-----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, RvTB5YXaJbK8hEdl6o4F3/fcN+ip9QWxIMuMC19A2N4DG1qNLq5TmxOAm/KLKYHU UR9uPSVkFi//u9hI/dmOiQ== 0000939057-00-000005.txt : 20000211 0000939057-00-000005.hdr.sgml : 20000211 ACCESSION NUMBER: 0000939057-00-000005 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000210 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: SC FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-16120 FILM NUMBER: 531443 BUSINESS ADDRESS: STREET 1: 1705 WHISKEY RD SOUTH CITY: AIKEN STATE: SC ZIP: 29803 BUSINESS PHONE: 8036413000 MAIL ADDRESS: STREET 1: 1705 WHISKEY RD SOUTH CITY: AIKEN STATE: SC ZIP: 29803 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 DECEMBER 31, 1999 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 South Carolina 57-0858504 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification) 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: $0.01 PAR VALUE: ------ ---------------------- ---------------- Common Stock December 31, 1999 837,120 INDEX Security Federal Corporation and Subsidiaries ============================================================================== PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE NO. Item 1. Financial Statements (Unaudited): Consolidated Balance Sheets 1 Consolidated Statements of Income 2 Consolidated Statement of Shareholders' Equity 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis Results of Operations and Financial Condition 11 ============================================================================== PART II. OTHER INFORMATION Other Information 16 Signatures 17 Exhibit 27 ============================================================================== 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. i Security Federal Corporation and Subsidiaries Consolidated Balance Sheets December 31, 1999 March 31, 1999 ----------------- -------------- Assets: (Unaudited) (Audited) Cash and Cash Equivalents $ 10,100,464 $ 6,951,347 Investment And Mortgage-Backed Securities: Available For Sale: (Amortized cost of $89,062,912 at December 31, 1999 and $82,240,153 at March 31, 1999) 86,763,559 82,035,772 Held To Maturity: (Fair value of $2,694,346 at December 31, 1999 and $3,579,500 at March 31, 1999) 2,751,292 3,532,863 Loans Receivable Net: Held For Sale 1,094,637 1,604,300 Held For Investment:(Net of allowance of $1,993,132 at December 31, 1999 and $1,715,068 at March 31, 1999) 182,837,156 150,381,301 ----------------- -------------- $ 183,931,793 $ 151,985,601 ----------------- -------------- Accrued Interest Receivable: Loans 783,214 657,153 Mortgage-Backed Securities 197,878 146,739 Investments 641,086 803,696 Premises And Equipment, Net 4,103,374 4,198,774 Federal Home Loan Bank Stock, At Cost 2,425,700 1,245,000 Real Estate Acquired In Settlement Of Loans 144,143 154,143 Real Estate Held For Development And Sale 408,958 552,111 Other Assets 3,248,112 2,454,724 ----------------- -------------- Total Assets $ 295,499,573 $ 254,717,923 ================= ============== Liabilities And Shareholders' Equity Liabilities: Deposit Accounts $ 223,830,690 $ 216,532,683 Advances From Federal Home Loan Bank 47,314,000 14,600,000 Other Borrowed Money 1,411,852 869,270 Advance Payments By Borrowers For Taxes and Insurance 234,600 274,067 Other Liabilities 3,252,261 2,881,461 ----------------- -------------- Total Liabilities $ 276,043,403 $ 235,157,481 ----------------- -------------- Shareholders' Equity: Serial Preferred Stock, $.01 Par Value; Authorized Shares - 200,000 Issued; Outstanding Shares - None Common Stock, $.01 Par Value; Authorized Shares - 5,000,000 Issued; Outstanding Shares - 837,120 At December 31, 1999 And 842,120 At March 31, 1999 $ 8,421 $ 8,421 Additional Paid-In Capital 3,993,733 3,993,733 Indirect Guarantee of Employee Stock Ownership Trust Debt (186,803) 0 Accumulated Other Comprehensive Loss (1,426,519) (127,738) Retained Earnings, Substantially Restricted 17,067,338 15,686,026 ----------------- -------------- Total Shareholders' Equity $ 19,456,170 $ 19,560,442 ----------------- -------------- Total Liabilities And Shareholders' Equity $ 295,499,573 $ 254,717,923 ================= ============== See accompanying notes to consolidated financial statements. 1 Security Federal Corporation and Subsidiaries Consolidated Statements of Income (Unaudited) Three Months Ended December 31, -------------------------------- 1999 1998 --------------- --------------- Interest Income: Loans $ 3,647,245 $ 3,190,024 Mortgage-Backed Securities 576,026 213,763 Investment Securities 824,813 840,174 Other 12,814 62,063 --------------- --------------- Total Interest Income $ 5,060,898 $ 4,306,024 --------------- --------------- Interest Expense: NOW And Money Market Accounts 726,512 563,850 Passbook Accounts 79,391 71,150 Certificate Accounts 1,356,829 1,329,693 Advances And Other Borrowed Money 542,384 242,526 --------------- --------------- Total Interest Expense $ 2,705,116 $ 2,207,219 --------------- --------------- Net Interest Income 2,355,782 2,098,805 Provision For Loan Losses 175,000 150,000 Net Interest Income After --------------- --------------- Provision For Loan Losses $ 2,180,782 $ 1,948,805 Other Income: --------------- --------------- Net Gain On Sale Of Investments 0 0 Gain On Sale Of Loans 71,302 227,160 Loan Servicing Fees 70,438 80,446 Service Fees On Deposit Accounts 305,332 227,174 Income From Real Estate Operations 6,063 13,421 Other 129,396 145,577 --------------- --------------- Total Other Income $ 582,531 $ 693,778 --------------- --------------- General And Administrative Expenses: Salaries And Employee Benefits 1,027,533 1,001,818 Occupancy 133,876 128,068 Advertising 50,301 62,423 Depreciation And Maintenance Of Equipment 230,560 210,290 FDIC Insurance Premiums 23,406 19,133 Amortization Of Intangibles 116,310 116,310 Other 402,824 377,320 --------------- --------------- Total General And Administrative Expenses $ 1,984,810 $ 1,915,362 --------------- --------------- Income Before Income Taxes 778,503 727,221 Provision For Income Taxes 280,499 247,816 --------------- --------------- Net Income $ 498,004 $ 479,405 =============== =============== Basic Net Income Per Common Share $ 0.59 $ 0.57 =============== =============== Diluted Net Income Per Common Share $ 0.59 $ 0.57 =============== =============== Cash Dividend Per Share On Common Stock $ 0.04 $ 0.04 =============== =============== Basic Weighted Average Shares Outstanding 837,120 842,120 Diluted Weighted Average Shares =============== =============== Outstanding 845,917 847,268 =============== =============== See accompanying notes to consolidated financial statements. 2 Security Federal Corporation and Subsidiaries Consolidated Statements of Income (Unaudited) Nine Months Ended December 31, -------------------------------- 1999 1998 --------------- --------------- Interest Income: Loans $ 10,236,015 $ 9,500,091 Mortgage-Backed Securities 1,514,499 459,768 Investment Securities 2,576,080 2,766,655 Other 51,560 107,825 --------------- --------------- Total Interest Income $ 14,378,154 $ 12,834,339 --------------- --------------- Interest Expense: NOW And Money Market Accounts 2,129,046 1,511,292 Passbook Accounts 239,429 219,515 Certificate Accounts 3,968,501 3,889,835 Advances And Other Borrowed Money 1,171,592 787,485 --------------- --------------- Total Interest Expense $ 7,508,568 $ 6,408,127 --------------- --------------- Net Interest Income 6,869,586 6,426,212 Provision For Loan Losses 475,000 450,000 Net Interest Income After Provision --------------- --------------- For Loan Losses $ 6,394,586 $ 5,976,212 --------------- --------------- Other Income: Net Gain On Sale Of Investments 3,022 0 Gain On Sale Of Loans 256,238 515,144 Loan Servicing Fees 215,506 242,363 Service Fees On Deposit Accounts 809,938 640,022 Income From Real Estate Operations 110,762 85,589 Other 393,285 430,536 --------------- --------------- Total Other Income $ 1,788,751 $ 1,913,654 --------------- --------------- General And Administrative Expenses: Salaries And Employee Benefits 3,130,931 2,995,134 Occupancy 390,974 373,164 Advertising 118,407 302,400 Depreciation And Maintenance Of Equipment 673,359 605,636 FDIC Insurance Premiums 67,019 58,674 Amortization Of Intangibles 348,930 348,930 Other 1,174,254 1,214,286 --------------- --------------- Total General And Administrative Expenses $ 5,903,874 $ 5,898,224 --------------- --------------- Income Before Income Taxes 2,279,463 1,991,642 Provision For Income Taxes 797,097 681,550 --------------- --------------- Net Income $ 1,482,366 $ 1,310,092 =============== =============== Basic Net Income Per Common Share $ 1.77 $ 1.56 =============== =============== Diluted Net Income Per Common Share $ 1.76 $ 1.55 =============== =============== Cash Dividend Per Share On Common Stock $ 0.12 $ 0.10 =============== =============== Basic Weighted Average Shares Outstanding 838,775 842,120 =============== =============== Diluted Weighted Average Shares Outstanding 842,883 847,268 =============== =============== See accompanying notes to consolidated financial statements. 3 Security Federal Corporation and Subsidiaries Consolidated Statements of Shareholders' Equity (Unaudited) Accumu- lated Other Indirect Compre- Additional Guarantee hensive Common Paid-In of Income Retained Stock Capital ESOP Debt (Loss) Earnings Total -------- ---------- ---------- ---------- ------------ ------------ Beginning Balance At March 31, 1998 $ 4,211 $3,997,943 $ 0 75,713 $ 13,998,174 $ 18,076,041 Net Income 0 0 0 0 1,310,092 1,310,092 Other Comprehensive Income, Net Of Tax: Unrealized Holding Losses On Securities Available For Sale 0 0 0 59,660 0 59,660 ------------ Comprehensive Income 1,369,752 Effect of Stock Split 4,210 (4,210) Cash Dividends 0 0 0 0 (84,212) (84,212) -------- ---------- ---------- ---------- ------------ ------------ Balance At December 31, 1998 $ 8,421 $3,993,733 $ 0 $ 135,373 $ 15,224,054 $ 19,361,581 ======== ========== ========== ========== ============ ============ Beginning Balance At March 31, 1999 $ 8,421 $3,993,733 $ 0 (127,738) $ 15,686,026 $ 19,560,442 Net Income 0 0 0 0 1,482,366 1,482,366 Other Comprehensive Income, Net Of Tax: Unrealized Holding Losses On Securities Available For Sale 0 0 0 (1,298,781) 0 (1,298,781) ------------ Comprehensive Income 183,585 Increase in Indirect Guarantee of ESOP Debt (186,803) (186,803) Cash Dividends 0 0 0 0 (101,054) (101,054) -------- ---------- ---------- ---------- ------------ ------------ Balance at December 31, 1999 $ 8,421 $3,993,733 $ (186,803) (1,426,519) $ 17,067,338 $ 19,456,170 ======== ========== ========== ========== ============ ============ See accompanying notes to consolidated financial statements. 4
Security Federal Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended December 31, ------------------------------- 1999 1998 --------------- --------------- Cash Flows From Operating Activities: Net Income $ 1,482,366 $ 1,310,092 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation Expense $ 583,431 $ 487,950 Amortization Of Intangibles 348,930 348,930 Discount Accretion And Premium Amortization 132,338 7,918 Provisions For Losses On Loans And Real Estate 475,000 450,000 Gain On Sale Of Securities Available For Sale (3,022) 0 Gain On Sale Of Loans (256,238) (515,144) Gain On Sale Of Real Estate (110,762) (174,740) Amortization Of Deferred Fees On Loans (38,016) (161,746) Proceeds From Sale Of Loans Held For Sale 13,643,214 19,874,230 Origination Of Loans For Sale (12,877,313) (20,420,854) (Increase) Decrease In Accrued Interest Receivable: Loans (126,061) 6,114 Mortgage-Backed Securities (51,139) (43,406) Investments 162,610 20,705 Increase In Advance Payments By Borrowers (39,467) (70,387) Loss On Disposition Of Premises And Equipment 6,538 0 Other, Net (162,130) 994,013 --------------- --------------- Net Cash Provided By Operating Activities $ 3,170,279 $ 2,113,675 --------------- --------------- Cash Flows From Investing Activities: Principal Repayments On Mortgage- Backed Securities Held To Maturity 708,897 $ 625,586 Principal Repayments On Mortgage- Backed Securities Available For Sale 5,468,357 1,326,457 Purchase Of Investment Securities Available For Sale (10,953,938) (26,984,906) Purchase Of Mortgage-Backed Securities Available For Sale (14,796,335) (20,607,698) Maturities Of Investment Securities Available For Sale 11,828,978 25,592,610 Maturities Of Investment Securities Held To Maturity 71,115 2,965,660 Proceeds From Sale of Securities Available For Sale 1,502,422 0 Purchase Of FHLB Stock (2,593,500) 0 Redemption Of FHLB Stock 1,412,800 94,100 Increase In Loans To Customers (32,913,839) (9,165,867) Investment In Real Estate Held For Development (482,703) (353,179) Proceeds From Sale Of Real Estate Held For Development 736,618 432,550 Proceeds From Sale Of Real Estate Acquired Through Foreclosure 31,000 568,305 Purchase And Improvement Of Premises And Equipment (504,744) (782,708) Proceeds From Sale Of Premises And Equipment 10,175 7,000 --------------- --------------- Net Cash Used By Investing Activities $ (40,474,697) $ (26,282,090) --------------- --------------- Cash Flows From Financing Activities: Increase In Deposit Accounts $ 7,298,007 $ 18,994,333 Proceeds From FHLB Advances 122,825,000 66,000,000 Repayment Of FHLB Advances (90,111,000) (59,061,000) Proceeds Of Other Borrowings 577,347 662,568 Repayment Of Other Borrowings (34,765) (59,585) Dividends To Shareholders (101,054) (84,212) --------------- --------------- Net Cash Provided By Financing Activities $ 40,453,535 $ 26,452,104 --------------- --------------- (Continued) 5 Security Federal Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended December 31, ------------------------------- 1999 1998 --------------- --------------- Net Increase (Decrease) In Cash And Cash Equivalents $ 3,149,117 $ 2,283,689 Cash And Cash Equivalents At Beginning Of Period 6,951,347 4,658,681 Cash And Cash Equivalents At End Of --------------- --------------- Period $ 10,100,464 $ 6,942,370 =============== =============== Supplemental Disclosure Of Cash Flows Information: Cash Paid During The Period For Interest $ 7,432,649 $ 6,202,349 Cash Paid During The Period For Income Taxes $ 951,350 $ 557,806 Additions To Real Estate Acquired Through Foreclosure $ 21,000 $ 672,104 Increase (Decrease) In Unrealized Net Loss On Securities Available For Sale, Net Of Taxes $ 1,298,781 $ (59,660) See accompanying notes to consolidated financial statements. 6 Security Federal Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The accompanying unaudited consolidated financial statements were prepared in accordance with instructions from Form 10-QSB and generally accepted accounting principles; therefore, they do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows. Such statements are unaudited but, in the opinion of Management, reflect all adjustments, all of which are of a normal recurring nature and 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 Shareholders when reviewing interim financial statements. The results of operations for the three and nine-month periods ended December 31, 1999 are not necessarily indicative of the results that may be expected for the entire fiscal year. This Form 10-QSB contains certain forward-looking statements with respect to the financial condition, results of operations, and business. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those anticipated by such forward-looking statements include, but are not limited to, changes in interest rates, changes in the regulatory environment, changes in general economic conditions and inflation, changes in the securities market. Management cautions readers of Form 10-QSB not to place undue reliance on forward-looking statements contained herein. 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 the Bank's wholly owned subsidiary, Security Financial Services Corporation ("SFSC"). SFSC engages primarily in investment brokerage services. Also included in the consolidation is a real estate partnership. 3. Loans Receivable, Net Loans Receivable, Net, at December 31, 1999 and March 31, 1999 consisted of the following: Loans held for sale were $1,094,637 and $1,604,300 at December 31, 1999 and March 31, 1999 respectively. Loans Held For Investment: December 31, 1999 March 31, 1999 ----------------- ---------------- Residential Real Estate $ 93,237,326 $ 65,489,233 Consumer 41,325,793 41,631,602 ----------------- ---------------- Commercial Business & Real Estate 60,106,361 52,325,690 ----------------- ---------------- $ 194,669,480 $ 159,446,525 ----------------- ---------------- Less: Allowance For Possible Loan Loss 1,993,132 1,715,068 Loans In Process 9,563,647 7,150,607 Deferred Loan Fees 275,545 199,549 ----------------- ---------------- $ 11,832,324 $ 9,065,224 ----------------- ---------------- $ 182,837,156 $ 150,381,301 ================= ================ The following is a reconciliation of the allowance for loan losses for the nine months ending: December 31, 1999 December 31, 1998 ----------------- ----------------- Beginning Balance $ 1,715,068 $ 1,512,038 Provision 475,000 450,000 Charge-offs (228,306) (291,537) Recoveries 31,370 25,773 ----------------- ----------------- Ending Balance $ 1,993,132 $ 1,696,274 ================= ================= 7 Security Federal Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited), Continued 4. Securities Investment and Mortgage-Backed Securities, Held to Maturity The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of investment and mortgage-backed securities held to maturity are as follows: Gross Gross December 31, 1999 Amortized Unrealized Unrealized - ------------------ Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- U.S. Government and Agency Obligations $ 265,707 $ 3,499 $ 0 $ 269,206 Mortgage-Backed Securities 2,485,585 4,167 64,612 2,425,140 ---------- ---------- ---------- ---------- Total $2,751,292 $ 7,666 $ 64,612 $2,694,346 ========== ========== ========== ========== March 31, 1999 - -------------- U.S. Government and Agency Obligations $ 336,822 $ 542 $ 0 $ 337,364 Mortgage-Backed Securities 3,196,041 46,652 557 3,242,136 ---------- ---------- ---------- ---------- Total $3,532,863 $ 47,194 $ 557 $3,579,500 ========== ========== ========== ========== Investment And Mortgage-Backed Securities, Available For Sale - ------------------------------------------------------------- The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of investment and mortgage-backed securities available for sale are as follows: Gross Gross December 31, 1999 Amortized Unrealized Unrealized - ------------------ Cost Gains Losses Fair Value ----------- ---------- ---------- ----------- U.S. Government and Agency Obligations $54,883,039 $ 4,849 $1,479,193 $53,408,695 Mortgage-Backed Securities 34,179,873 10,659 835,668 33,354,864 ----------- ---------- ---------- ----------- Total $89,062,912 $ 15,508 $2,314,861 $86,763,559 =========== ========== ========== =========== March 31, 1999 - -------------- U.S. Government and Agency Obligations $57,459,009 $ 165,373 $ 264,488 $57,359,894 Mortgage-Backed Securities 24,781,144 23,850 129,116 24,675,878 ----------- ---------- ---------- ----------- Total $82,240,153 $ 189,223 $ 393,604 $82,035,772 =========== ========== ========== =========== 8 Security Federal Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited), Continued 5. Deposits A summary of deposit accounts by type with weighted average rates is as follows: December 31, 1999 March 31, 1999 -------------------- -------------------- Demand Accounts: Balance Rate Balance Rate -------------------- -------------------- Checking $ 53,964,898 0.82% $ 53,435,702 0.84% Money Market 51,936,987 4.59% 49,369,915 4.70% Regular Savings 12,417,801 2.50% 11,847,962 2.47% ------------ ------------ Total Demand Accounts $118,319,686 2.65% $114,653,579 2.67% ============ ============ Certificate Accounts: 0 - 4.99% $ 28,476,543 $ 31,100,943 5.00 - 6.99% 76,894,023 70,640,349 7.00 - 8.99% 140,438 137,812 ------------ ------------ Total Certificate Accounts $105,511,004 5.20% $101,879,104 5.18% ============ ============ Total Deposit Accounts $223,830,690 3.85% $216,532,683 3.85% ============ ============ 6. Federal Home Loan Bank Advances FHLB Advances are summarized by year of maturity and weighted average interest rate in the table below: December 31, 1999 March 31, 1999 -------------------- -------------------- Balance Rate Balance Rate Fiscal Year Due: -------------------- -------------------- 2000 $ 528,000 8.70% $ 528,000 8.70% 2001 41,606,000 5.51% 856,000 8.75% 2002 5,000,000 5.71% 0 0% 2003 0 0 5,000,000 5.69% Thereafter 180,000 7.97% 8,216,000 5.42% ------------ ------------ Total Advances $ 47,314,000 5.58% $ 14,600,000 5.82% ============ ============ 7. Regulatory Matters The following table reconciles the Bank's Shareholders' equity to its various regulatory capital positions: December 31, 1999 March 31, 1999 ------------------ -------------- (Dollars in Thousands) ------------------------------------ Bank's Shareholders' Equity $ 19,048 $ 18,879 Unrealized Loss On Available For Sale Of Securities, Net Of Tax 1,427 128 Reduction For Goodwill And Other Intangibles (1,232) (1,581) ------------------ -------------- Tangible Capital 19,243 17,426 Qualifying Core Deposits And Intangible Assets 585 664 ------------------ -------------- Core Capital 19,828 18,090 Supplementary Capital 1,992 1,715 Assets Required To Be Deducted (53) 0 ------------------ -------------- Risk-Based Capital $ 21,767 $ 19,805 ================== ============== The following table compares the Bank's capital levels relative to the applicable regulatory requirements at December 31, 1999: (Dollars in Thousands) ------------------------------------------------------- Amt. % Actual Actual Excess Excess Required Required Amt. % Amt. % ------------------------------------------------------- Tangible Capital $ 5,908 2.0% $19,243 6.51% $13,335 4.51% Tier 1 Leverage (Core) Capital 11,839 4.0% 19,828 6.70% 7,989 2.70% Total Risk-Based Capital 13,681 8.0% 21,767 12.73% 8,086 4.73% Tier 1 Risk-Based (Core) Capital 6,840 4.0% 19,828 11.59% 12,988 7.59% 9 Security Federal Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited), Continued 7. Regulatory Matters, Continued The Company's regulatory capital amounts and ratios at December 31, 1999 are as follows: To Be Well Capitalized For Under Prompt Capital Adequacy Corrective Action Actual Purposes Provisions ------------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio ------------------------------------------------------- Tier I Risk-Based Core Capital $19,828 11.6% $ 6,840 4.0% $10,260 6.0% Risk-Based Capital (To Risk Weighted Assets) 21,767 12.7% 13,681 8.0% 17,101 10.0% Core Capital (To Adjusted Tangible Assets) 19,828 6.7% 11,839 4.0% 14,799 5.0% Tangible Capital (To Tangible Assets) 19,243 6.5% 5,908 2.0% 14,770 5.0% 10 Security Federal Corporation and Subsidiaries Management's Discussion and Analysis of Results of Operations and Financial Condition Changes in Financial Condition Total assets of the Company increased $40.8 million during the nine months ended December 31, 1999, due primarily to increases of $31.9 million or 21.0% in total net loans receivable, $3.9 million or 4.6% in total investment securities, and an increase of $3.1 million in cash and cash equivalents. The increase in cash and cash equivalents at December 31, 1999, was in accordance with the Company's Y2K plan to have a reserve of cash for customer demands during the century date rollover. Cash demands were actually modest and excess cash has subsequently been reduced. Residential real estate loans, net of loans in process, increased $25.3 million or 43.4% during the period while other loans increased $7.5 million or 8.0%. Combined with higher coupon loans prepaying, this led to a decrease in the overall yield of the loan portfolio. Real estate acquired in settlement of loans (REO) decreased $10,000 while real estate acquired for development decreased $143,000 during the nine-month period due to sales of lots in Willow Woods. Deposits increased $7.3 million or 3.4% during the nine months ended December 31, 1999. Federal Home Loan Bank (FHLB) advances grew $32.7 million to fund the Company's 16.0% growth in assets. The Board of Directors declared the 34th, 35th, and 36th consecutive quarterly dividend of $.04 per share per quarter in May, August, and November 1999, which totaled $101,000. The employee stock ownership plan of the Company borrowed $187,000 to purchase stock for the plan during the nine-month period. Unrealized losses on securities available for sale increased $1.3 million during the nine months ended December 31, 1999, due to the recent rise in U.S. Treasury and agency yields. Net income for the nine months was $1.5 million for the Company. These items combined to decrease shareholders' equity by $104,000 or 0.5% during the nine months ended December 31, 1999. Book value per share was $23.24 at December 31, 1999 compared to $23.23 at March 31, 1999. At its October 1998 Board of Directors meeting, the Board declared a 2-for-1 stock split of the Company's common stock. The stock split was accomplished through a 100% stock dividend that was issued on or about December 15, 1998 to shareholders of record as of November 30, 1998. Liquidity and Capital Resources In accordance with Office of Thrift Supervision (OTS) regulations, the Company is required to maintain a liquidity ratio at specified levels that are subject to change. Currently, a minimum of 4.0% of the combined total of deposits and certain borrowings must be maintained in the form of cash or eligible investments. The Company's average liquidity during the nine months ended December 31, 1999 was approximately 36%. The Company's current liquidity level is deemed adequate to meet the requirements of normal operations, potential deposit outflows, and loan demand while still allowing for optimal investment of funds and return on assets. Although the Company's available for sale investment portfolio had an unrealized net loss at December 31, 1999, the Company plans to hold the majority of those investments until called or maturity. Loan repayments and maturities of investments are a significant source of funds, whereas loan disbursements are a primary use of the Company's funds. During the nine months ended December 31, 1999, loan disbursements exceeded loan repayments resulting in a $31.9 million or 21.0% increase in total net loans receivable. Deposits and other borrowings are also an important source of funds for the Company. During the nine months ended December 31, 1999, deposits increased $7.3 million while FHLB advances increased $32.7 million. At December 31, 1999, the Bank had $84.2 million of certificates of deposit maturing within one year. Based on previous experience, the Bank anticipates a major portion of these certificates will be renewed. Liquidity resources at December 31, 1999 are sufficient to meet outstanding mortgage loan commitments of $838,000 and unused lines of credit of $23.2 million. Management believes that the Company's liquidity needs will continue to be supported by the Company's deposit base and borrowing capacity during the next year. 11 Security Federal Corporation and Subsidiaries Management's Discussion and Analysis of Results of Operations and Financial Condition Accounting and Reporting Changes In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) 133, Accounting for Derivative Instrument and Hedging Activities. All derivatives are to be measured at fair value and recognized in the balance sheet as assets or liabilities. This statement's effective date is delayed by the issuance of SFAS 137 (Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133-an amendment of the FASB Statement No. 133) and is effective for fiscal years and quarters beginning after June 15, 2000. Because the Company has limited use of derivative transactions at this time, Management does not expect this standard to have a significant effect on the Company. In October 1998, the FASB issued SFAS 134, Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise. The new statement establishes accounting and reporting standards for certain activities of mortgage banking enterprises. The statement is effective for the first quarter beginning after December 15, 1998. The statement has no effect on the financial statements of the Company. In February 1999, the FASB issued SFAS 135, Rescission of FASB Statement No. 75 and Technical Corrections. The SFAS provides technical corrections for previously issued statements and rescinds SFAS 75, which provides guidance related to pension plans of state and local governmental units. SFAS 135 is effective for fiscal years ending after February 15, 1999. This statement will not have a material effect on the financial statements of the Company. In June 1999, the FASB issued SFAS 136, Transfers of Assets to a Not-for-Profit Organization or Charitable Trust that Raises or Holds Contributions for Others. This statement establishes standards for transactions in which an entity makes a contribution by transferring assets to a not-for-profit organization or a charitable trust and then requires these contributions to be used in a specified manner. This statement is not expected to have a material impact on the financial statements of the Company. 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 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 inflation. 12 Security Federal Corporation and Subsidiaries Management's Discussion and Analysis of Results of Operations and Financial Condition Year 2000 Considerations The Company experienced no problems with the century date rollover to January 1, 2000. All computer and related systems were monitored and are operating normally for the year 2000. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 - ------------------------------------------------------------------ Net Income Net income was $498,000 for the three months ended December 31, 1999, representing an increase in earnings of $19,000 or 3.9% compared to the same period in 1998. Net Interest Income Net interest income increased $257,000 or 12.2% during the three months ended December 31, 1999 due to an increase in total interest income offset in part by an increase in interest expense. Interest income on loans increased $457,000 or 14.3% during the quarter as a result of total net loans increasing as the average yield in the loan portfolio decreased. Investment, mortgage-backed, and other securities interest income increased $298,000 or 26.7% due to an increase in the average balance in the investment portfolio despite a 10 basis points decline in the average yield in the portfolio. Total interest income rose $755,000 or 17.5% compared to the same period in 1998. Total interest expense increased $498,000 or 22.6% during the three months ended December 31, 1999 compared to the same period one-year earlier. Interest expense on deposits increased $198,000 or 10.1% during the period as deposits grew significantly compared to the average balance in 1998. Interest expense on advances and other borrowings increased $300,000 as the average amount of debt outstanding increased during the 1999 period compared to 1998 although the average cost of the borrowings decreased in the 1999 period. Provision for Loan Losses The Company's provision for loan losses increased $25,000 to $175,000 during the three months ended December 31, 1999 compared to the same quarter in 1998. The amount of the provision is determined by Management's on-going monthly analysis of the loan portfolio. Non-accrual loans, which are loans delinquent 90 days or more, were $1.3 million at December 31, 1999 compared to $1.2 million at March 31, 1999. The ratio of allowance for loan losses to the Company's total loans was 1.07% at December 31, 1999 compared to 1.12% at March 31, 1999. 13 Security Federal Corporation and Subsidiaries Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999, Continued - ----------------------------------------------------------------------------- Other Income Total other income decreased $111,000 or 16.0% during the three months ended December 31, 1999 compared to the same period one-year earlier. Gain on sale of loans decreased $156,000 during the period due to more mortgage customers opting for adjustable rate loans as fixed mortgage loan rates increased. Loan servicing fees decreased $10,000 as the portfolio of loans serviced for others decreased. Service fees on deposit accounts grew $78,000 as the number of commercial and personal demand deposit accounts increased. Income from real estate operations stemming from the Willow Woods partnership decreased $7,000 during the period. Other miscellaneous income including credit life insurance commissions, net gain on sale of repossessed assets, safe deposit rental income, annuity and stock brokerage commissions through SFSC, and other miscellaneous fees decreased $16,000 during the three months ended December 31, 1999. General and Administrative Expenses General and administrative expenses increased $69,000 or 3.6% during the three months ended December 31, 1999 compared to the same period in 1998. Salaries and employee benefits expense grew $26,000 or 2.6% due to normal annual salary increases. Occupancy expense increased $6,000 or 4.5% during the period. Advertising expense decreased $12,000 while the depreciation and maintenance of equipment expense increased $20,000 during the quarterly period. FDIC insurance premiums rose $4,000 as deposit account balances increased. Amortization of intangible expense was $116,000 during the three months ended December 31 in fiscal 1999 and 1998. Other miscellaneous expense, consisting of legal, professional, and consulting expenses, stationery and office supplies, and other sundry expenses, increased $26,000 or 6.8% for the three months ended December 31, 1999 compared to the three months ended December 31, 1998. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 - ----------------------------------------------------------------- Net Income Net income was $1.5 million for the nine months ended December 31, 1999, representing an increase in earnings of $172,000 or 13.2% compared to the same period in 1998. Net Interest Income Net interest income increased $443,000 or 6.9% during the nine months ended December 31, 1999 due to an increase in total interest income offset in part by an increase in interest expense. Interest income on loans increased $736,000 or 7.8% during the nine months in 1999 as a result of total net loans increasing although the average yield in the loan portfolio decreased. Investment, mortgage-backed, and other securities interest income increased $808,000 or 24.2% due to an increase in the average balance in the investment portfolio despite a 17 basis points decline in the average yield in the portfolio. Total interest income rose $1.5 million or 12.0% during the nine months compared to the same period in 1998. Total interest expense increased $1.1 million or 17.2% during the nine months ended December 31, 1999 compared to the same period one-year earlier. Interest expense on deposits increased $716,000 or 12.7% during the period as deposits grew significantly compared to the average balance in 1998 despite a decline in the cost of deposits during the 1999 nine-month period. Interest expense on advances and other borrowings increased $384,000 as the average amount of debt outstanding increased during the 1999 period compared to 1998. 14 Security Federal Corporation and Subsidiaries Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1999, Continued - ---------------------------------------------------------------------------- Provision for Loan Losses The Company's provision for loan losses increased $25,000 to $475,000 during the nine months ended December 31, 1999 compared to the same period one year earlier. The amount of the provision is determined by Management's on-going monthly analysis of the loan portfolio. Non-accrual loans, which are loans delinquent 90 days or more, were $1.3 million at December 31, 1999 compared to $1.2 million at March 31, 1999. The ratio of allowance for loan losses to the Company's total loans was 1.07% at December 31, 1999 compared to 1.12% at March 31, 1999. Net charge-offs were $197,000 during the nine months ended December 31, 1999 compared to $266,000 during the same period in 1998. Other Income Total other income decreased $125,000 or 6.5% during the nine months ended December 31, 1999 compared to the same period one-year earlier. Gain on sale of loans decreased $259,000 as more mortgage loan customers chose an adjustable rate loan as opposed to a fixed rate loan which are generally sold, due to the rise in mortgage rates. Loan-servicing fees decreased $27,000 as the portfolio of loans serviced for others decreased. Service fees on deposit accounts grew $170,000 as the number of commercial and personal demand deposit accounts increased. Income from real estate operations originating from the Willow Woods partnership increased $25,000 during the period. Other miscellaneous income including credit life insurance commissions, net gain on sale of repossessed assets, safe deposit rental income, annuity and stock brokerage commissions through SFSC, and other miscellaneous fees decreased $37,000 during the nine months ended December 31, 1999. General and Administrative Expenses General and administrative expenses increased $6,000 or 0.1% during the nine months ended December 31, 1999 compared to the same period in 1998. Salaries and employee benefits expense increased $136,000 or 4.5% due to an increase in staff in customer service positions to handle increased business and due to normal annual salary increases. Occupancy expense grew by $18,000 or 4.8% during the period. Advertising expense decreased $184,000 while the depreciation and maintenance of equipment expense increased $68,000 during the nine-month period. FDIC insurance premiums rose $8,000 as total deposits increased. Amortization of intangible expense was $349,000 during the nine months ended December 31 in fiscal 1999 and 1998. Other miscellaneous expense, consisting of legal, professional, and consulting expenses, stationery and office supplies, and other sundry expenses, decreased $40,000 or 3.3% for the nine months ended December 31, 1999 compared to the nine months ended December 31, 1998. 15 Security Federal Corporation and Subsidiaries 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 Company 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 And Use Of Proceeds ----------------------------------------- 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 -------------------------------- Exhibits: 3.1 Articles Of Incorporation* 3.2 Articles Of Amendment, Dated August 28, 1998, To Articles Of Incorporation 3.3 Bylaws** 10 Executive Compensation Plans And Arrangements: Salary Continuation Agreements*** Amendment One To Salary Continuation Agreements**** Stock Option Plan*** Incentive Compensation Plan*** 27 Financial Data Schedule * Filed as an exhibit to the Company's June 23, 1998 proxy statement and incorporated herein by reference. ** Filed as an exhibit to the Company's Form 8-K dated August 31, 1998 and incorporated herein by reference. *** Filed on June 28, 1993, as an exhibit to the Company's Annual Report on Form 10-KSB pursuant to Section 12(g) of the Securities Exchange Act of 1934. All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B. **** Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the quarter ended December 31, 1993 pursuant to Section 12(g) of the Securities Exchange Act of 1934. All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B. 16 Security Federal Corporation and Subsidiaries 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: February 10, 2000 By: /s/ Roy O. Lindburg ----------------------------------- Roy G. Lindburg Treasurer/Chief Financial Officer Duly Authorized Representative 17 EX-27 2
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