<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, 1999
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)
15435 Clayton Road, Ballwin, Missouri 63011
- ------------------------------------- --------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (636)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, 1999
- ---------------------------- -------------------------------
Common Stock, Par Value $.01 9,941,881 shares
1
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
INDEX to Form 10-Q
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
- Consolidated Balance Sheets 3
- Consolidated Statements of Income 4
- Consolidated Statement of
Stockholders' Equity and
Comprehensive Income 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
Disclosures About Market Risk 25
PART II OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities and Use
of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote
of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
2
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1999 1998
------ ---- ----
<S> <C> <C>
Cash $ 8,170,181 7,602,268
Interest-bearing deposits 10,166,916 11,271,419
--------------- ---------------
Cash and cash equivalents 18,337,097 18,873,687
Investment securities available for sale,
at fair value (amortized cost of $106,446,944
and $154,058,689 at September 30, 1999 and
December 31, 1998, respectively) 103,959,184 154,610,594
Mortgage-backed securities available for sale,
at fair value (amortized cost of $125,569,544
and $32,492,371 at September 30, 1999 and
December 31, 1998, respectively) 121,441,182 32,363,687
Loans receivable, net 1,255,942,286 1,118,489,946
Investment in real estate, net 1,302,672 2,880,759
Stock in Federal Home Loan Banks 22,447,900 11,881,400
Office properties and equipment, net 13,248,735 10,528,413
Deferred tax asset 1,328,253 -
Excess cost over fair value of net assets acquired 20,536,217 22,141,345
Accrued income and other assets 13,790,848 11,689,680
--------------- ---------------
$ 1,572,334,374 1,383,459,511
=============== ===============
Liabilities and Stockholders' Equity
------------------------------------
Savings deposits $ 977,358,814 1,038,176,484
Borrowed money 450,775,563 209,515,534
Deferred tax liability - 1,467,000
Advance payments by borrowers for taxes
and insurance 10,837,392 2,963,938
Accrued expenses and other liabilities 8,790,504 7,497,854
--------------- ---------------
Total liabilities 1,447,762,273 1,259,620,810
--------------- ---------------
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 10,100,112 shares
and 10,098,373 shares at September 30,
1999 and December 31, 1998, respectively 101,001 100,984
Additional paid-in capital 64,913,798 65,404,131
Retained earnings, subject to certain restrictions 69,396,577 63,957,771
Accumulated other comprehensive income (loss) (3,970,122) 254,221
Unamortized restricted stock awards (68,408) (74,243)
Unearned ESOP shares (3,929,340) (4,684,142)
Treasury stock, at cost: 158,231 shares
and 73,240 shares at September 30, 1999
and December 31, 1998, respectively (1,871,405) (1,120,021)
--------------- ---------------
Total stockholders' equity 124,572,101 123,838,701
--------------- ---------------
$ 1,572,334,374 1,383,459,511
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Income
Three and nine months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
------------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans receivable $ 23,586,946 18,429,310 67,700,998 54,993,589
Mortgage-backed securities 1,937,883 377,567 4,610,763 2,617,009
Investment securities 1,618,321 3,289,652 5,626,923 8,383,006
Interest-bearing deposits and federal funds sold 64,326 402,404 613,838 1,316,019
Stock in Federal Home Loan Banks 313,241 129,120 775,366 565,480
------------ ---------- ---------- ----------
Total interest and dividend income 27,520,717 22,628,053 79,327,888 67,875,103
------------ ---------- ---------- ----------
Interest expense:
Savings deposits 11,428,906 13,373,110 35,705,074 39,707,073
Borrowed money 5,554,225 1,030,433 13,151,967 2,888,151
------------ ---------- ---------- ----------
Total interest expense 16,983,131 14,403,543 48,857,041 42,595,224
------------ ---------- ---------- ----------
Net interest income 10,537,586 8,224,510 30,470,847 25,279,879
Provision for losses on loans - - - (1,200,000)
------------ ---------- ---------- ----------
Net interest income after
provision for losses on loans 10,537,586 8,224,510 30,470,847 26,479,879
------------ ---------- ---------- ----------
Noninterest income:
Servicing and other loan fees 207,898 187,732 542,996 681,790
Fees for other services to customers 240,265 286,441 818,927 782,552
Gain on sales of investment securities, net - 2,130 19,985 2,130
Gain on sales of mortgage-backed securities, net - - 36,990 48,166
Gain on sales of loans receivable, net 526,467 342,122 971,930 1,422,832
Real estate operations, net 23,021 (5,966) (144,474) 158,226
Other 128,768 57,793 397,299 213,757
------------ ---------- ---------- ----------
Total noninterest income 1,126,419 870,252 2,643,653 3,309,453
------------ ---------- ---------- ----------
Noninterest expense:
General and administrative:
Compensation and employee benefits 3,543,676 3,189,579 10,037,371 10,370,112
Occupancy 913,893 830,764 2,497,192 2,390,908
Advertising 436,732 132,821 1,296,159 395,475
Federal insurance premiums 148,590 237,486 461,812 727,051
Legal, examination, and other
professional fees 342,953 392,446 1,436,102 1,217,809
Other 1,320,124 1,080,262 3,562,970 3,232,831
------------ ---------- ---------- ----------
Total general and administrative 6,705,968 5,863,358 19,291,606 18,334,186
Amortization of excess cost over fair value
of net assets acquired 447,789 452,727 1,345,013 1,356,371
------------ ---------- ---------- ----------
Total noninterest expense 7,153,757 6,316,085 20,636,619 19,690,557
------------ ---------- ---------- ----------
Income before income tax expense 4,510,248 2,778,677 12,477,881 10,098,775
Income tax expense 1,809,000 1,237,000 5,056,000 4,540,500
------------ ---------- ---------- ----------
Net income $ 2,701,248 1,541,677 7,421,881 5,558,275
============ ========== ========== ==========
Earnings per share, basic $ .28 .16 .78 .59
============ ========== ========== ==========
Earnings per share, diluted $ .28 .16 .76 .56
============ ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
and Comprehensive Income
Nine months ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Accumulated Unamortized
Common stock Additional other restricted
-------------- paid-in Retained comprehensive stock
Shares Dollars capital earnings income (loss) awards
------ --------- -------- -------- ------------- -------
<C> <S> <S> <S> <S> <S> <S>
Balance at December 31, 1998 10,098,373 $ 100,984 $ 65,404,131 $ 63,957,771 $ 254,221 $ (74,243)
Comprehensive income:
Net income - - - 7,421,881 - -
Other comprehensive income,
net of reclassification
adjustment - - - - (4,224,343) -
Total comprehensive income
Dividends paid ($.21 per share) - - - (1,983,076) - -
Release of ESOP shares in lieu
of cash dividend on allocated
ESOP shares - - 14,600 - - 59,173
Stock issued in dividend
reinvestment and stock
purchase plan - - (12,600) - - -
Amortization of restricted
stock awards - - 9,917 - - 5,835
Amortization of ESOP shares - - 495,404 - - -
Stock options exercised 1,739 17 (1,132,653) - - -
Purchase of treasury stock - - - - - -
Tax benefit of non-incentive
stock options exercised - - 135,000 - - -
---------- --------- ------------ ------------ ----------- ---------
Balance at September 30, 1999 10,100,112 $ 101,001 $ 64,913,798 $ 69,396,577 $ (3,970,122) $ (68,408)
========== ========= ============ ============ ============ =========
<CAPTION>
Unearned Treasury stock Total
ESOP ------------------ stockholders'
shares Shares Dollars equity
------ --------- -------- ------
<S> <S> <S> <S> <S>
Balance at December 31, 1998 $ (4,684,142) (73,240) $ (1,120,021) $ 123,838,701
Comprehensive income:
Net income - - - 7,421,881
Other comprehensive income,
net of reclassification
adjustment - - - (4,224,343)
-----------
Total comprehensive income 3,197,538
Dividends paid ($.21 per share) - - - (1,983,076)
Release of ESOP shares in lieu
of cash dividend on allocated
ESOP shares - - - 73,773
Stock issued in dividend
reinvestment and stock
purchase plan - 8,041 105,657 93,057
Amortization of restricted
stock awards - - - 15,752
Amortization of ESOP shares 695,629 - - 1,191,033
Stock options exercised - 123,068 1,757,903 625,267
Purchase of treasury stock - (216,100) (2,614,944) (2,614,944)
Tax benefit of non-incentive
stock options exercised - - - 135,000
------------ -------- ------------ ------------
Balance at September 30, 1999 $ (3,929,340) (158,231) $ (1,871,405) $ 124,572,101
============ ======== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Nine months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,421,881 5,558,275
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,922,880 4,542,323
Provision for losses on loans - (1,200,000)
Net gain on sales of assets (1,163,618) (1,730,781)
Loans originated for sale (37,128,809) (66,352,616)
Loans purchased for sale (30,220,802) -
Sale of loans originated for sale 71,114,267 65,079,638
Deferred income taxes (2,999,253) 332,800
Stock dividend from Federal Home Loan Banks (53,100) (140,600)
Other, net 2,990,434 668,928
------------ -----------
Net cash provided by operating activities 13,878,880 6,757,967
------------ -----------
Cash flows from investing activities:
Principal repayments on:
Loans receivable 431,150,539 339,174,303
Mortgage-backed securities 6,699,386 20,856,704
Proceeds from maturity of investment securities 69,150,000 88,522,130
Proceeds from sale of:
Loans receivable - 26,583,762
Mortgage-backed securities available for sale 4,676,186 45,347,468
Investment securities available for sale 5,010,938 -
Proceeds from redemption of Federal Home Loan Bank stock 3,060,000 8,924,400
Cash invested in:
Loans receivable - originated (379,689,268) (193,410,202)
Loans receivable - purchased (192,657,735) (271,793,911)
Mortgage-backed securities (104,532,688) (5,110,476)
Investment securities (26,488,871) (139,970,313)
Stock in Federal Home Loan Banks (13,573,400) -
Proceeds from sale of real estate 2,205,732 5,068,794
Purchase of office properties and equipment (3,785,532) (776,039)
Other, net 19,958 (257,686)
------------ -----------
Net cash used in investing activities (198,754,755) (76,841,066)
------------ -----------
Cash flows from financing activities:
Increase (decrease) in savings deposits, net (60,914,499) 7,862,735
Increase in borrowed money, net 241,260,029 54,788,422
Increase in advance payments by borrowers
for taxes and insurance 7,873,454 7,486,860
Dividends paid (1,983,076) (1,956,123)
Purchase of treasury stock (2,614,946) (308,144)
Other, net 718,323 592,777
------------ -----------
Net cash provided by financing activities 184,339,285 68,466,527
------------ -----------
Decrease in cash and cash equivalents (536,590) (1,616,572)
Cash and cash equivalents at beginning of period 18,873,687 31,582,998
------------ -----------
Cash and cash equivalents at end of period $ 18,337,097 29,966,426
============ ===========
Supplemental disclosures of cash flow information:
Interest paid $ 48,954,569 42,590,230
Income taxes paid 6,489,783 4,891,659
Transfer of loans from portfolio
to held for sale 77,923,997 -
Noncash investing activities:
Additions to real estate acquired in settlement
of loans or through foreclosure 882,715 4,679,960
Loans originated to finance the sale of real estate 140,650 -
Noncash financing activity - interest credited
to savings deposits 26,839,365 29,375,896
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
(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 comprehensive income, 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, 1999 and
1998, respectively.
Operating results for the three and nine months ended
September 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31,
1999.
(2) PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial
statements include the accounts of Jefferson
Savings Bancorp, Inc. ("the Company") and its wholly owned
subsidiary, Jefferson Heritage Bank ("Jefferson Heritage" or
"the Bank"). On December 31, 1998, the Company merged First
Federal Savings Bank of North Texas ("First Federal") into
Jefferson Savings and Loan Association, F.A. ("Jefferson
Savings") and now operates as a single business segment. On
January 20, 1999, Jefferson Savings changed its name
to Jefferson Heritage Bank. Jefferson Heritage's wholly
owned subsidiaries are Jefferson Heritage Mortgage Company,
Jefferson Financial, Inc., Jefferson Financial Corporation
and First Service Corporation, Inc. All significant
intercompany items have been eliminated.
(3) EARNINGS PER SHARE
The following table reconciles the numerators and
denominators for basic and diluted earnings per
share for the three-month and nine-month periods ended
September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three months ended September 30,
1999 1998
---- ----
<S> <C> <C>
Numerator:
Net income (basic and diluted earnings per share) $ 2,701,248 1,541,677
=========== =========
Denominator:
Average shares outstanding (basic earnings per share) 9,508,096 9,406,046
Effect of dilutive stock options 167,780 467,291
----------- ---------
Average shares outstanding after assumed
conversions (diluted earnings per share) 9,675,876 9,873,337
=========== =========
</TABLE>
7
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
---- ----
<S> <C> <C>
Numerator:
Net income (basic and diluted earnings per share) $7,421,881 5,558,275
========== =========
Denominator:
Average shares outstanding (basic earnings per share) 9,495,297 9,348,932
Effect of dilutive stock options 208,149 504,435
---------- ---------
Average shares outstanding after assumed
conversions (diluted earnings per share) 9,703,446 9,853,367
========== =========
</TABLE>
Only employee stock ownership plan shares that have been
allocated or committed to be released are considered outstanding
for earnings per share calculations.
(4) COMPREHENSIVE INCOME
Comprehensive income for the three-month and nine-month
periods ended September 30, 1999 and 1998 is summarized as
follows:
<TABLE>
<CAPTION>
Three months ended
September 30,
--------------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 2,701,248 1,541,677
Other comprehensive income (loss):
Realized and unrealized holding gain (loss)
arising during the period, net of tax (514,920) 341,716
Less: reclassification adjustment for realized
gain (loss) included in net income, net of tax -- 1,278
----------- ---------
Total other comprehensive income (loss) (514,920) 340,438
----------- ---------
Total comprehensive income $ 2,186,328 1,882,115
=========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 7,421,881 5,558,275
Other comprehensive income (loss):
Realized and unrealized holding gain (loss)
arising during the period, net of tax (4,190,158) 250,540
Less: reclassification adjustment for realized
gain (loss) included in net income, net of tax 34,185 30,178
----------- ---------
Total other comprehensive income (loss) (4,224,343) 220,362
----------- ---------
Total comprehensive income $ 3,197,538 5,778,637
=========== =========
</TABLE>
8
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions 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 and
nine months ended September 30, 1999.
FORWARD-LOOKING STATEMENTS
When used in this discussion and elsewhere in this
Quarterly Report on Form 10-Q, the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated,"
"estimate," "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company
cautions readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date
made, and advises readers that various factors, including
regional and national economic conditions, substantial
changes in levels of market interest rates, credit and other
risks of lending and investment activities and competitive and
regulatory factors could affect the Company's financial
performance and could cause the Company's actual results for
future periods to differ materially from those anticipated or
projected. The Company does not undertake and specifically
disclaims any obligation to update any forward-looking
statements to reflect occurrence of anticipated or unanticipated
events or circumstances after the date of such statements.
FINANCIAL CONDITION
The Company's primary strategy is to continue building its
core retail banking business, which is the origination of loans
funded by savings deposits and other funding sources. The
Company continues to emphasize construction lending and has
recently placed more emphasis on commercial real estate lending.
During the third quarter of 1999 the Company reclassified $78
million of single- family, adjustable-rate loans as held for
sale and plans to replace them with higher yielding assets,
including commercial real estate loans. In addition, the
Company continues to emphasize the origination and sale of
single-family, fixed-rate loans through the Bank's subsidiary,
Jefferson Heritage Mortgage Company.
The Company's total assets increased $188.9 million, or
13.7%, to $1.57 billion at September 30, 1999 from $1.38 billion
at December 31, 1998. Loans receivable increased $137.5
million, or 12.3%, to $1.26 billion at September 30, 1999 from
$1.12 billion at December 31, 1998.
The Company supplements asset growth with the purchase of
investment and mortgage-backed securities. It chooses between
these two types of investments depending on the instruments'
interest rate risk characteristics and the yields available in
the market. Mortgage-backed securities increased $89.1 million,
or 275.2%, to $121.4 million at September 30, 1999 from $32.4
million at December 31, 1998. Investment securities decreased
$50.7 million, or 32.8%, to $104.0 million at September 30, 1999
from $154.6 million at December 31, 1998. The increase in
mortgage-backed securities was funded by the decrease in
investment securities and advances from the Federal Home Loan
Bank ("FHLB") of Des Moines and was undertaken as part of the
Company's strategy to better leverage its stockholders' equity.
The Company has substantial borrowing capacity with the
FHLB and generally chooses between savings deposits and
borrowings, depending on their relative costs, when funding its
investing activities. As a result of this strategy, savings
deposits decreased $60.8 million, or 5.9%, from $1.04 billion at
9
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions and Analysis of Financial
Condition and Results of Operations
December 31, 1998 to $977.4 million at September 30, 1999. The
decrease was primarily in certificates of deposit. Borrowed
money increased $241.3 million, or 115.2%, from $209.5 million
at December 31, 1998 to $450.8 million at September 30, 1999.
Stockholders' equity increased $733,000, or .6%, to $124.6
million at September 30, 1999 from $123.8 million at December
31, 1998. The ratio of stockholders' equity to assets declined
to 7.92% at September 30, 1999 compared to 8.95% at December 31,
1998 consistent with management's plan to better leverage
stockholders' equity. The Company's book value per share at
September 30, 1999 was $13.18 compared to $13.13 at December 31,
1998. Unearned ESOP shares of 491,767 and 591,503 were excluded
in calculating book value per share at September 30, 1999 and
December 31, 1998, respectively. The Company repurchased
216,100 shares of its common stock on the open market during the
first nine months of 1999 and has 226,700 shares available to be
purchased under a repurchase program announced on August 18,
1999. There were 9,941,881 common shares outstanding at
September 30, 1999.
AVERAGE BALANCE, INTEREST AND AVERAGE YIELDS AND COSTS
The following table sets forth certain information relating
to the Company's average interest-earning assets and
interest-bearing liabilities including the average yield on such
assets and the average cost of such liabilities for the periods
indicated. Such yields and costs are derived by dividing
annualized income or expense by the average three-month and
nine-month average balances of assets or liabilities,
respectively, for the periods indicated. During 1999 the method
used to calculate average balances was changed from average
month-end balances during 1998 to average daily balances during
1999. The use of average daily balances during the 1998 periods
would not have resulted in a material difference in the
information presented. During the periods indicated, nonaccrual
loans are included in loans receivable.
10
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions and Analysis of Financial
Condition and Results of Operations
<TABLE>
<CAPTION>
Three month period ended September 30,
-------------------------------------------------------------------
1999 1998
------------------------- -------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable. . . . . . . . . . . $ 1,238,263 $23,587 7.62% $ 957,406 $ 18,429 7.70%
Mortgage-backed securities. . . . . . 126,669 1,938 6.12 23,843 377 6.34
Investment securities . . . . . . . . 106,458 1,618 6.08 200,551 3,290 6.56
Other interest-earning assets . . . . 22,019 378 6.87 34,592 532 6.15
----------- ------- ---------- --------
Total interest-earning assets . 1,493,409 27,521 7.37 1,216,392 22,628 7.44
------- --------
Noninterest-earning assets . . . . . . . 54,424 56,609
----------- ----------
Total assets. . . . . . . . . . $ 1,547,833 $1,273,001
=========== ==========
Interest-bearing liabilities:
Savings deposits:
Passbook and statement savings,
NOW and money market accounts . $ 239,382 $ 1,674 2.80 $ 234,597 $ 1,885 3.21
Certificates of deposit. . . . . . 745,317 9,755 5.24 811,881 11,488 5.66
----------- ------- ---------- -------
Total savings deposits. . . . . 984,699 11,429 4.64 1,046,478 13,373 5.11
Borrowed money. . . . . . . . . . . . 416,096 5,554 5.34 83,282 1,030 4.95
----------- ------ ---------- -------
Total interest-bearing. . . . .
liabilities. . . . . . . . . . 1,400,795 16,983 4.85 1,129,760 14,403 5.10
------ -------
Noninterest-bearing liabilities. . . . . 22,499 20,824
----------- ----------
Total liabilities. . . . . . . 1,423,294 1,150,584
Stockholders' equity . . . . . . . . . . 124,539 122,417
----------- ----------
Total liabilities and
stockholders' equity. . . . $ 1,547,833 $ 1,273,001
=========== ===========
Net interest income. . . . . . . . . . . $10,538 $ 8,225
======= =======
Interest rate spread . . . . . . . . . . 2.52% 2.34%
===== =====
Net interest margin. . . . . . . . . . . 2.82% 2.71%
===== =====
Ratio of average interest-earning
assets to average interest-bearing
liabilities . . . . . . . . . . . . . 106.61% 107.67%
======= =======
<PAGE>
<CAPTION>
Nine month period ended September 30,
-------------------------------------------------------------------
1999 1998
------------------------------ ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable. . . . . . . . . . . $ 1,182,500 $67,701 7.63% $ 927,851 $ 54,994 7.90%
Mortgage-backed securities. . . . . . 101,352 4,611 6.07 56,403 2,617 6.19
Investment securities . . . . . . . . 119,766 5,627 6.26 170,746 8,383 6.55
Other interest-earning assets . . . . 32,980 1,389 5.62 40,263 1,881 6.23
----------- ------- ---------- --------
Total interest-earning assets . 1,436,598 79,328 7.36 1,195,263 67,875 7.57
------- --------
Noninterest-earning assets . . . . . . . 54,970 58,579
----------- ----------
Total assets. . . . . . . . . . $ 1,491,568 $1,253,842
=========== ==========
Interest-bearing liabilities:
Savings deposits:
Passbook and statement savings,
NOW and money market accounts $ 242,353 $ 5,314 2.92 $ 232,768 $ 5,565 3.19
Certificates of deposit. . . . . . 766,147 30,391 5.29 810,372 34,142 5.62
----------- ------- ---------- --------
Total savings deposits . . . . 1,008,500 35,705 4.72 1,043,140 39,707 5.08
Borrowed money. . . . . . . . . . . . 337,659 13,152 5.19 72,052 2,888 5.34
----------- ------- ---------- --------
Total interest-bearing . . . .
liabilities . . . . . . . . . 1,346,159 48,857 4.84 1,115,192 42,595 5.09
------- --------
Noninterest-bearing liabilities. . . . . 20,279 18,707
----------- ----------
Total liabilities. . . . . . . 1,366,438 1,133,899
Stockholders' equity . . . . . . . . . . 125,130 119,943
----------- ----------
Total liabilities and
stockholders' equity . . . . $ 1,491,568 $1,253,842
=========== ==========
Net interest income. . . . . . . . . . . $30,471 $ 25,280
======= ========
Interest rate spread . . . . . . . . . . 2.52% 2.48%
===== =====
Net interest margin. . . . . . . . . . . 2.83% 2.82%
===== =====
Ratio of average interest-earning
assets to average interest-bearing
liabilities . . . . . . . . . . . . . 106.72% 107.18%
====== ======
</TABLE>
11
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions and Analysis of Financial
Condition and Results of Operations
The following table allocates the period-to-period changes in
the Company's various categories of interest income and expense
between changes due to changes in volume (calculated by
multiplying the change in average volumes of the related
interest-earning asset or interest-bearing liability category by
the prior year's rate) and changes due to changes in rate
(change in rate multiplied by the prior year's volume). Changes
due to changes in rate/volume (changes in rate multiplied by
changes in volume) have been allocated proportionately between
changes in volume and changes in rate.
<TABLE>
<CAPTION>
Three and nine month periods ended September 30, 1999 and 1998
----------------------------------------------------------------
Three months of 1999 vs. 1998 Nine months of 1999 vs. 1998
------------------------------ -----------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------ -----------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Loans receivable $ 5,351 $ (193) $ 5,158 $15,755 $(3,048) $12,707
Mortgage-backed securities 1,573 (13) 1,560 2,079 (85) 1,994
Investment securities (1,446) (225) (1,671) (2,400) (356) (2,756)
Other interest-earning assets (210) 56 (154) (319) (173) (492)
------- ------ ------- ------- ------- -------
Total interest and dividend income 5,268 (375) 4,892 15,115 (3,662) 11,453
------- ------ ------- ------- ------- -------
Interest expense:
Savings deposits:
Passbook and statement savings,
NOW, and money market accounts 32 (248) (211) 329 (580) (251)
Certificates of deposit (910) (823) (1,733) (1,807) (1,944) (3,751)
------- ------ ------- ------- ------- -------
Total savings deposits (873) (1,071) (1,944) (1,478) (2,524) (4,002)
Borrowed money 4,437 87 4,524 10,401 (137) 10,264
------- ------ ------- ------- ------- -------
Total interest expense 3,564 (984) 2,580 8,923 (2,661) 6,262
------- ------ ------- ------- ------- -------
Change in net interest income $ 1,704 $ 609 $ 2,313 $ 6,192 $(1,001) $ 5,191
======= ====== ======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1999
NET INCOME. Net income for the third quarter of 1999
increased $1.2 million, or 75.2%, to $2.7 million compared to
$1.5 million for the third quarter of 1998. Basic and diluted
earnings per share increased to $0.28 and $0.28, respectively
for the third quarter of 1999 compared to $0.16 and $0.16,
respectively for the comparable period a year ago. Annualized
return on average equity and annualized return on average assets
for the third quarter of 1999 were 8.68% and 0.70%, respectively
compared to 5.04% and 0.48%, respectively for the third quarter
of 1998.
NET INTEREST INCOME. Net interest income for the third
quarter of 1999 increased $2.3 million, or 28.1%, to $10.5
million compared to $8.2 million for the third quarter of 1998.
The increase was the result of an increase in the average
balance of net interest-earning assets and an increase in the
Company's interest rate spread from 2.34% for the quarter ended
September 30, 1998 to 2.52% for the quarter ended September 30,
1999. The growth in net interest-earning assets was primarily
the result of strong growth in loans receivable. The increase
in the interest rate spread was the result of a 25 basis point
decrease in the average cost of interest-bearing liabilities
partially offset by a 7 basis point decrease in the average
yield on interest-earning assets.
12
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions and Analysis of Financial
Condition and Results of Operations
INTEREST AND DIVIDEND INCOME. Total interest and dividend
income increased $4.9 million, or 21.6%, from $22.6 million for
the third quarter of 1998 to $27.5 million for the third quarter
of 1999. The increase resulted from an increase in the average
balance of interest-earning assets from $1.22 billion for the
third quarter of 1998 to $1.49 billion for the third quarter of
1999 partially offset by a decline in the average yield on
interest earning assets from 7.44% to 7.37% during the same
periods.
Interest income on loans receivable increased $5.2 million,
or 28.0%, as the result of a $280.9 million increase in the
average balance of loans receivable between the comparable
periods partially offset by a decrease in the average yield from
7.70% for the third quarter of 1998 to 7.62% for the third
quarter of 1999. Loan originations grew 101%, to approximately
$185 million for the third quarter of 1999 compared to
approximately $92 million for the comparable period in 1998.
Commercial real estate and construction lending represented
approximately 65% of total origination activity during the third
quarter of 1999 compared to approximately 54% during the 1998
quarter. As expected in the current rate environment, the
Company continued to experience significant loan repayments,
which totaled approximately $143 million for the third
quarter of 1999 compared to approximately $112 million for the
third quarter of 1998. Refinancings continued to erode the
Company's higher yielding loans resulting in a shift in the
Company's loan portfolio into lower margin loans. The Company
continued to supplement its loan origination activity with loan
purchases to help offset the effect of this high repayment
activity. Loan purchases totaled $66 million for the third
quarter of 1999 compared to $146 million for the third quarter
of 1998.
Combined interest income on all other interest-earning
assets decreased $265,000, or 6.3%, as the result of a decrease
in the average yield from 6.49% for the third quarter of 1998 to
6.17% for the third quarter of 1999 and a $3.8 million decrease
in the combined average balance. Funds from repayments, sales,
and maturities were reinvested in higher yielding loans
receivable.
INTEREST EXPENSE. Interest expense increased $2.6 million,
or 17.9%, from $14.4 million for the third quarter of 1998 to
$17.0 million for the third quarter of 1999 due to an increase
in interest expense on borrowed money partially offset by a
decline in interest expense on savings deposits. Interest
expense on borrowed money increased $4.5 million mainly as the
result of a $332.8 million increase in the average balance as
the Company used borrowed money to fund asset growth and offset
the decline in savings deposits. Interest expense on savings
deposits decreased $1.9 million as the result of a decrease in
the average cost from 5.11% for the third quarter on 1998 to
4.64% for the third quarter of 1998 combined with a $61.8
million decrease in the average balance. The decrease in the
average cost was the result of certificate of deposit maturities
in a lower interest rate environment.
PROVISION FOR LOSSES ON LOANS. The allowance for losses on
loans is maintained at a level considered adequate to absorb
potential loan losses determined on the basis of management's
continuing review and evaluation of the loan portfolio and its
judgement as to the impact of economic conditions on the
portfolio. The evaluation by management includes consideration
of past loan loss experiences and trends, changes in the
composition of the loan portfolio, the current volume and
condition of loans outstanding and the probability of collecting
all amounts due. Based on this evaluation, no provision for
losses on loans was recorded during the third quarter of 1999.
At September 30, 1999, the allowance for losses on loans was
$6.6 million, which represented .53% of net loans receivable
compared to
13
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions and Analysis of Financial
Condition and Results of Operations
$6.7 million, or .60% of net loans receivable at December 31,
1998. Net loan charge-offs declined to $5,000 for the third
quarter of 1999 compared to $32,000 for the third quarter of
1998.
At September 30, 1999, the ratio of nonaccruing loans to
net loans receivable was .70% compared to .33% at December 31,
1998. The increase in the ratio was due to a $4.3 million
increase in nonaccruing loans partially offset by a $137.5
million, or 12.3%, increase in net loans receivable. The
increase in nonaccruing loans was primarily the result of the
net addition of seventeen single-family permanent loans, a $2.2
million loan secured by a retail shopping center in St. Louis,
Missouri and a $747,000 loan secured by a commercial property in
Longview, Texas classified as nonaccrual during the first nine
months of 1999.
NONINTEREST INCOME. Total noninterest income increased
$256,000, or 29.4%, from $870,000 for the quarter ended
September 30, 1998 to $1.1 million for the quarter ended
September 30, 1999. The majority of the increase was due to a
$184,000, or 53.9%, increase in gain on sale of loans from
$342,000 for the third quarter of 1998 to $526,000 for the third
quarter of 1999. Loan sales for the 1999 quarter totaled $36.9
million compared to $22.2 million for the 1998 quarter. The
Company sells its thirty-year, fixed-rate loan products at the
time of origination to limit its exposure to interest rate risk.
NONINTEREST EXPENSE. Noninterest expense increased
$838,000, or 13.3%, from $6.3 million for the quarter ended
September 30, 1998 to $7.2 million for the quarter ended
September 30, 1999. Compensation and employee benefits increased
$354,000, or 11.1%,0 from $3.2 million during the third quarter
of 1998 to $3.5 million during 1999. The increase in
compensation and employee benefits was the result of additional
personnel hired to implement the retail banking strategy and
normal salary increases partially offset by a decrease in ESOP
expense due to a reduction in the average stock price between
the respective periods. ESOP expense is based on the average
market value of the Company's stock which decreased
approximately 47.9% between the respective periods. Advertising
expense increased $304,000 from $133,000 for the three months
ended September 1998 to $437,000 for 1999 due primarily to an
increased level of advertising and expenses associated with the
Company's name change. Other noninterest expense increased
$240,000, from $1.08 million for the three months ended
September 1998 to $1.32 million for 1999 due primarily to
expenses associated with the implementation of the Company's
retail banking strategy.
INCOME TAX EXPENSE. The Company provides for state and
federal income tax expense based upon earnings before income
taxes. 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. The effective tax rate
for the three months ended September 30, 1999 was 40.1% compared
to 44.5% for the like period in 1998. The effective tax rates
for 1999 and 1998 differ from the statutory tax rate of 35.0%
primarily due to the nondeductibility of the amortization of
excess cost over fair values of net assets acquired and the
excess of market value over cost of ESOP shares amortized.
14
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999
NET INCOME. Net income for the nine months ended September
30, 1999 increased $1.9 million, or 33.5%, to $7.4 million
compared to $5.6 million for the nine months ended September 30,
1998. Basic and diluted earnings per share increased to $0.78
and $0.76, respectively for the nine months ended September 30,
1999 compared to $0.59 and $0.56, respectively for the
comparable period a year ago. Annualized return on average
equity and annualized return on average assets for the nine
months ended September 30, 1999 were 7.91% and 0.66%,
respectively compared to 6.18% and 0.59%, respectively for the
nine months ended September 30, 1998.
NET INTEREST INCOME. Net interest income for the nine
months ended September 30, 1999 increased $5.2 million, or
20.5%, to $30.5 million compared to $25.3 million for the nine
months ended September 30, 1998. The increase was the result of
an increase in the average balance of net interest-earning
assets and an increase in the Company's interest rate spread
from 2.48% for the nine months ended September 30, 1998 to 2.52%
for the nine months ended September 30, 1999. The growth in net
interest-earning assets was primarily the result of strong
growth in loans receivable. The increase in the interest rate
spread was primarily the result of a 25 basis point decrease in
the average cost of savings deposits and borrowed money
partially offset by a 21 basis point decrease in the average
yield on interest-earning assets.
INTEREST AND DIVIDEND INCOME. Total interest and dividend
income increased $11.5 million, or 16.9%, from $67.9 million for
the nine months ended September 30, 1998 to $79.3 million for
the nine months ended September 30, 1999. The increase resulted
from an increase in the average balance of interest-earning
assets from $1.20 billion for the nine months ended September
30, 1998 to $1.44 billion for the nine months ended September
30, 1999 partially offset by a decline in the average yield on
interest earning assets from 7.57% to 7.36% during the same
periods.
Interest income on loans receivable increased $12.7
million, or 23.1%, as the result of a $254.6 million increase in
the average balance of loans receivable between the comparable
periods partially offset by a decrease in the average yield from
7.90% for the nine months ended September 30, 1998 to 7.63% for
the nine months ended September 30, 1999. Loan originations
grew 60%, to approximately $417 million for the nine months
ended September 30, 1999 compared to approximately $260 million
for the comparable period in 1998. Commercial real estate and
construction lending represented approximately 71.5% of total
origination activity during 1999 compared to approximately 50.3%
during the 1998. As expected in the current rate environment,
the Company continued to experience significant loan repayments,
which totaled approximately $431 million for the nine months
ended September 30, 1999 compared to approximately $339 million
for the nine months ended September 30, 1998. Refinancings
continued to erode the Company's higher yielding loans resulting
in a shift in the Company's loan portfolio into lower margin
loans. The Company continued to supplement its loan origination
activity with loan purchases to help offset the effect of this
high repayment activity. Loan purchases totaled $229 million
for the nine months ended September 30, 1999 compared to $272
million for the nine months ended September 30, 1998.
15
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions and Analysis of Financial
Condition and Results of Operations
Combined interest income on all other interest-earning
assets decreased $1.3 million, or 9.7%, as the result of a $13.3
million decrease in the combined average balance and a 32 basis
point decrease in the combined average yield. Funds from
repayments, sales, and maturities were reinvested in higher
yielding loans receivable.
INTEREST EXPENSE. Interest expense increased $6.3 million,
or 14.7%, from $42.6 million for the nine months ended September
30, 1998 to $48.9 million for the nine months ended September
30, 1999 due to an increase in interest expense on borrowed
money partially offset by a decline in interest expense on
savings deposits. Interest expense on borrowed money increased
$10.3 million as the result of a $265.6 million increase in the
average balance partially offset by a decrease in the average
cost from 5.34% for the nine months ended September 30, 1998 to
5.19% for the nine months ended September 30, 1999. Interest
expense on savings deposits decreased $4.0 million as the result
of a decrease in the average cost from 5.08% for the nine months
ended September 30, 1998 to 4.72% for the nine months ended
September 30, 1999 combined with a $34.6 million decrease in the
average balance.
PROVISION FOR LOSSES ON LOANS. The allowance for losses on
loans is maintained at a level considered adequate to absorb
potential loan losses determined on the basis of management's
continuing review and evaluation of the loan portfolio and its
judgement as to the impact of economic conditions on the
portfolio. The evaluation by management includes consideration
of past loan loss experiences and trends, changes in the
composition of the loan portfolio, the current volume and
condition of loans outstanding and the probability of collecting
all amounts due. Based on this evaluation, no provision for
losses on loans was recorded during the nine months ended
September 30, 1999. The Company recaptured $1.2 million of loan
loss reserves during the nine months ended September 30, 1998 by
recording a credit to the provision for losses on loans. Net
loan charge-offs declined to $27,000 for the first nine months
of 1999 compared to $275,000 for the first nine months of 1998.
NONINTEREST INCOME. Total noninterest income decreased
$666,000, or 20.1%, from $3.3 million for the nine months ended
September 30, 1998 to $2.6 million for the nine months ended
September 30, 1999. Gain on sale of loans decreased $451,000,
or 31.7%, from $1.4 million for the nine months ended September
30, 1998 to $972,000 for the nine months ended September 30,
1999. Loan sales declined from $91.7 million to $40.9 million
during the same periods as the result of a decline in the demand
for the Company's thirty-year, fixed-rate loan products which
the Company sells at the time of origination to limit its
exposure to interest rate risk. During September 1999, the
Company also sold $30.2 million of fixed-rate loans classified
as held for sale that were purchased in August 1999. Real
estate operations decreased $303,000 primarily due to $181,000
in write-downs on four foreclosed properties and $102,000 in net
gains on sales of foreclosed properties during the nine months
ended September 30, 1999 compared to gains on sales of $248,000
during the nine months ended September 30, 1998. Servicing and
other fees decreased $139,000, or 20.4%, primarily due to a
$86,000 decrease in loan conversion fee income and a $45,000
increase in expense related to the amortization of capitalized
mortgage servicing rights. Other noninterest income increased
$184,000 primarily due to a $106,000 increase in commissions
related to check processing.
16
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions and Analysis of Financial
Condition and Results of Operations
NONINTEREST EXPENSE. Noninterest expense increased
$946,000, or 4.8%, from $19.7 million for the nine months ended
September 30, 1998 to $20.6 million for the nine months ended
September 30, 1999. Advertising expense increased $901,000 due
primarily to approximately $651,000 of nonrecurring expenses
associated with the Bank's recent name change and to increased
advertising for the Company's loan products. Other noninterest
expense increased $330,000, or 10.2%, due primarily to expenses
associated with the implementation of the Company's retail
banking strategy, the merger of Jefferson Savings and First
Federal, and Year 2000 testing. Legal, examination and other
professional fees increased $218,000, or 17.9%, due primarily to
approximately $200,000 of nonrecurring expenses related to the
agreement reached with several of the Company's major
shareholders regarding the election of directors at its June 21,
1999 annual meeting. Compensation and employee benefits
decreased $333,000, or 3.2%, primarily due to a $1.5 million
reduction in expense related to the Company's ESOP partially
offset by additional expenses associated with personnel hired to
implement the retail banking strategy and normal salary
increases. ESOP expense is based on the average market value of
the Company's stock which decreased approximately 50.7% between
the respective periods. Federal deposit insurance premiums
decreased $265,000, or 36.5%, from $727,000 for the nine months
ended September 30, 1998 to $462,000 for the nine months ended
September 30, 1999 due to a decrease in the balance of savings
deposits and a reduction in the premium rate from 0.091% to
0.061% effective January 1, 1999. The Company anticipates
further reductions in premium rates during the year 2000 when
the rate at which the SAIF-insured savings associations must
contribute to the payment of interest on certain government
obligations is scheduled to be reduced.
INCOME TAX EXPENSE. The effective tax rate for the nine
months ended September 30, 1999 was 40.5% compared to 45.0% for
the like period in 1998. The effective tax rates for 1999 and
1998 differ from the statutory tax rate of 35.0% primarily due
to the nondeductibility of the amortization of excess cost over
fair values of net assets acquired and the excess of market
value over cost of ESOP shares amortized.
17
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions and Analysis of Financial
Condition and Results of Operations
NONPERFORMING ASSETS
Summarized below are nonperforming assets at September 30, 1999
and December 31, 1998
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
(dollars in thousands)
<S> <C> <C>
Restructured loans $ 941 1,245
------- -----
Nonaccruing loans:
Residential real estate $ 3,977 1,740
Commercial real estate 3,548 121
Construction 1,030 1,766
Commercial 176 -
Consumer 69 82
------- -----
Total nonaccruing loans 8,800 3,709
Applicable allowance for
loan losses (808) (30)
------- -----
Nonaccruing loans, net 7,992 3,679
------- -----
Foreclosed real estate, net 1,302 2,881
------- -----
Nonperforming assets, net $ 10,235 7,804
======= =====
Nonperforming assets, net as a
percentage of total assets 0.65% 0.56%
======= =====
</TABLE>
Total nonperforming assets increased $2.4 million ($2.9
million prior to the increase in applicable allowance for losses
on nonperforming assets) from $7.8 million at December 31, 1998
to $10.2 million at September 30, 1999 primarily as the result
of a $3.4 million increase in nonaccruing commercial real estate
loans and a $2.2 million increase in nonaccruing residential
real estate loans. This was partially offset by a $736,000
decrease in nonaccruing construction loans and a $1.6 million
decrease in foreclosed assets. The increase in nonaccruing
commercial real estate loans was primarily due to the addition
of a $2.2 million loan secured by a retail shopping center in
St. Louis, Missouri and a $747,000 loan secured by a commercial
property in Longview, Texas. The increase in nonaccruing
residential loans was due to the net addition of seventeen
single-family permanent loans classified as nonaccrual during
the first nine months of 1999. The decrease in foreclosed real
estate was primarily due to the sale of approximately $2.2
million in foreclosed real estate during the nine-month period
ended September 30, 1999 partially offset by nine foreclosures
for $883,000 during the same period.
At September 30, 1999, the Company had six loans totaling
$779,000 that were more than 90 days past the maturity date
stated in the note with regard to principal repayment. The
Company has continued collecting interest payments on the loans
which were less than 90 days past due and still accruing
interest. Loans are generally 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.
18
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions and Analysis of Financial
Condition and Results of Operations
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 $8.8
million and $6.2 million at September 30, 1999 and December 31,
1998, respectively. At September 30, 1999 $2.3 million of
impaired loans had specific reserves of $808,000 and the
remaining impaired loans of $6.5 million had no specific
reserves. At December 31, 1998 $62,000 of impaired loans had
specific reserves of $30,000 and the remaining impaired loans of
$6.1 million had no specific reserves. The increase in impaired
loans was primarily due to a $5.1 million increase in nonaccrual
loans during the first nine months of 1999.
Activity in the allowance for loan losses is summarized as
follows:
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
---- ----
<S> <C> <C>
Balance at beginning of period $ 6,659,294 8,182,268
Provision charged to expense - (1,200,000)
Recoveries 344 7,602
Charge-offs (27,107) (282,198)
----------- ---------
Balance at end of period $ 6,632,531 6,707,672
=========== =========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has no business other than that of
the Jefferson Heritage. The Company is dependent on future
earnings, dividends from Jefferson Heritage, or borrowings for
sources of funds. Jefferson Heritage is subject to certain
regulatory limitations with respect to the payment of dividends
to the Company.
The capital regulations of the OTS require thrift
institutions to maintain tangible capital equal to 1.5% of total
adjusted assets, a minimum 3% leverage (core capital) ratio, and
an 8% risk-based capital ratio. The risk-based capital
requirement is calculated based on the credit risk presented by
both on-balance-sheet assets and off-balance-sheet commitments
and obligations. Assets are assigned a credit-risk weighting
based upon their relative risk ranging from 0% for assets backed
by the full faith and credit of the United States or that pose
no credit risk to the institution to 100% for assets such as
delinquent or repossessed assets. As of September 30, 1999,
Jefferson Heritage met all OTS capital requirements.
Jefferson Heritage is also subject to the capital based
framework for prompt corrective action. To be categorized as
well capitalized, an institution must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table below. For purposes of this regulation, Tier
I capital has the same definition as core capital. As of
September 30, 1999, Jefferson Heritage was considered well
capitalized.
19
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions and Analysis of Financial
Condition and Results of Operations
Following are the actual and required capital amounts and
ratios of Jefferson Heritage as of September 30, 1999:
<TABLE>
<CAPTION>
Prompt Corrective
action requirements -
Actual Requirements well capitalized
----------------- ------------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tangible capital: (1) $ 101,791,625 6.53% $ 23,378,822 1.50% NA
Core capital: (1) 101,791,625 6.53% 46,757,643 3.00% $77,929,406 5.00%
Risk-based capital: (2) 107,163,280 11.03% 77,741,651 8.00% 97,177,064 10.00%
Tier I capital: (2) 101,791,625 10.47% NA 58,306,238 6.00%
<FN>
(1) To adjusted total assets
(2) To risk-weighted assets
</FN>
</TABLE>
Jefferson Heritage is 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 4% of the sum of net withdrawable
deposits and borrowings due within one year. Jefferson Heritage
has consistently maintained liquidity in excess of required
amounts. Jefferson Heritage's liquidity ratio was 17.88% and
18.42% at September 30, 1999 and December 31, 1998,
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, Jefferson Heritage has
substantial borrowing capacity with the Federal Home Loan Bank
and the ability to borrow against its investment portfolio.
The principal uses of funds by the Company include the
origination and purchase of loans secured by real estate and the
purchase of investment securities and mortgage-backed
securities.
Cash flows used by investing activities totaled $198.8
million during the first nine months of 1999. Cash flows from
these investing activities, which consisted primarily of $437.8
million in principal repayments on loans and mortgage-backed
securities, $69.1 million in proceeds from maturity of
investment securities and $9.7 million in sales of investment
securities and mortgage-backed securities, and were used
primarily to fund the Company's investing activities of
originating and purchasing loans and purchasing mortgage-backed
securities during the nine months ended September 30, 1999.
The Company anticipates that it will have sufficient funds
available to meet its current commitments. At September 30,
1999, the Company had commitments to originate loans totaling
$71.4 million, to purchase residential mortgages of $2.2
million, to purchase investment securities of $2.0 million and
to sell loans of $6.1 million. Certificates of deposit which
are scheduled to mature in
20
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions and Analysis of Financial
Condition and Results of Operations
one year or less at September 30, 1999 totaled $574.0 million.
Management believes that a significant portion of such deposits
will remain with the Company and that it has sufficient
borrowing capacity to offset any outflow. In addition, at
September 30, 1999, Jefferson Heritage has an available line of
credit with the FHLB of Des Moines totaling $25.0 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 Derivative Instruments and Hedging
Activities. In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities",
which establishes standards for derivative instruments,
including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 requires an
entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure
those instruments at fair value. In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities Deferral of the Effective Date of FASB Statement
No. 33, an Amendment of FASB Statement No. 133", which defers
the effective date of SFAS 133 from fiscal years beginning after
June 15, 1999 to fiscal years beginning after June 15, 2000.
Earlier application of SFAS No. 133, as amended, is encouraged
but should not be applied retroactively to financial statements
of prior periods. The Company is currently evaluating the
requirements and impact of SFAS No. 133, as amended.
RECENTLY ENACTED LEGISLATION
On November 12, 1999, President Clinton signed legislation
which could have a far-reaching impact on the financial services
industry. The Gramm-Leach-Bliley ("G-L-B") Act authorizes
affiliations between banking, securities and insurance firms and
authorizes bank holding companies and national banks to engage
in a variety of new financial activities. Among the new
activities that will be permitted to bank holding companies are
securities and insurance brokerage, securities underwriting,
insurance underwriting and merchant banking. The Federal
Reserve Board, in consultation with the Department of Treasury,
may approve additional financial activities. The G-L-B Act,
however, prohibits future acquisitions of existing unitary
savings and loan holding companies, like the Company, by firms
which are engaged in commercial activities and prohibits the
formation of new unitary holding companies.
21
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions and Analysis of Financial
Condition and Results of Operations
The G-L-B Act imposes new requirements on financial
institutions with respect to customer privacy. The G-L-B Act
generally prohibits disclosure of customer information to
non-affiliated third parties unless the customer has been given
the opportunity to object and has not objected to such
disclosure. Financial institutions are further required to
disclose their privacy policies to customers annually.
Financial institutions, however, will be required to comply with
state law if it is more protective of customer privacy than the
G-L-B Act. The G-L-B Act directs the federal banking agencies,
the National Credit Union Administration, the Secretary of the
Treasury, the Securities and Exchange Commission and the Federal
Trade Commission, after consultation with the National
Association of Insurance Commissioners, to promulgate
implementing regulations within six months of enactment. The
privacy provisions will become effective six months thereafter.
The G-L-B Act contains significant revisions to the Federal
Home Loan Bank System. The G-L-B Act imposes new capital
requirements on the Federal Home Loan Banks and authorizes them
to issue two classes of stock with differing dividend rates and
redemption requirements. The G-L-B Act deletes the current
requirement that the Federal Home Loan Banks annually contribute
$300 million to pay interest on certain government obligations
in favor of a 20% of net earnings formula. The G-L-B Act
expands the permissible uses of Federal Home Loan Bank advances
by community financial institutions (under $500 million in
assets) to include funding loans to small businesses, small
farms and small agri-businesses. The G-L-B Act makes membership
in the Federal Home Loan Bank voluntary for federal savings
associations.
The G-L-B Act contains a variety of other provisions
including a prohibition against ATM surcharges unless the
customer has first been provided notice of the imposition and
amount of the fee. The G-L-B Act reduces the frequency of
Community Reinvestment Act examinations for smaller institutions
and imposes certain reporting requirements on depository
institutions that make payments to non-governmental entities in
connection with the Community Reinvestment Act. The G-L-B Act
eliminates the SAIF special reserve and authorizes a federal
savings association that converts to a national or state bank
charter to continue to use the term "federal" in its name and to
retain any interstate branches.
The Company is unable to predict the impact of the G-L-B
Act on its operations at this time. Although the G-L-B Act
reduces the range of companies with which the Company may
affiliate, it may facilitate affiliations with companies in the
financial services industry.
YEAR 2000 COMPLIANCE
The Company is subject to risks associated with the "Year
2000" issue, a term which refers to uncertainties about the
ability of various date processing hardware and software systems
to interpret dates correctly after the beginning of the Year
2000. The Company began working on its Year 2000 plan in 1997
and formed a Project Committee ("Committee") that reports
monthly to the Board of Directors. The Committee has formulated
a Comprehensive Year 2000 Plan ("Plan") which follows guidelines
outlined by the Federal Financial Institutions Examination
Council ("FFIEC"). The FFIEC requires all banks to develop a
plan that includes five phases relating to awareness,
assessment, renovation,
22
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions and Analysis of Financial
Condition and Results of Operations
validation and implementation. The Plan establishes a timetable
and summarizes each major phase of the project and the estimated
costs to renovate and test systems in preparation for the Year
2000.
The awareness phase included a Company-wide campaign to
communicate the problem and the potential ramifications to the
organization. Concurrent with this phase, the committee began
the assessment phase, which included the inventorying of systems
that may be impacted. The business use of each inventoried item
was then analyzed and prioritized in varying degrees from
critical to non-critical, based upon the perceived adverse
effect on the financial condition of the Company in the event of
a loss or interruption in the use of each system. The
renovation, validation and implementation phases consist of
testing the individual systems and replacing or reconfiguring
systems that are not Year 2000 compliant. The Company has
completed the awareness and assessment phases of the project.
The Company has identified its most critically important
system as its on-line account processing system which the
Company maintains on its own mainframe computer using third
party vendor application software. The Company has extensively
tested the ability of the mainframe computer to handle the Year
2000 date change under a variety of circumstances and believes
that its mainframe hardware and software, as currently
configured, will not be adversely affected by the Year 2000
problem. The Company has identified various other less critical
internal data-processing and software systems that could
potentially be affected by the Year 2000 problem. These consist
primarily of desk-top personal computers and the word-processing
and other software used on them. These systems have been tested
and have either been found to be Year 2000 ready or replaced
with systems that are Year 2000 ready. In the normal course of
business, the Company continually upgrades its computer systems
and software. These upgrades are tested as they are installed.
To date, the primary expense involved in the implementation
of the Company's Year 2000 Plan has been management and staff
time which the Company estimates to have been approximately
3,900 hours through September 30, 1999. To the extent that any
modifications to third party vendor software have been required,
these modifications have been made by the vendors without any
direct additional cost to the Company. The costs of equipment
upgrades have either not been material or involved equipment
that had already reached the end of its useful life and was due
for replacement in any event.
As part of its Year 2000 Plan, the Company has been
identifying and assessing the Year 2000 risks posed by third
parties including customers and other entities whose operations
may affect the Company's business. In this regard, the Company
has been working to increase the Year 2000 awareness of its loan
customers through mailings and other communications. The
Company has surveyed its larger commercial loan customers as to
their Year 2000 readiness and considers Year 2000 exposure in
underwriting commercial loans. The majority of the Company's
loan customers, however, are either individuals or small
businesses which are not highly dependent on information
technology in their day-to-day operations and are therefore not
considered to pose a direct Year 2000 risk. Although the
Company's loan customers may be collaterally affected by the
Year 2000 problems of others (such as the failure of their
employers to make timely salary payments), the Company believes
that its portfolio is sufficiently diversified that such
failures will not have a material impact on operations.
23
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Management's Discussions and Analysis of Financial
Condition and Results of Operations
In its day-to-day operations, the Company also deals with a
number of other third parties whose Year 2000 readiness may
affect the Company's operations. These third parties include
FNMA and FHLMC to which it sells mortgage loans, various
mortgage banks from which it purchases mortgage loans, credit
bureaus, the FHLBs and a variety of other third parties.
Pursuant to its Year 2000 Plan, the Company has corresponded
with each of these entities and received assurances as to their
Year 2000 readiness. When feasible, the Company has
participated in testing of all automated links to these
entities. On the basis of these inquires and testing, the
Company does not believe that Year 2000 issues related to these
entities will have a material impact on the Company operations.
The Plan also includes provisions which address the Year
2000 compliance of environmental systems, which include items
such as security systems and heating and air conditioning
systems. No significant business risks have been revealed
regarding these types of systems.
Concurrent with the development and execution of the Plan
is the evolution of the Company's Year 2000 Contingency Plan
("Contingency Plan"). The Contingency Plan addresses a wide
variety of issues including: failure of a system during Year
2000 testing, failure of electrical, telecommunications, or
water systems, failure of a system during the century date
change and liquidity plan. Special consideration has been given
to the weekend of the century date change. The Contingency Plan
is intended to be a changing document based on the ongoing
results of the project and is updated on a regular basis.
The risks associated with the Year 2000 issue can be
grouped into two categories. The first is the risk that one or
more of the Company's internal systems will be adversely
affected by the century date change. On the basis of its
testing and preparation, the Company believes that the risk of a
failure in a critical system is low. Accordingly, the Company
believes that its primary internal risk is a failure in a less
critical environment that will not materially disrupt
operations.
The second risk category consists of external risks which
are largely outside of the Company's control. The Company would
be most seriously affected if Year 2000 failures of others
caused basic services such as electrical power,
telecommunications or government agencies to be disrupted.
Although the preparation of such providers has been reviewed,
there can be no assurance that Year 2000 failures of third
parties will not have a material adverse impact on the Company.
24
<PAGE>
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARIES
Quantitative and Qualitative Disclosures
About Market Risk
The Company does not believe that its exposure to market
risk has materially changed from the levels reported at December
31, 1998 in its Annual Report on Form 10-K. The Company's
principal market risk continues to consist of its exposure to
changes in interest rates. During the nine months ended
September 30, 1999, declining long-term interest rates have
resulted in the prepayment or conversion to fixed rates of
certain adjustable-rate residential mortgages. In order to
maintain its rate sensitivity position, the Company has sold the
resulting fixed-rate loans on the secondary market and invested
the proceeds from these sales and from prepayments in additional
adjustable-rate mortgages or in other rate-sensitive investment
and mortgage backed securities. The decline in interest rates
has benefited the net portfolio value of its assets, which are
measured, by the present value of the expected cash flows from
its assets, liabilities and off balance sheet contracts. The
Company continues to monitor changes in the interest rate
environment and adjust its asset/liability mix as necessary.
25
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On August 10, 1999, a suit was filed in the United
States District Court for the Southern District of
Illinois under the caption West v. Hofman, et al.
alleging that certain officers and directors of the
Company and others issued false and misleading
statements and failed to disclose material facts
concerning the Company's operations, earnings, merger
and/or sale. The suit was subsequently amended to name
the Company as a defendant. The suit seeks class action
status for all persons who purchased the Company's
common stock between January 1, 1998 and April 14, 1999
and seeks unspecified money damages. The Company does
not believe that the suit has merit and intends to
vigorously defend against it.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
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
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits. The following exhibits are being filed
with this Quarterly Report on Form 10Q:
No. Description
-- -----------
27 Financial Data Schedule (EDGAR only)
(b) Reports on Form 8-K. The Registrant did not file
any current reports on Form 8-K during the quarter
ended September 30, 1999.
26
<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 15, 1999 /s/ Paul J. Milano
----------------------------
Paul J. Milano
Senior Vice President and Chief
Financial Officer
(Duly Authorized Representative
and Principal Financial Officer)
27
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted
from consolidated financial statements and notes thereto to
Jefferson Savings Bancorp, Inc. at and for nine months ended
September 30, 1999 and is qualified in its entirety by reference
to such financial statements.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,170,181
<INT-BEARING-DEPOSITS> 10,166,916
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 225,400,366
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,255,942,286
<ALLOWANCE> 6,632,531
<TOTAL-ASSETS> 1,572,334,374
<DEPOSITS> 977,358,814
<SHORT-TERM> 450,775,563
<LIABILITIES-OTHER> 19,627,896
<LONG-TERM> 0
0
0
<COMMON> 101,001
<OTHER-SE> 124,471,100
<TOTAL-LIABILITIES-AND-EQUITY> 1,572,334,374
<INTEREST-LOAN> 67,700,998
<INTEREST-INVEST> 10,237,686
<INTEREST-OTHER> 1,389,204
<INTEREST-TOTAL> 79,327,888
<INTEREST-DEPOSIT> 35,705,074
<INTEREST-EXPENSE> 48,857,041
<INTEREST-INCOME-NET> 30,470,847
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 56,975
<EXPENSE-OTHER> 20,636,619
<INCOME-PRETAX> 12,477,881
<INCOME-PRE-EXTRAORDINARY> 7,421,881
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,421,881
<EPS-BASIC> 0.78
<EPS-DILUTED> 0.76
<YIELD-ACTUAL> 2.83
<LOANS-NON> 7,992,000
<LOANS-PAST> 779,000
<LOANS-TROUBLED> 941,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,659,294
<CHARGE-OFFS> 27,107
<RECOVERIES> 344
<ALLOWANCE-CLOSE> 6,632,531
<ALLOWANCE-DOMESTIC> 4,294,877
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,337,654
</TABLE>
