<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 #0-21466
JEFFERSON SAVINGS BANCORP, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 43-1625841
- - -------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer ID Number)
of incorporation or organization)
14915 MANCHESTER ROAD, BALLWIN, MISSOURI 63011
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (314) 227-3000
-------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1996
----------------------------- ---------------------------------
Common Stock, Par Value $.01 4,181,563 shares
1
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
INDEX to Form 10-Q
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- Consolidated Balance Sheets 3
- Consolidated Statements of Income 4
- Consolidated Statement of Stockholders' Equity 5
- Consolidated Statements of Cash Flows 6
- Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES
</TABLE>
2
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1996 1995
------ -------------- --------------
<S> <C> <C>
Cash $ 2,018,485 1,945,276
Interest-bearing demand deposits 23,016,797 18,745,488
Investment securities available for sale, at
fair value (amortized cost of $36,508,254
and $48,443,789 at March 31, 1996 and
December 31, 1,995, respectively) 36,251,586 48,590,166
Mortgage-backed securities available for sale, net, at fair
value (amortized cost of $217,006,580 and $234,160,389
at March 31, 1996 and December 31, 1995, respectively) 213,691,102 232,882,760
Loans receivable, net 787,062,846 788,085,287
Investment in real estate, net 4,289,900 4,681,972
Stock in Federal Home Lcan Banks 16,554,500 16,520,100
Office properties and equipment, net 8,444,481 7,984,488
Excess of cost over fair value of net assets acquired 14,245,636 14,495,743
Accrued income and other assets 8,718,366 8,997,504
--------------- -------------
$ 1,114,293,699 1,142,928,784
=============== =============
Liabilities and Stockholders' Equity
------------------------------------
Savings deposits $ 879,158,970 870,178,701
Borrowed money 140,773,206 174,961,956
Deferred tax liability 734,176 1,161,000
Advance payments by borrowers for taxes
and insurance 5,135,677 2,875,576
Accrued expenses and other liabilities 7,403,896 13,500,813
--------------- -------------
Total liabilities 1,033,205,925 1,062,678,046
--------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock ($.01 par value): Authorized
5,000,000 shares; none issued - -
Common stock ($.01 par value): Authorized
20,000,000 shares; issued 4,470,049 shares
at March 31, 1996 and December 31, 1995 44,700 44,700
Additional paid-in capital 43,400,171 43,197,276
Retained earnings, subject to certain restrictions 50,831,413 49,140,260
Unrealized loss on assets available for sale, net (2,137,792) (666,313)
Unamortized restricted stock awards (515,766) (616,055)
Unallocated ESOP shares (5,929,409) (6,115,907)
Treasury stock, at cost: 288,486 shares and 296,486 shares
at March 31, 1996 and December 31, 1995, respectively (4,605,543) (4,733,223)
--------------- -------------
Total stockholders' equity 81,087,774 80,250,738
--------------- -------------
1,114,293,699 1,142,928,784
=============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
Three months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Interest and dividend income:
Loans receivable $15,792,584 10,228,889
Mortgage-backed securities 3,528,805 3,319,626
Investment securities 749,005 469,882
Interest-bearing demand deposits 168,909 44,985
Stock in Federal Home Loan Banks 270,678 218,342
----------- ----------
Total interest and dividend income 20,509,981 14,281,724
----------- ----------
Interest expense:
Savings deposits 11,225,164 6,324,749
Borrowed money 2,251,714 3,653,880
----------- ----------
Total interest expense 13,476,878 9,978,629
----------- ----------
Net interest income 7,033,103 4,303,095
Provision for losses on loans 165,000 90,000
----------- ----------
Net interest income after provision
for losses on loans 6,868,103 4,213,095
----------- ----------
Noninterest income:
Servicing and other loan fees 243,137 53,857
Fees for other services to customers 127,449 49,739
Gains on sale of mortgage-backed securities, net 507,613 -
Gains on sale of loans receivable, net 149,346 8,158
Gain on real estate operations 368,050 203,073
Other 211,361 83,530
----------- ----------
Total noninterest income 1,606,956 398,357
----------- ----------
Noninterest expense:
General and administrative:
Compensation and employee benefits 2,541,691 1,318,500
Occupancy 533,461 361,425
Advertising 122,769 87,056
Federal insurance premiums 503,397 288,187
Legal, examination, and other
professional fees 385,601 136,837
Other 893,106 351,896
----------- ----------
Total general and administrative 4,980,025 2,543,901
Amortization of excess cost over fair value
of net assets acquired 250,042 -
----------- ----------
Total noninterest expense 5,230,067 2,543,901
----------- ----------
Income before income taxes 3,244,992 2,067,551
Income tax expense 1,254,500 766,000
----------- ----------
Net income $ 1,990,492 1,301,551
=========== ==========
Earnings per share $.50 .32
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Three months ended March 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Unrealized
gain (loss)
on assets Unamortized Unallo- Total
Common stock Additional available restricted cated stock-
------------------- paid-in Retained for sale, stock ESOP Treasury holders'
Shares Dollars Capital earnings net awards shares stock equity
--------- -------- ---------- ---------- ----------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995 4,173,563 $44,700 43,197,276 49,140,260 (666,313) (616,055) (6,115,907) (4,733,223) 80,250,738
Net income - - - 1,990,492 - - - - 1,990,492
Amortization of restricted
stock awards - - - - - 100,289 - - 100,289
Amortization of ESOP awards - - 198,575 - - - 186,498 - 385,073
Change in unrealized
gain (loss) on assets
available for sale, net - - - - (1,471,479) - - - (1,471,479)
Dividends declared
($0.08 per share) - - - (299,339) - - - - (299,339)
Stock options exercised 8,000 - (47,680) - - - - 127,680 80,000
Tax benefit of
non-incentive
stock options exercised - - 52,000 - - - - - 52,000
--------- -------- ---------- ---------- ---------- ---------- ----------- ---------- -----------
Balance at March 31, 1996 4,181,563 $44,700 43,400,171 50,831,413 (2,137,792) (515,766) (5,929,409) (4,605,543) 81,087,774
========= ======== ========== ========== ========== ========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,990,492 $ 1,301,551
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization:
Office properties and equipment 197,125 140,745
Discounts and premiums, net (99,176) 98,604
ESOP and restricted stock awards 485,362 241,028
Excess of cost over fair value
of net assets acquired 250,042 -
Decrease in accrued interest receivable 578,357 280,260
Increase (decrease) in accrued interest
payable 16,448 (111,116)
Provision for losses on loans 165,000 90,000
Net gain on sales of assets (1,093,051) (8,158)
Increase in income taxes payable 356,030 658,000
Increase (decrease) in deferred taxes (426,824) 1,101,000
Decrease in payable for check fundings (5,699,462) (6,001,811)
Other, net (77,931) (2,582,941)
------------ ------------
Net cash used in operating activities (3,357,588) (4,792,838)
Cash flows from investing activities:
Principal repayments on:
Loans receivable 65,290,721 16,703,522
Mortgage-backed securities 5,242,901 2,524,059
Proceeds from maturity of investment
securities 17,000,000 2,000,000
Proceeds from sale of:
Loans receivable 18,778,606 831,258
Mortgage-backed securities 32,066,566 -
Cash invested in:
Loans receivable (83,515,472) (31,647,861)
Mortgage-backed securities (19,851,914) -
Investment securities (5,000,000) (5,994,413)
Proceeds from sale of real estate 1,661,345 8,422
Investment in real estate (120,513) -
Proceeds from sale of office properties
and equipment 106,991 119,872
Purchase of office properties and equipment (712,621) (82,957)
------------ ------------
Net cash provided by (used in)
investing activities 30,946,610 (15,538,098)
------------ ------------
Cash flows from financing activities:
Increase in savings deposits, net 8,903,484 34,044,354
Decrease in borrowed money, net (34,188,750) (15,702,782)
Increase in advance payments by
borrowers for taxes and insurance 2,260,101 1,645,017
Proceeds from stock options exercised 80,000 -
Dividends paid (299,339) -
------------ ------------
Net cash provided by (used in)
financing activities (23,244,504) 19,986,589
------------ ------------
Increase (decrease) in cash and
cash equivalents 4,344,518 (344,347)
Cash and cash equivalents at beginning
of period 20,690,764 8,090,611
------------ ------------
Cash and cash equivalents at end of period $ 25,035,282 $ 7,746,264
============ ============
Supplemental disclosures of cash flow
information:
Interest paid $ 13,460,430 $ 10,089,745
Income taxes paid 241,384 -
Noncash investing activities:
Additions to real estate acquired
in settlement of loans or through
foreclosure 800,330 -
Loans originated to finance the
sale of real estate 21,850 -
Noncash financing activity - interest
credited 8,437,166 4,899,653
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996
(Unaudited)
(1) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-Q and, therefore, do not
include all information and notes necessary for a complete presentation of
financial position, results of operations, changes in stockholders'
equity, and cash flows in conformity with generally accepted accounting
principles. However, all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary for a fair
presentation of the unaudited consolidated financial statements have been
included in the results of operations for the three months ended March 31,
1996 and 1995.
Operating results for the three month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996.
(2) Principles of Consolidation
---------------------------
The accompanying unaudited consolidated financial statements include the
accounts of Jefferson Savings Bancorp, Inc. (the Company) and its wholly
owned subsidiaries, Jefferson Savings and Loan Association, F.A. (the
Association) and First Federal Savings Bank of North Texas (the Bank). The
Association's wholly owned subsidiaries are J.S. Services, Inc., J.S.
Services of Florida, Inc., JS&L Realty, Inc. and Jefferson Financial
Corporation. The Bank's wholly owned subsidiaries are First Service
Corporation, Inc. and North Texas Financial Services, Inc. All significant
intercompany items have been eliminated.
(3) Business Combinations
---------------------
On May 31, 1995, the Company completed its acquisitions of North Texas
Savings and Loan Association, Denton, Texas (North Texas) and First
Federal Savings Bank of Longview, Longview, Texas (Longview) in exchange
for cash of $28.3 million and $12.8 million, respectively. North Texas'
total assets were $190.7 million, consisting primarily of loans receivable
of $126.9 million and mortgage-backed securities of $49.5 million; North
Texas' total deposits were $148.2 million. Longview's total assets were
$134.5 million, consisting primarily of loans receivable of $66.0 million
and mortgage-backed securities of $34.0 million; Longview's total deposits
were $120.0 million. On July 13, 1995, the Company completed its
acquisition of Shelby-Panola Savings Association, Carthage, Texas (Shelby-
Panola) in exchange for cash of $10.9 million. Shelby-Panola's total
assets were $55.6 million, consisting primarily of investment securities
of $22.9 million, loans receivable of $14.3 million, and mortgage-backed
securities of $12.2 million; Shelby-Panola's total deposits were $44.8
million. As a result of the North Texas acquisition, the Company added
five branches in the suburban Dallas counties of Denton, Collin, Tarrant,
and Wise and, as a result of the Longview acquisition, added five branches
in the Northeast Texas counties of Gregg and Harrison. The acquisition of
Shelby-Panola added one branch in Panola County, Texas. The acquisitions,
which were funded by available cash and borrowings, were accounted for
using the purchase method of accounting and accordingly, the results of
operations have been included in the Company's results of operations from
the respective transaction dates. The excess of cost over fair value of
net assets acquired was approximately $15 million. Upon completion of the
acquisitions, North Texas, Longview, and Shelby-Panola were consolidated
under a single federal charter and operate under the common name of First
Federal Savings Bank of North Texas (First Federal).
7
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following unaudited information presents pro forma results of operations
of the Company for the three month period ending March 31, 1995, assuming
the acquisitions had taken place on January 1, 1995.
(In thousands, except per share data)
Net interest income $ 6,306
-------
Net income 1,645
=======
Earnings per share $ .40
=======
(4) Earnings Per Share
------------------
Earnings per share are based upon the weighted average number of common
shares and common stock equivalents, if dilutive, outstanding during the
period. The only common stock equivalents are stock options. The weighted
average number of common stock equivalents is calculated using the
treasury stock method. Common shares held by the Company's Employee Stock
Ownership Plan (ESOP) that have not been committed to be released are
excluded from the computation of weighted average common shares
outstanding during the period.
Earnings per share for the first quarter of 1996 and 1995 have been
computed based upon net income for the three months ended March 31, 1996
and 1995, using 3,961,380 and 4,061,558 weighted average common shares and
common stock equivalents outstanding, respectively.
(5) Recent Regulatory Developments
------------------------------
The deposits of the Association and First Federal are presently insured by
the Savings Association Insurance Fund ("SAIF"), which together with the
Bank Insurance Fund ("BIF"), which insures the deposits of commercial
banks, are the two deposit insurance funds administered by the FDIC. Upon
achieving the statutory reserve ratio of 1.25% of insured deposits, the
deposit insurance assessment rates for BIF members were lowered from a
range of .23% to .31% of insured deposits to a range of .04% to .31% and
subsequently lowered to the point that most BIF members currently pay the
statutory minimum assessment of $2,000 per year. As a result, BIF members
generally will pay lower premiums than the SAIF members whose assessment
rates continue to range from .23% to .31% of insured deposits. The FDIC
has indicated that the SAIF will not be adequately recapitalized until
2002, absent a substantial increase in premium rates or the imposition of
special assessments. As a result of the disparity, SAIF members could be
placed at a significant, competitive disadvantage to BIF members due to
higher costs for deposit insurance. Proposed legislation under
consideration by the United States Congress provides for a one-time
assessment to be imposed on all deposits assessed at the SAIF rates, as of
March 31, 1995, in order to recapitalize the SAIF. The special assessment
rate is anticipated to be .85% to .90% of insured deposits. Based upon The
Company's level of SAIF deposits at March 31, 1995 (including the pro
forma effect of the acquisitions of North Texas, Longview and Shelby-
Panola), and assuming a special assessment of .90%, the Company's
assessment would be approximately $8 million on a pre-tax basis. If the
legislation is enacted, the special assessment would significantly
increase non-interest expense and adversely effect the Company's results
of operations during the quarter when it is enacted. Conversely, depending
upon the Company's capital level and supervisory rating, and assuming,
although there can be no assurance, that the insurance premium levels for
BIF and SAIF members are again equalized, deposit insurance premiums could
decrease significantly to as low as $2,000 annually for future periods.
8
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion reviews the financial condition and the results of
operations of the Company as of and for the three months ended March 31, 1996.
FINANCIAL CONDITION
The Company's total assets decreased $28.6 million, or 2.5%, from $1,142.9
million at December 31, 1995 to $1,114.3 million at March 31, 1996. This
decrease was due principally to a $19.2 million, or 8.2%, decrease in mortgage-
backed securities and a $12.3 million, or 25.4%, decrease in investment
securities. Proceeds from the reduction in mortgage-backed securities and
investment securities were used primarily to reduce borrowed money. Loan
originations and purchases totaled approximately $82 million and $2 million,
respectively, and principal repayments totaled approximately $65 million during
the quarter ended March 31, 1996 compared to loan originations and purchases of
approximately $15 million and $16 million, respectively, and principal
repayments of approximately $17 million during the quarter ended March 31, 1995.
The increased level of loan originations was the result of the Company's
continued focus on its retail sales culture and the activity contributed by
First Federal which was acquired in three transactions accounted for as
purchases in May and July 1995.
The Company's savings deposits increased $9.0 million, or 1.0%, during the first
quarter of 1996. The increase in savings deposits was used primarily to reduce
borrowed money. Borrowed money (consisting primarily of advances from the
Federal Home Loan Bank) decreased by $34.2 million, or 20.0%, from $175.0
million at December 31, 1995 to $140.8 million at March 31, 1996.
Total stockholders' equity increased by $837,000, or 1.0%, to $81.1 million at
March 31, 1996 from $80.3 million at December 31, 1995. The Company's ratio of
stockholders' equity to assets increased to 7.28% at March 31, 1996 from 7.02%
at December 31, 1995. The increase in stockholders' equity reflects the
Company's first quarter earnings of $2.0 million and the amortization of certain
stock awards during the quarter, partially offset by a $1.5 million increase in
unrealized losses on assets available for sale and the payment of $299,000 in
dividends to stockholders. The Company did not engage in any open-market
repurchases of its common stock during the first quarter of 1996. The Company's
book value per share at March 31, 1996 was $21.59 compared to $21.49 at December
31, 1995. Unallocated ESOP shares of 425,836 and 439,830 were excluded in
calculating book value per share at March^31, 1996 and December 31, 1995,
respectively.
RESULTS OF OPERATIONS
NET INCOME
Net income increased $689,000, or 52.9%, from $1,302,000, or $.32 per share, for
the three months ended March^31, 1995 to $1,990,000, or $.50 per share, for the
three months ended March^31, 1996. The increase in net income was primarily the
result of a $2.7 million increase in net interest income and a $1.2 million
increase in noninterest income, partially offset by a $2.7 million increase in
noninterest expense and a $488,000 increase in income tax expense. The
Company's annualized returns on average assets and average equity were .70% and
9.84%, respectively, for the first quarter of 1996 compared to .60% and 7.04%
for the first quarter of 1995. The increases in the returns on average equity
and average assets were attributable to the inclusion of the results of
operations of First Federal which was acquired in three transactions accounted
for as purchases in May and July 1995. Under the purchase method of accounting,
the results of operations of each of the acquired companies are only included
from their dates of acquisition.
9
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
NET INTEREST INCOME
Net interest income for the first quarter of 1996 increased $2.7 million, or
63.4%, to $7.0 million compared to $4.3 million for the first quarter of 1995.
The increase in net interest income was the result of significant growth in net
interest-earning assets and an improved interest rate spread. The average
balance of interest-earning assets increased $236.7 million, or 27.6%, from
$858.1 million for the quarter ended March 31, 1995 to $1.1 billion for the
quarter ended March 31, 1996. The Company's interest rate spread increased from
1.56% during the first quarter of 1995 to 2.28% during the first quarter of 1996
and the Company's net interest margin increased from 2.01% to 2.57% during the
same periods. The increase in the average balance of interest-earning assets
was primarily the result of $369.6 million in interest-earning assets purchased
in the acquisition of First Federal. The improvement in the interest rate
spread was primarily the result of an increase in the yield on loans receivable
from 6.90% during the first quarter of 1995 to 8.04% during the corresponding
period of 1996. This increase in yield was caused by the upward adjustment of
the rates on the Company's existing adjustable-rate loan portfolio and the
addition of the loan portfolios of First Federal.
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans for the first quarter of 1996 was $165,000
compared to $90,000 for the like period in 1995. At March 31, 1996, the
allowance for losses on loans was $5,251,000, or .67% of total loans compared to
$5,096,000, or .65% at December 31, 1995. The ratio of nonaccruing loans to
total loans was .38% at March 31, 1996 compared to .29% at December 31, 1995.
Management considers many factors in determining the necessary level of loan
loss reserves, including a detailed analysis of impaired loans in the portfolio,
known and inherent risk in the portfolio, estimated value of the underlying
collateral, assessment of general trends in the rest of the real estate market,
and current and prospective economic conditions.
NONINTEREST INCOME
Total noninterest income increased $1.2 million, or 303.4%, from $398,000 for
the quarter ended March 31, 1995 to $1.6 million for the quarter ended March 31,
1996. The increase was primarily due to a $508,000 increase in gain on sale of
mortgage-backed securities, a $189,000 increase in servicing and other loan
fees, a $165,000 increase in gain on real estate operations, a $141,000 increase
in gain on sale of loans and a $128,000 increase in other noninterest income.
The increase in gain on sale of mortgage-backed securities resulted from the
sale of $32.0 million in collateralized mortgage obligations during the quarter
ended March 31, 1996. Management decided to restructure a portion of the
Company's mortgage-backed securities portfolio to improve the Company's interest
rate risk position. No such sales occurred during the like period in 1995. The
increase in gain on real estate operations was primarily the result of a
$324,000 profit on the sale of real estate held for investment during the
quarter ended March 31, 1996. The increase in servicing and other loan fees was
primarily the result of loan fees generated by First Federal. The increase in
gain on sale of loans was primarily the result of increased loan sales from
$831,000 for the quarter ended March 31, 1995 to $18.8 million for the quarter
ended March 31, 1996. The gain on sale of loans represents origination and
other fees retained by the Company in connection with the sale of fixed-rate
loans originated for sale to institutional investors generally on an individual
loan basis. The increased sales volume reflects the borrowers' increased demand
for fixed-rate loans during 1996 combined with sales activity from First
Federal. The increase in other noninterest income was due primarily to a
$74,000 profit on the sale of assets owned by the Company's subsidiary, J.S.
Services of Florida, Inc., during the quarter ended March 31, 1996.
10
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
NONINTEREST EXPENSE
Noninterest expense increased $2.7 million, or 105.6%, from $2.5 million for the
quarter ended March 31, 1995 to $5.2 million for the quarter ended March 31,
1996. Approximately $2.2 million of the increase was attributable to the
inclusion of the results of operations of First Federal which was acquired in
three transactions accounted for as purchases in May and July 1995. Under the
purchase method of accounting, the results of operations of each of the acquired
companies are only included from their dates of acquisition. Also contributing
to the increase was approximately $190,000 in additional compensation and
employee benefits and approximately $110,000 in additional legal and
professional fees at the Association. The additional compensation and employee
benefits were the result of normal salary increases and the hiring of additional
employees to support the Company's sales culture. The additional legal and
professional fees were the result of fees paid in connection with income tax
planning and legal expenses associated with the Company's acquisition
activities. Although the annualized ratio of noninterest expense to average
assets increased from 1.17% to 1.85% for the comparable periods, the Company's
ratio continues to be well below that of its peers.
INCOME TAX EXPENSE
The Company provides for state and Federal income tax expense based upon income
before income taxes. The effective tax rate for the first quarter of 1996 was
38.7% compared to 37.0% for the like period in 1995. The Company accounts for
income taxes under the asset and liability method. The objective of the asset
and liability method is to establish deferred tax assets and liabilities for the
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities at enacted tax rates expected to be in
effect when such amounts are realized or settled.
11
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
NONPERFORMING ASSETS
Summarized below are nonperforming assets at March 31, 1996 and December 31,
1995. Nonperforming assets do not include a restructured loan with an
outstanding balance of $3.1 million at March 31, 1996 and December 31, 1995 on
which the borrower has been current in meeting the restructured terms since the
date of restructuring. The restructured loan provides for principal
amortization, and the loan has an interest rate and other terms that are at
least equal to market terms.
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- -------------
(dollars in thousands)
<S> <C> <C>
Restructured loans $ 3,644 3,659
------- -----
Nonaccruing loans:
Residential real estate $ 1,681 1,684
Commercial real estate 1 26
Construction 1,250 707
Commercial 6 15
Consumer 21 42
------- -----
Total nonaccruing loans 2,959 2,474
------- -----
Foreclosed real estate, net 4,196 3,670
------- -----
Restructured and nonaccruing loans
and foreclosed assets, net $10,799 9,803
======= =====
Nonperforming assets, net $ 7,694 6,690
======= =====
Nonperforming assets, net as a
percentage of total assets 0.69% 0.59%
======= =====
</TABLE>
Total nonperforming assets increased $1.0 million from $6.7 million at December
31, 1995 to $7.7 million at March 31, 1996 primarily as the result of a $543,000
increase in nonaccruing construction loans and a $526,000 increase in real
estate acquired through foreclosure. The increase in nonaccruing construction
loans was due to the addition of two loans secured by single family residences.
The increase in real estate acquired through foreclosure was the result of
foreclosure on two loans secured by single family residences.
Loans are placed on nonaccrual status when either principal or interest is more
than 90 days past due or at such time when contractual amounts due are deemed
uncollectible, whichever is sooner. Any subsequent interest payments received
are recorded as interest income in the period received.
At March 31, 1996, the Company had $3.8 million of impaired loans, which are
represented by loans on nonaccrual status and loans internally classified. At
March 31, 1996 $40,000 of impaired loans had specific reserves of $23,000 and
the remaining impaired loans of $3.8 million had no specific reserves.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has no business other than that of the Association and the
Bank. The Company is dependent on future earnings, dividends from the
Association and the Bank, or borrowings for sources of funds. The Association
and the Bank are subject to certain regulatory limitations with respect to the
payment of dividends to the Company.
12
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
The Association and the Bank meet all existing regulatory capital requirements.
Capital ratios at March 31, 1996, as computed under OTS capital standards, are
as follows:
<TABLE>
<CAPTION>
Regulatory Capital
--------------------------------------------------------
Tangible Core Risk-based
-------- ----- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Association's regulatory
capital $44,437 5.95% $44,437 5.95% $48,347 13.24%
Capital requirement 11,208 1.50 22,417 3.00 29,221 8.00
------- ---- ------- ---- ------- -----
Excess $33,229 4.45% $22,020 2.95% $19,126 5.24%
======= ==== ======= ==== ======= =====
<CAPTION>
Regulatory Capital
--------------------------------------------------------
Tangible Core Risk-based
-------- ----- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Bank's regulatory capital $21,482 5.65% $21,482 5.65% $22,775 9.31%
Capital requirement 5,706 1.50 11,955 3.00 19,571 8.00
------- ---- ------- ---- ------- -----
Excess $15,776 4.15% $ 9,527 2.65% $ 3,204 1.31%
======= ==== ======= ==== ======= =====
</TABLE>
The Association and the Bank are required by federal regulations to maintain
specified levels of liquid assets, consisting of cash and eligible investments,
which include, among other investments, certain United States Treasury
obligations, securities of various federal agencies, certificates of deposit at
insured banks, federal funds sold, and bankers' acceptances. The current level
of liquidity required by the OTS is 5% of the sum of net withdrawable deposits
and borrowings due within one year. The Association and the Bank have
consistently maintained liquidity in excess of required amounts. The
Association's liquidity ratios were 5.78% and 9.27% at December 31, 1995 and
March 31, 1996, respectively. The Bank's liquidity ratios were 16.61% and 11.23%
at December 31, 1995 and March 31, 1996, respectively.
The Company's primary sources of funds are deposits, principal and interest
payments on loans and mortgage-backed securities, proceeds from maturing
investment securities and cash flows from operations. In addition, the
Association and the Bank have substantial borrowing authority with the Federal
Home Loan Banks and the ability to borrow against its investment portfolio.
The principal uses of funds by the Company include the origination of loans
secured by real estate and the purchase of investment securities and mortgage-
backed securities.
The Company's primary source of cash for investing and operating activities has
been principal repayments on loans and mortgage-backed securities, proceeds from
the sale of loans and mortgage-backed securities, and proceeds from maturing
investment securities. Cash flows from investing activities provided $30.9
million in funds during the first quarter of 1996. First quarter cash flows from
investing activities which consisted primarily of $70.5 million in principal
repayments on loans and mortgage-backed securities, $50.8 million in sales of
loan and mortgage-backed securities and $17.0 million in proceeds from maturing
investment securities, provided sufficient funds for the Company's investing
activities of originating loans and purchasing mortgage-backed and investment
securities. In addition, cash flows from investing activities and increases in
savings deposits during the first quarter of 1996 were used to reduce borrowed
money by $34.2 million.
The Company anticipates that it will have sufficient funds available to meet its
current commitments. At March 31, 1996, the Company had commitments to
originate
13
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
loans of $14.3 million, to purchase residential adjustable-rate mortgages of
$1.5 million, and to sell loans of $5.2 million. Certificates of deposit which
are scheduled to mature in one year or less at March 31, 1996 totaled $515.7
million. Management believes that a significant portion of such deposits will
remain with the Company. In addition, at March 31, 1996, the Association has an
available line of credit with the FHLB of Des Moines totaling $73.5 million.
Legislation currently being considered by the U.S. Congress would require
savings associations with deposits insured by the SAIF, like the Company's
Jefferson Savings and First Federal of North Texas subsidiaries, to pay a one-
time special assessment in order to increase the reserve level of the SAIF to
the statutorily required 1.25% of insured deposits. It is estimated that the
special assessment would equal .85% to .90% of each SAIF-insured savings
association's deposits as of March 31, 1995. It is anticipated that after the
SAIF is recapitalized through the special assessment, the assessment rates for
SAIF deposit insurance will be reduced from the current range of .23% to .31% of
insured deposits to the same levels as the assessment rates for banks with
deposits insured by the Bank Insurance Fund which now range from the statutory
minimum of $2,000 per annum for well capitalized banks with the highest
supervisory rating to .23% of deposits for less capitalized banks with lower
supervisory ratings. The Company cannot predict whether the special assessment
legislation will be adopted, whether it will be adopted in its current form or
whether the Company's future SAIF premiums would be reduced as a result. If the
proposed legislation is enacted in its current form and assuming a special
assessment of .90%, the Company's subsidiaries would be required to pay an
aggregate special assessment equal to approximately $8 million on a pre-tax
basis. Although the Company believes that it has sufficient funds available to
pay such a special assessment and would continue to be in compliance with all
applicable capital requirements after payment of the special assessment, the
special assessment would significantly increase noninterest expense and
adversely affect results of operations during the periods in which the expense
is reported. In addition, the Company may consider an infusion of additional
capital into the subsidiary institutions to maintain their status as "well
capitalized" institutions for purposes of federal banking regulations.
IMPACT OF INFLATION AND CHANGING PRICES
The unaudited consolidated financial statements and related data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and results of
operations in the measurements of historical dollars without considering changes
in the relative purchasing power of money over time because of inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
the Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services. In the
present interest rate environment, the liquidity, maturity structure, and
quality of the Company's assets and liabilities are important factors in the
maintenance of acceptable performance levels.
IMPACT OF NEW ACCOUNTING STANDARDS
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
On January 1, 1996 the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" (SFAS 121). SFAS 121 requires, among other
things, that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of the provisions of SFAS 121 on January 1, 1996 did
not have a material impact on the Company's financial statements.
14
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS
On January 1, 1996 the Company adopted Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights" (SFAS 122) an
amendment of FASB Statement No. 65. SFAS 122 amends SFAS 65, "Accounting for
Certain Mortgage Banking Activities," to require that a mortgage banking
enterprise recognize, as separate assets, rights to service mortgage loans for
others, however those servicing rights are acquired. A mortgage banking
enterprise that acquires mortgage servicing rights through either the purchase
or origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans (without the mortgage servicing
rights) based on their relative fair values, if it is practicable to estimate
those fair values. If it is not practicable to estimate the fair values of the
mortgage servicing rights and the mortgage loans (without the mortgage servicing
rights), the entire cost of purchasing or originating the loans should be
allocated to the mortgage loans and no cost should be allocated to mortgage
servicing rights. SFAS 122 also requires that a mortgage enterprise assess its
capitalized mortgage servicing rights for impairment based on the fair value of
those rights. The adoption of SFAS 122 did not have a material effect on the
Company's financial statements.
ACCOUNTING FOR STOCK-BASED COMPENSATION
During October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans and also applies to transactions in which an entity
issues its equity instruments to acquire goods or services from nonemployees.
SFAS 123 defines a fair value based method of accounting for an employee stock
option or similar equity instruments and encourages all entities to adopt that
method of accounting. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value-based method of
accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25). Pro forma disclosures required for
entities that elect to continue to measure compensation cost using APB 25 must
include the effect of all awards granted in fiscal years that begin after
December 15, 1994. The Company has elected to continue to measure compensation
cost using APB 25, therefore the adoption of SFAS No. 123 did not have any
impact on the Company's financial condition or results of operations.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits:
The following exhibits are filed with this Form 10Q:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
Reports on Form 8-K:
None.
16
<PAGE>
SIGNATURES
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 SAVINGS BANCORP, INC.
Registrant
Date: May 14, 1996 /s/ Paul J. Milano
-----------------------------------------
Paul J. Milano
Senior Vice President and Chief Financial
Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,018,485
<INT-BEARING-DEPOSITS> 23,016,797
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 249,942,688
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 792,313,386
<ALLOWANCE> 5,250,540
<TOTAL-ASSETS> 1,114,293,699
<DEPOSITS> 879,158,970
<SHORT-TERM> 140,773,206
<LIABILITIES-OTHER> 13,273,749
<LONG-TERM> 0
0
0
<COMMON> 44,700
<OTHER-SE> 81,043,074
<TOTAL-LIABILITIES-AND-EQUITY> 1,114,293,699
<INTEREST-LOAN> 15,792,584
<INTEREST-INVEST> 4,277,810
<INTEREST-OTHER> 439,587
<INTEREST-TOTAL> 20,509,981
<INTEREST-DEPOSIT> 11,225,164
<INTEREST-EXPENSE> 13,476,878
<INTEREST-INCOME-NET> 7,033,103
<LOAN-LOSSES> 165,000
<SECURITIES-GAINS> 507,613
<EXPENSE-OTHER> 5,230,067
<INCOME-PRETAX> 3,244,992
<INCOME-PRE-EXTRAORDINARY> 1,990,492
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,990,492
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
<YIELD-ACTUAL> 2.57
<LOANS-NON> 2,959,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 3,644,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,095,856
<CHARGE-OFFS> 10,316
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 5,250,540
<ALLOWANCE-DOMESTIC> 2,086,212
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,164,328
</TABLE>
