UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2008
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 00-50347
JEFFERSON BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Tennessee | 45-0508261 | |
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification Number) |
120 Evans Avenue, Morristown, Tennessee | 37814 | |
(Address of principal executive offices) | (Zip code) |
(423) 586-8421
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one)
Large Accelerated Filer | ¨ | Accelerated Filer | ¨ | |||
Non-Accelerated Filer | ¨ (Do not check if a smaller reporting company) | Smaller Reporting Company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common stock as of the latest practicable date:
At February 17, 2009, the registrant had 6,762,284 shares of common stock, $0.01 par value per share, outstanding.
2
Item 1. | Financial Statements |
Jefferson Bancshares, Inc. and Subsidiary
Consolidated Statements of Condition
(Dollars in thousands)
December 31, | June 30, | |||||||
2008 | 2008 | |||||||
(Unaudited) | ||||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 8,077 | $ | 2,398 | ||||
Interest-earning deposits |
8,737 | 14,112 | ||||||
Fed funds sold |
3,516 | 1,106 | ||||||
Investment securities classified as available-for-sale, net |
44,295 | 3,478 | ||||||
Federal Home Loan Bank stock |
4,735 | 1,868 | ||||||
Bank owned life insurance |
6,041 | 5,926 | ||||||
Loans receivable, net of allowance for loan losses of $4,692 at December 31, 2008 and $1,836 at June 30, 2008 |
509,538 | 282,483 | ||||||
Loans held-for-sale |
191 | 258 | ||||||
Premises and equipment, net |
26,267 | 15,200 | ||||||
Foreclosed real estate, net |
1,012 | 462 | ||||||
Accrued interest receivable: |
||||||||
Investments |
404 | 38 | ||||||
Loans receivable |
2,040 | 1,208 | ||||||
Deferred tax asset |
10,791 | 844 | ||||||
Goodwill |
25,814 | | ||||||
Core deposit intangible |
3,323 | | ||||||
Other assets |
3,844 | 884 | ||||||
Total assets |
$ | 658,625 | $ | 330,265 | ||||
Liabilities and Stockholders Equity |
||||||||
Deposits: |
||||||||
Noninterest-bearing |
$ | 32,337 | $ | 17,517 | ||||
Interest-bearing |
445,880 | 206,035 | ||||||
Repurchase agreements |
1,400 | | ||||||
Federal Home Loan Bank advances |
90,545 | 33,000 | ||||||
Subordinated debentures |
6,853 | | ||||||
Other liabilities |
3,074 | 836 | ||||||
Accrued income taxes |
16 | 100 | ||||||
Total liabilities |
580,105 | 257,488 | ||||||
Commitments and contingent liabilities |
| | ||||||
Stockholders equity: |
||||||||
Preferred stock, $.01 par value; 10,000,000 shares authorized; no shares issued or outstanding |
| | ||||||
Common stock, $.01 par value; 30,000,000 shares authorized; 9,182,372 shares issued and 6,777,198 shares outstanding at December 31, 2008 and 6,207,702 shares outstanding at June 30, 2008 |
92 | 84 | ||||||
Additional paid-in capital |
79,460 | 72,959 | ||||||
Unearned ESOP shares |
(4,321 | ) | (4,537 | ) | ||||
Unearned compensation |
(1,156 | ) | (1,659 | ) | ||||
Accumulated other comprehensive income |
(658 | ) | (17 | ) | ||||
Retained earnings |
35,624 | 34,965 | ||||||
Treasury stock, at cost; 2,405,174 shares at December 31, 2008 and 2,238,673 shares at June 30, 2008 |
(30,521 | ) | (29,018 | ) | ||||
Total stockholders equity |
78,520 | 72,777 | ||||||
Total liabilities and stockholders equity |
$ | 658,625 | $ | 330,265 | ||||
See accompanying notes to financial statements.
3
Jefferson Bancshares, Inc. and Subsidiary
Consolidated Statements of Earnings (Unaudited)
(Dollars in Thousands, Except Net Earnings Per Share)
Three Months Ended | Six Months Ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
2008 | 2007 | 2008 | 2007 | ||||||||||||
Interest income: |
|||||||||||||||
Interest on loans receivable |
$ | 6,436 | $ | 5,145 | $ | 11,033 | $ | 10,192 | |||||||
Interest on investment securities |
565 | 253 | 594 | 526 | |||||||||||
Other interest |
71 | 93 | 113 | 184 | |||||||||||
Total interest income |
7,072 | 5,491 | 11,740 | 10,902 | |||||||||||
Interest expense: |
|||||||||||||||
Deposits |
2,311 | 2,101 | 3,636 | 4,170 | |||||||||||
Repurchase agreements |
6 | | 6 | | |||||||||||
Advances from FHLB |
658 | 434 | 1,014 | 875 | |||||||||||
Subordinated debentures |
106 | | 106 | | |||||||||||
Total interest expense |
3,081 | 2,535 | 4,762 | 5,045 | |||||||||||
Net interest income |
3,991 | 2,956 | 6,978 | 5,857 | |||||||||||
Provision for loan losses |
150 | 60 | 310 | 128 | |||||||||||
Net interest income after provision for loan losses |
3,841 | 2,896 | 6,668 | 5,729 | |||||||||||
Noninterest income: |
|||||||||||||||
Dividends from investments |
14 | 11 | 25 | 19 | |||||||||||
Mortgage origination fee income |
55 | 98 | 109 | 223 | |||||||||||
Service charges and fees |
395 | 154 | 638 | 308 | |||||||||||
Gain on sale of fixed assets |
1 | | 1 | | |||||||||||
Gain on sale of foreclosed real estate, net |
8 | | 8 | 46 | |||||||||||
BOLI increase in cash value |
55 | 55 | 115 | 110 | |||||||||||
Other |
101 | 29 | 127 | 53 | |||||||||||
Total noninterest income |
629 | 347 | 1,023 | 759 | |||||||||||
Noninterest expense: |
|||||||||||||||
Compensation and benefits |
1,870 | 1,431 | 3,188 | 2,875 | |||||||||||
Occupancy expense |
310 | 173 | 493 | 344 | |||||||||||
Equipment and data processing expense |
605 | 362 | 963 | 721 | |||||||||||
DIF premiums |
9 | 7 | 18 | 13 | |||||||||||
Advertising |
45 | 121 | 48 | 216 | |||||||||||
Other |
696 | 444 | 1,164 | 938 | |||||||||||
Total noninterest expense |
3,535 | 2,538 | 5,874 | 5,107 | |||||||||||
Earnings before income taxes |
935 | 705 | 1,817 | 1,381 | |||||||||||
Income taxes: |
|||||||||||||||
Current |
240 | 184 | 572 | 418 | |||||||||||
Deferred |
(95 | ) | 697 | (78 | ) | 705 | |||||||||
Total income taxes |
145 | 881 | 494 | 1,123 | |||||||||||
Net earnings |
$ | 790 | $ | (176 | ) | $ | 1,323 | $ | 258 | ||||||
Net earnings per share, basic |
$ | 0.13 | $ | (0.03 | ) | $ | 0.22 | $ | 0.04 | ||||||
Net earnings per share, diluted |
$ | 0.13 | $ | (0.03 | ) | $ | 0.22 | $ | 0.04 | ||||||
See accompanying notes to financial statements.
4
Jefferson Bancshares, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders Equity
Six Months Ended December 30, 2008 and 2007
(Dollars in Thousands)
Common
Stock |
Additional
Paid-in Capital |
Unallocated
Common Stock in ESOP |
Unearned
Compensation |
Accumulated
Other Comprehensive Income |
Retained
Earnings |
Treasury
Stock |
Total
Stockholders Equity |
||||||||||||||||||||||||
Balance at June 30, 2008 |
$ | 84 | $ | 72,959 | $ | (4,537 | ) | $ | (1,659 | ) | $ | (17 | ) | $ | 34,965 | $ | (29,018 | ) | $ | 72,777 | |||||||||||
Comprehensive income: |
|||||||||||||||||||||||||||||||
Net earnings |
| | | | | 1,323 | | 1,323 | |||||||||||||||||||||||
Change in net unrealized gain (loss) on securities available for sale, net of taxes of (358) |
| | | | (641 | ) | | | (641 | ) | |||||||||||||||||||||
Total comprehensive income |
| | | | | | | 682 | |||||||||||||||||||||||
Dividends |
| | | | | (780 | ) | | (780 | ) | |||||||||||||||||||||
Dividends used for ESOP payment |
| | | | | 116 | | 116 | |||||||||||||||||||||||
Shares committed to be released by the ESOP |
| (25 | ) | 216 | | | | | 191 | ||||||||||||||||||||||
Stock options expensed |
| 130 | | | | | | 130 | |||||||||||||||||||||||
Earned portion of stock grants |
| | | 249 | | | | 249 | |||||||||||||||||||||||
Stock grant at acquisition |
254 | ||||||||||||||||||||||||||||||
Issuance of shares in acquisition (735,997 shares) |
8 | 6,396 | |||||||||||||||||||||||||||||
Purchase of common stock (12,898 shares) |
| | | | | | (1,503 | ) | (1,503 | ) | |||||||||||||||||||||
Balance at December 30, 2008 |
$ | 92 | $ | 79,460 | $ | (4,321 | ) | $ | (1,156 | ) | $ | (658 | ) | $ | 35,624 | $ | (30,521 | ) | $ | 78,520 | |||||||||||
Common
Stock |
Additional
Paid-in Capital |
Unallocated
Common Stock in ESOP |
Unearned
Compensation |
Accumulated
Other Comprehensive Income |
Retained
Earnings |
Treasury
Stock |
Total
Stockholders Equity |
||||||||||||||||||||||||
Balance at June 30, 2007 |
$ | 84 | $ | 72,738 | $ | (4,969 | ) | $ | (2,182 | ) | $ | (246 | ) | $ | 35,082 | $ | (26,863 | ) | $ | 73,644 | |||||||||||
Comprehensive income: |
|||||||||||||||||||||||||||||||
Net earnings |
| | | | | 258 | | 258 | |||||||||||||||||||||||
Change in net unrealized gain (loss) on securities available for sale, net of taxes of $138 |
| | | | 223 | | | 223 | |||||||||||||||||||||||
Total comprehensive income |
| | | | | | | 481 | |||||||||||||||||||||||
Dividends |
| | | | | (763 | ) | | (763 | ) | |||||||||||||||||||||
Dividends used for ESOP payment |
| | | | | 124 | | 124 | |||||||||||||||||||||||
Shares committed to be released by the ESOP |
| 16 | 216 | | | | | 232 | |||||||||||||||||||||||
Stock options expensed |
| 132 | | | | | | 132 | |||||||||||||||||||||||
Earned portion of stock grants |
| | | 273 | | | | 273 | |||||||||||||||||||||||
Purchase of common stock (104,697 shares) |
| | | | | | (1,091 | ) | (1,091 | ) | |||||||||||||||||||||
Balance at December 31, 2007 |
$ | 84 | $ | 72,886 | $ | (4,753 | ) | $ | (1,909 | ) | $ | (23 | ) | $ | 34,701 | $ | (27,954 | ) | $ | 73,032 | |||||||||||
See accompanying notes to financial statements.
5
Jefferson Bancshares, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
Six Months Ended
December 31, |
||||||||
2008 | 2007 | |||||||
Cash flows from operating activities: |
||||||||
Net earnings |
$ | 1,323 | $ | 258 | ||||
Adjustments to reconcile net earnings to net cash provided by (used for) operating activities: |
||||||||
Allocated ESOP shares |
191 | 232 | ||||||
Depreciation and amortization expense |
445 | 330 | ||||||
Amortization of premiums (discounts), net on investment securities |
381 | 8 | ||||||
Provision for loan losses |
310 | 128 | ||||||
FHLB stock dividends |
(83 | ) | | |||||
Amortization of deferred loan fees, net |
(110 | ) | (121 | ) | ||||
(Gain) on sale of foreclosed real estate, net |
(8 | ) | (46 | ) | ||||
(Gain) on sale of fixed assets |
(1 | ) | | |||||
Deferred tax benefit |
(78 | ) | 705 | |||||
Originations of mortgage loans held for sale |
(5,010 | ) | (13,229 | ) | ||||
Proceeds from sale of mortgage loans |
5,077 | 15,571 | ||||||
Increase in cash value of life insurance |
(115 | ) | (110 | ) | ||||
Earned portion of MRP |
250 | 273 | ||||||
Stock options expensed |
130 | 132 | ||||||
Decrease (increase) in: |
||||||||
Accrued interest receivable |
184 | 145 | ||||||
Other assets |
(831 | ) | (4 | ) | ||||
Increase (decrease) in other liabilities and accrued income taxes |
2,119 | (124 | ) | |||||
Net cash provided by (used for) operating activities |
4,174 | 4,148 | ||||||
Cash flows used for investing activities: |
||||||||
Loan originations, net of principal collections |
(8,706 | ) | (10,933 | ) | ||||
Investment securities classified as available for sale: |
||||||||
Proceeds from maturities, calls and prepayments |
| | ||||||
Proceeds from sale |
| 4,917 | ||||||
Return of principal on mortgage-backed securities |
319 | | ||||||
Purchase of securities |
(9,962 | ) | | |||||
Acquisition, net of cash received |
26,748 | | ||||||
Purchase of premises and equipment |
(445 | ) | (128 | ) | ||||
Proceeds from sale of (additions to) foreclosed real estate, net |
70 | 194 | ||||||
Net cash provided by (used for) investing activities |
8,024 | (5,950 | ) | |||||
Cash flows from financing activities: |
||||||||
Net increase (decrease) in deposits |
(7,237 | ) | 11,692 | |||||
Proceeds from advances from FHLB |
17,000 | 40,800 | ||||||
Repayment of FHLB advances |
(17,000 | ) | (47,300 | ) | ||||
Purchase of treasury stock |
(1,503 | ) | (1,091 | ) | ||||
Dividends paid |
(744 | ) | (769 | ) | ||||
Net cash provided by (used for) financing activities |
(9,484 | ) | 3,332 | |||||
Net increase (decrease) in cash, cash equivalents and interest-earning deposits |
2,714 | 1,530 | ||||||
Cash, cash equivalents and interest-earning deposits at beginning of period |
17,616 | 7,734 | ||||||
Cash, cash equivalents and interest-earning deposits at end of period |
$ | 20,330 | $ | 9,264 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during period for: |
||||||||
Interest on deposits |
$ | 2,852 | $ | 4,170 | ||||
Interest on FHLB advances |
$ | 1,014 | $ | 875 | ||||
Income taxes |
$ | 701 | $ | 645 | ||||
Real estate acquired in settlement of loans |
$ | 399 | $ | 1,007 |
See accompanying notes to financial statements.
6
Notes To Consolidated Financial Statements
(1) | Basis of Presentation |
The accompanying unaudited consolidated financial statements include the accounts of Jefferson Bancshares, Inc. (the Company or Jefferson Bancshares) and its wholly-owned subsidiary, Jefferson Federal Bank (the Bank or Jefferson Federal). The unaudited financial statements of the Company were prepared with generally accepted accounting principles and with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of financial condition, results of operations and cash flows. In the opinion of management, the accompanying unaudited financial statements contain all adjustments, which are normal and recurring in nature, necessary for a fair presentation of the interim financial statements. The results of operations for the period ended December 31, 2008 are not necessarily indicative of the results which may be expected for the entire fiscal year. These unaudited consolidated financial statements should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended June 30, 2008, which was filed with the Securities and Exchange Commission on September 11, 2008. All dollar amounts, other than per-share amounts, are in thousands unless otherwise noted.
(2) | Principles of Consolidation |
The consolidated financial statements include the accounts of Jefferson Bancshares, Inc. and its wholly-owned subsidiary, Jefferson Federal Bank. All significant intercompany balances and transactions have been eliminated in consolidation.
(3) | Use of Estimates |
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the statement of condition dates and revenues and expenses for the periods shown. Actual results could differ from the estimates and assumptions used in the consolidated financial statements. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate and deferred tax assets.
(4) | Limitation on Capital Distributions |
Jefferson Federal may not pay dividends on its capital stock if its regulatory capital would thereby be reduced below the amount then required for the liquidation account established for the benefit of certain depositors of Jefferson Federal at the time of its conversion to stock form.
Under applicable regulations, Jefferson Federal is prohibited from making any capital distributions if after making the distribution, the Bank would have: (i) a total risk-based capital ratio of less than 8.0%; (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a leverage ratio of less than 4.0%.
Under the banking laws of the State of Tennessee, a Tennessee chartered savings bank may not declare dividends in any calendar year that exceeds the total of its net income of that year combined with its retained net income for the preceding two years without the prior approval of the Commissioner of the Department of Financial Institutions.
7
(5) | Earnings Per Common Share |
Earnings per common share and earnings per common share-assuming dilution have been computed on the basis of dividing net earnings by the weighted-average number of shares of common stock outstanding, exclusive of unallocated ESOP shares. Diluted earnings per common share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate to outstanding stock options and are determined using the treasury stock method. For the period ended December 31, 2008, stock options to purchase 584,681 shares were not included in the computation of diluted net income per share as their effect would have been anti-dilutive. The following table illustrates the number of weighted-average shares of common stock used in each corresponding earnings per common share calculation:
Weighted-Average Shares
Outstanding for the Three Months Ended December 31, |
Weighted-Average Shares
Outstanding for the Six Months Ended December 31, |
|||||||
2008 | 2007 | 2008 | 2007 | |||||
Weighted average number of common shares used in computing basic earnings per common share |
6,091,206 | 5,840,831 | 5,879,310 | 5,860,409 | ||||
Effect of dilutive stock options |
| | | | ||||
Weighted average number of common shares and dilutive potential common shares used in computing earnings per common share assuming dilution |
6,091,206 | 5,840,831 | 5,879,310 | 5,860,409 | ||||
(6) | Statements of Cash Flows |
Dividends declared but not paid have been recorded in other liabilities; however, their non-effect on cash and operations dictates their exclusion from the cash flows until actually paid.
(7) | Allowance for Loan Losses |
The following table summarizes the activity in the allowance for loan losses for the six months ended December 31, 2008:
8
Allowance for Loan Losses
(Dollars in thousands) |
|||||||
Balance at June 30, 2008 |
$ | 1,836 | |||||
Allowance of acquired bank |
$ | 2,577 | |||||
Provision for loan losses |
310 | ||||||
Charge-offs |
(72 | ) | |||||
Recoveries |
41 | ||||||
Net (charge-offs)/recoveries |
(31 | ) | |||||
Balance at December 31, 2008 |
$ | 4,692 | |||||
(8) | Financial Instruments With Off-Balance Sheet Risk |
Jefferson Bancshares is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments generally include commitments to originate mortgage loans. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The Companys maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount and related accrued interest receivable of those instruments. The Company minimizes this risk by evaluating each borrowers creditworthiness on a case-by-case basis. Collateral held by the Company consists of a first or second mortgage on the borrowers property. The amount of collateral obtained is based upon an appraisal of the property.
At December 31, 2008, we had approximately $4.6 million in loan commitments, consisting of commitments to originate real estate loans. In addition to commitments to originate loans we had $6.4 million in unused letters of credit and approximately $50.1 million in unused lines of credit.
(9) | Dividend Declaration |
On November 24, 2008 the Board of Directors of the Company approved a quarterly dividend of $0.06 per share to stockholders of record as of December 31, 2008 and payable on January 9, 2009.
(10) | Stock Incentive Plans |
The Companys 2004 Stock Incentive Plan authorizes the granting of 698,750 options and 279,500 restricted stock awards to employees and non-employee directors of Jefferson Federal and Jefferson Bancshares. As of December 31, 2008, there were 400,032 options and 221,592 restricted stock awards granted under this plan which will vest pro-rata over a five-year period. The 2004 Plan has an expiration date of January 30, 2014.
In connection with the Companys previously announced acquisition of State of Franklin Bancshares, Inc. (State of Franklin) on October 31, 2008, each outstanding State of Franklin non-qualified option with an exercise price of $13.50 or less was converted into an option to purchase shares of Jefferson Bancshares common stock with an expiration date of October 31, 2011.
9
The table below summarizes the status of the Companys stock option plans as of December 31, 2008.
Three Months Ended | |||||
December 31, 2008 | |||||
Shares |
Weighted-
average exercise price |
||||
Outstanding at beginning of period |
400,032 | $ | 13.69 | ||
Converted options of State of Franklin |
184,649 | $ | 10.85 | ||
Granted during the three-month period |
| | |||
Options forfeited |
| | |||
Options exercised |
| | |||
Outstanding at December 31, 2008 |
584,681 | $ | 12.79 | ||
Options exercisable at December 31, 2008 |
506,083 | $ | 12.65 |
The following information applies to options outstanding at December 31, 2008:
Number outstanding |
584,681 | ||
Range of exercise prices |
10.00 - 13.69 | ||
Weighted-average exercise price |
$ | 12.79 | |
Weighted-average remaining contractual life |
4.37 | ||
Number of options remaining for future issuance |
298,718 |
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123R, Share Based Payment (SFAS 123R), an amendment of FASB Statement No. 123 (SFAS 123), Accounting for Stock-Based Compensation. SFAS 123R eliminates the ability to account for share-based compensation transactions using Accounting Principles Board Opinion No. 25 (APB 25) and requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This statement is effective for public entities that do not file as small business issuers as of the beginning of the first interim or annual reporting period that begins after June 15, 2005.
Effective July 1, 2005, the Company adopted SFAS 123R using the modified prospective application transition method. This requires the Company to expense the unvested portion of options granted in 2004, which reduces net earnings by approximately $106 in fiscal year 2009. SFAS 123R provides for the use of alternative models to determine compensation cost related to stock option grants. The estimated fair value of stock options at grant date has been determined using the Black-Scholes option-pricing model based on market data as of January 29, 2004. The expected dividend yield of 1.17% and expected volatility of 7.01% were used to model the value. The risk free rate of return equaled 4.22%, which was based on the yield of a U.S. Treasury note with a term of ten years. The estimated time remaining before the expiration of the options equaled ten years.
10
(11) | Fair Value Disclosures |
Effective July 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements and SFAS No. 159 The Fair Value Options for Financial Assets and Liabilities. SFAS No. 159, which was issued in February 2007, generally permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. The statement also provides guidance on financial assets and liabilities that are not subject to fair value measurement. Upon adoption of SFAS No. 159, the Company did not elect to adopt the fair value option for any financial instruments.
SFAS No. 157, which was issued in September 2006, defines fair value, provides a framework for measuring fair value under U.S. Generally Accepted Accounting Principles and expands disclosures about fair value measurements. This Statement defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.
In accordance with SFAS No. 157, when measuring fair value, the Company uses valuation techniques that are appropriate and consistently applied. A hierarchy is also established under the standard and is used to prioritize valuation inputs into the following three levels to determine fair value:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than the quoted prices included in Level 1.
Level 3: Unobservable inputs.
Following is a description of valuation methodologies used for assets recorded at fair value.
Investment Securities Available for Sale
Investment securities available-for-sale are recorded at fair value on at least a monthly basis. Fair value measurements are based upon independent pricing models or other model-based valuation techniques with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Level 2 securities include mortgage-backed securities issued by government-sponsored entities, municipal bonds, bonds issued by government agencies, and corporate debt securities.
The fair value measurements as of December 31, 2008, for investment securities available-for-sale are summarized below:
Fair Value Measurement Using | ||||||||||
Description |
Level 1 | Level 2 | Level 3 | Total | ||||||
Securities available for sale |
| $ | 44,295 | | $ | 44,295 |
11
(12) | Business Combination |
On October 31, 2008, the Company completed its previously announced acquisition of State of Franklin. State of Franklin was headquartered in Johnson City, Tennessee, which is approximately 70 miles northeast of the Companys headquarters. State of Franklin operates six offices in Johnson City and Kingsport with a branch under construction in Bristol, Tennessee. The primary reason for the acquisition of State of Franklin was to expand the Companys presence into upper East Tennessee. Under the terms of the merger agreement, the Company issued a combination of shares of Company common stock and cash for the outstanding common shares of State of Franklin. State of Franklin shareholders were given the option of receiving $10.00 in cash, 1.1287 shares of Company common stock for each share of State of Franklin common stock, or a combination of stock and cash for each share of State of Franklin common stock, such that 60% of the shares of State of Franklin common stock would be exchanged for Company common stock. However, all shares of State of Franklin common stock held by individuals residing outside of Tennessee were only eligible to receive cash consideration. Based on this structure and the current outstanding shares of State of Franklin, the aggregate merger consideration included approximately $4.3 million in cash and 736,000 shares of Company common stock. The Company also incurred $557 in merger costs that were capitalized into goodwill. The acquisition was accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. The assets acquired and liabilities assumed set forth below were recorded by the Company at their fair values at the acquisition date:
Cash and cash equivalents |
$ | 32,062 | |
Investment securities |
31,767 | ||
Loans, net |
221,023 | ||
Premises and equipment |
10,368 | ||
Core deposit intangible |
3,421 | ||
Goodwill |
25,814 | ||
Other assets |
16,590 | ||
Total assets acquired |
341,045 | ||
Deposits |
262,082 | ||
Borrowings |
64,462 | ||
Other liabilities |
2,939 | ||
Total liabilities assumed |
329,483 | ||
Net assets acquired |
$ | 11,562 | |
Intangible assets and purchase accounting fair value adjustments are amortized under various methods over the expected lives of the related assets and liabilities. Recorded goodwill will not be amortized and is not deductible for tax purposes, but will be tested for impairment at least annually.
The pro forma information below presents combined results of operations as if the acquisition had occurred at the beginning of the respective periods presented. The pro forma information includes adjustments for interest income on loans, deposits, and borrowings
12
acquired, amortization of intangibles, depreciation expense on property acquired, and the related income tax effects. The 2008 pro forma information includes the loss from the sale of Fannie Mae and Freddie Mac preferred stock realized by State of Franklin. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the acquisition been effected on the assumed dates.
Six Months Ended
December 31, |
||||||||
2008 | 2007 | |||||||
Net interest income |
$ | 10,016 | $ | 11,670 | ||||
Net loss |
(13,451 | ) | (1,617 | ) | ||||
Loss per share |
$ | (0.25 | ) | $ | (1.32 | ) | ||
Loss per share, diluted |
$ | (0.25 | ) | $ | (1.32 | ) |
(13) | Subordinated Debt |
As part of the State of Franklin acquisition, the Company acquired the State of Franklin Statutory Trust II (the Trust) and assumed the Trusts obligation with respect to certain capital securities described below. On December 13, 2006, State of Franklin issued $10,310 of junior subordinated debentures to the Trust, a Delaware business trust wholly owned by State of Franklin. The Trust (a) sold $10,000 of capital securities through its underwriters to institutional investors and upstreamed the proceeds to State of Franklin and (b) issued $310 of common securities to State of Franklin. The sole asset of the Trust is the $10,310 of junior subordinated debentures issued by State of Franklin. The securities are redeemable at par after January 30, 2012, and have a final maturity January 30, 2037. The interest is payable quarterly at a floating rate equal to 3-month LIBOR plus 1.7%.
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Managements discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of Jefferson Bancshares. The information contained in this section should be read in conjunction with the financial statements and accompanying notes thereto. For further information, refer to the financial statements and footnotes included in the Companys Annual Report on Form 10-K for the year ended June 30, 2008, which was filed with the Securities and Exchange Commission on September 11, 2008.
General
Jefferson Bancshares, Inc. (also referred to as the Company or Jefferson Bancshares) is the holding company for Jefferson Federal Bank (the Bank or Jefferson Federal).
13
The Company has no significant assets, other than all of the outstanding shares of the Bank, and no significant liabilities. Management of the Company and the Bank are substantially similar and the Company neither owns nor leases any property, but instead uses the premises, equipment and furniture of the Bank. Accordingly, the information set forth in this report, including the consolidated financial statements and related financial data, relates primarily to the Bank.
Jefferson Federal is a community oriented financial institution offering traditional financial services to its local communities. The Bank is engaged primarily in the business of attracting deposits from the general public and using such funds to originate loans secured by first mortgages on owner-occupied, one-to four- family residential properties, as well as originate commercial real estate and multi-family mortgage loans, construction loans, consumer loans, commercial non-real estate loans and make other investments permitted by applicable laws and regulations.
The Banks savings accounts are insured up to the applicable legal limits by the Federal Deposit Insurance Corporation (FDIC) through the Deposit Insurance Fund. Jefferson Federal Bank is a member of the Federal Home Loan Bank (FHLB) System.
Private Securities Litigation Reform Act Safe Harbor Statement
This Quarterly Report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts; but rather, are statements based on Jefferson Bancshares current expectations regarding its business strategies and their intended results and the Companys future performance. Forward-looking statements are preceded by terms such as expects, believes, anticipates, intends and similar expressions.
Managements ability to predict results or the effect of future plans or strategies is inherently uncertain. These factors include, but are not limited to, general economic conditions, changes in the interest rate environment, legislative or regulatory changes that may adversely affect our business, changes in accounting policies and practices, changes in competition and demand for financial services, adverse changes in the securities markets and changes in the quality or composition of the Companys loan or investment portfolios. Additional factors that may affect our results are discussed in our Annual Report on Form 10-K for the year ended June 30, 2008 under Item 1A. Risk Factors. These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Jefferson Bancshares assumes no obligation to update any forward-looking statements.
Results of Operations for the Three and Six Months Ended December 31, 2008 and 2007
Net Income
Net income was $790,000, or $0.13 per diluted share, for the quarter ended December 31, 2008 compared to net loss of $176,000, or ($0.03) per diluted share, for the corresponding quarter in 2007. For the six months ended December 31, 2008, net income was $1.3 million compared to $258,000 for the same period in 2007. Financial results for the three and six month periods ended December 31, 2007 include a $637,000 non-cash charge to deferred income tax expense to establish a valuation allowance against deferred tax assets. Excluding this tax charge, core net earnings were $461,000, or $0.08 per diluted share and $895,000, or $0.15 per diluted share, respectively, for the three and six month periods ended December 31, 2007.
14
Three Months Ended
December 31, |
Six Months Ended
December 31, |
|||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in thousands,
except per share data) |
(Dollars in thousands,
except per share data) |
|||||||||||||||
Net earnings |
$ | 790 | $ | (176 | ) | $ | 1,323 | $ | 258 | |||||||
Net earnings per share, basic |
$ | 0.13 | $ | (0.03 | ) | $ | 0.22 | $ | 0.04 | |||||||
Net earnings per share, diluted |
$ | 0.13 | $ | (0.03 | ) | $ | 0.22 | $ | 0.04 | |||||||
Return on average assets (annualized) |
0.57 | % | (0.21 | )% | 0.60 | % | 0.15 | % | ||||||||
Return on average equity (annualized) |
4.09 | % | (0.94 | )% | 3.51 | % | 0.70 | % |
While core net earnings is not a measure of performance calculated in accordance with GAAP, the Company believes that this measure is important for the three and six month periods ended December 31, 2007 to convey to investors the Companys earnings for these periods absent the $637,000 non-cash charge to deferred income tax expense to establish a valuation allowance against deferred tax assets during the quarter ended December 31, 2007. The valuation allowance was related to the charitable contribution carryforward directly attributable to the Companys contribution to the Jefferson Federal Charitable Foundation in July 2003. The Company calculated its core net earnings for the three and six month periods ended December 31, 2007 by subtracting this $637,000 non-cash charge from net income for the respective periods. Core net earnings should not be considered in isolation or as a substitute for net income, cash flows from operating activities or other income or cash flow statement data calculated in accordance with GAAP. Moreover, the manner in which the Company calculates core net earnings may differ from that of other companies reporting measures with similar names. Reconciliations of the Companys GAAP and core net earnings for the three and six month periods ended December 31, 2007 follow.
Three Months ended
December 31, |
Six Months Ended
December 31, |
||||||||||||
2008 | 2007 | 2008 | 2007 | ||||||||||
(Dollars in thousands, except per share data) | |||||||||||||
GAAP net earnings (loss) |
$ | 790 | $ | (176 | ) | $ | 1,323 | $ | 258 | ||||
Plus: non-cash charge to deferred income tax expense |
$ | 0 | $ | 637 | $ | 0 | $ | 637 | |||||
Core net earnings |
$ | 790 | $ | 461 | $ | 1,323 | $ | 895 | |||||
GAAP earnings (loss) per diluted share |
$ | 0.13 | $ | (0.03 | ) | $ | 0.22 | $ | 0.04 | ||||
Plus: non-cash charge to deferred income tax expense |
$ | 0.00 | $ | 0.11 | $ | 0.00 | $ | 0.11 | |||||
Core net earnings per diluted share |
$ | 0.13 | $ | 0.08 | $ | 0.22 | $ | 0.15 | |||||
Net Interest Income
Net interest income before loan loss provision increased $1.0 million, or 35.0%, to $4.0 million for the quarter ended December 31, 2008 from the corresponding period in 2007. The interest rate spread and net interest margin for the quarter ended December 31, 2008 were 2.99% and 3.25%, respectively, compared to 2.97% and 3.73%, respectively, for the same period in 2007.
15
For the six months ended December 31, 2008, net interest income before loan loss provision increased $1.1 million, or 19.1%, to $7.0 million from the corresponding period in 2007. The interest rate spread and net interest margin for the six months ended December 31, 2008 were 3.13% and 3.52%, respectively, compared to 2.95% and 3.73%, respectively, for the same period in 2007.
The following table summarizes changes in interest income and expense for the three month period ended December 31, 2008 and 2007:
Three Months
Ended December 31, |
|||||||||||||
2008 | 2007 | $ Change | % Change | ||||||||||
(Dollars in thousands) | |||||||||||||
Interest income: | |||||||||||||
Loans |
$ | 6,436 | $ | 5,145 | $ | 1,291 | 25.1 | % | |||||
Investment securities |
565 | 253 | 312 | 123.3 | % | ||||||||
Interest-earning deposits |
13 | 61 | (48 | ) | (78.7 | )% | |||||||
FHLB stock |
58 | 32 | 26 | 81.3 | % | ||||||||
Total interest income |
7,072 | 5,491 | 1,581 | 28.8 | % | ||||||||
Interest expense: | |||||||||||||
Deposits |
2,311 | 2,101 | 210 | 10.0 | % | ||||||||
Borrowings |
770 | 434 | 336 | 77.4 | % | ||||||||
Total interest expense |
3,081 | 2,535 | 546 | 21.5 | % | ||||||||
Net interest income |
$ | 3,991 | $ | 2,956 | $ | 1,035 | 35.0 | % | |||||
The following table summarizes changes in interest income and expense for the six month period ended December 31, 2008 and 2007:
Six Months
Ended December 31, |
|||||||||||||
2008 | 2007 | $ Change | % Change | ||||||||||
(Dollars in thousands) | |||||||||||||
Interest income: | |||||||||||||
Loans |
$ | 11,033 | $ | 10,192 | $ | 841 | 8.3 | % | |||||
Investment securities |
594 | 526 | 68 | 12.9 | % | ||||||||
Interest-earning deposits |
30 | 123 | (93 | ) | (75.6 | )% | |||||||
FHLB stock |
83 | 61 | 22 | 36.1 | % | ||||||||
Total interest income |
11,740 | 10,902 | 838 | 7.7 | % | ||||||||
Interest expense: | |||||||||||||
Deposits |
3,636 | 4,170 | (534 | ) | (12.8 | )% | |||||||
Borrowings |
1,126 | 875 | 251 | 28.7 | % | ||||||||
Total interest expense |
4,762 | 5,045 | (283 | ) | (5.6 | )% | |||||||
Net interest income |
$ | 6,978 | $ | 5,857 | $ | 1,121 | 19.1 | % | |||||
16
The following table summarizes average balances and average yields and costs for the three and six months ended December 31, 2008 and December 31, 2007:
Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||||||||||
Average
Balance |
Yield/
Cost |
Average
Balance |
Yield/
Cost |
Average
Balance |
Yield/
Cost |
Average
Balance |
Yield/
Cost |
|||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||
Loans |
$ | 436,908 | 5.84 | % | $ | 282,176 | 7.23 | % | $ | 362,389 | 6.04 | % | $ | 278,657 | 7.26 | % | ||||||||
Investment securities |
29,510 | 7.78 | % | 24,517 | 4.31 | % | 16,502 | 7.45 | % | 25,420 | 4.32 | % | ||||||||||||
Interest-earning deposits |
19,388 | 1.19 | % | 7,052 | 3.43 | % | 13,548 | 1.22 | % | 6,684 | 3.65 | % | ||||||||||||
FHLB stock |
3,788 | 1.36 | % | 1,796 | 7.07 | % | 2,828 | 2.10 | % | 1,796 | 6.74 | % | ||||||||||||
Deposits |
366,621 | 2.50 | % | 216,306 | 3.85 | % | 284,783 | 2.53 | % | 214,448 | 3.86 | % | ||||||||||||
Borrowings |
76,946 | 3.97 | % | 38,223 | 4.50 | % | 56,002 | 3.99 | % | 36,671 | 4.73 | % |
The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.
Three Months
Ended December 31, 2008 Compared to 2007 |
Six Months
Ended December 31, 2008 Compared to 2007 |
|||||||||||||||||||||||
Increase (Decrease)
Due To |
Increase (Decrease)
Due To |
|||||||||||||||||||||||
Volume | Rate | Net | Volume | Rate | Net | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Interest income: |
||||||||||||||||||||||||
Loans receivable |
$ | 1,987 | $ | (696 | ) | $ | 1,291 | $ | 1,902 | $ | (1,061 | ) | $ | 841 | ||||||||||
Investment securities |
60 | 252 | 312 | (61 | ) | 129 | 68 | |||||||||||||||||
Daily interest-earning deposits and other interest-earning assets |
(38 | ) | 16 | (22 | ) | (307 | ) | 236 | (71 | ) | ||||||||||||||
Total interest-earning assets |
2,009 | (428 | ) | 1,581 | 1,534 | (696 | ) | 838 | ||||||||||||||||
Interest expense: |
||||||||||||||||||||||||
Deposits |
424 | (214 | ) | 210 | 11,353 | (11,887 | ) | (534 | ) | |||||||||||||||
Borrowings |
381 | (45 | ) | 336 | 358 | (107 | ) | 251 | ||||||||||||||||
Total interest-bearing liabilities |
805 | (259 | ) | 546 | 11,711 | (11,994 | ) | (283 | ) | |||||||||||||||
Net change in interest income |
$ | 1,204 | $ | (169 | ) | $ | 1,035 | $ | (10,177 | ) | $ | 11,298 | $ | 1,121 | ||||||||||
Total interest income increased $1.6 million, or 28.8%, to $7.1 million for the three months ended December 31, 2008 and increased $838,000, or 7.7%, to $11.7 million for the six months ended December 31, 2008 compared to the corresponding periods in 2007 primarily as a result of an increase in average interest-earning assets arising from the State of Franklin acquisition. Average interest-earning assets increased $174.1 million, or 55.2%, to $489.6 million for the three months ended December 31, 2008 and increased $82.7 million, or 26.5%, to $395.3 million for the six months ended December 31, 2008. The increase in average earning assets for both the three and
17
six month periods was primarily the result of increases in average outstanding loans. The average yield on earning assets declined by 118 basis points to 5.74% for the quarter ended December 31, 2008 and declined by 103 basis points to 5.90% for the six months ended December 31, 2008 compared to the corresponding periods in 2007. The decline in the average yield on earning assets was primarily the result of lower yields on prime-based consumer and commercial loans resulting from decreases in the prime-lending rate during the period.
Total interest expense increased $546,000, or 21.5%, to $3.1 million for the three-month period ended December 31, 2008. The average balance of interest-bearing liabilities increased $189.0 million, or 74.3%, to $443.6 million, while the rate paid on interest-bearing liabilities declined 120 basis points. The Company experienced an increase of $150.3 million, or 69.5%, in average interest-bearing deposits primarily due to deposits assumed in connection with the State of Franklin acquisition. The average rate paid on deposits decreased 135 basis points to 2.50% due to decreases in short term interest rates. Average borrowings increased $38.7 million to $76.9 million due to the assumption of borrowings related to the State of Franklin acquisition, while the average rate paid on borrowings decreased 53 basis points to 3.97%.
For the six months ended December 31, 2008, interest expense declined $283,000, or 5.6%, to $4.8 million with average interest-bearing liabilities increasing $89.7 million, or 35.7%, to $340.8 million and the average cost declining 121 basis points to 2.77%.
Provision for Loan Losses
We review the level of the loan loss allowance on a monthly basis and establish the provision for loan losses based on the volume and types of lending, delinquency levels, loss experience, the amount of classified loans, economic conditions and other factors related to the collectibility of the loan portfolio. The provision for loan losses for the three-month period ended December 31, 2008 amounted to $150,000 compared to $60,000 for the comparable period in 2007. The increase in the provision for loan losses reflects growth in commercial loans, managements evaluation of credit quality and current economic conditions. Nonperforming loans totaled $3.8 million at December 31, 2008 compared to $301,000 at June 30, 2008 and $814,000 at December 31, 2007. The increase in nonperforming loans is due in part to the addition of nonperforming loans from the State of Franklin acquisition, as well as the current economic environment. State of Franklin nonperforming loans have increased due to deterioration in the residential housing market.
Noninterest Income
Noninterest income increased $282,000, or 81.3%, to $629,000 for the three months ended December 31, 2008 compared to $347,000 for the corresponding period in 2007. Service charges and fee income increased $241,000 to $395,000 for the three months ended December 31, 2008 due primarily to additional fee income generated during the two months following the acquisition of State of Franklin and the implementation of an overdraft program. Mortgage origination fee income decreased $43,000, or 43.9%, to $55,000 for the three months ended December 31, 2008 due to a lower volume of loan originations.
Noninterest income increased $264,000, or 34.8%, to $1.0 million for the six months ended December 31, 2008 compared to $759,000 for the corresponding period in 2007. Service charges and fee income increased $330,000 to $638,000 for the six months ended December 31, 2008 due
18
to the same trends outlined for three months ended December 31, 2008. Mortgage origination fee income decreased $114,000, or 51.1%, to $109,000 for the six months ended December 31, 2008 due to a lower volume of loan originations. Gain on sale of foreclosed assets for the quarter ended December 31, 2008 was $8,000 compared to a $46,000 gain on sale of foreclosed assets for the corresponding period in 2007.
The following table summarizes the dollar amounts for each category of noninterest income, and the dollar and percent changes for the three months ended December 31, 2008 compared to the same period in 2007.
Three Months Ended
December 31, |
$
Change |
%
Change |
|||||||||||
2008 | 2007 | ||||||||||||
(Dollars in thousands) | |||||||||||||
Noninterest income: |
|||||||||||||
Dividends from investments |
$ | 14 | $ | 11 | $ | 3 | 27.3 | % | |||||
Mortgage origination fee income |
55 | 98 | (43 | ) | (43.9 | )% | |||||||
Service charges and fees |
395 | 154 | 241 | 156.5 | % | ||||||||
Gain on sale of fixed assets |
1 | | 1 | NM | |||||||||
Gain on sale of foreclosed real estate, net |
8 | | 8 | NM | |||||||||
BOLI increase in cash value |
55 | 55 | | 0.0 | % | ||||||||
Other |
101 | 29 | 72 | 248.3 | % | ||||||||
Total noninterest income |
$ | 629 | $ | 347 | $ | 282 | 81.3 | % | |||||
The following table summarizes the dollar amounts for each category of noninterest income, and the dollar and percent changes for the six months ended December 31, 2008 compared to the same period in 2007.
Six Months Ended
December 31, |
$
Change |
%
Change |
|||||||||||
2008 | 2007 | ||||||||||||
(Dollars in thousands) | |||||||||||||
Noninterest income: |
|||||||||||||
Dividends from investments |
$ | 25 | $ | 19 | $ | 6 | 31.6 | % | |||||
Mortgage origination fee income |
109 | 223 | (114 | ) | (51.1 | )% | |||||||
Service charges and fees |
638 | 308 | 330 | 107.1 | % | ||||||||
Gain on sale of fixed assets |
1 | | 1 | NM | |||||||||
Gain on sale of foreclosed real estate, net |
8 | 46 | (38 | ) | (82.6 | )% | |||||||
BOLI increase in cash value |
115 | 110 | 5 | 4.5 | % | ||||||||
Other |
127 | 53 | 74 | 139.6 | % | ||||||||
Total noninterest income |
$ | 1,023 | $ | 759 | $ | 264 | 34.8 | % | |||||
Noninterest Expense
Noninterest expense increased $997,000, or 39.3%, to $3.5 million for the three-month period ended December 31, 2008 and increased $767,000, or 15.0%, to $5.9 million compared to the corresponding 2007 period. Advertising expense decreased for both the three and six month periods due to our decision to defer marketing initiatives to future periods. The increase in noninterest expense includes operations of six additional full-service offices obtained from the acquisition of State of
19
Franklin on October 31, 2008. In addition, noninterest expense includes the amortization of the core deposit intangible (CDI) resulting from the acquisition of State of Franklin. The CDI totaled $3.4 million at the acquisition date and is being amortized over a 10 year period on an accelerated basis. The expense incurred for CDI amortization for both the three and six month period ended December 31, 2008 was $98,000 compared to none for the prior periods.
The following table summarizes the dollar amounts for each category of noninterest expense, and the dollar and percent changes for the three months ended December 31, 2008 compared to the same period in 2007.
Three Months Ended
December 31, |
$
Change |
%
Change |
|||||||||||
2008 | 2007 | ||||||||||||
(Dollars in thousands) | |||||||||||||
Compensation and benefits |
$ | 1,870 | $ | 1,431 | $ | 439 | 30.7 | % | |||||
Occupancy expense |
310 | 173 | 137 | 79.2 | % | ||||||||
Equipment and data processing expense |
605 | 362 | 243 | 67.1 | % | ||||||||
Deposit insurance premiums |
9 | 7 | 2 | 28.6 | % | ||||||||
Advertising |
45 | 121 | (76 | ) | (62.8 | )% | |||||||
Other |
696 | 444 | 252 | 56.8 | % | ||||||||
Total noninterest expense |
$ | 3,535 | $ | 2,538 | $ | 997 | 39.3 | % | |||||
The following table summarizes the dollar amounts for each category of noninterest expense, and the dollar and percent changes for the six months ended December 31, 2008 compared to the same period in 2007.
Six Months Ended
December 31, |
$
Change |
%
Change |
|||||||||||
2008 | 2007 | ||||||||||||
(Dollars in thousands) | |||||||||||||
Compensation and benefits |
$ | 3,188 | $ | 2,875 | $ | 313 | 10.9 | % | |||||
Occupancy expense |
493 | 344 | 149 | 43.3 | % | ||||||||
Equipment and data processing expense |
963 | 721 | 242 | 33.6 | % | ||||||||
Deposit insurance premiums |
18 | 13 | 5 | 38.5 | % | ||||||||
Advertising |
48 | 216 | (168 | ) | (77.8 | )% | |||||||
Other |
1,164 | 938 | 226 | 24.1 | % | ||||||||
Total noninterest expense |
$ | 5,874 | $ | 5,107 | $ | 767 | 15.0 | % | |||||
Income Taxes
Income tax expense for the three months ended December 31, 2008 was $145,000 compared to $881,000 for the same period in 2007. Income tax expense for the six months ended December 31, 2008 was $494,000 compared to $1.1 million for the same period in 2007. Income tax expense for the three and six month periods in 2007 included the non-cash charge to deferred income tax expense to establish a valuation allowance against the charitable contribution carryforward. As previously mentioned, the carryforward is directly attributable to the contribution made to the Jefferson Federal Charitable Foundation in connection with the Companys public offering in July 2003.
20
Financial Condition
Cash, Cash Equivalents and Interest-Earning Deposits
Cash, cash equivalents, and interest-earning deposits were $20.3 million at December 31, 2008 compared to $17.6 million at June 30, 2008. We manage the level of cash, cash equivalents and interest-earning deposits to meet loan demand and daily liquidity needs.
Investments
Investment securities increased to $44.3 million at December 31, 2008 compared to $3.5 million at June 30, 2008. The increase was primarily the result of $31.8 million in investment securities acquired from State of Franklin. We do not hold any Freddie Mac or Fannie Mae preferred or common stock in our investment portfolio. Investments classified as available-for-sale are carried at fair market value and reflect an unrealized loss of $1.0 million, or $658,000 net of taxes.
The following table sets forth the carrying values of our investment securities portfolio at the dates indicated. All of our investment securities are classified as available-for-sale.
At December 31, 2008 |
||||||||||||||
Amortized
Cost |
Unrealized
Gains |
Unrealized
Losses |
Fair
Value |
|||||||||||
(Dollars in thousands) | ||||||||||||||
Securities available-for-sale |
||||||||||||||
Debt securities: |
||||||||||||||
Federal agency |
$ | 10,233 | $ | 26 | $ | | $ | 10,259 | ||||||
Mortgage-backed securities |
24,936 | 723 | (593 | ) | 25,066 | |||||||||
Municipal |
5,348 | 38 | (53 | ) | 5,333 | |||||||||
Corporate |
4,777 | 11 | (1,151 | ) | 3,637 | |||||||||
Total securities available- for-sale |
$ | 45,294 | $ | 798 | $ | (1,797 | ) | $ | 44,295 | |||||
Weighted-average rate |
7.45 | % | ||||||||||||
At June 30, 2008 |
||||||||||||||
Amortized
Cost |
Unrealized
Gains |
Unrealized
Losses |
Fair
Value |
|||||||||||
(Dollars in thousands) | ||||||||||||||
Securities available-for-sale |
||||||||||||||
Debt securities: |
||||||||||||||
Federal agency |
$ | | $ | | $ | | $ | | ||||||
Municipals |
3,506 | 7 | (35 | ) | 3,478 | |||||||||
Total securities available- for-sale |
$ | 3,506 | $ | 7 | ($ | 35 | ) | $ | 3,478 | |||||
Weighted-average rate |
3.62 | % | ||||||||||||
Loans
Net loans increased $227.1 million to $509.5 million at December 31, 2008 compared to $282.5 million at June 30, 2008. The increase was primarily attributable to the State of Franklin acquisition. Our primary lending activity is the origination of loans secured by real estate. Real estate loans totaled $438.3 million, or 85.1% of total loans, at December 31, 2008 compared to
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$224.6 million, or 78.9% of total loans, at June 30, 2008. Commercial business loans increased $15.0 million, or 28.7%, to $67.0 million at December 31, 2008, while consumer loans increased $1.6 million, or 20.4%, to $9.5 million at that date.
Loans receivable, net, are summarized as follows:
At
December 31, 2008 |
At
June 30, 2008 |
$ Change | % Change | ||||||||||||||||||
Amount |
Percent
of Portfolio |
Amount |
Percent
of Portfolio |
||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||
Real estate loans: |
|||||||||||||||||||||
Residential one-to four-family |
$ | 152,926 | 29.7 | % | $ | 63,340 | 22.3 | % | $ | 89,586 | 141.4 | % | |||||||||
Home equity line of credit |
22,110 | 4.3 | % | 5,723 | 2.0 | % | 16,387 | 286.3 | % | ||||||||||||
Commercial |
151,469 | 29.4 | % | 90,933 | 32.0 | % | 60,536 | 66.6 | % | ||||||||||||
Multi-family |
9,655 | 1.9 | % | 4,219 | 1.5 | % | 5,436 | 128.8 | % | ||||||||||||
Construction |
50,341 | 9.8 | % | 19,553 | 6.9 | % | 30,788 | 157.5 | % | ||||||||||||
Land |
51,789 | 10.1 | % | 40,862 | 14.4 | % | 10,927 | 26.7 | % | ||||||||||||
Total real estate loans |
438,290 | 85.1 | % | 224,630 | 78.9 | % | 213,660 | 95.1 | % | ||||||||||||
Commercial business loans |
66,990 | 13.0 | % | 52,037 | 18.3 | % | 14,953 | 28.7 | % | ||||||||||||
Consumer loans: |
|||||||||||||||||||||
Automobile loans |
3,609 | 0.7 | % | 3,973 | 1.4 | % | (364 | ) | (9.2 | )% | |||||||||||
Mobile home loans |
53 | 0.0 | % | 60 | 0.0 | % | (7 | ) | (11.7 | )% | |||||||||||
Loans secured by deposits |
1,053 | 0.2 | % | 930 | 0.3 | % | 123 | 13.2 | % | ||||||||||||
Other consumer loans |
4,823 | 0.9 | % | 2,961 | 1.0 | % | 1,862 | 62.9 | % | ||||||||||||
Total consumer loans |
9,538 | 1.9 | % | 7,924 | 2.8 | % | 1,614 | 20.4 | % | ||||||||||||
Total gross loans |
514,818 | 100.0 | % | 284,591 | 100.0 | % | 230,227 | 80.9 | % | ||||||||||||
Less: |
|||||||||||||||||||||
Deferred loan fees, net |
(588 | ) | (272 | ) | (316 | ) | 116.2 | % | |||||||||||||
Allowance for losses |
(4,692 | ) | (1,836 | ) | (2,856 | ) | 155.6 | % | |||||||||||||
Loans receivable, net |
$ | 509,538 | $ | 282,483 | $ | 227,055 | 80.4 | % | |||||||||||||
22
Loan Loss Allowance
The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish reserves against losses on loans on a monthly basis. When additional reserves are necessary, a provision for loan losses is charged to earnings.
In connection with assessing the allowance, we have established a systematic methodology for determining the adequacy of the allowance for loan losses. The methodology utilizes a loan grading system which segments loans with similar risk characteristics. Management performs a monthly assessment of the allowance for loan losses based on the nature and volume of the loan portfolio, the amount of impaired and classified loans and historical loan loss experience. In addition, management considers other qualitative factors, including delinquency trends, economic conditions and loan considerations.
The FDIC and/or the Tennessee Department of Financial Institutions, as an integral part of its examination process, periodically reviews our allowance for loan losses. The FDIC and/or the Tennessee Department of Financial Institutions may require us to make additional provisions for loan losses based on judgments different from ours.
The allowance for loan losses was $4.7 million at December 31, 2008 compared to $1.8 million at June 30, 2008. The increase in the allowance for loan losses reflects the addition of the State of Franklin allowance for loan losses totaling $2.6 million. Our allowance for loan losses represented 0.91% of total loans and 125.05% of nonperforming loans at December 31, 2008 compared to 0.65% of total loans and 609.97% of nonperforming loans at June 30, 2008.
Three Months Ended
December 31, |
Six Months Ended
December 31, |
|||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in thousands) |
(Dollars in thousands) | |||||||||||||||
Balance at beginning of period |
$ | 1,958 | $ | 1,955 | $ | 1,836 | $ | 1,955 | ||||||||
Allowance of acquired bank |
2,577 | 0 | 2,577 | 0 | ||||||||||||
Provision for loan losses |
150 | 60 | 310 | 128 | ||||||||||||
Recoveries |
31 | 20 | 41 | 30 | ||||||||||||
Charge-offs |
(24 | ) | (208 | ) | (72 | ) | (286 | ) | ||||||||
Net charge-offs |
7 | (188 | ) | (31 | ) | (256 | ) | |||||||||
Allowance at end of period |
$ | 4,692 | $ | 1,827 | $ | 4,692 | $ | 1,827 | ||||||||
Net charge-offs to average outstanding loans during the period, annualized |
0.00 | % | 0.27 | % | 0.02 | % | 0.18 | % |
Nonperforming Assets
We consider repossessed assets and nonaccrual loans to be nonperforming assets. Loans are reviewed on a monthly basis and are generally placed on nonaccrual status when the loan becomes more than 90 days delinquent. Nonperforming loans totaled $3.8 million at December 31, 2008 compared to $301,000 at June 30, 2008. The increase in nonperforming loans is due in part to the addition of nonperforming loans from the State of Franklin acquisition, as well as the current economic environment. State of Franklin nonperforming loans have increased due to deterioration in the residential housing market. Foreclosed real estate amounted to $1.0 million at December 31, 2008 compared to $462,000 at June 30, 2008. Foreclosed real estate is initially
23
recorded at the lower of the amount of the loan or the fair value of the foreclosed real estate, less estimated selling costs. Any writedown to fair value is charged to the allowance for loan losses. Any subsequent writedown of foreclosed real estate is charged against earnings.
December 31,
2008 |
June 30,
2008 |
|||||||
(Dollars in thousands) | ||||||||
Nonaccruing loans: |
||||||||
Real estate |
$ | 3,563 | $ | 139 | ||||
Commercial business |
182 | 162 | ||||||
Consumer |
7 | | ||||||
Total nonaccrual loans |
3,752 | 301 | ||||||
Real estate owned |
1,012 | 462 | ||||||
Other repossessed assets |
5 | 5 | ||||||
Total nonperforming assets |
$ | 4,769 | $ | 768 | ||||
Total nonperforming assets to total assets |
0.72 | % | 0.23 | % | ||||
Total nonperforming loans to total loans |
0.73 | % | 0.11 | % | ||||
Allowance for loan losses to total nonperforming loans |
125.05 | % | 609.97 | % |
Bank Owned Life Insurance
We hold bank owned life insurance (BOLI) to help offset the cost of employee benefit plans. BOLI provides earnings from accumulated cash value growth and provides tax advantages inherent in a life
Deposits
Total deposits increased $254.7 million to $478.2 million at December 31, 2008 due to increases in noninterest-bearing, NOW, savings, money market, and certificates of deposit of $14.8 million, $18.6 million, $61.1 million, $6.9 million, and $153.3 million, respectively. The increases were attributable to deposits assumed in connection with the State of Franklin acquisition.
December 31,
2008 |
June 30,
2008 |
$ Change | % Change | |||||||||
(Dollars in thousands) | ||||||||||||
Noninterest-bearing accounts |
$ | 32,337 | $ | 17,517 | $ | 14,820 | 84.6 | % | ||||
NOW accounts |
38,980 | 20,352 | 18,628 | 91.5 | % | |||||||
Savings accounts |
70,228 | 9,153 | 61,075 | 667.3 | % | |||||||
Money market accounts |
56,639 | 49,781 | 6,858 | 13.8 | % | |||||||
Certificates of deposit |
280,033 | 126,749 | 153,284 | 120.9 | % | |||||||
$ | 478,217 | $ | 223,552 | $ | 254,665 | 113.9 | % | |||||
Advances
FHLB advances increased $57.5 million to $90.5 million at December 31, 2008, compared to $33.0 million at June 30, 2008. The State of Franklin acquisition added $57.5 million of borrowed funds.
24
Stockholders Equity
Stockholders equity amounted to $78.5 million at December 31, 2008 compared to $72.8 million at June 30, 2008. The increase in stockholders equity is primarily due to the issuance of 736,000 shares of common stock related to the State of Franklin acquisition. Stock repurchases for the three months ended December 31, 2008 totaled 153,603 shares at an average cost of $9.01 per share. On November 13, 2008, the Company announced its third stock repurchase program pursuant to which up to 620,770 shares of the Companys outstanding common stock may be repurchased. At December 31, 2008, 582,961 shares remained eligible for repurchase under the current stock repurchase program. Unrealized gains and losses, net of taxes, in the available-for-sale investment portfolio are reflected as an adjustment to stockholders equity. At December 31, 2008, the adjustment to stockholders equity was a net unrealized loss of $658,000 compared to a net unrealized loss of $17,000 at June 30, 2008. The Company declared a $0.06 per share dividend to shareholders of record at December 31, 2008 totaling $407,000 that was payable on January 9, 2009.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of investment securities and borrowings from the FHLB of Cincinnati. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.
We regularly adjust our investments in liquid assets based on our assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short- and intermediate-term U.S. Government agency obligations.
Our most liquid assets are cash and cash equivalents and interest-earning assets. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At December 31, 2008, cash and cash equivalents totaled $8.1 million and interest-earning deposits totaled $12.3 million, compared to $2.4 million and $15.2 million, respectively, at June 30, 2008. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $44.3 million at December 31, 2008 compared to $3.5 million at June 30, 2008. In addition, at December 31, 2008, our advance agreement with the FHLB provided us with the ability to borrow a total of approximately $113.7 million from the FHLB of Cincinnati. In the three-month period ended December 31, 2008, FHLB advances increased $57.5 million to $90.5 million compared to $33.0 million at June 30, 2008 as a result of the State of Franklin acquisition.
We anticipate that we will have sufficient funds available to meet current loan commitments. At December 31, 2008, we had approximately $4.6 million in loan commitments outstanding. In addition to commitments to originate loans, we had $6.0 million in loans-in-process primarily related to undisbursed proceeds of construction loans, $6.4 million in unused letters of credit and approximately $44.1 million in unused lines of credit. At December 31, 2008, we had $192.9 million in certificates of deposit due within one year and $198.2 million in other deposits without
25
specific maturities. We believe, based on past experience, that a significant portion of those deposits will remain with us. Deposit flows are affected by the overall level of interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive and to increase deposits. Occasionally, we offer promotional rates on certain deposit products in order to attract deposits. We experienced a net increase in total deposits of $254.7 million during the six-month period ended December 31, 2008 as a result of the State of Franklin acquisition.
Off-Balance Sheet Arrangements
In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers requests for funding and take the form of loan commitments, unused lines of credit, amounts due mortgagors on construction loans, amounts due on commercial loans and commercial letters of credit.
For the three months ended December 31, 2008, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.
26
Capital Compliance
The Bank is subject to various regulatory capital requirements administered by the banking regulatory agencies. As of December 31, 2008, Jefferson Federal met each of its capital requirements. The following table presents our capital position relative to our regulatory capital requirements at December 31, 2008 and June 30, 2008:
Actual |
For Capital
Adequacy Purposes |
To Be Well
Capitalized Under Prompt Corrective Provisions Action |
||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||
At December 31, 2008 |
||||||||||||||||||||||
Total Risk-Based Capital
|
$ | 44,545 | 9.0 | % | $ | 39,608 | > | 8.0 | % | $ | 51,392 | > | 10.0 | % | ||||||||
Tier 1 Capital
|
40,387 | 8.2 | % | 19,804 | > | 4.0 | % | 30,835 | > | 6.0 | % | |||||||||||
Tier 1 Capital
|
40,387 | 6.5 | % | 24,925 | > | 4.0 | % | 31,046 | > | 5.0 | % | |||||||||||
At June 30, 2008 |
||||||||||||||||||||||
Total Risk-Based Capital
|
66,271 | 24.2 | % | 21,941 | > | 8.0 | % | 27,426 | > | 10.0 | % | |||||||||||
Tier 1 Capital
|
64,472 | 23.5 | % | 10,970 | > | 4.0 | % | 16,455 | > | 6.0 | % | |||||||||||
Tier 1 Capital
|
64,472 | 19.6 | % | 13,175 | > | 4.0 | % | 16,469 | > | 5.0 | % | |||||||||||
Under the capital regulations of the Federal Deposit Insurance Corporation (the FDIC), Jefferson Federal must satisfy minimum leverage ratio requirements and risk-based capital requirements. Banks supervised by the FDIC must maintain a minimum leverage ratio of core (Tier I) capital to average adjusted assets of at least 3.00% if a particular institution has the highest examination rating and at least 4.00% for all others. At December 31, 2008, Jefferson Federals leverage capital ratio was 6.16%. Based on this capital ratio, Jefferson Federal is considered well capitalized under the regulatory framework for prompt corrective action at December 31, 2008. The FDICs risk-based capital rules require banks supervised by the FDIC to maintain a ratio of risk-based capital to risk-
27
weighted assets of at least 8.00%. Risk-based capital for Jefferson Federal is defined as Tier 1 capital plus Tier 2 capital. At December 31, 2008, Jefferson Federal had a ratio of total capital to risk-weighted assets of 9.00%. Based on this capital ratio, Jefferson Federal is considered adequately capitalized under the regulatory framework for prompt corrective action at December 31, 2008. Because Jefferson Federals total capital to risk-weighted assets has dropped below 10.00%, Jefferson Federal is required to apply for a waiver from the FDIC to obtain additional brokered deposits, roll over existing brokered deposits or offer rates of interest which are more than 75 basis points higher than the prevailing rates of interest offered on deposits by other insured depository institutions in its normal market area or a national rate specified in the FDICs regulations.
28
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
For a discussion of the Companys asset and liability management policies, as well as the potential impact of interest rate changes upon the market value of the Companys portfolio equity, see Item 7A in the Companys Annual Report on Form 10-K for the year ended June 30, 2008. Management, as part of its regular practices, performs periodic reviews of the impact of interest rate changes upon net interest income and the market value of the Companys portfolio equity. Based on, among other factors, such reviews, management believes that there have been no material changes in the market risk of the Companys asset and liability position since June 30, 2008.
Item 4(T). | Controls and Procedures |
The Companys management, including the Companys principal executive officer and principal financial officer, have evaluated the effectiveness of the Companys disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Companys disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the SEC) (1) is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and (2) is accumulated and communicated to the Companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Companys internal control over financial reporting occurred during the quarter ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
29
Item 1. | Legal Proceedings |
Jefferson Bancshares is not a party to any pending legal proceedings. Periodically, there have been various claims and lawsuits involving Jefferson Federal, such as claims to enforce liens, condemnation proceedings on properties in which Jefferson Federal holds security interests, claims involving the making and servicing of real property loans and other issues incident to Jefferson Federals business. Jefferson Federal is not a party to any pending legal proceedings that it believes would have a material adverse effect on the financial condition or operations of the Company or the Bank.
Item 1A. | Risk Factors |
There have been no material changes to the risk factors previously disclosed in the Companys Annual Report on Form 10-K for the year ended June 30, 2008.
30
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Period |
(a)
Total Number of Shares (or units) Purchased |
(b)
Average Price Paid per Share (or Unit) |
( c )
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Progams |
( d )
Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs |
||||||
Month #1 October 1, 2008 |
| | | | ||||||
through October 31, 2008 |
||||||||||
Month #2 November 1, 2008 |
119,194 | $ | 9.21 | 119,194 | 617,370 | (1) | ||||
through November 30, 2008 |
||||||||||
Month #3 December 1, 2008 |
34,409 | $ | 8.32 | 34,409 | 582,961 | (1) | ||||
through December 31, 2008 |
||||||||||
Total |
153,603 | $ | 9.01 | 153,603 | 582,961 |
(1) | On November 13, 2008, the Company announced a stock repurchase program under which the Company may repurchase up to 620,770 shares of the Companys common stock, from time to time, subject to market conditions. The repurchase program will continue until completed or terminated by the Board of Directors. |
Item 3. | Defaults Upon Senior Securities |
None.
31
Item 4. | Submission of Matters to a Vote of Security Holders |
The Annual Meeting of Stockholders of the Company was held on October 30, 2008. The results of the vote on the matters presented at the meeting is as follows:
1. | The following individuals were elected as directors, each for a three-year term: |
Votes for | Votes Withheld | |||
William T. Hale |
4,774,630 | 372,927 | ||
John F. McCrary, Jr. |
4,710,432 | 437,125 |
2. | The appointment of Craine, Thompson & Jones, P.C. as auditors for the Company for the fiscal year ending June 30, 2008 was ratified by stockholders by the following vote: |
For 4,918,667; Against 33,415; Abstain 193,378
3. | A shareholder proposal was defeated by the following vote: |
For 526,424; Against 2,910,951; Abstain 101,580
Item 5. | Other Information |
The following disclosures would otherwise have been furnished on Form 8-K under the heading: Item 2.02. Results of Operations and Financial Condition:
The information relating to the Companys results of operations for the quarter ended September 30, 2008, which was furnished to the SEC via a Form 8-K on November 7, 2008, is incorporated herein by reference. The information being incorporated by reference herein shall not be deemed to be filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.
Item 6. | Exhibits |
10.1 | Amended and Restated Employment Agreement by and among Jefferson Bancshares, Inc., Jefferson Federal Bank and Anderson L. Smith * (1) | |
10.2 | Amended and Restated Jefferson Federal Bank Supplemental Executive Retirement Plan * (1) | |
10.3 | Amended and Restated Change in Control Severance Plan of Jefferson Federal Bank * (1) | |
31.1 | Rule 13a-14(a)/15d-14(a) certification of the principal executive officer | |
31.2 | Rule 13a-14(a)/15d-14(a) certification of the principal financial officer | |
32.1 | Section 1350 certification |
* | Management contract or compensatory plan, contract or arrangement. |
32
(1) | Amended during the quarter ended December 31, 2008 to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the Code) and the regulations and guidance issued with respect to Section 409A of the Code. |
33
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
JEFFERSON BANCSHARES, INC. | ||
February 17, 2009 |
/s/ Anderson L. Smith |
|
Anderson L. Smith | ||
President and Chief Executive Officer | ||
February 17, 2009 |
/s/ Jane P. Hutton |
|
Jane P. Hutton | ||
Chief Financial Officer, Treasurer and Secretary |
34
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the Agreement), was originally entered into on June 25, 2003, by and among JEFFERSON BANCSHARES, INC. (the Company) , JEFFERSON FEDERAL BANK (the Bank) and ANDERSON L. SMITH (Executive) and was subsequently amended on July 1, 2004. The Agreement is now amended and restated in its entirety as of December 18, 2008.
WITNESSETH
WHEREAS, the Company and the Bank desire to continue to retain the services of the Executive as the President and Chief Executive Officer of the Company and the Bank; and
WHEREAS, the parties to the Agreement desire to amend and restate the Agreement in its entirety for the purpose of bringing the Agreement into compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the Code);
NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:
1. Employment . Executive is employed as the President and Chief Executive Officer and of the Company and the Bank. Executive shall perform all duties and shall have all powers which are commonly incident to the offices of President and Chief Executive Officer and which, consistent with those offices, are delegated to him by the Chairman of the Board of Directors of the Bank and the Company.
2. Location and Facilities . Executive will be furnished with the working facilities and staff customary for executive officers with the title and duties set forth in Section 1 and as are necessary for him to perform his duties. The location of such facilities and staff shall be at the principal administrative offices of the Company and the Bank, or at such other site or sites customary for such offices.
3. Term .
a. | The term of this Agreement shall be (i) the initial term, consisting of the period commencing on June 25, 2003 (the Effective Date) and ending on the third anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 3. |
b. | Commencing on the first year anniversary date of this Agreement, and continuing on each anniversary thereafter, the disinterested members of the boards of directors of the Bank and the Company may extend the Agreement an additional year such that the remaining term of the Agreement shall be thirty-six (36) months, unless Executive elects not to extend the term of this Agreement by giving written notice in accordance with Section 19 of this Agreement. The Board of Directors of the Bank (the Board) will review the Agreement and Executives performance annually for purposes of determining whether to extend the Agreement and the rationale and results thereof shall be included in the minutes of the Boards meeting. The Board of Directors of the Bank shall give notice to Executive as soon as possible after such review as to whether the Agreement is to be extended. |
1
4. Base Compensation .
a. | The Company and the Bank agree to pay the Executive during the term of this Agreement a base salary at the rate of $210,000 per year, payable in accordance with customary payroll practices. |
b. | The Board shall review annually the rate of the Executives base salary based upon factors they deem relevant, and may maintain or increase his salary, provided that no such action shall reduce the rate of salary below the rate in effect on the Effective Date. |
c. | In the absence of action by the Board, the Executive shall continue to receive salary at the annual rate specified on the Effective Date or, if another rate has been established under the provisions of this Section 4, the rate last properly established by action of the Board under the provisions of this Section 4. |
d. | The Company and the Bank intend to allocate the compensation expenses associated with Executives performance of services under this Agreement in accordance with the terms of the Expense Allocation Agreement entered into between the Bank and the Company. |
5. Bonuses . In lieu of any bonus normally provided to permanent full-time employees of the Bank, the Bank agrees to provide a bonus program to the Executive which will provide the Executive with the opportunity to earn up to 50% of the Executives base salary, on an annual basis, the amount of which shall be determined by specific performance standards and a formula agreed to by Executive and the Bank annually. Performance standards shall be measured on a fiscal year, and no bonus shall be payable if Executive is not employed on June 30 of the year in question; provided, however, in the event of death of the Executive, the bonus for the fiscal year of Executives death shall be prorated on a quarterly basis, using the information for the quarter(s) completed prior to Executives death.
6. Benefit Plans . The Executive shall be entitled to participate in such life insurance, medical, dental, pension, profit-sharing, retirement and stock-based compensation plans and other programs and arrangements as may be approved from time to time by the Company and the Bank for the benefit of their employees. In addition, during the term of this Agreement, the Bank shall provide the Executive with a supplemental life insurance policy with a death benefit of not less than $350,000. Notwithstanding the termination of this Agreement for any reason, other than upon the Executives termination for Cause, the Bank further agrees that the Executive shall receive a supplemental retirement benefit of $15,083 per year, beginning during the calendar year in which the Executive attains age 65 and continuing for a total of fifteen (15) years.
7. Vacation and Leave .
a. | The Executive shall be entitled to vacations and other leave in accordance with policy for senior executives, or otherwise as approved by the Board, but, in any event, not less than four (4) weeks vacation annually. |
b. | In addition to paid vacations and other leave, the Executive shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment for such additional periods of time and for such valid and legitimate reasons as the Board may in its discretion determine. Further, the Board may grant to the Executive a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as the Board in its discretion may determine. |
2
8. Expense Payments and Reimbursements . The Executive shall be reimbursed for all reasonable out-of-pocket business expenses that he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with applicable policies of the Company and the Bank. In addition, Executive shall receive an allowance of $3,600 per year for dues in professional, social and civic organizations, and miscellaneous expenses, payable in equal monthly installments.
9. Automobile Allowance . During the term of this Agreement, the Executive shall be entitled to an annual automobile allowance of $12,000, payable in equal monthly installments. Executive shall comply with reasonable reporting and expense limitations on the use of such automobile as may be established by the Company or the Bank from time to time, and the Company or the Bank shall annually include on Executives Form W-2 any amount of income attributable to Executives personal use of such automobile.
10. Loyalty and Confidentiality; Noncompetition .
a. | During the term of this Agreement, Executive: (i) shall devote all his time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, that from time to time, Executive may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with the Company and the Bank or any of their subsidiaries or affiliates, unfavorably affect the performance of Executives duties pursuant to this Agreement, or violate any applicable statute or regulation and (ii) shall not engage in any business or activity contrary to the business affairs or interests of the Company and the Bank. |
b. | Nothing contained in this Agreement shall prevent or limit Executives right to invest in the capital stock or other securities of any business dissimilar from that of the Company and the Bank, or, solely as a passive, minority investor, in any business. |
c. | Executive agrees to maintain the confidentiality of any and all information concerning the operation or financial status of the Company and the Bank; the names or addresses of any of its borrowers, depositors and other customers; any information concerning or obtained from such customers; and any other information concerning the Company and the Bank to which he may be exposed during the course of his employment. The Executive further agrees that, unless required by law or specifically permitted by the Board in writing, he will not disclose to any person or entity, either during or subsequent to his employment, any of the above-mentioned information which is not generally known to the public, nor shall he employ such information in any way other than for the benefit of the Company and the Bank. |
d. |
Upon the termination of Executives employment hereunder for any reason, Executive agrees not to compete with the Bank for a period of two (2) years following such termination in any city, town or county in which the Executives normal business office is located and the Bank has an office or has filed an application for regulatory approval to establish an office (or within a 60-mile radius of each of such offices), determined as of the effective date of such termination, except as agreed to pursuant to a resolution duly adopted by the Board. Executive agrees that during such period and within said cities, towns and counties, Executive shall not work for or advise, consult or otherwise serve with, directly or indirectly, any entity whose business materially competes with the depository, lending or other business activities of the Bank. The parties hereto, |
3
recognizing that irreparable injury will result to the Bank, its business and property in the event of Executives breach of his obligations under this paragraph and agree that in the event of any such breach by Executive, the Bank, will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive, Executives partners, agents, servants, employees and all persons acting for or under the direction of Executive. Nothing herein will be construed as prohibiting the Bank from pursuing any other remedies available to the Bank for such breach or threatened breach, including the recovery of damages from Executive. |
11. Termination and Termination Pay . Subject to Section 12 of this Agreement, Executives employment under this Agreement may be terminated in the following circumstances:
a. | Death . Executives employment under this Agreement shall terminate upon his death during the term of this Agreement, in which event Executives estate shall be entitled to receive the compensation due to the Executive through the last day of the calendar month in which his death occurred. |
b. | Retirement . This Agreement shall be terminated upon Executives retirement under the retirement benefit plan or plans in which he participates pursuant to Section 6 of this Agreement or otherwise. |
c. | Disability . |
i. | The Board or Executive may terminate Executives employment after having determined Executive has a Disability. For purposes of this Agreement, Disability means a physical or mental infirmity that impairs Executives ability to substantially perform his duties under this Agreement and that results in Executive becoming eligible for long-term disability benefits under any long-term disability plans of the Company and the Bank (or, if there are no such plans in effect, that impairs Executives ability to substantially perform his duties under this Agreement for a period of one hundred eighty (180) consecutive days). The Board shall determine whether or not Executive is and continues to be permanently disabled for purposes of this Agreement in good faith, based upon competent medical advice and other factors that they reasonably believe to be relevant. As a condition to any benefits, the Board may require Executive to submit to such physical or mental evaluations and tests as it deems reasonably appropriate. |
ii. |
In the event of such Disability, Executives obligation to perform services under this Agreement will terminate. The Bank will pay Executive, as Disability pay, an amount equal to seventy-five (75) percent of Executives weekly rate of base salary in effect as of the date of his termination of employment due to Disability. Disability payments will be made on a monthly basis and will commence on the first day of the month following the effective date of Executives termination of employment for Disability and end on the earlier of: (A) the date he returns to full-time employment at the Bank in the same capacity as he was employed prior to his termination for Disability; (B) his death; or (C) the remaining term of the Agreement (if the Agreement had not been earlier terminated by the Executives Disability). Such payments shall be reduced by the amount of any short- or long-term disability benefits payable to the Executive under any other disability programs sponsored by the Company and the Bank. In addition, during any |
4
period of Executives Disability, Executive and his dependents shall, to the greatest extent possible, continue to be covered under all benefit plans (including, without limitation, retirement plans and medical, dental and life insurance plans) of the Company and the Bank, in which Executive participated prior to his Disability on the same terms as if Executive were actively employed by the Company and the Bank. |
d. | Termination for Cause . |
i. | The Board may, by written notice to the Executive in the form and manner specified in this paragraph, immediately terminate his employment at any time, for Cause. The Executive shall have no right to receive compensation or other benefits for any period after termination for Cause except for vested benefits. Termination for Cause shall mean termination because of, in the good faith determination of the Board, Executives: |
(1) | Personal dishonesty; |
(2) | Incompetence; |
(3) | Willful misconduct; |
(4) | Breach of fiduciary duty involving personal profit; |
(5) | Intentional failure to perform duties under this Agreement; |
(6) | Willful violation of any law, rule or regulation (other than traffic violations or similar offenses), any felony conviction, any violation of law involving moral turpitude, or any violation of a final cease-and-desist order; or |
(7) | Material breach by Executive of any provision of this Agreement. |
ii. | Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause by the Company and the Bank unless there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of a majority of the entire membership of the Board at a meeting of such Board called and held for the purpose (after reasonable notice to Executive), of finding that in the good faith opinion of the Board, Executive was guilty of the conduct described above and specifying the particulars thereof. |
e. | Voluntary Termination by Executive . In addition to his other rights to terminate under this Agreement, Executive may voluntarily terminate employment during the term of this Agreement upon at least sixty (60) days prior written notice to the Board, in which case Executive shall receive only his compensation, vested rights and employee benefits up to the date of his termination. |
f. | Without Cause or With Good Reason . |
i. |
In addition to termination pursuant to Sections 11(a) through 11(e) the Board, may, by written notice to Executive, immediately terminate his employment at |
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any time for a reason other than Cause (a termination Without Cause) and Executive may, by written notice to the Board, terminate his employment under this Agreement for Good Reason as defined below (a termination With Good Reason). |
ii. | Subject to Section 12 of this Agreement, in the event of termination under this Section 11(f), Executive shall be entitled to receive a payment equal to the base salary (determined by reference to the Executives base salary on the termination date) and bonuses (determined by reference to the Executives average bonus over the three (3) years preceding his termination date or such lesser period as he was employed by the Bank) that would otherwise have been payable over the remaining term of the Agreement. Such amount shall be paid in one lump sum within ten (10) calendar days of such termination. Also, in such event, Executive shall, for the remaining term of the Agreement, receive the benefits he would have received during the remaining term of the Agreement under any retirement programs (whether tax-qualified or non-qualified) in which Executive participated prior to his termination (with the amount of the benefits determined by reference to the benefits received by the Executive or accrued on his behalf under such programs during the twelve (12) months preceding his termination) and continue to participate in any benefit plans of the Company and the Bank that provide health (including medical and dental), life, or similar coverage upon terms no less favorable than the most favorable terms provided to senior executives of the Company and the Bank during such period. In the event that the Company and the Bank are unable to provide such coverage by reason of Executive no longer being an employee, the Company and the Bank shall provide Executive with comparable coverage on an individual policy basis. |
iii. | For purposes of this Agreement Good Reason shall mean the occurrence of any of the following events without the Executives consent: |
(1) | A material diminution in Executives Base Salary; |
(2) | A material diminution of the Executives authority, duties, or responsibilities (including reporting requirements); or |
(3) | A change in the geographic location at which the Executive must perform services for the Bank outside of the area consisting of a twenty-five (25) mile radius from the current main office and any branch of the Bank; |
provided, that within sixty (60) days after the initial existence of such event, the Bank shall be given notice and an opportunity, not less than thirty (30) days, to effectuate a cure for such asserted Good Reason by Executive. Executives resignation hereunder for Good Reason shall not occur later than six (6) months following the initial date on which the event Executive claims constitutes Good Reason occurred.
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12. Termination in Connection with a Change in Control .
a. | For purposes of this Agreement, a Change in Control shall be deemed to occur on the earliest of: |
(i) | Merger : The Company merges into or consolidates with another corporation, or merges another corporation into the Company, and as a result less than a majority of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of the Company immediately before the merger or consolidation; |
(ii) | Acquisition of Significant Share Ownership : a report on Schedule 13D or another form or schedule (other than Schedule 13G) is filed or is required to be filed under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner of 25% or more of a class of the Companys voting securities, but this clause (ii) shall not apply to beneficial ownership of Company voting shares held in a fiduciary capacity by an entity of which the Company directly or indirectly beneficially owns 50% or more of its outstanding voting securities; |
(iii) | Change in Board Composition : during any period of two consecutive years, individuals who constitute the Companys Board of Directors at the beginning of the two-year period cease for any reason to constitute at least a majority of the Companys Board of Directors; provided, however, that for purposes of this clause (iii) each director who is first elected by the board (or first nominated by the board for election by stockholders) by a vote of at least two-thirds of the directors who were directors at the beginning of the period shall be deemed to have been a director at the beginning of the two-year period; or |
(iv) | Sale of Assets : Company sells to a third party all or substantially all of the Companys assets. |
b. |
Termination. If within the period ending two years after a Change in Control, (i) the Company and the Bank shall terminate the Executives employment Without Cause, or (ii) Executive voluntarily terminates his employment With Good Reason, the Company and the Bank shall, within ten calendar days of the termination of Executives employment, make a lump-sum cash payment to him equal to 2.99 times the Executives average Annual Compensation over the five (5) most recently completed calendar years ending with the year immediately preceding the effective date of the Change in Control (or such lesser number of completed calendar years as the Executive has been employed by the Company and the Bank). In determining Executives average Annual Compensation, Annual Compensation shall include base salary and any other taxable income, including but not limited to amounts related to the granting, vesting or exercise of restricted stock or stock option awards, commissions, bonuses (whether paid or accrued for the applicable period), as well as, retirement benefits, director or committee fees and fringe benefits paid or to be paid to Executive or paid for Executives benefit during any such year, profit sharing, employee stock ownership plan and other retirement contributions or benefits, including to any tax-qualified plan or arrangement (whether or not taxable) made or accrued on behalf of Executive of such year. The cash payment made under this Section 12(b) shall be made in lieu of any payment also required under |
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Section 11(f) of this Agreement because of a termination in such period. Executives rights under Section 11(f) are not otherwise affected by this Section 12. Also, in such event, the Executive shall, for a thirty-six (36) month period following his termination of employment, receive the benefits he would have received over such period under any retirement programs (whether tax-qualified or nonqualified) in which the Executive participated prior to his termination (with the amount of the benefits determined by reference to the benefits received by the Executive or accrued on his behalf under such programs during the twelve (12) months preceding the Change in Control) and continue to participate in any benefit plans of the Company and the Bank that provide health (including medical and dental), life, or similar coverage upon terms no less favorable than the most favorable terms provided to senior executives during such period. In the event that the Company and the Bank are unable to provide such coverage by reason of the Executive no longer being an employee, the Company and the Bank shall provide the Executive with comparable coverage on an individual policy. |
c. | The provisions of Sections 12 and Sections 14 through 25, including the defined terms used is such sections, shall continue in effect until the later of the expiration of this Agreement or two years following a Change in Control. |
13. Indemnification and Liability Insurance .
a. | Indemnification . The Company and the Bank agree to indemnify Executive (and his heirs, executors, and administrators), and to advance expenses related thereto, to the fullest extent permitted under applicable law and regulations against any and all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his having been a director or executive of the Company, the Bank or any of their subsidiaries (whether or not he continues to be a director or executive at the time of incurring any such expenses or liabilities) such expenses and liabilities to include, but not be limited to, judgments, court costs, and attorneys fees and the cost of reasonable settlements, such settlements to be approved by the Board, if such action is brought against Executive in his capacity as an executive or director of the Company and the Bank or any of their subsidiaries. Indemnification for expense shall not extend to matters for which the Executive has been terminated for Cause. Nothing contained herein shall be deemed to provide indemnification prohibited by applicable law or regulation. Notwithstanding anything herein to the contrary, the obligations of this Section 13 shall survive the term of this Agreement by a period of six (6) years. |
b. | Insurance . During the period in which indemnification of Executive is required under this Section, the Company and the Bank shall provide the Executive (and his heirs, executors, and administrators) with coverage under a directors and Executives liability policy at the expense of the Company and the Bank, at least equivalent to such coverage provided to directors and senior Executives of the Company and the Bank. |
14. Reimbursement of Executives Expenses to Enforce this Agreement . The Company and the Bank shall reimburse the Executive for all out-of-pocket expenses, including, without limitation, reasonable attorneys fees, incurred by the Executive in connection with successful enforcement by the Executive of the obligations of the Company and the Bank to the Executive under this Agreement. Successful enforcement shall mean the grant of an award of money or the requirement that the Company and the Bank take some action specified by this Agreement (i) as a result of court order; or (ii) otherwise by the Company and the Bank following an initial failure of the Company and the Bank to pay such money or take such action promptly after written demand therefor from the Executive stating the reason that such money or action was due under this Agreement at or prior to the time of such demand.
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15. Limitation of Benefits under Certain Circumstances . If the payments and benefits pursuant to Section 12 of this Agreement, either alone or together with other payments and benefits which the Executive has the right to receive from the Company and the Bank, would constitute a parachute payment under Section 280G of the Code, the payments and benefits pursuant to Section 12 shall be reduced or revised, in the manner determined by the Executive, by the amount, if any, which is the minimum necessary to result in no portion of the payments and benefits under Section 12 being non-deductible to the Company and the Bank pursuant to Section 280G of the Code and subject to the excise tax imposed under Section 4999 of the Code. The determination of any reduction in the payments and benefits to be made pursuant to Section 12 shall be based upon the opinion of the Company and the Banks independent public accountants and paid for by the Company and the Bank. In the event that the Company, the Bank and/or the Executive do not agree with the opinion of such counsel, (i) the Company and the Bank shall pay to the Executive the maximum amount of payments and benefits pursuant to Section 12, as selected by the Executive, which opinion indicates there is a high probability of such payments and benefits being non-deductible to the Company and the Bank and subject to the imposition of the excise tax imposed under Section 4999 of the Code and (ii) the Company and the Bank may request, and the Executive shall have the right to demand that they request, a ruling from the IRS as to whether the disputed payments and benefits pursuant to Section 12 have such consequences. Any such request for a ruling from the IRS shall be promptly prepared and filed by the Company and the Bank, but in no event later than thirty (30) days from the date of the opinion of counsel referred to above, and shall be subject to the Executives approval prior to filing, which shall not be unreasonably withheld. The Company, the Bank and the Executive agree to be bound by any ruling received from the IRS and to make appropriate payments to each other to reflect any such rulings, together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. Nothing contained herein shall result in a reduction of any payments or benefits to which the Executive may be entitled upon termination of employment other than pursuant to Section 12 hereof, or a reduction in the payments and benefits specified in Section 12 below zero.
16. Injunctive Relief . If there is a breach or threatened breach of Section 10 of this Agreement, the parties agree that there is no adequate remedy at law for such breach, and that the Company and the Bank shall be entitled to injunctive relief restraining the Executive from such breach or threatened breach, but such relief shall not be the exclusive remedy hereunder for such breach. The parties hereto likewise agree that the Executive, without limitation, shall be entitled to injunctive relief to enforce the obligations of the Company and the Bank under this Agreement.
17. Successors and Assigns .
a. | This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Company and the Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Company and the Bank. |
b. | Since the Company and the Bank are contracting for the unique and personal skills of Executive, Executive shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Company and the Bank. |
18. No Mitigation . Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to Executive in any subsequent employment.
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19. Notices . All notices, requests, demands and other communications in connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or 48 hours after mailing at any general or branch United States Post Office, by registered or certified mail, postage prepaid, addressed to the Company and/or the Bank at their principal business offices and to Executive at his home address as maintained in the records of the Company and the Bank.
20. No Plan Created by this Agreement . Executive, the Company and the Bank expressly declare and agree that this Agreement was negotiated among them and that no provision or provisions of this Agreement are intended to, or shall be deemed to, create any plan for purposes of the Employee Retirement Income Security Act or any other law or regulation, and each party expressly waives any right to assert the contrary. Any assertion in any judicial or administrative filing, hearing, or process that such a plan was so created by this Agreement shall be deemed a material breach of this Agreement by the party making such an assertion.
21. Amendments . No amendments or additions to this Agreement shall be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided.
22. Applicable Law . Except to the extent preempted by Federal law, the laws of the State of Tennessee shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.
23. Severability . The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.
24. Headings . Headings contained herein are for convenience of reference only.
25. Entire Agreement . This Agreement, together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, other than written agreements with respect to specific plans, programs or arrangements described in Sections 5 and 6. The parties agree that this Agreement supercedes and replaces in its entirety the Agreement between the Executive, the Bank and the Company dated June 25, 2003.
26. Required Provisions . In the event any of the provisions of this Section 26 are in conflict with the terms of this Agreement, this Section 26 shall prevail.
a. | The Bank may terminate Executives employment at any time, but any termination by the Bank, other than Termination for Cause, shall not prejudice Executives right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause as defined in Section 7 hereinabove. |
b. |
If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Banks affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(3) or (g)(1); the Banks obligations under this contract shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in |
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its discretion: (i) pay Executive all or part of the compensation withheld while their contract obligations were suspended; and (ii) reinstate (in whole or in part) any of the obligations which were suspended. |
c. | If Executive is removed and/or permanently prohibited from participating in the conduct of the Banks affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected. |
d. | If the Bank is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1813(x)(1) all obligations of the Bank under this contract shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. |
e. | All obligations of the Bank under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the institution: (i) by the Director of the OTS (or his designee), the FDIC or the Resolution Trust Corporation, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. §1823(c); or (ii) by the Director of the OTS (or his designee) at the time the Director (or his designee) approves a supervisory merger to resolve problems related to the operations of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. |
f. | Any payments made to Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon compliance with 12 U.S.C. §1828(k) and 12 C.F.R. Section 545.121 and any rules and regulations promulgated thereunder. |
27. Section 409A of the Code .
a. | This Agreement is intended to comply with the requirements of Section 409A of the Code, and specifically, with the short-term deferral exception under Treasury Regulation Section 1.409A-1(b)(4) and the separation pay exception under Treasury Regulation Section 1.409A-1(b)(9)(iii), and shall in all respects be administered in accordance with Section 409A of the Code. If any payment or benefit hereunder cannot be provided or made at the time specified herein without incurring sanctions on Executive under Section 409A of the Code, then such payment or benefit shall be provided in full at the earliest time thereafter when such sanctions will not be imposed. For purposes of Section 409A of the Code, all payments to be made upon a termination of employment under this Agreement may only be made upon a separation from service (within the meaning of such term under Section 409A of the Code), each payment made under this Agreement shall be treated as a separate payment, the right to a series of installment payments under this Agreement (if any) is to be treated as a right to a series of separate payments, and if a payment is not made by the designated payment date under this Agreement, the payment shall be made by December 31 of the calendar year in which the designated date occurs. To the extent that any payment provided for hereunder would be subject to additional tax under Section 409A of the Code, or would cause the administration of this Agreement to fail to satisfy the requirements of Section 409A of the Code, such provision shall be deemed null and void to the extent permitted by applicable law, and any such amount shall be payable in accordance with b. below. In no event shall Executive, directly or indirectly, designate the calendar year of payment. |
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b. | Notwithstanding anything herein to the contrary, if Executive is a specified employee (within the meaning of Section 409A of the Code) and it is necessary to postpone the commencement of any payments or benefits otherwise payable under this Agreement as a result of Executive separation from service with the Bank to prevent any accelerated or additional tax under Section 409A of the Code, then the Bank will postpone the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to Executive) that are not otherwise paid with the short-term deferral exception under Treasury Regulations Section 1.409A-1(b)(4) and the separation pay exception under Treasury Regulations Section 1.409A-1(b)(9)(iii), until the first payroll date that occurs after the date that is six months following Executives separation of service with the Bank. If any payments are postponed due to such requirements, such postponed amounts will be paid to Executive in a lump sum on the first payroll date that occurs after the date that is six months following Executives separation of service with the Bank. If Executive dies during the postponement period prior to the payment of postponed amount, the amounts withheld on account of Section 409(A) of the Code shall be paid to the personal representative of Executives estate within sixty (60) days after the date of Executives death. |
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IN WITNESS WHEREOF , the parties hereto have executed this Agreement on the date first set forth above.
Attest: | JEFFERSON BANCSHARES, INC. | |||||
/s/ Jack E. Campbell |
By: |
/s/ John F. McCrary, Jr. |
||||
Chairman of the Board of Directors | ||||||
Attest: | JEFFERSON FEDERAL BANK | |||||
/s/ Jack E. Campbell |
By: |
/s/ John F. McCrary, Jr. |
||||
Chairman of the Board of Directors | ||||||
Witness: | EXECUTIVE | |||||
/s/ Jack E. Campbell |
/s/ Anderson L. Smith |
|||||
Anderson L. Smith |
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Exhibit 10.2
AMENDED AND RESTATED
JEFFERSON FEDERAL BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AS OF DECEMBER 18, 2008
Amended and Restated
Jefferson Federal Bank
Supplemental Executive Retirement Plan
Table of Contents
Article I - Introduction |
1 | |
Article II - Definitions |
1 | |
Article III - Eligibility and Participation |
4 | |
Article IV - Benefits |
4 | |
Article V - Accounts |
6 | |
Article VII - Claims Procedures |
7 | |
Article VIII - Amendment and Termination |
8 | |
Article IX - General Provisions |
9 | |
Article X - Required Regulatory Provisions |
12 |
i
Article I
Introduction
Section 1.01 Purpose, Design and Intent .
(a) | The purpose of the Jefferson Federal Bank Supplemental Executive Retirement Plan (the Plan) is to assist Jefferson Federal Bank (the Bank) and its affiliates in retaining the services of key employees until their retirement, to induce such employees to use their best efforts to enhance the business of the Bank and its affiliates, and to provide certain supplemental retirement benefits to such employees. |
(b) | The Plan, in relevant part, is intended to constitute an unfunded excess benefit plan as defined in Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended. The Plan is specifically designed to provide certain key employees with retirement benefits that would have been payable under the various tax-qualified retirement plans sponsored by the Bank but for the limitations placed on the benefits and contribution under such plans by various provisions of the Internal Revenue Code of 1986, as amended. |
(c) | The Bank is amending and restating the Plan in its entirety effective as of January 1, 2005, to comply with Section 409A of the Code. |
Article II
Definitions
Section 2.01 Definitions . In this Plan, whenever the context so indicates, the singular or the plural number and the masculine or feminine gender shall be deemed to include the other, the terms he, his, and him, shall refer to a Participant or Beneficiary, as the case may be, and, except as otherwise provided, or unless the context otherwise requires, the capitalized terms shall have the following meanings:
(a) | Affiliate means any parent corporation or any subsidiary corporation of the Bank, as such terms are defined in Sections 424(e) and 424(f), respectively, of the Code. |
(b) | Applicable Limitations means one of the following: |
(i) | the maximum limitation on annual benefits payable by a qualified defined benefit plan under Section 415(b) of the Code; |
(ii) | the maximum limitations on annual additions to a qualified defined contribution plan under Section 415(c) of the Code; |
(iii) | the maximum limitation on the aggregate projected annual benefits payable by qualified defined benefit plans and the annual additions to qualified defined contribution plans under Section 415(e) of the Code; and |
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(iv) | the maximum limitation on the annual amount of compensation that may, under Section 401(a)(17) of the Code, be taken into account in determining contributions to and benefits under qualified plans. |
(c) | Bank means Jefferson Federal Bank, and its successors. |
(d) | Board of Directors means the Board of Directors of the Bank. |
(e) | Change in Control means the earliest occurrence of a change in ownership, change in effective control, or change in ownership of a substantial portion of assets for purposes of Section 409 of the Code. |
(f) | Code means the Internal Revenue Code of 1986, as amended. |
(g) | Committee means the person(s) designated by the Board of Directors, pursuant to Section 9.02 of the Plan, to administer the Plan. |
(h) | Common Stock means the common stock of the Company. |
(i) | Company means Jefferson Bancshares, Inc. and its successors. |
(j) | Eligible Individual means any Employee of the Bank or an Affiliate who participates in the ESOP, as the case may be, and whom the Board of Directors determines is one of a select group of management or highly compensated employees, as such phrase is used for purposes of Sections 101, 201, and 301 of ERISA. |
(k) | Employee means any person employed by the Bank or an Affiliate. |
(l) | Employer means the Bank or Affiliate that employs the Employee. |
(m) | ERISA means the Employee Retirement Income Security Act of 1974, as amended. |
(n) | ESOP means the Jefferson Federal Bank Employee Stock Ownership Plan, as amended from time to time. |
(o) | ESOP Acquisition Loan means a loan or other extension of credit incurred by the trustee of the ESOP in connection with the purchase of Common Stock on behalf of the ESOP. |
(p) | ESOP Valuation Date means any day as of which the investment experience of the trust fund of the ESOP is determined and individuals accounts under the ESOP are adjusted accordingly. |
(q) | Effective Date means January 1, 2003. |
(r) | Participant means an Eligible Employee who is entitled to benefits under the Plan. |
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(s) | Plan means this Jefferson Federal Bank Supplemental Executive Retirement Plan, as amended and restated. |
(t) | Separation from Service means a Participants separation from service with the Bank within the meaning of Section 409A of the Code. |
(u) | Specified Employee means as of a given date, a specified employee as of such date for purposes of Section 409A of the Code. |
(v) | Retirement means termination of employment at any time following the satisfaction the requirements for early or normal retirement under the ESOP. |
(w) | Supplemental ESOP Account means an account established by an Employer, pursuant to Section 5.01 of the Plan, with respect to a Participants Supplemental ESOP Benefit. |
(x) | Supplemental ESOP Benefit means the benefit credited to a Participant pursuant to Section 4.01 of the Plan. |
(y) | Supplemental Stock Ownership Account means an account established by an Employer, pursuant to Section 5.02 of the Plan, with respect to a Participants Supplemental Stock Ownership Benefit. |
(x) | Supplemental Stock Ownership Benefit means the benefit credited to a Participant pursuant to Section 4.02 of the Plan. |
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Article III
Eligibility and Participation
Section 3.01 Eligibility.
Only Eligible Individuals may participate in the Plan. An Eligible Individual shall become a Participant if:
(a) | he or she holds the office of Chief Executive Officer of the Bank, or |
(b) | he or she is designated by the Board of Directors of the Bank to participate in the Plan. |
Section 3.02 Commencement of Participation .
An Eligible Individual who becomes a Participant in the Plan under Section 3.01(a) of the Plan shall commence participation in the Plan on the effective date of the Plan or such other date as determined by the Board of Directors of the Bank. Eligible Individuals who become Participants under Section 3.01(b) of the Plan shall commence participation in the Plan on such date as determined by the Board of Directors of the Bank.
Article IV
Benefits
Section 4.01 Supplemental ESOP Benefit .
As of the last day of each plan year of the ESOP, the Employer shall credit the Participants Supplemental ESOP Account with a Supplemental ESOP Benefit equal to the excess of (a) over (b), where:
(a) | Equals the annual contributions made by the Employer and/or the number of shares of Common Stock released for allocation in connection with the repayment of an ESOP Acquisition Loan that would otherwise be allocated to the accounts of the Participant under the ESOP for the applicable plan year if the provisions of the ESOP were administered without regard to and of the Applicable Limitations; and |
(b) | Equals the annual contributions made by the Employer and/or the number of shares of common stock released for allocation in connection with the repayment of an ESOP Acquisition Loan that are actually allocated to the accounts of the Participant under the provisions of the ESOP for that particular plan year after giving effect to any reduction of such allocation required by the limitations imposed by any of the Applicable Limitations. |
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Section 4.02 Supplemental Stock Ownership Benefit .
(a) | Upon a Participants Retirement from the Employer, the Employer shall credit to the Participants Supplemental Stock Ownership Account a Supplemental Stock Ownership Benefit equal to (i) less (ii), the result of which is multiplied by (iii), where: |
(i) | Equals the total number of shares of Common Stock acquired with the proceeds of all ESOP Acquisition Loans (together with any dividends, cash proceeds, or other medium related to such ESOP Acquisition Loans) that would have been allocated or credited for the benefit of the Participant under the ESOP and/or this Plan, as the case may be, had the Participant continued in the employ of the Employer through the first ESOP Valuation Date following the last scheduled payment of principal and interest on all ESOP Acquisition Loans outstanding at the time of the Participants Retirement; and |
(ii) | Equals the total number of shares of Common Stock acquired with the proceeds of all ESOP Acquisition Loans (together with any dividends, cash proceeds, or other medium related to such ESOP acquisition Loans) and allocated for the benefit of the Participant under the ESOP/and or this Plan as of the first ESOP Valuation Date following the Participants Retirement; and |
(iii) | Equals the higher of the closing price of the Common Stock as of: |
(A) | The first ESOP Valuation Date following the Participants Retirement, or |
(B) | The last day of the Participants employment with the Employer. |
(b) | For purposes of clause (i) of subsection (a) of this Section 4.02, the total number of shares of Common Stock shall be determined by multiplying the sum of (i) and (ii) by (iii), where: |
(i) | equals the average of the total shares of Common Stock acquired with the proceeds of an ESOP Acquisition Loan and allocated for the benefit of the Participant under the ESOP as of three most recent ESOP Valuation Dates preceding the Participants Retirement (or lesser number if the Participant has not participated in the ESOP for three full years), |
(ii) | equals the average number of shares of Common Stock credited to the Participants Supplemental ESOP Account for the three most recent plan years of the ESOP (such that the three recent plan years coincide with the three most recent ESOP Valuation Dates referred to in (i) above); and |
(iii) | equals the original number of scheduled payments on the ESOP Acquisition Loan. |
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(c) | In the event of a Change in Control: |
(i) | A Participants Retirement shall be deemed to have occurred as of the effective date of the Change in Control, as determined by the Board of Directors, regardless of whether the Participant continues in the employ of the Employer following the Change in Control; and |
(ii) | The determination of fair market value of the Common Stock shall be made as the effective date of the Change in Control. |
Article V
Accounts
Section 5.01 Supplemental ESOP Benefit Account .
For each Participant who is credited with a benefit pursuant to Section 4.01 of the Plan, the Employer shall establish, as a memorandum account on its books, a Supplemental ESOP Account. Each year, the Committee shall credit to the Participants Supplemental ESOP Account the amount of benefits determined under Section 4.01 of the Plan for that year. The Committee shall credit the account with an amount equal to the appropriate number of shares of Common Stock or other medium of contribution that would have otherwise been made to the Participants accounts under the ESOP but for the limitations imposed by the Code. Shares of Common Stock shall be valued under this Plan in the same manner as under the ESOP. Cash contributions credited to a Participants Supplemental ESOP Account shall be credited annually with interest at a rate equal to the combined weighted return provided to the Participants non-stock accounts under the ESOP.
Section 5.02 Supplemental Stock Ownership Account .
The Employer shall establish, as a memorandum account on its books, a Supplemental Stock Ownership Account. Upon a Participants Retirement or in the event of a Change in Control, the Committee shall credit to the Participants Supplemental Stock Ownership Account the amount of benefits determined under Section 4.02 of the Plan. The Committee shall credit the account with an amount equal to the appropriate number of shares of Common Stock or other medium of contribution that would have otherwise been made to the Participants accounts under the ESOP. Shares of Common Stock shall be valued under this Plan in the same manner as under the ESOP. Cash contributions credited to a Participants Supplemental ESOP Account shall be credited annually with interest at a rate equal to the combined weighted return provided to the Participants non-stock accounts under the ESOP.
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Article VI
Supplemental Benefit Payments
Section 6.01 Payment of Supplemental ESOP Benefit .
(a) | A Participants Supplemental ESOP Benefit shall be paid to the Participant or in the event of the Participants death, to his beneficiary (as designated on a Form acceptable to the Employer) in a single lump sum payment as soon as administratively practicable (but no later than 60 days) following the Participants Separation from Service. The form of payment shall match the form (i.e. cash, stock or other medium) in which the Employer credited the benefit pursuant to Article V of the Plan. |
(b) | A Participant shall have a non-forfeitable right to the Supplemental ESOP Benefit credited to him under this Plan in the same percentage as he has to benefits allocated to him under the ESOP at the time the benefits become distributable to him under the ESOP. |
Section 6.02 Payment of Supplemental Stock Ownership Benefit .
(a) | A Participants Supplemental Stock Ownership Benefit shall be paid to the Participant or in the event of the Participants death, to his beneficiary (as designated on a Form acceptable to the Employer) in a single lump sum payment as soon as administratively practicable (but no later than 60 days) following the Participants Separation from Service. The form of payment shall match the form (i.e. cash, stock or other medium) in which the Employer credited the benefit pursuant to Article V of the Plan. |
(b) | A Participant shall always have a fully non-forfeitable right to the Supplemental Stock Ownership Benefit credited to him under this Plan. |
Article VII
Claims Procedures
Section 7.01 Claims Reviewer .
For purposes of handling claims with respect to this Plan, the Claims Reviewer shall be the Committee, unless the Committee designates another person or group of persons as Claims Reviewer.
Section 7.02 Claims Procedure .
(a) | An initial claim for benefits under the Plan must be made by the Participant or his or her beneficiary or beneficiaries in accordance with the terms of this Section 7.02. |
(b) |
Not later than ninety (90) days after receipt of such a claim, the Claims Reviewer will render a written decision on the claim to the claimant, unless special circumstances require the extension of such 90-day period. If such extension is necessary, the Claims Reviewer shall |
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provide the Participant or the Participants beneficiary or beneficiaries with written notification of such extension before the expiration of the initial 90-day period. Such notice shall specify the reason or reasons for the extension and the date by which a final decision can be expected. In no event shall such extension exceed a period of ninety (90) days from the end of the initial 90-day period. |
(c) | In the event the Claims Reviewer denies the claim of a Participant or any beneficiary in whole or in part, the Claims Reviewers written notification shall specify, in a manner calculated to be understood by the claimant, the reason for the denial; a reference to the Plan or other document or form that is the basis for the denial; a description of any additional material or information necessary for the claimant to perfect the claim; an explanation as to why such information or material is necessary; and an explanation of the applicable claims procedure. |
(d) | Should the claim be denied in whole or in part and should the claimant be dissatisfied with the Claims Reviewers disposition of the claimants claim, the claimant may have a full and fair review of the claim by the Committee upon written request submitted by the claimant or the claimants duly authorized representative and received by the Committee within sixty (60) days after the claimant receives written notification that the claimants claim has been denied. In connection with such review, the claimant or the claimants duly authorized representative shall be entitled to review pertinent documents and submit the claimants views as to the issues, in writing. The Committee shall act to deny or accept the claim within sixty (60) days after receipt of the claimants written request for review unless special circumstances require the extension of such 60-day period. If such extension is necessary, the Committee shall provide the claimant with written notification of such extension before the expiration of such initial 60-day period. In all events, the Committee shall act to deny or accept the claim within 120 days of the receipt of the claimants written request for review. The action of the Committee shall be in the form of a written notice to the claimant and its contents shall include all of the requirements for action on the original claim. |
(e) | In no event may a claimant commence legal action for benefits the claimant believes are due the claimant until the claimant has exhausted all of the remedies and procedures afforded the claimant by this Article VII. |
Article VIII
Amendment and Termination
Section 8.01 Amendment of the Plan .
The Bank may from time to time and at any time amend the Plan; provided, however, that such amendment may not adversely affect the rights of any Participant or beneficiary with respect to any benefit under the Plan to which the Participant or beneficiary may have previously become entitled prior to the effective date of such amendment without the consent of the Participant or beneficiary. The Committee shall be authorized to make minor or administrative changes to the Plan, as well as amendments required by applicable federal or state law (or authorized or made desirable by such statutes); provided, however, that such amendments must subsequently be ratified by the Board of Directors.
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Section 8.02 Termination in the Discretion of the Bank .
Except as otherwise provided in Sections 8.03, the Bank in its discretion may terminate the Plan and distribute benefits to Participants subject to the following requirements and any others specified under Section 409A of the Code:
(a) | All arrangements sponsored by the Bank that would be aggregated with the Plan under Section 1.409A-1(c) of the Treasury Regulations are terminated. |
(b) | No payments other than payments that would be payable under the terms of the Plan if the termination had not occurred are made within 12 months of the termination date. |
(c) | All benefits under the Plan are paid within 24 months of the termination date. |
(d) | The Bank does not adopt a new arrangement that would be aggregated with the Plan under Section 1.409A-1(c) of the Treasury Regulations providing for the deferral of compensation at any time within 3 years following the date of termination of the Plan. |
(e) | The termination does not occur proximate to a downturn in the financial health of the Bank. |
Section 8.03 Termination Upon Change in Control Event .
If the Bank terminates the Plan within thirty days preceding or twelve months following a Change in Control, the Accounts (Supplemental ESOP Account and Supplemental Stock Ownership Account) of each Participant shall become fully vested and payable to the Participant in a lump sum within twelve months following the date of termination, subject to the requirements of Section 409A of the Code.
Article IX
General Provisions
Section 9.01 Unfunded, Unsecured Promise to Make Payments in the Future .
The right of a Participant or any beneficiary to receive a distribution under this Plan shall be an unsecured claim against the general assets of the Bank or its Affiliates and neither a Participant nor his designated beneficiary or beneficiaries shall have any rights in or against any amount credited to any account under this Plan or any other assets of the Bank or an Affiliate. The Plan at all times shall be considered entirely unfunded both for tax purposes and for purposes of Title I of ERISA. Any funds invested hereunder shall continue for all purposes to be part of the general assets of the Bank or an Affiliate and available to its general creditors in the event of bankruptcy or insolvency. Accounts under this Plan and any benefits which may be payable pursuant to this Plan are not subject in any manner to anticipation, sale, alienation, transfer, assignment, pledge, encumbrance,
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attachment, or garnishment by creditors of a Participant or a Participants beneficiary. The Plan constitute a mere promise by the Bank or Affiliate to make benefit payments in the future. No interest or right to receive a benefit may be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such Participant or beneficiary, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings.
Section 9.02 Committee as Plan Administrator .
(a) | The Plan shall be administered by the Committee designated by the Board of Directors. |
(b) | The Committee shall have the authority, duty and power to interpret and construe the provisions of the Plan as it deems appropriate. The Committee shall have the duty and responsibility of maintaining records, making the requisite calculations and disbursing the payments hereunder. In addition, the Committee shall have the authority and power to delegate any of its administrative duties to employees of the Bank or Affiliate, as they may deem appropriate. The Committee shall be entitled to rely on all tables, valuations, certificates, opinions, data and reports furnished by any actuary, accountant, controller, counsel or other person employed or retained by the Bank with respect to the Plan. The interpretations, determination, regulations and calculations of the Committee shall be final and binding on all persons and parties concerned. |
Section 9.03 Expenses .
Expenses of administration of the Plan shall be paid by the Bank or an Affiliate.
Section 9.04 Statements .
The Committee shall furnish individual annual statements of accrued benefits to each Participant, or current beneficiary, in such form as determined by the Committee or as required by law.
Section 9.05 Rights of Participants and Beneficiaries .
(a) | The sole rights of a Participant or beneficiary under this Plan shall be to have this Plan administered according to its provisions, to receive whatever benefits he or she may be entitled to hereunder. |
(b) | Nothing in the Plan shall be interpreted as a guaranty that any funds in any trust which may be established in connection with the Plan or assets of the Bank or an Affiliate will be sufficient to pay any benefit hereunder. |
(c) | The adoption and maintenance of this Plan shall not be construed as creating any contract of employment or service between the Bank or an Affiliate and any Participant or other individual. The Plan shall not affect the right of the Bank or an Affiliate to deal with any Participants in employment or service respects, including their hiring, discharge, compensation, and conditions of employment or other service. |
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Section 9.06 Incompetent Individuals .
The Committee may from time to time establish rules and procedures which it determines to be necessary for the proper administration of the Plan and the benefits payable to a Participant or beneficiary in the event that such Participant or beneficiary is declared incompetent and a conservator or other person legally charged with that Participants or beneficiarys care is appointed. Except as otherwise provided herein, when the Committee determines that such Participant or beneficiary is unable to manage his or her financial affairs, the Committee may pay such Participants or beneficiarys benefits to such conservator, person legally charged with such Participants or beneficiarys care, or institution then contributing toward or providing for the care and maintenance of such Participant or beneficiary. Any such payment shall constitute a complete discharge of any liability of the Bank or an Affiliate and the Plan for such Participant or beneficiary.
Section 9.07 Sale, Merger, or Consolidation of the Bank .
Subject to Section 8.03, the Plan may be continued after a sale of assets of the Bank, or a merger or consolidation of the Bank into or with another corporation or entity only if and to the extent that the transferee, purchaser or successor entity agrees to continue the Plan. Additionally, upon a merger, consolidation or other change in control any amounts credited to Participants deferral accounts shall be placed in a grantor trust to the extent not already in such a trust. In the event that the Plan is not continued by the transferee, purchaser or successor entity, then the Plan shall be terminated subject to the provisions of Section 8.03 of the Plan. Any legal fees incurred by a Participant in determining benefits to which such Participant is entitled under the Plan following a sale, merger, or consolidation of the Bank or an Affiliate of which the Participant is an Employee or, if applicable, a member of the Board of Directors, shall be paid by the resulting or succeeding entity.
Section 9.08 Location of Participants .
Each Participant shall keep the Bank informed of his or her current address and the current address of his or her designated beneficiary or beneficiaries. The Bank shall not be obligated to search for any person. If such person is not located within three (3) years after the date on which payment of the Participants benefits payable under this Plan may first be made, payment may be made as though the Participant or his or her beneficiary had died at the end of such three-year period.
Section 9.09 Liability of the Bank and its Affiliates .
Notwithstanding any provision herein to the contrary, neither the Bank nor any individual acting as an employee or agent of the Bank shall be liable to any Participant, former Participant, beneficiary, or any other person for any claim, loss, liability or expense incurred in connection with the Plan, unless attributable to fraud or willful misconduct on the part of the Bank or any such employee or agent of the Bank.
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Section 9.10 Governing Law .
All questions pertaining to the construction, validity and effect of the Plan shall be determined in accordance with the laws of the United States and to the extent not preempted by such laws, by the laws of Tennessee.
Section 9.11 Aggregation of Employers .
To the extent required under Section 409A of the Code, if the Bank is a member of a controlled group of corporations or a group of trades or business under common control (as described in Section 414(b) or (c) of the Code), all members of the group shall be treated as a single employer for purposes of whether there has occurred a Separation from Service and for any other purposes under the Plan as Section 409A of the Code shall require.
Section 9.12 Specified Employees .
Notwithstanding any other provision of the Plan to the contrary, if when a Separation from Service occurs a Participant is a Specified Employee, the Participants benefit shall be paid to the Participant in a single lump sum without interest on the first payroll date of the seventh month following the date on which the Separation from Service occurs.
Section 9.13 Section 409A .
It is intended that the Plan is intended to be a plan that is not qualified within the meaning of Section 401(a) of the Code, so as to prevent the inclusion in gross income of any benefits accrued hereunder in a taxable year prior to the taxable year or years in which such amount would otherwise be actually distributed or made available to the Participants. The Plan shall be administered and interpreted to the extent possible in a manner consistent with that intent.
Section 9.14 409A Application .
References in this Plan to Section 409A of the Code include rules, regulations, and guidance of general application issued by the Department of the Treasury under Section 409A of the Code.
Article X
Required Regulatory Provisions
Section 10.01 Required Regulatory Provisions .
(a) The Employer may terminate an Employees employment at any time, but any termination by the Employer, other than termination for cause, shall not prejudice the Employees right to compensation or other benefits under this Plan. An Employee shall not have the right to receive compensation or other benefits for any period after a termination for cause as otherwise provided hereunder.
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(b) If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Banks affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(3) or (g)(1), the Banks obligations under this contract shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while their contract obligations were suspended and (ii) reinstate (in whole or in part) any of the obligations which were suspended.
(c) If the Employee is removed and/or permanently prohibited from participating in the conduct of the Banks affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or (g)(1), all obligations of the Bank under this Plan shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1813(x)(1) all obligations of the Bank under this Plan shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the Participants.
(e) All obligations of the Bank under this Plan shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the institution: (i) by the Director of the OTS (or her designee), the FDIC or the Resolution Trust Corporation, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. §1823(c); or (ii) by the Director of the OTS (or her designee) at the time the Director (or her designee) approves a supervisory merger to resolve problems related to the operations of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action.
(f) Any payments made to Participants pursuant to this Plan, or otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k), 12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 and any rules and regulations promulgated thereunder.
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Having been originally adopted by its Board of Directors on August 21, 2003, and amended and restated in its entirety on , 2008, this Plan is hereby executed by a duly authorized officer of Jefferson Federal Bank.
JEFFERSON FEDERAL BANK | ||||||
Attest: | ||||||
/s/ Anderson L. Smith |
By: |
/s/ John F. McCrary, Jr. |
||||
For the Entire Board of Directors |
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Exhibit 10.3
AMENDED AND RESTATED
CHANGE IN CONTROL SEVERANCE PLAN
OF
JEFFERSON FEDERAL BANK
1. Plan Purpose. The purpose of the Jefferson Federal Bank Employee Severance Compensation Plan is to assure for Jefferson Federal Bank (the Bank) the services of Eligible Employees of the Bank in the event of a Change in Control (capitalized terms are defined in section 2 of this Plan) of Jefferson Bancshares, Inc. (the Holding Company) or the Bank. The benefits contemplated by the Plan recognize the value to the Bank of the services and contributions of Eligible Employees of the Bank and the effect upon the Bank resulting from the uncertainties of continued employment, reduced employee benefits, management changes and relocations that may arise in the event of a Change in Control of the Bank or the Company. The Board of Directors of the Bank believes that it is in the best interests of the Bank and the Company to provide Eligible Employees of the Bank and the Company with such benefits in order to defray the costs and changes in employee status that could follow a Change in Control. The Board of Directors of the Bank believes that the Plan will also aid the Bank in attracting and retaining highly qualified individuals who are essential to its success and the Plans assurance of fair treatment of the Banks Eligible Employees will reduce the distractions and other adverse effects on Eligible Employees performance in the event of a Change in Control. The Bank and the Holding Company have amended and restated this Plan to conform with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the Code).
2. Definitions. Whenever used herein, the following terms shall have the meanings set forth below:
a. | Affiliate means any corporation, trade or business, which, at the time of reference, is together with the Bank, a member of a controlled group of corporations, a group of trades or businesses (whether or not incorporated) under common control, or an affiliated service group, as described in Sections 414(b), 414(c), and 414(m) of the Code, respectively, or any other organization treated as a single employer with the Bank under Section 414(o) of the Code; provided, however, that, where the context so requires, the term Affiliate shall be construed to give full effect to the provisions of Sections 409(l)(4) and 415(h) of the Code. |
b. | Bank means Jefferson Federal Bank, or any successor thereto. |
c. | Change in Control means any one of the following events occurs: |
(i) |
Merger : The Company merges into or consolidates with another corporation, or merges another corporation into the Company, and as a result less than a majority of the combined voting power of the |
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resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of the Company immediately before the merger or consolidation; |
(ii) | Acquisition of Significant Share Ownership : a report on Schedule 13D or another form or schedule (other than Schedule 13G) is filed or is required to be filed under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner of 25% or more of a class of the Companys voting securities, but this clause (b) shall not apply to beneficial ownership of Company voting shares held in a fiduciary capacity by an entity of which Company directly or indirectly beneficially owns 50% or more of its outstanding voting securities; |
(iii) | Change in Board Composition : during any period of two consecutive years, individuals who constitute the Companys Board of Directors at the beginning of the two-year period cease for any reason to constitute at least a majority of the Companys Board of Directors; provided, however, that for purposes of this clause (iii) each director who is first elected by the board (or first nominated by the board for election by stockholders) by a vote of at least two-thirds of the directors who were directors at the beginning of the period shall be deemed to have been a director at the beginning of the two-year period; or |
(iv) | Sale of Assets : Company sells to a third party all or substantially all of the Companys assets. |
d. | Company means Jefferson Bancshares, Inc. or any successor thereto. |
e. |
Eligible Employee means any Employee who, as of the effective date of the Change in Control has or would have been employed by the Bank for at least one year, and whose employment, within three months prior to a Change in Control, or within one year thereafter is either (i) involuntarily terminated by the Company or any Affiliate, other than for Just Cause, (ii) voluntarily terminated by an Eligible Employee following (A) a relocation of an Eligible Employees principal place of employment to a location that is more than thirty-five (35) miles from its location immediately prior to the Change in Control, without his or her consent or (B) a reduction in the base salary of the Eligible Employee from the amount being paid as of the date immediately preceding the earlier of their termination date (but only if it occurs within three months of the Change in Control) or the effective |
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date of the Change in Control; or (iii) voluntarily terminated by an Eligible Employee as a result of the failure to offer or employ the Eligible Employee in a comparable position. For purposes of this Plan, a comparable position shall mean a position which (A) requires skills and knowledge similar to those required in the Eligible Employees position immediately prior to the Change in Control and (B) involves a work schedule that is substantially similar to the work schedule followed by the Eligible Employee immediately prior to the Change in Control. A position shall not fail to be a comparable position solely as a result of a change following a Change in Control in the Eligible Employees (A) title, (B) supervisory authority or (C) reporting responsibilities. |
f. | Employee means any person who has been employed by the Company or any Affiliate for at least 120 days, on a full-time salaried basis, immediately prior to the Change in Control, excluding any person who is covered by an employment contract, change in control or severance agreement with the Company or any Affiliate. |
g. | Just Cause, with respect to termination of employment, means an act or acts of personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order. In determining incompetence, acts or omissions shall be measured against standards generally prevailing in the banking industry, as determined by the Board of Directors of the Bank or the Company in its sole discretion. |
h. | Year of Service means each consecutive 12 month period, beginning with an employees date of hire and running without a termination of employment in which an employee is credited with at least one hour of service in each of the 12 calendar months in such period. The taking of an leave of absence shall not eliminate a period of time from being a Year of Service if such period of time otherwise qualifies as such. Further if a particular 12 month period of time would not otherwise qualify under the Plan as a Year of Service because one hour of service is not credited during each month of such period due to the taking of a leave of absence, then such period of time shall be deemed to be a Year of Service for all other sections of this Plan. For purposes of determining a severance benefit under this Plan, partial years will be rounded up to the nearest whole Year of Service. |
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3. Severance Benefit to Eligible Employees.
a. | Each Eligible Employee shall be entitled to receive a severance benefit equal to one (1) months base pay for each Year of Service with the Bank or the Company. Notwithstanding the foregoing, an Eligible Employee shall be entitled to a minimum severance benefit equal to one (1) month base pay and a maximum severance benefit equal to twelve (12) months base pay. For purposes of this Plan, base pay shall mean 1/12th of an Eligible Employees monthly average cash compensation during the twelve (12) months preceding the Eligible Employees termination of employment. |
b. | All severance payments shall be made in a single lump sum payment, without discount, payable within 10 days of termination of employment. |
c. | Notwithstanding the provisions of paragraph (a) above, if a severance benefit payment to an Eligible Employee who is a Disqualified Individual shall be in an amount which includes an Excess Parachute Payment, when taken together with any other payments or benefits that are paid or provided to the Eligible Employee, the payment to that Eligible Employee shall be reduced to the maximum amount which does not include an Excess Parachute Payment. The terms Disqualified Individual and Excess Parachute Payment shall have the same meanings as defined in Section 280G of the Internal Revenue Code of 1986, as amended, or any successor provision thereto. |
d. | The Eligible Employee shall not be required to mitigate damages on the amount of their severance benefits by seeking other employment or otherwise, nor shall the amount of such severance benefit be reduced by any compensation earned by the Eligible Employee as a result of employment after termination of employment hereunder. |
4. Written Acknowledgment. As a condition to receiving any payments pursuant to paragraph 3 of this Plan, the Eligible Employee shall deliver to the Company or any applicable Affiliate on the date of his or her employment termination a written Acknowledgment signed by the Eligible Employee stating (i) that the severance payment to be made to the Eligible Employee pursuant to paragraph 3 above is in full and complete satisfaction of all liabilities and obligations of the Company and its Affiliates, directors, officers, employees and agents, except for any tax-qualified plan benefits that may be due and owing and except for any liabilities or obligations that may be required by law, and (ii) that the Company or any Affiliate shall not have any other liabilities or obligation to the Eligible Employee relating to the Eligible Employees employment by the Company or any Affiliate.
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5. Legal Fees and Expenses. All reasonable legal fees and other expenses paid or incurred by a party hereto pursuant to any dispute or question of interpretation relating to this Plan shall be paid or reimbursed by the prevailing party in any legal judgment, arbitration or settlement.
6. Required Provisions.
a. | The Company or any of its Affiliates may terminate an employees employment at any time, but any termination by the Company or any of its Affiliates, other than termination for Just Cause, shall not prejudice employees right to compensation under this Plan. Employee shall not have the right to receive compensation for any period after termination for Just Cause as defined in Section 2(g) of this Plan. |
b. | If an Employee is suspended and/or temporarily prohibited from participating in the conduct of the Banks affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(3) or (g)(1), the Banks obligations under this Plan shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while their contract obligations were suspended and (ii) reinstate (in whole or in part) any of the obligations which were suspended. |
c. | If an employee is removed and/or permanently prohibited from participating in the conduct of the Banks affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected. |
d. | If the Bank is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1813(x)(1), all obligations of the Bank under this Plan shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. |
e. | Any payments made to an Eligible Employee pursuant to this Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. §1828(k) and any regulations promulgated thereunder. |
5
7. Administrative Provisions.
a. | The administrator of the Plan shall be under the supervision of the Board of Directors of the Bank or a committee appointed by the Board of Directors of the Bank (the Board). It shall be a principal duty of the Board to see that the Plan is carried out in accordance with its terms, for the exclusive benefit of persons entitled to participate in the Plan without discrimination among them. The Board will have full power to administer the Plan in all of its details subject, however, to the requirements of ERISA. For this purpose, the Boards powers will include, but will not be limited to, the following authority, in addition to all other powers provided by this Plan: (i) to make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan; (ii) to interpret the Plan, its interpretation thereof in good faith to be final and conclusive on all persons claiming benefits under the Plan; (iii) to decide all questions concerning the Plan and the eligibility of any person to participate in the Plan; (iv) to compute the amount of severance benefits payable to any Eligible Employee or other person in accordance with the provisions of the Plan, and to determine the person or persons to whom such benefits will be paid; (v) to authorize severance benefits; (vi) to appoint such agents, counsel, accountants, consultants and actuaries as may be required to assist in administering the Plan; and (vii) to allocate and delegate its responsibilities under the Plan and to designate other persons to carry out any of its responsibilities under the Plan, any such allocation, delegation or designation to be by written instrument and in accordance with Section 405 of ERISA, if applicable. |
b. | The Board will be a named fiduciary for purposes of Section 402(a)(1) of ERISA with authority to control and manage the operation and administration of the Plan, and will be responsible for complying with all of the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA. |
8. Claims and Review Procedures.
a. |
If any person believes he is being denied any rights or benefits under the Plan, such person may file a claim in writing with the Board. If any such claim is wholly or partially denied, the Board will notify such person of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain (i) specific reasons for the denial, (ii) specific reference to pertinent Plan provisions, (iii) a description of any additional material or information necessary for such person to perfect such claim and an explanation of why such material |
6
or information is necessary and (iv) information as to the steps to be taken if the person wishes to submit a request for review. Such notification will be given within 90 days after the claim is received by the Board (or within 180 days, if special circumstances require an extension of time for processing the claim, and if written notice of such extension and circumstances is given to such person within the initial 90 day period). If such notification is not given within such period, the claim will be considered denied as of the last day of such period and such person may request a review of his claim. |
b. | Within 60 days after the date on which a person receives a written notice of a denied claim (or, if applicable, within 60 days after the date on which such denial is considered to have occurred) such person (or his duly authorized representative) may (i) file a written request with the Board for a review of his denied claim and of pertinent documents and (ii) submit written issues and comments to the Board. The Board will notify such person of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain specific reasons for the decision as well as specific references to pertinent Plan provisions. The decision on review will be made within 60 days after the request for review is received by the Board (or within 120 days, if special circumstances require an extension of time for processing the requests such as an election by the Board to hold a hearing, and if written notice of such extension and circumstances is given to such person within the initial 60 day period). If the decision on review is not made within such period, the claim will be considered denied. |
9 . Governing Law. Unless preempted by federal law, this plan shall be governed by the laws of the State of Tennessee.
10. Termination or Amendment. This plan may be amended or terminated at any time, in the full discretion of the Board of Directors of the Bank, prior to the Change in Control. This plan may not be terminated or amended at the time of or after the occurrence of the Change in Control.
11. Section 409A.
If when termination of employment occurs an employee is a specified employee (within the meaning of Section 409A of the Code), and if the cash severance payment under paragraph E. would be considered deferred compensation under Section 409A of the Code, and, finally, if an exemption from the six-month delay requirement of Section 409A(a)(2)(B)(i) of the Code is not available, the employees severance benefit shall be paid to the employee in a single lump sum, without interest, on the first payroll date of the seventh month after the month in which the employees employment
7
terminates, provided the termination of employment constitutes a separation from service under Section 409A of the Code. References in this Plan to Section 409A of the Code include rules, regulations, and guidance of general application issued by the Department of the Treasury under Section 409A of the Code.
This plan, as amended and restated, has been approved and adopted by the Board of Directors of the Bank as of December 18, 2008.
ATTEST: | JEFFERSON FEDERAL BANK | |||||
/s/ Anderson L. Smith |
By: |
/s/ John F. McCrary, Jr. |
||||
For the Entire Board of Directors |
8
EXHIBIT 31.1
CERTIFICATION
I, Anderson L. Smith, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Jefferson Bancshares, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15 (f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and in preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this quarterly report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: February 17, 2009 |
/s/ Anderson L. Smith |
|
Anderson L. Smith | ||
President and Chief Executive Officer | ||
(principal executive officer) |
EXHIBIT 31.2
CERTIFICATION
I, Jane P. Hutton, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Jefferson Bancshares, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15 (f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and in preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this quarterly report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: February 17, 2009 |
/s/ Jane P. Hutton |
|
Jane P. Hutton | ||
Chief Financial Officer, Treasurer and Secretary (principal financial and accounting officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADDED BY
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Jefferson Bancshares, Inc. (the Company) on Form 10-Q for the quarter ended December 31, 2008 as filed with the Securities and Exchange Commission (the Report), the undersigned hereby certify, pursuant to 18 U.S.C.§ 1350, as added by § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. |
February 17, 2009 |
/s/ Anderson L. Smith |
|
Anderson L. Smith | ||
President and Chief Executive Officer | ||
February 17, 2009 |
/s/ Jane P. Hutton |
|
Jane P. Hutton | ||
Chief Financial Officer, Treasurer and Secretary |