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, 2001

                                       OR

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


                         Commission file number 0-17353

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

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

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

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

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

     As of May 4, 2001 there were issued and outstanding 6,675,648 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, 2001
                                 --------------

                                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, 2001 (unaudited) and December 31, 2000....................................1

               Consolidated Statements of Income (unaudited)
                       for the three months ended
                       March 31, 2001 and March 31, 2000...................................................2

               Consolidated Statements of Cash Flows (unaudited)
                       for the three months ended March 31, 2001
                         and March 31, 2000   .............................................................3

                 Consolidated Statements of Changes in Stockholders' Equity (unaudited)
                       for the three months ended March 31, 2001...........................................4

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

</TABLE>

<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------

                                                                                  March 31, 2001  December 31, 2000
ASSETS                                                                              (Unaudited)
------                                                                             -------------    -------------

<S>                                                                              <C>              <C>
     Cash and amounts due from depository institutions                             $  25,908,853    $  30,089,526
     Interest-bearing deposits                                                            46,823          169,076
     Federal funds sold                                                                        0        1,500,000
     Short term funds                                                                 23,610,627       13,192,697
                                                                                   -------------    -------------
        Total cash and cash equivalents                                               49,566,303       44,951,299
     Investment securities held to maturity                                          223,282,279      276,107,634
     Investment securities available for sale                                         42,445,729       40,878,963
     Loans, net                                                                      289,987,179      290,178,635
     Mortgage-backed securities held to maturity                                     200,565,899      143,751,707
     Accrued interest receivable:
        Loans                                                                          1,491,048        1,578,956
        Mortgage-backed securities                                                     1,360,941        1,043,113
        Investments                                                                    2,733,501        3,527,657
     Federal Home Loan Bank stock                                                      6,970,310        6,315,310
     Real estate held for development, net                                                87,926           87,926
     Real estate owned, net                                                              255,001          354,758
     Office properties and equipment, net                                             26,361,457       26,312,709
     Deferred income taxes                                                             2,367,060        2,360,701
     Excess cost over fair value of net assets acquired                                   98,399           27,664
     Prepaid expenses and other assets                                                 1,475,401        1,392,671
     Subordinated debentures issue costs, net                                            192,080          206,417
                                                                                   -------------    -------------
TOTAL ASSETS                                                                       $ 849,240,513    $ 839,076,120
                                                                                   =============    =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Liabilities:
     Deposits                                                                      $ 642,084,957    $ 648,539,355
     Securities sold under agreements to repurchase                                  130,000,000      120,000,000
     Advances from the Federal Home Loan Bank                                          1,270,313        6,305,644
     10% Subordinated debentures, due 2004                                            10,000,000       10,000,000
     Advances by borrowers for taxes and insurance                                     2,147,220        2,076,165
     Accrued interest payable                                                          1,257,908        1,950,205
     Dividends payable                                                                   201,379          201,831
     Other liabilities                                                                13,670,343        2,593,331
                                                                                   -------------    -------------
     Total liabilities                                                               800,632,120      791,666,531
                                                                                   -------------    -------------

Commitments and contingencies
Stockholders'
Equity:
     Preferred stock - $.10 par value 5,000,000 shares  authorized;  none issued
     Common stock - $.10 par value 10,000,000 shares authorized; shares
        issued 7,897,891 and 7,897,891, and shares outstanding 6,712,648
        and 6,727,702 as of March 31, 2001 and December 31, 2000, respectively           789,789          789,789
     Paid-in capital in excess of par                                                  8,217,654        8,217,654
     Accumulated comprehensive loss - net of deferred income taxes                       (30,620)        (358,352)
     Retained earnings                                                                47,392,606       46,401,102
     Less:  Treasury stock (1,185,243 and 1,170,189 shares, at cost,  as of
        March 31, 2001 and December 31, 2000, respectively)                           (7,761,036)      (7,640,604)
                                                                                   -------------    -------------
Total stockholders' equity                                                            48,608,393       47,409,589
                                                                                   -------------    -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                         $ 849,240,513    $ 839,076,120
                                                                                   =============    =============
</TABLE>

See notes to consolidated financial statements.

                                       1
<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                                     Three Months ended
                                                                         March 31,
                                                              ----------------------------
                                                                   2001            2000
------------------------------------------------------------------------------------------
INTEREST  INCOME:                                                     (Unaudited)
<S>                                                         <C>             <C>
Interest income on:
     Loans                                                    $  5,700,909    $  5,755,540
     Mortgage-backed securities                                  2,878,581       2,043,851
     Investments                                                 4,882,110       4,977,229
                                                              ------------    ------------
Total interest income                                           13,461,600      12,776,620
                                                              ------------    ------------
INTEREST EXPENSE:
Interest expense on:
     Deposits                                                    5,210,149       4,941,263
     Subordinated debentures                                       264,337         264,337
     Borrowings                                                  1,713,597       1,410,220
                                                              ------------    ------------
Total interest expense                                           7,188,083       6,615,820
                                                              ------------    ------------
NET INTEREST INCOME                                              6,273,517       6,160,800
PROVISION FOR LOAN LOSSES                                           60,000          60,000
                                                              ------------    ------------
NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                              6,213,517       6,100,800
                                                              ------------    ------------
OTHER INCOME (EXPENSE):
     Loan service charges and other fees                            26,994          35,744
     Gain on sale of loans                                             203             258
     Gain (Loss) on disposal of fixed assets                        50,443            (122)
     Real estate owned operations, net                             (13,686)         13,201
     Service charges on accounts                                   718,259         616,582
     Other income                                                   69,310          49,037
                                                              ------------    ------------
Total other income                                                 851,523         714,700
                                                              ------------    ------------
OPERATING EXPENSES:
     Salaries and employee benefits                              2,998,023       2,809,787
     Occupancy and equipment                                     1,177,004         973,123
     Purchased services                                            486,122         428,945
     Federal deposit insurance premiums                             29,988          30,128
     Professional fees                                             119,850         117,723
     Advertising                                                    57,632          55,869
     Other                                                         343,464         333,881
                                                              ------------    ------------
Total operating expenses                                         5,212,083       4,749,456
                                                              ------------    ------------
INCOME BEFORE INCOME TAXES                                       1,852,957       2,066,044

INCOME TAXES:
  Current                                                          850,889         761,626
  Deferred                                                        (190,815)        (20,771)
                                                              ------------    ------------
Total income taxes                                                 660,074         740,855

NET INCOME                                                    $  1,192,883    $  1,325,189
                                                              ============    ============

 BASIC EARNINGS PER COMMON SHARE                              $       0.18    $       0.19
                                                              ============    ============

 DILUTED EARNINGS PER COMMON SHARE                            $       0.18    $       0.18
                                                              ============    ============

 Weighted average common shares outstanding                      6,725,528       7,150,644
 Potential dilutive effect of the exercise of stock options         58,244          76,853
                                                              ------------    ------------
 Adjusted weighted average common shares outstanding             6,783,772       7,227,497
                                                              ============    ============
</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
                                                                               -------------------------------
                                                                                    2001             2000
--------------------------------------------------------------------------------------------------------------
                                                                                       (Unaudited)
<S>                                                                         <C>              <C>
OPERATING ACTIVITIES:
Net income                                                                    $   1,192,883    $   1,325,189
Adjustments to reconcile net income to net cash provided
   by operating activities:
Provision for loan losses                                                            60,000           60,000
Depreciation and amortization                                                       590,389          487,432
Realized (gains) and losses on:
     Sale of loans and loans held for sale                                             (203)            (258)
     Disposal and sale of fixed assets                                              (50,443)             525
     Sale of real estate owned                                                            0          (26,633)
Decrease in accrued interest receivable                                             564,236          338,766
Increase in prepaid expenses and other assets                                       (82,730)        (149,606)
Decrease in accrued interest payable                                               (692,297)        (224,319)
Increase in other liabilities                                                        77,012          247,333
Deferred income taxes                                                              (190,815)         (20,772)
                                                                              -------------    -------------
     Net cash provided by operating activities                                    1,468,032        2,037,657
                                                                              -------------    -------------
INVESTING ACTIVITIES:
Proceeds from sale of:
     Education loans                                                                 30,670           74,614
     Real estate owned                                                               99,757          157,633
     Office property and equipment                                                   84,075                0
Principal collected and proceeds from maturities of investment securities       135,657,868        1,176,300
held to maturity
Proceeds from maturities of investment securities available for sale              6,021,347        3,041,603
Principal collected on mortgage-backed securities held to maturity               14,152,410        5,148,569
Principal collected on loans, net                                                 9,717,063       14,389,009
Loans originated or acquired                                                     (9,614,666)     (12,239,936)
Purchase of investment securities and mortgage-backed securities held to       (142,967,093)     (35,246,579)
maturity
Purchase of investment securities and mortgage-backed securities available       (7,087,725)               0
for sale
Purchase of Federal Home Loan Bank stock                                           (655,000)               0
Purchase of office property and equipment                                          (550,797)      (2,686,773)
                                                                              -------------    -------------
     Net cash provided (used) by investing activities                             4,887,909      (26,185,560)
                                                                              -------------    -------------
FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits and savings accounts                  (3,632,657)      13,812,961
Net (decrease) increase in time deposits                                         (2,821,741)      14,269,637
Net decrease in FHLB advances                                                    (5,035,331)               0
Proceeds from (Repayment of) securities sold under agreements to repurchase      10,000,000      (10,000,000)
Increase in advances from borrowers for taxes and insurance                          71,055           38,155
Purchase of treasury stock                                                         (120,432)      (1,073,609)
Dividends paid on common stock                                                     (201,831)        (215,519)
                                                                              -------------    -------------
     Net cash (used) provided by financing activities                            (1,740,937)      16,831,625
                                                                              -------------    -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  4,615,004       (7,316,278)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                   44,951,299       46,275,871
                                                                              -------------    -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                      $  49,566,303    $  38,959,593
                                                                              =============    =============
Supplemental Disclosures:
     Cash paid for:
        Interest on deposits, advances, and other borrowings                  $   7,889,380    $   6,840,139
        Income taxes                                                                797,398          159,143
     Non-cash investing and financing activities:
        Dividends declared and not paid at quarter end                              201,379          211,888
        Non-monetary transfers from loans to real estate acquired
        through foreclosure                                                               0          214,000
        Investments purchased and not yet settled                                11,000,000                0
</TABLE>

See notes to consolidated financial statements.

                                       3
<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                          Accumulated                                   Total
                                 Common shares    Common     Paid-in     comprehensive      Retained     Treasury   Stockholders'
                                  outstanding      stock     capital          loss          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 loss on
    securities available
    for sale                                                                  327,732                                    327,732
                                                                                                                    --------------
Total comprehensive income                                                                                             1,520,615
                                                                                                                    --------------
Dividends declared                                                                           (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>


See notes to consolidated financial statements.

                                       4

<PAGE>

ITEM 2: MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001.

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

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

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

GENERAL

In the opinion of management,  the accompanying unaudited consolidated financial
statements of FMS Financial  Corporation contain all adjustments,  consisting of
normal recurring  accruals,  necessary for a fair  presentation of its financial
condition, results of operations, cash flows and changes in stockholders' equity
for the periods and dates  indicated.  The results of  operations  for the three
months  ended March 31, 2001 are not  necessarily  indicative  of the  operating
results for the full fiscal year or any other interim period.

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

                                       5
<PAGE>

FINANCIAL CONDITION -

Total  Assets - at March 31,  2001 were $849.2  million as  compared  with total
assets at December 31, 2000 of $839.1 million.

Investment  Securities  Held to  Maturity -  decreased  $52.8  million to $223.3
million at March 31, 2001 from $276.1 million at December 31, 2000 primarily due
to the net maturity of $60.3 million of reverse repurchase agreement investments
and calls of $55.0 million in U.S. Agency Notes,  partially  offset by purchases
of $32.6  million in CMO's and $34.3  million in U.S.  Agency  Notes  during the
three  months ended March 31, 2001.  Investment  securities  held to maturity at
March 31, 2001 consisted entirely of fixed rate securities. A comparison of cost
and  approximate  market values of investment  securities held to maturity as of
March 31, 2001 and December 31, 2000 follows:

<TABLE>
<CAPTION>
                                         March 31, 2001                             December 31, 2000
                    --------------------------------------------------------- ------------------------------
                                       Gross         Gross       Estimated                      Estimated
                       Amortized     Unrealized   Unrealized       Market        Amortized        Market
                          Cost         Gains        Losses         Value            Cost          Value
                    --------------------------------------------------------- ------------------------------
<S>               <C>             <C>          <C>            <C>           <C>              <C>
U. S. Gov't         $  147,237,492  $  562,663   $  (134,261)   $147,665,894  $  167,923,406   $166,378,613
Agencies
CMO's                   73,096,947     493,276      (103,814)     73,486,409      43,954,419     43,460,728
Reverse Repurchase               0           0              0              0      60,341,969     60,341,969
Municipal bonds          2,947,840       9,214              0      2,957,054       3,887,840      3,896,380
                    ----------------------------------------------------------------------------------------
Total               $  223,282,279  $1,065,153   $  (238,075)   $224,109,357  $  276,107,634   $274,077,690
                    ========================================================= ==============================
</TABLE>

Investment  Securities  Available  for Sale -  increased  $1.5  million to $42.4
million at March 31, 2001 from $40.9 million at December 31, 2000 as a result of
purchases of $5.0 million of MBS's and $2.0 million of CMO's,  partially  offset
by  principal  paydowns of $2.7  million on CMO's and MBS's and $3.3  million in
U.S.  Agency  Notes  called  during  the three  months  ended  March  31,  2001.
Investment  securities  available  for sale  consisted of $39.3 million in fixed
rate  securities  and $3.1 million in  adjustable  rate  securities at March 31,
2001.  A  comparison  of  cost  and  approximate  market  values  of  investment
securities  available  for  sale as of March  31,  2001 and  December  31,  2000
follows:

<TABLE>
<CAPTION>
                                          March 31, 2001                               December 31, 2000
                    -----------------------------------------------------------  ------------------------------
                                       Gross         Gross         Estimated                       Estimated
                       Amortized     Unrealized    Unrealized        Market         Amortized        Market
                          Cost         Gains         Losses          Value             Cost          Value
                    -----------------------------------------------------------  ------------------------------
<S>               <C>              <C>          <C>             <C>            <C>              <C>
U. S. Gov't         $    6,997,461   $   5,709    $    (2,810)    $  7,000,360   $   10,292,370   $ 10,206,464
Agencies
CMO's                   28,302,997     254,624       (375,757)      28,181,864       28,657,931     28,155,800
MBS's                    7,195,395      68,110               0       7,263,505        2,490,974      2,516,699

                    -----------------------------------------------------------  ------------------------------
Total               $   42,495,853   $ 328,443    $  (378,567)    $ 42,445,729   $   41,441,275   $ 40,878,963
                    ===========================================================  ==============================
</TABLE>

                                       6
<PAGE>

Loans,  net - decreased  $191 thousand to $290.0  million at March 31, 2001 from
$290.2  million  at  December  31,  2000.   This  decrease  was  the  result  of
approximately $9.7 million of principal collected on loans,  partially offset by
$9.6 million of loans  originated  during the three months ended March 31, 2001.
The  following  table shows loans  receivable  by major  categories at the dates
indicated.

                                        March 31,        December 31,
                                           2001              2000
                                   -------------------------------------

Mortgage loans (1-4  dwelling)      $    226,737,684  $     228,427,960
Construction loans                            71,225            163,493
Commercial construction                    1,796,306          1,061,799
Consumer loans                             3,918,226          3,899,549
Commercial real estate                    53,110,988         52,763,358
Commercial business                        9,062,307          8,521,769
                                   -------------------------------------
Subtotal                                 294,696,736        294,837,928
                                   -------------------------------------
Less:
    Deferred loan fees                       666,988            678,946
    Allowance for possible
     loan losses                           4,042,569          3,980,347
                                   -------------------------------------
Net Loans Receivable                $    289,987,179  $     290,178,635
                                   =====================================


At March 31, 2001,  the recorded  investment in loans for which  impairment  has
been recognized in accordance with SFAS Nos. 114 and 118 totaled $2.7 million of
which  $1.1  million  related  to loans  that  were  individually  measured  for
impairment with a valuation allowance of $424 thousand and $1.6 million of loans
that were collectively measured for impairment with a valuation allowance of $76
thousand.  The Bank had $4.0 million in total  reserves for possible loan losses
at March 31, 2001, representing approximately 148% of non-accrual loans and 1.4%
of total loans.  For the three months ended March 31, 2001, the average recorded
investment in impaired loans was approximately $2.7 million. The Bank recognized
$49 thousand of interest income on impaired  loans,  all of which was recognized
on the cash  basis.  For the three  months  ended  March 31,  2000,  the average
recorded  investment in impaired loans was approximately $3.2 million.  The Bank
recognized $33 thousand of interest income on impaired  loans,  all of which was
recognized on the cash basis.

As of March 31, 2001 the Bank had outstanding loan commitments of $12.3 million,
of  which  $8.2  million  represented  variable  rate  loans  and  $4.1  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.

                                       7

<PAGE>

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


Non-Performing Assets:

                                                   March 31,     December 31,
                                                      2001          2000
                                                   ----------    ----------
                                                       (In Dollars)
Loans accounted for on a non-accrual basis:
Mortgage loans:
     One-to-four family                            $1,327,891    $  778,042
     Commercial real estate                         1,397,705     1,408,944
     Consumer and other                                     0        24,033
                                                   ----------    ----------
         Total mortgage non-accrual loans          $2,725,596    $2,211,019
                                                   ----------    ----------

     Troubled debt restructuring                   $  818,147    $  790,364
     Real estate owned, net                           255,001       354,758
     Other non-performing assets                       87,926        87,926
                                                   ----------    ----------
     Total non-performing assets, net              $3,886,670    $3,444,067
                                                   ----------    ----------


     Total non-accrual loans to net loans                0.94%         0.76%
                                                   ==========    ==========
     Total non-accrual loans to total assets             0.32%         0.26%
                                                   ==========    ==========
     Total non-performing assets to total assets         0.46%         0.41%
                                                   ==========    ==========

                                       8

<PAGE>

Mortgage-Backed  Securities Held to Maturity - increased $56.8 million to $200.6
million at March 31, 2001 from $143.8 million at December 31, 2000. The increase
is the result of the  purchases of $64.8  million of FNMA,  FHLMC and GNMA fixed
rate securities and $5.3 million of FNMA adjustable rate  securities,  partially
offset by principal  paydowns of $14.1  million.  Mortgage-backed  securities at
March 31, 2001  consisted of $135.2  million in fixed rate  securities and $65.4
million  in  adjustable  rate  securities.  Mortgage-backed  securities  held to
maturity at March 31, 2001 and December 31, 2000 are summarized below:

<TABLE>
<CAPTION>
                                      March 31, 2001                                    December 31, 2000
            -----------------------------------------------------------------------------------------------------
                                   Gross         Gross
                 Amortized      Unrealized     Unrealized        Estimated         Amortized        Estimated
                   Cost            Gains         Losses        Market Value           Cost         Market Value
            -----------------------------------------------------------------  ----------------------------------
<S>        <C>                <C>            <C>             <C>             <C>                 <C>
GNMA         $    75,797,247    $   733,309    $  (48,959)     $  76,481,597   $     35,868,102    $  36,129,708

FNMA              85,345,953      1,173,655        (1,152)        86,518,456         67,927,876       68,443,172

FHLMC             39,422,699        866,162          (568)        40,288,293         39,955,729       40,631,536

            -----------------------------------------------------------------  ----------------------------------
Total        $   200,565,899    $ 2,773,126    $  (50,679)     $ 203,288,346   $    143,751,707    $ 145,204,416
            =================================================================  ==================================
</TABLE>

Deposits  -  decreased  $6.4  million to $642.1  million at March 31,  2001 from
$648.5  million  at  December  31,  2000 as a result of a decrease  in  interest
bearing  checking  accounts of $13.8 million and certificates of deposit of $2.8
million,  partially  offset by an increase in savings  accounts of $6.3 million,
money market accounts of $2.9 million and non-interest checking accounts of $897
thousand.  Interest  credited to depositors  accounts for the three months ended
March 31, 2001 amounted to $5.6 million.  The following tables set forth certain
information concerning deposits at the dates indicated.

<TABLE>
<CAPTION>
                                          March 31, 2001                           December 31, 2000
                             -------------------------------------------------------------------------------------
                                               Percent     Weighted                       Percent     Weighted
                                               of Total    Average                       of Total      Average
                                  Amount       Deposits      Rate          Amount        Deposits       Rate
                             -------------------------------------------------------------------------------------
<S>                            <C>            <C>         <C>            <C>            <C>           <C>
Non-interest checking            $104,441,612   16.27%      0.00%          $103,544,519   15.97%        0.00%
Checking accounts                 117,259,010   18.26%      2.94%           131,054,687   20.20%        3.17%
Savings accounts                  109,374,917   17.03%      2.48%           103,072,351   15.90%        2.72%
Money market accounts              71,731,618   11.17%      2.77%            68,768,257   10.60%        2.75%
Certificates                      239,277,800   37.27%      5.41%           242,099,541   37.33%        5.14%
                             -------------------------------------------------------------------------------------
   Total Deposits                $642,084,957  100.00%      3.35%          $648,539,355   100.00%       3.35%
                             =====================================================================================
</TABLE>

                                       9
<PAGE>

Borrowings - at March 31, 2001 amounted to $141.3 million.  Borrowings consisted
of $10.0 million of 10%  Subordinated  Debentures,  $130.0 million in securities
sold under the agreement to repurchase with a weighted  average interest rate of
5.30% and $1.3  million  in  Federal  Home Loan Bank  Advances  with a  weighted
average  interest  rate of 5.0%.  At December 31, 2000  borrowings  consisted of
$10.0 million of 10% Subordinated Debentures,  $120.0 million in securities sold
under  agreements to repurchase  with a weighted  average rate of 5.40% and $6.3
million in Federal Home Loan Bank Advances with a weighted average interest rate
of 5.49%.

Other  Liabilities - increased  $11.1 million to $13.7 million at March 31, 2001
from $2.6 million at December 31, 2000 as a result of $11.0  million in payables
for  investments  purchased  and recorded on their trade date in March 2001 with
settlement dates in April 2001.

RESULTS OF OPERATIONS -

General

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

The Corporation recorded net income for the three months ended March 31, 2001 of
$1.2 million, or $.18 diluted earnings per share as compared to $1.3 million, or
$.18 diluted earnings per share for the comparable period in 2000.

Interest Rate Spread

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

                                       10

<PAGE>

The following table sets forth certain information relating to the Corporation's
average balance sheet and reflects the average yield on assets and average rates
paid on liabilities for the periods indicated. 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,
                        -----------------------------------------------------------------------------
                                         2001                                     2000
                        --------------------------------------  -------------------------------------
                           Average                   Average      Average                   Average
                           Balance     Interest      Yield/Rate   Balance      Interest     Yield/Rate
                        --------------------------   ---------  ------------- ------------  ---------
                                                    (Dollars in Thousands)
<S>                   <C>           <C>              <C>      <C>             <C>          <C>
Interest-earning assets:
    Loans receivable    $    295,136  $     5,701       7.73%   $    302,777    $   5,756      7.60%
    Mortgage-backed          170,068        2,879       6.77%        122,551        2,044      6.67%
    securities
    Investment securities    307,683        4,882       6.35%        305,142        4,977      6.52%
                        ------------- ------------   ---------  ------------- ------------  ---------
Total interest-earning
      assets                 772,887       13,462       6.97%        730,470       12,777      7.00%
                        ------------- ------------   ---------  ------------- ------------  ---------

Interest-bearing
liabilities:
    Deposits                 630,285        5,210       3.31%        605,920        4,941      3.26%
    Borrowings               128,016        1,714       5.36%         99,678        1,410      5.66%
    Subordinated debentures   10,000          264      10.56%         10,000          264     10.56%
                        ------------- ------------   ---------  ------------- ------------  ---------
Total interest-bearing
      liabilities       $    768,301        7,188       3.74%   $    715,598        6,615      3.70%
                        ============= ------------   ---------  ============= ------------  ---------
Net interest income                   $     6,274                               $   6,162
                                      ============                            ============
Interest rate spread                                    3.22%                                  3.30%
                                                     =========                              =========
Net yield on average
  interest-earning assets                               3.25%                                  3.37%
                                                     =========                              =========
Ratio of average interest-
    earning assets to
    average interest-
    bearing liabilities                               100.60%                                102.08%
                                                     =========                              =========
</TABLE>

                                       11

<PAGE>

Rate/Volume Analysis

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

                                         Three Months Ended March 31,
                                      ---------------------------------
                                               2001 vs. 2000
                                      ---------------------------------
                                             Increase (Decrease)
                                              Due to change in
                                      ---------------------------------
                                        Rate       Volume       Total
                                      ---------   --------     --------
                                                (In Thousands)
Interest income:
     Loans                             $  90        $(145)       $ (55)
     Mortgage-backed securities           42          793          835
     Investment securities              (136)          41          (95)
                                       -----        -----        -----
     Total change - interest income       (4)         689          685
                                       -----        -----        -----
Interest expense:
     Deposits                             70          199          269
     Borrowings                          (97)         401          304
     Subordinated debentures               -            -            -
                                       -----        -----        -----
     Total change - interest expense     (27)         600          573
                                       -----        -----        -----
Net change in net interest income      $  23        $  89        $ 112
                                       =====        =====        =====

                                       12
<PAGE>

Net Interest  Income - the increase in net interest  income for the three months
ended March 31, 2001 totaled $112  thousand was  primarily due to an increase in
interest  income of $685 thousand,  partially  offset by an increase in interest
expense of $573 thousand.

The  increase  in  interest  income was  primarily  the result of an increase in
mortgage-backed   securities   of  $835   thousand.   The  average   balance  of
mortgage-backed  securities  increased  $47.5 million to $170.1  million for the
three  months  ended March 31,  2001 from $122.6  million for the same period in
2000, which resulted in a volume increase of $793 thousand.  The increase in the
average  volume  during  this  period  was  primarily  due to $110.1  million in
purchases of  mortgage-backed  securities,  partially offset by $38.8 million of
principal  paydowns.  The average yield of the MBS portfolio  increased 10 basis
points to 6.77% for the  quarter  ended  March 31,  2001 from 6.67% for the same
period in 2000,  which resulted in an interest  income  increase of $42 thousand
due to rate changes.

Interest income in investment  securities decreased $95 thousand to $4.9 million
for the three  months ended March 31, 2001 from $5.0 million for the same period
in 2000. The average yield of the investment portfolio decreased 17 basis points
to 6.35% for the quarter  ended March 31, 2001 from 6.52% for the same period in
2000, which resulted in an interest income decrease of $136 thousand due to rate
changes. The average balance of investment  securities increased $2.6 million to
$307.7 million for the three months ended March 31, 2001 from $305.1 million for
the same period in 2000,  which resulted in a volume increase in interest income
of $41  thousand.  The  increase  in the  average  balance  of  investments  was
primarily due to purchases of U.S. Agency Notes of $46.7 million and of CMO's of
$32.0 million, partially offset by $19.1 million of principal paydowns.

Interest  income on loans  decreased  $55 thousand to $5.7 million for the three
months ended March 31, 2001 from $5.8  million for the same period in 2000.  The
average  balance of the loan portfolio  decreased $7.7 million to $295.1 million
for the three  months  ended  March 31,  2001 from  $302.8  million for the same
period  in 2000,  which  resulted  in a  decrease  in  interest  income  of $145
thousand.  The  decline in the balance is  principally  due to a decrease in the
average  balance of $8.0  million in fixed rate  mortgages  and $5.4  million in
adjustable rate mortgages, partially offset by increases in home equity loans of
$4.6 million.  The average rate on loans  increased 13 basis points to 7.73% for
the three  months  ended  March 31, 2001 from 7.60% for the same period in 2000,
which resulted in an increase in interest income of $90 thousand.

The  increase in interest  expense  was  primarily  the result of an increase in
interest expense on borrowings of $304 thousand for the three months ended March
31, 2001 compared to the same period in 2000. The average  balance of borrowings
increased  $28.3 million to $128.0  million at March 31, 2001 from $99.7 million
for the same period in 2000,  which resulted in an increase in interest  expense
of $401 thousand.  The average yield of borrowings  decreased 30 basis points to
5.36% for the  quarter  ended  March 31,  2001 from 5.66% for the same period in
2000 which resulted in a decrease in interest expense of $97 thousand.

The increase in interest  expense on deposits of $269 thousand was the result of
an  increase  in the  average  balance of  deposits  of $24.4  million to $630.3
million for the three  months  ended March 31, 2001 from $605.9  million for the
same period in 2000,  which resulted in a volume increase in interest expense of
$199 thousand.  The average yield on deposits  increased 5 basis points to 3.31%
for the  quarter  ended  March 31,  2001 from 3.26% for the same period in 2000,
which  resulted in an increase in interest  expense of $70  thousand due to rate
changes.

                                       13
<PAGE>

Provision for Loan Losses - for the first  quarter of 2001 remained  constant at
$60 thousand.  At March 31, 2001 the allowance for possible loan losses amounted
to $4.0 million compared to $3.8 million at March 31, 2000. The determination of
the  allowance  level for loan losses is based on  management's  analysis of the
risk  characteristics  of various types of loans,  levels of  classified  loans,
previous loan loss experience, the estimated fair market value of the underlying
collateral and current  economic  conditions.  Additionally,  the mix within the
Bank's  portfolio  continues  to change as the Bank  offers a wider  variety  of
products.  Within the loan  portfolio,  a change is also occurring as a shift is
made from  lower  yielding  loans  (i.e.,  one-to-four  family  loans) to higher
yielding loans (i.e., commercial real estate mortgages, commercial construction,
consumer and commercial  business loans).  These types of loans contain a higher
degree of risk.  The Bank will continue to monitor its allowance for loan losses
and make future  adjustments  to the  allowance  through the  provision for loan
losses as changing conditions dictate. Although the Bank maintains its allowance
for loan losses at a level that it  considers  to be adequate to provide for the
inherent risk of loss in its loan portfolio,  there can be no assurance that the
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.

Operating  Expenses - for the first  quarter of 2001  totaled $5.2  million,  as
compared to $4.7 million for the same period in 2000.

Salaries  and  Employee  Benefits  - for the  first  quarter  of 2001  were $3.0
million,  as compared to $2.8 million for the same period in 2000.  The increase
was due to  additional  staff in five new  branches  opened since March 31, 2000
along  with the  annual  January  raises  in  compensation.  Average  full  time
equivalent  employees at March 31, 2001 were 439 as compared to 413 at March 31,
2000.

Occupancy  and  Equipment  - for the  first  quarter  of 2001  amounted  to $1.2
million,  compared  to $973  thousand  for the same  period  in  2000.  The $204
thousand  increase  is the  result  of  additional  depreciation  and  occupancy
expenses on the new branches opened as well as other facility  improvements  and
new computer  equipment  additions between the quarters ended March 31, 2001 and
March 31, 2000.

Purchased  Services - for the first quarter of 2001  amounted to $486  thousand,
compared to $429 thousand for the same period of 2000. ATM charges increased $47
thousand,  compared to the same period in 2000 and check  processing  costs have
increased  $16  thousand for the three months ended March 31, 2001 due to higher
transaction volumes.

Federal Deposit Insurance  Premiums - for the first quarter remained constant at
$30 thousand.  Beginning in January  2001,  the FDIC reduced  deposit  insurance
premiums assessments from an annual rate of .021% to an annual rate of .020 % on
total deposits.

ITEM 3:  DISCLOSURE ABOUT MARKET RISK

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

                                       14
<PAGE>



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


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

                       None


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

                       None


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

                       None


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

                       None

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

                       None


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

            (a)        None



                                       15


<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 11, 2001                         /s/ Craig W. Yates
                                           -------------------------------------
                                           Craig W. Yates
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)



Date: May 11, 2001                         /s/ Channing L. Smith
                                           -------------------------------------
                                           Channing L. Smith
                                           Vice President and
                                           Chief Financial Officer
                                           (Principal Financial Officer)