-----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, PSFIEVT1QQanfDcnkCBAJJMmVrzczzGdNUYQueuQUQmr0dH+gOriePyV7d8ly5IV jUNXyNHcnrAaYdjDXrjg+A== 0000818677-96-000009.txt : 19960228 0000818677-96-000009.hdr.sgml : 19960228 ACCESSION NUMBER: 0000818677-96-000009 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960226 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: 96525670 BUSINESS ADDRESS: STREET 1: P O BOX 810 CITY: AIKEN STATE: SC ZIP: 29802 BUSINESS PHONE: 8036413000 MAIL ADDRESS: STREET 1: P O BOX 810 CITY: AIKEN STATE: SC ZIP: 29802 10QSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10 - QSB (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1995 (TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number: 0-16120 SECURITY FEDERAL CORPORATION Delaware 57-0858504 (State or other jurisdiction of (IRS Employer incorporation or organization)Identification Number) 1705 Whiskey Road, Aiken, South Carolina 29801 (Address of Principal Executive Office) (Zip code) (803) 641-3000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Class Outstanding Shares at Common Stock December 31, 1995 $0.01 Par Value 413,184 INDEX SECURITY FEDERAL CORPORATION PART I - FINANCIAL INFORMATION (UNAUDITED) PAGE Item 1. Financial Statements (Unaudited): Consolidated Balance Sheet at December 31, 1995 and March 31, 1995 1 Consolidated Statement of Income for the Three months ended December 31, 1995 and 1994 2 Consolidated Statement of Income for Nine months ended December 31, 1995 and 1994 3 Consolidated Statement of Shareholders' Equity 4 Consolidated Statement of Cash Flows 5-6 Notes to Consolidated Financial Statements 7-10 Item 2. Management's Discussion and Analysis Financial Condition and Results of Operations 11-14 PART II. OTHER INFORMATION Other Information 15 Signatures 16 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 Sheet (unaudited) December 31 March 31 1995 1995 ASSETS Cash and cash equivalents $ 8,931,202 $ 5,697,391 Investments and mortgage-backed securities: Available for Sale 31,547,038 3,930,626 Held to Maturity 11,136,971 38,596,245 Loans Receivable net: Held for Sale 1,190,749 776,631 Held for Investment 151,071,57 148,200,563 6 152,262,32 148,977,194 5 Accrued interest receivable: Loans 928,782 755,265 Mortgage-backed securities 21,839 22,328 Investments 526,974 464,229 Premises and equipment, net 2,877,028 3,251,171 Federal Home Loan Bank stock, at 1,572,000 1,415,100 cost Real estate acquired in settlement 976,128 1,531,251 of loans Real estate held for development 1,343,415 1,442,723 and sale Other assets 3,852,232 3,865,211 Total Assets 215,975,93 209,948,734 4 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposit Accounts $ 168,184,81 $ 166,274,637 7 Advances from Federal Home Loan 27,790,000 26,033,000 Bank Other borrowed money 350,000 0 Advance payments by borrowers for taxes and insurance 412,944 442,456 Other Liabilities 4,273,371 2,709,171 Total liabilities $ 201,011,13 $ 195,459,264 2 Stockholders' Equity: Serial preferred stock, $.01 par value; authorized shares - 200,000 issued and outstanding, none Common stock, $.01 par value; authorized shares 1,000,000 issued and outstanding shares, 409,246 at March 31 and 413,184 at December 31, 4,132 4,092 1995 Additional paid-in capital 3,919,262 3,879,922 Unrealized net loss on securities available for sale, net of income (115,166) (51,155) taxes Retained earnings, 11,156,574 10,656,611 substantially restricted Total stockholders' equity 14,964,802 14,489,470 Total liabilities and stockholders' $ 215,975,93 $ 209,948,734 equity 4
1
Security Federal Corporation and Subsidiary Consolidated Statement of Income (Unaudited) Three Months Ended December 31 1995 1994 Interest Income: Loans $ 3,459,221 $ 3,202,525 Mortgage-backed securities 27,098 32,297 Investment securities 522,411 565,102 Other 22,421 29,699 Total interest income 4,031,151 3,829,623 Interest expense: NOW and money market accounts 247,780 258,931 Passbook accounts 82,071 94,403 Certificate accounts 1,391,830 998,353 Advances and other borrowed money 473,489 405,980 Total interest expense 2,195,170 1,757,667 Net interest income 1,835,981 2,071,956 Provision for loan losses 30,000 75,000 Net interest income after provision for loan losses 1,805,981 1,996,956 Other income: Gain on sale of loans 37,743 27,594 Loan servicing fees 78,519 82,516 Service fees on deposit accounts 161,912 141,360 Income from real estate (57,980) 3,566 operations Other 61,407 48,833 Total other income 281,601 303,869 General and administrative expenses: Salaries and employee benefits 824,617 905,210 Occupancy 90,680 98,917 Advertising 69,367 30,108 Depreciation and maintenance of 159,286 166,539 equipment Amortization of intangibles 89,007 112,944 FDIC insurance premiums 116,310 116,310 Other 372,709 403,695 Total general and 1,721,976 1,833,723 administrative expenses Income before income taxes 365,606 467,102 Provision for income taxes 120,740 133,274 Net income $ 244,866 333,828 Net income per common share $ 0.59 $ 0.82 Cash dividend on common stock $ 0.05 $ 0.05 Weighted average shares outstanding $ 412,071 $ 408,515
2
Security Federal Corporation and Subsidiary Consolidated Statement of Income (Unaudited) Three Months Ended December 31 1995 1994 Interest Income: Loans $ 10,098,787 $ 8,735,912 Mortgage-backed securities 83,942 106,408 Investment securities 1,583,454 1,737,902 Other 64,174 68,287 Total interest income 11,830,357 10,648,509 Interest expense: NOW and money market accounts 837,743 822,434 Passbook accounts 273,816 304,382 Certificate accounts 3,976,831 2,837,400 Advances and other borrowed money 1,369,048 888,374 Total interest expense 6,457,438 4,852,590 Net interest income 5,372,919 5,795,919 Provision for loan losses 180,000 225,000 Net interest income after provision for loan losses 5,192,919 5,570,919 Other income: Gain on sale of loans 82,590 195,434 Loan servicing fees 232,898 240,667 Service fees on deposit accounts 422,494 424,820 Income from real estate 23,010 76,566 operations Other 141,673 174,321 Total other income 902,665 1,111,808 General and administrative expenses: Salaries and employee benefits 2,567,144 2,665,751 Occupancy 276,552 306,183 Advertising 151,051 100,280 Depreciation and maintenance of 491,550 512,841 equipment Amortization of intangibles 295,611 310,008 FDIC insurance premiums 348,930 348,930 Other 1,141,031 1,122,132 Total general and 5,271,869 5,366,125 administrative expenses Income before income taxes 823,715 1,316,602 Provision for income taxes 262,175 440,804 Net income $ 561,540 875,798 Net income per common share $ 1.37 $ 2.17 Cash dividend on common stock $ 0.15 $ 0.15 Weighted average shares outstanding $ 410,184 $ 403,237
3
Security Federal Corporation and Subsidiary Consolidated Statement of Shareholders' Equity For the nine months ended December 31, 1995 (unaudited) Unrealiz ed Net Loss Additiona on l Securiti es Common Paid-In Availabl Retained e Stock Capital for Sale Earnings Total Beginning balance March 31, 4,092 3,879,922 (51,155) 10,656,6 14,489,4 1995 11 70 Net income ----- ----- ----- 561,540 561,540 Cash dividend ----- ----- ----- (61,577) (61,577) Exercise of 40 39,340 39,380 stock options Change in unrealized net loss on securities ----- ----- (64,011) ----- (64,011) available for sale Ending balance December 31, 4,132 3,919,262 (115,166 11,156,5 14,964,8 1995 ) 74 02
4
Security Federal Corporation and Subsidiary Consolidated Statement of Cash Flows Nine Months Ended December 31 1995 1994 Cash flows from operating activities: Net Income 561,540 875,798 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Expense 446,827 440,602 Gain (Loss) on disposal of 1,192 premises and equipment Amortization of purchase 348,930 348,930 accounting adjustments Discount accretion and premium 157,737 181,596 amortization Provisions for losses on loans and 225,000 225,000 real estate Gain on sale of loans (82,590) (195,434) Gain on sale of Real Estate (36,722) (123,460) Amortization of deferred fees on (134,400) (143,624) loans Proceeds from sale of loans held 7,090,322 16,219,422 for sale Origination of loans for sale (7,421,85 (7,930,485 0) ) (Increase) decrease in accrued interest receivable: Loans (173,517) (46,170) Mortgage-backed securities 489 (2,132) Investments (62,745) (36,927) Increase (Decrease) in advance payments by borrowers (29,512) 5,417 Other, net 704,651 (1,207,493 ) Net cash provided by operating 1,594,160 8,612,232 activities Cash flows from investing activities Proceeds from maturities of interest 0 95,000 bearing deposits Principal repayments on mortgage- 136,476 481,060 backed securities Purchase of investment securities 0 (500,000) Purchase of Mortgage-backed (1,054,52 0 securities 9) Proceeds from maturities of 500,000 5,200,000 investment securities Proceeds from sale of investments 0 1,500,000 Purchase of FHLB Stock (299,600) (520,100) Redemption of FHLB Stock 142,700 340,000 (Increase) Decrease in loans to (2,977,81 (27,748,88 customers 8) 6) Investment in real estate held for (196,091) (339,671) development Proceeds from sale of real estate 293,240 548,859 held for development Proceeds from sale of real estate acquired through foreclosure 1,172,974 229,750 Purchase of premises and equipment (72,684) (213,011) Proceeds form sale of premises and 0 564 equipment Net cash used by investing activities (2,355,33 (20,926,43 2) 5)
5
Security Federal Corporation and Subsidiary Consolidated Statement of Cash Flows Nine Months Ended December 31 1995 1994 Cash flows from financing activities: Increase(Decrease) in deposit 1,910,180 (7,370,758 accounts ) Proceeds from FHLB advances 93,255,00 109,260,00 0 0 Repayment of FHLB advances (91,498,0 (92,450,00 00) 0) Proceeds of other borrowings 350000 0 Dividends to share holders (61,577) (60,416) Exercise of stock options 39,380 194,640 Net cash provided by financing 3,994,983 9,573,466 activities Net increase in cash and cash 3,233,811 (2,740,737 equivalents ) Cash and cash equivalents at 5,697,391 8,631,817 beginning of period Cash and cash equivalents at end of 8,931,202 5,891,080 period Supplemental disclosure of cash flow information: Cash paid during the period for : Interest 6,573,644 5,094,342 Income taxes 209,000 265,000 Additions to real estate acquired through foreclosure 623,970 134,096 Unrealized net gain/(loss) on securities available for sale, net of (64,011) (39,297) taxes Transfer of Investments Held to Maturity to Investments Available for 27,867,17 0 Sale 0
6 Security Federal Corporation and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of presentation The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10- QSB and therefore do not include all disclosures necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with general accepted accounting principles. Such statements are unaudited but, in the opinion of management, reflect all adjustments, all of which are of a normal recurring nature, necessary for a fair presentation of results for the selected interim periods. Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in The Annual Report to Stockholders when reviewing interim financial statements. The results of operations for the period ended December 31, 1995 are not necessarily indicative of the results which may be expected for the entire fiscal year. 2. Principles of Consolidation The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Security Federal Savings Bank of South Carolina (the "Bank") and its wholly owned subsidiary Security Financial Services Corporation. The principal business activity of the service corporation is real estate sales and development. In consolidation, all significant intercompany items and transactions have been eliminated. 3. Securities In November 1995, the Financial Accounting Standards Board 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. 7
Security Federal Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) Securities (continued) 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, 1995 Gross Gross Amortize Unreal Unrealiz Market d Cost ized ed Value Gains Losses US Government and agency obligations 8,509,14 9,360 166,630 8,351,87 0 0 Mortgage-backed securities 2,627,83 34,674 4,583 2,657,92 1 2 March 31, 1995 Gross Gross Amortize Unreal Unrealiz Market d ized ed Value Cost Gains Losses US Government and agency 36,885,6 35,369,2 obligations 40 0 1,516,40 33 7 Mortgage-backed securities 1,710,60 18,979 18,179 1,711,40 5 5 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: December 31, 1995 Gross Gross Amortize Unreal Unrealiz Market d ized ed Value Cost Gains Losses US Government and agency $31,732,6 $ $ $ obligations 70 6,679 192,311 31,547,0 38 Mortgage-backed securities 0 0 0 0 March 31, 1995 Gross Gross Amortize Unreal Unrealiz Market d ized ed Value Cost Gains Losses US Government and agency $ $ $ $ obligations 4,013,08 0 82,454 3,930,62 0 6 Mortgage-backed securities 0 0 0 0
8 Security Federal Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 4. Loans Receivable, Net Loans receivable, net at December 31, 1995, consisted of the following: Loans held for sale: Loans held for sale were $1,190,749 and $776,631 at December 31, 1995 and March 31, 1995 respectively. Loans held for investment December 31, 1995March 31, 1995 Residential real estate $ 60,843,637 $ 66,226,289 Consumer 45,240,452 44,089,104 Commercial real estate 11,881,263 13,007,516 Commercial business 35,880,734 29,718,456 $153,846,086 $ 153 ,041,365 Less: Allowance for loan loss $ 2,052,459 $ 1,955,119 Loans in process 297,339 2,419,433 Deferred loan fees 424,712 466,250 2,774,510 4,840,802 $151,071,576 $ 148,200,563 The following is a reconciliation of the allowance for possible loan losses: December 31, 1995 Beginning balance $ 1,955,119 Provision 180,000 Charge-offs (95,821) Recoveries 13,161 Ending balance $ 2,052,459 5. Deposits A summary of deposit accounts by type with weighted average rates are as follows: December 31, 1995 March 31, 1995 Demand Accounts: Balance RateBalance Rate Checking 44,566,492 1.27%41,211,492 1.40% Money Market 13,458,475 3.02% 16,776,207 3.27% Regular Savings 13,236,726 2.48% 14,491,809 2.61% Total demand accounts 71,261,693 1.83% 72,479,508 2.07% Certificate Accounts: 0 - 4.99% 3,079,560 44,023,933 5.00 - 6.99% 93,118,675 48,182,486 7.00 - 8.99% 724,889 1,588,710 Total certificates of deposit96,923,124 5.81%93,795,129 5.17% Total deposit accounts168,184,817 4.13% 166,274,637 3.82%
9
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, 1995 March 31, 1995 Balance Rate Balance Rate 1996 5,376,000 6.46%19,951,000 6.40% 1997 16,764,000 5.93% 3,414,000 6.56% 1998 3,452,000 6.60% 452,000 8.60% 1999 490,0008.65% 490,000 8.65% 2000/thereafter 1,708,000 8.58% 1,726,000 8.59% 27,790,000 6.33% 26,033,000 6.65% 7. Regulatory Matters The following table reconciles the Bank's Stockholders' equity to its various regulatory capital positions: (Dollars in Thousands) December 31, 1995 March 31, 1995 Bank's Stockholders' Equity 14,503 13,981 Unrealized loss on available for sale securities, net of tax 115 51 Reduction for nonqualifying assets (1,119) Reduction for goodwill and other intangibles (3,031) (3,376) Tangible capital 11,587 9,537 Qualifying core deposits and intangible assets 1,180 1,361 Core capital 12,767 10,898 Supplemental capital 1,670 1,756 Risk-based capital 14,437 12,654 The following table compares the Bank's capital levels relative to the requirements applicable under FIRREA at December 31, 1995. (dollars in thousands) Amount Perce Actua Exce Requir nt Amoun l Exces ss ed Requi t Perce s Perc red nt ent Tangible capital 3,179 1.5% 11,58 5.47% 8,408 3.97 7 % Core capital 6,393 3.0% 12,76 5.99% 6,374 2.99 7 % Risk-based capital 11,365 8.0% 14,43 10.16 3,072 2.16 7 % %
10 Security Federal Corporation and Subsidiary Management's Discussion and Analysis of Results of Operations and Financial Condition Recent Developments Congress currently has various proposals or bills they are evaluating concerning the premium differential between BIF and SAIF funds in the FDIC. Commercial banks who primarily have BIF insured deposits are currently paying a significantly lower amount for deposit insurance premiums than thrifts, including Security Federal, who primarily hold SAIF insured deposits. The current proposal calls for a one- time assessment of approximately 85 to 90 basis points per $100 of SAIF deposits on March 31, 1995. Both funds would then, going forward, have the same, lower deposit premiums. If this should become law, Security Federal would incur a one-time charge of approximately $600,000 if the expense were to be tax deductible. Future FDIC premium expense would then be reduced in future periods. Management anticipates the Bank, after consideration of the one-time assessment, would continue to exceed all regulatory minimum capital levels. In October 1995, Security Federal received permission from the Office of Thrift Supervision to open a full service banking facility at the Wal-Mart Superstore on Whiskey Road in Aiken, SC. The branch will open in February 1996. Changes in Financial Condition Total assets of the Company increased $6.0 million or 2.9% during the nine months ended December 31, 1995 primarily due to an increase of $2.9 million in loans held for investment and a $3.2 million increase in cash and cash equivalents. Investments and mortgage-backed securities increased $157,138 due to the securitization of $1.1 million of single family home loans into mortgage-backed securities offset in part by maturities and principal repayments on mortgage- backs. Federal Home Loan Bank stock increased 11.1% during the nine months ended December 31, 1995 due to an increase in Federal Home Loan Bank advances. Real estate acquired through foreclosure decreased by $555,123 mainly due to lot sales in an acquired real estate development. Real estate acquired for development decreased $99,308 during the period due to sales of real estate and an increase of $45,000 in the valuation allowance on real estate acquired for development. Deposits increased $1.9 million or 1.2% during the nine months ended December 31, 1995, while Federal Home Loan Bank advances grew $1.8 million or 6.8% in order to fund the Bank's growth. The Board of Directors declared the eighteenth, nineteenth, and twentieth consecutive quarterly dividends of $.05 per share in May, August, and November 1995 respectively, which totaled $61,577. Cash realized from the exercise of stock options increased paid in capital by $39,380 during the period. Unrealized net losses on securities available for sale increased by $64,011 during the nine months ended December 31, 1995 due to the transfer of $27.9 million in Treasuries from investments held to maturity to investments available for sale during the "one-time reclassification" allowed by FASB in December 1995 under Statement of Financial Accounting Standard 115. Net income for the nine month period was $561,540. These items combined to increase the Company's stockholders' equity by $475,332 or 3.3% during the nine months ended December 31, 1995. Book value per share stood at $36.22 at December 31, 1995 compared to $35.40 at March 31, 1995. Liquidity and Capital Resources In accordance with Office of Thrift Supervision regulation, 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, 1995, Security Federal maintain an average liquidity of 6.25% compared to 8.14% for the same period in 1994. This decrease is due to an increase in loans held for investment. The Bank's current liquidity is in line with management's objectives and deemed adequate to meet requirements of normal operations, potential deposit outflows and loans demand while still allowing for optimal investment of funds and return on assets. 11 Security Federal Corporation and Subsidiary Management's Discussion and Analysis of Results of Operations and Financial Condition Liquidity and Capital Resources (continued) 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 nine months ended December 31, 1995, loan disbursements exceeded loan repayments resulting in a $3.3 million or 2.2% increase in total net loans receivable. Deposits and other borrowings are also an important source of funds for the Bank. During the nine months ended December 31, 1995, deposits increased $1.9 million while Federal Home Loan Bank advances increased $1.8 million. At December 31, 1995, Security Federal had $78.3 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, 1995, were sufficient to meet outstanding mortgage loan commitments of $14,400 and unused lines of credit of $26.9 million at that time. Management believes 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 FASB Statement 107, "Disclosure about Fair Value Instruments" became effective for the Bank for the fiscal year ending March 31, 1996. FASB NO. 107 will require the Bank to disclose the fair value of financial instruments. In May 1993, the FASB issued Statement No. 114 "Accounting by Creditors for Impairment of a Loan" which became effective for the Bank beginning April 1, 1995. This statement requires a lender to consider a loan to be impaired if the lender believes it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan. If a loan is impaired, the lender will be required to record a loan valuation allowance equal to the present value of the estimated future cash flows discounted at the loan's effective rate. This accounting change will significantly change the troubled debt restructuring accounting by lenders presently allowed under FASB Statement 15. Adoption of this statement did not have a material adverse impact on the financial condition of results of operation of the Bank. In October 1994, the FASB issued SFAS 119, "Disclosure about Derivative financial Instruments and Fair Value of Financial Instruments." The Statement requires disclosures about amount, nature, and terms of derivative financial instruments. The statement amend SFAS 105 "Disclosure of Information about Financial Instruments with Off-Balance- Sheet Risk and Financial Instruments." The statement is effective for the Association for the fiscal year ending March 31, 1996. In light of the Bank's current portfolio, this statement is not expected to have a significant impact on the Bank. In May, 1995, the FASB issued Statement 122, "Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No. 65." The Statement requires that rights to service mortgage loans for others be recognized as a separate asset, however those rights are acquired. The Statement also requires that an entity assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights. The Statement applies prospectively in the Bank's fiscal year ended March 31, 1997 to transactions in which an enterprise sells or 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, this Statement is not expected to have a material impact on the Bank. 12 Security Federal Corporation and Subsidiary Management's Discussion and Analysis of Results of Operations and Financial Condition Impact of Inflation and Changing Prices The consolidated financial statements, related notes, and other financial information presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation Unlike most industrial companies, substantially all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than does the effect of inflation. RESULTS OF OPERATIONS Net Income Security Federal's net income decreased $88,962 or 26.7% and $314,258 or 35.9% for the three months and nine months ended December 31, 1995, compared to the same periods in 1994. The decreases are attributable to decreases in net interest income and other income offset partially by a decrease in general and administrative expenses. Net Interest Income Net interest income decreased by $235,975 or 11.4% for the three months and $423,000 or 7.3% for the nine months ended December 31, 1995, compared to the same periods last year primarily due to increases in interest paid on certificates of deposit and Federal Home Loan Bank (FHLB) advances, offset in part by an increase in interest earned on loans receivable. Total interest income increased $201,528 or 5.3% and $1.2 million or 11.1% for the three and nine months ended December 31, 1995, compared to the same periods in 1994. Interest income on loans increased $256,696 or 8.0% and $1.4 million or 15.6% during the three and nine month periods due to higher yields and a larger average loan portfolio. Interest income on investments decreased $42,691 or 7.6% and $154,448 or 8.9% due to some adjustable rate securities adjusting downward in rate and a lower average balance outstanding in securities during the periods. For the three and nine month periods, total interest expense increased $437,503 or 24.9% and $1.6 million or 33.1% over 1994. Interest on NOW, Money Market and regular savings accounts decreased $23,483 for the three months and $15,257 for the nine months ended December 31, 1995. Interest expense on certificates of deposit increased by $393,477 or 39.4% and $1,139,431 or 40.2% in 1995 compared to the three and nine month periods in 1994 due to increased rates paid on renewing and new certificates and larger outstanding average balances in certificates during the periods. Interest expense on FHLB advances increased by $67,509 or 16.6% and $480,674 or 54.1% due to an increase in average advances outstanding and interest rates paid on advances during the three and nine months ended December 31, 1995. Provision for Loan Losses Security Federal's provision for loan losses decreased $45,000 for the three months ended December 31, 1995 to $30,000. The provision decreased by $45,000 to $180,000 for the nine months ended December 31, 1995 compared to the same period in 1994. During the nine months ended December 31, 1995, the Bank had net charge-offs of $82,660 compared to $61,316 one year ago. The Bank stops accruing interest on any loan that is 60 or more days delinquent. Loans delinquent 60 or more days at December 31, 1995 13 Security Federal Corporation and Subsidiary Management's Discussion and Analysis of Results of Operations and Financial Condition Provision for Loan Losses (continued) were 1.0% of loans outstanding compared to .55% at March 31, 1995. The allowance for loan losses as a percentage of total loans outstanding was 1.33% at December 31, 1995, compared to 1.30% at March 31, 1995. The Aiken area's largest employer, the Savannah River Site, has begun reducing its work force which has let to some uncertainties for the local economy and slower real estate sales. Future additions to the Bank's allowance for loan losses are dependent on the performance of the Bank's loan portfolio, the economy, changes in real estate values, and interest rates. There can be no assurance that additions to the allowance will not be required in future periods. Management continues to monitor its loan portfolio for the impact of local economic changes. Other Income Total other income decreased $22,268 or 7.3% and $209,143 or 18.8% for the three and nine months ended December 31, 1995, compared to the same periods last year primarily due to a decrease in the income from real estate operations and for the nine month period only, a decrease in the gain on sale of loans. The Bank's gain on sale of loans increased $10,149 or 36.8% during the three months ended December 31, 1995 compared to the same quarter in 1994. Gain on sale of loans for the nine months ended December 31, 1995 decreased by $112,844 or 57.7% compared to 1994 due to a decreased volume in fixed rate loan originations in 1995. Service fees on deposit accounts increased $20,552 or 14.5% for the three months and decreased by $2,326 or 0.6% for the nine months ended December 31, 1995 compared to the same time frames in 1994. Income from real estate operation decreased $61,456 and $53,556 for the three and nine months ended December 31, 1995 compared to the 1994 periods respectively. The decrease is primarily caused by an increase of $45,000 in the valuation allowance for real estate acquired for development. Other income, which encompasses commissions on credit life insurance, safe deposit box rental income, and miscellaneous fees, increased by $12,574 or 25.8% for the three months but decreased $32,648 or 18.7% for the nine months ended December 31, 1995 compared to the periods ended December 31, 1994. General and Administrative Expenses For the three months ended December 31, 1995, compared to the same period in 1994, general and administrative expenses decreased $111,747 or 6.1%. The reduction was caused by an $80,593 or 8.9% decrease in compensation and benefits expense, an $8,237 or 8.3% decrease in occupancy expense, a $7,253 or 4.4% reduction in depreciation and maintenance of equipment, a $23,937 or 21.2% reduction in FDIC premiums, and a $30,986 decrease in other expenses which consist of data processing, legal, loan and real estate owned expenses, and miscellaneous expenses, offset partially by an increase of $39,259 in advertising expense to promote new checking account products. For the nine months ended December 31, 1995, compared to the same period a year ago, general and administrative expenses decreased $94,256 or 1.8%. The decrease was due to decreases of $98,607 or 3.7% in compensation and benefits expense, a $29,631 or 9.7% reduction in occupancy, a reduction in depreciation and maintenance of equipment of $21,291 or 4.2%, and a decrease of $14,397 or 4.6% in FDIC premiums, offset in part by increases of $50,771 in advertising expense and $18,899 in other miscellaneous expenses. Amortization of intangibles expense arising from the October 1993 branch acquisitions from NationsBank of South Carolina, NA were $116,310 for the quarter and $348,930 for nine months ended December 31 in both 1994 and 1995. The balance of goodwill stood at $1.8 million and the core deposit intangible at $1.2 million at December 31, 1995. 14 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 None Item 5 Other Information None Item 6 Exhibits and Reports on Form 8-K None 15 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 16 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, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS MAR-31-1995 DEC-31-1995 8,931,202 0 0 0 31,732,670 11,136,971 0 152,262,325 0 215,975,934 168,184,817 21,726,000 4,273,371 6,064,000 4,132 0 0 14,964,802 215,975,934 10,098,787 1,667,396 64,174 11,830,357 5,088,390 1,369,048 5,372,919 180,000 0 5,271,869 823,715 0 0 0 561,540 1.37 0 0 1,524,000 594,000 0 0 1,955,119 95,821 13,161 2,052,459 2,052,459 0 0
-----END PRIVACY-ENHANCED MESSAGE-----