UNITED STATES
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, 2004
- OR -
[ ] TRANSITION 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
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(Exact name of registrant as specified in its charter)
New Jersey 22-2916440
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(State or other jurisdiction of incorporation) (I.R.S. Employer or organization)
Identification No.)
3 Sunset Road, Burlington, New Jersey 08016
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 386-2400
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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(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 .
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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.[ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). YES NO X .
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Based on the closing sales price of $17.02 per share of the
registrant's common stock on June 30, 2004, as reported on the Nasdaq National
Market System, the aggregate market value of voting stock held by non-affiliates
of the registrant was approximately $56.9 million. As of March 10, 2005, there
were 6,502,300 shares outstanding of the registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of 2004 Annual Report to Stockholders (Parts II and IV)
2. Portions of the Proxy Statement for the 2005 Annual Meeting of
Stockholders. (Part III)
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
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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 forty-one 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
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.
2
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,
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2004 2003 2002 2001 2000
-------------------- ------------------- -------------------- ------------------ ------------------
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........ $275,843 65.08% $280,664 68.84% $272,777 74.38% $259,970 76.11% $228,428 77.47%
Commercial real estate.... 116,380 27.46 104,352 25.60 76,354 20.82 60,627 17.75 52,763 17.90
Commercial construction... 11,971 2.82 5,994 1.47 1,157 .32 4,606 1.35 1,062 .36
Construction.............. 897 .21 1,324 .32 306 .08 1,254 .37 163 .06
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage loans.. 405,091 95.57 392,334 96.23 350,594 95.60 326,457 95.58 282,416 95.79
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Consumer and other loans:
Consumer.................. 2,472 .58 3,187 .78 3,522 .96 4,583 1.34 3,900 1.32
Commercial business....... 16,312 3.85 12,180 2.99 12,621 3.44 10,521 3.08 8,522 2.89
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer and other
loans.............. 18,784 4.43 15,367 3.77 16,143 4.40 15,104 4.42 12,422 4.21
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans........... $423,875 100.00% $407,701 100.00% $366,737 100.00% $341,561 100.00% $294,838 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
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.
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, 2004, adjustable-rate residential first mortgage
loans amounted to $21.8 million or 5.15% of the total residential loan
portfolio. These loans
3
are generally not originated under terms, conditions and documentation which
permit their sale in the secondary mortgage market to FreddieMac and FannieMae.
Fixed-rate mortgage loans are generally underwritten according to
FreddieMac and FannieMae 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, 2004, $222.0 million, or 52.39% 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, 2004, the Registrant had home equity loans in the amount of
$13.8 million, or 5.00%, of its residential loan portfolio and approved $43.7
million in home equity lines of credit, of which $18.2 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 $4.0
million, with most of such loans ranging in size from $100,000 to $2.0 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,
2004, the Registrant's commercial real estate loan portfolio consisted of $111.0
million of commercial real estate and $5.3 million of multi-family loans.
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.
4
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 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, 2004, the Registrant had
$14.5 million of commitments to cover originations and $32.1 million in
undisbursed funds on outstanding lines of credit. Management believes that
virtually all of the Registrant's commitments will be funded.
5
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 are 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 their 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 non-accrual loans, troubled debt restructured and real estate owned
assets by the Registrant at the dates indicated.
At December 31,
-----------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- ------- -------- -------
(Dollars in Thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
One-to-four family......................... $ 819 $ 507 $ 960 $ 1,348 $ 778
Commercial real estate..................... 985 1,189 1,786 1,634 1,409
Consumer and other......................... -- -- 12 -- 24
-------- -------- ------- -------- -------
Total mortgage non-accrual loans........ $ 1,804 $ 1,696 $ 2,758 $ 2,982 $ 2,211
-------- -------- ------- -------- -------
Troubled debt restructuring................... $ 718 $ 1,027 $ 987 $ 1,072 $ 790
Real estate owned, net........................ -- 48 291 214 355
Other non-performing assets................... -- -- 88 88 88
-------- -------- ------- -------- -------
Total non-performing assets................... $ 2,522 $ 2,771 $ 4,124 $ 4,356 $ 3,444
======== ======== ======= ======== =======
Total non-accrual loans to net loans.......... .43% .42% .76% .89% .76%
======== ======== ======= ======== =======
Total non-accrual loans to total assets....... .14% .14% .24% .31% .26%
======== ======== ======= ======== =======
Total non-performing assets to total assets... .20% .23% .37% .45% .41%
======== ======== ======= ======== =======
Classified Assets. The Office of Thrift Supervision ("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, 2004
(In thousands)
Special mention.................. $ 633
Substandard...................... 4,464
Doubtful......................... 8
Loss............................. --
-------
Total................... $ 5,105
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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,
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2004 2003 2002 2001 2000
------ ------ ------ ------ ------
(Dollars in Thousands)
Balance at beginning of period............. $4,408 $4,317 $4,231 $3,980 $3,841
Loans charged-off:
One-to-four family....................... (3) -- (10) (42) (40)
Commercial real estate.................... -- -- -- -- (83)
Construction.............................. -- -- -- -- --
Consumer.................................. (6) (4) (10) (3) (9)
Commercial business....................... (14) (184) (58) -- --
------ ------ ------ ------ ------
Total charge-offs....................... (23) (188) (78) (45) (132)
Recoveries.................................. 4 9 15 13 31
------ ------ ------ ------ ------
Net loans charged-off....................... (19) (179) (63) (32) (101)
------ ------ ------ ------ ------
Provision for loan losses................... 330 270 149 221 240
------ ------ ------ ------ ------
Increase as a result of merger.............. - -- -- 62 --
------ ------ ------ ------ ------
Balance at end of period.................... $4,719 $4,408 $4,317 $4,231 $3,980
====== ====== ====== ====== ======
Ratio of net charge-offs to average loans
outstanding during the period............ .005% .046% .017% .010% .034%
====== ====== ====== ====== ======
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,
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2004 2003 2002 2001 2000
-------------------- -------------------- -------------------- ---------------- ---------------------
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
------ ----------- ------ ----------- ------ ----------- ------------------ ------ -----------
(Dollars in Thousands)
Loans:
One- to-four family....... $ 986 65.08% $1,446 68.84% $1,672 74.38% $1,339 76.11% $2,912 77.48%
Commercial real estate.... 2,883 27.46 2,540 25.60 2,284 20.82 2,311 17.75 887 17.90
Commercial construction... 582 2.82 194 1.47 69 .32 100 1.35 9 .36
Construction.............. 2 .21 25 .32 34 .08 222 .37 5 .05
Consumer and other........ 22 .58 24 .78 28 .96 33 1.34 31 1.32
Commercial business....... 244 3.85 179 2.99 230 3.44 226 3.08 136 2.89
------ ------- ------ ------- ------ ------- ------ ------- ------- -------
Total allowance for
loan losses.. $4,719 100.00% $4,408 100.00% $4,317 100.00% $4,231 100.00% $3,980 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
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, 2004, the Registrant had securities classified as "held to
maturity" and "available for sale" in the amount of $524.1 million and $142.0
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 their net unrealized gain or loss included as a
separate component of stockholders' equity, net of income taxes. At December 31,
2004, the Registrant's securities available for sale had an amortized cost of
$141.5 million and market value of $142.0 million (net unrealized gain of $271
thousand, net of 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, 2004, 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, 2004, 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 quasi-governmental agencies guarantee the payment of
principal and interest to investors and include Federal National Mortgage
Association ("FNMA"), Government National Mortgage Association ("GNMA"), and
Federal Home Loan Mortgage Corporation ("FHLMC").
10
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 GNMA, FNMA and FHLMC 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
and 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,
-----------------------------
2004 2003 2002
-------- -------- --------
(In Thousands)
Investment securities held to maturity:
U.S. government and agency securities ....... $164,381 $ 72,256 $ 25,915
CMO's ....................................... 87,413 110,973 123,809
Municipal bonds ............................. 3,039 2,400 14,503
CMO's ....................................... 87,413 110,973 123,809
Mortgage-backed securities .................. 269,222 359,670 342,123
Investment securities available for sale:
U.S. government and agency securities ....... 30,317 13,189 25,358
CMO's ....................................... 37,602 33,597 22,108
Mortgage-backed securities .................. 74,081 102,445 71,147
-------- -------- --------
Total investment securities ............. 666,055 694,530 624,963
FHLB stock .................................. 10,250 11,810 12,062
Interest bearing deposits and
overnight investments ..................... 64,167 31,312 46,913
-------- -------- --------
Total investments ............................. $740,472 $737,652 $683,938
======== ======== ========
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, 2004. The following table does not take into
consideration the effects of unscheduled repayments or the effects of possible
prepayments.
More than
One Year or Less One to Five Years Five to Ten Years Ten Years Total 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..... $29,980 5.04% $134,401 5.86% $164,381 $164,033 5.71%
Municipal bonds........ 2,939 1.84 100 4.30 3,039 3,043 1.92
CMO's.................. 10,600 3.90 76,813 4.39 87,413 86,774 4.33
Mortgage-backed
securities........... 248 4.15 6,600 5.11 32,483 4.55 229,890 5.27 269,222 272,526 5.18
Investment securities
available for sale:
U.S. government and
agency obligations... 16,868 5.10 13,449 5.28 30,317 30,317 5.18
CMO's.................. 7,235 4.32 30,367 5.08 37,602 37,602 4.93
Mortgage-backed
securities........... 4,397 4.73 2,739 5.00 66,945 5.32 74,081 74,081 5.28
FHLB stock............. 10,250 2.22 10,250 10,250 2.22
Interest-bearing
deposits and
overnight
investments.......... 64,167 2.08 64,167 64,167 2.08
------- ---- ------- ---- ------- ---- -------- ---- -------- -------- ----
Total................ $71,751 2.24% $17,300 4.36% $89,305 4.81% $562,115 5.23% $740,472 $742,793 4.87%
======= ==== ======= ==== ======= ==== ======== ==== ======== ======== ====
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, 2004.
Certificates of
Maturity Period of Deposits Deposit
- --------------------------- -------
(In Thousands)
Three months or less.................................... $13,403
Three through six months................................ 6,628
Six through twelve months............................... 4,795
Over twelve months...................................... 7,162
-------
Total.............................................. $31,988
=======
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,
-------------------------------------------------------------------------------------------
2004 2003 2002
------------------------------- -------------------------- ------------------------------
Weighted Weighted Weighted
Percent Average Percent Average Percent Average
Average of Total Nominal Average of Total Nominal Average of Total Nominal
Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars In Thousands)
Passbook and regular savings.... $182,873 19.95% .43% $167,936 19.78% .57% $141,705 18.93% 1.28%
Checking accounts............... 366,338 39.97 .47 313,492 36.92 .29 262,152 35.01 .62
Money market deposit accounts... 139,038 15.17 .72 130,822 15.40 .78 109,124 14.57 1.86
Certificates of deposit......... 216,906 23.67 1.83 225,240 26.52 2.40 233,975 31.25 3.58
Surrogate statement............. 11,373 1.24 2.55 11,737 1.38 2.55 1,772 .24 5.91
-------- ------ --- -------- ------ ---- -------- ------ ----
Total Deposits................ $916,528 100.00% .84% $849,227 100.00% 1.01% $748,728 100.00% 1.86%
======== ====== === ======== ====== ==== ======== ====== ====
15
Personnel
As of December 31, 2004, the Registrant had 339 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 Corporation
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 Corporation enjoys grandfathered status under this provision of the GLB Act
because it acquired the Bank prior to May 4, 1999. As a result, the
Corporation's freedom from activity restrictions as a unitary savings and loan
holding company was not affected by the GLB Act. However, if the Corporation
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 Corporation were in the future to sell control of the Bank
to any other company, such company would not succeed to the Corporation'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 Corporation's exemption from restrictions on
business activities as a unitary savings and loan holding company is also
subject to the Corporation's continued compliance with the QTL Test. See "-
Regulation of the Bank - Qualified Thrift Lender ("QTL") Test."
Sarbanes-Oxley Act of 2002. 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 new regulations pursuant to the
Act and may 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 Corporation's
expenses.
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 Federal Deposit
16
Insurance Corporation ("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.
Regardless of an institution's capital level, 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
management of the Bank is unaware of any practice, condition or violation that
might lead to termination of its deposit insurance.
The FDIC charges an annual assessment for the insurance of deposits
based on the risk a particular institution poses to its deposit insurance fund.
This risk classification is based on an institution's capital group and
supervisory subgroup assignment.
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, 2004, 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
17
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, 2004, the Bank was
in compliance with its QTL requirement, with 88.94% 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 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, 2004, the Bank was in compliance with these Federal Reserve Board
requirements.
18
Item 2. Properties
- ------- ----------
The Registrant conducts its business through its two administrative
offices located in Burlington, New Jersey and its 41 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 ten branch
office locations, two located in Lumberton and the others located in Medford,
Mt. Holly, Burlington, Cherry Hill Hamilton, Cinnaminson, Delanco 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, 2004.
Part II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters
- ------- ------------------------------------------------------------------------
and Issuer Purchases of Equity Securities
-----------------------------------------
The information contained under the section captioned "Stock Market
Information" in the Corporation's 2004 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.
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.
19
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
The Registrant's financial statements listed in Item 15 herein are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- ------------------------------------------------------------------------
Financial Disclosure
--------------------
None.
Item 9A. Controls and Procedures
- -------- -----------------------
The Company's management evaluated, with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, the effectiveness
of the Company's disclosure controls and procedures, as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms.
There were no changes in the Company's internal control over financial
reporting that occurred during the Company's last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
Item 9B. Other Information
- -------- -----------------
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 "Proposal I - Election of
Directors" in the 2005 Proxy Statement ("Proxy Statement") are incorporated
herein by reference.
Executive Officers of the Corporation Who Are Not Directors
Name and Title Age as of December 31, 2004
- -------------- ---------------------------
Channing L. Smith 61
Vice President and Chief Financial Officer
James E. Igo 48
Senior Vice President and Chief Lending Officer
Thomas M. Topley 44
Senior Vice President and Corporate Secretary
20
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 1993 to October 1994, Mr. Smith
served as controller of the Corporation and the Bank.
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.
The Company has adopted a Code of Ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller or persons performing similar functions. A copy of the Corporation's
Code of Ethics will be furnished, without charge, to any person who requests
such copy by writing to the Secretary, FMS Financial Corporation, 3 Sunset Road,
Burlington, New Jersey 08016.
Item 11. Executive Compensation
- -------- ----------------------
The information contained under the section captioned "Proposal I -
Election of Directors - Directors and Executive Officer Compensation" in the
Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
- ------- ----------------------------------------------------------------------
Related Stockholder Matters.
----------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the Section captioned "Principal Holders" and
"Proposal I - Election of Directors" of the Proxy Statement.
21
(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) Changes in Control
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
Set forth below is information as of December 31, 2004 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, warrants (excluding securities
warrants and rights and rights reflected in column (a))
-------------------- ----------- ------------------------
Equity compensation plans
approved by shareholders
Stock Option and
Incentive Plan........................ 65,600 $8.31 --
Equity compensation plans
not approved by shareholders N/A N/A N/A
------ ----- ----
TOTAL............................. 65,600 $8.31 --
====== ==== ====
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 -
Directors and Executive Officer Compensation - Certain Relationships and Related
Transactions" of the Proxy Statement.
Item 14. Principal Accountant Fees and Services
- -------- --------------------------------------
The information called for by this item is incorporated herein by
reference to the section entitled "Proposal II - Ratification of Appointment of
Auditors" in the Proxy Statement.
22
Part IV
Item 15. Exhibits and Financial Statement Schedules
- -------- ------------------------------------------
(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, 2004 and 2003, 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,
2004, together with the related notes and the
Independent Registered Public Accounting Firms'
auditors' report of PricewaterhouseCoopers LLP.
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 2004 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Independent Registered Public Accounting
Firm
31 Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32 Certification 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.
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, 2005.
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, 2005 by the following persons on
behalf of the registrant and in the capacities indicated.
/s/ Craig W. Yates /s/ George J. Barber
- ----------------------------------------------- -------------------------------
Craig W. Yates George J. Barber
President, Chief Executive Officer and Director 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 Director
(Principal Financial and Accounting Officer)
/s/ Wayne H. Page /s/ Dominic W. Flamini
- ----------------------------------------------- -------------------------------
Wayne H. Page Dominic W. Flamini
Director Director
/s/ Vincent R. Farias /s/ Roy D. Yates
- ----------------------------------------------- -------------------------------
Vincent R. Farias Roy D. Yates
Director Chairman of the Board
/s/ Mary Wells /s/ Joseph W. Clarke, Jr.
- ----------------------------------------------- -------------------------------
Mary Wells Joseph W. Clarke, Jr.
Director Director
24