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 March 31, 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
- ---------- ----------
(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 May 5, 2000 there were issued and outstanding 7,063,026 shares of the
registrant's Common Stock, par value $.10 per share.
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
----------------------------------------
QUARTERLY REPORT ON FORM 10-Q
-----------------------------
MARCH 31, 2000
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TABLE OF CONTENTS
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Page
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PART I - Financial Information
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Item 1 - Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 2000 (unaudited) and December 31, 1999............1
Consolidated Statements of Income (unaudited)
for the three months ended
March 31, 2000 and March 31, 1999...........................2
Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 2000
and March 31, 1999...........................................3
Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 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>
<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- -----------------------------------------------------------------------------------------
March 31, 2000 December 31, 1999
- -----------------------------------------------------------------------------------------
(Unaudited)
ASSETS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Cash and amounts due from depository institutions $ 20,970,552 $ 20,489,516
Interest-bearing deposits 133,308 82,493
Short term funds 17,855,733 25,703,862
-------------- --------------
Total cash and cash equivalents 38,959,593 46,275,871
Investment securities held to maturity 251,114,313 220,307,242
Investment securities available for sale 46,111,438 49,307,116
Loans, net 297,196,979 299,694,517
Mortgage-backed securities held to maturity 119,468,807 121,424,419
Accrued interest receivable:
Loans 1,500,442 1,398,470
Mortgage-backed securities 844,877 836,699
Investments 3,179,706 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 531,541 448,541
Office properties and equipment, net 22,980,888 20,686,272
Deferred income taxes 2,339,289 2,264,587
Excess cost over fair value of net assets acquired 48,412 55,328
Prepaid expenses and other assets 1,109,425 959,819
Subordinated debentures issue cost, net 249,428 263,765
-------------- --------------
TOTAL ASSETS $ 790,584,474 $ 772,500,604
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------
Liabilities:
Deposits $ 631,974,715 $ 603,892,117
Securities sold under agreements to repurchase 80,000,000 90,000,000
Advances from the Federal Home Loan Bank 16,337,031 16,337,031
10% Subordinated debentures, due 2004 10,000,000 10,000,000
Advances by borrowers for taxes and insurance 2,242,859 2,204,704
Accrued interest payable 1,213,029 1,437,348
Dividends payable 211,888 215,519
Other liabilities 2,564,215 2,316,882
-------------- --------------
Total liabilities 744,543,737 726,403,601
-------------- --------------
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 7,897,791 and
7,897,791 and shares outstanding 7,062,926
and 7,183,978 as of March 31, 2000 and
December 31, 1999, respectively 789,779 789,779
Paid-in capital in excess of par 8,217,535 8,217,535
Accumulated comprehensive loss - net of deferred
income taxes (1,263,768) (1,167,810)
Retained earnings 43,222,256 42,108,955
Less: Treasury stock (834,865 and 713,813 shares,
at cost, as of March 31, 2000 and December 31,
1999, respectively) (4,925,065) (3,851,456)
-------------- --------------
Total stockholders' equity 46,040,737 46,097,003
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 790,584,474 $ 772,500,604
============== ==============
</TABLE>
See notes to consolidated financial statements
<PAGE>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Three Months ended
March 31,
------------------------------------
2000 1999
- --------------------------------------------------------------------------------
INTEREST INCOME: (Unaudited)
Interest income on:
Loans $ 5,755,540 $ 5,659,643
Mortgage-backed securities 2,043,851 1,496,043
Investments 4,977,229 3,997,879
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Total interest income 12,776,620 11,153,565
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INTEREST EXPENSE:
Interest expense on:
Deposits 4,941,263 4,333,906
Subordinated debentures 264,337 264,337
Borrowings 1,410,220 1,359,622
-------------- ----------------
Total interest expense 6,615,820 5,957,865
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NET INTEREST INCOME 6,160,800 5,195,700
PROVISION FOR LOAN LOSSES 60,000 60,000
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 6,100,800 5,135,700
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OTHER INCOME (EXPENSE):
Loan service charges and other fees 35,744 33,145
Gain on sale of loans 258 113
Loss on disposal of fixed assets (122) 0
Real estate owned operations, net 13,201 (6,965)
Service charges on accounts 616,582 572,508
Other income 49,037 52,402
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Total other income 714,700 651,203
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OPERATING EXPENSES:
Salaries and employee benefits 2,809,787 2,419,921
Occupancy and equipment 973,123 884,126
Purchased services 428,945 366,996
Federal deposit insurance premiums 30,128 75,388
Professional fees 117,723 78,611
Advertising 55,869 48,448
Other 333,881 364,415
-------------- ----------------
Total operating expenses 4,749,456 4,237,905
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INCOME BEFORE INCOME TAXES 2,066,044 1,548,998
INCOME TAXES:
Current 761,626 469,997
Deferred (20,771) 92,371
-------------- ----------------
Total income taxes 740,855 562,368
NET INCOME $ 1,325,189 $ 986,630
============== ================
BASIC EARNINGS PER COMMON SHARE $ 0.19 $ 0.14
============== ================
DILUTED EARNINGS PER COMMON SHARE $ 0.18 $ 0.13
============== ================
Weighted average common shares
outstanding 7,150,644 7,231,767
Potential dilutive effect of the
exercise of stock options 76,853 82,409
-------------- ----------------
Adjusted weighted average
common shares outstanding 7,227,497 7,314,176
============== ================
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------------
Three Months ended
March 31
-------------------------------
2000 1999
- ------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,325,189 $ 986,630
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 60,000 60,000
Depreciation and amortization 487,432 638,767
Realized (gains) and losses on:
Sale of loans and loans held for sale (258) (13)
Disposal and sale of fixed assets 525 11,756
Sale of real estate owned (26,633) 0
Decrease in accrued interest receivable 338,766 288,596
(Increase) Decrease in prepaid expenses and other assets (149,606) 150,360
Decrease in accrued interest payable (224,319) (238,629)
Increase (Decrease) in other liabilities 247,333 (133,080)
Deferred income taxes (20,772) 16,556
------------ ------------
Net cash provided by operating activities 2,037,657 1,780,943
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of:
Education loans 74,614 126
Real estate owned 157,633 0
Principal collected and proceeds from maturities of investment
securities held to maturity 1,176,300 21,961,317
Proceeds from maturities of investment securities available for sale 3,041,603 31,033,583
Principal collected on mortgage-backed securities held to maturity 5,148,569 7,684,565
Principal collected on loans, net 14,389,009 14,310,843
Loans originated or acquired (12,239,936) (13,231,290)
Purchase of investment securities and mortgage-backed
securities held to maturity (35,246,579) (49,165,133)
Purchase of investment securities and mortgage-backed
securities available for sale 0 (1,000,000)
Purchase of office property and equipment (2,686,773) (781,478)
------------ ------------
Net cash (used) provided by investing activities (26,185,560) 10,812,533
------------ ------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts 13,812,961 5,656,165
Net increase in time deposits 14,269,637 3,938,363
Net decrease in FHLB advances 0 (31,290)
Proceeds from securities sold under agreements to repurchase (10,000,000) 0
Increase in advances from borrowers for taxes and insurance 38,155 40,708
Purchase of treasury stock (1,073,609) (208,010)
Dividends paid on common stock (215,519) (216,953)
------------ ------------
Net cash provided by financing activities 16,831,625 9,178,983
------------ ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (7,316,278) 21,772,459
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 46,275,871 29,896,391
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 38,959,593 $ 51,668,850
============ ============
Supplemental Disclosures:
Cash paid for:
Interest on deposits, advances, and other borrowings $ 6,840,139 $ 6,196,494
Income taxes 159,143 425,238
Non-cash investing and financing activities:
Dividends declared and not paid at quarter end 211,888 216,953
Non-monetary transfers from loans to real estate acquired
through foreclosure 214,000 0
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
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 1,325,189 1,325,189
Other comprehensive income
Unrealized loss on securities
available for sale (95,958) (95,958)
------------
Total comprehensive income 1,229,231
------------
Dividends declared (211,888) (211,888)
Purchase of common stock (121,052) (1,073,609) (1,073,609)
- --------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 2000 7,062,926 $789,779 $8,217,535 $ (1,263,768) $43,222,256 $(4,925,065) $46,040,737
- --------------------------------------------------------------------------------------------------------------------------------
</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 THREE MONTHS ENDED MARCH 31, 2000.
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
months ended March 31, 2000 are not necessarily indicative of the operating
results for the full fiscal year or any other interim period.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions for FORM 10-Q, and therefore, do not include
all information and notes necessary for a fair presentation of financial
condition, results of operations and statements of cash flows in conformity with
generally accepted accounting principles. These statements should be read in
conjunction with the consolidated statements and related notes which are
incorporated by reference to the Corporation's annual report on FORM 10-K for
the year ended December 31, 1999. The consolidated financial statements include
the Corporation's sole subsidiary, Farmers & Mechanics Bank ("the Bank").
5
<PAGE>
FINANCIAL CONDITION -
Total Assets - at March 31, 2000 were $790.6 million as compared with total
assets at December 31, 1999 of $772.5 million.
Investment Securities Held to Maturity - increased $30.8 million to $251.1
million at March 31, 2000 from $220.3 million at December 31, 1999 primarily due
to the net purchase of $30.0 million of reverse repurchase agreements and $2.0
million in U.S. Agency notes, partially offset by $1.2 million in CMO paydowns
during the three months ended March 31, 2000. Investment securities held to
maturity at March 31, 2000 consisted entirely of fixed rate securities. A
comparison of cost and approximate market values of investment securities held
to maturity as of March 31, 2000 and December 31, 1999 follows:
<TABLE>
<CAPTION>
March 31, 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 $172,612,764 $ 0 $ (8,374,429) $ 164,238,335 $ 170,610,811 $ 161,851,452
CMOs 46,992,238 0 (1,919,718) 45,072,520 48,187,121 46,481,467
Reverse Repurchase 30,000,000 0 0 30,000,000 0 0
Municipal bonds 1,509,311 2,268 0 1,511,579 1,509,310 1,509,954
-------------------------------------------------------------- ---------------------------------
Total $251,114,313 $ 2,268 $ (10,294,147) $ 240,822,434 $ 220,307,242 $ 209,842,873
=============================================================== =================================
</TABLE>
Investment Securities Available for Sale - decreased $3.2 million to $46.1
million at March 31, 2000 from $49.3 million at December 31, 1999 as a result of
$3.0 million of principal paydowns on CMOs during the three months ended March
31, 2000. Investment securities available for sale consisted of $42.4 million in
fixed rate securities and $3.7 million in adjustable rate securities at March
31, 2000. A comparison of cost and approximate market values of investment
securities available for sale as of March 31, 2000 and December 31, 1999
follows:
<TABLE>
<CAPTION>
March 31, 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 $ 10,292,101 $ 0 $ (511,084) $ 9,781,017 $ 10,291,646 $ 9,725,031
CMOs 35,063,413 11,201 (1,409,223) 33,665,391 38,024,766 36,816,550
MBSs 2,732,240 0 (67,210) 2,665,030 2,817,131 2,765,535
----------------------------------------------------------- -------------------------------
Total $ 48,087,754 $ 11,201 $ (1,987,517) $ 46,111,438 $ 51,133,543 $ 49,307,116
=========================================================== ===============================
</TABLE>
6
<PAGE>
Loans, net - decreased $2.5 million to $297.2 million at March 31, 2000 from
$299.7 million at December 31, 1999. This decrease was the result of
approximately $14.4 million of principal collected on loans, partially offset by
$12.2 million of loans originated during the three months ended March 31, 2000.
The following table shows loans receivable by major categories at the dates
indicated.
March 31, December 31,
2000 1999
-------------------------------------
Mortgage loans (1-4 dwelling) $ 234,585,317 $ 236,912,182
Construction loans 251,355 972,533
Commercial construction 3,975,726 3,934,937
Consumer loans 3,160,182 3,273,792
Commercial real estate 53,218,751 52,543,711
Commercial business 6,646,852 6,790,348
-------------------------------------
Subtotal 301,838,183 304,427,503
-------------------------------------
Less:
Deferred loan fees 838,506 892,019
Allowance for possible
loan losses 3,802,698 3,840,967
-------------------------------------
Net Loans Receivable $ 297,196,979 $ 299,694,517
=====================================
At March 31, 2000, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS Nos. 114 and 118 totaled $3.2 million of
which $1.1 million related to loans that were individually measured for
impairment with a valuation allowance of $425 thousand and $2.1 million of loans
that were collectively measured for impairment with a valuation allowance of $75
thousand. For the three months ended March 31, 2000, the average recorded
investment in impaired loans was approximately $3.2 million. The Bank recognized
$33 thousand of interest income on impaired loans, all of which was recognized
on the cash basis. The Bank had $3.8 million in total reserves for possible loan
losses at March 31, 2000, representing approximately 119% of non-accrual loans
and 1.26% of total loans.
As of March 31, 2000 the Bank had outstanding loan commitments of $5.7 million,
of which $2.8 million represented variable rate loans and $2.9 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.
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.
Non-Performing Assets:
March 31, December 31,
2000 1999
- --------------------------------------------------------------------------------
(Dollars in Thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
One-to-four family $1,257 $1,386
Commercial real estate 1,895 1,510
Consumer and other 1 237
------ ------
Total mortgage non-accrual loans $3,153 $3,133
------ ------
Troubled debt restructuring $406 $462
Real estate owned, net 532 449
Other non-performing assets 88 88
------ ------
Total non-performing assets $4,179 $4,132
------ ------
Total non-accrual loans to net loans 1.06% 1.05%
====== ======
Total non-accrual loans to total assets 0.40% 0.41%
====== ======
Total non-performing assets to total assets 0.53% 0.53%
====== ======
8
<PAGE>
Mortgage-Backed Securities Held to Maturity - decreased $1.9 million to $119.5
million at March 31, 2000 from $121.4 million at December 31, 1999. The decrease
is the result of principal paydowns of $5.1 million, partially offset by the
purchase of $3.2 million FNMA adjustable rate securities. Mortgage-backed
securities at March 31, 2000 consisted of $72.5 million in fixed rate securities
and $47.0 million in adjustable rate securities. Mortgage-backed securities held
to maturity at March 31, 2000 and December 31, 1999 are summarized below:
<TABLE>
<CAPTION>
March 31, 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 $ 36,734,283 $ 208,682 $ (1,074,570) $ 35,868,395 $ 37,742,389 $ 36,940,635
FNMA 51,177,968 199,590 (1,210,945) 50,166,613 50,801,575 49,845,090
FHLMC 31,556,556 324,401 (132,438) 31,748,519 32,880,455 33,029,307
-------------------------------------------------------- ----------------------------
Total $119,468,807 $ 732,673 $ (2,417,953) $117,783,527 $121,424,419 $119,815,032
======================================================== ============================
</TABLE>
9
<PAGE>
Office Properties and Equipment - increased $2.3 million to $23.0 million at
March 31, 2000 from $20.7 million at December 31, 1999. The increase was due to
the purchase of a 24,000 square foot building in Burlington, NJ, which is to be
renovated into a new larger operations center and a bank branch. The Bank also
purchased a bank building in Mount Laurel, NJ, which will be opened as a branch
in May 2000.
Deposits - increased $28.1 million to $632.0 million at March 31, 2000 from
$603.9 million at December 31, 1999 as a result of an increase in certificates
of deposit of $14.3 million, non-interest bearing checking accounts of $12.4
million, savings accounts of $5.4 million, and money market accounts of $804
thousand partially offset by a decrease in checking accounts of $4.8 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 three months ended March 31, 2000 amounted to $4.9 million. The
following tables set forth certain information concerning deposits at the dates
indicated.
<TABLE>
<CAPTION>
March 31, 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 $94,940,821 15.02% 0.00% $ 82,504,184 13.66% 0.00%
Checking accounts 101,740,105 16.10% 2.88% 106,541,028 17.64% 2.26%
Savings accounts 112,580,406 17.81% 2.68% 107,207,225 17.75% 2.67%
Money market accounts 66,387,770 10.50% 2.74% 65,583,704 10.86% 2.76%
Certificates 256,325,613 40.57% 4.92% 242,055,976 40.09% 4.92%
-----------------------------------------------------------------------------
Total Deposits $631,974,715 100.00% 3.27% $603,892,117 100.00% 3.20%
=============================================================================
</TABLE>
Borrowings - at March 31, 2000 amounted to $106.3 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 $16.3 million in Federal Home Loan Bank Advances with a weighted
average interest rate of 6.0%. 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%.
10
<PAGE>
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 March 31, 2000 of
$1.3 million, or $.18 diluted earnings per share as compared to $987 thousand,
or $.13 diluted earnings per share for the comparable period in 1999.
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 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:
<TABLE>
<CAPTION>
Year-to-Date-Ended March 31,
---------------------------------------------------------------------------
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 $302,777 $ 5,756 7.60% $300,466 $ 5,659 7.53%
Mortgage-backed securities 122,551 2,044 6.67% 86,147 1,496 6.95%
Investment securities 305,142 4,977 6.52% 257,112 3,998 6.22%
-------- -------- ------- -------- -------- -------
Total interest-earning
assets 730,470 12,777 7.00% 643,725 11,153 6.93%
-------- -------- ------- -------- -------- -------
Interest-bearing liabilities:
Deposits 605,920 4,941 3.26% 534,038 4,334 3.25%
Borrowings 99,678 1,410 5.66% 96,572 1,360 5.63%
Subordinated debentures 10,000 264 10.56% 10,000 264 10.56%
-------- -------- ------- -------- -------- -------
Total interest-bearing
liabilities $715,598 6,615 3.70% $640,610 5,958 3.72%
======== ======== ======= ======== ======== =======
Net interest income $ 6,162 $ 5,195
========= ========
Interest rate spread 3.30% 3.21%
======= =======
Net yield on average
interest-earning assets 3.37% 3.23%
======= =======
Ratio of average interest-
earning assets to average
interest-bearing liabilities 102.08% 100.49%
======= =======
</TABLE>
12
<PAGE>
Rate/Volume Analysis
The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Bank's interest income and interest expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
rate, (ii) changes in volume and (iii) total changes in rate and volume (the
combined effect of changes in both volume and rate, not separately identified,
has been allocated to rate). 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.
Three Months Ended
March 31,
2000 compared to 1999
----------------------------------
Increase (Decrease) due to:
Rate Total Volume
----------------------------------
(In Thousands)
Interest income:
Loans receivable $ 53 $ 44 $ 97
Mortgage-backed securities (84) 632 548
Investment securities 232 747 979
----------------------------------
Total change - interest income 201 1,423 1,624
----------------------------------
Interest expense:
Deposits 24 583 607
Borrowings 6 44 50
Subordinated debentures 0 0 0
----------------------------------
Total change - interest expense 30 627 657
----------------------------------
Net change in net interest income $ 171 $ 796 $ 967
==================================
13
<PAGE>
Net Interest Income - the increase in net interest income for the three months
ended March 31, 2000 totaled $967 thousand was primarily due to an increase in
interest income of $1.6 million, partially offset by an increase in interest
expense of $657 thousand.
The increase in interest income was primarily the result of an increase in
investment securities interest income of $979 thousand. The average balance of
investment securities increased $48.0 million to $305.1 million for the three
months ended March 31, 2000 from $257.1 million for the same period in 1999,
which resulted in a volume increase of $747 thousand. The average yield of the
investment portfolio increased 30 basis points to 6.52% for the quarter ended
March 31, 2000 from 6.22% for the same period in 1999, which resulted in an
interest income increase of $232 thousand due to rate changes. The increase in
average balance during these periods was primarily due to $74.7 million of
purchases of U.S. Agency Notes, partially offset by $32.8 million of CMO
principal paydowns.
The average balance of the MBSs increased $36.5 million to $122.6 million for
the three months ended March 31, 2000 from $86.1 million for the same period in
1999, which resulted in a volume increase in interest income of $632 thousand,
partially offset by a decrease in the average yield of 28 basis point to 6.67%
for the three months ended March 31, 2000 from 6.95% during the same period in
1999, which resulted in a $84 thousand decrease in interest income from lower
rates. The increase in the average volume during these periods was primarily due
to $49.5 million of purchase of mortgage backed securities, partially offset by
principal paydowns of $23.9 million.
The increase in interest expense was primarily the result of an increase in
interest expense on deposits of $607 thousand. The average balance of deposits
increased $71.9 million, which resulted in a volume increase in interest expense
of $583 thousand for the three months ended March 31, 2000 compared to the same
period in 1999. The weighted average rates paid on deposits increased 1 basis
point to 3.26% for the three months ended March 31, 2000 from 3.25% for the same
period in 1999, which resulted in an increase in interest expense of $24
thousand.
Provision for Loan Losses - for the first quarter of 2000 remained constant at
$60 thousand. At March 31, 2000 the allowance for possible loan losses amounted
to $3.8 million compared to $3.4 million at March 31, 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 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.
14
<PAGE>
Operating Expenses - for the first quarter of 2000 totaled $4.7 million, as
compared to $4.2 million for the same period in 1999.
Salaries and Employee Benefits - for the first quarter of 2000 were $2.8
million, as compared to $2.4 million for the same period in 1999. The increase
was due to additional staff in three new branches opened since the first quarter
of 1999. Average full time equivalent employees at March 31, 2000 were 413 as
compared to 378 at March 31, 1999.
Occupancy and Equipment - for the first quarter of 2000 amounted to $973
thousand, compared to $884 thousand for the same period in 1999. The $89
thousand increase is 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 March 31, 2000 and
March 31, 1999.
Purchased Services - for the first quarter of 2000 amounted to $429 thousand,
compared to $367 thousand for the same period of 1999. ATM charges increased $27
thousand, compared to the same period in 1999 and check processing costs have
increased $26 thousand for three months ended March 31, 2000 due to higher
transaction volumes.
Federal Deposit Insurance Premiums - for the first quarter amounted to $30
thousand compared to $75 thousand for the same period in 1999. Beginning in
January 2000, the FDIC reduced deposit insurance premiums assessments from an
annual rate of .061% to an annual rate of .021 % on total deposits.
ITEM 3: DISCLOSURE ABOUT MARKET RISK
There were no significant changes for the three months ended March 31, 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
------- -------------------------------
None
Item 4: Submission of Matters to Vote of Security of Holders
------- ----------------------------------------------------
None
Item 5: Other Information
------- -----------------
None
Item 6: Exhibits and Reports on Form 8-K
------- --------------------------------
(a) (27) Financial Data Schedule (Electronic data filing only)
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: May 11, 2000 /s/ Craig W. Yates
-- -------------------------------------
Craig W. Yates
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 11, 2000 /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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 20,971
<INT-BEARING-DEPOSITS> 133
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46,111
<INVESTMENTS-CARRYING> 370,583
<INVESTMENTS-MARKET> 358,606
<LOANS> 297,197
<ALLOWANCE> 3,803
<TOTAL-ASSETS> 790,584
<DEPOSITS> 631,975
<SHORT-TERM> 0
<LIABILITIES-OTHER> 6,231
<LONG-TERM> 106,337
0
0
<COMMON> 790
<OTHER-SE> 45,251
<TOTAL-LIABILITIES-AND-EQUITY> 790,584
<INTEREST-LOAN> 5,756
<INTEREST-INVEST> 4,977
<INTEREST-OTHER> 2,044
<INTEREST-TOTAL> 12,777
<INTEREST-DEPOSIT> 4,941
<INTEREST-EXPENSE> 6,616
<INTEREST-INCOME-NET> 6,161
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,035
<INCOME-PRETAX> 2,066
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,325
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.18
<YIELD-ACTUAL> 3.37
<LOANS-NON> 3,153
<LOANS-PAST> 0
<LOANS-TROUBLED> 406
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,841
<CHARGE-OFFS> 106
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 3,803
<ALLOWANCE-DOMESTIC> 3,803
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,352
</TABLE>
