FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-9101
JEFFERSON BANKSHARES, INC.
Incorporated in the I.R.S. Employer ID No.
State of Virginia 54-1104491
123 East Main Street
Post Office Box 711
Charlottesville, Virginia 22902
Telephone (804) 972-1100
Indicate by a 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 and
(2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
As of April 30, 1995, Registrant has 15,172,853 shares of its
$2.50 par value common stock issued and outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Jefferson Bankshares, Inc. and Subsidiaries
Consolidated Balance Sheets
($ in thousands)
March 31 Dec. 31
1995 1994 1994
ASSETS
Cash and due from banks............................... $ 95,455 $ 108,921 $ 100,809
Federal funds sold and other money market investments. 30,000 10,659 -
Investment securities:
Available for sale (cost on March 31 of $173,692 172,026 197,677 170,815
in 1995 and $195,782 in 1994 and $176,493
on December 31, 1994)
Held to maturity (fair value on March 31 455,895 510,706 467,733
of $450,390 in 1995 and $514,321 in 1994,
and $455,080 on December 31, 1994)
Total Investment Securities........................... 627,921 708,383 638,548
Loans................................................. 1,136,194 1,037,181 1,101,636
Less: Unearned income................................. (218) (227) (136)
Allowance for loan losses....................... (14,027) (14,031) (13,754)
Net loans............................................. 1,121,949 1,022,923 1,087,746
Premises and equipment................................ 50,795 49,403 51,185
Other assets.......................................... 44,814 46,070 47,662
Total Assets.......................................... $1,970,934 $1,946,359 $1,925,950
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand................................................ $ 257,752 $ 247,086 $ 271,447
Interest-bearing transaction accounts................. 785,244 868,690 831,855
Certificates of deposit $100,000 and over............. 84,481 69,478 72,511
Other time............................................ 585,689 531,787 513,059
Total deposits........................................ 1,713,166 1,717,041 1,688,872
Federal funds purchased and
securities sold under repurchase agreements......... 13,859 11,869 16,479
Other short-term borrowings........................... 15,000 285 -
Other liabilities..................................... 17,063 15,268 14,027
Long-term debt........................................ 18 983 19
Total liabilities..................................... 1,759,106 1,745,446 1,719,397
Shareholders' Equity:
Preferred stock of $10.00 par value. Authorized
1,000,000 shares; issued none......................... - - -
Common stock of $2.50 par value. Authorized 32,000,000
shares; issued and outstanding 15,170,250 shares
March 31, 1995; and 15,113,062 shares March
31, 1994; and 15,170,250 shares December 31, 1994. 37,926 37,782 37,926
Capital surplus....................................... 46,332 44,495 46,332
Retained earnings..................................... 128,653 117,404 125,986
Unrealized gains (losses) on securities
available for sale, net............................ (1,083) 1,232 (3,691)
Total shareholders' equity ........................... 211,828 200,913 206,553
Total Liabilities and Shareholders' Equity............ $1,970,934 $1,946,359 $1,925,950
See accompanying notes to consolidated financial statements.
Jefferson Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands except per share data)
Three months ended
March 31
1995 1994
INTEREST INCOME
Interest and fees on loans .................. $24,582 $19,315
Income on investment securities:
Available for sale........................ 2,662 3,360
Held to maturity.......................... 7,172 8,136
Other interest income........................ 104 140
Total interest income................... 34,520 30,951
INTEREST EXPENSE
Interest-bearing transaction accounts........ 5,787 5,250
Certificates of deposit $100,000 and over.... 916 677
Other time deposits.......................... 5,886 5,016
Short-term borrowings........................ 331 119
Long-term debt............................... 1 17
Total interest expense.................. 12,921 11,079
NET INTEREST INCOME.......................... 21,599 19,872
PROVISION FOR LOAN LOSSES.................... 480 475
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES........................... 21,119 19,397
NON-INTEREST INCOME
Trust income................................. 1,125 1,100
Service charges on deposit accounts.......... 2,202 2,071
Investment securities losses ................ (103) -
Mortgage loan sales income................... 30 343
Other income................................. 730 720
Total non-interest income............... 3,984 4,234
NON-INTEREST EXPENSE
Salaries and employee benefits............... 9,738 9,207
Occupancy expense, net....................... 1,260 1,304
Equipment expense............................ 1,489 1,402
F.D.I.C. assessments......................... 937 932
Other expense................................ 3,317 3,096
Total non-interest expense.............. 16,741 15,941
INCOME BEFORE INCOME TAXES................... 8,362 7,690
Provision for income taxes................... 2,812 2,559
NET INCOME................................... $ 5,550 $ 5,131
NET INCOME PER COMMON SHARE.................. 0.37 0.34
AVERAGE SHARES OUTSTANDING................... 15,170 15,102
See accompanying notes to consolidated financial statements.
Jefferson Bankshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
($ in thousands)
Three months ended
March 31
1995 1994
Cash flows from operating activities:
Net income.......................................... $ 5,550 $ 5,131
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization....................... 1,638 1,536
Accretion and amortization.......................... 1,116 1,331
Provision for loan losses........................... 480 475
Investment securities losses, net................... 103 -
Gain on sale of premises and equipment.............. (3) (9)
(Increase) decrease in interest receivable.......... 728 (770)
Increase in interest payable........................ 727 329
Decrease in loans held for resale, net.............. 606 2,735
Other, net.......................................... 1,430 1,155
Total adjustments................................... 6,825 6,782
Net cash provided by
operating activities............................... 12,375 11,913
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity................................. 45,965 11,093
Proceeds from calls of investment securities
held to maturity.................................. 120 220
Purchases of investment securities held to maturity. (35,084) (10,757)
Proceeds from maturities of securities available
for sale.......................................... 12,500 8,250
Proceeds from sales of securities available
for sale.......................................... 11,347 -
Purchases of securities available for sale.......... (21,428) -
Net increase in loans............................... (35,434) (17,021)
Business combination, net of cash................... - 21,130
Proceeds from sales of premises and equipment....... 13 26
Proceeds from sales of foreclosed properties........ 1,183 406
Purchases of premises and equipment................. (1,031) ( 2,611)
Net cash provided by (used in) investing activities. (21,849) 10,736
Cash flows from financing activities:
Net increase in deposits............................ 24,294 16,094
Net increase (decrease) in short-term borrowings.... 12,380 (41,944)
Repayment of long-term debt......................... (1) (230)
Proceeds from issuance of common stock.............. - 600
Dividends paid...................................... (2,553) (2,478)
Net cash provided by (used in) financing activities. 34,120 (27,958)
Net increase (decrease) in cash
and cash equivalents.............................. 24,646 (5,309)
Cash and cash equivalents at beginning of period.... 100,809 124,889
Cash and cash equivalents at end of period.......... $125,455 $119,580
Supplemental disclosure of cash flow information
Cash payments for:
Interest.......................................... $ 12,194 $ 10,750
Income taxes...................................... 127 (488)
Non-cash investing and financing activities:
Loan balances transferred to foreclosed properties $ 63 $ 75
See accompanying notes to consolidated financial statements
Jefferson Bankshares, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
($ in thousands) Three Months Ended
March 31
1995 1994
Balance, January 1.......................................$206,553 $196,434
Net income............................................... 5,550 5,131
Cash dividends declared.................................. (2,883) (2,484)
Change in unrealized gains (losses) on securities
available for sale, net............................... 2,608 1,232
Issuance of common stock for dividend reinvestment plan.. - 600
Balance, March 31........................................$211,828 $200,913
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
($ in thousands)
Note 1 - General
The consolidated financial statements conform to generally accepted
accounting principles and to general industry practices. The accompanying
consolidated financial statements are unaudited. In the opinion of management,
all adjustments necessary for a fair presentation of the consolidated financial
statements have been included. All such adjustments are of a normal and
recurring nature. The notes included herein should be read in conjunction
with the notes to consolidated financial statements included in the
Corporation's 1994 Annual Report to shareholders.
On January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment
of a Loan, as amended by SFAS 118. The Statement requires impaired loans to
be measured at the present value of expected future cash flows discounted
at the loan's effective interest rate, except that all collateral-dependent
loans are measured for impairment based on the fair value of the collateral.
Management's evaluation of the adequacy of the allowance is based on a
review of the Corporation's historical loss experience, known and inherent
risks in the loan portfolio, charge-offs, and the level and trend of
interest rates. As a result, the allowance for loan losses is adequate,
and no additional provision resulted from the implementation of
Statement 114.
Note 2 - Allowance for Loan Losses
A summary of transactions in the consolidated allowance for loan losses
for the three months ended March 31 follows:
1995 1994
Balance, January 1............................ $ 13,754 $ 13,864
Provision..................................... 480 475
Recoveries.................................... 104 124
Loan losses................................... (311) (432)
Balance, March 31............................. $ 14,027 $ 14,031
Note 3 - Income Taxes
Income tax expense for the three months ended March 31 is different
than the amount computed by applying the statutory corporate federal
income tax rate of 35% to income before income taxes. The reasons
for this difference are as follows:
1995 1994
Tax expense at statutory rate......... $ 2,927 $ 2,692
Increase (reduction)in taxes
resulting from:
Tax exempt interest................... (203) (224)
Other, net............................ 88 91
Provision for income taxes............ $ 2,812 $ 2,559
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's discussion and analysis of financial information is
presented to aid the reader in understanding and evaluating the
financial condition and results of operations of Jefferson Bankshares,
Inc. The analysis focuses on the Consolidated Financial Statements and
their accompanying notes. Highlighted in the discussion are material
changes from prior reporting periods and any identifiable trends
affecting the Corporation.
On January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for Impairment of
a Loan. Information concerning this statement and its effects on the
consolidated financial statements is included in Note 1 of the Notes to
Consolidated Financial Statements.
Financial Condition
Total assets on March 31, 1995 were $1.971 billion compared with
$1.946 billion one year earlier. Average total assets in the first
quarter of 1995 were $1.915 billion compared with the first quarter 1994
average of $1.901 billion.
Following trends in the second half of 1994, loan growth continued
to be strong. Loans, net of unearned income, increased 10 percent on
March 31, 1995 to $1.136 billion from the year earlier total of $1.037
billion. The March 31, 1995 total also represented a $34 million
increase over the year-end 1994 total of $1.102 billion, or a 12 percent
annualized rate of growth in the quarter. Loan categories that provided
growth in the first quarter of 1995 were the same categories responsible
for loan growth in the second half of 1994. Strong gains were recorded
in indirect instalment loans, commercial loans, and mortgage loans,
particularly adjustable rate mortgage loans. Average loans, net of
unearned income, increased 9 percent in the first quarter of 1995 to
$1.123 million from $1.027 million in the first quarter of 1994.
Loan growth was funded principally from a reduction in the
investment securities portfolio. Investment securities decreased 11
percent to $628 million on March 31, 1995 from $708 million one year
earlier. At year-end 1994, investment securities totaled $639 million.
In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities,
investment securities that are classified as available for sale are
reported at fair value. The difference between the fair value and the
amortized cost of securities available for sale on March 31, 1995 was an
unrealized loss of $1.1 million, net of tax effects, compared with an
unrealized gain, net of tax effects, of $1.2 million one year earlier.
At year-end 1994, the difference resulted in an unrealized loss, net of
tax effects, of $3.7 million. The change between March 31, 1994 and
year-end 1994 reflected a period of rising interest rates and a
consequent reduction in the fair value of debt securities. The reduction in
the unrealized loss from year-end 1994 to March 31, 1995 reflected some
moderation in market interest rates and the investment of funds into
securities at current market interest rates. In the first quarter,
total investment securities averaged $618 million in 1995, or 13 percent
below the first quarter 1994 average of $710 million.
On March 31, 1995, federal funds sold and money market investments
totaled $30 million compared with $11 million one year earlier. At
year-end 1994, the Corporation had no short-term money market
investments. In the first quarter of 1995, these investments averaged
$7 million compared with a first quarter 1994 average of $11 million.
Total deposits on March 31, 1995 were $1.713 billion, or nearly
level with the year earlier total of $1.717 billion. At year-end 1994,
deposits totaled $1.689 billion. Deposit growth was hampered by market
competition from alternative investment products and from interest rate
competition from other financial institutions. Deposit growth recorded
from year-end 1994 to March 31, 1995 resulted from a promotional
campaign in which special interest rates were offered on certain
certificates of deposit. The campaign was successful in retaining
existing deposits and attracting new deposits. Average total deposits
in the first quarter were $1.665 billion in 1995 and $1.668 billion in
1994.
Short-term borrowings totaled $29 million on March 31, 1995
compared with $12 million one year earlier and $16 million at year-end
1994. In the first quarter, short-term borrowings averaged $26 million
in 1995 and $19 million in 1994.
Results of Operations
Net income in the first quarter of 1995 increased 8 percent to
$5.6 million from $5.1 million in the first quarter of 1994. Net income
per share in the first quarter increased 9 percent to $.37 in 1995 from
$.34 in 1994.
Higher net income in the 1995 quarter raised profitability ratios.
The return on average assets in the first quarter increased to 1.16
percent in 1995 compared with 1.08 percent in 1994. The return on
average shareholders' equity improved in the first quarter to 10.56
percent in 1994 from 10.15 percent in 1994.
The increase in first quarter 1995 net income was attributable
principally to a 9 percent increase in net interest income. Total
interest income in the first quarter of 1995 increased 12 percent to
$34.5 million from $31.0 million in the first quarter of 1994. The
higher interest income reflected the effects of higher interest rates in
the 1995 quarter and a change in the mix of earning assets as growth in
loan totals was funded largely through a reduction in investment
securities.
Interest expense in the first quarter of 1995 rose 17 percent to
$12.9 million from $11.1 million in the first quarter of 1994. The
increase was attributable principally to higher interest rates and was
reflective of both a higher interest rate environment in the 1995
quarter as well as increased competition for deposits.
In spite of the larger percentage increase in interest expense as
compared with interest income, net interest income increased 9 percent
in the first quarter of 1995 to $21.6 million from $19.9 million in the
first quarter of 1994. The net interest margin for the quarter improved
to 5.05 percent in 1995 compared with 4.65 percent in 1994.
The provision for loan losses in the first quarter was $480
thousand in 1995 and $475 thousand in 1994. On March 31, 1995, the
allowance for loan losses was $14.0 million, or 1.23 percent of loans,
net of unearned income. One year earlier, the allowance was $14.0
million or 1.35 percent of loans, net of unearned income. In the first
quarter of 1995, net loan losses amounted to $207 thousand compared with
$308 thousand in the 1994 quarter.
Non-performing assets decreased 29 percent to $11.8 million on
March 31, 1995 from $16.7 million one year ago. The March 31, 1995
total included non-accrual loans of $7.1 million and foreclosed properties
of $4.7 million. The March 31, 1994 total included non-accrual loans of
$8.5 million and foreclosed properties of $8.2 million. Loans 90 days or
more past due at quarter-end in 1995 and 1994 were approximately level at
$3.7 million.
Non-interest income in the first quarter of 1995 of $4.0 million
was 6 percent below the year earlier amount of $4.2 million. The two
largest factors in the decrease were investment securities losses of
securities available for sale in the 1995 quarter of $103 thousand and
a decline of $313 thousand in fees generated from mortgage loan sales.
Funds from the investment securities sales were reinvested in other
securities at higher rates, which will produce sufficient additional
income in the remainder of 1995 to offset the losses incurred. The
decrease in income from mortgage loan sales was attributable partially
to increased retention of new adjustable rate mortgage loans and to a
lesser volume of mortgage loan refinancings.
Other categories of non-interest income recorded increases in the
first quarter of 1995 compared with the first quarter of 1994. Trust
income increased 2 percent in the 1995 quarter to $1.1 million. Deposit
account fees were 6 percent higher in the 1995 quarter at $2.2 million.
Also, other income rose slightly to $730 thousand in the 1995 quarter.
Non-interest expense in the first quarter of 1995 was $16.7
million, or 5 percent above $15.9 million in the first quarter of 1994.
Personnel expense, equipment expense, and other expense each increased 6
percent. Occupancy expense decreased 3 percent as the result of lower
utilities expense and other miscellaneous occupancy costs. F.D.I.C.
assessments were level in the first quarters of 1995 and 1994.
Liquidity
A financial institution's liquidity requirements are measured by
its need to meet deposit withdrawals, fund loans, maintain reserve
requirements, and operate the organization. To meet its liquidity
needs, the Corporation maintains cash reserves and has an adequate flow
of funds from maturing loans, investment securities, and short-term
investments. In addition the Corporation's bank subsidiary has the
ability to borrow from the Federal Reserve. The Corporation considers
its sources of liquidity to be ample to meet its estimated needs.
Capital Resources
On March 31, 1995, shareholders' equity totaled $212 million, or
10.7 percent of total assets. Included in shareholders' equity on March
31, 1995 were unrealized losses, net of the deferred tax effect, of $1.1
million on securities available for sale. In the first quarter of 1995,
shareholders' equity averaged $210 million, or 4 percent above the first
quarter 1994 average of $202 million. On March 31, 1995, the book value
per share of common stock was $13.96, or 5 percent above the year
earlier $13.29.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
On January 24, 1995, the Board of Directors amended and
restated the Bylaws of the Corporation. The amendment
increased, to the extent permitted by Virginia law, (i)
from "fifty days" to "seventy days" the maximum number of days
prior to the meeting date within which the Board of Directors
can establish the record date for determining shareholders
entitled to notice of and to vote at the meeting and
(ii) from "fifty days" to "sixty days" the maximum number
of days prior to the meeting date that written notice may be
provided to shareholders. The Board of Directors adopted the
amendment to accomodate the Corporation's change to an unaffiliated
transfer agent and to ensure that the Corporation would have
sufficient time to solicit proxies from shareholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the accompanying Index to Exhibits
immediately following the signature page are filed as part
of, or incorporated by reference into, this report.
(b) Reports on Form 8-K
Jefferson Bankshares, Inc. filed no reports on Form 8-K during
the quarter ended March 31, 1995.
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 BANKSHARES, INC.
May 9, 1995 By: O. Kenton McCartney
President and
Chief Executive Officer
and
By: Allen T. Nelson, Jr.
Senior Vice President,
Chief Financial Officer
and Treasurer
EXHIBIT INDEX
Exhibit No. Page
3. Articles of Incorporation and Bylaws:
(a) Articles of Incorporation incorporated by
reference to Jefferson Bankshares' Annual
Report on Form 10-K for 1984.
(b) Articles of Amendment to Articles of
Incorporation dated May 7, 1987, incorporated
by reference to Jefferson Bankshares' report
on Form 10-Q for the quarter ended June 30,
1987.
(c) Articles of Amendment to Articles of
Incorporation dated March 23, 1993, incorporated
by reference to Jefferson Bankshares' report
on Form 10-Q for the quarter ended June 30, 1993.
(d) Amendment to Article III and Article IV, Section 5,
of the Bylaws and the Amended and Restated Bylaws dated
January 24, 1995, incorporated by reference to Jefferson
Bankshares' Annual Report on Form 10-K for 1994.
4. Instruments defining the rights of security holders
including indentures:
(a) Articles of Incorporation of Jefferson
Bankshares', incorporated by reference to
Jefferson Bankshares' 1984 Annual Report on
Form 10-K.
(b) Articles of Amendment to Articles of
Incorporation dated May 7, 1987, incorporated
by reference to Jefferson Bankshares' report
on Form 10-Q for the quarter ended June 30,
1987.
(c) Articles of Amendment to Articles of
Incorporation dated March 23, 1993,
incorporated by reference to Jefferson
Bankshares' report on Form 10-Q for the
quarter ended June 30, 1993.
10. Material Contracts:
(a) Senior Officers Supplemental Pension Plan,
incorporated by reference to Jefferson
Bankshares' Annual Report on Form 10-K for 1982.
(b) Split Dollar Life Insurance Plan, incorporated
by reference to Jefferson Bankshares' Annual
Report on Form 10-K for 1984.
(c) Executive Severance Agreement dated October 25,
1993 between Jefferson Bankshares and O. Kenton
McCartney, incorporated by reference to Jefferson
Bankshares' Annual Report on Form 10-K for 1993.
(d) Executive Severance Agreement dated October 25,
1993 between Jefferson Bankshares and Robert H.
Campbell, Jr., incorporated by reference to Jefferson
Bankshares' Annual Report on Form 10-K for 1993.
(e) Executive Severance Agreement dated December 6, 1993
between Jefferson Bankshares, Inc. and Allen T.
Nelson, Jr., incorporated by reference to Jefferson
Bankshares' Annual Report on Form 10-K for 1994.
(f) Amended and Restated Split Dollar Life Insurance
Agreement dated October 29, 1993 between Jefferson
Bankshares and Robert H. Campbell, Jr., incorporated by
reference to Jefferson Bankshares' Annual Report on
Form 10-K for 1993.
(g) Amendment dated February 15, 1995, to the
Amended and Restated Split Dollar Life Insurance
Agreement dated October 29, 1993 between
Jefferson Bankshares and Robert H. Campbell, Jr., is
filed herewith.
(h) Amended and Restated Split Dollar Life Insurance
Agreement dated October 29, 1993 between Jefferson
Bankshares and O. Kenton McCartney, incorporated by
reference to Jefferson Bankshares' Annual Report on
Form 10-K for 1993.
(i) Amendment dated as of May 19, 1994, to the Amended and Restated
Split Dollar Life Insurance Agreement dated October 29, 1993
between Jefferson Bankshares and O. Kenton McCartney,
incorporated by reference to Exhibit 10(p) to Form S-4 of
Jefferson Bankshares, File No. 33-53727.
(j) Split Dollar Life Insurance Agreement dated
January 6, 1994 between Jefferson Bankshares, Inc. and
Allen T. Nelson, Jr., is incorporated by reference to
Jefferson Bankshares' Annual Report on Form 10-K for 1994.
27. Financial Data Schedule