1
CONTENTS
* Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
* President's Letter to the Stockholders . . . . . . . . . . . . . . . . . . . . . . . 3
* Management's Discussion and Analysis
of Financial Condition and Results of Operations. . . . . . . . . . . . . . . 4
* Selected Consolidated Financial and Operating Data . . . . . . . . . . . . . . . . 13
* Financial Statements
Consolidated Statements of Financial Condition . . . . . . . . . . . . . . 15
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . 16
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . 17
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . 18
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 19
* General Stockholder Information . . . . . . . . . . . . . . . . . . . . . . . . . 35
* Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . 35
* Board of Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . 36
* Managers and Service Locations . . . . . . . . . . . . . . . . . . . . . . . . . 36
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FINANCIAL HIGHLIGHTS
EXCEEDS ALL
FEDERAL
REGULATORY CAPITAL
REQUIREMENTS
(Dollars in Thousands)
- - ----------------------
CORE TANGIBLE RISK-BASED
---- -------- ----------
Jefferson FSB $28,321 $28,321 $29,000
Required 7,777 3,889 5,627
------ ------ ------
Excess $20,544 $24,432 $23,373
======= ======= =======
NET INCOME
Year ended
December 31
- - -----------
1995 $2,673,734
1994 2,328,575
1993 1,891,675
STOCKHOLDERS' EQUITY
December 31
- - -----------
1995 $34,813,971
1994 32,185,726
1993 15,611,946
ASSETS
December 31
- - -----------
1995 $265,870,036
1994 260,965,163
1993 256,139,742
COMMUNITY REINVESTMENT ACT
SATISFACTORY /X/
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3
PRESIDENT'S LETTER TO THE
STOCKHOLDERS
IT is with a great deal of pride that I am able to report "Jefferson Bancorp,
Inc. has had a spectacular year." Increased income, increased stockholders'
equity, increased assets and four dividend distributions were realized in 1995.
The local economy mirrored some of our success -- ending 1995 with several
upbeats, especially for metro tourism. Local economic indicators lend validity
to Jefferson's forecast of continued profitability, growth and strength.
During 1995, income rose to $2.67 million, with earnings per share of $1.29. As
of December 31, 1995, assets totaled $265.9 million, a 1.9% increase over 1994
year-end figures. We also showed impressive growth in regulatory capital:
$28.3 million - core, $28.3 million - tangible and $29.0 million - risk-based,
as compared with $26.7 million, $26.7 million and $27.3 million, respectively
at year-end 1994.
Of course our numerical successes validate the faith of our shareholders and
the trust our customers have placed with us. But the dedication, commitment and
professionalism of our employees, staff and the Board of Directors also provide
for successes beyond the numbers.
SERVICE:
Service and value. That's what Jefferson has been about for more than 42
years. At Jefferson FSB, we grow our business by making life easier for
customers -- with a smile and personal commitment for you as an individual and
a valued customer.
As a nation of people we are embracing an era of "Customer Service" where
customers look beyond products, services and rates to find value, quality
service and individual respect. For Jefferson, it means going the extra mile
for a customer. Locally, we call it lagniappe. And it's our commitment to
excellence.
PEOPLE:
In July 1995 JFSB was awarded an Affordable Housing Grant by the Federal Home
Loan Bank. The grant enables Jefferson to provide mortgage assistance (down
payment and closing costs) to area residents who otherwise would not be able to
purchase a home. JFSB is proud to be given this opportunity for sharing the
American Dream with the Federal Home Loan Bank and the communities we serve.
Historically the fall is a time for paint up, fix up and a general battening
down of the hatches for winter. November 1995 was no exception at Jefferson
Federal Savings Bank. With the help of Gretna's Senior Center, we located a
neighbor who needed help with home maintenance projects. Jefferson FSB Board,
staff and officers volunteered their off-hours to rehabilitate the exterior of
the senior's home.
COMMUNITY:
In keeping with our commitment to the communities we serve, Jefferson continues
to re-invest locally through active involvement and financial support as a
corporate sponsor of numerous community and charitable organizations and
events. In addition, we support various community housing programs, including
several in-house lending plans. We feel these programs help to revitalize our
neighborhoods with pride in home ownership.
On a more personal level, Jefferson employees take part in numerous community
outreach programs. Employee participation, while filling a primary need for
service volunteers, is also a source of input for designing products and
services to meet the banking needs of the community.
In more than 4 decades, Jefferson's focus on the customer has not wavered, nor
has our commitment to the time-honored principles of sound banking which we
were founded on. We've grown a lot since we began in Gretna, back in 1953. And
today our commitment to serve is stronger than ever. We continue to offer
solid products, quality service and a lollipop to the children of our banking
customers. To our shareholders we offer experience. We have constructed a
sound framework for the future, building upon principles steeped in banking
tradition and seasoned with strong, conservative management -- and bound
together with a healthy respect for the people we serve.
KAREN L. KNIGHT,
PRESIDENT AND CEO
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
JEFFERSON BANCORP, INC. AND SUBSIDIARY FOR THE YEARS
ENDED DECEMBER 31, 1995, 1994 AND 1993
GENERAL
Jefferson Bancorp, Inc. (the Company) was organized in March 1994 at the
direction of the Board of Directors of Jefferson Federal Savings Bank (the
Bank) for the purpose of holding all of the capital stock of the Bank and in
order to facilitate the reorganization from the mutual holding company
structure to the stock holding company structure. Prior to such
reorganization, the Bank had 809,500 shares of common stock outstanding, of
which 607,500 shares were held by Jefferson Federal Mutual Holding Company (the
Mutual Holding Company).
The Mutual Holding Company, the Bank and the Company adopted the Plan of
Conversion and Agreement and Plan of Reorganization (the Plan). Upon
consummation of the following transactions pursuant to the Plan, the Bank
became a wholly-owned subsidiary of the Company: (1) the Mutual Holding
Company, which owned approximately 75% of the Bank, converted from mutual to
stock form and simultaneously merged into the Bank, with the Bank being the
surviving entity; (2) the Bank then merged into an interim institution
(Interim), formed as a wholly-owned subsidiary of the Company, with the Bank
being the surviving entity; and (3) the outstanding shares of the Bank's common
stock (excluding shares held by the Mutual Holding Company, which were
canceled), were exchanged for shares of common stock of the Company (Common
Stock) pursuant to a ratio that resulted in the holders of such shares owning
in the aggregate the same percentage of the Company as they owned of the Bank,
before giving effect to such stockholders purchasing additional shares,
receiving cash in lieu of fractional shares or exercising dissenters' rights
(collectively, the Reorganization). In the public stock offering consummated
immediately following the Reorganization, the Company sold 1,611,553 shares of
Common Stock (including ESOP shares of 112,808) and issued exchange shares
totaling 535,735, resulting in total outstanding shares at the time of the
consummation of the Conversion of 2,147,288. The Reorganization and the stock
offering are referred to herein as the "Conversion".
The Company is a unitary savings and loan holding company that conducts
substantially all of its business through its wholly owned subsidiary,
Jefferson Federal Savings Bank. The Company has no significant assets other
than the shares of the Bank's common stock and United States Government and
federal agency obligations purchased with the 40% of the net proceeds of the
Conversion retained by the Company as well as through dividends from the Bank.
Currently, the Company neither owns nor leases any property, but instead uses
the premises, equipment and furniture of the Bank. At the present time, the
Company does not intend to employ any persons other than officers who are also
officers of the Bank, and the Company will utilize the support staff of the
Bank from time to time. The Board of Directors of the Company also serve as
directors of the Bank.
The Bank, the subsidiary of the Company, is primarily engaged in attracting
deposits from the general public and using those and other available sources of
funds to originate loans secured primarily by single-family residences located
in the New Orleans metropolitan area. The Bank also originates loans for the
construction of single-family residences, loans secured by equity in
single-family residences, consumer loans, loans secured by savings accounts,
and loans which are secured by existing multi-family residential and
nonresidential real estate. To complement its loan portfolio, the Bank also
has a significant amount of investments in mortgage-backed securities and
United States Government and federal agency obligations.
The stockholders of Jefferson Bancorp, Inc. approved the 1994 Management
Recognition Plan and Trust ("MRP") at the annual meeting held on April 19,
1995. The OTS, by a letter dated May 31, 1995, advised the Company that it had
no objection to the terms of this plan in the form approved by the Company's
stockholders. The Board of Directors of the Company considered the expense to
the Company of purchasing outstanding shares of its Common Stock in the
marketplace to fund the MRP versus the effect of issuing authorized but
unissued shares of its Common Stock to the MRP. The Board of Directors voted
to authorize the issuance of 48,346 shares of authorized but unissued shares of
its Common Stock to the MRP. These shares were issued to the MRP during
September, 1995, resulting in shares outstanding as of December 31, 1995 of
2,195,634.
The accompanying consolidated financial statements and tables include the
accounts of Jefferson Bancorp, Inc. and its wholly owned subsidiary, Jefferson
Federal Savings Bank (collectively Jefferson). All significant intercompany
balances have been eliminated in consolidation.
The following is management's discussion of factors that management believes
are necessary for an understanding of Jefferson's financial statements. The
discussion should be read in conjunction with Jefferson's consolidated
financial statements.
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5
The profitability of Jefferson depends primarily on its net interest income,
which is the difference between interest and dividend income on
interest-earning assets, principally loans, mortgage-backed securities and
investment securities, and interest expense on interest-bearing deposits and
borrowings. Jefferson's net inc ome als o is dependent, to a lesser extent, on
the level of its other income (including loan fees and service charges) and its
general, administrative and other expenses, such as employee compensation and
benefits, occupancy expenses, deposit insurance premiums, and miscellaneous
other expenses, as well as federal income tax expense.
ASSET AND LIABILITY MANAGEMENT
The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities based on contractual maturities, adjusted for
estimated prepayments and repricings. The difference, or the interest rate
repricing "gap," provides an indication of the extent to which an institution's
interest rate spread will be affected by changes in interest rates. A gap is
considered positive when the amount of interest-rate sensitive assets exceeds
the amount of interest-rate sensitive liabilities, and is considered negative
when the amount of interest-rate sensitive liabilities exceeds the amount of
interest-rate sensitive assets. Generally, during a period of rising interest
rates, a negative gap within shorter maturities would adversely affect net
interest income, while a positive gap within shorter maturities would result in
an increase in net interest income, and during a period of falling interest
rates, a negative gap within shorter maturities would result in an increase in
net interest income while a positive gap within shorter maturities would have
the opposite effect.
INTEREST RATE SENSITIVITY ANALYSIS
TABLE #1 (Dollars in Thousands)
The following table presents the difference between Jefferson's
interest-earning assets and interest-bearing liabilities based on contractual
maturities, adjusted for estimated prepayments and repricings at December 31,
1995. This table does not necessarily indicate the impact of general interest
rate movements on Jefferson's net interest income because the repricing of
certain assets and liabilities is subject to competitive and other limitations.
As a result, certain assets and liabilities indicated as maturing or otherwise
repricing within a stated period may in fact mature or reprice at different
times and at different volumes.
December 31, 1995
--------------------------------------------------------------------
More Than More Than More Than
1 Year 3 Years 5 Years
1 Year to to to over
or less 3 Years 5 Years 10 Years 10 Years Total
------- ------- ------- --------- --------- ------
Interest-earning assets:
Fixed-rate mortgage loans $ 6,057 $10,022 $ 7,761 $ 12,581 $ 14,059 $ 50,480
Fixed-rate mortgage-
backed securities (1) 10,685 17,677 13,689 22,192 24,797 89,040
Adjustable-rate mortgage loans and
mortgage-backed securities(1) 23,252 --- --- --- --- 23,252
Consumer loans 3,541 1,368 602 1,212 --- 6,723
Investment securities and other
interest-earning assets(2) 45,412 41,277 1,000 --- 1,318 89,007
--------- --------- --------- --------- -------- --------
Total interest-earning assets 88,947 70,344 23,052 35,985 40,174 258,502
--------- --------- --------- --------- -------- --------
Interest-bearing liabilities:(3)
Passbook accounts 37,030 20,737 3,318 626 7 61,718
Money market accounts 11,915 2,860 114 5 --- 14,894
NOW accounts 13,854 13,299 4,788 2,484 209 34,634
Certificate accounts 62,373 47,348 6,234 1,864 --- 117,819
--------- --------- --------- --------- -------- --------
Total interest-bearing liabilities 125,172 84,244 14,454 4,979 216 229,065
--------- --------- --------- --------- -------- --------
Interest rate sensitivity gap $(36,225) $(13,900) $ 8,598 $ 31,006 $ 39,958 $ 29,437
========= ========= ========= ========= ======== ========
Cumulative interest rate sensitivity gap $(36,225) $(50,125) $(41,527) $(10,521) $ 29,437 $ 29,437
========= ========= ========= ========= ======== ========
Percentage of cumulative gap
to total assets -13.63% -18.85% -15.62% -3.96% 11.07% 11.07%
========= ========= ========= ========= ======== ========
Cumulative ratio of interest-earning
assets to interest-bearing liabilities 71.06% 76.06% 81.45% 95.40% 112.85% 112.85%
========= ========= ========= ========= ======== ========
(1) Adjustable-rate assets are included in the period in which interest rates
are next scheduled to adjust rather than in the period in which they are
due. Fixed-rate assets are included in the periods in which they are
scheduled to be repaid based on scheduled amortization, in each case
adjusted to take into account estimated prepayments. Fixed-rate mortgages
and mortgage-backed securities were assumed to prepay at rates ranging
from 12% for the first year to 12% per annum thereafter.
(2) Includes interest-bearing deposits, investment securities and stock in
the FHLB of Dallas. FHLB stock has no maturity date; therefore, it is
placed in the over 10 years category.
(3) Jefferson's negotiable order of withdrawal (NOW) accounts, passbook
savings accounts and money market deposit accounts are generally subject
to immediate withdrawal. However, management considers a certain portion
of these accounts to be core deposits having significantly longer
effective maturities based on Jefferson's retention of such deposits in
changing interest rate environments. NOW accounts, passbook savings
accounts and money market deposit accounts are assumed to be withdrawn at
annual rates of 40%, 60% and 80%, respectively, of the declining balance
of such accounts during the periods shown. It is assumed that
certificates of deposit will not be withdrawn prior to maturity.
Management believes these rates are indicative of expected withdrawal
rates in a rising interest rate environment.
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6
Jefferson's asset and liability management objectives are to (1) improve the
rate sensitivity of its interest-earning assets and (2) increase the ratio of
interest-sensitive assets to interest-sensitive liabilities with like
maturities. Various methods are used to achieve these objectives, including
selling most newly originated, fixed-rate mortgages with terms greater than 15
years, purchasing mortgage-backed securities with adjustable interest rates or
short-term (seven years or less) balloons, and maintaining a high percentage of
assets in relatively short-term, liquid investments. The investments have
staggered maturities with planned cash flows to better enable Jefferson to
react to changes in economic conditions and interest rates.
Management also presently monitors and evaluates the interest rate sensitivity
of the Bank's net portfolio value on a quarterly basis (using the Office of
Thrift Supervision's Interest Rate Risk Report), in order to ensure that
interest rate risk is maintained within limits established by the Board of
Directors. Based on the most recent report received from the OTS, the Bank's
interest rate risk is within the guidlines established by the Board of
Directors.
Table #1 summarizes the estimated maturities or repricing of Jefferson's
interest-earning assets and interest-bearing liabilities as of December 31,
1995. Based on Jefferson's experience, management assumes that certain loans
receivable and mortgage-backed securities will experience prepayments of
principal and that a substantial portion of core deposits, despite being
subject to immediate withdrawal terms, will have longer effective maturities.
Management believes that the assumptions utilized to evaluate the vulnerability
of Jefferson's operations to changes in interest rates approximate actual
experience and considers them reasonable; however, the interest-rate
sensitivity of Jefferson's assets and liabilities could vary substantially from
that shown in Table #1 if different assumptions are used or if actual
experience differs from the historical experience on which the assumptions are
based.
CHANGES IN FINANCIAL CONDITION
ASSETS. Jefferson's total assets have been relatively stable in recent years,
increasing by $4.9 million or 1.9% to $265.9 million at December 31, 1995 from
$261.0 million at December 31, 1994. The shift from investment securities to
mortgage-backed securities began during the second quarter of 1995 and
continued through the year. Mortgage-backed securities increased by $26.7
million or 33.5% in 1995 over 1994, due to purchases of $41.3 million, offset
by principal repayments of $14.6 million. Investment securities decreased by
$22.0 million or 21.1% during the year. Loans receivable, net increased by
$1.0 million or 1.6% during this period, due primarily to increased loan
demand. The increase in loan demand can generally be attributed to relatively
low interest rates during 1995. The Bank is currently retaining most newly
originated fixed-rate residential mortgage loans with terms of 15 years or less
and selling most newly originated, fixed-rate residential mortgages with terms
greater than 15 years. Investment securities consist primarily of short-term
U.S. Government and federal agency securities. Mortgage-backed securities
consist primarily of adjustable-rate or short-term (seven years or less)
balloon mortgage-backed securities which are insured or guaranteed by the
FHLMC, the GNMA or the FNMA. At December 31, 1995, approximately 85.2% of the
Bank's mortgage-backed securities consisted of pools of adjustable-rate
mortgages or mortgages with five to seven year balloon payments which serve to
reduce the interest rate risk associated with changes in interest rates.
Investing in adjustable-rate and short-term fixed-rate investments as well as
maintaining a laddered maturity portfolio provides Jefferson with the
flexibility to react to future economic events and rate changes.
LIABILITIES. Total liabilities increased by $2.3 million or 1.0% in 1995, due
to a $2.1 million or 0.9% increase in deposits. This increase in deposits in
1995 was primarily due to a $1.6 million increase in certificate of deposit
accounts. Jefferson attempts to control the flow of deposits by pricing its
accounts to remain generally competitive with other financial institutions in
its market area, but does not necessarily seek to match the highest rates paid
by competing institutions.
STOCKHOLDERS' EQUITY. Total stockholders' equity was $34.8 million at December
31, 1995, an increase of $2.6 million from December 31, 1994. The increase was
due to net income for the year of $2.7 million, plus principal payments and the
recognition of shares earned for the ESOP and the MRP of $567,000, less
dividends paid to stockholders and benefit plans of $613,000. The Company
declared four quarterly dividends of $0.075 per share, or a total of $0.30 per
share for the year ended December 31, 1995.
RESULTS OF OPERATIONS
Net income increased by $345,000 or 14.8% in 1995 and by $437,000 or 23.1% in
1994 over the respective prior years. The increase in 1995 was primarily due to
an increase in net interest income after provision (recovery) for loan losses
of $1.2 million or 16.0%, which was offset by a decrease in total noninterest
income and an increase in total noninterest expense of $94,000 and $705,000,
respectively. The increase in 1994 over 1993 was primarily due to an increase
in net interest income before provision (recovery) for loan losses of $422,000
or 5.9%, as well as a recovery of loan losses during 1994 and a reduction in
total noninterest expenses, offset by a reduction in total noninterest income.
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NET INTEREST INCOME
Jefferson's net interest income is determined by its average interest rate
spread (i.e., the difference between the average yields earned on its
interest-earning assets and the average rates paid on its interest-bearing
liabilities) and the relative amounts of interest-earning assets and
interest-bearing liabilities. Jefferson's average interest rate spread
increased during each of the last two years to 3.04% in 1995, from 2.75% in
1994 and 2.68% in 1993. The ratio of average interest-earning assets to
average interest-bearing liabilities also increased during these same periods
to 112.32% in 1995 from 107.79% in 1994 and 104.82% in 1993. Net interest
income increased by $1.3 million or 17.7% in 1995 and by $422,000 or 5.9% in
1994.
The higher interest rate spread in 1995 was due to the average yield on total
interest-earning assets increasing by more basis points than the average rate
on deposits, while the increase in the interest rate spread in 1994 was due to
the average yield on total interest-earning assets decreasing by less basis
points than the average rate on deposits. The average yield on
interest-earning assets increased by 86 basis points to 6.81% during 1995 from
5.95% during 1994, while the average rate paid on deposits increased by 57
basis points from 3.20% during 1994 to 3.77% during 1995. The average yield on
interest-earning assets decreased by 14 basis points from 6.09% in 1993 to
5.95% in 1994, while the average rate paid on deposits decreased by 21 basis
points from 3.41% to 3.20% during the same period. The average yields on
investment securities and interest-bearing deposits, which are short-term
assets, increased collectively by over 200 basis points from 1994 to 1995, and
by 130 basis points from 1993 to 1994. The average yield on mortgage-backed
securities, of which 85.2% were either adjustable-rate or balloon at December
31, 1995, increased by 47 basis points during the period from 1994 to 1995,
after decreasing to 6.09% during 1994 from 6.39% during 1993. The average yield
on loans declined to 8.53% during 1995 from 8.62% during 1994 and 9.17% during
1993. At December 31, 1995, the weighted average interest rate spread was
3.01%, compared to 3.04% for the year as a whole.
RATE/VOLUME ANALYSIS
Table #2 describes the extent to which changes in interest rates and changes in
volume of interest-related assets and liabilities have affected Jefferson's
interest income and expense during the periods indicated. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in rate (change in rate
multiplied by prior year volume), (ii) changes in volume (change in volume
multiplied by prior year rate), and (iii) total change in rate and volume. The
combined effect of changes in both rate and volume has been allocated
proportionately to the change due to rate and the change due to volume.
RATE/VOLUME ANALYSIS
TABLE #2 (Dollars in Thousands)
Year Ended December 31 ,
------------------------------------------------------------
1995 vs. 1994 1994 vs. 1993
--------------------------- ---------------------------
Volume Rate Net Volume Rate Net
------ ------- ------ ------ ------ ------
Interest income:
Loans receivable(1) $(303) $ (57) $(360) $(1,528) $(452) $(1,980)
Mortgage-backed securities 1,471 334 1,805 1,072 (157) 915
Investment securities 24 1,481 1,505 804 226 1,030
Other interest-earning assets (687) 211 (476) (598) 397 (201)
------ ------- ------ ------- ------ -------
Total interest income 505 1,969 2,474 (250) 14 (236)
------ ------- ------ ------- ------ -------
Interest expense:
Deposits (197) 1,345 1,148 (153) (501) (654)
Other borrowed money 0 (7) (7) (4) (1) (5)
------ ------- ------ ------- ------ -------
Total interest expense (197) 1,338 1,141 (157) (502) (659)
------ ------- ------ ------- ------ -------
Increase (decrease) in net
interest income $ 702 631 1,333 (93) 516 423
====== ======= ====== ======= ====== =======
(1) Includes loans held for sale during the respective periods.
INTEREST INCOME
Interest on loans decreased by $360,000 or 6.5% in 1995 and by $2.0 million or
26.3% in 1994 from the respective prior periods. The decreases were due to
declines in the average balance and, to a lesser extent, in the average yield.
The average balance of the loan portfolio decreased by $3.6 million or 5.5% in
1995 and by $17.7 million or 21.6% in 1994. The reduction in the average
balance of loans receivable during 1994 and the first half of 1995 was due
primarily to reduced loan demand, as well as loan repayments and prepayments
exceeding loan originations. Loan demand did start to improve during the
second half of 1995. Loan repayments exceeded loan originations during 1994
and 1993; however, loan originations exceeded loan repayments during 1995. In
addition, since late 1991, the Bank has originated most fixed-rate residential
mortgages with terms greater than 15 years only for sale in the secondary
market. A total of $1.6 million in loans were sold in 1995 and 1994. The Bank
retains most newly originated fixed-rate residential loans with terms of 15
years or less. The average yield on the loan portfolio has declined to 8.53%
for 1995, from 8.62% for 1994 and 9.17% for 1993. Interest on mortgage-backed
securities increased by $1.8 million or 42.3% in 1995 over 1994, primarily due
to a $23.2 million increase in the average balance, coupled with a 47 basis
point increase in the yield during this period. Interest on mortgage-backed
securities increased by $915,000 or 27.3% in 1994 over 1993. This increase in
1994 was due to an increase in the average balance of $17.6 million,
7
8
which was slightly offset by a decline in the average yield to 6.09% from 6.39%
in the respective prior period. The increases in the average balance during
1995 and 1994 were due to purchases of mortgage-backed securities amounting to
$41.3 million and $32.4 million, respectively. As investment securities
matured, the proceeds were primarily reinvested in mortgage-backed securities.
Interest on investment securities increased by $1.5 million or 35.3% in 1995
and by $1.0 million or 31.8% in 1994 over the respective prior periods. The
increase in 1995 was primarily due to an increase in the average yield from
4.57% during 1994 to 6.16% during 1995. The increase in 1994 was primarily due
to significant purchases of U.S. government and agency securities during this
period, coupled with a 30 basis point increase in the yield from 4.27% in 1993
to 4.57% in 1994. Investment securities (including FHLB stock) totaled $83.3
million at December 31, 1995, compared to $105.2 million at December 31, 1994
and $86.7 million at December 31, 1993. The increase in the average yield in
1995 was primarily due to purchases of investment securities in 1995 with a
weighted average yield of 6.42%.
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID
TABLE #3 (Dollars in Thousands)
The following table presents for the periods indicated the total dollar amount
of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and income rates, and the net interest
margin. Tax-exempt income and yields have not been adjusted to a
tax-equivalent basis. Average balances have been calculated on a monthly
basis.
Year Ended December 31,
----------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- -------------------------- ----------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- --------- ------- ------- -------- -------
Interest-earning assets:
Loans(2) $60,662 $5,177 8.53% $64,219 $ 5,537 8.62% $81,951 $7,517 9.17%
Mortgage-backed securities 92,466 6,069 6.56 70,037 4,264 6.09 52,433 3,349 6.39
Investment securities 93,721 5,771 6.16 93,330 4,266 4.57 75,727 3,236 4.27
Other interest-earning assets 9,758 459 4.70 24,377 935 3.84 39,955 1,136 2.84
-------- ------- ------- ------- ------- ------- -------- ------- ------
Total interest-earning assets 256,607 17,476 6.81 251,963 15,002 5.95 250,066 15,238 6.09
------- ------- ------- ------- ------- ------
Non-interest-earning assets 8,011 7,369 6,793
-------- ------ --------
Total assets $264,618 $259,332 $256,859
======== ======== ========
Interest-bearing liabilities:
Deposits $228,461 8,621 3.77% $233,676 7,473 3.20% $238,450 8,127 3.41%
Borrowed money --- --- --- 78 7 8.97 118 12 10.17
-------- ------- ------- -------- ------- ------- -------- ------ ------
Total interest-bearing liabilities 228,461 8,621 3.77 233,754 7,480 3.20 238,568 8,139 3.41
------- ------- ------- ------- ------ ------
Non-interest bearing liabilities 4,134 3,716 3,707
-------- -------- --------
Total liabilities 232,595 237,470 242,275
Stockholders' equity 32,023 21,862 14,584
-------- -------- --------
Total liabilities and stockholders'
equity $264,618 $259,332 $256,859
======== ======== ========
Net interest income; interest rate spread $8,855 3.04% $7,522 2.75% $7,099 2.68%
======= ======= ======= ===== ====== =======
Net interest margin(3) 3.45% 2.99% 2.84%
======= ===== ========
Average interest-earning assets
to average interest-bearing
liabilities 112.32% 107.79% 104.82%
======= ======= =======
(1) At December 31, 1995, the weighted averaged rates paid were as follows:
loans, 8.36%; mortgage-backed securities, 6.53%; investment securities,
6.33%; other interest-earning assets, 5.69%; total interest-earning
assets, 6.89%; deposits, 3.88%; borrowed money, 0%; total interest-bearing
liabilities, 3.88%; and interest rate spread, 3.01%.
(2) Includes loans held for sale and non-accrual loans during the respective
periods.
(3) Net interest margin is net interest income divided by average
interest-earning assets.
8
9
Interest on other interest-earning assets, which consist of interest-bearing
deposits, decreased by $476,000 or 50.9% in 1995 and by $201,000 or 17.7% in
1994 from the respective prior periods. The decreases in 1995 and 1994 were due
to significant declines in the average balance of 39.0% in 1994 and 60.0% in
1995, which were partially offset by increases in the average yield to 4.70% in
1995 from 3.84% in 1994 and 2.84% in 1993. The increases in the average yield
in 1995 and 1994 reflect a slight increase in general market interest rates.
The decreases in the average balance in 1995 and 1994 resulted from Jefferson
using interest-bearing deposits to purchase higher yielding mortgage-backed
securities and investment securities.
Total interest income increased by $2.5 million or 16.5% in 1995 after
decreasing by $236,000 or 1.6% in 1994 from the respective prior periods. The
increase in 1995 was primarily due to an increase in the average balance of
total interest-earning assets, coupled with an increase in the average yield on
total interest-earning assets to 6.81% in 1995 from 5.95% in 1994, while the
decrease in 1994 was primarily due to a decline in the average yield on total
interest-earning assets to 5.95% in 1994 from 6.09% in 1993. The higher yield
in 1995 reflects the higher yield on both investment securities and
mortgage-backed securities, due in part to a slight increase in general market
rates during the first half of 1995. The lower yield in 1994 reflects a shift
in assets from loans to mortgage-backed securities and investment securities,
due to reduced loan demand as well as loan repayments exceeding loan
originations and the sale of most newly originated, fixed-rate mortgages with
terms greater than 15 years. The lower yield in 1994 was partially offset by a
slight increase in the average balance of total interest-earning assets.
INTEREST EXPENSE
Interest on deposits increased by $1.1 million or 15.4% in 1995 after
decreasing by $654,000 or 8.0% in 1994 from the respective prior periods. The
increase in 1995 reflects an increase in the average rate paid to 3.77% during
1995 from 3.20% in 1994, which was partially offset by a $5.2 million or 2.2%
decrease in the average balance of deposits during this period. The decrease
in 1994 was due to a decline in the average rate paid to 3.20% in 1994 from
3.41% in 1993, coupled with a decrease in the average balance of $4.8 million
or 2.0% during the same period. During 1994, general market rates of interest
increased slightly and Jefferson responded by increasing the rate paid on most
certificate of deposit accounts. These rates started to drop slightly during
the latter half of 1995, as the Federal Reserve Board began to drop the federal
funds rate and financial institutions responded by dropping lending and deposit
rates.
The only borrowing in the last three years was a $140,000 loan from a third
party by the Bank's Employee Stock Ownership Plan ("ESOP"). The loan was repaid
as part of the Conversion and establishment of the Company's ESOP. During 1994
and 1993, respectively, the ESOP purchased 112,808 and 37,138 shares of common
stock from Jefferson. As part of the Conversion, the remaining liability was
paid to the third party lender by the Company, in exchange for a new note with
a variable interest rate based on the prime rate, maturing in December 1997.
To purchase the 1994 shares, the ESOP borrowed funds from the Company; these
funds will be repaid over a seven-year period at a variable interest rate based
on the prime rate.
PROVISION FOR LOAN LOSSES
The provision (recovery) for loan losses was $101,000, ($27,000), and $131,000
in 1995, 1994, and 1993, respectively. The increase in the provision for loan
losses in 1995 over 1994 was the result of management's review of its loan
portfolio and its conservative allowance methodology. The recovery into income
during 1994 of a portion of Jefferson's prior provisions reflected an
improvement in the local economy and declines in the loan portfolio and total
non-performing assets. Non-performing assets and troubled debt restructurings
totaled $1.6 million or 0.59% of total assets at December 31, 1995, as compared
to $1.9 million or 0.73% of total assets at December 31, 1994 and $2.5 million
or .96% of total assets at December 31, 1993. The allowance for loan losses
amounted to $691,000 or 1.09% of the gross loan portfolio (including loans held
for sale) at December 31, 1995.
NONINTEREST INCOME
Service charges on deposit accounts decreased by $22,000 or 2.3% during 1995,
after increasing slightly by $4,000 or 0.46% in 1994 from the respective prior
periods. The service charges primarily consist of checking account fees,
minimum balance charges and overdraft fees. This balance fluctuates depending
on transaction volume.
Income from real estate owned operations decreased by $6,000 or 100% in 1995
and by $9,000 or 61.5% in 1994 from the respective prior periods. The
reduction in 1995 was due to a reduction in the number of properties held,
while the decrease in 1994 was primarily due to a decrease in rental income on
real estate owned. There was no real estate owned at December 31, 1995 as
compared to $74,000 and $19,000 at December 31, 1994, and 1993, respectively.
Gain on sale of real estate owned decreased by $24,000 or 77.4% during 1995
after increasing slightly by $2,000 or 7.0% during 1994. As noted above, the
balance of real estate owned decreased significantly during 1995 as compared to
1994.
Late charges on loan accounts has remained relatively stable, decreasing by
$3,000 or 6.7% in 1995 and by $3,000 or 5.5% in 1994 from the respective prior
period.
9
10
Other noninterest income, which consists primarily of income from fees
recognized upon the sale of loans, as well as income from the sale of consigned
items (travelers checks, etc.), annuity commissions and miscellaneous income,
decreased by $39,000 or 21.2% in 1995 and by $157,000 or 46.1% in 1994 from the
respective prior periods. The decrease in 1995 was primarily due to an $18,000
decrease in fees recognized on the sale of loans during 1995 as compared to
1994, coupled with a decrease in commissions earned on the sale of annuities of
$20,000 or 61.6% during the same period. The decrease in other noninterest
income in 1994 was primarily due to a substantial decrease in the amount of
fixed-rate mortgages originated for sale, with a corresponding decrease in the
amount of loans sold. Total loans sold amounted to $0.7 million, $0.9 million
and $7.7 million in 1995, 1994 and 1993, respectively. Loans held for sale
amounted to $87,000 at December 31, 1995. There were no loans held for sale at
December 31, 1994. Commissions earned on the sale of annuities decreased by
$16,000 or 33.4% during 1994, due to a decline in the volume of annuities sold.
Jefferson began selling annuities during 1993. The remaining noninterest
income items, such as income from the sale of consigned items, remained
relatively stable over the period from 1993 to 1995.
Total noninterest income decreased by $94,000 or 7.8% in 1995 and by $163,000
or 11.8% in 1994 from the respective prior periods, as each category of
noninterest income declined in 1995. During 1994, each category of noninterest
income, except service charges on deposit accounts and gain (loss) on sale of
real estate owned, net declined. The largest dollar declines in 1995 were in
gain (loss) on sale of REO and other noninterest income, while the largest
declines in 1994 were in real estate owned operations and other noninterest
income.
NONINTEREST EXPENSE
Compensation and benefits increased by $605,000 or 22.4% in 1995 and by $51,000
or 1.9% in 1994 from the respective prior periods. The increase in 1995 was
primarily due to a $464,000 increase in compensation expense recognized for the
ESOP and the MRP over the prior year, as well as increases in salary expense
due to normal salary adjustments. The 1994 MRP was approved at the annual
meeting of stockholders held on April 19, 1995. The increase in 1994 was
primarily due to compensation expense recognized for the ESOP. In addition,
compensation and benefits expense was reduced in 1993 due to a $63,000 refund
from the Bank's health insurance company, which reduced the expense in that
year.
Occupancy expense, which consists primarily of rent expense, utilities and
building security expenses, increased by $11,000 or 4.9% in 1995 after
decreasing by less than 1% in 1994 from the respective prior periods. The
increase in 1995 was primarily due to slight increases in building security and
utility expenses.
SAIF deposit insurance premiums decreased by $16,000 or 3.0% in 1995 and by
$15,000 or 2.7% in 1994 over the respective prior periods. The decrease in
1995 was primarily due to a decrease in the average assessment base, while the
decrease in 1994 was due to a decrease in the average assessment base, coupled
with a decrease in the premium assessment rate to $0.23 per $100 of domestic
deposits for the year 1994 from $0.26 per $100 of domestic deposits for the
year 1993 (due to the Bank's lower risk classification), which was offset by
the elimination of the secondary reserve credit effective for the six-month
period beginning January 1993.
The (recovery) provision for real estate losses amounted to $(4,000), $3,000,
and $5,000 in 1995, 1994, and 1993, respectively. The recovery in 1995 was due
to the sale of the remaining two pieces of REO during 1995. The decrease in the
provision during 1994 was due to reduced real estate owned activity. These
expense reductions are a reflection of the improvements in the local economy.
There was no real estate owned as of December 31, 1995.
Depreciation and amortization expense decreased by $57,000 or 19.5% in 1995 and
by $48,000 or 14.0% in 1994 over the respective prior periods. These decreases
were due to decreases in office properties and equipment of 6.0% and 7.2%
during the years 1995 and 1994, respectively, as a result of reduced
expenditures and fully depreciated assets.
NOW checking expense decreased by $4,000 or 1.7% in 1995 and by $15,000 or 5.9%
in 1994 over the respective prior periods. These expenses fluctuate depending
on transaction volume.
Other noninterest expense, which primarily consists of professional fees,
advertising expenses, data processing fees, office supplies, insurance costs
and general regulatory assessments and operational expenses, increased by
$173,000 or 12.5% in 1995 after decreasing by $9,000 or less than 1% in 1994
over the respective prior periods. The increase in 1995 was primarily due a
$104,000 increase in the assessment for the Louisiana shares tax in 1995 over
the prior year, as well as a $60,000 increase in legal fee expenses (due
primarily to expenses related to the benefit plans approved at the 1995 annual
meeting of stockholders) during 1995 as compared to 1994. The decrease in 1994
was primarily due to decreases in legal fees, office supplies expenses and
postage and freight expenses, which were offset by increases in audit expenses
as well as assessments for the 1994 Louisiana shares tax.
Total noninterest expense increased by $705,000 or 13.1% during 1995 after
decreasing by less than 1% in 1994. The largest dollar increases in 1995 were
in compensation and benefits expense and other noninterest expense. During
1994, each expense category declined, other than compensation and benefits.
10
11
INCOME TAX EXPENSE
Total income tax expense increased by $61,000 or 5.8% in 1995 and by $19,000 or
1.8% in 1994, compared to the respective prior periods. The increase in 1995
was primarily due to an increase in pre-tax income of $406,000 or 12.0%, which
was offset by a decline in the effective tax rate from 31.0% in 1994 to 29.3%
in 1995. The increase in 1994 was primarily due to an increase in pre-tax
income of $456,000 or 15.3%, which was offset by a decline in deferred taxes
related to the tax provision for loan loss reserves. The effective tax rate
has declined since 1992 as a result of the reduction in book to tax timing
differences and the increase in the loan and mortgage-backed securities
portfolio. See Notes 1 and 9 to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required under applicable federal regulations to maintain specified
levels of "liquid" investments in qualifying types of U.S. Government, federal
agency and other investments having maturities of five years or less. Current
OTS regulations require that a savings institution maintain liquid assets of
not less than 5% of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less, of which short-term liquid
assets must consist of not less than 1%. At December 31, 1995, the Bank's
liquidity was 70.9% or $148.6 million in excess of the minimum OTS requirement.
Cash was generated by Jefferson's operating activities during the years ended
December 31, 1995, 1994 and 1993, primarily as a result of net income in each
period. The adjustments to reconcile net income to net cash provided by
operations during the periods presented consisted primarily of loans originated
for sale, loans sold, amortization of the premiums and discounts on
investments, depreciation and amortization expense, provision (recovery) for
loan losses and increases or decreases in various receivable and payable
accounts. The primary investing activities of Jefferson are the origination of
loans and the purchase of investment and mortgage-backed securities, which are
primarily funded with the proceeds from repayments and prepayments on existing
loans and mortgage-backed securities and the maturity of investment securities.
Because of the significant purchases of investment and mortgage-backed
securities in 1994 and mortgage-backed securities in 1995, investing activities
resulted in a net use of cash in 1995 and 1994. In 1993, investing activities
provided $5.0 million of cash as principal repayments on loans and
mortgage-backed securities increased while the total amount of investment and
mortgage-backed securities purchased decreased. The primary financing activity
consists of deposits, which increased in 1995 after decreasing in 1994 and
1993. During 1994 and 1993, Jefferson also had proceeds from stock issuance.
At December 31, 1995, Jefferson had outstanding commitments to originate
$773,000 of single-family residential loans and $59,000 of consumer loans. At
the same date, the total amount of certificates of deposit which were scheduled
to mature in the following 12 months was $62.4 million. Jefferson believes that
it has adequate resources to fund all of its commitments and that it can adjust
the rate on certificates of deposit to retain deposits to the extent desired.
If the Bank requires funds beyond its internal funding capabilities, advances
from the FHLB of Dallas are available as an additional source of funds.
The Bank is required to maintain regulatory capital sufficient to meet
tangible, core and risk-based capital ratios of 1.50%, 3.00% and 8.00%,
respectively. At December 31, 1995, the Bank exceeded each of its capital
requirements, with tangible, core and risk-based capital ratios of 10.92%,
10.92% and 41.23%, respectively. See Table #4 and Note 10 to the Consolidated
Financial Statements.
JEFFERSON FEDERAL SAVINGS BANK
REGULATORY CAPITAL
TABLE #4 (Dollars in Thousands)
December 31, 1995
----------------------------------------------------
Actual % Required % Excess %
------- ------ ----- ----- ------ -----
Core capital to
adjusted assets $28,321 10.92% 7,777 3.00% 20,544 7.92%
Tangible capital to
adjusted total assets 28,321 10.92% 3,889 1.50% 24,432 9.42%
Total capital to risk-weighted assets 29,000 41.23% 5,627 8.00% 23,373 33.23%
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data 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 changes
in relative purchasing power over time due to inflation. Unlike most
industrial companies, virtually all of Jefferson's assets and liabilities are
monetary in nature. As a result, interest rates generally have a more
significant impact on Jefferson's performance than does the effect of
inflation.
11
12
12
13
SELECTED
CONSOLIDATED
FINANCIAL AND OPERATING
DATA
13
14
SELECTED CONSOLIDATED FINANCIAL AND
OPERATING DATA
JEFFERSON BANCORP, INC. AND SUBSIDIARY FOR THE YEARS
ENDED DECEMBER 31, 1995, 1994, 1993, 1992, AND 1991
================================================================================
1995 1994 1993 1992 1991
------- ------ ------ ------- -------
(Dollars in Thousands)
AT YEAR END:
Assets $265,870 260,965 256,140 256,922 249,153
Cash and cash equivalents 7,485 9,128 31,638 25,738 32,988
Other interest-bearing deposits 400 100 1,583 11,336 22,481
Investment securities 81,996 103,984 85,052 68,720 15,909
Mortgage-backed securities, net 106,352 79,651 61,954 50,403 51,140
Loans receivable, net 62,306 61,354 68,994 93,114 118,302
Loans held for sale 87 --- 32 252 ---
Deposits 229,065 226,996 238,645 242,613 236,337
FHLB advances and other borrowings --- --- 112 --- ---
Stockholders' equity(1) 34,814 32,186 15,612 12,403 10,547
Full service offices (2) 7 7 7 7 7
FOR THE YEAR ENDED:(5)
Total interest income 17,476 15,002 15,238 17,727 20,075
Total interest expense 8,621 7,480 8,139 10,402 14,466
--------- -------- --------- -------- ---------
Net interest income 8,855 7,522 7,099 7,325 5,609
Provision (recovery) for loan losses 101 (27) 131 243 432
--------- -------- --------- -------- ---------
Net interest income after
provision (recovery) for loan losses 8,754 7,549 6,968 7,082 5,177
Noninterest income 1,116 1,210 1,373 1,416 1,248
Noninterest expense 6,087 5,382 5,420 5,434 5,558
--------- -------- --------- -------- ---------
Income before income taxes 3,783 3,377 2,921 3,064 867
Income taxes 1,109 1,048 1,029 1,208 417
--------- -------- --------- -------- ---------
Net income $2,674 2,329 1,892 1,856 450
========= ======== ========= ======== =========
Earnings per share(3) $ 1.29 1.12 0.89
========= ======== =========
Selected Operating Ratios:(5)
Return on average assets 1.01% .90% 0.74% 0.72% 0.18%
Return on average equity 8.35% 10.65% 12.97% 15.70% 4.33%
Average equity to average assets 12.10% 8.43% 5.68% 4.60% 4.23%
Dividend payout ratio (3)(4) 23.26% 19.42% 19.10% N/A N/A
(1) Retained earnings prior to 1993.
(2) Jefferson's branch office located at 2330 Barataria Boulevard, Marrero,
Louisiana does not accept loan applications.
(3) No shares of common stock were outstanding prior to consummation of the
mutual holding company formation on January 1, 1993.
(4) Earnings per share for 1993 have been restated to reflect the 1994
Conversion.
(5) Certain amounts for the years ended December 31, 1994, 1993, 1992 and
1991 have been reclassified.
14
15
CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION
JEFFERSON BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1995 AND 1994
1995 1994
==============================================================================================================
ASSETS
Cash on hand and in banks $ 2,191,816 2,277,168
Interest-bearing deposits 5,293,658 6,850,468
------------ ------------
Cash and cash equivalents 7,485,474 9,127,636
Other interest-bearing deposits 400,000 100,000
Investment securities (market value of $82,677,566 and$102,576,235
at December 31, 1995 and 1994, respectively) - (note 2) 81,996,010 103,983,856
Mortgage-backed securities (market value of $107,347,424 and $75,872,908
at December 31, 1995 and 1994, respectively) - (note 3) 106,351,679 79,651,547
Loans receivable, net (note 4) 62,305,890 61,354,018
Loan held for sale 87,230 ---
Office properties and equipment, net (note 6) 2,490,964 2,649,782
Real estate owned, net (note 5) --- 73,885
Federal Home Loan Bank stock, at cost 1,318,000 1,206,300
Accrued interest receivable (note 7) 2,358,606 2,032,003
Prepaid assets 389,543 377,426
Other assets 686,640 408,710
------------ ------------
$265,870,036 260,965,163
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 8) 229,065,137 226,996,045
Advance payments by borrowers for taxes and insurance 716,131 680,658
Income taxes (note 9):
Payable 231,832 120,648
Deferred 307,868 480,363
Accrued interest payable 94,928 84,517
Other liabilities 640,169 417,206
------------ ------------
Total liabilities 231,056,065 228,779,437
------------ ------------
Stockholders' equity:
Common stock, $0.01 par value, 10,000,000 shares authorized;
2,195,634 and 2,147,288 shares issued and outstanding
at December 31, 1995 and 1994, respectively 21,957 21,473
Paid-in capital in excess of par 18,552,189 17,511,152
Unearned compensation (note 11) (1,651,115) (1,171,791)
Retained earnings, substantially restricted 17,890,940 15,824,892
------------ ------------
Total stockholders' equity 34,813,971 32,185,726
------------ ------------
$265,870,036 260,965,163
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
15
16
CONSOLIDATED
STATEMENTS OF INCOME
JEFFERSON BANCORP, INC. AND SUBSIDIARY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
===================================================================================================================
Interest income:
Loans receivable $ 5,177,016 5,537,317 7,517,011
Mortgage-backed securities 6,069,058 4,264,023 3,348,519
Interest-bearing deposits 459,014 934,609 1,136,308
Investment securities and dividends on stock of
Federal Home Loan Bank 5,771,234 4,265,591 3,236,474
----------- ----------- ----------
Total interest income 17,476,322 15,001,540 15,238,312
----------- ----------- ----------
Interest expense:
Deposits (note 8) 8,621,474 7,472,984 8,127,166
Other borrowed money (note 11) --- 7,087 11,655
----------- ----------- ----------
Total interest expense 8,621,474 7,480,071 8,138,821
----------- ----------- ----------
Net interest income before provision (recovery)
for loan losses 8,854,848 7,521,469 7,099,491
Provision (recovery) for loan losses (note 4) 100,754 (27,387) 131,361
----------- ----------- ----------
Net interest income after provision (recovery) for
loan losses 8,754,094 7,548,856 6,968,130
----------- ----------- ----------
Noninterest income:
Service charges on deposit accounts 921,944 944,198 939,875
Real estate owned operations --- 5,975 15,508
Gain on sale of real estate owned, net 7,140 31,087 29,066
Late charges on loan accounts 42,394 45,194 47,814
Other 144,600 183,594 340,394
----------- ----------- ----------
Total noninterest income 1,116,078 1,210,048 1,372,657
----------- ----------- ----------
Noninterest expense:
Compensation and benefits 3,310,507 2,704,658 2,653,288
Occupancy 235,076 224,229 224,697
SAIF deposit insurance premiums 525,239 541,426 556,174
Provision (recovery) for real estate losses (note 5) (3,888) 2,878 4,936
Depreciation and amortization 236,184 293,553 341,309
NOW checking expense 232,581 236,647 251,505
Other 1,551,584 1,378,862 1,388,080
----------- ----------- ----------
Total noninterest expense 6,087,283 5,382,253 5,419,989
----------- ----------- ----------
Income before provision (benefit) for income taxes 3,782,889 3,376,651 2,920,798
----------- ----------- ----------
Income tax expense provision (benefit):
Current 1,281,650 1,057,502 951,803
Deferred (172,495) (9,426) 77,320
----------- ----------- ----------
Total income tax expense 1,109,155 1,048,076 1,029,123
----------- ----------- ----------
Net income $ 2,673,734 2,328,575 1,891,675
=========== =========== ==========
Earnings per share $ 1.29 1.12 0.89
=========== =========== ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
16
17
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
JEFFERSON BANCORP, INC. AND SUBSIDIARY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
===============================================================================
Paid-in
Common stock capital
------------ in excess Retained Unearned
Shares Amount of par earnings compensations Total
------ ------ ---------- -------- ------------- ---------
Balance at December 31, 1992 --- $ --- --- 12,402,822 --- 12,402,822
Issuance of common stock to Mutual Holding
Company (note 15) 1,611,552 16,116 (16,116) --- --- ---
Equity retained by Mutual Holding Company (note 15) --- --- --- (110,000) --- (110,000)
Issuance of common stock 477,497 4,775 1,408,612 --- --- 1,413,387
Issuance of common stock to employee benefit
plans (note 11) 53,055 531 199,469 --- (200,000) ---
Award of common stock in management recognition
plan (note 11) --- --- --- --- 60,000 60,000
Payment of ESOP liability (note 11) --- --- 6,212 --- 28,000 34,212
Issuance of additional common stock 2,653 26 9,974 --- --- 10,000
Dividends declared for minority interest in
Bank (note 15) --- --- --- (90,150) --- (90,150)
Dividends declared and waived
by Mutual Holding Company --- --- 273,375 (273,375) --- ---
Net income for 1993 --- --- --- 1,891,675 --- 1,891,675
----------- -------- ---------- ---------- ----------- ----------
Balance at December 31, 1993 2,144,757 21,448 1,881,526 13,820,972 (112,000) 15,611,946
Cancellation of Mutual Holding Company (note 15) (1,611,552) (16,116) 16,116 --- --- ---
Issuance of common stock in plan of conversion
and reorganization, net of 123 fractional shares
acquired (notes 11 and 15) 1,611,430 16,114 15,299,887 110,000 (1,128,080) 14,297,921
Payment of ESOP liability --- --- 30,275 --- 68,289 98,564
Issuance of additional common stock 2,653 27 9,973 --- --- 10,000
Dividends declared for minority interest
in Bank (note 15) --- --- --- (86,061) --- (86,061)
Dividends declared and waived by Mutual Holding
Company (note 15) --- --- 273,375 (273,375) --- ---
Dividends declared by Company --- --- --- (75,219) --- (75,219)
Net income for 1994 --- --- --- 2,328,575 --- 2,328,575
----------- -------- ---------- ---------- ----------- -----------
Balance at December 31, 1994 2,147,288 $21,473 17,511,152 15,824,892 (1,171,791) 32,185,726
Award of common stock to employee benefit
plan (note 15) 48,346 484 845,572 --- (846,055) 1
Dividends declared by Company --- --- --- (607,686) --- (607,686)
Earned employee benefit plans (notes 11 and 15) --- --- 195,465 --- 366,731 562,196
Net income for 1995 --- --- --- 2,673,734 --- 2,673,734
----------- -------- ---------- ---------- ----------- -----------
Balance at December 31, 1995 2,195,634 $21,957 18,552,189 17,890,940 (1,651,115) 34,813,971
=========== ======== ========== ========== =========== ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
17
18
CONSOLIDATED STATEMENTS
OF CASH FLOWS
JEFFERSON BANCORP, INC. AND SUBSIDIARY
DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
=========================================================================================================================
Cash flows from operating activities:
Net income $ 2,673,734 2,328,575 1,891,675
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 236,184 293,553 341,309
Amortization of premiums and discounts, net (221,378) 891,446 1,100,690
Provision (benefit) for deferred income taxes (172,495) (9,426) 77,320
Gain on sale of real estate owned (7,140) (31,087) (29,066)
Employee Stock Ownership and Management Recognition Plans 567,327 98,564 94,212
Mortgage loans originated for sale (740,980) (895,884) (7,489,790)
Proceeds from sale of mortgage loans originated for sale 653,750 927,963 7,710,011
FHLB stock dividends (82,700) (59,200) (56,200)
Provisions (recovery) for loan and real estate owned losses 96,866 (24,509) 136,297
Increase in accrued interest receivable (326,603) (32,216) (84,206)
(Increase) decrease in other assets and other liabilities, net 54,511 (384,409) 74,761
------------ ------------ ------------
Net cash provided by operating activities 2,731,076 3,103,370 3,767,013
------------ ------------ ------------
Cash flows from investing activities:
Mortgage loan originations, net of loans originated for sale (9,840,515) (5,497,703) (2,998,000)
Principal repayments of loans receivable 8,875,049 12,941,189 26,990,552
Purchase of mortgage-backed securities (41,369,039) (32,393,874) (26,216,779)
Principal repayments on mortgage-backed securities 14,562,486 14,424,960 14,345,715
(Increase) decrease in other interest-bearing deposits (300,000) 1,483,000 9,753,000
Maturities (purchases) of investment securities, net 22,284,485 (19,518,797) (17,112,048)
Proceeds from the sale of real estate owned 28,913 164,526 435,456
Purchase of office properties and equipment (77,366) (87,890) (244,300)
Purchase of FHLB stock (90,600) --- ---
Proceeds from sales of FHLB stock 61,600 504,100 ---
------------ ------------ ------------
Net cash provided by (used in)
investing activities (5,864,987) (27,980,489) 4,953,596
------------ ----------- ------------
Cash flows from financing activities:
Net increase (decrease) in deposits 2,069,092 (11,649,185) (3,967,577)
Net proceeds from borrowed funds --- --- 140,000
Repayment of borrowed funds --- (112,000) (28,000)
Proceeds from stock issuance, net of purchase fractional shares --- 14,307,920 1,423,387
Cash retained by Mutual Holding Company --- --- (110,000)
Dividends paid on common stock (612,816) (161,280) (90,150)
Increase (decrease) in advance payments by borrowers for taxes
and insurance 35,473 (18,853) (187,976)
------------ ------------ ------------
Net cash provided by (used in)
financing activities 1,491,749 2,366,602 (2,820,316)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (1,642,162) (22,510,517) 5,900,293
Cash and cash equivalents at beginning of year 9,127,636 31,638,153 25,737,860
------------ ------------ ------------
Cash and cash equivalents at end of year $ 7,485,474 9,127,636 31,638,153
============ ============ ============
Supplemental disclosure:
- - ------------------------
Cash paid during the year for:
Interest on deposits and other borrowed money $ 8,611,063 7,487,365 8,198,731
============ ============ ============
Income taxes $ 1,436,324 1,017,470 1,000,000
============ ============ ============
Transfers from loans to real estate acquired
through foreclosure $ --- 337,094 337,109
============ ============ ============
Loans on sale of real estate owned $ 56,000 115,000 254,000
============ ============ ============
Noncash transactions -
During 1995, the Company issued 48,346 shares of common stock,
valued at $846,055 to Jefferson's management recognition plan.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
19
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
JEFFERSON BANCORP, INC. AND SUBSIDIARY
December 31, 1995 and 1994
================================================================================
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Jefferson Bancorp, Inc. (the Company) and its wholly-owned
subsidiary (collectively Jefferson). All significant intercompany
transactions and balances have been eliminated in consolidation.
Jefferson Bancorp, Inc. was created in 1994 in connection with the
reorganization of Jefferson Federal Savings Bank (the Bank).
Jefferson provides a full range of banking and thrift-related services
to customers through its main office and branches in the greater New
Orleans metropolitan area. Jefferson is subject to competition from
other financial institutions and to regulations of certain federal
agencies, including periodic examinations by those regulatory
agencies.
(b) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand and in banks and short-term investments with an
original maturity of three months or less.
(c) Investment Securities
Investment securities are classified as held to maturity and carried
at amortized cost, adjusted for premiums and discounts which are
recognized in interest income using the interest method over the
remaining period to maturity. Jefferson has the intent and the
ability to hold such investments to maturity.
Gains and losses on the sale, if any, of investment securities are
determined using the specific identification method.
Stock in the Federal Home Loan Bank of Dallas is carried at cost.
Since Jefferson is a member of the Federal Home Loan Bank, it is
required to maintain an amount of stock based on its total assets. At
December 31, 1995 and 1994, Jefferson held the required level of
Federal Home Loan Bank stock.
(d) Mortgage-Backed Securities
Mortgage-backed securities represent participating interests in pools
of first mortgage loans originated and serviced by the issuers of the
securities. Mortgage-backed securities are classified as held to
maturity and are carried at unpaid principal balances, adjusted for
unamortized premiums and unearned discounts. Premiums and discounts
are amortized using the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments. Jefferson
has the intent and the ability to hold these securities to maturity.
Gains and losses on the sale, if any, of mortgage-backed securities
are determined using the specific identification method.
(e) Loans Receivable
Lending activities are concentrated in the greater New Orleans
metropolitan area. Loans receivable are stated at unpaid principal
balances less unearned discounts. Loans held for sale are carried at
the lower of cost or market, determined in the aggregate. Discounts
on consumer loans are recognized over the lives of the loans using
methods that approximate the interest method.
19
20
Substantially all fixed rate loans originated by Jefferson subsequent
to January 1, 1992, except those originated to facilitate the sales of
real estate owned, were identified at origination as being held for
sale and were sold shortly after origination. Beginning in July 1993,
loans originated with terms of 15 years or less were retained by
Jefferson. Because loans originated for sale were sold shortly after
origination, no gains or losses were realized on these sales.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). As all loans are
collateral dependent, impaired loans are measured at the fair value of
the collateral and adjustments are made to the loan loss allowance and
bad debt expense as necessary. Management's periodic evaluation of the
adequacy of the allowance is based on Jefferson's past loan loss
experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, and
estimated value of any underlying collateral. While management uses
available information to recognize losses on loans and real estate
owned, future additions to the allowances may be necessary based on
regulatory findings or changes in economic conditions.
Accrued interest on loans that are contractually ninety days or more
past due is charged off or an allowance is established. The allowance
is established by a charge to interest income equal to all interest
previously accrued. Individual loans are returned to accrual status
and interest income is recognized based upon management's
determination of the ultimate collectibility of the loan.
(f) Loan Origination and Commitment Fees and Related Costs
Loan fees and certain direct loan origination costs are deferred, and
the net fee or cost is recognized in income using the interest method
over the contractual life of the loans, adjusted for estimated
prepayments based on Jefferson's historical prepayment experience.
Commitment fees and costs are recognized over the commitment period on
a straight-line basis. If the commitment is subsequently exercised,
the commitment fee at the time of exercise is recognized over the life
of the loan as an adjustment of yield.
(g) Real Estate Owned
Real estate acquired through foreclosure or accounted for as
in-substance foreclosure is initially recorded at the lower of the
related loan balance, less any specific allowance for loss, or fair
value, less estimated costs to sell, at the date of foreclosure.
Costs relating to development and improvement of property are
capitalized, whereas costs relating to holding the property are
expensed. Fair value is measured by the market value of the active
market of the foreclosed asset, if available. If active markets exist
for only similar assets, selling prices in that market or cash flow
analyses are used by management in estimating fair value.
Valuations are periodically performed by management and an allowance
for losses is established by a charge to operations if the carrying
value of a property exceeds its estimated fair value less estimated
selling expenses.
(h) Office Properties and Equipment
Office properties and equipment are carried at cost less accumulated
depreciation and amortization, which are computed on a straight-line
basis over the estimated economic lives of the assets or the terms of
the leases for leasehold improvements. The estimated useful lives are
five to twenty years on buildings and improvements and three to ten
years on furniture, fixtures and equipment. Maintenance and repairs
are charged to operations as incurred. Gains and losses on the
disposition of office properties and equipment are credited or charged
to income.
(i) Income Taxes
Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
20
21
(j) Earnings per Share
Earnings per share have been calculated based on the weighted average
number of shares of common stock outstanding, including common stock
equivalents, during the period. The weighted average number of shares
outstanding during 1995, 1994 and 1993 were 2,067,906, 2,084,719 and
2,113,962. For earnings per share computations, ESOP shares that have
been committed to be released and MRP shares earned are considered
outstanding. The outstanding shares of common stock at December 31,
1993 were restated to reflect the effect of the conversion and
reorganization.
(k) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent liabilities at the date of
the consolidated financial statements and the reported amounts of
interest income and expense and noninterest income and expense during
the reporting period. Actual results could differ from those
estimates.
(l) Recent Accounting Developments
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan." This statement addresses the accounting by
creditors for impairment of certain loans and requires that certain
impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate,
observable market price, or the fair value of the collateral, if the
loan is collateral dependent. In October 1994, the FASB issued SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures." This statement amends SFAS No. 114 by
eliminating the provisions in SFAS No. 114 that described how a
creditor should report income on an impaired loan. This statement
did, however, change the provisions in SFAS No. 114 requiring a
creditor to measure impairment based on the present value of expected
future cash flows or observable market price of the loan or fair value
of collateral, if the loan is collateral dependent. Both of these
statements were effective for fiscal years beginning after December
15, 1994.
In October 1994, the FASB issued SFAS No. 119, "Disclosures about
Derivative Financial Instruments and Fair Value of Financial
Instruments." This statement requires disclosures about derivative
financial instruments - futures, forward, swap and option contracts
and other financial instruments with similar characteristics. The
disclosures required include amounts, nature, terms, average fair
value, net trading gains or losses, anticipated transactions and other
similar characteristics of derivative financial instruments and a
distinction between financial instruments held or issued for trading
purposes and those held or issued for purposes other than trading.
The statement was effective for fiscal years ending after December 15,
1994. There was no impact of the adoption of SFAS No. 119 to the
consolidated financial statements.
In December 1994, the AICPA issued Statement of Position (SOP) 94-6,
"Disclosure of Certain Significant Risks and Uncertainties," which
addresses risk and uncertainties that could significantly affect the
amounts reported in the financial statements in the near term or the
near-term functioning of the reporting entity. The risk and
uncertainties the SOP addresses results from the nature of the
entity's operations, from the necessary use of estimates in the
preparation of the entity's financial statements and from significant
concentrations in certain aspects of the entity's operations. Near
term is defined as a period of time not to exceed one year from the
date of the financial statements. This SOP is effective for financial
statements issued for fiscal years ending after December 15, 1995 and
for financial statements for interim periods in fiscal years
subsequent to the year for which this SOP is to be first applied.
Management has implemented the SOP in the consolidated financial
statement disclosures.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." This statement establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used for long-lived
assets and certain identifiable intangibles to be disposed of. This
statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Measurement
of an impairment loss for long-lived assets and identifiable
intangibles that an entity expects to hold and use should be based on
the fair value of the asset. This statement does not apply to
financial instruments, long-term customer relationships of a financial
institution (for example, core deposit intangibles and credit
21
22
cardholder intangibles), mortgage and other servicing rights, deferred
policy acquisition costs, or deferred tax assets. This statement is
effective for financial statements for fiscal years beginning after
December 15, 1995. Management anticipates that the effect of the
adoption of SFAS No. 121 will not have any significant impact on the
consolidated financial statements.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This statement requires that (1) mortgage banking
enterprises recognize as separate assets rights to service mortgage
loans for others, however these servicing rights are acquired, and
(2) a mortgage banking enterprise assess its capitalized mortgage
servicing rights and requires a mortgage banking enterprise to
stratify its mortgage servicing rights that are capitalized after the
adoption of this Statement. Impairment should be recognized through a
valuation allowance for each impaired stratum. SFAS 122 applies
prospectively in fiscal years beginning after December 15, 1995, to
transactions in which a mortgage banking enterprise sells or
securities mortgage loans with servicing rights retained and to
impairment evaluations of all amounts capitalized as mortgage
servicing rights, including those purchased before the adoption of
this Statement. The Bank performs minimal mortgage banking activities
and has sold its newly originated long-term mortgage loans with
servicing rights released; management believes that the impact of this
statement will be minimal.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which is effective for transactions entered
into after December 15, 1995. This Statement establishes financial
accounting and reporting standards for stock-based employee
compensation plans. This Statement defines a fair value based method
of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees." Under the fair value based method, compensation
cost is measured at the grant date based on the value of the award and
is recognized over the service period, which is usually the vesting
period. Under the intrinsic value based method, compensation cost is
the excess, if any, of the quoted market price of the stock at grant
date or other measurement date over the amount an employee must pay to
acquire the stock. As the adoption of this FASB will be prospective,
Jefferson anticipates no impact to the consolidated financial
statements.
Legislation is currently being discussed in the House and Senate of
the U.S. Congress related to the condition of the Savings Association
Insurance Fund ("SAIF"), the recapitalization of the SAIF by a
one-time special assessment to be charged to SAIF-insured institutions
(effective January 1, 1996) of approximately $6.6 billion, or
approximately $0.85 to $0.90 for every $100 of assessable deposits,
and an eventual merger of the SAIF with the Bank Insurance Fund
("BIF"). In addition, there is proposed legislation before Congress
to require federally chartered savings institutions to convert to
either a national bank or state charter by January 1, 1998. Savings
and loan holding companies would be required to become bank holding
companies on January 1, 1998. The proposed legislation would also
address the bad debt federal tax reserves of savings institutions
which would currently be affected by the conversion to a bank charter.
Management is currently unable to predict the eventual outcome of
these legislative proposals. However, should the proposed assessment
of $0.85 to $0.90 of assessable deposits be enacted, based on the
deposits held on September 30, 1995, the Bank's pro rata share would
amount to approximately $1,974,000 to $2,090,000.
(m) Reclassifications
Certain amounts for the years ended December 31, 1994 and 1993 have
been reclassified.
(2) Investment Securities
The investment securities, classified as held to maturity, included in the
consolidated statements of financial condition, are as follows:
December 31, 1995
----------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gain loss value
------------- ------------- ------------- --------------
U.S. Agency securities $ 79,994,356 747,579 67,651 80,674,284
United States Treasury notes and bills 2,001,654 2,759 1,131 2,003,282
------------- ------------- ------------ -------------
$ 81,996,010 750,338 68,782 82,677,566
============= ============= =========== =============
22
23
December 31, 1994
----------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gain loss value
------------- ------------- ------------- ------------
U.S. Agency securities $ 94,990,394 19,474 1,257,852 93,752,016
United States Treasury notes and bills 8,993,462 -- 169,243 8,824,219
------------- ------------- ------------- ------------
$103,983,856 19,474 1,427,095 102,576,235
============= ============= =========== ============
The investment securities as of December 31 mature as follows:
1995 1994
----------------------------------------------------------------
Amortized Market Amortised Market
Matures within cost value cost value
------------- ------------ ------------ -------------
First year $ 39,718,560 39,901,159 71,250,799 70,667,156
Second Year 36,283,599 36,693,750 23,762,666 23,428,297
Third year 4,993,851 5,082,813 4,979,341 4,808,438
Fourth year 1,000,000 999,844 2,991,050 2,762,813
Fifth year --- --- 1,000,000 909,531
------------ ------------ ------------ -------------
$ 81,996,010 82,677,566 103,983,856 102,576,235
============ ============ ============ =============
(3) Mortgage-backed Securities
The amortized cost and estimated market values of mortgage-backed
securities, classified as held to maturity, at December 31 are summarized
as follows:
1995
----------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gain loss value
------------- ------------- ------------ -------------
FNMA certificates:
Fixed rates (6.0% - 13.25%) $ 5,509,052 87,749 78,945 5,517,856
Adjustable rates 5,192,453 27,213 43,440 5,176,226
5 to 7 year balloons (6.0% - 7.5%) 6,270,143 45,888 42,758 6,273,273
------------ ---------- ----------- ------------
16,971,648 160,850 165,143 16,967,355
------------ ---------- ----------- ------------
GNMA certificates:
Fixed rates (8.5% - 13.0%) 8,088,120 345,293 --- 8,433,413
Adjustable rates 9,066,200 129,480 --- 9,195,680
------------ ---------- ----------- ------------
17,154,320 474,773 --- 17,629,093
------------ ---------- ----------- ------------
FHLMC certificates:
Fixed rates (6.0% - 12.75%) 2,182,291 34,854 51,327 2,165,818
Adjustable rates 3,053,659 33,943 5,381 3,082,221
5 to 7 year balloons (5.5% - 7.5%) 66,989,761 722,829 209,653 67,502,937
------------ ---------- ----------- ------------
72,225,711 791,626 266,361 72,750,976
------------ ---------- ----------- ------------
Total mortgage-backed securities:
Fixed rates 15,779,463 467,896 130,272 16,117,087
Adjustable rates 17,312,312 190,636 48,821 17,454,127
5 to 7 year balloons 73,259,904 768,717 252,411 73,776,210
------------ ---------- ----------- ------------
$106,351,679 1,427,249 431,504 107,347,424
============ ========== =========== ============
23
24
1994
----------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gain loss value
------------- ------------- ------------- ------------
FNMA certificates:
Fixed rates (6.0% - 13.25%) $ 6,355,903 43,411 522,208 5,877,106
Adjustable rates 6,360,913 --- 233,579 6,127,334
5 year balloons (6.0% - 7.0%) 2,205,222 --- 200,284 2,004,938
------------- ------------ ------------- ------------
14,922,038 43,411 956,071 14,009,378
------------ ------------ ------------- ------------
GNMA certificates:
Fixed rates (8.5% - 13.0%) 9,105,391 3,763 155,028 8,954,126
Adjustable rates 10,209,143 --- 383,253 9,825,890
------------ ------------ ------------- ------------
19,314,534 3,763 538,281 18,780,016
------------ ------------ ------------- ------------
FHLMC certificates:
Fixed rates (6.0% - 12.75%) 2,546,434 25,142 258,383 2,313,193
Adjustable rates 3,892,282 --- 110,805 3,781,477
5 to 7 year balloons (6.0% - 7.5%) 38,976,259 --- 1,987,415 36,988,844
------------ ------------ ------------- ------------
45,414,975 25,142 2,356,603 43,083,514
------------ ------------ ------------- ------------
Total mortgage-backed securities:
Fixed rates 18,007,728 72,316 935,619 17,144,425
Adjustable rates 20,462,338 --- 727,637 19,734,701
5 to 7 year balloons 41,181,481 --- 2,187,699 38,993,782
------------ ------------ ------------- ------------
$79,651,547 72,316 3,850,955 75,872,908
============ ============ ============= ============
The final contractual maturities of the underlying mortgages, classified as
held to maturity, are as follows as of December 31:
1995 1994
----------------------------- ------------------------------
Amortized Market Amortized Market
cost value cost value
------------- ------------ ------------- -------------
Due within one year $ 2,296,436 2,331,373 --- ---
Due after one year through five years 70,963,471 71,444,838 40,263,585 38,173,050
Due after five years through ten years 3,920,458 3,820,811 5,611,477 4,960,598
Due after ten years through twenty years 4,521,408 4,613,070 4,664,403 4,459,129
Due after twenty years 24,649,906 25,137,332 29,112,082 28,280,131
------------- ------------- ------------ -------------
$ 106,351,679 107,347,424 $79,651,547 75,872,908
============= ============= ============= =============
Expected maturities will differ from contractual maturities because borrowers
generally are permitted to prepay their obligations, frequently without
prepayment penalties.
24
25
(4) Loans Receivable
Loans receivable at December 31 consist of the following:
1995 1994
----------- ------------
Secured by real estate, first mortgage loans:
Conventional $52,983,011 50,602,884
FHA-VA insured 1,264,264 1,439,838
Multi-family residential and non-residential 2,172,231 3,285,560
----------- ------------
56,419,506 55,328,282
Loans secured by savings accounts 4,409,051 4,027,182
Consumer, principally secured home
improvement loans 2,314,031 2,675,118
----------- ------------
Total loans receivable 63,142,588 62,030,582
Allowance for loan losses (690,855) (585,600)
Unearned discount (30,397) (31,357)
Deferred loan fees (28,216) (59,607)
----------- ------------
62,393,120 61,354,018
Less loans held for sale 87,230 ---
----------- ------------
Loans receivable, net $62,305,890 61,354,018
=========== ============
Loans serviced for others by Jefferson are approximately $5,300,000 and
$6,000,000 at December 31, 1995 and 1994, respectively.
Loans receivable include approximately $5,900,000 and $6,700,000 of
adjustable rate loans and $57,200,000 and $55,300,000 of fixed rate loans
at December 31, 1995 and 1994, respectively.
At December 31, 1995 and 1994, approximately $950,000 and $1,000,000,
respectively, of loans are on a nonaccrual basis. The additional amount of
income that would have been recognized during the years ended December 31,
1995, 1994 and 1993 had the nonaccrual loans performed according to their
terms approximates $31,500, $25,600 and $31,000, respectively. Impaired
loans are not material to the consolidated financial statements. In
addition, included in loans receivable at December 31, 1995 and 1994 are
loans in the amount of $493,000 and $708,000, respectively, whose terms
have been modified in troubled debt restructurings (TDR). The effects on
income as a result of such modifications, which generally involved
extensions of maturities of the loans, during each of the years ended
December 31, 1995 and 1994, are not material to the consolidated financial
statements. Jefferson does not have any commitments to lend additional
funds to borrowers in TDRs.
The average yield on loans for the years ended December 31, 1995, 1994 and
1993 was 8.5%, 8.6% and 9.2%, respectively.
The activity in the allowance for loan losses is summarized as follows for
the years ended December 31:
1995 1994 1993
---------- ----------- -----------
Beginning balance $ 585,600 585,545 483,225
Provision charged to income 100,754 (27,387) 131,361
Losses charged to allowance --- --- (33,401)
Recoveries 4,501 27,442 4,360
---------- ----------- -----------
Ending balance $ 690,855 585,600 585,545
========== =========== ===========
Loans to members of the Board and employees of Jefferson are not material
to total stockholders' equity.
25
26
(5) Real Estate Owned
Real estate owned consists of the following at December 31:
1995 1994
------------ -------------
Real estate acquired through foreclosure $ --- 77,773
Less allowance for losses --- (3,888)
------------ -------------
$ --- 73,885
============ =============
The changes in the allowance for losses on real estate owned are summarized
as follows for the years ended December 31:
1995 1994 1993
-------------- ----------- ------------
Beginning balance $ 3,888 1,010 151,978
Provision (recovery) for losses on real estate owned (3,888) 2,878 4,936
Loss on sale of real estate owned charged to allowance --- --- (155,904)
------------- ----------- ------------
$ --- 3,888 1,010
============= =========== ============
(6) Office Properties and Equipment
Office properties and equipment consist of the following at December 31:
1995 1994
------------- ------------
Land $ 1,181,859 1,181,859
Buildings and improvements 2,551,601 2,532,652
Furniture, fixtures and equipment 3,647,987 3,585,750
------------- ------------
7,381,447 7,300,261
Less accumulated depreciation and amortization (4,890,483) (4,650,479)
------------- ------------
$ 2,490,964 2,649,782
============= ============
(7) Accrued Interest Receivable
Accrued interest receivable consists of earned but uncollected interest
as follows at December 31:
1995 1994
-------------- -------------
Interest-bearing deposits $ 4,868 331
Investment securities 1,360,672 1,174,957
Loans receivable 384,865 394,666
Mortgage-backed securities 608,201 462,049
-------------- -------------
$ 2,358,606 2,032,003
============== =============
26
27
(8) Deposits
Deposits at December 31 are summarized below:
1995 1994
----------------------------- ----------------------------
Amount % Amount %
------------ ------------- ----------- -----------
Certificate accounts:
2.25% - 4.00% $ 2,130,852 0.9% $ 29,088,287 12.8%
4.01% - 6.00% 88,238,701 38.5% 77,328,839 34.1%
6.01% - 8.00% 27,287,935 11.9% 9,523,358 4.2%
8.01% - 10.00% 161,746 0.1% 251,337 0.1%
------------- ------------- ------------ ------------
Total certificate accounts 117,819,234 51.4% 116,191,821 51.2%
------------- ------------- ------------ ------------
Transaction accounts:
Passbook accounts 61,717,640 26.9% 62,014,367 27.3%
Money market accounts 14,893,845 6.6% 17,009,700 7.5%
NOW accounts 34,634,418 15.1% 31,780,157 14.0%
------------- ------------ ------------ ------------
Total transaction accounts 111,245,903 48.6% 110,804,224 48.8%
------------- ------------ ------------ -----------
Total deposits $229,065,137 100.0% $226,996,045 100.0%
============= ============ ============ ===========
The aggregate amount of certificates of deposit with a minimum denomination
equal to or greater than $100,000 was approximately $6,900,000 and
$6,000,000 at December 31, 1995 and 1994, respectively.
The average rate on certificates of deposit was 5.2% and 4.3% for the years
ended December 31, 1995 and 1994, respectively. The average rate for
passbook accounts was 2.5% and 2.3% and for NOW and money market accounts
was 2.0% and 1.9% for the years ended December 31, 1995 and 1994,
respectively. The average rate on all deposits for the years ended
December 31, 1995 and 1994 was 3.8% and 3.2%, respectively. At December
31, 1995 and 1994, the interest rate on passbook and money market accounts
was 2.5% and 2.25%, respectively; the interest rate on NOW accounts ranged
1.75% to 2.0% at December 31, 1995 and 1994.
Interest expense on deposits is summarized as follows:
1995 1994 1993
Type of ------------------------ -------------------------- -------------------------
Account Amount % Amount % Amount %
------- ---------- --------- ----------- ---------- ---------- ----------
Passbook $1,534,573 17.8% $1,461,216 19.6% $1,504,526 18.5%
NOW and money market 985,808 11.4% 1,004,359 13.4% 1,116,792 13.7%
Certificates of deposit 6,101,093 70.8% 5,007,409 67.0% 5,505,848 67.8%
---------- --------- ----------- ---------- ---------- ---------
$8,621,474 100.0% $7,472,984 100.0% $8,127,166 100.0%
========== ========= =========== ========== ========== =========
The aggregate remaining maturities of deposits at December 31 are
summarized as follows:
1995 1994
---------------------------- -----------------------------
Term to Maturity Amount % Amount %
---------------- ------------ ----------- ------------ ------------
Due on demand $111,245,903 48.6% $110,804,223 48.7%
Within 12 months 62,373,038 27.2 69,663,081 30.7
13 months to 24 months 34,196,417 14.9 21,585,901 9.5
25 months to 36 months 13,151,344 5.8 14,889,792 6.6
37 months to 48 months 3,078,399 1.3 3,757,534 1.7
49 months to 60 months 3,155,740 1.4 2,926,189 1.3
Greater than 60 months 1,864,296 0.8 3,369,325 1.5
------------ ----------- ------------ ------------
$229,065,137 100.0% $226,996,045 100.0%
============ =========== ============ ============
27
28
(9) Federal Income Taxes
A reconciliation between Jefferson's "statutory" federal income tax rate
and Jefferson's "effective" federal income tax rate follows for the years
ended December 31:
1995 1994 1993
------------- ------------- -------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
Difference in federal bad debt deduction for
book and tax purposes (4.7) (3.0) 1.2
------------ ------------ -------------
Effective tax rate 29.3% 31.0% 35.2%
============ ============ =============
Income tax expense consists of federal income tax; state income taxes are
immaterial. The effects of temporary differences that give rise to
significant portions of the net deferred tax liabilities at December 31 are
presented below:
1995 1994 1993
------------ ------------ -----------
Deferred tax assets:
General loan loss allowance $ 230,879 194,714 193,717
Profit sharing plan contributions, difference
in recognition methods 46,165 15,300 ---
Deferred revenue, principally due to
loan fees 8,101 18,151 23,734
------------ ------------ -----------
Deferred tax assets 285,145 228,165 217,451
------------ ------------ -----------
Deferred tax liabilities:
Office properties and equipment,
principally due to differences in cost
basis and depreciation 80,879 111,654 153,130
Federal Home Loan Bank stock, due to
difference in basis 170,868 150,317 187,753
Prepaid SAIF insurance premiums
difference in recognition methods 90,378 89,722 ---
Bad debt reserve, due to decline in tax
base year reserves 250,888 356,835 366,357
------------ ------------ -----------
Deferred tax liabilities 593,013 708,528 707,240
------------ ------------ -----------
Net deferred tax liability $ 307,868 480,363 489,789
============ ============ ===========
It is management's opinion that, more likely than not, the results of
future operations will generate sufficient changes in the loan
portfolio to realize the general loan loss allowance deferred tax
asset.
Jefferson is allowed a special bad debt deduction computed under the
percentage of taxable income method or the experience method,
whichever is more beneficial. The percentage of taxable income method
is limited generally to approximately 8% of taxable income. If this
method is elected, actual losses are not deductible. Under the
experience method, the bad debt deduction is computed based on actual
loan loss experience. Jefferson has utilized the percentage of
taxable income method for the years ended 1995, 1994 and 1993 to
determine the maximum allowable bad debt deduction for tax purposes.
The cumulative amount of bad debt deductions constitutes a restriction
on the use of Jefferson's retained earnings for tax purposes. If any
portion of this amount is subsequently used for purposes other than to
absorb loan losses, the amount so charged will be subject to federal
income taxes at the then current tax rate. The cumulative bad debt
deduction as of December 31, 1995, for which no provision for federal
income taxes has been provided, is approximately $3,400,000.
28
29
(10) FIRREA of 1989 and FDICIA of 1991
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) was
signed into law in December 1991. Regulations implementing the
provisions of FDICIA became effective on December 19, 1992. In
addition to prompt corrective action requirements, FDICIA included
significant changes to the legal and regulatory environment for
insured depository institutions, including reducing insurance
coverage, increasing the reporting requirements for financial
institutions, establishing five capital categories, modifying the
required ratio of housing related assets in order to qualify as a
savings institution and enacting new regulations concerning internal
controls, accounting and operations.
FIRREA was signed into law on August 9, 1989; regulations for savings
institutions' minimum capital requirements went into effect on
December 7, 1989. In addition to its capital requirements, FIRREA
included provisions for changes in the federal regulatory structure
for institutions including a new deposit insurance system, increased
deposit insurance premiums and restricted investment activities with
respect to non-investment grade corporate debt and certain other
investments. FIRREA also increased the required ratio of housing
related assets in order to qualify as a savings institution, which
were later modified by FDICIA.
To be considered "well capitalized," an institution must generally
have a leverage ratio of 5% or higher, a Tier 1 risk-based ratio of 6%
or higher and a total risk-based ratio of 10% or higher. The Bank
was classified as a well capitalized utilization at December 31, 1995
and 1994.
At December 31, 1995 and 1994, the Bank met all of the regulatory
capital requirements, as defined by FIRREA and FDICIA.
At December 31, the Bank's regulatory capital amounts were as follows:
1995
-----------------------------------------------------------
Tier 1 Total
Core Risk Risk
Equity Tangible Tangible leverage based based
(amounts in 000's) capital equity capital capital capital capital
------- ------ ------- ------- ------- -------
Common stock $ 1
Paid in capital 13,387
Unearned
compensation (1,651)
Retained earnings 16,584
------
Equity capital $28,321 28,321 28,321 28,321 28,321 28,321
=======
Adjustment - general
valuation
allowance --- --- --- --- 679
------- ------ ------ ------ ------
Regulatory
capital
measure $28,321 28,321 28,321 28,321 29,000
======= ====== ====== ====== ======
Total assets $259,237
========
Adjusted total
assets $259,237 259,237 259,237
======== ======= =======
Risk-weighted
assets $70,333 70,333
======= ======
Capital ratio 10.9% 10.9% 10.9% 40.3% 41.2%
===== ===== ===== ===== =====
Required ratio 1.5% 3.0% 8.0%
==== ==== ====
Required capital $3,889 7,777 5,627
====== ===== =====
Excess capital $24,432 20,544 23,373
======= ====== ======
1994
-----------------------------------------------------------
Tier 1 Total
Core Risk Risk
Equity Tangible Tangible leverage based based
(amounts in 000's) capital equity capital capital capital capital
------- ------ ------- ------- ------- --------
Common stock $ 1
Paid in capital 12,495
Unearned
compensation (1,172)
Retained earnings 15,400
-------
Equity capital $26,724 26,724 26,724 26,724 26,724 26,724
=======
Adjustment - general
valuation
allowance --- --- --- --- 569
------- ------ ------ ------ ------
Regulatory
capital
measure $26,724 26,724 26,724 26,724 27,293
======= ====== ====== ====== ======
Total assets $255,934
========
Adjusted total
assets 255,934 255,934 255,934
======= ======= =======
Risk-weighted
assets 68,524 68,524
====== ======
Capital ratio 10.4% 10.4% 10.4% 39.0% 39.8%
===== ===== ===== ===== =====
Required ratio 1.5% 3.0% 8.0%
==== ==== ====
Required capital $3,839 7,678 5,482
====== ===== ======
Excess capital $22,885 19,046 21,811
======= ====== ======
29
30
(11) Benefit Plans
(a) Profit-sharing Plan and Deferred Compensation Plans
Jefferson sponsors a profit-sharing plan in which all eligible
employees participate. In conjunction with this plan, Jefferson
sponsors a 401(k) Plan in which all employees may participate.
Employees can contribute a maximum of 10% of their base salary to the
401(k) plan. In 1993, Jefferson began to match 25% of employee
contributions up to 8% of their base salary. Contributions to the
plans are at the discretion of the Board of Directors.
Profit-sharing plan expenses, including 401(k) plan match
contributions and deferred compensation, related to these plans were
$259,707 in 1995, $248,715 in 1994, and $215,724 in 1993.
(b) Employee Stock Ownership Plan
Jefferson sponsors an Employee Stock Ownership Plan (ESOP) for the
employees of the Bank. The ESOP plan is a successor plan to the
Bank's ESOP plan, which was restructured as part of the
reorganization described in note 15. During 1994 and 1993,
respectively, the ESOP purchased 112,808 and 37,138 shares of common
stock from Jefferson. The 1993 shares were originally purchased with
funds obtained from a third-party lender and guaranteed by Jefferson.
As part of the reorganization, the remaining liability was paid to
the lender by Jefferson, in exchange for a new note with a variable
interest rate based on the prime rate, maturing in December 1997. To
purchase the 1994 shares, the ESOP borrowed funds from Jefferson;
these funds will be repaid to Jefferson over a seven year period at a
variable interest rate based on the prime rate, which was 8.5% at
December 31, 1995 and 1994.
Dividends on allocated shares are charged to retained earnings and
amounted to $6,623 and $1,763 during 1995 and 1994, respectively. No
allocated shares were charged to retained earnings in 1993.
Dividends on unallocated shares have been or will be used for debt
service payments and amounted to $38,361, $10,160 and $6,300 in 1995,
1994 and 1993, respectively. Compensation expense related to the
ESOP is based on the shares committed to be released at the fair
value of the shares at the date of release and amounted to $502,358,
$98,564 and $34,214 in 1995, 1994 and 1993, respectively.
1995 1994
------------- -------------
Allocated shares 48,579 22,076
Suspense shares 101,367 127,870
------------- -------------
Total shares 149,946 149,946
============= =============
Fair market value $ 2,886,461 2,061,758
============= =============
(c) Management Recognition Plan
In addition to the ESOP plan, in 1993 and 1995 Jefferson adopted
separate management recognition plans (MRP) to which it issued 15,916
and 48,346 shares, at a cost of $60,000 and $846,055, respectively.
The 1993 shares were included in the reorganization as described in
note 15. Management awarded these shares of stock to the
participants of the 1993 plan and awarded 24,750 of the 1995 shares
(unawarded shares are 23,596) to participants of the 1995 plan.
Participants earn a third of their 1993 award annually over a
three-year period ending January 1, 1996 and a fifth of their 1995
award over a five-year period ending April 19, 2000. The market
value of the awarded but not vested MRP shares at December 31, 1995
was $578,558. Compensation expense in 1995 was $64,969. Dividends
on unawarded shares were $1,770 and dividends on awarded shares were
$6,631.
(d) Stock Options
The Bank granted stock options to certain of its directors, officers
and key employees during 1993 and 1995 under stock option plans at a
price not less than the fair market value at the date of the grant.
A summary of the stock option information follows:
1995 1994
------------------------------- ------------------------------
Number of Number of
shares Option price shares Option price
--------- --------------- --------- ------------
Granted 79,100 $14.13 - $17.50 ---
Exercised --- --- 2,653 $10.00
Expired --- --- 1,326
Outstanding, end of year 121,534 $3.77 - $17.50 42,434 $3.77 - $4.71
Exercisable, end of year 121,534 $3.77 - $17.50 42,434 $3.77 - $4.71
Options expire, except for death, disability or retirement, 10 years after the
date of grant, or three months after which optionee ceases to be employed.
30
31
(12) Commitments and Other Matters
Jefferson leases certain of its branches and other facilities. The
following is a schedule, by year, of the future minimum lease payments
required under operating leases that have noncancelable lease terms in
excess of one year as of December 31, 1995:
Year ending Amount due
December 31 during year
----------- -----------
1996 $ 30,155
1997 16,575
1998 6,875
1999 1,146
--------
Total minimum payments required $ 54,751
========
Lease payments made in connection with these noncancelable operating
leases amounted to $53,976 in 1995, $53,908 in 1994 and $54,710 in 1993.
Jefferson is a party to financial instruments with an off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit. Jefferson had commitments to extend credit of $832,000 and
$292,000 at December 31, 1995 and 1994, respectively.
Commitments are disbursed subject to certain restrictions and extend over
varying periods of time with the majority being disbursed within a
sixty-day period. Once disbursed, these loans will be secured by first
mortgages on real estate or consumer loans.
Jefferson makes certain representations and warranties regarding the
loans it sells, primarily with respect to the origination of the loans
and the loan documents. Any violation of these representations and
warranties or the existence of certain deficiencies in the loans during a
specified period (including two or more monthly payments in a loan
becoming past due within the first six months following the sale of the
loan) may result in the required repurchase of the loans by Jefferson.
As of December 31, 1995 and 1994, approximately $511,000 and $143,000,
respectively, of the loans sold were sold within the preceding six-month
period.
(13) Disclosure about Fair Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires that Jefferson disclose estimated fair values of its financial
instruments. The following methods and assumptions were used to estimate
the fair value of each class of financial instruments:
(a) Cash and Interest-bearing Deposits
For those short-term investments, the carrying amount is a reasonable
estimate of fair value.
(b) Investment Securities, Mortgage-backed Securities and Loans Held for
Sale
For investment securities, mortgage-backed securities and loans held
for sale, fair values are based on quoted market prices or dealer
quotes. Fair value should be calculated based on the value of one
unit without regard to any premium or discount that may result from
concentrations of ownership of a financial instrument, possible tax
ramifications, or estimated transaction costs. The impact of these
considerations on the aggregate fair value is considered to be
minimal.
(c) Loans Receivable
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as
commercial, residential mortgage and other. For certain homogenous
categories of loans, such as residential mortgages, fair value is
estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics. The
fair value of other types of loans is estimated by discounting the
future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the
same remaining maturities.
Fair value for significant nonperforming loans is based on current
management evaluations of the value of the collateral securing these
loans.
(d) Deposit Liabilities
The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for deposits
of similar remaining maturities and is based on the discounted value
of contractual cash flows.
31
32
(e) Commitments to Extend Credit
The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present
creditworthiness of the borrower. For fixed rate loan commitments,
fair value also considers the difference between current levels of
interest rates and the committed rates. Because of the short-term
nature of the commitments, the carrying amount of the commitments
approximates the estimated fair value for commitments to extend
credit.
(f) Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time Jefferson's
entire holdings of a particular financial instrument. Because no
market exists for a significant portion of Jefferson's financial
instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and, therefore, cannot be
determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. For example, other
significant assets and liabilities that are not considered financial
assets or liabilities include deferred tax liabilities, office
properties and equipment, and other liabilities. In addition, the
tax ramifications related to the realization of the unrealized gains
and losses can have a significant effect on fair value estimates and
have not been considered in the above estimates.
The following presents the estimated fair value of Jefferson's
financial instruments at December 31:
1995 1994
------------------------------------ -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- ---------------- --------------- ----------
Financial assets:
Cash and interest-bearing deposits $ 7,485,474 7,485,474 9,127,637 9,127,637
Other interest-bearing deposits 400,000 400,000 100,000 100,000
Investment securities 81,996,010 82,667,566 103,983,856 102,576,235
Mortgage-backed securities 106,351,679 107,347,424 79,651,547 75,872,908
Loans receivable, net 62,305,890 64,717,181 61,354,018 61,003,670
Loans held for sale 87,230 87,230 --- ---
Federal Home Loan Bank stock 1,318,000 1,318,000 1,206,300 1,206,300
Financial liabilities - deposits 229,065,137 229,540,975 226,996,045 225,787,082
Unrecognized financial instrument -
commitments to extend credit 832,000 832,000 292,000 292,000
32
33
(14) Selected Quarterly Financial Data (unaudited)
The following table presents selected quarterly financial data for the
years ended December 31, 1995 and 1994 (in thousands):
Year ended December 31, 1995 Year ended December 31, 1994
--------------------------------------- ------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- -------- ------- -------- ------- ------- ------- -------
Interest income $4,199 4,374 4,462 4,441 $3,570 3,586 3,804 4,041
Interest expense 2,004 2,162 2,233 2,222 1,846 1,828 1,898 1,908
------ -------- ------- -------- ------- ------- -------- -----
Net interest income 2,195 2,212 2,229 2,219 1,724 1,758 1,906 2,133
Provision (recovery)
for loan losses 60 39 (5) 7 1 (11) (3) (14)
------ -------- -------- -------- ------- -------- --------- -----
Net interest income after provision
(recovery) for loan losses 2,135 2,173 2,234 2,212 1,723 1,769 1,909 2,147
Noninterest income 288 275 277 276 286 299 342 336
Noninterest expense 1,463 1,445 1,508 1,671 1,304 1,380 1,293 1,457
------ -------- ------- -------- ------- ------- -------- -----
Income before income taxes 960 1,003 1,003 817 705 688 958 1,026
Income tax expense 298 212 278 321 224 207 308 309
------ -------- ------- -------- ------- ------- -------- -----
Net income $ 662 791 725 496 481 481 650 717
====== ======== ======= ======== ======= ======= ======== =====
Earnings per share $ 0.33 0.38 0.35 0.23 $0.23 0.23 0.31 0.35
====== ======== ======= ======== ======= ======= ======== =====
(15) Reorganization and Change of Corporate Form
On March 31, 1994, Jefferson Federal Savings Bank (the Bank)
incorporated Jefferson Bancorp, Inc. (the Company) as a wholly-owned
subsidiary to facilitate the reorganization of the Bank from the
mutual holding company structure to the stock holding company
structure. Prior to such reorganization, the Bank had 809,500 shares
of common stock outstanding, of which 607,500 shares were held by
Jefferson Federal Mutual Holding Company (the Mutual Holding Company).
The Mutual Holding Company, the Bank and the Company each adopted a
Plan of Conversion and Agreement and Plan of Reorganization (the
Plan). Upon consummation of the following transactions pursuant to
the Plan, the Bank became a wholly-owned subsidiary of the Company:
(1) the Mutual Holding Company, which owned approximately 75% of the
Bank, converted from mutual to stock form and simultaneously merged
into the Bank, with the Bank being the surviving entity; (2) the Bank
then merged into an interim institution (Interim), formed as a
wholly-owned subsidiary of the Company, with the Bank being the
surviving entity; and (3) the outstanding shares of Bank common stock
(excluding shares held by the Mutual Holding Company, which were
canceled), were exchanged for shares of common stock of the Company
(Common Stock) pursuant to a ratio that resulted in the holders of
such shares owning in the aggregate the same percentage of the Company
as they owned of the Bank, before giving effect to such stockholders
purchasing additional shares, receiving cash in lieu of fractional
shares or exercising dissenters' rights (collectively, the
Reorganization). The offer and sale of up to 1,725,000 shares of
Common Stock by the Company (the Conversion Stock) and the
Reorganization are referred to herein as the Conversion. Actual
shares sold as a result of the Conversion were 1,611,553 (including
ESOP shares of 112,808) and exchange shares were 535,735, resulting in
total outstanding shares at the time of the consummation of the
Conversion of 2,147,288.
The Company filed a Form S-1 with the Securities and Exchange
Commission (SEC) on April 11, 1994 which, as amended, was declared
effective by the SEC on June 28, 1994. The Mutual Holding Company
filed a Form AC with the Office of Thrift Supervision (OTS) on April
11, 1994. The Form AC and related offering and proxy materials, as
amended, were conditionally approved by the OTS by letters dated June
30, 1994. The Company also filed an Application H-(e)1-S with the OTS
on April 12, 1994, which was conditionally approved by the OTS, by
letter dated July 12, 1994.
33
34
The subscription and community offerings closed on August 8, 1994, and
an updated appraisal report was filed with the OTS shortly thereafter
in accordance with the Plan. The members of the Mutual Holding
Company and the stockholders of the Bank approved the Plan at their
respective meetings held on August 9, 1994. The effective date of the
Conversion was August 18, 1994.
The Reorganization was accounted for as a change in corporate form
with the historic basis of Jefferson's assets, liabilities and equity
unchanged as a result. Each depositor of the Bank as of the effective
date of the Conversion will have upon liquidation of the Bank a right
to his pro rata interest in a liquidation account established for the
benefit of such depositors. Records have been maintained to ensure
such rights receive statutory priority as required by OTS regulations.
The Bank was reorganized on January 1, 1993 and is the successor
organization of Jefferson Savings and Loan Association. The
reorganization was accounted for as a change in corporate form with
the historic basis of accounting for the Bank unchanged.
In connection with the incorporation of the Company, the Company
issued 100 shares of common stock to the Bank. The shares were
canceled upon consummation of the Conversion.
The 1993 financial statements contained herein are those of Jefferson
as the predecessor entity.
The stockholders of Jefferson Bancorp, Inc. approved the 1994
Management Recognition Plan and Trust ("MRP") at the annual meeting
held on April 19, 1995. The OTS, by a letter dated May 31, 1995,
advised the Company that it had no objections to the terms of this
plan in the form approved by the Company's stockholders. The Board of
Directors of the Company considered the expense to the Company of
purchasing outstanding shares of its Common Stock in the marketplace
to fund the MRP versus the effect of issuing authorized but unissued
shares of its Common Stock to the MRP. The Board of Directors voted
to authorize the issuance of 48,346 shares of authorized but unissued
shares of its Common Stock to the MRP. The shares were issued in
September 1995. Currently, 24,750 of the shares have been awarded.
34
35
GENERAL INFORMATION FOR STOCKHOLDERS
AND INDEPENDENT AUDITORS' REPORT
GENERAL
INFORMATION FOR
STOCKHOLDERS
THIS ANNUAL REPORT IS NOT CONSIDERED PROXY SOLICITING MATERIAL.
ANNUAL MEETING
The Annual Meeting of Stockholders of Jefferson Bancorp, Inc. (the
"Company") will be held at 1011 Fourth Street, Gretna, Louisiana, on April
17, 1996, at 10:00 a.m. A formal notice of the Meeting, a proxy statement
and a proxy form are included with this Annual Report which was mailed
March 15, 1996 to all stockholders of record at the close of business on
March 1, 1996.
TRANSFER AGENT
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 10006
(800) 456-0596
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Suite 3500 One Shell Square
New Orleans, Louisiana 70139
STOCKHOLDER
AND GENERAL INQUIRIES
Mr. Wayne G. Hymel, Sr.
Vice President
Jefferson Bancorp, Inc.
1011 Fourth Street
P. O. Box 326
Gretna, Louisiana 70054
(504) 368-1011
STOCK LISTING
Jefferson Bancorp, Inc., is listed on the Nasdaq National Market under the
symbol JEBC. As of March 1, 1996, the approximate number of stockholders of
record was 748. For a description of certain restrictions upon the
Company's ability to pay dividends, see "Regulation - Capital
Distributions" in the Form 10-K.
The Tables below show the reported high and low bid prices of the common
stock during the year ended December 31, 1995 and 1994 and dividend per
share information for the same periods. Prior to the 1994 Conversion stock
quotes are for Jefferson Federal Savings Bank common stock on Nasdaq "Pink
Sheets." The dividend per share information for periods prior to the
Conversion have been adjusted to reflect the number of shares of common
stock outstanding following the Conversion.
1995 1994 Dividend Payments Per Share
---------------------------------------------------- of Common Stock
Quarter Ended High Low High Low 1995 1994
------ ------- ------ ------ ---- ----
March 31 $17.25 $13.875 $13.25 $12.75 4@$.075 3@$.06
June 30 20.00 16.75 14.00 12.75 1@$.0375
September 30 21.75 19.625 14.50 12.50
December 31 21.75 19.25 14.25 12.75
The Board of Directors
Jefferson Bancorp, Inc. and Subsidiary
We have audited the accompanying consolidated statements of financial
condition of Jefferson Bancorp, Inc. and subsidiary (Jefferson) as of
December 31, 1995 and 1994, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1995. These consolidated financial
statements are the responsibility of Jefferson's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Jefferson Bancorp, Inc. and subsidiary as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the
three years ended December 31, 1995 in conformity with generally accepted
accounting principles.
New Orleans, Louisiana
January 19, 1996
35
36
BOARD OF DIRECTORS,
OFFICERS, MANAGERS AND SERVICE LOCATIONS
DIRECTORS ADMINISTRATIVE AND BRANCH OFFICERS
--------- ----------------------------------
Karen L. Knight Elaine S. Gulizo Toni J. Causin, Assistant Cashier
Chairman, President and CEO Assistant Vice President WALL BOULEVARD OFFICE
PERSONNEL DIVISION
Dr. G. Robert Murphy, Jr. William J. Cleveland, Jr.,
Secretary and Vice President Assistant Cashier
Doctor of Internal Medicine Amy S. Piazza METRO SERVICES CORPORATION
West Jefferson Hospital, Marrero, Louisiana Assistant Vice President
ACCOUNTING DIVISION Joseph M. Dardis, Assistant
Ada B. Knight Cashier
Investments, Self-Employed METAIRIE OFFICE
Robert J. "Bob" Johnston,
George A. Relle Assistant Vice President Dwain Gannard, Assistant Cashier
President of Joe J. Relle & Associates, MORTGAGE DIVISION MARRERO OFFICE
Realtors
David P. Giffin, Assistant Cashier
John L. Hantel Victor A. Avalos SPECIAL ASSETS DEPARTMENT
Attorney - Private Practice in New Orleans Assistant Vice President
METRO SERVICE CORPORATION Judy S. Jackson, Assistant Cashier
William P. Klotz, Sr. MORTGAGE LOAN DIVISION
Sales & Marketing Manager, Sonjia Ayres, Assistant Cashier
Lengsfield Brothers, Inc. of New Orleans, MARKETING & TRAINING DEPARTMENTS Elizabeth H. Kirkman
Louisiana Assistant Cashier, CHECKING (NOW)
Sylvia S. Banta, Assistant Cashier DEPARTMENT
CORPORATE OFFICERS ALGIERS OFFICE
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Karen T. Stoulig, Assistant
Karen L. Knight Karen B. Boudreaux, Assistant Cashier
Chairman, President and CEO Cashier COLLECTION DEPARTMENT
SAVINGS SERVICES DEPARTMENT
Dr. G. Robert Murphy, Jr. John F. Timken, Jr., Assistant
Secretary and Vice President Cashier
RIVER RIDGE OFFICE
Raymond S. Montalbano, Sr.
Assistant Secretary and Vice President
Bryan J. Landry
Vice President
Wayne G. Hymel, Sr.
Vice President
FINANCIAL CENTERS JEFF 24 (ATM'S)
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ALGIERS: 4626 General DeGaulle Drive
MAIN OFFICE: 2330 Barataria Boulevard 363-7878
1011 Fourth Street, Gretna 363-7871 Darline B. Scheuermann, GRETNA: 1011 Fourth Street
Bradd M. Jones, Acting Manager Customer Service Manager
Off-site Drive-Thru Location METAIRIE: HARVEY: 2046 Woodmere Boulevard
1105 Fifth Street, Gretna 3929 Veterans Boulevard 363-7872 1545 Lapalco at Manhattan
Joseph M. Dardis, Branch Manager
MARRERO: 1820 Barataria Boulevard
2330 Barataria Boulevard
ALGIERS: RIVER RIDGE:
4626 General DeGaulle Drive 363-7875 9300 Jefferson Highway 363-7873 METAIRIE: 3929 Veterans Boulevard
Sylvia S. Banta, Branch Manager John F. Timken, Jr.,Branch Manager
RIVER RIDGE: 9300 Jefferson Highway
MARRERO: TERRYTOWN:
1820 Barataria Boulevard 363-7874 111 Wall Boulevard 363-7876 TERRYTOWN: 111 Wall Boulevard
Dwain Gannard, Branch Manager Toni J. Causin, Branch Manager
WESTWEGO: 901A Westbank Expressway
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