-----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, WSryjugIfTFOF2RBv2z8D/VF5CZ5O54jjwzS2pGi8fttXIuCAh1JI8oe/9u5xTo5 brKZNHF5vWK5FV/furX5Ww== 0000939057-97-000116.txt : 19970815 0000939057-97-000116.hdr.sgml : 19970815 ACCESSION NUMBER: 0000939057-97-000116 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD 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: 97659919 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 SECURITY FEDERAL CORPORATION FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10 - QSB (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number: 0-16120 SECURITY FEDERAL CORPORATION Delaware 57-0858504 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 1705 Whiskey Road, Aiken, South Carolina 29801 (Address of Principal Executive Office) (Zip code) (803) 641-3000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Class Outstanding Shares at Common Stock June 30, 1997 $0.01 Par Value 417,122 INDEX SECURITY FEDERAL CORPORATION PART I - FINANCIAL INFORMATION (UNAUDITED) PAGE Item 1. Financial Statements (Unaudited): Consolidated Balance Sheets at June 30, 1997 and March 31, 1997 2 Consolidated Statements of Income for the Three months ended June 30, 1997 and 1996 3-4 Consolidated Statement of Shareholders' Equity 5 Consolidated Statements of Cash Flows 6-7 Notes to Consolidated Financial Statements 8-11 Item 2. Management's Discussion and Analysis Financial Condition and Results of Operations 12-15 PART II. OTHER INFORMATION Other Information 16 Signatures 17 SCHEDULES OMITTED All schedules other than those indicated above are omitted because of the absence of the conditions under which they are required or because the information is included in the consolidated financial statements and related notes. 1 SECURITY FEDERAL CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, March 31, 1997 1997 -------- --------- ASSETS Cash and cash equivalents $ 7,085,697 $ 7,903,637 Investment and mortgage-backed securities: Available for sale: (Amortized cost of $29,904,923 at June 30, 1997 and $24,484,644 at March 31, 1997) 29,828,475 24,215,667 Held to maturity: (Fair market value of $11,130,581 at June 30, 1997 and $12,598,186 at March 31, 1997) 11,158,680 12,754,769 Loans receivable net: Held for sale 514,032 211,212 Held for investment: (Net of allowance of $1,888,063 at June 30, 1997 and $1,767,483 at March 31, 1997) 144,804,959 146,558,261 ----------- ----------- 145,318,991 146,769,473 ----------- ----------- Accrued interest receivable: Loans 817,997 820,730 Mortgage-backed securities 37,745 38,909 Investments 491,044 363,109 Premises and equipment, net 3,972,543 3,952,149 Federal Home Loan Bank stock, at cost 942,300 785,700 Real estate acquired in settlement of loans 97,212 52,009 Real estate held for development and sale 742,355 840,813 Other assets 2,981,345 3,148,980 ----------- ----------- Total Assets 203,474,384 201,645,945 =========== =========== Liabilities and Stockholders' Equity Liabilities: Deposit accounts $165,165,444 $168,060,858 Advances from Federal Home Loan Bank 18,046,000 14,114,000 Other borrowed money 185,945 204,397 Advance payments by borrowers for taxes and insurance 291,484 244,449 Other liabilities 3,087,245 2,840,212 ----------- ----------- Total liabilities 186,776,118 185,463,916 ----------- ----------- 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, 417,122 at June 30, 1997 and March 31, 1997 4,171 4,171 Additional paid-in capital 3,958,603 3,958,603 Unrealized net loss on securities available for sale, net of income taxes (47,036) (166,872) Retained earnings, substantially restricted 12,782,528 12,386,127 Total stockholders' equity 16,698,266 16,182,029 ----------- ----------- Total liabilities and stockholders' equity $203,474,384 $201,645,945 =========== =========== See accompanying notes to consolidated financial statements. 2 SECURITY FEDERAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended June 30, -------- 1997 1996 ---- ---- Interest income: Loans $3,309,001 $3,375,487 Mortgage-backed securities 84,497 94,386 Investment securities 551,874 514,439 Other 18,543 20,332 --------- --------- Total interest income 3,963,915 4,004,644 --------- --------- Interest expense: NOW and money market accounts 205,325 232,102 Passbook accounts 75,992 87,679 Certificate accounts 1,244,575 1,403,452 Advances and other borrowed money 254,865 348,127 --------- --------- Total interest expense 1,780,757 2,071,360 --------- --------- Net interest income 2,183,158 1,933,284 Provision for loan losses 150,000 75,000 --------- --------- Net interest income after provision for Loan losses 2,033,158 1,858,284 --------- --------- Other income: Gain on sale of loans 30,130 30,091 Loan servicing fees 83,347 83,126 Service fees on deposit accounts 196,296 185,637 Income from real estate operations 30,040 25,905 Other 80,717 36,640 --------- --------- Total other income 420,530 361,399 --------- --------- General and administrative expenses: Salaries and employee benefits 896,826 822,667 Occupancy 112,386 96,016 Advertising 78,771 34,819 Depreciation and maintenance of equipment 157,580 160,366 FDIC insurance premiums 19,434 92,842 Amortization of intangibles 116,310 116,310 Other 411,406 479,512 --------- --------- Total general and administrative expenses 1,792,713 1,802,532 --------- --------- (Continued) 4 SECURITY FEDERAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended June 30, -------- 1997 1996 ---- ---- Income before income taxes 660,975 417,151 Provision for income taxes 239,547 138,651 ---------- ---------- Net income $ 421,428 $ 278,500 ========== ========== Net income per common share $ 1.01 $ 0.67 ========== ========== Cash dividend on common stock $ 0.06 $ 0.05 ========== ========== Weighted average shares outstanding $ 417,122 $ 413,184 ========== ========== See accompanying notes to consolidated financial statements. 4 Consolidated Statement of Shareholders' Equity For the three months ended June 30 1997 (Unaudited) Unrealized Net Loss Additional on Securities Common Paid-In Available Retained Stock Capital for Sale Earnings Total ---------------------------------------------------------- Beginning balance March 31, 1997 $ 4,171 $ 3,958,603 $ (166,872) $12,386,127 $ 16,182,029 Net income ---- ---- ---- 421,428 421,428 Cash dividend ---- ---- ---- (25,027) (25,027) Exercise of stock options ---- ---- Decrease in unrealized net loss on securities available for sale, net of tax ---- ---- 119,836 ---- 119,836 ---------------------------------------------------------- Ending balance June 30, 1997 $ 4,171 $ 3,958,603 $ (47,036) $12,782,528 $ 16,698,266 ========================================================== See accompanying notes to consolidated financial statements. 5 SECURITY FEDERAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended June 30, -------- 1997 1996 ---- ---- Cash flows from operating activities: Net Income $ 421,428 $ 278,500 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 135,376 152,597 Amortization of purchase accounting adjustments 116,310 116,310 Discount accretion and premium amortization 310 50,974 Provisions for losses on loans and real estate 150,000 75,000 Gain on sale of loans (30,130) (30,091) Gain on sale of real estate (30,040) (8,413) Amortization of deferred fees on loans (24,275) (36,895) Proceeds from sale of loans held for sale 1,207,520 4,327,113 Origination of loans for sale (1,480,210) (4,029,019) (Increase) decrease in accrued interest receivable: Loans 2,733 (16,010) Mortgage-backed securities 1,164 (14,880) Investments (127,935) (70,534) Increase (decrease) in advance payments by borrowers 47,035 (13,371) Other, net 217,407 1,141,427 ------------ ----------- Net cash provided by operating activities $ 606,693 $ 1,922,708 ------------ ----------- Cash flows from investing activities Principal repayments on mortgage-backed securities 96,289 185,010 Purchase of investment securities available for sale (7,420,157) (2,483,399) Maturities of investment securities available for sale 2,000,000 3,000,000 Purchase of investment securities held to maturity 0 (1,994,531) Maturities of investment securities held to maturity 1,500,000 0 Purchase of FHLB Stock (156,600) 0 Redemption of FHLB Stock 0 25,950 (Increase) decrease in loans to customers 1,567,967 (2,399,112) Investment in real estate held for development (61,408) (51,429) Proceeds from sale of real estate held for development 189,906 211,188 Proceeds from sale of real estate acquired through foreclosure 22,033 112,242 Purchase of premises and equipment (155,770) (36,526) ----------- ----------- Net cash used by investing activities $(2,417,740) $(3,430,607) ----------- ----------- (Continued) 6 SECURITY FEDERAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued) Three Months Ended June 30, -------- 1997 1996 ---- ---- Cash flows from financing activities: Decrease in deposit accounts $ (2,895,414) $ (1,473,342) Proceeds from FHLB advances 13,570,000 20,725,000 Repayment of FHLB advances (9,638,000) (20,068,000) Repayment of other borrowings $ (18,452) 0 Dividends of share holders $ (25,027) (20,658) -------------- -------------- Net cash provided (used) by financing activities $ 993,107 $ (837,000) -------------- -------------- Net decrease in cash and cash equivalents (817,940) (2,344,899) Cash and cash equivalents at beginning of period 7,903,637 9,823,664 -------------- -------------- Cash and cash equivalents at end of period $ 7,085,697 $ 7,478,765 ============== ============== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 1,538,426 $ 1,862,350 Income Taxes $ 95,000 $ 58,281 Additions to real estate acquired through foreclosure $ 67,236 $ 10,990 (Increase) decrease in unrealized net loss on securities available for sale, net of taxes $ 119,836 $ (28,437) Securitization of loans receivable $ 0 2,796,062 See accompanying notes to consolidated financial statements. 7 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 month period ended June 30, 1997 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 Security Federal Corporation(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. Loans Receivable, Net Loans receivable, net at June 30, 1997 and March 31, 1997, consisted of the following: Loans held for sale were $514,032 and $211,212 at June 30, 1997 and March 31, 1997 respectively. Loans held for investment: June 30, 1997 March 31, 1997 ------------- -------------- Residential real estate $ 47,429,149 $ 50,534,682 Consumer 46,234,109 46,894,063 Commercial real estate 5,233,045 6,527,692 Commercial business 49,624,999 46,047,825 ------------- ------------- $ 148,521,302 $ 150,004,262 ------------- ------------- Less: Allowance for possible loan loss $ 1,888,063 $ 1,767,483 Loans in process 1,543,907 1,375,319 Deferred loan fees 284,373 303,199 ------------- -------------- 3,716,343 3,446,001 ------------- -------------- $ 144,804,959 $ 146,558,261 ============= ============== The following is a reconciliation of the allowance for possible loan losses: June 30, 1997 June 30,1996 ------------- ------------ Beginning balance $ 1,767,483 1,758,688 Provision 150,000 75,000 Charge-offs (59,683) (63,190) Recoveries 30,263 3,135 ------------- -------------- Ending balance $ 1,888,063 1,773,633 ============= ============== 8 Security Federal Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 4. Securities Investment and Mortgage-backed Securities, Held to Maturity - ----------------------------------------------------------- The amortized cost, gross unrealized gains, gross unrealized losses and market values of investment and mortgage-backed securities held to maturity are as follows: June 30, 1997 - ------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ------------ ------------ ----------- US Government and agency Obligations $ 6,478,700 $ 26,457 $ 40,286 $ 6,464,871 Mortgage-backed securities 4,679,980 34,778 49,048 4,665,710 ----------- ------------ ------------ ----------- Total $ 11,158,680 $ 61,235 $ 89,334 $ 11,130,581 =========== ============ ============ =========== March 31, 1997 - -------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ------------ ------------ ----------- US Government and agency Obligations $ 7,978,201 $ 14,797 $ 163,799 $ 7,829,199 Mortgage-backed securities 4,776,568 15,976 23,557 4,768,987 ----------- ------------ ------------ ----------- Total $ 12,754,769 $ 30,773 $ 187,356 $ 12,598,186 =========== ============ ============ =========== 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: June 30, 1997 - ------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ------------ ------------ ----------- US Government and agency Obligations $ 29,904,923 $ 37,576 $ 114,024 $ 29,828,475 Mortgage-backed securities 0 0 0 0 ----------- ------------ ------------ ----------- Total $ 29,904,923 $ 37,576 $ 114,024 $ 29,828,475 =========== ============ ============ ============ 9 Security Federal Corporation and Subsidiary Investment and Mortgage-backed Securities, Available for Sale (continued) - ------------------------------------------------------------- March 31, 1997 - -------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ------------ ------------ ----------- US Government and agency obligations $ 24,484,644 $ 0 $ 268,977 $ 24,215,667 Mortgage-backed securities 0 0 0 0 ----------- ------------ ------------ ----------- Total $ 24,484,644 $ 0 $ 268,977 $ 24,215,667 =========== ============ ============ =========== 5. Deposits A summary of deposit accounts by type with weighted average rates are as follows: June 30, 1997 March 31, 1997 ------------- -------------- Demand Accounts: Balance Rate Balance Rate ------- ---- ------- ---- Checking $ 43,765,629 1.36% $ 43,601,652 1.36% Money Market 11,562,079 3.00% 11,640,884 2.80% Regular Savings 13,198,216 2.47% 13,451,308 2.49% ---------- ----- ---------- ----- Total demand accounts $ 68,525,924 1.85% $ 68,693,844 1.83% Certificate Accounts: 0 - 4.99% $ 3,476,456 $ 3,935,588 5.00 - 6.99% 92,965,655 95,234,017 7.00 - 8.99% 197,409 197,409 ---------- ---------- Total certificate accounts 96,639,520 5.37% 99,367,014 5.40% ----------- ----- ----------- ----- Total deposit accounts $ 165,165,444 3.91% $ 168,060,858 3.94% =========== ----- =========== ----- 6. Federal Home Loan Bank Advances Federal Home Loan Bank Advances are summarized by year of maturity and weighted average interest rate in the table below: Fiscal Year Due June 30, 1997 March 31, 1997 - --------------- ------------- -------------- Balance Rate Balance Rate ------- ---- ------- ---- 1998 $ 15,902,000 5.77% $ 11,952,000 5.88% 1999 490,000 8.65% 490,000 8.65% 2000 528,000 8.70% 528,000 8.70% 2001 856,000 8.75% 856,000 8.75% thereafter 270,000 7.97% 288,000 7.97% ---------- ----- ---------- ----- $ 18,046,000 6.11% $ 14,114,000 6.30% ========== ----- ========== ----- 10 Security Federal Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 7. Regulatory Matters The following table reconciles the Bank's stockholders' equity to its various regulatory capital positions: (Dollars in thousands) June 30, 1997 March 31, 1997 ------------- -------------- Bank's Stockholders' Equity $ 15,901 $ 15,362 Unrealized loss on available for sale securities, net of tax 47 167 Reduction for goodwill and other intangibles (2,395) (2,511) ------- ------- Tangible capital 13,553 13,018 Qualifying core deposits and intangible assets 901 938 ------ ------ Core capital 14,454 13,956 Supplemental capital 1,683 1,627 ------ ------ Risk-based capital $ 16,137 $ 15,583 ====== ====== The following table compares the Bank's capital levels relative to the applicable regulatory requirements at June 30, 1997. (Dollars in thousands) Amount Percent Actual Excess Required Required Amount Percent Excess Percent -------- -------- ------ ------- ------ ------- Tangible capital $ 3,006 1.5% $ 13,553 6.76% $10,547 5.26% Core capital 6,040 3.0% 14,454 7.18% 8,414 4.18% Risk-based capital 10,755 8.0% 16,137 12.00% 5,382 4.00% The Bank's regulatory capital amounts and ratios are as follow as of the dates indicated: To Be Well For Capital Capitalized Under Adequacy Prompt Corrective Actual Purposes Action Provisions ------ -------- ----------------- Amount Ratio Amount Ratio Amount Ratio - ------------------------------------------------------------------------------ (Dollars in thousands) June 30, 1997 Risk-based Capital $16,137 12.0% $10,755 8.0% $13,444 10.0% (to risk weighted assets) Core Capital 14,454 7.2 6,040 3.0 12,079 6.0 (to adjusted tangible assets) Tangible Capital 13,553 6.8 3,006 1.5 10,020 5.0 (to tangible assets) June 30, 1996 Risk-based Capital $15,364 11.5% $10,708 8.0% $13,386 10.0% (to risk weighted assets) Core Capital $13,691 6.4 6,381 3.0 12,762 6.0 (to adjusted tangible assets) Tangible Capital 12,617 6.0 3,174 1.5 10,581 5.0 (to tangible assets) - ------------------------------------------------------------------------------- 11 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 increased $1.8 million or 0.9% during the three months ended June 30, 1997, primarily due to an increase of $4.0 million in investments offset partially by an $818,000 decrease cash and cash equivalents and a $1.5 million or 1.0% decrease in total net loans receivable. Real estate acquired in settlement of loans (REO) increased slightly by $45,000 while real estate acquired for development decreased $96,000 during the three- month period due to sales of real estate. Deposits decreased $2.9 million or 1.7% during the three months ended of June 1997 as Federal Home Loan Bank (FHLB) advances grew $3.9 million to replace those funds and fund the Company's 0.9% growth in assets. The Board of Directors declared the twenty-sixth consecutive quarterly dividend of $.06 per share in May 1997 which totaled $25,000. This represents a 20% increase in dividends over the prior year. Unrealized net losses on securities available for sale decreased by $120,000 during the three months ended June 30, 1997. Net income for the quarter was $421,000 for the Company. These items combined to increase the Company's stockholders' equity by $516,000 or 3.2% during the three months ended June 30, 1997 and raised book value per share to $40.03 compared to $38.79 at March 31, 1997. 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. For both the June 1996 and 1997 quarters, the Bank maintained an average liquidity level of approximately 22%. This level of liquidity is 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, whereas loan disbursements are a primary use of the Bank's funds. During the three months ended June 30, 1997, loan repayments exceeded loan disbursements resulting in a $1.5 million or 1.0% decrease in total net-loans receivable. 12 Security Federal Corporation and Subsidiary Management's Discussion and Analysis of Results of Operations and Financial Condition Liquidity and Capital Resources (Continued) Deposits and other borrowings are also an important source of funds for the Bank. During the three months ended June 30, 1997, deposits decreased $2.9 million while FHLB advances increased $3.9 million. At June 30, 1997, Security Federal had $80.6 million of certificates of deposit maturing within one year. Based on previous experience, a major portion of these certificates will be re- deposited. Capital resources at June 30, 1997 are sufficient to meet outstanding mortgage loan commitments of $319,000 and unused lines of credit of $20.8 million. Management believes that the Bank's short-term and long-term liquidity needs will continue to be supported by the Bank's deposit base and borrowing capacity. Accounting and Reporting Changes In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 128, Earnings per Share, which is effective for both interim and annual periods ending after December 15, 1997. This statement supersedes Accounting Principles Board Opinion No. 15, Earnings per Share. The purpose of this statement is to simplify current reporting and make U.S. reporting comparable to international standards. The statement requires dual presentation of basic and diluted EPS by entities with complex capital structures (as defined by the statement). The Company anticipates that adoption of this standard will not have a material affect on EPS. Also, in February 1997, the FASB issued SFAS No. 129, Disclosure of Information about Capital Structure, which is effective for financial statements for periods ending after December 15, 1997. This statement applies to both public and nonpublic entities. The new statement requires no change for entities subject to the existing requirements. The Company anticipates that adoption of the standard will not have a material affect on the Company. In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Enterprises are required to classify items of other comprehensive income by their nature in the financial statement and display the balance of other comprehensive income separately in the equity section of a statement of financial position. Statement 130 is effective for both interim and annual periods beginning after December 15, 1997. Earlier application is permitted. Comparative financial statements provided for earlier periods are required to be reclassified to reflect the provisions of this statement. The Company will adopt Statement 130 effective March 31, 1998, and will provide the required disclosures in the Company's Form 10QSB and Annual Report. In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. This statement establishes standards for the way public business companies are to report information about operating segments in annual financial statements and requires those companies to report selected information about operating segments in interim financial reports issued to shareholders. Statement 131 is effective for financial statements for periods beginning after December 15, 1997. Earlier application is encouraged. In the initial year of application, comparative information for earlier years is to be restated, unless it is impractical to do so. Statement 131 need not be applied to interim financial statements in the initial year of its application, but comparative information for interim periods in the initial year of application shall be reported in financial statements for interim periods in the second year of application. It is not anticipated that this standard will materially effect the Company's current method of financial reporting. 13 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 Corporation's net income increased $142,000 or 51%, to $421,000 for the three months ended June 30, 1997, compared to the same period in 1996 primarily due to an increase in net interest income and other income, combined with a slight decrease in general and administrative expenses. Net Interest Income Net interest income increased by $250,000 or 12.9% during the three months ended June 30, 1997 compared to the same period in 1996 due primarily to a decreases in interest expense on deposits and advances and an increase in investment interest income offset partially by a decrease in interest income on loans receivable. Interest income on loans decreased $67,000 or 2.0% during the quarter due to lower average total outstanding loan balances. Investment, mortgage-backed, and other securities interest income increased $26,000 or 4.1% during the three months ended June 30, 1997, compared to the same period one year ago due to higher average investment balances and a higher yield on the overall investment portfolio. Total interest income increased $41,000 or 1.0% during the quarter. Total interest expense decreased $291,000 or 14.0% during the three-month period. Interest expense on deposits decreased $198,000 or 11.5% due to a lower cost of funds on deposits and a lower overall deposit balance during the quarter ended June 30, 1997. Advances and other borrowings' interest expense decreased $93,000 during the three months ended June 30, 1997, compared to the same period in 1996 due to a lower total average outstanding borrowings. The cost of advances and other borrowings has been relatively stable during the past twelve months. Provision for Loan Losses Security Federal's provision for loan losses increased $75,000 to $150,000 for the three months ended June 30, 1997, compared to the 1996 period due to managements analysis of the loan portfolio and the increasing percentage of commercial loans in the Bank's portfolio. Commercial loans are inherently riskier than residential mortgage loans During the three months ended June 30, 1997, net charge-offs were $29,420 compared to $60,055 for the three months ended June 30, 1996. The Bank ceases to accrue interest on any loan 60 days or more delinquent. Non-accrual loans at June 30, 1997 were $2.1 million compared to $1.4 million at March 31, 1997. The allowance for loan losses as a percentage of total loans was 1.28% at June 30, 1997 and 1.19% at March 31, 1997. Future additions to the Bank's allowance for loan losses are dependent on, among other things, the performance of the Bank's loan portfolio, changes in real estate values, interest rates, and the economy. A major employer in the Aiken area, the Savannah River Site, has experienced several major downsizings of personnel the past few years. More layoffs at the site are expected in the coming year, which will have some impact on the local economy. Management continues to monitor its loan portfolio for the impact of local economic changes. 14 Security Federal Corporation and Subsidiary Managements Discussion and Analysis of Results of Operations and Financial Condition Other Income Total other income increased $59,000 or 16.4% during the three months ended June 30, 1997 compared to the same period one-year earlier. Gain on sale of loans and loan servicing fees, which were $30,000 and $83,000 respectively in the June 1997 quarter, were virtually the same amounts in the 1996 three-month period. Service fees on deposit accounts increased $11,000 or 5.7%. Income from real estate operations increased $4,000 due to increased sales of real estate during the three months ended June 30, 1997 compared to the 1996 period. Also contributing to higher other income levels were reduced expenses due to the sale of the remaining lots in one of the two partnership's subdivisions, Currytowne in Edgefield County, in February 1997. Other income, which consists of credit life insurance commissions, safe deposit box rental income, annuity and stock brokerage commissions through Security Financial Services and other miscellaneous fees, increased $44,000 due to increased activity in Security Financial during the June 1997 three month period. General and Administrative Expenses General and administrative expenses decreased $10,000 or 0.5% due mainly to decreases in FDIC insurance premiums and other expenses offset in part by increases in compensation, benefits, and advertising expense. Compensation and employee benefits increased $74,000 or 9.0% due to normal annual salary increases and overtime paid in working through a major computer conversion that occurred late in the prior fiscal year. The computer conversion also changed the Bank from an outsourcing of data processing services arrangement to an in-house processing system which has the effect of increasing compensation and equipment expenses slightly, but is more than offset by a decrease in other expense. Occupancy increased $16,000 during the June 1997 quarter due to an increase in building maintenance and repairs expense. Advertising increased $44,000 to $79,000 during the three months ended June 30, 1997 due to increased media advertising and billboards to promote the Bank's 75th anniversary and the Bank's new logo and corporate colors. Depreciation and maintenance of equipment expense decreased $2,800 during the quarter even as the Bank added approximately $600,000 in software and equipment to its fixed assets, several other items of equipment became fully depreciated. FDIC insurance premiums dropped $73,000 due to the decrease in premium rates which occurred late in fiscal 1997 due to congressional legislation to recapitalize the SAIF fund. Amortization of intangibles arising due to branch acquisitions in October 1993, were $116,000 in both the June 1996 and 1997 quarters. Other expenses, encompassing legal, professional and consulting expense, stationary and office supplies, and in the June 1996 quarter only, data processing outsourcing expense, decreased $68,000 or 14.2% during the three months ended June 30, 1997. The primary reason for the decrease is the above mentioned data processing conversion which brought the Bank's data servicing back in-house for which the Bank was paying approximately $30,000 per month to an outside provider. 15 Security Federal Corporation and Subsidiary Other Information Item 1 Legal Proceedings ----------------- The Company is not 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 16 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: August 12, 1997 By:/s/ROY G. LINDBURG --------------- ------------------ Roy G. Lindburg Treasurer/CFO Duly Authorized Representative 17 EX-27 2
9 3-MOS MAR-31-1998 JUN-30-1998 7085697 0 0 0 29828475 11158680 11130581 145318991 1888063 203474384 165165444 15902000 3564674 2144000 0 0 3962774 12735492 203474384 3309001 636371 18543 3963915 1525892 1780757 2183158 150000 0 1792713 660975 660975 0 0 421428 1.01 1.01 8.51 2107025 0 828000 0 1767483 59683 30263 1888063 0 0 1888063
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