-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CEB2aG4+ovxJyWV3KAjY4TXp0tg9eItaLYYgCkq8WY68hgHmwlH3MZE3ryc/hJPC E1Q71xwRgny1SJhZ8H432A== 0000818677-95-000007.txt : 19951120 0000818677-95-000007.hdr.sgml : 19951120 ACCESSION NUMBER: 0000818677-95-000007 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951115 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECURITY FEDERAL CORPORATION CENTRAL INDEX KEY: 0000818677 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 570858504 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-16120 FILM NUMBER: 95593435 BUSINESS ADDRESS: STREET 1: P O BOX 810 CITY: AIKEN STATE: SC ZIP: 29802 BUSINESS PHONE: 8036413000 MAIL ADDRESS: STREET 1: P O BOX 810 CITY: AIKEN STATE: SC ZIP: 29802 10QSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-QSB (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 ( ) 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: 0-16120 SECURITY FEDERAL CORPORATION Delaware 57-0858504 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 1705 Whiskey Road, Aiken, South Carolina 29801 (Address of Principal Executive Office) (Zip code) (803) 641-3000 (Registrant's telephone number, including area code) 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 APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Class Outstanding Shares at Common Stock September 30, 1995 $0.01 Par Value 409,246 INDEX SECURITY FEDERAL CORPORATION PART I - FINANCIAL INFORMATION (UNAUDITED) PAGE Item 1. Financial Statements (Unaudited): Consolidated Balance Sheet at September 30, 1995 and March 31, 1995 1 Consolidated Statement of Income for the Three months ended September 30, 1995 and 1994 2 Consolidated Statement of Income for the Six months ended September 30, 1995 and 1994 3 Consolidated Statement of Shareholders' Equity 4 Consolidated Statement of Cash Flows 5-6 Notes to Consolidated Financial Statements 7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-17 PART II. OTHER INFORMATION Other Information 18 Signatures 19 SCHEDULES OMITTED All schedules other than those indicated above are omitted because of the absence of the conditions under which they are required or because the information is included in the financial statements and related notes. - 2 -
Security Federal Corporation and Subsidiary CONSOLIDATED BALANCE SHEET (unaudited) SEPTEMBER 30 MARCH 31 1995 1995 ASSETS Cash and cash equivalents $ 6,340,322 $ 5,697,391 Investments and mortgage-backed securities: Available for Sale 3,982,128 3,930,626 Held to Maturity 37,894,130 38,596,245 Loans Receivable net: Held for Sale 424,833 776,631 Held for Investment 152,157,797 148,200,563 152,582,630 148,977,194 Accrued interest receivable: Loans 862,818 755,265 Mortgage-backed securities 21,438 22,328 Investments 458,347 464,229 Premises and equipment, net 3,011,049 3,251,171 Federal Home Loan Bank stock, at cost 1,471,700 1,415,100 Real estate acquired in settlement of loans 1,287,162 1,531,251 Real estate held for development and sale 1,288,136 1,442,723 Other assets 4,019,967 3,865,211 Total Assets 213,219,827 209,948,734 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposit Accounts $ 164,323,096 $166,274,637 Advances from Federal Home Loan Bank 28,715,000 26,033,000 Advance payments by borrowers for taxes and insurance 673,571 442,456 Other Liabilities 4,707,394 2,709,171 Total liabilities $ 198,419,061 $195,459,264 Stockholders' Equity: Serial preferred stock, $.01 par value; authorized shares - 200,000 issued and outstanding, none Common stock, $.01 par value; authorized shares 1,000,000 issued and outstanding shares 409,246 4,092 4,092 Additional paid-in capital 3,879,922 3,879,922 Unrealized net loss on securities available for sale, net of income taxes (15,615) (51,155) Retained earnings, substantially restricted 10,932,367 10,656,611 Total stockholders' equity 14,800,766 14,489,470 Total liabilities and stockholders' equity $ 213,219,827 $209,948,734
See accompanying notes to consolidated financial statements. -1-
Security Federal Corporation and Subsidiary CONSOLIDATED STATEMENT OF INCOME (Unaudited) Three Months Ended September 30 1995 1994 Interest Income: Loans $ 3,380,877 $ 2,879,908 Mortgage-backed securities 28,334 23,356 Investment securities 528,054 592,781 Other 21,515 20,772 Total interest income 3,958,780 3,516,817 Interest expense: NOW and money market accounts 253,377 278,517 Passbook accounts 97,103 105,832 Certificate accounts 1,371,658 884,642 Advances and other borrowed money 457,894 299,228 Total interest expense 2,180,032 1,568,219 Net interest income 1,778,748 1,948,598 Provision for loan losses 75,000 75,000 Net interest income after provision for loan losses 1,703,748 1,873,598 Other income: Gain on sale of loans 27,440 90,320 Loan servicing fees 76,687 78,728 Service fees on deposit accounts 134,332 144,436 Income from real estate operations 29,565 32,581 Other 15,315 37,249 Total other income 283,339 383,314 General and administrative expenses: Compensation and employee benefits 849,377 896,354 Occupancy 90,666 103,013 Advertising 53,956 26,654 Depreciation and maintenance of equipment 166,585 162,672 Amortization of intangibles 116,310 116,310 FDIC insurance premiums 97,575 112,938 Other 346,224 387,624 Total general and administrative expenses 1,720,693 1,805,565 Income before income taxes 266,394 451,347 Provision for income taxes 86,567 177,066 Net income $ 179,827 274,281 Net income per common share $ 0.44 $ 0.68 Cash dividend on common stock $ 0.05 $ 0.05 Weighted average shares outstanding $ 409,246 $ 405,309
See accompanying notes to consolidated financial statements -2-
Security Federal Corporation and Subsidiary CONSOLIDATED STATEMENT OF INCOME (Unaudited) Six Months Ended September 30 1995 1994 Interest Income: Loans $ 6,639,566 $ 5,533,387 Mortgage-backed securities 56,844 74,111 Investment securities 1,061,043 1,172,800 Other 41,753 38,588 Total interest income 7,799,206 6,818,886 Interest expense: NOW and money market accounts 529,045 563,503 Passbook accounts 191,766 209,979 Certificate accounts 2,645,898 1,839,047 Advances and other borrowed money 895,559 482,394 Total interest expense 4,262,268 3,094,923 Net interest income 3,536,938 3,723,963 Provision for loan losses 150,000 150,000 Net interest income after provision for loan losses 3,386,938 3,573,963 Other income: Gain on sale of loans 44,847 167,840 Loan servicing fees 154,379 158,151 Service fees on deposit accounts 260,582 283,460 Income from real estate operations 80,990 73,000 Other 80,266 125,488 Total other income 621,064 807,939 General and administrative expenses: Compensation and employee benefits 1,742,527 1,760,541 Occupancy 185,872 207,266 Advertising 81,684 70,172 Depreciation and maintenance of equipment 332,264 346,302 Amortization of intangibles 232,620 232,620 FDIC insurance premiums 206,604 197,064 Other 768,322 718,437 Total general and administrative expenses 3,549,893 3,532,402 Income before income taxes 458,109 849,500 Provision for income taxes 141,435 307,530 Net income $ 316,674 541,970 Net income per common share $ 0.77 $ 1.34 Cash dividend on common stock $ 0.10 $ 0.10 Weighted average shares outstanding $ 409,246 $ 405,309
See accompanying notes to consolidated financial statements -3-
Security Federal Corporation and Subsidiary CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY For the six months ended September 30, 1995 (unaudited) Unrealized Net Loss Additional on Securities Common Paid-In Available Retained Stock Capital for Sale Earnings Total Beginning balance March 31, 1995 $ 4,092 3,879,922 (51,155) 10,656,611 14,489,470 Net income ----- ----- ----- 316,674 316,674 Cash dividend ----- ----- ----- (40,918) (40,918) Change in unrealized net loss on on securities available for sale ----- ----- 35,540 ----- 35,540 Ending balance September 30, 1995 $ 4,092 3,879,922 (15,615) 10,932,367 14,800,766
See accompanying notes to consolidated financial statements -4-
Security Federal Corporation And Subsidiary CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Six Months Ended September 30, 1995 1994 Cash flows from operating activities: Net Income $ 316,674 $ 541,970 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Expense 302,658 291,009 Amortization of purchase accounting adjustments 232,620 232,620 Discount accretion and premium amortization 103,348 125,067 Provisions for loan losses 150,000 150,000 Gain on sale of loans (44,847) (167,840) Gain on sale of Real Estate (45,917) (67,141) Amortization of deferred fees on loans (41,731) 111,422 Proceeds from sale of loans held for sale 3,875,089 6,024,991 Origination of loans for sale (3,478,444) (1,021,471) (Increase) decrease in accrued interest receivable: Loans (107,553) (40,493) Mortgage-backed securities 890 (1,659) Investments 5,882 18,367 Increase (Decrease) in advance payments by borrowers 231,115 255,547 Other, net 1,086,595 915,810 Net cash provided by operating activities $ 2,586,379 7,368,199 Cash flows from investing activities Principal repayments on mortgage-backed securities 104,549 410,576 Purchase of investment securities 0 (1,312,757) Proceeds from maturities of investment securities 500,000 3,200,000 Proceeds from sale of investments 0 1,500,000 Purchase of FHLB Stock (135,300) (344,600) (Increase) Decrease in loans to customers (4,092,708) (24,544,881) Investment in real estate held for development (82,358) 0 Proceeds from sale of real estate held for development 274,430 314,308 Proceeds from sale of real estate acquired through foreclosure 782,234 103,194 Purchase of premises and equipment (62,536) (160,834) Redemption of FHLB Stock 78,700 0 Net cash used by investing activities $ (2,632,989) $ (20,834,994)
(continued) -5-
(Continued) Cash flows from financing activities: Increase(Decrease) in deposit accounts $ (1,951,541) $ (6,702,310) Proceeds from FHLB advances 61,200,000 72,100,000 Repayment of FHLB advances (58,518,000) (51,600,000) Dividends to share holders (40,918) (39,955) Exercise of stock options 0 155,270 Net cash provided by financing activities 689,541 13,913,005 Net increase in cash and cash equivalents 642,931 446,210 Cash and cash equivalents at beginning of period 5,697,391 8,631,817 Cash and cash equivalents at end of period 6,340,322 9,078,027 Supplemental disclosure of cash flow information: Cash paid during the period for : Interest $ 3,280,682 $ 2,777,805 Income taxes $ 36,249 $ 233,213 Additions to real estate acquired through foreclosure $ 529,713 $ 785,692 Unrealized net gain/(loss) on securities available for sale, net of income taxes $ 35,540 $ (30,601)
See accompanying notes to consolidated financial statements -6- Security Federal Corporation and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of presentation The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-QSB and therefore do not include all disclosures necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with general accepted accounting principles. Such statements are unaudited but, in the opinion of management, reflect all adjustments, all of which are of a normal recurring nature, necessary for a fair presentation of results for the selected interim periods. Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in The Annual Report to Stockholders when reviewing interim financial statements. The results of operations for the period ended September 30, 1995 are not necessarily indicative of the results which may be expected for the entire fiscal year. 2. Principles of Consolidation The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Security Federal Savings Bank of South Carolina (the "Bank or Security Federal") and its wholly owned subsidiary Security Financial Services Corporation. The principal business activity of the service corporation is real estate sales and development. In consolidation, all significant intercompany items and transactions have been eliminated. 3. Acquisition On October 21, 1993, the Bank acquired certain assets and certain deposits and other liabilities of four branch offices of NationsBank of South Carolina, NA (the "branches"). In connection with the purchase, the Bank paid a deposit premium of approximately $4.4 million. The Bank accounted for the acquisition under the purchase method of accounting. The purchase method of accounting resulted in the adjustment of the assets and the liabilities acquired based upon their fair market values on the date of acquisition. The Bank's consolidated statements of income include the operating results of the acquired branches. At October 31, 1993, the respective branch locations had total assets of $22.0 million and deposits and other liabilities of $61.1 million. - 7 -
Security Federal Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 4. Investments and Mortgage-backed Securities, Held to Maturity The amortized cost, gross unrealized gains, gross unrealized losses and market values of investment securities held to maturity are as follows: September 30, 1995 Gross Gross AmortizedUnrealizedUnre alized Market Cost Gains Losses Value U S Government and agency obligations 36,288,675 300 571,400 35,717,575 Mortgage-backed securities 1,605,455 31,924 9,633 1,627,746 Marc h 31, 1995 Gross Gross AmortizedUnrealizedUnre alized Market Cost Gains Losses Value U S Government and agency obligations 36,885,640 0 1,516,407 35,369,233 Mortgage-backed securities 1,710,605 18,979 18,179 1,711,405 5. Investments and Mortgage-backed Securities, Available for Sale The amortized cost, gross unrealized gains, gross unrealized losses and market values of investment securities available for sale are as follows: September 30, 1995 Gross Gross AmortizedUnrealizedUnre alized Market Cost Gains Losses Value U S Government and agency obligations 4,007,297 0 25,169 3,982,128 Mortgage-backed securities 0 0 0 0 Marc h 31, 1995 Gross Gross AmortizedUnrealizedUnre alized Market Cost Gains Losses Value U S Government and agency obligations 4,013,080 0 82,454 3,930,626 Mortgage-backed securities 0 0 0 0
-8-
Security Federal Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 6. Loans Receibable, Net Loans receivable, net at September 30, 1995, consisted of the following: Loans held for sale: Loans held for sale were $424,833 and $776,631 at September 30, 1995 and March 31, 1995 respectively. Loans held for investment: September 30, 1995 March 31, 1995 Residential real estate 64,558,172 66,226,289 Consumer 44,135,169 44,089,104 Commercial real estate 12,228,890 13,007,516 Commercial business 34,501,286 29,718,456 155,423,517 153,041,365 Less: Allowance for loan loss 2,085,372 1,955,119 Loans in process 731,754 2,419,433 Deferred loan fees 448,594 466,250 3,265,720 4,840,802 152,157,797 148,200,563 The following is a reconciliation of the allowance for possible loan losses: September 30, 1995 Beginning balance 1,955,119 Provision 150,000 Charge-offs (28,754) Recoveries 9,007 Ending balance 2,085,372 7. Deposits A summary of deposit accounts by type with weighted average rates are as follows: September 30, 1995 March 31, 1995 Balance Rate Balance Rate Demand Accounts: Now 39,169,157 1.36% 41,211,492 1.40% Money Market 14,358,882 3.32% 16,776,207 3.27% Regular Savings 14,956,850 2.63% 14,491,809 2.61% Total demand accounts 68,484,889 2.05% 72,479,508 2.07% Certificate Accounts: 0 - 4.99% 6,928,562 44,023,933 5.00 - 6.99% 88,057,416 48,182,486 7.00 - 8.99% 852,229 1,588,710 Total certificates of deposit 95,838,207 5.83% 93,795,129 5.17% Total deposit accounts 164,323,096 4.27% 166,274,637 3.82%
-9-
Security Federal Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 8. Federal Home Loan Bank Advances Federal Home Loan Bank Advances are summarized by year of maturity and weighted average interest rate in the table below: September 30, 1995 March 31, 1995 Balance Rate Balance Rate Fiscal Year Due 1996 12,876,000 6.24% 19,951,000 6.40% 1997 10,189,000 6.32% 414,000 8.45% 1998 3,452,000 6.60% 3,452,000 6.60% 1999 490,000 8.65% 490,000 8.65% 2000 and thereafter 1,708,000 8.58% 1,726,000 8.58% 28,715,000 6.50% 26,033,000 6.65% 9. Regulatory Matters The following table reconciles the Bank's stockholders' equity to its various regulatory capital positions: (dollars in thousands) September 30, 1995 March 31, 1995 Bank's Stockholders' equity 14,351 13,981 Unrealized loss on available for sale securities, net of tax 16 51 Reduction for nonqualifying assets (790) (1,119) Reduction for goodwill and other intangibles (3,146) (3,376) Tangible capital 10,431 9,537 Qualifying core deposits and intangible assets 1,240 1,361 Core capital 11,671 10,898 Supplemental capital 1,768 1,756 Risk-based capital 13,439 12,654 The following table compares the Bank's capital levels relative to the requirements applicable under FIRREA at September 30, 1995. (dollars in thousands) Amount Percent Actual Excess Required Required Amount Percent Excess Percent Tangible capital 3,133 1.5% 10,431 4.99% 7,298 3.49% Core capital 6,302 3.0% 11,671 5.56% 5,369 2.56% Risk-based capital 11,316 8.0% 13,439 9.50% 2,123 1.50%
-10- Security Federal Corporation and Subsidiary MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Recent Developments Congress currently has various proposals or bills they are evaluating concerning the premium differential between BIF and SAIF funds in the FDIC. Commercial banks who primarily have BIF insured deposits are currently paying approximately nineteen cents per $100 of deposits less than thrifts, including Security Federal, who primarily hold SAIF insured deposits. The proposals call for a one-time assessment of approximately 85 to 90 basis points per $100 of SAIF deposits. Both funds would then, going forward, have the same, lower deposit premiums. If this should become law, Security Federal would incur a one-time charge of approximately $600,000 if the expense were to be tax deductible. Future FDIC premium expense would then be reduced in future periods. Management anticipates the Bank, after consideration of the one-time assessment, would continue to exceed all regulatory minimum capital levels. No assurance can be given as to whether the proposed legislation will be passed, or, if passed its final form. In October 1995, Security Federal received permission from the Office of Thrift Supervision to open a full service banking facility at the Wal*Mart Superstore on Whiskey Road in Aiken, SC. The branch is expected to open in February 1996. Changes in Financial Condition Total assets of the Company increased $3.3 million or 1.6% during the six months ended September 30, 1995, primarily due to an increase of $4.0 million in loans held for investment. Cash and cash equivalents increased $642,931, while investments and mortgage-backed securities decreased by $650,613 during the six month period. Federal Home Loan Bank stock increased 4.0% during the six months ended September 30, 1995, due to an increase in the required stock amount caused by an increase in FHLB advances. Real estate acquired through foreclosure decreased by $244,089 mainly due to lot sales in an acquired real estate development. Real estate acquired for development decreased $154,587 during the period due to sales of real estate. Deposits decreased $2.0 million or 1.2% during the six months ended September 30, 1995, while Federal Home Loan Bank advances grew $2.0 million of 10.3% in order to fund the Banks's growth. - 11 - Security Federal Corporation and Subsidiary MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Changes in Financial Condition (continued) The Board of Directors declared the eighteenth and nineteenth consecutive quarterly dividends of $.05 per share in May and August 1995 respectively, which totalled $40,918. Unrealized net losses on securities available for sale decreased by $35,540 during the six months ended September 30, 1995. Net income for the six month period was $316,674. These items combined to increase the Company's stockholders' equity by $311,296 or 2.2% during the six months ended September 30, 1995. Book value per share stood at $36.17 at September 30, 1995 compared to $35.40 at March 31, 1995. Liquidity and Capital Resources In accordance with the Office of Thrift Supervision regulations, the Bank is required to maintain a liquidity ratio at specified levels which are subject to change. Currently, a minimum of 5.0% of the combined total of deposits and certain borrowings must be maintained in the form of cash or eligible investments. During the six months ended September 30, 1995, Security Federal maintained an average liquidity of 6.26% compared to 8.57% for the same period in 1994. This decrease is due to the increase in loans held for investment. The Bank's current liquidity is in line with management's objectives and deemed adequate to meet requirements of normal operations, potential deposit outflows and loan demand while still allowing for optimal investment of funds and return on assets. Loan repayments and maturities of investments are a significant source of funds to the Bank, whereas loan disbursements are a primary use of Security Federal's funds. During the six months ended September 30, 1995, loan disbursements exceeded loan repayments resulting in a $3.6 million or 2.4% increase in total net loans receivable. Deposits and other borrowings are also an important source of funds for the Bank. During the six months period ended September 30, 1995, deposits decreased $2.7 million while Federal Home Loan Bank advances increased $2.0 million. At September 30, 1995, Security Federal had $79 million of certificates of deposit coming due within one year. Based on previous experience, a major portion of these certificates will be redeposited. Capital resources at September 30, 1995, are sufficient to meet outstanding mortgage loan commitments of $22,300 and unused lines of credit of $25.8 million. Management believes that the Bank's short-term and long-term liquidity needs will continue to be supported by the Bank's deposit base and borrowing capacity. - 12 - Security Federal Corporation and Subsidiary MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Accounting and Reporting Changes FASB Statement 107, "Disclosure about Fair Value Instruments" became effective for the Bank for the fiscal year ending March 31, 1996. FASB No. 107 will require the Bank to disclose the fair value of financial instruments. In May 1993, the FASB issued Statement No. 114 "Accounting by Creditors for Impairment of a Loan" which became effective for the Bank beginning April 1, 1995. This statement requires a lender to consider a loan to be impaired if the lender believes it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan. If a loan is impaired, the lender will be required to record a loan valuation allowance equal to the present value of the estimated future cash flows discounted at the loan's effective rate. This accounting change will significantly change the troubled debt restructuring accounting by lenders presently allowed under FASB Statement 15. Adoption of this statement did not have a material adverse effect on the financial condition or results of operation of the Bank. - 13 - Security Federal Corporation and Subsidiary MANAGEMENTS' DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Accounting and Reporting Changes (continued) In October 1994, the FASB issued SFAS 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments." The Statement requires disclosures about amounts, nature, and terms of derivative financial instruments. The statement amends SFAS 105 "Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments." The statement is effective for the Association for the fiscal year ending March 31, 1996. In light of the Bank's current portfolio, this statement is not expected to have a significant impact on the Bank. In May, 1995, the FASB issued Statement 122, "Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No. 65." The Statement requires that rights to service mortgage loans for others be recognized as a separate asset, however those rights are acquired. The Statement also requires that an entity assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights. The Statement applies prospectively in the Bank's fiscal year ended March 31, 1997 to transactions in which an enterprise sells or securitizes mortgage loans with servicing rights retained and to impairment evaluations of all amounts capitalized as mortgage servicing rights, including those purchased prior to adoption of the Statement. Based on the Bank's current mortgage banking activities, this Statement is not expected to have a material impact on the Bank. - 14 - Security Federal Corporation and Subsidiary MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Impact of Inflation and Changing Prices The consolidated financial statements, related notes, and other financial information presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, substantially all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than does the effect of inflation. RESULTS OF OPERATIONS Net Income Security Federal's net income decreased $94,454 or 34.4% and $225,296 or 41.6% for the three months and six months ended September 30, 1995, compared to the same periods in 1994. The decreases are attributable to decreases in net interest income and other income and was offset partially in the quarter period only by a decrease in general and administrative expenses. Net Interest Income Net interest income decreased by $169,850 or 8.7% during the three months and $187,025 or 5% for the six months ended September 30, 1995, compared to the same periods last year primarily due to increases in interest paid on certificates of deposit and FHLB advances, offset in part by an increase in interest earned on loans receivable. Total interest income increased $441,963 or 12.6% and $980,320 or 14.4% for the three and six months ended September 30,1995, compared to the same periods in 1994. Interest income on loans increased $500,696 or 17.4% and $1,106,179 or 20% during the three and six month periods due to higher yields and larger loan balances outstanding. Interest income on investments decreased $64,727 and $111,757 or about 10% due to maturities of investments with no new additional purchases of securities. - 15 - Security Federal Corporation and Subsidiary MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Net Interest Income (continued) For the three and six month periods, total interest expense increased $611,813 or 39% and $1,167,345 or 37.8% over 1994. Interest on NOW, money market, and regular savings accounts decreased by $33,869 for the three months and $52,671 for the six months ended September 30, 1995. Interest expense on certificates of deposit increased by $487,016 or 55% and $806,851 or 43.8% in 1995 compared to the three and six month periods in 1994 due to increased rates paid on renewing and new certificates. Interest expense on FHLB advances increased by $158,666 or 53% and $413,165 or 85.7% due to increases in average advances outstanding and interest rates paid on advances during the three and six months ended September 30, 1995. Provision for Loan Losses Security Federal's provision for loan losses remained the same at $75,000 for the quarter and $150,000 for the six months ended September 30, 1995 compared to the same time frames in 1994. During the six months ended September 30, 1995, the Bank had net charge-offs of $19,747 compared to $21,813 one year ago. The Bank stops accruing interest on any loan that is 60 or more days delinquent. Loans delinquent 90 or more days at September 30, 1995 were .31% of loans outstanding compared to .51% at March 31, 1995. The allowance for loan losses as a percentage of total loans outstanding was 1.35% at September 30, 1995, compared to 1.30% at March 31, 1995. The Aiken area's largest employer, the Savannah River Site, has begun reducing it work force which has led to some uncertainties for the local economy and slower real estate sales. Future additions to the Bank's allowance for loan losses are dependent on the performance of the Bank's loan portfolio, the economy, changes in real estate values, and interest rates. There can be no assurance that additions to the allowance will not be required in future periods. Management continues to monitor its loan portfolio for the impact of local economic changes. Other Income Total other income decreased $99,975 or 26.1% and $186,875 or 23.1% for the three and six months ended September 30, 1995, compared to the same periods last year primarily due to decreases in the gain on sale of loans. The Bank's gain on sale of loans decreased $62,880 or 69.6% and $122,993 or 73.3% during these periods. This is due to a decrease in volume of originations in fixed rate loans, which are generally sold. - 16 - Security Federal Corporation and Subsidiary MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Other Income (continued) Service fees on deposit accounts decreased by $10,104 or 7.0% and $22,878 or 8.1% during the three and six months ended September 30, 1995. Other income, which encompasses commissions on credit life insurance, safe deposit box rental income, and miscellaneous fees, decreased by $21,934 or 58.9% and $45,222 or 36% during the three and six month periods in 1995 compared to the periods ended September 30, 1994. General and Administrative Expenses For the three months ended September 30, 1995, compared to the same period in 1994, general and administrative expenses decreased $84,872 or 4.7%. The reduction was caused by a $46,977 or 5.2% decrease in compensation and benefits expense, a $12,347 decrease in occupancy expense, a $15,363 reduction in FDIC premiums, a $41,400 decrease in other expenses which consist of data processing, legal, loan and real estate owned expenses, and miscellaneous expenses, offset partially by an increase of $27,302 in advertising expense to promote new checking account products. For the six months ended September 30, 1995, compared to the same period a year ago, general and administrative expenses increased slightly by $17,491 or .50%. The increase was due to increases in data processing and legal expense in the other expense category, and increases in advertising and FDIC premiums, offset in part by decreases in compensation and employee benefits, occupancy, and depreciation and maintenance of equipment expenses. Amortization of intangible expense arising from branch acquisitions in October 1993 were $116,310 for the quarter and $232,620 for six months ended September 30, 1994 and 1995. The balance of goodwill stood at $1.9 million and the core deposit intangible at $1.3 million at September 30, 1995. - 17 - SECURITY FEDERAL CORPORATION AND SUBSIDIARY OTHER INFORMATION Item 1 Legal Proceedings The Corporation is not engaged in any legal proceedings of a material nature at the present time. From time to time, it is a party to legal proceedings in the ordinary course of business wherein it enforces its security interest in mortgage loans it has made. Item 2 Changes in Securities Not applicable. Item 3 Defaults upon Senior Securities Not applicable. Item 4 Submission of Matters to a Vote of Security Holders None. Item 5 Other Information None. Item 6 Exhibits and Reports on Form 8-K None. - 18 - Security Federal Corporation and Subsidiary SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to the signed on its behalf by the undersigned thereunto duly authorized. SECURITY FEDERAL CORPORATION Date: By: Roy G. Lindburg Treasurer/CFO Duly authorized representative - 19 - EX-27 2
9 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10QSB FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS MAR-31-1995 SEP-30-1995 6,340,322 0 0 0 3,982,128 37,894,130 0 152,582,630 0 213,219,827 164,323,096 22,651,000 4,707,394 6,064,000 4,092 0 0 14,800,766 213,218,827 6,639,566 1,117,887 41,753 7,799,206 3,366,709 895,559 3,536,938 150,000 0 3,549,893 458,109 0 0 0 316,674 .77 0 0 1,173 498 0 0 1,955,119 27,754 9,007 2,085,372 2,085,372 0 0
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