-----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, VEBejALQtZjtPwI7UN9Tbvy3owa4S+mqJekIfHFtBly6xy2qXrgQc08cOoM2310b Xo4BxENCXyNwn3/+lbe6aA== 0000818677-97-000020.txt : 19970501 0000818677-97-000020.hdr.sgml : 19970501 ACCESSION NUMBER: 0000818677-97-000020 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970430 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-16120 FILM NUMBER: 97590470 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/A 1 2 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 December 31, 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 December 31, 1996 $0.01 Par Value 417,164 INDEX SECURITY FEDERAL CORPORATION PART I - FINANCIAL INFORMATION (UNAUDITED) PAGE Item 1. Financial Statements (Unaudited): Consolidated Balance Sheets at December 31, 1996 and March 31, 1996 2 Consolidated Statements of Income for the Three months ended December 31, 1996 and 1995 3-4 Nine months ended December 31, 1996 and 1995 5-6 Consolidated Statement of Shareholders' Equity 7 Consolidated Statements of Cash Flows 8-9 Notes to Consolidated Financial Statements 10-13 Item 2. Management's Discussion and Analysis Financial Condition and Results of Operations 14-18 PART II. OTHER INFORMATION Other Information 19 Signatures 20 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 consolidated financial statements and related notes.
Security Federal Corporation and Subsidiary Consolidated Balance Sheets (Unaudited) December 31, 1996March 31, 1996 Assets Cash and cash equivalents $ 7,513,95 $ 9,823,66 4 4 Investments and mortgage-backed securities: Available for sale: (Amortized cost of 21,959,8 30,972,4 $22,014,096 at December 31, 1996 and 80 06 $31,170,866 at March 31, 1996) Held to maturity: (Fair market value of 12,414,7 10,040,7 $12,259,183 at December 31, 1996 and 02 24 $9,913,951 at March 31, 1996) Loans receivable net: Held for sale 303,926 612,919 Held for investment: (Net of allowance 148,246, 151,526, of $1,744,362 at December 31, 1996 298 807 and $1,758,688 at March 31, 1996) 148,550, 152,139, 224 726 Accrued interest receivable: Loans 923,620 882,274 Mortgage-backed securities 40,477 23,799 Investments 414,231 450,952 Premises and equipment, net 3,479,43 3,187,18 2 5 Federal Home Loan Bank stock, at cost 1,172,70 1,233,20 0 0 Real estate acquired through foreclosure 328,407 718,763 Real estate held for development and sale 1,011,98 1,389,57 5 9 Other assets 3,928,41 3,953,85 3 9 Total Assets 201,738, 214,816, 025 131 Liabilities and Stockholders' Equity Liabilities: Deposit accounts $ 166,692, $ 172,374, 747 727 Advances from Federal Home Loan Bank 15,928,0 22,864,0 00 00 Other borrowed money 0 350,000 Advance payments by borrowers for taxes and insurance 117,904 385,708 Other liabilities 2,940,19 3,407,47 7 8 Total liabilities 185,678, 199,381, 848 913 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, 417164 at December 31, 1996 and 413,184 4,171 4,132 at March 31, 1996 Additional paid-in capital 3,958,60 3,919,26 3 2 Unrealized net loss on securities (33,636) (123,125 available for sale, net of income taxes ) Retained earnings, substantially 12,130,0 11,633,9 restricted 39 49 Total stockholders' equity 16,059,1 15,434,2 77 18 Total liabilities and stockholders' equity $ 201,738, $ 214,816, 025 131 See accompanying notes to consolidated financial statements.
Security Federal Corporation and Subsidiary Consolidated Statements of Income (Unaudited) Three Months Ended December 31, 1996 1995 Interest income: Loans $ 3,417,262 $ 3,459,221 Mortgage-backed securities 34,106 27,098 Investment securities 509,594 522,411 Other 19,558 22,421 Total interest income 3,980,520 4,031,151 Interest expense: NOW and money market accounts 232,417 247,780 Passbook accounts 80,150 82,071 Certificate accounts 1,319,242 1,391,830 Advances and other borrowed money 276,129 473,489 Total interest expense 1,907,938 2,195,170 Net interest income 2,072,582 1,835,981 Provision for loan losses 75,000 30,000 Net interest income after provision for loan losses 1,997,582 1,805,981 Other income: Gain (loss) on sale of REO 18,308 (14,551) Gain on sale of loans 86,711 37,743 Loan servicing fees 83,275 78,519 Service fees on deposit accounts 218,299 161,912 Income (loss) from real estate 29,344 (57,980) operations Other 53,208 75,958 Total other income 489,145 281,601 General and administrative expenses: Salaries and employee benefits 790,850 824,617 Occupancy 102,467 90,680 Advertising 56,644 69,367 Depreciation and maintenance of 154,727 159,286 equipment FDIC insurance premiums 65,558 89,007 FDIC SAIF Assessment 0 0 Amortization of intangibles 116,310 116,310 Other 489,366 372,709 Total general and 1,775,922 1,721,976 administrative expenses
Security Federal Corporation and Subsidiary Consolidated Statements of Income (Unaudited) (Continued) Three Months Ended December 31 1996 1995 Income before income taxes 710,805 365,606 Provision for income taxes 253,907 120,740 Net income $ 456,898 $ 244,866 Net income per common share $ 1.10 $ 0.59 Cash dividend on common stock $ 0.05 $ 0.05 Weighted average shares outstanding $ 415,910 $ 412,071
See accompanying notes to consolidated financial statements.
Security Federal Corporation and Subsidiary Consolidated Statements of Income (Unaudited) Nine Months Ended December 31, 1996 1995 Interest income: Loans $ 10,198,326 $ 10,098,787 Mortgage-backed securities 72,236 83,942 Investment securities 1,691,475 1,583,454 Other 56,530 64,174 Total interest income 12,018,567 11,830,357 Interest expense: NOW and money market accounts 701,856 837,743 Passbook accounts 255,961 273,816 Certificate accounts 4,096,186 3,976,831 Advances and other borrowed money 941,985 1,369,048 Total interest expense 5,995,988 6,457,438 Net interest income 6,022,579 5,372,919 Provision for loan losses 225,000 180,000 Net interest income after provision for loan losses 5,797,579 5,192,919 Other income: Gain (loss) on sale of REO (19,863) (6,119) Gain on sale of loans 161,923 82,590 Loan servicing fees 251,348 232,898 Service fees on deposit accounts 608,547 422,494 Income (loss) from real estate (14,296) 23,010 operations Other 155,216 141,673 Total other income 1,142,875 902,665 General and administrative expenses: Salaries and employee benefits 2,421,701 2,567,144 Occupancy 302,071 276,552 Advertising 147,163 151,051 Depreciation and maintenance of 482,426 491,550 equipment FDIC insurance premiums 223,902 295,611 FDIC SAIF Assessment 705,489 0 Amortization of intangibles 348,930 348,930 Other 1,476,231 1,141,031 Total general and 6,107,913 5,271,869 administrative expenses
Security Federal Corporation and Subsidiary Consolidated Statements of Income (Unaudited) (Continued) Nine Months Ended December 31, 1996 1995 [S] [C] [C] Income before income taxes 832,541 823,715 Provision for income taxes 274,278 262,175 Net income $ 558,263 $ 561,540 Net income per common share $ 1.35 $ 1.37 Cash dividend on common stock $ 0.15 $ 0.15 Weighted average shares outstanding $ 414,099 $ 410,184 [/TABLE] See accompanying notes to consolidated financial statements.
Security Federal Corporation and Subsidiary Consolidated Statement of Shareholders' Equity For the nine months ended December 31 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 11,633,94 15,434,21 2 ) 9 8 Net income ----- ----- ----- 558,263 558,263 Cash dividend ----- ----- ----- (62,173) (62,173) Exercise of stock 39 39,341 ----- ----- 39,380 options Change in unrealized ----- ----- 89,489 ----- 89,489 net loss on securities available for sale Ending balance December 31, 1996 $ $ $ $ $ 4,171 3,958,60 (33,636) 12,130,03 16,059,17 3 9 7
See accompanying notes to consolidated financial statements.
Security Federal Corporation and Subsidiary Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended December 31, 1996 1995 Cash flows from operating activities: Net Income $ 558,263 $ 561,540 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 448,337 446,827 Amortization of purchase accounting 348,930 348,930 adjustments Discount accretion and premium 130,043 157,737 amortization Provisions for losses on loans and real 325,000 225,000 estate Gain on sale of loans (161,923) (82,590) Gain on sale of real estate (36,497) (36,722) Amortization of deferred fees on loans (87,512) (134,400) Proceeds from sale of loans held for 10,657,31 7,090,322 sale 3 Origination of loans for sale (10,186,3 (7,421,85 97) 0) (Increase) decrease in accrued interest receivable: Loans (41,346) (173,517) Mortgage-backed securities (16,678) 489 Investments 36,721 (62,745) (Decrease) in advance payments by (267,804) (29,512) borrowers Other, net (858,110) 704,651 Net cash (used) provided by operating $ 848,340 $ 1,594,160 activities Cash flows from investing activities Principal repayments on mortgage-backed 394,006 136,476 securities Purchase of investment securities available (2,973,20 0 for sale 3) Purchase of investment securities held to (6,471,99 0 maturity 2) Proceeds from maturities of investment 15,500,00 0 securities available for sale 0 Proceeds from maturities of investment 3,000,000 500,000 securities held to maturity Purchase of FHLB Stock (11,500) (299,600) Redemption of FHLB Stock 72,000 142,700 (Increase) decrease in loans to customers 113,423 (4,032,34 7) Investment in real estate held for (478,018) (196,091) development Proceeds from sale of real estate held for 811,972 293,240 development Proceeds from sale of real estate acquired 616,619 1,172,974 through foreclosure Purchase of premises and equipment (740,584) (72,684) Net cash (used) provided by investing $ 9,832,723 $ (2,355,33 activities 2)
(Continued)
Security Federal Corporation and Subsidiary Consolidated Statements of Cash Flows (Unaudited) (Continued) Nine Months Ended December 31, 1996 1995 Cash flows from financing activities: Increase (decrease) in deposit accounts $ (5,681,98 $ 1,910,180 0) Proceeds from FHLB advances 72,650,00 93,255,00 0 0 Proceeds of other borrowings $ 0 $ 350,000 Repayment of FHLB advances (79,586,0 (91,498,0 00) 00) Repayment of other borrowings $ (350,000) 0 Dividends to share holders $ (62,173) (61,577) Exercise of stock options 39,380 39,380 Net cash provided (used) by financing $ (12,990,7 $ 3,994,983 activities 73) Net increase (decrease) in cash and cash (2,309,71 3,233,811 equivalents 0) Cash and cash equivalents at beginning of 9,823,664 5,697,391 period Cash and cash equivalents at end of period $ 7,513,954 $ 8,931,202 Supplemental disclosure of cash flow information: Cash paid during the period for : Interest $ 6,268,267 $ 6,573,644 Income taxes $ 306,000 $ 209,000 Additions to real estate acquired $ 246,126 $ 623,970 through foreclosure (Increase) decrease in unrealized net loss on securities available for sale, net of taxes $ 89,489 $ (64,011) Securitization of loans receivable $ 2,796,062 $ 1,054,529
See accompanying notes to consolidated financial statements.
Security Federal Corporation and Subsidiary Notes to Consolidated Financial Statements (Unaudited) 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 and nine month periods ended December 31, 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 Bank (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 to maturity portfolio to its available for sale portfolio in December 1995. 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: December 31, 1996 Gross Gross Amortize Unrealize Unreali Market d Cost d Gains zed Value Losses US Government and agency $ 7,471,69 $ 29,047 $ 65,242 $ 7,435,5 obligations 9 04 Mortgage-backed 4,943,00 34,009 153,333 4,823,6 securities 3 79 Total $ 12,414,7 $ 63,056 $ 218,575 $ 12,259, 02 183 Security Federal Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) Investment 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 Investment 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: December 31, 1996 Gross Gross Amortize Unreal Unreali Market d ized zed Value Cost Gains Losses US Government and agency $ 22,014, $ 22,69 $ 76,91 $ 21,959 obligations 096 5 1 ,880 Mortgage-backed securities 0 0 0 0 Total $ $ $ $ 22,014, 22,695 76,911 21,959 096 ,880 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, 66 406 Mortgage-backed securities 0 0 0 0 Total $ $ $ $ 31,170,8 1,782 200,242 30,972, 66 406
Security Federal Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 4. Loans Receivable, Net Loans receivable, net at December 31, 1996, consisted of the following: Loans held for sale: Loans held for sale were $303,926 and $612,919 at December 31, 1996 and March 31, 1996 respectively. [S] [C] [C] Loans held for investment December 31, 1996 March 31, 1996 Residential real estate $ 53,134,391 $ 59,951,018 Consumer 45,971,559 44,810,133 Commercial real estate 9,738,642 10,629,652 Commercial business 43,077,853 38,764,035 $151,922,445 $ 154,154,838 Less: Allowance for possible loan loss $ 1,744,362 $ 1,758,688 Loans in process 1,603,554 474,575 Deferred loan fees 328,231 394,768 3,676,147 2,628,031 $148,246,298 $ 151,526,807 The following is a reconciliation of the allowance for possible loan losses: [S] [C] [C] December 31, 1996 December 31, 1995 Beginning balance $ 1,758,688 $ 1,955,119 Provision 225,000 180,000 Charge-offs (258,404) (95,821) Recoveries 19,078 13,161 Ending balance $ 1,744,362 $ 2,052,459 5. Deposits A summary of deposit accounts by type with weighted average rates are as follows: [S] [C] [C] December 31, 1996 March 31, 1996 Demand Accounts: Balance Rate Balance Rate Checking $ 42,827,5821.36% $ 42,251,949 1.35% Money Market 12,984,616 2.80% 13,769,693 2.81% Regular Savings 12,496,.325 2.48% 13,615,436 2.50% Total demand accounts $ 68,308,5231.84% $ 69,637,078 1.86% Certificate Accounts: 0 - 4.99% $ 5,459,150 $ 5,116,366 5.00 - 6.99% 92,610,398 97,046,823 7.00 - 8.99% 314,676 574,460 Total certificate accounts98,384,2245.34% 102,737,649 5.65% Total deposit accounts $ 166,692,7473.91% $ 172,374,727 4.12% [/TABLE]
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 December 31, 1996 March 31, 1996 Balance Rate Balance Rate 1997 $ 414,0008.45% $ 17,214,000 5.94% 1998 13,352,000 5.74% 3,452,000 6.60% 1999 490,0008.65% 490,000 8.65% 2000 528,0008.70% 528,000 8.70% thereafter 1,144,000 8.55% 1,180,000 8.53% $15,928,0006.20% $ 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) December 31, 1996 March 31, 1996 Bank's Stockholders' Equity$ 15,241 $15,008 Unrealized loss on available for sale securities, net of tax 34 123 Reduction for goodwill and other intangibles (2,571) (2,916) Tangible capital 12,704 12,215 Qualifying core deposits and intangible assets 983 1,120 Core capital 13,687 13,335 Supplemental capital 1,652 1,757 Risk-based capital $ 15,339 $ 15,092 The following table compares the Bank's capital levels relative to the applicable regulatory requirements at December 31, 1996. (Dollars in thousands) Amount Percen Actual Exces Requir t Amount Percen Exces s ed Requir t s Perce ed nt Tangible $ $ $ 4.89% capital 2,981 1.5% 12,704 6.39% 9,72 3 Core capital 3.85% 5,992 3.0% 13,687 6.85% 7,695 Risk-based 3.60% capital 10,575 8.0% 15,339 11.60% 4,764
Security Federal Corporation and Subsidiary Management's Discussion and Analysis of Results of Operations and Financial Condition Changes in Financial Condition Total assets of the Company decreased $13.1 million or 6.1% during the nine months ended December 31, 1996, primarily due to a decrease of $3.6 million in total net loans receivable, a $6.6 million decrease in investments and mortgage-backed securities, and a $2.3 million decrease in cash and cash equivalents during the nine month period. Real estate acquired through foreclosure decreased $390,356 due to sales of real estate and real estate acquired for development decreased $377,594 during the period also due to sales of real estate and a $100,000 increase to the valuation allowance on real estate acquired for development due to slower than expected lot sales in two real estate partnerships. Deposits decreased $5.7 million during the nine months ended December 31, 1996, due to jumbo certificates maturing and not renewing, while Federal Home Loan Bank advances decreased $6.9 million or 30.3%. Maturing investments have been used to payoff maturing advances. Other borrowings decreased $350,000 due to the payoff of a loan owed by the Holding Company to a commercial bank, while advance payments by borrowers decreased $267,804 and other liabilities decreased $467,281. The Board of Directors declared the twenty-second, twenty-third, and twenty-fourth consecutive quarterly dividend of $.05 per share in May, August and November 1996, which totaled $62,173. Unrealized net losses on securities available for sale decreased by $89,489 during the nine months ended December 31, 1996. Net income for the nine month period was $558,263. These items combined to increase the Company's stockholders' equity by $624,959 or 4.1% during the nine months ended December 31, 1996. Book value per share stood at $38.50 at December 31, 1996 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 nine months ended December 31, 1996, the Bank maintained an average liquidity of 6.31% compared to 6.25% 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 the Bank's funds. During the nine months ended December 31, 1996, loan repayments and securitizations exceeded loan disbursements resulting in a $3.6 million or 2.4% decrease in total net loans receivable due mainly to a $2.8 million securitization of single family mortgage loans in April 1996.. 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 nine month period ended December 31, 1996, deposits decreased $5.7 million while Federal Home Loan Bank advances decreased $6.9 million. At December 31, 1996, Security Federal had $86.4 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 December 31, 1996 are sufficient to meet outstanding mortgage loan commitments of $321,000 and unused lines of credit of $21.1 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 did not 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 the Bank 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 it 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 statements in fiscal 1997. In December 1996, the FASB issued SFAS No. 127, Deferral of the Effective Date of Certain Provisions of SFAS No. 125, an amendment to SFAS No. 125, which is effective December 31, 1996. This statement delays the effective date of certain provisions of SFAS No. 125 until December 31, 1997. The amended provisions include those related to the transfers of financial assets and secured borrowings. The provisions in SFAS No. 125 related to servicing assets and liabilities are not delayed by this amendment. The Company does not anticipate that adoption of this standard will have a material effect on the Company's financial statements. 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 Net income increased $212,032 for the three months ended December 31, 1995 compared to the same period one year ago. For the nine months ended December 31, 1996, net income decreased $3,277 compared to the same period in 1995 due to a one time charge taken in the September 1996 quarter of $705,489 pre-tax as result of legislation enacting a special assessment to recapitalize the Federal Deposit Insurance Corporation's Savings Association Insurance Fund (SAIF). The special assessment will reduce SAIF deposit insurance premiums significantly in future periods. Without the one time charge, net income would have risen by $434,000 or 77% for the nine months ended December 31, 1996. These increases in operating income are attributable primarily to increases in net interest income. Net Interest Income Net interest income increased by $236,601 or 12.9% and $649,660 or 12.1% during the three and nine months ended December 31, 1996, compared to the same periods in 1995 due primarily to slightly lower rates paid on deposit accounts and decreases in volume and rates on Federal Home Loan Bank advances, combined with increased yields on investments and net loans outstanding. The increase in yields in the investment portfolio is due to investments maturing that were purchased in 1993 which were yielding 4.5% to 5.5%. The loan portfolio has increased its mix of consumer and commercial loans that typically have a higher yield than residential mortgage loans. Total interest income decreased $50,631 or 1.3% for the three months ended December 31, 1996 compared to the same period in 1995 due to decreases of $41,959 or 1.2% in interest income on loans and a $8,672 decrease in interest income on investment, mortgage -backed , and other securities during the December 1996 quarter. Those decreases are due to lower average balances in those assets during the period. For the nine months ended December 31, 1996 compared to the same period last year , total interest income increased $188,210 or 1.6%. Interest income on loans increased $95,539 or 1.0% while interest on investments, mortgage-backed, and other securities increased $88,671 during the nine months ended December 31, 1996 compared to the same periods in 1995. Total interest expense decreased $287,232 or 13.1% and $461,450 or 7.2% during the three and nine month period ended December 31, 1996, respectively. Interest expense on deposit accounts decreased by $89,872 during the December 1996 quarter while interest expense on deposit accounts decreased $34,387 during the nine months ended December 31, 1996. Interest expense on Federal Home Loan Bank advances and other borrowed money decreased by $197,360 and $427,063 respectively in each period due to a decrease in advance balances and a decrease in interest rates paid on advances. Security Federal Corporation and Subsidiary Management's Discussion and Analysis of Results of Operations and Financial Condition Provision for Loan Losses Security Federal's provision for loan losses for the three month period ended December 31, 1996 compared to the 1995 period increased by $45,000 to a total $75,000. The provision for loan loss expense also increased $45,000 to $225,000 for the nine months ended December 31, 1996 compared to the same period one year ago. During the nine months ended December 31, 1996, the Bank had net charge-offs of $239,326 compared to $82,660 for the nine months ended December 31, 1995. The increase in net charge- offs occurred due to a partial charge-off on a residential construction loan and the national trend of increases in bankruptcies affecting personal and small business loans. The Bank stops accruing interest on any loan that is 60 or more days delinquent. Non-accrual loans at December 31, 1996 and March 31, 1996 were $2.6 million. The allowance for loan losses as a percentage of total loans was 1.16% at December 31, 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. More downsizing at the Savannah River Site is expected. 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 increased $207,544 or 73.7% and $240,210 or 26.6% in the nine months ended December 31, 1996 compared to the same periods in 1995 primarily due to an increase in service fees on deposit accounts. During the three and nine months periods, the Bank's gain on sale of loans increased to $48,968 and $79,333. A net gain on sale of real estate acquired in foreclosure (REO) of $18,308 was recorded during the December 1996 quarter compared to a net loss on sale of REO of $14,551 during the three months ended December 31, 1995, a $32,859 increase for the 1996 period. For the nine months ended December 31 for both 1996 and 1995 a net loss on sale of REO was recorded of $19,863 and $6,119 for both periods respectively. Service fees on deposit accounts increased by $56,387 or 34.8% and $186,053 or 44.0% during the three and nine months ended December 31, 1996 compared to the same periods 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. Loans servicing income increased $4,756 and $18,450 during the three and nine months ended December 31,1996 compared to the same periods one year ago. Income from real estate operations increased $87,324 during the three months ended December 31, 1996. Income from real estate operations during the nine months ended December 31, 1996 decreased $37,306 due to slower lot sales and $100,000 provision expense on the value of real estate acquired for development taken during the September 1996 quarter. Other income, which encompasses commissions on credit life insurance, safe deposit box rental income, and miscellaneous fees, decreased by $22,750 in the three month period and increased $13,543 in the nine months ended December 31, 1996 compared to the same periods in 1995.. General and Administrative Expenses General and administrative expenses increased $53,946 for the three months ended December 31, 1996 compared to the same period in 1995. General and administrative expenses for the nine month ended December 31, 1996 increased $836,044 due mainly to the one time pre-tax charge of $705,489 for the FDIC SAIF special assessment. Otherwise , general and administrative expenses would have increased only $130,555 or 2.5% during the nine month periods ended December 31, 1996 compared to the same period last year. Security Federal Corporation and Subsidiary Management's Discussion and Analysis of Results of Operations and Financial Condition General and Administrative Expenses (Continued) Compensation and employee benefits decreased $33,767 or 4.1% and $145,443 or 5.7% during the respective periods due to employee attrition and a restructuring of officer positions in September 1995. Occupancy expense increased $11,787 or 13.0% and $25,519 or 9.2% during the three and nine month periods ended December 31, 1996 due to the rent on a new branch opened in February 1996 in the Wal*Mart superstore in Aiken. Advertising expense decreased $12,723 and $3,888 during the periods. Depreciation and maintenance of equipment decreased $4,559 during the December 1996 quarter compared to 1995, and decreased by $9,124 for the nine month period. FDIC premiums, excluding the $705,489 SAIF special assessment, decreased $23,449 and $71,709 for the three and nine months ended December 31, 1996 compared to the same periods in 1995 due to lower premium rates and lower deposit balances. The premiums on SAIF deposits will decline from a current annual charge of 23 cents per $100 of SAIF deposits to approximately 6.4 cents per $100 of SAIF deposits in subsequent periods. The amortization of intangibles arising from the October 1993 branch acquisitions were $116,310 in the three months ended December 31, 1995 and 1996 and $348,930 for both the nine months ended December 31, 1995 and 1996. Other expenses, which include legal, professional and consulting expense, data processing expense, and stationary and office supplies expense increased by $116,657 and $335,200 for the three and nine months ended December 31, 1996 compared to 1995 periods. Security Federal Corporation and Subsidiary Other Information Item 1 Legal Proceedings Neither the Corporation nor the Bank engaged in any legal proceedings of a material nature at the present time. From time to time, the Bank 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 None 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 FORM 10QSB FOR THE FISCAL QUARTER ENDED DECEMBER 31, 1996 AND IS QUAILIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS MAR-31-1996 DEC-31-1996 7,513,954 0 0 0 21,959,880 12,414,702 0 148,550,224 0 201,738,025 166,692,747 15,928,000 2,940,197 0 4,171,000 0 0 11,888,177 201,738,025 10,198,326 1,763,711 56,530 12,018,567 5,054,003 941,985 6,022,579 225,000 0 6,107,913 832,541 0 0 0 558,263 1.35 0 0 2,600,000 0 0 0 1,758,688 258,404 19,078 1,744,362 1,744,362 0 0
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