SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2002
- OR -
[X] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
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 incorporation (I.R.S. Employer 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
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
--------------------------------------
(Title of Class)
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 shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES NO X .
--- ---
Based on the closing sales price of $12.87 per share of the registrant's
common stock on March 3, 2003, as reported on the Nasdaq National Market System
the aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $48.6 million. As of March 3, 2003, there were
6,463,811 shares outstanding of the registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of 2002 Annual Report to Stockholders (Parts II and IV)
2. Portions of Proxy Statement for the 2003 Annual Meeting of Stockholders.
(Part III)
1
PART I
Forward-Looking Statements
FMS Financial Corporation (the "Corporation" or "Registrant") 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 Annual Report on Form 10-K 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.
Item 1. Business
- -----------------
General
FMS Financial Corporation, a New Jersey corporation, headquartered in
Burlington, New Jersey, is the holding company for Farmers and Mechanics Bank
(the "Bank"). The Corporation conducts no significant business or operations of
its own other than holding all of the outstanding common stock of the Bank. As a
result, references to the Corporation or Registrant generally refers to the
consolidated entity which includes the main operating company, the Bank, unless
the context indicates otherwise.
The Registrant principally operates through its thirty-nine banking offices
located in Burlington, Camden and Mercer Counties, New Jersey. The Registrant is
primarily engaged in the business of attracting deposits from the general public
and originating loans which are secured by residential real
2
estate. To a lesser extent, the Registrant also originates consumer, commercial
business loans and construction loans and invests in U.S. government securities
and mortgage-related securities.
Competition
The Registrant's primary market area consists of Burlington, Camden and
Mercer Counties, New Jersey, and is one of many financial institutions serving
this market area. The competition for deposit products comes from other insured
financial institutions such as commercial banks, thrift institutions and credit
unions in the Registrant's market area. Deposit competition also includes a
number of insurance products sold by local agents and investment products such
as mutual funds and other securities sold by local and regional brokers. Loan
competition comes from other insured financial institutions such as commercial
banks, thrift institutions and credit unions.
Lending Activities
Analysis of Loan Portfolio
The following table sets forth the composition of the Registrant's loan
portfolio in dollar amounts and in percentages of the respective portfolios at
the dates indicated.
December 31,
--------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------------- ----------------- ----------------- ------------------- -------------------
Carrying Percent Carrying Percent Carrying Percent Carrying Percent Carrying Percent
Value of Total Value of Total Value of Total Value of Total Value of Total
------- -------- -------- -------- -------- -------- --------- -------- ------- --------
(In thousands)
Mortgage loans:
One-to-four family....... $272,777 74.38% $259,970 76.11% $228,428 77.47% $236,912 77.82% $245,415 81.07%
Commercial real estate... 76,354 20.82 60,627 17.75 52,763 17.90 52,544 17.26 45,938 15.18
Commercial construction.. 1,157 .32 4,606 1.35 1,062 .36 3,935 1.29 2,609 .86
Construction............. 306 .08 1,254 .37 163 .06 973 .32 1,390 .46
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage loans. 350,594 95.60 326,457 95.58 282,416 95.79 294,364 96.69 295,352 97.57
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Consumer and other loans:
Consumer................. 3,522 .96 4,583 1.34 3,900 1.32 3,274 1.08 3,237 1.07
Commercial business...... 12,621 3.44 10,521 3.08 8,522 2.89 6,790 2.23 4,121 1.36
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer and other
loans............. 16,143 4.40 15,104 4.42 12,422 4.21 10,064 3.31 7,358 2.43
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans.......... $366,737 100.00% $341,561 100.00% $294,838 100.00% $304,428 100.00% $302,710 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
One-to-Four Family Loans. The Registrant's primary lending activity
consists of the origination of one-to-four family residential mortgage loans
("residential loans") secured by the property in the Registrant's market area.
The Registrant's residential loan portfolio also includes second mortgage loans
and home equity loans (including home equity lines of credit loans). The
Registrant generally originates mortgage loans with terms of 15 to 30 years,
amortized on a monthly basis, with principal and interest due each month.
Typically, residential loans remain outstanding for significantly shorter
periods than their contractual terms because borrowers may refinance or prepay
loans at their option.
3
The Registrant presently offers residential loans that adjust every year
after an initial fixed term of one, two, five or seven years, at an interest
rate indexed higher than the corresponding U.S. Treasury security index. The
interest rates on these mortgages adjust annually after the one, two, five or
seven year anniversary date of the loan with an interest rate adjustment cap of
1.5% per year and presently not to exceed a rate of 11.5% over the life of the
loan. At December 31, 2002, adjustable-rate residential first mortgage loans
amounted to $24.5 million or 6.67% of the total residential loan portfolio.
These loans are generally not originated under terms, conditions and
documentation which permit their sale in the secondary mortgage market to
Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage
Association ("FNMA").
Fixed-rate mortgage loans are generally underwritten according to FHLMC and
FNMA guidelines. The Registrant periodically sells selected fixed-rate
residential loans, without recourse, to provide additional funds for lending and
to restructure the loan portfolio to improve interest rate risk. Generally, if
the property is not owner-occupied, a higher rate of interest is charged on such
loans. At December 31, 2002, $217.9 million, or 59.41% of the total residential
loan portfolio, consisted of long-term fixed-rate first mortgage loans, none of
which were classified as held for sale.
The Registrant's lending policies generally limit the maximum loan-to-value
ratio on owner- occupied residential first mortgage loans to 97% of the lesser
of the appraised value or purchase price, with the condition that private
mortgage insurance is required on loans with loan-to-value ratios in excess of
80%. Mortgage loans on investment properties are made at loan-to-value ratios up
to 70%. The loan-to- value ratio, maturity and other provisions of the loans
made by the Registrant have generally reflected the policy of making less than
the maximum loan permissible under applicable regulations, in accordance with
established lending practices, market conditions and underwriting standards
maintained by the Registrant. The Registrant requires fire and casualty
insurance on all properties securing real estate loans and also performs title
searches to ensure its lien position.
The Registrant actively solicits and originates home equity loans and home
equity lines of credit secured by the equity in the borrower's primary
residence. These loans generally have terms of 10 to 15 years, some of which are
fixed rates and some of which have rates that adjust based upon the prime rate.
At December 31, 2002, the Registrant had home equity loans in the amount of
$17.7 million, or 4.83%, of its residential loan portfolio and approved $29.5
million in home equity lines of credit, of which $12.7 million was outstanding.
Commercial Real Estate Loans. Commercial real estate loans are loans
secured by commercial real estate (e.g., shopping centers, medical buildings,
retail offices) and multi-family dwelling units (e.g., apartment projects with
more than four units), in the Registrant's market area. Commercial real estate
loans and multi-family residential loans have been made in amounts up to $3.8
million, with most of such loans ranging in size from $100,000 to $1.0 million.
Loans on commercial properties are generally originated in amounts up to 75% of
the appraised value of the property. Commercial real estate loans and
multi-family residential loans are generally made at rates which adjust above
the prime interest rate (generally 1% to 2%) or a specified treasury index or
are balloon loans with fixed interest rates which mature in three to five years
with principal amortization for a period of up to 25 years. At December 31,
2002, the Registrant's commercial real estate loan portfolio consisted of $72.1
million of commercial real estate and $4.3 million of multi-family loans.
4
Loans secured by commercial real estate are generally larger and involve a
greater degree of risk than one-to-four family residential mortgage loans. Of
primary concern, in commercial and multi-family real estate lending, is the
borrower's creditworthiness and the feasibility and cash flow potential of the
property. Loans secured by income properties are generally larger and involve
greater risks than residential mortgage loans because payments on loans secured
by income properties are often dependent on successful operation or management
of the properties. As a result, repayment of such loans may be subject to a
greater extent than residential real estate loans to adverse conditions in the
real estate market or the economy.
Construction Loans. The Registrant originates loans to finance the
construction of one-to-four family dwellings and/or commercial real estate.
Construction loans to builders are generally made only if the Registrant makes
the permanent mortgage loan or if the builder has a contract for sale and the
purchaser has received a permanent mortgage commitment. Interim construction
loans to builders generally have terms of up to nine months and interest rates
which adjust above the prime interest rate (generally 1% to 2%).
Construction financing is generally considered to involve a higher degree
of risk of loss than long- term financing on improved, occupied real estate.
Risk of loss on a construction loan is dependent largely upon the accuracy of
the initial estimate of the property's value at completion of construction and
development and the estimated cost (including interest) of construction. During
the construction phase, a number of factors could result in delays and cost
overruns. If the estimate of construction costs proves to be inaccurate, the
Registrant may be required to advance funds beyond the amount originally
committed to permit completion of the development. If the estimate of value
proves to be inaccurate, the Registrant may be confronted, at or prior to the
maturity of the loan, with a project having a value which is insufficient to
assure full repayment.
Consumer Loans. Regulations permit federally chartered thrift institutions
to make secured and unsecured consumer loans up to 35% of the institution's
assets. The Registrant makes various types of secured and unsecured consumer
loans including education loans, lines of credit, automobile loans (new and
used) and loans secured by deposit accounts. Consumer loans generally have terms
of six months to five years, some of which are at fixed rates and some of which
have rates that adjust periodically.
Consumer loans may entail greater risk than residential loans, particularly
in the case of consumer loans that are unsecured or secured by assets that
depreciate rapidly. Repossessed collateral for a defaulted consumer loan may not
be sufficient for repayment of the outstanding loan, and the remaining
deficiency may not be collectible.
Commercial Business Loans. Commercial business loans are underwritten on
the basis of the borrower's ability to service such debt from income and are
generally made to small and mid-sized companies located within the Registrant's
primary lending area. Generally, the Registrant requires additional collateral
of equipment, chattel or other assets before making a commercial business loan.
Loan Commitments. The Registrant issues loan origination commitments to
real estate developers and qualified borrowers primarily for the construction,
purchase and refinancing of residential real estate and commercial real estate.
Such commitments are made on specified terms and conditions, including in
5
most cases, the payment of a non-refundable commitment fee based on a percentage
of the amount of committed funds. Generally, the commitment requires acceptance
within 15 days of the date of issuance. At December 31, 2002, the Registrant had
$28.1 million of commitments to cover originations and $20.7 million in
undisbursed funds on outstanding lines of credit. Management believes that
virtually all of the Registrant's commitments will be funded.
Origination of Loans
Commercial loan origination comes from a variety of sources, including the
Registrant's existing customer base, referrals from real estate offices,
accountants, financial advisers, attorneys, builders and walk in business as
well as solicitations by the Registrant's business development officers.
Residential mortgage loan customers are derived in a similar manner. Consumer
loans are directly obtained through the Registrant's network of branch offices
and advertising.
All applications are processed in accordance with established policies of
the Registrant, including the review of credit references, verification of
information provided and, where real estate is involved, the review of an
appraisal completed by an independent third party appraiser from a list of
approved appraisers that the Registrant maintains.
Loan approvals may be approved by loan officers up to their individually
assigned lending limit, which are established and modified periodically to
reflect the officer's expertise and experience. Certain officers have joint
lending authorities that exceed their individual authorities. The Board of
Directors approves loans above the individual and joint authorities of the
officers. The Board reviews on an annual basis the loan approval authorities.
Non-Performing and Problem Assets
When a loan is more than 30 days delinquent, the borrower is contacted by
mail or phone and payment is requested. If the delinquency continues, subsequent
efforts will be made to contact the delinquent borrower. In certain instances,
the Registrant may modify the loan or grant a limited moratorium on loan
payments to enable the borrower to reorganize his financial affairs. If the loan
continues in a delinquent status for 90 days or more, the Registrant generally
will initiate foreclosure proceedings.
Loans are generally placed on non-accrual status when either principal or
interest is 90 days or more past due. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income. Such
interest, when ultimately collected, is credited to income in the period
received.
6
Non-Performing Assets. The following table sets forth information regarding
impaired loans, troubled debt restructured and real estate owned assets by the
Registrant at the dates indicated.
At December 31,
----------------------------------------------------
2002 2001 2000 1999 1998
-------- --------- --------- -------- --------
(Dollars in Thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
One-to-four family......................... $ 960 $ 1,348 $ 778 $1,386 $1,733
Commercial real estate..................... 1,786 1,634 1,409 1,510 1,205
Consumer and other......................... 12 -- 24 237 282
------- ------- ------- ------ ------
Total mortgage non-accrual loans........ $ 2,758 $ 2,982 $ 2,211 $3,133 $3,220
------- ------ ------- ------ ------
Troubled debt restructuring................... $ 987 $ 1,072 $ 790 $ 462 $ 477
Real estate owned, net........................ 291 214 355 449 168
Other non-performing assets................... 88 88 88 88 644
------- ------- ------- ------ ------
Total non-performing assets................... $ 4,124 $ 4,356 $ 3,444 $4,132 $4,509
------- ------- ------- ====== ======
Total non-accrual loans to net loans.......... .76% .89% .76% 1.05% 1.08%
====== ====== ====== ===== =====
Total non-accrual loans to total assets....... .24% .31% .26% .41% .47%
====== ====== ====== ===== =====
Total non-performing assets to total assets... .37% .45% .41% .53% .65%
====== ====== ====== ===== =====
Classified Assets. OTS regulations provide for a classification system for
problem assets of insured institutions which covers all problem assets. Under
this classification system, problem assets of insured institutions are
classified as "substandard," "doubtful," or "loss." An asset is considered
substandard if it is inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard assets
include those characterized by the "distinct possibility" that the insured
institution will sustain "some loss" if the deficiencies are not corrected.
Assets classified as doubtful have all of the weaknesses inherent in those
classified substandard, with the added characteristic that the weaknesses
present make "collection or liquidation in full," on the basis of currently
existing facts, conditions, and values, "highly questionable and improbable."
Assets classified as loss are those considered "uncollectible" and of such
little value that their continuance as assets without the establishment of a
specific loss reserve is not warranted. Assets may be designated "special
mention" because of potential weaknesses that do not currently warrant
classification in one of the aforementioned categories.
When an insured institution classifies problem assets as loss, it is
required either to establish a specific allowance for losses equal to 100% of
that portion of the asset so classified or to charge off such amount. An
institution's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the OTS.
Management's evaluation of the classification of assets and the adequacy of
the reserve for loan losses is reviewed by the Board on a regular basis and by
the regulatory agencies as part of their examination process.
7
The following table sets forth the Registrant's classified assets in
accordance with its classification system.
At December 31, 2002
--------------------
(In thousands)
Special mention.................. $ 520
Substandard...................... 6,404
Doubtful......................... 19
Loss............................. 3
------
Total................... $6,946
======
Provision for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the probable losses in the
Registrant's loan portfolio. Such evaluation, which includes a review of all
loans of which full collectibility of interest and principal may not be
reasonably assured, considers the Registrant's past loan loss experience, known
and inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, estimated value of any underlying collateral, and
current economic conditions.
Management will continue to review the entire loan portfolio to determine
the extent, if any, to which further additional loss provisions may be deemed
necessary. There can be no assurance that the allowance for losses will be
adequate to cover losses which may in fact be realized in the future and that
additional provisions for losses will not be required.
The following table sets forth an analysis of the Registrant's allowance
for loan losses for the periods indicated.
For the Year Ended December 31,
-----------------------------------------------
2002 2001 2000 1999 1998
------- -------- -------- -------- --------
(Dollars in Thousands)
Balance at beginning of period........... $4,231 $3,980 $3,841 $3,342 $3,138
Loans charged-off:
One-to-four family..................... (10) (42) (40) (77) (37)
Commercial real estate................. -- -- (83) -- --
Construction........................... -- -- -- (128) --
Consumer............................... (10) (3) (9) -- (1)
Commercial business.................... (58) -- -- (28) --
------ ------ ------ ------ ------
Total charge-offs.................... (78) (45) (132) (233) (38)
Recoveries............................... 15 13 31 78 2
------ ------ ------ ------ ------
Net loans charged-off.................... (63) (32) (101) (155) (36)
------ ------ ------ ------ ------
Provision for loan losses................ 149 221 240 654 240
------ ------ ----- ------ ------
Increase as a result of merger........... -- 62 -- -- --
------ ------ ------ ------ ------
Balance at end of period................. $4,317 $4,231 $3,980 $3,841 $3,342
====== ====== ====== ====== ======
Ratio of net charge-offs to average loans
outstanding during the period.......... .017% .010% .034% .051% .012%
====== ====== ====== ====== ======
8
Analysis of the Allowance for Loan Losses
The following table sets forth the breakdown of the allowance for loan
losses by loan category and the percent of loans in each category to total loans
receivable for the periods indicated. The allocation of the allowance to each
category is not necessarily indicative of future losses.
At December 31,
-------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------------- ------------------ ------------------- ------------------- ------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
Loans: (Dollars in Thousands)
One-to-four family...... $1,672 74.38% $1,339 76.11% $2,912 77.48% $2,506 77.82% $1,929 81.11%
Commercial real estate.. 2,284 20.82 2,311 17.75 887 17.90 1,063 17.26 1,232 15.14
Commercial construction. 69 .32 100 1.35 9 .36 39 1.29 26 .86
Construction............ 34 .08 222 .37 5 .05 10 .32 14 .46
Consumer and other...... 28 .96 33 1.34 31 1.32 65 1.08 65 1.07
Commercial business..... 230 3.44 226 3.08 136 2.89 158 2.23 76 1.36
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for
loan losses......... $4,317 100.00% $4,231 100.00% $3,980 100.00% $3,841 100.00% $3,342 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
9
Investment Activities
The Registrant is required under federal regulations to maintain a minimum
amount of liquid assets which may be invested in specified short-term securities
and certain other investments. The level of liquid assets varies depending upon
several factors, including: (i) the yields on investment alternatives, (ii)
management's judgment as to the attractiveness of the yields then available in
relation to other opportunities, (iii) expectation of future yield levels, and
(iv) management's projections as to the short-term demand for funds to be used
in loan origination and other activities. Investment securities, including
mortgage-backed securities, are classified at the time of purchase, based upon
management's intentions and abilities, as securities held to maturity or
securities available for sale. Debt securities acquired with the intent and
ability to hold to maturity are classified as held to maturity and are stated at
cost and adjusted for amortization of premium and accretion of discount, which
are computed using the level yield method and recognized as adjustments of
interest income. All other debt securities are classified as available for sale
to serve principally as a source of liquidity.
Current regulatory and accounting guidelines regarding investment
securities (including mortgage backed securities) require the Registrant to
categorize securities as "held to maturity," "available for sale" or "trading."
As of December 31, 2002, the Registrant had securities classified as "held to
maturity" and "available for sale" in the amount of $506.3 million and $118.6
million, respectively and had no securities classified as "trading." Securities
classified as "available for sale" are reported for financial reporting purposes
at the fair market value with net changes in the market value from period to
period included as a separate component of stockholders' equity, net of income
taxes. At December 31, 2002, the Registrant's securities available for sale had
an amortized cost of $116.6 million and market value of $118.6 million (net
unrealized gain of $2.0 million, net of deferred income taxes). The changes in
market value in the Registrant's available for sale portfolio reflect normal
market conditions and vary, either positively or negatively, based primarily on
changes in general levels of market interest rates relative to the yields of the
portfolio. Additionally, changes in the market value of securities available for
sale do not affect the Corporation's income nor does it affect the Bank's
regulatory capital requirements or its loan-to- one borrower limit.
The Registrant's investment securities "available-for-sale" and
"held-to-maturity" portfolios at December 31, 2002, did not contain securities
of any issuer with an aggregate book value in excess of 10% of the Registrant's
equity, excluding those issued by the United States government agencies.
At December 31, 2002, the Registrant's investment portfolio policy allowed
investments in instruments such as: (i) U.S. Treasury obligations, (ii) U.S.
federal agency or federally sponsored agency obligations, (iii) local municipal
obligations, (iv) mortgage-backed securities, (v) banker's acceptances, (vi)
certificates of deposit, and (vii) investment grade corporate bonds, and
commercial paper. The board of directors may authorize additional investments.
As a source of liquidity and to supplement Registrant's lending activities,
the Registrant has invested in residential mortgage-backed securities.
Mortgage-backed securities can serve as collateral for borrowings and, through
repayments, as a source of liquidity. Mortgage-backed securities represent a
participation interest in a pool of single-family or other type of mortgages.
Principal and interest payments are passed from the mortgage originators,
through intermediaries (generally quasi-governmental agencies) that pool and
repackage the participation interests in the form of securities, to investors,
like us. The
10
quasi-governmental agencies guarantee the payment of principal and interest to
investors and include the Federal Home Loan Mortgage Corporation ("FHLMC"),
Government National Mortgage Association ("GNMA"), and Federal National Mortgage
Association ("FNMA").
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed rate or adjustable
rate mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. The interest
rate risk characteristics of the underlying pool of mortgages (i.e., fixed rate
or adjustable rate) and the prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages. Expected maturities will differ from contractual
maturities due to scheduled repayments and because borrowers may have the right
to call or prepay obligations with or without prepayment penalties.
Mortgage-backed securities issued by FHLMC, GNMA, and FNMA make up a majority of
the pass- through certificates market.
The Registrant also invests in mortgage-related securities, primarily
collateralized mortgage obligations ("CMOs"), issued or sponsored by GNMA, FNMA,
FHLMC, as well as private issuers. CMOs are a type of debt security that
aggregates pools of mortgages and mortgage-backed securities and creates
different classes of CMO securities with varying maturities and amortization
schedules as well as a residual interest with each class having different risk
characteristics. The cash flows from the underlying collateral are usually
divided into "tranches" or classes whereby tranches have descending priorities
with respect to the distribution of principal and interest repayment of the
underlying mortgages and mortgage backed securities as opposed to pass-through
mortgage-backed securities where cash flows are distributed pro rata to all
security holders. Unlike mortgage-backed securities from which cash flow is
received and prepayment risk is shared pro rata by all securities holders, cash
flows from the mortgages and mortgage- backed securities underlying CMOs are
paid in accordance with a predetermined priority to investors holding various
tranches of such securities or obligations. A particular tranche or class may
carry prepayment risk which may be different from that of the underlying
collateral and other tranches. CMOs attempt to moderate reinvestment risk
associated with conventional mortgage-backed securities resulting from
unexpected prepayment activity. Management believes these securities represent
attractive alternatives relative to other investments due to the wide variety of
maturity, repayment and interest rate options available.
11
The following table sets forth the carrying value of the Registrant's
investment securities held to maturity, securities available for sale, FHLB
stock, and interest bearing deposits and overnight investments at the dates
indicated.
At December 31,
---------------------------------------------------
2002 2001 2000
---------- ----------- -----------
(In Thousands)
Investment securities held to maturity:
U.S. government and agency securities.... $ 25,915 $ 82,190 $167,923
Reverse repurchase agreements............ -- -- 60,342
Municipal bonds.......................... 14,503 7,721 3,888
CMO's.................................... 123,809 106,660 43,954
Mortgage-backed securities................ 342,123 272,494 143,752
Investment securities available for sale:
U.S. government and agency securities.... 25,358 15,052 10,206
CMO's.................................... 22,108 12,565 28,156
Mortgage-backed securities................ 71,147 24,352 2,517
-------- -------- --------
Total investment securities........... 624,963 521,034 460,738
FHLB stock................................ 12,062 8,314 6,315
Interest bearing deposits and
overnight investments.................. 46,913 31,023 14,862
-------- -------- --------
Total investments..................... $683,938 $560,371 $481,915
======== ======== ========
12
The following table sets forth the scheduled maturities, carrying values,
market values and average yields for the Registrant's investment securities at
December 31, 2002. The following table does not take into consideration the
effects of unscheduled repayments or the effects of possible prepayments.
More than Total
One Year or Less One to Five Years Five to Ten Years Ten Years Investment Securities
----------------- ----------------- ------------------ ----------------- -------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Market Average
Value Yield Value Yield Value Yield Value Yield Value Value Yield
-------- ------- ------- ------- ------- ------- ----- ----- ------- ------- -------
(Dollars in Thousands)
Investment securities held to
maturity:
U.S. government and
agency obligations......... $ -- --% $ -- --% $21,884 6.28% $4,031 6.28% $ 25,915 $ 26,547 6.28%
Municipal bonds.............. 14,173 2.40 -- -- 100 4.30 230 5.60 14,503 14,510 2.47
CMO's........................ -- -- -- -- 3,341 5.33 120,468 5.57 123,809 124,545 5.56
Mortgage-backed securities... 1,126 6.76 982 7.57 11,138 6.20 328,877 6.13 342,123 351,622 6.14
Investment securities
available for sale:
U.S. government and
agency obligations......... -- -- 20,217 4.86 5,141 6.40 -- -- 25,358 25,358 5.17
CMO's........................ -- -- -- -- 5,508 6.10 16,600 6.16 22,108 22,108 6.15
Mortgage-backed securities... -- -- -- -- -- -- 71,147 6.08 71,147 71,147 6.08
FHLB stock................... -- -- -- -- -- -- 12,062 5.45 12,062 12,062 5.45
Interest-bearing deposits and
overnight investments...... 46,913 1.39 -- -- -- -- -- -- 46,913 46,913 1.39
------- ---- ------- ---- ------- ---- -------- ---- -------- -------- ----
Total...................... $62,212 1.71% $21,199 4.99% $47,112 6.18% $553,415 5.99% $683,938 $694,812 5.90%
======= ==== ======= ==== ======= ==== ======== ==== ======== ======== ====
13
Sources of Funds
General. Deposits are the major external source of the Registrant's funds
for lending and other investment purposes. Funds are derived from amortization
and prepayment of loans and, to a lesser extent, maturities of investment
securities, borrowings, mortgage-backed securities and operations. Scheduled
loan principal repayments are a relatively stable source of funds, while deposit
inflows and outflows and loan prepayments are significantly influenced by
general interest rates and market conditions.
Deposits. Deposits are attracted from within the Registrant's market areas
of Burlington, Camden and Mercer Counties, New Jersey, through the offering of a
broad selection of deposit instruments including regular checking accounts,
non-interest checking accounts, money market accounts, regular passbook
accounts, certificates of deposit and IRA accounts. Deposit account terms vary
according to the minimum balance required, the time periods the funds must
remain on deposit and the interest rate, among other factors. The Registrant
regularly evaluates the internal cost of funds, surveys rates offered by
competing institutions, reviews the Registrant's cash flow requirements for
lending and liquidity and executes rate changes when deemed appropriate. The
Registrant does not have any brokered deposits and has no present intention to
accept or solicit such deposits.
Certificates of Deposit in Excess of $100,000. The following table
indicates the amount of the Registrant's certificates of deposit of $100,000 or
more by time remaining until maturity as of December 31, 2002.
Maturity Period of Deposits Certificates of
Deposit
---------------
(In Thousands)
Three months or less................................... $ 9,966
Three through six months............................... 7,043
Six through twelve months.............................. 5,897
Over twelve months..................................... 5,210
-------
Total............................................. $28,116
=======
14
Deposit Rate. The following table sets forth the distribution of the
Registrant's average balance of deposit accounts at the dates indicated and the
weighted average nominal interest rates on each category of deposits presented.
At December 31,
--------------------------------------------------------------------------------------------------
2002 2001 2000
--------------------------------- ----------------------------- -----------------------------
Weighted Weighted Weighted
Percent of Average Percent of Average Percent of Average
Average Total Nominal Average Total Nominal Average Total Nominal
Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate
------- -------- ------ ------- -------- ------ ------- -------- -----
(Dollars In Thousands)
Passbook and regular savings.. $141,705 18.93% 1.28% $117,485 17.48% 2.19% $102,960 16.56% 2.47%
Checking accounts............. 262,152 35.01 .62 229,598 34.15 1.18 199,378 32.10 1.80
Money market deposit accounts. 109,124 14.57 1.86 75,490 11.22 2.55 67,512 10.87 2.75
Certificates of deposit....... 233,975 31.25 3.58 248,637 36.97 5.14 242,063 38.97 5.14
Surrogate statement........... 1,772 .24 5.91 1,213 .18 6.02 9,314 1.50 5.30
-------- ------ ---- -------- ------- ---- -------- ------ ----
Total Deposits.............. $748,728 100.00% 1.86% $672,423 100.00% 2.99% $621,227 100.00% 3.36%
======== ====== ==== ======== ====== ==== ======== ====== ====
15
Personnel
As of December 31, 2002 the Registrant had 314 full-time employees and 239
part-time employees. The employees are not represented by a collective
bargaining unit. Management believes its relationship with its employees is
good.
Regulation of the Corporation
Set forth below is a brief description of certain laws which relate to the
regulation of the Corporation. The description does not purport to be complete
and is qualified in its entirety by reference to applicable laws and
regulations.
General. The Corporation is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Corporation is required
to register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Corporation and its non-savings association subsidiaries, should such
subsidiaries be formed, which also permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
association. This regulation and oversight is intended primarily for the
protection of the depositors of the Bank and not for the benefit of stockholders
of the Corporation.
As a unitary savings and loan holding company, the Company generally is not
subject to any restrictions on its business activities. While the
Gramm-Leach-Bliley Act (the "GLB Act") terminated the "unitary thrift holding
company" exemption from activity restrictions on a prospective basis, the
Company enjoys grandfathered status under this provision of the GLB Act because
it acquired the Bank prior to May 4, 1999. As a result, the Company's freedom
from activity restrictions as a unitary savings and loan holding company was not
affected by the GLB Act. However, if the Company were to acquire control of an
additional savings institution, its business activities would be subject to
restriction under the Home Owners' Loan Act. Furthermore, if the Company were in
the future to sell control of the Bank to any other company, such company would
not succeed to the Company's grandfathered status under the GLB Act and would be
subject to the Home Owner's Loan Act's activity restrictions.
The continuation of the Company's exemption from restrictions on business
activities as a unitary savings and loan holding company is also subject to the
Company's continued compliance with the QTL Test. See "- Regulation of the Bank
- - Qualified Thrift Lender ("QTL") Test."
Recent Legislation to Curtail Corporate Accounting Irregularities. On July
30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the
"Act"). The Securities and Exchange Commission (the "SEC") has promulgated
certain regulations pursuant to the Act and will continue to propose additional
implementing or clarifying regulations as necessary in furtherance of the Act.
The passage of the Act and the regulations implemented by the SEC subject
publicly-traded companies to additional and more cumbersome reporting
regulations and disclosure. Compliance with the Act and corresponding
regulations may increase the Company's expenses.
16
Regulation of the Bank
General. Set forth below is a brief description of certain laws that relate
to the regulation of the Bank. The description does not purport to be complete
and is qualified in its entirety by reference to applicable laws and
regulations. As a federally chartered, Savings Association Insurance Fund
("SAIF") insured savings association, the Bank is subject to extensive
regulation by the OTS and the FDIC. Lending activities and other investments
must comply with various federal statutory and regulatory requirements. The Bank
is also subject to certain reserve requirements promulgated by the Federal
Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law, especially in such matters as the ownership of savings accounts
and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes.
Insurance of Deposit Accounts. The deposit accounts held by the Bank are
insured by the SAIF to a maximum of $100,000 for each insured member (as defined
by law and regulation). Insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
institution's primary regulator.
The FDIC administers two separate deposit insurance funds. Generally, the
Bank Insurance Fund (the "BIF") insures the deposits of commercial banks and the
SAIF insures the deposits of savings institutions. The FDIC is authorized to
increase deposit insurance premiums if it determines such increases are
appropriate to maintain the reserves of either the SAIF or BIF or to fund the
administration of the FDIC. In addition, the FDIC is authorized to levy
emergency special assessments of BIF and SAIF members. The FDIC has set the
deposit insurance assessment rates for SAIF member institutions for the first
six months of 2003 at 0% to 0.27% of insured deposits on an annualized basis,
with the assessment rate for most savings institutions set at 0%.
In addition, all institutions insured by the FDIC are required to pay
quarterly assessments to fund interest payments on bonds issued by the Financing
Corporation, an agency of the Federal government established to recapitalize the
predecessor to the SAIF. These assessments will continue until the Financing
Corporation bonds mature in 2017.
17
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets, (2) a leverage ratio (core capital) equal to at least
3% of total adjusted assets for savings institutions that receive the highest
supervisory rating for safety and soundness and 4% for all other thrifts, and
(3) a risk-based capital requirement equal to 8.0% of total risk-weighted
assets. At December 31, 2002, the Bank was in compliance with its regulatory
capital requirements.
Dividend and Other Capital Distribution Limitations. The OTS imposes
various restrictions or requirements on the ability of savings institutions to
make capital distributions, including cash dividends.
A savings association that is a subsidiary of a savings and loan holding
company, such as the Bank must file an application or a notice with the OTS at
least 30 days before making a capital distribution. Savings associations are not
required to file an application for permission to make a capital distribution
and need only file a notice if the following conditions are met: (1) they are
eligible for expedited treatment under OTS regulations, (2) they would remain
adequately capitalized after the distribution, (3) the annual amount of capital
distribution does not exceed net income for that year to date added to retained
net income for the two preceding years, and (4) the capital distribution would
not violate any agreements between the OTS and the savings association or any
OTS regulations. Any other situation would require an application to the OTS.
The OTS may disapprove an application or notice if the proposed capital
distribution would: (i) make the savings association undercapitalized,
significantly undercapitalized, or critically undercapitalized; (ii) raise
safety or soundness concerns; or (iii) violate a statute, regulation, or
agreement with the OTS (or with the FDIC), or a condition imposed in an
OTS-approved application or notice. Further, a federal savings association, like
the Bank, cannot distribute regulatory capital that is needed for its
liquidation account.
Qualified Thrift Lender Test. Federal savings institutions must meet one of
two Qualified Thrift Lender ("QTL") tests. To qualify as a QTL, a savings
institution must either (i) be deemed a "domestic building and loan association"
under the Internal Revenue Code by maintaining at least 60% of its total assets
in specified types of assets, including cash, certain government securities,
loans secured by and other assets related to residential real property,
educational loans and investments in premises of the institution or (ii) satisfy
the statutory QTL test set forth in the Home Owner's Loan Act by maintaining at
least 65% of its "portfolio assets" in certain"Qualified Thrift Investments"
(defined to include residential mortgages and related equity investments,
certain mortgage-related securities, small business loans, student loans and
credit card loans, and 50% of certain community development loans). For purposes
of the Home Owners' Loan Act, portfolio assets are defined as total assets minus
intangible assets, property used by the institution in conducting its business,
and liquid assets equal to 20% of total assets. A savings institution must
maintain its status as a QTL on a monthly basis in at least nine out of every 12
months. A failure to qualify as a QTL results in a number of sanctions,
including the imposition of certain operating restrictions and a restriction on
obtaining additional advances from its FHLB. At December 31, 2002, the Bank was
in compliance with its QTL requirement, with 101.16% of its assets invested in
Qualified Thrift Investments.
Federal Home Loan Bank System. The Bank is a member of the FHLB of New
York, which is one of 12 regional FHLBs that administers the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes
18
loans to members (i.e., advances) in accordance with policies and procedures
established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year.
Federal Reserve Board System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW, and Super
NOW checking accounts) and non-personal time deposits. The balances maintained
to meet the reserve requirements imposed by the Federal Reserve Board may be
used to satisfy the liquidity requirements that are imposed by the OTS. At
December 31, 2002, the Bank was in compliance with these Federal Reserve Board
requirements.
Item 2. Properties
- -------------------
The Registrant conducts its business through its two administrative offices
located in Burlington, New Jersey and its 39 branch locations in Burlington,
Camden and Mercer Counties, New Jersey. All of the Registrant's office and
branch facilities are owned by the Registrant, except for seven branch office
locations, two located in Lumberton and the others located in Medford, Mt.
Holly, Burlington, Cinnaminson and Marlton, New Jersey. Management of the
Registrant considers the physical condition of each of the Registrant's
administrative and branch offices to be good and adequate for the conduct of the
Registrant's business.
Item 3. Legal Proceedings
- --------------------------
The Registrant is periodically involved as a plaintiff or defendant in
various legal actions, such as actions to enforce liens, condemnation
proceedings on properties in which the Registrant holds mortgage interests,
matters involving the making and servicing of mortgage loans and other matters
incident to the Registrant's business. In the opinion of management, none of
these actions individually or in the aggregate is believed to be material to the
financial condition or results of operations of the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2002.
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
- --------------------------------------------------------------------------------
The information contained under the section captioned "Stock Market
Information" in the Corporation's 2002 Annual Report to Stockholders (the
"Annual Report") is incorporated herein by reference.
Item 6. Selected Financial Data
- --------------------------------
The information contained in the table captioned "Financial Highlights" in
the Annual Report is incorporated herein by reference.
19
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Annual
Report is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
The information contained in the sections captioned "Market Risk and
Liquidity Risk"and "Interest Rate Risk" in the Annual Report is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The Registrant's financial statements listed in Item 14 herein are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information contained under the sections captioned "Section 16(a)
Beneficial Ownership Reporting Compliance" and "I - Information with Respect to
Nominee for Director, Directors Continuing in Office, and Executive Officers -
Election of Directors" and "- Biographical Information" in the 2003 Proxy
Statement are incorporated herein by reference.
Executive Officers of the Corporation Who Are Not Directors
Name and Title Age as of December 31, 2002
- -------------- ---------------------------
Channing L. Smith 59
Vice President and Chief Financial Officer
James E. Igo 46
Senior Vice President and Chief Lending Officer
Thomas M. Topley 42
Senior Vice President and Corporate Secretary
Channing L. Smith has served as Vice President and Chief Financial Officer
of the Corporation and the Bank since October 1994. In this capacity, he is
responsible for the management of the accounting, treasury, and investments of
the Corporation and the Bank. From April 1994 to October 1994, Mr. Smith served
as controller of the Corporation and the Bank.
20
James E. Igo has served as Senior Vice President and Senior Mortgage
Lending Officer of the Corporation and the Bank since November 1991.
Thomas M. Topley has served as Senior Vice President of Operations since
April 1993 and as Corporate Secretary of the Corporation and the Bank since
April 1992. From June 1990 to April 1993, Mr. Topley served as Vice President
and Controller for the Bank.
Item 11. Executive Compensation
- --------------------------------
The information contained under the section captioned "Proposal I --
Election of Directors - Executive Compensation" in the Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the Section captioned "Voting Securities and
Principal Holders Thereof" of the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the section captioned "Proposal I -- Election of
Directors" of the Proxy Statement.
(c) Management of the Corporation knows of no arrangements, including
any pledge by any person of securities of the Corporation, the
operation of which may at a subsequent date result in a change in
control of the registrant.
(d) Securities Authorized for Issuance Under Equity Compensation
Plans
21
Set forth below is information as of December 31, 2002 with respect to
compensation plans under which equity securities of the Registrant are
authorized for issuance.
EQUITY COMPENSATION PLAN INFORMATION
(a) (b) (c)
Number of securities
remaining available
Number of securities Weighted-average for future issuance
to be issued upon exercise price of under equity
exercise of outstanding compensation plans
outstanding options, options,w arrants (excluding securities
warrants and rights and rights reflected in column (a))
------------------- ------------------ ------------------------
Equity compensation plans
approved by shareholders
Stock Option and
Incentive Plan........................ 115,000 $ 8.54 --
Equity compensation plans
not approved by shareholders n/a n/a n/a
------- ------ ------
TOTAL............................. 115,000 $ 8.54 --
======= ====== ======
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by reference
to the section captioned "Proposal I -- Election of Directors" and "Voting
Securities and Principal Holders Thereof" of the Proxy Statement.
Item 14. Controls and Procedures
- ---------------------------------
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this Annual Report
on Form 10-K, the Registrant's principal executive officer and principal
financial officer have concluded that the Registrant's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
(b) Changes in internal controls. There were no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
22
Item 15. Exhibits, Financial Statements, and Reports on Form 8-K
- -----------------------------------------------------------------
(a) Listed below are all financial statements and exhibits filed as part
of this report, and are incorporated by reference.
1. The consolidated statements of financial condition of FMS
Financial Corporation and subsidiary as of December 31, 2002 and
2001, and the related consolidated statements of income, changes
in stockholders' equity and cash flows for each of the years in
the three year period ended December 31, 2002, together with the
related notes and the independent auditors' report of
PricewaterhouseCoopers LLP, independent accountants.
2. Schedules omitted as they are not applicable.
3. Exhibits
The following Exhibits are filed as part of this report:
3.1 Certificate of Incorporation*
3.2 Bylaws*
4 Agreement to furnish copy to Securities and
Exchange Commission upon request of
Indenture dated July 28, 1994, relating to
10% Subordinated Debentures due 2004 in
aggregate principal amount of $10 million**
10.1 Stock Option and Incentive Plan***
13 Portions of the 2002 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
99.0 Certification pursuant to 18 USC Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
---------------
* Incorporated by reference to the Registrant's Form S-1 Registration Statement No.
33-24340.
** Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994.
*** Incorporated by reference to the Registrant's Form S-8 Registration Statement No.
33-24340.
(b) No Reports on Form 8-K were filed during the last quarter of the
fiscal year covered by this Report.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 as of March 24, 2003.
FMS FINANCIAL CORPORATION
By:/s/ Craig W. Yates
----------------------------------
Craig W. Yates, President and
Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below on March 24, 2003 by the following persons on
behalf of the registrant and in the capacities indicated.
/s/ Craig W. Yates
- -------------------------------------------
Craig W. Yates
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Channing L. Smith /s/ Edward J. Staats, Jr.
- ------------------------------------------- -------------------------------------------------------
Channing L. Smith Edward J. Staats, Jr.,
Vice President and Chief Financial Officer Chairman of the Board
(Principal Financial and Accounting Officer)
/s/ Wayne H. Page /s/ James C. Lignana
- ------------------------------------------- -------------------------------------------------------
Wayne H. Page James C. Lignana
Director Director
/s/ Dominic W. Flamini /s/ Vincent R. Farias
- ------------------------------------------- -------------------------------------------------------
Dominic W. Flamini Vincent R. Farias
Director Director
/s/ Roy D. Yates /s/ Mary Wells
- ------------------------------------------- -------------------------------------------------------
Roy D. Yates Mary Wells
Director Director
/s/ Joseph W. Clarke, Jr.
- -------------------------------------------
Joseph W. Clarke, Jr.
Director
24
SECTION 302 CERTIFICATION
I, Craig W. Yates, President and Chief Executive Officer of FMS Financial
Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of FMS Financial
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 24, 2003 /s/Craig W. Yates
-----------------------------------
Craig W. Yates
President and Chief Executive Officer
SECTION 302 CERTIFICATION
I, Channing L. Smith, Vice President and Chief Financial Officer of FMS
Financial Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of FMS Financial
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 24, 2003 /s/Channing L. Smith
--------------------------------
Channing L. Smith
Vice President and Chief Financial Officer