SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT TO
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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 OCTOBER 31, 1996
----- -------------------------------
COMMON STOCK, $1.00 PAR VALUE, OF A SINGLE CLASS 3,791,040
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FOLLOWING FINANCIAL STATE-
MENTS ARE FILED AS PART OF THIS
REPORT:
PAGES IN QUARTERLY REPORT
AS OF SEPTEMBER 30, 1996 TO
SECURITIES AND EXCHANGE
COMMISSION
CONSOLIDATED BALANCE SHEETS 3-4
STATEMENTS OF CONSOLIDATED INCOME 5
STATEMENT OF CONSOLIDATED STOCK-
HOLDERS' EQUITY 6
STATEMENTS 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 14-24
PART II. OTHER INFORMATION
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 25
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
JEFFERSON BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 DECEMBER 31, 1995
(Unaudited)
------------------ -----------------
<S> <C> <C>
ASSETS
CASH AND DEMAND BALANCES DUE FROM BANKS $ 8,624,168 $ 17,545,682
------------ ------------
INVESTMENT SECURITIES
OBLIGATIONS OF STATES AND POLITICAL
SUBDIVISIONS (NON-TAXABLE) 87,301 103,912
OTHER SECURITIES 1,014,642 1,139,348
------------ ------------
TOTAL INVESTMENT SECURITIES
(APPROXIMATE MARKET
VALUE 1996-$1,043,000; 1995-$1,254,000) 1,101,943 1,243,260
------------ ------------
SECURITIES AVAILABLE FOR SALE
U.S. TREASURY SECURITIES 7,937,188 10,056,875
SECURITIES OF OTHER U.S. GOVERNMENT AGENCIES 104,166,054 101,900,477
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS
(NON-TAXABLE) 5,104,543 4,610,180
COLLATERALIZED MORTGAGE OBLIGATIONS 304,272 1,586,315
------------ ------------
TOTAL SECURITIES AVAILABLE FOR SALE
(AT MARKET VALUE) 117,512,057 118,153,847
------------ ------------
FEDERAL FUNDS SOLD AND OTHER SHORT-TERM INVESTMENTS 1,600,000 4,500,000
------------ ------------
LOANS 308,807,719 268,786,404
LESS: UNEARNED INCOME 2,114,844 2,186,667
ALLOWANCE FOR CREDIT LOSSES 2,424,472 2,434,357
------------ ------------
TOTAL LOANS, NET 304,268,403 264,165,380
------------ ------------
LOANS HELD FOR SALE 956,683 1,716,917
------------ ------------
PREMISES AND EQUIPMENT, NET 4,818,494 6,186,810
------------ ------------
OTHER REAL ESTATE OWNED 543,076 633,678
------------ ------------
OTHER ASSETS 19,049,753 18,857,212
------------ ------------
TOTAL ASSETS $458,474,577 $433,002,786
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3
<PAGE>
<TABLE>
<CAPTION>
JEFFERSON BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY SEPTEMBER 30, 1996 DECEMBER 31, 1995
(Unaudited)
----------------- ----------------
<S> <C> <C>
DEPOSITS:
DEMAND (NON-INTEREST-BEARING) $ 46,356,874 $ 55,814,702
SAVINGS 21,924,785 27,396,006
INTEREST-PAYING CHECKING 54,866,647 67,489,951
MONEY MARKET ACCOUNTS 36,338,236 36,937,656
CERTIFICATES AND PUBLIC FUNDS 226,368,183 183,648,700
------------- -------------
TOTAL DEPOSITS 385,854,725 371,287,015
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD
UNDER AGREEMENTS TO REPURCHASE 29,069,426 19,424,965
DEFERRED GAIN ON SALE OF BUILDINGS 27,721 31,812
OTHER LIABILITIES 6,072,171 4,635,204
------------- -------------
TOTAL LIABILITIES 421,024,043 395,378,996
------------- -------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
COMMON STOCK, $1.00 PAR VALUE, 10,000,000 SHARES
AUTHORIZED; ISSUED - SEPTEMBER 30, 1996-4,018,418;
DECEMBER 31, 1995-3,999,496 SHARES 4,018,418 3,999,496
CAPITAL SURPLUS 29,510,842 29,349,762
RETAINED EARNINGS 9,530,509 8,912,103
TREASURY STOCK, AT COST-SEPTEMBER 30,1996-227,378 SHARES;
DECEMBER 31, 1995-193,378 SHARES (2,299,454) (1,862,204)
DEFERRED COMPENSATION (658,838) (1,027,343)
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE
(NET OF APPLICABLE INCOME TAXES) (2,650,943) (1,748,024)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 37,450,534 37,623,790
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 458,474,577 $ 433,002,786
============= =============
BOOK VALUE PER COMMON SHARE $ 9.88 $ 9.89
============= =============
BOOK VALUE PER COMMON SHARE EXCLUDING UNREALIZED
GAINS (LOSS) ON SECURITIES AVAILABLE FOR SALE $ 10.58 $ 10.34
============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4
<PAGE>
<TABLE>
<CAPTION>
JEFFERSON BANCORP, INC. AND SUBSIDIARIES FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
STATEMENTS OF CONSOLIDATED INCOME SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
INTEREST AND FEES ON LOANS $ 7,172,696 $5,658,054 $20,347,748 $16,343,892
INVESTMENTS AND SECURITIES HELD FOR SALE:
U.S. TREASURY SECURITIES 102,217 124,347 339,248 369,472
SECURITIES OF OTHER U.S. GOVERNMENT AGENCIES 1,513,647 1,870,984 4,169,262 5,201,410
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS-
NON-TAXABLE 59,544 64,685 171,697 246,906
COLLATERIZED MORTGAGE OBLIGATIONS AND OTHER SECURITIES (7,567) 49,081 27,705 153,888
FEDERAL FUNDS SOLD AND OTHER SHORT-TERM INVESTMENTS 10,565 165,206 71,547 351,744
----------- ---------- ----------- -----------
TOTAL INTEREST INCOME 8,851,102 7,932,357 25,127,207 22,667,292
----------- ---------- ----------- -----------
INTEREST EXPENSE:
DEPOSITS:
SAVINGS 136,541 194,260 429,116 607,970
INTEREST-PAYING CHECKING 238,357 298,794 758,390 888,065
MONEY MARKET ACCOUNTS 180,733 235,702 551,902 684,456
CERTIFICATES AND PUBLIC FUNDS 3,250,800 2,860,294 9,082,057 6,871,211
SHORT-TERM BORROWINGS 349,895 158,315 639,468 775,117
----------- ---------- ----------- -----------
TOTAL INTEREST EXPENSE 4,156,326 3,747,365 11,460,933 9,826,820
----------- ---------- ----------- -----------
NET INTEREST INCOME 4,694,776 4,184,992 13,666,274 12,840,472
PROVISION FOR CREDIT LOSSES 75,000 0 95,000 150,000
----------- ---------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
CREDIT LOSSES 4,619,776 4,184,992 13,571,274 12,690,472
----------- ---------- ----------- -----------
OTHER INCOME :
TRUST INCOME 300,315 335,896 845,308 1,017,394
SERVICE CHARGES, COMMISSIONS AND FEES 334,614 303,219 1,014,218 936,164
GAIN ON SALE OF SECURITIES AVAILABLE FOR SALE, NET -- -- 6,031 323,985
OTHER OPERATING INCOME 232,787 162,093 685,223 562,977
GAIN ON SALE OF SUBSIDIARY BANK -- -- 757,167 --
----------- ---------- ----------- -----------
TOTAL OTHER INCOME 867,716 801,208 3,307,947 2,840,520
----------- ---------- ----------- -----------
OPERATING EXPENSES:
SALARIES AND EMPLOYEE BENEFITS 2,254,428 2,175,381 7,187,072 6,721,933
OCCUPANCY EXPENSE, NET 707,690 726,987 2,115,635 2,133,125
OTHER OPERATING EXPENSES 1,467,195 1,454,563 4,611,452 4,678,924
----------- ---------- ----------- -----------
TOTAL OPERATING EXPENSES 4,429,313 4,356,931 13,914,159 13,533,982
----------- ---------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,058,179 629,269 2,965,062 1,997,010
PROVISION FOR INCOME TAXES 314,000 186,200 916,100 608,700
----------- ---------- ----------- -----------
NET INCOME $ 744,179 $ 443,069 $ 2,048,962 $ 1,388,310
=========== ========== =========== ===========
EARNINGS PER COMMON SHARE:
AVERAGE NUMBER OF SHARES OUTSTANDING 3,893,020 3,831,395 3,901,771 3,800,941
=========== ========== =========== ===========
NET INCOME PER SHARE $ 0.19 $ 0.12 $ 0.53 $ 0.37
=========== ========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5
<PAGE>
<TABLE>
<CAPTION>
JEFFERSON BANCORP, INC. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 NET UNREALIZED
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 - - 2,048,962 - - -
$.125 PER SHARE CASH DIVIDEND - - (476,336) - - -
$.125 PER SHARE CASH DIVIDEND - - (476,337) - - -
$.125 PER SHARE CASH DIVIDEND - - (477,883) - - -
EXERCISE OF STOCK OPTIONS (18,922 SHARES) 18,922 161,080 - - - -
PURCHASE OF TREASURY SHARES (34,000 SHARES) - - - (437,250) - -
AMORTIZATION OF DEFERRED COMPENSATION - - - - 368,505 -
CHANGE IN NET UNREALIZED GAINS/(LOSSES)
ON AVAILABLE-FOR-SALE SECURITIES - - - - - (902,919)
---------- ----------- ---------- ------------ ----------- ------------
BALANCE, SEPTEMBER 30,1996 $4,018,418 $29,510,842 $9,530,509 ($2,299,454) ($658,838) ($2,650,943)
========== =========== ========== =========== =========== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6
<PAGE>
<TABLE>
<CAPTION>
JEFFERSON BANCORP, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 2,048,962 $ 1,388,310
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 573,561 615,123
GAIN ON SALE OF BUILDINGS (4,091) (4,090)
LOSS (GAIN) ON SALE OF OTHER REAL ESTATE OWNED 12,029 86,888
GAIN ON SALE SUBSIDIARY BANK (757,167) --
PROVISION FOR CREDIT LOSSES 95,000 150,000
PREMIUM AMORTIZATION AND DISCOUNT ACCRETION, NET 124,821 113,819
NET GAIN ON SALE OF SECURITIES AVAILABLE FOR SALE (6,031) (323,985)
AMORTIZATION OF DEFERRED COMPENSATION 368,505 305,235
ORIGINATION OF LOANS HELD FOR SALE (20,851,789) (18,845,676)
DISPOSITION OF LOANS HELD FOR SALE 21,612,023 18,677,206
INCREASE IN OTHER ASSETS (7,882,091) (9,268,201)
INCREASE IN OTHER LIABILITIES 1,508,104 2,282,735
------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (3,158,164) (4,822,636)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
NET INCREASE IN LOANS (49,228,610) (30,445,790)
SALE OF SECURITIES AVAILABLE FOR SALE 25,306,696 30,120,655
PROCEEDS FROM MATURITIES AND PAYDOWNS OF
SECURITIES AVAILABLE FOR SALE 4,233,924 20,664,272
PURCHASE OF SECURITIES AVAILABLE FOR SALE (34,093,401) (66,375,465)
PROCEEDS FROM MATURITIES OF INVESTMENT SECURITIES 121,317 1,506,245
NET INCREASE IN FEDERAL FUNDS SOLD AND INTEREST-EARNING
DEPOSITS IN OTHER FINANCIAL INSTITUTIONS (600,000) (2,000,000)
SALE PROCEEDS FROM SALE OF SUBSIDIARY BANK 3,000,000 --
DISPOSITION OF OTHER REAL ESTATE OWNED 204,573 836,842
ACQUISITION OF OTHER REAL ESTATE OWNED (126,000) (412,695)
PURCHASES OF PREMISES AND EQUIPMENT (369,814) (793,754)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (51,551,315) (46,899,690)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET INCREASE IN DEPOSITS 36,235,476 58,999,295
NET INCREASE (DECREASE) IN FEDERAL FUNDS PURCHASED AND
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 11,240,293 (8,598,735)
PAYMENT OF CASH DIVIDENDS (1,430,556) (1,355,964)
PURCHASE OF TREASURY STOCK (437,250) --
PROCEEDS FROM EXERCISE OF STOCK OPTIONS 180,002 101,625
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES: 45,787,965 49,146,221
------------ ------------
NET (DECREASE) INCREASE IN CASH AND DEMAND BALANCES
DUE FROM BANKS (8,921,514) (2,576,105)
CASH AND DEMAND BALANCES DUE FROM BANKS AT BEGINNING OF Y 17,545,682 14,542,225
------------ ------------
CASH AND DEMAND BALANCES DUE FROM BANKS AT SEPTEMBER 30, $ 8,624,168 $ 11,966,120
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
INTEREST PAID $ 10,669,883 $ 8,033,068
============ ============
INCOME TAX PAYMENTS $ 909,500 $ 405,000
============ ============
</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 September 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)
Rescissions (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 (16,345) 9.47 (154,846)
Canceled (63,792) 9.13 (582,111)
-------- ---------
Options outstanding:
September 30, 1996 170,124 9.03 1,535.662
-------- ---------
Options exercisable at
December 31, 1995 249,011
-------
September 30, 1996 170,124
-------
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 (2,576) 9.77 (25,156)
------- ----------
Options Outstanding:
September 30, 1996 61,800 8.22 508,124
------- ----------
Options exercisable at:
December 31, 1995 64,376
-------
September 30, 1996 61,800
-------
(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 nine months ended September 30, 1996, the Company accrued
approximately $393,855 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 will
11
<PAGE>
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-balance 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 he 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 September 30, 1996, after giving effect to a write-off of
$242,833 occasioned by the sale of Jefferson Bank on February 14, 1996, totaled
$809,149.
(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.
(K) MERGER: On October 25, 1996, the Company announced that it has signed a
definitive merger agreement with Colonial BancGroup. The proposed transaction
remains subject to approval by Jefferson's stockholders and regulatory approval.
The closing of the merger is expected to take place in the first quarter of
1997.
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, Florida.
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>
<TABLE>
<CAPTION>
JEFFERSON BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
NET INTEREST INCOME, AVERAGE BALANCES QUARTER ENDED SEPT. 30,1996 QUARTER ENDED SEPT. 30,1995
AND AVERAGE RATES
(IN THOUSANDS) AVERAGE AVERAGE AVERAGE AVERAGE
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) $288,289 $ 7,178 9.88% $219,310 $5,228 9.46%
Installment loans, net of unearned income 12,168 286 9.40% 12,184 302 9.91%
Investment securities and securities
available for sale:
U.S. Treasury securities 8,152 102 4.96% 10,201 125 4.86%
Securities of other U.S. Government
agencies 107,000 1,513 5.66% 132,840 1,870 5.63%
Obligations of states and political
subdivisions
(non-taxable) (2) 5,262 92 6.96% 5,336 99 7.44%
Collateralized mortgage obligations and
other securities 1,466 (7) -1.91% 3,161 49 6.20%
Federal funds sold and other short-term
investments 807 10 4.92% 11,123 165 5.89%
-------- ------- ----- -------- ------ -----
Total interest-earning assets (2) $423,142 9,174 8.62% $394,154 7,838 7.89%
======== ======= ===== ======== ====== =====
KEY LIABILITIES:
Deposits:
Savings 22,459 136 2.41% 30,106 194 2.56%
Interest-paying checking 55,517 238 1.71% 70,205 299 1.69%
Money market 33,850 181 2.13% 43,327 236 2.16%
Certificates 188,372 2,674 5.65% 142,313 2,214 6.17%
Public funds 37,298 578 6.17% 40,704 646 6.30%
-------- ------- ------- ------- ------ -----
Total deposits 337,496 3,807 4.49% 326,655 3,589 4.36%
Borrowings 27,810 349 4.99% 18,370 158 3.41%
-------- ------- ------- ------ -----
Total interest-bearing liabilities 365,306 4,156 4.53% 345,025 3,747 4.30%
-------- ------- ------- ------- ------ -----
Total noninterest-bearing liabilities 46,988 48,693
-------- -------
Total key liabilities $412,294 $393,718
======== ========
Net interest income/spread (2) $ 5,018 4.09% $4,091 3.58%
======= ====== ====== =====
Net interest income as a percent of total
average interest-earning assets (2) 4.72% 5.42%
<FN>
(1) Average balances include nonaccrual loans. Interest income includes
fees on loans of approximately $157,000 and $66,000 for quarters
ended September 30, 1996 and 1995, $584,000 and $507,000 for the
nine months ended September 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>
<TABLE>
<CAPTION>
JEFFERSON BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
NET INTEREST INCOME, AVERAGE BALANCES NINE MONTHS ENDED NINE MONTHS ENDED YEAR ENDED
AND AVERAGE RATES SEPT. 30, 1995 SEPT. 30, 1995 DECEMBER 31, 1995
- ----------------- ------------------------ ------------------------- -------------------------
(IN THOUSANDS) AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
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) $268,945 19,127 9.50% $208,184 14,752 9.47% $213,097 20,882 9.80%
Installment loans, net of unearned income 11,865 847 9.52% 10,711 781 9.72% 11,210 1,094 9.76%
Investment securities and securities
available for sale:
U.S. Treasury securities 9,259 339 4.89% 10,213 370 4.84% 10,207 493 4.83%
Securities of other U.S. Government
agencies 102,956 4,169 5.40% 124,983 5,201 5.55% 125,996 6,975 5.54%
Obligations of states and political
subdivisions (non-taxable) (2) 5,031 261 6.91% 6,575 374 7.59% 6,273 471 7.51%
Collateralized mortgage obligations and
other securities 1,791 28 2.08% 3,349 155 6.17% 3,223 164 5.09%
Federal funds sold and other short-term
investments 1,788 71 5.30% 8,365 352 5.63% 7,376 410 5.56%
-------- ------- -------- ------- ------- ------
Total interest-earning assets (2) $401,635 24,842 8.26% $372,380 21,985 7.89% $377,382 30,489 8.08%
======== ------- ======== ------- ======= ------
KEY LIABILITIES:
Deposits:
Savings 23,471 429 2.44% 30,809 608 2.64% 29,958 784 2.62%
Interest-paying checking 59,734 758 1.70% 70,613 888 1.68% 70,399 1,184 1.68%
Money market 34,437 552 2.14% 41,391 685 2.21% 40,913 897 2.19%
Certificates 165,499 7,211 5.83% 119,463 5,319 5.95% 125,307 7,479 5.97%
Public funds 40,525 1,872 6.18% 34,515 1,552 6.01% 36,105 2,198 6.09%
-------- ------ -------- ------- ------- ------
Total deposits 323 666 10,822 4.47% 296,791 9,052 4.08% 302,682 12,542 4.14%
Borrowings 19,198 639 4.45% 26,635 775 3.89% 24,982 921 3.69%
-------- ------ -------- ------- ------- ------
Total interest-bearing liabilities 342,864 11,461 4.47% 323,426 9,827 4.06% 337,664 13,463 4.11%
-------- ------ -------- ------- ------- ------
Total noninterest-bearing liabilities 50,197 49,079 49,520
-------- -------- -------
Total key liabilities $393,061 $372,505 $377,134
======== ======== =======
Net interest income/spread (2) $13,381 3.79% $12,158 3.83% $17,026 3.97%
======= ======= ======
Net interest income as a percent of total
average interest-earning assets (2) 4.45% 4.37% 4.51%
<FN>
(1) Average balances include nonaccrual loans. Interest income includes
fees on loans of approximately $157,000 and $66,000 for quarters
ended September 30, 1996 and 1995, $584,000 and $507,000 for the
nine months ended September 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 nine months ended September 30, 1996 increased by $24,253,000, or 6%, 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 nine
months of 1996 was the increase in the Company's loans. The average balance of
such loans increased by $56,503,000, or 25%. At the same time, the average daily
balance of the Company's portfolio of investment securities and securities
available for sale decreased by $32,250,000, or 21%. The increase in the
Company's portfolio of loans in the first nine 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 nine months ended September 30, 1996, was $393,061,000 as
compared to $377,184,000 for the year ended December 31, 1995, an increase of
$15,877,000, or 4%. 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 $40,192,000, or 32%, public funds deposits, which
increased by $4,420,000, or 12%, and demand deposits, which increased by
$677,000, or 1%. At the same time, the average daily balance of savings deposits
decreased by $6,487,000, or 22%, interest-paying checking deposits decreased by
$10,665,000, or 15%, money market deposits decreased by $6,476,000, or 16%, and
borrowings (federal funds purchased, securities sold under agreement to
repurchase, and federal reserve bank borrowings) decreased by $5,784,000, or
23%.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Consolidated net income for the nine months ended September 30, 1996 was
$2,048,962 compared to $1,388,310 for the comparable period in 1995, an increase
of 48%. Per-share net income for the nine months ended September 30, 1996 was
$.53 compared to $.37 for the comparable period in 1995. The increase in
consolidated net income for the nine months ended September 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 nine months of 1996 was an increase of $880,802, or 7%, in net
interest income after provision for credit losses.
Consolidated net income for the quarter ended September 30, 1996 was $744,179
compared to $443,069 for the comparable period in 1995, an increase of 68%. Per-
share net income for the quarter ended September 30, 1996 was $.19, compared to
$.12 for the comparable period in 1995. The increase in consolidated net income
was primarily due to an increase of $434,784 in net interest income after
provision for credit losses.
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 nine months of 1996 was $1,223,000
higher than the comparable period in 1995, an increase of 10%. A primary reason
for this increase was a growth in the interest-earning assets of the Company.
The Company total interest-earning assets in the first nine months of 1996 were
$401,635,000, compared with $372,380,000 in the comparable period in 1995, or an
increase of 8%. The Company's net interest income on the same basis for the
quarter ended September 30, 1996 was $927,000 higher than the comparable period
in 1995, an increase of 23%. A primary reason for this increase was a growth in
the net interest spread during the quarter ended September 30, 1996.
In the first nine months of 1996, the net interest spread decreased by 4 basis
points from the comparable period in 1995, or 1%. This decrease was caused by a
change in the average cost of funds on total interest-bearing liabilities, which
increased to 4.47% for the nine months ended September 30, 1996 from 4.06% for
the comparable period in 1995. The higher average rate earned on average total
interest-earning assets in combination with higher balances of total
interest-earnings assets offset the increase in the average cost of funds and
resulted in higher net interest income. The average rate earned on
interest-earning assets and average balances of interest-earning assets
increased from 7.89% and $372,380,000for the nine months ended September 30,
1995 to 8.26% and $401,635,000 for the comparable period in 1996. The spread for
the quarter ended September 30, 1996 increased by 51 basis points from the
comparable period in 1995, or 14%. This increase was caused by the higher
average rate earned on average total interest-earnings assets. The average rate
earned on interest-earning assets increased to 8.62% for the quarter ended
September 30, 1996 from 7.89% for the comparable period 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 nine
months of 1996, the provision for credit losses amounted to $95,000 versus
$150,000 in the comparable period of 1995. In the quarter ended September 30,
1996, this expense amounted to $75,000 versus none 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.
18
<PAGE>
OTHER OPERATING INCOME
Other income for the first nine months of 1996 totaled $3,307,947 as compared to
$2,840,520 for the first nine months of 1995, an increase of 16%. Other income
for the quarter ended September 30, 1996 was $867,716 as compared to $801,208
for the quarter ended September 30, 1995, an increase of 8%. Trust income
decreased for the nine- and three-month periods because of a decrease in trust
assets under management.
Gain on sale of securities available for sale for the first nine months of 1996
was $6,031 as compared to $323,985 for the comparable period in 1995; there was
no such gain in either of the quarters ended September 30, 1996 and 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.
Other operating income increased for the nine- and three-month periods ended
September 30, 1996 primarily due to recovery of $63,778 with respect to a
corporate bond which was previously charged-off and gains on sale of loans of
$37,783; there were no such recovery and gains in the comparable periods in
1995.
OPERATING EXPENSES
Total operating expenses for the first nine months of 1996 were $13,914,159 as
compared to $13,533,982 for the first nine months of 1995, an increase of 3%.
The operating expenses for the quarter ended September 30, 1995 were $4,429,313
as compared to $4,356,931 for the quarter ended September 30, 1995, an increase
of 2%. Personnel expenses increased for the nine- month period ended September
30, 1996 primarily due to the payout of $338,946 to option holders upon the
cancellation of their incentive stock options in the quarter ended March 31,
1996; they increased in the quarter ended September 30, 1996 primarily because
of normal merit increases. The occupancy expenses decreased for the nine- and
three-month periods ended September 30, 1996 primarily due to the divestiture of
a subsidiary bank in February 1996. Other operating expenses were $4,611,452 for
the nine-month period and $1,467,195 for the quarter ended September 30, 1996,
as compared to $4,678,924 and $1,454,563 for the comparable periods in 1995.
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.
19
<PAGE>
On September 30, 1996, interest-bearing assets of the Company maturing in twelve
months or less were equal to approximately 89% 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 89% liability-sensitive for a
twelve-month period. This means that for each $100 of liabilities which can be
expected to reprice during that period, $89 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, $89 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.
On September 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 161.45%; for maturities up to
twelve months it was 88.55%; for maturities up to five years it was 90.67%; and
for all maturities, including maturities over five years, it was 116.09%.
20
<PAGE>
The Company's interest-sensitivity position at September 30, 1996 is presented
below.
Interest Rate Sensitivity Analysis
(Dollars in thousands)
0-3 3-12 1-5 Over
SEPTEMBER 30, 1996 MONTHS MONTHS YEARS 5 YEARS TOTAL
- ------------------ ------ ------ ----- ------- -----
Investment securities and
securities held for sale(1) $21,909 $7,054 $36,590 $53,061 $118,614
Federal funds sold and other
short-term investments 1,600 --- -- -- 1,600
Loans and loans held for sale 101,689 56,665 78,310 70,985 307,649
------- ------ ------- ------- -------
Earning assets 125,198 63,719 114,900 124,046 427,863
Deposits:
Interest-paying checking(2) --- -- 54,867 -- 54,867
Money market 36,338 -- -- -- 36,338
Savings(2) -- -- 21,925 -- 21,925
Certificates of deposit
and public funds 12,138 135,794 44,954 33,482 226,368
Federal funds purchased
and other short-term
borrowings 29,069 -- -- -- 29,069
Interest-bearing liabilities 77,545 135,794 121,746 33,482 368,567
------- ------ ------- ------- -------
Interest-sensitivity gap $47,653 $(72,075) $(6,846) $90,564 $59,296
======= ======== ======= ======= =======
Cumulative gap $47,653 $(24,422) $(31,268) $59,296
======= ======== ======= =======
Cumulative gap to total
earning assets (%) 11.14 (5.71) (7.31) 13.86
======= ======== ======= =======
Cumulative ratio of interest-
sensitive assets to interest-
sensitive liabilities (%) 161.45 88.55 90.67 116.09
======= ======== ======= =======
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.
21
<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; and (c)
troubled debt restructurings as defined in Statement of Financial Accounting
Standards No. 15, "Accounting by Debtors and Creditors for Troubled Debt
Restructurings."
(In Thousands)
09/30/96 06/30/96 03/31/96 12/31/95
-------- -------- -------- --------
(a) Non-accrual loans $ 1,009 $ 1,314 $ 2,419 $ 1,520
(b) 90-day loans 1,878 1,470 1,132 852
(c) Troubled debt restructurings NONE NONE NONE NONE
(d) Other Real Estate Owned 543 477 459 634
Non-accrual loans decreased $305,000 in the quarter ended September 30, 1996 due
primarily to three loans totalling $320,000. One loan for $136,000 was brought
current and returned to accrual status. A second loan for $108,000 was
foreclosed and transferred to other real estate owned. A third loan for $76,000
was brought current and returned to accrual status.
Ninety-day loans increased by $408,000 due primarily to three loans totalling
$410,000. One loan for $140,000 is real estate secured and requires renewal
pending receipt of current financial data. A second loan for $131,000 is secured
by real estate which is for sale. A third loan for $139,000 is unsecured but
supported by strong guarantors; the business is suffering from cash flow
problems. The loan is now 60 days past due, but the borrower is making payments
to bring it current.
Potential problem loans were as follows at the dates set forth:
9/30/96 6/30/96 03/31/96 12/31/95
------- ------- -------- --------
$ 200 $ 121 $ 121 $1,278
At September 30, 1996 the non-accrual loans were broken down as follows:
Residential Real Estate $ 737 73%
Commercial 204 20%
Installment Loans 68 7%
------
Total non-accrual loans $1,009
======
There are no major concentrations within the non-accruing portfolio.
There are two major concentrations within the classified loans. One loan, which
comprises 37% 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 second loan, which
comprises 15% of total classified loans, is 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 $66,000 in the quarter ended September 30,
1996 due primarily to the addition of two properties totalling $127,000,offset
in part by the sale of two properties totalling $60,000. One of the properties
added is for $108,000; it is fully secured and is expected to be sold before the
end of the year.
22
<PAGE>
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,
the banking subsidiary 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 sensitive 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 assets furnish additional cash flow sources. Liquidity
is also provided by the acquisition of new deposits, as well as by the ability
to raise funds in a variety of money markets. Liquidity is also provided by
securities available for sale. As of September 30, 1996, securities available
for sale amounted to $117,512,000.
CAPITAL RESOURCES
The Company has continued to maintain a strong capital base during 1996. At
September 30, 1996 the Company's total and Tier 1 risk-based capital ratios (as
more fully described below) were 10.28% and 9.65%, respectively. The Company's
leverage ratio was 8.52% at September 30, 1996. These ratios were well above the
minimum capital requirements established by government agencies.
The Company and its banking subsidiary 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
define "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%.
As of September 30, 1996, the Company's Tier 1 capital, total risk-based capital
and Tier 1 leverage ratios were 9.65%, 10.28%, and 8.52%, respectively. These
ratios, as well as the corresponding ratios of the Company's banking subsidiary,
are well above industry averages.
23
<PAGE>
Stockholders' equity and book value per share as of September 30, 1996 decreased
to $37,450,533 and $9.88, respectively, from $37,623,790 and $9.89 per share as
of December 31, 1995. Stockholders' equity and book value per share (not
including unrealized losses on securities available for sale, net of applicable
income taxes) as of September 30, 1996 were $40,101,477 and $10.58,as compared
to $39,371,814 and $10.34 as of December 31, 1995. It is noteworthy that the
number of outstanding shares decreased to 3,791,040 at September 30, 1996 from
3,806,118 at December 31, 1995. 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 September 30, 1996, the Company had no material commitments for capital
expenditures.
On October 25, 1996, the Company announced that it has signed a definitive
merger agreement with Colonial BancGroup. The proposed transaction remains
subject to approval by Jefferson's stockholders and regulatory approval. The
closing of the merger is expected to take place in the first quarter of 1997.
24
<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.
DECEMBER 11, 1996 BARTON S. GOLDBERG
- --------------------------- -----------------------------------
Secretary-Treasurer (Principal
Financial Officer and Director)
DECEMBER 11, 1996 SYED F. ZAFAR
- --------------------------- -----------------------------------
Senior Vice President & Comptroller
(Principal Accounting Officer)
25
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<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 8,624,168
<INT-BEARING-DEPOSITS> 385,854,725
<FED-FUNDS-SOLD> 1,600,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 117,512,057
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<LOANS> 308,807,719
<ALLOWANCE> 2,424,472
<TOTAL-ASSETS> 458,474,577
<DEPOSITS> 385,854,725
<SHORT-TERM> 29,069,426
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0
0
<COMMON> 4,018,418
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<INTEREST-DEPOSIT> 10,821,465
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<SECURITIES-GAINS> 6,031
<EXPENSE-OTHER> 13,914,159
<INCOME-PRETAX> 2,965,062
<INCOME-PRE-EXTRAORDINARY> 2,965,062
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<NET-INCOME> 2,048,962
<EPS-PRIMARY> 0.53
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<LOANS-NON> 1,009,000
<LOANS-PAST> 1,878,000
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