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 June 30, 2005

                                       OR

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


                         Commission file number 0-17353

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

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

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

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

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

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

         As of August 5, 2005 there were issued and outstanding 6,502,960 shares
of the registrant's Common Stock, par value $.10 per
share.

<PAGE>

                    FMS FINANCIAL CORPORATION AND SUBSIDIARY
                    ----------------------------------------

                          QUARTERLY REPORT ON FORM 10-Q
                          -----------------------------

                                  JUNE 30, 2005
                                  -------------

                                TABLE OF CONTENTS
                                -----------------

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

         Item 1 - Financial Statements
               Consolidated Statements of Financial Condition as of
                       June 30, 2005 (unaudited) and December 31, 2004.....................................1

               Consolidated Statements of Operations (unaudited)
                       for the three and six months ended
                       June 30, 2005 and June 30, 2004.....................................................2

               Consolidated Statements of Cash Flows (unaudited)
                       for the six months ended June 30, 2005
                       and June 30, 2004...................................................................3

               Consolidated Statements of Changes in Stockholders' Equity
                       (unaudited) for the six months ended June 30, 2005 and
                       June 30, 2004.......................................................................4

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

         Item 2 - Management's Discussion and Analysis of
                       Financial Condition and Results of Operations....................................7-17

         Item 3 - Quantitative and Qualitative Disclosure about Market Risk...............................17

         Item 4 - Controls and Procedures..............................................................   17


PART II - Other Information

         Item 1 - Legal Proceedings.......................................................................18
         Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.............................18
         Item 3 - Defaults Upon Senior Securities.........................................................18
         Item 4 - Submission of Matters to a Vote of Security of Holders..................................18
         Item 5 - Other Information.......................................................................18
         Item 6 - Exhibits ...............................................................................18
</TABLE>

<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   June 30, 2005   December 31, 2004
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>                <C>
ASSETS
------------------------------------------------------------------------------------------------------------------------------------
   Cash and amounts due from depository institutions                                             $    49,550,347    $    46,410,744
   Interest-bearing deposits                                                                             161,365             30,950
   Short term funds                                                                                    6,675,288         64,135,662
                                                                                                 ---------------    ---------------
            Total cash and cash equivalents                                                           56,387,000        110,577,356
   Investment securities held to maturity                                                            258,385,957        254,833,749
   Investment securities available for sale                                                          180,135,298        141,999,280
   Mortgage-backed securities held to maturity                                                       236,508,492        269,221,897
   Loans, net                                                                                        433,617,963        418,798,633
   Accrued interest receivable                                                                         6,194,789          6,322,107
   Federal Home Loan Bank stock                                                                        7,750,020         10,250,120
   Office properties and equipment, net                                                               31,357,532         30,747,227
   Deferred income taxes                                                                               2,316,332          2,150,442
   Core deposit intangible                                                                             2,233,926          2,592,030
   Prepaid expenses and other assets                                                                   2,413,895          2,513,224
                                                                                                 ---------------    ---------------
TOTAL ASSETS                                                                                     $ 1,217,301,204    $ 1,250,006,065
                                                                                                 ===============    ===============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
    Deposits                                                                                     $   954,940,878    $   941,506,820
    Securities sold under agreements to repurchase                                                   155,000,000        195,000,000
    Advances from the Federal Home Loan Bank                                                                   0         10,000,000
    FMS Statutory Trust 1 debentures                                                                  25,774,000         25,774,000
    Advances by borrowers for taxes and insurance                                                      2,374,258          2,200,357
    Accrued interest payable                                                                           1,105,708          1,246,661
    Dividends payable                                                                                    195,077            195,029
    Other liabilities                                                                                  4,164,571          3,746,579
                                                                                                 ---------------    ---------------
    Total liabilities                                                                              1,143,554,492      1,179,669,446
                                                                                                 ---------------    ---------------

Commitments and contingencies
Stockholders' Equity:
    Preferred stock - $.10 par value 5,000,000 shares  authorized; none issued
    Common  stock - $.10 par value  10,000,000 shares authorized; shares
                    issued 7,991,742 and 7,991,292 and shares outstanding 6,502,560
                    and 6,502,110 as of June 30, 2005 and December 31, 2004, respectively                799,174            799,129
    Paid-in capital in excess of par                                                                   8,684,176          8,555,506
    Accumulated other comprehensive income - net of income taxes                                         398,814            270,784
    Retained earnings                                                                                 74,799,547         71,646,199
    Less:  Treasury stock (1,489,182 shares, at cost, as of June 30, 2005
             and December 31, 2004, respectively)                                                    (10,934,999)       (10,934,999)
                                                                                                 ---------------    ---------------
Total stockholders' equity                                                                            73,746,712         70,336,619
                                                                                                 ---------------    ---------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                       $ 1,217,301,204    $ 1,250,006,065
                                                                                                 ===============    ===============
</TABLE>

See notes to consolidated financial statements.

                                       1
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                 Three Months ended             Six Months ended
                                                      June 30,                      June 30,
                                            ---------------------------    ---------------------------
                                                 2005           2004            2005           2004
------------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>             <C>            <C>
INTEREST  INCOME:
Interest income on:
  Loans                                     $  6,379,624   $  6,059,107    $ 12,567,888   $ 12,110,883
  Mortgage-backed securities                   3,652,465      4,072,439       7,378,480      8,013,004
  Investments                                  4,276,127      3,453,157       8,364,636      7,102,094
                                            ------------   ------------    ------------   ------------
Total interest income                         14,308,216     13,584,703      28,311,004     27,225,981
                                            ------------   ------------    ------------   ------------
INTEREST EXPENSE:
Interest expense on:
  Deposits                                     2,682,399      1,825,981       5,086,189      3,606,190
  Borrowings                                   2,008,478      2,345,984       4,163,256      4,700,898
  Long term debt                                 443,177        335,240         851,676        639,038
                                            ------------   ------------    ------------   ------------
Total interest expense                         5,134,054      4,507,205      10,101,121      8,946,126
                                            ------------   ------------    ------------   ------------

NET INTEREST INCOME                            9,174,162      9,077,498      18,209,883     18,279,855
PROVISION FOR LOAN LOSSES                         90,000         75,000         180,000        150,000
                                            ------------   ------------    ------------   ------------
NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                            9,084,162      9,002,498      18,029,883     18,129,855
                                            ------------   ------------    ------------   ------------
NON-INTEREST INCOME:
  Loan service charges and other fees             23,991         29,932          41,171         59,176
  Gain on sale of investment securities                0              0               0        100,057
  Gain on sale of fixed assets                         0         46,080               0         46,080
  Real estate owned operations, net                    0         (3,284)              0         (4,547)
  Service charges on accounts                  1,373,139      1,322,312       2,641,141      2,526,552
  Other income                                    37,935         35,180          74,817         64,315
                                            ------------   ------------    ------------   ------------
Total non-interest income                      1,435,065      1,430,220       2,757,129      2,791,633
                                            ------------   ------------    ------------   ------------
NON-INTEREST EXPENSE:
  Salaries and employee benefits               4,458,834      4,074,148       8,834,862      8,199,780
  Occupancy and equipment                      1,385,072      1,302,436       2,821,608      2,682,092
  Purchased services                             701,740        748,290       1,398,923      1,445,012
  Federal deposit insurance premiums              32,274         33,282          64,413         65,547
  Professional fees                              184,758        167,895         372,008        333,678
  Advertising                                    104,425        104,063         213,243        216,026
  Amortization of core deposit intangible        179,052        179,052         358,104        358,104
  Other                                          348,797        364,166         713,931        701,350
                                            ------------   ------------    ------------   ------------

Total non-interest expenses                    7,394,952      6,973,332      14,777,092     14,001,589
                                            ------------   ------------    ------------   ------------

INCOME BEFORE INCOME TAXES                     3,124,275      3,459,386       6,009,920      6,919,899

INCOME TAXES                                   1,281,983      1,386,729       2,466,394      2,769,355
                                            ------------   ------------    ------------   ------------

NET INCOME                                  $  1,842,292   $  2,072,657    $  3,543,526   $  4,150,544
                                            ============   ============    ============   ============

BASIC EARNINGS PER COMMON SHARE             $       0.28   $       0.32    $       0.54   $       0.64
                                            ============   ============    ============   ============

DILUTED EARNINGS PER COMMON SHARE           $       0.28   $       0.32    $       0.54   $       0.64
                                            ============   ============    ============   ============

Dividends declared per common share         $       0.03   $       0.03    $       0.06   $       0.06
                                            ============   ============    ============   ============

Weighted average common shares outstanding     6,502,476      6,492,516       6,502,349      6,489,421
Potential dilutive effect of the exercise
  of stock options                                34,970         37,920          36,585         38,631
                                            ------------   ------------    ------------   ------------
Adjusted weighted average common shares
  outstanding                                  6,537,446      6,530,436       6,538,934      6,528,052
                                            ============   ============    ============   ============
</TABLE>
See notes to consolidated financial statements.

                                       2
<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                        Six Months ended June 30,
---------------------------------------------------------------------------------------------------------------------
                                                                                            2005              2004
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>               <C>
OPERATING ACTIVITIES:
Net income                                                                            $   3,543,526     $  4,150,544
Adjustments to reconcile net income to net cash provided
   by operating activities:
 Provision for loan losses                                                                  180,000          150,000
 Amortization and accretion of premiums and discounts on investments, net                 1,165,653        2,489,524
 Amortization and accretion of other fees and costs                                         413,982          450,346
 Depreciation                                                                             1,013,945          981,075
Realized (gains) and losses on:
 Sale of loans                                                                                    0               (1)
 Sale and disposal of fixed assets                                                              115          (46,080)
 Sale of investment securities                                                                    0         (100,056)
 Sale of real estate owned                                                                        0             (654)
Decrease (Increase) in accrued interest receivable                                          127,318         (399,763)
Decrease (Increase) in prepaid expenses and other assets                                     60,407         (500,438)
Decrease in accrued interest payable                                                       (140,953)         (40,490)
Increase (Decrease) in other liabilities                                                    329,571         (648,911)
(Benefit) Provision for deferred income taxes                                              (165,890)           9,691
                                                                                      ------------------------------
  Net cash provided by operating activities                                               6,527,674        6,494,787
                                                                                      ------------------------------
INVESTING ACTIVITIES:
Proceeds from sale of:
 Education loans                                                                                  0           18,626
 Real estate owned                                                                                0           48,948
 Property and equipment                                                                           0          238,872
Principal  collected and proceeds from maturities of investment  securities
  held to maturity                                                                      217,472,073       61,641,762
Principal  collected and proceeds from maturities of investment securities
  available for sale                                                                     78,973,223       31,714,385
Principal collected and proceeds on mortgage-backed securities                           32,031,655       60,467,501
Principal collected on loans, net                                                        42,030,061       46,439,992
Loans originated or acquired, net                                                       (57,046,347)     (63,229,673)
Purchase of investment securities and mortgage-backed securities                       (221,182,547)     (79,100,923)
Purchase of investment securities and mortgage-backed securities available for sale    (117,218,427)     (55,127,967)
Redemption of Federal Home Loan Bank stock                                                2,500,100           59,500
Purchase of office property and equipment                                                (1,624,363)        (933,164)
                                                                                      ------------------------------
  Net cash (used) provided by investing activities                                      (24,064,572)       2,237,859
                                                                                      ------------------------------
FINANCING ACTIVITIES:

Net increase in demand deposits and savings accounts                                     17,396,987       25,478,605
Net decrease in time deposits                                                            (3,962,929)     (10,968,978)
Net decrease in FHLB advances                                                           (10,000,000)      (1,191,047)
Repayment from securities sold under agreement to repurchase                            (40,000,000)               0
Increase in advances from borrowers for taxes and insurance                                 173,901          296,895
Dividends paid on common stock                                                             (390,132)        (389,182)
Net proceeds from issuance of common stock                                                  128,715           38,296
                                                                                      ------------------------------
 Net cash (used) provided by financing activities                                       (36,653,458)      13,264,589
                                                                                      ------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                        (54,190,356)      21,997,235
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                            110,577,356       72,334,637
                                                                                      ------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                                $  56,387,000    $  94,331,872
                                                                                      =============    =============
Supplemental Disclosures:
 Cash paid for:
  Interest on deposits, advances, and other borrowings                                $  10,242,074    $   8,986,616
  Income taxes                                                                            2,800,829        3,918,000
 Non-cash investing and financing activities:
  Dividends declared and not paid at year end                                               195,077          195,029
</TABLE>

See notes to consolidated financial statements.

                                       3

<PAGE>

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

                                                                         Accumulated                                    Total
                                  Common shares   Common     Paid-in    comprehensive    Retained      Treasury      Stockholders'
                                   outstanding     stock     capital    income (loss)    earnings       stock           Equity
---------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>          <C>        <C>           <C>          <C>           <C>              <C>
Balances at December 31, 2003       6,485,877    $797,506   $8,507,333    $   802,239  $63,657,664   $(10,934,999)    $62,829,743
Net Income                                                                               4,150,544                      4,150,544
Other comprehensive income
  Unrealized gain on
    securities available
    for sale, net of taxes
    of $234,994                                                            (1,270,369)                                 (1,270,369)
                                                                                                                      -----------
Total comprehensive income                                                                                              2,880,175
Dividends declared ($.06)                                                                 (389,636)                      (389,636)
Exercise of stock options              15,083       1,508       36,788                                                     38,296
---------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 2004           6,500,960    $799,014   $8,544,121    $  (468,130) $67,418,572   $(10,934,999)    $65,358,578
---------------------------------------------------------------------------------------------------------------------------------

Balances at December 31, 2004
                                    6,502,110    $799,129   $8,555,506    $   270,784  $71,646,199   $(10,934,999)    $70,336,619
Net Income                                                                               3,543,526                      3,543,526
Other comprehensive income
  Unrealized gain on
    securities available
    for sale, net of taxes
    of $88,421                                                                128,030                                     128,030
                                                                                                                      -----------

Total comprehensive income                                                                                              3,671,556

Dividends declared ($.06)                                                                 (390,178)                      (390,178)
Exercise of stock options                 450          45      128,670                                                    128,715
---------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 2005           6,502,560    $799,174   $8,684,176    $   398,814  $74,799,547   $(10,934,999)    $73,746,712
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.

                                       4

<PAGE>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX
MONTHS ENDED JUNE 30, 2005 (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 and
six months ended June 30, 2005 are not  necessarily  indicative of the operating
results for the full fiscal year or any other interim period.

The accompanying  unaudited consolidated financial statements have been prepared
in accordance with the instructions for Form 10-Q, and therefore, do not include
all  information  and  notes  necessary  for a fair  presentation  of  financial
condition, results of operations and statements of cash flows in conformity with
generally  accepted  accounting  principles.  These statements should be read in
conjunction  with the  consolidated  statements  and  related  notes,  which are
incorporated  by reference to the  Corporation's  annual report on Form 10-K for
the year ended December 31, 2004. The consolidated  financial statements include
the Corporation's principle subsidiary, Farmers & Mechanics Bank (the "Bank").


2-LONG-TERM DEBT
Long-Term Debt at June 30, 2005 and December 31, 2004 consisted of $25.8 million
of FMS Statutory Trust 1 debentures. The interest rate resets every three months
to LIBOR plus 360 basis points and will not exceed 11.00% through March 2007. At
June 30,  2005 and  December  31,  2004 the  interest  rate was 7.07% and 6.15%,
respectively. The proceeds were used for the paydown in August 2002 of the $10.0
million subordinated debentures,  expansion of the Bank's operations and general
corporate purposes.


3-REGULATORY CAPITAL REQUIREMENTS
The Bank is considered  "well  capitalized" by OTS regulations at June 30, 2005.
The  Bank's  regulatory  tangible  and tier 1 (core)  capital  ratios  are $85.5
million or 7.05% of total bank assets and $90.0 million or 17.74% for risk-based
capital. FMS's consolidated capital ratio at June 30, 2005 totaled 6.06%.


4-STOCK OPTIONS
The  Corporation  maintains  an incentive  stock  option  plan.  As permitted by
Statement of  Financial  Accounting  Standards  (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 six months ended June 30, 2005 and 2004.


5-PENSION  PLAN- The  Corporation  maintains a defined  benefit Pension Plan for
active  employees.  The  Corporation  expects to contribute  approximately  $1.1
million to its pension plan in 2005 and has contributed $605 thousand during the
six months ended June 30, 2005.  The  components  of the net pension cost are as
follows:

                                                 Six Months ended June 30,
                                              -----------------------------
                                                2005                2004
                                              ---------           ---------
       Service cost                           $ 460,710           $ 435,520
       Interest cost                            341,254             282,184
       Return on assets                        (406,812)           (316,100)
       Net amortization and deferral              2,054               6,134
                                              ---------           ---------
       Net periodic  pension cost             $ 397,206           $ 407,738
                                              =========           =========

                                       5
<PAGE>

6-RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2005, the Financial  Accounting Standard Board (FASB) issued Statement of
Financial  Standards  No.  154 (SFAS No.  154)  "Accounting  Changes  and Errors
Corrections - a replacement of Accounting  Principles Board (APB) Opinion No. 20
and FASB Statement No. 3", which changes the requirements for the accounting for
and  reporting  of a change in  accounting  principle.  It also  applies  to all
voluntary changes in accounting  principle.  Opinion 20 previously required that
most changes in accounting principle be recognized by including in net income of
the  period  of the  change,  the  cumulative  effect  of  changing  to the  new
principle.  This Statement requires retrospective  application to prior period's
financial statements of changes in accounting principle.  This Statement becomes
effective for accounting  changes and corrections of errors made in fiscal years
beginning after December 15, 2005. The adoption of this standard is not expected
to have a  material  impact  on the  Corporation's  Consolidated  Statements  of
Financial Condition or the Consolidated Statements of Operations.

                                       6
<PAGE>

ITEM 2: MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2005.

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

These  forward-looking  statements  involve  risk  and  uncertainties,  such  as
statements of the Corporation's plans, objectives,  expectations,  estimates and
intentions,  that are subject to change based on various important factors (some
of which are beyond the Corporation's  control).  The cautionary statements made
in this  report  should  be  read as  applying  to all  related  forward-looking
statements  wherever they appear in this report.  The following  factors,  among
others, could cause the Corporation's financial performance to differ materially
from the plans, objectives,  expectations, estimates and intentions expressed in
such  forward-looking  statements:  the strength of the United States economy in
general  and the  strength  of the  local  economies  in which  the  Corporation
conducts operations;  the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the board of governors of
the federal  reserve  system,  inflation,  interest  rate,  market and  monetary
fluctuations;  the timely  development  of and  acceptance  of new  products and
services of the  Corporation  and the perceived  overall value of these products
and services by users,  including the features,  pricing and quality compared to
competitors'  products and  services;  the  willingness  of users to  substitute
competitors' products and services for the Corporation's  products and services;
the success of the  Corporation in gaining  regulatory  approval of its products
and services,  when required;  the impact of changes in financial  services laws
and  regulations  (including  laws  concerning  taxes,  banking,  securities and
insurance);  technological changes;  acquisitions;  changes in consumer spending
and saving  habits;  and the success of the  Corporation  at managing  the risks
involved in the  foregoing.  Such risks and  uncertainties  could  cause  actual
results to differ  materially  from any  future  performance  suggested  in this
report. The Corporation cautions that the foregoing list of important factors is
not exclusive.  The Corporation undertakes no obligation to release publicly the
results of any revisions to these  forward-looking  statements to reflect events
or  circumstances  arising  after the date of this report.  This caution is made
under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995.

                                       7

<PAGE>

FINANCIAL CONDITION

Total Assets - at June 30, 2005 were $1.22 billion as compared with total assets
at December 31, 2004 of $1.25 billion.

Short Term Funds - decrease  $57.4 million to $6.7 million at June 30, 2005 from
$64.1 million at December 31, 2004 due to the purchase of investment  securities
and the originations of loans.

Investment  Securities  Held to  Maturity  -  increased  $3.6  million to $258.4
million at June 30, 2005 from $254.8 million at December 31, 2004, primarily due
to purchases $76.0 million in U. S. Agency Notes, $9.4 million in CMO's and $5.8
million of Municipal  Bonds,  partially  offset by calls of $74.1 million in U.S
Agency Notes,  principal  paydowns of $12.3 million in CMO's and the maturity of
$1.1  million of  Municipal  Bonds  during the six months  ended June 30,  2005.
Investment  securities  held to maturity at June 30,  2005  consisted  of $258.4
million in fixed rate  securities.  A comparison of cost and approximate  market
values  of  investment  securities  held to  maturity  as of June  30,  2005 and
December 31, 2004 follows:

<TABLE>
<CAPTION>
                                         June 30, 2005                                   December 31, 2004
--------------------------------------------------------------------------------   -----------------------------
                                        Gross         Gross          Estimated                      Estimated
                       Amortized      Unrealized    Unrealized         Market        Amortized       Market
                         Cost           Gains         Losses           Value           Cost          Value
--------------------------------------------------------------------------------   -----------------------------
<S>                 <C>            <C>            <C>             <C>             <C>            <C>
U. S. Agency Notes   $166,156,743   $    285,770   $   (127,466)   $166,315,047    $164,381,425   $164,033,241
CMO's                  84,525,176         60,493       (950,660)     83,635,009      87,413,111     86,773,600
Municipal bonds         7,704,038          3,776              0       7,707,814       3,039,213      3,043,454
--------------------------------------------------------------------------------   -----------------------------
Total                $258,385,957   $    350,039   $ (1,078,126)   $257,657,870    $254,833,749   $253,850,295
================================================================================   =============================
</TABLE>

Investment  Securities  Available  for Sale - increased  $38.1 million to $180.1
million at June 30, 2005 from $142.0  million at December 31, 2004. The increase
is the result of purchases of $39.0 million of U.S. Agency Notes,  $14.6 million
of MBS's and $5.0 million of CMO's,  partially  offset by principal  paydowns of
$15.3 million of CMO's and MBS's, and $5.2 million in calls of U.S. Agency Notes
for the six months ended June 30, 2005. Investment securities available for sale
consisted  of $175.2  million  in fixed  rate  securities  and $4.9  million  in
adjustable  rate  securities  at  June  30,  2005.  A  comparison  of  cost  and
approximate market values of investment securities available for sale as of June
30, 2005 and December 31, 2004 follows:

<TABLE>
<CAPTION>
                                         June 30, 2005                                   December 31, 2004
--------------------------------------------------------------------------------   -----------------------------
                                        Gross         Gross          Estimated                     Estimated
                       Amortized      Unrealized    Unrealized         Market        Amortized       Market
                         Cost           Gains         Losses           Value           Cost          Value
--------------------------------------------------------------------------------   -----------------------------
<S>                 <C>            <C>            <C>             <C>             <C>            <C>
U. S. Agency Notes   $ 64,282,294    $   28,087     $(107,561)     $ 64,202,820    $ 30,537,053   $ 30,316,735
CMO's                  35,057,754       161,848      (151,306)       35,068,296      37,677,754     37,601,576
MBS's                  80,121,008       876,642      (133,468)       80,864,182      73,326,684     74,080,969
--------------------------------------------------------------------------------   -----------------------------
Total                $179,461,056    $1,066,577     $(392,335)     $180,135,298    $141,541,491   $141,999,280
================================================================================   =============================
</TABLE>
                                       8


<PAGE>

Mortgage-Backed  Securities Held to Maturity - decreased $32.7 million to $236.5
million at June 30, 2005 from $269.2  million at December 31, 2004. The decrease
is the result of principal  paydowns of $32.0  million for six months ended June
30,  2005.  Mortgage-backed  securities  at June 30,  2005  consisted  of $204.4
million  in  fixed  rate   securities  and  $32.1  million  in  adjustable  rate
securities.  Mortgage-backed  securities  held to  maturity at June 30, 2005 and
December 31, 2004 are summarized below:


<TABLE>
<CAPTION>
                                         June 30, 2005                                   December 31, 2004
--------------------------------------------------------------------------------   -------------------------------
                                        Gross           Gross        Estimated                       Estimated
                       Amortized      Unrealized      Unrealized       Market          Amortized       Market
                         Cost           Gains           Losses         Value             Cost          Value
--------------------------------------------------------------------------------   -------------------------------
<S>                  <C>               <C>           <C>          <C>                <C>           <C>
GNMA                  $  6,110,403      $  300,564    $       0    $  6,410,967       $  7,598,918  $  7,975,978

FNMA                   117,855,635       2,124,258     (138,690)    119,841,203        136,076,364   138,720,205

FHLMC                   55,739,237         592,994     (281,484)     56,050,747         63,157,460    63,710,920

Pass-Thru               56,803,217         299,697     (398,885)     56,704,029         62,389,155    62,119,115
--------------------------------------------------------------------------------   -------------------------------
Total                 $236,508,492      $3,317,513    $(819,059)   $239,006,946       $269,221,897  $272,526,218
================================================================================   ===============================
</TABLE>


The  following  table  shows the gross  unrealized  losses and fair value of the
Bank's   investments   with  unrealized   losses  that  are  not  deemed  to  be
other-than-temporarily impaired, aggregated by investment category and length of
time that individual securities have been in continuous unrealized loss position
at June 30, 2005:

<TABLE>
<CAPTION>
                                 Less Than 12 Months          12 Months or Greater                  Total
                           ---------------------------------------------------------------------------------------------
                                             Unrealized                       Unrealized                   Unrealized
Description of Security     Fair Value        (Losses)      Fair Value        (Losses)      Fair Value      (Losses)
------------------------------------------------------------------------------------------------------------------------
<S>                      <C>            <C>               <C>           <C>           <C>               <C>
Investment Securities Available for Sale:
----------------------------------------

U.S. Agency Notes          $ 27,326,292    $   (99,436)    $ 6,491,875    $    (8,125)   $ 33,818,167    $  (107,561)

CMO's                         8,468,399        (82,453)      4,281,390        (68,853)     12,749,789       (151,306)

MBS's                        14,171,496        (81,627)      8,139,876        (51,841)     22,311,372       (133,468)
                          ----------------------------------------------------------------------------------------------
Total Available for Sale     49,966,187       (263,516)     18,913,141       (128,819)     68,879,328       (392,335)
                          ----------------------------------------------------------------------------------------------

Investment Securities Held to Maturity:
--------------------------------------

U.S. Agency Notes            34,143,758        (64,922)     20,205,517        (62,544)     54,349,275       (127,466)

CMO's                        21,773,530       (200,041)     40,178,961       (750,619)     61,952,491       (950,660)

MBS's                        49,362,945       (581,895)     16,237,180       (237,164)     65,600,125       (819,059)
                          ----------------------------------------------------------------------------------------------
Total Held to Maturity      105,280,233       (846,858)     76,621,658     (1,050,327)    181,901,891     (1,897,185)
                          ----------------------------------------------------------------------------------------------
Total                      $155,246,420    $(1,110,374)    $95,534,799    $(1,179,146)   $250,781,219    $(2,289,520)
========================================================================================================================
</TABLE>

                                       9

<PAGE>

Loans,  net - increased  $14.8  million to $433.6  million at June 30, 2005 from
$418.8  million at December 31, 2004.  This increase was primarily the result of
$57.0  million of loans  originated,  partially  offset by  approximately  $42.0
million of  principal  collected  on loans  during the six months ended June 30,
2005.  The following  table shows loans  receivable  by major  categories at the
dates indicated.

                                      June 30,            December 31,
                                        2005                 2004
----------------------------------------------------------------------

Mortgage Loans                    $  282,190,789       $  275,842,765
Construction Loans                       340,090              897,264
Commercial Construction               10,408,566           11,971,241
Consumer Loans                         2,553,167            2,471,624
Commercial Real Estate               122,278,210          116,380,045
Commercial Business                   21,008,119           16,311,618
----------------------------------------------------------------------

Subtotal                             438,778,941          423,874,557
----------------------------------------------------------------------
Less:
    Deferred loan fees                   269,142              356,732
    Allowance for
     loan losses                       4,891,836            4,719,192
----------------------------------------------------------------------
Total loans, net                  $  433,617,963       $  418,798,633
----------------------------------------------------------------------


At June 30, 2005, 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 $962  thousand of
loans that were collectively  measured for impairment with a valuation allowance
of $21 thousand.  The Bank had $4.9 million in total reserves for loan losses at
June 30, 2005, representing  approximately 170% of non-performing loans and 1.1%
of total loans.  For the six months ended June 30,  2005,  the average  recorded
investment in impaired loans was approximately $1.8 million. The Bank recognized
$70 thousand of interest  income on impaired loans for the six months ended June
30, 2005, all of which was recognized on the cash basis.

As of June 30, 2005 the Bank had outstanding  loan commitments of $12.7 million,
of  which  $6.2  million  represented  variable  rate  loans  and  $6.5  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.

                                       10

<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.

                                                   June 30,     December 31,
                                                     2005          2004
                                                  ----------    ----------

Loans accounted for on a non-accrual basis:
Mortgage loans:
    One-to-four family                            $  932,596    $  819,076
    Commercial real estate                           984,924       984,924
    Consumer and other                                28,864             0
                                                  ----------    ----------
    Total non-accrual loans                       $1,946,384    $1,804,000
                                                  ----------    ----------

    Troubled debt restructuring                   $  930,882    $  718,047
    Real estate owned, net                                 0             0
                                                  ----------    ----------
    Total non-performing assets, net              $2,877,266    $2,522,047
                                                  ----------    ----------


    Total non-accrual loans to net loans                0.45%         0.43%
                                                  ==========    ==========
    Total non-accrual loans to total assets             0.16%         0.14%
                                                  ==========    ==========
    Total non-performing assets to total assets         0.24%         0.20%
                                                  ==========    ==========


Deposits  -  increased  $13.4  million to $954.9  million at June 30,  2005 from
$941.5  million at December 31, 2004.  Non-interest  bearing  checking  accounts
increased $14.8 million,  savings accounts increased $3.6 million,  money market
accounts increased $2.5 million, certificates of deposits decreased $4.0 million
and  interest-bearing  checking  accounts  decreased  $3.6 million,  for the six
months ended June 30, 2005. Interest credited to depositors accounts for the six
months ended June 30, 2005  amounted to $5.1 million.  The following  table sets
forth certain information concerning deposits at the dates indicated.

<TABLE>
<CAPTION>
                                            June 30, 2005                            December 31, 2004
--------------------------------------------------------------------------------------------------------------------
                                               Percent     Weighted                       Percent      Weighted
                                               of Total     Average                       of Total      Average
                                    Amount     Deposits      Rate              Amount     Deposits       Rate
--------------------------------------------------------------------------------------------------------------------
<S>                            <C>            <C>          <C>            <C>            <C>           <C>
Non-interest checking            $190,855,226   19.99%       0.00%          $176,047,722   18.70%        0.00%
Checking accounts                 210,461,484   22.04        1.58%           214,059,142   22.74         0.55%
Savings accounts                  198,678,105   20.81        0.58%           195,039,302   20.72         0.86%
Money market accounts             148,160,672   15.51        0.82%           145,612,332   15.41         0.72%
Certificates                      206,785,391   21.65        2.11%           210,748,322   22.38         1.82%
--------------------------------------------------------------------------------------------------------------------
   Total Deposits                $954,940,878  100.00%       1.08%          $941,506,820  100.00%        0.84%
====================================================================================================================
</TABLE>

                                       11

<PAGE>

Borrowings - at June 30, 2005  consisted of $155.0  million in  securities  sold
under the  agreement to  repurchase  with a weighted  average  interest  rate of
5.05%.  At  December  31,  2004,  borrowings  consisted  of  $195.0  million  in
securities sold under  agreements to repurchase with a weighted  average rate of
4.49% and $10.0 million  in  Federal  Home Loan Bank  Advances  with a  weighted
average interest rate of 2.53%.

Long-term  debt - at June 30,  2005 and  December  31, 2004  consisted  of $25.8
million of FMS  Statutory  Trust 1  debentures.  The interest  rate resets every
three months to LIBOR plus 360 basis points and will not exceed  11.00%  through
March 2007.  At June 30, 2005 and December 31, 2004 the interest  rate was 7.07%
and 6.15%, respectively.

RESULTS OF OPERATIONS

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

The Corporation  recorded net income for the three months ended June 30, 2005 of
$1.8 million, or $.28 diluted earnings per share as compared to $2.1 million, or
$.32  diluted  earnings  per  share  for the  comparable  period  in  2004.  The
Corporation  recorded  net income for the six months ended June 30, 2005 of $3.5
million, or $.54 diluted earnings per share as compared to $4.2 million, or $.64
diluted earnings per share for the comparable period in 2004.

Interest Rate Spread

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


                                       12

<PAGE>
<TABLE>
<CAPTION>

                                                 Three Months  Ended June 30,
---------------------------------------------------------------------------------------------------------
                                                 2005                                  2004
----------------------------------------------------------------- ---------------------------------------
                                  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              $  432,904   $    6,380      5.90%   $   416,013   $    6,059      5.83%
  Interest-bearing deposit          41,750          259      2.48%        60,211          151      1.00%
  Mortgage-backed securities       316,948        3,652      4.61%       380,660        4,072      4.28%
  Investment securities            349,581        4,017      4.60%       291,120        3,303      4.54%
                                ----------   ----------   -------    -----------   ----------   -------
Total interest-earning
      assets                     1,141,183       14,308      5.02%     1,148,004       13,585      4.73%
                                ----------   ----------   -------    -----------   ----------   -------
Interest-bearing liabilities:
  Checking deposits                410,784          937      0.91%       367,215          359      0.39%
  Savings deposits                 201,222          293      0.58%       197,034          271      0.55%
  Money Market deposits            144,909          306      0.84%       132,194          215      0.65%
  Time deposit                     206,985        1,147      2.22%       217,883          981      1.80%
  Borrowings                       159,333        2,008      5.04%       235,000        2,346      3.99%
  Long-Term Debt                    25,774          443      6.88%        25,774          335      5.20%
                                ----------   ----------   -------    -----------   ----------   -------
Total interest-bearing
      liabilities               $1,149,007        5,134      1.79%   $ 1,175,100        4,507      1.53%
                                ==========   ----------   -------    ===========   ----------   -------
Net interest income                          $    9,174                            $    9,078
                                             ==========                            ==========
Interest rate spread                                         3.23%                                 3.20%
                                                          =======                               =======
Net yield on average interest-earning assets                 3.22%                                 3.16%
                                                          =======                               =======
Ratio of average interest-
  earning assets to average interest -bearing liabilities   99.32%                                97.69%
                                                          =======                               =======
</TABLE>

<TABLE>
<CAPTION>
                                                  Six Months Ended June 30,
---------------------------------------------------------------------------------------------------------
                                                 2005                                  2004
----------------------------------------------------------------- ---------------------------------------
                                  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              $  429,943     $12,568      5.85%     $   412,504     $ 12,111    5.87%
  Interest-bearing deposit          51,117         591      2.31%          38,466          255    1.33%
  Mortgage-backed securities       322,982       7,378      4.57%         372,755        8,013    4.30%
  Investment securities            338,307       7,774      4.60%         309,504        6,847    4.42%
                                -----------    -------- ----------    ------------    --------- --------
Total interest-earning
      assets                     1,142,349      28,311      4.96%       1,133,229       27,226    4.81%
                                -----------    -------- ----------    ------------    --------- --------
Interest-bearing liabilities:
  Checking deposits                398,478       1,733      0.87%         354,950          615    0.35%
  Savings deposits                 198,706         579      0.58%         193,030          531    0.55%
  Money Market deposits            144,551         590      0.82%         131,649          428    0.65%
  Time deposit                     208,745       2,183      2.09%         220,395        2,032    1.84%
  Borrowings                       173,302       4,164      4.81%         235,272        4,701    4.00%
  Long-Term Debt                    25,774         852      6.61%          25,774          639    4.96%
                                -----------    -------- ----------    ------------    --------- --------
Total interest-bearing
      liabilities               $1,149,556      10,101      1.76%     $ 1,161,070        8,946    1.54%
                                ===========    -------- ----------    ============    --------- --------
Net interest income                            $18,210                                $ 18,280
                                               ========                               =========
Interest rate spread                                        3.20%                                 3.26%
                                                           =====                                 =====
Net yield on average interest-earning assets                3.19%                                 3.23%
                                                           ======                                =====
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities                             99.37%                                97.60%
                                                           =====                                 =====
</TABLE>
                                       13
<PAGE>

Rate/Volume Analysis

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

<TABLE>
<CAPTION>
                                        Three Months Ended June 30,             Six Months Ended June 30,
                                             2005 vs. 2004                           2005 vs. 2004
                                   Increase (Decrease) due to Change in:   Increase (Decrease) due to Change in:
                                   -------------------------------------   -------------------------------------
                                         Rate      Volume      Total           Rate      Volume      Total
                                               (In Thousands)                        (In Thousands)
                                      -----------------------------          -----------------------------
<S>                                  <C>        <C>        <C>        <C>        <C>        <C>
Interest income:
    Loans                             $    75    $   246    $   321          $   (55)   $   512    $   457
    Interest-bearing deposits             154        (46)       108              252         84        336
    Mortgage-backed securities            262       (682)      (420)             435     (1,070)      (635)
    Investment securities                  51        663        714              290        637        927
                                      -----------------------------          -----------------------------
    Total change - interest income        542        181        723              922        163      1,085
                                      -----------------------------          -----------------------------
Interest expense:
    Checking deposits                     535         43        578            1,043         75      1,118
    Savings deposit                        16          6         22               32         16         48
    Money market deposit                   70         21         91              120         42        162
    Time deposit                          215        (49)       166              258       (107)       151
    Borrowings                            417       (755)      (338)             701     (1,238)      (537)
    Long-Term Debt                        108          -        108              213          -        213
                                      -----------------------------          -----------------------------
    Total change - interest expense     1,361       (734)       627            2,367     (1,212)     1,155
                                      -----------------------------          -----------------------------
Net change in net interest income     $  (819)   $   915    $    96          $(1,445)   $ 1,375        (70)
                                      =============================          =============================
</TABLE>


Net Interest  Income - Net  interest  income for the three months ended June 30,
2005  increased  $96 thousand to $9.2  million  compared to $9.1 million for the
same period in 2004 due primarily to increases in interest  income on investment
securities of $714 thousand and loans of $321 thousand and decreases in interest
expense on  borrowings  of $338  thousand,  partially  offset by an  increase in
interest  expense on  checking  accounts  of $578  thousand  and a  decrease  in
interest income on MBS's of $420 thousand.

The  increase  in  interest  income was  primarily  the result of an increase in
interest  income on  investment  securities of $714 thousand to $4.0 million for
the three  months  ended June 30, 2005 from $3.3  million for the same period in
2004. The average  balance of investment  securities  increased $58.5 million to
$349.6  million for the three months ended June 30, 2005 from $291.1 million for
the same period in 2004,  which resulted in a volume increase in interest income
of $663  thousand.  The average yield of the  investment  portfolio  increased 6
basis  points to 4.60% for the  quarter  ended June 30,  2005 from 4.54% for the
same  period in 2004,  which  resulted  in an  interest  income  increase of $51
thousand due to rate changes.

                                       14

<PAGE>

Interest  income on loans  increased $321 thousand to $6.4 million for the three
months  ended June 30, 2005 from $6.1  million for the same period in 2004.  The
average  balance of loans  increased  $16.9  thousand to $432.9  million for the
quarter  ended June 30,  2005 from  $416.0  million for the same period in 2004,
which  resulted in an interest  income  increase of $246  thousand.  The average
yield of loans increased 7 basis points to 5.90% for the three months ended June
30, 2005 from 5.83% for the same period in 2004,  which  resulted in an interest
income increase of $75 thousand due to rate changes.

Interest  expense on borrowings  decreased $338 thousand to $2.0 million for the
three  months ended June 30, 2005 from $2.3 million for the same period in 2004.
The average balance of borrowings  decreased $75.7 million to $159.3 million for
the quarter ended June 30, 2005 from $235.0 million for the same period in 2004,
which resulted in a volume  decrease in interest  expense of $755 thousand.  The
average  rate of  borrowings  increased  105 basis points to 5.04% for the three
months  ended  June 30,  2005  from  3.99% for the same  period  in 2004,  which
resulted in a increase in interest expense of $417 thousand.

Interest expense on checking  deposits  increased $578 thousand to $937 thousand
for the three months ended June 30, 2005 from $359  thousand for the same period
in 2004.  The average  rate on checking  deposits  increased  52 basis points to
0.91% for the  quarter  ended June 30,  2005 from  0.39% for the same  period in
2004,  which resulted in an increase in interest  expense of $535 thousand.  The
average balance of checking  deposits  increased $43.6 million to $410.8 million
for the three months ended June 30, 2005 from $367.2 million for the same period
in 2004,  which  resulted  in a  volume  increase  in  interest  expense  of $43
thousand.

Interest income on mortgage-backed securities (MBS's) decreased $420 thousand to
$3.7 million for three months ended June 30, 2005 from $4.1 million for the same
period in 2004. The average  balance of MBS's  decreased $63.8 million to $316.9
million for the three  months  ended June 30,  2005 from $380.7  million for the
same period in 2004,  which  resulted in an interest  income volume  decrease of
$682 thousand.  The average yield of the MBS portfolio increased 33 basis points
to 4.61% for the  quarter  ended June 30, 2005 from 4.28% for the same period in
2004,  which  resulted in an interest  income  increase of $262  thousand due to
changes in rates.

Net  interest  income  for the six  months  ended June 30,  2005  decreased  $70
thousand to $18.2 million compared to $18.3 million for the same period in 2004,
primarily  due to an increase in interest  expense on checking  deposits of $1.1
million and a decrease in interest income on mortgage-backed  securities of $635
thousand,  partially  offset by an  increase in  interest  income on  investment
securities of $927 thousand,  loans of $457 thousand, and a decrease in interest
expense on borrowing  of $537  thousand as compared to the same six month period
in 2004.

The  increase in interest  expense on checking  account  deposits  was due to an
increase  in the  average  rate of 52 basis  points to 0.87% for the six  months
ended June 30, 2005 from 0.35% for the same period in 2004, which resulted in an
increase in interest  expense of $1.0 million due to interest rate changes.  The
average  balance of the  checking  deposits  increased  $43.5  million to $398.5
million for the six months ended June 30, 2005 from $355.0  million for the same
period in 2004,  which resulted in a volume  increase in interest  income of $75
thousand.

Interest income on  mortgage-backed  securities  decreased $635 thousand for the
six months  ended June 30, 2005 to $7.4  million  from $8.0 million for the same
period in 2004.  The  decrease in  interest  income was due to a decrease in the
average  balance of on the portfolio of $49.8 million to $323.0  million for the
six months ended June 30, 2005 from $372.8  million for the same period in 2004,
which resulted in a decrease in interest income of $1.1 million. The decrease in
the average  balance was due to $73.1  million of principal  paydowns  from June
2004 through June 2005.  The average yield on the  portfolio  increased 27 basis
points to 4.57% for the six months  ended  June 30,  2005 from 4.30% for the six
months  ended June 30,  2004,  which  resulted  in a $435  thousand  increase in
interest income due to interest rate changes.

                                       15

<PAGE>

Interest income on investment securities increased $927 thousand to $7.8 million
for the six months  ended June 30, 2005 from $6.8 million for the same period in
2004. The average balance of the investment securities portfolio increased $28.8
million to $338.3  million  for the six months  ended June 30,  2005 from $309.5
million for the same  period in 2004,  which  resulted  in a volume  increase in
interest  income of $637  thousand.  The  increase  in the  average  balance was
primarily  due to purchases of $394.3  million,  partially  offset by investment
calls and maturities of $252.8  million and principal  paydowns of $63.0 million
from June 30, 2004 through June 30, 2005.  The average  yield on the  investment
portfolio  increased  18 basis points to 4.60% for the six months ended June 30,
2005 from 4.42% for the same  period in 2004,  which  resulted in an increase in
interest income of $290 thousand due to rate changes.

Interest  income on loans  increased  $457 thousand to $12.6 million for the six
months ended June 30, 2005 from $12.1  million for the same period in 2004.  The
average  balance  increased  $17.4 million to $429.9  million for the six months
ended June 30,  2005 from  $412.5  million  for the same  period in 2004,  which
resulted in a volume increase in interest income of $512 thousand.  The increase
in the  average  balance was the result of $120.5  million of loans  originated,
partially offset by approximately $105.7 million of principal collected on loans
during the period from June 30, 2004 through June 30, 2005.  The average rate on
loans  decreased 2 basis  points to 5.85% for the six months ended June 30, 2005
from 5.87% for the same period in 2004, which resulted in a decrease in interest
income of $55 thousand due to rate changes.

Interest  expense on borrowings  decreased $537 thousand to $4.2 million for the
six months  ended June 30,  2005 from $4.7  million for the same period in 2004.
The average balance of borrowings  decreased $62.0 million to $173.3 million for
the six months  ended June 30, 2005 from  $235.3  million for the same period in
2004, which resulted in a volume decrease of $1.2 million. The average rate paid
on  borrowings  increased 81 basis points to 4.81% for the six months ended June
30, 2005 from 4.00% for the same period in 2004,  which  resulted in an increase
in interest expense of $701 thousand due to rate changes.

Non-Interest Income - remained constant at $1.4 million and $2.8 million for the
three and six month periods ended June 30, 2005 and 2004.

Salaries and Employee  Benefits - for the three and six month periods ended June
30, 2005 were $4.5 million and $8.8 million,  respectively,  as compared to $4.1
million and $8.2 million for the same period in 2004.  The increase is primarily
due to annual  compensation  increases,  a $233 thousand  increase in retirement
benefits  and a $104  thousand  increase  in health  insurance  cost for the six
months ended June 30, 2005.  Average full time equivalent  employees at June 30,
2005 were 535 as compared to 525 at June 30, 2004.

Purchased  Services - for the three and six month  periods  ended June 30,  2005
totaled $702  thousand and $1.4  million,  as compared to $748 thousand and $1.4
million for the same periods in 2004. The decrease is primarily due to a decline
in ATM  processing  costs of $33  thousand and payroll  processing  costs of $28
thousand for the six months  ended June 30, 2005  compared to the same period in
2004.

Critical Accounting  Estimate-Provision  for Loan Losses - A critical accounting
estimate is the provision  for loan losses which  increased $30 thousand to $180
thousand for the six months ended June 30, 2005 from $150  thousand for the same
period in 2004. At June 30, 2005 the allowance for loan losses  amounted to $4.9
million compared to $4.7 million at December 31, 2004. The  determination of the
allowance  level for loan losses is based on  management's  analysis of the risk
characteristics of various types of loans, levels of classified loans,  previous
loan  loss  experience,  the  estimated  fair  market  value  of the  underlying
collateral and current  economic  conditions.  Additionally,  the mix within the
Bank's portfolio continues to change as the Bank offers a wider

                                       16
<PAGE>

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.

ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There were no  significant  changes for the six months  ended June 30, 2005 from
the  information  presented in the annual report on Form 10-K for the year ended
December 31, 2004.

ITEM 4:  CONTROLS AND PROCEDURES

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

(b) Changes in internal  control over  financial  reporting.  During the quarter
    -------------------------------------------------------
under  report,  there was no  change  in the  Company's  internal  control  over
financial  reporting that has materially  affected,  or is reasonably  likely to
materially affect, the Company's internal control over financial reporting.

                                       17

<PAGE>

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

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

                     None


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

                     None


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

                     None


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

                     None

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

                     None

         Item 6:     Exhibits
         -------     --------

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

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

                                       18

<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: August 11, 2005                /s/ Craig W. Yates
                                     -------------------------------------------
                                     Craig W. Yates
                                     President and Chief Executive Officer
                                     (Principal Executive Officer)



Date: August 11, 2005                /s/ Channing L. Smith
                                     -------------------------------------
                                     Channing L. Smith
                                     Vice President and
                                     Chief Financial Officer
                                     (Principal Financial Officer)