Jefferson Bancshares Inc. Reports Operating Results (10-K)
Jefferson Bancshares Inc. has a market cap of $23.1 million; its shares were traded at around $3.47 with and P/S ratio of 0.8. JFBI is in the portfolios of Chuck Royce of Royce& Associates.
Highlight of Business Operations: Historically, we have not emphasized the origination of loans that conform to guidelines for sale in the secondary mortgage market. However, beginning in January 2005, we began originating loans for the secondary mortgage market. Loans are sold without recourse and on a servicing-released basis. We generally do not make conventional loans with loan-to-value ratios exceeding 85% and generally make loans with a loan-to-value ratio in excess of 85% only when secured by first liens on owner-occupied, one- to four-family residences. Loans with loan-to-value ratios in excess of 90% generally require private mortgage insurance or additional collateral. We require all properties securing mortgage loans in excess of $250,000 to be appraised by a board-approved appraiser. We require title insurance on all mortgage loans in excess of $25,000. Borrowers must obtain hazard or flood insurance (for loans on property located in a flood zone) prior to closing the loan.
At June 30, 2010, loans with principal balances of $500,000 or more secured by commercial real estate totaled $95.1 million, or 69.1% of commercial real estate loans, and loans with principal balances of $500,000 or more secured by multi-family properties totaled $12.9 million, or 77.8% of multi-family loans. At June 30, 2010, 11 commercial real estate loans totaling $6.0 million were nonaccrual loans.
Construction Loans. We originate loans to finance the construction of one- to four-family homes and, to a lesser extent, multi-family and commercial real estate properties. At June 30, 2010, $14.2 million of our construction loans was for the construction of one- to four-family homes and $6.8 million was for the construction of commercial or multi-family real estate. Construction loans are generally made on a pre-sold basis; however, contractors who have sufficient financial strength and a proven track record are considered for loans for model and speculative purposes, with preference given to contractors with whom we have had successful relationships. We generally limit loans to contractors for speculative construction to a total of $350,000 per contractor. Construction loans generally provide for interest-only payments at fixed-rates of interest and have terms of six to 12 months. At the end of the construction period, the loan generally converts into a permanent loan. Construction loans to a borrower who will occupy the home, or to a builder who has pre-sold the home, will be considered for loan-to-value ratios of up to 85%. Construction loans for speculative purposes, models and commercial properties may be considered for loan-to-value ratios of up to 80%. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant. We generally use in-house inspectors for construction disbursement purposes; however, we may rely on architect certifications and independent third party inspections for disbursements on larger commercial loans.
At June 30, 2010, our largest land loan had an outstanding balance of $4.0 million and was secured by commercial real estate. At June 30, 2010, loans with principal balances of $500,000 or more secured by unimproved property totaled $16.3 million, or 43.9% of land loans. At June 30, 2010, 17 land loans totaling $6.5 million were nonaccrual loans.
Loan Approval Procedures and Authority. Loan approval authority has been granted by the Board of Directors to certain officers on an individual and combined basis for consumer (including residential mortgages) and commercial purpose loans up to a maximum of $1.0 million per transaction. All loans with aggregate exposure of $2.0 million or more require the approval of our Loan Committee or Board of Directors.
The Loan Committee meets every two weeks to review all mortgage loans made within granted lending authority of $75,000 or more and all non-mortgage loans made within granted lending authority of $50,000 or more. The committee approves all requests which exceed granted lending authority or when the request carries aggregate exposure to us of $2.0 million or more. The minutes of the committee are reported to and reviewed by the Board of Directors.
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