  (754)   $   588    $  (166)
                                      =======    =======    =======


Net  Interest  Income - for the three  months  ended March 31, 2005 totaled $9.0
million. Net interest income for the three months ended March 31, 2005 decreased
$166 thousand  compared to the same period in 2004 due primarily to increases in
interest expense on checking deposits of $541 thousand, money market deposits of
$71  thousand,  savings  deposits of $26  thousand  and  long-term  debt of $105
thousand  coupled  with  a  decrease  in  interest  income  on   mortgage-backed
securities of $215 thousand,  partially offset by an increase in interest income
on investment  securities of $231  thousand,  interest-bearing  deposits of $210
thousand,  loans  of  $136  thousand  and a  decrease  in  interest  expense  on
borrowings of $200 thousand and time deposits of $15 thousand.

                                       13

<PAGE>

Interest income on mortgage-backed securities decreased by $215 thousand to $3.7
million for the three months ended March 31, 2005 from $3.9 million for the same
period in 2004. The average  balance of MBS's  decreased $32.0 million to $329.0
million for the three  months  ended March 31, 2005 from $361.0  million for the
same period in 2004,  which  resulted in an interest  income volume  decrease of
$350 thousand. The decrease in the average balance during this period was due to
principal  paydowns of $80.8 million,  partially offset by purchases of MBS's of
$13.4  million  from the first  quarter of 2004.  The  average  yield of the MBS
portfolio  increased  16 basis  points to 4.53% for the quarter  ended March 31,
2005 from  4.37% for the same  period in 2004,  which  resulted  in an  interest
income increase of $135 thousand due to changes in rates.

Interest expense on checking  deposits  increased $541 thousand to $797 thousand
for the three months ended March 31, 2005 from $256 thousand for the same period
in 2004.  The average  rate on checking  deposits  increased  53 basis points to
0.83% for the  quarter  ended  March 31,  2005 from 0.30% for the same period in
2004, which resulted in an increase in interest  expense of $509 thousand.  This
increase was due to an increase in the average rate paid on municipal government
checking  accounts to 3.03% for the three months ended March 31, 2005 from 1.19%
for the same period in 2004. The average balance of checking deposits  increased
$43.5  million to $386.2  million for the three months ended March 31, 2005 from
$342.7 million for the same period in 2004,  which resulted in a volume increase
in interest expense of $32 thousand.

Interest expense on savings deposits increased $26 thousand to $286 thousand for
the three months ended March 31, 2005 from $260  thousand for the same period in
2004. The average rate on savings deposits increased 3 basis points to 0.58% for
the quarter  ended March 31, 2005 from 0.55% for the same period in 2004,  which
resulted in a rate  increase in interest  expense of $16  thousand.  The average
balance of savings  deposits  increased  $7.2 million to $196.2  million for the
quarter  ended March 31,  2005 from $189.0  million for the same period in 2004,
which resulted in an increase in interest expense of $10 thousand.

Interest  expense  on money  market  deposits  increased  $71  thousand  to $284
thousand for the three  months  ended March 31, 2005 from $213  thousand for the
same period in 2004.  The average  rate on money  market  deposits  increased 14
basis  points to 0.79% for the  quarter  ended March 31, 2005 from 0.65% for the
same period in 2004,  which  resulted in an increase in interest  expense of $50
thousand.  The average balance of money market deposits  increased $13.1 million
to $144.2  million for the three months ended March 31, 2005 from $131.1 million
for the same period in 2004,  which  resulted  in a volume  increase in interest
expense of $21 thousand.

Interest  expense on long term debt increased $105 thousand to $409 thousand for
the three months ended March 31, 2005 from $304  thousand for the same period in
2004.  The average rate increased 163 basis points to 6.35% for the three months
ended  March 31, 2005 from 4.72% for the same  period in 2004,  which  increased
interest expense on long-term debt $105 thousand due to rate changes.

Interest income on investment securities increased $231 thousand to $3.8 million
for the three  months ended March 31, 2005 from $3.5 million for the same period
in 2004. The average balance of investment securities increased $14.3 million to
$332.7 million for the three months ended March 31, 2005 from $318.4 million for
the same period in 2004,  which resulted in a volume increase in interest income
of $159  thousand.  The increase in the average volume during this period is due
to  purchases  of  $286.4  million,  partially  offset by  investment  calls and
maturities of $198.5 million and principal paydowns of $79.8 million since March
31, 2004. The average yield of the investment portfolio increased 9 basis points
to 4.54% for the quarter  ended March 31, 2005 from 4.45% for the same period in
2004,  which resulted in an interest income increase of $72 thousand due to rate
changes.

                                       14

<PAGE>

Interest income on interest-bearing  deposit investments increased $210 thousand
to $315  thousand for the three  months ended March 31, 2005 from $105  thousand
for the same  period in 2004.  The  average  yield of  interest-bearing  deposit
investments  increased 128 basis points to 2.30% for the quarter ended March 31,
2005 from  1.02% for the same  period in 2004,  which  resulted  in an  interest
income  increase of $175  thousand due to rate changes.  The average  balance of
interest-bearing  deposit  investments  increased $13.7 million to $54.9 million
for the three months ended March 31, 2005 from $41.2 million for the same period
in 2004, which resulted in a volume increase in interest income of $35 thousand.

Interest  income on loans  increased $136 thousand to $6.2 million for the three
months ended March 31, 2005 from $6.1  million for the same period in 2004.  The
average balance of the loan portfolio  increased $18.0 million to $427.0 million
for the three  months  ended  March 31,  2005 from  $409.0  million for the same
period in 2004,  which resulted in a volume  increase in interest income of $266
thousand.  The  increase  in the  average  balance  is  principally  due to loan
originations of $121.8 million since the first quarter of 2004, partially offset
by  principal  collected  on loans of $104.8  million  during this  period.  The
average  rate on loans  decreased  12 basis points to 5.80% for the three months
ended March 31, 2005 from 5.92% for the same period in 2004, which resulted in a
decrease in interest income of $130 thousand due to rate changes.

Interest  expense on borrowings  decreased $200 thousand to $2.2 million for the
three months ended March 31, 2005 from $2.4 million for the same period in 2004.
The average  balance of borrowings  decreased $48.2 million to $187.3 million at
March 31, 2005 from $235.5  million for the same period in 2004,  which resulted
in a volume decrease in interest expense of $483 thousand. The average rate paid
on borrowings increased 60 basis points to 4.60% for the quarter ended March 31,
2005 from 4.00% for the same  period in 2004,  which  resulted in an increase in
interest expense of $283 thousand due to rate changes.

Interest expense on time deposits decreased $15 thousand to $1.0 million for the
three months ended March 31, 2005 from $1.1 million for the same period in 2004.
The average  balance of time deposits  decreased $12.4 million to $210.5 million
for the three  months  ended  March 31,  2005 from  $222.9  million for the same
period in 2004,  which resulted in a volume decrease in interest  expense of $58
thousand.  The average rate on time  deposits  increased 8 basis points to 1.97%
for the  quarter  ended  March 31,  2005 from 1.89% for the same period in 2004,
which resulted in an increase in interest expense of $43 thousand.

Critical Accounting  Estimate-Provision  for Loan Losses - A critical accounting
estimate is the provision for loan losses. The provision  increased $15 thousand
to $90  thousand for the three months ended March 31, 2005 from $75 thousand for
the same  period  in 2004.  At March  31,  2005 the  allowance  for loan  losses
amounted to $4.8 million  compared to $4.7  million at December  31,  2004.  The
determination  of the allowance  level for loan losses is based on  management's
analysis  of the risk  characteristics  of  various  types of  loans,  levels of
classified loans, previous loan loss experience, the estimated fair market value
of the underlying collateral and current economic conditions.  Additionally, the
mix within the Bank's  portfolio  continues to change as the Bank offers a wider
variety of products.  Within the loan portfolio, a change is also occurring as a
shift is made from lower  yielding  loans (i.e.,  one-to-four  family  loans) to
higher  yielding  loans  (i.e.,  commercial  real estate  mortgages,  commercial
construction,  consumer and  commercial  business  loans).  These types of loans
contain a higher degree of risk. The Bank will continue to monitor its allowance
for loan  losses  and make  future  adjustments  to the  allowance  through  the
provision  for loan losses as changing  conditions  dictate.  Although  the Bank
maintains  its  allowance  for loan  losses at a level that it  considers  to be
adequate to provide for the inherent risk of loss in its loan  portfolio,  there
can be no assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods due
to the higher  degree of credit risk which  might  result from the change in the
mix of the loan portfolio or changes in economic conditions.  Most of

                                       15

<PAGE>

the Bank's  lending  activity is with  customers  located  within  southern  New
Jersey.   Generally,  the  loans  are  secured  by  real  estate  consisting  of
single-family  residential properties.  While this represents a concentration of
credit  risk,  the  credit  losses  arising  from this type of  lending  compare
favorably  with the Bank's  credit loss  experience on its portfolio as a whole.
The ultimate  repayment  of these loans is dependent to a certain  degree on the
local economy and real estate market.

Other  Income - for the three month period ended March 31, 2005 was $1.3 million
compared to $1.4 million for the same period in 2004.  The decrease from 2004 is
due to the absence of a $100 thousand gain on the sale of investment  securities
that occurred in the first quarter ended March 31, 2004.

Operating  Expenses - for the three month  period  ended March 31, 2005  totaled
$7.4 million  compared to $7.0 million for the same period in 2004. The increase
in operating  expenses was primarily due to an increase in salaries and benefits
and occupancy and equipment.

Salaries and Employee Benefits - for the three month period ended March 31, 2005
were $4.4  million  compared to $4.1  million  for the same period in 2004.  The
increase was primarily due to annual compensation increases and additional staff
in a new  branch  opened  since the first  quarter  of 2004.  Average  full time
equivalent  employees were 518 at March 31, 2005 as compared to 512 at March 31,
2004.

Occupancy  and  Equipment-  increased $57 thousand to $1.4 million for the three
month period ended March 31, 2005 to $1.4 million compared to the same period in
2004 due to primarily to increases in property  taxes of $14 thousand,  computer
license and maintenance expense of $12 thousand, building maintenance expense of
$11 thousand and utilities expense of $11 thousand.


ITEM 3:  DISCLOSURE ABOUT MARKET RISK

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

ITEM 4:  CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.  Based on their evaluation
of the  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.

                                       16

<PAGE>

PART II.          OTHER INFORMATION

         Item 1:  Legal Proceedings

                    None

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

                    None


         Item 3:  Defaults Upon Senior Securities

                    None


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

                    The Annual Meeting of  Stockholders  of the Company was held
                    on April 28, 2005 and the following matters were presented:

                    The  Election of  Directors:  Edward J.  Staats,  Jr.,  Mary
                    Wells,  Craig W.  Yates  and  Joseph  W.  Clarke,  Jr.  were
                    re-elected as directors for terms of three years ending 2008
                    and until their  successors are elected and  qualified.  Mr.
                    Staats  received  5,928,842  votes in favor and 65,806 votes
                    were withheld;  Ms Wells received  5,984,500  votes in favor
                    and 10,148 votes were withheld; Mr. Yates received 5,984,104
                    votes in favor and 10,544 were withheld; Mr. Clarke received
                    5,984,760 votes in favor and 9,888 were witheld.

                    Ratification  of the  appointment of  PricewaterhouseCoopers
                    LLP the  Company's  auditors,  for  the  2005  fiscal  year.
                    PriceWaterhouseCoopers  LLP was  ratified  as the  Company's
                    auditors  with  5,985,715  votes for,  56 votes  against and
                    8,877 abstentions.

         Item 5:  Other Information

                    None

         Item 6:  Exhibits

                    (a)  31  Certifications  pursuant  to  Section  302  of  the
                         Sarbances-Oxley Act of 2002.

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

                                       17
<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,  2005                        /s/Craig W. Yates
                                           -------------------------------------
                                           Craig W. Yates
                                           President and Chief Executive Officer
                                          (Principal Executive Officer)



Date: May 12, 2005                         /s/Channing L. Smith
                                           -------------------------------------
                                           Channing L. Smith
                                           Vice President and
                                           Chief Financial Officer
                                          (Principal Financial Officer)



                                       18