-----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, TdilpJzzhncgROEvekQXMJWswHCoRvP1c3luAy4TrA1K4ZwtED00VQzhLCuPkFtF mQD9kVOnv5FMSG5q66DkeQ== 0000818677-97-000022.txt : 19970501 0000818677-97-000022.hdr.sgml : 19970501 ACCESSION NUMBER: 0000818677-97-000022 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 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: 97590471 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 20 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, 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 September 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 September 30, 1996 and March 31, 1996 2 Consolidated Statements of Income for the Three months ended September 30, 1996 and 1995 3-4 Six months ended September 30, 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 financial statements and related notes.
Security Federal Corporation and Subsidiary Consolidated Balance Sheets (Unaudited) September 30,1996March 31, 1996 Assets Cash and cash equivalents $ 9,198,25 $ 9,823,66 5 4 Investments and mortgage-backed securities: Available for sale: (Amortized cost of 25,904,0 30,972,4 $26,062,821 at September 30,1996 and 12 06 $31,170,866 at March 31, 1996) Held to maturity: (Fair market value of 14,457,6 10,040,7 $14,230,914 at September 30, 1996 and 02 24 $9,913,951 at March 31, 1996) Loans receivable net: Held for sale 338,739 612,919 Held for investment: (Net of allowance 149,933, 151,526, of $1,748,524 at September 30, 1996 146 807 and $1,758,688 at March 31, 1996) 150,271, 152,139, 885 726 Accrued interest receivable: Loans 985,203 882,274 Mortgage-backed securities 38,130 23,799 Investments 468,267 450,952 Premises and equipment, net 3,163,22 3,187,18 1 5 Federal Home Loan Bank stock, at cost 1,161,20 1,233,20 0 0 Real estate acquired through foreclosure 355,058 718,763 Real estate held for development and sale 1,206,83 1,389,57 0 9 Other assets 3,677,59 3,953,85 1 9 Total Assets 210,887, 214,816, 254 131 Liabilities and Stockholders' Equity Liabilities: Deposit accounts $ 170,226, $ 172,374, 276 727 Advances from Federal Home Loan Bank 19,846,0 22,864,0 00 00 Other borrowed money 350,000 350,000 Advance payments by borrowers for taxes and insurance 385,701 385,708 Other liabilities 4,560,41 3,407,47 2 8 Total liabilities 195,368, 199,381, 389 913 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 at March 31, 1996 and 4,132 4,132 September 30, 1996 Additional paid-in capital 3,919,26 3,919,26 2 2 Unrealized net loss on securities (98,525) (123,125 available for sale, net of income taxes ) Retained earnings, substantially 11,693,9 11,633,9 restricted 96 49 Total stockholders' equity 15,518,8 15,434,2 65 18 Total liabilities and stockholders' equity $ 210,887, $ 214,816, 254 131
See accompanying notes to consolidated financial statements.
Security Federal Corporation and Subsidiary Consolidated Statements of Income (Unaudited) Three Months Ended September 30, 1996 1995 Interest income: Loans $ 3,405,577 $ 3,380,877 Mortgage-backed securities 13,041 28,334 Investment securities 598,145 528,054 Other 16,640 21,515 Total interest income 4,033,403 3,958,780 Interest expense: NOW and money market accounts 237,337 253,377 Passbook accounts 88,132 97,103 Certificate accounts 1,373,492 1,371,658 Advances and other borrowed money 317,729 457,894 Total interest expense 2,016,690 2,180,032 Net interest income 2,016,713 1,778,748 Provision for loan losses 75,000 75,000 Net interest income after provision for loan losses 1,941,713 1,703,748 Other income: Gain (Loss) on sale of REO (38,171) 0 Gain on sale of loans 45,121 27,440 Loan servicing fees 84,947 76,687 Service fees on deposit accounts 204,611 134,332 Income (loss) from real estate (69,545) 29,565 operations Other 65,368 15,315 Total other income 292,331 283,339 General and administrative expenses: Salaries and employee benefits 808,184 849,377 Occupancy 103,588 90,666 Advertising 55,700 53,956 Depreciation and maintenance of 167,333 166,585 equipment FDIC insurance premiums 65,502 97,575 FDIC SAIF Assessment 725,000 0 Amortization of intangibles 116,310 116,310 Other 487,842 346,224 Total general and 2,529,459 1,720,693 administrative expenses Income before income taxes (295,415) 266,394 Provision (benefit) for income taxes (118,280) 86,567 Net income (loss) $ (177,135) $ 179,827 Net income (loss) per common share $ (0.43) $ 0.44 Cash dividend on common stock $ 0.05 $ 0.05 Weighted average shares outstanding $ 413,184 $ 409,246 See accompanying notes to consolidated financial statements.
Security Federal Corporation and Subsidiary Consolidated Statements of Income (Unaudited) Six Months Ended September 30, 1996 1995 Interest income: Loans $ 6,781,064 $ 6,639,566 Mortgage-backed securities 38,130 56,844 Investment securities 1,181,881 1,061,043 Other 36,972 41,753 Total interest income 8,038,047 7,799,206 Interest expense: NOW and money market accounts 469,439 529,045 Passbook accounts 175,811 191,766 Certificate accounts 2,776,944 2,645,898 Advances and other borrowed money 665,856 895,559 Total interest expense 4,088,050 4,262,268 Net interest income 3,949,997 3,536,938 Provision for loan losses 150,000 150,000 Net interest income after provision for loan losses 3,799,997 3,386,938 Other income: Gain (Loss) on sale of REO (38,171) 0 Gain on sale of loans 75,212 44,847 Loan servicing fees 168,073 154,379 Service fees on deposit accounts 390,248 260,582 Income (loss) from real estate (43,640) 80,990 operations Other 102,008 80,266 Total other income 653,730 621,064 General and administrative expenses: Salaries and employee benefits 1,630,851 1,742,527 Occupancy 199,604 185,872 Advertising 90,519 81,684 Depreciation and maintenance of 327,699 332,264 equipment FDIC insurance premiums 158,344 206,604 FDIC SAIF Assessment 725,000 0 Amortization of intangibles 232,620 232,620 Other 967,354 768,322 Total general and 4,331,991 3,549,893 administrative expenses Income before income taxes 121,736 458,109 Provision (benefit) for income taxes 20,371 141,435 Net income (loss) $ 101,365 $ 316,674 Net income per common share $ 0.25 $ 0.77 Cash dividend on common stock $ 0.10 $ 0.10 Weighted average shares outstanding $ 413,184 $ 409,246 See accompanying notes to consolidated financial statements.
Security Federal Corporation and Subsidiary Consolidated Statement of Shareholders' Equity For the six months ended September 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 11,633,94 15,434,21 2 ) 9 8 Net income ----- ----- ----- 101,365 101,365 Cash dividend ----- ----- ----- (41,318) (41,318) Exercise of stock ----- ----- ----- ----- ----- options Change in unrealized net loss on 24,600 24,600 securities available for sale Ending balance September 30, 1996 $ $ $ $ $ 4,132 3,919,26 (98,525) 11,693,99 15,518,86 2 6 5 See accompanying notes to consolidated financial statements.
Security Federal Corporation and Subsidiary Consolidated Statement of Cash Flows (Unaudited) Six Months Ended September 30, 1996 1995 Cash flows from operating activities: Net Income $ 101,365 $ 316,674 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 305,148 302,658 Amortization of purchase accounting 232,620 232,620 adjustments Discount accretion and premium 95,228 103,348 amortization Provisions for losses on loans and real 250,000 150,000 estate Gain on sale of loans (75,212) (44,847) Gain on sale of real estate (18,189) (45,917) Amortization of deferred fees on loans (63,715) (41,731) Proceeds from sale of loans held for 8,929,732 3,875,089 sale Origination of loans for sale (8,580,34 (3,478,44 0) 4) Increase in accrued interest receivable: Loans (102,929) (107,553) Mortgage-backed securities (14,331) 890 Investments (17,315) 5,882 Increase (decrease) in advance payments (7) 231,115 by borrowers Other, net 1,170,541 1,086,595 Net cash provided by operating activities $ 2,212,596 $ 2,586,379 Cash flows from investing activities Principal repayments on mortgage-backed 347,665 104,549 securities Purchase of investment securities available (2,973,20 0 for sale 3) Purchase of investment securities held to (3,482,46 0 maturity 1) Proceeds from maturities of investment 8,500,000 0 securities available for sale Proceeds from maturities of investment 1,000,000 500,000 securities held to maturity Purchase of FHLB Stock 0 (135,300) Redemption of FHLB Stock 72,000 78,700 (Increase) decrease in loans to customers (1,366,28 (4,092,70 6) 8) Investment in real estate held for (242,979) (82,358) development Proceeds from sale of real estate held for 382,088 274,430 development Proceeds from sale of real estate acquired 414,124 782,234 through foreclosure Purchase of premises and equipment (281,184) (62,536) Net cash used by investing activities $ 2,369,764 $ (2,632,98 9) Cash flows from financing activities: Decrease in deposit accounts $ (2,148,45 $ (1,951,54 1) 1) Proceeds from FHLB advances 37,925,00 61,200,00 0 0 Repayment of FHLB advances (40,943,0 (58,518,0 00) 00) Dividends to share holders (41,318) (40,918) Exercise of stock options 0 0 Net cash provided by financing activities $ (5,207,76 $ 689,541 9) Net increase (decrease) in cash and cash (625,409) 642,931 equivalents Cash and cash equivalents at beginning of 9,823,664 5,697,391 period Cash and cash equivalents at end of period $ 9,198,255 $ 6,340,322 Supplemental disclosure of cash flow information: Cash paid during the period for : Interest $ 3,570,152 $ 3,280,682 Income taxes $ 306,000 $ 36,249 Additions to real estate acquired $ 88,590 $ 529,713 through foreclosure Decrease in unrealized net loss on securities available for sale, net of taxes $ 24,600 $ 35,540 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 (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 six month periods ended September 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 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: September 30, 1996 Gross Gross Amortize Unrealize Unreali Market d Cost d Gains zed Value Losses US Government and agency $ 9,467,55 $ $ 106,879 $ 9,376,6 obligations 5 15,989 65 Mortgage-backed 4,990,04 28,655 164,453 securities 7 4,854,2 49 Total $ 14,457,6 $ 44,644 $ 271,332 $ 14,230, 02 914 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: September 30, 1996 Gross Gross Amortize Unreal Unreali Market d ized zed Value Cost Gains Losses US Government and agency $ $ $ $ obligations 26,062,8 1,937 160,746 25,904, 21 012 Mortgage-backed securities 0 0 0 0 Total $ $ $ $ 26,062,8 1,937 160,746 25,904, 21 012 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 September 30, 1996, consisted of the following: Loans held for sale: Loans held for sale were $338,739 and $612,919 at September 30, 1996 and March 31, 1996 respectively. Loans held for investment September 30, 1996 March 31, 1996 Residential real estate$ 54,050,375 $ 59,951,018 Consumer 45,822,467 44,810,133 Commercial real estate 10,336,500 10,629,652 Commercial business 43,219,874 38,764,035 $ 153,429,216 $ 154,154,838 Less: Allowance for possible loan loss $ 1,748,524 $ 1,758,688 Loans in process 1,404,391 474,575 Deferred loan fees 343,155 394,768 3,496,070 2,628,031 $ 149,933,146 $ 151,526,807 The following is a reconciliation of the allowance for possible loan losses: September 30, 1996 September 30, 1995 Beginning balance $ 1,758,688$ 1,955,119 Provision 150,000 150,000 Charge-offs (170,075) (28,754) Recoveries 9,911 9,007 Ending balance $ 1,748,524 $ 2,085,372 5. Deposits A summary of deposit accounts by type with weighted average rates are as follows: September 30, 1996 March 31, 199 Demand Accounts: Balance Rate Balance Rate Checking $ 41,812,8301.32% $ 42,251,949 1.35% Money Market 13,006,539 2.81% 13,769,693 2.81% Regular Savings 14,219,148 2.51% 13,615,436 2.50% Total demand accounts $ 69,038,5171.86% $ 69,637,078 1.86% Certificate Accounts: 0 - 4.99% $ 5,226,027 $ 5,116,366 5.00 - 6.99% 95,653,242 97,046,823 7.00 - 8.99% 308,490 574,460 Total certificate accounts101,187,7595.40% 102,737,649 5.65% Total deposit accounts $ 170,226,2763.96% $ 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 September 30, 1996 March 31, 1996 Balance Rate Balance Rate 1997 $10,414,0005.79% $ 17,214,000 5.94% 1998 7,252,000 6.03% 3,452,000 6.60% 1999 490,0008.65% 490,000 8.65% 2000 528,0008.70% 528,000 8.70% thereafter 1,162,000 8.55% 1,180,000 8.53% $19,846,0006.18% $ 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) September 30, 1996 March 31, 1996 Bank's Stockholders' Equity$ 15,216 $15,008 Unrealized loss on available for sale securities, net of tax 98 123 Reduction for goodwill and other intangibles (2,686) (2,916) Tangible capital 12,628 12,215 Qualifying core deposits and intangible assets 1,029 1,120 Core capital 13,657 13,335 Supplemental capital 1,684 1,757 Risk-based capital $ 15,341 $ 15,092 The following table compares the Bank's capital levels relative to the applicable regulatory requirements at September 30, 1996. (Dollars in thousands) Amount Percen Actual Exces Requir t Amount Percen Exces s ed Requir t s Perce ed nt Tangible $ $ $ 4.58% capital 3,117 1.5% 12,628 6.08% 9,51 1 Core capital 3.54% 6,264 3.0% 13,657 6.54% 7,393 Risk-based 3.39% capital 10,776 8.0% 15,341 11.39% 4,565
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 $3.9 million or 1.8% during the six months ended September 30, 1996, primarily due to an decrease of $1.9 million in total net loans receivable and a $651,516 decrease in investments and mortgage-backed securities. Cash and cash equivalents decreased $625,409 during the six month period. Real estate acquired through foreclosure decreased $363,705 due to sales of real estate and real estate acquired for development decreased $182,749 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 $2.1 million during the six months ended September 30, 1996, while Federal Home Loan Bank advances decreased $3.0 million or 13.2%. Other liabilities grew $1.2 million mainly due to an increase in accrued interest payable. The Board of Directors declared the twenty-second and twenty- third consecutive quarterly dividend of $.05 per share in May and August 1996, which totaled $41,318. Unrealized net losses on securities available for sale decreased by $24,600 during the six months ended September 30, 1996. Net income for the six month period was $101,365. These items combined to increase the Company's stockholders' equity by $84,647 or 0.6% during the six months ended September 30, 1996. Book value per share stood at $37.56 at September 30, 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 six months ended September 30, 1996, the Bank maintained an average liquidity of 6.30% compared to 6.26% 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 six months ended September 30, 1996, loan repayments and securitizations exceeded loan disbursements resulting in a $1.9 million or 1.2% 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 six month period ended September 30, 1996, deposits decreased $2.1 million while Federal Home Loan Bank advances decreased $3.0 million. At September 30, 1996, Security Federal had $73.8 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, 1996 are sufficient to meet outstanding mortgage loan commitments of $323,000 and unused lines of credit of $22.4 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 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 Net income decreased $356,962 and $215,309 for the three and six months ended September 30, 1996, compared to the same period in 1995 due primarily to a one time charge taken in the September 1996 quarter of $725,000, 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 $92,538 or 51% and $234,191 or 74% for the three and six months ended September 30, 1996. These increases are attributable primarily to increases in net interest income. Net Interest Income Net interest income increased by $237,965 or 13.4% and $413,059 or 11.7% during the three and six months ended September 30, 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, and possess greater risk, than residential mortgage loans. Total interest income increased $74,623 or 1.9% and $238,841 or 3.1% during the three and six months ended September 30, 1996. Interest income on loans increased $24,700 or 0.7% and 141,498 or 2.1% during the three and six month period while interest income on investment, mortgage-backed, and other securities increased $49,923 and $97,343 during the three and six months ended September 30, 1996 compared to the same periods on 1995. Total interest expense decreased $163,342 or 7.5% and $174,218 or 4.1% during the three and six month period ended September 30, 1996. Interest expense on deposit accounts decreased by $23,177 during the September 1996 quarter while interest expense on deposit accounts increased $55,485 during the six months ended September 30, 1996. Interest expense on Federal Home Loan Bank advances and other borrowed money decreased by $140,165 and $229,703 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 remained the same for both the three month and six month periods ended September 30, 1996 compared to 1995 periods at $75,000 and $150,000 respectively. During the six months ended September 30, 1996, the Bank had net charge-offs of $160,164 compared to $28,754 for the six months ended September 30, 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 September 30, 1996 were $2.5 million while they were $2.6 million at March 31, 1996. The allowance for loan losses as a percentage of total loans was 1.15% at September 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. 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 $8,992 or 3.2% and $32,666 or 5.3% in the six months ended September 30, 1996 compared to the same periods in 1995 primarily due to an increase in service fees on deposit accounts offset primarily by losses from real estate operations. During the three and six months periods, the Bank's gain on sale of loans increased to $17,681 and $30,365. A loss on sales of real estate acquired in foreclosure (REO) of $38,171 was recorded for both the three and six months ended September 30, 1996, as a result of two sales of residential REO. Service fees on deposit accounts increased by $70,279 or 52.3% and $129,666 or 49.8% during the three and six months ended September 30, 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 $8,260 and $13,694 during the three and six months ended September 30,1996 compared to the same periods on year ago. Income from real estate operations decreased $99,110 and $124,630 during the three and six month periods respectively 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, increased by $50,053 and $21,742 in the three and six months ended September 30, 1996. General and Administrative Expenses General and administrative expenses increased $808,766 and $782,098 due mainly to the one time pre-tax charge of $725,000 for the FDIC SAIF special assessment. Otherwise , general and administrative expenses would have increased only $83,766 or 4.9% and $57,098 or 1.6% during the three and six month periods ended September 30, 1996 compared to the same periods 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 $41,193 or 4.9% and $111,676 or 6.4% during the respective periods due to employee attrition and a restructuring of officer positions in September 1995. Occupancy expense increased $12,922 or 14.3% and $13,732 or 7.4% during the three and six month periods ended September 30, 1996 due to the rent on a new branch opened in February 1996 in the Wal*Mart superstore in Aiken. Advertising expense increased $1,744 and $8,835 during the period. Depreciation and maintenance of equipment increased $748 during the September 1996 quarter compared to 1995, but decreases by $4,565 for the six month period. FDIC premiums, excluding the $725,000 SAIF special assessment, decreased $32,073 and $48,260 for the three and six months ended September 30, 1996 compared to the same periods in 1995. The premiums on SAIF deposits will decline from a current annual charge of 23 cents per $100 of SAIF deposits approximately 6.4 cents per $100 in subsequent periods. The amortization of intangibles arising from the October 1993 branch acquisitions were $116,310 in the three months ended September 30, 1995 and 1996 and $232,620 for both the six months ended September 30, 1995 and 1996. Other expenses, which include legal expense, data processing expense, and stationary and office supplies expense increased by $141,618 and $199,032 for the three and six months ended September 30, 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 SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS MAR-31-1996 SEP-30-1996 9,198,255 0 0 0 25,904,012 14,457,602 0 150,271,885 0 210,887,254 170,226,276 19,846,000 4,560,412 5,650,000 4,132,000 0 0 15,518,565 210,887,254 6,781,064 1,220,011 36,972 8,038,047 3,422,194 665,856 3,949,997 150,000 0 4,331,991 121,736 0 0 0 101,365 .25 0 0 2,500,000 0 0 0 1,758,688 170,075 9,911 1,748,524 1,748,524 0 0
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