| ITEM 9. | CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| ITEM 9A. | CONTROLS AND PROCEDURES |
The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “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 Company’s 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,
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summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s 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 Company’s internal control over financial reporting occurred during the quarter ended June 30, 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s report on internal control over financial reporting is incorporated by reference to page F-1.
| ITEM 9B. | OTHER INFORMATION |
None.
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information relating to the directors and officers of Jefferson Bancshares and information regarding compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to Jefferson Bancshares’ Proxy Statement for the 2007 Annual Meeting of Stockholders (the “Proxy Statement”) and to Part I, Item 1, “Description of Business — Executive Officers of the Registrant.” The information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by reference to the section captioned “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.
Jefferson Bancshares has adopted a written code of ethics, which applies to our senior financial officers. We intend to disclose any changes or waivers from our Code of Ethics applicable to any senior financial officers on our website at http://www.jeffersonfederal.com or in a report on Form 8-K. A copy of the Code of Ethics is available, without charge, upon written request to Jane P. Hutton, Corporate Secretary, Jefferson Bancshares, Inc., 120 Evans Avenue, Morristown, Tennessee 37814.
| ITEM 11. | EXECUTIVE COMPENSATION |
The information contained under the sections captioned “Executive Compensation” and “Director Compensation” in the Proxy Statement is incorporated herein by reference.
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| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS |
| (a) | Security Ownership of Certain Beneficial Owners. The information required by this item is incorporated herein by reference to the section captioned “Stock Ownership” in the Proxy Statement. |
| (b) | Security Ownership of Management. The information required by this item is incorporated herein by reference to the section captioned “Stock Ownership” in the Proxy Statement. |
| (c) | Changes in Control. Management of Jefferson Bancshares knows of no arrangements, including any pledge by any person of securities of Jefferson Bancshares, the operation of which may at a subsequent date result in a change in control of the registrant. |
| (d) | Equity Compensation Plan Information. |
The following table provides information as of June 30, 2007 for compensation plans under which equity securities may be issued. Jefferson Bancshares does not maintain any equity compensation plans that have not been approved by security holders.
| Plan category |
Number of securities to be issued upon (a) |
Weighted-average (b) |
Number of securities remaining available for (c) | ||||
| Equity compensation plans approved by security holders |
401,778 | $ | 13.69 | 296,972 | |||
| Equity compensation plans not approved by security holders |
— | — | — | ||||
| Total |
401,778 | $ | 13.69 | 296,972 | |||
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this item relating to certain relationships and related transactions is incorporated herein by reference to the section captioned “Transactions with Management” in the Proxy Statement. The information required by this item relating to director independence is incorporated herein by reference to the section captioned “Proposal I—Election of Directors” in the Proxy Statement.
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this item is incorporated herein by reference to the section captioned “Proposal 2 – Ratification of Independent Auditors” in the Proxy Statement.
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| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. |
| (a) | (1) The exhibits and financial statement schedules filed as a part of this report are as follows:
• Report of Independent Registered Public Accounting Firm.
• Consolidated Balance Sheets for the Years Ended June 30, 2007 and 2006.
• Consolidated Statements of Earnings for the Years Ended June 30, 2007, 2006 and 2005.
• Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended June 30, 2007, 2006 and 2005.
• Consolidated Statements of Cash Flows for the Years Ended June 30, 2007, 2006 and 2005.
• Notes to Consolidated Financial Statements.
(2) All schedules are omitted as the required information either is not applicable or is included in the financial statements or related notes.
(3) Exhibits |
| 3.1 | Charter of Jefferson Bancshares, Inc. (1) | |
| 3.2 | Bylaws of Jefferson Bancshares, Inc. (1) | |
| 4.0 | Specimen Stock Certificate of Jefferson Bancshares, Inc. (1) | |
| 10.1 | *Employment Agreement between Anderson L. Smith, Jefferson Bancshares, Inc. and Jefferson Federal Bank (2) | |
| 10.2 | *Amendment to Employment Agreement between Anderson L. Smith, Jefferson Bancshares, Inc. and Jefferson Federal Bank (3) | |
| 10.3 | *Employment Agreement Between Charles G. Robinette and Jefferson Federal Bank | |
| 10.4 | *Jefferson Federal Savings and Loan Association of Morristown Employee Severance Compensation Plan (1) | |
| 10.5 | *1995 Jefferson Federal Savings and Loan Association of Morristown Stock Option Plan (1) | |
| 10.6 | *Jefferson Federal Bank Supplemental Executive Retirement Plan (1) | |
| 10.7 | *Jefferson Bancshares, Inc. 2004 Stock-Based Incentive Plan (4) | |
| 11.0 | Statement re: computation of per share earnings (5) | |
| 21.0 | List of Subsidiaries | |
| 23.0 | Consent of Craine, Thompson & Jones, P.C. | |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | |
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | |
| 32.0 | Section 1350 Certifications | |
| * | Management contract or compensatory plan, contract or arrangement. |
| (1) | Incorporated herein by reference from the Exhibits to Form S-1, Registration Statement and amendments thereto, initially filed on March 21, 2003, Registration No. 333-103961. |
| (2) | Incorporated herein by reference from the Exhibits to the Annual Report on Form 10-K, filed on September 29, 2003. |
| (3) | Incorporated herein by reference from the Exhibits to the Annual Report on Form 10-K, filed on September 13, 2004. |
| (4) | Incorporated herein by reference from Appendix A to the Company’s definitive proxy statement filed on December 1, 2003. |
| (5) | Incorporated herein by reference to Note 3 to the Company’s Audited Financial Statements found on page F-14. |
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In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| JEFFERSON BANCSHARES, INC. | ||||
| Date: September 12, 2007 | By: | /s/ Anderson L. Smith | ||
| Anderson L. Smith | ||||
| President, Chief Executive Officer and Director | ||||
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Name |
Title |
Date | ||
| /s/ Anderson L. Smith |
President, Chief Executive | September 12, 2007 | ||
| Anderson L. Smith | Officer and Director (principal executive officer) |
|||
| /s/ Jane P. Hutton |
Chief Financial Officer, | September 12, 2007 | ||
| Jane P. Hutton | Treasurer and Secretary (principal financial and accounting officer) |
|||
| /s/ John F. McCrary, Jr. |
Director | September 12, 2007 | ||
| John F. McCrary, Jr. | ||||
| /s/ H. Scott Reams |
Director | September 12, 2007 | ||
| H. Scott Reams | ||||
| /s/ Dr. Jack E. Campbell |
Director | September 12, 2007 | ||
| Dr. Jack E. Campbell | ||||
| /s/ Dr. Terry M. Brimer |
Director | September 12, 2007 | ||
| Dr. Terry M. Brimer | ||||
| /s/ William F. Young |
Director | September 12, 2007 | ||
| William F. Young | ||||
| /s/ William T. Hale |
Director | September 12, 2007 | ||
| William T. Hale | ||||
Table of Contents
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. The Company’s management conducted an evaluation of the effectiveness of internal control over financial reporting as of June 30, 2007 based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management concluded that internal control over financial reporting was effective as of June 30, 2007 based on the specified criteria. Craine, Thompson & Jones, P.C., an independent registered public accounting firm, has audited the Company’s Consolidated Financial Statements included in this Annual Report on Form 10-K and, as part of their audit, has issued an attestation report on the Company’s internal control over financial reporting. See “Report of Independent Registered Public Accounting Firm” on page F-3.
F-1
Table of Contents
[Letterhead of Craine, Thompson, and Jones, P.C.]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Jefferson Bancshares, Inc. and Subsidiary
Morristown, Tennessee
We have audited the accompanying consolidated balance sheets of Jefferson Bancshares, Inc. and Subsidiary as of June 30, 2007 and 2006, and the related consolidated statements of earnings, changes in stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2007. These consolidated financial statements are the responsibility of the Company ‘s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Jefferson Bancshares, Inc. and Subsidiary as of June 30, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2007, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Jefferson Bancshares, Inc. and Subsidiary’s internal control over financial reporting as of June 30, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August 31, 2007, expressed an unqualified opinion on management’s assessment of internal control over financial reporting and an unqualified opinion on the effectiveness of internal control over financial reporting.
| /s/ Craine, Thompson, and Jones, P.C. |
| Morristown, Tennessee |
| August 31, 2007 |
F-2
Table of Contents
[Letterhead of Craine, Thompson, and Jones, P.C.]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Jefferson Bancshares, Inc.
We have audited management’s assessment, included in the accompanying Form 10-K, that Jefferson Bancshares, Inc. maintained effective internal control over financial reporting as of June 30, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Jefferson Bancshares, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Jefferson Bancshares, Inc. maintained effective internal control over financial reporting as of June 30, 2007, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion, Jefferson Bancshares, Inc. maintained, in all material respects, effective internal control over financial reporting as of June 30, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets and the related statements of income, stockholders’ equity and comprehensive income, and cash flows of Jefferson Bancshares, Inc., and our report dated August 31, 2007, expressed an unqualified opinion.
/s/ Craine, Thompson, and Jones, P.C.
Morristown, Tennessee
August 31, 2007
F-3
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JEFFERSON BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in Thousands)
| June 30, | ||||||||
| 2007 | 2006 | |||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 1,955 | $ | 3,146 | ||||
| Interest-bearing deposits |
4,802 | 8,810 | ||||||
| Fed funds sold |
977 | — | ||||||
| Investment securities classified as available for sale, net |
27,278 | 31,845 | ||||||
| Federal Home Loan Bank stock |
1,796 | 1,745 | ||||||
| Bank owned life insurance |
5,702 | 5,491 | ||||||
| Loans receivable, net of allowance for loan losses of $1,955 and $2,172 |
274,881 | 254,127 | ||||||
| Loans held-for-sale |
2,468 | 1,645 | ||||||
| Premises and equipment, net |
15,572 | 11,926 | ||||||
| Foreclosed real estate, net |
275 | 74 | ||||||
| Accrued interest receivable: |
||||||||
| Investments |
299 | 330 | ||||||
| Loans receivable, net |
1,414 | 1,342 | ||||||
| Deferred tax asset |
1,606 | 1,986 | ||||||
| Other assets |
678 | 4,670 | ||||||
| Total assets |
$ | 339,703 | $ | 327,137 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Deposits: |
||||||||
| Noninterest-bearing |
$ | 12,561 | $ | 10,806 | ||||
| Interest-bearing |
207,521 | 188,037 | ||||||
| Federal Home Loan Bank advances |
44,800 | 52,400 | ||||||
| Other liabilities |
1,120 | 1,295 | ||||||
| Accrued income taxes |
57 | 56 | ||||||
| Total liabilities |
266,059 | 252,594 | ||||||
| Commitments and contingent liabilities |
— | — | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $0.01 par value; 10,000,000 shares authorized; shares issued and outstanding - none |
— | — | ||||||
| Common stock, $0.01 par value; 30,000,000 shares authorized; 8,446,375 shares issued and 6,411,586 and 6,613,557 outstanding at June 30, 2007 and 2006, respectively |
84 | 84 | ||||||
| Additional paid-in capital |
72,738 | 72,171 | ||||||
| Unearned ESOP shares |
(4,969 | ) | (5,401 | ) | ||||
| Unearned compensation |
(2,182 | ) | (2,733 | ) | ||||
| Accumulated other comprehensive income |
(246 | ) | (609 | ) | ||||
| Retained earnings |
35,082 | 34,780 | ||||||
| Treasury stock, at cost (2,034,789 and 1,793,091 shares) |
(26,863 | ) | (23,749 | ) | ||||
| Total stockholders’ equity |
73,644 | 74,543 | ||||||
| Total liabilities and stockholders’ equity |
$ | 339,703 | $ | 327,137 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
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JEFFERSON BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
(Dollars in Thousands Except Per Share Amounts)
| Years Ended June 30, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| Interest income: |
||||||||||||
| Interest on loans receivable |
$ | 19,605 | $ | 16,152 | $ | 13,027 | ||||||
| Interest on investment securities |
1,118 | 1,631 | 2,466 | |||||||||
| Other interest |
281 | 309 | 286 | |||||||||
| Total interest income |
21,004 | 18,092 | 15,779 | |||||||||
| Interest expense: |
||||||||||||
| Deposits |
7,334 | 5,527 | 4,199 | |||||||||
| Advances from FHLB |
2,326 | 1,408 | 440 | |||||||||
| Total interest expense |
9,660 | 6,935 | 4,639 | |||||||||
| Net interest income |
11,344 | 11,157 | 11,140 | |||||||||
| Increase (reduction) in loan loss allowance |
30 | (68 | ) | — | ||||||||
| Net interest income after provision for loan losses |
11,314 | 11,225 | 11,140 | |||||||||
| Noninterest income: |
||||||||||||
| Dividends |
69 | 44 | 52 | |||||||||
| Mortgage origination income |
451 | 578 | 122 | |||||||||
| Service charges and fees |
522 | 544 | 549 | |||||||||
| Gain (loss) on sale of investment securities, net |
(29 | ) | (293 | ) | (284 | ) | ||||||
| Gain on sale of equity investment |
— | 35 | 329 | |||||||||
| Gain on sale of foreclosed real estate, net |
39 | 170 | 84 | |||||||||
| Increase in BOLI cash value |
211 | 206 | 205 | |||||||||
| Other |
92 | 91 | 147 | |||||||||
| Total noninterest income |
1,355 | 1,375 | 1,204 | |||||||||
| Noninterest expense: |
||||||||||||
| Compensation and benefits |
6,011 | 5,577 | 4,074 | |||||||||
| Occupancy expense |
572 | 388 | 323 | |||||||||
| Equipment and data processing expenses |
1,377 | 1,059 | 968 | |||||||||
| DIF deposit insurance premium |
25 | 26 | 29 | |||||||||
| Advertising |
324 | 370 | 210 | |||||||||
| REO expense |
— | 51 | 89 | |||||||||
| Other |
1,761 | 1,479 | 1,338 | |||||||||
| Total noninterest expense |
10,070 | 8,950 | 7,031 | |||||||||
| Earnings before income taxes |
2,599 | 3,650 | 5,313 | |||||||||
| Income taxes (benefits): |
||||||||||||