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 September 30, 2002

                                       OR

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


                         Commission file number 0-17353

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

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


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


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

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during the  preceding  12 months (or for such  reports),  and (2) has been
subject  to such  filing  requirements  for the past 90  days.  YES X NO . As of
November  1, 2002 there  were  issued and  outstanding  6,463,811  shares of the
registrant's Common Stock, par value $.10 per share.


<PAGE>
                    FMS FINANCIAL CORPORATION AND SUBSIDIARY
                    ----------------------------------------
                          QUARTERLY REPORT ON FORM 10-Q
                          -----------------------------
                               SEPTEMBER 30, 2002
                               ------------------
                                TABLE OF CONTENTS
                                -----------------
<TABLE>
<CAPTION>

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

         Item 1 - Financial Statements
                Consolidated Statements of Financial Condition as of
                       September 30, 2002 (unaudited) and December 31, 2001................................1

               Consolidated Statements of Operations (unaudited)
                       for the three and nine months ended
                       September 30, 2002 and September 30, 2001...........................................2

               Consolidated Statements of Cash Flows (unaudited)
                       for the nine months ended September 30, 2002
                       and September 30, 2001..............................................................3

               Consolidated  Statements  of  Changes  in  Stockholders' Equity
                       (unaudited) for the nine months ended September 30, 2002
                       and September 30, 2001..............................................................4

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

         Item 2 - Management's Discussion and Analysis of
                       Financial Condition and Results of Operations....................................6-17

         Item 3 - Disclosure about Market Risk............................................................17

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

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

         Item 1 - Legal Proceedings.......................................................................18

         Item 2 - Changes in Securities...................................................................18

         Item 3 - Defaults Upon Senior Securities.........................................................18

         Item 4 - Submission of Matters to a Vote of Security Holders.....................................18

         Item 5 - Other Information.......................................................................18

         Item 6 - Exhibits and Reports on Forms 8-K  .....................................................18

</TABLE>

<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                                                   September 30, 2002    December 31, 2001

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

ASSETS                                                                               (Unaudited)
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                     <C>
     Cash and due from banks                                                      $     30,230,050     $     32,336,279
     Interest-bearing deposits                                                              44,878              153,133
     Short term funds                                                                   36,280,803           30,869,712
                                                                                  ----------------     ----------------

        Total cash and cash equivalents                                                 66,555,731           63,359,124
     Investment securities held to maturity                                            151,026,006          196,571,299
     Investment securities available for sale                                          145,668,759           51,969,422
     Loans, net                                                                        360,795,487          336,544,004
     Mortgage-backed securities held to maturity                                       330,606,407          272,494,220
     Accrued interest receivable:
        Loans                                                                            1,707,518            1,591,276
        Mortgage-backed securities                                                       2,079,810            1,757,572
        Investments                                                                      2,251,564            2,194,252
     Federal Home Loan Bank stock                                                       10,811,720            8,313,620
     Real estate held for development, net                                                  87,926               87,926
     Real estate owned, net                                                                278,126              214,249
     Premises and equipment, net                                                        27,599,917           26,364,980
     Deferred income taxes                                                               3,458,136            3,158,402
     Prepaid expenses and other assets                                                   1,210,177            1,767,694
     Trust Capital securities issue costs, net                                             737,460                    0
     Subordinated debentures issue costs, net                                                    0              149,069

                                                                                  ----------------     ----------------
TOTAL ASSETS                                                                      $  1,104,874,744     $    966,537,109
                                                                                  ================     ================

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

Liabilities:
     Deposits                                                                     $    766,107,078     $    729,505,729
     Securities sold under agreements to repurchase                                    205,000,000          165,000,000
     Advances from the Federal Home Loan Bank                                           11,232,103            1,270,313
     10% Subordinated debentures, due 2004                                                       0           10,000,000
     Trust Capital securities - FMS Statutory Trust 1                                   25,000,000                    0
     Advances by borrowers for taxes and insurance                                       2,166,998            2,247,002
     Accrued interest payable                                                            1,350,784            1,782,508
     Dividends payable                                                                     193,914              201,531
     Other liabilities                                                                  37,603,551            4,326,845
                                                                                  -----------------    -----------------
     Total liabilities                                                               1,048,654,428          914,333,928
                                                                                  -----------------    -----------------
Commitments and contingencies
Stockholders' Equity:
     Preferred stock - $.10 par value 5,000,000 shares  authorized;  none issued
     Common stock - $.10 par value 10,000,000 shares authorized; shares
        issued 7,949,809 and 7,948,884 and shares outstanding 6,463,811
        and 6,717,705 as of September 30, 2002 and December 31, 2001, respectively         794,981              794,888
     Paid-in capital in excess of par                                                    8,279,525            8,278,423
     Accumulated other comprehensive income - net of deferred income taxes               1,229,145              147,496
     Retained earnings                                                                  56,803,245           51,055,818
     Less:  Treasury stock (1,485,998 and 1,231,179 shares, at cost, as of
        September 30, 2002 and December 31, 2001, respectively)                        (10,886,580)          (8,073,444)
                                                                                  -----------------    -----------------
Total stockholders' equity                                                              56,220,316           52,203,181
                                                                                  -----------------    -----------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                        $  1,104,874,744     $    966,537,109
                                                                                  =================    =================
</TABLE>
See notes to consolidated financial statements.

                                       1
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                     Three Months ended                   Nine Months ended
                                                                        September 30,                       September 30,
-----------------------------------------------------------------------------------------------------------------------------------
                                                                     2002            2001             2002               2001
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                  <C>          <C>              <C>
INTEREST INCOME:                                                         (Unaudited)                        (Unaudited)

Interest income on:
    Loans                                                       $    6,425,228  $    6,256,589   $   19,167,561    $  17,776,171
    Mortgage-backed securities                                       4,782,173       3,451,146       13,616,436        9,617,421
    Investments                                                      3,302,760       4,457,085       10,876,691       13,918,104
                                                                --------------  --------------   --------------    -------------
Total interest income                                               14,510,161      14,164,820       43,660,688       41,311,696
                                                                --------------  --------------   --------------    -------------

INTEREST EXPENSE:
Interest expense on:
    Deposits                                                         3,354,425       5,154,265       10,849,964       15,504,149
    Long term debt                                                     445,773         264,337        1,379,855          793,011
    Borrowings                                                       2,314,864       1,974,566        6,667,182        5,581,003
                                                                --------------  --------------   --------------    -------------
Total interest expense                                               6,115,062       7,393,168       18,897,001       21,878,163
                                                                --------------  --------------   --------------    -------------

NET INTEREST INCOME                                                  8,395,099       6,771,652       24,763,687       19,433,533
PROVISION FOR LOAN LOSSES                                               60,000          60,000           89,000          180,000
                                                                --------------  --------------   --------------    -------------
NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                                  8,335,099       6,711,652       24,674,687       19,253,533
                                                                --------------  --------------   --------------    -------------

OTHER INCOME (EXPENSE):
    Loan service charges and other fees                                 31,389          36,700           84,052           90,176
    Gain on sale of loans                                                  330             765              793            1,274
    Loss on sale of investment securities                                    0         (17,153)               0          (17,153)
    Gain on disposal of fixed assets                                       654               0          100,767           50,799
    Real estate owned operations, net                                  (11,515)         58,712          (27,383)          33,502
    Service charges on accounts                                      1,034,639         852,763        2,896,817        2,412,597
    Other income                                                        75,066          71,864          226,535          208,988
                                                                --------------  --------------   --------------    -------------
Total other income                                                   1,130,563       1,003,651        3,281,581        2,780,183
                                                                --------------  --------------   --------------    -------------

OPERATING EXPENSES:
    Salaries and employee benefits                                   3,473,344       3,143,500       10,331,745        9,230,845
    Occupancy and equipment                                          1,145,015       1,130,813        3,365,259        3,410,929
    Purchased services                                                 650,496         556,075        1,914,435        1,567,408
    Federal deposit insurance premiums                                  30,655          48,151           92,779          115,787
    Professional fees                                                  224,439         300,386          628,475          551,569
    Advertising                                                        115,737          88,614          320,320          206,249
    Other                                                              467,868         366,369        1,164,085        1,118,014
                                                                --------------  --------------   --------------    -------------
Total operating expenses                                             6,107,554       5,633,908       17,817,098       16,200,801
                                                                --------------  --------------   --------------    -------------

INCOME BEFORE INCOME TAXES                                           3,358,108       2,081,395       10,139,170        5,832,915

INCOME TAXES:                                                        1,274,405         724,832        3,665,607        2,057,015
                                                                --------------  --------------   --------------    -------------
NET INCOME before extraodinary loss                             $    2,083,703  $    1,356,563   $    6,473,563    $   3,775,900
                                                                ==============  ==============   ==============    =============

EXTRAORDINARY LOSS (Net of $ 81,394 tax benefit)                      (133,682)              0         (133,682)               0
                                                                --------------  --------------   --------------    -------------
NET INCOME                                                      $    1,950,021  $    1,356,563   $    6,339,881    $   3,775,900
                                                                ==============  ==============   ==============    =============
 BASIC EARNINGS PER COMMON SHARE before extraodinary loss       $         0.32  $         0.20   $         0.98    $        0.56
                                                                ==============  ==============   ==============    =============
 DILUTED EARNINGS PER COMMON SHARE before extraodinary loss     $         0.32  $         0.20   $         0.98    $        0.56
                                                                ==============  ==============   ==============    =============
Extraodinary Loss per Common share Basic                        $        (0.02) $         0.00   $        (0.02)   $        0.00
                                                                ==============  ==============   ==============    =============
Extraodinary Loss per Common share Diluted                      $        (0.02) $         0.00   $        (0.02)   $        0.00
                                                                ==============  ==============   ==============    =============

 BASIC EARNINGS PER COMMON SHARE                                $         0.30  $         0.20   $         0.96    $        0.56
                                                                ==============  ==============   ==============    =============
 DILUTED EARNINGS PER COMMON SHARE                              $         0.30  $         0.20   $         0.96    $        0.56
                                                                ==============  ==============   ==============    =============

  Dividends declared per common share                           $         0.03  $         0.03   $         0.09    $        0.09
                                                                ==============  ==============   ==============    =============

 Weighted average common shares outstanding                          6,463,811       6,686,917        6,576,481        6,697,658
 Potential dilutive effect of the exercise of stock options             29,450          29,505           23,792           29,364
                                                                --------------  --------------   --------------    -------------
 Adjusted weighted average common shares outstanding                 6,493,261       6,716,422        6,600,273        6,727,022
                                                                ==============  ==============   ==============    =============
</TABLE>

See notes to consolidated financial statements.

                                       2
<PAGE>

<TABLE>
<CAPTION>

FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------------
                                                                          Nine Months ended
                                                                             September 30,
                                                                ------------------------------------
                                                                       2002               2001
----------------------------------------------------------------------------------------------------
<S>                                                          <C>                 <C>
                                                                             (Unaudited)
OPERATING ACTIVITIES:
Net income                                                      $      6,339,881    $     3,775,900
Adjustments to reconcile net income to net cash provided
   by operating activities:
Provision for loan losses                                                 89,000            180,000
Depreciation and amortization                                          3,599,560          2,335,181
Realized (gains) and losses on:
    Sale of loans and loans held for sale                                   (793)            (1,274)
    Disposal and sale of fixed assets                                   (100,767)           (50,799)
    Investment securities available for sale                                   0             17,153
    Sale of real estate owned                                                  0            (70,658)
    Extraordinary loss on retirement of debt                             133,682                  0
(Decrease) Increase in accrued interest receivable                      (495,792)         1,175,314
Decrease in prepaid expenses and other assets                            557,517            195,889
Decrease in accrued interest payable                                    (431,724)          (443,034)
Increase in other liabilities                                             81,706            453,126
Decrease in deferred income taxes                                       (937,639)          (354,427)
                                                                ----------------    ---------------
    Net cash provided by operating activities                          8,834,631          7,212,371
                                                                ----------------    ---------------
INVESTING ACTIVITIES:
Proceeds from sale of:
    Education loans                                                      190,697            215,194
    Real estate owned                                                     12,920            413,854
    Property and equipment                                               214,310             84,432
Principal collected and proceeds from maturities of investment
   securities held to maturity                                       157,051,095        274,872,465
Proceeds from maturities of investment securities available
   for sale                                                           34,566,341         38,149,514
Principal collected on mortgage-backed securities held to maturity    76,948,183         60,154,539
Principal collected on loans, net                                     62,462,942         48,520,794
Loans originated or acquired                                         (87,081,309)       (59,483,824)
Purchase of investment securities and mortgage-backed securities
   held to maturity                                                 (225,240,989)      (334,244,331)
Purchase of investment securities and mortgage-backed securities
   available for sale                                               (116,843,528)       (36,920,030)
Purchase of Federal Home Loan Bank stock                              (2,498,100)        (1,248,310)
Purchase of office property and equipment                             (2,616,888)        (1,412,804)
Net cash received from bank merger                                             0          1,466,726
                                                                ----------------    ---------------
    Net cash used by investing activities                           (102,834,326)        (9,431,781)
                                                                ----------------    ---------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts                  62,548,477         23,048,231
Net (decrease) increase in time deposits                             (25,947,128)           676,756
Net increase (decrease)  in FHLB advances                              9,961,790         (5,035,331)
Proceeds from securities sold under agreements to repurchase          40,000,000         35,000,000
Net proceeds from issuance of trust capital securities                24,221,532                  0
Repayment of subordinated debentures                                 (10,100,000)                 0
(Decrease) Increase in advances from borrowers for taxes
   and insurance                                                         (80,004)            33,933
Purchase of treasury stock                                            (2,813,136)          (432,840)
Dividends paid on common stock                                          (596,424)          (603,913)
Net proceeds from issuance of common stock                                 1,195             41,325
                                                                ----------------    ---------------
    Net cash provided by financing activities                         97,196,302         52,728,161
                                                                ----------------    ---------------
INCREASE  IN CASH AND CASH EQUIVALENTS                                 3,196,607         50,508,751
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                        63,359,124         44,951,299
                                                                ----------------    ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                        $     66,555,731    $    95,460,050
                                                                ================    ===============
Supplemental Disclosures:
    Cash paid for:
       Interest on deposits, advances, and other borrowings     $     19,328,725    $    22,304,595
       Income taxes                                                    4,729,982          2,697,733
    Non-cash investing and financing activities:
       Dividends declared and not paid at quarter end                    193,914            200,961
       Deposits acquired in connection with merger                             0         28,102,691
       Assets acquired in connection with merger                               0         28,260,337
       Non-monetary transfers from loans to real estate acquired
         through foreclosure                                              76,797                  0
       Investments purchased and not yet settled                      33,195,000                  0
</TABLE>

See notes to consolidated financial statements.

                                       3
<PAGE>

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

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

                                                                            Accumulated                                   Total
                                   Common shares     Common     Paid-in    comprehensive     Retained      Treasury   Stockholders'
                                    outstanding      stock      capital    (loss) gain       earnings       stock        Equity
------------------------------------------------------------------------------------------------------------------------------------

<S>                               <C>            <C>        <C>          <C>            <C>           <C>            <C>
Balances at December 31, 2000          6,727,702    $789,789   $8,217,654   $ (358,352)   $46,401,102  $ (7,640,604)    $47,409,589
Net Income                                                                                  3,775,900                     3,775,900
Other comprehensive income
  Unrealized loss on securities
      available for sale, net
      of taxes of $439,998                                                     782,426                                      782,426
                                                                                                                        -----------
Total comprehensive income                                                                                                4,558,326
                                                                                                                        ------------

Dividends declared ($.09)                                                                    (603,042)                     (603,042)
Exercise of stock options                 31,993       3,199       38,126                                                    41,325
Purchase of common stock                 (60,990)                                                          (432,840)       (432,840)

------------------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 2001         6,698,705    $792,988   $8,255,780   $  424,074    $49,573,960  $ (8,073,444)    $50,973,358
------------------------------------------------------------------------------------------------------------------------------------

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                                                                                  6,339,881                     6,339,881
Other comprehensive income
  Unrealized gain on securities
      available for sale net
      of taxes of $719,299                                                   1,081,649                                    1,081,649
                                                                                                                        -----------
Total comprehensive income                                                                                                7,421,530
                                                                                                                        -----------
Dividends declared ($.09)                                                                    (592,454)                     (592,454)
Exercise of stock options                    925          93        1,102                                                     1,195
Purchase of common stock                (254,819)                                                        (2,813,136)     (2,813,136)

------------------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 2002         6,463,811    $794,981   $8,279,525   $1,229,145    $56,803,245  $(10,886,580)    $56,220,316
------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>


                                       4
<PAGE>


FMS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED).

1-GENERAL

In the opinion of management,  the accompanying unaudited consolidated financial
statements of FMS Financial  Corporation contain all adjustments,  consisting of
normal recurring  accruals,  necessary for a fair  presentation of its financial
condition, results of operations, cash flows and changes in stockholders' equity
for the periods and dates indicated. The results of operations for the three and
nine months  ended  September  30, 2002 are not  necessarily  indicative  of the
operating results for the full fiscal year or any other interim period.

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

2-RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2002, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting  Standards SFAS No. 146 (FAS 146) "Accounting for Costs
Associated with Exit or Disposal  Activities"  which superseded  Emerging Issues
Task Force (EITF) Issue No. 94-3  "Liability  Recognition  for Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  certain
costs incurred in restructuring)". This Statement addresses financial accounting
and  reporting  for costs  associated  with exit or  disposal  activities.  This
Statement is effective for exit or disposal activities  initiated after December
31, 2002, with early application encouraged.  The adoption by the Corporation of
FAS 146,  effective  September  30,  2002,  had no  effect  on the  Consolidated
Statements of Financial Condition or the Consolidated Statements of Operations.

In October  2002,  the FASB  issued SFAS 147 (FAS  147)"Acquisitions  of Certain
Financial  Institutions-an  amendment of FASB Statements No. 72 and 144 and FASB
Interpretations  No. 9". This Statement requires the application of the purchase
method of accounting to all acquisitions of financial  institutions  (except two
or more mutual  enterprises)  and provides  accounting  for the  recognition  of
certain  long-term  customer  relationship  intangible  assets  recognized in an
acquisition of a financial  institution.  This Statement is effective on October
1, 2002, with earlier application permitted.  The adoption of FAS 147, effective
September 30, 2002,  had no effect on the  Consolidated  Statements of Financial
Condition or the Consolidated Statements of Operation.


                                       5
<PAGE>

3-LONG-TERM DEBT

Long-Term Debt at September 30, 2002 consisted of $25.0 million of Trust Capital
Securities. In March 2002 the Corporation formed a wholly-owned subsidiary,  FMS
Statutory  Trust 1 ("the  Trust").  On March 26,  2002,  the Trust  issued $25.0
million of floating  rate capital  securities.  The  interest  rate resets every
three months to LIBOR plus 360 basis points,  with an initial rate of 5.59%, and
will not exceed  11.00%  through  the first five  years from its  issuance.  The
proceeds were used for the paydown of the $10.0 million subordinated debentures,
expansion of the Bank's operations and general corporate purposes.  On August 1,
2002 the  Corporation  redeemed its $10.0 million 10 % subordinated  debentures.
The early  redemption  was at a price of 101%.  The cost of  redemption  and the
remaining   unamortized   bond  issuance  costs  were  recorded  as  a  one-time
extraordinary  charge to net income of $134  thousand net of taxes.  At December
31,  2001  long-term  debt  consisted  of  $10.0  million  of  10%  subordinated
debentures.

4-REGULATORY CAPITAL REQUIREMENTS

The Bank is considered  "well  capitalized"  by OTS regulations at September 30,
2002. The Bank's regulatory  tangible and tier 1 (core) capital ratios are $69.5
million or 6.31% of total bank assets and $73.4 million or 17.87% for risk-based
capital.

ITEM 2: MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002.

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

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

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


                                       6
<PAGE>

FINANCIAL CONDITION

Total  Assets - at September  30, 2002 were $1.1 billion as compared  with total
assets at December 31, 2001 of $966.5 million.

Investment  Securities  Held to  Maturity -  decreased  $45.6  million to $151.0
million at September 30, 2002 from $196.6 million at December 31, 2001 primarily
due to calls in U.S. Agency Notes of $87.5 million,  principal paydowns of $62.4
million in collateralized  mortgage obligations (CMO's) and the maturity of $7.1
million of Municipal  Bonds,  partially  offset by purchases of $56.0 million in
CMO's,  $45.5 million in U.S.  Agency Notes and $9.4 million in Municipal  Bonds
during the period.  Investment securities held to maturity at September 30, 2002
consisted  entirely  of  fixed  rate  securities.   A  comparison  of  cost  and
approximate  market  values of  investment  securities  held to  maturity  as of
September 30, 2002 and December 31, 2001 follows:
<TABLE>
<CAPTION>

                                             September 30, 2002                                  December 31, 2001
---------------------------------------------------------------------------------------- -------------------------------
                                             Gross          Gross          Estimated                          Estimated
                           Amortized      Unrealized      Unrealized         Market          Amortized          Market
                             Cost            Gains          Losses           Value              Cost            Value
---------------------------------------------------------------------------------------- -------------------------------
<S>                     <C>             <C>             <C>            <C>             <C>              <C>
U. S. Agency notes         $ 40,555,793    $  525,084      $       0     $ 41,080,877      $ 82,190,157     $ 82,827,324
CMO's                       100,497,344       672,548       (102,073)     101,067,819       106,659,768      106,350,004
Municipal bonds               9,972,869         8,142              0        9,981,011         7,721,374        7,728,414
--------------------------------------------------------------------------------------     -----------------------------
Total                      $151,026,006    $1,205,774      $(102,073)    $152,129,707      $196,571,299     $196,905,742
======================================================================================     =============================
</TABLE>

Short Term Funds - increased $5.4 million to $36.3 million at September 30, 2002
from $30.9 million at December 31, 2001. The increase is the result of purchases
of overnight and  short-term  money market  investment  funds from the increased
prepayment and calls of our investment and loan portfolios.

Investment  Securities  Available  for Sale - increased  $93.7 million to $145.7
million at  September  30, 2002 from $52.0  million at December  31,  2001.  The
increase is the result of purchases of $44.3 million in U.S. Agency Notes, $57.8
million of MBS's and $23.1 million of CMO's,  partially offset by calls of $15.8
million in U.S. Agency Notes,  principal  paydowns of $18.8 million of CMO's and
mortgage-backed  securities (MBS's) at September 30, 2002. Investment securities
available for sale consisted of $145.0 million in fixed rate securities and $704
thousand in  adjustable  rate  securities at September 30, 2002. A comparison of
cost and approximate market values of investment  securities  available for sale
as of September 30, 2002 and December 31, 2001 follows:
<TABLE>
<CAPTION>

                                             September 30, 2002                                 December 31, 2001
---------------------------------------------------------------------------------------  -------------------------------
                                             Gross         Gross          Estimated                          Estimated
                           Amortized      Unrealized     Unrealized         Market          Amortized          Market
                             Cost            Gains         Losses           Value              Cost            Value
---------------------------------------------------------------------------------------  -------------------------------
<S>                    <C>              <C>            <C>          <C>                <C>              <C>
U. S. Agency notes         $ 43,522,715    $  537,265     $      0      $ 44,059,980       $14,990,181      $15,051,850
CMO's                        25,110,545       252,879      (57,714)       25,305,710        12,377,010       12,565,404
MBS's                        75,004,225     1,302,308       (3,464)       76,303,069        24,371,904       24,352,168
-------------------------------------------------------------------------------------  ---------------------------------
Total                      $143,637,485    $2,092,452     $(61,178)     $145,668,759       $51,739,095      $51,969,422
=====================================================================================  =================================
</TABLE>
                                       7
<PAGE>


Loans,  net - increased  $24.3  million to $360.8  million at September 30, 2002
from $336.5 million at December 31, 2001. This increase was primarily the result
of $87.1 million of loans  originated,  partially offset by approximately  $62.5
million of principal  collected on loans during the nine months ended  September
30, 2002. The following table shows loans  receivable by major categories at the
dates indicated.
                                    September 30,        December 31,
                                        2002                2001

                                  ----------------------------------
Mortgage Loans                    $  273,637,344     $   259,970,571
Construction Loans                     1,480,564           1,254,191
Commercial Construction                3,159,727           4,605,752
Consumer Loans                         3,615,047           4,582,734
Commercial Real Estate                72,789,983          60,626,659
Commercial Business                   11,060,190          10,520,704
                                  ----------------------------------
Subtotal                             365,742,855         341,560,611
                                  ----------------------------------
Less:
     Deferred loan fees                  681,155             786,044
     Allowance for
        loan losses                    4,266,213           4,230,563
                                  ----------------------------------
Total loans, net                  $  360,795,487     $   336,544,004
                                  ==================================

At September 30, 2002, the recorded investment in loans for which impairment has
been  recognized in accordance  with SFAS Nos. 114 and 118 totaled $2.3 million,
of which  $1.1  million  related to loans that were  individually  measured  for
impairment with a valuation allowance of $437 thousand and $1.2 million of loans
that were collectively measured for impairment with a valuation allowance of $45
thousand.  The Bank had  $4.3  million  in total  reserves  for loan  losses  at
September 30, 2002,  representing  approximately  182% of non-accrual  loans and
1.2% of total loans.  For the nine months ended  September 30, 2002, the average
recorded  investment in impaired loans was approximately $2.3 million.  The Bank
recognized  $117 thousand of interest income for the nine months ended September
30, 2002 on impaired loans, all of which was recognized on the cash basis.


As of September  30, 2002 the Bank had  outstanding  loan  commitments  of $17.9
million, of which $7.0 million represented variable rate loans and $10.9 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.
                                                   September 30,    December 31,
                                                       2002             2001
                                                   -----------      -----------
Loans accounted for on a non-accrual basis:
     One-to-four family mortgage                   $   667,693      $ 1,347,705
     Commercial real estate                          1,668,776        1,633,940
     Consumer and other                                  3,007                0
                                                   -----------      -----------
         Total non-accrual loans                   $ 2,339,476      $ 2,981,645
                                                   -----------      -----------
     Troubled debt restructuring                   $ 1,041,144      $ 1,072,392
     Real estate owned, net                            278,126          214,249
     Other non-performing assets                        87,926           87,926
                                                   -----------      -----------
     Total non-performing assets, net              $ 3,746,672      $ 4,356,212
                                                   ===========      ===========

     Total non-accrual loans to net loans                 0.65%            0.89%
                                                   ===========      ===========
     Total non-accrual loans to total assets              0.21%            0.31%
                                                   ===========      ===========
     Total non-performing assets to total assets          0.34%            0.45%
                                                   ===========      ===========


Mortgage-Backed  Securities Held to Maturity - increased $58.1 million to $330.6
million at September  30, 2002 from $272.5  million at December  31,  2001.  The
increase is the result of  purchases of $109.3  million of FNMA,  FHLMC and GNMA
fixed rate  securities  and $24.5  million of FNMA  adjustable  rate  securities
partially  offset by the principal  paydowns of $76.9  million.  Mortgage-backed
securities  at  September  30, 2002  consisted  of $282.5  million in fixed rate
securities  and $48.1 million in  adjustable  rate  securities.  Mortgage-backed
securities  held to maturity at  September  30, 2002 and  December  31, 2001 are
summarized below:
<TABLE>
<CAPTION>

                                   September 30, 2002                               December 31, 2001
------------------------------------------------------------------------     ------------------------------
                                  Gross        Gross
               Amortized         Unrealized   Unrealized    Estimated          Amortized         Estimated
                  Cost            Gains        Losses       Market Value         Cost          Market Value
------------------------------------------------------------------------     ------------------------------

<S>         <C>              <C>             <C>        <C>               <C>               <C>
GNMA           $ 40,238,229     $1,877,643      $(112)     $ 42,115,760      $ 54,266,773      $ 55,391,045

FNMA            226,814,339      6,110,915        (19)      232,925,235       196,556,532       197,118,792

FHLMC            63,553,839      1,270,047        (23)       64,823,863        21,670,915        22,330,681

-----------------------------------------------------------------------      ------------------------------
Total          $330,606,407     $9,258,605      $(154)     $339,864,858      $272,494,220      $274,840,518
=======================================================================      ==============================
</TABLE>

                                       9
<PAGE>

Deposits - increased  $36.6 million to $766.1 million at September 30, 2002 from
$729.5  million at December 31,  2001.  Money market  accounts  increased  $33.0
million,  savings  accounts  increased  $15.4 million and  non-interest  bearing
checking accounts increased $15.1 million. These increases were partially offset
by decreases in certificates of deposits of $25.9 million and checking  accounts
of $964 thousand.  Interest credited to depositors  accounts for the nine months
ended  September 30, 2002 amounted to $11.0  million.  The following  table sets
forth certain information concerning deposits at the dates indicated.
<TABLE>
<CAPTION>


                                    September 30, 2002                        December 31, 2001
------------------------------------------------------------------------------------------------------
                                           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       $136,091,199   17.76%      0.00%       $120,954,278    16.57%     0.00%
Checking accounts            133,637,316   17.44%      1.26%        134,601,630    18.45%     2.16%
Savings accounts             146,905,069   19.18%      1.39%        131,524,016    18.04%     2.23%
Money market accounts        119,849,565   15.64%      1.97%         86,854,749    11.91%     2.55%
Certificates                 229,623,929   29.98%      3.72%        255,571,056    35.03%     5.12%
------------------------------------------------------------------------------------------------------
   Total Deposits           $766,107,078  100.00%      1.96%       $729,505,729   100.00%     2.99%
======================================================================================================
</TABLE>

Borrowings  - at  September  30,  2002  amounted to $216.2  million.  Borrowings
consisted of $205.0 million in securities sold under the agreement to repurchase
with a weighted average interest rate of 4.35% and $11.2 million in Federal Home
Loan Bank Advances with a weighted  average  interest rate of 2.18%. At December
31,  2001  borrowings  consisted  of $165.0  million  in  securities  sold under
agreements to repurchase with a weighted  average rate of 4.86% and $1.3 million
in Federal Home Loan Bank  Advances  with a weighted  average  interest  rate of
5.00%.

Long-term  debt- at  September  30,  2002  consisted  of $25.0  million of Trust
Capital  Securities.  In  March  2002  the  Corporation  formed  a  wholly-owned
subsidiary,  FMS Statutory  Trust 1 ("the Trust").  On March 26, 2002, the Trust
issued $25.0  million of floating  rate capital  securities.  The interest  rate
resets every three months to LIBOR plus 360 basis  points,  with an initial rate
of 5.59%,  and will not  exceed  11.00%  through  the first  five years from its
issuance.  The  proceeds  were  used  for  the  paydown  of  the  $10.0  million
subordinated  debentures,   expansion  of  the  Bank's  operations  and  general
corporate purposes. On August 1, 2002 the Corporation redeemed its $10.0 million
10 % subordinated  debentures.  The early redemption was at a price of 101%. The
cost of  redemption  and the  remaining  unamortized  bond  issuance  costs were
recorded as a one-time  extraordinary  charge to net income of $134 thousand net
of taxes.  At December 31, 2001 long-term debt consisted of $10.0 million of 10%
subordinated debentures.

Other  Liabilities-  increased  $33.3  million to $37.6 million at September 30,
2002 from $4.3  million at  December  31,  2001 as a result of $33.2  million in
payables for investments purchased and recorded on their trade date in September
2002 with settlement dates in October 2002.

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  September  30,
2002 of $2.0  million or $.30  diluted  earnings  per share  which  includes  an
extraordinary  loss on the early  retirement  of debt of $134  thousand  or $.02
diluted loss per share, net of taxes as compared to $1.4 million or $.20 diluted
earnings  per share for the  comparable  period in 2001.  Earnings  for the nine
months ended  September 30, 2002 were $6.3 million or $.96 diluted  earnings per
share  after  extraordinary  loss as compared  to $3.8  million or $.56  diluted
earnings per share for the comparable periods in 2001.

Interest Rate Spread

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

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

                                       11
<PAGE>
<TABLE>
<CAPTION>
                                                                     Three Months Ended September 30,
-----------------------------------------------------------------------------------------------------------------------------------
                                                        2002                                             2001
-----------------------------------------------------------------------------------   ---------------------------------------------
                                        Average                             Average       Average                         Average
                                        Balance          Interest         Yield/Rate      Balance         Interest       Yield/Rate
                                   ---------------    --------------    -----------   -------------  ----------------  ------------
                                                                       (Dollars in Thousands)
<S>                              <C>               <C>                   <C>      <C>               <C>                 <C>
Interest-earning assets:
     Loans receivable                $    362,946      $      6,425          7.08%    $    326,566      $      6,257          7.66%
     Mortgage-backed securities           339,519             4,782          5.63%         213,921             3,451          6.45%
     Investment securities                276,478             3,303          4.78%         299,293             4,457          5.96%
                                     -------------     -------------    -----------   -------------     -------------     ----------
Total interest-earning assets             978,943            14,510          5.93%         839,780            14,165          6.75%
                                     -------------     -------------    -----------   -------------     -------------     ----------

Interest-bearing liabilities:
     Deposits                             751,995             3,354          1.78%         687,331             5,154          3.00%
     Borrowings                           210,641             2,315          4.40%         152,046             1,975          5.20%
     Long-Term Debt                        29,107               446          6.13%          10,000               264         10.56%
                                     -------------     -------------    -----------   -------------     -------------     ----------
Total interest-bearing
        liabilities                  $    991,743             6,115          2.47%    $    849,377             7,393          3.48%
                                     =============     -------------    -----------   =============     -------------     ----------
Net interest income                                    $      8,395                                     $      6,772
                                                       =============                                    =============
Interest rate spread                                                         3.46%                                            3.27%
                                                                        ===========                                       ==========
Net yield on average interest-earning assets                                 3.43%                                            3.23%
                                                                        ===========                                       ==========
Ratio of average interest-earning
     assets to average interest-bearing
     liabilities                                                            98.71%                                           98.87%
                                                                        ===========                                       ==========
</TABLE>
<TABLE>
<CAPTION>
                                                                      Nine Months Ended September 30,
------------------------------------------------------------------------------------------------------------------------------------
                                                        2002                                             2001
-----------------------------------------------------------------------------------   ----------------------------------------------
                                        Average                           Average        Average                           Average
                                        Balance           Interest        Yield/Rate     Balance           Interest      Yield/Rate
                                     -------------     -------------    -----------   -------------     --------------   -----------
                                                                          (Dollars in thousands)
<S>                                <C>               <C>                  <C>      <C>               <C>                   <C>
Interest-earning assets:
     Loans receivable                $    360,315      $     19,168          7.09%    $    308,887      $     17,776          7.67%
     Mortgage-backed securities           309,346            13,616          5.87%         194,803             9,618          6.58%
     Investment securities                278,017            10,877          5.22%         297,492            13,918          6.24%
                                     -------------     -------------    -----------   -------------     -------------     ----------
Total interest-earning assets             947,678            43,661          6.14%         801,182            41,312          6.87%
                                     -------------     -------------    -----------   -------------     -------------     ----------
Interest-bearing liabilities:
     Deposits                             738,443            10,850          1.96%         656,959            15,504          3.15%
     Borrowings                           197,910             6,667          4.49%         141,833             5,581          5.25%
     Long-Term Debt                        25,422             1,380          7.24%          10,000               793         10.57%
                                     -------------     -------------    -----------   -------------     -------------     ----------
Total interest-bearing
        liabilities                  $    961,775            18,897          2.62%    $    808,792            21,878          3.61%
                                     =============     -------------    -----------   =============     -------------     ----------

Net interest income                                    $     24,764                                     $     19,434
                                                       =============                                    =============
Interest rate spread                                                         3.52%                                            3.26%
                                                                        ===========                                       ==========

Net yield on average interest-earning assets                                 3.48%                                            3.23%
                                                                        ===========                                       ==========

Ratio of average interest-earning
     assets to average interest-bearing
     liabilities                                                            98.53%                                           99.06%
                                                                        ===========                                       ==========
</TABLE>

                                       12
<PAGE>


Rate/Volume Analysis

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

                                        Three Months Ended September 30,               Nine Months Ended September 30,
                                                 2002 vs. 2001                                  2002 vs. 2001
                                     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                            $    (529)      $     697     $      168      $   (1,568)     $    2,960   $     1,392
     Mortgage-backed securities            (695)          2,026          1,331          (1,657)          5,655         3,998
     Investment securities                 (814)           (340)        (1,154)         (2,130)           (911)       (3,041)
                                      -----------------------------------------     ----------------------------------------
     Total change
     - interest income                   (2,038)          2,383            345          (5,355)          7,704         2,349
                                      -----------------------------------------     ----------------------------------------
Interest expense:
     Deposits                            (2,285)            485         (1,800)         (6,577)          1,923        (4,654)
     Borrowings                            (421)            761            340          (1,121)          2,207         1,086
     Long-Term Debt                        (322)            504            182            (636)          1,223           587
                                      -----------------------------------------     ----------------------------------------
     Total change
     - interest expense                  (3,028)          1,750         (1,278)         (8,334)          5,353        (2,981)
                                      ----------------------------------------      ----------------------------------------
Net change in net interest
income                                $     990       $     633     $    1,623      $    2,979      $    2,351   $     5,330
                                      ========================================      ========================================
</TABLE>

Net  Interest  Income - for the three and nine months ended  September  30, 2002
totaled $8.4 million and $24.8 million,  respectively.  Net interest  income for
the three months ended September 30, 2002 increased $1.6 million compared to the
same  period  in 2001  due  primarily  to an  increase  in  interest  income  on
mortgage-backed  securities of $1.3 million,  an increase in interest  income on
loans of $168  thousand  and a decrease in interest  expense on deposits of $1.8
million,  partially  offset by a  decrease  in  interest  income  on  investment
securities  of $1.2  million,  an increase in interest  expense on borrowings of
$340  thousand  and an increase in interest  expense on  long-term  debt of $182
thousand.

The  increase  in  interest  income was  primarily  the result of an increase in
mortgage-backed  securities  interest income of $1.3 million to $4.8 million for
the three months ended  September 30, 2002 from $3.5 million for the same period
in 2001. The average balance of MBS's increased $125.6 million to $339.5 million
for the three months ended  September 30, 2002 from $213.9  million for the same
period in 2001,  which  resulted in an interest  income volume  increase of $2.0
million.  The increase in the average  balance during this period was due to MBS
purchases of $119.3  million,  partially  offset by principal  paydowns of $31.2
million.  The average  yield of the MBS  portfolio  decreased 82 basis points to
5.63% for the quarter ended September 30, 2002 from 6.45% for the same period in
2001, which resulted in an interest income decrease of $695 thousand due to rate
changes.

                                       13
<PAGE>

Interest  income on loans  increased $168 thousand to $6.4 million for the three
months ended  September  30, 2002 from $6.3 million for the same period in 2001.
The average  balance of the loan  portfolio  increased  $36.3  million to $362.9
million for the three months ended  September  30, 2002 from $326.6  million for
the same period in 2001,  which resulted in a volume increase in interest income
of $697 thousand.  The increase in the average  balance is principally due to an
increase in loan  originations  during this  period.  The average  rate on loans
decreased 58 basis points to 7.08% for the three months ended September 30, 2002
from 7.66% for the same period in 2001, which resulted in a decrease in interest
income of $529 thousand due to rate changes.

Interest income on investment  securities decreased $1.2 million to $3.3 million
for the three  months  ended  September  30, 2002 from $4.5 million for the same
period in 2001.  The average  yield of the  investment  portfolio  decreased 118
basis points to 4.78% for the quarter  ended  September  30, 2002 from 5.96% for
the same period in 2001,  which resulted in an interest  income decrease of $814
thousand  due to rate  changes.  The average  balance of  investment  securities
decreased  $22.8 million to $276.5 million for the three months ended  September
30, 2002 from $299.3  million for the same period in 2001,  which  resulted in a
volume decrease in interest income of $340 thousand.

Interest  expense on deposits  decreased  $1.8  million to $3.4  million for the
three months ended  September  30, 2002 from $5.2 million for the same period in
2001. The average rate paid on deposits  decreased 122 basis points to 1.78% for
the  quarter  ended  September  30, 2002 from 3.00% for the same period in 2001,
which  resulted in a decrease in  interest  expense of $2.3  million due to rate
changes.  The average  balance of  deposits  increased  $64.7  million to $752.0
million for the three months ended  September  30, 2002 from $687.3  million for
the same period in 2001, which resulted in a volume increase in interest expense
of $485 thousand.

Interest  expense on long term debt increased $182 thousand to $446 thousand for
the three months ended September 30, 2002 from $264 thousand for the same period
in 2001. The $25.0 million in Trust capital  securities  issued in March 2002 at
an initial  floating  rate of 5.59%  increased  interest  expense  from the same
period in 2001.  Partially  offsetting this increase was the redemption of $10.0
million 10% subordinated debentures on August 1, 2002.

Interest  expense on borrowings  increased $340 thousand to $2.3 million for the
three months ended  September  30, 2002 from $2.0 million for the same period in
2001.  The  average  balance of  borrowings  increased  $58.6  million to $210.6
million at September  30, 2002 from $152.0  million for the same period in 2001,
which resulted in a volume  increase in interest  expense of $761 thousand.  The
average  rate  paid on  borrowings  decreased  80 basis  points to 4.40% for the
quarter  ended  September  30, 2002 from 5.20% for the same period in 2001 which
resulted in a decrease in interest expense of $421 thousand due to rate changes.

Net interest  income for the nine months ended September 30, 2002 increased $5.3
million  primarily  due to an  increase in  interest  income on  mortgage-backed
securities  of $4.0  million,  an increase  in interest  income on loans of $1.4
million  and a  decrease  in  interest  expense  on  deposits  of $4.7  million,
partially  offset by a decrease in interest  income on investment  securities of
$3.0 million,  an increase in interest expense on borrowings of $1.1 million and
an increase in interest  expense on long-term  debt of $587 thousand as compared
to the same nine month period in 2001.


                                       14
<PAGE>

The  increase in interest  income on  mortgage-backed  securities  was due to an
increase in the average  balance of the  portfolio  of $114.5  million to $309.3
million for the nine months ended September 30, 2002 from $194.8 million for the
nine months ended September 30, 2001. The increase in the average balance of the
portfolio  resulted in a $5.7 million increase in interest  income.  The average
yield on the  portfolio  decreased  71 basis points to 5.87% for the nine months
ended September 30, 2002 from 6.58% for the same period in 2001,  which resulted
in a decrease  in  interest  income of $1.7  million  due to rate  changes.  The
increase  in the  average  balance  was due to  purchases  during this period of
$207.9 million,  partially  offset by $107.1 million of principal  paydowns from
September 2001 through September 2002.

The  increase in interest  income on loans was due to an increase in the average
balance of $51.4 million to $360.3  million for the nine months ended  September
30, 2002 from $308.9  million for the nine months ended  September 30, 2001. The
increase in the average  balance  resulted in a $3.0 million volume  increase in
interest  income.  The average yield on loans decreased 58 basis points to 7.09%
for the nine months ended  September  30, 2002 from 7.67% for the same period in
2001,  which  resulted in a decrease in interest  income of $1.6  million due to
rate changes.

The decrease in interest  income on investment  securities was due to a decrease
in the the average  balance of the portfolio of $19.5 million to $278.0  million
for the nine months ended  September  20, 2002 from $297.5  million for the same
period in 2001,  which resulted in a volume  decrease in interest income of $911
thousand.  The  decrease in the  average  balance  was  primarily  due to $146.7
million in calls on U.S. Agency Notes and $111.5 million of principal  paydowns,
partially  offset by purchases of $320.6 million in U.S. Agency Notes and CMO's.
The average  yield on the  investment  portfolio  decreased  102 basis points to
5.22% for the nine  months  ended  September  30,  2002 from  6.24% for the same
period in 2001,  which resulted in a decrease in interest income of $2.1 million
due to rate changes.

The decrease in interest expense on deposits was the result of a decrease in the
average  yield of 119 basis points to 1.96% for the nine months ended  September
30, 2002 from 3.15% for the same period in 2001, which resulted in a decrease in
interest  expense of $6.6 million due to rate  changes.  The average  balance of
deposits  increased  $81.4  million to $738.4  million for the nine months ended
September  30,  2002 from  $657.0  million  for the same  period in 2001,  which
resulted in a volume increase in interest expense of $1.9 million.

The increase in interest  expense on borrowings was the result of an increase in
the average balance of $56.1 million to $197.9 million for the nine months ended
September  30,  2002 from  $141.8  million  for the same  period in 2001,  which
resulted in a volume increase in interest  expense of $2.2 million.  The average
yield on borrowings decreased 76 basis points to 4.49% for the nine months ended
September 30, 2002 from 5.25% for the same period in 2001,  which  resulted in a
decrease in interest expense of $1.1 million due to rate changes.

Interest  expense on long-term  debt increased $587 thousand to $1.4 million for
the nine months ended  September 30, 2002 from $793 thousand for the same period
in 2001. The $25.0 million in Trust capital  securities  issued in March 2002 at
an initial  floating  rate of 5.59%  increased  interest  expense  from the same
period in 2001.

                                       15
<PAGE>

Most Significant Accounting  Estimate-Provision for Loan Losses - The Banks most
significant  accounting estimate is the provision for loan losses which remained
constant for the three months ended September 30, 2002 at $60 thousand  compared
to the same period in 2001.  At September 30, 2002 the allowance for loan losses
amounted to $4.3 million  compared to $4.2 million at  September  30, 2001.  The
determination  of the allowance  level for loan losses is based on  management's
analysis  of the risk  characteristics  of  various  types of  loans,  levels of
classified loans, previous loan loss experience, the estimated fair market value
of the underlying collateral and current economic conditions.  Additionally, the
mix within the Bank's  portfolio  continues to change as the Bank offers a wider
variety of products.  Within the loan portfolio, a change is also occurring as a
shift is made from lower  yielding  loans (i.e.,  one-to-four  family  loans) to
higher  yielding  loans  (i.e.,  commercial  real estate  mortgages,  commercial
construction,  consumer and  commercial  business  loans).  These types of loans
contain a higher degree of risk. Based on the analysis of the loan portfolio, as
well as the growth in the loan  portfolio  during  the  current  period,  it was
determined that an additional  provision to the loan loss reserve was necessary.
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 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 and nine month periods ended September 30, 2002 was
$1.1 million and $3.3 million,  as compared to $1.0 million and $2.8 million for
the same periods in 2001.  The increase was  primarily due to a gain on the sale
of the 712 Stokes Road branch of $160  thousand,  an increase in retail  banking
fees, and an increase in the amount received on rental properties acquired since
the third quarter of 2001.

Operating  Expenses - for the three and nine month periods  ended  September 30,
2002 totaled $6.1 million and $17.8  million,  respectively  as compared to $5.6
million and $16.2 million for the same periods in 2001.

Salaries  and  Employee  Benefits - for the three and nine month  periods  ended
September  30,  2002 were $3.5  million and $10.3  million,  as compared to $3.1
million  and $9.2  million  for the same  period  in 2001.  The  increases  were
primarily due to  additional  staff in the one new branch opened since the third
quarter of 2001 and annual compensation adjustments,  effective the beginning of
the year. Average full time equivalent  employees at September 30, 2002 were 480
as compared to 437 at September 30, 2001.

Purchased  Services - for the three and nine month periods  ended  September 30,
2002 totaled $650  thousand and  $1.9 million,  as compared to $556 thousand and
$1.6 million for the same periods in 2001.  ATM charges  increased $253 thousand
for the first nine months of 2002  compared  to the same  period in 2001.  Check
processing  costs increased $71 thousand due to higher  transaction  volumes and
internet on-line banking service costs which added $55 thousand of costs for the
nine months ended September 30, 2002 as compared to the same period in 2001.

Professional  Fees - for the three and nine month  periods  ended  September 30,
2002 totaled $224  thousand and $628  thousand as compared to $300  thousand and
$552 thousand for the same periods in 2001.  Costs  associated with  nonmaterial
litigation and data network  consulting  fees are the principle  reasons for the
increases.

                                       16
<PAGE>

Advertising  - for the three and nine month  periods  ended  September  30, 2002
increased $27 thousand and $114 thousand respectively.  Additional newspaper and
cable TV ads increased advertising costs.

ITEM 3:  DISCLOSURE ABOUT MARKET RISK

There were no significant  changes for the nine months ended  September 30, 2002
from the  information  presented in the annual  report on Form 10-K for the year
ended December 31, 2001.

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.



                                    17

<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 25, 2002 and the following items were presented:

               The Election of  Directors:  Edward J. Staats,  Jr.,  Mary Wells,
               Craig W.  Yates and  Joseph W.  Clarke,  Jr.  were  reelected  as
               directors  for terms of three  years  ending 2005 and until their
               successors  are  elected  and  qualified.   Mr  Staats   received
               5,475,650  votes in favor and  66,810  votes were  withheld;  Ms.
               Wells  received  5,525,172  votes in favor and 17,288  votes were
               withheld;  Mr. Yates received 5,520,990 votes in favor and 21,470
               votes were withheld; and Mr. Clarke, Jr. received 5,520,493 votes
               in favor and 21,967 votes were withheld.

               Ratification of the appointment of PricewaterhouseCoopers LLP the
               Company's     auditors     for    the    2002    fiscal     year:
               PricewaterhouseCoopers LLP was ratified as the Company's auditors
               with  5,523,839   votes  for,  7,064  votes  against  and  11,557
               abstentions.

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

               None


     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)  No reports on Form 8-K were filed

                                       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: November 13, 2002         /s/ Craig W. Yates
                                ------------------
                                Craig W. Yates
                                President and Chief Executive Officer
                               (Principal Executive Officer)



Date: November 13, 2002         /s/ Channing L. Smith
                                ---------------------
                                Channing L. Smith
                                Vice President and
                                Chief Financial Officer
                               (Principal Financial Officer)





                                       19

<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  officers  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.


November 13, 2002                        /s/ Craig W. Yates
-----------------                        ------------------
Date                                     Craig W. Yates, President


                                       20

<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  officers  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:

     (d)  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;

     (e) 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

     (f)  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):

     (c) 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

     (d) 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.



November 13, 2002                                /s/ Channing L. Smith
-----------------                                ---------------------
Date                                             Channing L. Smith,
                                                 Chief Financial Officer


                                       21