SECURITIES AND EXCHANGE COMMISSION
----------------------------------
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, 2000
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
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(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 31, 2000 there were issued and outstanding 6,762,268 shares of
the registrant's Common Stock, par value $.10 per share.
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
----------------------------------------
QUARTERLY REPORT ON FORM 10-Q
-----------------------------
JUNE 30, 2000
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TABLE OF CONTENTS
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Page
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PART I - Financial Information
------------------------------
Item 1 - Financial Statements
Consolidated Statements of Financial Condition as of
June 30, 2000 (unaudited) and December 31, 1999............1
Consolidated Statements of Income (unaudited)
for the three and six months ended June 30, 2000
and June 30, 1999..........................................2
Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 2000 and June 30,
1999.......................................................3
Consolidated Statement of Changes in Stockholders'
Equity for the six months ended June 30, 2000
(unaudited)................................................4
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.............5-15
Item 3 - Disclosure about Market Risk................................15
PART II - Other Information
---------------------------
Item 1 - Legal Proceedings...........................................16
Item 2 - Changes in Securities.......................................16
Item 3 - Defaults Upon Senior Securities.............................16
Item 4 - Submission of Matters to a Vote of Security Holders.........16
Item 5 - Other Information...........................................16
Item 6 - Exhibits and Reports on Form 8-K............................16
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
June 30, 2000 December 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and amounts due from depository institutions $ 25,378,978 $ 20,489,516
Interest-bearing deposits 2,317 82,493
Short term funds 11,883,435 25,703,862
---------------------- ----------------------
Total cash and cash equivalents 37,264,730 46,275,871
Investment securities held to maturity 230,165,806 220,307,242
Investment securities available for sale 43,650,749 49,307,116
Loans, net 297,703,594 299,694,517
Mortgage-backed securities held to maturity 113,847,027 121,424,419
Accrued interest receivable:
Loans 1,509,558 1,398,470
Mortgage-backed securities 806,433 836,699
Investments 3,664,768 3,628,622
Federal Home Loan Bank stock 4,861,410 4,861,410
Real estate held for development, net 87,926 87,926
Real estate owned, net 436,060 448,541
Office properties and equipment, net 23,449,392 20,686,272
Deferred income taxes 2,372,865 2,264,587
Excess cost over fair value of net assets acquired 41,496 55,328
Prepaid expenses and other assets 1,147,084 959,819
Subordinated debentures issue cost, net 235,091 263,765
---------------------- ----------------------
TOTAL ASSETS $ 761,243,989 $ 772,500,604
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Deposits $ 614,436,675 $ 603,892,117
Securities sold under agreements to repurchase 80,000,000 90,000,000
Advances from the Federal Home Loan Bank 6,305,644 16,337,031
10% Subordinated debentures, due 2004 10,000,000 10,000,000
Advances by borrowers for taxes and insurance 2,260,589 2,204,704
Accrued interest payable 1,365,515 1,437,348
Dividends payable 202,868 215,519
Other liabilities 2,006,875 2,316,882
---------------------- ----------------------
Total liabilities 716,578,166 726,403,601
---------------------- ----------------------
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 7,897,891 and 7,897,791 and shares outstanding 6,762,268 and
7,183,978 as of June 30, 2000 and December 31, 1999, respectively 789,789 789,779
Paid-in capital in excess of par 8,217,654 8,217,535
Accumulated comprehensive loss - net of deferred income taxes (1,347,896) (1,167,810)
Retained earnings 44,343,242 42,108,955
Less: Treasury stock (1,135,623 and 713,813 shares, at cost, as of
June 30, 2000 and December 31, 1999, respectively) (7,336,966) (3,851,456)
-------------------- --------------------
Total stockholders' equity 44,665,823 46,097,003
-------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 761,243,989 $ 772,500,604
==================== ====================
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Three Months ended Six Months ended
June 30, June 30,
---------------------------------- ---------------------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------- ---------------------------------
INTEREST INCOME: (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income on:
Loans $ 5,889,175 $ 5,914,577 $ 11,644,715 $ 11,574,220
Mortgage-backed securities 1,974,460 1,563,110 4,018,311 3,059,153
Investments 5,128,211 4,221,455 10,105,440 8,219,334
--------------- ------------------ --------------- ------------------
Total interest income 12,991,846 11,699,142 25,768,466 22,852,707
--------------- ------------------ --------------- ------------------
INTEREST EXPENSE:
Interest expense on:
Deposits 5,059,084 4,410,701 10,000,347 8,744,607
Subordinated debentures 264,337 264,337 528,674 528,674
Borrowings 1,326,777 1,371,151 2,736,997 2,730,773
--------------- ------------------ --------------- ------------------
Total interest expense 6,650,198 6,046,189 13,266,018 12,004,054
--------------- ------------------ --------------- ------------------
NET INTEREST INCOME 6,341,648 5,652,953 12,502,448 10,848,653
PROVISION FOR LOAN LOSSES 60,000 60,000 120,000 120,000
--------------- ------------------ --------------- ------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 6,281,648 5,592,953 12,382,448 10,728,653
--------------- ------------------ --------------- ------------------
OTHER INCOME (EXPENSE):
Loan service charges and other fees 25,919 28,130 61,663 61,275
Gain on sale of loans 547 1,220 805 1,333
Gain (Loss) on disposal of fixed assets 0 244,731 (122) 244,731
Real estate owned operations, net (14,368) (5,874) (1,167) (12,839)
Service charges on accounts 650,633 644,096 1,267,215 1,216,604
Other income 44,680 41,115 93,717 93,517
--------------- ------------------ --------------- ------------------
Total other income 707,411 953,418 1,422,111 1,604,621
--------------- ------------------ --------------- ------------------
OPERATING EXPENSES:
Salaries and employee benefits 2,928,504 2,494,568 5,738,291 4,914,489
Occupancy and equipment 979,910 859,277 1,953,033 1,743,403
Purchased services 447,317 365,773 876,262 732,769
Federal deposit insurance premiums 30,589 76,744 60,717 152,132
Professional fees 116,539 200,139 234,262 278,750
Advertising 55,366 55,008 111,235 103,456
Other 363,345 315,365 697,226 679,780
--------------- ------------------ --------------- ------------------
Total operating expenses 4,921,570 4,366,874 9,671,026 8,604,779
--------------- ------------------ --------------- ------------------
INCOME BEFORE INCOME TAXES 2,067,489 2,179,497 4,133,533 3,728,495
INCOME TAXES:
Current 729,931 530,862 1,491,557 1,000,859
Deferred 13,703 256,342 (7,068) 348,713
--------------- ------------------ --------------- ------------------
Total income taxes 743,634 787,204 1,484,489 1,349,572
NET INCOME $ 1,323,855 $ 1,392,293 $ 2,649,044 $ 2,378,923
=============== ================== =============== ==================
BASIC EARNINGS PER COMMON SHARE $ 0.19 $ 0.19 $ 0.38 $ 0.33
=============== ================== =============== ==================
DILUTED EARNINGS PER COMMON SHARE $ 0.19 $ 0.19 $ 0.37 $ 0.33
=============== ================== =============== ==================
Weighted average common shares outstanding 6,894,205 7,210,673 7,022,678 7,220,658
Potential dilutive effect of the exercise of stock
options 67,933 82,098 70,377 82,029
--------------- ------------------ --------------- ------------------
Adjusted weighted average common shares outstanding 6,962,138 7,292,771 7,093,055 7,302,687
=============== ================== =============== ==================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Six Months ended
June 30
-------------------------------------------
2000 1999
----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,649,044 $ 2,378,923
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 120,000 120,000
Depreciation and amortization 1,003,199 1,024,751
Realized (gains) and losses on:
Sale of loans and loans held for sale (805) (1,333)
Disposal and sale of fixed assets 122 (244,731)
Sale of real estate owned (26,260) 0
Increase in accrued interest receivable (116,968) (239,743)
Increase in prepaid expenses and other assets (187,265) (581,494)
(Decrease) Increase in accrued interest payable (71,833) 60,309
(Decrease) Increase in other liabilities (310,007) 270,469
(Decrease) Increase in deferred income taxes (7,067) 348,713
Other 28,049 0
-------------------- -------------------
Net cash provided by operating activities 3,080,209 3,135,864
-------------------- -------------------
INVESTING ACTIVITIES:
Proceeds from sale of:
Education loans 180,041 1,446
Real estate owned 335,349 348,731
Office property and equipment 403 0
Principal collected and proceeds from maturities of investment securities held to maturity 62,875,873 33,205,167
Proceeds from maturities of investment securities available for sale 5,367,035 47,233,392
Principal collected on mortgage-backed securities held to maturity 10,714,226 14,651,267
Principal collected on loans, net 25,899,642 33,398,033
Loans originated or acquired (24,517,726) (31,533,616)
Purchase of investment securities and mortgage-backed securities held to maturity (76,013,447) (101,378,437)
Purchase of investment securities and mortgage-backed securities available for sale 0 (4,056,040)
Purchase of office property and equipment (3,589,013) (1,169,204)
-------------------- -------------------
Net cash provided (used) by investing activities 1,252,383 (9,299,261)
-------------------- -------------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts 15,408,288 17,318,262
Net (decrease) increase in time deposits (4,863,730) 4,778,909
Net decrease in FHLB advances (10,031,387) (31,290)
Repayment of securities sold under agreements to repurchase (10,000,000) 0
Increase (Decrease) in advances from borrowers for taxes and insurance 55,885 (9,492)
Purchase of treasury stock (3,485,510) (230,402)
Dividends paid on common stock (427,408) (433,220)
Net proceeds from issuance of common stock 129 645
-------------------- -------------------
Net cash (used) provided by financing activities (13,343,733) 21,393,412
-------------------- -------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,011,141) 15,230,015
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 46,275,871 29,896,391
-------------------- -------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 37,264,730 $ 45,126,406
==================== ===================
Supplemental Disclosures:
Cash paid for:
Interest on deposits, advances, and other borrowings $ 13,337,851 $ 11,943,745
Income taxes 1,559,143 1,435,238
Non-cash investing and financing activities:
Dividends declared and not paid at quarter end 202,868 216,270
Non-monetary transfers from loans to real estate acquired
through foreclosure 324,657 0
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Accumulated Total
Common shares Common Paid-in comprehensive Retained Treasury Stockholders'
outstanding stock capital income earnings stock Equity
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999 7,183,978 $789,779 $8,217,535 $(1,167,810) $42,108,955 $(3,851,456) $46,097,003
Net Income 2,649,044 2,649,044
Other comprehensive income
Unrealized loss on
securities available for sale (180,086) (180,086)
------------
Total comprehensive income 2,468,958
------------
Dividends declared (414,757) (414,757)
Exercise of stock options 100 10 119 129
Purchase of common stock (421,810) (3,485,510) (3,485,510)
------------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 2000 6,762,268 $789,789 $8,217,654 $(1,347,896) $44,343,242 $(7,336,966) $44,665,823
------------------------------------------------------------------------------------------------------------------------------------
</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, 2000 AND 1999.
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; year 2000 issues 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
In the opinion of management, the accompanying unaudited consolidated financial
statements of FMS Financial Corporation contain all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of its financial
condition, results of operations, cash flows and changes in stockholders' equity
for the periods and dates indicated. The results of operations for the three and
six months ended June 30, 2000 are not necessarily indicative of the operating
results for the full fiscal year or any other future interim period.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions for FORM 10-Q, and therefore, do not include
all information and notes necessary for a fair presentation of financial
condition, results of operations and statements of cash flows in conformity with
generally accepted accounting principles. These statements should be read in
conjunction with the consolidated statements and related notes which are
incorporated by reference to the Corporation's annual report on FORM 10-K for
the year ended December 31, 1999. The consolidated financial statements include
the Corporation's sole subsidiary, Farmers & Mechanics Bank ("the Bank").
5
<PAGE>
FINANCIAL CONDITION -
Total Assets - at June 30, 2000 were $761.2 million as compared with total
assets at December 31, 1999 of $772.5 million.
Investment Securities Held to Maturity - increased $9.9 million to $230.2
million at June 30, 2000 from $220.3 million at December 31, 1999 primarily due
to the net purchases of $10.0 million of reverse repurchase agreements and $2.0
million in U.S. Agency notes, partially offset by $2.2 million in CMO principal
paydowns during the six months ended June 30, 2000. Investment securities held
to maturity at June 30, 2000 consisted entirely of fixed rate securities. A
comparison of cost and approximate market values of investment securities held
to maturity as of June 30, 2000 and December 31, 1999 follows:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------------------------------------------------------------ ----------------------------------
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 $ 172,615,610 $ 0 $ (8,220,865) $ 164,394,745 $ 170,610,811 $ 161,851,452
CMO's 45,906,959 0 (2,179,290) 43,727,669 48,187,121 46,481,467
Reverse Repurchase 10,074,932 0 0 10,074,932 0 0
Municipal bonds 1,568,305 2,461 0 1,570,766 1,509,310 1,509,954
------------------------------------------------------------------ ----------------------------------
Total $ 230,165,806 $ 2,461 $ (10,400,155) $ 219,768,112 $ 220,307,242 $ 209,842,873
================================================================== ==================================
</TABLE>
Investment Securities Available for Sale - decreased $5.6 million to $43.7
million at June 30, 2000 from $49.3 million at December 31, 1999 as a result of
$5.4 million of principal paydowns on CMOs and MBSs during the six months ended
June 30, 2000. Investment securities available for sale consisted of $40.2
million in fixed rate securities and $3.5 million in adjustable rate securities
at June 30, 2000. A comparison of cost and approximate market values of
investment securities available for sale as of June 30, 2000 and December 31,
1999 follows:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------------------------------------------------------ -------------------------------
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 $ 10,292,191 $ 0 $ (491,888) $ 9,800,303 $ 10,291,646 $ 9,725,031
CMO's 32,805,871 2,340 (1,574,553) 31,233,658 38,024,766 36,816,550
MBS's 2,660,411 0 (43,623) 2,616,788 2,817,131 2,765,535
------------------------------------------------------------ -------------------------------
Total $ 45,758,473 $ 2,340 $ (2,110,064) $ 43,650,749 $ 51,133,543 $ 49,307,116
============================================================ ===============================
</TABLE>
6
<PAGE>
Loans, net - decreased $2.0 million to $297.7 million at June 30, 2000 from
$299.7 million at December 31, 1999. This decrease was the result of
approximately $25.9 million of principal collected on loans, partially offset by
$24.5 million of loans originated during the six months ended June 30, 2000. The
following table shows loans receivable by major categories at the dates
indicated.
June 30, December 31,
2000 1999
-------------------------------------
Mortgage loans (1-4 dwelling) $ 233,199,755 $ 236,912,182
Construction loans 123,171 972,533
Commercial construction 342,179 3,934,937
Consumer loans 3,374,240 3,273,792
Commercial real estate 56,964,983 52,543,711
Commercial business 8,342,006 6,790,348
-------------------------------------
Subtotal 302,346,334 304,427,503
-------------------------------------
Less:
Deferred loan fees 774,939 892,019
Allowance for possible
loan losses 3,867,801 3,840,967
-------------------------------------
Net Loans Receivable $ 297,703,594 $ 299,694,517
=====================================
At June 30, 2000, the recorded investment in loans for which impairment has been
recognized in accordance with SFAS Nos. 114 and 118 totaled $2.8 million of
which $1.1 million related to loans that were individually measured for
impairment with a valuation allowance of $425 thousand and $1.7 million of loans
that were collectively measured for impairment with a valuation allowance of $77
thousand. For the six months ended June 30, 2000, the average recorded
investment in impaired loans was approximately $3.0 million. The Bank recognized
$96 thousand of interest income on impaired loans, all of which was recognized
on the cash basis. The Bank had $3.9 million in total reserves for possible loan
losses at June 30, 2000, representing approximately 141% of non-accrual loans
and 1.28% of total loans.
As of June 30, 2000 the Bank had outstanding loan commitments of $5.8 million,
of which $2.6 million represented variable rate loans and $3.2 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.
7
<PAGE>
Non-Performing Assets. The following table sets forth information regarding
non-accrual loans, troubled debt restructured and real estate owned assets by
the Bank.
<TABLE>
<CAPTION>
Non-Performing Assets:
June 30, December 31,
2000 1999
---------- ----------
(In Dollars)
<S> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
One-to-four family $923,417 $1,386,096
Commercial real estate 1,822,706 1,510,167
Consumer and other 5,459 236,781
---------- ----------
Total mortgage non-accrual loans $2,751,582 $3,133,044
---------- ----------
Troubled debt restructuring $444,177 $462,250
Real estate owned, net 436,060 448,541
Other non-performing assets 87,926 87,926
---------- ----------
Total non-performing assets, net $3,719,745 $4,131,761
========== ==========
Total non-accrual loans to net loans 0.92% 1.05%
========== ==========
Total non-accrual loans to total assets 0.36% 0.41%
========== ==========
Total non-performing assets to total assets 0.49% 0.53%
========== ==========
</TABLE>
8
<PAGE>
Mortgage-Backed Securities Held to Maturity - decreased $7.6 million to $113.8
million at June 30, 2000 from $121.4 million at December 31, 1999. The decrease
is the result of principal paydowns of $10.7 million, partially offset by the
purchase of $3.2 million FNMA adjustable rate securities. Mortgage-backed
securities at June 30, 2000 consisted of $69.4 million in fixed rate securities
and $44.4 million in adjustable rate securities. Mortgage-backed securities held
to maturity at June 30, 2000 and December 31, 1999 are summarized below:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
----------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Amortized Estimated
Cost Gains Losses Market Value Cost Market Value
---------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
GNMA $ 35,716,311 $ 173,845 $ (906,962) $ 34,983,194 $ 37,742,389 $ 36,940,635
FNMA 48,706,738 405,435 (1,046,306) 48,065,867 50,801,575 49,845,090
FHLMC 29,423,978 333,496 (70,266) 29,687,208 32,880,455 33,029,307
---------------------------------------------------------------- ----------------------------------
Total $ 113,847,027 $ 912,776 $ (2,023,534) $ 112,736,269 $ 121,424,419 $ 119,815,032
================================================================ ==================================
</TABLE>
Deposits - increased $10.5 million to $614.4 million at June 30, 2000 from
$603.9 million at December 31, 1999 as a result of an increase in non-interest
bearing checking accounts of $12.7 million, savings accounts of $8.8 million,
and money market accounts of $382 thousand, partially offset by a decrease in
checking accounts of $6.5 million, and certificates of deposit of $4.9 million.
Non-interest checking accounts increased due to the promotions of "Free
Personal" and "Free Business" checking accounts. Interest credited to depositors
accounts for the six months ended June 30, 2000 amounted to $10.0 million. The
following tables set forth certain information concerning deposits at the dates
indicated.
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
-------------------------------------------------------------------------------------
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 $95,173,937 15.49% 0.00% $82,504,184 13.66% 0.00%
Checking accounts 100,087,185 16.29% 2.95% 106,541,028 17.64% 2.26%
Savings accounts 116,017,215 18.88% 2.68% 107,207,225 17.75% 2.67%
Money market accounts 65,966,090 10.74% 2.74% 65,583,704 10.86% 2.76%
Certificates 237,192,248 38.60% 4.98% 242,055,976 40.09% 4.92%
-------------------------------------------------------------------------------------
Total Deposits $614,436,675 100.00% 3.28% $603,892,117 100.00% 3.20%
=====================================================================================
</TABLE>
9
<PAGE>
Borrowings - at June 30, 2000 amounted to $96.3 million. Borrowings consisted of
$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 $6.3 million in Federal Home Loan Bank Advances with a weighted average
interest rate of 5.49%. At December 31, 1999 borrowings consisted of $10.0
million of 10% Subordinated Debentures, $90.0 million securities sold under
agreements to repurchase with a weighted average rate of 5.62% and $16.3 million
in Federal Home Loan Bank Advances with a weighted average interest rate of
6.00%.
RESULTS OF OPERATIONS -
General
The earnings of the Corporation depend primarily upon the level of net interest
income, which is the difference between interest earned on its interest-earning
assets such as loans and investments, and the interest paid on interest-bearing
liabilities, such as deposits including non-interest checking accounts and
borrowings. Net interest income is a function of the interest rate spread, which
is the difference between the weighted average yield earned on interest-earning
assets and the weighted average rate paid on interest-bearing liabilities, as
well as the average balance of interest-earning assets as compared to
interest-bearing liabilities. Net income is also affected by non-interest
income, such as gains (losses) on the sale of loans and investments, provision
for loan losses and real estate owned, service charges and other fees, and
operating expenses: such as salaries 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, 2000 of
$1.3 million, or $.19 diluted earnings per share as compared to $1.4 million, or
$.19 diluted earnings per share for the comparable period in 1999. Earnings for
the six months ended June 30, 2000 were $2.6 million, or $.37 diluted earnings
per share as compared to $2.4 million, or $.33 diluted earnings per share for
the comparable period in 1999.
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 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 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. Interest expense
on certificates of deposit changes, due to their periodic maturity and the
prevailing current market interest rates.
10
<PAGE>
The following table sets forth certain information relating to the Corporation's
average balance sheet and reflects the average yield on assets and average rates
paid on liabilities for the periods indicated. Such yields and rates are derived
by dividing income or expense by the average balance of interest-earning assets
or interest-bearing liabilities, respectively, for the periods presented:
Average Balances, Interest and Yields/Rates
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------------------------------------------------------------
2000 1999
--------------------------------------- ---------------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
--------------- --------- ---------- ----------- ----------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 302,691 $ 5,889 7.78% $ 301,611 $ 5,915 7.84%
Mortgage-backed securities 117,653 1,975 6.71% 91,559 1,563 6.83%
Investment securities 304,911 5,128 6.73% 276,545 4,221 6.11%
------------------ --------- --------- ----------- ---------- ----------
Total interest-earning
assets 725,255 12,992 7.17% 669,715 11,699 6.99%
------------------ --------- --------- ----------- ---------- ----------
Interest-bearing
liabilities:
Deposits 618,582 5,059 3.27% 555,372 4,411 3.18%
Borrowings 93,551 1,327 5.67% 96,340 1,371 5.69%
Subordinated debentures 10,000 264 10.56% 10,000 264 10.56%
------------------ --------- --------- ----------- ---------- ----------
Total interest-bearing
liabilities $ 722,133 6,650 3.68% $ 661,712 6,046 3.65%
================== --------- --------- =========== ---------- ----------
Net interest income $ 6,342 $ 5,653
========= ==========
Interest rate spread 3.48% 3.33%
========= ==========
Net yield on average interest-earning assets 3.50% 3.38%
========= ==========
Ratio of average interest-
earning assets to average interest-bearing
liabilities 100.43% 101.21%
========= ==========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------------------------------------
2000 1999
------------------------------------------ -------------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
--------------- --------- ----------- ---------- ---------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 302,734 $ 11,645 7.69% $ 301,039 $ 11,574 7.69%
Mortgage-backed securities 120,102 4,018 6.69% 88,853 3,059 6.89%
Investment securities 307,756 10,105 6.57% 266,829 8,219 6.16%
------------------ ---------- ----------- ---------- ---------- -----------
Total interest-earning
assets 730,592 25,768 7.05% 656,721 22,852 6.96%
------------------ ---------- ----------- ---------- ---------- -----------
Interest-bearing liabilities:
Deposits 612,251 10,000 3.27% 544,705 8,745 3.21%
Borrowings 96,615 2,737 5.67% 96,456 2,730 5.66%
Subordinated debentures 10,000 529 10.58% 10,000 529 10.58%
------------------ ---------- ----------- ---------- ---------- -----------
Total interest-bearing
liabilities $ 718,866 13,266 3.69% $ 651,161 12,004 3.69%
================== ---------- ----------- ========== ---------- -----------
Net interest income $ 12,502 $ 10,848
========== ==========
Interest rate spread 3.36% 3.27%
=========== ===========
Net yield on average interest-earning assets 3.42% 3.30%
=========== ===========
Ratio of average interest-
earning assets to average interest-bearing
liabilities 101.63% 100.85%
=========== ===========
</TABLE>
11
<PAGE>
Rate/Volume Analysis
The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Bank's interest income and interest expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
rate, (ii) changes in volume and (iii) total changes in rate and volume (the
combined effect of changes in both volume and rate, not separately identified,
has been allocated to rate). Due to the fact that average balances on loans
include non-performing loans which reduce the computed yield, a higher level of
non-performing loans affects both the changes due to volume and rate.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 compared to 1999 2000 compared to 1999
-------------------------------- -------------------------------
Increase (Decrease) due to: Increase (Decrease) due to:
Rate Volume Total Rate Volume Total
-------------------------------- -------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $ (47) 21 $ (26) $ 6 65 $ 71
Mortgage-backed securities (33) 445 412 (117) 1,076 959
Investment securities 474 433 907 625 1,261 1,886
----------------------------- ----------------------------
Total change - interest income 394 899 1,293 514 2,402 2,916
----------------------------- ----------------------------
Interest expense:
Deposits 146 502 648 171 1,084 1,255
Borrowings (4) (40) (44) 2 5 7
Subordinated debentures 0 0 0 0 0 0
----------------------------- ----------------------------
Total change - interest expense 142 462 604 173 1,089 1,262
----------------------------- ----------------------------
Net change in net interest income $ 252 $ 437 $ 689 $ 341 $ 1,313 $ 1,654
============================= ============================
</TABLE>
Net Interest Income - for the three and six months ended June 30, 2000 totaled
$6.3 million and $12.5 million, respectively. Net interest income for the three
months ended June 30, 2000 increased $689 thousand as compared to the same
period in 1999 due primarily to an increase in interest income on investment
securities of $907 thousand and mortgage-backed securities of $412 thousand,
partially offset by an increase in interest expense on deposits of $648
thousand.
The increase in interest income on investment securities was due to an increase
in the average balance of the portfolio of $28.4 million to $304.9 million for
the three months ended June 30, 2000 from $276.5 million for the same period in
1999, which resulted in a volume increase of $433 thousand. The average yield of
the investment portfolio increased 62 basis points to 6.73% for the three months
ended June 30, 2000 from 6.11% for the same period in 1999, which resulted in an
interest income increase of $474 thousand due to rate changes.
The average balance of the MBSs increased $26.1 million to $117.7 million for
the three months ended June 30, 2000 from $91.6 million for the same period in
1999, which resulted in a volume increase in interest income of $445 thousand.
The average yield of the portfolio decreased 12 basis points to 6.71% for the
three months ended June 30, 2000 from 6.83% during the same period in 1999,
which resulted in a $33 thousand decrease in interest income due to rate
changes.
12
<PAGE>
Interest expense on deposits increased $648 thousand for the three months ended
June 30, 2000 compared to the same period in 1999. The average balance of
deposits increased $63.2 million to $618.6 million for the three months ended
June 30, 2000 from $555.4 million for the same period in 1999, which resulted in
a volume increase in interest expense of $502 thousand. The weighted average
rates paid on deposits increased 9 basis points to 3.27% for the three months
ended June 30, 2000 from 3.18% for the same period in 1999, which resulted in an
increase in interest expense of $146 thousand due to rate changes.
Net interest income for the six months ended June 30, 2000 increased $1.7
million primarily due to an increase in interest income on investment securities
of $1.9 million and mortgage-backed securities of $959 thousand, partially
offset by an increase in interest expense on deposits of $1.3 million as
compared to the same period in 1999.
The increase in interest income on investment securities was due to an increase
in the average balance of the portfolio of $41.0 million to $307.8 million for
the six months ended June 30, 2000 from $266.8 million for the same period in
1999, which resulted in a volume increase in interest income of $1.3 million.
The average yield on the investment portfolio increased 41 basis points to 6.57%
for the six months ended June 30, 2000 from 6.16% for the same period in 1999,
which resulted in an increase in interest income of $625 thousand due to rate
changes. The increase in the average balance from June 1999 through June 2000
was primarily due to purchases during this period of $66.2 million of U.S.
Agency Notes and $10.1 million of Reverse Repurchase Agreement, partially offset
by $30.6 million of CMO principal paydowns.
The increase in interest income on mortgage-backed securities was due to an
increase in the average balance of the portfolio of $31.2 million to $120.1
million for the six months ended June 30, 2000 from $88.9 million for the six
months ended June 30, 1999. The increase in the average balance of the portfolio
resulted in a $1.1 million increase in interest income. The average yield on the
portfolio decreased 20 basis points to 6.69% for the six months ended June 30,
2000 from 6.89% for the same period in 1999, which resulted in a decrease in
interest income of $117 thousand due to rate changes. The increase in the
average balance was due to $44.6 million of purchases, partially offset by $22.6
of principal paydowns from June 1999 through June 2000.
The increase in interest expense on deposits was the result of an increase in
the average balance of deposits of $67.6 million to $612.3 million for the six
months ended June 30, 2000 from $544.7 million for the same period in 1999,
which resulted in a volume increase in interest expense of $1.1 million. The
average yield on deposits increased 6 basis points to 3.27% for the six months
ended June 30, 2000 from 3.21% for the same period in 1999, which resulted in an
increase in interest expense of $171 thousand due to rate changes.
Provision for Loan Losses - for the three months ended June 30, 2000 remained
constant at $60 thousand from 1999 to 2000. The total provision for potential
loan losses remained constant at $120 thousand for the six months ended June 30,
2000 and 1999. At June 30, 2000 the allowance for possible loan losses amounted
to $3.9 million compared to $3.5 million at June 30, 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. The Corporation will continue to monitor its allowance for
loan losses and make future adjustments to the allowance through the provision
for loan losses as economic conditions dictate. Management continues to offer a
wider variety of loan products
13
<PAGE>
coupled with the continued change in the mix of the products offered in the loan
portfolio from lower yielding loans (i.e., one to four family loans) to higher
yielding loans (i.e., commercial real estate mortgage, commercial construction,
consumer, and commercial business) which have a higher degree of risk than one
to four family loans. Although the Corporation maintains its allowance for loan
losses at a level that it considers to be adequate to provide for the inherent
risk of loss in its loan portfolio, there can be no assurance that future losses
will not exceed estimated amounts or that additional provisions for loan losses
will not be required in future periods due to the higher degree of credit risk
which might result from the change in the mix of the loan portfolio. 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 month periods ended June 30, 2000 totaled
$707 thousand and $1.4 million, respectively. Other income decreased $246
thousand in the three month period and $183 thousand in the first six months of
2000 when compared to the same period in 1999. Gain on disposal of fixed assets
decreased $245 thousand for the three and six month periods ended June 30, 2000
as compared to the same periods in 1999. This decrease is due to the May 1999
sale of a two-acre parcel of land for a $245 thousand gain. Service charges on
accounts increased $51 thousand for the six months ended June 30, 2000 as
compared to the same period in 1999 due to increased volume of service charges
on accounts.
Operating Expenses - for the three and six month periods ended June 30, 2000
amounted to $4.9 million and $9.7 million, respectively as compared to $4.4
million and $8.6 million for the same periods in 1999.
Salaries and Employee Benefits - for the three and six month periods ended June
30, 2000 were $2.9 million and $5.7 million, as compared to $2.5 million and
$4.9 million for the same periods in 1999. The increases were due to additional
staff in four new branches opened since the second quarter of 1999. Average full
time equivalent employees at June 30, 2000 were 418 as compared to 373 at June
30, 1999.
Occupancy and Equipment - for the three and six month periods ended June 30,
2000 totaled $980 thousand and $2.0 million, respectively, as compared to $859
thousand and $1.7 million for the same periods in 1999. The increases are the
result of additional depreciation and occupation expenses on the new branches
opened as well as other facility improvements and new computer equipment
additions between the quarters ended June 30, 2000 and June 30, 1999.
Purchased Services - for the three and six month periods ended June 30, 2000
amounted to $447 thousand and $876 thousand, respectively, as compared to $366
thousand and $733 thousand for the same periods in 1999. ATM charges increased
$73 thousand for the first six months of 2000 compared to the same period in
1999. Check processing costs increased $48 thousand for the six months ended
June 30, 2000 compared to the same period in 1999 due to higher transaction
volume.
14
<PAGE>
Professional Fees - for the three and six month periods ended June 30, 2000
totaled $117 thousand and $234 thousand, respectively, as compared to $200
thousand and $279 thousand for the same periods in 1999. The decrease during the
year is due to legal costs incurred relating to the sale of land during May
1999.
ITEM 3: DISCLOSURE ABOUT MARKET RISK
There were no significant changes for the six months ended June 30, 2000 from
the information presented in the annual report on Form 10-K for the year ended
December 31, 1999.
15
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 1: Legal Proceedings
------- -----------------
None
Item 2: Changes in Securities
------- ---------------------
None
Item 3: Defaults Upon Senior Securities
------- -------------------------------
The Annual Meeting of Shareholders of the Corporation was
held on April 17, 2000 and the following matters were
voted upon:
Proposal I - Election of Directors with terms to expire
in 2003.
FOR WITHHELD
------------------- -------------
Vincent R. Farias 6,233,542 168,952
James C. Lignana 6,235,459 167,554
Wayne H Page 6,224,059 178,954
Proposal II - To ratify the appointment of
PricewaterhouseCoopers LLP as auditors for the
Corporation for the 2000 fiscal year.
FOR AGAINST ABSTAIN
------------------- --------------- --------------
6,395,931 2,090 6,036
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)
16
<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, 2000
/s/ Craig W. Yates
-----------------------------------------
Craig W. Yates
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 10, 2000
/s/ Channing L. Smith
-----------------------------------------
Channing L. Smith
Vice President and
Chief Financial Officer
(Principal Financial Officer)
