FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended ......... March 31, 1999
[ ] 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 .........................0-22850
JeffBanks, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2189480
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1845 Walnut Street, Philadelphia, PA
(Address of principal executive offices)
19103
(Zip Code)
215-861-7000
(Registrant's telephone number, including area code)
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
Number of Shares of Common Stock Outstanding at March 31, 1999: 10,511,935
<PAGE>
<TABLE>
<CAPTION>
JeffBanks, Inc.
Consolidated Balance Sheet
UNAUDITED
March 31, December 31,
1999 1998
(in thousands)
<S> <C> <C>
Assets:
Cash and cash equivalents:
Cash and due from banks ....................................... $ 59,662 $ 54,599
Federal funds sold ............................................ 23,000 --
---------- ----------
82,662 54,599
Investment securities available for sale .......................... 285,892 301,366
Investment securities held to maturity ............................ 676 677
Mortgages held for sale ........................................... 16,226 14,600
Loans, net ........................................................ 1,236,605 1,202,932
Premises and equipment, net ....................................... 24,031 24,085
Accrued interest receivable ....................................... 10,844 15,929
Other real estate owned ........................................... 2,741 3,114
Goodwill .......................................................... 3,964 4,059
Other assets ...................................................... 20,826 15,745
---------- ----------
Total assets .................................................. $1,684,467 $1,637,106
========== ==========
Liabilities and shareholders' equity:
Deposits:
Demand (non-interest bearing) ................................. $ 205,528 $ 207,881
Savings and money market ...................................... 440,628 465,984
Time deposits ................................................. 471,679 477,057
Time deposits, $100,000 and over .............................. 126,777 125,358
---------- ----------
1,244,612 1,276,280
Securities sold under repurchase agreements ....................... 61,473 39,635
FHLB advances - short term ........................................ 113,000 55,000
FHLB advances - long term ......................................... 54,175 54,182
Subordinated notes and debentures ................................. 31,920 32,000
Company-obligated mandatorily redeemable preferred securities of
the Company's subsidiary trust, holding solely $25.3 million
aggregate principal amount of 9.25% junior subordinated
deferrable interest debentures due 2027 of the Company .......... 25,300 25,300
Accrued interest payable .......................................... 15,973 15,444
Other liabilities ................................................. 5,025 7,587
---------- ----------
Total liabilities ............................................. 1,551,478 1,505,428
---------- ----------
Shareholders' equity:
Common Stock - authorized, 20,000,000 shares of $1 par value;
issued and outstanding 10,511,935 and 10,486,620 shares,
respectively ................................................ 10,512 10,487
Additional paid-in capital .................................... 97,563 97,308
Retained earnings ............................................. 24,359 21,933
Accumulated other comprehensive income ........................ 555 1,950
---------- ----------
Total shareholders' equity .................................... 132,989 131,678
---------- ----------
Total liabilities and shareholders' equity .................... $1,684,467 $1,637,106
========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
JeffBanks, Inc.
Consolidated Statements of Income
UNAUDITED
Three Months Ended March 31,
1999 1998
(in thousands, except per share data)
<S> <C> <C>
Interest income:
Loans including fees ...................... $ 25,655 $ 23,110
Investment securities ..................... 4,425 5,758
Federal funds sold ........................ 238 667
-------- --------
30,318 29,535
-------- --------
Interest expense:
Time deposits, $100,000 and over .......... 1,524 1,475
Other deposits ............................ 9,952 9,072
FHLB advances ............................. 1,899 2,388
Subordinated notes and debentures ......... 717 770
Trust preferred securities ................ 585 585
Securities sold under repurchase agreements 565 712
-------- --------
15,242 15,002
-------- --------
Net interest income ................... 15,076 14,533
Provision for credit losses .................... 1,455 966
-------- --------
Net interest income after provision
for credit losses .................... 13,621 13,567
-------- --------
Non-interest income:
Service fees on deposit accounts .......... 936 878
Gain on sales of residential mortgages and
capitalized mortgage servicing rights ... 701 736
Gain on sales of investment securities .... 712 243
Mortgage servicing fees ................... 313 296
Merchant credit card deposit fees ......... 695 487
Credit card fee income .................... 155 157
Other ..................................... 582 547
-------- --------
4,094 3,344
-------- --------
Non-interest expense:
Salaries and employee benefits ............ 6,173 5,853
Occupancy expense ......................... 1,133 1,127
Depreciation .............................. 665 577
FDIC expense .............................. 35 33
Data processing expense ................... 386 285
Legal ..................................... 303 327
Stationery, printing and supplies ......... 296 307
Shares tax ................................ 295 228
Advertising ............................... 242 366
Other real estate owned maintenance expense 93 11
Loss on sale and write-downs of other
real estate owned ........................ (1) 31
Amortization of intangibles ............... 310 273
Credit card origination expense ........... 140 201
Credit card processing expense ............ 232 197
Merchant card expense ..................... 604 390
Other ..................................... 1,918 1,758
-------- --------
12,824 11,964
-------- --------
Income before income taxes ..................... 4,891 4,947
Income taxes ................................... 997 1,698
-------- --------
Net income ............................ $ 3,894 $ 3,249
======== ========
Per share data:
Average number of common shares (basic) ........ 10,482 10,195
Average number of common shares (diluted) ...... 10,953 11,040
Net income per common share (basic) ............ $ 0.37 $ 0.32
Net income per common share (diluted) .......... $ 0.36 $ 0.29
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
JeffBanks, Inc.
Consolidated Statement of Changes in Shareholders' Equity
UNAUDITED
Accumulated
other
Common Additional Retained comprehensive Comprehensive
Stock paid-in-capital earnings income income Total
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 .......... $ 10,487 $ 97,308 $ 21,933 $ 1,950 -- $ 131,678
Net income ............................ -- -- 3,894 -- $ 3,894 3,894
Issuance of common stock for
dividend reinvestment plan ........... 7 148 -- -- -- 155
Warrants exercised .................... 18 107 -- -- -- 125
Cash dividends on common stock ........ -- -- (1,468) -- -- (1,468)
Other comprehensive income, net of
reclassification adjustments and taxes -- -- -- (1,395) (1,395) (1,395)
--------- --------- --------- --------- --------- ---------
Comprehensive income .................. -- -- -- -- $ 2,499 --
=========
Balance at March 31, 1999 ............. $ 10,512 $ 97,563 $ 24,359 $ 555 $ 132,989
========= ========= ========= ========= =========
<FN>
Disclosure of reclassification amount, net of taxes:
Unrealized holding losses arising during period .................. $ (932)
Less: reclassification adjustment for gains included in net income 463
-------
Net unrealized losses on securities .............................. $(1,395)
=======
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
JeffBanks, Inc.
Consolidated Statement of Changes in Shareholders' Equity
UNAUDITED
Accumulated
other
Common Additional Retained comprehensive Comprehensive
Stock paid-in-capital earnings income income Total
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 .......... $ 6,094 $ 95,150 $ 19,308 $ 1,254 $ 121,806
Net income ............................ -- -- 3,249 -- $ 3,249 3,249
Issuance of common stock for
dividend reinvestment plan ........... 2 77 -- -- 79
Warrants exercised .................... 54 608 662
Cash dividends on common stock ........ -- -- (951) -- (951)
Other comprehensive income, net of
reclassification adjustments and taxes -- -- -- (419) (419) (419)
--------- --------- --------- --------- --------- ---------
Comprehensive income .................. -- -- -- -- $ 2,830 --
=========
Balance at March 31, 1998 ............. $ 6,150 $ 95,835 $ 21,606 $ 835 $ 124,426
========= ========= ========= ========= =========
<FN>
Disclosure of reclassification amount, net of taxes:
Unrealized holding losses arising during period .................. $(261)
Less: reclassification adjustment for gains included in net income 158
-----
Net unrealized losses on securities .............................. $(419)
=====
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JeffBanks, Inc.
Consolidated Statements of Cash Flows
UNAUDITED
Three Months Ended March 31,
1999 1998
(in thousands)
<S> <C> <C>
Operating activities:
Net income ......................................................... $ 3,894 $ 3,249
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization ...................................... 1,495 1,092
Provision for credit losses ........................................ 1,455 966
Gain on sales of investment securities ............................. (712) (243)
Gain on sales of assets ............................................ -- (22)
Mortgage loans originated for sale ................................. (62,090) (46,893)
Mortgage loan sales ................................................ 60,464 33,902
Decrease (increase) in interest receivable ......................... 5,085 (61)
Increase (decrease) in interest payable ............................ 529 (3,214)
(Increase) decrease in other assets ................................ (4,545) 1,385
(Decrease) increase in other liabilities ........................... (2,562) 1,836
--------- ---------
Net cash provided by (used in) operating activities ............. 3,013 (8,003)
--------- ---------
Investing activities:
Proceeds from sales of investment securities available for sale .... 19,271 117,505
Proceeds from maturities of investment securities available for sale 28,614 14,756
Purchase of investment securities available for sale ............... (34,364) (140,863)
Proceeds from sales of other real estate owned ..................... 830 90
Net increase in loans .............................................. (35,585) (11,119)
Purchase of premises and equipment ................................. (611) (2,012)
--------- ---------
Net cash used in investing activities ........................... (21,845) (21,643)
--------- ---------
Financing activities:
Net decrease in deposits ........................................... (31,668) (22,208)
Net increase (decrease) in repurchase agreements ................... 21,838 (4,611)
Net proceeds from issuance of common stock ......................... 280 741
Net increase in FHLB advances ...................................... 57,993 15,301
Net decrease in subordinated notes and debentures .................. (80) --
Dividends paid on common stock ..................................... (1,468) (951)
--------- ---------
Net cash provided by (used in) financing activities ............. 46,895 (11,728)
--------- ---------
Net increase (decrease) in cash and cash equivalents .................... 28,063 (41,374)
Cash and cash equivalents at beginning of year .......................... 54,599 147,945
--------- ---------
Cash and cash equivalents at end of period .............................. $ 82,662 $ 106,571
========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
Note 1 - Allowance for Credit Losses:
Three months ended March 31,
1999 1998
(in thousands)
Balance, beginning of period .. $ 12,407 $ 14,136
Provision charged to operations 1,455 966
Loans charged off ............. (2,295) (1,620)
Recoveries .................... 363 160
-------- --------
Balance, end of period ........ $ 11,930 $ 13,642
======== ========
The balances of impaired loans were $11,376,000 and $11,287,000
respectively, at March 31, 1999 and 1998. The allowance for credit losses
associated with impaired loans was $2,847,000 and $2,206,000 respectively, at
those dates. Total cash collected on impaired loans during the first three
months of 1999 and 1998, respectively, was $686,000 and $109,000 all of which
was credited to the principal balance outstanding on such loans. Interest which
would have been accrued on impaired loans during those respective periods was
$226,000 and $232,000. No related interest income was recognized during the
period.
Note 2 - Investment Securities:
The carrying value and approximate market value of investment securities at
March 31, 1999, were as follows:
Gross Gross
Amortized unrealized unrealized Approximate
cost gains losses fair value
(in thousands)
Available for Sale:
U.S. treasury securities ...... $ 6,349 $ 65 $ -- $ 6,414
Federal agency obligations .... 22,318 175 44 22,449
Mortgage backed securities .... 158,006 765 703 158,068
State and municipal obligations 58,991 1,318 687 59,622
Other securities .............. 39,375 38 74 39,339
-------- -------- -------- --------
Total ......................... $285,039 $ 2,361 $ 1,508 $285,892
======== ======== ======== ========
Held to Maturity:
State and municipal obligations 676 17 -- 693
-------- -------- -------- --------
Total ......................... $ 676 $ 17 $ -- $ 693
======== ======== ======== ========
Note 3:
The unaudited interim financial statements furnished reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. All such adjustments
are of a normal recurring nature, except as discussed in these notes.
Note 4:
Certain amounts in the financial statements presented for prior periods
have been reclassified to conform with the current period presentation.
Note 5:
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activity." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments imbedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as a hedge. The accounting for changes in the fair value of a
derivative (gains and losses) depends on the intended use of the derivative and
resulting designation. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Earlier application is permitted
only as of the beginning of any fiscal quarter. The Company is currently
reviewing the provisions of SFAS No. 133.
Note 6:
On July 31, 1998, the Company completed a merger with Regent Bancshares
Corp. and Regent National Bank ("Regent") accounted for as a pooling of
interests, which accordingly required restatement of financial statements. Under
terms of the merger, each share of common stock was as of that date converted to
.505 shares of the Company's common stock, resulting in the issuance of
1,721,960 shares of the Company's common stock. Each option to acquire Regent
common stock would be converted into an option to acquire .505 of a share of the
Company's common stock, resulting in the issuance of up to 184,830 shares of the
Company's common stock if all outstanding Regent options are converted.
Note 7:
On August 14, 1998, the Company completed a merger with Pioneer Mortgage,
Inc. ("Pioneer") accounted for as a pooling of interests, which accordingly
required restatement of financial statements. The changes reflecting such
restatement were not material. Pioneer is a mortgage company which operates
within the Company's southern New Jersey market with seven mortgage loan
originators.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The matters discussed in this Form 10Q that are forward looking statements
relate to future events or the future financial performance of JeffBanks, Inc.
(the "Company") and are based on current management expectations that involve
risks and uncertainties. Such statements are only predictions and actual events
or performance may differ materially from the events or performance expressed in
any such forward looking statements.
Results of Operations
Net income. Net income for the Company amounted to $3.9 million for the three
months ended March 31, 1999 as compared to $3.2 million for the three months
ended March 31, 1998, an increase of approximately 22%.
Net Interest Income and Average Balances. Net interest income was $30.3 million
for the first three months of 1999, compared to $29.5 million for the first
three months of 1998, an increase of $800,000 or 3%. Yields on interest earning
assets, on a tax equivalent basis, decreased to 8.09% for the first three months
of 1999 from 8.35% in the prior year period, a difference of .26 %. The decrease
reflected lower loan and investment yields, as a result of the impact of the
.75% reduction in the prime rate during the fourth quarter of 1998 and other
decreases in market rates. The cost of interest bearing liabilities decreased to
4.68% for the first three months of 1999 from 4.89% in the prior year period, a
difference of .21%. Notwithstanding that the decrease in yields on interest
earning assets exceeded the decrease in the cost of interest bearing liabilities
the net interest margin on the Company's interest earning assets increased to
4.18% in 1999 as compared to 4.15% in the comparable prior year period, a
difference of .03%. That increase reflected disproportionate growth in average
non-interest earning demand deposits.
Average balances for non-interest bearing demand deposits increased to $193.2
million in 1999 compared to $154.2 million in 1998, an increase of $39.0 million
or 25%. Average balances for savings, money market and interest checking
increased to $446.9 million in 1999 compared to $414.7 million in the comparable
1998 period, an increase of $32.2 million or 8%.
In the first three months of 1999, average interest earning assets totaled
$1.556 billion, an increase of $122 million or 9% over the 1998 comparable
period. Reflected in that net increase was a $230.8 million or 23% increase in
average loans to $1.241 billion.
Non-Interest Income. Total non-interest income for the first three months of
1999 was $4.1 million compared to $3.3 million for the first three months of
1998, an increase of $800,000 or 24%. Gain on sales of securities increased to
$712,000 for the first three months of 1999, an increase of $469,000 over 1998.
The majority of the sales were municipal securities which were replaced with
securities with longer term protection against being called for redemption.
Increases in merchant credit card fees were offset by increases in related
merchant card expense shown under non-interest expense.
Non-Interest Expense. Total non-interest expense for the first three months of
1999 was $12.8 million, compared to $12.0 million for the comparable prior year
period, an increase of $800,000 or 7%. Salaries and employee benefits amounted
to $6.2 million in the first three months of 1999 compared to $5.9 million for
the first three months of 1998, an increase of $300,000 or 5%. The increase
reflected increases of approximately $189,000 resulting from the establishment
or full period operation of new branches, $101,000 resulting from expansion of
the consumer loan department and $100,000 attributable to the expansion of the
internal computer network and information systems department. Other increases
included merit increases which averaged 3% to 4.5%. Increases between the
periods were significantly offset by savings resulting from the consolidation of
Regent.
Depreciation expense increased to $665,000 for the first three months of
1999, an increase of $88,000 or 15% from the comparable 1998 period. The
increase reflected the implementation of a new check imaging system to eliminate
the mailing of cancelled checks to customers and increase the efficiency of
proof operations.
Data processing expense increased to $386,000 in 1999, an increase of
$101,000 or 35% over the prior year. The increase reflected increases in
transaction volume and additional support for the check imaging system.
Advertising expense decreased to $242,000 for the first three months of
1999, a decrease of $124,000 or 34% from the prior year. Expenditures in 1998
were increased to promote various bank services and locations to reach customers
who might be displaced as a result of in-market bank mergers, and to pursue
other strategies. Expenditures were reduced after the mergers were completed.
Merchant card expense increases in 1999 as compared to 1998 were
significantly offset by increases in related merchant credit card deposit fees
shown under non-interest income, as a result of relatively modest margins
between fee income and expense, characteristic of that industry. However, the
Company derives additional benefit from related deposit balances.
Income Taxes. The effective tax rate of 20% for the first three months of
1999 reflected the tax exempt status of one half of the interest on $99.2
million of ESOP loans and substantially all of the interest on state and
municipal obligations.
Liquidity and Capital Resources.
The major sources of funding for the Company's investing activities have
historically been cash inflows resulting from increases in deposits. Such
increases have been utilized primarily to fund net increases in loans. FHLB
advances have also been utilized as an alternative funding source, when relative
interest costs were less than those for deposits. Funds not needed for
operations are invested primarily in daily federal funds sold and securities.
Net increases in loans were $35.6 million for the first three months of
1999 as compared to net increases of $11.1 million for the comparable 1998
period. Cash outflows required for mortgage loans originated for sale amounted
to $62.1 million for the first three months of 1999 compared to $46.7 million
for the first three months of 1998. The majority of $140.9 million of 1998
securities sales resulted from the then current Regent management's efforts to
restructure substantially all of its securities portfolio. Rationales for the
restructuring reflected regulatory input and requirements. After the Company
acquired Regent, the regulatory rationale was largely eliminated, as was
additional securities restructuring. The Company and its subsidiaries have
maintained their status as "well capitalized" under applicable regulatory
guidelines. The following table sets forth the regulatory capital ratios of the
Company and its wholly-owned banking subsidiaries, Jefferson Bank (Jefferson PA)
and Jefferson Bank of New Jersey (Jefferson NJ) at March 31, 1999.
<TABLE>
<CAPTION>
Tier 1 Capital to Tier 1 Capital to Total Capital to
Average Risk-Weighted Risk-Weighted
Assets Ratio Assets Ratio Assets Ratio
March 31, December 31, March 31, December 31, March 31, December 31,
1999 1998 1999 1998 1999 1998
Entity:
<S> <C> <C> <C> <C> <C> <C>
JBI .......................... 9.18% 9.11% 11.41% 11.86% 14.43% 15.24%
Jefferson PA ................. 7.66% 7.53% 9.35% 9.70% 12.30% 13.03%
Jefferson NJ ................. 6.36% 6.58% 9.52% 9.30% 13.46% 13.21%
"Well capitalized" institution
(under FDIC Regulations) . 5.00% 5.00% 6.00% 6.00% 10.00% 10.00%
</TABLE>
<PAGE>
Asset and Liability Management.
The following table summarizes estimated repricing intervals for interest
earning assets and interest bearing liabilities as of March 31, 1999 and the
difference or "gap" between them on an actual and cumulative basis for the
periods indicated. The following table reflects prepayment and repricing
estimates which may be modified significantly by management and independent
advisors.
<TABLE>
<CAPTION>
Within Four to
Three Twelve One to Two Three to Five Over Five
Months Months Years Years Years
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Investment securities:
Federal funds sold ............... $ 23,000
Available for sale:
Taxable investment securities ... 26,866 $ 37,270 $ 33,830 $ 76,037 $ 52,267
Non-taxable investment securities -- 251 115 -- 59,256
Held to maturity:
Non-taxable investment securities -- -- 256 195 225
Mortgages held for sale ............ 16,226 -- -- -- --
Loans net of unearned discount ..... 385,233 285,099 146,906 289,237 152,060
--------- --------- --------- --------- ---------
Total interest earning assets ......... 451,325 322,620 181,107 365,469 263,808
--------- --------- --------- --------- ---------
Interest bearing liabilities:
Savings and money market deposits .. 55,593 -- 132,430 252,605 --
Time deposits ...................... 182,163 373,840 32,203 9,551 699
Securities sold under repurchase
agreements ...................... 61,473 -- -- -- --
FHLB advances ...................... 167,175 -- -- -- --
Subordinated notes and debentures .. -- -- -- 9,000 22,920
Preferred securities ............... -- -- -- -- 25,300
--------- --------- --------- --------- ---------
Total interest bearing liabilities .... 466,404 373,840 164,633 271,156 48,919
--------- --------- --------- --------- ---------
Gap ................................... $ (15,079) $ (51,220) $ 16,474 $ 94,313 $ 214,889
========= ========= ========= ========= =========
Cumulative gap ........................ $ (15,079) $ (66,299) $ (49,825) $ 44,488 $ 259,377
========= ========= ========= ========= =========
Gap to assets ratio ................... -1% -3% 1% 6% 13%
Cumulative gap to assets ratio ........ -1% -4% -3% 3% 15%
</TABLE>
<PAGE>
Loan Portfolio.
The following table summarizes the loan portfolio of the Company by loan
category and amount at March 31, 1999 and corresponds to appropriate regulatory
definitions. Loans with a principal amount in excess of 2% of the Company's
equity capital are generally considered to be large loans. By this standard,
large loans were those exceeding $2.7 million at March 31, 1999. Large loans as
a percentage of total loans at that date were 18%.
Book Value
(in thousands)
Loans secured by real estate:
Construction and land development ....................... $ 91,652
Secured by 1-4 family residential properties ............ 213,246
Secured by multifamily (5 or more) residential properties 54,743
Secured by non-farm non-residential properties .......... 310,778
Commercial and industrial loans:
To U.S. addresses (domicile) ............................ 231,582
Loans to individuals for household, family and other personal
expenditures (consumer):
Credit cards and related plans .......................... 22,349
Other ................................................... 311,737
Tax exempt industrial development obligations ................ 3,191
All other loans .............................................. 3,009
Lease financing receivables, net of unearned income .......... 22,474
----------
Total ................................................... $1,264,761
==========
<PAGE>
Non-Performing Loans. The following table presents the principal amounts of
non accrual and renegotiated loans (1) at March 31, 1999 in addition to a
schedule presenting loans contractually past due 90 days or more as to interest
or principal still accruing interest. At March 31, 1999 the ratio of the
allowance for credit losses to total loans amounted to .94%. On an annualized
basis, the ratio of net charge-offs to average loans was .62% for the three
month period ended March 31, 1999.
<TABLE>
<CAPTION>
March 31, December 31,
------------------ ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis ...... $11,376 $11,287 $12,369 $ 9,857 $15,106 $16,695 $13,925
Loans renegotiated to provide a reduction or
deferral of interest or principal ........... -- -- -- -- -- -- 1,367
------- ------- ------- ------- ------- ------- -------
Total non-performing loans (1) .................. 11,376 11,287 12,369 9,857 15,106 16,695 15,292
------- ------- ------- ------- ------- ------- -------
Other real estate owned ......................... 2,741 2,933 3,114 2,265 4,237 4,260 6,093
Non-performing insurance premium
financing receivables .......................... -- -- -- -- -- 4,778 --
------- ------- ------- ------- ------- ------- -------
Total non-performing assets (1) ................. $14,117 $14,220 $15,483 $12,122 $19,343 $25,733 $21,385
======= ======= ======= ======= ======= ======= =======
Non-performing loans/total loans (1) ............ 0.90% 1.10% 1.01% 0.98% 1.65% 1.86% 2.13%
Non-performing assets/total loans and
non-performing assets (1) ................... 1.11% 1.38% 1.26% 1.20% 2.11% 2.85% 2.95%
Loans past due 90 days or more as to interest
or principal payments still accruing interest
and not included in non-accrual loans ....... $ 5,686 $ 5,343 $ 7,107 $ 5,460 $ 5,455 $ 7,992 $ 6,584
======= ======= ======= ======= ======= ======= =======
</TABLE>
Non-accrual loans(1) decreased to $11.4 million at March 31, 1999 compared
to $12.4 million at December 31, 1998. The decrease reflected approximately
$685,000 of additions, $431,000 of charge-offs, $686,000 of payments, $437,000
of transfers to other real estate and $123,000 of returns to accrual status.
Other real estate owned amounted to $2.7 million at March 31, 1999 compared
to $3.1 million at December 31, 1998. Activity in the three months ended March
31, 1999 reflected $438,000 of additions and sales and other receipts of
$830,000.
Interest on Non-Accrual Loans(1). If interest on non-accrual loans had been
accrued, such income would have been $226,000 and $232,000, respectively for the
first three months of 1999 and 1998.
Provision for Credit Losses. The provision for credit losses for the first
three months of 1999 was $1.5 million compared to $966,000 in the first three
months of 1998. The increase in the provision reflects increases in the the size
of the portfolio, and additional amounts required to be added to the reserve,
based on the Company's quarterly evaluation of the adequacy of the loan loss
reserve.
- -----------------------------------------
(1) Excluding loans past due 90 days or more still accruing interest.
<PAGE>
Summary of Credit Loss Experience. The following table summarizes the
credit loss experience of JBI for the periods shown.
<TABLE>
<CAPTION>
March 31, December 31,
-------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance in the allowance for credit losses at
beginning of period ..................... $12,407 $14,136 $14,136 $16,794 $21,492 $10,700 $ 8,189
------- ------- ------- ------- ------- ------- -------
Loans charged-off:
Commercial .............................. 152 398 908 2,254 2,510 2,817 1,336
Construction ............................ -- -- 213 -- 473 -- 190
Real estate mortgage .................... 455 486 2,944 4,254 4,724 1,716 2,123
Credit card ............................. 865 428 2,714 835 160 16 --
IPF ..................................... -- -- -- -- 8,967 -- --
Installment and lease financing ......... 823 308 2,059 1,362 522 435 272
------- ------- ------- ------- ------- ------- -------
Total ................................ 2,295 1,620 8,838 8,705 17,356 4,984 3,921
------- ------- ------- ------- ------- ------- -------
Recoveries:
Commercial .............................. 20 24 403 216 109 266 393
Construction ............................ -- -- -- -- -- -- --
Real estate mortgage .................... 221 44 337 1,276 901 439 196
Credit card ............................. 14 14 49 9 -- -- --
IPF ..................................... -- -- 47 757 1,482 -- --
Installment and lease financing ......... 108 78 310 89 51 59 28
------- ------- ------- ------- ------- ------- -------
Total ................................ 363 160 1,146 2,347 2,543 764 617
------- ------- ------- ------- ------- ------- -------
Net charge-offs ............................. 1,932 1,460 7,692 6,358 14,813 4,220 3,304
Acquisitions ................................ -- -- -- -- -- 6,121 3,098
Provision charged to operations ............. 1,455 966 5,963 3,700 10,115 8,891 2,717
------- ------- ------- ------- ------- ------- -------
Balance in allowance for credit losses at end
of period ............................... $11,930 $13,642 $12,407 $14,136 $16,794 $21,492 $10,700
======= ======= ======= ======= ======= ======= =======
Net charge-offs/average loans ............... 0.62% 0.58% 0.71% 0.67% 1.63% 0.53% 0.51%
</TABLE>
Increased installment and lease financing charge-offs reflected the
significant growth in consumer installment loans.
<PAGE>
Year 2000. As a control over the potential disruption which might result
from year 2000 ("Y2K") computer malfunctions or failure of computer chips
utilized in equipment, management is in process of rectifying non-compliant
software and hardware systems throughout the institution. The bank's loan and
deposit applications are serviced by Fiserv, a publicly held corporation which
specializes in providing data processing services to financial institutions.
Management is monitoring that company's execution of its plan to bring remaining
applications into compliance. Fiserv's compliance is further under review by a
third party firm and is scheduled for additional examinations through 1999.
Management does not expect that the costs of bringing the Company's systems into
Y2K compliance will have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
The Company has been actively involved in Y2K issues. The Company has
assessed its state of readiness by evaluating its information technology ("IT")
and non-IT systems. The IT systems consist of data processing services owned by
service providers, an administrative network, various networked computers and
equipment. Service providers have developed a project time line to meet all
deadlines as prescribed by the FDIC. They have provided updates on their
progress in meeting those goals which document that they are meeting the FDIC
guidelines. The administrative network is in the process of being fully tested.
All non-compliant equipment and software has been updated or replaced to achieve
Y2K compliance. The Company has made the following determinations in regard to
Y2K issues relating to third parties. The Federal Reserve Bank and other
regulatory agencies, both federal and state, all purport to be in compliance or
on schedule with Y2K issues. Vendors are substantially fungible and alternative
sources for any with Y2K problems can be utilized. For depositors the Company
has provided public forums to discuss Y2K issues, however, the Company does not
anticipate any significant Y2K issues with its deposit base. With regard to
borrowers, each loan made since June 1, 1998 has been evaluated as to its Y2K
issues. Loan officers are in the process of determining any special exposures.
Based upon its knowledge of its portfolio, no significant special exposures are
known. The Company's allowance for credit losses will reflect any potential Y2K
related losses. The Company replaced hardware and software through prior
expenditures and did not accelerate any replacement periods. All labor costs
were incurred using existing staff. Outside vendors are being utilized during
the testing phase of the Company's plan, which is currently scheduled for
completion by June 30, 1999. Incremental costs for 1999 are not currently
anticipated to exceed $200,000.
The Company anticipates that the most likely worst case scenario will be a
combination of several borrowers experiencing short term Y2K cash flow problems
and a pre-Y2K increase in cash demand by customers. The Company does not
consider a failure of its computer system as likely because of pre-Y2K
preparation. The other failure commonly discussed is a failure of the power
grid. Based upon communications with its power companies, the Company does not
consider that likely. If the Company has borrowers that experience Y2K cash flow
problems, they will be dealt with in the same routine manner by which normal
cash flow interruptions experienced by borrowers are addressed. Any increase in
cash demand will be funded by the Company's normal currency ordering procedures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK
Refer to 10-K.
Part II. Other Information
None.
<PAGE>
SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
JEFFBANKS, INC.
(Registrant)
Dated: May 13, 1999 By /s/ Paul Frenkiel
-------------------------
Paul Frenkiel
Chief Financial Officer
Dated: May 13, 1999 By /s/ Martin F. Egan
------------------------------------------
Martin F. Egan
Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
<CASH> 59662
<INT-BEARING-DEPOSITS> 14596
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 285892
<INVESTMENTS-CARRYING> 676
<INVESTMENTS-MARKET> 693
<LOANS> 1264761
<ALLOWANCE> 11930
<TOTAL-ASSETS> 1684467
<DEPOSITS> 1244612
<SHORT-TERM> 174473
<LIABILITIES-OTHER> 20998
<LONG-TERM> 111395
0
0
<COMMON> 10512
<OTHER-SE> 122477
<TOTAL-LIABILITIES-AND-EQUITY> 1684467
<INTEREST-LOAN> 25655
<INTEREST-INVEST> 4425
<INTEREST-OTHER> 238
<INTEREST-TOTAL> 30318
<INTEREST-DEPOSIT> 11476
<INTEREST-EXPENSE> 15242
<INTEREST-INCOME-NET> 15076
<LOAN-LOSSES> 1455
<SECURITIES-GAINS> 712
<EXPENSE-OTHER> 12824
<INCOME-PRETAX> 4891
<INCOME-PRE-EXTRAORDINARY> 3894
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3894
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.36
<YIELD-ACTUAL> 4.18
<LOANS-NON> 11376
<LOANS-PAST> 5686
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12407
<CHARGE-OFFS> 2295
<RECOVERIES> 363
<ALLOWANCE-CLOSE> 11930
<ALLOWANCE-DOMESTIC> 11930
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
