A Volunteer Bank

Good morning!  Today’s pick is a voyage into the regional bank universe.

Jefferson Bancshares, Inc. (NASDAQ – JFBI - $3.75) is the operational holding company for Jefferson Federal Bank.  It operates nine full-service branches and two drive-through limited service facilities located in four counties surrounding Knoxville, TN, providing deposit and loan services to consumers and businesses.

The company recently announced quarterly financials, and while there was no earth shattering news, it did reverse the losses suffered in the comparable period in 2011.  Management remains tepid on 2013 loans and net interest margin, but JFBI continues to meet and exceed new regulatory capital ratios.  On December 31, 2012, the Bank’s total risk-based, Tier 1 risk-based, and Tier 1 leverage capital ratios were 14.10%, 12.85%, and 9.01%, respectively, compared to 13.42%, 12.17%, and 8.23%, respectively, at June 30, 2012.

Why do we like this?  The stock has been under steady accumulation (albeit on low volume) since reaching a low of $2.48 on December 27^th and seemingly records a new 52-week high every 10 days or so.  As a result, the charts indicate a very bullish signal in the short-term.

Is the stock in play for a takeover?  Unlikely. With only $400M+ in deposits, this is still a small savings bank. Still, the bank is continues to be well-capitalized under regulatory requirements and has 4 consecutive quarters of profitability under its belt. We believe the risk-reward trade off on this one is worth it, especially since the company turned the corner from an operational stand point.  A bounce to the $5 range by the end of 2Q13 is possible if trends continue.

Have a great weekend.

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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