-----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, VuT52+IEwkMWnJrAtA/HuMpRUW0oBtiXSsbUxg3GzH9IjdD3vARHlj2kpBANV1A3 2swyZNfzGKwrd0f5QHGsyQ== 0000939057-01-500003.txt : 20010212 0000939057-01-500003.hdr.sgml : 20010212 ACCESSION NUMBER: 0000939057-01-500003 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010209 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: 1530089 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 q3-1201.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 DECEMBER 31, 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 January 31, 2001 1,670,012 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 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. i Security Federal Corporation and Subsidiaries Consolidated Balance Sheets December 31, 2000 March 31, 2000 ----------------- ----------------- Assets: (Unaudited) (Audited) Cash and Cash Equivalents $ 8,074,671 $ 7,416,702 Investment And Mortgage-Backed Securities: Available For Sale: (Amortized cost of $83,765,330 at December 31, 2000 and $91,446,235 at March 31, 2000) 83,208,030 88,820,651 Held To Maturity: (Fair value of $2,572,966 at December 31, 2000 and $2,634,400 at March 31, 2000) 2,564,126 2,710,103 ----------------- ----------------- Total Investment and Mortgage-Backed Securities 85,772,156 91,530,754 ----------------- ----------------- Loans Receivable Net: Held For Sale 2,290,195 1,295,676 Held For Investment: (Net of allow- ance of $2,450,298 at December 31, 2000 and $2,120,767 at March 31, 2000) 224,076,247 191,704,890 ----------------- ----------------- Total Loans Receivable Net $ 226,366,442 $ 193,000,566 ----------------- ----------------- Accrued Interest Receivable: Loans 1,267,689 963,219 Mortgage-Backed Securities 186,904 204,003 Investments 572,909 761,428 Premises And Equipment, Net 5,166,487 4,284,693 Federal Home Loan Bank Stock, At Cost 3,431,000 2,605,600 Real Estate Acquired In Settlement Of Loans 259,000 332,000 Real Estate Held For Development And Sale 272,673 535,878 Other Assets 1,918,050 3,167,115 ----------------- ----------------- Total Assets $ 333,287,981 $ 304,801,958 ================= ================= Liabilities And Shareholders' Equity Liabilities: Deposit Accounts $ 235,568,545 $ 228,823,331 Advances From Federal Home Loan Bank 68,620,000 50,611,000 Other Borrowed Money 3,397,821 2,210,500 Advance Payments By Borrowers For Taxes and Insurance 269,305 373,660 Other Liabilities 3,149,034 3,024,766 ----------------- ----------------- Total Liabilities $ 311,004,705 $ 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 - 1,670,012 At December 31, 2000 And 838,524 At March 31, 2000 $ 16,842 $ 8,421 Additional Paid-In Capital 3,985,312 3,993,733 Indirect Guarantee of Employee Stock Ownership Trust Debt (380,555) (186,803) Accumulated Other Comprehensive Loss (345,749) (1,629,150) Retained Earnings, Substantially Restricted 19,007,426 17,572,500 ----------------- ----------------- Total Shareholders' Equity $ 22,283,276 $ 19,758,701 ----------------- ----------------- Total Liabilities And Shareholders' Equity $ 333,287,981 $ 304,801,958 ================= ================= See accompanying notes to consolidated financial statements. 1 Security Federal Corporation and Subsidiaries Consolidated Statements of Income (Unaudited) Three Months Ended December 31, ------------------------------------- 2000 1999 ------------------ ---------------- Interest Income: Loans $ 4,874,332 $ 3,647,245 Mortgage-Backed Securities 554,754 576,026 Investment Securities 830,953 824,813 Other 22,501 12,814 ------------------ ---------------- Total Interest Income 6,282,540 5,060,898 ------------------ ---------------- Interest Expense: NOW And Money Market Accounts 686,393 726,512 Passbook Accounts 75,926 79,391 Certificate Accounts 1,819,846 1,356,829 Advances And Other Borrowed Money 1,146,083 542,384 ------------------ ---------------- Total Interest Expense 3,728,248 2,705,116 ------------------ ---------------- Net Interest Income 2,554,292 2,355,782 Provision For Loan Losses 150,000 175,000 Net Interest Income After Provision For Loan Losses 2,404,292 2,180,782 Other Income: Gain On Sale Of Loans 144,326 71,302 Loan Servicing Fees 80,781 70,438 Service Fees On Deposit Accounts 259,009 305,332 Income (Loss) From Real Estate Operations (14,328) 6,063 Other 121,061 129,396 ------------------ ---------------- Total Other Income 590,849 582,531 ------------------ ---------------- General And Administrative Expenses: Salaries And Employee Benefits 1,206,099 1,027,533 Occupancy 185,580 133,876 Advertising 53,085 50,301 Depreciation And Maintenance Of Equipment 259,118 230,560 FDIC Insurance Premiums 11,479 23,406 Amortization Of Intangibles 116,310 116,310 Other 370,524 402,824 ------------------ ---------------- Total General And Administrative Expenses 2,202,195 1,984,810 ------------------ ---------------- Income Before Income Taxes 792,946 778,503 Provision For Income Taxes 284,886 280,499 ------------------ ---------------- Net Income $ 508,060 $ 498,004 ================== ================ Basic Net Income Per Common Share $ 0.30 $ 0.30 ================== ================ Diluted Net Income Per Common Share $ 0.30 $ 0.29 ================== ================ Cash Dividend Per Share On Common Stock $ 0.02 $ 0.02 ================== ================ Basic Weighted Average Shares Outstanding 1,670,434 1,677,048 ================== ================ Diluted Weighted Average Shares Outstanding 1,702,206 1,692,206 ================== ================ See accompanying notes to consolidated financial statements. 2 Security Federal Corporation and Subsidiaries Consolidated Statements of Income (Unaudited) Nine Months Ended December 31, ------------------------------------- 2000 1999 ------------------ ---------------- Interest Income: Loans $ 13,559,577 $ 10,236,015 Mortgage-Backed Securities 1,722,231 1,514,499 Investment Securities 2,544,883 2,576,080 Other 59,261 51,560 ------------------ ---------------- Total Interest Income 17,885,952 14,378,154 ------------------ ---------------- Interest Expense: NOW And Money Market Accounts 1,990,095 2,129,046 Passbook Accounts 237,594 239,429 Certificate Accounts 5,016,988 3,968,501 Advances And Other Borrowed Money 3,049,969 1,171,592 ------------------ ---------------- Total Interest Expense 10,294,646 7,508,568 ------------------ ---------------- Net Interest Income 7,591,306 6,869,586 Provision For Loan Losses 475,000 475,000 ------------------ ---------------- Net Interest Income After Provision For Loan Losses 7,116,306 6,394,586 ------------------ ---------------- Other Income: Net Gain On Sale Of Investments - 3,022 Gain On Sale Of Loans 286,633 256,238 Loan Servicing Fees 217,943 215,506 Service Fees On Deposit Accounts 772,058 809,938 Income From Real Estate Operations 46,661 110,762 Other 456,150 393,285 ------------------ ---------------- Total Other Income 1,779,445 1,788,751 ------------------ ---------------- General And Administrative Expenses: Salaries And Employee Benefits 3,489,678 3,130,931 Occupancy 488,159 390,974 Advertising 151,011 118,407 Depreciation And Maintenance Of Equipment 754,192 673,359 FDIC Insurance Premiums 34,635 67,019 Amortization Of Intangibles 348,930 348,930 Other 1,204,809 1,174,254 ------------------ ---------------- Total General And Administrative Expenses $ 6,471,414 $ 5,903,874 ------------------ ---------------- Income Before Income Taxes 2,424,337 2,279,463 Provision For Income Taxes 888,358 797,097 ------------------ ---------------- Net Income $ 1,535,979 $ 1,482,366 ================== ================ Basic Net Income Per Common Share $ 0.92 $ 0.88 ================== ================ Diluted Net Income Per Common Share $ 0.90 $ 0.88 ================== ================ Cash Dividend Per Share On Common Stock $ 0.06 $ 0.06 ================== ================ Basic Weighted Average Shares Outstanding 1,672,798 1,680,644 ================== ================ Diluted Weighted Average Shares Outstanding 1,702,206 1,692,206 ================== ================ 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 - - - - 1,482,366 1,482,366 Other Comprehensive Income, Net Of Tax: Unrealized Holding Losses On Securities Available For Sale - - - (1,298,781) - (1,298,781) ------------ Comprehensive Income 183,585 Increase in Indirect Guarantee of ESOP Debt - - (186,803) - - (186,803) Cash Dividends - - - - (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 ======== ========== ========== =========== ============ ============ Beginning Balance At March 31, 2000 $ 8,421 $3,993,733 $ (186,803) $(1,629,150) $ 17,572,500 $ 19,758,701 Net Income - - - - 1,535,979 1,535,979 Other Comprehensive Income, Net Of Tax: Unrealized Holding Gains On Securities Available For Sale - - - 1,283,401 - 1,283,401 ------------ Comprehensive Income 2,819,380 Effect of Stock Split 8,421 (8,421) - Increase in Indirect Guarantee of ESOP Debt - - (193,752) - - (193,752) Cash Dividends (101,053) (101,053) Balance at -------- ---------- ---------- ----------- ------------ ------------ December 31, 2000 $ 16,842 $3,985,312 $ (380,555) $ (345,749) $ 19,007,426 $ 22,283,276 ======== ========== ========== =========== ============ ============ See accompanying notes to consolidated financial statements. 4
Security Federal Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended December 31, ------------------------------------- 2000 1999 ------------------ ---------------- Cash Flows From Operating Activities: Net Income $ 1,535,979 $ 1,482,366 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation Expense $ 654,941 $ 583,431 Amortization Of Intangibles 348,930 348,930 Discount Accretion And Premium Amortization 20,532 132,338 Provisions For Losses On Loans And Real Estate 475,000 475,000 Gain On Sale Of Securities Available For Sale - (3,022) Gain On Sale Of Loans (286,633) (256,238) Gain On Sale Of Real Estate (78,967) (110,762) Amortization Of Deferred Fees On Loans (108,794) (38,016) Proceeds From Sale Of Loans Held For Sale 16,067,773 13,643,214 Origination Of Loans For Sale (16,775,659) (12,877,313) (Increase) Decrease In Accrued Interest Receivable: Loans (304,470) (126,061) Mortgage-Backed Securities 17,099 (51,139) Investments 188,519 162,610 Increase In Advance Payments By Borrowers (104,355) (39,467) Loss On Disposition Of Premises And Equipment 195 6,538 Other, Net 45,768 (162,130) ------------------ ---------------- Net Cash Provided By Operating Activities $ 1,695,858 $ 3,170,279 ------------------ ---------------- Cash Flows From Investing Activities: Principal Repayments On Mortgage- Backed Securities Held To Maturity $ 145,991 $ 708,897 Principal Repayments On Mortgage- Backed Securities Available For Sale 4,948,570 5,468,357 Purchase Of Investment Securities Available For Sale - (10,953,938) Purchase Of Mortgage-Backed Securities Available For Sale (943,380) (14,796,335) Maturities Of Investment Securities Available For Sale 3,655,169 11,828,978 Maturities Of Investment Securities Held To Maturity - 71,115 Proceeds From Sale of Securities Available For Sale - 1,502,422 Purchase Of FHLB Stock (825,400) (2,593,500) Redemption Of FHLB Stock - 1,412,800 Increase In Loans To Customers (33,038,766) (32,913,839) Investment In Real Estate Held For Development (402,534) (482,703) Proceeds From Sale Of Real Estate Held For Development 712,400 736,618 Proceeds From Sale Of Real Estate Acquired Through Foreclosure 406,509 31,000 Purchase And Improvement Of Premises And Equipment (1,536,930) (504,744) Proceeds From Sale Of Premises And Equipment - 10,175 ------------------ ---------------- Net Cash Used By Investing Activities $ (26,878,371) $ (40,474,697) ------------------ ---------------- Cash Flows From Financing Activities: Increase In Deposit Accounts $ 6,745,214 $ 7,298,007 Proceeds From FHLB Advances 78,645,000 122,825,000 Repayment Of FHLB Advances (60,636,000) (90,111,000) Proceeds Of Other Borrowings 1,187,321 577,347 Repayment Of Other Borrowings - (34,765) Dividends To Shareholders (101,053) (101,054) ------------------ ---------------- Net Cash Provided By Financing Activities $ 25,840,482 $ 40,453,535 ------------------ ---------------- (Continued) 5 Security Federal Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended December 31, ------------------------------------- 2000 1999 ------------------ ---------------- Net Increase In Cash And Cash Equivalents $ 657,969 $ 3,149,117 Cash And Cash Equivalents At Beginning Of Period 7,416,702 6,951,347 ------------------ ---------------- Cash And Cash Equivalents At End Of Period $ 8,074,671 $ 10,100,464 ================== ================ Supplemental Disclosure Of Cash Flows Information: Cash Paid During The Period For Interest $ 9,959,311 $ 7,432,649 Cash Paid During The Period For Income Taxes $ 1,188,183 $ 951,350 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 $ 1,283,401 $ (1,298,781) 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, 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 this 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 December 31, 2000 and March 31, 2000 consisted of the following: Loans held for sale were $2,290,195 and $1,295,676 at December 31, 2000 and March 31, 2000, respectively. Loans Held For Investment: December 31, 2000 March 31, 2000 ------------------- ------------------- Residential Real Estate $ 119,246,132 $ 98,151,348 Consumer 45,579,233 41,719,221 Commercial Business & Real Estate 72,279,549 62,062,134 ------------------- ------------------- $ 237,104,914 $ 201,932,703 ------------------- ------------------- Less: Allowance For Possible Loan Loss $ 2,450,298 $ 2,120,767 Loans In Process 10,335,499 7,832,280 Deferred Loan Fees 242,870 274,766 ------------------- ------------------- $ 13,028,667 $ 10,227,813 ------------------- ------------------- $ 224,076,247 $ 191,704,890 =================== =================== The following is a reconciliation of the allowance for loan losses for the nine months ending: December 31, 2000 December 31, 1999 ------------------- ------------------- Beginning Balance $ 2,120,767 $ 1,715,068 Provision 475,000 475,000 Charge-offs (203,376) (228,306) Recoveries 57,907 31,370 ------------------- ------------------- Ending Balance $ 2,450,298 $ 1,993,132 =================== =================== 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, 2000 Amortized Unrealized Unrealized - ----------------- Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- US Government and Agency Obligations $ 265,707 $ 2,301 $ - $ 268,008 Mortgage-Backed Securities 2,298,419 14,120 7,581 2,304,958 ---------- ---------- ---------- ---------- Total $2,564,126 $ 16,421 $ 7,581 $2,572,966 ========== ========== ========== ========== 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 December 31, 2000 Amortized Unrealized Unrealized - ----------------- Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- US Government and Agency Obligations $52,151,797 $ 20,689 $ 465,183 $51,707,303 Mortgage-Backed Securities 31,613,533 126,502 239,308 31,500,727 ----------- ---------- ---------- ----------- Total $83,765,330 $ 147,191 $ 704,491 $83,208,030 =========== ========== ========== =========== 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: December 31, 2000 March 31, 2000 ------------------------ ------------------------ Demand Accounts: Balance Rate Balance Rate ------------- --------- ------------- -------- Checking $ 55,663,233 0.62% $ 58,304,679 0.89% Money Market 46,240,536 5.07% 51,636,465 4.60% Regular Savings 11,919,202 2.45% 13,203,395 2.50% ------------- ------------- Total Demand Accounts $ 113,822,971 2.63% $ 123,144,539 2.62% ============= ============= Certificate Accounts: 0 - 4.99% $ 3,051,937 $ 15,575,152 5.00 - 6.99% 108,069,763 90,103,640 7.00 - 8.99% 10,623,874 - ------------- ------------- Total Certificate Accounts $ 121,745,574 6.19% $ 105,678,792 5.41% ============= ============= Total Deposit Accounts $ 235,568,545 4.47% $ 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: December 31, 2000 March 31, 2000 ------------------------ ------------------------ Fiscal Year Due: Balance Rate Balance Rate ------------- --------- ------------- -------- 2001 $ 35,476,000 6.76% $ 35,431,000 5.88% 2002 - -% 5,000,000 5.71% 2003 5,000,000 6.36% 5,000,000 6.36% 2004 - -% - -% Thereafter 28,144,000 6.04% 5,180,000 6.60% ------------- ------------- Total Advances $ 68,620,000 6.44% $ 50,611,000 5.99% ============= ============= 7. Regulatory Matters The following table reconciles the Bank's Shareholders' Equity to its various regulatory capital positions: December 31, 2000 March 31, 2000 (Dollars in Thousands) ---------------------------------------- Bank's Shareholders' Equity $ 22,233 $ 19,414 Unrealized Loss On Available For Sale Of Securities, Net Of Tax 345 1,629 Reduction For Goodwill And Other Intangibles (767) (1,116) ------------------ ---------------- Tangible Capital 21,811 19,927 Qualifying Core Deposits And Intangible Assets 492 559 ------------------ ---------------- Core Capital 22,303 20,486 Supplemental Capital 2,450 2,121 Assets Required To Be Deducted (216) (103) ------------------ ---------------- Risk-Based Capital $ 24,537 $ 22,504 ================== ================ The following table compares the Bank's capital levels relative to the applicable regulatory requirements at December 31, 2000. (Dollars in Thousands) ------------------------------------------------------- Amt. % Actual Actual Excess Excess Required Required Amt. % Amt. % ------------------------------------------------------- Tangible Capital $ 6,659 2.0% $21,811 6.55% $15,152 4.55% Tier 1 Leverage (Core) Capital 13,338 4.0% 22,303 6.69% 8,965 2.69% Total Risk-Based Capital 16,519 8.0% 24,537 11.88% 8,018 3.88% Tier 1 Risk-Based (Core) Capital 8,260 4.0% 22,303 10.80% 14,043 6.80% 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, 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 $22,303 10.8% $ 8,260 4.0% $12,389 6.0% Risk-Based Capital (To Risk Weighted Assets) 24,537 11.9% 16,519 8.0% 20,649 10.0% Core Capital (To Adjusted Tangible Assets) 22,303 6.7% 13,338 4.0% 16,672 5.0% Tangible Capital (To Tangible Assets) 21,811 6.6% 6,659 2.0% 16,648 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 $28.5 million during the nine months ended December 31, 2000, due primarily to an increase of $33.4 million or 17.3% in total net loans receivable offset partially by a $5.8 million or 6.3% decrease in total investment securities. Residential real estate loans, net of loans in process, increased $18.6 million or 20.6% during the nine months ended December 31, 2000 while other loans increased $14.1 million or 13.6%. Premises and equipment, net, increased $882,000 during the nine months ended December 31, 2000 due primarily to leasehold improvements and equipment purchased for the West Columbia branch, which opened December 4, 2000. Real estate acquired in settlement of loans (REO) decreased $73,000 while real estate held for development and sale decreased $263,000 during the nine months ended December 31, 2000 due to sales of lots in Willow Woods. Other assets decreased $1.2 million during the nine months ended December 31, 2000 due to decreases in goodwill and other intangible assets and net deferred tax assets. Deposits increased $6.7 million or 3.0% during the nine months ended December 31, 2000 and advances from Federal Home Loan Bank (FHLB) grew $18.0 million to fund the Company's 9.4% growth in assets. The Board of Directors declared the 38th, 39th and 40th consecutive quarterly dividend of $.02 per share in May, August, and November 2000, which totaled $101,000. The employee stock ownership trust of the Company borrowed $194,000 to purchase stock for the plan during the nine months ending December 31, 2000. Unrealized losses on securities available for sale decreased $1.3 million during the nine months ended December 31, 2000 due to the recent decrease in U.S. Treasury and agency bond yields. Net income for the nine months was $1.5 million for the Company. These items combined to increase shareholders' equity by $2.5 million or 12.8% during the nine months ended December 31, 2000. Book value per share was $13.34 at December 31, 2000 compared to $11.78 at March 31, 2000. At its November 2000 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 20, 2000 to shareholders of record as of November 30, 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 nine months ended December 31, 2000 was approximately 24%. 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 nine months ended December 31, 2000, loan disbursements exceeded loan repayments resulting in a $33.4 million or 17.3% 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, 2000, deposits increased $6.7 million while FHLB advances increased $18.0 million. At December 31, 2000, the Bank had $99.6 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, 2000 are sufficient to meet outstanding mortgage loan commitments of $722,000 and unused lines of credit of $25.2 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 FASB 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 DECEMBER 31, 2000 - ------------------------------------------------------------------ Net Income Net income was $508,000 for the three months ended December 31, 2000, representing an increase in earnings of $10,000 or 2.0% compared to the same period in 1999. Net Interest Income Net interest income increased $199,000 or 8.4% during the three months ended December 31, 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 33.6% during the period as a result of total net loans significantly increasing in the portfolio. Investment, mortgage-backed, and other securities interest income decreased $5,000 or 0.4% due to a decrease in the total average balance of the investment portfolio for the three months ended December 31, 2000, although the average yield in the investment portfolio increased 16 basis points. Total interest income rose $1.2 million or 24.1% compared to the same period in 1999. Total interest expense increased $1.0 million or 37.8% during the three months ended December 31, 2000 compared to the same period in 1999. Interest expense on deposits increased $419,000 or 19.4% during the period as the average balance and the average cost of deposits increased during the quarter ended December 31, 2000. Interest expense on advances and other borrowings increased $604,000 as the average amount of debt outstanding and the cost of those borrowings both increased for the three months ended December 31, 2000 compared to same period in 1999. Provision for Loan Losses The Bank's provision for loan losses was $150,000 and $175,000 during the three months ended December 31, 2000 and 1999, respectively. 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 $556,000 at December 31, 2000 compared to $890,000 at March 31, 2000. The ratio of the allowance for possible loan losses to the Company's total loans was 1.08% at December 31, 2000 compared to 1.09% at March 31, 2000. Other Income Total other income increased $8,000 or 1.4% during the three months ended December 31, 2000 compared to the same period in 1999. Gain on sale of loans increased $73,000 during the three months ended December 31, 2000. Loan servicing fees increased $10,000 while service fees on deposit accounts decreased $46,000. Income from real estate operations related to the Willow Woods partnership decreased $20,000 during the three months ended December 31, 2000. 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 $8,000 during the three months ended December 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 DECEMBER 31, 2000, Continued - ----------------------------------------------------------------------------- General and Administrative Expenses General and administrative expenses increased $217,000 or 11.0% during the three months ended December 31, 2000 compared to the same period in 1999. Salaries and employee benefits expense grew $179,000 or 17.4% due to an increase in staff in customer service positions to handle increased business and due to normal annual salary increases. Occupancy expense increased $52,000 or 38.6% during this period as a result of a new lease on the building that houses the new West Columbia branch office. Advertising expense increased $3,000 while the depreciation and maintenance of equipment expense increased $29,000 during this period. FDIC insurance premiums decreased $12,000. Amortization of intangibles expense was $116,000 during the three months ended December 31, 2000 and 1999 during this period. Other miscellaneous expense, consisting of legal, professional, and consulting expenses, stationery and office supplies, and other sundry expenses, decreased $32,000 or 8.0% for the three months ended December 31, 2000 compared to the three months ended December 31, 1999. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 2000 - ----------------------------------------------------------------- Net Income Net income was $1.5 million for the nine months ended December 31, 2000, representing an increase in earnings of $54,000 or 3.6% compared to the same period in 1999. Net Interest Income Net interest income increased $722,000 or 10.5% during the nine months ended December 31, 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 $3.3 million or 32.5% during the nine months ended December 31, 2000 as a result of total net loans increasing during the period. Investment, mortgage-backed, and other securities interest income increased $184,000 or 4.4% during this period due to an increase of 19 basis points in the average yield of the investment portfolio. Total interest income increased $3.5 million or 24.4% during the nine months ended December 31, 2000 compared to the same period in 1999. Total interest expense increased $2.8 million or 37.1% during the nine months ended December 31, 2000 compared to the same period in 1999. Interest expense on deposits increased $908,000 or 14.3% during the three months ended December 31, 2000 as deposits grew compared to the average balance during the same period in 1999 and the cost of deposits also increased. Interest expense on advances and other borrowings increased $1.9 million as the average amount of debt outstanding increased during the three months ended December 31, 2000 compared to the same period in 1999. Provision for Loan Losses The Bank's provision for loan losses was $475,000 during both nine months ended December 31, 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 $556,000 at December 31, 2000 compared to $890,000 at March 31, 2000. The ratio of allowance for loan losses to the Company's total loans was 1.08% at December 31, 2000 compared to 1.09% at March 31, 2000. Net charge-offs were $145,000 during the nine months ended December 31, 2000 compared to $197,000 during the same period in 1999. 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, 2000, Continued - ---------------------------------------------------------------------------- Other Income Total other income decreased $9,000 or 0.5% during the nine months ended December 31, 2000 compared to the same period in 1999. Gain on sale of loans increased $30,000 during this period as more mortgage loan customers chose a fixed rate loan, which are generally sold as opposed to an adjustable rate loan which are held in portfolio. Loan-servicing fees increased $2,000 during this period while the service fees on deposit accounts decreased $38,000. Income from real estate operations originating from the Willow Woods partnership decreased $64,000 during this same 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 $63,000 during the nine months ended December 31, 2000. General and Administrative Expenses General and administrative expenses increased $568,000 or 9.6% during the nine months ended December 31, 2000 compared to the same period in 1999. Salaries and employee benefits expense increased $359,000 or 11.5% 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 $97,000 or 24.9% during this period as a result of a new lease on the building that houses the new West Columbia branch office. Advertising expense increased $33,000 while the depreciation and maintenance of equipment expense increased $81,000 during the nine-months ended December 31, 2000 compared to the same period in 1999. FDIC insurance premiums decreased $32,000 during this period. Amortization of intangibles expense was $349,000 during the six months ended December 31, 2000 and 1999, respectively. Other miscellaneous expense, consisting of legal, professional, and consulting expenses, stationery and office supplies, and other sundry expenses, increased $31,000 or 2.6% for the nine months ended December 31, 2000 compared to the nine months ended December 31, 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 --------------------------------------------------- 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*** * 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 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 9, 2001 By: /s/ Roy G. Lindburg ----------------------------------- Roy G. Lindburg Treasurer/CFO Duly Authorized Representative 17 -----END PRIVACY-ENHANCED MESSAGE-----