-----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, E0iXjRQdSHg6uSfckNlAmF6GxMfpO/24yEZZM78UIOIC/jfifI/yb7wojqP2XI2K cJildzXCiz3LXAIvGvJ4Aw== 0000818677-96-000010.txt : 19960816 0000818677-96-000010.hdr.sgml : 19960816 ACCESSION NUMBER: 0000818677-96-000010 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960815 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: 96615565 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 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 June 30, 1996 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 June 30, 1996 $0.01 Par Value 413,184 INDEX SECURITY FEDERAL CORPORATION PART I - FINANCIAL INFORMATION (UNAUDITED) PAGE Item 1. Financial Statements (Unaudited): Consolidated Balance Sheets at June 30, 1996 and March 31, 1996 2 Consolidated Statements of Income for the Three months ended June 30, 1996 and 19953-4 Consolidated Statement of Shareholders' Equity 5 Consolidated Statements of Cash Flows 6-7 Notes to Consolidated Financial Statements 8-11 Item 2. Management's Discussion and Analysis Financial Condition and Results of Operations 12-15 PART II. OTHER INFORMATION Other Information 16 Signatures 17 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.
Security Federal Corporation and Subsidiary Consolidated Balance Sheets (unaudited) June 30,1996March 31, 1996 Assets Cash and cash equivalents $ 7,478,76 $ 9,823,66 5 4 Investments and mortgage-backed securities: Available for sale:(Amortized cost of 30,362,9 30,972,4 $30,607,206 09 06 at June 30, 1996 $31,170,866 at March 31, 1996) Held to maturity: (Fair market value of 14,642,3 10,040,7 $14,271,017 92 24 at June 30, 1996 and $9,913,951 at March 31, 1996) Loans receivable net: Held for sale 344,916 612,919 Held for investment: (Net of 151,091, 151,526, allowanceof$1,773,633 752 807 at June 30, 1996 and $1,758,688 at March 31, 1996) 151,436, 152,139, 668 726 Accrued interest receivable: Loans 898,284 882,274 Mortgage-backed securities 38,679 23,799 Investments 521,486 450,952 Premises and equipment, net 3,071,11 3,187,18 4 5 Federal Home Loan Bank stock, at cost 1,207,25 1,233,20 0 0 Real estate acquired in settlement of loans 600,019 718,763 Real estate held for development and sale 1,255,72 1,389,57 5 9 Other assets 3,701,39 3,953,85 7 9 Total Assets 215,214, 214,816, 688 131 Liabilities and Stockholders' Equity Liabilities: Deposit accounts $ 170,901, $ 172,374, 385 727 Advances from Federal Home Loan Bank 23,521,0 22,864,0 00 00 Other borrowed money 350,000 350,000 Advance payments by borrowers for taxes and insurance 372,337 385,708 Other liabilities 4,406,34 3,407,47 3 8 Total liabilities 199,551, 199,381, 065 913 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, 413,184 4,132 4,132 at March 31 and June 30, 1996 Additional paid-in capital 3,919,26 3,919,26 2 2 Unrealized net loss on securities (151,562 (123,125 available for sale, net of income taxes ) ) Retained earnings, substantially 11,891,7 11,633,9 restricted 91 49 Total stockholders' equity 15,663,6 15,434,2 23 18 Total liabilities and stockholders' equity $ 215,214, $ 214,816, 688 131 See accompanying notes to consolidated financial statements.
Security Federal Corporation and Subsidiary Consolidated Statements of Income (Unaudited) Three Months Ended June 30, 1996 1995 Interest Income: Loans $ 3,375,487 $ 3,258,689 Mortgage-backed securities 25,089 28,510 Investment securities 583,736 532,989 Other 20,332 20,238 Total interest income 4,004,644 3,840,426 Interest expense: NOW and money market accounts 232,102 275,668 Passbook accounts 87,679 94,663 Certificate accounts 1,403,452 1,274,240 Advances and other borrowed money 348,127 437,665 Total interest expense 2,071,360 2,082,236 Net interest income 1,933,284 1,758,190 Provision for loan losses 75,000 75,000 Net interest income after provision for loan losses 1,858,284 1,683,190 Other income: Gain on sale of loans 30,091 17,407 Loan servicing fees 83,126 77,692 Service fees on deposit accounts 185,637 126,250 Income from real estate 25,905 51,425 operations Other 36,640 64,951 Total other income 361,399 337,725 General and administrative expenses: Salaries and employee benefits 822,667 893,150 Occupancy 96,016 95,206 Advertising 34,819 27,728 Depreciation and maintenance of 160,366 165,679 equipment FDIC insurance premiums 92,842 109,029 Amortization of intangibles 116,310 116,310 Other 479,512 422,098 Total general and 1,802,532 1,829,200 administrative expenses Income before income taxes 417,151 191,715 Provision for income taxes 138,651 54,866 Net income $ 278,500 $ 136,847 Net income per common share $ 0.67 $ 0.33 Cash dividend on common stock $ 0.05 $ 0.05 Weighted average shares outstanding $ 413,184 $ 409,246
Security Federal Corporation and Subsidiary Consolidated Statement of Shareholders' Equity For the three months ended June 30, 1996 (unaudited) Unrealiz ed Net Loss Addition on al Securiti es Common Paid-In Availabl Retained e Stock Capital for Sale Earnings Total Beginning balance March 31, $ $ $ $ $ 1996 4,132 3,919,26 (123,125 11,633,9 15,434,2 2 ) 49 18 Net income ----- ----- ----- 278,500 278,500 Cash dividend ----- ----- ----- (20,658) (20,658) Exercise of stock options ----- ----- ----- ----- ----- Change in unrealized net loss on securities available for ----- ----- (28,437) ----- (28,437) sale Ending balance June 30, 1996 $ $ $ $ $ 4,132 3,919,26 (151,562 11,891,7 15,663,6 2 ) 91 23
See accompanying notes to consolidated financial statements.
Security Federal Corporation and Subsidiary Consolidated Statement of Cash Flows (unaudited) Three Months Ended June 30, 1996 1995 Cash flows from operating activities: Net Income $ 278,500 $ 136,847 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 152,597 151,918 Amortization of purchase accounting 116,310 116,310 adjustments Discount accretion and premium 50,974 52,023 amortization Provisions for losses on loans and real 75,000 75,000 estate Gain on sale of loans (30,091) (17,407) Gain on sale of real estate (8,413) (25,950) Amortization of deferred fees on loans (36,895) (19,113) Proceeds from sale of loans held for 4,327,113 1,589,674 sale Origination of loans for sale (4,029,01 (1,194,50 9) 5) Increase in accrued interest receivable: Loans (16,010) (18,059) Mortgage-backed securities (14,880) (179) Investments (70,534) (78,030) Increase (decrease) in advance payments (13,371) 98,835 by borrowers Other, net 1,141,427 583,414 Net cash provided by operating activities $ 1,922,708 $ 1,450,778 Cash flows from investing activities Principal repayments on mortgage-backed 185,010 27,872 securities Purchase of investment securities (4,477,93 0 0) Proceeds from maturities of investment 3,000,000 0 securities Purchase of FHLB Stock 0 (94,800) Redemption of FHLB Stock 25,950 0 (Increase) decrease in loans to customers (2,399,11 (3,278,53 2) 2) Investment in real estate held for (51,429) (104,632) development Proceeds from sale of real estate held for 211,188 187,750 development Proceeds from sale of real estate acquired 112,242 0 through foreclosure Purchase of premises and equipment (36,526) (20,763) Net cash used by investing activities $ (3,430,60 $ (3,283,10 7) 5)
(Continued)
Security Federal Corporation and Subsidiary Consolidated Statement of Cash Flows (unaudited) Three Months Ended June 30, 1996 1995 Cash flows from financing activities: Increase(decrease) in deposit accounts $ (1,473,34 $ (403,877) 2) Proceeds from FHLB advances 20,725,00 41,300,00 0 0 Repayment of FHLB advances (20,068,0 (37,435,0 00) 00) Dividends to share holders (20,658) (20,456) Exercise of stock options 0 0 Net cash provided by financing activities $ (837,000) $ 3,440,667 Net increase in cash and cash equivalents (2,344,89 1,608,340 9) Cash and cash equivalents at beginning of 9,823,664 5,697,391 period Cash and cash equivalents at end of period $ 7,478,765 $ 5,697,391 Supplemental disclosure of cash flow information: Cash paid during the period for : Interest $ 1,862,350 $ 1,630,524 Income taxes $ 58,281 $ 0 Additions to real estate acquired through foreclosure $ 10,990 $ 193,049 Change in unrealized net gain/(loss) on securities available for sale, net of taxes $ 28,437 $ 24,904 Securitization of loans receivable $ 2,796,062 $ 0
See accompanying notes to consolidated financial statements. 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 three month period ended June 30, 1996 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") and its wholly owned subsidiary Security Financial Services Corporation ("SFSC"). SFSC engages primarily in investment brokerage services. Also included in consolidation are two real estate partnerships, which the Company purchased from SFSC in December 1995 at fair market value. 3. Securities In November 1995, the Financial Accounting Standards Board (FASB) issued a Special Report, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities," which allowed entities a one-time reclassification of their investment securities without tainting their portfolio. This was to be done before December 31, 1995. In accordance with this Special Report, the Company reclassified $27,900,000 of its held for investment portfolio to its available for sale portfolio.
Investments and Mortgage-backed Securities, Held to Maturity The amortized cost, gross unrealized gains, gross unrealized losses and market values of investment and mortgage-backed securities held to maturity are as follows: June 30, 1996 Gross Gross Amortize Unrealize Unreali Market d Cost d Gains zed Value Losses US Government and agency $ $ $ $ obligations 9,490,69 10,155 179,549 9,321,3 5 01 Mortgage-backed securities 5,151,69 19,941 221,922 4,949,7 7 16 Total $ $ $ $ 14,642,3 30,096 401,471 14,271, 92 017
Security Federal Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) Investments and Mortgage-backed Securities, Held to Maturity (continued) March 31, 1996 Gross Gross Amortize Unreal Unreali Market d ized zed Value Cost Gains Losses US Government and agency $ $ $ $ obligations 7,498,61 7,030 151,338 7,354,3 6 08 Mortgage-backed securities 2,542,10 32,651 15,116 2,559,6 8 43 Total $ $ $ $ 10,040,7 39,681 166,454 9,913,9 24 51 Investments and Mortgage-backed Securities, Available for Sale The amortized cost, gross unrealized gains, gross unrealized losses and market values of investment and mortgage-backed securities available for sale are as follows: June 30, 1996 Gross Gross Amortize Unreal Unreali Market d ized zed Value Cost Gains Losses US Government and agency $ $ $ $ obligations 30,607,2 719 245,016 30,362, 06 909 Mortgage-backed securities 0 0 0 0 Total $ $ $ $ 30,607,2 719 245,016 30,362, 06 909 March 31, 1996 Gross Gross Amortize Unreal Unreali Market d ized zed Value Cost Gains Losses US Government and agency $ $ $ $ obligations 31,170,8 1,782 200,242 30,972,4 66 06 Mortgage-backed securities 0 0 0 0 Total $ $ $ $ 31,170,8 1,782 200,242 30,972,4 66 06
Security Federal Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 4. Loans Receivable, Net Loans receivable, net at June 30, 1996, consisted of the following: Loans held for sale: Loans held for sale were $344,916 and $612,919 at June 30, 1996 and March 31, 1996 respectively. Loans held for investment June 30, 1996 March 31, 1996 Residential real estate $ 55,986,041 $ 59,951,018 Consumer 45,881,585 44,810,133 Commercial real estate 10,870,289 10,629,652 Commercial business 41,581,053 38,764,035 $154,318,968 $ 154,154,838 Less: Allowance for possible loan loss$1,773,633 $ 1,758,688 Loans in process 1,087,593 474,575 Deferred loan fees 365,990 394,768 3,227,216 2,628,031 $151,091,752 $151,526,807 The following is a reconciliation of the allowance for possible loan losses: June 30, 1996 Beginning balance $ 1,758,688 Provision 75,000 Charge-offs (63,190) Recoveries 3,135 Ending balance $ 1,773,633 5. Deposits A summary of deposit accounts by type with weighted average rates are as follows: June 30, 1996 March 31, 1996 Demand Accounts:Balance RateBalance Rate Checking $41,595,8621.31% $42,251,949 1.35% Money Market 13,258,638 2.81% 13,769,693 2.81% Regular Savings 14,092,260 2.52% 13,615,436 2.50% Total demand accounts $68,946,7601.84% $69,637,078 1.86% Certificate Accounts: 0 - 4.99% $5,063,326 $5,116,366 5.00 - 6.99% 96,329,255 97,046,823 7.00 - 8.99% 562,044 574,460 Total certificate accounts101,954,6255.55% 102,737,649 5.65% Total deposit account $170,901,385 4.02%$172,374,727 4.12%
Security Federal Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 6. 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: Fiscal Year Due June 30, 1996 March 31, 1996 Balance Rate Balance Rate 1997 $10,414,0005.79% $ 17,214,000 5.94% 1998 10,927,000 5.80% 3,452,000 6.60% 1999 490,0008.65% 490,000 8.65% 2000 528,0008.70% 528,000 8.70% thereafter 1,162,0008.55% 1,180,000 8.53% $23,521,0006.07% $ 22,864,000 6.29% 7. Regulatory Matters The following table reconciles the Bank's Stockholders' equity to its various regulatory capital positions: (Dollars in thousands) June 30, 1996 March 31, 1996 Bank's Stockholders' Equity$ 15,266 $15,008 Unrealized loss on available for sale securities, net of tax 151 123 Reduction for nonqualifying assets 0 Reduction for goodwill and other intangibles (2,800) (2,916) Tangible capital 12,617 12,215 Qualifying core deposits and intangible assets 1,074 1,120 Core capital 13,691 13,335 Supplemental capital 1,673 1,757 Risk-based capital $ 15,364 $15,092 The following table compares the Bank's capital levels relative to the applicable regulatory requirements at June 30, 1996. (Dollars in thousands) Amount Percen Actual Exces Requir t Amount Percen Exces s ed Requir t s Perce ed nt Tangible $ $ $ capital 3,174 1.5% 12,617 5.96% 9,443 4.46% Core capital 6,381 3.0% 13,691 6.44% 7,310 3.44% Risk-based capital 10,708 8.0% 15,364 11.48% 4,656 3.48%
Security Federal Corporation and Subsidiary Management's Discussion and Analysis of Results of Operations and Financial Condition Recent Developments The United States Congress is currently proposing a plan under which the Bank Insurance Fund ("BIF"), which is the primary deposit insurance fund for commercial banks, would be merged with the Savings Association Insurance Fund ("SAIF"), which is the primary insurance fund for thrifts and savings banks. In connection with this merger, all members of the SAIF fund would be required to pay a one-time assessment of between 80 and 90 basis points per every $100 of SAIF insured deposit balances as of March 31, 1995. Based on the Bank's deposit balances as of March 31, 1995, the one-time assessment would be approximately $950,000 before tax and approximately $600,000 after tax, if that expense would be tax deductible. In exchange for this one-time assessment, qualifying members of the SAIF fund would receive a reduction in their annual premiums. The measure has not yet passed Congress, and the final provisions and payment date are as yet unknown. Changes in Financial Condition Total assets of the Company increased $398,557 or 0.2% during the three months ended June 30, 1996, primarily due to an increase of $4.0 million in investments and mortgage-backed securities offset partially by a decrease of $2.3 million in cash and cash equivalents and a $703,058 decrease in total net loans receivable. The increase in investments and mortgage backed securities was caused primarily by a $2.8 million securitization of mortgage loans. Real estate acquired through foreclosure decreased $118,744 due to sales of real estate and real estate acquired for development decreased $133,854 during the period also due to sales of real estate. Deposits decreased $1.5 million during the June 1996 quarter, while Federal Home Loan Bank advances grew $657,000 or 2.9%. The Board of Directors declared the twenty-second consecutive quarterly dividend of $.05 per share in May 1996, which totaled $20,658. Unrealized net losses on securities available for sale increased by $28,437 during the three months ended June 30, 1996. Net income for the quarter was $278,500. These items combined to increase the Company's stockholders' equity by $229,405 or 1.5% during the three months ended June 30, 1996. Book value per share stood at $37.91 compared to $37.35 at March 31, 1996. Liquidity and Capital Resources In accordance with 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 three months ended June 30, 1996, Security Federal maintained an average liquidity of 6.64% compared to 6.38% for the same period in 1995. The Bank's current liquidity level 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 three months ended June 30, 1996, loan repayments and securitizations exceeded loan disbursements resulting in a $703,058 or 0.5% decrease in total net loans receivable. Security Federal Corporation and Subsidiary Management's Discussion and Analysis of Results of Operations and Financial Condition Liquidity and Capital Resources (Continued) Deposits and other borrowings are also an important source of funds for the Bank. During the three month period ended June 30, 1996, deposits decreased $1.5 million while Federal Home Loan Bank advances increased $657,000. At June 30, 1996, Security Federal had $83.2 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 June 30, 1996 are sufficient to meet outstanding mortgage loan commitments of $277,195 and unused lines of credit of $23.0 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. Accounting and Reporting Changes In March, 1995 the FASB issued SFAS 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of." This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Statement is effective for the Bank in fiscal year ending March 31, 1997. Based on the Bank's present assets, 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 securitized 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, the adoption of this Statement did not have a material impact on the Bank. In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock Based Compensation". This statement is effective for financial statements issued for fiscal years beginning after December 15, 1995. SFAS No. 123 provides guidance on the valuation of fixed and performance stock compensation plans. The statement encourages, but does not require entities to account for stock compensation awards based on the estimated fair value of the award at the date of the grant. The statement permits continuation of current accounting practices which generally do not result in charges to expense for Stock Options. However, footnote disclosure of the effects on the financial statements as if the options had been expensed is required. The statement will have no material impact on future operating results. In June, 1996, the FASB issued SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. The statement will become effective January 1, 1997. The statement uses a "financial components" approach that focuses on control to determine the proper accounting for financial asset transfers. Under that approach, after financial assets are transferred, an entity would recognize on the balance sheet all assets is controls and liabilities it has incurred. It would remove from the balance sheet those assets it no longer controls and liabilities it has satisfied. The Bank does not anticipate that adoption of this standard will have a material effect on the Bank's financial statement in 1997. 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 increased $141,653 to $278,500 for the three months ended June 30, 1996, compared to the same period in 1995 primarily due to an increase in net interest income and a slight increase in other income combined with a decrease in general and administrative expenses. Net Interest Income Net interest income increased by $175,094 or 10.0% during the three months ended June 30, 1996, compared to the same period in 1995 due primarily to slightly lower rates paid on certificates of deposit and decreases in volume and rates on Federal Home Loan Bank advances, combined with increased yields in investments and net loans outstanding. Total interest income increased $164,218 or 4.3% during the three months ended June 30, 1996. Interest income on loans increased $116,798 or 3.6% during the period while interest income on investment, mortgage-backed, and other securities increased $47,420 or 8.2%. Total interest expense decreased $10,876 or 0.5% during the three month period ended June 30, 1996. Interest expense on deposit accounts increased by $78,662 due to higher average outstanding balances in deposits during the June 1996 quarter. Interest expense on Federal Home Loan Bank advances and other borrowed money decreased by $89,538 due to a decrease in advance balances and a decrease in interest rates paid on advances. Provision for Loan Losses Security Federal's provision for loan losses remained the same for the June quarter in both 1996 and 1995 at $75,000. During the three months ended June 30, 1996, net charge-offs were $60,055 compared to $908 for the three months ended June 30, 1995. The Bank stops accruing interest on any loan that is 60 or more days delinquent. Non-accrual loans at June 30, 1996 were $2.8 million versus $2.6 million at March 31, 1996. The allowance for loan losses as a percentage of total loans was 1.16% at June 30, 1996 and 1.14% at March 31, 1996. The Aiken area's largest employer, the Savannah River Site, had a significant downsizing of its 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. Allowance for loan losses are subject to periodic evaluations by various regulatory authorities and may be subject to adjustments based upon the information that is available to them at the time of their examinations. 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. Security Federal Corporation and Subsidiary Management's Discussion and Analysis of Results of Operations and Financial Condition Other Income Total other income increased $23,674 or 7.0% in the three months ended June 30, 1996 compared to the June 1995 period primarily due to an increase in service fees on deposit accounts. During the June 1996 quarter, the Bank's gain on sale of loans increased to $30,091 from $17,407 for the same period in 1995, for an increase of $12,684. Service fees on deposit accounts increased by $59,387 or 47.0% during the three months ended June 30, 1996 compared to the same period last year. This increase is due to an increase in the number of commercial demand deposits and the introduction of a new consumer checking account package in August 1995. Income from real estate operations decreased $25,520 due to slower lot sales. Other income, which encompasses commissions on credit life insurance, safe deposit box rental income, and miscellaneous fees, decreased $28,311. General and Administrative Expenses General and administrative expenses decreased $26,668 or 13.6% due mainly to decreases in compensation and benefits and FDIC premiums, offset partially by an increase in other miscellaneous expenses during the three month period ended June 30, 1996 compared to the same period last year. Compensation and employee benefits decreased $70,483 or 7.9% during the three months ended June 30, 1996, compared to the same period in 1995 due to employee attrition and a restructuring of officer positions in September 1995. Advertising expense increased $7,091 during the period. Depreciation and maintenance of equipment decreased $5,313 during the June 1996 quarter compared to 1995, while FDIC premiums on deposits decreased $16,187. The amortization of intangibles arising from the October 1993 branch acquisitions were $116,310 in the three months ended June 30, 1995 and 1996. Other expenses, which include legal expense, data processing expense, and stationary and office supplies expense increased by $57,414 during the June 1996 quarter. 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 None Item 4 Submission of Matters to a Vote of Security Holders The election of directors was presented for vote to Shareholders on July 16, 1996. Votes for Harry O. Weeks, Jr. were as follows: 362,070 votes for, 1,330 votes withheld. Votes for Dr. Robert E. Alexander were as follows: 361,970 votes for, 1,430 votes withheld. Votes for William Clyburn were as follows: 360,295 votes for, 3,105 votes withheld. Item 5 Other Information None Item 6 Exhibits and Reports on Form 8-K None 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 EX-27 2
9 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT ON FOMR 10QSB FOR THE FISCAL QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS MAR-31-1996 JUN-30-1996 7,478,765 0 0 0 30,362,909 14,642,392 0 151,436,668 0 215,214,688 170,901,385 23,521,000 4,406,343 5,650,000 4,132,000 0 0 15,663,623 215,214,688 3,375,487 608,825 20,332 4,004,644 1,723,233 348,127 1,933,284 75,000 0 1,802,532 417,151 0 0 0 278,500 .67 0 0 1,173 498 0 0 1,758,688 63,190 3,135 1,773,633 1,773,633 0 0
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