<PAGE>
<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 September 30, 1997
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: #0-21466
JEFFERSON SAVINGS BANCORP, INC.
_________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Delaware 43-1625841
- ----------------------- -------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
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 October 31, 1997
- -------------------------------------------------------------------
Common Stock, Par Value $.01 5,006,368 shares
1<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
INDEX to Form 10-Q
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- Consolidated Balance Sheets 3
- Consolidated Statements of Operations 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
Item 3. Quantitative and Qualitative Disclosure About
------------
Market Risk 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of
Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
<S> <C> <C>
Cash $ 10,571,081 7,359,389
Interest-bearing deposits 22,161,648 11,531,105
Federal funds sold 8,325,000 4,815,000
Investment securities available for sale, at
fair value (amortized cost of $86,464,487
and $84,838,744 at September 30, 1997 and
December 31, 1996, respectively) 86,811,861 85,701,772
Mortgage-backed securities available for sale,
at fair value (amortized cost of $120,148,052
and $95,982,081 at September 30, 1997 and
December 31, 1996, respectively) 120,687,305 95,203,312
Loans receivable, net 943,914,866 885,405,062
Investment in real estate, net 3,751,319 4,460,202
Stock in Federal Home Loan Banks 16,687,900 15,768,700
Office properties and equipment, net 11,447,921 9,667,851
Excess of cost over fair value of net assets acquired 24,472,891 19,746,106
Accrued income and other assets 8,920,862 8,420,576
-------------- -------------
$1,257,752,654 1,148,079,075
============== =============
Liabilities and Stockholders' Equity
------------------------------------
Savings deposits $1,069,651,787 947,068,672
Borrowed money 51,301,038 97,682,127
Deferred tax liability 140,307 1,324,000
Advance payments by borrowers for taxes
and insurance 12,098,972 2,884,424
Accrued expenses and other liabilities 11,044,564 9,200,939
-------------- -------------
Total liabilities 1,144,236,668 1,058,160,162
-------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock ($.01 par value): Authorized
5,000,000 shares; none issued - -
Common stock ($.01 par value): Authorized
20,000,000 shares; issued 5,017,999 and
4,470,049 shares at September 30, 1997 and
December 31, 1996, respectively 50,180 44,700
Additional paid-in capital 62,375,640 45,771,841
Retained earnings, subject to certain
restrictions 57,039,099 50,759,048
Unrealized gain on assets available for sale, net 531,628 50,259
Unamortized restricted stock awards (179,982) (359,477)
Unearned ESOP shares (6,114,663) (5,345,412)
Treasury stock, at cost: 11,631 shares and
62,703 shares at September 30, 1997 and
December 31, 1996, respectively (185,916) (1,002,046)
-------------- -------------
Total stockholders' equity 113,515,986 89,918,913
-------------- -------------
$1,257,752,654 1,148,079,075
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
3<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Three and nine months ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
---------------------- ----------------------
1997 1996 1997 1996
------ ------ ------- ---------
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans receivable $19,914,652 16,507,829 59,465,712 48,202,576
Mortgage-backed securities 1,370,744 2,381,310 4,436,310 9,184,274
Investment securities 2,385,983 1,500,083 6,553,659 2,776,946
Interest-bearing deposits and
federal funds sold 431,687 112,649 852,795 473,788
Stock in Federal Home Loan Banks 284,854 267,749 833,590 797,815
---------- ---------- ---------- ----------
Total interest and dividend
income 24,387,920 20,769,620 72,142,066 61,435,399
---------- ---------- ---------- ----------
Interest expense:
Savings deposits 13,842,149 11,049,966 39,823,827 33,243,220
Borrowed money 1,113,152 2,049,720 3,867,112 6,396,170
---------- ---------- ---------- ----------
Total interest expense 14,955,301 13,099,686 43,690,939 39,639,390
---------- ---------- ---------- ----------
Net interest income 9,432,619 7,669,934 28,451,127 21,796,009
Provision for losses on loans 246,000 165,000 1,158,000 495,000
---------- ---------- ---------- ----------
Net interest income after
provision for losses on loans 9,186,619 7,504,934 27,293,127 21,301,009
---------- ---------- ---------- ----------
Noninterest income:
Servicing and other loan fees 180,323 118,269 596,677 497,963
Fees for other services to customers 272,656 136,507 775,174 379,669
Gain on sale of investment securities,
net 940,625 - 940,625 -
Loss on sale of mortgage-backed
securities, net (936,803) (1,930,506) (936,803) (1,296,134)
Gain on sale of loans receivable, net 214,517 78,753 353,983 300,081
Gain (loss) on real estate operations,
net (20,998) 3,404 112,408 419,706
Other 153,990 143,341 420,275 535,883
---------- ---------- ---------- ----------
Total noninterest income 804,310 (1,450,232) 2,262,339 837,168
---------- ---------- ---------- ----------
Noninterest expense:
General and administrative:
Compensation and employee benefits 3,171,728 2,221,917 8,893,833 7,334,892
Occupancy 720,929 548,646 2,041,277 1,559,313
Advertising 104,523 88,976 472,448 359,529
Federal insurance premiums 217,333 571,939 566,439 1,579,078
SAIF special assessment - 5,598,879 - 5,598,879
Legal, examination, and other
professional fees 502,974 283,298 1,027,388 961,071
Other 981,116 655,410 2,891,946 2,264,977
---------- ---------- ---------- ----------
Total general and administrative 5,698,603 9,969,065 15,893,331 19,657,739
Amortization of excess cost over fair
value of net assets acquired 452,794 261,279 1,256,945 761,364
---------- ---------- ---------- ----------
Total noninterest expense 6,151,397 10,230,344 17,150,276 20,419,103
---------- ---------- ---------- ----------
Income before income taxes 3,839,532 (4,175,642) 12,405,190 1,719,074
Income tax expense 1,480,000 (1,338,500) 4,754,000 949,000
---------- ---------- ---------- ----------
Net income $2,359,532 (2,837,142) 7,651,190 770,074
========== ========== ========== ==========
Earnings per share $.49 (.72) 1.63 .19
==== ==== ==== ===
</TABLE>
See accompanying notes to consolidated financial statements.
4<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Nine months ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Common Stock Additional gain on
------------------- paid-in Retained assets available
Shares Dollars capital earnings for sale, net
------ ------- ---------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 4,407,346 $44,700 45,771,841 50,759,048 50,259
Net income - - - 7,651,190 -
Dividends paid ($.30 per share) - - - (1,371,139) -
Release of ESOP shares in lieu
of cash dividend on allocated
ESOP shares - - 20,799 - -
Stock issued in dividend
reinvestment and stock
purchase plan 3,931 - 55,963 - -
Amortization of restricted
stock awards - - - - -
Tax benefit of restricted
stock awards vested - - 162,000 - -
Amortization of ESOP shares - - 688,246 - -
Change in unrealized gain
on assets available for
sale, net - - - - 481,369
Stock issued to acquire
L&B Financial 547,950 5,480 15,271,367 - -
Stock issued to ESOP - - - - -
Stock purchased by ESOP 32,284 - 412,269 - -
Stock options exercised 14,857 - (88,845) - -
Tax benefit of nonincentive
stock options exercised - - 82,000 - -
--------- ------- ---------- ---------- ----------
Balance at September 30, 1997 5,006,368 $50,180 62,375,640 57,039,099 531,628
========= ======= ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Unamortized Total
restricted Unearned Treasury stockholders'
stock awards ESOP shares stock equity
------------ ----------- ------ -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 (359,477) (5,345,412) (1,002,046) 89,918,913
Net income - - - 7,651,190
Dividends paid ($.30 per share) - - - (1,371,139)
Release of ESOP shares in lieu
of cash dividend on allocated
ESOP shares - 30,829 - 51,628
Stock issued in dividend
reinvestment and stock
purchase plan - - 62,817 118,780
Amortization of restricted
stock awards 179,495 - - 179,495
Tax benefit of restricted
stock awards - - - 162,000
Amortization of ESOP shares - 545,565 - 1,233,811
Change in unrealized gain
on assets available
for sale, net - - - 481,369
Stock issued to acquire
L&B Financial - - - 15,276,847
Stock issued to ESOP - (672,884) - (672,884)
Stock purchased by ESOP - (672,761) 515,898 255,406
Stock options exercised - - 237,415 148,570
Tax benefit of nonincentive
stock options exercised - - - 82,000
--------- ---------- ----------- -----------
Balance at September 30, 1997 (179,982) (6,114,663) (185,916) 113,515,986
========= ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine months ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,651,190 770,074
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,319,728 2,139,186
Provision for losses on loans 1,158,000 495,000
Net loss (gain) on sales of assets (709,064) 404,608
Loans originated for sale (19,945,359) (21,632,219)
Sale of loans originated for sale 21,079,638 21,854,766
Deferred income taxes (926,193) (2,169,000)
Stock dividend from Federal Home Loan Banks (157,000) (123,400)
Other, net 2,642,629 806,659
------------ ------------
Net cash provided by operating activities 13,113,569 2,545,674
------------ ------------
Cash flows from investing activities:
Principal repayments on:
Loans receivable 301,531,843 206,878,413
Mortgage-backed securities 14,569,676 18,657,986
Proceeds from maturity of investment securities 20,585,000 28,335,000
Proceeds from sale of:
Loans receivable 6,436,300 14,646,981
Mortgage-backed securities available for sale 66,640,888 86,352,031
Investment securities available for sale 55,024,942 -
Cash invested in:
Loans receivable originated (279,127,756) (248,780,730)
Loans receivable purchased (20,446,112) (6,178,150)
Mortgage-backed securities (61,468,339) (29,836,277)
Investment securities (63,946,878) (62,997,500)
Proceeds from sale of real estate 3,565,908 2,115,567
Cash paid for acquisitions (15,266,182) -
Cash and cash equivalents from acquisitions 8,296,533 -
Other, net (1,198,429) 447,185
------------ ------------
Net cash provided by investing activities 35,197,394 9,640,506
------------ ------------
Cash flows from financing activities:
Increase in savings deposits, net 17,610,111 6,360,598
Decrease in borrowed money, net (56,381,089) (31,060,491)
Increase in advance payments by borrowers for
taxes and insurance 8,660,632 7,783,691
Dividends paid (1,371,139) (898,035)
Other, net 522,757 82,320
------------ ------------
Net cash provided by (used in) financing
activities (30,958,728) (17,731,917)
------------ ------------
Increase (decrease) in cash and cash
equivalents 17,352,235 (5,545,737)
Cash and cash equivalents at beginning of period 23,705,494 20,690,764
------------ ------------
Cash and cash equivalents at end of period $ 41,057,729 15,145,027
============ ============
Supplemental disclosures of cash flow information:
Interest paid $ 44,172,415 39,738,139
Income taxes paid 5,149,393 2,492,384
Noncash investing activities:
Stock issued for acquisitions 15,276,847 -
Additions to real estate acquired in settlement
of loans or through foreclosure 2,699,146 2,280,625
Loans originated to finance the sale of real estate 37,500 60,026
Noncash financing activity - interest credited 29,431,742 24,469,094
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(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 and nine months ended September 30, 1997 and 1996.
Operating results for the three and nine months ended September
30, 1997 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1997.
(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 (First Federal or 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 December 30, 1996, the Company completed its acquisition of
Texas Heritage Savings Association/Banc in Rowlett, Texas (Texas
Heritage) in exchange for $5.1 million in cash and 223,151
shares of the Company's common stock. Texas Heritage's total
assets were $71.8 million, consisting primarily of loans
receivable of $56.0 million and mortgage-backed and investment
securities of $7.3 million; Texas Heritage's total deposits were
$64.7 million. As a result of the Texas Heritage acquisition,
the Company added four branches in the suburban Dallas counties
of Dallas, Rockwall and Tarrant. The acquisition, which was
funded by common stock, available cash and borrowings, was
accounted for using the purchase method. Under the purchase
method of accounting, the results of operations of Texas
Heritage are included in the Company's results of operations
only since the date of its acquisition. The excess cost over
fair value of net assets acquired was approximately $6.3
million. Upon completion of the acquisition, Texas Heritage was
merged into First Federal.
The Company's acquisition of L&B Financial, Inc. in Sulphur
Springs, Texas (L&B Financial) was completed on February 28,
1997. The Company acquired L&B Financial for a combination of
$15.3 million in cash and 547,950 shares of the Company's common
stock. L&B Financial's total assets were $140.8 million,
consisting primarily of loans receivable of $70.4 million and
mortgage-backed and investment securities of $57.3 million; L&B
Financial's total deposits were $104.9 million. As a result of
the L&B Financial acquisition, the Company added six branches in
the northeast Texas counties of Bowie, Camp, Franklin, Hopkins
Morris and Titus. The acquisition was accounted for using the
purchase method. Under the purchase method of accounting, the
results of operations of L&B Financial are included in the
Company's results of operations only since the date of its
acquisition. The excess of cost over fair value of net assets
acquired was $5.9 million. Upon completion of
7 (Continued)<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
the acquisition, L&B Financial was merged into First Federal.
The following unaudited information presents pro forma results
of operations of the Company for the three and nine months ended
September 30, 1997, compared with the same period in 1996,
assuming the acquisitions of Texas Heritage and L&B Financial
had taken place on January 1, 1996.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ ----------------
1997 1996 1997 1996
------------------ ----------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net interest income $ 9,433 9,384 29,082 26,981
Net income (loss) 2,360 (3,346) 7,135 863
======== ====== ====== ======
Earnings (loss) per share $.49 (.71) 1.48 .18
==== ==== ==== ====
</TABLE>
(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 third quarter have been computed
based upon net income for the three months ended September 30,
1997 and 1996, using 4,833,333 and 3,969,055 weighted average
common shares and common stock equivalents outstanding,
respectively. Year-to-date earnings per share for 1997 and 1996
have been computed based upon net income for the nine months
ended September 30, 1997 and 1996, using 4,693,139 and 3,970,548
weighted average common shares and common stock equivalents
outstanding, respectively.
8<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion reviews the results of operations and
the financial condition of the Company as of and for the three
and nine months ended September 30, 1997.
RESULTS of OPERATIONS
NET INCOME
Net income for the third quarter of 1997 increased to $2.4
million, or $.49 per share compared to a loss of $2.8 million,
or $.72 per share in the comparable period of 1996. The Company
experienced a loss during the third quarter of 1996 as the
result of two large charges to earnings totaling $4.8 million
net of income tax, or $1.19 per share. These third quarter
charges consisted of a one-time special assessment by the
Federal Deposit Insurance Corporation ("FDIC") to recapitalize
the Savings Association Insurance Fund ("SAIF") and a loss on
sale of mortgage-backed securities incurred as the result of a
strategic repositioning of the balance sheet. Excluding the
third quarter charges, net income for the third quarter of 1996
would have been $1.9 million, or $.48 per share. Annualized
return on average equity and annualized return on average assets
for the third quarter of 1997 were 8.45% and 0.74%,
respectively. Excluding the third quarter charges, annualized
return on average equity and annualized return on average assets
for the third quarter of 1996 would have been 9.24% and 0.68%,
respectively. Weighted average shares outstanding for the third
quarter of 1997 were 4,833,333 compared to 3,969,055 for the
third quarter of 1996.
Net income for the nine months ended September 30, 1997 was
$7.7 million, or $1.63 per share compared to $770,000, or $.19
per share, for the nine months ended September 30, 1996.
Excluding the third quarter charges discussed above, net income
for the nine months ended September 30, 1996 would have been
$5.5 million, or $1.39 per share. Annualized return on average
equity and annualized return on average assets were 9.66% and
0.81%, respectively, for the first nine months of 1997.
Excluding the third quarter charges, annualized return on
average equity and annualized return on average assets for the
first nine months of 1996 would have been 9.00% and 0.65%,
respectively. Weighted average shares outstanding for the nine
months ended September 30, 1997 were 4,693,139 compared to
3,970,548 for the nine months ended September 30, 1996.
NET INTEREST INCOME
Net interest income for the third quarter of 1997 increased $1.8
million, or 23.0%, to $9.4 million compared to $7.7 million for
the third quarter of 1996, as the result of growth in the
Company's average interest-earning assets. The average balance
of interest-earning assets increased $132.8 million to
$1.2 billion during the third quarter of 1997 from $1.1 billion
during the third quarter of 1996. The Company's interest rate
spread increased to 2.78% for the quarter ended September 30,
1997 from 2.51% for the quarter ended September 30, 1996 and the
net interest margin increased to 3.10% from 2.83% during the
same periods.
Net interest income for the nine months ended September 30, 1997
increased $6.7 million, or 30.5%, to $28.5 million compared to
$21.8 million for the nine months ended September 30, 1996, as
the result of growth in the Company's interest-earning assets
and improvement in the Company's interest rate spread. The
average balance of interest-earning assets increased
$112.3 million to $1.2 billion during the nine months ended
September 30, 1997 from $1.1 billion during the nine months
ended September 30, 1996. The Company's interest rate spread
increased to 2.87% for the nine months ended September 30, 1997
from 2.36% for the nine months ended September 30, 1996 and the
net interest
9<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
margin increased to 3.15% from 2.67% during the same periods.
The principal factor in the improvement in net interest income
during the 1997 periods has been the increase in average
interest-earning assets resulting from the acquisitions of L&B
Financial and Texas Heritage. Also contributing to the
improvement in net interest income has been a continued
expansion in the net interest margin which the Company
attributes to several factors including the sale of lower
yielding mortgage-backed securities during the third quarter of
1996 which provided the Company with funding for additional loan
originations in the Texas market and the upward adjustment of
rates on the Company's existing adjustable-rate loan portfolio.
Another significant contributor to the increase in loan
portfolio yields during recent periods has been the Company's
construction and development lending through its Texas
subsidiary. In order to improve the risk profile of the Texas
subsidiary, however, the Company has previously determined to
reduce its level of higher margin development lending in Texas.
The Company's Texas subsidiary has also entered into a
supervisory agreement with its federal regulator, the Office of
Thrift Supervision ("OTS"), to curtail lending for acquisition
and development purposes unless first approved by the OTS and to
restrict the amount of residential construction loans which it
may make to one borrower. In addition, the Company currently
does not anticipate making additional acquisitions in the Texas
market. As a result of these developments, the Company's net
interest income may not experience increases in future periods
comparable to those experienced during the past several years.
Loans originated and purchased totaled $320 million for the nine
months ended September 30, 1997 compared to $277 million for the
comparable period in 1996. Principal repayments for the first
nine months of 1997 were $302 million compared to $207 million
during the first nine months of 1996.
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans for the third quarter of 1997
was $246,000 compared to $165,000 for the like period in 1996
and $1.2 million for the first nine months of 1997 compared to
$495,000 for the like period in 1996. The increased provision
for losses reflects management's decision to increase the level
of loss reserves in its Texas subsidiary as a result of
increased lending activity in that region. Loan charge-offs
totaled $372,000, or .040% of average loans outstanding, for the
nine months ended September 30, 1997 compared to $17,000, or
.002% of average loans outstanding, for the nine months ended
September 30, 1996. The increase was primarily the result of a
$251,000 charge-off on a land development loan during the third
quarter of 1997. At September 30, 1997, the allowance for
losses on loans was $8.5 million, which represented .90% of net
loans receivable compared to $6.5 million, or .74% of net loans
receivable at December 31, 1996. The ratio of nonaccruing loans
to net loans receivable was .47% at September 30, 1997 compared
to .17% at December 31, 1996. See "Nonperforming Assets".
Management considers many factors in determining the necessary
levels of loan loss reserves, including a detailed analysis of
specific loans in the portfolio, known and inherent risk in the
portfolio, estimated value of the underlying collateral,
assessment of general trends in the real estate market, and
current and prospective economic conditions.
NONINTEREST INCOME
Total noninterest income for the quarter ended
September 30, 1997 was $804,000 compared to a loss of
$1.5 million for the quarter ended September 30, 1996.
Noninterest income during the 1996 period was significantly
reduced by the $1.9 million pre-tax loss recognized during the
third quarter on the strategic sale of $63.0 million in lower
yielding mortgage-
10<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
backed securities to provide funding for continued loan growth.
During the third quarter of 1997, management decided to sell
$23 million in mortgage-backed securities and $43 million in
investment securities, all of which were classified as available
for sale, resulting in a net pretax gain of $4,000. The
proceeds from the sales were reinvested in mortgage-backed
securities with improved interest rate risk profiles. Excluding
these sales transactions, noninterest income increased $320,000
between the comparable periods. Gains on sale of loans
receivable increased $136,000 as the result of an increase in
loan sales to approximately $15 million for the quarter ended
September 30, 1997 from approximately $7 million for the quarter
ended September 30, 1996. Fees for other services to customers
and servicing and other loan fees increased $136,000 and
$62,000, respectively, primarily as the result of the
acquisitions of Texas Heritage and L&B Financial which increased
the Company's customer base for these charges. In the absence
of continued acquisition activity, the Company cannot be assured
of continued increases in these types of fee income.
Total noninterest income for the nine months ended September
30, 1997 was $2.3 million compared to $837,000 for the nine
months ended September 30, 1996. For the nine month periods,
gains and losses on sales of investment and mortgage-backed
securities totaled a net gain of $4,000 during 1997 compared to
a net loss of $1.3 million during 1996. In addition to the
third quarter 1996 mortgage-backed securities sales discussed
above, the Company sold $84.5 million in mortgage-backed
securities during the first and second quarters of 1996
resulting in net gains of $634,000. Excluding gains and losses
on sales of investment and mortgage-backed securities,
noninterest income for the comparable nine month periods
increased $125,000. Fees for other services to customers and
servicing and other loan fees increased $396,000 and $99,000,
respectively, primarily as the result of the acquisitions of
Texas Heritage and L&B Financial. Gain on real estate operations
decreased $307,000 which was mainly attributable to a $324,000
profit on the sale of real estate held for investment during the
first nine months of 1996. Other noninterest income decreased
$116,000 largely as the result of a $74,000 profit on the sale
of assets owned by the Company's subsidiary, J.S. Services of
Florida, Inc. during the nine months ended September 30, 1996.
No such gains occurred during the like period in 1997.
NONINTEREST EXPENSE
Noninterest expense for the quarter ended September 30, 1997 was
$6.2 million compared $10.2 million for the quarter ended
September 30, 1996. During the third quarter of 1996 the
Company incurred a $5.6 million pretax charge to earnings as the
result of legislation passed to recapitalize the SAIF which
provided for a one-time special assessment to all financial
institutions holding SAIF-insured deposits. Excluding this one-
time charge, total noninterest expense for the comparable
periods increased $1.5 million. Compensation and employee
benefits increased $950,000 due primarily to the acquisitions of
Texas Heritage and L&B Financial and salary increases. Other
noninterest expense increased $326,000, amortization of excess
cost over fair value of net assets acquired increased $192,000
and occupancy expense increased $172,000 primarily as the result
of the acquisitions of Texas Heritage and L&B Financial. Legal,
examination and other professional fees increased $220,000 as
the result of assistance relating to integrating the Texas
acquisitions and actions taken in response to supervisory
issues. The increases in these expenses were partially offset
by a $355,000 decrease in federal insurance premiums as the
result of lower assessment rates following the 1996 legislation
to recapitalize the SAIF.
Noninterest expense for the nine months ended September 30, 1997
was $17.2 million compared $20.4 million for the nine months
ended September 30, 1996. Excluding the one-time charge
11<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
to recapitalize the SAIF, total noninterest expense for the
comparable periods increased $2.3 million. Compensation and
employee benefits increased $1.6 million due primarily to the
acquisitions of Texas Heritage and L&B Financial and salary
increases. Other noninterest expense increased $627,000,
amortization of excess cost over fair value of net assets
acquired increased $496,000 and occupancy expense increased
$482,000 primarily as the result of the acquisitions of Texas
Heritage and L&B Financial. The increases in these expenses
were partially offset by a $1.0 million decrease in federal
insurance premiums as the result of lower assessment rates
following the 1996 legislation to recapitalize the SAIF.
INCOME TAX EXPENSE
The Company provides for state and federal income tax expense
based upon earnings before income taxes. The effective tax rate
prior to the nondeductible amortization of excess cost over fair
value of net assets acquired for the nine months ended September
30, 1997 was 34.8% compared to 38.3% for the like period in
1996. Under the asset and liability method of accounting for
income taxes, the Company establishes 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.
FINANCIAL CONDITION
The Company's total assets increased $109.7 million, or 9.6%, to
$1.3 billion at September 30, 1997 from $1.1 billion at December
31, 1996. This increase was due principally to a $58.5 million
increase in net loans receivable, a $26.6 million increase in
investment and mortgage-backed securities and a $17.4 million
increase in cash, interest-bearing deposits and federal funds
sold. The acquisition of L&B Financial contributed
$70.4 million to net loans receivable, $57.3 million to
investment and mortgage-backed securities and $8.3 million in
cash, interest-bearing deposits and federal funds sold.
The Company's savings deposits increased $122.6 million, or
12.9%, to $1.1 billion at September 30, 1997 from $947.1 million
at December 31, 1996. The acquisition of L&B Financial brought
in $104.9 million in new deposits. Borrowed money (consisting
primarily of advances from the Federal Home Loan Bank) decreased
by $46.4 million, or 47.5%, to $51.3 million at September 30,
1997 from $97.7 million at December 31, 1996. The decrease in
borrowed money was funded by an increase in savings deposits,
cash inflows from the sales and maturities of investment and
mortgage-backed securities, and repayment of loans receivable.
Total stockholders' equity increased by $23.6 million, or 26.2%,
to $113.5 million at September 30, 1997 from $89.9 million at
December 31, 1996. The Company's ratio of stockholders' equity
to assets increased to 9.03% at September 30, 1997 from 7.83% at
December 31, 1996. The increase in stockholders' equity is
primarily the result of shares issued in the acquisition of L&B
Financial. The Company's book value per share at
September 30, 1997 was $24.57 compared to $22.34 at December 31,
1996. Unearned ESOP shares of 387,183 and 382,538 were excluded
in calculating book value per share at September 30, 1997 and
December 31, 1996, respectively.
NONPERFORMING ASSETS
Summarized below are nonperforming assets at September 30, 1997
and December 31, 1996.
12<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------- -----------
(dollars in thousands)
<S> <C> <C>
Restructured loans (1) $ 174 179
------ -----
Nonaccruing loans:
Residential real estate $1,132 1,169
Commercial real estate - -
Construction 3,211 11
Commercial - 74
Consumer 140 232
------ -----
Total nonaccruing loans 4,483 1,486
Applicable allowance for losses (35) (43)
------ -----
Nonaccruing loans, net 4,448 1,443
------ -----
Foreclosed real estate, net 3,751 4,460
------ -----
Nonperforming assets, net $8,374 6,082
====== =====
Nonperforming assets, net as a
percentage of total assets 0.67% 0.53%
====== =====
</TABLE>
(1) Not included in restructured loans is a loan secured by
commercial real estate. Management determined that this
loan should not be considered a nonperforming asset since
the borrower has been current in meeting restructured terms
since the date of restructuring, the restructured loan
provides for principal amortization, and the loan has an
interest rate and other features that are at least
equivalent to market terms. The unpaid balance of this
loan was approximately $3,066,000 and $3,084,000 at
September 30, 1997 and December 31, 1996, respectively.
Total nonperforming assets increased $2.3 million to $8.4
million at September 30, 1997 from $6.1 million at December 31,
1996 primarily as the result of a $3.0 million increase in
nonaccruing loans, partially offset by a $709,000 decrease in
foreclosed assets. The increase in nonaccruing loans was
primarily the result of 44 single family construction loans to
one builder totaling approximately $2.4 million being placed on
nonaccrual when the builder filed bankruptcy. The properties
securing the loans are single family residences located in the
Dallas/Fort Worth metropolitan area which are in various stages
of construction.
Loans are placed on nonaccrual status when either principal or
interest is more than 90 days past due or at such time when
management concludes that payment in full is not likely,
whichever is sooner. Any subsequent interest payments received
are recorded as interest income in the period received.
Impaired loans, which are represented by loans on nonaccrual
status and loans where management believes it is probable that
they will be unable to collect principal and interest under the
contractual terms of the loans, were $10.2 million and $3.2
million at September 30, 1997 and December 31, 1996,
respectively. The increase in impaired loans includes the
increase in nonaccrual loans described above. In addition,
impaired loans include two loans with a common guarantor
totaling $2.9 million which are secured by commercial real
estate and six construction loans to a builder totaling $1.9
million which are secured by single family residences located in
the Dallas/Fort Worth metropolitan area. At September 30, 1997
$3.1 million of impaired loans had specific reserves of $741,000
and the remaining impaired loans of $7.1 million had no specific
reserves. At December 31, 1996 $388,000 of impaired loans had
specific reserves of $80,000 and the remaining impaired loans of
$2.8 million had no specific reserves.
13<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
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.
The Association and the Bank meet all existing regulatory
capital requirements. Capital ratios at September 30, 1997, as
computed under OTS capital standards, are as follows:
<TABLE>
<CAPTION>
Association Bank
-----------------------------------------------
Percent of Percent of
Amount Assets (2) Amount Assets (2)
------ ---------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Tangible capital $50,156 7.44% $ 36,732 6.56%
Tangible capital requirement 10,117 1.50 8,396 1.50
------- ---- -------- ----
Excess $40,039 5.94% $ 28,336 5.06%
======= ==== ======== ====
Core capital $50,156 7.44% $ 36,732 6.56%
Core capital requirement 20,235 3.00 16,792 3.00
------- ---- -------- ----
Excess $29,921 4.44% $ 19,940 3.56%
======= ==== ======== ====
Total capital (i.e., core and
supplementary capital) $52,044 13.91% $ 41,154 11.12%
Risk-based capital requirement 29,925 8.00 29,610 8.00
------- ---- -------- ----
Excess $22,119 5.91% $ 11,544 3.12%
======= ==== ======== ====
</TABLE>
(2) Based upon adjusted total assets for purposes of the
tangible and core capital requirements, and risk-weighted
assets for purposes of the risk-based capital requirement.
The Association and the Bank are required by federal regulations
to maintain specified levels of liquid assets, consisting of
cash and eligible investments. 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 5.52%
and 5.57% at September 30, 1997 and December 31, 1996,
respectively. The Bank's liquidity ratios were 11.64% and 6.40%
at September 30, 1997 and December 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 their 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
14<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
investment and mortgage-backed securities, proceeds from
maturing investment securities, and increases in savings
deposits. Cash flows from investing activities provided
$35.2 million in funds during the first nine months of 1997.
Cash flows from these financing activities and investing
activities, which consisted primarily of $316.1 million in
principal repayments on loans and mortgage-backed securities,
$121.7 million in sales of investment and mortgage-backed
securities, and $17.6 million in increased savings deposits,
were used primarily to fund the Company's investing activities
of originating loans and purchasing investment securities and to
reduce borrowed money during the nine months ended September 30,
1997.
The Company anticipates that it will have sufficient funds
available to meet its current commitments. At September 30,
1997, the Company had commitments to originate loans of
$21.3 million, to purchase residential adjustable-rate mortgages
of $2.4 million, and to sell loans of $7.3 million.
Certificates of deposit which are scheduled to mature in one
year or less at September 30, 1997 totaled $590.7 million.
Management believes that a significant portion of such deposits
will remain with the Company. In addition, at September 30,
1997, the Association has an available line of credit with the
FHLB of Des Moines totaling $50.0 million and the Bank has an
available line of credit with the FHLB of Dallas totaling
$16.0 million.
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 TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINQUISHMENTS OF LIABILITIES
On January 1, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinquishment
of Liabilities", which provides consistent standards for
distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The statement also
requires that a liability can be derecognized if and only if
either (a) the debtor pays the creditor and is relieved of its
obligation for the liability or (b) the debtor is legally
released from the liability either judicially or by the
creditor. The Statement provides implementation guidance for
assessing isolation of transferred assets and for accounting for
transfers of partial interests, servicing of financial assets,
securitizations, transfers of sales-type and direct financing
lease receivables, securities lending transactions, repurchase
transactions including "dollar rolls", "wash sales", loan
syndications and participations, risk participation in banker's
acceptances, factoring arrangements, transfers of receivables
with recourse, and extinguishments of liabilities. The adoption
of SFAS No. 125 did not have a material effect on the Company's
financial
15<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
statements.
EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings per
Share", which establishes standards for computing and presenting
earnings per share (EPS). SFAS No. 128 simplifies existing
standards for computing EPS and makes them comparable to
international standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital
structures and requires a reconciliation of the components of
basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing income available to common shareholders by
the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
Company. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997, including
interim periods, and requires restatement of all prior-period
EPS data presented. The adoption of SFAS No. 128 is not
expected to have a material impact on the Company's financial
statements.
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE
In February 1997, the FASB issued SFAS 129 which establishes
standards for disclosing information about an entity's capital
structure. SFAS 129 is effective for financial statements for
periods ending after December 15, 1997. Since SFAS 129 is a
disclosure requirement only there will be no impact on the
Company's financial statements.
REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS 130 which establishes
standards for reporting and display of comprehensive income and
its components (revenue, expenses, gains, and losses) in a full
set of general-purpose financial statements. SFAS 130 is
effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS No. 130 is not expected to have a material
impact on the Company's financial statements.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION
In June 1997, the FASB issued SFAS 131 which establishes
standards for the way that public enterprises report information
about operating segments in annual financial statements and
requires that those enterprises report selected information
about operating segments in interim reports issued to
shareholders. SFAS 131 is effective for financial statements
for periods beginning after December 15, 1997. Since SFAS 131
is a disclosure requirement only there will be no effect on the
Company's financial position or results of operations.
16<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Quantitative and Qualitative Disclosure
About Market Risk
Item is not applicable.
17<PAGE>
<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
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K:
On September 25, 1997, the Company filed a Current
Report on Form 8-K reporting under Item 5 that one
of its wholly owned subsidiaries, First Federal
Savings Bank of North Texas, had entered into a
supervisory agreement with its regulator, the
Office of Thrift Supervision.
18<PAGE>
<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: November 14, 1997 By: /s/ Paul J. Milano
-----------------------------
Paul J. Milano
Senior Vice President and
Chief Financial Officer
(Duly Authorized
Representative and
Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted
from consolidated financial statements and notes thereto of
Jefferson Savings Bancorp, Inc. at and for the nine months ended
September 30, 1997 and is qualified in its entirety by reference
to such financial statements.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,571,081
<INT-BEARING-DEPOSITS> 22,161,648
<FED-FUNDS-SOLD> 8,325,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 207,499,166
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 952,385,358
<ALLOWANCE> 8,470,492
<TOTAL-ASSETS> 1,257,752,654
<DEPOSITS> 1,069,651,787
<SHORT-TERM> 51,301,038
<LIABILITIES-OTHER> 23,283,843
<LONG-TERM> 0
0
0
<COMMON> 50,180
<OTHER-SE> 113,465,806
<TOTAL-LIABILITIES-AND-EQUITY> 1,257,752,654
<INTEREST-LOAN> 59,465,712
<INTEREST-INVEST> 10,989,969
<INTEREST-OTHER> 1,686,385
<INTEREST-TOTAL> 72,142,066
<INTEREST-DEPOSIT> 39,823,827
<INTEREST-EXPENSE> 43,690,939
<INTEREST-INCOME-NET> 28,451,127
<LOAN-LOSSES> 1,158,000
<SECURITIES-GAINS> 3,822
<EXPENSE-OTHER> 17,150,276
<INCOME-PRETAX> 12,405,190
<INCOME-PRE-EXTRAORDINARY> 7,651,190
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,651,190
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.63
<YIELD-ACTUAL> 3.15
<LOANS-NON> 4,448,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 174,000
<LOANS-PROBLEM> 5,725,000
<ALLOWANCE-OPEN> 6,528,601
<CHARGE-OFFS> 372,123
<RECOVERIES> 250
<ALLOWANCE-CLOSE> 8,470,492
<ALLOWANCE-DOMESTIC> 6,994,457
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,476,035
</TABLE>
