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 ......... September 30, 1999
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 .........................0-22850
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 19103
(Address of principal executive offices) (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 September 30, 1999: 10,689,409
<PAGE>
<TABLE>
<CAPTION>
JeffBanks, Inc.
Consolidated Balance Sheet
UNAUDITED
September 30, December 31,
1999 1998
(in thousands)
<S> <C> <C>
Assets:
Cash and cash equivalents:
Cash and due from banks ..................................... $ 44,814 $ 54,599
Federal funds sold .......................................... 33,500 0
----------- -----------
78,314 54,599
Investment securities available for sale ......................... 294,752 301,366
Investment securities held to maturity ........................... 673 677
Mortgages held for sale .......................................... 24,135 14,600
Loans, net ....................................................... 1,369,487 1,202,932
Premises and equipment, net ...................................... 23,917 24,085
Accrued interest receivable ...................................... 18,024 15,929
Other real estate owned .......................................... 1,204 3,114
Goodwill ......................................................... 3,776 4,059
Other assets ..................................................... 22,283 15,745
=========== ===========
Total assets ................................................ $ 1,836,565 $ 1,637,106
=========== ===========
Liabilities and shareholders' equity:
Deposits:
Demand (non-interest bearing) ............................... $ 238,626 $ 207,881
Savings and money market .................................... 503,756 465,984
Time deposits ............................................... 467,905 477,057
Time deposits, $100,000 and over ............................ 164,723 125,358
----------- -----------
1,375,010 1,276,280
Securities sold under repurchase agreements ...................... 54,139 39,635
Federal funds purchased .......................................... 40,000
FHLB advances .................................................... 158,825 109,182
Subordinated notes and debentures ................................ 31,920 32,000
Trust preferred securities ....................................... 25,300 25,300
Accrued interest payable ......................................... 14,198 15,444
Other liabilities ................................................ 3,342 7,587
----------- -----------
Total liabilities ........................................... 1,702,734 1,505,428
----------- -----------
Shareholders' equity:
Common Stock - authorized, 20,000,000 shares of $1 par value;
issued and outstanding 10,689,409 and 10,486,620 shares,
respectively .............................................. 10,689 10,487
Additional paid-in capital .................................. 99,636 97,308
Retained earnings ........................................... 29,531 21,933
Accumulated other comprehensive (loss) income ............... (6,025) 1,950
----------- -----------
Total shareholders' equity .................................. 133,831 131,678
=========== ===========
Total liabilities and shareholders' equity .................. $ 1,836,565 $ 1,637,106
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
JeffBanks, Inc.
Consolidated Statements of Income
UNAUDITED
Nine Months Three Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans including fees ...................... $ 81,499 $ 73,891 $ 28,683 $ 26,736
Investment securities ..................... 13,984 16,409 4,889 5,185
Federal funds sold ........................ 887 2,165 343 855
-------- -------- -------- --------
96,370 92,465 33,915 32,776
-------- -------- -------- --------
Interest expense:
Time deposits, $100,000 and over .......... 5,437 4,860 2,130 1,854
Other deposits ............................ 30,316 30,867 10,410 12,041
FHLB advances ............................. 6,243 5,893 2,129 1,224
Subordinated notes and debentures ......... 2,147 2,310 716 770
Trust preferred securities ................ 1,755 1,755 585 585
Securities sold under repurchase agreements 1,720 1,837 561 495
-------- -------- -------- --------
47,618 47,522 16,531 16,969
-------- -------- -------- --------
Net interest income ................... 48,752 44,943 17,384 15,807
Provision for credit losses .................... 4,590 4,653 1,605 1,140
-------- -------- -------- --------
Net interest income after provision
for credit losses .................... 44,162 40,290 15,779 14,667
-------- -------- -------- --------
Non-interest income:
Service fees on deposit accounts .......... 3,202 2,609 1,140 912
Gain on sales of residential mortgages and
capitalized mortgage servicing rights ... 1,946 2,360 371 671
Gain on sale of mortgage servicing ........ 625
Gain on sales of investment securities .... 712 569 262
Mortgage servicing fees ................... 893 891 299 309
Merchant credit card deposit fees ......... 2,486 1,660 916 598
Credit card fee income .................... 408 442 121 131
Other ..................................... 1,874 1,670 590 568
-------- -------- -------- --------
11,521 10,826 3,437 3,451
-------- -------- -------- --------
Non-interest expense:
Salaries and employee benefits ............ 18,825 18,343 6,414 5,677
Occupancy expense ......................... 3,457 3,537 1,199 1,315
Depreciation .............................. 2,179 1,826 764 590
FDIC expense .............................. 107 101 36 33
Data processing expense ................... 1,096 926 402 324
Legal ..................................... 955 1,633 436 512
Stationery, printing and supplies ......... 877 943 287 344
Shares tax ................................ 847 797 287 214
Advertising ............................... 984 1,040 413 257
Other real estate owned maintenance expense 161 307 31 278
Loss on sale and write-downs of other
real estate owned ........................ 9 51 4 22
Amortization of intangibles ............... 992 731 333 298
Credit card origination expense ........... 411 661 135 236
Credit card processing expense ............ 546 643 94 218
Merchant card expense ..................... 2,206 1,318 807 484
Other ..................................... 6,381 8,037 2,207 2,528
-------- -------- -------- --------
40,033 40,894 13,849 13,330
-------- -------- -------- --------
Income before income taxes ..................... 15,650 10,222 5,367 4,788
Income taxes ................................... 3,309 2,909 1,157 1,110
-------- -------- -------- --------
Net income ............................ $ 12,341 $ 7,313 $ 4,210 $ 3,678
======== ======== ======== ========
Per share data:
Average number of common shares (basic) ........ 10,568 10,273 10,636 10,342
Average number of common shares (diluted) ...... 11,071 11,051 11,223 11,077
Net income per common share (basic) ............ $ 1.17 $ 0.71 $ 0.40 $ 0.36
Net income per common share (diluted) .......... $ 1.12 $ 0.66 $ 0.38 $ 0.33
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<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>
Balance at December 31, 1998 .......... $ 10,487 $ 97,308 $ 21,933 $ 1,950 $ 131,678
Net income ............................ -- -- 12,341 -- $ 12,341 12,341
Issuance of common stock for
dividend reinvestment plan ........... 12 285 -- -- -- 297
Warrants exercised .................... 190 2,043 -- -- -- 2,233
Cash dividends on common stock ........ -- -- (4,743) -- -- (4,743)
Other comprehensive loss, net of
reclassification adjustments and taxes -- -- -- (7,975) (7,975) (7,975)
--------- --------- --------- --------- --------- ---------
Comprehensive income .................. -- -- -- -- $ 4,366 --
=========
Balance at September 30, 1999 ......... $ 10,689 $ 99,636 $ 29,531 $ (6,025) $ 133,831
========= ========= ========= ========= =========
</TABLE>
Disclosure of reclassification amount:
Unrealized holding losses arising during period .................. $(7,512)
Less: reclassification adjustment for gains included in net income 463
-------
Net unrealized losses on securities .............................. $(7,975)
=======
The accompanying notes are an integral part of these financial statements.
<PAGE>
<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 ........................................ -- -- 7,313 -- $ 7,313 7,313
Issuance of common stock for
dividend reinvestment plan ....................... 4 165 -- -- -- 169
Warrants exercised ................................ 126 1,641 -- -- -- 1,767
Cash dividends on common stock .................... -- -- (3,098) -- -- (3,098)
Stock split ....................................... 4,147 (4,147) -- -- --
Other comprehensive income, net of
of reclassification adjustments and taxes -- -- -- 1,714 1,714 1,714
---------
Comprehensive income .............................. -- -- -- -- $ 9,027
--------- --------- --------- --------- ========= ---------
Balance at September 30, 1998 ..................... $ 10,371 $ 96,956 $ 19,376 $ 2,968 $ 129,671
========= ========= ========= ========= =========
<FN>
Disclosure of reclassification amount:
Unrealized holding gains arising during period ................... $ 2,028
Less: reclassification adjustment for gains included in net income (314)
-------
Net unrealized gains on securities ............................... $ 1,714
=======
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
JeffBanks, Inc.
Consolidated Statements of Cash Flows
UNAUDITED
Nine Months Ended September 30,
1999 1998
(in thousands)
<S> <C> <C>
Operating activities:
Net income ......................................................... $ 12,341 $ 7,313
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization ...................................... 4,024 2,895
Provision for credit losses ........................................ 4,590 4,653
Gain on sales of investment securities ............................. (712) (569)
Mortgage loans originated for sale ................................. (143,832) (137,554)
Mortgage loan sales ................................................ 134,297 137,535
Increase in interest receivable .................................... (2,095) (4,249)
Decrease in interest payable ....................................... (1,246) (486)
(Increase) decrease in other assets ................................ (2,953) 2,327
(Decrease) increase in other liabilities ........................... (3,445) 908
--------- ---------
Net cash provided by operating activities ....................... 969 12,773
--------- ---------
Investing activities:
Proceeds from sales of investment securities available for sale .... 19,271 149,784
Proceeds from maturities of investment securities available for sale 56,633 73,568
Purchase of investment securities available for sale ............... (81,696) (179,148)
Proceeds from sales of other real estate owned ..................... 3,457 1,368
Net increase in loans .............................................. (172,692) (190,475)
Purchase of premises and equipment ................................. (2,011) (5,579)
--------- ---------
Net cash used in investing activities ........................... (177,038) (150,482)
--------- ---------
Financing activities:
Net increase in deposits ........................................... 97,930 190,144
Net increase (decrease) in repurchase agreements ................... 14,504 (29,334)
Net proceeds from issuance of common stock ......................... 2,530 1,936
Net increase in federal funds purchased ............................ 40,000 --
Net increase (decrease) in FHLB advances ........................... 49,643 (14,325)
Net decrease in subordinated notes and debentures .................. (80) (2,750)
Dividends paid on common stock ..................................... (4,743) (3,098)
--------- ---------
Net cash provided by financing activities ....................... 199,784 142,573
--------- ---------
Net increase in cash and cash equivalents ............................... 23,715 4,864
Cash and cash equivalents at beginning of year .......................... 54,599 147,837
========= =========
Cash and cash equivalents at end of period .............................. $ 78,314 $ 152,701
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Note 1 - Allowance for Credit Losses:
Nine months ended September 30,
1999 1998
(in thousands)
Balance, beginning of period .. $ 12,407 $ 14,136
Provision charged to operations 4,590 4,653
Loans charged off ............. (7,158) (5,792)
Recoveries .................... 1,238 893
======== ========
Balance, end of period ........ $ 11,077 $ 13,890
======== ========
The balances of impaired loans were $9,856,000 and $13,320,000
respectively, at September 30, 1999 and 1998. The allowance for credit losses
associated with impaired loans was $2,472,000 and $3,134,000 respectively, at
those dates. Total cash collected on impaired loans during the first six months
of 1999 and 1998, respectively, was $1,970,000 and $2,259,000 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
$585,000 and $700,000. No related interest income was recognized during the
period.
Note 2 - Investment Securities:
The carrying value and fair value of investment securities were as follows:
September 30, 1999
Gross Gross
Amortized unrealized unrealized
cost gains losses Fair value
(in thousands)
Available for Sale:
U.S. treasury securities ...... $ 1,829 $ 13 $ -- $ 1,842
Federal agency obligations .... 19,048 16 316 18,748
Mortgage backed securities .... 177,929 21 4,701 173,249
State and municipal obligations 61,971 149 3,824 58,296
Other securities .............. 43,343 24 750 42,617
-------- -------- -------- --------
Total ......................... $304,120 $ 223 $ 9,591 $294,752
======== ======== ======== ========
Held to Maturity:
State and municipal obligations 673 10 -- 683
-------- -------- -------- --------
Total ......................... $ 673 $ 10 $ -- $ 683
======== ======== ======== ========
December 31, 1998
Gross Gross
Amortized unrealized unrealized
cost gains losses Fair value
(in thousands)
Available for Sale:
U.S. treasury securities ...... $ 7,358 $ 110 $ -- $ 7,468
Federal agency obligations .... 19,251 126 1 19,376
Mortgage backed securities .... 199,685 1,339 650 200,374
State and municipal obligations 46,730 2,120 112 48,738
Other securities .............. 25,417 1 8 25,410
-------- -------- -------- --------
Total ......................... $298,441 $ 3,696 $ 771 $301,366
======== ======== ======== ========
Held to Maturity:
State and municipal obligations 677 22 -- 699
-------- -------- -------- --------
Total ......................... $ 677 $ 22 $ -- $ 699
======== ======== ======== ========
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:
Subsequent to Statement of Financial Accounting Standards ("SFAS") No. 133,
the FASB issued SFAS No. 137, which amended the effective date of SFAS No. 133
to be all fiscal quarters of all fiscal years beginning after June 15, 2000.
Based on the Company's minimal use of derivatives at the current time,
management does not anticipate the adoption of SFAS No. 133 will have a
significant impact on the earnings or financial position of the Company.
However, the impact of adopting SFAS No. 133 will depend on the nature and
purpose of the derivative instruments in use by the Company at that time.
Note 6:
On June 29, 1999, the Company announced that it had entered into a merger
agreement with Hudson United Bancorp. ("Hudson"), pursuant to which it would be
acquired by that institution. Consummation of the merger is conditional upon
required regulatory and shareholder approvals. Under terms of the pending
merger, each share of the Company's common stock would be converted into .95 of
a share of Hudson's common stock. On September 15, 1999, Hudson entered into a
merger agreement with Dime Bancorp, Inc.. Each share of Hudson common stock is
to become one share of the common stock of the successor institution (to be
called Dime United Bancorp) and each share of Dime common stock is to become
0.585 shares of Dime United common stock.
<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. These statements can be identified by the use of
forward-looking terminology including "may," "believe," will," "expect,"
"anticipate," "estimate," "continue," or similar words . These statements are
only predictions and actual events or performance may differ materially from the
events or performance expressed in any of these forward-looking statements. The
Company undertakes no obligations to publicly revise or update these
forward-looking statements to reflect events or circumstances that arise after
the date of this report.
Results of Operations
Net income. Net income for the Company amounted to $12.3 million for the nine
months ended September 30, 1999 as compared to $7.3 million for the nine months
ended September 30, 1998, a increase of approximately 68%. The 1998 period
reflected the restatement of financial information for the Regent Bancshares,
Inc. ("Regent") acquisition and expenses related to that acquisition as
discussed in the Company's Annual Report on form 10K for 1998. Restatement was
required by pooling of interests accounting treatment.
Net Interest Income and Average Balances. Net interest income was $48.8
million for the first nine months of 1999, compared to $44.9 million for the
first nine months of 1998, an increase of $3.9 million or 9%. Yields on interest
earning assets, on a tax equivalent basis, decreased to 8.15% for the first nine
months of 1999 from 8.30% in the prior year period, a difference of .15%. 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 4.65% for the first nine months of 1999 from 4.92% in the prior
year period, a difference of .27%. In addition to that decrease in cost of
funds, the overall cost of funds was reduced as a result of disproportionate
growth in average non-interest bearing demand deposit balances. Thus the net
interest margin on the Company's interest earning assets increased to 4.27% in
1999 as compared to 4.11% in the comparable prior year period, a difference of
.16%.
Average balances for non-interest bearing demand deposits increased to $211.4
million in 1999 compared to $160.8 million in 1998, an increase of $50.6 million
or 31%. Average balances for savings, money market and interest checking
decreased to $467.1 million in 1999 compared to $467.9 million in the comparable
1998 period, a decrease of $800,000.
In the first six months of 1999, average interest earning assets totaled $1.6
billion, an increase of $119 million or 8% over the 1998 comparable period.
Reflected in that net increase was a $227 million or 21% increase in average
loans to $1.3 billion.
Non-Interest Income. Total non-interest income for the first nine months of 1999
was $11.5 million compared to $10.8 million for the first nine months of 1998,
an increase of $700,000 or 6%. Service fees on deposit accounts increased to
$3.2 million for the first nine months of 1999, an increase of $593,000 or 23%
over the comparable prior year period. The increase reflected attempts to
collect service charges from existing customers which previously had been
waived. Gain on sales of securities increased to $712,000 for the first nine
months of 1999, an increase of $143,000 over 1998. The majority of the sales in
1999 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. Non-interest expense totaled $40.0 million for the
first nine months of 1999 compared to $40.9 million for the first nine months of
1998 a decrease of $900,000 or 2%. Salaries and employee benefits amounted to
$18.8 million in the first nine months of 1999 compared to $18.3 million for the
first nine months of 1998, an increase of $482,000 or 3%. Reflected in the
increase were $298,000 and $290,000, respectively attributable to expansion of
the consumer and commercial loan departments, and $222,000 resulting from an
increase related to the internal computer network and information systems
department. The 1999 also reflects savings resulting from the Regent
acquisition.
Depreciation expense increased to $2.2 million for the first nine months of
1999, an increase of $353,000 or 19% 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
backroom operations.
Data processing expense increased to $1.1 million in 1999, an increase of
$170,000 or 18% over the prior year. The increase reflected increases in
transaction volume and additional support for the check imaging system.
Legal expense decreased to $955,000 for the first nine months of 1999, a
decrease of $678,000 or 42% from the prior year. Legal expense in 1998 included
approximately $500,000 incurred by Regent including legal fees relating to
litigation to resolve various loans.
Amortization of intangibles increased to $992,000 for the first nine months
of 1999, an increase of $261,000 or 36% from the prior year. The increase
reflected anticipated prepayments on the mortgage servicing portfolio.
Credit card origination expense and credit card processing expense
decreased in 1999 as compared to prior periods. Such decreases reflected
significantly reduced credit card origination efforts.
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.
Other expense decreased to $6.4 million in 1999, a decrease of $1.7 million
or 21% from the prior year. The principal factors reflected in the decrease are
the impact of the restatement resulting from the Regent acquisition as well as
expenses related to that acquisition as discussed in Form 10K for 1998.
Income Taxes. The effective tax rate of 21% for the first nine months of
1999 reflected the tax exempt status of one half of the interest on $99.2
million of ESOP loans and of substantially all of the interest on state and
municipal obligations.
<PAGE>
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 $172.7 million for the first nine months of
1999 as compared to net increases of $190.5 million for the comparable 1998
period. Cash outflows required for mortgage loans originated for sale amounted
to $143.8 million for the first nine months of 1999 compared to $137.6 million
for the first nine months of 1998. The comprehensive loss for the first nine
months of 1999 resulted from increases in market interest rates which resulted
in decreases in the market value of investment securities. The majority of
$149.8 million of 1998 securities sales resulted from the then current Regent
management's efforts to restructure substantially all of its securities
portfolio. Rationales fot 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 September 30, 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
September 30, December 31, September 30, December 31, September 30, December 31,
1999 1998 1999 1998 1999 1998
Entity:
<S> <C> <C> <C> <C> <C> <C>
JBI .......................... 8.80% 9.11% 10.81% 11.86% 13.47% 15.24%
Jefferson PA ................. 7.27% 7.53% 8.85% 9.70% 11.46% 13.03%
Jefferson NJ ................. 6.37% 6.58% 8.52% 9.30% 11.83% 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 September 30, 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 ............... $ 33,500
Available for sale:
Taxable investment securities ... 27,903 $ 28,282 $ 31,053 $ 78,524 $ 70,696
Non-taxable investment securities -- 115 -- -- 58,179
Held to maturity:
Non-taxable investment securities -- 253 -- 195 225
Mortgages held for sale ............ 24,135 -- -- -- --
Loans net of unearned discount ..... 393,171 349,105 175,387 305,204 157,697
--------- --------- --------- --------- ---------
Total interest earning assets ......... 478,709 377,755 206,440 383,923 286,797
--------- --------- --------- --------- ---------
Interest bearing liabilities:
Savings and money market deposits .. 69,383 -- 148,320 286,053 --
Time deposits ...................... 144,530 461,030 18,495 7,885 688
Securities sold under repurchase
agreements ...................... 54,139 -- -- -- --
Federal funds purchased ............ 40,000
FHLB advances ...................... 158,825 -- -- -- --
Subordinated notes and debentures .. -- -- -- 9,000 22,920
Preferred securities ............... -- -- -- -- 25,300
--------- --------- --------- --------- ---------
Total interest bearing liabilities .... 466,877 461,030 166,815 302,938 48,908
--------- --------- --------- --------- ---------
Gap ................................... $ 11,832 $ (83,275) $ 39,625 $ 80,985 $ 237,889
========= ========= ========= ========= =========
Cumulative gap ........................ $ 11,832 $ (71,443) $ (31,818) $ 49,167 $ 287,056
========= ========= ========= ========= =========
Gap to assets ratio ................... * -5% 2% 4% 13%
Cumulative gap to assets ratio ........ * -4% -2% 3% 16%
</TABLE>
*Less than 1%.
<PAGE>
Loan Portfolio.
The following table summarizes the loan portfolio of the Company by loan
category and amount at September 30, 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 September 30, 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 ....................... $ 128,062
Secured by 1-4 family residential properties ............ 225,454
Secured by multifamily (5 or more) residential properties 54,911
Secured by non-farm non-residential properties .......... 321,683
Commercial and industrial loans:
To U.S. addresses (domicile) ............................ 240,541
Loans to individuals for household, family and other personal
expenditures (consumer):
Credit cards and related plans .......................... 21,482
Other ................................................... 380,183
Tax exempt industrial development obligations ................ 3,071
All other loans .............................................. 3,933
Lease financing receivables, net of unearned income .......... 25,379
----------
Total ................................................... $1,404,699
==========
<PAGE>
Non-Performing Loans. The following table presents the principal amounts of non
accrual and renegotiated loans (1) at September 30, 1999 in addition to a
schedule presenting loans contractually past due 90 days or more as to interest
or principal still accruing interest. At September 30, 1999 the ratio of the
allowance for credit losses to total loans amounted to 0.79%. On an annualized
basis, the ratio of net charge-offs to average loans was .60% for the nine month
period ended September 30, 1999.
<TABLE>
<CAPTION>
September 30, 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 ...... $ 9,856 $13,320 $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) .................. 9,856 13,320 12,369 9,857 15,106 16,695 15,292
------- ------- ------- ------- ------- ------- -------
Other real estate owned ......................... 1,204 3,836 3,114 2,265 4,237 4,260 6,093
Non-performing insurance premium
financing receivables .......................... -- -- -- -- -- 4,778 --
------- ------- ------- ------- ------- ------- -------
Total non-performing assets (1) ................. $11,060 $17,156 $15,483 $12,122 $19,343 $25,733 $21,385
======= ======= ======= ======= ======= ======= =======
Non-performing loans/total loans (1) ............ 0.70% 1.12% 1.01% 0.98% 1.65% 1.86% 2.13%
Non-performing assets/total loans and
non-performing assets (1) ................... 0.79% 1.44% 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 ....... $ 6,681 $ 6,661 $ 7,107 $ 5,460 $ 5,455 $ 7,992 $ 6,584
======= ======= ======= ======= ======= ======= =======
</TABLE>
Non-accrual loans(1) decreased to $9.9 million at September 30, 1999
compared to $12.4 million at December 31, 1998. The decrease reflected
approximately $2.3 million of additions, $1.6 million of charge-offs, $2.0
million of payments, $920,000 of transfers to other real estate and $315,000 of
returns to accrual status.
Other real estate owned amounted to $1.2 million at September 30, 1999
compared to $3.1 million at December 31, 1998. Activity in the nine months ended
September 30, 1999 reflected $1.6 million of additions, sales and other receipts
of $3.4 million and $97,000 of charge-offs.
Interest on Non-Accrual Loans(1). If interest on non-accrual loans had been
accrued, such income would have been $585,000 and $700,000, respectively for the
first nine months of 1999 and 1998.
Provision for Credit Losses. The provision for credit losses for the first
nine months of 1999 was $4.6 million compared to $4.7 million in the first nine
months of 1998. The 1998 provision reflected a $1.5 million increase relating to
the Regent loan portfolio to increase the reserve to levels determined by an
analysis applying estimated loss ratios to the various loan categories in
accordance with the Company's standard policies.
- -----------------------------------------
(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>
September 30, 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 .............................. 334 471 908 2,254 2,510 2,817 1,336
Construction ............................ 40 213 213 -- 473 -- 190
Real estate mortgage .................... 1,300 1,921 2,944 4,254 4,724 1,716 2,123
Credit card ............................. 2,025 1,874 2,714 835 160 16 --
IPF ..................................... -- -- -- -- 8,967 -- --
Installment and lease financing ......... 3,459 1,313 2,059 1,362 522 435 272
------- ------- ------- ------- ------- ------- -------
Total ................................ 7,158 5,792 8,838 8,705 17,356 4,984 3,921
------- ------- ------- ------- ------- ------- -------
Recoveries:
Commercial .............................. 121 366 403 216 109 266 393
Construction ............................ -- -- -- -- -- -- --
Real estate mortgage .................... 621 292 337 1,276 901 439 196
Credit card ............................. 42 37 49 9 -- -- --
IPF ..................................... -- -- 47 757 1,482 -- --
Installment and lease financing ......... 454 198 310 89 51 59 28
------- ------- ------- ------- ------- ------- -------
Total ................................ 1,238 893 1,146 2,347 2,543 764 617
------- ------- ------- ------- ------- ------- -------
Net charge-offs ............................. 5,920 4,899 7,692 6,358 14,813 4,220 3,304
Acquisitions ................................ -- -- -- -- -- 6,121 3,098
Provision charged to operations ............. 4,590 4,653 5,963 3,700 10,115 8,891 2,717
------- ------- ------- ------- ------- ------- -------
Balance in allowance for credit losses at end
of period ............................... $11,077 $13,890 $12,407 $14,136 $16,794 $21,492 $10,700
======= ======= ======= ======= ======= ======= =======
Net charge-offs/average loans ............... 0.60% 0.60% 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 believes that Fiserv is on schedule, based upon information from
that company. 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 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. 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 and Asset and Liability Management section of this 10Q.
Part II. Other Information
Item 6. Reports on Form 8-K
1. Form 8-K filed July 29, 1999 - Item (5) Other events: second quarter 1999
earnings release.
<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: November 12, 1999 By /s/ Betsy Cohen
-------------------------
Betsy Cohen
Chairperson of the Board
(Chief Executive Officer)
Dated: November 12, 1999 By /s/ Martin F. Egan
------------------------------------------
Martin F. Egan
Vice President & Controller
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 43552
<INT-BEARING-DEPOSITS> 1262
<FED-FUNDS-SOLD> 3500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 294752
<INVESTMENTS-CARRYING> 673
<INVESTMENTS-MARKET> 683
<LOANS> 1404699
<ALLOWANCE> 11077
<TOTAL-ASSETS> 1836565
<DEPOSITS> 1375010
<SHORT-TERM> 203789
<LIABILITIES-OTHER> 17540
<LONG-TERM> 106395
0
0
<COMMON> 10689
<OTHER-SE> 123142
<TOTAL-LIABILITIES-AND-EQUITY> 1836565
<INTEREST-LOAN> 96370
<INTEREST-INVEST> 13984
<INTEREST-OTHER> 887
<INTEREST-TOTAL> 96370
<INTEREST-DEPOSIT> 35753
<INTEREST-EXPENSE> 47618
<INTEREST-INCOME-NET> 48752
<LOAN-LOSSES> 4590
<SECURITIES-GAINS> 712
<EXPENSE-OTHER> 40033
<INCOME-PRETAX> 15650
<INCOME-PRE-EXTRAORDINARY> 12341
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12341
<EPS-BASIC> 1.17
<EPS-DILUTED> 1.12
<YIELD-ACTUAL> 4.27
<LOANS-NON> 9856
<LOANS-PAST> 6681
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12407
<CHARGE-OFFS> 7158
<RECOVERIES> 1238
<ALLOWANCE-CLOSE> 11077
<ALLOWANCE-DOMESTIC> 11077
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
