FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended Commission file number 0-22850
June 30, 1998
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)
Registrant's telephone number, including
area code 215-861-7000
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 June 30, 1998: 8,463,173
<PAGE>
<TABLE>
<CAPTION>
JeffBanks, Inc.
Consolidated Balance Sheet
UNAUDITED
June 30, December 31,
1998 1997
(in thousands)
<S> <C> <C>
Assets:
Cash and cash equivalents:
Cash and due from banks ....................................... $ 46,708 $ 49,623
Federal funds sold ............................................ 114,000 92,200
---------- ----------
160,708 141,823
Investment securities available for sale .......................... 216,684 243,487
Investment securities held to maturity ............................ 680 682
Mortgages held for sale ........................................... 3,861 2,959
Loans, net ........................................................ 1,007,943 893,997
Premises and equipment, net ....................................... 21,204 18,420
Accrued interest receivable ....................................... 8,168 7,518
Other real estate owned ........................................... 1,987 2,235
Goodwill .......................................................... 4,247 4,435
Other assets ...................................................... 15,052 13,068
---------- ----------
Total assets .................................................. $1,440,534 $1,328,624
========== ==========
Liabilities and shareholders' equity:
Deposits:
Demand (non-interest bearing) ................................. $ 154,724 $ 144,310
Savings and money market ...................................... 513,957 380,982
Time deposits ................................................. 335,696 309,712
Time deposits, $100,000 and over .............................. 114,956 98,626
---------- ----------
1,119,333 933,630
Securities sold under repurchase agreements ....................... 43,180 70,911
FHLB advances ..................................................... 100,000 150,000
Subordinated notes and debentures ................................. 32,000 32,000
Trust preferred securities ........................................ 25,300 25,300
Accrued interest payable .......................................... 9,544 11,352
Other liabilities ................................................. 2,253 2,576
---------- ----------
Total liabilities ............................................. 1,331,610 1,225,769
---------- ----------
Shareholders' equity:
Common Stock - authorized, 20,000,000 shares of $1 par value;
issued and outstanding 8,463,170 and 5,001,430 shares,
respectively ................................................ 8,463 5,001
Additional paid-in capital .................................... 72,299 71,101
Retained earnings ............................................. 26,684 25,127
Net unrealized gain on investment securities available for sale 1,478 1,626
---------- ----------
Total shareholders' equity .................................... 108,924 102,855
---------- ----------
Total liabilities and shareholders' equity .................... $1,440,534 $1,328,624
========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JeffBanks, Inc.
Consolidated Statements of Income
UNAUDITED
Six Months Three Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans including fees ...................... $ 42,258 $ 38,295 $ 21,526 $ 19,540
Investment securities ..................... 7,485 5,582 3,585 2,853
Federal funds sold ........................ 1,120 1,267 560 550
-------- -------- -------- --------
50,863 45,144 25,671 22,943
-------- -------- -------- --------
Interest expense:
Time deposits, $100,000 and over .......... 2,917 2,398 1,479 1,209
Other deposits ............................ 15,005 11,778 7,781 5,998
FHLB advances ............................. 2,935 3,262 1,382 1,675
Subordinated notes and debentures ......... 1,434 1,434 717 717
Trust preferred securities ................ 1,170 949 585 585
Securities sold under repurchase agreements 1,342 1,519 630 743
-------- -------- -------- --------
24,803 21,340 12,574 10,927
-------- -------- -------- --------
Net interest income .................... 26,060 23,804 13,097 12,016
Provision for credit losses .................... 2,013 1,695 1,047 870
-------- -------- -------- --------
Net interest income after provision
for credit losses ..................... 24,047 22,109 12,050 11,146
-------- -------- -------- --------
Non-interest income:
Service fees on deposit accounts .......... 1,617 1,612 779 810
Gain on sales of residential mortgages and
capitalized mortgage servicing rights ... 805 343 472 191
Gain on sales of mortage servicing rights . 625 625
Mortgage servicing fees ................... 368 371 187 186
Merchant credit card deposit fees ......... 1,062 967 575 485
Credit card fee income .................... 311 161 154 63
Gain on sales of investment securities .... 324 147 81 147
Other ..................................... 986 634 558 369
-------- -------- -------- --------
6,098 4,235 3,431 2,251
-------- -------- -------- --------
Non-interest expense:
Salaries and employee benefits ............ 9,427 8,053 4,936 4,257
Occupancy expense ......................... 1,962 1,845 967 908
Depreciation .............................. 1,039 863 546 430
FDIC expense .............................. 57 46 29 24
Data processing expense ................... 463 448 226 179
Legal ..................................... 496 550 289 258
Stationery, printing and supplies ......... 496 456 219 171
Shares tax ................................ 396 398 213 201
Advertising ............................... 689 486 352 199
Other real estate owned maintenance expense 55 102 44 29
Loss on sale and write-downs of other
real estate owned ........................ 29 173 (2) 101
Amortization of intangibles ............... 483 630 242 307
Credit card origination expense ........... 425 254 224 143
Credit card processing expense ............ 425 236 228 108
Merchant card expense ..................... 834 750 444 397
Other ..................................... 3,033 2,614 1,532 1,287
-------- -------- -------- --------
20,309 17,904 10,489 8,999
-------- -------- -------- --------
Income before income taxes ..................... 9,836 8,440 4,992 4,398
Income taxes ................................... 2,994 2,755 1,468 1,397
-------- -------- -------- --------
Net income ............................. $ 6,842 $ 5,685 $ 3,524 $ 3,001
======== ======== ======== ========
Per share data:
Average number of common shares (basic) ........ 8,411 8,245 8,448 8,299
Average number of common shares (diluted) ...... 9,187 8,764 9,249 8,803
Net income per common share (basic) ............ $ 0.81 $ 0.69 $ 0.42 $ 0.36
Net income per common share (diluted) .......... $ 0.74 $ 0.65 $ 0.38 $ 0.34
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JeffBanks, Inc.
Consolidated Statement of Changes in Shareholders' Equity
UNAUDITED
Accumulated
comprehensive
income:
net unrealized
gain (loss)
on securities
Common Additional Retained available Comprehensive
stock paid-in-capital earnings for sale income Total
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 ...................... $ 5,001 $ 71,101 $ 25,127 $ 1,626 $ 102,855
Net income ........................................ -- -- 6,842 -- $ 6,842 6,842
Issuance of common stock for
dividend reinvestment plan ....................... 2 77 -- -- 79
Warrants exercised ................................ 75 1,121 -- -- 1,196
Cash dividends on common stock .................... -- -- (1,900) -- (1,900)
Stock split ....................................... 3,385 (3,385) --
Other comprehensive income, net of tax
Unrealized losses on securities, net
of reclassification adjustment (see disclosure) . -- -- (148) (129) (148)
Other comprehensive income ....................... -- -- -- -- (129)
---------
Comprehensive income .............................. -- -- -- -- $ 6,713
--------- --------- --------- --------- ========= ---------
Balance at June 30, 1998 .......................... $ 8,463 $ 72,299 $ 26,684 $ 1,478 $ 108,924
========= ========= ========= ========= =========
<FN>
Disclosure of reclassification amount:
Unrealized holding losses arising during period .................. $(129)
Less: reclassification adjustment for gains included in net income (19)
-----
Net unrealized losses on securities .............................. $(148)
=====
</FN>
</TABLE>
<TABLE>
<CAPTION>
Accumulated
comprehensive
income:
net unrealized
gain
on securities
Common Additional Retained available Comprehensive
stock paid-in-capital earnings for sale income Total
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1998 ......................... $ 5,058 $ 71,786 $ 27,492 $ 1,324 $ 105,660
Net income ........................................ -- -- 3,524 -- $ 3,524 3,524
Issuance of common stock for
dividend reinvestment plan ....................... -- -- -- -- --
Warrants exercised ................................ 20 513 -- -- 533
Cash dividends on common stock .................... -- -- (947) -- (947)
Stock split ....................................... 3,385 -- (3,385) -- --
Other comprehensive income, net of tax
Unrealized gains on securities, net
of reclassification adjustment (see disclosure) . -- -- 154 195 154
Other comprehensive income ....................... -- -- -- -- 195
---------
Comprehensive income .............................. -- -- -- -- $ 3,719
--------- --------- --------- --------- ========= ---------
Balance at June 30, 1998 .......................... $ 8,463 $ 72,299 $ 26,684 $ 1,478 $ 108,924
========= ========= ========= ========= =========
<FN>
Disclosure of reclassification amount:
Unrealized holding gains arising during period ................... $ 195
Less: reclassification adjustment for gains included in net income (41)
-----
Net unrealized gain on securities ................................ $ 154
=====
</FN>
</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
comprehensive
income:
net unrealized
gain
on securities
Common Additional Retained available Comprehensive
stock paid-in-capital earnings for sale income Total
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ..................... $ 4,716 $ 64,030 $ 22,355 $ 180 $ 91,281
Net income ....................................... -- -- 5,685 -- $ 5,685 5,685
Issuance of common stock for
401(K) plan .................................... 14 339 -- -- 353
Issuance of common stock for
dividend reinvestment plan ...................... 3 66 -- -- 69
Warrants exercised ............................... 18 201 -- -- 219
Cash dividends on common stock ................... -- -- (1,527) -- (1,527)
5% stock dividend ................................ 237 6,109 (6,346) -- --
Other comprehensive income, net of tax
Unrealized gains on securities, net
of reclassification adjustment (see disclosure). -- -- 176 207 176
---------
Other comprehensive income ...................... -- -- -- -- 207
---------
Comprehensive income ............................. -- -- -- -- $ 5,892
--------- --------- --------- --------- ========= ---------
Balance at June 30, 1997 ......................... $ 4,988 $ 70,745 $ 20,167 $ 356 $ 96,256
========= ========= ========= ========= =========
<FN>
Disclosure of reclassification amount:
Unrealized holding gains arising during period ................... $ 207
Less: reclassification adjustment for gains included in net income (31)
-----
Net unrealized gain on securities ................................ $ 176
=====
</FN>
</TABLE>
<TABLE>
<CAPTION>
Accumulated
comprehensive
income:
net unrealized
gain (loss)
on securities
Common Additional Retained available Comprehensive
stock paid-in-capital earnings for sale income Total
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 ........................ $ 4,976 $ 70,448 $ 17,986 $ (817) $ 92,593
Net income ....................................... -- -- 3,001 -- $ 3,001 3,001
Issuance of common stock for
401(K) plan .................................... 9 224 -- -- 233
Issuance of common stock for
dividend reinvestment plan ...................... 3 66 -- -- 69
Warrants exercised ............................... -- -- -- -- --
Cash dividends on common stock ................... -- -- (813) -- (813)
5% stock dividend ................................ -- 7 (7) -- --
Other comprehensive income, net of tax
Unrealized gains on securities, net
of reclassification adjustment (see disclosure). -- -- 1,173 1,218 1,173
---------
Other comprehensive income ...................... -- -- -- -- 1,218
---------
Comprehensive income ............................. -- -- -- -- $ 4,219
--------- --------- --------- --------- ========= ---------
Balance at June 30, 1997 ......................... $ 4,988 $ 70,745 $ 20,167 $ 356 $ 96,256
========= ========= ========= ========= =========
<FN>
Disclosure of reclassification amount:
Unrealized holding gains arising during period ................... $ 1,218
Less: reclassification adjustment for gains included in net income (45)
-------
Net unrealized gain on securities ................................ $ 1,173
=======
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
JeffBanks, Inc.
Consolidated Statements of Cash Flows
UNAUDITED
Six Months Ended June 30,
-----------------------------
1998 1997
(in thousands)
<S> <C> <C>
Operating activities:
Net income ......................................................... $ 6,842 $ 5,685
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization ...................................... 1,767 2,039
Provision for credit losses ........................................ 2,013 1,695
Gain on sales of investment securities ............................. (324) (147)
Mortgage loans originated for sale ................................. (58,294) (18,214)
Mortgage loan sales ................................................ 57,392 13,091
Increase in interest receivable .................................... (650) (455)
(Decrease) increase in interest payable ............................ (1,808) 1,021
Increase in other assets ........................................... (2,206) (1,919)
Decrease in other liabilities ...................................... (323) (766)
--------- ---------
Net cash provided by operating activities ....................... 4,409 2,030
--------- ---------
Investing activities:
Proceeds from sales of investment securities available for sale .... 27,428 17,142
Proceeds from maturities of investment securities available for sale 40,423 32,392
Purchase of investment securities available for sale ............... (41,188) (47,560)
Proceeds from sales of other real estate owned ..................... 948 760
Net increase in loans .............................................. (116,659) (32,337)
Purchase of premises and equipment ................................. (3,823) (2,051)
--------- ---------
Net cash used in investing activities ........................... (92,871) (31,654)
--------- ---------
Financing activities:
Net increase in deposits ........................................... 185,703 31,318
Net decrease in repurchase agreements .............................. (27,731) (10,260)
Net proceeds from issuance of common stock ......................... 1,275 641
Net decrease in FHLB advances ...................................... (50,000) (2,750)
Proceeds from issuance of preferred securities ..................... -- 25,300
Dividends paid on common stock ..................................... (1,900) (1,527)
--------- ---------
Net cash provided by financing activities ....................... 107,347 42,722
--------- ---------
Net increase in cash and cash equivalents ............................... 18,885 13,098
Cash and cash equivalents at beginning of year .......................... 141,823 87,293
--------- ---------
Cash and cash equivalents at end of period .............................. $ 160,708 $ 100,391
========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
Note 1 - Allowance for Credit Losses:
Six months ended June 30,
1998 1997
(in thousands)
Balance, beginning of period .. $ 12,769 $ 13,734
Provision charged to operations 2,013 1,695
Loans charged off ............. (4,161) (3,020)
Recoveries .................... 653 336
-------- --------
Balance, end of period ........ $ 11,274 $ 12,745
======== ========
The balances of impaired loans were $10,872,000 and $10,109,000
respectively, at June 30, 1998 and 1997. The allowance for credit losses
associated with impaired loans was $1,793,000 and $2,333,000 respectively, at
those dates. Total cash collected on impaired loans during the first six months
of 1998 and 1997, respectively, was $1,575,000 and $1,390,000, 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
$440,000 and $549,000. No related interest income was recognized during the
period.
Note 2 - Investment Securities:
The carrying value and approximate market value of investment securities at
June 30, 1998, were as follows:
Gross Gross
Amortized unrealized unrealized Approximate
cost gains losses fair value
(in thousands)
Available for Sale:
U.S. treasury securities ...... $ 17,376 $ 92 $ 1 $ 17,467
Federal agency obligations .... 16,966 90 -- 17,056
Mortgage backed securities .... 104,639 377 34 104,982
State and municipal obligations 53,642 1,786 38 55,390
Other securities .............. 21,787 3 1 21,789
-------- -------- -------- --------
Total ......................... $214,410 $ 2,348 $ 74 $216,684
======== ======== ======== ========
Held to Maturity:
State and municipal obligations 680 18 -- 698
-------- -------- -------- --------
Total ......................... $ 680 $ 18 $ -- $ 698
======== ======== ======== ========
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:
The Company adopted the provisions of Statement of Financial Accounting
Standard ("SFAS") No. 128, Earnings Per Share ("EPS") which eliminates primary
and fully diluted EPS and instead requires presentation of basic and diluted EPS
in conjunction with the disclosure of the methodology used in computing such
EPS. Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted-average common shares outstanding during the
period. Diluted EPS takes into consideration the potential dilution that could
occur if securities or other contracts to issue common stock were exercised and
converted into common stock.
Note 5:
Certain captions in the financial statements presented for prior periods
have been reclassified to conform with the current period presentation.
Note 6:
The American Institute of Certified Public Accountants ("AICPA") has issued
Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which provides accounting
guidance on capitalization of costs associated with software specifically
developed or obtained for internal use. This statement is effective for
Financial Statements issued after December 15, 1998. The effect of adoption is
not expected to be material.
Note 7:
Gain on sales of mortgage servicing rights of $625,000 reflected the sales
of servicing on loans originated prior to 1996 after which the capitalization of
servicing rights was required. The sales were made as a result of prepayment
concerns, an analysis of market conditions and the impact of the servicing
portfolio to be acquired in the pending acquisition of a mortgage company.
Note 8:
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 9:
On July 14, 1998 the Company declared a 5 for 3 stock split effected as a
dividend of two shares of common stock for three shares held. That split is
reflected in the financial statements and earnings per share computations for
all periods.
Note 10:
On July 31, 1998, the Company completed a merger with Regent Bancshares
Corp. ("Regent") and Regent National Bank accounted for as a pooling of
interests. 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, as adjusted for the
stock split decribed in Note 9. 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. On a pro forma basis, for
the six months ended June 30, 1998 revenue, net income and basic and diluted
earnings per share would have been $65.8 million, $4.1 million, $.40 and $.37
compared to $57.9 million, $5.3 million, $.57 and $.54 for the six months ended
June 30, 1997, respectively. The unaudited pro forma combined financial
information does not give effect to anticipated cost savings in connection with
the merger, and does not purport to be indicative of the combined financial
position or results of operations for future periods or indicative of the
results that actually would have been realized had the entities been a single
entity during these periods.
<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 $6.8 million for the six
months ended June 30, 1998 as compared to $5.7 million for the six months ended
June 30, 1997, an increase of approximately 20%.
Net Interest Income and Average Balances. Net interest income was $26.1 million
for the first six months of 1998, compared to $23.8 million for the first six
months of 1997, an increase of $2.3 million or 9%. Yields on interest earning
assets decreased to 8.42% for the first six months of 1998 from 8.48% in the
prior year period, a difference of .06 %. The cost of interest bearing
liabilities increased to 4.75% for the first six months of 1998 from 4.72% in
the prior year period, a difference of .03%. Accordingly, the net interest
margin on the Company's interest earning assets decreased to 4.39% in 1998 as
compared to 4.52% in the comparable prior year period, a difference of .13%.
Average balances for non-interest bearing demand deposits increased to
$147.5 million in 1998 compared to $132.8 million in 1997, an increase of $14.7
million or 11%. Average balances for savings, money market and interest checking
increased to $409.4 million in 1998 compared to $310.2 million in the comparable
1997 period, an increase of $99.2 million or 32%. Of the increase, approximately
$60 million reflected increases in short term money market deposits from
entities at which a director of the Company is an officer. Savings and money
market deposits at June 30, 1998 reflected $107.6 million of such deposits.
Interest on the deposits is paid at money market rates.
In the first six months of 1998, average interest earning assets totaled
$1.231 billion, an increase of $153.8 million or 14% over the 1997 comparable
period. Reflected in that net increase was an $88.0 million or 10% increase in
average loans to $934.0 million. In June of 1998, the Company made a $49.6
million loan to an employee stock ownership plan. The loan represents a
refinancing and is grandfathered as to partial tax exempt status under current
tax laws; thus, 50% of the interest thereon is tax exempt.
Non-Interest Income. Total non-interest income for the first six months of 1998
was $6.1 million compared to $4.2 million for the first six months of 1997, an
increase of $1.9 million or 44%. Gain on sales of mortgage servicing rights of
$625,000 reflected the sales of servicing on loans originated prior to 1996
after which the capitalization of servicing rights was required. The sales were
made as a result of prepayment concerns, an analysis of market conditions and
the impact of the servicing portfolio to be acquired in the pending acquisition
of a mortgage company. Gain on sales of residential mortgages and capitalized
mortgage servicing rights increased to $805,000 in 1998, an increase of $462,000
or 135% over 1997. The increase in 1998 reflected an increase in residential
mortgage loan originations. Gain on sales of securities increased to $324,000
for the first six months of 1998, an increase of $177,000 over 1997. The
majority of the sales were made for asset liability management purposes, as a
result of the disproportionately large securities portfolio to be acquired in
the merger with Regent and Regent National Bank (which was completed subsequent
to June 30, 1998). Other income increased to $986,000 for the first six months
of 1998, an increase of $352,000 or 56% from the comparable 1997 period. The
increase reflected an increase of $253,000 in service charges for non customer
usage of ATMs over 1997.
Non-Interest Expense. Total non-interest expense for the first six months of
1998, was $20.3 million, compared to $17.9 million for the comparable prior year
period, an increase of $2.4 million or 13%. Salaries and employee benefits
amounted to $9.4 million in the first six months of 1998 compared to $8.1
million for the first six months of 1997, an increase of $1.4 million or 17%.
The increase reflected increases of approximately $260,000 resulting from new
branches, approximately $230,000 in consumer related loan departments and
$220,000 in the commercial loan department.
Depreciation expense increased to $1.0 million for the first six months of
1998, an increase of $176,000 or 20% from the comparable 1997 period. The
increase reflected the implementation of approximately $1.6 million of hardware
and software for a branch automation and sales tracking system.
Advertising expense increased to $689,000 for the first six months of 1998,
an increase of $203,000 or 42% over the prior year. Expenditures 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 other strategies.
Amortization of intangibles decreased to $483,000 for the first six months
of 1998, a decrease of $147,000 or 23% from the prior year. The decrease
resulted primarily from the year end 1997 reduction in the valuation allowance
for deferred tax assets acquired as a result of the acquisition of Constitution
Bank. That reduction increased related realizable deferred tax assets and
decreased goodwill, and corresponding goodwill amortization.
Credit card origination expense increased to $425,000 for the first six
months of 1998, an increase of $171,000, or 67% over 1997. The increase
reflected origination costs incurred in connection with the Company's efforts to
expand its retail credit card portfolio.
Credit card processing expense increased to $425,000 for the first six
months of 1998, an increase of $189,000, or 80% over 1997. The increase
reflected significant increases in the outstanding number of credit card
accounts, and related increases in transaction volume.
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 $116.7 million for the first six months of 1998
as compared to net increases of $32.3 million for the comparable 1997 period.
Cash outflows required for mortgage loans originated for sale amounted to $58.3
million for the first six months of 1998 compared to $18.2 million for the first
six months of 1997. At June 30, 1998 the Company's subsidiaries exceeded "well
capitalized" ratios as determined by the appropriate regulatory authorities. 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 that date.
<TABLE>
<CAPTION>
Tier 1 Capital to Tier 1 Capital to Total Capital to
Average Risk-Weighted Risk-Weighted
Assets Ratio Assets Ratio Assets Ratio
June 30, December 31, June 30, December 31, June 30, December 31,
1998 1997 1998 1997 1998 1997
Entity:
<S> <C> <C> <C> <C> <C> <C>
JBI .......................... 9.58% 9.31% 11.93% 12.27% 16.01% 16.93%
Jefferson PA ................. 7.47% 7.14% 9.22% 9.61% 13.28% 14.33%
Jefferson NJ ................. 7.02% 7.04% 9.43% 9.23% 13.54% 13.57%
"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 repricing intervals for interest earning assets
and interest bearing liabilities as of June 30, 1998 and the difference or "gap"
between them on an actual and cumulative basis for the periods indicated.
<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 ................ $ 114,000
Available for sale:
Taxable investment securities ... 20,270 $ 19,946 $ 15,814 $ 3,553 $ 101,711
Non-taxable investment securities 250 887 365 180 53,708
Held to maturity:
Non-taxable investment securities -- -- 260 195 225
Mortgages held for sale ............ 3,861 -- -- -- --
Loans net of unearned discount ..... 384,053 178,509 124,454 209,716 122,485
--------- --------- --------- --------- ---------
Total interest earning assets ......... 522,434 199,342 140,893 213,644 278,129
--------- --------- --------- --------- ---------
Interest bearing liabilities:
Savings and money market deposits .. 106,510 55,655 69,658 282,134 --
Time deposits ...................... 141,056 221,020 81,137 6,778 661
Securities sold under repurchase
agreements ....................... 43,180 -- -- -- --
FHLB advances ...................... 100,000 -- -- -- --
Subordinated notes and debentures .. -- -- -- 9,000 23,000
Preferred securities ............... -- -- -- -- 25,300
--------- --------- --------- --------- ---------
Total interest bearing liabilities .... 390,746 276,675 150,795 297,912 48,961
--------- --------- --------- --------- ---------
Gap ................................... $ 131,688 $ (77,333) $ (9,902) $ (84,268) $ 229,168
========= ========= ========= ========= =========
Cumulative gap ........................ $ 131,688 $ 54,355 $ 44,453 $ (39,815) $ 189,353
========= ========= ========= ========= =========
Gap to assets ratio ................... 9% -5% * -6% 16%
Cumulative gap to assets ratio ........ 9% 4% 3% -3% 13%
</TABLE>
* Less than 1%.
<PAGE>
Loan Portfolio. The following table summarizes the loan portfolio of the Company
by loan category and amount at June 30, 1998 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 $2.2 million at June 30, 1998. Large
loans as a percentage of total loans at that date were 13%.
Book Value
(dollars in
thousands)
Loans secured by real estate:
Construction and land development ....................... $ 84,999
Secured by 1-4 family residential properties ............ 194,268
Secured by multifamily (5 or more) residential properties 32,313
Secured by non-farm non-residential properties .......... 246,255
Loans to commercial and industrial enterprises:
To U.S. addresses (domicile) ............................ 163,114
Loans to individuals for household, family and other personal
expenditures (consumer):
Credit cards and related plans .......................... 24,968
Other ................................................... 251,238
Tax exempt industrial development obligations ................ 4,389
All other loans .............................................. 1,596
Lease financing receivables, net of unearned income .......... 19,938
----------
Total ................................................... $1,023,078
==========
<PAGE>
Non-Performing Loans. The following table presents the principal amounts of non
accrual and renegotiated loans (1) at June 30, 1998 in addition to a schedule
presenting loans contractually past due 90 days or more as to interest or
principal still accruing interest. At June 30, 1998 the ratio of the allowance
for credit losses to total loans amounted to 1.10%. On an annualized basis, the
ratio of net charge-offs to average loans was .75% for the six month period
ended June 30, 1998.
<TABLE>
<CAPTION>
June 30, December 31,
------------------ -------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis ..... $10,872 $10,109 $ 9,361 $11,269 $13,127 $10,240 $ 6,832
Loans renegotiated to provide a reduction or
deferral of interest or principal ........... -- -- -- -- -- 1,367 1,493
------- ------- ------- ------- ------- ------- -------
Total non-performing loans (1) ................. 10,872 10,109 9,361 11,269 13,127 11,607 8,325
------- ------- ------- ------- ------- ------- -------
Other real estate owned ........................ 1,987 4,055 2,235 3,537 4,260 6,093 5,937
------- ------- ------- ------- ------- ------- -------
Total non-performing assets (1) ................ $12,859 $14,164 $11,596 $14,806 $17,387 $17,700 $14,262
======= ======= ======= ======= ======= ======= =======
Non-performing loans/total loans (1) ........... 1.06% 1.17% 1.03% 1.36% 1.69% 1.83% 1.56%
Non-performing assets/total loans and
non-performing assets (1) ................... 1.25% 1.63% 1.27% 1.78% 2.23% 2.76% 2.64%
Loans past due 90 days or more as to interest
or principal payments still accruing interest
and not included in non-accrual loans ....... $ 6,556 $10,241 $ 5,452 $ 4,478 $ 6,898 $ 6,190 $ 4,564
======= ======= ======= ======= ======= ======= =======
</TABLE>
Non-accrual loans(1) increased to $10.9 million at June 30, 1998 compared to
$9.4 million at December 31, 1997. The increase reflected approximately $4.5
million of additions, $1.4 million of charge-offs and $1.6 million of payments.
Other real estate owned amounted to $2.0 million at June 30, 1998 compared
to $2.2 million at December 31, 1997. Activity in the six months ended June 30,
1998 reflected $1.0 million of additions with sales and other receipts of
$948,000, and charge-offs and other write downs of $332,000.
Interest on Non-Accrual Loans(1). If interest on non-accrual loans had been
accrued, such income would have been $440,000 and $549,000, respectively for the
first six months of 1998 and 1997.
Provision for Credit Losses. The provision for credit losses for the first
six months of 1998 was $2 million compared to $1.7 million in the first six
months of 1997.
- -----------------------------------------
(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>
June 30, December 31,
---------------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance in the allowance for credit losses at
beginning of period ..................... $12,769 $13,734 $13,734 $14,991 $ 8,986 $ 6,867 $ 6,468
------- ------- ------- ------- ------- ------- -------
Loans charged-off:
Commercial .............................. 313 698 957 1,914 2,816 1,198 736
Construction ............................ 213 -- -- 473 -- 167 --
Real estate mortgage .................... 1,827 1,885 3,140 4,272 1,588 1,768 1,274
Credit card ............................. 954 144 835 160 16 -- --
Installment and lease financing ......... 854 293 900 522 435 236 243
------- ------- ------- ------- ------- ------- -------
Total ................................ 4,161 3,020 5,832 7,341 4,855 3,369 2,253
------- ------- ------- ------- ------- ------- -------
Recoveries:
Commercial .............................. 296 48 216 109 265 309 73
Construction ............................ -- -- -- -- -- -- 1
Real estate mortgage .................... 236 244 956 901 437 196 31
Credit card ............................. 29 8 9 -- -- -- --
Installment and lease financing ......... 92 36 86 51 51 28 28
------- ------- ------- ------- ------- ------- -------
Total ................................ 653 336 1,267 1,061 753 533 133
------- ------- ------- ------- ------- ------- -------
Net charge-offs ............................. 3,508 2,684 4,565 6,280 4,102 2,836 2,120
Acquisitions ................................ -- -- -- -- 6,121 3,098 --
Provision charged to operations ............. 2,013 1,695 3,600 5,023 3,986 1,857 2,519
------- ------- ------- ------- ------- ------- -------
Balance in allowance for credit losses at end
of period ............................... $11,274 $12,745 $12,769 $13,734 $14,991 $ 8,986 $ 6,867
======= ======= ======= ======= ======= ======= =======
Net charge-offs/average loans ............... 0.75% 0.63% 0.53% 0.79% 0.58% 0.50% 0.42%
</TABLE>
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK
Refer to 10-K.
<PAGE>
Part II. Other Information
Item 6. Reports on Form 8-K
1. Form 8-K filed March 31, 1998 Item (5) Other material events: the proposed
acquisition of Regent Bancshares Corp.
2. Form 8-K filed August 13, 1998 Item (2) Acquisition or disposition of
assets: the completed acquisition of Regent Bancshares Corp.
<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: August 5, 1998 By /s/ Paul Frenkiel
------------------------------------------
Paul Frenkiel
Chief Financial Officer
Dated: August 5, 1998 By /s/ Martin F. Egan
------------------------------------------
Martin F. Egan
Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Jun-30-1998
<CASH> 46708
<INT-BEARING-DEPOSITS> 1046
<FED-FUNDS-SOLD> 114000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 216684
<INVESTMENTS-CARRYING> 680
<INVESTMENTS-MARKET> 698
<LOANS> 1023078
<ALLOWANCE> 11274
<TOTAL-ASSETS> 1440534
<DEPOSITS> 1119333
<SHORT-TERM> 143180
<LIABILITIES-OTHER> 11797
<LONG-TERM> 57300
0
0
<COMMON> 8463
<OTHER-SE> 100461
<TOTAL-LIABILITIES-AND-EQUITY> 1440534
<INTEREST-LOAN> 42258
<INTEREST-INVEST> 7485
<INTEREST-OTHER> 1120
<INTEREST-TOTAL> 50863
<INTEREST-DEPOSIT> 17922
<INTEREST-EXPENSE> 24803
<INTEREST-INCOME-NET> 26060
<LOAN-LOSSES> 2013
<SECURITIES-GAINS> 324
<EXPENSE-OTHER> 20309
<INCOME-PRETAX> 9836
<INCOME-PRE-EXTRAORDINARY> 6842
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6842
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.74
<YIELD-ACTUAL> 4.39
<LOANS-NON> 10872
<LOANS-PAST> 6556
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12769
<CHARGE-OFFS> 4161
<RECOVERIES> 653
<ALLOWANCE-CLOSE> 11274
<ALLOWANCE-DOMESTIC> 11274
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
