UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                       ----------------------------------

                              Washington, DC 20549

                             ----------------------


                                    FORM 10-Q

(Mark One)

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

     For  the quarterly period ended March 31, 2003

                                       OR

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


                         Commission file number 0-17353

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

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

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

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

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

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

         As of May 2, 2003 there were issued and outstanding 6,469,711 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, 2003
                                 --------------

                                TABLE OF CONTENTS
                                -----------------
<TABLE>
<CAPTION>

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

         Item 1 - Financial Statements
                  Consolidated Statements of Financial Condition as of
                       March 31, 2003 (unaudited) and December 31, 2002....................................1

                  Consolidated Statements of Operations (unaudited)
                       for the three months ended
                       March 31, 2003 and March 31, 2002...................................................2

                  Consolidated  Statements of Cash Flows  (unaudited) for the three
                       months ended March 31, 2003 and March 31, 2002..................................... 3

                  Consolidated  Statements  of  Changes  in  Stockholders'   Equity
                       (unaudited) for the three months ended March 31, 2003 and
                       March 31, 2002......................................................................4

                  Notes to Consolidated Financial Statements...............................................5

         Item 2 - Management's Discussion and Analysis of
                       Financial Condition and Results of Operations..................................6 - 15

         Item 3 - Disclosure about Market Risk............................................................16

         Item 4-  Disclosure Controls and Procedures......................................................16

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

         Item 1 - Legal Proceedings.......................................................................16

         Item 2 - Changes in Securities...................................................................16

         Item 3 - Defaults Upon Senior Securities.........................................................16

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

         Item 5 - Other Information.......................................................................16

         Item 6 - Exhibits and Reports on Form 8-K........................................................16

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
-------------------------------------------------------------------------------------------------------------------------------
                                                                                        March 31, 2003        December 31, 2002
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                   <C>
ASSETS                                                                                   (Unaudited)
-------------------------------------------------------------------------------------------------------------------------------

     Cash and amounts due from depository institutes                                      $   33,189,157        $    41,497,691
     Interest-bearing deposits                                                                         0                 12,252
     Short term funds                                                                         32,143,150             46,900,403
                                                                                          --------------        ---------------
        Total cash and cash equivalents                                                       65,332,307             88,410,346
     Investment securities held to maturity                                                  214,374,955            164,227,126
     Investment securities available for sale                                                140,237,231            118,612,961
     Loans, net                                                                              374,081,474            361,674,400
     Mortgage-backed securities held to maturity                                             318,607,995            342,122,678
     Accrued interest receivable:
        Loans                                                                                  1,629,535              1,560,272
        Mortgage-backed securities                                                             2,012,486              2,175,776
        Investments                                                                            1,954,003              1,543,610
     Federal Home Loan Bank stock                                                             11,809,620             12,061,720
     Real estate held for development, net                                                             0                 87,926
     Real estate owned, net                                                                      500,775                291,200
     Premises and equipment, net                                                              30,832,581             29,092,970
     Deferred income taxes                                                                     2,224,937              2,972,572
     Prepaid expenses and other assets                                                         1,654,043              1,005,822
     Trust Capital securities issue costs, net                                                   698,538                717,999
     Excess of cost over fair value of assets acquired                                         1,315,158                      0
                                                                                          --------------        ---------------
TOTAL ASSETS                                                                              $1,167,265,638        $ 1,126,557,378
                                                                                          ==============        ===============

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

Liabilities:
     Deposits                                                                             $  838,610,293        $   800,340,222
     Securities sold under agreements to repurchase                                          225,000,000            225,000,000
     Advances from the Federal Home Loan Bank                                                 11,191,047             11,232,103
     Trust Capital Securities - FMS Statutory Trust 1                                         25,000,000             25,000,000
     Advances by borrowers for taxes and insurance                                             2,287,383              2,049,813
     Accrued interest payable                                                                  1,335,721              1,383,054
     Dividends payable                                                                           193,914                193,914
     Other liabilities                                                                         4,518,296              3,720,453
                                                                                          --------------        ---------------
     Total liabilities                                                                     1,108,136,654          1,068,919,559
                                                                                          --------------        ---------------

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 7,949,809 and shares outstanding 6,463,811
        and 6,463,811 as of March 31, 2003 and December 31, 2002, respectively                   794,981                794,981
     Paid-in capital in excess of par                                                          8,279,525              8,279,525
     Accumulated other comprehensive income - net of deferred income taxes                     1,061,210              1,216,053
     Retained earnings                                                                        59,879,848             58,233,840
     Less:  Treasury stock (1,485,998 and 1,485,998 shares, at cost, as of
        March 31, 2003 and December 31, 2002, respectively)                                  (10,886,580)           (10,886,580)
                                                                                          --------------        ---------------
Total stockholders' equity                                                                    59,128,984             57,637,819
                                                                                          --------------        ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                $1,167,265,638        $ 1,126,557,378
                                                                                          ==============        ===============
</TABLE>

See notes to consolidated financial statements.

                                       1
<PAGE>
<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------------------------------------------------------------------
                                                                                      Three Months ended
                                                                                           March 31,
                                                                                -------------------------------
                                                                                  2003                 2002
---------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                 <C>
INTEREST  INCOME:                                                                         (Unaudited)
Interest income on:
     Loans                                                                      $ 6,225,726         $ 6,356,484
     Mortgage-backed securities                                                   4,536,145           4,298,315
     Investments                                                                  2,670,324           3,656,647
                                                                                -----------         -----------
Total interest income                                                            13,432,195          14,311,446
                                                                                -----------         -----------

INTEREST EXPENSE:
Interest expense on:
     Deposits                                                                     2,601,214           3,925,331
     Long term debt                                                                 331,567             285,833
     Borrowings                                                                   2,342,200           2,095,853
                                                                                -----------         -----------
Total interest expense                                                            5,274,981           6,307,017
                                                                                -----------         -----------

NET INTEREST INCOME                                                               8,157,214           8,004,429
PROVISION FOR LOAN LOSSES                                                            60,000               3,000
                                                                                -----------         -----------
NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                                               8,097,214           8,001,429
                                                                                -----------         -----------

OTHER INCOME (EXPENSE):
     Loan service charges and other fees                                             23,814              28,010
     Gain on sale of real estate held for development, net                          600,780                   0
     Gain on sale of loans                                                               29                  75
     Loss on disposal of fixed assets                                              (141,151)                  0
     Real estate owned operations, net                                               (6,830)             (7,854)
     Service charges on accounts                                                  1,071,897             864,788
     Other income                                                                    23,353              84,620
                                                                                -----------         -----------
Total other income                                                                1,571,892             969,639
                                                                                -----------         -----------

OPERATING EXPENSES:
     Salaries and employee benefits                                               3,823,402           3,448,686
     Occupancy and equipment                                                      1,328,515           1,106,408
     Purchased services                                                             674,025             614,898
     Federal deposit insurance premiums                                              32,196              30,978
     Professional fees                                                              177,716             198,213
     Advertising                                                                    115,611              83,202
     Other                                                                          482,161             313,554
                                                                                -----------         -----------
Total operating expenses                                                          6,633,626           5,795,939
                                                                                -----------         -----------
INCOME BEFORE INCOME TAXES                                                        3,035,480           3,175,129

INCOME TAXES                                                                      1,195,557           1,122,547
                                                                                -----------         -----------

NET INCOME                                                                      $ 1,839,923         $ 2,052,582
                                                                                ===========         ===========
BASIC EARNINGS PER COMMON SHARE                                                 $      0.28         $      0.31
                                                                                ===========         ===========
DILUTED EARNINGS PER COMMON SHARE                                               $      0.28         $      0.30
                                                                                ===========         ===========
Dividends declared per common share                                             $      0.03         $      0.03
                                                                                ===========         ===========

Weighted average common shares outstanding                                        6,463,811           6,717,670
Potential dilutive effect of the exercise of stock options                           40,116              18,098
                                                                                ===========         ===========
Adjusted weighted average common shares outstanding                               6,503,927           6,735,768
                                                                                ===========         ===========
</TABLE>
See notes to consoldiated financial statements.

                                       2
<PAGE>
--------------------------------------------------------------------------------
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                        Three Months ended
                                                                             March 31
                                                                 --------------------------------
                                                                     2003               2002
-------------------------------------------------------------------------------------------------
                                                                           (Unaudited)
<S>                                                            <C>                <C>
OPERATING ACTIVITIES:
Net income                                                        $  1,839,923       $  2,052,582
Adjustments to reconcile net income to net cash provided
   by operating activities:
    Provision for loan losses                                           60,000              3,000
    Depreciation and amortization                                      985,554            905,511
Realized (gains) and losses on:
    Sale of loans and loans held for sale                                  (29)               (75)
    Disposal and sale of fixed assets                                  141,151                  0
    Gain on real estate held for development, net                     (600,780)                 0
Increase in accrued interest receivable                               (316,366)          (216,000)
Increase in prepaid expenses and other assets                         (648,221)          (618,555)
Decrease in accrued interest payable                                   (47,333)          (308,974)
Increase (Decrease) in other liabilities                               797,843           (855,926)
Provision for deferred income taxes                                    850,606            124,679
                                                                  ------------       ------------
    Net cash provided by operating activities                        3,062,348          1,086,242
                                                                  ------------       ------------
INVESTING ACTIVITIES:
Proceeds from sale of:
    Education loans                                                     42,641             50,709
    Real estate held for development                                   688,706                  0
    Real estate owned                                                        0             12,920
    Property and equipment                                             176,555              7,385
Principal collected and proceeds from maturities of investment
   securities held to maturity                                      35,533,268         38,065,471
Proceeds from maturities of investment securities available
   for sale                                                         16,372,159         11,425,873
Principal collected on mortgage-backed securities held
   to maturity                                                      48,033,512         28,373,661
Principal collected on loans, net                                   23,504,023         18,437,939
Loans originated or acquired, net                                  (36,263,074)       (38,039,082)
Purchase of investment securities and mortgage-backed
   securities held to maturity                                    (111,591,237)       (50,604,478)
Purchase of investment securities and mortgage-backed
   securities available for sale                                   (38,645,883)        (9,712,633)
Purchase of Federal Home Loan Bank stock                               252,100         (1,498,100)
Purchase of office property and equipment                           (2,515,827)          (644,147)
Net cash received from deposit purchase, net                        16,539,246                  0
                                                                  ------------       ------------
    Net cash used by investing activities                          (47,873,811)        (4,124,482)
                                                                  ------------       ------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts                24,065,072         23,009,611
Net decrease in time deposits                                       (2,334,248)       (16,696,758)
Net (decrease) increase in FHLB advances                               (41,056)         9,961,790
Proceeds from securities sold under agreement to repurchase                  0         20,000,000
Net proceeds from issuance of trust capital securities                       0         24,251,086
Increase in advances from borrowers for taxes and insurance            237,570            151,428
Purchase of treasury stock                                                   0           (221,952)
Dividends paid on common stock                                        (193,914)          (201,531)
Net proceeds from issuance of common stock                                   0              1,195
                                                                  ------------       ------------
    Net cash provided by financing activities                       21,733,424         60,254,869
                                                                  ------------       ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                   (23,078,039)        57,216,629
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                      88,410,346         63,359,124
                                                                  ------------       ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                          $ 65,332,307       $120,575,753
                                                                  ============       ============
Supplemental Disclosures:
    Cash paid for:
       Interest on deposits, advances, and other borrowings       $  5,322,314       $  6,615,991
       Income taxes                                                    867,500          1,054,982
    Non-cash investing and financing activities:
       Dividends declared and not paid at quarter end                  193,914            200,979
       Non-monetary transfers from loans to real estate acquired
          acquired through foreclosure                                 209,575                  0
       Investments purchased and not yet settled                             0          4,325,000
</TABLE>
See notes to consolidated financial statements.

                                       3
<PAGE>
<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
                                                                            Accumulated                                   Total
                                   Common shares     Common     Paid-in    comprehensive     Retained      Treasury   Stockholders'
                                    outstanding      stock      capital       income         earnings       stock        Equity
------------------------------------------------------------------------------------------------------------------------------------

<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
------------------------------------------------------------------------------------------------------------------------------------

Balances at December 31, 2002       6,463,811       $794,981   $8,279,525    $1,216,053    58,233,840  $(10,886,580)    $57,637,819
Net Income                                                                                  1,839,923                     1,839,923
Other comprehensive income
  Unrealized loss on securities
    available for sale, net of
    taxes of $102,971                                                          (154,843)                                   (154,843)
                                                                                                                        -----------
Total comprehensive income
                                                                                                                          1,685,080
                                                                                                                        -----------

Dividends declared ($.03)                                                                    (193,915)                     (193,915)
Exercise of stock options
Purchase of common stock

------------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 2003          6,463,811       $794,981   $8,279,525    $1,061,210   $59,879,848  $(10,886,580)    $59,128,984
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.

                                       4

<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED MARCH 31, 2003 (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, 2003 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, 2002. The consolidated  financial statements include
the Corporation's principle subsidiary, Farmers & Mechanics Bank ("the Bank").

The  Corporation  maintains an incentive  stock option plan as permitted by SFAS
No. 148 "Accounting for Stock-Based  Compensation - Transition and  Disclosure."
The  Corporation  will continue to use the intrinsic  value method of accounting
for stock  options.  No options have been granted  during the three months ended
March 31, 2003.

2-DEPOSITS

On March 28, 2003, the Bank purchased the deposits of the Florence branch of Sun
National Bank totaling $17.9 million.

3-LONG-TERM DEBT

Long-Term  Debt at March 31,  2003 and  December  31,  2002  consisted  of $25.0
million of Trust Capital Securities. The interest rate resets every three months
to LIBOR plus 360 basis points and will not exceed 11.00% through the first five
years from its  issuance.  The proceeds were used for the paydown in August 2002
of the $10.0 million subordinated debentures, expansion of the Bank's operations
and general corporate purposes.

4-REGULATORY CAPITAL REQUIREMENTS

The Bank is considered "well  capitalized" by OTS regulations at March 31, 2003.
The  Bank's  regulatory  tangible  and tier 1 (core)  capital  ratios  are $70.3
million or 6.04% of total bank assets and $74.3 million or 17.02% for risk-based
capital.

5-RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2003, the Financial  Accounting Standards Board (FASB) issued Statement
of Financial  Accounting Standards (SFAS) No. 149 "Amendment of Statement 133 on
Deriative Instruments and Hedging Activities". SFAS No. 149 amends and clarifies
financial   accounting  and  reporting  for  deriative   instruments   including
derivative instruments embedded in other contracts  (collectively referred to as
derivatives)  and for hedging  activities  under SFAS No. 133,  "Accounting  for
Derivative  Instruments and Hedging  Activities".  SFAS No. 149 is effective for
contracts  entered into or modified  after June 30,  2003.  The adoption of this
standard  is  not  expected  to  have a  material  effect  on  the  Consolidated
Statements of Financial Condition or Consolidated Statements of Operations.

                                       5
<PAGE>


ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003.

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.





                                       6
<PAGE>



FINANCIAL CONDITION

Total Assets - at March 31, 2003 were $1.2 billion as compared with total assets
at December 31, 2002 of $1.1 billion.

Investment  Securities  Held to  Maturity -  increased  $50.2  million to $214.4
million at March 31, 2003 from $164.2 million at December 31, 2002 primarily due
to purchases of $74.3 million in collateralized  mortgage  obligations  (CMO's),
$10.0 million in U.S. Agency Notes,  $1.8 million in Municipal Bonds,  partially
offset by  principal  paydowns of $31.7  million in CMO's,  the maturity of $1.8
million in Municipal Bonds and calls of $2.0 million in U.S. Agency Notes during
the period.  Investment  securities held to maturity at March 31, 2003 consisted
of $13.0 million in adjustable  rate securities and $201.4 million in fixed rate
securities.  A comparison  of cost and  approximate  market values of investment
securities held to maturity as of March 31, 2003 and December 31, 2002 follows:
<TABLE>
<CAPTION>


                                                March 31, 2003                                       December 31, 2002
---------------------------------------------------------------------------------------       ------------------------------
                                            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 Agencies     $  33,828,847   $   499,602       $ (24,589)     $  34,303,860       $  25,914,918    $  26,547,362
CMO's                      166,079,379     1,002,236        (223,546)       166,858,069         123,809,139      124,545,227
Municipal bonds             14,466,729        14,516               0         14,481,245          14,503,069       14,509,921
---------------------------------------------------------------------------------------       ------------------------------
Total                    $ 214,374,955   $ 1,516,354       $(248,135)     $ 215,643,174       $ 164,227,126    $ 165,602,510
=======================================================================================       ==============================
</TABLE>

Short Term Funds - decreased  $14.8  million to $32.1  million at March 31, 2003
from $46.9 million at December 31, 2002. The decrease is the result of purchases
of investment securities.

Investment  Securities  Available  for Sale - increased  $21.6 million to $140.2
million at March 31, 2003 from $118.6 million at December 31, 2002. The increase
is the  result of  purchases  of $10.3  million  of  mortgage-backed  securities
(MBS's) and $28.3 million of CMO's,  partially  offset by principal  paydowns of
$16.4  million of CMO's and MBS's and $258  thousand  in market  adjustments  at
March 31, 2003.  Investment  securities  available for sale  consisted of $128.2
million in fixed rate securities and $12.0 million in adjustable rate securities
at March  31,  2003.  A  comparison  of cost and  approximate  market  values of
investment  securities  available for sale as of March 31, 2003 and December 31,
2002 follows:
<TABLE>
<CAPTION>

                                                  March 31, 2003                                   December 31, 2002
---------------------------------------------------------------------------------------       ------------------------------
                                              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 Agencies     $  24,993,504   $   156,446       $       0      $  25,149,950       $  24,993,110    $  25,358,000
CMO's                       43,286,961       162,957        (176,247)        43,273,671          21,978,385       22,107,521
MBS's                       70,205,105     1,608,505               0         71,813,610          69,631,991       71,147,440
---------------------------------------------------------------------------------------       ------------------------------
Total                    $ 138,485,570   $ 1,927,908       $(176,247)     $ 140,237,231       $ 116,603,486    $ 118,612,961
=======================================================================================       ==============================

                                       7

<PAGE>

</TABLE>

Loans,  net - increased  $12.4 million to $374.1  million at March 31, 2003 from
$361.7  million at December 31, 2002.  This increase was primarily the result of
$36.3  million of loans  originated,  partially  offset by  approximately  $23.5
million of principal  collected on loans during the three months ended March 31,
2003.  The following  table shows loans  receivable  by major  categories at the
dates indicated.

                                      March 31,          December 31,
                                        2003                2002

                               --------------------------------------

Mortgage Loans                 $     277,758,937   $     272,777,144
Construction Loans                       676,361             305,607
Commercial Construction                1,518,276           1,157,268
Consumer Loans                         3,313,794           3,521,889
Commercial Real Estate                82,272,816          76,354,155
Commercial Business                   13,642,445          12,621,048

                               -------------------------------------

Subtotal                             379,182,629         366,737,111
Less:
     Deferred loan fees                  727,962             745,236
     Allowance for
        possible loan losses           4,373,193           4,317,475

                               -------------------------------------

Total loans, net               $     374,081,474   $     361,674,400
                               =====================================



At March 31, 2003,  the recorded  investment in loans for which  impairment  has
been recognized in accordance with SFAS Nos. 114 and 118 totaled $1.9 million of
which  $985  thousand  related  to loans  that were  individually  measured  for
impairment  with a valuation  allowance of $414  thousand  and $955  thousand of
loans that were collectively  measured for impairment with a valuation allowance
of $27 thousand.  The Bank had $4.4 million in total reserves for loan losses at
March 31, 2003, representing approximately 153% of non-performing loans and 1.2%
of total loans.  For the three months ended March 31, 2003, the average recorded
investment in impaired loans was approximately $1.9 million. The Bank recognized
$8 thousand of interest  income on  impaired  loans for the three  months  ended
March 31, 2003, all of which was recognized on the cash basis.

As of March 31, 2003 the Bank had outstanding loan commitments of $29.8 million,
of which  $16.2  million  represented  variable  rate  loans and  $13.6  million
represented fixed rate loans. The Bank intends to fund these commitments through
scheduled  amortization  of loans  and  mortgage-backed  securities,  additional
borrowings,  and if necessary,  the sale of investment  securities available for
sale.





                                       8


<PAGE>


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

<TABLE>
<CAPTION>
                                                            March 31,           December 31,
                                                              2003                 2002
                                                           -----------          -----------

<S>                                                     <C>                  <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
     One-to-four family                                    $   696,446          $   960,558
     Commercial real estate                                  1,242,506            1,785,864
     Consumer and other                                            895               11,789
                                                           -----------          -----------
         Total non-accrual loans                           $ 1,939,847          $ 2,758,211
                                                           -----------          -----------

     Troubled debt restructuring                           $   916,453          $   986,581
     Real estate owned, net                                    500,775              291,200
     Other non-performing assets                                     0               87,926
                                                           -----------          -----------
     Total non-performing assets, net                      $ 3,357,075          $ 4,123,918
                                                           ===========          ===========


     Total non-accrual loans to net loans                         0.52%                0.76%
                                                           ===========          ===========
     Total non-accrual loans to total assets                      0.17%                0.24%
                                                           ===========          ===========
     Total non-performing assets to total assets                  0.29%                0.37%
                                                           ===========          ===========

</TABLE>


Mortgage-Backed  Securities Held to Maturity - decreased $23.5 million to $318.6
million at March 31, 2003 from $342.1 million at December 31, 2002. The decrease
is the result of principal  paydowns of $47.6 million,  partially  offset by the
purchases  of $25.5  million  of FNMA,  FHLMC and GNMA  fixed  rate  securities.
Mortgage-backed  securities  at March 31, 2003  consisted  of $280.0  million in
fixed  rate  securities  and  $38.6  million  in  adjustable  rate   securities.
Mortgage-backed  securities  held to maturity at March 31, 2003 and December 31,
2002 are summarized below:
<TABLE>
<CAPTION>

                                             March 31, 2003                                             December 31, 2002
-----------------------------------------------------------------------------------------       --------------------------------
                                          Gross              Gross
                    Amortized          Unrealized         Unrealized           Estimated           Amortized          Estimated
                      Cost                Gains             Losses           Market Value            Cost           Market Value
-----------------------------------------------------------------------------------------       --------------------------------

<S>               <C>               <C>                  <C>             <C>                  <C>                <C>
GNMA                $  28,181,777     $  1,471,643         $  (224)        $  29,653,196        $  33,862,839      $  35,556,313

FNMA                  226,312,912        6,295,258             (42)          232,608,128          233,608,680        239,975,322

FHLMC                  64,113,306        1,349,079            (103)           65,462,282           74,651,159         76,090,093

-----------------------------------------------------------------------------------------       --------------------------------
Total               $ 318,607,995     $  9,115,980         $  (369)        $ 327,723,606        $ 342,122,678      $ 351,621,728
=========================================================================================       ================================

</TABLE>

                                       9


<PAGE>


Deposits -  increased  $38.3  million to $838.6  million at March 31,  2003 from
$800.3  million at December 31, 2002. On March 28, 2003,  the Bank purchased the
deposits of the Florence  branch of Sun National  Bank totaling  $17.9  million.
Non-interest bearing checking accounts increased $15.8 million, savings accounts
increased  $14.7  million,  money  market  accounts  increased  $9.8 million and
certificates of deposits increased $5.4 million for the three months ended March
31,  2003.  These  increases  were  partially  offset by a decrease  in checking
accounts of $7.4 million  during this period.  Interest  credited to  depositors
accounts for the three months ended March 31, 2003 amounted to $2.6 million. The
following table sets forth certain information  concerning deposits at the dates
indicated.
<TABLE>
<CAPTION>

                                          March 31, 2003                            December 31, 2002
--------------------------------------------------------------------------------------------------------------------
                                              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        $150,754,743     17.98%        0.00%        $134,969,939      16.85%        0.00%
Checking accounts             148,360,187     17.69%        0.73%         155,730,226      19.46%        1.18%
Savings accounts              176,147,042     21.00%        1.00%         161,458,450      20.18%        1.34%
Money market accounts         134,556,562     16.05%        1.10%         124,795,059      15.59%        1.86%
Certificates                  228,791,759     27.28%        2.85%         223,386,548      27.92%        3.58%
--------------------------------------------------------------------------------------------------------------------
   Total Deposits            $838,610,293    100.00%        1.31%        $800,340,222     100.00%        1.86%
====================================================================================================================
</TABLE>

Borrowings - at March 31, 2003 amounted to $236.2 million.  Borrowings consisted
of $225.0  million in securities  sold under the agreement to repurchase  with a
weighted  average  interest rate of 4.08% and $11.2 million in Federal Home Loan
Bank Advances with a weighted  average  interest rate of 1.77%.  At December 31,
2002 borrowings  consisted of $225.0 million in securities sold under agreements
to repurchase with a weighted average rate of 4.08% and $11.2 million in Federal
Home Loan Bank Advances with a weighted average interest rate of 1.78%.

Long-term  debt - at March 31, 2003 and  December  31, 2002  consisted  of $25.0
million of Trust Capital Securities. The interest rate resets every three months
to LIBOR plus 360 basis points and will not exceed 11.00% through the first five
years from its issuance.

RESULTS OF OPERATIONS

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

The Corporation recorded net income for the three months ended March 31, 2003 of
$1.8 million, or $.28 diluted earnings per share as compared to $2.1 million, or
$.30 diluted earnings per share for the comparable period in 2002.

                                       10


<PAGE>
Interest Rate Spread

The Bank's  interest  income is affected by the  difference  or  "interest  rate
spread" between yields received by the Bank on its  interest-earning  assets and
the  interest  rates  paid  by  the  Bank  on its  interest-bearing  liabilities
including non-interest checking accounts. Net interest income is affected by (i)
the spread between the yield earned on interest-earning  assets and the interest
rates paid on interest-bearing  savings deposits including non-interest checking
accounts  and  borrowings   (liabilities)  and  (ii)  the  relative  amounts  of
interest-earning assets versus interest-bearing liabilities. The Bank's interest
rate spread varies over time because money fund accounts and other flexible rate
accounts  have  become  significant  sources of savings  deposits.  Income  from
investment  securities and  mortgage-backed  securities  depends upon the amount
invested during the period and the yields earned on such  securities.  The yield
on loans 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>
<CAPTION>
                                                                  Three Months Ended March 31,
--------------------------------------------------------------------------------------------------------------------------------
                                                    2003                                                     2002
--------------------------------------------------------------------------------       -----------------------------------------
                                      Average                         Average          Average                      Average
                                      Balance        Interest       Yield/Rate         Balance       Interest     Yield/Rate
                                   -----------     ------------     ------------       --------     -----------   -------------
                                                                   (Dollars in Thousands)
Interest-earning assets:
<S>                            <C>              <C>                 <C>       <C>             <C>                 <C>
     Loans receivable             $     376,046   $     6,226          6.62%     $     353,885   $      6,356        7.18%
     Interest-bearing deposits           46,127           156          1.35%            46,520            220        1.89%
     Mortgage-backed securities         391,788         4,536          4.63%           283,619          4,298        6.06%
     Investment securities              227,107         2,514          4.43%           222,757          3,437        6.17%
                                  --------------  ------------    ---------      --------------  -------------   --------
Total interest-earning assets         1,041,068        13,432          5.16%           906,781         14,311        6.31%
                                  --------------  ------------    ---------      --------------  -------------   --------

Interest-bearing liabilities:
     Checking deposits                  288,712           282          0.39%           250,912            430        0.69%
     Savings deposits                   167,152           419          1.00%           134,647            476        1.41%
     Money market deposits              126,227           343          1.09%            93,616            471        2.01%
     Time deposits                      221,978         1,557          2.81%           245,748          2,548        4.15%
     Borrowings                         236,223         2,342          3.97%           179,414          2,096        4.67%
     Long-Term Debt                      25,774           332          5.15%            18,591            286        6.15%
                                  --------------  ------------    ---------      --------------  -------------   --------
Total interest-bearing
     liabilities                  $   1,066,066         5,275          1.98%     $     922,928          6,307        2.73%
                                  ==============  ------------    ---------      ==============  -------------   --------
Net interest income                               $     8,157                                    $      8,004
                                                  ============                                   =============
Interest rate spread                                                   3.18%                                         3.58%
                                                                  =========                                      ========

Net yield on average interest-
     earning assets                                                    3.13%                                         3.53%
                                                                  =========                                      ========

Ratio of average interest-earning
     assets to average interest-bearing                               97.66%                                        98.25%
     liabilities
                                                                  =========                                      ========

</TABLE>



                                       11

<PAGE>



Rate/Volume Analysis

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


                                              Three Months Ended March 31,
                                                     2003 vs. 2002
                                                 Increase (Decrease)
                                                   Due to Change in:
                                            --------------------------------

                                              Rate         Volume      Total
                                                      (In Thousands)
                                            --------------------------------

Interest income:
     Loans receivable                       $ (528)       $   398     $ (130)
     Interest-bearing deposits                 (62)            (2)       (64)
     Mortgage-backed securities             (1,401)         1,639        238
     Investment securities                    (990)            67       (923)

                                            --------------------------------
     Total change - interest income         (2,981)         2,102       (879)
                                            --------------------------------

Interest expense:
     Checking deposits                        (212)            64       (148)
     Savings deposits                         (172)           115        (57)
     Money market deposits                    (292)           164       (128)
     Time deposits                            (745)          (246)      (991)
     Borrowings                               (418)           664        246
     Long-Term Debt                            (65)           111         46
                                            --------------------------------
     Total change - interest expense        (1,904)           872     (1,032)
                                            --------------------------------
Net change in net interest income           (1,077)        $1,230     $  153
                                            ================================




                                       12

<PAGE>

Net  Interest  Income - for the three  months  ended March 31, 2003 totaled $8.2
million. Net interest income for the three months ended March 31, 2003 increased
$153 thousand compared to the same period in 2002 due primarily to a decrease in
interest  expense on all  deposit  products  of $1.3  million and an increase in
interest income on mortgage-backed securities of $238 thousand, partially offset
by decreases  in interest  income on  investment  securities  of $923  thousand,
interest  income on loans of $130 thousand and increases in interest  expense on
borrowings of $246 thousand and long term debt of $46 thousand.

Interest income on mortgage-backed securities increased by $238 thousand to $4.5
million for the three months ended March 31, 2003 from $4.3 million for the same
period in 2002. The average balance of MBS's increased  $108.2 million to $391.8
million for the three  months  ended March 31, 2003 from $283.6  million for the
same period in 2002,  which  resulted in an interest  income volume  increase of
$1.6 million.  The increase in the average balance during this period was due to
MBS  purchases of $248.9  million,  partially  offset by  principal  paydowns of
$171.0  million.  The average  yield of the MBS  portfolio  decreased  143 basis
points to 4.63% for the  quarter  ended  March 31,  2003 from 6.06% for the same
period in 2002,  which resulted in an interest  income  decrease of $1.4 million
due to changes in rates.

Interest  income on loans  decreased $130 thousand to $6.2 million for the three
months ended March 31, 2003 from $6.4  million for the same period in 2002.  The
average  rate on loans  decreased  56 basis points to 6.62% for the three months
ended March 31, 2003 from 7.18% for the same period in 2002, which resulted in a
decrease in interest  income of $528 thousand due to rate  changes.  The average
balance of the loan portfolio  increased $22.1 million to $376.0 million for the
three  months  ended March 31,  2003 from $353.9  million for the same period in
2002,  which resulted in a volume  increase in interest income of $398 thousand.
The increase in the average  balance is  principally  due to an increase in loan
originations of $113.4 million during this period, partially offset by principal
collected on loans of $94.4 million.

Interest income on investment securities decreased $923 thousand to $2.5 million
for the three  months ended March 31, 2003 from $3.4 million for the same period
in 2002.  The average  yield of the  investment  portfolio  decreased  174 basis
points to 4.43% for the  quarter  ended  March 31,  2003 from 6.17% for the same
period in 2002,  which resulted in an interest  income decrease of $990 thousand
due to rate changes. The average balance of investment securities increased $4.3
million to $227.1  million for the three months ended March 31, 2003 from $222.8
million for the same  period in 2002,  which  resulted  in a volume  increase in
interest income of $67 thousand.  The increase in the average volume during this
period is due to purchases of $346.3  million,  partially  offset by  investment
calls and maturities of $129.9 million and principal paydowns of $135.2 million.

Interest  expense on time deposits  decreased  $991 thousand to $1.6 million for
the three  months  ended March 31, 2003 from $2.5 million for the same period in
2002. The average rate on time deposits  decreased 134 basis points to 2.81% for
the quarter  ended March 31, 2003 from 4.15% for the same period in 2002,  which
resulted in a decrease in interest expense of $745 thousand. The average balance
of time deposits  decreased $23.8 million to $221.9 million for the three months
ended  March 31, 2003 from  $245.7  million  for the same period in 2002,  which
resulted in a volume decrease in interest expense of $246 thousand.

Interest expense on checking  deposits  decreased $148 thousand to $282 thousand
for the three months ended March 31, 2003 from $430 thousand for the same period
in 2002.  The average  rate on checking  deposits  decreased  30 basis points to
0.39% for the  quarter  ended  March 31,  2003 from 0.69% for the same period in
2002,  which resulted in a decrease in interest  expense of $212  thousand.  The
average  balance of checking  deposits  increased $38 thousand to $288.7 million
for the three  months  ended  March 31,  2003 from $250.9 for the same period in
2002, which resulted in a volume increase in interest expense of $64 thousand.

                                       13
<PAGE>

Interest  expense on money  market  deposits  decreased  $128  thousand  to $343
thousand for the three  months  ended March 31, 2003 from $471  thousand for the
same period in 2002.  The average  rate on money  market  deposits  decreased 92
basis  points to 1.09% for the  quarter  ended March 31, 2003 from 2.01% for the
same period in 2002,  which  resulted in a decrease in interest  expense of $292
thousand.  The average balance of money market deposits  increased $32.6 million
to $126.2  million for the three months ended March 31, 2003 from $93.6  million
for the same period in 2002,  which  resulted  in a volume  increase in interest
expense of $164 thousand.

Interest  expense on borrowings  increased $246 thousand to $2.3 million for the
three months ended March 31, 2003 from $2.1 million for the same period in 2002.
The average  balance of borrowings  increased $56.8 million to $236.2 million at
March 31, 2003 from $179.4  million for the same period in 2002,  which resulted
in a volume increase in interest expense of $664 thousand. The average rate paid
on borrowings decreased 70 basis points to 3.97% for the quarter ended March 31,
2003 from 4.67% for the same  period in 2002  which  resulted  in a decrease  in
interest expense of $418 thousand due to rate changes.

Interest  expense on long term debt  increased $46 thousand to $332 thousand for
the three months ended March 31, 2003 from $286  thousand for the same period in
2002. The $25.0 million in Trust capital securities were issued in March 2002 at
an initial floating rate of 5.59%.

Critical Accounting  Estimate-Provision  for Loan Losses - A critical accounting
estimate is the  provision  for loan losses which  increased $57 thousand to $60
thousand for the three months ended March 31, 2003 from $3 thousand for the same
period in 2002. At March 31, 2003 the allowance for loan losses amounted to $4.4
million compared to $4.3 million at December 31, 2002. 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, 2003 was $1.6 million
compared  to $970  thousand  for the same  period  in  2002.  The  increase  was
primarily  due to a  $601  thousand  gain  on  sale  of  real  estate  held  for
development.  The final parcel of land, located in Burlington Township, was sold
in January 2003.  Additionally,  an increase in retail banking fees for the five
branches  opened since the first quarter of 2002 increased  other income for the
quarter ended March 31, 2003.  The increase was partially  offset by the loss of
$141  thousand on the sale of a closed  branch  building  for the quarter  ended
March 31, 2003.


                                       14

<PAGE>

Operating  Expenses - for the three month  period  ended March 31, 2003  totaled
$6.6 million compared to $5.8 million for the same period in 2002.

Salaries and Employee Benefits - for the three month period ended March 31, 2003
were $3.8  million  compared to $3.4  million  for the same period in 2002.  The
increase was primarily due to additional  staff in the five new branches  opened
since the first quarter of 2002. Average full time equivalent employees at March
31, 2003 were 503 as compared to 478 at March 31, 2002.

Occupancy  and  Equipment-  for the three month period ended March 31, 2003 were
$1.3 million compared to $1.1 million for the same period in 2002. This increase
is due to  additional  depreciation  and  occupancy  expense  on the new  branch
offices opened since the first quarter of 2002. Additionally, the extreme winter
weather  increased  snow  removal  expenses $85 thousand to $97 thousand for the
first three months of 2003 compared to the same period in 2002.

Purchased  Services - for the three month  period  ended March 31, 2003  totaled
$674 thousand compared to $615 thousand for the same period in 2002. ATM charges
increased  $61  thousand to $352  thousand  for the first  three  months of 2003
compared to $291 thousand for the same period in 2002 due to higher  transaction
volume.

ITEM 3:  DISCLOSURE ABOUT MARKET RISK

There were no significant changes for the three months ended March 31, 2003 from
the  information  presented in the annual report on Form 10-K for the year ended
December 31, 2002.

ITEM 4:  DISCLOSURE CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.  Based on their evaluation
as of a date within 90 days of the filing date of this Quarterly  Report on Form
10-Q,  the  Registrant's  principal  executive  officer and principal  financial
officer have concluded that the Registrant's  disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c)  under the Securities  Exchange Act
of 1934 (the "Exchange Act")) are effective to ensure that information  required
to be  disclosed  by the  Company  in  reports  that it files or  submits  under
Exchange Act is recorded,  processed,  summarized  and reported  within the time
periods specified in Securities and Exchange Commission rules and forms.

(b)  Changes in  internal  controls.  There were no  significant  changes in the
Registrant's  internal  controls or in other  factors  that could  significantly
affect these controls subsequent to the date of their evaluation,  including any
corrective   action  with  regard  to  significant   deficiencies  and  material
weaknesses.


                                       15

<PAGE>


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

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

               None


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

               None


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

               None

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

               The Annual  Meeting of  Stockholders  of the  Company was held on
               April 24, 2003 and the following were presented:

               The  Election of  Directors:  Vincent R. Farias and Wayne H. Page
               were re-elected as directors for terms of three years ending 2006
               and until their successors are elected and qualified.  Mr. Farias
               received 5,085,970 votes in favor and 66,620 votes were withheld;
               Mr.Page  received  5,073,970 votes in favor and 78,620 votes were
               withheld.

               Ratification of the appointment of PricewaterhouseCoopers LLP the
               Company's     auditors     for    the    2003    fiscal     year:
               PricewaterhouseCoopers LLP was ratified as the Company's auditors
               with  5,069,793   votes  for,  7,162  votes  against  and  75,635
               abstentions.

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

               On  March  28,  2003,  the Bank  purchased  the  deposits  of the
               Florence branch of Sun National Bank totaling $17.9 million.

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

               (a) 99.0  certification  pursuant  to 18 U.S.C.  Section  1350 as
               adopted  pursuant  to Section  906 of the  Sarbanes-Oxley  Act of
               2002.

               (b) The Company filed a Form 8-K on April 22, 2003  reporting the
               Company's earnings for the three months ended March 31, 2003.


                                       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, 2003             /s/ Craig W. Yates
                               ------------------
                               Craig W. Yates
                               President and Chief Executive Officer
                               (Principal Executive Officer)



Date: May 14, 2003             /s/ Channing L. Smith
                               ---------------------
                               Channing L. Smith
                               Vice President and
                               Chief Financial Officer
                               (Principal Financial Officer)








<PAGE>


                            SECTION 302 CERTIFICATION

I, Craig W. Yates, President of FMS Financial Corporation, certify that:

1. I  have  reviewed  this  quarterly  report  on  Form  10-Q  of FMS  Financial
Corporation;

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officer  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) designed  such  disclosure  controls and  procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

(b) evaluated the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report, (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions  about the  effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed,  based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing equivalent functions):

(a) all significant deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and

(b) any fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officer  and I have  indicated  in this
quarterly report whether there were significant  changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.


May 14, 2003                          /s/ Craig W. Yates
------------------                    ----------------------------
Date                                  Craig W. Yates, President

<PAGE>
                            SECTION 302 CERTIFICATION


I, Channing L. Smith, Chief Financial Officer of FMS Financial Corporation,
certify that:

1. I  have  reviewed  this  quarterly  report  on  Form  10-Q  of FMS  Financial
Corporation;

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officer  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) designed  such  disclosure  controls and  procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

(b) evaluated the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report, (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions  about the  effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed,  based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing equivalent functions):

(a) all significant deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and

(b) any fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officer  and I have  indicated  in this
quarterly report whether there were significant  changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.



May 14, 2003                         /s/ Channing L. Smith
------------------                   -----------------------------------------
Date                                 Channing L. Smith, Chief Financial Officer