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, 1996
[ ] 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, 1996, Registrant has 15,166,508 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
1996 1995 1995
ASSETS
Cash and due from banks............................... $ 77,037 $ 95,455 $ 88,028
Federal funds sold and other money market investments. 10,000 30,000 15,000
Investment securities:
Available for sale (cost on March 31 of $190,459 in 192,891 172,026 188,669
1996 and $173,692 in 1995 and $184,203 on
December 31, 1995)
Held to maturity (fair value on March 31 447,003 455,895 454,509
of $449,455 in 1996 and $448,420 in 1995,
and $459,360 on December 31, 1995)
Total investment securities........................... 639,894 627,921 643,178
Loans................................................. 1,237,432 1,136,194 1,220,493
Less: Unearned income................................. (57) (218) (72)
Allowance for loan losses....................... (13,778) (14,027) (13,432)
Net loans............................................. 1,223,597 1,121,949 1,206,989
Premises and equipment................................ 51,662 50,795 52,310
Other assets.......................................... 47,788 44,814 45,683
Total Assets.......................................... $2,049,978 $1,970,934 $2,051,188
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand................................................ $ 287,440 $ 257,752 $ 287,489
Interest-bearing transaction accounts................. 804,767 785,244 806,859
Certificates of deposit $100,000 and over............. 95,870 84,481 93,720
Other time............................................ 600,104 585,689 605,131
Total deposits........................................ 1,788,181 1,713,166 1,793,199
Federal funds purchased and
securities sold under repurchase agreements......... 14,658 13,859 16,118
Other short-term borrowings........................... - 15,000 -
Other liabilities..................................... 19,073 17,063 15,316
Long-term debt........................................ - 18 15
Total Liabilities..................................... 1,821,912 1,759,106 1,824,648
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 15,166,196 shares
March 31, 1996; and 15,170,250 shares March
31,1995; and 15,182,235 shares December 31, 1995.. 37,915 37,926 37,956
Capital surplus....................................... 47,697 46,332 47,623
Retained earnings..................................... 140,873 128,653 138,058
Unrealized gains (losses) on securities
available for sale, net............................ 1,581 (1,083) 2,903
Total Shareholders' Equity ........................... 228,066 211,828 226,540
Total Liabilities and Shareholders' Equity............ $2,049,978 $1,970,934 $2,051,188
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
1996 1995
INTEREST INCOME
Interest and fees on loans .................. $27,387 $24,582
Income on investment securities:
Available for sale......................... 2,854 2,662
Held to maturity........................... 6,936 7,172
Other interest income........................ 159 104
Total interest income................... 37,336 34,520
INTEREST EXPENSE
Interest-bearing transaction accounts........ 5,480 5,787
Certificates of deposit $100,000 and over.... 1,206 916
Other time deposits.......................... 7,679 5,886
Short-term borrowings........................ 170 331
Long-term debt............................... - 1
Total interest expense.................. 14,535 12,921
NET INTEREST INCOME.......................... 22,801 21,599
PROVISION FOR LOAN LOSSES.................... 780 480
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES.............................. 22,021 21,119
NON-INTEREST INCOME
Trust income................................. 1,059 1,125
Service charges on deposit accounts.......... 2,400 2,202
Investment securities gains (losses)......... 1 (103)
Mortgage loan sales income................... 160 30
Other income................................. 1,041 730
Total non-interest income............... 4,661 3,984
NON-INTEREST EXPENSE
Salaries and employee benefits............... 10,280 9,738
Occupancy expense, net....................... 1,367 1,260
Equipment expense............................ 1,556 1,489
F.D.I.C. assessments......................... 31 937
Other expense................................ 3,505 3,317
Total non-interest expense.............. 16,739 16,741
INCOME BEFORE INCOME TAXES................... 9,943 8,362
Provision for income taxes................... 3,408 2,812
NET INCOME................................... $ 6,535 $ 5,550
NET INCOME PER COMMON SHARE.................. $ 0.43 $ 0.37
AVERAGE SHARES OUTSTANDING................... 15,173 15,170
See accompanying notes to consolidated financial statements.
Jefferson Bankshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
($ in thousands)
Three months ended
March 31
1996 1995
Cash flows from operating activities:
Net income.......................................... $ 6,535 $ 5,550
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization....................... 1,676 1,638
Accretion and amortization.......................... 937 1,116
Provision for loan losses........................... 780 480
Investment securities (gains)losses, net............ (1) 103
Gain on sale of premises and equipment.............. (6) (3)
(Increase) decrease in interest receivable.......... (476) 728
Increase (decrease) in interest payable............. (79) 727
(Increase) decrease in loans held for resale, net... (1,382) 606
Other, net.......................................... 1,725 1,430
Total adjustments................................... 3,174 6,825
Net cash provided by
operating activities............................... 9,709 12,375
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity.................................. 29,742 45,965
Proceeds from calls of investment securities
held to maturity.................................. 131 120
Purchases of investment securities held to maturity. (23,123) (35,084)
Proceeds from maturities of securities available
for sale.......................................... 6,200 12,500
Proceeds from sales of securities available
for sale.......................................... 979 11,347
Purchases of securities available for sale.......... (13,615) (21,428)
Net increase in loans............................... (16,045) (35,434)
Proceeds from sales of premises and equipment....... 36 13
Proceeds from sales of foreclosed properties........ 578 1,183
Purchases of premises and equipment................. (859) (1,031)
Net cash used in investing activities............... (15,976) (21,849)
Cash flows from financing activities:
Net increase (decrease) in deposits................. (5,018) 24,294
Net increase (decrease) in short-term borrowings.... (1,460) 12,380
Repayment of long-term debt......................... (15) (1)
Proceeds from issuance of common stock.............. 84 -
Acquisition of common stock......................... (434) -
Dividends paid...................................... (2,881) (2,553)
Net cash provided by (used in) financing activities. (9,724) 34,120
Net increase (decrease) in cash
and cash equivalents.............................. (15,991) 24,646
Cash and cash equivalents at beginning of period.... 103,028 100,809
Cash and cash equivalents at end of period.......... $ 87,037 $125,455
Supplemental disclosure of cash flow information
Cash payments (refund) for:
Interest.......................................... $ 14,614 $ 12,194
Income taxes...................................... (397) 127
Non-cash investing and financing activities:
Loan balances transferred to foreclosed properties $ 54 $ 63
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
1996 1995
Balance, January 1.......................................$226,540 $206,553
Net income............................................... 6,535 5,550
Cash dividends declared.................................. (3,337) (2,883)
Change in unrealized gains (losses) on securities
available for sale...................................... (1,322) 2,608
Issuance of common stock under the Deferred Compensation
and Stock Purchase Plan for Non-Employee Directors...... 84 -
Acquisition of common stock ............................. (434) -
Balance, March 31........................................$228,066 $211,828
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
($ 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 1995 Annual Report to shareholders.
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:
1996 1995
Balance, January 1............................ $ 13,432 $ 13,754
Provision..................................... 780 480
Recoveries.................................... 165 104
Loan losses................................... (599) (311)
Balance, March 31............................. $ 13,778 $ 14,027
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:
1996 1995
Tax expense at statutory rate......... $ 3,480 $ 2,927
Increase (reduction)in taxes
resulting from:
Tax exempt interest................... (161) (203)
Other, net............................ 89 88
Provision for income taxes............ $ 3,408 $ 2,812
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.
Financial Condition
Total assets on March 31, 1996 were $2.050 billion compared with
$1.971 billion one year earlier. Average total assets in the first
quarter of 1996 were $2.022 billion compared with the first quarter 1995
average of $1.915 billion.
Loans, net of unearned income increased 9 percent on March 31,
1996 to $1.237 billion from the year earlier total of $1.136 billion.
The March 31, 1996 total also represented a $17 million increase over
the year-end 1995 total of $1.220 billion. Loan growth continued at a
strong pace despite the weather conditions that slowed business activity
throughout our market territory. Loan categories that provided growth
in the first quarter of 1996 were the same categories responsible for
loan growth during 1995. 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 1996 to $1.225 million from
$1.123 million in the first quarter of 1995.
Investment securities represent the second largest component of
earning assets. Investment securities increased 2 percent to $640
million on March 31, 1996 from $628 million one year earlier. At year-
end 1995, investment securities totaled $643 million. In the first
quarter, total investment securities averaged $632 million in 1996, or 2
percent above the first quarter 1995 average of $618 million.
On March 31, 1996, federal funds sold and money market investments
totaled $10 million compared with $30 million one year earlier. At
year-end 1995, the Corporation had $15 million in short-term money
market investments. In the first quarter of 1996, these investments
averaged $12 million compared with a first quarter 1995 average of $7
million.
Total deposits on March 31, 1996 were $1.788 billion, or 4 percent
above the year earlier total of $1.713 billion. At year-end 1995,
deposits totaled $1.793 billion. Non interest-bearing deposits
increased 11 percent to $287 billion from $258 billion one year ago.
Deposit growth was hampered by significant volume of funds moving into
mutual funds and other investment vehicles and from interest rate
competition from other financial institutions. Average total deposits
in the first quarter were $1.761 billion in 1996 and $1.665 billion in
1995.
Short-term borrowings totaled $15 million on March 31, 1996
compared with $29 million one year earlier and $16 million at year-end
1995. In the first quarter, short-term borrowings averaged $18 million
in 1996 and $26 million in 1995.
Results of Operations
Net income in the first quarter of 1996 increased 18 percent to
$6.5 million from $5.6 million in the first quarter of 1995. Net income
per share in the first quarter increased 16 percent to $.43 in 1996 from
$.37 in 1995.
Higher net income in the 1996 quarter raised profitability ratios.
The return on average assets in the first quarter increased to 1.29
percent in 1996 compared with 1.16 percent in 1995. The return on
average shareholders' equity improved in the first quarter to 11.40
percent in 1996 from 10.56 percent in 1995.
The increase in first quarter 1996 net income was attributable
principally to a 6 percent increase in net interest income. Total
interest income in the first quarter of 1996 increased 8 percent to
$37.3 million from $34.5 million in the first quarter of 1995. The
higher interest income reflected the effects of higher interest rates in
the 1996 quarter and the growth in loan totals.
Interest expense in the first quarter of 1996 rose 13 percent to
$14.5 million from $12.9 million in the first quarter of 1995. The
increase was attributable principally to higher interest rates and was
reflective of both a higher interest rate environment in the 1996
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 6 percent
in the first quarter of 1996 to $22.8 million from $21.6 million in the
first quarter of 1995. The net interest margin was 4.95 percent in the
first quarter of 1996 compared with 5.05 percent in the 1995 quarter.
At 4.95 percent, however, the net interest margin remained strong and
was above the 4.88 percent net interest margin registered both in the
fourth quarter of 1995 and for the year 1995.
In recognition of the increase in loans and an increase in net
loan losses, the provision for loan losses in the first quarter was $780
thousand in 1996 and $480 thousand in 1995. On March 31, 1996, the
allowance for loan losses was $13.8 million, or 1.11 percent of loans,
net of unearned income. One year earlier, the allowance was $14.0
million or 1.23 percent of loans, net of unearned income. In the first
quarter of 1996, net loan losses amounted to $434 thousand compared with
$207 thousand in the 1995 quarter.
Non-performing assets decreased 21 percent to $9.381 million on
March 31, 1996 from $11.797 million one year ago. The March 31, 1996
total included non-accrual loans of $5.898 million, restructured loans
of $250 thousand, and foreclosed properties of $3.233 million. The
March 31, 1995 total included non-accrual loans of $7.066 million and
foreclosed properties of $4.731 million. Loans 90 days or more past due
at quarter-end in 1996 and 1995 were $2.413 million and $3.667 million,
respectively.
Non-interest income in the first quarter of 1996 of $4.7 million
was 17 percent above the year earlier amount of $4.0 million. The
increase resulted from strong growth in deposit account fees, which were
9 percent higher in the 1996 quarter at $2.4 million. Mortgage loan
sales increased to $160 thousand from $30 thousand for the quarter ended
March 31, 1996 and 1995, respectively. Other income recorded a 43
percent increase from $730 thousand for the first quarter of 1995 to
$1.0 million for the first quarter of 1996. Fees from credit cards and
investment services contributed to the increase in other income.
Non-interest expense in the first quarter of 1996 of $16.7
million, was approximately level with the prior quarter of 1995. The
largest factor affecting this comparison was a reduction in F.D.I.C.
assessments of $906 thousand. This decrease in F.D.I.C. assessments
contributed to a 17 percent decrease in other expense. Personnel expense
increased 6 percent, equipment expense increased 4 percent, and
occupancy expense increased 8 percent.
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 affiliate 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, 1996, shareholders' equity totaled $228 million, or
11 percent of total assets. Included in shareholders' equity on March
31, 1996 were unrealized gains, net of the deferred tax effect, of $1.6
million on securities available for sale. In the first quarter of 1996,
shareholders' equity averaged $229 million, or 9 percent above the first
quarter 1995 average of $210 million. On March 31, 1996, the book value
of a share of common stock was $15.04, or 8 percent above the year
earlier $13.96.
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
Not applicable.
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, 1996.
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 10, 1996 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) 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, 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' 1982 Annual Report on Form 10-K.
(b) Split Dollar Life Insurance Plan, incorporated
by reference to Jefferson Bankshares' Annual
Report on Form 10-K for 1984.
(c) 1995 Long Term Incentive Stock Plan, incorporated
by reference to Exhibit 99(a) to Form S-8 of
Jefferson Bankshares, File No. 33-60799.
(d) Amendment dated June 27, 1995 to Long Term Incentive
Stock Plan, incorporated by reference to Jefferson
Bankshares' report on Form 10-Q for the quarter ended
June 30, 1995.
(e) Deferred Compensation and Stock Purchase Plan for
Non-Employee Directors, incorporated by reference
to Exhibit 99(a) to Form S-8 of Jefferson Bankshares,
File No. 33-57461.
(f) 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.
(g) 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.
(h) 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.
(i) Executive Severance Agreement dated October 25, 1993
between Jefferson Bankshares and William M. Watson, Jr.,
incorporated by reference to Jefferson Bankshares' Annual
Report on Form 10-K for 1995.
(j) 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.
(k) 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., incorporated by reference
to Jefferson Bankshares' report on Form 10-Q for the
quarter ended March 31, 1995.
(l) 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.
(m) 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.
(n) Split Dollar Life Insurance Agreement dated
January 6, 1995 between Jefferson Bankshares, Inc. and
Allen T. Nelson, Jr., incorporated by reference to
Jefferson Bankshares' Annual Report on Form 10-K for 1994.
(o) Amended and Restated Split Dollar Life Insurance
Agreement dated October 29, 1993 between Jefferson
Bankshares and William M. Watson, Jr., incorporated by
reference to Jefferson Bankshares' Annual Report on
Form 10-K for 1995.
27. Financial Data Schedule 12