SECURITIES AND EXCHANGE COMMISSION
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Washington, DC 20549
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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, 1999
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
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(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 July 30, 1999 there were 7,208,978 shares outstanding of the
registrant's Common Stock, par value $.10 per share.
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
----------------------------------------
QUARTERLY REPORT ON FORM 10-Q
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JUNE 30, 1999
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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PART I - Financial Information
- ------------------------------
<S> <C> <C> <C>
Item 1 - Financial Statements
Consolidated Statements of Financial Condition as of
June 30, 1999 (unaudited) and December 31, 1998...........................1
Consolidated Statements of Income (unaudited) for the three and
six month periods ended June 30, 1999 and June 30,
1998......................................................................2
Consolidated Statements of Cash Flows (unaudited) for the six
month periods ended June 30, 1999 and June 30,
1998......................................................................3
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended June 30, 1999 (unaudited)........................4
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations............................5-16
Item 3 - Disclosure about Market Risk..................................................16
PART II - Other Information
- ---------------------------
Item 1 - Legal Proceedings.............................................................17
Item 2 - Changes in Securities.........................................................17
Item 3 - Defaults Upon Senior Securities...............................................17
Item 4 - Submission of Matters to a Vote of Security Holders...........................17
Item 5 - Other Information.............................................................17
</TABLE>
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 1999 December 31, 1998
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(Unaudited)
ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and amounts due from depository institutions $ 15,766,161 $ 18,142,316
Interest-bearing deposits 104,228 0
Short term funds 29,256,017 11,754,075
------------------------ -------------------
Total cash and cash equivalents 45,126,406 29,896,391
Investment securities held to maturity 181,313,322 129,417,826
Investment securities available for sale 65,661,289 109,833,133
Loans, net 296,665,788 298,603,223
Mortgage-backed securities held to maturity 92,041,772 90,592,647
Accrued interest receivable:
Loans 1,767,397 1,839,217
Mortgage-backed securities 630,813 633,667
Investments 2,685,827 2,371,410
Federal Home Loan Bank stock 4,861,410 4,861,410
Real estate held for development, net 644,487 644,487
Real estate owned, net 167,541 167,541
Office properties and equipment, net 19,627,245 19,292,247
Deferred income taxes 1,995,005 2,015,772
Excess cost over fair value of net assets acquired 76,460 164,969
Prepaid expenses and other assets 1,738,067 1,156,573
Subordinated debentures issue cost, net 292,439 321,113
------------------------ -------------------
TOTAL ASSETS $ 715,295,268 $ 691,811,626
======================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Deposits $ 558,406,794 $ 536,309,623
Securities sold under agreements to repurchase 80,000,000 80,000,000
Advances from the Federal Home Loan Bank 16,337,031 16,368,321
10% Subordinated debentures, due 2004 10,000,000 10,000,000
Advances by borrowers for taxes and insurance 2,249,943 2,259,435
Accrued interest payable 1,365,051 1,304,742
Dividends payable 216,270 216,953
Other liabilities 2,119,093 1,883,887
------------------------ -------------------
Total liabilities 670,694,182 648,342,961
------------------------ -------------------
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 7,897,691 and 7,897,191 and shares outstanding 7,208,978 and
7,231,767 as of June 30, 1999 and December 31, 1998, respectively 789,769 789,719
Paid-in capital in excess of par 8,217,415 8,216,820
Unrealized loss on securities available for sale - net of deferred income taxes (605,318) (21,793)
Retained earnings 39,805,994 37,860,291
Less: Treasury stock (688,713 and 665,424 shares, at cost, as of
June 30, 1999 and December 31, 1998, respectively) (3,606,774) (3,376,372)
------------------------ -------------------
Total stockholders' equity 44,601,086 43,468,665
------------------------ -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 715,295,268 $ 691,811,626
======================== ===================
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
MS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Three Months ended Six Months ended
June 30, June 30,
--------------------------------------------------------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------------- ---------------------------------
INTEREST INCOME: (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income on:
Loans $ 5,914,577 $ 6,041,597 $ 11,574,220 $ 12,131,301
Mortgage-backed securities 1,563,110 1,662,632 3,059,153 3,318,195
Investments 4,221,455 4,100,734 8,219,334 7,779,548
------------- -------------- ------------- ---------------
Total interest income 11,699,142 11,804,963 22,852,707 23,229,044
------------- -------------- ------------- ---------------
INTEREST EXPENSE:
Interest expense on:
Deposits 4,410,701 4,645,628 8,744,607 9,079,866
Subordinated debentures 264,337 264,337 528,674 528,674
Borrowings 1,371,151 1,454,958 2,730,773 2,892,014
------------- -------------- ------------- ---------------
Total interest expense 6,046,189 6,364,923 12,004,054 12,500,554
------------- -------------- ------------- ---------------
NET INTEREST INCOME 5,652,953 5,440,040 10,848,653 10,728,490
PROVISION FOR LOAN LOSSES 60,000 60,000 120,000 120,000
------------- -------------- ------------- ---------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 5,592,953 5,380,040 10,728,653 10,608,490
------------- -------------- ------------- ---------------
OTHER INCOME (EXPENSE):
Loan service charges and other fees 28,130 34,362 61,275 71,270
Gain on sale of loans 1,220 1,210 1,333 1,355
Gain on sale of fixed assets 244,731 0 244,731 0
Real estate owned operations, net (5,874) (20,582) (12,839) (47,615)
Service charges on accounts 644,096 577,576 1,216,604 1,171,441
Other income (expense) 41,115 (56,195) 93,517 (54,831)
------------- -------------- ------------- ---------------
Total other income (expense) 953,418 536,371 1,604,621 1,141,620
------------- -------------- ------------- ---------------
OPERATING EXPENSES:
Salaries and employee benefits 2,494,568 2,246,500 4,914,489 4,566,297
Occupancy and equipment 859,277 712,465 1,743,403 1,432,472
Purchased services 365,773 313,874 732,769 615,456
Federal deposit insurance premiums 76,744 73,706 152,132 146,507
Professional fees 200,139 74,583 278,750 177,555
Advertising 55,008 60,046 103,456 100,783
Other 315,365 338,711 679,780 673,317
------------- -------------- ------------- ---------------
Total operating expenses 4,366,874 3,819,885 8,604,779 7,712,387
------------- -------------- ------------- ---------------
INCOME BEFORE INCOME TAXES 2,179,497 2,096,526 3,728,495 4,037,723
INCOME TAXES:
Current 530,862 878,599 1,000,859 1,625,186
Deferred 256,342 (117,599) 348,713 (163,870)
------------- -------------- ------------- ---------------
Total income taxes 787,204 761,000 1,349,572 1,461,316
NET INCOME $ 1,392,293 $ 1,335,526 $ 2,378,923 $ 2,576,407
============= ============== ============= ===============
BASIC EARNINGS PER COMMON SHARE $ 0.19 $ 0.19 * $ 0.33 $ 0.36 *
============= ============== ============= ===============
DILUTED EARNINGS PER COMMON SHARE $ 0.19 $ 0.18 * $ 0.33 $ 0.35 *
============= ============== ============= ===============
Weighted average common shares outstanding 7,210,673 7,194,162 7,220,658 7,185,492
Potential dilutive effect of the exercise of
stock options 82,098 125,607 82,029 122,673
------------- -------------- ------------- ---------------
Adjusted weighted average common shares outstanding 7,292,771 7,319,769 7,302,687 7,308,165
============= ============== ============= =============
</TABLE>
*Basic and diluted earnings per common share, weighted average common shares
outstanding and the potential dilutive effect of the exercise of stock options
were restated to reflect a three-for-one stock split paid in July 1998.
See notes to consolidated financial statements.
2
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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Six Months ended
June 30
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1999 1998
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(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,378,923 $ 2,576,407
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 120,000 120,000
Depreciation and amortization 1,024,751 865,184
Provision for real estate owned 0 35,659
Realized (gains) and losses on:
Sale of loans and loans held for sale (1,333) (1,355)
Disposal and sale of fixed assets (244,731) 0
Increase in accrued interest receivable (239,743) (418,289)
Decrease in prepaid expenses and other assets (581,494) (29,350)
Decrease in accrued interest payable 60,309 240,057
Increase in other liabilities 270,469 (257,654)
Deferred income taxes 348,713 (167,946)
-------------------- -------------------
Net cash provided by operating activities 3,135,864 2,962,713
-------------------- -------------------
INVESTING ACTIVITIES:
Proceeds from sale of:
Education loans 1,446 308,467
Real estate owned 348,731 228,283
Principal collected and proceeds from maturities of investment securities held to maturity 33,205,167 179,090,586
Proceeds from maturities of investment securities available for sale 47,233,392 40,623,255
Principal collected on mortgage-backed securities held to maturity 14,651,267 15,168,480
Principal collected on longer-term loans, net 33,398,033 29,646,907
Longer-term loans originated or acquired, net (31,533,616) (28,822,325)
Purchase of investment securities and mortgage-backed securities held to maturity (101,378,437) (188,881,218)
Purchase of investment securities and mortgage-backed securities available for sale (4,056,040) (91,270,008)
Purchase of Federal Home Loan Bank stock 0 (1,230,610)
Purchase of office property and equipment (1,169,204) (1,403,780)
-------------------- -------------------
Net cash used in investing activities (9,299,261) (46,541,963)
-------------------- -------------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts 17,318,262 27,100,044
Net increase in time deposits 4,778,909 2,704,703
Net decrease in FHLB advances (31,290) (6,800,000)
Proceeds from securities sold under agreements to repurchase 0 20,000,000
Increase (decrease) in advances from borrowers for taxes and insurance (9,492) 251,071
Purchase of treasury stock (230,402) (186,051)
Dividends paid on common stock (433,220) (334,777)
Net proceeds from issuance of common stock 645 70,972
-------------------- -------------------
Net cash provided by financing activities 21,393,412 42,805,962
-------------------- -------------------
INCREASE IN CASH AND CASH EQUIVALENTS 15,230,015 (773,288)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 29,896,391 12,631,622
-------------------- -------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 45,126,406 $ 11,858,334
==================== ===================
Supplemental Disclosures:
Cash paid for:
Interest on deposits, advances, and other borrowings $ 11,943,745 $ 12,260,497
Income taxes 1,435,238 1,824,557
Non-cash investing and financing activities:
Dividends declared and not paid at quarter end 216,270 167,623
Non-monetary transfers from loans to real estate acquired
through foreclosure 0 316,949
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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Accumulated
other Total
Common shares Common Paid-in comprehensive Retained Treasury Stockholders'
outstanding stock capital income earnings stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 7,231,767 $ 789,719 $ 8,216,820 $ (21,793) $ 37,860,291 $ (3,376,372) $ 43,468,665
Net Income 2,378,923 2,378,923
Other comprehensive income
Unrealized loss on securities
available for sale (583,525) (583,525)
--------------
Total comprehensive income 1,795,398
--------------
Dividends declared (433,220) (433,220)
Exercise of stock options 500 50 595 645
Purchase of common stock (23,289) (230,402) (230,402)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1999 $ 7,208,978 $ 789,769 $ 8,217,415 $ (605,318) $ 39,805,994 $ (3,606,774) $ 44,601,086
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998.
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, 1999 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
5
<PAGE>
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,
1998.
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. "99" for
"1999"). 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 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 the end of 1999. At the current time management estimates its Year 2000
readiness is at 95%. The following table provides a summary of the current
status of the five phases involved in our Year 2000 readiness plan.
----------------------------------------------------------------------
Project Phase Percent Projected Date Comments
Complete of Completion
----------------------------------------------------------------------
Awareness 100% Complete
Assessment 100% Complete
Renovation 90% September 1999 On Schedule
Validation 100% Complete
Implementation 90% September 1999 On Schedule
Overall Completion 95% September 1999 On Schedule
At this time management currently estimates Year 2000 compliance cost at
between $50,000 and $150,000 of which $48,000 was expensed during the six months
ended June 30, 1999. 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 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 customers readiness. The Bank
continues in the process of updating contingency plans for each critical system,
in the event one of those systems fail, despite our best efforts. The bank's
contingency plans to provide resources during the weekend of December 31, 1999
and for the period of time afterward. It is anticipated that the Bank, and or
its vendors will be able to overcome any unforeseen problems associated with the
millennium change.
6
<PAGE>
FINANCIAL CONDITION -
Total Assets - at June 30, 1999 were $715.3 million as compared with total
assets at December 31, 1998 of $691.8 million.
Investment Securities Held to Maturity - increased $51.9 million to $181.3
million at June 30, 1999 from $129.4 million at December 31, 1998 as a result of
purchases of $61.5 million of U.S. Government Agencies and $23.1 million of
fixed rate CMOs, partially offset by $16.9 million in calls of U.S Government
Agencies, paydowns of $14.7 million in the CMO portfolio and $1.6 million in
matured municipal bonds. Investment securities held to maturity at June 30, 1999
consisted entirely of fixed rate securities. A comparison of cost and
approximate market values of investment securities held to maturity as of June
30, 1999 and December 31, 1998 follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
--------------------------------------------------------------------- ------------------------------------
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 $ 122,857,420 $ 2,558 $ (3,344,449) $ 119,515,529 $ 78,291,686 $ 78,241,778
CMOs 55,795,919 0 (1,186,648) 54,609,271 47,302,338 47,297,209
Municipal bonds 2,659,983 0 0 2,659,983 3,823,802 3,826,635
------------------------------------------------------------------- ------------------------------------
Total $ 181,313,322 $ 2,558 $ (4,531,097) $ 176,784,783 $ 129,417,826 $ 129,365,622
===================================================================== ====================================
</TABLE>
Investment Securities Available for Sale - decreased $44.1 million to $65.7
million at June 30, 1999 from $109.8 million at December 31, 1998 as a result of
the net purchase of $3.0 million of GNMAs and $1.0 million of US Agency notes,
offset by $38.0 million of principal paydowns on CMOs and $9.2 million called US
Agency notes during the six months ended June 30, 1999. Investment securities
available for sale consisted of $4.3 million in adjustable rate securities and
$61.4 million in fixed rate securities at June 30, 1999. A comparison of cost
and approximate market values of investment securities available for sale as of
June 30, 1999 and December 31, 1998 follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
---------------------------------------------------------------- ---------------------------------
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 $ 10,290,373 $ 0 $ (236,401)$ 10,053,972 $ 18,492,035 $ 18,500,616
CMOs 53,262,717 26,403 (757,352) 52,531,768 91,377,435 91,332,517
GNMAs 3,056,012 19,536 0 3,075,548 0 0
================================================================ =================================
Total $ 66,609,102 $ 45,939 $ (993,753)$ 65,661,289 $ 109,869,470 $ 109,833,133
================================================================ =================================
</TABLE>
7
<PAGE>
Loans Receivable and Loans Held for Sale - decreased $1.9 million to $296.7
million at June 30, 1999 from $298.6 million at December 31, 1998. This decrease
was the result of approximately $33.4 million of principal collected on loans,
partially offset by $31.1 million of loans originated during the six months
ended June 30, 1999. The following table sets forth certain information
concerning the loan portfolio by major categories at the dates indicated.
Table 1 June 30, December 31,
1999 1998
----------------------------------------
Mortgage loans ( 1-4 dwelling) $ 240,269,642 $ 246,071,511
Construction loans 979,971 1,410,456
Commercial construction 1,692,315 2,609,315
Consumer loans 3,154,318 3,237,176
Commercial real estate 50,216,776 45,937,998
Commercial business 4,827,699 4,120,967
----------------------------------------
Subtotal 301,140,721 303,387,423
----------------------------------------
Less:
Deferred loan fees 994,645 1,441,926
Allowance for possible
loan losses 3,480,288 3,342,274
----------------------------------------
Net Loans Receivable $ 296,665,788 $ 298,603,223
========================================
At June 30, 1999, the recorded investment in loans for which impairment has been
recognized in accordance with SFAS Nos. 114 and 118 totaled $3.9 million of
which $1.8 million related to loans that were individually measured for
impairment with a valuation allowance of $388 thousand and $2.1 million of loans
that were collectively measured for impairment with a valuation allowance of
$106 thousand. For the six months ended June 30, 1999, the average recorded
investment in impaired loans was approximately $3.1 million. The Bank recognized
$13 thousand of interest income on impaired loans, all of which was recognized
on the cash basis. The Bank had $3.5 million in total reserves for possible loan
losses at June 30, 1999, representing approximately 89% of non-accrual loans and
1.2% of total loans.
As of June 30, 1999 the Bank had outstanding loan commitments of $31.3 million,
of which $19.4 million represented variable rate loans and $11.9 million
represented fixed rate loans. The Bank intends to fund these commitments through
scheduled amortization of loans and mortgage-backed securities, additional
borrowings and if necessary the sale of investment securities available for
sale.
8
<PAGE>
Mortgage-Backed Securities Held to Maturity - increased $1.4 million to $92.0
million at June 30, 1999 from $90.6 million at December 31, 1998. The increase
is the result of the purchase of $16.0 million in GNMA and FNMA fixed rate
securities offset by $14.7 million in principal repayments. Mortgage-backed
securities at June 30, 1999 consisted of $71.9 million in fixed rate securities
and $20.1 million in adjustable rate securities. Mortgage-backed securities held
to maturity at June 30, 1999 and December 31, 1998 are summarized below:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
--------------------------------------------------------- ----------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Amortized Estimated
Cost Gains Losses Market Value Cost Market Value
--------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
GNMA $ 33,263,444 $ 355,873 $ 662,607 $ 32,956,710 $ 31,716,739 $ 32,312,889
FNMA 42,249,756 216,342 551,125 41,914,973 37,531,455 38,079,458
FHLMC 16,528,572 336,513 42,150 16,822,935 21,255,729 21,779,645
Private 0 0 0 0 88,724 90,301
--------------------------------------------------------- ----------------------------
Total $ 92,041,772 $ 908,728 $ 1,255,882 $ 91,694,618 $ 90,592,647 $ 92,262,293
========================================================= ============================
</TABLE>
9
<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 increased $395 thousand
during the six months ended June 30, 1999 resulting from an increase in
classified one-to-four family loans of $324 thousand and doubtful loans of $242
thousand, partially offset by a decrease in classified commercial real estate of
$98 thousand and consumer loans of $64 thousand. The following table sets forth
information with respect to the Bank's classified assets at the dates indicated:
June 30, December 31,
1999 1998
-------------------- ---------------
Classified Assets:
Substandard Loans:
One-to-four family $2,269,123 $1,945,059
Commercial real estate 3,658,094 3,756,181
Consumer and other 218,775 282,740
-------------------- ---------------
Total loans 6,145,992 5,983,980
Real estate held for development, net 644,487 644,487
Real Estate Owned, net 167,541 167,541
-------------------- ---------------
Total Substandard 6,958,020 6,796,008
-------------------- ---------------
Doubtful loans 242,152 0
-------------------- ---------------
Total Doubtful 242,152 0
-------------------- ---------------
Loss - Commercial Real Estate 0 9,121
-------------------- ---------------
Total Loss 0 9,121
-------------------- ---------------
TOTAL CLASSIFIED ASSETS $7,200,172 $6,805,129
==================== ===============
Deposits - increased $22.1 million to $558.4 million at June 30, 1999 from
$536.3 million at December 31, 1998 as a result of an increase in savings
accounts of $11.3 million and $6.5 million in interest bearing checking
accounts. Non-interest checking accounts increased $3.4 million and certificates
of deposit increased $4.8 million offsetting a $3.8 million decrease in money
market accounts. Non-interest checking accounts increased due to the promotion
of "Free Business" checking accounts. Interest credited to depositors accounts
for the six months ended June 30, 1999 amounted to $8.7 million. The following
table set forth certain information concerning deposits at the dates indicated:
<TABLE>
<CAPTION>
Amount Deposits Rate Amount Deposits Rate
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest checking $72,702,988 13.02% 0.00% $69,336,887 12.93% 0.00%
Checking accounts 81,760,049 14.64% 2.07% 75,280,395 14.04% 1.89%
Savings accounts 106,843,862 19.13% 2.64% 95,591,907 17.82% 2.83%
Money market accounts 63,910,774 11.45% 2.78% 67,690,222 12.62% 2.64%
Certificates 233,189,121 41.76% 5.05% 228,410,212 42.59% 5.35%
-------------------------------------------------------------------------------------
Total Deposits $558,406,794 100.00% 3.25% $536,309,623 100.00% 3.49%
=====================================================================================
</TABLE>
10
<PAGE>
Borrowings - at June 30, 1999 amounted to $106.3 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 $16.3 million in Federal Home Loan Bank Advances with a weighted average
interest rate of 6.00%. At December 31, 1998 borrowings consisted of $10.0
million of 10% subordinated debentures, $80.0 million in securities sold under
agreements to repurchase with a weighted average rate of 5.57%, and $16.4
million in Federal Home Loan Bank Advances with a weighted average interest rate
of 5.08%.
There are three (3) standards that a savings institution must satisfy in order
to meet its capital requirements under the Federal Deposit Insurance Corporation
Improvement Act of 1991 "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 institution'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
June 30, 1999 the Bank exceeds all three current capital requirements as the
Bank's core, tangible, and risk-based capital ratios were 7.07%, 7.07%, and
18.75%, 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, 1999 of
$1.4 million, or $.19 diluted earnings per share as compared to $1.3 million, or
$.18 diluted earnings per share for the comparable period in 1998. Earnings for
the six months ended June 30, 1999 were $2.4 million, or $.33 diluted earnings
per share as compared to $2.6 million, or $.35 diluted earnings per share for
the comparable period in 1998.
11
<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 Ended Six Months Ended
June 30, June 30,
---------------------------------- --------------------------------
1999 1998 1999 1998
---------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Weighted-Average Yields Earned on:
Loans, net 7.84% 7.95% 7.69% 7.97%
Mortgage-Backed Securities 6.83 7.08 6.89 7.17
Investment Securities 6.11 6.61 6.16 6.63
---------------------------------- --------------------------------
Total Interest-Earning Assets 6.99 7.31 6.96 7.35
---------------------------------- --------------------------------
Weighted-Average Interest Rates Paid on:
Deposits 3.18 3.59 3.21 3.61
Borrowings 5.69 5.70 5.66 5.67
Subordinated Debentures 10.56 10.56 10.58 10.58
---------------------------------- --------------------------------
Total Interest-Bearing Liabilities 3.65 4.04 3.69 4.06
---------------------------------- --------------------------------
Weighted-Average Interest Rate Spread
for the Period 3.34% 3.27% $ 3.27% 3.29%
================================== ================================
</TABLE>
12
<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,
---------------------------------- --------------------------------
1999 1998 1999 1998
---------------------------------- --------------------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Average Interest-Earning Assets:
Loans, net $ 301,611 $ 304,082 $ 301,039 $ 304,287
Mortgage-Backed Securities 91,559 94,006 88,853 92,601
Investment Securities 276,545 248,031 266,829 234,768
---------------------------------- --------------------------------
Total 669,715 646,119 656,721 631,656
---------------------------------- --------------------------------
Average Interest-Bearing Liabilities:
Deposits 555,372 517,939 544,705 503,586
Borrowings 96,340 102,118 96,456 102,021
Subordinated Debentures 10,000 10,000 10,000 10,000
---------------------------------- --------------------------------
Total 661,712 630,057 651,161 615,607
---------------------------------- --------------------------------
Excess of Interest-Earning Assets
over Interest-Bearing Liabilities $ 8,003 $ 16,062 $ 5,560 $ 16,049
================================== ================================
</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,
1999 compared to 1998 1999 compared to 1998
---------------------------------------- --------------------------------------
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 $ (78) $ (49) $ (127) $ (428) $ (129) $ (557)
Mortgage-backed securities (57) (43) (100) (125) (134) (259)
Investment securities (351) 471 120 (623) 1,062 439
---------------------------------------- --------------------------------------
Total change - interest income (486) 379 (107) (1,176) 799 (377)
---------------------------------------- --------------------------------------
Interest expense:
Deposits (571) 336 (235) (1,076) 741 (335)
Borrowings (2) (82) (84) (10) (158) (168)
Subordinated Debentures 0 0 0 0 0 0
---------------------------------------- --------------------------------------
Total change - interest expense (573) 254 (319) (1,086) 583 (503)
---------------------------------------- --------------------------------------
Net change in net interest income $ 87 $ 125 $ 212 $ (90) $ 216 $ 126
======================================== ======================================
</TABLE>
13
<PAGE>
Net Interest Income - for the three and six months ended June 30, 1999 totaled
$5.7 million and $10.8 million, respectively. Net interest income for the three
months ended June 30, 1999 increased $213 thousand as compared to the same
period in 1998 due primarily to an increase in interest income on investment
securities of $121 thousand, and a decrease in interest expense on deposits of
$235 thousand, partially offset by decrease in interest income on MBS's of $100
thousand.
The increase in interest income on investment securities was due to an increase
in the average balance of the portfolio of $28.5 million to $276.5 million for
the three months ended June 30, 1999 from $248.0 million for the same period in
1998, which resulted in an increase in interest income of $471 thousand. The
average balance increase was due to the net purchase of $4.1 million of CMOs and
$30.4 million of US Agency notes. The average yield on the investment portfolio
decreased 50 basis points to 6.11% for the three months ended June 30, 1999 from
6.61% for the three months ended June 30, 1998, which resulted in a decrease in
interest income of $351 thousand due to rate changes.
The $235 thousand decrease in interest expense on deposits for the three months
ended June 30, 1999 compared to the same period in 1998 was caused by lower
average rates paid on deposits, principally lower CD rates coupled with higher
relative balances in our non-interest "Free checking" and "Free Business"
checking products. Overall deposit rates declines 41 basis points to 3.18% which
decreased interest expense $571 thousand between the three month periods. Higher
overall average deposit balances increased interest expense $336 thousand.
The decrease in interest expense on borrowings of $84 thousand for the three
months ended June 30, 1999 compared to the same period in 1998 was due to a
decrease in the average balance of borrowings of $5.8 million to $96.3 million
at June 30, 1999 from $102.1 million at June 30, 1998.
Net interest income for the six months ended June 30, 1999 increased $120
thousand primarily due to an increase in interest income on investment
securities of $440 thousand and a decrease in interest expense on deposits of
$335 thousand partially offset by a decrease in interest income on loans of $557
thousand as compared to the same period in 1998.
The increase in interest income on investment securities was due to an increase
in the average balance of the portfolio of $32 million to $266.8 million for the
six months ended June 30, 1999 from $234.8 million for the same period in 1998,
which resulted in an increase in interest income of $1.1 million. The average
yield on the investment portfolio decreased 47 basis points to 6.16% for the six
months ended June 30, 1999 from 6.63% for the six months ended June 30, 1998,
which resulted in a decrease in interest income of $623 thousand due to rate
changes.
Interest expense on deposits decreased $335 thousand for the six months ended
June 30, 1999 compared to the first six months of 1998. Average interest rates
on deposits decreased 40 basis points to 3.21% resulting in a decrease in
interest expense of $1.1 million. The average balance on deposits increased
$41.1 million increasing interest expense $741 thousand between the first six
months of 1999 and 1998.
The decrease in interest expense on borrowings of $161 thousand for the six
months ended June 30, 1999 compared to the same period in 1998 was due to a
decrease in the average balance of borrowings of $5.5 million to $96.5 million
for the six months ended June 30, 1999 from $102.0 million for the six months
ended June 30, 1998, which resulted in a decrease in interest expense of $158
thousand. The weighted average rate on borrowings decreased 1 basis points to
5.66% for the six months ended June 30, 1999 from 5.67% for the six months ended
June 30, 1998, which resulted in a decrease in interest expense of $10 thousand.
14
<PAGE>
Provision for Loan Losses - for the three months ended June 30, 1999 remained
constant at $60 thousand from 1998 to 1999. The total provision for potential
loan losses remained constant at $120 thousand from June 1998 to 1999. 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 loan 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.
Other Income - for the three and six months ended June 30, 1999 totaled $953
thousand and $1.6 million respectively increasing $417 thousand in the three
month period and $463 thousand in the first six months of 1999 when compared to
the same periods in 1998. The May 1999 sale of a two acre parcel of land for a
$245 thousand gain along with the increased volume of service charges on
accounts between 1999 and 1998 periods were the principal reasons for the
increases.
Operating Expenses - for the three and six month periods ended June 30, 1999
amounted to $4.4 million and $8.6 million, respectively as compared to $3.8
million and $7.7 million for the same periods in 1998.
Salaries and Employee Benefits - for the three and six month periods ended June
30, 1999 were $2.5 million and $4.9 million, respectively, as compared to $2.2
million and $4.6 million for the same periods in 1999. The increase was due to
additional staff in the three new branches opened since the second quarter of
1998. Average full time equivalent employees at June 30, 1999 were 391 as
compared to 333 at June 30, 1998.
Occupancy and Equipment - for the three and six month periods ended June 30,
1999 amounted to $859 thousand and $1.7 million, respectively, as compared to
$712 thousand and $1.4 million for the same periods in 1998. 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 June
30, 1998.
Purchased Services - for the three and six month periods ended June 30, 1999
amounted to $366 thousand and $733 thousand, respectively, as compared to $314
thousand and $615 thousand for the same periods in 1998. MAC charges increased
$54 thousand for the first six months of 1999 compared to the same time period
1998. Check processing costs have increased $51 thousand for the six months
ended June 30, 1999 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,
1999 amounted to $77 thousand and $152 thousand, respectively, as compared to
$74 thousand and $147 thousand for the same periods in 1998. The increase in the
six months ended June 30, 1999 was due to an increase in deposits between June
30, 1999 and 1998.
15
<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 50.22% at June 30, 1999 and 31.35% at December 31,
1998.
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, 1999 from the information
presented in the annual report on Form 10-K for the year ended December 31,
1998.
16
<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 a Vote of Security of Holders
------- ------------------------------------------------------
The annual meeting of shareholders of the corporation was
held on April 29,1999 and the following matters were
voted upon:
Proposal I - Election of directors with terms to expire
in 2002.
For Against
--- -------
Rupert A. Hall Jr. 6,633,075 7,606
Edward J. Staats, Jr. 6,625,467 18,214
Mary Wells 6,633,273 7,408
Craig W. Yates 6,629,601 11,074
Proposal II - Ratification of the appointment of
PricewaterhouseCoopers LLP, as auditors for the
corporation for the 1999 fiscal year.
For: 6,633,599; Against: 1,750; Abstain: 5,332.
--------- ----- -----
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.
17
<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 10 , 1999 /s/ Craig W. Yates
--------------------------------------
Craig W. Yates
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 10, 1999 /s/ Channing L. Smith
--------------------------------------
Channing L. Smith
Vice President and
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 15,766
<INT-BEARING-DEPOSITS> 104
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 65,661
<INVESTMENTS-CARRYING> 181,313
<INVESTMENTS-MARKET> 176,785
<LOANS> 296,666
<ALLOWANCE> 3,480
<TOTAL-ASSETS> 715,295
<DEPOSITS> 558,407
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,950
<LONG-TERM> 106,337
0
0
<COMMON> 790
<OTHER-SE> 43,811
<TOTAL-LIABILITIES-AND-EQUITY> 715,295
<INTEREST-LOAN> 11,574
<INTEREST-INVEST> 8,219
<INTEREST-OTHER> 3,059
<INTEREST-TOTAL> 22,853
<INTEREST-DEPOSIT> 8,745
<INTEREST-EXPENSE> 12,004
<INTEREST-INCOME-NET> 10,849
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,000
<INCOME-PRETAX> 3,728
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,379
<EPS-BASIC> .33
<EPS-DILUTED> .33
<YIELD-ACTUAL> 3.37
<LOANS-NON> 3,731
<LOANS-PAST> 0
<LOANS-TROUBLED> 346
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,342
<CHARGE-OFFS> 0
<RECOVERIES> 20
<ALLOWANCE-CLOSE> 3,480
<ALLOWANCE-DOMESTIC> 3,480
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,231
</TABLE>
