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 June 30, 2000
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 July 31, 2000
--------------------------------- ----------------------------
Common Stock, Par Value $.01 9,966,205 shares
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
INDEX to Form 10-Q
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- 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 22
PART II OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security
Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
2
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
Assets 2000 1999
------ ---- ----
<S> <C> <C>
Cash $ 10,768,370 $ 12,141,714
Interest-bearing deposits 6,674,094 9,457,864
-------------- --------------
Cash and cash equivalents 17,442,464 21,599,578
Investment securities available for sale, at fair value
(amortized cost of $107,139,391 and $106,752,636 at
June 30, 2000 and December 31, 1999, respectively) 102,838,509 103,342,199
Mortgage-backed securities available for sale, at fair
value (amortized cost of $118,629,842 and $123,405,642
at June 30, 2000 and December 31, 1999, respectively) 113,402,830 118,447,068
Loans receivable, net 1,294,353,680 1,238,926,455
Investment in real estate, net 1,466,344 1,521,668
Stock in Federal Home Loan Bank 27,403,600 24,254,100
Bank owned life insurance 25,822,523 25,178,920
Office properties and equipment, net 14,759,897 14,212,864
Deferred tax asset 4,181,000 3,718,000
Excess cost over fair value of net assets acquired 19,192,851 20,088,429
Accrued income and other assets 13,350,230 11,645,132
-------------- --------------
$1,634,213,928 1,582,934,413
============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Savings deposits $ 980,893,073 974,965,236
Borrowed money 501,758,708 468,369,843
Advance payments by borrowers for taxes and insurance 7,643,312 3,377,641
Accrued expenses and other liabilities 13,238,207 10,140,344
-------------- --------------
Total liabilities 1,503,533,300 1,456,853,064
-------------- --------------
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 at June 30, 2000 and
December 31, 1999 101,001 101,001
Additional paid-in capital 65,182,251 64,958,775
Retained earnings, subject to certain restrictions 75,936,104 71,469,492
Accumulated other comprehensive income (loss) (5,716,894) (5,021,011)
Unamortized restricted stock awards (60,908) (65,908)
Unearned ESOP shares (3,177,274) (3,678,225)
Treasury stock, at cost: 133,907 shares and 142,286 shares
at June 30, 2000 and December 31, 1999, respectively (1,583,652) (1,682,775)
-------------- --------------
Total stockholders' equity 130,680,628 126,081,349
-------------- --------------
$1,634,213,928 1,582,934,413
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Income
Three and six months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans receivable $ 26,686,855 22,999,539 51,888,877 44,114,052
Mortgage-backed securities 1,846,307 1,835,314 3,732,693 2,672,880
Investment securities 1,641,774 1,739,058 3,284,484 4,008,602
Interest-bearing deposits and federal funds sold 84,251 208,943 140,922 549,512
Stock in Federal Home Loan Banks 463,751 262,577 872,629 462,125
------------ ------------ ----------- -----------
Total interest and dividend income 30,722,938 27,045,431 59,919,605 51,807,171
------------ ------------ ----------- -----------
Interest expense:
Savings deposits 11,689,677 11,982,982 23,008,581 24,276,168
Borrowed money 7,858,785 4,587,183 14,816,103 7,597,742
------------ ------------ ----------- -----------
Total interest expense 19,548,462 16,570,165 37,824,684 31,873,910
------------ ------------ ----------- -----------
Net interest income 11,174,476 10,475,266 22,094,921 19,933,261
Provision for losses on loans 325,000 - 625,000 -
------------ ------------ ----------- -----------
Net interest income after
provision for losses on loans 10,849,476 10,475,266 21,469,921 19,933,261
------------ ------------ ----------- -----------
Noninterest income:
Servicing and other loan fees 300,411 172,191 694,431 335,098
Fees for other services to customers 493,917 333,037 921,594 578,662
Gain (loss) on sales of investment securities, net - 19,985 (14,688) 19,985
Gain on sales of mortgage-backed securities, net - - - 36,990
Gain on sales of loans receivable, net 438,176 198,100 688,451 445,463
Real estate operations, net (26,963) (69,555) (72,091) (167,495)
Other 420,091 96,766 884,557 268,531
------------ ------------ ----------- -----------
Total noninterest income 1,625,632 750,524 3,102,254 1,517,234
------------ ------------ ----------- -----------
Noninterest expense:
General and administrative:
Compensation and employee benefits 3,963,210 3,409,807 7,837,418 6,493,695
Occupancy 1,181,404 809,280 2,233,879 1,583,299
Advertising 369,977 730,285 638,527 859,427
Federal insurance premiums 50,544 152,046 102,541 313,222
Legal, examination, and other professional fees 383,302 657,632 833,938 1,093,149
Other 1,368,548 1,159,841 2,694,339 2,242,846
------------ ------------ ----------- -----------
Total general and administrative 7,316,985 6,918,891 14,340,642 12,585,638
Amortization of excess cost over fair value
of net assets acquired 447,789 447,789 895,578 897,224
------------ ------------ ----------- -----------
Total noninterest expense 7,764,774 7,366,680 15,236,220 13,482,862
------------ ------------ ----------- -----------
Income before income taxes 4,710,334 3,859,110 9,335,955 7,967,633
Income tax expense 1,785,000 1,567,000 3,539,000 3,247,000
------------ ------------ ----------- -----------
Net income $ 2,925,334 2,292,110 5,796,955 4,720,633
============ ============ =========== ===========
Earnings per share, basic $ .31 .24 .61 .50
=== === === ===
Earnings per share, diluted $ .30 .24 .60 .49
=== === === ===
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity and Comprehensive Income
Six months ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Accumulated Unamortized
Common Stock Additional other restricted
-------------------- paid-in Retained comprehensive stock
Shares Dollars capital earnings income (loss) awards
------ ------- ------- -------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 10,100,112 $ 101,001 $ 64,958,775 $ 71,469,492 $ (5,021,011) $(65,908)
Comprehensive income:
Net income -- -- -- 5,796,955 -- --
Other comprehensive income (loss),
net of reclassification adjustment -- -- -- -- (695,883) --
Total comprehensive income
Dividends paid ($.14 per share) -- -- -- (1,330,343) -- --
Release of ESOP shares in lieu of cash
dividend on allocated ESOP shares -- -- 14,211 -- -- --
Stock issued in dividend reinvestment
and stock purchase plan -- -- (4,326) -- -- --
Amortization of restricted
stock awards -- -- 8,500 -- -- 5,000
Amortization of ESOP shares -- -- 229,187 -- -- --
Stock options exercised -- -- (24,096) -- -- --
------------ ------------ ------------ ------------ ------------ --------
Balance at June 30, 2000 10,100,112 $ 101,001 $ 65,182,251 $ 75,936,104 $ (5,716,894) $(60,908)
============ ============ ============ ============ ============ ========
<CAPTION>
Unearned Treasury Stock Total
ESOP --------------------- stockholders'
shares Shares Dollars equity
------- ------- ------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $(3,678,225) (142,286) $(1,682,775) $126,081,349
Comprehensive income:
Net income -- -- -- 5,796,955
Other comprehensive income (loss),
net of reclassification adjustment -- -- -- (695,883)
------------
Total comprehensive income 5,101,072
Dividends paid ($.14 per share) -- -- -- (1,330,343)
Release of ESOP shares in lieu of cash
dividend on allocated ESOP shares 69,924 -- -- 84,135
Stock issued in dividend reinvestment
and stock purchase plan -- 4,851 57,387 53,061
Amortization of restricted
stock awards -- -- -- 13,500
Amortization of ESOP shares 431,027 -- -- 660,214
Stock options exercised -- 3,528 41,736 17,640
----------- -------- ----------- ------------
Balance at June 30, 2000 $(3,177,274) (133,907) $(1,583,652) $130,680,628
=========== ========= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Six months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,796,955 4,720,633
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,193,888 2,684,221
Provision for losses on loans 625,000 -
Net gain on sales of assets (644,117) (585,247)
Loans originated for sale (58,140,208) (32,312,564)
Sale of loans originated for sale 50,072,780 34,251,895
Deferred income taxes (463,000) (2,453,253)
Stock dividend from Federal Home Loan Bank - (53,100)
Other, net 1,309,039 (1,682,451)
-------------- -------------
Net cash provided by operating activities 750,337 4,570,134
-------------- -------------
Cash flows from investing activities:
Principal repayments on:
Loans receivable 281,165,545 288,067,152
Mortgage-backed securities 4,687,841 4,110,458
Proceeds from maturity of investment securities 110,000 69,095,000
Proceeds from sale of:
Mortgage-backed securities available for sale - 4,676,186
Investment securities available for sale 1,985,313 5,010,938
Proceeds from redemption of Federal Home Loan Bank stock - 3,046,900
Cash invested in:
Loans receivable - originated (295,123,375) (230,184,574)
Loans receivable - purchased (34,316,718) (156,514,353)
Mortgage-backed securities - (101,591,817)
Investment securities (2,492,600) (24,481,996)
Stock in Federal Home Loan Bank (3,149,500) (8,604,000)
Proceeds from sale of real estate 1,540,341 2,133,345
Other, net (1,572,479) (1,767,117)
-------------- -------------
Net cash used in investing activities (47,165,632) (147,003,878)
-------------- -------------
Cash flows from financing activities:
Increase (decrease) in savings deposits, net 5,863,287 (30,994,180)
Increase in borrowed money, net 33,388,865 167,703,738
Increase in advance payments by borrowers for taxes and insurance 4,265,671 5,082,833
Dividends paid (1,330,343) (1,324,814)
Other, net 70,701 (313,661)
-------------- -------------
Net cash provided by financing activities 42,258,181 140,153,916
-------------- -------------
Decrease in cash and cash equivalents (4,157,114) (2,279,828)
Cash and cash equivalents at beginning of period 21,599,578 18,873,687
-------------- -------------
Cash and cash equivalents at end of period $ 17,442,464 16,593,859
============== =============
Supplemental disclosures of cash flow information:
Interest paid $ 37,799,483 31,983,200
Income taxes paid 4,388,552 3,851,585
Noncash investing activities:
Additions to real estate acquired in settlement
of loans or through foreclosure 1,685,292 282,263
Loans originated to finance the sale of real estate - 126,400
Noncash financing activity - interest credited to savings deposits 17,869,559 18,210,730
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000
(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 six months ended June 30, 2000
and 1999, respectively.
Operating results for the three and six months ended June 30, 2000
are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000.
(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"). 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 six-month
periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three months ended June 30,
2000 1999
---- ----
<S> <C> <C>
Numerator:
Net income (basic and diluted earnings per share) $ 2,925,334 2,292,110
=========== ==========
Denominator:
Average shares outstanding (basic earnings per share) 9,554,589 9,510,394
Effect of dilutive stock options 150,636 199,298
----------- ----------
Average shares outstanding after assumed
conversions (diluted earnings per share) 9,705,225 9,709,692
=========== ==========
</TABLE>
7
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Six months ended June 30,
2000 1999
---- ----
<S> <C> <C>
Numerator:
Net income (basic and diluted earnings per share) $ 5,796,955 4,720,633
=========== =========
Denominator:
Average shares outstanding (basic earnings per share) 9,535,147 9,488,791
Effect of dilutive stock options 156,128 227,742
----------- ---------
Average shares outstanding after assumed
conversions (diluted earnings per share) 9,691,275 9,716,533
=========== =========
</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 six-month periods
ended June 30, 2000 and 1999 is summarized as follows:
<TABLE>
<CAPTION>
Three months ended June 30,
2000 1999
---- ----
<S> <C> <C>
Net income $ 2,925,334 2,292,110
Other comprehensive income (loss):
Realized and unrealized holding gain (loss)
arising during the period, net of tax 134,837 (3,167,497)
Less: reclassification adjustment for realized
gain included in net income, net of tax - 11,991
----------- ----------
Total other comprehensive income (loss) 134,837 (3,179,488)
----------- ----------
Total comprehensive income (loss) $ 3,060,171 (887,378)
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30,
2000 1999
---- ----
<S> <C> <C>
Net income $ 5,796,955 4,720,633
Other comprehensive income (loss):
Realized and unrealized holding loss
arising during the period, net of tax (705,577) (3,675,238)
Less: reclassification adjustment for realized
gain (loss) included in net income, net of tax (9,694) 34,185
----------- ----------
Total other comprehensive income (loss) (695,883) (3,709,423)
----------- ----------
Total comprehensive income $ 5,101,072 1,011,210
=========== ==========
</TABLE>
8
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion reviews the financial condition and the results of
operations of the Company as of and for the three and six months ended June 30,
2000.
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 borrowings from the Federal Home Loan Bank ("FHLB"). Historically, the
Company's primary loan product has been adjustable-rate, single-family,
residential loans. The Company also originates and sells single-family,
fixed-rate, residential loans through the Bank's subsidiary, Jefferson Heritage
Mortgage Company. The Company continues to emphasize construction , development
and commercial real estate lending.
The Company's total assets increased $51.3 million, or 3.2%, to $1.63
billion at June 30, 2000 from $1.58 billion at December 31, 1999. Loans
receivable increased $55.4 million, or 4.5%, to $1.29 billion at June 30, 2000
from $1.24 billion at December 31, 1999. Loan origination activity in the first
six months of 2000 totaled $353.3 million compared to $262.5 million for the
first six months of 1999. Commercial real estate and construction loan
originations totaled $267 million, or approximately 75% of total origination
activity during the six months ended June 30, 2000 compared to $188 million, or
approximately 72% during the six months ended June 30, 1999. Loan purchases
totaled $34.3 million for the first half of 2000 compared to $156.5 million for
1999. Principal repayments totaled $281.2 million for the first six months of
2000 compared to $288.1 million for 1999.
The Company sometimes supplements asset growth in times of lower loan
demand with the purchase of investment and mortgage-backed securities and
generally chooses between these two types of investments depending on the
instruments' interest rate risk characteristics and the yields available in the
market. The Company de-emphasized this type of investing activity during the
first six months of 2000 because of the high level of lending volume.
Mortgage-backed securities decreased $5.0 million, or 4.3%, to $113.4 million at
June 30, 2000 from $118.4 million at December 31, 1999. Investment securities
decreased $504,000, or 0.5%, to $102.8 million at June 30, 2000 from $103.3
million at December 31, 1999.
9
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
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. Beginning in 1999 and continuing
in 2000, the Company chose to fund a large portion of its investing activities
with borrowings from the FHLB since such borrowings were generally less
expensive than the cost of attracting savings deposits with similar maturities.
As a result of this strategy, borrowed money increased $33.4 million, or 7.1%,
to $501.8 million at June 30, 2000 from $468.4 million at December 31, 1999.
Savings deposits increased $5.9 million, or .6%, to $980.9 million at June 30,
2000 from $975.0 million at December 31, 1999. The increase was primarily in
certificates of deposit.
Stockholders' equity increased $4.6 million, or 3.6%, to $130.7 million at
June 30, 2000 from $126.1 million at December 31, 1999. Contributing to the
growth in stockholders' equity was net income of $5.8 million, partially offset
by a $696,000 increase, net of tax, in unrealized holding losses on available
for sale investments and the payment of $1.3 million in dividends on the
Company's common stock. The ratio of stockholders' equity to assets increased to
8.00% at June 30, 2000 compared to 7.97% at December 31, 1999 as the result of
growth in equity. The Company's total book value per share at June 30, 2000 was
$13.65 compared to $13.28 at December 31, 1999 and tangible book value per share
was $11.64 at June 30, 2000 compared to $11.16 at December 31, 1999. Unearned
ESOP shares of 392,111 and 458,575 were excluded in calculating book value per
share at June 30, 2000 and December 31, 1999, respectively. There were 9,966,205
common shares outstanding at June 30, 2000.
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 six-month
average balances of assets or liabilities, respectively, for the periods
indicated. During the periods indicated, nonaccrual loans are included in loans
receivable.
10
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
<TABLE>
<CAPTION>
Three month period ended June 30,
-----------------------------------
2000 1999
------ ------
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 ................ $1,286,311 $26,687 8.30% $1,195,771 $23,000 7.69%
Mortgage-backed securities ...... 120,128 1,846 6.15 120,895 1,835 6.07
Investment securities ........... 106,700 1,642 6.16 110,069 1,739 6.32
Other interest-earning assets ... 31,671 548 6.92 32,826 472 5.75
---------- ------- ---------- -------
Total interest-earning
assets .............. 1,544,810 30,723 7.96 1,459,561 27,046 7.41
------- -------
Noninterest-earning assets.......... 82,209 56,489
---------- ----------
Total assets ........... $1,627,019 $1,516,051
========== ==========
Interest-bearing liabilities:
Savings deposits:
Passbook and statement
savings, NOW and money
market accounts ........... $ 221,153 1,604 2.90 $ 247,147 1,839 2.98
Certificates of deposit ...... 726,007 10,086 5.56 767,901 10,144 5.28
-------- ------- ---------- -------
Total savings deposits.. 947,160 11,690 4.94 1,015,048 11,983 4.72
Borrowed money................... 530,359 7,859 5.93 353,444 4,587 5.19
---------- ------- ---------- -------
Total interest-bearing
liabilities........... 1,477,519 19,549 5.29 1,368,492 16,570 4.84
------- -------
Noninterest-bearing liabilities .... 20,702 21,782
---------- ----------
Total liabilities ...... 1,498,221 1,390,274
Stockholders' equity ............... 128,798 125,777
---------- ----------
Total liabilities and
stockholders' equity. $1,627,019 $1,516,051
========== ==========
Net interest income ................ $11,174 $10,476
======= =======
Interest rate spread ............... 2.67% 2.57%
==== ====
Net interest margin ................ 2.89% 2.87%
==== ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities 104.55% 106.65%
====== ======
<CAPTION>
Six month period ended June 30,
---------------------------------
2000 1999
------ ------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
(Dollars in thousands)
Interest-earning assets:
Loans receivable ................... $1,271,283 $51,889 8.16% $1,154,156 $44,114 7.64%
Mortgage-backed securities ......... 121,326 3,733 6.15 88,484 2,673 6.04
Investment securities .............. 106,720 3,284 6.15 126,531 4,009 6.34
Other interest-earning assets ...... 30,248 1,014 6.70 38,551 1,011 5.25
---------- ------- ---------- -------
Total interest-earning
assets ................. 1,529,577 59,920 7.83 1,407,722 51,807 7.36
------- -------
Noninterest-earning assets............. 79,224 555,247
---------- ----------
Total assets .............. $1,608,801 $1,462,969
========== ==========
Interest-bearing liabilities:
Savings deposits:
Passbook and statement
savings, NOW and money
market accounts............... $ 219,744 3,149 2.87 $ 243,864 3,640 2.98%
Certificates of deposit ......... 730,861 19,860 5.43 776,735 20,636 5.31
---------- ------- ---------- -------
Total savings deposits..... 950,605 23,009 4.84 1,020,599 24,276 4.76
Borrowed money...................... 512,346 14,816 5.78 297,790 7,598 5.10
---------- ------- ---------- -------
Total interest-bearing
liabilities.............. 1,462,951 37,825 5.17 1,318,389 31,874 4.84
------- -------
Noninterest-bearing liabilities ....... 18,382 19,150
---------- ----------
Total liabilities ...... 1,481,333 1,337,538
Stockholders' equity ............... 127,468 125,431
---------- ----------
Total liabilities and
stockholders' equity. $1,608,801 $1,462,969
========== ==========
Net interest income ................ $22,095 $ 19,933
======= =======
Interest rate spread ............... 2.66% 2.53%
==== ====
Net interest margin ................ 2.89% 2.83%
==== ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities.............. 104.55% 106.78%
====== ======
</TABLE>
11
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion 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 six month periods ended June 30, 2000 and 1999
----------------------------------------------------------
Three months of 2000 vs. 1999 Six months of 2000 vs. 1999
-------------------------------- ------------------------------
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 ............................. $ 1,801 $ 1,886 $ 3,687 $ 4,654 $ 3,121 $ 7,775
Mortgage-backed securities ................... (12) 23 11 1,010 50 1,060
Investment securities ........................ (53) (44) (97) (609) (116) (725)
Other interest-earning assets ................ (17) 93 76 (244) 247 3
------- ------- ------- ------- ------- -------
Total interest and dividend income .. 1,719 1,958 3,677 4,811 3,302 8,113
------- ------- ------- ------- ------- -------
Interest expense:
Savings deposits:
Passbook and statement savings,
NOW, and money market accounts ......... (188) (47) (235) (350) (141) (491)
Certificates of deposit .................. (575) 517 (58) (1,237) 461 (776)
------- ------- ------- ------- ------- -------
Total savings deposits .............. (763) 470 (293) (1,587) 320 (1,267)
Borrowed money ............................... 2,546 726 3,272 6,091 1,127 7,218
------- ------- ------- ------- ------- -------
Total interest expense .............. 1,783 1,196 2,979 4,504 1,447 5,951
------- ------- ------- ------- ------- -------
Change in net interest income ....... $ (64) $ 762 $ 698 $ 307 $ 1,855 $ 2,162
======= ======= ======= ======= ======= =======
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
JUNE 30, 2000 AND 1999
NET INCOME. Net income for the second quarter of 2000 increased
$633,000, or 27.6%, to $2.9 million from $2.3 million for the second quarter of
1999. Basic and diluted earnings per share increased to $0.31 and $0.30,
respectively for the second quarter of 2000 compared to $0.24 and $0.24,
respectively, for the comparable period a year ago. Annualized return on average
equity and annualized return on average assets for the second quarter of 2000
were 9.09% and 0.72%, respectively compared to 7.29% and 0.60%, respectively for
the second quarter of 1999.
NET INTEREST INCOME. Net interest income for the second quarter of 2000
increased $699,000, or 6.7%, to $11.2 million from $10.5 million for the second
quarter of 1999. The increase was primarily the result of an increase in the
Company's interest rate spread to 2.67% for the quarter ended June 30, 2000 from
2.57% for the quarter ended June 30, 1999. The increase in the interest rate
spread was the result of a 55 basis point increase in the average yield on
interest-earning assets partially offset by a 45 basis point increase in the
average cost of interest-bearing liabilities.
12
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
INTEREST AND DIVIDEND INCOME. Total interest and dividend income
increased $3.7 million, or 13.6%, to $30.7 million for the second quarter of
2000 from $27.0 million for the second quarter of 1999. The increase resulted
from an increase in the average yield on interest-earning assets to 7.96% for
the second quarter of 2000 from 7.41% for the second quarter of 1999 and an
increase in the average balance of interest-earning assets to $1.54 billion from
$1.46 billion during the same periods.
Interest income on loans receivable increased $3.7 million, or 16.0%,
as the result of an increase in the average yield to 8.30% for the second
quarter of 2000 from 7.69% for the second quarter of 1999 and a $90.5 million
increase in the average balance of loans receivable between the comparable
periods. Loan originations grew 31%, to approximately $179 million for the
second quarter of 2000 compared to approximately $137 million for the comparable
period in 1999. Commercial real estate and construction lending totaled $139
million, or approximately 78% of total origination activity during the second
quarter of 2000 compared to $99 million, or approximately 73% during the 1999
quarter. Loan repayments totaled approximately $153 million for the second
quarter of 2000 compared to approximately $145 million for the second quarter of
1999. Loan purchases decreased to $23 million for the second quarter of 2000
compared to $58 million for the second quarter of 1999.
Combined interest income on all other interest-earning assets decreased
$10,000, or .2%, as the result of a $5.3 million decrease in the combined
average balance partially offset by an increase in the average yield to 6.25%
for the second quarter of 2000 from 6.14% % for the second quarter of 1999.
INTEREST EXPENSE. Interest expense increased $3.0 million, or 18.0%, to
$19.5 million for the second quarter of 2000 from $16.6 million for the second
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 $3.3 million mainly as the result of a
$176.9 million increase in the average balance as the Company used borrowed
money to fund asset growth and deposit outflows. Interest expense on savings
deposits decreased $293,000 as the result of a $67.9 million decrease in the
average balance for the second quarter of 2000 compared to the second quarter of
1999 partially offset by an increase in the average cost to 4.94% from 4.72%.
PROVISION FOR LOSSES ON LOANS. The Bank recorded a $325,000 provision
for losses on loans during the three months ended June 30, 2000 compared to no
provision during the three months ended June 30, 1999. The allowance for losses
on loans is maintained at a level considered adequate to absorb inherent 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. At June 30, 2000, the allowance for
losses on loans was $7.3 million, which represented .57% of net loans receivable
compared to $6.9 million, or .56% of net loans receivable at December 31, 1999.
Net loan charge-offs decreased to $8,000 for the second quarter of 2000 compared
to $17,000 for the second quarter of 1999.
13
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
At June 30, 2000, the ratio of nonaccruing loans to net loans
receivable was .59% compared to .60% at December 31, 1999. The decrease in the
ratio was due to a $55.4 million, or 4.5%, increase in net loans receivable
partially offset by a $265,000 increase in nonaccruing loans. The increase in
nonaccruing loans was primarily the result of a $498,000 increase in nonaccruing
commercial loans and a $461,000 increase in nonaccruing residential real estate
loans, partially offset by an $843,000 decrease in nonaccruing construction
loans.
NONINTEREST INCOME. Total noninterest income increased $875,000, or
116.6%, to $1.6 million for the quarter ended June 30, 2000 from $751,000 for
the quarter ended June 30, 1999. The increase was primarily the result of
increases in income from bank owned life insurance ("BOLI"), gain on sale of
loans, fees for other services to customers and servicing and other loan fees.
Income from bank owned life insurance, which is included in other noninterest
income, increased $318,000 due to the $25 million BOLI purchase during November
1999. Gain on sale of loans increased $240,000, or 121.2%, to $438,000 for the
second quarter of 2000 from $198,000 for the second quarter of 1999. Loan sales
increased to $31.1 million from $14.8 million during the same periods. Fees for
other services to customers increased $161,000, or 48.3%, primarily due to an
$80,000 increase in ATM fees, a $51,000 increase in commissions related to the
sale of brokerage products through one of the Bank's subsidiaries, and a $26,000
increase in NOW account service charges. Servicing and other fees increased
$128,000, or 74.5%, due primarily to the increase in loan activity and increased
construction lending in particular.
NONINTEREST EXPENSE. Noninterest expense increased $398,000, or 5.4%,
to $7.8 million for the quarter ended June 30, 2000 from $7.4 million for the
quarter ended June 30, 1999. The increase was primarily due to increases in
compensation and other employee benefits, occupancy expense and other
noninterest expense, partially offset by decreases in advertising expense,
legal, examination and other professional fees and federal insurance premiums.
The efficiency ratio improved to 60.66% for the quarter ended June 30, 2000 from
65.62% for the quarter ended June 30, 1999.
Compensation and employee benefits increased $553,000, or 16.2%, to
$4.0 million for the first quarter of 2000. The increase was the result of
additional personnel hired to implement the Bank's expanded retail banking
products and services, expansion into new market areas by the Bank's subsidiary
mortgage company, and normal salary increases. Occupancy expense increased
$372,000, or 46.0%, to $1.2 million, due primarily to increases in depreciation
expense as a result of additional equipment and software purchases and an
increase in leasehold expense associated with expansion into new market areas by
the Bank's subsidiary mortgage company. Other noninterest expense increased
$209,000, or 18.0%, to $1.4 million, due primarily due to increases in expenses
associated with ATMs, which the Bank expanded significantly during the second
half of 1999, and expenses associated with the Bank's new subsidiary mortgage
company. Advertising expense decreased $360,000, or 49.3%, to $370,000 for the
second quarter of 2000, due primarily to expanded advertising during the second
quarter of 1999 associated with the Bank's name change. Legal, examination and
other professional fees decreased $274,000, or 41.7%, due primarily to
approximately $200,000 of 1999 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. Federal insurance premiums
decreased $102,000, or 66.8%, to $51,000 due to a decrease in the balance of
savings deposits and a reduction in the FICO rate
14
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
from 0.0580% to 0.0212%. These industry-wide assessments are used to help pay
interest on certain obligations issued by the Financing Corporation ("FICO"), a
federal agency formed to finance takeovers of insolvent thrifts. In 1996,
Congress passed legislation assessing SAIF insured deposits for FICO payments at
a higher rate than deposits insured by the BIF. This legislation expired on
December 31, 1999 resulting in a reduction of SAIF assessments.
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 June 30, 2000 was
37.9% compared to 40.6% for the like period in 1999. The effective tax rates for
2000 and 1999 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. The decrease in the effective tax rate was primarily the result of a
decrease in the excess of market value over cost of ESOP shares amortized caused
by a 12.7 % decline in the average market value of the Company's common stock
between the respective periods and to an increase in tax exempt income from BOLI
purchased in November 1999.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND 1999
NET INCOME. Net income for the six months ended June 30, 2000 increased
22.8%, to $5.8 million from $4.7 million for the six months ended June 30, 1999.
Basic and diluted earnings per share increased to $0.61 and $0.60, respectively
for the six months ended June 30, 2000 compared to $0.50 and $0.49, respectively
for the comparable period a year ago. Annualized return on average equity and
annualized return on average assets for the six months ended June 30, 2000 were
9.10% and 0.72%, respectively compared to 7.53% and 0.65%, respectively for the
six months ended June 30, 1999.
NET INTEREST INCOME. Net interest income for the six months ended June 30,
2000 increased $2.2 million, or 10.8%, to $22.1 million from $19.9 million for
the six months ended June 30, 1999. The increase was the result of an increase
in the Company's interest rate spread to 2.66% for the six months ended June 30,
2000 from 2.53% for the six months ended June 30, 1999, partially offset by a
$22.7 million decrease in the average balance of net interest-earning assets.
The increase in the interest rate spread was primarily the result of a 47 basis
point increase in the average yield on interest-earning assets partially offset
by a 33 basis point increase in the average cost of interest-bearing
liabilities.
INTEREST AND DIVIDEND INCOME. Total interest and dividend income increased
$8.1 million, or 15.7%, to $59.9 million for the six months ended June 30, 2000
from $51.8 million for the six months ended June 30, 1999. The increase resulted
from a $121.9 million increase in the average balance of interest-earning assets
to $1.53 billion for the six months ended June 30, 2000 from $1.41 billion for
the six months ended June 30, 1999 and an increase in the average yield on
interest-earning assets to 7.83% from 7.36% during the same periods.
15
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Interest income on loans receivable increased $7.8 million, or 17.6%,
as the result of a $117.1 million increase in the average balance of loans
receivable between the comparable periods and an increase in the average yield
to 8.16% for the six months ended June 30, 2000 from 7.64% for the six months
ended June 30, 1999.
Combined interest income on all other interest-earning assets increased
$337,000, or .1%, as the result of an increase in the average yield to 6.22% for
the six months ended June 30, 2000 compared to 6.07% for the six months ended
June 30, 1999 and a $4.7 million increase in the combined average balance.
INTEREST EXPENSE. Interest expense increased $6.0 million, or 18.7%, to
$37.8 million for the six months ended June 30, 2000 from $31.9 million for the
six months ended June 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 $7.2 million as the
result of a $214.6 million increase in the average balance and an increase in
the average cost to 5.78% for the six months ended June 30, 2000 from 5.10% for
the six months ended June 30, 1999. Interest expense on savings deposits
decreased $1.3 million as the result of a $70.0 million decrease in the average
balance partially offset by an increase in the average cost to 4.84% for the six
months ended June 30, 2000 from 4.76% for the six months ended June 30, 1999.
PROVISION FOR LOSSES ON LOANS. The Bank recorded a $625,000 provision
for losses on loans during the six months ended June 30, 2000 compared to no
provision during the six months ended June 30, 1999. The allowance for losses on
loans is maintained at a level considered adequate to absorb inherent 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. Net loan charge-offs increased to
$237,000, or .02% of average loans, for the first six months of 2000 compared to
$22,000, or .002% of average loans, for the first six months of 1999. The
increase in net loan charge-offs was due primarily to a $199,000 charge-off on
eight single-family residential properties acquired through foreclosure during
the first quarter of 2000.
NONINTEREST INCOME. Total noninterest income increased $1.6 million, or
104.5%, to $3.1 million for the six months ended June 30, 2000 from $1.5 million
for the six months ended June 30, 1999. The increase was primarily the result of
increases in income from bank owned life insurance, servicing and other loan
fees, fees for other services to customers, gain on sale of loans and gain on
real estate operations. Income from bank owned life insurance, which is included
in other noninterest income, increased $633,000 due to the $25 million BOLI
purchase during November 1999. Servicing and other fees increased $359,000, or
107.2%, due primarily to the increase in loan activity and increased
construction lending in particular. Fees for other services to customers
increased $343,000, or 59.3%, primarily due to a $143,000 increase in ATM fees,
a $109,000 increase in commissions related to the sale of brokerage products
through one of the Bank's subsidiaries, and an $84,000 increase in NOW account
service charges. Gain on sale of loans increased $243,000, or 54.5%, to $688,000
for the six months ended June 30, 2000 from $445,000 for the six months ended
June 30, 1999 as the result of an increase in
16
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
loan sales to $50.1 million from $34.3 million during the same periods. Real
estate operations increased$95,000 primarily due to an $18,000 write-down on one
foreclosed property during the six months ended June 30, 2000 compared to
$171,000 in write-downs on three foreclosed properties during the six months
ended June 30, 1999.
NONINTEREST EXPENSE. Noninterest expense increased $1.8 million, or 13.0%,
to $15.2 million for the six months ended June 30, 2000 from $13.5 million for
the six months ended June 30, 1999. The increase was primarily due to increases
in compensation and employee benefits, occupancy expense and other noninterest
expense, partially offset by decreases in legal, examination and other
professional fees, advertising expense and federal insurance premiums. The
efficiency ratio improved to 60.47% for the six months ended June 30, 2000 from
62.86% for the six months ended June 30, 1999.
Compensation and employee benefits increased $1.3 million to $7.8 million
for the six months ended June 30, 2000. The increase in compensation and
employee benefits was primarily the result of additional personnel hired to
implement the Bank's expanded retail banking products and services, expansion
into new market areas by the Bank's subsidiary mortgage company, and normal
salary increases. Occupancy expense increased $651,000, to $2.2 million, due
primarily to increases in depreciation expense as a result of additional
equipment and software purchases and an increase in leasehold expense associated
with expansion into new market areas by the Bank's subsidiary mortgage company.
Other noninterest expense increased $451,000, to $2.7 million, due primarily due
to increases in expenses associated with ATMs, which the Bank expanded
significantly during the second half of 1999, and expenses associated with the
Bank's new subsidiary mortgage company. Legal, examination and other
professional fees decreased $259,000 due primarily to approximately $200,000 of
1999 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. Advertising expense decreased $221,000, to $639,000, due
primarily to expanded advertising during the second quarter of 1999 associated
with the Bank's name change. Federal insurance premiums decreased $211,000, to
$103,000, due to a decrease in the balance of savings deposits and a reduction
in the FICO rate from 0.0580% to 0.0212%.
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 six months ended June 30, 2000 was 37.9%
compared to 40.8% for the like period in 1999. The effective tax rates for 2000
and 1999 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. The decrease in the effective tax rate was primarily the result of a
decrease in the excess of market value over cost of ESOP shares amortized caused
by a 15.5 % decline in the average market value of the Company's common stock
between the respective periods and to an increase in tax exempt income from BOLI
purchased in November 1999.
17
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
NONPERFORMING ASSETS
Summarized below are nonperforming assets at June 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
(dollars in thousands)
<S> <C> <C>
Restructured loans $ 1,113 1,022
----- -----
Nonaccruing loans:
Residential real estate $ 3,770 3,308
Commercial real estate 2,618 2,506
Construction 497 1,340
Commercial 714 216
Consumer 98 75
------- ------
Total nonaccruing loans 7,697 7,445
Applicable allowance for losses (890) (903)
------ -------
Nonaccruing loans, net 6,807 6,542
----- -----
Foreclosed real estate, net 1,466 1,522
----- -----
Nonperforming assets, net $ 9,386 9,086
===== =====
Nonperforming assets, net as a
percentage of total assets 0.57% 0.57%
==== ====
</TABLE>
Total nonperforming assets increased $300,000 to $9.4 million at June
30, 2000 from $9.1 million at December 31, 1999 primarily as the result of a
$498,000 increase in nonaccruing commercial loans and a $461,000 increase in
nonaccruing residential real estate loans, partially offset by an $843,000
decrease in nonaccruing construction loans. The increase in nonaccruing
commercial loans was primarily due to a $461,000 loan secured by business
equipment in Dallas, Texas. The increase in nonaccruing residential loans was
due to an increase in the average principal balance per loan, partially offset
by a net reduction of six single-family permanent loans classified as nonaccrual
during the first six months of 2000.
At June 30, 2000, the Company had twenty-eight loans totaling $4.8
million 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>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion 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
$7.7 million and $7.4 million at June 30, 2000 and December 31, 1999,
respectively. At June 30, 2000, $2.4 million of impaired loans had specific
reserves of $890,000 and the remaining impaired loans of $5.3 million had no
specific reserves. At December 31, 1999, $3.8 million of impaired loans had
specific reserves of $1.0 million and the remaining impaired loans of $4.5
million had no specific reserves. The increase in impaired loans was primarily
due to a $251,000 increase in nonaccrual loans during the first six months of
2000.
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Six months ended June 30,
2000 1999
---- ----
<S> <C> <C>
Balance at beginning of period $ 6,937,900 6,659,294
Provision charged to expense 625,000 -
Recoveries - 344
Charge-offs (236,527) (21,754)
--------- ---------
Balance at end of period $ 7,326,373 6,637,884
========= =========
</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 June 30, 2000, 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 June 30, 2000, Jefferson
Heritage was considered well capitalized.
19
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Following are the actual and required capital amounts and ratios of
Jefferson Heritage as of June 30, 2000:
<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) $ 116,822,431 7.19% $ 24,369,741 1.50% NA
Core capital: (1) 116,822,431 7.19% 48,739,482 3.00% $ 81,232,471 5.00%
Risk-based capital: (2) 123,195,009 11.28% 87,361,970 8.00% 109,202,463 10.00%
Tier I capital: (2) 116,822,431 10.70% NA 65,521,478 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 18.21% and 19.42% at June 30, 2000 and December
31, 1999, 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 it's 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 $47.2 million during
the first six months of 2000. Cash flows from these investing activities, which
consisted primarily of $285.9 million in principal repayments on loans and
mortgage-backed securities were used primarily to fund the Company's investing
activities of originating and purchasing loans, purchasing stock in the FHLB and
purchasing investment securities during the six months ended June 30, 2000.
The Company anticipates that it will have sufficient funds available to
meet its current commitments. At June 30, 2000, the Company had commitments to
originate loans totaling $85.1 million, to purchase residential mortgages of
$1.3 million and to sell loans of $28.8 million. Certificates of deposit which
are scheduled to mature in one year or less at June 30, 2000 totaled $635.5
million. Management believes that a significant portion of such deposits will
remain with the Company.
20
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and notes thereto presented
herein have been prepared in accordance with generally accepted accounting
principles, which generally require the measurement of financial position and
operating results in terms of historical dollars without considering the changes
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the increased cost of the Company's operations.
Unlike most industrial companies, nearly all of the Company's assets
and liabilities are monetary in nature. As a result, interest rates have a
greater impact on the Company's performance than do the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction nor to the same extent as the prices of goods and services.
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. In June 2000, the FASB
issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133". SFAS No. 138
addresses a limited number of issues causing implementation difficulties for
numerous entities that apply SFAS No. 133. The Company is currently evaluating
the requirements and impact of SFAS No. 133, as amended.
21
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Quantitative and Qualitative Disclosures
About Market Risk
The Company's principal market risk continues to consist of its
exposure to changes in interest rates. The primary component of the Company's
net income is derived from the spread between interest-earning asset yields and
the cost of interest-bearing liabilities. In a changing interest rate
environment this spread can widen or narrow depending on the relative repricing
and maturities of interest-earning assets and interest-bearing liabilities. A
principal strategy of the Company has been to achieve acceptable net interest
margins while managing the sensitivity of its earnings to interest rate
fluctuations by matching more closely the cash flows and effective maturities or
repricings of its interest-sensitive assets and liabilities.
The Company's interest rate sensitivity is monitored by management
through the use of a model, which internally generates estimates of the change
in the Company's net portfolio value ("NPV") over a range of interest rate
scenarios. NPV is the present value of expected cash flows from assets,
liabilities, and off balance sheet contracts. The NPV ratio, under any interest
rate scenario, is defined as the NPV in that scenario divided by the market
value of assets in the same scenario. The OTS also produces a similar analysis
using its own model based upon data submitted on the quarterly Thrift Financial
Reports filed by the Bank. The results of the OTS model may vary from the
Company's internal model due to differences in assumptions utilized, including
loan prepayment rates, reinvestment rates and deposits decay rates. The
following table sets forth the Company's NPV under the internal model as of June
30, 2000:
<TABLE>
<CAPTION>
NPV as % of
Net portfolio value portfolio value of assets
--------------------- -------------------------
Change in interest rates Dollar Percent NPV Change (in
in basis points (rate shock) Amount change change ratio basis points)
---------------------------- ------ ------ ------ ----- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+ 300 ...................... $ 71,476 $ (57,575) (44.6%) 4.61% (335)
+ 200 ...................... 97,240 (34,811) (24.6%) 6.17% (179)
+ 100 ...................... 114,018 (15,033) (11.6%) 7.12% (83)
Static ..................... 129,051 -- -- 7.96% --
- 100 ...................... 139,059 10,008 7.7% 8.49% 53
- 200 ...................... 142,457 13,406 10.4% 8.65% 70
- 300 ...................... 136,946 7,895 6.1% 8.28% 32
</TABLE>
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV require the making of
certain assumptions, which may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this regard,
the NPV model presented assumes that the composition of the Company's interest
sensitive assets and liabilities existing at the beginning of a period remains
constant over the period being measured and also assumes that a particular
change in interest rates is reflected uniformly across the yield curve
regardless of the duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the NPV measurements provide an indication of
the Company's interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on the Company's NPV and will differ
from actual results.
22
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Quantitative and Qualitative Disclosures
About Market Risk
Income simulation analysis captures the potential and probability of
the maturity and repricing of assets and liabilities. Moreover, income
simulation analysis measures the relative sensitivities of these balance sheet
items and projects their behavior over an extended period of time. Also, income
simulation analysis permits management to assess the probable effects on balance
sheet items of interest rate changes and management strategies that address such
changes. For these reasons, the Company relies primarily upon income simulation
analysis in measuring and managing exposure to interest rate risk.
23
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable.
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 is a list of exhibits filed as part
of this Quarterly Report on Form 10-Q:
No. Description
3.1 Certificate of Incorporation *
3.2 Bylaws **
4.1 Specimen Stock Certificate ***
4.2 Rights Agreement, dated August 17, 1994,
between Jefferson Savings Bancorp, Inc. and
Boatmen's Trust Company ****
10.1 Jefferson Heritage Bank Year 2000 Bonus Plan
27 Financial Data Schedule (EDGAR only)
---------------
* Incorporated by reference from Registration Statement on Form S-1 filed
December 23, 1992 (File No. 33-56324).
** Incorporated by reference from Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999.
*** Incorporated by reference from Registration Statement on Form 8-A filed
March 30, 1993 (File No. 0-21466).
**** Incorporated by reference from Registration Statement on Form 8-A filed
August 19, 1994 (File No. 0-21466).
(b) Reports on Form 8-K. The Registrant did not file any Current
Reports on Form 8-K during the quarter ending June 30, 2000.
24
<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: August 14, 2000 /s/ Paul J. Milano
------------------------------------
Paul J. Milano
Senior Vice President and Chief Financial
Officer
(Duly Authorized Representative and
Principal Financial Officer)
25
