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, 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 October 31, 2000
----------------------------- -------------------------------
Common Stock, Par Value $.01 9,968,347 shares
1
<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 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security
Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 27
2
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 2000 1999
------ ---- ----
<S> <C> <C>
Cash $ 8,795,195 12,141,714
Interest-bearing deposits 9,596,781 9,457,864
--------------- ---------------
Cash and cash equivalents 18,391,976 21,599,578
Investment securities available for sale, at fair value
(amortized cost of $107,029,636 and $106,752,636 at
September 30, 2000 and December 31, 1999, respectively) 104,504,150 103,342,199
Mortgage-backed securities available for sale, at fair
value (amortized cost of $115,478,331 and $123,405,642
at September 30, 2000 and December 31, 1999, respectively) 111,568,266 118,447,068
Loans receivable, net 1,383,165,299 1,238,926,455
Investment in real estate, net 1,858,843 1,521,668
Stock in Federal Home Loan Bank 30,722,600 24,254,100
Bank owned life insurance 26,154,561 25,178,920
Office properties and equipment, net 15,085,541 14,212,864
Deferred tax asset 2,944,000 3,718,000
Excess cost over fair value of net assets acquired 18,745,063 20,088,429
Accrued income and other assets 15,110,812 11,645,132
--------------- ---------------
$ 1,728,251,111 1,582,934,413
=============== ===============
Liabilities and Stockholders' Equity
------------------------------------
Savings deposits $ 917,453,715 974,965,236
Borrowed money 657,044,065 468,369,843
Advance payments by borrowers for taxes and insurance 8,483,608 3,377,641
Accrued expenses and other liabilities 10,106,886 10,140,344
--------------- ---------------
Total liabilities 1,593,088,274 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 September 30, 2000 and
December 31, 1999 101,001 101,001
Additional paid-in capital 65,298,612 64,958,775
Retained earnings, subject to certain restrictions 78,168,837 71,469,492
Accumulated other comprehensive loss (3,861,551) (5,021,011)
Unamortized restricted stock awards (58,408) (65,908)
Unearned ESOP shares (2,927,342) (3,678,225)
Treasury stock, at cost: 131,765 shares and 142,286 shares
at September 30, 2000 and December 31, 1999, respectively (1,558,312) (1,682,775)
--------------- ---------------
Total stockholders' equity 135,162,837 126,081,349
--------------- ---------------
$ 1,728,251,111 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 nine months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans receivable $ 28,006,946 23,586,946 79,895,823 67,700,998
Mortgage-backed securities 1,793,087 1,937,883 5,525,780 4,610,763
Investment securities 1,648,945 1,618,321 4,933,429 5,626,923
Interest-bearing deposits and federal funds sold 78,290 64,326 219,212 613,838
Stock in Federal Home Loan Banks 500,011 313,241 1,372,640 775,366
---------- ---------- ---------- ----------
Total interest and dividend income 32,027,279 27,520,717 91,946,884 79,327,888
---------- ---------- ---------- ----------
Interest expense:
Savings deposits 12,111,196 11,428,906 35,119,777 35,705,074
Borrowed money 8,700,943 5,554,225 23,517,046 13,151,967
---------- ---------- ---------- ----------
Total interest expense 20,812,139 16,983,131 58,636,823 48,857,041
---------- ---------- ---------- ----------
Net interest income 11,215,140 10,537,586 33,310,061 30,470,847
Provision for losses on loans 260,000 -- 885,000 --
---------- ---------- ---------- ----------
Net interest income after
provision for losses on loans 10,955,140 10,537,586 32,425,061 30,470,847
---------- ---------- ---------- ----------
Noninterest income:
Servicing and other loan fees 316,238 207,898 1,010,669 542,996
Fees for other services to customers 390,713 260,992 1,312,307 839,654
Income from bank owned life insurance, net 325,788 -- 958,973 --
Gain (loss) on sales of investment securities, net -- -- (14,688) 19,985
Gain on sales of mortgage-backed securities, net -- -- -- 36,990
Gain on sales of loans and loan servicing, net 1,277,777 526,467 1,966,228 971,930
Real estate operations, net 29,861 23,021 (42,230) (144,474)
Other 313,239 108,042 564,611 376,572
---------- ---------- ---------- ----------
Total noninterest income 2,653,616 1,126,420 5,755,870 2,643,653
---------- ---------- ---------- ----------
Noninterest expense:
General and administrative:
Compensation and employee benefits 4,437,335 3,543,676 12,274,753 10,037,371
Occupancy 1,288,232 913,893 3,522,111 2,497,192
Advertising 341,943 436,732 980,470 1,296,159
Federal insurance premiums 48,441 148,590 150,982 461,812
Legal, examination, and other professional fees 620,484 342,953 1,454,422 1,436,102
Other 1,732,263 1,320,125 4,426,602 3,562,970
---------- ---------- ---------- ----------
Total general and administrative 8,468,698 6,705,969 22,809,340 19,291,606
Amortization of excess cost over fair value
of net assets acquired 447,789 447,789 1,343,367 1,345,013
---------- ---------- ---------- ----------
Total noninterest expense 8,916,487 7,153,758 24,152,707 20,636,619
---------- ---------- ---------- ----------
Income before income taxes 4,692,269 4,510,248 14,028,224 12,477,881
Income tax expense 1,794,000 1,809,000 5,333,000 5,056,000
---------- ---------- ---------- ----------
Net income $ 2,898,269 2,701,248 8,695,224 7,421,881
========== ========== ========== ==========
Earnings per share, basic $ .30 .28 .91 .78
=== === === ===
Earnings per share, diluted $ .30 .28 .90 .76
=== === === ===
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity and Comprehensive Income
Nine months ended September 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 -- -- -- 8,695,224 -- --
Other comprehensive income (loss),
net of reclassification adjustment -- -- -- -- 1,159,460 --
Total comprehensive income
Dividends paid ($.21 per share) -- -- -- (1,995,879) -- --
Release of ESOP shares in lieu of cash
dividend on allocated ESOP shares -- -- 20,921 -- -- --
Stock issued in dividend reinvestment
and stock purchase plan -- -- (6,444) -- -- --
Amortization of restricted
stock awards -- -- 12,750 -- -- 7,500
Amortization of ESOP shares -- -- 336,706 -- -- --
Stock options exercised -- -- (24,096) -- -- --
---------- ------- ---------- --------- ---------- -------
Balance at September 30, 2000 10,100,112 $ 101,001 $ 65,298,612 $ 78,168,837 $ (3,861,551) $ (58,408)
========== ======= =========== ========== =========== =======
<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 -- -- -- 8,695,224
Other comprehensive income (loss),
net of reclassification adjustment -- -- -- 1,159,460
----------
Total comprehensive income 9,854,684
Dividends paid ($.21 per share) -- -- -- (1,995,879)
Release of ESOP shares in lieu of cash
dividend on allocated ESOP shares 104,342 -- -- 125,263
Stock issued in dividend reinvestment
and stock purchase plan -- 6,993 82,727 76,283
Amortization of restricted
stock awards -- -- -- 20,250
Amortization of ESOP shares 646,541 -- -- 983,247
Stock options exercised -- 3,528 41,736 17,640
---------- -------- --------- -----------
Balance at September 30, 2000 $ (2,927,342) (131,765) $(1,558,312) $ 135,162,837
========== ======== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Nine months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,695,224 7,421,881
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,158,288 3,922,880
Provision for losses on loans 885,000 --
Net gain on sales of assets (2,131,292) (1,163,618)
Loans originated for sale (141,345,939) (37,133,809)
Loans purchased for sale -- (30,220,802)
Sale of loans originated for sale 122,417,835 71,114,267
Deferred income taxes 774,000 (2,999,253)
Stock dividend from Federal Home Loan Bank -- (53,100)
Other, net (4,445,733) 2,990,434
-------------- -------------
Net cash (used in) provided by operating activities (11,992,617) 13,878,880
-------------- -------------
Cash flows from investing activities:
Principal repayments on:
Loans receivable 409,186,402 431,150,539
Mortgage-backed securities 7,783,915 6,699,386
Proceeds from maturity of investment securities 220,000 69,150,000
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 -- 3,060,000
Cash invested in:
Loans receivable - originated (424,198,523) (379,689,268)
Loans receivable - purchased (111,684,241) (192,657,735)
Mortgage-backed securities -- (104,532,688)
Investment securities (2,492,600) (26,488,871)
Stock in Federal Home Loan Bank (6,468,500) (13,573,400)
Proceeds from sale of real estate 2,434,958 2,205,732
Other, net (2,283,871) (3,765,574)
-------------- -------------
Net cash used in investing activities (125,517,147) (198,754,755)
-------------- -------------
Cash flows from financing activities:
Decrease in savings deposits, net (57,576,071) (60,914,499)
Increase in borrowed money, net 188,674,222 241,260,029
Increase in advance payments by borrowers for taxes and insurance 5,105,967 7,873,454
Dividends paid (1,995,879) (1,983,076)
Other, net 93,923 (1,896,623)
-------------- -------------
Net cash provided by financing activities 134,302,162 184,339,285
-------------- -------------
Decrease in cash and cash equivalents (3,207,602) (536,590)
Cash and cash equivalents at beginning of period 21,599,578 18,873,687
-------------- -------------
Cash and cash equivalents at end of period $ 18,391,976 18,337,097
============== =============
Supplemental disclosures of cash flow information:
Interest paid $ 58,513,830 48,954,569
Income taxes paid 6,140,552 6,489,783
Noncash investing activities:
Additions to real estate acquired in settlement
of loans or through foreclosure 2,932,765 882,715
Loans originated to finance the sale of real estate -- 140,650
Noncash financing activity - interest credited to savings deposits 27,408,040 26,839,365
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 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 nine months ended September 30,
2000 and 1999, respectively.
Operating results for the three and nine months ended September
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 nine-month
periods ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three months ended September 30,
2000 1999
---- ----
<S> <C> <C>
Numerator:
Net income (basic and diluted earnings per share) $ 2,898,269 2,701,248
========= =========
Denominator:
Average shares outstanding (basic earnings per share) 9,589,901 9,508,096
Effect of dilutive stock options 151,297 167,780
--------- ---------
Average shares outstanding after assumed
conversions (diluted earnings per share) 9,741,198 9,675,876
========= =========
</TABLE>
7
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
---- ----
<S> <C> <C>
Numerator:
Net income (basic and diluted earnings per share) $ 8,695,224 7,421,881
========= =========
Denominator:
Average shares outstanding (basic earnings per share) 9,553,531 9,495,297
Effect of dilutive stock options 154,533 208,149
--------- ---------
Average shares outstanding after assumed
conversions (diluted earnings per share) 9,708,064 9,703,446
========= =========
</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, 2000 and 1999 is summarized as follows:
<TABLE>
<CAPTION>
Three months ended September 30,
2000 1999
---- ----
<S> <C> <C>
Net income $ 2,898,269 2,701,248
Other comprehensive income (loss):
Realized and unrealized holding gain (loss)
arising during the period, net of tax 1,855,343 (514,920)
Less: reclassification adjustment for realized
gain included in net income, net of tax -- --
--------- ---------
Total other comprehensive income (loss) 1,855,343 (514,920)
--------- ---------
Total comprehensive income $ 4,753,612 2,186,328
========= =========
<CAPTION>
Nine months ended September 30,
2000 1999
---- ----
<S> <C> <C>
Net income $ 8,695,224 7,421,881
Other comprehensive income (loss):
Realized and unrealized holding gain (loss)
arising during the period, net of tax 1,149,766 (4,190,158)
Less: reclassification adjustment for realized
gain (loss) included in net income, net of tax (9,694) 34,185
--------- -----------
Total other comprehensive income (loss) 1,159,460 (4,224,343)
--------- -----------
Total comprehensive income $ 9,854,684 3,197,538
========= ===========
</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 nine months ended
September 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.
PROPOSED MERGER
On September 30, 2000, the Company entered into an Agreement and Plan of
Reorganization (the "Merger Agreement") with Union Planters Corporation ("Union
Planters"). Union Planters is the holding company for Union Planters Bank,
National Association which is headquartered in Tennessee and operates in 11
other states. Union Planters' common stock is traded on the New York Stock
Exchange under the symbol "UPC". Subject to stockholder and regulatory
approvals, the Merger Agreement calls for the Company to be merged into a wholly
owned subsidiary of Union Planters with each share of the Company's common stock
being converted into .433 shares of Union Planters common stock. The exchange
ratio is subject to adjustment in the event the market price of Union Planters
common stock declines by more than 15% prior to closing but only if Union
Planters common stock declines by more than 20% during that period as compared
to an index group of 13 other publicly traded bank holding companies. In
connection with the Merger Agreement, the Company has granted Union Planters the
right to purchase up to 1,983,274 shares of the Company's common stock (equal to
19.9% of outstanding shares prior to exercise) for a purchase price of $10.8125
per share. The option is only exercisable upon the occurrence of certain events
that generally involve the acquisition or attempted acquisition of the Company
or 25% or more of its outstanding stock or consolidated assets by a third party.
The Company expects to present the Merger Agreement for approval at a special
meeting of the Company's stockholders during the first quarter of next year.
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.
9
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The Company's total assets increased $145.3 million, or 9.2%, to $1.73
billion at September 30, 2000 from $1.58 billion at December 31, 1999. Loans
receivable increased $144.2 million, or 11.6%, to $1.38 billion at September 30,
2000 from $1.24 billion at December 31, 1999. Loan origination activity in the
first nine months of 2000 totaled $565.5 million compared to $416.8 million for
the first nine months of 1999. Commercial real estate and construction loan
originations totaled $380 million, or approximately 67% of total origination
activity during the nine months ended September 30, 2000 compared to $295
million, or approximately 71% during the nine months ended September 30, 1999.
Loan purchases totaled $111.7 million for the first nine months of 2000 compared
to $222.9 million for 1999. Principal repayments totaled $409.2 million for the
first nine months of 2000 compared to $431.2 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 nine months of 2000 because of the high level of lending volume.
Mortgage-backed securities decreased $6.9 million, or 5.8%, to $111.6 million at
September 30, 2000 from $118.4 million at December 31, 1999. Investment
securities increased $1.2 million, or 1.1%, to $104.5 million at September 30,
2000 from $103.3 million at December 31, 1999.
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 $188.7
million, or 40.3%, to $657.0 million at September 30, 2000 from $468.4 million
at December 31, 1999. Savings deposits decreased $57.5 million, or 5.9%, to
$917.5 million at September 30, 2000 from $975.0 million at December 31, 1999.
The decrease was primarily in certificates of deposit.
Stockholders' equity increased $9.1 million, or 7.2%, to $135.2 million
at September 30, 2000 from $126.1 million at December 31, 1999. Contributing to
the growth in stockholders' equity was net income of $8.7 million and a $1.2
million decrease, net of tax, in unrealized holding losses on available-for-sale
investments, partially offset by the payment of $2.0 million in dividends on the
Company's common stock. The ratio of stockholders' equity to assets decreased to
7.82% at September 30, 2000 compared to 7.97% at December 31, 1999 as the result
of a 9.2% growth in assets, partially offset by a 7.2% growth in equity. The
Company's book value per share at September 30, 2000 was $14.07 compared to
$13.28 at December 31, 1999 and tangible book value per share was $12.11 at
September 30, 2000 compared to $11.16 at December 31, 1999. Unearned ESOP shares
of 358,937 and 458,575 were excluded in calculating book value per share at
September 30, 2000 and December 31, 1999, respectively. There were 9,968,347
common shares outstanding at September 30, 2000.
10
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
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 the periods indicated, nonaccrual loans are included in loans
receivable.
11
<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 September 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 ....................... $1,322,381 $28,007 8.47% $1,238,263 $23,587 7.62%
Mortgage-backed securities ............. 117,275 1,793 6.12 126,669 1,938 6.12
Investment securities .................. 107,080 1,649 6.16 106,458 1,618 6.08
Other interest-earning assets .......... 32,965 578 7.01 22,019 378 6.87
--------- ------ --------- ------
Total interest-earning
assets....................... 1,579,701 32,027 8.11 1,493,409 27,521 7.36
Noninterest-earning assets................. 78,984 ------ 54,424 ------
--------- ---------
Total assets .................. $1,658,685 $1,547,833
========= =========
Interest-bearing liabilities:
Savings deposits:
Passbook and statement savings,
NOW and money market accounts..... $ 218,531 1,650 3.02 $ 239,382 1,674 2.80
Certificates of deposit ............. 716,879 10,461 5.84 745,317 9,755 5.24
--------- ------ --------- ------
Total savings deposits......... 935,410 12,111 5.18 984,699 11,429 4.64
Borrowed money.......................... 567,947 8,701 6.13 416,096 5,554 5.34
--------- ------ --------- ------
Total interest-bearing
liabilities.................. 1,503,357 20,812 5.54 1,400,795 16,983 4.84
------ ------
Noninterest-bearing liabilities ........... 22,484 22,499
--------- ---------
Total liabilities ............. 1,525,841 1,423,294
Stockholders' equity ...................... 132,844 124,539
--------- ---------
Total liabilities and
stockholders' equity........ $1,658,685 $1,547,833
========= =========
Net interest income ....................... $11,215 $10,538
====== ======
Interest rate spread ...................... 2.57% 2.52%
==== ====
Net interest margin ....................... 2.84% 2.82%
==== ====
Ratio of average interest-earning
assets to average interest-
bearing iabilities...................... 105.08% 106.61%
====== ======
<PAGE>
<CAPTION>
Nine-month period ended September 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 ........................ $1,288,440 $79,896 8.27% $1,182,500 $67,701 7.63%
Mortgage-backed securities .............. 119,966 5,526 6.14 101,352 4,611 6.07
Investment securities ................... 106,841 4,933 6.16 119,766 5,627 6.26
Other interest-earning assets ........... 31,160 1,592 6.81 32,980 1,389 5.62
--------- ------ --------- ------
Total interest-earning
assets........................ 1,546,407 91,947 7.93 1,436,598 79,328 7.36
------ ------
Noninterest-earning assets.................. 79,143 54,970
--------- ---------
Total assets ................... $1,625,550 $1,491,568
========= =========
Interest-bearing liabilities:
Savings deposits:
Passbook and statement savings,
NOW and money market accounts...... $ 219,337 4,799 2.92 $ 242,353 5,314 2.92
Certificates of deposit .............. 726,166 30,321 5.57 766,147 30,391 5.29
--------- ------ --------- ------
Total savings deposits.......... 945,503 35,120 4.95 1,008,500 35,705 4.72
Borrowed money........................... 531,015 23,517 5.90 337,659 13,152 5.19
--------- ------ --------- ------
Total interest-bearing
liabilities.................. 1,476,518 58,637 5.30 1,346,159 48,857 4.84
------ ------
Noninterest-bearing liabilities ............ 19,759 20,279
--------- ---------
Total liabilities .............. 1,496,277 1,366,438
Stockholders' equity ....................... 129,273 125,130
--------- ---------
Total liabilities and
stockholders' equity......... $1,625,550 $1,491,568
========= =========
Net interest income ........................ $33,310 $30,471
====== ======
Interest rate spread ....................... 2.63% 2.52%
==== ====
Net interest margin ........................ 2.87% 2.83%
==== ====
Ratio of average interest-earning
assets to average interest-bearing
liabilities.............................. 104.73% 106.72%
====== ======
</TABLE>
12
<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 nine-month periods ended September 30, 2000 and 1999
-----------------------------------------------------------------
Three months of 2000 vs. 1999 Nine months of 2000 vs. 1999
-------------------------------- ------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------- --------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Loans receivable ............................. $ 1,673 $ 2,748 $ 4,421 $ 6,298 $ 5,897 $ 12,195
Mortgage-backed securities ................... (145) -- (145) 861 54 915
Investment securities ........................ 9 22 31 (604) (90) (694)
Other interest-earning assets ................ 192 8 200 (80) 283 203
------- ------ ------- ------- ------- --------
Total interest and dividend income .. 1,729 2,778 4,507 6,475 6,144 12,619
------- ------ ------- ------- ------- --------
Interest expense:
Savings deposits:
Passbook and statement savings,
NOW, and money market accounts ......... (151) 127 (24) (515) -- (515)
Certificates of deposit .................. (383) 1,089 706 (1,632) 1,562 (70)
------- ------- ------- ------- ------- --------
Total savings deposits .............. (534) 1,216 682 (2,147) 1,562 (585)
Borrowed money ............................... 2,239 908 3,147 8,366 1,999 10,365
------- ------- ------- ------- ------- --------
Total interest expense .............. 1,705 2,124 3,829 6,219 3,561 9,780
------- ------- ------- ------- ------- --------
Change in net interest income ....... $ 24 $ 654 $ 678 $ 256 $ 2,583 $ 2,839
======= ======= ======= ======= ======= ========
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBE7 30, 2000
AND 1999
NET INCOME. Net income for the third quarter of 2000 increased
$197,000, or 7.3%, to $2.9 million from $2.7 million for the third quarter of
1999. Basic and diluted earnings per share increased to $0.30 for the third
quarter of 2000 compared to $0.28 for the comparable period a year ago.
Annualized return on average equity and annualized return on average assets for
the third quarter of 2000 were 8.73% and 0.70%, respectively, compared to 8.68%
and 0.70%, respectively, for the third quarter of 1999.
NET INTEREST INCOME. Net interest income for the third quarter of 2000
increased $678,000, or 6.4%, to $11.2 million from $10.5 million for the third
quarter of 1999. The increase was primarily the result of an increase in the
Company's interest rate spread to 2.57% for the quarter ended September 30, 2000
from 2.52% for the quarter ended September 30, 1999. The increase in the
interest rate spread was the result of a 74 basis point increase in the average
yield on interest-earning assets partially offset by a 69 basis point increase
in the average cost of interest-bearing liabilities.
INTEREST AND DIVIDEND INCOME. Total interest and dividend income
increased $4.5 million, or 16.4%, to $32.0 million for the third quarter of 2000
from $27.5 million for the third quarter of 1999. The increase resulted from an
increase in the average yield on interest-earning assets to 8.11% for the
13
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
third quarter of 2000 from 7.37% for the third quarter of 1999 and an increase
in the average balance of interest-earning assets to $1.58 billion from $1.49
billion during the same periods.
Interest income on loans receivable increased $4.4 million, or 18.7%,
as the result of an increase in the average yield to 8.47% for the third quarter
of 2000 from 7.62% for the third quarter of 1999 and a $84.1 million increase in
the average balance of loans receivable between the comparable periods. The
increase in the average yield was the result of the impact of higher interest
rates on the Bank's adjustable rate loans and a shift in the composition of the
loan portfolio to higher yielding commercial real estate and construction loans.
At September 30, 2000 commercial real estate and construction loans represented
35.7% of total loans compared to 23.5% at September 30, 1999. Loan originations
grew 38%, to approximately $212 million for the third quarter of 2000 compared
to approximately $154 million for the comparable period in 1999. The majority of
this growth was in single-family residential lending fueled by the Bank's
subsidiary mortgage company offices. Commercial real estate and construction
lending totaled $113 million, or approximately 53% of total origination activity
during the third quarter of 2000 compared to $106 million, or approximately 69%
during the 1999 quarter. Loan repayments totaled approximately $128 million for
the third quarter of 2000 compared to approximately $143 million for the third
quarter of 1999. Loan purchases increased to $77 million for the third quarter
of 2000 compared to $66 million for the third quarter of 1999.
Combined interest income on all other interest-earning assets increased
$87,000, or 2.2%, as the result of an increase in the average yield to 6.25% for
the third quarter of 2000 from 6.17% for the third quarter of 1999 and a $2.2
million increase in the combined average balance.
INTEREST EXPENSE. Interest expense increased $3.8 million, or 22.5%, to
$20.8 million for the third quarter of 2000 from $17.0 million for the third
quarter of 1999. Interest expense on borrowed money increased $3.1 million as
the result of a $151.9 million increase in the average balance for the third
quarter of 2000 compared to the third quarter of 1999 as the Company used
borrowed money to fund asset growth and deposit outflows and by an increase in
the average cost to 6.13% from 5.34% during the same periods. Interest expense
on savings deposits increased $682,000 as the result of an increase in the
average cost to 5.18% for the third quarter of 2000 from 4.64% for the third
quarter of 1999, partially offset by a $49.3 million decrease in the average
balance during the same periods. The increase in the average cost of borrowed
money and savings deposits is primarily the result of higher market interest
rates.
PROVISION FOR LOSSES ON LOANS. The Bank recorded a $260,000 provision
for losses on loans during the three months ended September 30, 2000 compared to
no provision during the three months ended September 30, 1999. The allowance for
losses on loans is maintained at a level considered adequate to absorb probable
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 September 30, 2000, the allowance
for losses on loans was $7.4 million, which represented .54% of net loans
receivable compared to $6.9 million, or .56% of net loans receivable at December
31, 1999. Net loan charge-offs were $156,000 for the third quarter of 2000
compared to $5,000 for the third quarter of 1999.
14
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
At September 30, 2000, the ratio of nonaccruing loans to net loans
receivable was .81% compared to .60% at December 31, 1999. The increase in the
ratio was due to a $3.8 million increase in nonaccruing loans, partially offset
by a $144.2 million, or 11.6%, increase in net loans receivable. The increase in
nonaccruing loans was primarily the result of a $2.5 million increase in
nonaccruing residential real estate loans, a $934,000 increase in nonaccruing
construction loans and a $357,000 increase in nonaccruing commercial real estate
loans.
NONINTEREST INCOME. Total noninterest income increased $1.5 million, or
135.6%, to $2.7 million for the three months ended September 30, 2000 from $1.1
million for 1999. The increase was primarily the result of increases in gain on
sale of loans and loan servicing, income from bank owned life insurance
("BOLI"), other noninterest income, fees for other services to customers, and
servicing and other loan fees. Gain on sale of loans and loan servicing
increased $751,000, or 142.7%, due to a $681,000 gain from the sale of loan
servicing and a $70,000 increase in gain on sale of loans to $597,000 for the
third quarter of 2000 from $526,000 for 1999. Loans sold during the third
quarter of 2000 were $71.1 million compared to $36.9 million during 1999. The
Bank purchased $25 million in bank owned life insurance in the fourth quarter of
1999, which contributed an additional $326,000 to noninterest income. Other
noninterest income increased $205,000, or 189.9%, primarily due to a $166,000
gain on sale of an office property. Fees for other services to customers
increased $130,000, or 49.7%, due primarily to a $69,000 increase in ATM fees
and a $78,000 increase in NOW account fees, partially offset by a $23,000
decrease in commissions related to the sale of brokerage products through one of
the Bank's subsidiaries. Servicing and other loan fees increased $108,000, or
52.1%, due primarily to a $56,000 increase in loan inspection fees, a $28,000
increase in brokered loan fees and a $26,000 increase in loan extension fees.
NONINTEREST EXPENSE. Noninterest expense increased $1.8 million, or
24.6%, for the third quarter of 2000 compared to 1999. The increase was
primarily due to increases in compensation and other employee benefits, other
noninterest expense, occupancy expense, and legal, examination and other
professional fees, partially offset by decreases in federal insurance premiums
and advertising expense. The efficiency ratio increased to 64.29% for the
quarter ended September 30, 2000 from 61.33% for the quarter ended September 30,
1999. The ratio of noninterest expense to average assets increased to 2.15% for
the third quarter of 2000 compared to 1.85% for 1999.
Compensation and employee benefit expense increased $894,000, or 25.2%,
to $4.4 million during the third quarter of 2000 from $3.5 million during 1999.
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.
Other noninterest expense increased $412,000, or 31.2%, to $1.7 million for the
three months ended September 30, 2000 from $1.3 million for 1999, due primarily
to an increase in expenses related to the annual shareholders meeting which was
held in the third quarter rather than the second quarter, a loss from theft,
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. Occupancy expense increased $374,000, or
41.0%, to $1.3 million for the third quarter of 2000 from $914,000 for 1999,
primarily as a result of additional equipment and software purchases and an
increase in leasehold expense associated with the new corporate operations
center and expansion into new market areas by the Bank's subsidiary mortgage
company. Legal, examination, and other professional fees increased $278,000, or
80.9%, resulting mainly from a $264,000 payment for investment banking services
related to the Company's proposed merger with Union Planters Corporation.
Federal insurance premiums decreased $100,000, or 67.4%, to $48,000 for the
three months ended September 30, 2000
15
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
from $149,000 for 1999, due to a decrease in the balance of savings deposits and
a reduction in the SAIF FICO assessment rate to 0.0212% from 0.0580%.
Advertising expense decreased $95,000, or 21.7%, to $342,000 for the three
months ended September 2000 from $437,000 for 1999, due primarily to expenses
incurred during 1999 associated with the Bank's name change.
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, 2000 was 38.2% compared to 40.1% 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 7.0% decline in the average market value of the Company's
common stock between the respective periods and an increase in tax exempt income
from a BOLI purchased in November 1999.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
1999
NET INCOME. Net income for the nine months ended September 30, 2000
increased 17.2%, to $8.7 million from $7.4 million for the nine months ended
September 30, 1999. Basic and diluted earnings per share increased to $0.91 and
$0.90, respectively, for the nine months ended September 30, 2000 compared to
$0.78 and $0.76, 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, 2000 increased to 8.97% and 0.71%, respectively,
compared to 7.91% and 0.66%, respectively, for the nine months ended September
30, 1999.
NET INTEREST INCOME. Net interest income for the nine months ended
September 30, 2000 increased $2.8 million, or 9.3%, to $33.3 million from $30.5
million for the nine months ended September 30, 1999. The increase was the
result of an increase in the Company's interest rate spread to 2.63% for the
nine months ended September 30, 2000 from 2.52% for the nine months ended
September 30, 1999, partially offset by a $20.6 million decrease in the average
balance of net interest-earning assets. The increase in the interest rate spread
was primarily the result of a 57 basis point increase in the average yield on
interest-earning assets partially offset by a 46 basis point increase in the
average cost of interest-bearing liabilities.
INTEREST AND DIVIDEND INCOME. Total interest and dividend income
increased $12.6 million, or 15.9%, to $91.9 million for the nine months ended
September 30, 2000 from $79.3 million for the nine months ended September 30,
1999. The increase resulted from a $109.8 million increase in the average
balance of interest-earning assets to $1.55 billion for the nine months ended
September 30, 2000 from $1.44 billion for the nine months ended September 30,
1999 and an increase in the average yield on interest-earning assets to 7.93%
from 7.36% during the same periods.
16
<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 $12.2 million, or 18.0%,
as the result of a $105.9 million increase in the average balance of loans
receivable between the comparable periods and an increase in the average yield
to 8.27% for the nine months ended September 30, 2000 from 7.63% for the nine
months ended September 30, 1999. The increase in the average yield was the
result of the impact of higher interest rates on the Bank's adjustable rate
loans and a shift in the composition of the loan portfolio to higher yielding
commercial real estate and construction loans. At September 30, 2000 commercial
real estate and construction loans represented 35.7% of total loans compared to
23.5% at September 30, 1999.
Combined interest income on all other interest-earning assets increased
$424,000, or 3.6%, as the result of an increase in the average yield to 6.23%
for the nine months ended September 30, 2000 compared to 6.10% for the nine
months ended September 30, 1999 and a $3.9 million increase in the combined
average balance.
INTEREST EXPENSE. Interest expense increased $9.8 million, or 20.0%, to
$58.6 million for the nine months ended September 30, 2000 from $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 $11.4 million as
the result of a $193.4 million increase in the average balance and an increase
in the average cost to 5.90% for the nine months ended September 30, 2000 from
5.19% for the nine months ended September 30, 1999. Interest expense on savings
deposits decreased $585,000 as the result of a $63.0 million decrease in the
average balance, partially offset by an increase in the average cost to 4.95%
for the nine months ended September 30, 2000 from 4.72% for the nine months
ended September 30, 1999. The increase in the average cost of borrowed money and
savings deposits is primarily the result of higher market interest rates.
PROVISION FOR LOSSES ON LOANS. The Bank recorded a $885,000 provision
for losses on loans during the nine months ended September 30, 2000 compared to
no provision during the nine months ended September 30, 1999. The allowance for
losses on loans is maintained at a level considered adequate to absorb probable
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
$393,000, or .03% of average loans, for the first nine months of 2000 compared
to $27,000, or .002% of average loans, for the first nine months of 1999. The
increase in net loan charge-offs was due primarily to a $237,000 charge-off on
ten single-family residential properties acquired through foreclosure during the
first nine months of 2000.
NONINTEREST INCOME. Total noninterest income increased $3.1 million, or
117.7%, to $5.8 million for the nine months ended September 30, 2000 from $2.6
million for 1999. The increase was primarily the result of increases in gain on
sale of loans and loan servicing, income from bank owned life insurance, fees
for other services to customers, servicing and other loan fees, other
noninterest income, and gain on real estate operations. Gain on sale of loans
and loan servicing increased $994,000, or 102.3%, to $2.0 million for the first
nine months of 2000 from $972,000 for 1999 due to a $681,000 gain from the sale
of loan servicing and a $313,000 increase in gain on sale of loans. Loans sold
during
17
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
the first nine months of 2000 were $122.4 million compared to $71.1
million during 1999. Income from bank owned life insurance, which is included in
other noninterest income, increased $959,000 due to the purchase of $25.0
million of BOLI during the fourth quarter of 1999. Fees for other services to
customers increased $473,000, or 56.3%, primarily due to a $212,000 increase in
ATM fees, a $162,000 increase in NOW account fees, and an $87,000 increase in
commissions related to the sale of brokerage products through one of the Bank's
subsidiaries. Servicing and other loan fees increased $468,000, or 86.1%, due
primarily to an increase in loan activity and increased construction lending in
particular. Other noninterest income increased $188,000, or 49.9%, primarily due
to a $166,000 gain on sale of an office property. Real estate operations
increased $102,000, or 70.8%. The 2000 activity includes an $18,000 write-down
on a foreclosed property and $19,000 net gains on the sales of twenty-two
foreclosed properties. The 1999 activity includes $181,000 in write-downs on
four foreclosed properties and $102,000 in net gains on the sales of fifteen
foreclosed properties.
NONINTEREST EXPENSE. Noninterest expense increased $3.5 million, or
17.0%, to $24.2 million for the nine months ended September 30, 2000 from $20.6
million for the nine months ended September 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 advertising expense
and federal insurance premiums. The efficiency ratio improved to 61.83% for the
nine months ended September 30, 2000 from 62.32% for the nine months ended
September 30, 1999.
Compensation and employee benefits increased $2.2 million to $12.3
million for the nine months ended September 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 $1.0 million,
to $3.5 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 the new corporate operations center and expansion into
new market areas by the Bank's subsidiary mortgage company. Other noninterest
expense increased $864,000, to $4.4 million, due primarily due to an increase in
expenses associated with ATMs, which the Bank expanded significantly during the
second half of 1999, an increase in appraisal and other loan expense related to
the increased loan volume, and increases in expenses related to the operation of
additional mortgage company offices. Advertising expense decreased $316,000, to
$980,000, due primarily to expanded advertising during the second quarter of
1999 associated with the Bank's name change. Federal insurance premiums
decreased $311,000, to $151,000, due to a decrease in the balance of savings
deposits and a reduction in the SAIF FICO assessment 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 nine months ended September
30, 2000 was 38.0% compared to 40.5% 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
18
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
12.8% decline in the average market value of the Company's common stock between
the respective periods and an increase in tax exempt income from a BOLI
purchased in November 1999.
NONPERFORMING ASSETS
Summarized below are nonperforming assets at September 30, 2000 and December 31,
1999
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(Dollars in thousands)
<S> <C> <C>
Restructured loans $ 1,061 1,022
------- ------
Nonaccruing loans:
Residential real estate $ 5,795 3,308
Commercial real estate 2,863 2,506
Construction 2,273 1,340
Commercial 205 216
Consumer 65 75
------- ------
Total nonaccruing loans 11,201 7,445
Applicable allowance for losses (797) (903)
------- ------
Nonaccruing loans, net 10,404 6,542
------- ------
Foreclosed real estate, net 1,859 1,522
------- ------
Nonperforming assets, net $13,324 9,086
======= ======
Nonperforming assets, net as a
percentage of total assets 0.77% 0.57%
==== ====
</TABLE>
Total nonperforming assets increased $4.2 million to $13.3 million at
September 30, 2000 from $9.1 million at December 31, 1999 primarily as the
result of a $2.5 million increase in nonaccruing residential real estate loans,
a $934,000 increase in nonaccruing construction loans, a $357,000 increase in
nonaccruing commercial real estate loans and a $337,000 increase in foreclosed
assets. The increase in nonaccruing residential loans was due to a net increase
of eighteen single-family permanent loans classified as nonaccrual during the
first nine months of 2000 and by a 31.1% increase in the average principal
balance per loan. The increase in nonaccruing construction loans was primarily
due to a net increase of three construction loans classified as nonaccrual
during the first nine months of 2000 and by a 27.3% increase in the average
principal balance per loan. The increase in nonaccruing commercial real estate
loans was primarily due to a net increase of five commercial real estate loans
classified as nonaccrual during the first nine months of 2000, partially offset
by a 49.2% decrease in the average principal balance per loan. The increase in
foreclosed assets was primarily due to a net increase of nine properties
acquired through foreclosure during the first nine months of 2000.
At September 30, 2000, the Company had ten loans totaling $2.2 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
19
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
more than 90 days past due or at such time when management concludes that
payment in full is not likely, whichever is sooner. Any subsequent interest
payments received are recorded as interest income in the period received.
Impaired loans, which are represented by loans on nonaccrual status and
loans where management believes it is probable that they will be unable to
collect principal and interest under the contractual terms of the loans, were
$14.9 million and $8.4 million at September 30, 2000 and December 31, 1999,
respectively. At September 30, 2000, $6.0 million of impaired loans had specific
reserves of $915,000 and the remaining impaired loans of $8.9 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 $3.8 million increase in nonaccrual loans during the first nine months
of 2000.
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
---- ----
<S> <C> <C>
Balance at beginning of period $ 6,937,900 6,659,294
Provision charged to expense 885,000 --
Recoveries 1,192 344
Charge-offs (393,738) (27,107)
--------- ---------
Balance at end of period $ 7,430,354 6,632,531
========= =========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has no business other than that of 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, 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 September 30, 2000,
Jefferson Heritage was considered well capitalized.
20
<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 September 30, 2000:
<TABLE>
<CAPTION>
Prompt corrective
action requirements -
Actual Requirements well capitalized
-------- -------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <S> <S>
Tangible capital: (1) $ 120,526,935 7.02% $ 25,739,296 1.50% NA
Core capital: (1) 120,526,935 7.02% 51,478,592 3.00% $ 85,797,654 5.00%
Risk-based capital: (2) 126,898,527 10.83% 93,717,218 8.00% 117,146,522 10.00%
Tier I capital: (2) 120,526,935 10.29% NA 70,287,913 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 14.13% and 19.42% at September 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 $125.5 million during
the first nine months of 2000. Cash flows from these investing activities, which
consisted primarily of $417.0 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 nine months ended September 30,
2000.
The Company anticipates that it will have sufficient funds available to
meet its current commitments. At September 30, 2000, the Company had commitments
to originate loans totaling $95.7 million, to purchase residential mortgages of
$4.0 million and to sell loans of $60.0 million. Certificates of deposit which
are scheduled to mature in one year or less at September 30, 2000 totaled $557.1
million. Management believes that a significant portion of such deposits will
remain with the Company.
21
<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 adoption of SFAS No. 133, as
amended, is not expected to have a material impact on the Company's consolidated
financial statements.
22
<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
September 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 ...................... $ 69,158 $ (56,841) (45.1%) 4.22% (314)
+ 200 ...................... 95,370 (30,629) (24.3%) 5.72% (164)
+ 100 ...................... 112,432 (13,567) (10.8%) 6.65% (71)
Static ..................... 125,999 -- -- 7.36% --
- 100 ...................... 134,113 8,114 6.4% 7.78% 42
- 200 ...................... 132,359 6,360 5.1% 7.64% 28
- 300 ...................... 124,102 (1,897) (1.5%) 7.13% (23)
</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.
Income simulation analysis captures the potential and probability of
the maturity and repricing of
23
<PAGE>
JEFFERSON SAVINGS BANCORP, INC.
AND SUBSIDIARY
Quantitative and Qualitative Disclosures
About Market Risk
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.
24
<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
---------------------------------------------------
On July 17, 2000, the Company held its Annual Meeting of
Stockholders at which the following matters were voted on:
Proposal I - Election of Directors
---------------------
Nominee For Withheld
------- --- --------
William W. Canfield 8,246,900 656,570
Edward G. Throop 8,243,255 660,215
There were no abstentions or broker nonvotes.
The terms of office of Directors David V. McCay, Lloyd D.
Doerflinger, Gary L. Holland, Brad Barkau and Forrest W.
Miller, continued after the Annual Meeting.
Proposal II - Ratification of Appointment of Auditors
---------------------------------------
For the ratification of KPMG LLP as independent auditors for
the year ending December 31, 2000:
For Against Abstain
--- ------- -------
8,606,464 240,850 56,156
In addition, there were no broker nonvotes.
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
--- -----------
2 Agreement and Plan of Reorganization dated September
20, 2000 between Jefferson Savings Bancorp, Inc. and
Union Planters Corporation *
3.1 Certificate of Incorporation **
25
<PAGE>
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)
99 Stock Option Agreement dated September 20, 2000
between Jefferson Savings Bancorp, Inc. and
Union Planters Corporation ******
* Incorporated by reference from Current Report on Form 8-K filed September
22, 2000.
** 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).
****** Incorporated by reference from Quarterly Report on Form 10-Q for the
Quarter ended June 30, 2000.
(b) Reports on Form 8-K. On September 22, 2000, the Company
filed a Current Report on Form 8-K reporting under Item 5
that it entered into an Agreement and Plan of Reorganization
on September 20, 2000, pursuant to which the Company will be
merged with and into Union Planters Holdings Corporation, a
wholly-owned subsidiary of Union Planters Corporation
organized under the laws of the State of Tennessee.
26
<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 10, 2000 Paul J. Milano
------------------------------------------
Paul J. Milano
Senior Vice President and Chief Financial
Officer
(Duly Authorized Representative and
Principal Financial Officer)
27
