SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 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 August 6, 1998 there were issued and outstanding 7,885,608 shares and
7,220,184 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
JUNE 30, 1998
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements
Consolidated Statements of Financial Condition as of
June 30, 1998 (unaudited) and December 31, 1997..........1
Consolidated Statements of Income (unaudited)
for the three and six month periods ended
June 30, 1998 and June 30, 1997..........................2
Consolidated Statements of Cash Flows (unaudited)
for the six month periods ended June 30, 1998
and June 30, 1997........................................3
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended June 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>
JUNE 30, DECEMBER 31,
1998 1997
------------------------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS ------------------------------
Cash and amounts due from depository institutions $ 11,528,900 $ 11,637,181
Interest-bearing deposits 133,935 826,823
Short term funds 195,499 167,618
---------- ----------
Total cash and cash equivalents 11,858,334 12,631,622
Investment securities held to maturity 107,933,197 112,349,476
Investment securities available for sale 130,824,351 80,338,661
Loans, net 301,303,326 302,831,031
Mortgage-backed securities held to maturity 90,972,839 92,020,517
Accrued interest receivable:
Loans 1,680,023 1,750,966
Mortgage-backed securities 675,103 715,981
Investments 2,465,035 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 499,368 446,361
Office properties and equipment, net 16,510,068 15,692,055
Deferred income taxes 1,714,013 1,507,307
Excess cost over fair value of net assets acquired 317,207 469,444
Prepaid expenses and other assets 1,090,475 1,061,125
Subordinated Debentures issue cost, net 349,787 378,460
----------- -----------
TOTAL ASSETS $ 673,699,023 $ 628,403,218
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 519,244,727 $ 489,439,980
Securities sold under agreements to repurchase 80,000,000 60,000,000
Advances from the Federal Home Loan Bank 17,696,476 24,496,476
10% Subordinated Debentures, due 2004 10,000,000 10,000,000
Guarantee of employee stock ownership plan debt 0 33,481
Advances by borrowers for taxes and insurance 2,443,612 2,192,541
Accrued interest payable 1,354,361 1,114,304
Dividends payable 216,079 167,154
Other liabilities 1,785,811 2,043,465
----------- -----------
Total liabilities 632,741,066 589,487,401
----------- -----------
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 7,868,055* and 2,604,370 and shares outstanding 7,202,631* and
2,387,916 as of June 30, 1998 and December 31, 1997, respectively 786,806 260,437
Paid-in capital in excess of par* 7,963,770 8,419,167
Unrealized (loss) gain on securities available for sale - net of deferred income taxes (15,012) 53,955
Guarantee of employee stock ownership plan debt 0 (33,481)
Retained earnings 35,598,765 33,406,060
Less: Treasury stock (665,424* and 216,454 shares, at cost, as of
June 30, 1998 and December 31, 1997, respectively) (3,376,372) (3,190,321)
----------- -----------
Total stockholders' equity 40,957,957 38,915,817
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 673,699,023 $ 628,403,218
============ ============
*Common stock, paid-in capital in excess of par and treasury stock at June 30, 1998 have been restated to
reflect a three-for-one stock split announced in April 1998.
See notes to consolidated financial statements.
</TABLE>
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ------------------
1998 1997 1998 1997
--------------------- ------------------
<S> <C> <C> <C> <C>
INTEREST INCOME: (UNAUDITED)
Interest income on:
Loans $ 6,041,597 $ 6,250,493 $ 12,131,301 $ 12,469,607
Mortgage-backed securities 1,662,632 1,808,261 3,318,195 3,655,992
Investments 4,100,734 2,021,343 7,779,548 3,698,767
---------- ---------- ---------- ----------
Total interest income 11,804,963 10,080,097 23,229,044 19,824,366
INTEREST EXPENSE: ---------- ---------- ---------- ----------
Interest expense on:
Deposits 4,645,628 4,412,091 9,079,866 8,703,165
Subordinated Debentures 264,337 264,337 528,674 528,674
Borrowings 1,454,958 415,544 2,892,014 838,744
---------- --------- ---------- ----------
Total interest expense 6,364,923 5,091,972 12,500,554 10,070,583
---------- --------- ---------- ----------
NET INTEREST INCOME 5,440,040 4,988,125 10,728,490 9,753,783
PROVISION FOR LOAN LOSSES 60,000 50,000 120,000 80,000
NET INTEREST INCOME AFTER PROVISION --------- --------- ---------- ---------
FOR LOAN LOSSES 5,380,040 4,938,125 10,608,490 9,673,783
--------- --------- ---------- ---------
OTHER INCOME (EXPENSE):
Loan service charges and other fees 34,362 49,901 71,270 100,292
Gain on sale of loans 1,210 2,251 1,355 2,251
Gain on sale of investment securities 0 0 0 0
Real estate owned operations, net (20,582) (46,962) (47,615) (86,042)
Service charges on accounts 577,576 543,505 1,171,441 1,093,457
Other income (56,195) 19,894 (54,831) 40,976
-------- ------- --------- ---------
Total other income (expense) 536,371 568,589 1,141,620 1,150,934
-------- ------- --------- ---------
OPERATING EXPENSES:
Salaries and employee benefits 2,246,500 1,817,962 4,566,297 3,702,597
Occupancy and equipment 712,465 656,622 1,432,472 1,330,564
Purchased services 313,874 258,577 615,456 491,583
Federal deposit insurance premiums 73,706 71,544 146,507 87,325
Professional fees 74,583 79,702 177,555 151,545
Advertising 60,046 17,485 100,783 41,349
Other 338,711 318,735 673,317 619,899
--------- --------- --------- ---------
Total operating expenses 3,819,885 3,220,627 7,712,387 6,424,862
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 2,096,526 2,286,087 4,037,723 4,399,855
INCOME TAXES:
Current 878,599 1,033,028 1,625,186 1,737,008
Deferred (117,599) (204,034) (163,870) (142,214)
--------- --------- --------- ---------
Total income taxes 761,000 828,994 1,461,316 1,594,794
NET INCOME $ 1,335,526 $ 1,457,093 $ 2,576,407 $ 2,805,061
========= ========= ========= =========
BASIC EARNINGS PER COMMON SHARE* $ 0.19 $ 0.20 $ 0.36 $ 0.39
==== ==== ==== ====
DILUTED EARNINGS PER COMMON SHARE* $ 0.18 $ 0.20 $ 0.35 $ 0.38
==== ==== ==== ====
Weighted average common shares outstanding* 7,194,162 7,161,396 7,185,492 7,167,948
Potential dilutive effect of the exercise of
stock options* 125,607 173,397 122,673 170,979
--------- --------- --------- ---------
Adjusted weighted average common shares
outstanding* 7,319,769 7,334,793 7,308,165 7,338,927
========= ========= ========= =========
*Basic and Diluted earnings per common share, weighted average common shares outstanding
and the potential dilutive effect of the exercise of stock options have been restated to reflect a three-for-one
stock split announced in April 1998.
See notes to consolidated financial statements.
</TABLE>
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1998 1997
---------------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,576,407 $ 2,805,061
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 120,000 80,000
Depreciation and amortization 865,184 902,148
Provision for real estate owned 35,659 76,630
Realized (gains) and losses on:
Sale of loans and loans held for sale (1,355) (2,251)
Disposal and sale of fixed assets 0 7,122
Sale of real estate owned 0 (10,630)
Increase in accrued interest receivable (418,289) (338,166)
Increase in prepaid expenses and other assets (29,350) (474,809)
Increase (Decrease) in accrued interest payable 240,057 (81,386)
Decrease in other liabilities (257,654) (32,154)
Deferred income taxes (167,946) (142,213)
--------- ---------
Net cash provided by operating activities 2,962,713 2,789,352
--------- ---------
INVESTING ACTIVITIES:
Proceeds from sale of:
Education loans 308,467 342,000
Real estate owned 228,283 75,630
Principal collected and proceeds from maturities of investment securities held to 179,090,586 115,836,940
maturity
Proceeds from maturities of investment securities available for sale 40,623,255 3,000,000
Principal collected on mortgage-backed securities held to maturity 15,168,480 10,874,593
Principal collected on mortgage-backed securities available for sale 0 3,594,795
Principal collected on longer-term loans, net 29,646,907 25,028,377
Longer-term loans originated or acquired, net (28,822,325) (26,486,393)
Purchase of investment securities and mortgage-backed securities held to maturity (188,881,218) (120,849,980)
Purchase of investment securities and mortgage-backed securities available for sale (91,270,008) (29,762,744)
Purchase of Federal Home Loan Bank stock (1,230,610) (10,200)
Purchase of office property and equipment (1,403,780) (939,498)
----------- ------------
Net cash used in investing activities (46,541,963) (19,296,480)
----------- -----------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts 27,100,044 13,374,905
Net increase in time deposits 2,704,703 1,749,263
Net decrease in FHLB advances (6,800,000) (4,650,000)
Proceeds from securities sold under agreements to repurchase 20,000,000 0
Increase in advances from borrowers for taxes and insurance 251,071 330,554
Purchase of common stock (186,051) (126,036)
Dividends paid on common stock (334,777) (238,959)
Net proceeds from issuance of common stock 70,972 4,015
---------- ----------
Net cash provided by financing activities 42,805,962 10,443,742
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (773,288) (6,063,386)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,631,622 9,919,549
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,858,334 $ 3,856,163
========== ==========
Supplemental Disclosures:
Cash paid for:
Interest on deposits, advances, and other borrowings $ 12,260,497 $ 10,151,969
Income taxes 1,824,557 1,569,575
Non-cash investing and financing activities:
Dividends declared and not paid at quarter end 216,079 119,376
Non-monetary transfers from loans to real estate acquired
through foreclosure 316,949 0
See notes to consolidated financial statements.
</TABLE>
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
GUARANTEE
ACCUMULATED OF
OTHER EMPLOYEE TOTAL
COMMON SHARES COMMON PAID-IN COMPREHENSIVE STOCK RETAINED TREASURY STOCKHOLDERS
OUTSTANDING STOCK CAPITAL INCOME OWNERSHIP EARNINGS STOCK EQUITY
----------------------------------------------------------------------------------------------------------
<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 2,576,407 2,576,407
Other comprehensive income, net
of tax of $38,760
Unrealized loss on securities
available for sale (68,967) (68,967)
Total Comprehensive Income 2,507,440
Dividends declared (383,702) (383,702)
Decrease in guarantee of
employee stock ownership plan debt 33,481 33,481
Exercise of stock options 18,315 1,832 69,140 70,972
Purchase of common stock (5,354) (186,051) (186,051)
Three-for-one
stock split 4,801,754 524,537 (524,537)
----------------------------------------------------------------------------------------------------------
Balances at
June 30, 1998 7,202,631 $786,806 $7,963,770 $(15,012) $ 0 $35,598,765 $(3,376,372) $40,957,957
===========================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 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 six
months ended June 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 From 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). 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. Management expects that it will be able to satisfy year
2000 compliance issues by the end of 1998.
Management intends to perform testing on all systems throughout 1998 and 1999.
The Bank does not expect that the costs of its year 2000 compliance program 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.
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.
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.
<PAGE>
EARNING 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.
At June 30, 1998, basic and diluted earnings per common share and weighted
average common shares outstanding have been retroactively restated to reflect
the increased number of common shares resulting from a three-for-one stock split
that was announced in April 1998 for shareholders of record on July 1, 1998 and
paid 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 June 30, 1998 were $673.7 million as compared with total
assets at December 31, 1997 of $628.4 million.
INVESTMENT SECURITIES HELD TO MATURITY - decreased $4.4 million to $107.9
million at June 30, 1998 from $112.3 million at December 31, 1997 primarily due
to the net decrease in reverse repurchase agreements of $10.2 million, partially
offset by the net purchase of $5.9 million in U.S. Agency notes during the six
months ended June 30, 1998. Investment securities held to maturity at June 30,
1998 consisted entirely of fixed rate securities. A comparison of cost and
approximate market values of investment securities held to maturity as of June
30, 1998 and December 31, 1997 follows:
<TABLE>
<CAPTION>
June 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 $ 85,291,163 $ 213,856 $ (85,018) $ 85,420,001 $ 79,347,265 $ 79,497,591
Reverse Repurchase 20,000,000 0 0 20,000,000 30,185,402 30,185,402
Municipal bonds 2,627,034 10,043 0 2,637,077 2,801,809 2,816,418
U. S. Treasury 15,000 0 (500) 14,500 15,000 14,500
-------------- ------------ ----------- -------------- ------------- -------------
Total $ 107,933,197 $ 223,899 $ (85,518) $ 108,071,578 $ 112,349,476 $ 112,513,911
======================================================= ============================
</TABLE>
INVESTMENT SECURITIES AVAILABLE FOR SALE - increased $50.5 million to $130.8
million at June 30, 1998 from $80.3 million at December 31, 1997 as a result of
the net purchase of $63.0 million of CMOs and $9.4 million of US Agency notes,
partially offset by $21.8 million of principal paydowns on CMOs and REMICs
during the six months ended June 30, 1998. Investment securities available for
sale consisted of $6.1 million in adjustable rate securities and $124.7 million
in fixed rate securities at June 30, 1998. A comparison of cost and approximate
market values of investment securities available for sale as of June 30, 1998
and December 31, 1997 follows:
<TABLE>
<CAPTION>
JUNE 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 $ 17,200,430 $ 33,024 $ (26,686) $ 17,206,768 $ 7,850,135 $ 7,870,581
CMOs 104,083,944 227,322 (87,550) 104,223,716 62,033,734 62,270,124
REMICs 9,565,801 1,549 (173,483) 9,393,867 10,372,889 10,197,956
--------------------------------------------------------- ----------------------------------
Total $ 130,850,175 $ 261,895 $ (287,719) $130,824,351 $ 80,256,758 $ 80,338,661
========================================================= ==================================
</TABLE>
<PAGE>
LOANS RECEIVABLE AND LOANS HELD FOR SALE - decreased $1.5 million to $301.3
million at June 30, 1998 from $302.8 million at December 31, 1997. This
decrease was the result of approximately $29.6 million of principal collected on
loans, partially offset by $28.8 million of loans originated during the six
months ended June 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 1 JUNE 30, December 31,
1998 1997
-------------------------------
Mortgage loans ( 1-4 dwelling) $ 250,796,387 $ 253,000,504
Construction loans 2,329,002 3,257,798
Commercial construction 2,845,806 2,385,192
Consumer loans 3,856,541 3,609,033
Commercial real estate 43,800,169 42,974,261
Commercial business 1,872,285 1,712,099
-------------------------------
Subtotal 305,500,190 306,938,887
-------------------------------
Less:
Deferred loan fees 947,286 970,075
Allowance for possible
loan losses 3,249,578 3,137,781
-------------------------------
Net Loans Receivable $ 301,303,326 $ 302,831,031
===============================
Table 2 JUNE 30, December 31,
Impaired Loans 1998 1997
-------------------------------
Impaired loans - non-accrual:
Mortgage loans:
One-to-four family $ 1,798,432 $ 2,394,052
Commercial real estate 1,220,289 1,163,051
Consumer and other 82,023 80,184
-------------------------------
Total impaired loans $ 3,100,744 $ 3,637,287
-------------------------------
At June 30, 1998, the recorded investment in loans for which impairment has been
recognized in accordance with SFAS Nos. 114 and 118 totaled $3.1 million of
which $1.6 million related to loans that were individually measured for
impairment with a valuation allowance of $368 thousand and $1.5 million of loans
that were collectively measured for impairment with a valuation allowance of $73
thousand. For the six months ended June 30, 1998, the average recorded
investment in impaired loans was approximately $3.1 million. The Bank
recognized $43 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 June 30, 1998, representing approximately 105% of non-
accrual loans and 1% of total loans.
As of June 30, 1998 the Bank had outstanding loan commitments of $28.8 million,
of which $23.3 million represented variable rate loans and $5.5 million
represented fixed rate loans. The Bank intends to fund these commitments
through scheduled amortization of loans and mortgage-backed securities,
additional borrowings and if necessary the sale of investment securities
available for sale.
<PAGE>
MORTGAGE-BACKED SECURITIES HELD TO MATURITY - decreased $1.0 million to $91.0
million at June 30, 1998 from $92.0 million at December 31, 1997. The decrease
is the result of $15.2 million in principal repayments, partially offset by the
purchase of $13.9 million in GNMA and FNMA fixed rate securities. Mortgage-
backed securities at June 30, 1998 consisted of $68.6 million in fixed rate
securities and $22.4 million in adjustable rate securities. Mortgage-backed
securities held to maturity at June 30, 1998 and December 31, 1997 are
summarized below:
<TABLE>
<CAPTION>
JUNE 30, 1998 December 31, 1997
-------------------------------------------------------- ----------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED Amortized Estimated
COST GAINS LOSSES MARKET VALUE Cost Market Value
-------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
GNMA $ 31,137,094 $ 669,692 $ (8,269) $ 31,798,517 $ 22,586,373 $ 23,371,522
FNMA 32,588,793 506,650 (28,889) 33,066,554 35,648,943 36,198,921
FHLMC 26,970,484 665,499 (20,442) 27,615,541 33,379,272 34,324,036
Private 276,468 3,178 0 279,646 405,929 412,150
-------------------------------------------------------- ----------------------------
Total $ 90,972,839 $1,845,019 $(57,600) $ 92,760,258 $ 92,020,517 $ 94,306,629
======================================================== ============================
</TABLE>
REAL ESTATE HELD FOR DEVELOPMENT - remained stable at $644 thousand at June 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 June 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 $499
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 June 30, 1998 was comprised of (i) 18
acres of land which is zoned for the construction of 109 townhouses, (ii) two
residential condominiums and (iii) two residential single family homes. 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 $535 thousand
during the six months ended June 30, 1998 resulting from a decrease in
classified one-to-four family loans of $600 thousand, partially offset by an
increase in real estate owned of $53 thousand and commercial real estate of $10
thousand. The following table sets forth information with respect to the Bank's
classified assets at the dates indicated:
JUNE 30, December 31,
1998 1997
-------------- ------------
Classified Assets:
Substandard Loans:
One-to-four family $2,019,509 $2,619,491
Commercial real estate 4,012,639 4,002,504
Consumer and other 82,023 80,184
-------------- ------------
Total loans 6,114,171 6,702,179
Real estate held for development, net 644,487 644,487
Real Estate Owned, net 499,368 446,361
-------------- ------------
Total Substandard 7,258,026 7,793,027
-------------- ------------
Doubtful loans 0 0
-------------- ------------
Total Doubtful 0 0
-------------- ------------
Loss - Commercial Real Estate 15,417 15,242
-------------- ------------
Total Loss 15,417 15,242
-------------- ------------
TOTAL CLASSIFIED ASSETS $7,273,443 $7,808,269
============== =============
DEPOSITS - increased $29.8 million to $519.2 million at June 30, 1998 from
$489.4 million at December 31, 1997 as a result of an increase in passbook and
statement saving accounts of $11.1 million, interest bearing checking accounts
of $7.8 million, non-interest checking accounts of $6.2 million, certificate of
deposits of $2.7 million and money market accounts of $2.0 million. Non-
interest checking accounts increased due to the promotion of "Free Personal"
and "Free Business" checking accounts. Interest credited to depositors
accounts for the six months ended June 30, 1998 amounted to $3.1 million. The
following table set forth certain information concerning deposits at the dates
indicated:
<TABLE>
<CAPTION>
JUNE 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 $56,058,776 10.80% 0.00% $49,875,981 10.19% 0.00%
Checking accounts 62,516,317 12.04% 1.90% 54,688,332 11.17% 1.69%
Savings accounts 94,906,262 18.28% 2.86% 83,824,897 17.13% 2.87%
Money market accounts 60,008,943 11.56% 2.74% 58,001,044 11.85% 2.72%
Certificates 245,754,429 47.32% 5.30% 243,049,726 49.66% 5.32%
-----------------------------------------------------------------
Total Deposits $519,244,727 100.00% 3.57% $489,439,980 100.00% 3.74%
=================================================================
</TABLE>
<PAGE>
BORROWINGS - at June 30, 1998 amounted to $107.7 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 $17.7 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 its' 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 June 30, 1998 the Bank exceeds all three current capital requirements as the
Bank's core, tangible, and risk-based capital ratios were 6.89%, 6.89%, and
16.74%, 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 June 30, 1998 of
$1.3 million, or $.18 diluted earnings per share as compared to $1.5 million, or
$.20 diluted earnings per share for the comparable period in 1997. Earnings for
the six months ended June 30, 1998 were $2.6 million, or $.35 diluted earnings
per share as compared to $2.8 million, or $.38 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 Six Months
Ended Ended
June 30, June 30,
---------------- ----------------
1998 1997 1998 1997
---------------- ----------------
<S> <C> <C> <C> <C>
Weighted-Average Yields Earned on:
Loans, net 7.95 % 8.01 % 7.97 % 8.00 %
Mortgage-Backed Securities 7.08 7.22 7.17 7.24
Investment Securities 6.61 6.88 6.63 6.80
---------------- ----------------
Total Interest-Earning Assets 7.31 7.61 7.35 7.60
---------------- ----------------
Weighted-Average Interest Rates Paid on:
Deposits 3.59 3.72 3.61 3.72
Borrowings 5.70 5.95 5.67 5.92
Subordinated Debentures 10.56 10.56 10.58 10.56
----------------- ---------------
Total Interest-Bearing Liabilities 4.04 3.98 4.06 3.98
----------------- ---------------
Weighted-Average Interest Rate Spread ----------------- ---------------
for the Period 3.27 % 3.64 % 3.29 % 3.62 %
================= ===============
</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 Six Months Ended
June 30, June 30,
----------------------- --------------------
1998 1997 1998 1997
----------------------- --------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Average Interest-Earning Assets:
Loans, net $ 304,082 $ 311,997 $ 304,287 $ 311,700
Mortgage-Backed Securities 94,006 100,113 92,601 101,041
Investment Securities 248,031 117,438 234,768 108,866
----------------------- --------------------
Total 646,119 529,548 631,656 521,607
----------------------- --------------------
Average Interest-Bearing Liabilities:
Deposits 517,939 474,221 503,586 467,470
Borrowings 102,118 27,962 102,021 28,362
Subordinated Debentures 10,000 10,000 10,000 10,000
----------------------- --------------------
Total 630,057 512,183 615,607 505,832
----------------------- --------------------
Excess of Interest-Earning Assets
over Interest-Bearing Liabilities $ 16,062 $ 17,365 $ 16,049 $ 15,775
---------------------------------------------
</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 Six Months Ended
June 30, June 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 $ (51) (159) $ (210) $ (41) $ (297) $ (338)
Mortgage-backed securities (35) (110) (145) (33) (305) (338)
Investment securities (167) 2,247 2,080 (197) 4,278 4,081
--------------------------- ---------------------------
Total change - interest income (253) 1,978 1,725 (271) 3,676 3,405
--------------------------- ---------------------------
Interest expense:
Deposits (173) 407 234 (295) 672 377
Borrowings (64) 1,103 1,039 (126) 2,179 2,053
Subordinated Debentures 0 0 0 1 0 1
--------------------------- ---------------------------
Total change - interest expense (237) 1,510 1,273 (420) 2,851 2,431
--------------------------- ---------------------------
Net change in net interest income $ (16) $ 468 $ 452 $ 149 $ 825 $ 974
--------------------------- ----------------------------
</TABLE>
<PAGE>
NET INTEREST INCOME - for the three and six months ended June 30, 1998 totaled
$5.4 million and $10.7 million, respectively. Net interest income for the three
months ended June 30, 1998 increased $452 thousand as compared to the same
period in 1997 due primarily to an increase in interest income on investment
securities of $2.1 million, partially offset by an increase in interest expense
on borrowings of $1.0 million.
The increase in interest income on investment securities was due to a
significant increase in the average balance of the portfolio of $130.6 million
to $248.0 million for the three months ended June 30, 1998 from $117.4 million
for the same period in 1997, which resulted in an increase in interest income of
$2.2 million. The average balance increase was due to the net purchase of $74.2
million of collateralized mortgage obligations and $41.0 million of U.S. Agency
notes since June 30, 1997. The average yield on the investment portfolio
decreased 27 basis points to 6.61% for the three months ended June 30, 1998 from
6.88% for the three months ended June 30, 1997, which resulted in a decrease in
interest income of $167 thousand due to rate changes.
The increase in interest expense on borrowings of $1.0 million for the three
months ended June 30, 1998 compared to the same period in 1997 was due to an
increase in the average balance of borrowings of $74.2 million to $102.1 million
at June 30, 1998 from $28.0 million at June 30, 1997, partially offset by a
decrease in the weighted average rate of 25 basis points to 5.70% for the three
months ended June 30, 1998 from 5.95% for the same period in 1997 which resulted
in a decrease in interest income of $64 thousand.
Net interest income for the six months ended June 30, 1998 increased $974
thousand primarily due to an increase in interest income on investment
securities of $4.1 million, partially offset by an increase in interest expense
on borrowings of $2.1 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 $125.9 million to $234.8 million for
the six months ended June 30, 1998 from $108.9 million for the same period in
1997, which resulted in an increase in interest income of $4.3 million. The
average yield on the investment portfolio decreased 17 basis points to 6.63% for
the six months ended June 30, 1998 from 6.80 % for the six months ended June
30, 1997, which resulted in an decrease in interest income of $197 thousand due
to rate changes.
The increase in interest expense on borrowings of $2.1 million for the six
months ended June 30, 1998 compared to the same period in 1997 was due to an
increase in the average balance of borrowings of $73.7 million to $102.0 million
for the six months ended June 30, 1998 from $28.4 million for the six months
ended June 30, 1997, which resulted in an increase in interest expense of $2.2
million. The weighted average rate on borrowings decreased 25 basis points to
5.67 % for the six months ended June 30, 1998 from 5.92 % for the six months
ended June 30, 1997, which resulted in a decrease in interest expense of $126
thousand.
<PAGE>
PROVISION FOR LOAN LOSSES - for the three months ended June 30, 1998 was $60
thousand compared to $50 thousand for the same period in 1997. The total
provision for potential loan losses increased to $120 thousand for the six
months ended June 30, 1998 from $80 thousand for the six months ended June 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 six month periods ended June 30, 1998
amounted to $3.8 million and $7.7 million, respectively, as compared to $3.2
million and $6.4 million for the same periods in 1997.
SALARIES AND EMPLOYEE BENEFITS - for the three and six month periods ended June
30, 1998 were $2.2 million and $4.6 million, respectively, as compared to $ 1.8
million and $3.7 million for the same periods in 1997. The increase was due to
additional staff in the two new branches opened since the second 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 June 30, 1998 were 326 as compared to 262 at June 30, 1997.
OCCUPANCY AND EQUIPMENT - for the three and six month periods ended June 30,
1998 amounted to $712 thousand and $1.4 million, respectively, as compared to
$657 thousand and $1.3 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
second quarter of 1997.
PURCHASED SERVICES - for the three and six month periods ended June 30, 1998
amounted to $314 thousand and $615 thousand, respectively, as compared to $259
thousand and $492 thousand for the same periods in 1997. Check processing costs
have increased $43 thousand for the six months ended June 30, 1998 due to higher
transaction volumes from an increase in the number of checking accounts opened.
FEDERAL INSURANCE PREMIUM - for the three and six month periods ended June 30,
1998 amounted to $74 thousand and $147 thousand, respectively, as compared to
$72 thousand and $87 thousand for the same periods in 1997. The increase in the
six months ended June 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 9.60% at June 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 six months ended June 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: August 11, 1998 /s/ Craig W. Yates
-----------------------
Craig W. Yates
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 1998 /s/ Channing L. Smith
------------------------
Channing L. Smith
Vice President and
Chief Financial Officer
(Principle Financial Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 11,529
<INT-BEARING-DEPOSITS> 329
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 130,824
<INVESTMENTS-CARRYING> 198,906
<INVESTMENTS-MARKET> 200,831
<LOANS> 301,303
<ALLOWANCE> 3,250
<TOTAL-ASSETS> 673,699
<DEPOSITS> 519,245
<SHORT-TERM> 4,014
<LIABILITIES-OTHER> 1,786
<LONG-TERM> 107,696
0
0
<COMMON> 787
<OTHER-SE> 40,171
<TOTAL-LIABILITIES-AND-EQUITY> 673,699
<INTEREST-LOAN> 12,131
<INTEREST-INVEST> 11,098
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 23,229
<INTEREST-DEPOSIT> 9,080
<INTEREST-EXPENSE> 12,501
<INTEREST-INCOME-NET> 10,728
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,571
<INCOME-PRETAX> 4,038
<INCOME-PRE-EXTRAORDINARY> 2,576
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,576
<EPS-PRIMARY> .36
<EPS-DILUTED> .35
<YIELD-ACTUAL> 3.42
<LOANS-NON> 3,101
<LOANS-PAST> 0
<LOANS-TROUBLED> 482
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,138
<CHARGE-OFFS> 9
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 3,249
<ALLOWANCE-DOMESTIC> 3,249
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,993
</TABLE>
