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, 2002

                                       OR

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


                         Commission file number 0-17353

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


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


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


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

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

     As of May 10, 2002 there were issued and  outstanding  6,464,413  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, 2002

                                TABLE OF CONTENTS

                                                                          Page
PART I - Financial Information

     Item 1 - Financial Statements

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

           Consolidated Statements of Operations (unaudited)
               for the three months ended
               March 31, 2002 and March 31, 2001..............................2

           Consolidated Statements of Cash Flows (unaudited) for the three
               months ended March 31, 2002 and March 31, 2001.................3

           Consolidated Statements of Changes in Stockholders' Equity
               (unaudited) for the three months ended March 31, 2002 .........4

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

     Item 2 - Management's Discussion and Analysis of
                Financial Condition and Results of Operations............6 - 14

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

PART II - Other Information

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

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

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

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

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

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


<PAGE>


--------------------------------------------------------------------------------
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
--------------------------------------------------------------------------------

<TABLE>
                                                          ------------------------------------
                                                            March 31, 2002   December 31, 2001
                                                              (Unaudited)
                                                          ------------------------------------
ASSETS
------
<S>                                                         <C>               <C>
     Cash and due from banks                                   $   27,660,182    $ 32,336,279
     Interest-bearing deposits                                     10,610,338         153,133
     Short term funds                                              82,305,233      30,869,712
                                                               --------------    ------------
        Total cash and cash equivalents                           120,575,753      63,359,124

     Investment securities held to maturity                       185,489,787     196,571,299
     Investment securities available for sale                      49,934,552      51,969,422
     Loans, net                                                   356,114,645     336,544,004
     Mortgage-backed securities held to maturity                  271,618,093     272,494,220
     Accrued interest receivable:
        Loans                                                       1,742,819       1,591,276
        Mortgage-backed securities                                  1,696,662       1,757,572
        Investments                                                 2,319,619       2,194,252
     Federal Home Loan Bank stock                                   9,811,720       8,313,620
     Real estate held for development, net                             87,926          87,926
     Real estate owned, net                                           201,329         214,249
     Premises and equipment, net                                   26,578,800      26,364,980
     Deferred income taxes                                          3,133,839       3,158,402
     Prepaid expenses and other assets                              2,386,249       1,767,694
     Trust Capital securities issue costs, net                        748,914               0
     Subordinated debentures issue costs, net                         134,732         149,069
                                                               --------------    ------------
TOTAL ASSETS                                                   $1,032,575,439    $966,537,109
                                                               ==============    ============

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

Liabilities:
     Deposits                                                   $  735,818,582   $729,505,729
     Securities sold under agreements to repurchase                185,000,000    165,000,000
     Advances from the Federal Home Loan Bank                       11,232,103      1,270,313
     10% Subordinated debentures, due 2004                          10,000,000     10,000,000
     Trust Capital Securities - FMS Statutory Trust 1               25,000,000              0
     Advances by borrowers for taxes and insurance                   2,398,430      2,247,002
     Accrued interest payable                                        1,473,534      1,782,508
     Dividends payable                                                 200,979        201,531
     Other liabilities                                               7,795,919      4,326,845
                                                                --------------   ------------
      Total liabilities                                            978,919,547    914,333,928
                                                                --------------   ------------
Commitments and contingencies
Stockholders' Equity:
     Preferred stock - $.10 par value 5,000,000 shares
        authorized; none issued
     Common stock - $.10 par value 10,000,000 shares
        authorized; shares issued 7,949,809 and 7,948,884
        and shares outstanding 6,699,313 and 6,717,705 as
        of March 31, 2002 and December 31, 2001, respectively          794,981        794,888
     Paid-in capital in excess of par                                8,279,525      8,278,423
     Accumulated other comprehensive (loss) income-net of
        deferred income taxes                                          (30,641)       147,496
     Retained earnings                                              52,907,423     51,055,818
     Less:  Treasury stock (1,250,496 and 1,231,179 shares,
        at cost, as of March 31, 2002 and December 31, 2001,
        respectively)                                               (8,295,396)    (8,073,444)
                                                                --------------   ------------
Total stockholders' equity                                          53,655,892     52,203,181
                                                                --------------   ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $1,032,575,439   $966,537,109
                                                                ==============   ============
</TABLE>

See notes to consolidated financial statements.

                                       1

<PAGE>

--------------------------------------------------------------------------------
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
                                                               Three Months ended
                                                                     March 31,
                                                            --------------------------
                                                               2002             2001
                                                            ----------      ----------
                                                                    (Unaudited)
<S>                                                         <C>             <C>
INTEREST  INCOME:
Interest income on:
     Loans                                                     $ 6,356,484     $ 5,700,909
     Mortgage-backed securities                                  4,298,315       2,878,581
     Investments                                                 3,656,647       4,882,110
                                                               -----------     -----------
Total interest income                                           14,311,446      13,461,600
                                                               -----------     -----------

INTEREST EXPENSE:
Interest expense on:
     Deposits                                                    3,925,331       5,210,149
     Long term debt                                                285,833         264,337
     Borrowings                                                  2,095,853       1,713,597
                                                               -----------     -----------
Total interest expense                                           6,307,017       7,188,083
                                                               -----------     -----------

NET INTEREST INCOME                                              8,004,429       6,273,517

PROVISION FOR LOAN LOSSES                                            3,000          60,000
                                                               -----------     -----------
NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                              8,001,429       6,213,517
                                                               -----------     -----------
OTHER INCOME (EXPENSE):
     Loan service charges and other fees                            28,010          26,994
     Gain on sale of loans                                              75             203
     Gain on disposal of fixed assets                                    0          50,443
     Real estate owned operations, net                              (7,854)        (13,686)
     Service charges on accounts                                   864,788         718,259
     Other income                                                   84,620          69,310
                                                               -----------     -----------
Total other income                                                 969,639         851,523
                                                               -----------     -----------

OPERATING EXPENSES:
     Salaries and employee benefits                              3,448,686       2,998,023
     Occupancy and equipment                                     1,106,408       1,177,004
     Purchased services                                            614,898         486,122
     Federal deposit insurance premiums                             30,978          29,988
     Professional fees                                             198,213         119,850
     Advertising                                                    83,202          57,632
     Other                                                         313,554         343,464
                                                               -----------     -----------
Total operating expenses                                         5,795,939       5,212,083
                                                               -----------     -----------

INCOME BEFORE INCOME TAXES                                       3,175,129       1,852,957

INCOME TAXES:
     Current                                                       997,869         850,889
     Deferred                                                      124,678        (190,815)
                                                               -----------     -----------
Total income taxes                                               1,122,547         660,074

NET INCOME                                                     $ 2,052,582     $ 1,192,883
                                                               ===========     ===========
BASIC EARNINGS PER COMMON SHARE                                $      0.31     $      0.18
                                                               ===========     ===========
DILUTED EARNINGS PER COMMON SHARE                              $      0.30     $      0.18
                                                               ===========     ===========
Dividends declared per common share                            $      0.03     $      0.03
                                                               ===========     ===========

Weighted average common shares outstanding                       6,717,670       6,725,528

Potential dilutive effect of the exercise
  of stock options                                                  18,098          58,244
                                                               -----------     -----------
Adjusted weighted average common shares outstanding              6,735,768       6,783,772
                                                               ===========     ===========
</TABLE>

See notes to consolidated financial statements.


                                       2

<PAGE>

--------------------------------------------------------------------------------
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
                                                                                           Three Months ended
                                                                                                  March 31
                                                                                     ----------------------------------
                                                                                            2002              2001
                                                                                     ----------------------------------
                                                                                                  (Unaudited)
<S>                                                                                 <C>                <C>
OPERATING ACTIVITIES:
Net income                                                                             $  2,052,582       $  1,192,883
Adjustments to reconcile net income to net cash provided
   by operating activities:
Provision for loan losses                                                                     3,000             60,000
Depreciation and amortization                                                               905,511            590,389
Realized (gains) and losses on:
     Sale of loans and loans held for sale                                                      (75)              (203)
     Disposal and sale of fixed assets                                                            0            (50,443)
(Increase) Decrease in accrued interest receivable                                         (216,000)           564,236
Increase in prepaid expenses and other assets                                              (618,555)           (82,730)
Decrease in accrued interest payable                                                       (308,974)          (692,297)
(Decrease) Increase in other liabilities                                                   (855,926)            77,012
Provision for deferred income taxes                                                         124,679           (190,815)
                                                                                       ------------        -----------
     Net cash provided by operating activities                                            1,086,242          1,468,032
                                                                                       ------------        -----------
INVESTING ACTIVITIES:
Proceeds from sale of:
     Education loans                                                                         50,709             30,670
     Real estate owned                                                                       12,920             99,757
     Property and equipment                                                                   7,385             84,075
Principal collected and proceeds from maturities of investment securities held
to maturity                                                                              38,065,471        135,657,868
Proceeds from maturities of investment securities available for sale                     11,425,873          6,021,347
Principal collected on mortgage-backed securities held to maturity                       28,373,661         14,152,410
Principal collected on loans, net                                                        18,437,939          9,717,063
Loans originated or acquired, net                                                       (38,039,082)        (9,614,666)
Purchase of investment securities and mortgage-backed securities held to maturity       (50,604,478)      (142,967,093)
Purchase of investment securities and mortgage-backed securities available for
sale                                                                                     (9,712,633)        (7,087,725)
Purchase of Federal Home Loan Bank stock                                                 (1,498,100)          (655,000)
Purchase of office property and equipment                                                  (644,147)          (550,797)
                                                                                       ------------        -----------
     Net cash (used) provided by investing activities                                    (4,124,482)         4,887,909
                                                                                       ------------        -----------
FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits and savings accounts                          23,009,611         (3,632,657)
Net decrease in time deposits                                                           (16,696,758)        (2,821,741)
Net increase (decrease) in FHLB advances                                                  9,961,790         (5,035,331)
Proceeds from securities sold under agreements to repurchase                             20,000,000         10,000,000
Net proceeds from issuance of trust capital securities                                   24,251,086                  0
Increase in advances from borrowers for taxes and insurance                                 151,428             71,055
Purchase of treasury stock                                                                 (221,952)          (120,432)
Dividends paid on common stock                                                             (201,531)          (201,831)
Net proceeds from issuance of common stock                                                    1,195                  0
                                                                                       ------------        -----------
     Net cash provided (used) by financing activities                                    60,254,869         (1,740,937)
                                                                                       ------------        -----------
INCREASE IN CASH AND CASH EQUIVALENTS                                                    57,216,629          4,615,004
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                           63,359,124         44,951,299
                                                                                       ------------        -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                               $120,575,753        $49,566,303
                                                                                       ============        ===========
Supplemental Disclosures:
     Cash paid for:
        Interest on deposits, advances, and other borrowings                           $  6,615,991        $ 7,889,380
        Income taxes                                                                      1,054,982            797,398
     Non-cash investing and financing activities:
        Dividends declared and not paid at quarter end                                      200,979            201,379
        Investments purchased and not yet settled                                         4,325,000         11,000,000

</TABLE>

See notes to consolidated financial statements.

                                       3


<PAGE>

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

<TABLE>
------------------------------------------------------------------------------------------------------------------------------
                                                                        Accumulated                                 Total
                                 Common shares   Common     Paid-in     comprehensive   Retained      Treasury   Stockholders'
                                  outstanding     stock     capital         loss        earnings       stock        Equity
------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>           <C>        <C>           <C>            <C>         <C>           <C>
Balances at December 31, 2000     6,727,702     $789,789   $8,217,654    $(358,352)   $46,401,102   $(7,640,604)  $47,409,589
Net Income                                                                              1,192,883                   1,192,883
Other comprehensive income
  Unrealized gain on securities
    available for sale, net of
    taxes of $184,455                                                      327,732                                    327,732
                                                                                                                  -----------
Total comprehensive income                                                                                          1,520,615
                                                                                                                  -----------
Dividends declared ($.03)                                                                (201,379)                   (201,379)
Purchase of common stock            (15,054)                                                           (120,432)     (120,432)

------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 2001        6,712,648     $789,789   $8,217,654    $ (30,620)     $47,392,606 $(7,761,036)  $48,608,393
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
<S>                             <C>           <C>        <C>           <C>            <C>          <C>           <C>
Balances at December 31, 2001     6,717,705     $794,888   $8,278,423    $ 147,496      $51,055,818  $(8,073,444) $52,203,181
Net Income                                                                                2,052,582                 2,052,582
Other comprehensive income
  Unrealized loss on securities
    available for sale, net of
    taxes of $100,116                                                     (178,137)                                  (178,137)
                                                                                                                  -----------
Total comprehensive income                                                                                          1,874,445
                                                                                                                  -----------
Dividends declared ($.03)                                                                  (200,977)                 (200,977)
Exercise of stock options               925           93        1,102                                                   1,195
Purchase of common stock            (19,317)                                                            (221,952)    (221,952)

------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 2002        6,699,313     $794,981   $8,279,525    $ (30,641)     $52,907,423 $(8,295,396)  $53,655,892
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.


                                       4



<PAGE>


                    FMS FINANICAL CORPORATION AND SUBSIDIARY


NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31,
2002 (UNAUDITED).

1.  GENERAL

In the opinion of management,  the accompanying unaudited consolidated financial
statements of FMS Financial  Corporation contain all adjustments,  consisting of
normal recurring  accruals,  necessary for a fair  presentation of its financial
condition, results of operations, cash flows and changes in stockholders' equity
for the periods and dates  indicated.  The results of  operations  for the three
months  ended March 31, 2002 are not  necessarily  indicative  of the  operating
results for the full fiscal year or any other interim period.

The accompanying  unaudited consolidated financial statements have been prepared
in accordance with the instructions for FORM 10-Q, and therefore, do not include
all  information  and  notes  necessary  for a fair  presentation  of  financial
condition, results of operations and statements of cash flows in conformity with
generally  accepted  accounting  principles.  These statements should be read in
conjunction  with the  consolidated  statements  and  related  notes  which  are
incorporated  by reference to the  Corporation's  annual report on FORM 10-K for
the year ended December 31, 2001. The consolidated  financial statements include
the Corporation's principle subsidiary, Farmers & Mechanics Bank ("the Bank").

2.  RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2001, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
142,  Goodwill and Other Intangible  Assets.  SFAS No.142 provides that goodwill
and intangible  assets that have  indefinite  useful lives will not be amortized
but rather will be tested  annually  for  impairment.  This  Statement  provides
specific guidance for testing the impairment of goodwill and intangible  assets.
SFAS No. 142 is effective for fiscal years  beginning  after  December 15, 2001.
The adoption of SFAS No. 142  effective  January 1, 2002 did not have a material
effect on the  Consolidated  Statement  of  Financial  Condition or Statement of
Operation.


                                       5

<PAGE>

In June 2001,  the FASB  issued SFAS No. 143,  Accounting  for Asset  Retirement
Obligations.  SFAS No. 143  addresses  financial  accounting  and  reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement  costs. This statement is effective for fiscal years
beginning  after June 15, 2002. It is anticipated  that the adoption of SFAS No.
143 will not have a material effect on the  Consolidated  Statement of Financial
Condition or Statement of Operation.

In October 2001, the FASB issued SFAS No. 144,  Accounting for the Impairment or
Disposal of Long-Lived  Assets.  SFAS No. 144  establishes  a single  accounting
model for the impairment or disposal of long-lived  assets,  including assets to
be held and used,  assets to be disposed of by other than sale, and assets to be
disposed of by sale.  This  statement  is effective  for fiscal years  beginning
after  December 15, 2001 and interim  periods  within those  fiscal  years.  The
adoption by the  Corporation  of SFAS No. 144 effective  January 1, 2002 did not
have a material effect on the Consolidated  Statement of Financial  Condition or
Statement of Operation.

3.  LONG-TERM DEBT

Long-Term Debt at March 31, 2002 consisted of $10.0 million of 10%  subordinated
debentures  and $25.0  million of Trust  Capital  Securities.  In March 2002 the
Corporation  formed  a  wholly-owned  subsidiary,  FMS  Statutory  Trust 1 ("the
Trust").  On March 26, 2002,  the Trust issued  $25.0  million of floating  rate
capital securities which will be used for the expansion of the Bank's operations
and general corporate purposes. At December 31, 2001 long-term debt consisted of
$10.0 million of 10% subordinated debentures.

4.  REGULATORY CAPITAL REQUIREMENTS

The Bank is considered "well  capitalized" by OTS regulations at March 31, 2002.
The Bank's  regulatory  tangible and tier 1 (core)  capital are $66.0 million or
6.4% of total bank assets and $69.7 million or 17.96% for risk-based capital.

                                       6

<PAGE>


ITEM 2: MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002.

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

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

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

                                       7

<PAGE>


FINANCIAL CONDITION

Total Assets - at March 31, 2002 were $1.0 billion as compared with total assets
at December 31, 2001 of $966.5 million.

Investment  Securities  Held to  Maturity -  decreased  $11.1  million to $185.5
million at March 31, 2002 from $196.6 million at December 31, 2001 primarily due
to calls in U.S.  Agency  Notes of $13.3  million,  principal  paydowns of $24.7
million in collateralized mortgage obligations (CMO's), and the maturity of $200
thousand of Municipal  Bonds,  partially  offset by purchases of $9.9 million in
U.S.  Agency Notes,  $15.4 million in CMO's and $1.8 million in Municipal  Bonds
during the  period.  Investment  securities  held to  maturity at March 31, 2002
consisted  entirely  of  fixed  rate  securities.   A  comparison  of  cost  and
approximate market values of investment  securities held to maturity as of March
31, 2002 and December 31, 2001 follows:

<TABLE>

                                        March 31, 2002                            December 31, 2001
                    --------------------------------------------------------  --------------------------
                                     Gross        Gross         Estimated                    Estimated
                       Amortized   Unrealized   Unrealized        Market       Amortized       Market
                          Cost       Gains        Losses          Value          Cost          Value
                    --------------------------------------------------------  --------------------------
<S>                <C>            <C>         <C>            <C>           <C>          <C>
U.S. Agency Notes    $ 78,836,858   $209,563    $(1,207,118)   $ 77,839,303  $ 82,190,157   $ 82,827,324
CMO's                  97,286,555    399,058     (1,424,037)     96,261,576   106,659,768    106,350,004
Municipal bonds         9,366,374      6,826              0       9,373,200     7,721,374      7,728,414
                     ------------------------------------------------------  ---------------------------
Total                $185,489,787   $615,447    $(2,631,155)   $183,474,079  $196,571,299   $196,905,742
                     ======================================================  ===========================

</TABLE>



Investment  Securities  Available  for Sale -  decreased  $2.1  million to $49.9
million at March 31, 2002 from $52.0 million at December 31, 2001 as a result of
calls of $5.5 million in U.S. Agency Notes,  principal  paydowns of $5.9 million
on CMO's and mortgage-backed  securities (MBS's), and market adjustments of $278
thousand, partially offset by purchases of $5.8 million of U.S. Agency Notes and
$3.9 million of MBS's at March 31, 2002.  Investment  securities  available  for
sale  consisted of $45.2  million in fixed rate  securities  and $4.7 million in
adjustable  rate  securities  at  March  31,  2002.  A  comparison  of cost  and
approximate  market  values of  investment  securities  available for sale as of
March 31, 2002 and December 31, 2001 follows:

<TABLE>
                                        March 31, 2002                          December 31, 2001
                    ------------------------------------------------------  --------------------------
                                     Gross        Gross       Estimated                    Estimated
                       Amortized   Unrealized   Unrealized      Market       Amortized       Market
                          Cost       Gains        Losses        Value         Cost          Value
                    ------------------------------------------------------  --------------------------
<S>                <C>            <C>         <C>            <C>          <C>            <C>
U.S. Agency Notes    $15,190,250    $      0    $(276,388)     $14,913,862   $14,990,181    $15,051,850
MBSs                  26,314,716     167,632     (112,944)      26,369,404    24,371,904     24,352,168
CMOs                   8,477,513     199,968      (26,195)       8,651,286    12,377,010     12,565,404
                     -----------------------------------------------------   --------------------------
Total                $49,982,479    $367,600    $(415,527)     $49,934,552   $51,739,095    $51,969,422
                     =====================================================   ==========================
</TABLE>


                                       8

<PAGE>



Loans,  net - increased  $19.6 million to $356.1  million at March 31, 2002 from
$336.5  million at December 31, 2001.  This increase was primarily the result of
$38.0  million of loans  originated,  partially  offset by  approximately  $18.4
million of principal  collected on loans during the three months ended March 31,
2002.  The following  table shows loans  receivable  by major  categories at the
dates indicated.

                                    March 31,     December 31,
                                      2002           2001
                                  ----------------------------

Mortgage Loans                    $276,698,416    $259,970,571
Construction Loans                   1,300,563       1,254,191
Commercial Construction              4,323,917       4,605,752
Consumer Loans                       4,383,379       4,582,734
Commercial Real Estate              63,052,565      60,626,659
Commercial Business                 11,311,059      10,520,704
                                  ----------------------------
Subtotal                           361,069,899     341,560,611
                                  ----------------------------

Less:
     Deferred loan fees                719,372         786,044
     Allowance for
        loan losses                  4,235,882       4,230,563

                                  ----------------------------
Total loans, net                  $356,114,645    $336,544,004
                                  ============================


At March 31, 2002,  the recorded  investment in loans for which  impairment  has
been recognized in accordance with SFAS Nos. 114 and 118 totaled $2.0 million of
which  $1.1  million  related  to loans  that  were  individually  measured  for
impairment  with a valuation  allowance of $424  thousand  and $947  thousand of
loans that were collectively  measured for impairment with a valuation allowance
of $95 thousand.  The Bank had $4.2 million in total reserves for loan losses at
March 31, 2002, representing approximately 208% of non-accrual loans and 1.2% of
total loans.  For the three months  ended March 31, 2002,  the average  recorded
investment in impaired loans was approximately $2.9 million. The Bank recognized
$21  thousand of interest  income for the three  months  ended March 31, 2002 on
impaired loans, all of which was recognized on the cash basis.

As of March 31, 2002 the Bank had outstanding loan commitments of $15.3 million,
of which  $3.2  million  represented  variable  rate  loans  and  $12.1  million
represented fixed rate loans. The Bank intends to fund these commitments through
scheduled  amortization  of loans  and  mortgage-backed  securities,  additional
borrowings,  and if necessary,  the sale of investment  securities available for
sale.

                                       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,
                                                         2002           2001
                                                     ------------   ------------

Loans accounted for on a non-accrual basis:
     One-to-four family mortgage                     $   631,604     $ 1,347,705
     Commercial real estate                            1,405,575       1,633,940
     Consumer and other                                        0               0
                                                     -----------     -----------
         Total non-accrual loans                     $ 2,037,179     $ 2,981,645
                                                     -----------     -----------

     Troubled debt restructuring                     $ 1,060,031     $ 1,072,393
     Real estate owned, net                              201,329         214,249
     Other non-performing assets                          87,925          87,925
                                                     -----------     -----------
     Total non-performing assets, net                $ 3,386,464     $ 4,356,212
                                                     ===========     ===========
     Total non-accrual loans to net loans                  0.57%           0.89%
                                                     ===========     ===========
     Total non-accrual loans to total assets               0.20%           0.31%
                                                     ===========     ===========
     Total non-performing assets to total assets           0.33%           0.45%
                                                     ===========     ===========


Mortgage-Backed  Securities Held to Maturity - decreased $876 thousand to $271.6
million at March 31, 2002 from $272.5 million at December 31, 2001. The decrease
is the result of principal  paydowns of $28.4 million,  paritally  offset by the
purchases of $18.0 million of FNMA, FHLMC and GNMA fixed rate  securities,  $5.2
million  of  FNMA  adjustable  rate  securities  and  $4.3  million  of  forward
commitments  to  purchase  FHLMC~adjustable  rate  securities.   Mortgage-backed
securities  at March  31,  2002  consisted  of  $231.0  million  in  fixed  rate
securities  and $40.6 million in  adjustable  rate  securities.  Mortgage-backed
securities  held to  maturity  at March  31,  2002  and  December  31,  2001 are
summarized below:

<TABLE>

                                March 31, 2002                               December  31, 2001
           ---------------------------------------------------------   ----------------------------
                             Gross          Gross
            Amortized     Unrealized      Unrealized      Estimated      Amortized      Estimated
              Cost           Gains         (Losses)     Market Value       Cost        Market Value
          ----------------------------------------------------------   ----------------------------
<S>     <C>             <C>          <C>              <C>            <C>            <C>

GNMA      $ 46,918,543    $1,058,688   $   (32,422)     $ 47,944,809   $ 54,266,773   $ 55,391,045
FNMA       189,169,602     1,534,874    (1,646,658)      189,057,818    196,556,532    197,118,792
FHLMC       35,529,948       518,187       (49,835)       35,998,300     21,670,915     22,330,681
          ----------------------------------------------------------   ---------------------------
Total     $271,618,093    $3,111,749   $(1,728,915)     $273,000,927   $272,494,220   $274,840,518
          ==========================================================   ===========================

</TABLE>


                                       10


<PAGE>



Deposits  -  increased  $6.3  million to $735.8  million at March 31,  2002 from
$729.5 million at December 31, 2001.  Savings accounts  increased $10.1 million,
non-interest  bearing checking accounts  increased $5.6 million and money market
accounts  increased  $12.8 million.  These  increases  were partially  offset by
decreases in checking  accounts of $5.5 million and  certificates of deposits of
$16.7  million.  Interest  credited to depositors  accounts for the three months
ended March 31, 2002  amounted to $4.1 million.  The following  table sets forth
certain information  concerning deposits at the dates indicated.


<TABLE>
                                      March 31, 2002                     December 31, 2001
                           ------------------------------------------------------------------------
                                                      Weighted                           Weighted
                                            Percent   Average                  Percent    Average
                               Amount      of Total     Rate       Amount     of Total     Rate
                           ------------------------------------------------------------------------
<S>                     <C>               <C>       <C>      <C>             <C>        <C>

Non-interest checking      $126,583,012      17.19%    0.00%    $120,954,278    16.57%     0.00%
Checking accounts           129,068,059      17.54     1.42%     134,601,630    18.45      2.16%
Savings accounts            141,623,815      19.26     1.29%     131,524,016    18.04      2.23%
Money market accounts        99,669,398      13.55     2.04%      86,854,749    11.91      2.55%
Certificates                238,874,298      32.46     4.20%     255,571,056    35.03      5.12%
                           ----------------------------------------------------------------------
    Total Deposits         $735,818,582     100.00%    2.01%    $729,505,729   100.00%     2.99%
                           ======================================================================

</TABLE>

Borrowings - at March 31, 2002 amounted to $196.2 million.  Borrowings consisted
of $185.0  million in securities  sold under the agreement to repurchase  with a
weighted  average  interest rate of 4.58% and $11.2 million in Federal Home Loan
Bank Advances with a weighted  average  interest rate of 2.35%.  At December 31,
2001 borrowings  consisted of $165.0 million in securities sold under agreements
to repurchase with a weighted  average rate of 4.86% and $1.3 million in Federal
Home Loan Bank Advances with a weighted average interest rate of 5.00%.

RESULTS OF OPERATIONS

General

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

                                       11

<PAGE>


The Corporation recorded net income for the three months ended March 31, 2002 of
$2.1 million, or $.30 diluted earnings per share as compared to $1.2 million, or
$.18 diluted earnings per share for the comparable period in 2001.

Interest Rate Spread

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

The following table sets forth certain information relating to the Corporation's
average balance sheet and reflects the average yield on assets and average rates
paid on liabilities for the periods indicated. Such yields and rates are derived
by dividing income or expense by the average balance of interest-earning  assets
or interest-bearing liabilities, respectively, for the periods presented:

<TABLE>
                                                          Three Months Ended March 31,
                                       -----------------------------------------------------------------
                                                     2002                             2001
                                       --------------------------------  -------------------------------
                                         Average              Average     Average               Average
                                         Balance   Interest  Yield/Rate   Balance   Interest  Yield/Rate
                                       ----------  --------  ----------  ---------  --------  ----------
                                                                 (Dollars in Thousands)
<S>                                 <C>         <C>         <C>       <C>          <C>        <C>
Interest-earning assets:
     Loans receivable                  $ 353,885   $ 6,356     7.18%     $ 295,136    $ 5,701    7.73%
     Mortgage-backed securities          283,619     4,298     6.06%       170,068      2,879    6.77%
     Investment securities               269,276     3,657     5.43%       307,683      4,882    6.35%
                                       ---------  --------     ----      ---------    -------  ------
Total interest-earning assets            906,780    14,311     6.31%       772,887     13,462    6.97%
                                       ---------  --------     ----      ---------    -------  ------

Interest-bearing liabilities:
     Deposits                            724,922     3,925     2.17%       630,285      5,210    3.31%
     Borrowings                          179,414     2,096     4.67%       128,016      1,714    5.36%
     Long-term debt                       11,374       286    10.06%        10,000        264   10.56%
                                       ---------   -------    -----      ---------    -------  ------
Total interest-bearing liabilities     $ 915,710     6,307     2.76%     $ 768,301      7,188    3.74%
                                       =========   -------    -----      =========    -------  ------
Net interest income                                $ 8,004                            $ 6,274
                                                   =======                            =======
Interest rate spread                                           3.55%                             3.23%
                                                              =====                            ======
Net yield on average interest-
   earning assets                                              3.53%                             3.25%
                                                              =====                            ======
Ratio of average interest-
  earning assets to average
  interest -bearing liabilities                               99.02%                           100.60%
                                                              =====                            ======

</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,
                                                    2002 vs. 2001
                                         -------------------------------
                                                Increase (Decrease)
                                                 Due to change in
                                         -------------------------------
                                           Rate     Volume       Total
                                         --------  --------   ----------
                                                 (In Thousands)
Interest income:
     Loans                                $  (480)   $ 1,135    $   655
     Mortgage-backed securities              (503)     1,922      1,419
     Investment securities                   (616)      (609)    (1,225)
                                          -------    -------    -------
     Total change - interest income        (1,599)     2,448        849
                                          -------    -------    -------
Interest expense:
     Deposits                              (2,067)       782     (1,285)
     Borrowings                              (306)       688        382
     Long-term debt                           (14)        36         22
                                           ------    -------   --------
     Total change - interest expense       (2,387)     1,506       (881)
                                           ------    -------   --------
Net change in net interest income          $  788    $   942    $ 1,730
                                           ======    =======   ========

                                       13

<PAGE>


Net  Interest  Income - for the three  months  ended March 31, 2002 totaled $8.0
million. Net interest income for the three months ended March 31, 2002 increased
$1.7 million compared to the same period in 2001 due primarily to an increase in
interest income on  mortgage-backed  securities of $1.4 million,  an increase in
interest income on loans of $655 thousand and a decrease in interest  expense on
deposits of $1.3 million,  partially  offset by a decrease in interest income on
investment  securities  of $1.2  million and an increase in interest  expense on
borrowings of $382 thousand and long term debt of $22 thousand.

The  increase  in  interest  income was  primarily  the result of an increase in
mortgage-backed  securities income of $1.4 million to $4.3 million for the three
months ended March 31, 2002 from $2.9  million for the same period in 2001.  The
average  balance of MBS's  increased  $113.6  million to $283.6  million for the
three  months  ended March 31,  2002 from $170.1  million for the same period in
2001, which resulted in an interest income volume increase of $1.9 million.  The
increase in the average  balance  during this period was due to MBS purchases of
$183.6 million,  partially offset by principal  paydowns of $104.5 million.  The
average  yield of the MBS  portfolio  decreased 71 basis points to 6.06% for the
quarter  ended  March 31,  2002 from  6.77% for the same  period in 2001,  which
resulted in an interest income decrease of $503 thousand due to rate changes.

Interest  income on loans  increased $655 thousand to $6.4 million for the three
months ended March 31, 2002 from $5.7  million for the same period in 2001.  The
average balance of the loan portfolio  increased $58.7 million to $353.9 million
for the three  months  ended  March 31,  2002 from  $295.1  million for the same
period in 2001,  which resulted in a volume  increase in interest income of $1.1
million.  The increase in the average  balance is principally due to an increase
in loan  originations  during this period and $25.0 million of CloverBank  loans
acquired through the merger finalized on June 1, 2001. The average rate on loans
decreased  55 basis  points to 7.18% for the three  months  ended March 31, 2002
from 7.73% for the same period in 2001, which resulted in a decrease in interest
income of $480 thousand due to rate changes.

Interest income on investment  securities decreased $1.2 million to $3.7 million
for the three  months ended March 31, 2002 from $4.9 million for the same period
in 2001. The average yield of the investment portfolio decreased 92 basis points
to 5.43% for the quarter  ended March 31, 2002 from 6.35% for the same period in
2001, which resulted in an interest income decrease of $616 thousand due to rate
changes. The average balance of investment securities decreased $38.4 million to
$269.3 million for the three months ended March 31, 2002 from $307.7 million for
the same period in 2001,  which resulted in a volume decrease in interest income
of $609  thousand.  The decrease in the average volume during this period is due
to investment  calls and maturities of $188.1 million and principal  paydowns of
$99.4 million, partially offset by purchases of $259.3 million.

The  decrease in  interest  expense  was  primarily  the result of a decrease in
interest  expense on  deposits  of $1.3  million to $3.9  million  for the three
months ended March 31, 2002 from $5.2  million for the same period in 2001.  The
average  rate  paid on  deposits  decreased  114  basis  points to 2.17% for the
quarter  ended  March 31,  2002 from  3.31% for the same  period in 2001,  which
resulted in a decrease in interest  expense of $2.1 million due to rate changes.
The average  balance of deposits  increased  $94.6 million to $724.9 million for
the three months ended March 31, 2002 from $630.3 million for the same period in
2001, which resulted in a volume increase in interest expense of $782 thousand.

Interest  expense on borrowings  increased $382 thousand to $2.1 million for the
three months ended March 31, 2002 from $1.7 million for the same period in 2001.
The average  balance of borrowings  increased $51.4 million to $179.4 million at
March 31, 2002 from $128.0  million for the same period in 2001,  which resulted
in a volume increase in interest expense of $688 thousand. The average rate paid
on borrowings decreased 69 basis points to 4.67% for the quarter ended March 31,
2002 from 5.36% for the same  period in 2001  which  resulted  in a decrease  in
interest expense of $306 thousand due to rate changes.

Interest  expense on long term debt  increased $22 thousand to $286 thousand for
the three months ended March 31, 2002 from $265  thousand for the same period in
2001. The $25.0 million in Trust capital securities were issued in March 2002 at
an initial  floating  rate of 5.59%  increased  interest  expense  from the same
period in 2001.
                                       14

<PAGE>

Most Significant Accounting  Estimate-Provision for Loan Losses - The Banks most
significant accounting estimate is the provision for loan losses which decreased
$57  thousand to $3 thousand  for the three months ended March 31, 2002 from $60
thousand for the same period in 2001.  At March 31, 2002 the  allowance for loan
losses  amounted to $4.2 million  compared to $4.2 million at December 31, 2001.
The   determination  of  the  allowance  level  for  loan  losses  is  based  on
management's  analysis of the risk  characteristics  of various  types of loans,
levels of classified  loans,  previous loan loss experience,  the estimated fair
market  value of the  underlying  collateral  and current  economic  conditions.
Additionally,  the mix within the Bank's  portfolio  continues  to change as the
Bank offers a wider variety of products.  Within the loan portfolio, a change is
also occurring as a shift is made from lower  yielding loans (i.e.,  one-to-four
family loans) to higher yielding loans (i.e.,  commercial real estate mortgages,
commercial construction, consumer and commercial business loans). These types of
loans  contain a higher  degree of risk.  The Bank will  continue to monitor its
allowance for loan losses and make future  adjustments to the allowance  through
the provision for loan losses as changing conditions dictate.  Although the Bank
maintains  its  allowance  for loan  losses at a level that it  considers  to be
adequate to provide for the inherent risk of loss in its loan  portfolio,  there
can be no assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods due
to the higher  degree of credit risk which  might  result from the change in the
mix of the loan portfolio or changes in economic conditions.  Most of the Bank's
lending  activity  is  with  customers   located  within  southern  New  Jersey.
Generally,  the loans are secured by real  estate  consisting  of  single-family
residential  properties.  While this represents a concentration  of credit risk,
the credit losses arising from this type of lending  compare  favorably with the
Bank's  credit  loss  experience  on its  portfolio  as a  whole.  The  ultimate
repayment of these loans is dependent to a certain  degree on the local  economy
and real estate market.

Other Income - for the three month period ended March 31, 2002 was $970 thousand
compared  to $851  thousand  for the same  period  in  2001.  The  increase  was
primarily due to an increase in retail banking fees for the four branches opened
and the two branches acquired since the first quarter of 2001 and an increase in
the amount  received on rental  properties  acquired  since the first quarter of
2001.

Operating  Expenses - for the three month  period  ended March 31, 2002  totaled
$5.8 million compared to $5.2 million for the same period in 2001.

Salaries and Employee Benefits - for the three month period ended March 31, 2002
were $3.4  million  compared to $3.0  million  for the same period in 2001.  The
increase was primarily due to additional  staff in the four new branches  opened
and two branches  acquired  since the first  quarter of 2001.  Average full time
equivalent  employees at March 31, 2002 were 478 as compared to 439 at March 31,
2001.

Purchased  Services - for the three month  period  ended March 31, 2002  totaled
$615 thousand compared to $486 thousand for the same period in 2001. ATM charges
increased  $75 thousand for the first three months of 2002  compared to the same
period in 2001.  Check  processing  costs  increased  $28 thousand for the three
months  ended March 31,  2002  compared to the same period in 2001 due to higher
transaction volumes.

                                       15

<PAGE>


ITEM 3:  DISCLOSURE ABOUT MARKET RISK

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

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: May 14, 2002                         /s/ Craig W. Yates
                                           -------------------------------------
                                           Craig W. Yates
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)



Date: May 14, 2002                         /s/ Channing L. Smith
                                           -------------------------------------
                                           Channing L. Smith
                                           Vice President and
                                           Chief Financial Officer
                                           (Principal Financial Officer)



                                       17