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, 1998
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 6, 1998 there were issued and outstanding 7,897,191
shares and 7,231,767 shares, respectively 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, 1998
------------------
TABLE OF CONTENTS
-----------------
PART I - Financial Information Page
- ------------------------------ ----
Item 1 - Financial Statements
Consolidated Statements of Financial Condition as of
September 30, 1998 (unaudited) and December 31, 1997..... 1
Consolidated Statements of Income (unaudited)
for the three and nine month periods ended
September 30, 1998 and September 30, 1997................ 2
Consolidated Statements of Cash Flows (unaudited)
for the nine month periods ended September 30, 1998
and September 30, 1997................................... 3
Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended September 30, 1998
(unaudited).............................................. 4
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 5 - 17
Item 3 - Disclosure about Market Risk............................ 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 Form 8-K........................ 18
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
ASSETS (Unaudited)
<S> <C> <C>
Cash and amounts due from depository
institutions $ 8,019,479 $ 11,637,181
Interest-bearing deposits 226,454 826,823
Federal Fund Sold 1,000,000 0
Short term funds 118,738 167,618
-------------- --------------
Total cash and cash equivalents 9,364,671 12,631,622
Investment securities held to maturity 101,382,450 112,349,476
Investment securities available for sale 135,637,995 80,338,661
Loans, net 298,773,645 302,831,031
Mortgage-backed securities held to maturity 89,902,399 92,020,517
Accrued interest receivable:
Loans 1,726,802 1,750,966
Mortgage-backed securities 646,962 715,981
Investments 2,557,555 1,934,925
Federal Home Loan Bank stock 4,861,410 3,630,800
Real estate held for development, net 644,487 644,487
Real estate owned, net 241,174 446,361
Office properties and equipment, net 18,173,151 15,692,055
Deferred income taxes 1,792,287 1,507,307
Excess cost over fair value of net assets
acquired 241,088 469,444
Prepaid expenses and other assets 1,141,412 1,061,125
Subordinated Debentures issue cost, net 335,450 378,460
-------------- --------------
TOTAL ASSETS $ 667,422,938 $ 628,403,218
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 511,219,815 $ 489,439,980
Securities sold under agreements to 80,000,000 60,000,000
repurchase
Advances from the Federal Home Loan Bank 16,618,321 24,496,476
10% Subordinated Debentures, due 2004 10,000,000 10,000,000
Guarantee of employee stock ownership plan 0 33,481
debt
Advances by borrowers for taxes and 2,295,023 2,192,541
insurance
Accrued interest payable 1,049,425 1,114,304
Dividends payable 216,606 167,154
Other liabilities 3,578,607 2,043,465
-------------- -------------
Total liabilities 624,977,797 589,487,401
-------------- -------------
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 7,885,608* and 2,604,370 and shares
outstanding 7,220,184* and
2,387,916 as of September 30, 1998 and 788,561 260,437
December 31, 1997, respectively
Paid-in capital in excess of par* 7,984,686 8,419,167
Unrealized gain on securities available for 276,651 53,955
sale - net of deferred income taxes
Guarantee of employee stock ownership plan 0 (33,481)
debt
Retained earnings 36,771,615 33,406,060
Less: Treasury stock (665,424* and 216,454
shares, at cost, as of September 30, 1998
and December 31, 1997, respectively) (3,376,372) (3,190,321)
-------------- -------------
Total stockholders' equity 42,445,141 38,915,817
--------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 667,422,938 $ 628,403,218
=============== ===============
*Common stock, paid-in capital in excess of par and treasury stock at
September 30, 1998 reflect a three-for-one stock split paid in July 1998.
</TABLE>
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
-------------------- ------------------
1998 1997 1998 1997
- ---------------------------------------------------- ------------------
INTEREST INCOME:
(Unaudited)
<S> <C> <C> <C> <C>
Interest income on:
Loans $ 6,084,380 $ 6,339,240 $ 18,215,681 $ 18,808,847
Mortgage-backed securities 1,558,480 1,746,548 4,876,675 5,402,540
Investments 4,104,943 2,180,988 11,884,491 5,879,755
------------ ------------ ------------- -------------
Total interest income 11,747,803 10,266,776 34,976,847 30,091,142
------------ ------------ ------------- -------------
INTEREST EXPENSE:
Interest expense on:
Deposits 4,620,432 4,512,703 13,700,298 13,215,868
Subordinated Debentures 264,337 264,337 793,011 793,011
Borrowings 1,405,058 406,766 4,297,072 1,245,510
------------ ------------ ------------- -------------
Total interest expense 6,289,827 5,183,806 18,790,381 15,254,389
------------ ------------ ------------- -------------
NET INTEREST INCOME 5,457,976 5,082,970 16,186,466 14,836,753
PROVISION FOR LOAN LOSSES 60,000 60,000 180,000 140,000
------------ ------------ ------------- -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,397,976 5,022,970 16,006,466 14,696,753
------------ ------------ ------------- -------------
OTHER INCOME (EXPENSE):
Loan service charges and
other fees 35,415 49,513 106,685 149,805
Gain on sale of loans 4,065 6,704 5,420 8,955
Loss from real estate held for
development 0 (50,000) 0 (50,000)
Real estate owned operations,
net (11,634) (43,815) (59,249) (129,857)
Service charges on accounts 619,751 554,778 1,791,192 1,648,235
Other income (expense) (57,111) 25,328 (111,942) 66,304
------------- ------------- ------------ ----------
Total other income (expense) 590,486 542,508 1,732,106 1,693,442
------------- ------------- ------------ ----------
OPERATING EXPENSES:
Salaries and employee
benefits 2,142,833 1,898,500 6,709,130 5,601,097
Occupancy and equipment 740,620 696,500 2,173,092 2,027,064
Purchased services 333,648 287,488 949,104 779,071
Federal deposit insurance
premiums 75,291 72,616 221,798 159,941
Professional fees 95,965 70,863 273,520 222,408
Advertising 51,798 42,368 152,581 83,717
Other 374,332 316,090 1,047,649 935,989
------------- ------------- ----------- ------------
Total operating expenses 3,814,487 3,384,425 11,526,874 9,809,287
------------- ------------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,173,975 2,181,053 6,211,698 6,580,908
INCOME TAXES:
Current 873,851 937,693 2,499,037 2,674,701
Deferred (89,332) (150,623) (253,202) (292,837)
------------ ----------- ------------ ------------
Total income taxes 784,519 787,070 2,245,835 2,381,864
NET INCOME $ 1,389,456 $ 1,393,983 $ 3,965,863 $ 4,199,044
============ ============ ============= =============
BASIC EARNINGS PER
COMMON SHARE* $ 0.19 $ 0.19 $ 0.55 $ 0.59
============= ============ ========== ===========
DILUTED EARNINGS PER
COMMON SHARE* $ 0.19 $ 0.19 $ 0.54 $ 0.57
============= ============ ========== ===========
Weighted average common
shares outstanding* 7,216,619 7,162,668 7,195,890 7,166,190
Potential dilutive effect
of the exercise of stock 104,696 186,036 105,186 176,571
options* ----------- ---------- ---------- -----------
Adjusted weighted average
common shares 7,321,315 7,348,704 7,301,076 7,342,761
outstanding* ============ =========== =========== ============
*Basic and Diluted earnings per common share, weighted average common shares
outstanding and the potential dilutive effect of the exercise of stock
options to reflect a three-for-one stock split paid in July 1998.
See notes to consolidated financial statements.
</TABLE>
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months ended
September 30
-----------------------------------
1998 1997
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,965,863 $ 4,199,044
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 180,000 140,000
Depreciation and amortization 1,425,869 1,343,794
Provision for real estate owned 110,298 109,630
Provision for real estate held for development 0 50,000
Realized (gains) and losses on:
Sale of loans and loans held for sale (5,419) (8,955)
Disposal and sale of fixed assets 0 7,122
Sale of real estate owned (103,544) (10,630)
Proceeds from sale of loans held for sale 0 101,625
Loans originated for sale 0 (100,000)
Increase in accrued interest receivable (529,447) (543,977)
Increase in prepaid expenses and other assets (80,287) (246,803)
Decrease in accrued interest payable (64,879) (204,604)
Increase in other liabilities 1,535,142 796,262
Deferred income taxes (410,138) (292,838)
--------------- ---------------
Net cash provided by operating activities 6,023,458 5,339,670
--------------- ---------------
INVESTING ACTIVITIES:
Proceeds from sale of:
Education loans 1,658,696 850,425
Real estate owned 529,461 75,630
Office property and equipment 1,010 0
Principal collected and proceeds from maturities
of investment securities held to maturity 239,685,761 157,830,112
Proceeds from maturities of investment
securities available for sale 57,315,458 7,500,000
Principal collected on mortgage-backed
securities held to maturity 23,633,601 22,329,690
Principal collected on longer-term loans, net 44,520,089 38,094,034
Longer-term loans originated or acquired, net (42,581,714) (39,254,506)
Purchase of investment securities and mortgage-
backed securities held to maturity (250,358,332) (180,562,014)
Purchase of investment securities and mortgage-
backed securities available for sale (112,472,554) (47,531,779)
Purchase of Federal Home Loan Bank stock (1,230,610) (10,200)
Purchase of office property and equipment (3,352,173) (1,480,521)
--------------- ---------------
Net cash used in investing activities (42,651,307) (42,159,129)
--------------- ---------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings
accounts 32,756,138 14,650,282
Net (decrease) increase in time deposits (10,976,303) 3,324,705
Net decrease in FHLB advances (7,878,155) (2,600,000)
Proceeds from securities sold under agreements
to repurchase 20,000,000 20,000,000
Increase in advances from borrowers for taxes
and insurance 102,482 83,185
Purchase of treasury stock (186,051) (127,361)
Dividends paid on common stock (550,856) (358,336)
Net proceeds from issuance of common stock 93,643 5,177
--------------- -------------
Net cash provided by financing activities 33,360,898 34,977,652
--------------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS (3,266,951) (1,841,807)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,631,622 9,919,549
--------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,364,671 $ 8,077,742
=============== =============
Supplemental Disclosures:
Cash paid for:
Interest on deposits, advances, and other
borrowings $ 18,855,260 $ 15,458,993
Income taxes 2,300,558 2,578,575
Non-cash investing and financing activities:
Dividends declared and not paid at quarter
end 216,606 167,144
Non-monetary transfers from loans to real
estate acquired through foreclosure 331,028 0
See notes to consolidated financial statements.
</TABLE>
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common shares Common Paid-in Accumulated Guarantee Retained Treasury Total
outstanding stock capital comprehensive of employee earnings stock Stockholders'
income stock Equity
ownership
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997 $ 2,387,916 $ 260,437 $ 8,419,167 $ 53,955 $ (33,481) $ 33,406,060 $ (3,190,321) $ 38,915,817
Net Income 3,965,863 3,965,863
Other comprehensive income,
net of tax
Unrealized gain on securities
available for sale 222,696 222,696
------------
Total comprehensive income 4,188,559
Dividends declared (600,308) (600,308)
Decrease in guarantee of
employee stock ownership plan
debt 33,481 33,481
Exercise of stock options 35,868 3,587 90,056 93,643
Purchase of common stock (5,354) (186,051) (186,051)
Three-for-one stock split 4,801,754 524,537 (524,537) -
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 1998 7,220,184 788,561 7,984,686 276,651 - 36,771,615 (3,376,372) $42,445,141
===================================================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997.
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 risks and uncertainties, such as
statements of the Corporation's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors
(some of which are beyond the Corporation's control). The following factors,
among others, could cause the Corporation's financial performance to differ
materially from the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements: The strength of the United
States economy in general and the strength of the local economies in which
the Corporation conducts operations; the effects of, and changes in, trade,
monetary and fiscal policies and laws, including interest rate policies of
the board of governors of the federal reserve system, inflation, interest
rate, market and monetary fluctuations; the timely development of and
acceptance of new products and services of the Corporation and the perceived
overall value of these products and services by users, including the
features, pricing and quality compared to competitors' products and services;
the willingness of users to substitute competitors' products and services for
the Corporation's products and services; the success of the Corporation in
gaining regulatory approval of its products and services, when required; the
impact of changes in financial services laws and regulations (including laws
concerning taxes, banking, securities and insurance); technological changes,
acquisitions; changes in consumer spending and saving habits; and the success
of the Corporation at managing the risks involved in the foregoing.
The Corporation cautions that the foregoing list of important factors is not
exclusive. The Corporation does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Corporation.
GENERAL
FMS Financial Corporation is the parent company of Farmers & Mechanics Bank
("the Bank"), its only subsidiary.
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
FMS's financial condition, results of operations, cash flows and changes in
stockholders' equity for the periods and dates indicated. The results of
operations for the nine months ended September 30, 1998 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 10K for the year ended December 31, 1997.
<PAGE>
YEAR 2000
The Year 2000 issue concerns the potential impact of historic computer
software code that only utilizes two digits to represent the calendar year
(e.g. "98" for "1998"). Software so developed could produce inaccurate or
unpredictable results upon the change to January 1, 2000, when current and
future dates represent a lower two digit year number than dates in the prior
century. The Bank, similar to most financial institutions, is significantly
subject to the potential impact of the "Year 2000 issue" due to the nature
of financial information. Potential impact to the Bank may arise from
software, hardware, and equipment both within the Bank's direct control and
outside of the Bank's ownership, yet with which the Bank electronically or
operationally interfaces (e.g. vendors providing credit bureau information).
Financial institution regulators have intensively focused upon Year 2000
exposures, issuing guidance concerning an adequate Year 2000 program and the
responsibilities of senior management and directors. The Bank has a year
2000 compliance program in place to ensure that all software applications
will be year 2000 certified compliant. The program includes Year 2000
committees consisting of directors and executive officers of the Bank. The
purposes of the committees are to oversee and manage the year 2000 compliance
program providing regular reports to the Board of Directors detailing
progress with the Year 2000 issue. The Bank is currently replacing its core
bank processing systems as the existing systems have reached their limit in
capacity and function. The new systems which are scheduled to be installed
and operational prior to December 31, 1998, will also provide Year 2000
compliance. Management expects that it will be able to satisfy year 2000
compliance issues by the end of 1998. The Bank has established a written Year
2000 Contingency Plan for all vital mission critial applications. It states
both the plans in the event of non-compliance and the dates in which the
contingency plan will be put into effect. The Bank has contacted all
significant vendors and suppliers regarding their Year 2000 readiness. These
third party vendors have delivered written assurance that they are or expect
to be Year 2000 compliant prior to Year 2000. Management testing on all
banking systems is progressing according to plan. Mission critical testing
began during the second quarter of 1998 and will continue throughout the
remainder of 1998 and into the first quarter of 1999. At this time
management currently estimates Year 2000 compliance cost at between $50,000
and $150,000 of which $24,000 was incurred and expensed during the three and
nine months ended September 30, 1998. The Bank does not expect that these
costs will be material to its financial condition or results of operations.
Non-compliance with the year 2000 issue could have an adverse affect on the
operations of the business. Successful and timely completion of the Year
2000 compliance is based upon management's best estimate derived from
various assumptions of future events which are inherently uncertain,
including the progress and results of the Bank's testing plans, and all
vendors, suppliers and customer readiness.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1996, the FASB issued the Statement of Financial Accounting Standards
No. 125 (SFAS No. 125), "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities" for which certain provisions were
applicable January 1, 1997. This statement was amended by Statement of
Financial Accounting Standards No. 127 (SFAS No. 127) "Deferral of the
Effective Date of Certain Provisions of FASB No. 125" which deferred the
effective date of a portion of SFAS No. 125 until January 1, 1998. The
Corporation adopted SFAS No. 127 on January 1, 1998. This statement provides
new conditions that must be met in order for a transaction to qualify for
secured borrowing accounting treatment. The Corporation's securities sold
under agreements to repurchase (repurchase agreements) continue to qualify
as secured borrowing transactions under SFAS No. 125. Therefore, the adoption
of SFAS No. 125 did not have a material effect on the financial position or
results of operations of the Corporation.
<PAGE>
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 (SFAS No. 130), "Reporting Comprehensive Income " which was effective
for the Corporation beginning January 1, 1998. This Statement establishes
standards for reporting and displaying comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. This statement was adopted by the Corporation
during the first quarter of 1998 by including comprehensive income in the
consolidated Statement of Changes in Stockholders' Equity. The adoption of
this statement did not have a material effect on the financial position or
results of operation of the Corporation.
EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128 (SFAS No. 128),
"Earnings per Share", requires the dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted EPS
computation. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Diluted EPS is computed similarly to fully diluted EPS pursuant to Opinion
15. The Corporation has presented both basic and diluted earnings per share
as well as the reconciliation of the denominator in the consolidated
statement of operations.
Basic and diluted earnings per share and weighted average common shares
outstanding and common stock equivalents have been retroactively restated
to reflect the increased number of common shares resulting from the three-for
- -one stock split that was paid to shareholders on July 14, 1998. A total of
5,245,370 additional shares were issued in conjunction with the stock split.
The par value of the Corporation's stock remained unchanged. As a result,
$524,537 was transferred from paid-in capital in excess of par to common stock.
<PAGE>
FINANCIAL CONDITION -
Total Assets - at September 30, 1998 were $667.4 million as compared with
total assets at December 31, 1997 of $628.4 million.
Investment Securities Held to Maturity - decreased $10.9 million to $101.4
million at September 30, 1998 from $112.3 million at December 31, 1997
primarily due to the net decrease in reverse repurchase agreements of $30.2
million, partially offset by the net purchase of $14.8 million in CMOs and
$4.2 million in U.S. Agency notes during the nine months ended September 30,
1998. Investment securities held to maturity at September 30, 1998 consisted
entirely of fixed rate securities. A comparison of cost and approximate
market values of investment securities held to maturity as of September 30,
1998 and December 31, 1997 follows:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
--------------------------------------------------------- ------------------------------
Gross Gross Estimated Estimated
Amortized Unrealized Unrealized Market Amortized Market
Cost Gains Losses Value Cost Value
---------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Gov't
Agencies $ 83,543,245 $ 490,610 $ (10,732) $ 84,023,123 $ 79,347,265 $ 79,497,591
CMOs 14,810,545 54,294 (7,458) 14,857,381 0 0
Reverse
Repurchase 0 0 0 0 30,185,402 30,185,402
Municipal bonds 3,013,660 9,733 0 3,023,393 2,801,809 2,816,418
U.S. Treasury 15,000 0 (500) 14,500 15,000 14,500
---------------------------------------------------------- -----------------------------
Total $ 101,382,450 $ 554,637 $ (18,690) $ 101,918,397 $ 112,349,476 $ 112,513,911
---------------------------------------------------------- -----------------------------
</TABLE>
Investment Securities Available for Sale - increased $55.3 million to $135.6
million at September 30, 1998 from $80.3 million at December 31, 1997 as a
result of the net purchase of $80.8 million of CMOs and $12.7 million of US
Agency notes, partially offset by $38.5 million of principal paydowns on CMOs
and REMICs during the nine months ended September 30, 1998. Investment
securities available for sale consisted of $129.6 million in fixed rate
securities and $5.6 million in adjustable rate securities at September 30,
1998. A comparison of cost and approximate market values of investment
securities available for sale as of September 30, 1998 and December 31,
1997 follows:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
--------------------------------------------------- ----------------------------
Gross Gross Estimated Estimated
Amortized Unrealized Unrealized Market Amortized Market
Cost Gains Losses Value Cost Value
--------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Gov't
Agencies $ 20,492,323 $ 138,070 $ 0 $ 20,630,393 $ 7,850,135 $ 7,870,581
CMOs 106,328,160 495,337 (22,421) 106,801,076 62,033,734 62,270,124
REMICs 8,387,755 1,252 (182,481) 8,206,526 10,372,889 10,197,956
--------------------------------------------------- ----------------------------
Total $ 135,208,238 $ 634,659 $(204,902) $ 135,637,995 $ 80,256,758 $ 80,338,661
=================================================== ============================
</TABLE>
<PAGE>
Loans, net - decreased $4.0 million to $298.8 million at September 30, 1998
from $302.8 million at December 31, 1997. This decrease was the result of
approximately $44.5 million of principal collected on loans, partially offset
by $42.6 million of loans originated during the nine months ended September
30, 1998. The following tables set forth certain information concerning the
loan portfolio at the dates indicated. Table 1 shows loans receivable by
major categories. Table 2 shows past due impaired loans by major categories.
<TABLE>
<CAPTION>
Table 1 September 30, December 31,
1998 1997
--------------------------------
<S> <C> <C>
Mortgage loans ( 1-4 dwelling) $ 247,698,466 $ 253,000,504
Construction loans 1,906,592 3,257,798
Commercial construction 2,632,499 2,385,192
Consumer loans 2,993,214 3,609,033
Commercial real estate 45,875,595 42,974,261
Commercial business 1,906,445 1,712,099
--------------------------------
Subtotal 303,012,811 306,938,887
--------------------------------
Less:
Deferred loan fees 958,111 970,075
Allowance for possible
loan losses 3,281,055 3,137,781
--------------------------------
Net Loans Receivable $ 298,773,645 $ 302,831,031
================================
</TABLE>
<TABLE>
<CAPTION>
Table 2 September 30, December 31,
Impaired Loans 1998 1997
- -------------- --------------------------------
<S> <C> <C>
Impaired loans - non-accrual:
Mortgage loans:
One-to-four family $ 2,149,805 $ 2,394,052
Commercial real estate 1,359,896 1,163,051
Consumer and other 81,376 80,184
--------------------------------
Total impaired loans $ 3,591,077 $ 3,637,287
--------------------------------
</TABLE>
At September 30, 1998, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS Nos. 114 and 118 totaled $3.6 million
of which $1.8 million related to loans that were individually measured for
impairment with a valuation allowance of $377 thousand and $1.8 million of
loans that were collectively measured for impairment with a valuation
allowance of $90 thousand. For the nine months ended September 30, 1998, the
average recorded investment in impaired loans was approximately $3.1 million.
The Bank recognized $84 thousand of interest income on impaired loans, all of
which was recognized on the cash basis. The Bank had $3.3 million in total
reserves for possible loan losses at September 30, 1998, representing
approximately 91% of non-accrual loans and 1.2% of total loans.
As of September 30, 1998 the Bank had outstanding loan commitments of $29.4
million, of which $23.9 million represented variable rate loans and $5.4
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.
<PAGE>
Mortgage-Backed Securities Held to Maturity - decreased $2.1 million to $89.9
million at September 30, 1998 from $92.0 million at December 31, 1997. The
decrease is the result of $23.6 million in principal repayments, partially
offset by the purchase of $21.3 million in GNMA and FNMA securities.
Mortgage-backed securities at September 30, 1998 consisted of $62.8 million
in fixed rate securities and $27.1 million in adjustable rate securities.
Mortgage-backed securities held to maturity at September 30, 1998 and
December 31, 1997 are summarized below:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
---------------------------------------------------- --------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Amortized Estimated
Cost Gains Losses Market Value Cost Market
---------------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
GNMA $ 29,113,589 $ 829,942 $ (7,266) $ 29,936,265 $ 22,586,373 $ 23,371,522
FNMA 36,842,676 580,911 (11,362) 37,412,225 35,648,943 36,198,921
FHLMC 23,777,834 631,790 (995) 24,408,629 33,379,272 34,324,036
Private 168,300 2,324 (48) 170,576 405,929 412,150
---------------------------------------------------- --------------------------
Total $ 89,902,399 $ 2,044,967 $ (19,671) $ 91,927,695 $ 92,020,517 $ 94,306,629
==================================================== ==========================
</TABLE>
Real Estate Held for Development - remained stable at $644 thousand at
September 30, 1998. The Bank has ceased making any new investments in real
estate held for development projects and has limited any additional
investments to those investments which are necessary to preserve and protect
the existing assets so that they may be liquidated as soon as practical.
Management believes that divestiture of its present land investments may take
several years, depending on market conditions. Management will continue to
monitor the net realizable value of its real estate investments. At
September 30, 1998, the Bank's investment in and advances to subsidiaries
engaged in land development was fully deducted from core, tangible, and risk-
based capital.
Real Estate Owned - consisted of properties with a net book value of $241
thousand. These properties are carried at the lower of book value or fair
market value less estimated costs to sell and are analyzed by management on a
periodic basis. Real estate owned at September 30, 1998 was comprised of (i)
18 acres of land which is zoned for the construction of 109 townhouses, (ii)
one residential condominium and (iii) one residential single family home. The
Bank is currently seeking buyers for all of these properties.
<PAGE>
Asset Classifications - are monitored by management on a regular basis.
Classified assets generally consist of assets which have possible credit risk
and/or have a sufficient degree of risk or potential weakness to warrant
management's close attention. Total classified assets decreased $612
thousand during the nine months ended September 30, 1998 resulting from a
decrease in classified one-to-four family loans of $252 thousand, real estate
owned of $205 thousand and commercial real estate of $156 thousand. The
following table sets forth information with respect to the Bank's classified
assets at the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Classified Assets:
Substandard Loans:
One-to-four family $ 2,367,279 $ 2,619,491
Commercial real estate 3,846,225 4,002,504
Consumer and other 81,376 80,184
------------- ------------
Total loans 6,294,880 6,702,179
Real estate held for development, net 644,487 644,487
Real Estate Owned, net 241,174 446,361
------------- ------------
Total Substandard 7,180,541 7,793,027
------------- ------------
Doubtful loans 0 0
-------------- ------------
Total Doubtful 0 0
-------------- ------------
Loss - Commercial Real Estate 15,872 15,242
-------------- ------------
Total Loss 15,872 15,242
-------------- ------------
TOTAL CLASSIFIED ASSETS $7,196,413 $7,808,269
============== ============
</TABLE>
Deposits - increased $21.8 million to $511.2 million at September 30, 1998 from
$489.4 million at December 31, 1997 as a result of an increase in passbook and
statement saving accounts of $7.1 million, interest bearing checking accounts
of $12.9 million, non-interest checking accounts of $8.3 million, and money
market accounts of $4.4 million offsetting a decrease in certificates of
deposit of $10.9 million. Non-interest checking accounts increased due to the
promotions of "Free Personal" and "Free Business" checking accounts.
Interest credited to depositors accounts for the nine months ended September
30, 1998 amounted to $12.3 million. The following tables set forth certain
information concerning deposits at the dates indicated.
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
-------------------------------------------------------------------
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 $ 58,190,047 11.55% 0.00% $ 49,875,981 10.19% 0.00%
Checking accounts 67,595,721 13.20% 1.95% 54,688,332 11.17% 1.69%
Savings accounts 90,951,664 17.76% 2.95% 83,824,897 17.13% 2.87%
Money market accounts 62,408,960 12.18% 2.65% 58,001,044 11.85% 2.72%
Certificates 232,073,423 45.31% 5.29% 243,049,726 49.66% 5.32%
--------------------------------------------------------------------
Total Deposits $ 511,219,815 100.00% 3.57% $ 489,439,980 100.00% 3.74%
====================================================================
</TABLE>
<PAGE>
Borrowings - at September 30, 1998 amounted to $106.6 million. Borrowings
included $10.0 million of 10% Subordinated Debentures, $80.0 million in
securities sold under the agreement to repurchase with a weighted average
interest rate of 5.57% and $16.6 million in Federal Home Loan Bank Advances
with a weighted average interest rate of 5.98%. At December 31, 1997
borrowings consisted of $10.0 million of 10% Subordinated Debentures, $60.0
million securities sold under agreements to repurchase with a weighted
average rate of 5.72%, $24.5 million in Federal Home Loan Bank Advances with
a weighted average interest rate of 6.08% and $33 thousand in the guarantee
of Employee Stock Ownership Plan debt.
There are three (3) standards that a savings institution must satisfy in
order to meet its capital requirements under "FDICIA". The requirements
include a leverage ratio of tier 1 (core) capital to adjusted total assets
of 4.0 percent, a tangible capital standard requirement of 2.0 percent of
total adjusted assets, and a risk-based capital standard set at 8.0 percent
of risk-weighted assets. If a savings institution is not in compliance with
applicable capital standards, the Office of Thrift Supervision (OTS) can
restrict the Bank's asset growth, require the submission of a capital plan,
and require compliance with a capital directive, which may include
restrictions on the payment of dividends and compensation, and other
restrictions determined to be appropriate by the OTS. At September 30, 1998
the Bank exceeds all three current capital requirements as the Bank's core,
tangible, and risk-based capital ratios were 7.06%, 7.06%, and 17.86%,
respectively.
RESULTS OF OPERATIONS -
General
The earnings of the Bank 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 and borrowings. Net interest
income is a function of the interest rate spread (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 the provision for loan losses,
non-interest income, such as gains (losses) on sales of loans and
investments, service charges and other fees. In addition to interest
expense, the Bank incurs operating expenses such as salaries and 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,
1998 of $1.4 million, or $.19 diluted earnings per share as compared to $1.4
million, or $.19 diluted earnings per share for the comparable period in
1997. Earnings for the nine months ended September 30, 1998 were $4.0
million, or $.54 diluted earnings per share as compared to $4.2 million, or
$.57 diluted earnings per share for the comparable period in 1997.
<PAGE>
Interest Rate Spread
The Bank's interest income is affected by the difference or "interest rate
spread" between yields received by the Bank on its interest-earning assets
and the interest rates paid by the Bank on its interest-bearing liabilities
including non-interest checking accounts. Net interest income is affected by
(i) the spread between the yield earned on interest-earning assets and the
interest rates paid on interest-bearing savings deposits including
non-interest checking accounts and borrowings (liabilities), and (ii) the
relative amounts of interest-earning assets versus interest-bearing
liabilities. The Bank's interest rate spread varies over time because money
fund accounts and other flexible rate accounts have become significant
sources of savings deposits. Income from investment securities and mortgage-
backed securities depends upon the amount invested during the period and the
yields earned on such securities. The yield on loans receivable changes
principally as a result of existing mortgage loan repayments, adjustable rate
loan adjustments, sales and the interest rates and volume of new mortgage loans.
The following table sets forth the Bank's weighted-average yields on its
interest-earning assets, weighted-average interest rates paid on its
interest-bearing liabilities and weighted-average interest rate spreads for
the periods indicated:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- -----------------
1998 1997 1998 1997
----------------- -----------------
<S> <C> <C> <C> <C>
Weighted-Average Yields Earned on:
Loans, net 8.02% 8.16% 7.97 % 8.03%
Mortgage-Backed Securities 6.97 7.34 7.09 7.26
Investment Securities 6.60 6.91 6.60 6.82
----------------- -----------------
Total Interest-Earning Assets 7.32 7.72 7.32 7.62
----------------- -----------------
Weighted-Average Interest Rates
Paid on:
Deposits 3.57 3.76 3.58 3.73
Borrowings 5.76 6.05 5.69 5.95
Subordinated Debentures 10.56 10.56 10.55 10.55
----------------- -----------------
Total Interest-Bearing
Liabilities 4.02 4.02 4.04 3.98
----------------- -----------------
Weighted-Average Interest Rate ----------------- -----------------
Spread for the Period 3.31% 3.70% 3.29 % 3.64%
================= =================
</TABLE>
<PAGE>
Average Balance of Interest-Earning Assets and Interest-Bearing Liabilities
The following table sets forth the Bank's average balance of interest-earning
assets in comparison to its average balance of interest-bearing liabilities
during the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------
1998 1997 1998 1997
------------------------ ----------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Average Interest-Earning Assets:
Loans, net $ 303,449 $ 310,714 $ 304,079 $ 311,371
Mortgage-Backed Securities 89,381 95,151 91,522 99,013
Investment Securities 248,701 126,203 239,523 114,712
------------------------ ----------------------
Total 641,531 532,068 635,124 525,096
------------------------ ----------------------
Average Interest-Bearing
Liabilities:
Deposits 518,300 479,491 508,550 471,520
Borrowings 97,579 26,919 100,527 27,855
Subordinated Debentures 10,000 10,000 10,000 10,000
------------------------ ----------------------
Total 625,879 516,410 619,077 509,375
------------------------ ----------------------
Excess of Interest-Earning
Assets over Interest-
Bearing Liabilities $ 15,652 $ 15,658 $ 16,047 $ 15,721
------------------------ ----------------------
</TABLE>
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).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 compared to 1997 1998 compared to 1997
------------------------------ ----------------------------
Increase (Decrease) due to: Increase (Decrease) due to:
Rate Volume Total Rate Volume Total
------------------------------ ----------------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $ (107) $ (148) $ (255) $ (153) $ (440) $ (593)
Mortgage-backed
securities (83) (106) (189) (117) (409) (526)
Investment securities (193) 2,117 1,924 (394) 6,398 6,004
------------------------------ ----------------------------
Total change -
interest income (383) 1,863 1,480 (664) 5,549 4,885
------------------------------ ----------------------------
Interest expense:
Deposits (258) 365 107 (554) 1,038 484
Borrowings (70) 1,068 998 (200) 3,251 3,051
Subordinated
Debentures 0 0 0 0 0 0
------------------------------ ----------------------------
Total change -
interest expense (328) 1,433 1,105 (754) 4,289 3,535
------------------------------ -----------------------------
Net change in net $ (55) $ 430 $ 375 $ 90 $ 1,260 $ 1,350
interest income ------------------------------ -----------------------------
</TABLE>
<PAGE>
Net Interest Income - for the three and nine months ended September 30, 1998
totaled $5.5 million and $16.2 million, respectively. Net interest income
for the three months ended September 30, 1998 increased $375 thousand as
compared to the same period in 1997 due primarily to an increase in interest
income on investment securities of $1.9 million, partially offset by an
increase of $1.0 million in interest expense on borrowings.
The increase in interest income on investment securities was due to a
significant increase in the average balance of the portfolio of $122.5
million to $248.7 million for the three months ended September 30, 1998 from
$126.2 million for the same period in 1997, which resulted in an increase in
interest income of $2.1 million. The average balance increase was due to
the net purchase of $106.8 million of collateralized mortgage obligations and
$37.3 million of U.S. Agency notes since September 30, 1997. The average
yield on the investment portfolio decreased 31 basis points to 6.60% for the
three months ended September 30, 1998 from 6.91% for the three months ended
September 30, 1997, which resulted in a decrease in interest income of $193
thousand due to rate changes.
The increase in interest expense on borrowings of $1.0 million for the three
months ended September 30, 1998 compared to the same period in 1997 was due
to an increase in the average balance of borrowings of $70.7 million to $97.6
million at September 30, 1998 from $26.9 million at September 30, 1997,
partially offset by a decrease in the weighted average rate of 29 basis
points to 5.76% for the three months ended September 30, 1998 from 6.05% for
the same period in 1997 which resulted in a decrease in interest income of
$70 thousand.
Net interest income for the nine months ended September 30, 1998 increased
$1.4 million primarily due to an increase in interest income on investment
securities of $6.0 million, partially offset by an increase in interest
expense on borrowings of $3.1 million as compared to the same period in 1997.
The increase in interest income on investment securities was due to an
increase in the average balance of the portfolio of $124.8 million to $239.5
million for the nine months ended September 30, 1998 from $114.7 million for
the same period in 1997, which resulted in an increase in interest income of
$6.4 million. The average yield on the investment portfolio decreased 22
basis points to 6.60% for the nine months ended September 30, 1998 from
6.82 % for the nine months ended September 30, 1997, which resulted in an
decrease in interest income of $394 thousand due to rate changes.
The increase in interest expense on borrowings of $3.1 million for the nine
months ended September 30, 1998 compared to the same period in 1997 was due
to an increase in the average balance of borrowings of $72.7 million to
$100.5 million for the nine months ended September 30, 1998 from $27.9
million for the nine months ended September 30, 1997, which resulted in an
increase in interest expense of $3.3 million. The weighted average rate on
borrowings decreased 26 basis points to 5.69% for the nine months ended
September 30, 1998 from 5.95 % for the nine months ended September 30, 1997,
which resulted in a decrease in interest expense of $200 thousand.
<PAGE>
Provision for Loan Losses - for the three months ended September 30, 1998 was
$60 thousand compared to $60 thousand for the same period in 1997. The total
provision for potential loan losses increased to $180 thousand for the nine
months ended September 30, 1998 from $140 thousand for the nine months ended
September 30, 1997. The determination of the allowance level for loan losses
is based on management's analysis of the risk characteristics of various
classifications of loans, previous loan loss experience, estimated fair value
of the underlying collateral and current economic conditions. Accordingly,
there can be no assurance that future provisions for loans losses will not
increase or be necessary. Most of the Bank's lending activity is with
customers located within southern New Jersey. Generally, the loans are
secured by real estate consisting of single family residential properties.
While this represents a concentration of credit risk, the credit losses
arising from this type of lending compare favorably with the Bank's credit
loss experience on its portfolio as a whole. The ultimate repayment of these
loans is dependent to a certain degree on the local economy and real estate
market.
Operating Expenses - for the three and nine month periods ended September 30,
1998 amounted to $3.8 million and $11.5 million, respectively, as compared to
$3.4 million and $9.8 million for the same periods in 1997.
Salaries and Employee Benefits - for the three and nine month periods ended
September 30, 1998 were $2.1 million and $6.7 million, respectively, as
compared to $1.9 million and $5.6 million for the same periods in 1997. The
increase was due to additional staff in the three new branches opened since
the third quarter of 1997, as well as an increase in branch staff for
additional operating hours, principally extended weekday hours until 9:00
p.m. Average full time equivalent employees at September 30, 1998 were 363 as
compared to 281 at September 30, 1997.
Occupancy and Equipment - for the three and nine month periods ended
September 30, 1998 amounted to $741 thousand and $2.2 million, respectively,
as compared to $697 thousand and $2.0 million for the same periods in 1997.
The increase is the result of additional depreciation and occupation expenses
on the new branches opened as well as other facility improvements and equipment
additions since the third quarter of 1998.
Purchased Services - for the three and nine month periods ended September 30,
1998 amounted to $334 thousand and $949 thousand, respectively, as compared
to $287 thousand and $779 thousand for the same periods in 1997. Check
processing costs have increased $67 thousand for the nine months ended
September 30, 1998 due to higher transaction volumes from an increase in the
number of checking accounts opened.
Federal Insurance Premium - for the three and nine month periods ended
September 30, 1998 amounted to $75 thousand and $222 thousand, respectively,
as compared to $73 thousand and $160 thousand for the same periods in 1997.
The increase in the nine months ended September 30, 1998 was due to an
assessment refund of $53 thousand during the first quarter of 1997 from the
recapitalization of the SAIF.
<PAGE>
Liquidity and Capital Resources
The Bank's liquidity is a measure of its ability to fund loans, withdrawals of
deposits, and other cash outflows in a cost effective manner. The Bank's
primary sources of funds are deposits and scheduled amortization and
prepayments of loan principal. To a lesser extent, the Bank obtains funds
from sales and maturities of mortgage-backed securities, investment
securities, and short-term investments and borrowings. During the past
several years, the Bank has used such funds primarily to meet ongoing
commitments to fund maturing time deposits and saving withdrawals, fund
existing and continuing loan commitments and to maintain liquidity. While
loan payments, maturing investments and mortgage-backed securities are a
relatively predictable source of funds, deposit flows and loan prepayments
are greatly influenced by general interest rates, economic conditions and
competition. The Bank's liquidity is also influenced by the level of demand
for funding loan originations.
The Bank is required under applicable federal regulations to maintain
specified levels of "liquid assets", which include obligations of the United
States government and federal agencies and other approved investments.
Regulations currently in effect require the Bank to maintain liquid assets of
not less than 4% of its net withdrawable accounts plus short-term borrowings.
The Bank has generally maintained liquidity in excess of required levels.
The Bank's regulatory liquidity was 4.06% at September 30, 1998 and 11.46% at
December 31, 1997.
ITEM 3: DISCLOSURE ABOUT MARKET RISK
MARKET RISK
The Bank's financial performance is impacted by, among other factors,
interest rate risk. Interest rate risk is the risk of loss in value due to
changes in interest rates. This risk is addressed by the Bank's Asset
Liability Management Committee ("ALCO") , which includes senior management.
The ALCO monitors and considers methods of managing interest rate risk by
monitoring changes in the interest rate repricing GAP, the net portfolio
values ("NPV") and net interest income under various interest rate scenarios.
The ALCO attempts to manage the various components of the Bank's balance
sheet to minimize the impact of sudden and sustained changes in interest
rates through GAP, NPV and net interest income scenarios. The Bank's
exposure to interest rate risk is reviewed on a periodic basis by the Board
of Directors and the ALCO. The principal objective of the ALCO is to
maximize income within acceptable levels as established by the risk policy.
The Board of Directors may direct management to adjust its asset and
liability mix to bring interest rate risk within Board approved limits. The
Bank has developed strategies to manage its liquidity, shorten the effective
maturities of certain interest-earning assets and increase the effective
maturities of certain liabilities, to reduce the exposure to interest rate
fluctuations. These strategies include focusing its investment activities on
short and medium-term securities, maintaining and increasing the transaction
deposit accounts, as these accounts are considered to be relatively resistant
to changes in interest rates and utilizing FHLB borrowings and deposit
marketing programs to adjust the term or repricing of its liabilities. There
were no significant changes for the nine months ended September 30, 1998 from
the information presented in the annual report on Form 10-K for the year
ended December 31, 1997.
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 1: Legal Proceedings
------- -----------------
None
Item 2: Changes in Securities
------- ---------------------
None
Item 3: Defaults Upon Senior Securities
------- -------------------------------
None
Item 4: Submission of Matters to Vote of Security of Holders
-------- ----------------------------------------------------
None
Item 5: Other Information
------- -----------------
None
Item 6: Exhibits and Reports on Form 8-K
------- --------------------------------
(a) (27) Financial Data Schedule (Electronic data filing only)
(b) No reports on Form 8-K were filed for the period covered by
this report.
<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 12, 1998 /s/ Craig W. Yates
------------------
Craig W. Yates
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 12, 1998 /s/ Channing L. Smith
----------------------
Channing L. Smith
Vice President and
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,019
<INT-BEARING-DEPOSITS> 345
<FED-FUNDS-SOLD> 1,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 135,638
<INVESTMENTS-CARRYING> 191,285
<INVESTMENTS-MARKET> 193,846
<LOANS> 298,774
<ALLOWANCE> 3,281
<TOTAL-ASSETS> 667,423
<DEPOSITS> 511,220
<SHORT-TERM> 3,561
<LIABILITIES-OTHER> 3,579
<LONG-TERM> 106,618
0
0
<COMMON> 789
<OTHER-SE> 41,657
<TOTAL-LIABILITIES-AND-EQUITY> 667,423
<INTEREST-LOAN> 6,084
<INTEREST-INVEST> 5,663
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11,748
<INTEREST-DEPOSIT> 4,620
<INTEREST-EXPENSE> 6,290
<INTEREST-INCOME-NET> 5,458
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,224
<INCOME-PRETAX> 2,174
<INCOME-PRE-EXTRAORDINARY> 1,389
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,389
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
<YIELD-ACTUAL> 3.41
<LOANS-NON> 3,607
<LOANS-PAST> 0
<LOANS-TROUBLED> 575
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,138
<CHARGE-OFFS> 38
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 3,281
<ALLOWANCE-DOMESTIC> 3,281
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,024
</TABLE>
