-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WyQ8QBVWQa2WYnsDFTy4G0n2RuLDaGfCUyvBxYvwdh0HvuJWNvkaxRpPI7AjdYe2 ER/em7sXSTE4hbU+/9KcGQ== 0000904101-99-000001.txt : 19990517 0000904101-99-000001.hdr.sgml : 19990517 ACCESSION NUMBER: 0000904101-99-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JEFFBANKS INC CENTRAL INDEX KEY: 0000904101 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 232189480 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14318 FILM NUMBER: 99621635 BUSINESS ADDRESS: STREET 1: 1845 WALNUT ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2155645040 MAIL ADDRESS: STREET 1: JEFFERSON BANK STREET 2: 2 JEFFERSON BANK CENTER CITY: DOWNINGTONWN STATE: PA ZIP: 19335 FORMER COMPANY: FORMER CONFORMED NAME: STATE BANCSHARES INC /PA/ DATE OF NAME CHANGE: 19930510 10-Q 1 JEFFBANKS, INC. 10-Q FOR MARCH 31, 1999 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
JeffBanks, Inc. Consolidated Balance Sheet UNAUDITED March 31, December 31, 1999 1998 (in thousands) 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 ========== ========== The accompanying notes are an integral part of these financial statements.
JeffBanks, Inc. Consolidated Statements of Income UNAUDITED Three Months Ended March 31, 1999 1998 (in thousands, except per share data) 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 The accompanying notes are an integral part of these financial statements.
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) 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 ========= ========= ========= ========= ========= 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.
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) 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 ========= ========= ========= ========= ========= 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.
JeffBanks, Inc. Consolidated Statements of Cash Flows UNAUDITED Three Months Ended March 31, 1999 1998 (in thousands) 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 ========= ========= The accompanying notes are an integral part of these financial statements.
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. 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.
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: 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%
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.
Within Four to Three Twelve One to Two Three to Five Over Five Months Months Years Years Years (dollars in thousands) 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%
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 ========== 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.
March 31, December 31, ------------------ ---------------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 (dollars in thousands) 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 ======= ======= ======= ======= ======= ======= =======
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. Summary of Credit Loss Experience. The following table summarizes the credit loss experience of JBI for the periods shown.
March 31, December 31, -------------------- ---------------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 (dollars in thousands) 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%
Increased installment and lease financing charge-offs reflected the significant growth in consumer installment loans. 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. 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 EX-27 2 MARCH 1999 FDS
9 1000 3-mos Dec-31-1999 Mar-31-1999 59662 14596 0 0 285892 676 693 1264761 11930 1684467 1244612 174473 20998 111395 0 0 10512 122477 1684467 25655 4425 238 30318 11476 15242 15076 1455 712 12824 4891 3894 0 0 3894 0.37 0.36 4.18 11376 5686 0 0 12407 2295 363 11930 11930 0 0
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