SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
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 0-6848
JEFFERSON BANCORP, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-1284885
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
301 ARTHUR GODFREY ROAD
MIAMI BEACH, FLORIDA 33140
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(305) 534-8341
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTIONS 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 _____
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AT JULY 31, 1996
----- ----------------------------
COMMON STOCK, $1.00 PAR VALUE, OF A SINGLE CLASS 3,823,049
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FOLLOWING FINANCIAL STATEMENTS
ARE FILED AS PART OF THIS REPORT:
PAGES IN QUARTERLY REPORT
AS OF JUNE 30, 1996 TO
SECURITIES AND EXCHANGE
COMMISSION
CONSOLIDATED BALANCE SHEETS 3-4
STATEMENTS OF CONSOLIDATED INCOME 5
STATEMENT OF CONSOLIDATED
STOCKHOLDERS' EQUITY 6
STATEMENT OF CONSOLIDATED
CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS 8-13
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 14-23
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS 23
ITEM 6(a) EXHIBITS FILED
NONE
(b) REPORTS ON FORM 8-K
NO REPORTS ON FORM 8-K HAVE BEEN
FILED DURING THE QUARTER FOR
WHICH THIS REPORT IS FILED
SIGNATURES 24
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
JEFFERSON BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 DECEMBER 31, 1995
(Unaudited) (Unaudited)
------------- -----------------
<S> <C> <C>
ASSETS
CASH AND DEMAND BALANCES DUE FROM BANKS $12,027,284 $17,545,682
------------ ------------
INVESTMENT SECURITIES
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS (NON-TAXABLE) 92,969 103,912
OTHER SECURITIES 1,014,643 1,139,348
------------ ------------
TOTAL INVESTMENT SECURITIES (APPROXIMATE MARKET VALUE
1996-$1,114,000; 1995-$1,254,000) 1,107,612 1,243,260
------------ ------------
SECURITIES AVAILABLE FOR SALE
U.S. TREASURY SECURITIES 7,854,375 10,056,875
SECURITIES OF OTHER U.S. GOVERNMENT AGENCIES 100,916,844 101,900,477
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS (NON-TAXABLE) 5,018,934 4,610,180
COLLATERIZED MORTGAGE OBLIGATIONS AND OTHER SECURITIES 609,370 1,586,315
------------ ------------
TOTAL SECURITIES AVAILABLE FOR SALE (Fair value 1996-$114,400,000
1995-$118,154,000) 114,399,523 118,153,847
------------ ------------
FEDERAL FUNDS SOLD - 4,500,000
------------ ------------
LOANS 291,803,496 268,786,404
LESS: UNEARNED INCOME 2,131,754 2,186,667
ALLOWANCE FOR CREDIT LOSSES 2,357,599 2,434,357
------------ ------------
TOTAL LOANS, NET 287,314,143 264,165,380
------------ ------------
LOANS HELD FOR SALE 653,994 1,716,917
------------ ------------
PREMISES AND EQUIPMENT, NET 4,788,848 6,186,810
------------ ------------
OTHER REAL ESTATE OWNED 477,418 633,678
------------ ------------
OTHER ASSETS 19,474,389 18,857,212
------------ ------------
TOTAL ASSETS $440,243,211 $433,002,786
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3
<PAGE>
<TABLE>
<CAPTION>
JEFFERSON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 DECEMBER 31, 1995
(Unaudited) (Unaudited)
------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
DEMAND (NON-INTEREST-BEARING) $47,435,844 $55,814,702
SAVINGS 22,451,105 27,396,006
INTEREST-PAYING CHECKING 55,155,775 67,489,951
MONEY MARKET ACCOUNTS 32,430,041 36,937,656
CERTIFICATES AND PUBLIC FUNDS 228,833,185 183,648,700
------------ ------------
TOTAL DEPOSITS 386,305,950 371,287,015
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD
UNDER AGREEMENTS TO REPURCHASE 13,036,136 19,424,965
DEFERRED GAIN ON SALE OF BUILDINGS 29,084 31,812
OTHER LIABILITIES 4,538,163 4,635,204
------------ ------------
TOTAL LIABILITIES 403,909,333 395,378,996
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
COMMON STOCK, $1.00 PAR VALUE, 10,000,000 SHARES
AUTHORIZED; ISSUED - JUNE 30, 1996- 4,005,354;
DECEMBER 31, 1995-3,999,496 SHARES 4,005,354 3,999,496
CAPITAL SURPLUS 29,401,337 29,349,762
RETAINED EARNINGS 9,144,613 8,912,103
TREASURY STOCK, AT COST-JUNE 30,1996-193,378 SHARES;
DECEMBER 31, 1995- 193,378 SHARES (1,862,204) (1,862,204)
DEFERRED COMPENSATION (781,673) (1,027,343)
NET UNREALIZED (LOSSES) GAINS ON SECURITIES AVAILABLE FOR SALE
(NET OF APPLICABLE INCOME TAXES) (3,573,549) (1,748,024)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 36,333,878 37,623,790
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $440,243,211 $433,002,786
============ ============
BOOK VALUE PER COMMON SHARE EXCLUDING UNREALIZED
GAINS (LOSSES) ON SECURITIES AVAILABLE FOR SALE $10.47 $10.34
============ ============
BOOK VALUE PER COMMON SHARE $9.53 $9.89
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
JEFFERSON BANCORP, INC. AND SUBSIDIARIES FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
STATEMENTS OF CONSOLIDATED INCOME JUNE 30, JUNE 30,
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
INTEREST AND FEES ON LOANS $6,672,035 $5,647,260 $13,175,052 $10,685,838
INVESTMENTS AND SECURITIES HELD FOR SALE:
U.S. TREASURY SECURITIES 114,093 122,280 237,031 245,125
SECURITIES OF OTHER U.S. GOVERNMENT AGENCIES 1,391,800 1,799,289 2,655,615 3,330,426
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS-
NON-TAXABLE 58,478 80,393 112,153 182,221
COLLATERIZED MORTGAGE OBLIGATIONS AND OTHER SECURITIES 3,207 50,717 35,272 104,787
FEDERAL FUNDS SOLD AND OTHER SHORT-TERM INVESTMENTS 40,659 136,290 60,982 186,538
---------- ---------- ----------- -----------
TOTAL INTEREST INCOME 8,280,272 7,836,229 16,276,105 14,734,935
---------- ---------- ----------- -----------
INTEREST EXPENSE:
DEPOSITS:
SAVINGS 137,751 204,675 292,575 413,710
INTEREST-PAYING CHECKING 243,979 301,916 520,033 589,272
MONEY MARKET ACCOUNTS 181,099 211,569 371,169 448,754
CERTIFICATES AND PUBLIC FUNDS 3,113,719 2,426,275 5,831,257 4,010,917
SHORT-TERM BORROWINGS 133,489 262,561 289,573 616,802
---------- ---------- ----------- -----------
TOTAL INTEREST EXPENSE 3,810,037 3,406,996 7,304,607 6,079,455
---------- ---------- ----------- -----------
NET INTEREST INCOME 4,470,235 4,429,233 8,971,498 8,655,480
(RECOVERY) PROVISION FOR CREDIT LOSSES (55,000) 75,000 20,000 150,000
---------- ---------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
CREDIT LOSSES 4,525,235 4,354,233 8,951,498 8,505,480
---------- ---------- ----------- -----------
OTHER INCOME:
TRUST INCOME 237,534 367,420 544,993 681,498
SERVICE CHARGES, COMMISSIONS AND FEES 345,998 304,732 679,604 632,945
(LOSS) GAIN ON SALE OF SECURITIES AVAILABLE FOR SALE, NET (53,705) 323,985 6,031 323,985
OTHER OPERATING INCOME 203,876 250,800 452,436 464,202
GAIN ON SALE OF SUBSIDIARY BANK - - 757,167 -
---------- ---------- ----------- -----------
TOTAL OTHER INCOME 733,703 1,246,937 2,440,231 2,102,630
---------- ---------- ----------- -----------
OPERATING EXPENSES:
SALARIES AND EMPLOYEE BENEFITS 2,136,811 2,255,798 4,593,698 4,546,552
OCCUPANCY EXPENSE, NET 696,791 831,162 1,407,945 1,529,244
OTHER OPERATING EXPENSES 1,465,295 1,604,793 3,144,257 3,164,573
---------- ---------- ----------- -----------
TOTAL OPERATING EXPENSES 4,298,897 4,691,753 9,145,900 9,240,369
---------- ---------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 960,041 909,417 2,245,829 1,367,741
PROVISION FOR INCOME TAXES 310,200 283,600 721,700 422,500
---------- ---------- ----------- -----------
NET INCOME $649,841 $625,817 $1,524,129 $945,241
========== ========== =========== ===========
EARNINGS PER COMMON SHARE:
AVERAGE NUMBER OF SHARES OUTSTANDING 3,893,704 3,779,617 3,906,120 3,785,703
========== ========== =========== ===========
NET INCOME PER SHARE $0.17 $0.17 $0.39 $0.25
========== ========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) 5
<PAGE>
<TABLE>
<CAPTION>
JEFFERSON BANCORP, INC. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996 NET UNREALIZED
GAINS (LOSSES)
ON SECURITIES
COMMON CAPITAL RETAINED TREASURY DEFERRED AVAILABLE
STOCK SURPLUS EARNINGS STOCK COMPENSATION FOR SALE
---------- ----------- ---------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $3,999,496 $29,349,762 $8,912,103 ($1,862,204) ($1,027,343) ($1,748,024)
NET INCOME - - 1,524,129 - - -
$.125 PER SHARE CASH DIVIDEND - - (476,336) - - -
$.125 PER SHARE CASH DIVIDEND - - (476,337) - - -
EXERCISE OF STOCK OPTIONS 5,858 51,575 - - - -
AMORTIZATION OF DEFERRED COMPENSATION - - - - 245,670 -
CASH PAYOUT UPON CANCELLATION OF OPTIONS - - (338,946) - - -
CHANGE IN NET UNREALIZED GAINS/(LOSSES)
ON SECURITIES AVAILABLE FOR SALE - - - - - (1,825,525)
---------- ----------- ---------- ----------- ----------- -----------
BALANCE, JUNE 30, 1996 $4,005,354 $29,401,337 $9,144,613 ($1,862,204) ($781,673) ($3,573,549)
========== =========== ========== =========== ========= ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6
<PAGE>
<TABLE>
<CAPTION>
JEFFERSON BANCORP, INC. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
1996 1995
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $1,524,129 $945,241
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 366,792 403,015
GAIN ON SALE OF BUILDINGS (2,728) (2,727)
LOSS (GAIN) ON SALE OF OTHER REAL ESTATE OWNED 12,029 (51,674)
GAIN ON SALE OF SUBSIDIARY BANK (757,167) -
PROVISION FOR CREDIT LOSSES 20,000 150,000
PREMIUM AMORTIZATION AND DISCOUNT ACCRETION, NET 74,320 116,222
NET GAIN ON SALE OF SECURITIES AVAILABLE FOR SALE (6,031) (323,985)
AMORTIZATION OF DEFERRED COMPENSATION 245,670 203,490
ORIGINATION OF LOANS HELD FOR SALE (11,905,036) (9,765,701)
DISPOSITION OF LOANS HELD FOR SALE 12,967,959 9,805,163
INCREASE IN OTHER ASSETS (9,746,995) (6,986,937)
(DECREASE) INCREASE IN OTHER LIABILITIES (25,904) 1,058,670
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (7,232,962) (4,449,223)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
NET INCREASE IN LOANS (32,199,350) (26,949,800)
SALE OF SECURITIES AVAILABLE FOR SALE 25,306,656 30,120,655
PROCEEDS FROM MATURITIES AND PAYDOWNS OF
SECURITIES AVAILABLE FOR SALE 3,056,294 3,501,324
PURCHASE OF SECURITIES AVAILABLE FOR SALE (31,131,964) (48,388,584)
PROCEEDS FROM MATURITIES OF INVESTMENT SECURITIES 115,648 -
NET DECREASE (INCREASE) IN FEDERAL FUNDS SOLD AND
INTEREST-EARNING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS 1,000,000 (12,000,000)
SALE PROCEEDS FROM SALE OF SUBSIDIARY BANK 3,000,000 -
DISPOSITION OF OTHER REAL ESTATE OWNED 162,231 913,568
ACQUISITION OF OTHER REAL ESTATE OWNED (18,000) (364,863)
PURCHASES OF PREMISES AND EQUIPMENT (141,815) (145,675)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (30,850,300) (53,313,375)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET INCREASE IN DEPOSITS 36,686,701 62,061,168
NET DECREASE IN FEDERAL FUNDS PURCHASED AND
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (4,792,997) (4,736,768)
PAYMENT OF CASH DIVIDENDS 952,673 (903,864)
PAYMENT OF SPREAD ON STOCK OPTIONS (338,946) -
PROCEEDS FROM EXERCISE OF STOCK OPTIONS 57,433 80,697
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES: 32,564,864 56,501,233
----------- -----------
NET INCREASE IN CASH AND DEMAND BALANCES
DUE FROM BANKS (5,518,398) (1,261,365)
CASH AND DEMAND BALANCES DUE FROM BANKS AT BEGINNING OF YEAR 17,545,682 14,542,225
----------- -----------
CASH AND DEMAND BALANCES DUE FROM BANKS AT JUNE 30, $12,027,284 $13,280,860
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
INTEREST PAID $7,270,000 $4,994,000
=========== ===========
INCOME TAX PAYMENTS $492,500 $295,000
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7
<PAGE>
ITEM 1. JEFFERSON BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(A) SIGNIFICANT ACCOUNTING POLICIES - The accounting policies followed for
quarterly reporting purposes are the same as those disclosed in the 1995 Annual
Report to Stockholders of Jefferson Bancorp, Inc. (the "Company"). In the
opinion of management, the accompanying consolidated financial statements
reflect all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the information provided. These statements
have been prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote statements have been omitted pursuant to such rules and regulations.
Although the Company believes that the disclosures are adequate to make the
information presented not misleading, it is suggested that these financial
statements be read in conjunction with the Company's audited 1995 consolidated
financial statements and the notes thereto.
(B) RESTRICTED STOCK, STOCK OPTION AND NON-QUALIFIED OPTION PLANS
RESTRICTED STOCK PLANS - On September 1, 1989, the Company adopted a restricted
stock plan (the "1989 Plan") whereby an aggregate of not more than 300,000
shares of common stock were made available for awards to certain key executives.
The number of shares awarded to the eligible executives are based on the
executive's salary and length of time employed by the Company. The stock issued
in connection with the 1989 Plan vests on the third anniversary of the date of
grant. Deferred compensation, a contra-equity account, is recorded for the fair
market value of any shares of common stock awarded under the 1989 Plan and is
then amortized as compensation expense over the vesting period. At June 30,
1996, 24,654 shares were available under the 1989 Plan for the future awards.
Effective May 1, 1996, the Company adopted a second restricted stock plan (the
"1996 Plan") which is substantially identical to the 1989 Plan, except that no
participant may be awarded more than 20,000 shares under the 1996 Plan in any
calendar year. At June 30, 1996, 300,000 shares were available for awards under
the 1996 Plan.
STOCK OPTION PLANS - Under various stock option plans approved by the Board of
Directors, options may be granted to key employees of the Company and its
subsidiaries, including officers and directors who are also employees, to
purchase an aggregate of 585,328 shares of the common stock of the Company. At
June 30, 1996, the total number of stock options available for future grants
were 87,231 shares. Options under these plans are granted at a price of not less
than the fair market value of the shares on the date granted. No charge is made
to income with respect to stock options.
8
<PAGE>
The following table presents additional information concerning the activity in
these stock option plans:
OPTION PRICE
------------------------
NUMBER OF AVERAGE
SHARES PER SHARE AGGREGATE
January 1, 1993 328,576 $8.37 $2,748,205
Grants 25,000 9.90 247,500
3% stock dividend 750 - -
Exercised (28,623) 8.37 (239,548)
Rescissions (30,044) 8.25 (247,800)
------- ----------
Options outstanding:
December 31, 1993 295,659 8.49 2,508,357
Grants 88,000 10.12 890,375
3% stock dividend 2,640 - -
Exercised (28,224) 7.64 (215,546)
Recisions (29,802) 7.83 (233,330)
------- ----------
Options outstanding:
December 31, 1994 328,273 8.99 2,949,856
Grants 1,000 13.25 13,250
Exercised (79,012) 8.74 (690,487)
------- ----------
Options outstanding:
December 31, 1995 250,261 9.08 2,272,619
Exercised (4,571) 9.83 (44,934)
Canceled (63,792) 9.13 (582,111)
------- ----------
Options outstanding:
June 30, 1996 181,898 9.05 1,645,574
======= ==========
Options exercisable at
December 31, 1995 249,011
=======
June 30, 1996 181,898
=======
NON-EMPLOYEE DIRECTORS OPTION PLAN:
On June 20, 1994, with all non-employee directors abstaining and subject to
stockholder approval, the Board of Directors granted to non-employee directors
non-qualified options to purchase 27,500 (28,325 after restatement for 3% stock
dividend) shares of the common stock of the Company at a price of $10.125 per
share ($9.83 after restatement for 3% stock dividend), the fair market value of
the shares on that date. The grants were presented to the stockholders of the
Company for their consideration at the annual meeting held April 25, 1995 and
ratified by the holders of 88% of the total shares outstanding.
9
<PAGE>
OPTION PRICE
------------------------
NUMBER OF AVERAGE
SHARES PER SHARE AGGREGATE
January 1, 1993 113,300 $ 7.53 $ 852,500
Grants 27,500 10.00 275,000
3% stock dividend 825 - -
------- ----------
Options outstanding:
December 31, 1993 141,625 7.97 1,127,500
Grants 27,500 10.13 278,438
3% stock dividend 825 -
Exercised (29,200) 7.53 (219,713)
------- ----------
Options outstanding:
December 31, 1994 140,750 8.43 1,186,225
Exercised (76,374) 8.55 (652,945)
------- ----------
Options outstanding:
December 31, 1995 64,376 8.28 533,280
------- ----------
Exercised (1,287) 9.71 (12,500)
------- ----------
Options Outstanding:
June 30, 1996 63,089 8.26 520,780
======= ==========
Options exercisable at:
December 31, 1995 64,376
=======
June 30, 1996 63,089
=======
(C) DEATH AND DISABILITY, SEVERANCE AND RETIREMENT PLANS: Effective May 1, 1989,
the Company adopted a death and disability plan that provides for cash payments
in the event of the death or permanent disability of directors who are not
employees of the Company and certain senior officers of the Company. The death
and disability plan is substantially funded through life insurance policies.
Also, effective May 1, 1989, the Company adopted an unfunded severance plan that
provided for cash payments to certain senior officers of the Company in the
event that their employment was voluntarily or involuntarily terminated at any
time during a one-year period following a change in control, as defined by the
Company.
Effective January 1, 1994, the Company amended the severance plan to provide for
cash payments to directors and senior officers upon a change in control, whether
or not their employment is terminated as a result thereof, or upon their
retirement. During the six months ended June 30, 1996, the Company accrued
approximately $262,570 of benefits. It is the Company's intent that benefits
under the amended severance plan and benefits under the death and disability
plan be mutually exclusive and not duplicative.
(D) IMPACT OF NEW ACCOUNTING ISSUES: In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation". This Statement requires certain
disclosures about stock-based employee compensation arrangements, regardless of
the method used to account for them, defines a fair value method of accounting
for an employee stock option or similar equity instrument, and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to continue to measure
10
<PAGE>
compensation cost for stock-based compensation plans using the intrinsic value
method of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Entities electing to remain with the
accounting in APB Opinion No. 25 must make proforma disclosures of net income
and, if presented, earnings per share, as if the fair value method of accounting
defined in this Statement had been applied. Under the fair value method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
Under the intrinsic value method, compensation cost is the excess, if any, of
the quoted market price of the stock at grant date or other measurement date
over the amount an employee must pay to acquire the stock. The disclosure
requirements of this Statement are effective for financial statements for fiscal
years beginning after December 15, 1995. Proforma disclosures required for
entities that elect to continue to measure compensation cost using APB Opinion
No. 25 must include the effects of all awards granted in fiscal years that begin
after December 15, 1994. Management adopted SFAS No. 123 effective January 1,
1996, and has elected to continue to measure compensation using APB No. 25.
(E) LOANS: Interest income on certain installment loans is recognized using a
method which approximates the interest method. Interest income on all other
loans is recognized based upon the principal amounts outstanding. Loans are
generally placed on non-accrual status and related accrued interest reversed
when, in the opinion of management, there is substantial doubt as to the ability
of the borrower to pay the interest. When a loan is placed on a non-accruing
status, any interest accrued in the current period, but not collected, is
reversed against interest income. Non-refundable loan origination fees and costs
associated with the lending process are deferred and recognized as a yield
adjustment over the life of the related loan.
Loans held for sale are recorded at the lower of cost or market on an aggregate
basis. Unrealized declines in market value are included in other operating
income.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan". The Statement generally would require all creditors to
account for impaired loans at the present value of the expected future cash flow
discounted at the loan's effective interest rate. SFAS No. 114 is effective for
fiscal years beginning after December 15, 1994, and earlier application is
encouraged. SFAS No. 114 is not expected to have a material effect on the
Company's financial statements as most loans in question are collateral
dependent, and the Company already accounts for impaired loans at the lower of
cost or fair value less costs to dispose.
(F) ALLOWANCE FOR CREDIT LOSSES: The allowance for credit losses is increased by
provision for credit losses and is reduced by loan charge-offs, net of
recoveries. The provision for credit losses is determined based upon
management's review and evaluation of the loan portfolio and the adequacy of the
allowance for credit losses, giving consideration to the overall condition of
the loan portfolio, review of known problem loans for potential losses, economic
factors and business trends that could affect loan collectability. Many of these
factors involve a significant degree of estimation and are subject to rapid
change which could be unforeseen by management. Changes in these factors could
result in material adjustments to the allowance in the near term.
On January 1, 1995, the Bank adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan", and SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan - Recognition and Disclosures", an amendment of SFAS No. 114. These
standards address the accounting for impairment of certain loans when it is
probable that all amounts due pursuant to the contractual terms of the loan
11
<PAGE>
will not be collected. Adoption of these standards entailed the identification
of commercial loans which are considered impaired under the provisions of SFAS
No. 114. Groups of smaller-balancf homogeneous loans (generally residential
mortgage and installment loans) are collectively evaluated for impairment.
Adoption of these statements did not have a material impact on the Bank's
financial position or results of operations.
Under the provisions of these standards, individually identified impaired loans
are measured based on the present value of payments expected to be received,
using the historical effective loan rate as the discount rate. Alternatively,
measurement may also be based on observable market prices or for loans that are
solely dependent on the collateral for repayment, measurement may be based on
the fair value of the collateral. Loans that are to be foreclosed are measured
based on the fair value of the collateral. If the recorded investment in the
impaired loans exceeds that measure of fair value, a valuation is required as a
component of the allowance for loan losses. Changes to the valuation allowance
are recorded as a component of the provision for loan losses.
Loans where reasonable doubt exists as to timely collection, including loans
that are individually identified as being impaired under SFAS No. 114, are
generally classified as nonperforming loans unless based on the evaluation of
management the loan is well secured and in the process of collection.
Charge-offs are recorded when, in the judgment of management, an extension of
credit is deemed uncollectible, in whole or in part.
Interest collections on nonperforming loans, including impaired loans, for which
the ultimate collectibility of principal and interest is uncertain, are applied
as reductions in book value. Otherwise, such collections are credited to income
when received.
(G) OTHER REAL ESTATE OWNED: Property acquired by foreclosure or deed in lieu of
foreclosure is recorded at the lower of cost or estimated fair value at the time
the loan is foreclosed. Upon classification as other real estate owned, the
excess of the recorded investment over the fair value of the collateral, if any,
is charged to the allowance for credit losses.
Once properties are classified as other real estate, such properties are carried
at the lower of cost or fair value minus estimated costs to sell. Net expenses
incurred in maintaining properties, subsequent write-downs due to changes in
market values, and gains or losses upon disposition are included in other
operating expenses. Expenditures to complete or improve properties are
capitalized only if reasonably expected to be recovered; otherwise, they are
expensed as incurred.
The amounts the Company could ultimately recover from property acquired by
foreclosure or deed in lieu of foreclosure could differ materially from the
amounts used in arriving at the net carrying value of the assets because of
future market factors beyond the Company's control or changes in the Company's
strategy for recovering its investment.
(H) GOODWILL: In 1987, the Company acquired Broward Bancorp, a Florida bank
holding company. Broward Bancorp's sole banking subsidiary, which was known as
Broward Bank, became a subsidiary of the Company and was renamed Jefferson Bank.
The purchase price and costs of this acquisition exceeded the fair market value
12
<PAGE>
of the net assets by approximately $1,134,000. This excess is being amortized
over a period of 20 years using the straight line method and is included in
"other assets" in the Company's consolidated balance sheets. The accumulated
amortization through June 30, 1996, after giving effect to a write-off of
$242,833 occasioned by the sale of Jefferson Bank on February 14, 1996, totaled
$803,044.
(I) INCOME TAXES: Deferred taxes are provided for timing differences between
income reported for financial reporting and for income tax purposes. The Company
files consolidated income tax returns.
The Company provides for deferred taxes under the liability method. Under such
method, deferred taxes are adjusted for tax rate changes as they occur. Deferred
income tax assets and liabilities are computed annually for differences between
the financial statements and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
(J) RECLASSIFICATION: Certain amounts in the prior period in the consolidated
financial statements have been reclassified for comparative purposes.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
The consolidated earnings of Jefferson Bancorp, Inc. and subsidiaries
(collectively, the "Company") reflect principally the operations of the banking
subsidiaries, Jefferson Bank of Florida ("Jefferson Florida"), and Jefferson
Bank ("Jefferson Broward"). The smaller of the two, Jefferson Broward, was sold
on February 14, 1996 to Peoples National Bank of Commerce - Miami.
Earnings are comprised of net interest income and other income. Net interest
income, or the difference between total interest income from earning assets and
total interest expense from key liabilities, for any given period is determined
by the average volume of interest-earning assets (mainly loans, loans held for
sale, investment securities, securities available for sale, and federal funds
sold), the average yield earned on such assets, the average volume of deposits
and borrowings on which interest is paid, the average rate of interest paid on
such deposits and borrowings and the average volume of demand deposits upon
which no interest is paid.
Other income is comprised of service charges on deposit accounts, fees and
commissions for various banking services and trust department income. Earnings
from these functions are affected chiefly by the volume of activity and the
level of fees charged. Other income also includes net gains recognized from the
sale of investment securities, loans and fixed assets.
14
<PAGE>
JEFFERSON BANCORP, INC. AND SUBSIDIARIES
Management's discussion and analysis of
financial condition and results of operations - (continued)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 1996 QUARTER ENDED JUNE 30, 1995
NET INTEREST INCOME, AVERAGE BALANCES --------------------------------- ---------------------------------
AND AVERAGE RATES AVERAGE AVERAGE AVERAGE AVERAGE
(IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans and loans held for sale:
Real estate, commercial and financial and government
guaranteed loans (1) $266,625 $6,107 9.21% $210,154 $5,469 10.44%
Installment loans, net of unearned income 11,589 278 9.59% 10,776 259 9.62%
Investment securities and securities available for sale:
U.S. Treasury securities 9,455 114 4.85% 10,214 122 4.79%
Securities of other U.S. Government agencies 102,401 1,392 5.44% 126,470 1,800 5.69%
Obligations of states and political subdivisions
(non-taxable) (2) 5,094 88 6.90% 6,368 122 7.67%
Collateralized mortgage obligations and other securities 1,050 3 1.26% 3,345 51 6.08%
Federal funds sold and other short-term investments 3,252 41 5.07% 9,567 137 5.73%
-------- ------ -------- ------
Total interest-earning assets $399,466 8,022 8.08% $376,894 7,959 8.47%
======== ------ ======== ------
KEY LIABILITIES:
Deposits:
Savings 22,779 138 2.43% 30,474 205 2.69%
Interest-paying checking 57,569 244 1.70% 71,063 302 1.71%
Money market 34,208 181 2.13% 39,039 212 2.18%
Certificates of deposit 171,170 2,460 5.78% 122,704 1,865 6.10%
Public funds 42,882 653 6.13% 36,935 562 6.10%
-------- ------ -------- ------
Total deposits 328,607 3,676 4.50% 300,215 3,146 4.20%
Borrowings 13,192 134 4.07% 26,391 263 3.99%
-------- ------ -------- ------
Total interest-bearing liabilities 341,799 3,810 4.48% 326,607 3,409 4.19%
-------- ------ -------- ------
Total noninterest-bearing liabilities 51,354 50,715
-------- --------
Total key liabilities $393,153 $377,322
======== ========
Net interest income/spread $4,212 3.58% $4,551 4.28%
====== ======
Net interest income as a percent of total
average interest-earning assets 4.23% 4.84%
<FN>
(1) Average balances include nonaccrual loans. Interest income includes
fees on loans of approximately $176,000 and $277,000 for quarters
ended June 30, 1996 and 1995, $427,000 and $441,000 for the six
months ended June 30, 1996 and 1995, and $676,000 for the year ended
December 31, 1995, respectively.
(2) Interest income includes the effects of taxable-equivalent
adjustment, using a 34% tax rate to adjust interest on tax-exempt
securities to taxable-equivalent basis.
</FN>
</TABLE>
15
<PAGE>
JEFFERSON BANCORP, INC. AND SUBSIDIARIES
Management's discussion and analysis of
financial condition and results of operations - (continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996 SIX MONTHS ENDED JUNE 30, 1995 YEAR ENDED DECEMBER 31, 1995
NET INTEREST INCOME, AVERAGE ------------------------------ ------------------------------ ------------------------------
BALANCES AND AVERAGE RATES AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
(IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans and loans held for sale:
Real estate, commercial and
financial and government
guaranteed loans (1) $259,186 $11,949 9.27% $202,536 $10,032 9.99% $213,097 $20,882 9.80%
Installment loans, net of
unearned income 11,714 561 9.57% 9,964 479 9.62% 11,210 1,094 9.76%
Investment securities and
securities available for sale:
U.S. Treasury securities 9,819 237 4.85% 10,220 245 4.84% 10,207 493 4.83%
Securities of other U.S.
Government agencies 100,916 2,656 5.26% 120,963 3,331 5.51% 125,996 6,975 5.54%
Obligations of states and
political subdivisions
(non-taxable) (2) 4,914 169 6.87% 7,208 275 7.63% 6,273 471 7.51%
Collateralized mortgage
obligations and other
securities 1,083 35 6.52% 3,441 105 6.09% 3,223 164 5.09%
Federal funds sold and other
short-term investments 2,224 61 5.52% 6,572 187 5.73% 7,376 410 5.56%
-------- ------- -------- ------- -------- -------
Total interest-earning
assets $389,856 15,667 8.08% $360,904 14,653 8.19% $377,382 30,489 8.08%
======== ------- ======== ------- ======== -------
KEY LIABILITIES:
Deposits:
Savings 23,978 293 2.45% 31,157 414 2.68% 29,958 784 2.62%
Interest-paying checking 61,870 520 1.69% 70,815 589 1.68% 70,399 1,184 1.68%
Money market 34,752 371 2.15% 40,388 449 2.24% 40,913 897 2.19%
Certificates of deposit 153,942 4,537 5.93% 107,849 3,105 5.81% 125,307 7,479 5.97%
Public funds 42,143 1,294 6.18% 31,370 906 5.82% 36,105 2,198 6.09%
-------- ------- -------- ------- -------- -------
Total deposits 316,685 7,015 4.45% 281,579 5,463 3.91% 302,682 12,542 4.14%
Borrowings 14,868 290 3.92% 30,832 617 4.03% 24,982 921 3.69%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 331,553 7,305 4.43% 312,411 6,080 3.92% 327,664 13,463 4.11%
-------- ------- -------- ------- -------- -------
Total noninterest-bearing
liabilities 51,818 49,272 49,520
-------- -------- --------
Total key liabilities $383,371 $361,683 $377,184
======== ======== ========
Net interest income/spread $8,362 3.67% $8,574 4.26% $17,026 3.97%
======= ======= =======
Net interest income as a
percent of total average
interest-earning assets 4.33% 4.79% 4.51%
<FN>
(1) Average balances include nonaccrual loans. Interest income includes
fees on loans of approximately $176,000 and $277,000 for quarters
ended June 30, 1996 and 1995, $427,000 and $441,000 for the six
months ended June 30, 1996 and 1995, and $676,000 for the year ended
December 31, 1995, respectively.
(2) Interest income includes the effects of taxable-equivalent
adjustment, using a 34% tax rate to adjust interest on tax-exempt
securities to taxable-equivalent basis.
</FN>
</TABLE>
16
<PAGE>
MATERIAL CHANGES IN FINANCIAL CONDITION
As shown in the Net Interest Income analysis on pages 15 and 16, the total
average daily balance of the Company's consolidated interest-earning assets for
the six months ended June 30, 1996 increased by $12,474,000, or 3%, from the
total average daily balance for the year ended December 31, 1995. The primary
cause of the growth in average interest-earning assets in the first six months
of 1996 was the increase in the Company's loans. The average balance of such
loans increased by $46,593,000, or 21%. At the same time, the average daily
balance of the Company's portfolio of investment securities and securities held
for sale decreased by $34,119,000, or 22%. The increase in the Company's
portfolio of loans in the first six months of 1996 was accomplished by the use
of proceeds of the sale of securities held for sale, and by the growth in the
average balance of certificates of deposits, public funds and demand deposits.
The total average daily balance of the Company's key liabilities for the six
months ended June 30, 1996 was $383,371,000 as compared to $377,184,000 for the
year ended December 31, 1995, an increase of $6,187,000, or 2%. The primary
cause of the growth in the average balance of key liabilities was the increase
in the average daily balance of certificates of deposit, which increased by
$28,635,000, or 23%, public funds deposits, which increased by $6,038,000, or
17%, and demand deposits, which increased by $2,298,000, or 5%. At the same
time, the average daily balance of savings deposits decreased by $5,980,00, or
20%, interest-paying checking deposits decreased by $8,529,000, or 12%, and
money market deposits decreased by $6,161,000, or 15%.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Consolidated net income for the six months ended June 30, 1996 was $1,524,129
compared to $945,241 for the comparable period in 1995, an increase of $578,888,
or 61%. Per-share net income for the six months ended June 30, 1996 was $.39
compared to $.25 for the comparable period in 1995. The increase in consolidated
net income for the six months ended June 30, 1996 was primarily due to a gain of
$757,167 from the sale of a subsidiary bank in the first quarter of 1996. The
other contributing factor for higher net income in the first six months of 1996
was an increase of $446,018, or 5%, in net interest income after provision for
credit losses.
Consolidated net income for the quarter ended June 30, 1996 was $649,841
compared to $625,817 for the comparable period in 1995, an increase of 4%.
Per-share net income for the quarter ended June 30, 1996 remained level with the
comparable period in 1995 at $.17. The increase in consolidated net income was
primarily due to the $171,002 increase in net interest income after provision
for credit losses and the decrease of $392,856 in total operating expenses.
17
<PAGE>
NET INTEREST INCOME
The Company's net interest income (on a fully taxable equivalent basis inclusive
of loan service charge income) for the first six months of 1996 was $212,000
lower than the comparable period in 1995. The Company's net interest income on
the same basis for the quarter ended June 30, 1996 was $339,000 lower than the
comparable period in 1995, a decrease of 7%. A primary reason for this decrease
for the first six months and quarter ended June 30, 1996 was a decrease in the
net interest spread, or the spread between the average rates earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities.
In the first six months of 1996, the net interest spread decreased by 59 basis
points from the comparable period in 1995, or 14%. The spread for the quarter
ended June 30, 1996 decreased by 70 basis points from the comparable period in
1995, or 16%. This decrease was caused by a change in the average rate earned on
total interest-earnings assets and average cost of funds on total
interest-bearing liabilities. The average rate earned on total interest-earning
assets decreased to 8.08% for both the six-month and three-month periods ended
June 30, 1996 from 8.19% and 8.47%, respectively, in the comparable periods in
1995. The average cost of funds on total interest-bearing liabilities increased
to 4.43% and 4.48%, respectively, for the six- and three-month periods ended
June 30, 1996 from 3.92% and 4.19%, respectively, in the same periods in 1995.
PROVISION FOR CREDIT LOSSES
The provision for credit losses represents the expense which, based on
management's review and evaluation of the Company's consolidated portfolio, is
required to maintain the reserve for credit losses at an appropriate level.
Although it is impossible to predict future credit losses accurately, the
adequacy of the reserve for credit losses is determined by management through
the ongoing evaluation of various factors influencing potential loss exposure.
These factors include the collectibility of individual credits, credit loss
trends, and concentrations within the loan portfolio in light of the present
economic and regulatory environment. Changes in economic factors which influence
potential loss exposure are also considered in management's evaluation when the
likelihood of such changes can be reasonably determined. In the first six months
of 1996, the provision for credit losses amounted to $20,000 versus $150,000 in
the comparable period of 1995. In the quarter ended June 30, 1996, this amounted
to recovery of $55,000 versus the expense of $75,000 in the comparable period of
1995.
It is management's policy to charge off loans when there appears to be little
likelihood of recovery. Management considers the allowance for credit losses to
be adequate to cover estimated losses inherent in the Company's consolidated
loan portfolio.
OTHER OPERATING INCOME
Other income for the first six months of 1996 totaled $2,440,231 as compared to
$2,102,630 for the first six months of 1995, an increase of 16%; the increase
was primarily attributable to a gain in the 1996 period of $757,167 from the
sale of a subsidiary bank. Other income for the quarter ended June 30, 1996 was
$733,703 as compared to $1,246,937 for the quarter ended June 30, 1995, a
decrease of 41%. Trust income decreased for the six- and three-month periods
because of a decrease in the size of trust assets under management.
The sale of securities available for sale resulted in a gain of $6,031 for the
first six months of 1996 and a loss of $53,705 for the quarter ended June 30,
1996 as compared to income of $323,985 for both of the comparable periods in
1995. The portfolio of securities available for sale is managed with the primary
objective of maintaining an appropriate level of liquidity, and to control
interest rate risk.
18
<PAGE>
Other operating income decreased for the six- and three-month periods ended June
30, 1996 primarily due to a decrease in other real estate income to $21,492 and
$14,130 in the respective 1996 periods from $122,450 and $105,799,
respectively, in the comparable periods in 1995.
OPERATING EXPENSES
Total operating expenses for the first six months of 1996 were $9,145,900 as
compared to $9,240,369 for the first six months of 1995, a decrease of 1%. The
operating expenses for the quarter ended June 30, 1996 were $4,298,897 as
compared to $4,691,753 for the quarter ended June 30, 1996, a decrease of 8%.
Personnel expenses increased for the six-month period ended June 30, 1996
primarily due to normal merit increases. Personnel expenses decreased for the
quarter ended June 30, 1996 primarily due to operating savings achieved in the
employees' health insurance area. The occupancy expenses decreased for the
six-and three-month periods ended June 30, 1996 because of the divestiture of a
subsidiary bank. Other operating expenses were $3,144,257 for the six-month
period and $1,465,295 for the quarter ended June 30, 1996, a decrease of 1% and
9%, respectively, over the comparable periods in 1995. This decrease was due
mainly to the divestiture of a subsidiary bank and tighter expense control.
ASSET/LIABILITY MANAGEMENT
The primary objective of asset and liability management is to structure the
balance sheet appropriately in order to maximize net interest income while
maintaining acceptable levels of liquidity and interest rate risk. The policies
and guidelines for managing balance sheet and off-balance sheet activities are
formulated and monitored by the Company's Asset and Liability Committee
("ALCO").
INTEREST-SENSITIVITY
Interest-sensitivity management is concerned with optimizing the effects of
interest rate changes on net interest income. Interest-sensitivity is measured
by gaps defined as the difference between interest-sensitive assets and
interest-sensitive liabilities within any specific time frame. For example, a
negative, or liability-sensitive, gap occurs when interest-sensitive liabilities
exceed interest-sensitive assets. This generally indicates that net interest
income will improve if interest rates fall. The opposite would be true in the
case of a positive or asset-sensitive gap.
Interest-sensitivity analysis is a valuable tool in assessing the potential
impact of interest rate changes on net interest income. The Company's
interest-sensitivity position is closely monitored by ALCO, which regularly
examines and evaluates the potential impact of varying scenarios of market
interest rates and balance sheet composition. Other factors, however, such as
changes in balance sheet mix and interest rate spread relationships, also play a
vital role in maximizing net interest income.
On June 30, 1996, interest-bearing assets of the Company maturing in twelve
months or less were equal to approximately 96% of the interest-bearing
liabilities of the Company falling due in twelve months or less. Therefore at
that date the Company was considered to be 96% liability-sensitive for a
twelve-month period. This means that for each $100 of liabilities which can be
expected to reprice during that period, $96 of assets can be expected to
reprice. In a declining rate environment, for each $100 of liabilities which
reprice and thus lower the expenses of the Company, $96 of assets will also
reprice, therefore generating higher income for the Company; the net result will
be an increase in the interest spread. In an increasing rate environment the
converse would be true; the net interest spread would decrease.
19
<PAGE>
On June 30, 1996, the Company had a positive gap (rate-sensitive assets in
excess of rate-sensitive liabilities) with respect to rate-sensitive assets and
rate-sensitive liabilities maturing in less than three months and over five
years; for those maturing in over three months and under five years,
rate-sensitive liabilities exceeded rate-sensitive assets. The cumulative
interest rate sensitivity gap (that is, the cumulative ratio of
interest-sensitive assets expressed as a percentage of interest-sensitive
liabilities) for maturities up to three months was 210.51%; for maturities up to
twelve months it was 95.73%; for maturities up to five years it was 96.32%; and
for all maturities, including maturities over five years, it was 115.32%.
The Company's interest-sensitivity position at June 30, 1996 is presented below.
<TABLE>
<CAPTION>
Interest Rate Sensitivity Analysis
(Dollars in thousands)
0-3 3-12 1-5 OVER
JUNE 30, 1996 MONTHS MONTHS YEARS 5 YEARS TOTAL
- ------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Investment securities and
securities held for sale(1) $ 22,186 $ 7,003 $ 36,334 $ 49,884 $115,407
Federal funds sold and other
short-term investments 100 -- -- -- 100
Loans and loans held for sale 95,173 50,386 85,433 59,334 290,326
-------- -------- -------- -------- --------
Earning assets 117,459 57,389 121,767 109,218 405,833
Deposits:
Interest-paying checking(2) -- -- 55,156 -- 55,156
Money market 32,430 -- -- -- 32,430
Savings(2) -- -- 22,451 -- 22,451
Certificates of deposit
and public funds 10,331 126,848 47,685 43,969 228,833
Federal funds purchased
and other short-term
borrowings 13,036 -- -- -- 13,036
-------- -------- -------- -------- --------
Interest-bearing liabilities 55,797 126,848 125,292 43,969 351,906
-------- -------- -------- -------- --------
Interest-sensitivity gap $ 61,662 $(69,459) $ (3,525) $ 65,249 $ 53,927
======== ======== ======== ======== ========
Cumulative gap $ 61,662 $ (7,797) $(11,322) $ 53,927
======== ======== ======== ========
Cumulative gap to total
earning assets (%) 15.19 (1.92) (2.79) 13.29
======== ======== ======== ========
Cumulative ratio of interest-
sensitive assets to interest-
sensitive liabilities (%) 210.51 95.73 96.32 115.32
======== ======== ======== ========
<FN>
Loans are stated net of unearned income.
Non-earning assets and non-interest-bearing liabilities have been excluded from
analysis.
(1) The rate sensitivity schedule included above lists securities in time frames
of their stated or final maturities. Literally all of the securities in the
over-5-year category have shorter average lives or call dates and are expected
to mature or be called well before the stated maturity and even prior to the 5-
year term.
(2) It has been our experience that through a variety of interest rate
scenarios, interest-paying checking and savings accounts have not materially
increased or decreased as a result of interest rate changes. It is for this
reason that the Company has felt comfortable classifying its deposit accounts as
1-5 year liabilities.
</FN>
</TABLE>
20
<PAGE>
RISK ELEMENTS
NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The table below presents an analysis of consolidated risk elements of the
Company classified as follows: (a) non-accrual loans; (b) 90-day loans; (c)
troubled debt restructurings as defined in Statement of Financial Accounting
Standards No. 15, "Accounting by Debtors and Creditors for Troubled Debt
Restructurings"; and (d) Other Real Estate Owned.
(In Thousands)
06/30/96 03/31/96 12/31/95
-------- -------- --------
(a) Non-accrual loans $1,314 $ 2,419 $ 1,520
(b) 90-day loans 1,470 1,132 852
(c) Troubled debt restructurings None None None
(d) Other Real Estate Owned 477 459 634
Non-accrual loans decreased by $1,105,000 in the quarter ended June 30, 1996 due
primarily to the deletion of three loans totalling $1,051,000. Two of the loans
totalling $866,000 have been brought current and are performing and returned to
accrued status. A third loan for $185,000 was paid off in full in June 1996.
Ninety-day loans increased by $338,000 in the quarter ended June 30, 1996 due
primarily to the following: (a) four Government-guaranteed loans totalling
$590,000 have become delinquent. These are farm loans, demand has been made, and
full pay-off is expected. The outstanding balance represents only the guaranteed
portion of the loan which Jefferson Bank has purchased; and (b) a loan for
$146,000 has matured and was not renewed until July 1996; it is secured by real
estate. The foregoing were partially off-set by a $134,000 reduction in the
Bank's discounted mortgage portfolio.
Potential problem loans were as follows at the dates set forth:
6/30/96 03/31/96 12/31/95
------- -------- --------
$ 121 $ 121 $1,278
At June 30, 1996 the non-accrual loans were broken down as follows:
Residential Real Estate $ 894 68%
Commercial Real Estate 284 22%
Commercial 99 8%
Installment Loans 37 3%
There are three major concentrations within the non-accruing portfolio. Two are
residential first mortgage loans, each of which comprises 10% of the portfolio.
Foreclosure is in process and no loss is expected. Both loans are classified
substandard. A third loan, which comprises 12% of the total non-accrual loans,
is secured by business assets but the amount of final recovery cannot now be
determined. Eighty percent of the loan is included in the allowance for loan
losses. The loan is classified substandard.
There are three major concentrations within the classified loans. One loan,
which comprises 34% of total classified loans, is secured with a combination of
collateral including real estate and marketable securities. This loan is
classified special mention due to chronic delinquency. However, it is current
and accruing. A second loan, which comprises 25% of total classified loans, is
secured with real estate and assignment of a note receivable. This loan is
classified substandard due to chronic delinquency. However, it is current and
accruing. A third loan, which comprises 10% of total classified loans, is
21
<PAGE>
secured with the borrower's residence. This loan is classified substandard due
to chronic delinquency. However, it is current and accruing.
Other real estate owned increased by $18,000 in the quarter ended June 30, 1996.
There were no concentrations requiring mention.
At June 30, 1996 $21,794 was classified as loss and is fully reserved.
LIQUIDITY MANAGEMENT
In order for the Company's banking subsidiary to satisfy the requirements of
depositors wanting to withdraw funds and to meet the credit needs of borrowers,
it must maintain certain levels of liquidity. Asset and liability management
strategy is designed to achieve the maintenance of an adequate level of
liquidity and the management of the interest-rate sensitive structure of the
balance sheet. The basic objective of interest-rate sensitive management is the
protection of net interest income from sharp fluctuations caused by changes in
the market. The management of liquidity and interest-rate sensitivity are
closely related as both are affected by maturities of assets and the source of
funds.
Liquidity and interest-rate sensitivity positions are closely monitored by an
asset and liability committee which regularly examines and evaluates the
potential impact of varying scenarios of market interest rates, balance sheet
compositions and funding source requirements.
Liquidity of the Company's banking subsidiary is provided in part through the
cash flow generated by transactions in the ordinary course of business. Loan
repayments and maturing earning assets furnish additional cash flow sources.
Liquidity is also provided by the acquisition of new deposits, as well as by
ability to raise funds in a variety of money markets. Further liquidity can be
provided by liquidation of securities available for sale. As of June 30, 1996,
securities available for sale amounted to $114,400,000.
CAPITAL RESOURCES
The Company has continued to maintain a strong capital base during 1996. At June
30, 1996 the Company's Tier 1 risk-based capital and total capital ratios (as
more fully described below) were 9.95% and 10.60%, respectively. The Company's
leverage ratio was 8.50% at June 30, 1996. These ratios were well above the
minimum capital requirements established by government agencies.
The Company and its banking subsidiaries are subject to a minimum Tier 1 capital
to risk-rated assets ratio of 4% and total capital (Tier 1 plus Tier 2) to
risk-rated asset ratio of 8%. The Federal Reserve Board has also established
additional capital adequacy guidelines referred to as the Tier 1 leverage ratio
that measures the ratio of Tier 1 capital to average assets. The most highly
rated bank holding companies will be required to maintain a Tier 1 leverage
ratio of 3%. The required ratio will be based on the Board's assessment of the
individual bank holding company's asset quality, earnings performance, interest
rate risk and liquidity. The FDIC Improvement Act of 1991 ("FDICIA") requires
the establishment of a capital-based supervisory system of prompt corrective
action of all depository institutions. The Board's regulations under FDICIA
defines "well capitalized" institutions as those whose capital ratios equal or
exceed the following minimum ratios: Tier 1 capital ratio of 6%, total
risk-based ratio of 10%, and Tier 1 leverage ratio of 5%.
22
<PAGE>
As of June 30, 1996, the Company's Tier 1 capital, total risk-based capital and
Tier 1 leverage ratios were 9.95%, 10.60% and 8.50%, respectively. These ratios,
as well as the corresponding ratios of the Company's banking subsidiary, are
well above industry averages.
Stockholders' equity and book value per share as of June 30, 1996 were
$36,333,878 and $9.53, compared to $34,288,792 and $9.48 for the same period in
1995. Stockholders' equity (not including unrealized losses on securities
available for sale) as of June 30, 1996 increased to $39,907,427 from
$37,855,966 as of June 30, 1995. Book value per share on the same basis was
$10.47 as of June 30 in both years. It is noteworthy that the number of
outstanding shares increased to 3,811,976 at June 30, 1996 from 3,616,792 a year
earlier. The foregoing figures are net of dividends in the amounts of $952,673
and $903,864 in the 1996 and 1995 quarters, respectively. Unless there were a
permanent impairment, unrealized gains or losses on securities available for
sale are not reflected in the statement of consolidated income until they are
sold.
As of June 30, 1996, the Company had no material commitments for capital
expenditures.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The 1996 annual meeting of the stockholders of the Company was held on April 23,
1996. The table below sets forth the results of the votes taken:
1. ELECTION VOTES VOTES
OF DIRECTORS VOTES FOR AGAINST WITHHELD
------------ --------- ------- --------
Lenore J. Gaynor 2,896,317 412 24,712
Jerrold F. Goodman 2,896,317 412 24,712
Sherman S. Winn 2,896,102 627 24,712
2. Proposal to Ratify adoption of the Jefferson Bancorp 1996 Restricted Stock
Plan.
VOTES
VOTES FOR AGAINST ABSTAIN
--------- ------- -------
2,390,885 515,063 15,493
23
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JEFFERSON BANCORP, INC.
AUGUST 14, 1996 /s/ BARTON S. GOLDBERG
-------------------------------
Barton S. Goldberg
Secretary-Treasurer (Principal
Financial Officer and Director)
AUGUST 14, 1996 /s/ SYED F. ZAFAR
-------------------------------
Syed F. Zafar
Senior Vice President & Comptroller
(Principal Accounting Officer)
24
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<NAME> JEFFERSON BANCORP, INC.
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