[Jefferson Bancshares, Inc. Letterhead]
February 2, 2006
VIA EDGAR AND FACSIMILE
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Mr. Benjamin Phippen
Reviewing Accountant
U.S. Securities and Exchange Commission
Division of Corporation Finance
100 F. Street, N.E.
Washington, D.C. 20549
RE: Jefferson Bancshares, Inc. (the "Company")
Form 10-K for the Period Ended June 30, 2005
Form 10-Q for the Quarter Ended September 30, 2005
File Number 1-31689
Dear Mr. Phippen:
We have received your letter dated January 20, 2006, regarding comments
on the above filings. We appreciate your review and are providing responses to
each of the comments, as well as providing supplemental information as
requested. To facilitate your review, we will repeat each of your comments
followed by our response.
FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2005
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CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, PAGE F-9
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COMMENT NO. 1:
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We note your disclosure on page 5 that beginning in January 2005 you
began originating loans for sale in the secondary market. Please tell us the
following information:
o the structure of the transactions through which you sell or
securitize loans;
o the nature and extent of your continuing involvement, including
any recourse or servicing activities;
o the amount of loans originated for sale during the year ended
June 30, 2005;
Mr. Benjamin Phippen
February 2, 2006
Page 2
o the amount of loans sold and the related gain/loss recognized
during the year ended June 30, 2005; your accounting policies for
loans held-for-sale, sales accounting treatment, continuing
involvement, loan fees and costs, and commitments to originate and
sell loans; and
o how you presented the cash flows for the origination and sale of
loans held for sale on your statement of cash flows.
RESPONSE TO COMMENT NO. 1:
Jefferson Federal Bank (the "Bank") originates and sells individual
loans in the secondary market. The Bank conducts business as an independent
contractor and is not an affiliate of any Investor. Furthermore, the Bank has no
outstanding commitment to originate and sell a specific number of loans to any
Investor.
The Bank is responsible for the accurate preparation of a complete loan
application package, including all items required by the Investor. Following
receipt of the loan application package, the Investor notifies the Bank of the
underwriting decision. Upon receiving written approval and a lock-in interest
rate from the Investor, the customer is notified and a closing date is set.
Non-portfolio loans are closed in the Bank's name. After closing, the mortgage
is delivered to the Investor and the funding price is paid to the Bank. The
funding price includes the loan principal, accrued interest, and fee income for
the origination. Since the principal amount and any accrued interest is funded
in full by the Investor, there is no gain or loss on the final consummation of
the transaction. Following receipt of the funding, Jefferson Federal delivers an
assignment to the Investor effectuating the total and complete transfer of the
loan. Loans are sold with servicing released and with no recourse.
For the fiscal year ended June 30, 2005, the Bank originated $16.2
million in non-portfolio loans that were sold in the secondary market. As of
June 30, 2005, $13.1 million of these loans had closed and the funding from the
Investor received, and $3.1 million had closed and were held by the Bank pending
consummation of the sale. Fee income from the sale of loans amounted to $122,000
for the fiscal year ended June 30, 2005.
Due to our non-portfolio loans being "pre-sold" and closed without
interest rate risk, the balances are reflected in other assets as receivables
instead of a separate line item titled "loans held for sale." Fee income
resulting from the sale of loans is shown on the income statement as "mortgage
origination income" recognized on the date the loan is funded by the Investor.
The fee income generated from this activity is considered operating income for
the statement of cash flows purposes. Thus, the income and the change in "other
assets" are presented in the operating activities section of the statement of
cash flows.
Mr. Benjamin Phippen
February 2, 2006
Page 3
COMMENT NO. 2:
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We note your disclosure on page 34 that other assets at June 30, 2005
includes a $3.1 million receivable from investors for loans purchased. Please
tell us when the loans were purchased by the investor and why you have a
receivable at June 30, 2005.
RESPONSE TO COMMENT NO. 2:
The receivable at June 30, 2005, represents loans in the process of
being funded by the Investor that have been closed by the Bank at June 30, 2005.
The sale of these loans was completed by July 22, 2005.
* * * * *
Furthermore, the Company hereby acknowledges that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
o staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with respect to the filing; and
o the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
* * * * *
If you have any questions about our responses or require any additional
information, please do not hesitate to call me at (423) 586-8421 or Aaron Kaslow
or Edward Olifer of Muldoon Murphy & Aguggia LLP at (202) 362-0840.
Very truly yours,
JEFFERSON BANCSHARES, INC.
/s/ Jane P. Hutton
Jane P. Hutton
Chief Financial Officer
cc: Joyce Sweeney, Accounting Branch Chief,
Securities and Exchange Commission
Anderson L. Smith, Jefferson Bancshares, Inc.
Aaron M. Kaslow, Muldoon Murphy & Aguggia LLP
Edward G. Olifer, Muldoon Murphy & Aguggia LLP