-----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, GbXRR3tNdiHUTNJqsyfnUIEut7gT2eqSva0Wv5HywMVgV0dIKEHW5gr2njaESfmH F9EIFraZ65YdS6PblEmLSA== /in/edgar/work/0000939057-00-000084/0000939057-00-000084.txt : 20001114 0000939057-00-000084.hdr.sgml : 20001114 ACCESSION NUMBER: 0000939057-00-000084 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECURITY FEDERAL CORPORATION CENTRAL INDEX KEY: 0000818677 STANDARD INDUSTRIAL CLASSIFICATION: [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: 758556 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 0001.txt 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 SEPTEMBER 30, 2000 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 September 30, 2000 836,336 INDEX ============================================================================== 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 18 ============================================================================== 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 September 30, 2000 March 31, 2000 ------------------ ----------------- Assets: (Unaudited) (Audited) Cash and Cash Equivalents $ 7,336,942 $ 7,416,702 Investment And Mortgage-Backed Securities: Available For Sale: (Amortized cost of $85,568,768 at September 30, 2000 and $91,446,235 at March 31, 2000) 83,771,505 88,820,651 Held To Maturity: (Fair value of $2,564,484 at September 30, 2000 and $2,634,400 at March 31, 2000) 2,607,031 2,710,103 ------------------ ----------------- Total Investment and Mortgage-Backed Securities 86,378,536 91,530,754 ------------------ ----------------- Loans Receivable Net: Held For Sale 1,515,367 1,295,676 Held For Investment: (Net of allowance of $2,307,377 at September 30, 2000 and $2,120,767 at March 31, 2000) 216,274,501 191,704,890 ------------------ ----------------- Total Loans Receivable Net $ 217,789,868 $ 193,000,566 ------------------ ----------------- Accrued Interest Receivable: Loans 1,135,213 963,219 Mortgage-Backed Securities 196,519 204,003 Investments 701,924 761,428 Premises And Equipment, Net 4,501,590 4,284,693 Federal Home Loan Bank Stock, At Cost 3,240,900 2,605,600 Real Estate Acquired In Settlement Of Loans 284,603 332,000 Real Estate Held For Development And Sale 254,679 535,878 Other Assets 2,620,094 3,167,115 ------------------ ----------------- Total Assets $ 324,440,868 $ 304,801,958 ================== ================= Liabilities And Shareholders' Equity Liabilities: Deposit Accounts $ 233,403,133 $ 228,823,331 Advances From Federal Home Loan Bank 62,838,000 50,611,000 Other Borrowed Money 3,294,346 2,210,500 Advance Payments By Borrowers For Taxes and Insurance 668,292 373,660 Other Liabilities 3,124,318 3,024,766 ------------------ ----------------- Total Liabilities $ 303,328,089 $ 285,043,257 ------------------ ----------------- Shareholders' Equity: Serial Preferred Stock, $.01 Par Value; Authorized Shares - 200,000; Issued And Outstanding Shares - None Common Stock, $.01 Par Value; Authorized Shares - 5,000,000; Issued And Outstanding Shares - 836,336 At September 30, 2000 And 838,524 At March 31, 2000 $ 8,421 $ 8,421 Additional Paid-In Capital 3,993,733 3,993,733 Indirect Guarantee of Employee Stock Ownership Trust Debt (307,405) (186,803) Accumulated Other Comprehensive Loss (1,115,020) (1,629,150) Retained Earnings, Substantially Restricted 18,533,050 17,572,500 ------------------ ----------------- Total Shareholders' Equity $ 21,112,779 $ 19,758,701 ------------------ ----------------- Total Liabilities And Shareholders' Equity $ 324,440,868 $ 304,801,958 ================== ================= See accompanying notes to consolidated financial statements. 1 Security Federal Corporation and Subsidiaries Consolidated Statements of Income (Unaudited) Three Months Ended September 30, ------------------------------------- 2000 1999 ------------------ ---------------- Interest Income: Loans $ 4,524,913 $ 3,369,395 Mortgage-Backed Securities 582,417 455,674 Investment Securities 844,771 913,608 Other 19,458 13,180 ------------------ ---------------- Total Interest Income 5,971,559 4,751,857 ------------------ ---------------- Interest Expense: NOW And Money Market Accounts 630,056 706,813 Passbook Accounts 79,841 82,463 Certificate Accounts 1,697,815 1,309,665 Advances And Other Borrowed Money 1,026,973 370,348 ------------------ ---------------- Total Interest Expense 3,434,685 2,469,289 ------------------ ---------------- Net Interest Income 2,536,874 2,282,568 Provision For Loan Losses 150,000 150,000 Net Interest Income After Provision ------------------ ---------------- For Loan Losses 2,386,874 2,132,568 Other Income: ------------------ ---------------- Net Gain On Sale Of Investments - 3,022 Gain On Sale Of Loans 91,390 71,432 Loan Servicing Fees 69,487 72,052 Service Fees On Deposit Accounts 252,879 266,160 Income From Real Estate Operations 29,330 69,856 Other 156,750 155,641 ------------------ ---------------- Total Other Income 599,836 638,163 ------------------ ---------------- General And Administrative Expenses: Salaries And Employee Benefits 1,148,799 1,076,096 Occupancy 168,649 131,758 Advertising 37,869 35,646 Depreciation And Maintenance Of Equipment 253,034 233,049 FDIC Insurance Premiums 11,636 22,442 Amortization Of Intangibles 116,310 116,310 Other 428,478 375,440 ------------------ ---------------- Total General And Administrative Expenses 2,164,775 1,990,741 ------------------ ---------------- Income Before Income Taxes 821,935 779,990 Provision For Income Taxes 303,022 270,969 ------------------ ---------------- Net Income $ 518,913 $ 509,021 ================== ================ Basic Net Income Per Common Share $ 0.62 $ 0.61 ================== ================ Diluted Net Income Per Common Share $ 0.61 $ 0.60 ================== ================ Cash Dividend Per Share On Common Stock $ 0.04 $ 0.04 ================== ================ Basic Weighted Average Shares Outstanding 836,859 838,524 ================== ================ Diluted Weighted Average Shares Outstanding 848,536 846,103 ================== ================ See accompanying notes to consolidated financial statements. 2 Security Federal Corporation and Subsidiaries Consolidated Statements of Income (Unaudited) Six Months Ended September 30, ------------------------------------- 2000 1999 ------------------ ---------------- Interest Income: Loans $ 8,685,245 $ 6,588,770 Mortgage-Backed Securities 1,167,477 938,473 Investment Securities 1,713,930 1,751,267 Other 36,760 38,746 ------------------ ---------------- Total Interest Income 11,603,412 9,317,256 ------------------ ---------------- Interest Expense: NOW And Money Market Accounts 1,303,702 1,402,534 Passbook Accounts 161,668 160,038 Certificate Accounts 3,197,142 2,611,672 Advances And Other Borrowed Money 1,903,886 629,208 ------------------ ---------------- Total Interest Expense 6,566,398 4,803,452 ------------------ ---------------- Net Interest Income 5,037,014 4,513,804 Provision For Loan Losses 325,000 300,000 ------------------ ---------------- Net Interest Income After Provision For Loan Losses 4,712,014 4,213,804 ------------------ ---------------- Other Income: Net Gain On Sale Of Investments - 3,022 Gain On Sale Of Loans 142,307 184,936 Loan Servicing Fees 137,162 145,068 Service Fees On Deposit Accounts 513,049 504,606 Income From Real Estate Operations 60,989 104,699 Other 335,089 263,889 ------------------ ---------------- Total Other Income 1,188,596 1,206,220 ------------------ ---------------- General And Administrative Expenses: Salaries And Employee Benefits 2,283,579 2,103,398 Occupancy 302,579 257,098 Advertising 97,926 68,106 Depreciation And Maintenance Of Equipment 495,074 442,799 FDIC Insurance Premiums 23,156 43,613 Amortization Of Intangibles 232,620 232,620 Other 834,285 771,430 ------------------ ---------------- Total General And Administrative Expenses $ 4,269,219 $ 3,919,064 ------------------ ---------------- Income Before Income Taxes 1,631,391 1,500,960 Provision For Income Taxes 603,472 516,598 ------------------ ---------------- Net Income $ 1,027,919 $ 984,362 ================== ================ Basic Net Income Per Common Share $ 1.23 $ 1.17 ================== ================ Diluted Net Income Per Common Share $ 1.21 $ 1.16 ================== ================ Cash Dividend Per Share On Common Stock $ 0.08 $ 0.08 ================== ================ Basic Weighted Average Shares Outstanding 837,553 840,322 ================== ================ Diluted Weighted Average Shares Outstanding 848,536 846,103 ================== ================ 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, 1999 $ 8,421 $3,993,733 $ - $ (127,738) $ 15,686,026 $ 19,560,442 Net Income - - - - 984,362 984,362 Other Comprehensive Income, Net Of Tax: Unrealized Holding Losses On Securities Available For Sale - - - (984,374) - (984,374) ------------ Comprehensive Loss (12) Increase in Indirect Guarantee of ESOP Debt - - (180,000) - - (180,000) Cash Dividends - - - - (67,370) (67,370) Balance at -------- ---------- ---------- ----------- ------------ ------------ September 30, 1999 $ 8,421 $3,993,733 $ (180,000) $(1,112,112) $ 16,603,018 $ 19,313,060 ======== ========== ========== =========== ============ ============ Beginning Balance At March 31, 2000 $ 8,421 $3,993,733 $ (186,803) $(1,629,150) $ 17,572,500 $ 19,758,701 Net Income - - - - 1,027,919 1,027,919 Other Comprehensive Income, Net Of Tax: Unrealized Holding Gains On Securities Available For Sale - - - 514,130 - 514,130 ------------ Comprehensive Income 1,542,049 Increase in Indirect Guarantee of ESOP Debt - - (120,602) - - (120,602) Cash Dividends (67,369) (67,369) Balance at -------- ---------- ---------- ----------- ------------ ------------ September 30, 2000 $ 8,421 $3,993,733 $ (307,405) $(1,115,020) $ 18,533,050 $ 21,112,779 ======== ========== ========== =========== ============ ============ See accompanying notes to consolidated financial statements. 4
Security Federal Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Six Months Ended September 30, ------------------------------------- 2000 1999 ------------------ ---------------- Cash Flows From Operating Activities: Net Income $ 1,027,919 $ 984,362 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation Expense $ 431,994 $ 384,068 Amortization Of Intangibles 232,620 232,620 Discount Accretion And Premium Amortization 15,276 25,628 Provisions For Losses On Loans And Real Estate 325,000 300,000 Gain On Sale Of Securities Available For Sale - (3,022) Gain On Sale Of Loans (142,307) (184,936) Gain On Sale Of Real Estate (93,387) (104,699) Amortization Of Deferred Fees On Loans (71,241) (18,236) Proceeds From Sale Of Loans Held For Sale 7,030,954 10,716,676 Origination Of Loans For Sale (7,108,338) (9,499,123) (Increase) Decrease In Accrued Interest Receivable: Loans (171,994) (194,649) Mortgage-Backed Securities 7,484 (42,612) Investments 59,504 (57,332) Increase In Advance Payments By Borrowers 294,632 243,060 Loss On Disposition Of Premises And Equipment 195 6,738 Other, Net (20,838) 299,794 ------------------ ---------------- Net Cash Provided By Operating Activities $ 1,817,473 $ 3,088,337 ------------------ ---------------- Cash Flows From Investing Activities: Principal Repayments On Mortgage- Backed Securities Held To Maturity $ 103,082 $ 542,172 Principal Repayments On Mortgage- Backed Securities Available For Sale 3,191,144 3,784,081 Purchase Of Investment Securities Available For Sale - (9,953,938) Purchase Of Mortgage-Backed Securities Available For Sale (943,380) (11,130,040) Maturities Of Investment Securities Available For Sale 3,614,416 7,121,971 Maturities Of Investment Securities Held To Maturity - 71,115 Proceeds From Sale of Securities Available For Sale - 1,502,422 Purchase Of FHLB Stock (635,300) (1,483,500) Redemption Of FHLB Stock - 1,267,800 Increase In Loans To Customers (25,124,573) (19,498,858) Investment In Real Estate Held For Development (330,162) (380,727) Proceeds From Sale Of Real Estate Held For Development 672,350 568,420 Proceeds From Sale Of Real Estate Acquired Through Foreclosure 380,998 21,000 Purchase And Improvement Of Premises And Equipment (649,086) (232,671) Proceeds From Sale Of Premises And Equipment - 9,975 ------------------ ---------------- Net Cash Used By Investing Activities $ (19,720,511) $ (27,790,778) ------------------ ---------------- Cash Flows From Financing Activities: Increase In Deposit Accounts $ 4,579,802 $ 6,848,656 Proceeds From FHLB Advances 59,445,000 77,750,000 Repayment Of FHLB Advances (47,218,000) (60,818,000) Proceeds Of Other Borrowings 1,083,846 674,194 Repayment Of Other Borrowings - (34,765) Dividends To Shareholders (67,370) (67,370) ------------------ ---------------- Net Cash Provided By Financing Activities $ 17,823,278 $ 24,352,715 ------------------ ---------------- (Continued) 5 Security Federal Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Six Months Ended September 30, ------------------------------------- 2000 1999 ------------------ ---------------- Net Decrease In Cash And Cash Equivalents $ (79,760) $ (349,726) Cash And Cash Equivalents At Beginning Of Period 7,416,702 6,951,347 ------------------ ---------------- Cash And Cash Equivalents At End Of Period $ 7,336,942 $ 6,601,621 ================== ================ Supplemental Disclosure Of Cash Flows Information: Cash Paid During The Period For Interest $ 4,681,138 $ 4,655,810 Cash Paid During The Period For Income Taxes $ 833,183 $ 641,350 Additions To Real Estate Acquired Through Foreclosure $ 301,203 $ 21,000 (Increase) Decrease In Unrealized Net Loss On Securities Available For Sale, Net Of Taxes $ 514,130 $ (984,374) 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 six-month periods ended September 30, 2000 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"). The Bank is primarily engaged in the business of accepting savings and demand deposits and originating mortgage loans and other loans to individuals and small businesses for various personal and commercial purposes. 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 September 30, 2000 and March 31, 2000 consisted of the following: Loans held for sale were $1,515,367 and $1,295,676 at September 30, 2000 and March 31, 2000, respectively. Loans Held For Investment: September 30, 2000 March 31, 2000 ------------------- ------------------- Residential Real Estate $ 118,123,285 $ 98,151,348 Consumer 43,706,162 41,719,221 Commercial Business & Real Estate 69,665,939 62,062,134 ------------------- ------------------- $ 231,495,386 $ 201,932,703 ------------------- ------------------- Less: Allowance For Possible Loan Loss $ 2,307,377 $ 2,120,767 Loans In Process 12,600,851 7,832,280 Deferred Loan Fees 312,657 274,766 ------------------- ------------------- $ 15,220,885 $ 10,227,813 ------------------- ------------------- $ 216,274,501 $ 191,704,890 =================== =================== The following is a reconciliation of the allowance for loan losses for the six months ending: September 30, 2000 September 30, 1999 ------------------- ------------------- Beginning Balance $ 2,120,767 $ 1,715,068 Provision 325,000 300,000 Charge-offs (159,659) (127,547) Recoveries 21,269 16,114 ------------------- ------------------- Ending Balance $ 2,307,377 $ 1,903,635 =================== =================== 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 September 30, 2000 Amortized Unrealized Unrealized - ------------------ Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- US Government and Agency Obligations $ 265,707 $ 595 $ - $ 266,302 Mortgage-Backed Securities 2,341,324 2,112 45,254 2,298,182 ---------- ---------- ---------- ---------- Total $2,607,031 $ 2,707 $ 45,254 $2,564,484 ========== ========== ========== ========== March 31, 2000 - -------------- US Government and Agency Obligations $ 265,707 $ 3,034 $ - $ 268,741 Mortgage-Backed Securities 2,444,396 2,966 81,703 2,365,659 ---------- ---------- ---------- ---------- Total $2,710,103 $ 6,000 $ 81,703 $2,634,400 ========== ========== ========== ========== 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 September 30, 2000 Amortized Unrealized Unrealized - ------------------ Cost Gains Losses Fair Value ----------- ---------- ---------- ----------- US Government and Agency Obligations $52,184,782 $ - $1,161,435 $51,023,347 Mortgage-Backed Securities 33,383,986 2,661 638,489 32,748,158 ----------- ---------- ---------- ----------- Total $85,568,768 $ 2,661 $1,799,924 $83,771,505 =========== ========== ========== =========== March 31, 2000 - -------------- US Government and Agency Obligations $55,783,474 $ 1,017 $1,618,734 $54,165,757 Mortgage-Backed Securities 35,662,761 1,293 1,009,160 34,654,894 ----------- ---------- ---------- ----------- Total $91,446,235 $ 2,310 $2,627,894 $88,820,651 =========== ========== ========== =========== 8 Security Federal Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited), Continued 5. Deposit Accounts A summary of deposit accounts by type with weighted average rates is as follows: September 30, 2000 March 31, 2000 ------------------------ ------------------------ Demand Accounts: Balance Rate Balance Rate ------------- --------- ------------- -------- Checking $ 58,921,225 0.76% $ 58,304,679 0.89% Money Market 45,411,580 5.07% 51,636,465 4.60% Regular Savings 12,492,119 2.50% 13,203,395 2.50% ------------- ------------- Total Demand Accounts $ 116,824,924 2.62% $ 123,144,539 2.62% ============= ============= Certificate Accounts: 0 - 4.99% $ 4,295,830 $ 15,575,152 5.00 - 6.99% 103,489,098 90,103,640 7.00 - 8.99% 8,793,281 - ------------- ------------- Total Certificate Accounts $ 116,578,209 6.07% $ 105,678,792 5.41% ============= ============= Total Deposit Accounts $ 233,403,133 4.34% $ 228,823,331 3.90% ============= ============= 6. Advances From Federal Home Loan Bank Federal Home Loan Bank Advances are summarized by year of maturity and weighted average interest rate in the table below: September 30, 2000 March 31, 2000 ------------------------ ------------------------ Fiscal Year Due: Balance Rate Balance Rate ------------- --------- ------------- -------- 2001 $ 52,676,000 6.77% $ 35,431,000 5.88% 2002 5,000,000 5.71% 5,000,000 5.71% 2003 - 0% 5,000,000 6.36% 2004 - 0% - 0% Thereafter 5,162,000 6.60% 5,180,000 6.60% ------------- --------- ------------- -------- Total Advances $ 62,838,000 6.67% $ 50,611,000 5.99% ============= ============= 7. Regulatory Matters The following table reconciles the Bank's Shareholders' equity to its various regulatory capital positions: September 30, 2000 March 31, 2000 (Dollars in Thousands) ---------------------------------------- Bank's Shareholders' Equity $ 20,952 $ 19,414 Unrealized Loss On Available For Sale Of Securities, Net Of Tax 1,115 1,629 Reduction For Goodwill And Other Intangibles (883) (1,116) ------------------ ---------------- Tangible Capital 21,184 19,927 Qualifying Core Deposits And Intangible Assets 515 559 ------------------ ---------------- Core Capital 21,699 20,486 Supplemental Capital 2,307 2,121 Assets Required To Be Deducted (171) (103) ================== ================ Risk-Based Capital $ 23,835 $ 22,504 ================== ================ The following table compares the Bank's capital levels relative to the applicable regulatory requirements at September 30, 2000. (Dollars in Thousands) ------------------------------------------------------- Amt. % Actual Actual Excess Excess Required Required Amt. % Amt. % ------------------------------------------------------- Tangible Capital $ 6,494 2.0% $21,184 6.52% $14,690 4.52% Tier 1 Leverage (Core) Capital 13,009 4.0% 21,699 6.67% 8,690 2.67% Total Risk-Based Capital 16,034 8.0% 23,835 11.89% 7,801 3.89% Tier 1 Risk-Based (Core) Capital 8,017 4.0% 21,699 10.83% 13,682 6.83% 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 September 30, 2000 are as follows: To Be Well Capitalized For Under Prompt (Dollars in Thousands) Capital Adequacy Corrective Action Actual Purposes Provisions ------------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio ------------------------------------------------------- Tier I Risk-Based Core Capital $21,699 10.8% $ 8,017 4.0% $12,025 6.0% Risk-Based Capital (To Risk Weighted Assets) 23,835 11.9% 16,034 8.0% 20,042 10.0% Core Capital (To Adjusted Tangible Assets) 21,699 6.7% 13,009 4.0% 16,261 5.0% Tangible Capital (To Tangible Assets) 21,184 6.5% 6,494 2.0% 16,236 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 $19.6 million during the six months ended September 30, 2000, due primarily to an increase of $24.8 million or 12.8% in total net loans receivable offset partially by a $5.2 million or 5.6% decrease in total investment securities. Residential real estate loans, net of loans in process, increased $15.2 million or 16.8% during the period while other loans increased $9.6 million or 9.2%. Real estate acquired in settlement of loans (REO) decreased $47,000 while real estate held for development and sale decreased $281,000 during the six-month period due to sales of lots in Willow Woods. Deposits increased $4.6 million or 2.0% during the six months ended September 30, 2000 and advances from Federal Home Loan Bank (FHLB) grew $12.2 million to fund the Company's 6.4% growth in assets. The Board of Directors declared the 38th and 39th consecutive quarterly dividend of $.04 per share in May and August 2000, which totaled $67,000. The employee stock ownership trust of the Company borrowed $121,000 to purchase stock for the plan during the six-month period. Unrealized losses on securities available for sale decreased $514,000 during the six months ended September 30, 2000 due to the recent decrease in U.S. Treasury and agency bond yields. Net income for the six months was $1.0 million for the Company. These items combined to increase shareholders' equity by $1.4 million or 6.9% during the six months ended September 30, 2000. Book value per share was $25.24 at September 30, 2000 compared to $23.56 at March 31, 2000. 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 six months ended September 30, 2000 was approximately 25%. 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. 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 six months ended September 30, 2000, loan disbursements exceeded loan repayments resulting in a $24.8 million or 12.8% increase in total net loans receivable. Deposits and other borrowings are also an important source of funds for the Company. During the six months ended September 30, 2000, deposits increased $4.6 million while FHLB advances increased $12.2 million. At September 30, 2000, the Bank had $77.0 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 September 30, 2000 are sufficient to meet outstanding mortgage loan commitments of $713,000 and unused lines of credit of $24.3 million. Management believes that the Company's liquidity needs will continue to be supported by the Company's deposit base and borrowing capacity. 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. Statement of Financial Accounting Standard (SFAS) 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities was issued in June 2000 and amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and hedging activities. The two statements are to be adopted concurrently and are effective for fiscal years and quarters beginning after June 15, 2000. The Company does not expect that the adoption of SFAS No. 133 and SFAS No. 138 will have a material impact on the presentation of the Company's financial results or financial position. Other accounting standards that have been issued or proposed by the Financial Accounting Standards Board that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. 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 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 - ------------------------------------------------------------------- Net Income Net income was $519,000 for the three months ended September 30, 2000, representing an increase in earnings of $10,000 or 1.9% compared to the same period in 1999. Net Interest Income Net interest income increased $254,000 or 11.1% during the three months ended September 30, 2000 due to an increase in total interest income offset in part by an increase in interest expense. Interest income on loans increased $1.2 million or 34.3% during the period as a result of total net loans significantly increasing in the portfolio. Investment, mortgage-backed, and other securities interest income increased $64,000 or 4.6% due to an increase in the average yield in the investment portfolio of 19 basis points. Total interest income rose $1.2 million or 25.7% compared to the same period in 1999. Total interest expense increased $965,000 or 39.1% during the three months ended September 30, 2000 compared to the same period one-year earlier. Interest expense on deposits increased $309,000 or 14.7% during the period as the average balance and the average cost of deposits increased during the quarter ended September 30, 2000. Interest expense on advances and other borrowings increased $657,000 as the average amount of debt outstanding increased and the cost of those borrowings increased during the 2000 period compared to same period in 1999. Provision for Loan Losses The Bank's provision for loan losses was $150,000 during both the three months ended September 30, 2000 and 1999. 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 $233,000 at September 30, 2000 compared to $890,000 at March 31, 2000. The ratio of allowance for loan losses to the Company's total loans was 1.06% at September 30, 2000 compared to 1.09% at March 31, 2000. 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 SEPTEMBER 30, 2000, Continued - ------------------------------------------------------------------------------ Other Income Total other income decreased $38,000 or 6.0% during the three months ended September 30, 2000 compared to the same period one-year earlier. Gain on sale of loans increased $20,000 during the period. Loan servicing fees decreased $3,000 as the portfolio of loans serviced for others decreased. Service fees on deposit accounts decreased $13,000. Income from real estate operations related to the Willow Woods partnership decreased $41,000 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 increased $1,000 during the three months ended September 30, 2000. General and Administrative Expenses General and administrative expenses increased $174,000 or 8.7% during the three months ended September 30, 2000 compared to the same period in 1999. Salaries and employee benefits expense grew $73,000 or 6.8% due to an increase in staff in customer service positions to handle increased business and due to normal annual salary increases. Occupancy expense increased $37,000 or 28.0% during the period as a result of a new lease on the building that will house the new West Columbia branch office. Advertising expense increased $2,000 while the depreciation and maintenance of equipment expense increased $20,000 during the quarterly period. FDIC insurance premiums decreased $11,000. Amortization of intangibles expense was $116,000 during the three months ended September 30 in fiscal 2000 and 1999. Other miscellaneous expense, consisting of legal, professional, and consulting expenses, stationery and office supplies, and other sundry expenses, increased $53,000 or 14.1% for the three months ended September 30, 2000 compared to the three months ended September 30, 1999. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 - ----------------------------------------------------------------- Net Income Net income was $1.0 million for the six months ended September 30, 2000, representing an increase in earnings of $44,000 or 4.4% compared to the same period in 1999. Net Interest Income Net interest income increased $523,000 or 11.6% during the six months ended September 30, 2000 as a result of an increase in total interest income offset in part by an increase in interest expense. Interest income on loans increased $2.1 million or 31.8% during the six months in 2000 as a result of total net loans increasing during the period. Investment, mortgage-backed, and other securities interest income increased $192,000 or 7.1% due to an increase of 19 basis points in the average yield of the investment portfolio. Total interest income increased $2.3 million or 24.5% during the six months compared to the same period in 1999. Total interest expense increased $1.8 million or 36.7% during the six months ended September 30, 2000 compared to the same period one-year earlier. Interest expense on deposits increased $488,000 or 11.7% during the period as deposits grew compared to the average balance in 1999 and the cost of deposits also increased. Interest expense on advances and other borrowings increased $1.3 million as the average amount of debt outstanding increased during the 2000 period compared to 1999. 14 Security Federal Corporation and Subsidiaries Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000, Continued - ---------------------------------------------------------------------------- Provision for Loan Losses The Bank's provision for loan losses was $325,000 during the six months ended September 30, 2000 compared to $300,000 during the six months ended September 30, 1999. 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 $233,000 at September 30, 2000 compared to $890,000 at March 31, 2000. The ratio of allowance for loan losses to the Company's total loans was 1.06% at September 30, 2000 compared to 1.09% at March 31, 2000. Net charge-offs were $138,000 during the six months ended September 30, 2000 compared to $111,000 during the same period in 1999. Other Income Total other income decreased $18,000 or 1.5% during the six months ended September 30, 2000 compared to the same period one-year earlier. Gain on sale of loans decreased $43,000 as more mortgage loan customers chose an adjustable rate loan as opposed to a fixed rate loan, which are generally sold. Loan-servicing fees decreased $8,000 as the portfolio of loans serviced for others decreased. Service fees on deposit accounts grew $8,000 as the number of commercial and personal demand deposit accounts increased. Income from real estate operations originating from the Willow Woods partnership decreased $44,000 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 increased $71,000 during the six months ended September 30, 2000. General and Administrative Expenses General and administrative expenses increased $350,000 or 8.9% during the six months ended September 30, 2000 compared to the same period in 1999. Salaries and employee benefits expense increased $180,000 or 8.6% as a result of an increase in staff in customer service positions to handle increased business and due to normal annual salary increases. Occupancy expense increased by $45,000 or 17.7% during the period. Advertising expense increased $30,000 while the depreciation and maintenance of equipment expense increased $52,000 during the six-month period. FDIC insurance premiums decreased $20,000. Amortization of intangibles expense was $233,000 during the six months ended September 30 in fiscal 2000 and 1999, respectively. Other miscellaneous expense, consisting of legal, professional, and consulting expenses, stationery and office supplies, and other sundry expenses, increased $63,000 or 8.2% for the six months ended September 30, 2000 compared to the six months ended September 30, 1999. 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 --------------------------------------------------- The election of directors was presented for vote to shareholders at the Annual Meeting on July 18, 2000. Votes for Timothy W. Simmons were as follows: 659,281 votes for, 20,203 votes withheld. Votes for T. Clifton Weeks were as follows: 659,281 votes for, 20,203 votes withheld. 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 September 30, 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 and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SECURITY FEDERAL CORPORATION Date: November 13, 2000 By: s/s Roy G. ,Lindburg ----------------------------------- Roy G. Lindburg Treasurer/CFO Duly Authorized Representative EX-27 2 0002.txt
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