-----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, COg8OJGHa28YWEp7O/rLQbmTMU/bymrlSXr2/PlSS2EoDupKSdl43gyANYR+mIEJ xMj0me2bMwyujqe1Kvb0MQ== 0000939057-02-000100.txt : 20021112 0000939057-02-000100.hdr.sgml : 20021111 20021112114141 ACCESSION NUMBER: 0000939057-02-000100 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021112 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16120 FILM NUMBER: 02816051 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 10-Q 1 q2021201.txt SECURITY FEDERAL CORPORATION FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002 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, 2002 1,673,138 INDEX ============================================================================== PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE NO. Item 1. Financial Statements (Unaudited): Consolidated Balance Sheets 1 Consolidated Statements of Income 2 Consolidated Statements 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 12 Item 3. Quantitative and Qualitative Disclosure about Market Risk 17 Item 4. Controls and Procedures 17 ============================================================================== PART II. OTHER INFORMATION Other Information 18 Certifications 20 ============================================================================== 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 Part I. Financial Information Item 1. Financial Statements (Unaudited) Security Federal Corporation and Subsidiaries Consolidated Balance Sheets September 30, 2002 March 31, 2002 ------------------ -------------- Assets: (Unaudited) (Audited) Cash And Cash Equivalents $ 9,434,240 $ 11,528,411 Investment And Mortgage-Backed Securities: Available For Sale: (Amortized cost of $152,608,740 at September 30, 2002 and $117,657,245 at March 31, 2002) 155,245,974 117,361,736 Held To Maturity: (Fair value of $1,518,700 at Septem- ber 30, 2002 and $1,571,667 at March 31, 2002) 1,446,570 1,536,656 ------------ ------------ Total Investment And Mortgage-Backed Securities 156,692,544 118,898,392 ------------ ------------ Loans Receivable, Net: Held For Sale 4,536,125 2,165,918 Held For Investment: (Net of allowance of $4,422,901 at September 30, 2002 and $3,689,079 at March 31, 2002) 233,469,425 232,152,950 ------------ ------------ Total Loans Receivable Net 238,005,550 234,318,868 ------------ ------------ Accrued Interest Receivable: Loans 1,130,538 1,249,273 Mortgage-Backed Securities 366,949 283,775 Investments 752,119 650,034 Premises And Equipment, Net 4,976,047 4,859,140 Federal Home Loan Bank Stock, At Cost 2,377,400 2,669,300 Real Estate Acquired In Settlement Of Loans 43,000 98,157 Other Assets 1,080,756 1,764,980 ------------ ------------ Total Assets $414,859,143 $376,320,330 ============ ============ Liabilities And Shareholders' Equity Liabilities: Deposit Accounts $332,600,390 $309,037,602 Advances From Federal Home Loan Bank 45,065,000 33,108,000 Other Borrowed Money 5,749,483 6,169,411 Advance Payments By Borrowers For Taxes and Insurance 469,583 247,149 Other Liabilities 2,257,363 2,357,605 ------------ ------------ Total Liabilities $386,141,819 $350,919,767 ------------ ------------ 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 - 1,684,200 And Outstanding Shares - 1,673,138 At September 30, 2002 And 1,671,459 At March 31, 2002 16,842 16,842 Additional Paid-In Capital 3,985,312 3,985,312 Indirect Guarantee of Employee Stock Owner- ship Trust Debt (324,583) (358,297) Accumulated Other Comprehensive Gain 1,636,140 (183,335) Retained Earnings, Substantially Restricted 23,403,613 21,940,041 ------------ ------------ Total Shareholders' Equity $ 28,717,324 $ 25,400,563 ------------ ------------ Total Liabilities And Shareholders' Equity $414,859,143 $376,320,330 ============ ============ See accompanying notes to consolidated financial statements. 1 Security Federal Corporation and Subsidiaries Consolidated Statements of Income (Unaudited) Three Months Ended September 30, ------------------------------- 2002 2001 ------------ ------------ Interest Income: Loans $ 4,325,173 $ 5,096,914 Mortgage-Backed Securities 848,410 751,300 Investment Securities 813,864 480,170 Other 13,810 10,302 ------------ ------------ Total Interest Income 6,001,257 6,338,686 ------------ ------------ Interest Expense: NOW And Money Market Accounts 635,061 579,296 Passbook Accounts 64,332 81,274 Certificate Accounts 1,281,974 2,117,664 Advances And Other Borrowed Money 557,218 570,778 ------------ ------------ Total Interest Expense 2,538,585 3,349,012 ------------ ------------ Net Interest Income 3,462,672 2,989,674 Provision For Loan Losses 450,000 250,000 ------------ ------------ Net Interest Income After Provision For Loan Losses 3,012,672 2,739,674 ------------ ------------ Other Income: Net Gain On Sale Of Investments 4,245 1,125 Gain On Sale Of Loans 336,149 321,019 Loan Servicing Fees 50,260 43,922 Service Fees On Deposit Accounts 319,960 267,576 Other 171,812 84,356 ------------ ------------ Total Other Income 882,426 717,998 ------------ ------------ General And Administrative Expenses: Salaries And Employee Benefits 1,457,204 1,425,439 Occupancy 204,909 207,699 Advertising 41,677 36,484 Depreciation And Maintenance Of Equipment 249,584 291,393 FDIC Insurance Premiums 13,084 11,957 Amortization Of Intangibles 68,900 116,310 Other 543,768 461,900 ------------ ------------ Total General And Administrative Expenses 2,579,126 2,551,182 ------------ ------------ Income Before Income Taxes 1,315,972 906,490 Provision For Income Taxes 502,181 337,692 ------------ ------------ Net Income $ 813,791 $ 568,798 ============ ============ Basic Net Income Per Common Share $ 0.49 $ 0.34 ============ ============ Diluted Net Income Per Common Share $ 0.48 $ 0.33 ============ ============ Cash Dividend Per Share On Common Stock $ 0.02 $ 0.02 ============ ============ Basic Weighted Average Shares Outstanding 1,673,138 1,671,459 ============ ============ Diluted Weighted Average Shares Outstanding 1,710,646 1,707,680 ============ ============ See accompanying notes to consolidated financial statements. 2 Security Federal Corporation and Subsidiaries Consolidated Statements of Income (Unaudited) Six Months Ended September 30, ------------------------------- 2002 2001 ------------ ------------ Interest Income: Loans $ 8,685,901 $ 10,054,433 Mortgage-Backed Securities 1,647,036 1,421,451 Investment Securities 1,649,041 981,644 Other 20,960 66,132 ------------ ------------ Total Interest Income 12,002,938 12,523,660 ------------ ------------ Interest Expense: NOW And Money Market Accounts 1,258,309 1,289,661 Passbook Accounts 133,616 159,359 Certificate Accounts 2,543,768 4,174,839 Advances And Other Borrowed Money 1,114,586 1,131,712 ------------ ------------ Total Interest Expense 5,050,279 6,755,571 ------------ ------------ Net Interest Income 6,952,659 5,768,089 Provision For Loan Losses 900,000 425,000 ------------ ------------ Net Interest Income After Provision For Loan Losses 6,052,659 5,343,089 ------------ ------------ Other Income: Net Gain On Sale Of Investments 4,245 1,125 Gain On Sale Of Loans 626,000 615,572 Loan Servicing Fees 101,052 101,479 Service Fees On Deposit Accounts 601,562 565,038 Other 348,698 256,500 ------------ ------------ Total Other Income 1,681,557 1,539,714 ------------ ------------ General And Administrative Expenses: Salaries And Employee Benefits 2,947,748 2,908,577 Occupancy 400,223 397,842 Advertising 118,067 67,876 Depreciation And Maintenance Of Equipment 518,589 569,676 FDIC Insurance Premiums 25,850 23,068 Amortization Of Intangibles 185,210 232,620 Other 1,067,407 920,245 ------------ ------------ Total General And Administrative Expenses 5,263,094 5,119,904 ------------ ------------ Income Before Income Taxes 2,471,122 1,762,899 Provision For Income Taxes 940,181 656,843 ------------ ------------ Net Income $ 1,530,941 $ 1,106,056 ============ ============ Basic Net Income Per Common Share $ 0.92 $ 0.66 ============ ============ Diluted Net Income Per Common Share $ 0.90 $ 0.65 ============ ============ Cash Dividend Per Share On Common Stock $ 0.04 $ 0.04 ============ ============ Basic Weighted Average Shares Outstanding 1,672,431 1,670,820 ============ ============ Diluted Weighted Average Shares Outstanding 1,710,255 1,705,688 ============ ============ See accompanying notes to consolidated financial statements. 3 Security Federal Corporation and Subsidiaries Consolidated Statements of Shareholders' Equity (Unaudited) Accumulated Additional Indirect Other Common Paid-In Guarantee of Comprehensive Retained Stock Capital ESOP Debt Income (Loss) Earnings Total -------- ---------- ---------- ---------- ------------ ------------ Beginning Balance At March 31, 2001 $ 16,842 $3,985,312 $ (415,000) $ 348,015 $ 19,565,195 $ 23,500,364 Net Income - - - - 1,106,056 1,106,056 Other Comprehensive Income, Net Of Tax: Unrealized Holding Gains On Securities Available For Sale - - - 676,551 - 676,551 ------------ Comprehensive Income 1,782,607 Increase In Indirect Guarantee of ESOP Debt - - 56,703 - - 56,703 Cash Dividends ($.04 per share) - - - - (67,371) (67,371) -------- ---------- ---------- ---------- ------------ ------------ Balance at September 30, 2001 $ 16,842 $3,985,312 $ (358,297) $1,024,566 $ 20,603,880 $ 25,272,303 ======== ========== ========== ========== ============ ============ Beginning Balance At March 31, 2002 $ 16,842 $3,985,312 $ (358,297) $ (183,335) $ 21,940,041 $ 25,400,563 Net Income - - - - 1,530,941 1,530,941 Other Comprehensive Income, Net Of Tax: Unrealized Holding Gains On Securities Available For Sale - - - 1,819,475 - 1,819,475 ------------ Comprehensive Income 3,350,416 Increase In Indirect Guarantee of ESOP Debt - - 33,714 - - 33,714 Cash Dividends ($.04 per share) - - - - (67,369) (67,369) -------- ---------- ---------- ---------- ------------ ------------ Balance at September 30, 2002 $ 16,842 $3,985,312 $ (324,583) $1,636,140 $ 23,403,613 $ 28,717,324 ======== ========== ========== ========== ============ ============
See accompanying notes to consolidated financial statements. 4 Security Federal Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Six Months Ended September 30, ------------------------------- 2002 2001 ------------ ------------ Cash Flows From Operating Activities: Net Income $ 1,530,941 $ 1,106,056 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation Expense 401,276 498,202 Amortization Of Intangibles 185,210 232,620 Discount Accretion And Premium Amortization (72,787) (72,501) Provisions For Losses On Loans And Real Estate 900,000 425,000 Gain On Sale Of Investment Securities Available For Sale (4,245) (1,125) Gain On Sale Of Loans (626,000) (431,083) (Gain) Loss On Sale Of Real Estate (44,467) 1,681 Amortization Of Deferred Fees On Loans (100,052) (94,486) Proceeds From Sale Of Loans Held For Sale 34,438,586 35,048,559 Origination Of Loans For Sale (36,182,793) (34,085,257) (Increase) Decrease In Accrued Interest Receivable: Loans 118,735 (73,732) Mortgage-Backed Securities (83,174) (91,710) Investments (102,085) 182,538 Increase In Advance Payments By Borrowers 222,434 202,633 (Gain) Loss On Disposition Of Premises And Equipment - (1,367) Other, Net (638,624) (187,804) ------------ ------------ Net Cash Provided By Operating Activities (57,225) 2,658,224 ------------ ------------ Cash Flows From Investing Activities: Principal Repayments On Mortgage-Backed Securities Held To Maturity 37,644 453,883 Principal Repayments On Mortgage-Backed Securities Available For Sale 10,199,004 8,362,447 Purchase Of Investment Securities Avail- able For Sale (35,020,625) (26,434,157) Purchase Of Mortgage-Backed Securities Available For Sale (33,542,209) (24,825,040) Maturities Of Investment Securities Available For Sale 22,503,614 22,098,169 Maturities of Investment Securities Held To Maturity 52,437 - Proceeds From Sale of Securities Available For Sale 985,938 1,870,844 Purchase Of FHLB Stock - - Redemption Of FHLB Stock 291,900 761,700 Increase In Loans To Customers (2,600,823) (16,868,653) Investment In Real Estate Held For Development - - Proceeds From Sale Of Real Estate Held For Development - - Proceeds From Sale Of Real Estate Acquired Through Foreclosure 541,867 75,800 Purchase And Improvement Of Premises And Equipment (518,183) (198,632) ------------ ------------ Net Cash Used By Investing Activities (37,069,436) (34,703,639) ------------ ------------ Cash Flows From Financing Activities: Increase In Deposit Accounts 23,562,788 31,102,582 Proceeds From FHLB Advances 46,125,000 37,250,000 Repayment Of FHLB Advances (34,168,000) (42,378,000) Proceeds Of Other Borrowings (419,928) 489,591 Dividends To Shareholders (67,370) (67,371) ------------ ------------ Net Cash Provided By Financing Activities 35,032,490 26,396,802 ------------ ------------ (Continued) 5 Security Federal Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Six Months Ended September 30, ------------------------------- 2002 2001 ------------ ------------ Net Decrease In Cash And Cash Equivalents (2,094,171) (5,648,613) Cash And Cash Equivalents At Beginning Of Period 11,528,411 12,616,129 ------------ ------------ Cash And Cash Equivalents At End Of Period $ 9,434,240 $ 6,967,516 ============ ============ Supplemental Disclosure Of Cash Flows Information: Cash Paid During The Period For Interest $ 5,181,206 $ 6,984,816 Cash Paid During The Period For Income Taxes $ 1,362,575 $ 891,253 Additions To Real Estate Acquired Through Foreclosure $ 484,400 $ 40,981 Increase (Decrease) In Unrealized Net Gain On Securities Available For Sale, Net Of Taxes $ 1,819,475 $ (676,551) 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-Q and accounting principles generally accepted in the United States of America; 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 2002 Annual Report to Shareholders when reviewing interim financial statements. The results of operations for the three and six-month periods ended September 30, 2002 are not necessarily indicative of the results that may be expected for the entire fiscal year. This Form 10-Q 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-Q 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 subsidiaries, Security Federal Insurance ("SFINS"), Security Federal Investments ("SFINV"), Security Federal Trust ("SFT"), and 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. SFINS, SFINV, and SFT were formed during fiscal 2002 and began operation during the December 2001 quarter. SFINS is an insurance agency offering business, health, home and life insurance. SFINV engages primarily in investment brokerage services. SFT offers trust, financial planning and financial management services. SFSC is currently inactive. 3. Loans Receivable, Net Loans Receivable, Net, at September 30, 2002 and March 31, 2002 consisted of the following: Loans held for sale were $4,536,125 and $2,165,918 at September 30, 2002 and March 31, 2002, respectively. Loans Held For Investment: September 30, 2002 March 31, 2002 ------------------ -------------- Residential Real Estate $ 99,338,509 $100,065,942 Consumer 47,906,676 49,851,549 Commercial Business & Real Estate 100,731,464 97,396,184 ------------ ------------ 247,976,649 247,313,675 ------------ ------------ Less: Allowance For Possible Loan Loss 4,422,901 3,689,079 Loans In Process 9,923,395 11,287,518 Deferred Loan Fees 160,928 184,128 ------------ ------------ 14,507,224 15,160,725 ------------ ------------ $233,469,425 $232,152,950 ============ ============ The following is a reconciliation of the allowance for loan losses for the six months ending: September 30, 2002 September 30, 2001 ------------------ ------------------ Beginning Balance $ 3,689,079 $ 2,784,117 Provision 900,000 425,000 Charge-offs (314,383) (299,300) Recoveries 148,205 70,467 ------------ ------------ Ending Balance $ 4,422,901 $ 2,980,284 ============ ============ 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 Amortized Unrealized Unrealized Cost Gains Losses Fair Value ---------- ---------- --------- ---------- September 30, 2002 - ------------------ US Government and Agency Obligations $ 110,919 $ 665 $ - $ 111,584 Mortgage-Backed Securities 1,335,651 71,465 - 1,407,116 ---------- ---------- --------- ---------- Total $1,446,570 $ 72,130 $ - $1,518,700 ========== ========== ========= ========== March 31, 2002 - -------------- US Government and Agency Obligations $ 163,356 $ 2,771 $ - $ 166,127 Mortgage-Backed Securities 1,373,300 32,240 - 1,405,540 ---------- ---------- --------- ---------- Total $1,536,656 $ 35,011 $ - $1,571,667 ========== ========== ========= ========== 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 Amortized Unrealized Unrealized Cost Gains Losses Fair Value ---------- ---------- --------- ---------- September 30, 2002 - ------------------ US Government and Agency Obligations $ 73,438,134 $1,228,284 $ 14,973 $ 74,651,445 Mortgage-Backed Securities 79,170,606 1,552,669 128,746 80,594,529 ------------ ---------- --------- ------------ Total $152,608,740 $2,780,953 $ 143,719 $155,245,974 ============ ========== ========== ============ March 31, 2002 - -------------- US Government and Agency Obligations $ 61,983,824 $ 239,410 $ 866,931 $ 61,356,303 Mortgage-Backed Securities 55,673,421 594,414 262,402 56,005,433 ------------ ---------- --------- ------------ Total $117,657,245 $ 833,824 $1,129,333 $117,361,736 ============ ========== ========== ============ 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, 2002 March 31, 2002 -------------------- -------------------- Balance Rate Balance Rate -------------------- -------------------- Demand Accounts: Checking $ 74,517,915 0.55% $ 71,906,832 0.58% Money Market 86,479,876 2.40% 74,074,781 2.73% Regular Savings 15,800,848 1.51% 15,106,897 1.75% ------------ ------------ Total Demand Accounts 176,798,639 1.54% 161,088,510 1.68% ------------ ------------ Certificate Accounts: 0 - 4.99% $139,629,069 $127,067,831 5.00 - 6.99% 15,668,026 19,982,399 7.00 8.99% 504,656 898,862 ------------ ------------ Total Certificate Accounts 155,801,751 3.25% 147,949,092 3.59% ------------ ------------ Total Deposit Accounts $332,600,390 2.34% $309,037,602 2.60% ============ ============ 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, 2002 March 31, 2002 -------------------- -------------------- Balance Rate Balance Rate -------------------- -------------------- Fiscal Year Due: 2003 $ 11,975,000 3.80% $ 5,000,000 6.40% 2004 - - - - 2005 10,090,000 6.15% 10,108,000 6.15% 2006 18,000,000 5.98% 18,000,000 5.98% Thereafter 5,000,000 2.82% - - ------------ ------------ Total Advances $ 45,065,000 5.09% $ 33,108,000 6.09% ============ ============ 7. Regulatory Matters The following table reconciles the Bank's Shareholders' equity to its various regulatory capital positions: September 30, 2002 March 31, 2002 (Dollars in Thousands) ----------------------------------- Bank's Shareholders' Equity $ 28,815 $ 25,463 Unrealized Loss On Available For Sale Of Securities, Net Of Tax (1,636) 183 Reduction For Goodwill And Other Intangibles - (185) ----------- ----------- Tangible Capital 27,179 25,461 Qualifying Core Deposits And Intangible Assets - 185 ----------- ----------- Core Capital 27,179 25,646 Supplemental Capital 2,907 2,879 Assets Required To Be Deducted (215) (237) ----------- ----------- Risk-Based Capital $ 29,871 $ 28,288 =========== =========== The following table compares the Bank's capital levels relative to the applicable regulatory requirements at September 30, 2002. (Dollars in Thousands) --------------------------------------------------------- Amt. % Actual Excess Required Required Amt. Actual % Amt. Excess % --------------------------------------------------------- Tangible Capital $ 8,274 2.0% $ 27,179 6.57% $18,905 4.57% Tier 1 Leverage (Core) Capital 16,547 4.0% 27,179 6.57% 10,632 2.57% Total Risk-Based Capital 18,611 8.0% 29,871 12.84% 11,260 4.84% Tier 1 Risk-Based (Core) Capital 9,300 4.0% 27,179 11.69% 17,879 7.69% 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, 2002 are as follows: To Be Well Capitalized For Capital Under Prompt (Dollars in Thousands) Adequacy Corrective Action Actual Purposes Provisions ---------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio ---------------------------------------------------- Tier I Risk-Based Core Capital $27,179 11.7% $ 9,300 4.0% $13,950 6.0% Risk-Based Capital (To Risk Weighted Assets) 29,871 12.8% 18,611 8.0% 23,264 10.0% Core Capital (To Adjusted Tangible Assets) 27,179 6.6% 16,547 4.0% 20,684 5.0% Tangible Capital (To Tangible Assets) 27,179 6.6% 8,274 2.0% 20,684 5.0% 8. Earnings Per Share The Company calculates earnings per share in accordance with SFAS No. 128, "Earnings Per Share." SFAS 128 specifies the computation, presentation and disclosure requirements for earnings per share (EPS) for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market. This standard specifies computation and presentation requirements for both basic EPS and, for entities with complex capital structures, diluted EPS. Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share is similar to the computation of basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. The dilutive effect of options outstanding under the Company's stock option plan is reflected in diluted earnings per share by application of the treasury stock method. RECONCILIATION OF THE NUMERATORS AND DENOMINATORS OF THE BASIC AND DILUTED EPS COMPUTATIONS: For the Quarter Ended --------------------------------------- September 30, 2002 --------------------------------------- Income (Numerator) Shares Amount (Denominator) Per Share --------- ------------- --------- Basic EPS $ 813,791 1,673,138 $ 0.49 Effect of Diluted Securities: Stock Options - 24,720 (0.01) ESOP - 12,788 0.00 --------- --------- ------- Diluted EPS $ 813,791 1,710,646 $ 0.48 For the Quarter Ended --------------------------------------- September 30, 2001 --------------------------------------- Income (Numerator) Shares Amount (Denominator) Per Share --------- ------------- --------- Basic EPS $ 568,798 1,671,459 $ 0.34 Effect of Diluted Securities: Stock Options - 23,480 (0.01) ESOP - 12,741 0.00 --------- --------- ------- Diluted EPS $ 568,798 1,707,680 $ 0.33 10 Security Federal Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited), Continued 8. Earnings Per Share, Continued For the Six Months Ended --------------------------------------- September 30, 2002 --------------------------------------- Income (Numerator) Shares Amount (Denominator) Per Share ---------- ------------- --------- Basic EPS $1,530,941 1,672,431 $ 0.92 Effect of Diluted Securities: Stock Options - 25,036 (0.02) ESOP - 12,788 0.00 ---------- ------------- --------- Diluted EPS $1,530,941 1,710,255 $ 0.90 For the Six Months Ended --------------------------------------- September 30, 2001 --------------------------------------- Income (Numerator) Shares Amount (Denominator) Per Share ---------- ------------- --------- Basic EPS $1,106,056 1,670,820 $ 0.66 Effect of Diluted Securities: Stock Options - 21,488 (0.01) ESOP - 13,380 (0.00) ---------- ------------- --------- Diluted EPS $1,106,056 1,705,688 $ 0.65 11 Security Federal Corporation and Subsidiaries Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Changes in Financial Condition Total assets of the Company increased $38.5 million or 10.2% during the six months ended September 30, 2002 due primarily to increases of $37.8 million or 31.8% in total investment securities offset in part by a $2.1 million, or 18.2% decrease in cash and cash equivalents. Residential real estate loans, net of loans in process, increased $637,000 or 1.0% during the period while consumer and commercial loans increased a total of $1.4 million or 1.0%. Repossessed assets decreased $55,000 to $43,000 during the six months ended September 30, 2002. Non-accrual loans totaled $1.0 million at September 30, 2002 compared to $1.4 million at March 31, 2002. The Bank classifies all loans as non-accrual when they become 90 days or more delinquent. The Bank had five loans totaling $709,000 at September 30, 2002 that were troubled debt restructurings within the meaning of SFAS No. 115 compared to $622,000 at March 31, 2002. Two loans that were troubled debt restructuring consist of a $489,000 commercial loan secured by commercial real estate and a $16,000 commercial loan secured by a second mortgage on a residence, were more than 30 days delinquent. The other three loans, a $61,000 consumer loan secured by a residential dwelling, a $87,000 consumer loan also secured by a residential dwelling, and a $56,000 commercial loan secured by two rental properties were current as of September 30, 2002. All troubled debt restructurings are also considered impaired. At September 30, 2002, the Bank held $1.0 million in impaired loans compared to $897,000 at March 31, 2002. Deposits increased $23.6 million or 7.6% during the six months ended September 30, 2002 due to competitive rates offered by the Bank. Federal Home Loan Bank (FHLB) advances increased $12.0 million or 36.1% due to some investment leverage employed to increase net interest income. The Board of Directors declared the 46th and 47th consecutive quarterly dividend of $.02 per share per quarter in May and August 2002, which totaled $67,000. The employee stock ownership trust of the Company paid $34,000 in principal on the employee stock ownership plan loan during the six-month period. Unrealized net gains on securities available for sale, net of tax, increased $1.8 million during the six months ended September 30, 2002. The Company's net income for the six months was $1.5 million. These items combined to increase shareholders' equity by $3.3 million or 13.1% during the six months ended September 30, 2002. Book value per share was $17.16 at September 30, 2002 compared to $15.20 at March 31, 2002. Liquidity and Capital Resources In accordance with Office of Thrift Supervision (OTS) regulations, the Company is required to maintain sufficient liquidity to operate in a safe and sound manner. The Company's average liquidity during the six months ended September 30, 2002 was approximately 35%. 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 and the purchase of investments are a primary use of the Company's funds. During the six months ended September 30, 2002, loan disbursements exceeded loan repayments resulting in a $3.7 million or 1.6% 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, 2002, deposits increased $23.6 million while FHLB advances increased $12.0 million. The Bank had $58.6 million in additional borrowing capacity at the FHLB at the end of the period. At September 30, 2002, the Bank had $126.4 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. 12 Security Federal Corporation and Subsidiaries Management's Discussion and Analysis of Results of Operations and Financial Condition Liquidity and Capital Resources, Continued Through the operations of the Bank, we have made contractual commitments to extend credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time. At September 30, 2002, we had issued commitments to extend credit of $30.5 million through various types of lending arrangements. We evaluate each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate. We manage the credit risk on these commitments by subjecting them to normal underwriting and risk management processes. Management believes that the Company's liquidity will continue to be supported by the Company's deposit base and borrowing capacity during the next year. Accounting and Reporting Changes. Accounting standards that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material impact on the Company's 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. See "Item 3. Quantitative and Qualitative Disclosures about Market Risk" for additional discussions of changes in interest rates. 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, 2002 - ------------------------------------------------------------------- Net Income Net income was $814,000 for the three months ended September 30, 2002, representing an increase in earnings of $245,000 or 43.1% from $569,000 for the same period in 2001. Net Interest Income Net interest income increased $473,000 or 15.8% to $3.5 million during the three months ended September 30, 2002 as a result of a decrease in total interest expense offset in part by a decrease in interest income. Interest earning assets increased an average of $50.1 million while interest bearing liabilities increased $44.6 million. The interest rate spread increased 15 basis points to 3.35% during the three months ending September 30, 2002 compared to the same period in 2001. Interest income on loans decreased $772,000 or 15.1% to $4.3 million during the three months ended September 30, 2002 as a result of the yield in the loan portfolio decreasing 105 basis points and the loan portfolio average balance decreasing by $7.3 million. Investment, mortgage-backed, and other securities interest income increased $434,000 or 35.0% due to an increase in the average balances of approximately $57.5 million in the investment portfolio despite a 96 basis points decrease in the average yield in the portfolio. Total interest income decreased $337,000 or 5.3% to $6.0 million from $6.3 million for the same period in 2001. Total interest expense decreased $810,000 or 24.2% to $2.5 million during the three months ended September 30, 2002 compared to $3.3 million for the same period one-year earlier. Interest expense on deposits decreased $797,000 or 28.7% during the period as average deposits grew $41.8 million compared to the average balance in 2001 and the cost of deposits decreased 162 basis points. Interest expense on advances and other borrowings decreased $14,000 or 2.4% as the cost of debt outstanding decreased 53 basis points during the 2002 period compared to 2001 despite the average debt outstanding increasing approximately $2.8 million. Provision for Loan Losses The Bank's provision for loan losses was $450,000 during the three months ended September 30, 2002 compared $250,000 for the quarter ending September 30, 2001 due to higher than normal net charge-offs during the last two quarters of the year ending March 31, 2002, the entrance into a new lending market, a slight increase in the percentage of consumer and commercial loans as compared to residential mortgage loans, and the cyclical nature of the economy. 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 $1.0 million at September 30, 2002 compared to $1.4 million at March 31, 2002. The ratio of allowance for loan losses to the Company's total loans was 1.82% at September 30, 2002 compared to 1.55% March 31, 2002. Net charge-offs were $69,000 during the three months ended September 30, 2002 compared to $109,000 during the same period in 2001. Other Income Total other income increased $164,000 or 22.9% to $882,000 during the three months ended September 30, 2002 from $718,000 for to the same period a year ago. Gain on sale of loans increased $15,000 to $336,000, loan servicing fees increased $6,000 and service fees on deposit accounts decreased $52,000. Other miscellaneous income including credit life insurance commissions, net gain on sale of repossessed assets, safe deposit rental income, annuity and stock brokerage commissions, and trust fees, and other miscellaneous fees increased $87,000 during the three months ended September 30, 2002. 14 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, 2002, CONTINUED - ------------------------------------------------------------------------------ General and Administrative Expenses General and administrative expenses increased $28,000 or 1.1% to $2.6 million during the three months ended September 30, 2002 compared to the same period in 2001. Salaries and employee benefits expense grew $32,000 due to normal salary increases. Occupancy expense decreased $3,000, advertising expense increased $5,000 while the depreciation and maintenance of equipment expense decreased $42,000 during the quarterly period. FDIC insurance premiums increased slightly to $13,000 during the current quarter. The amortization of intangibles expense decreased $47,000 to $69,000 during the quarter. At September 30, 2002, the Company has no further intangibles on the balance sheet. Other miscellaneous expense, consisting of legal, professional, and consulting expenses, stationery and office supplies, and other sundry expenses, increased $82,000 or 17.7% for the three months ended September 30, 2002 compared to the three months ended September 30, 2001. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 - ----------------------------------------------------------------- Net Income Net income was $1.5 million for the six months ended September 30, 2002, representing an increase in earnings of $425,000 or 38.4% from $1.1 million for the same period in 2001. Net Interest Income Net interest income increased $1.2 million or 20.5% to $7.0 million during the six months ended September 30, 2002 as a result of a decrease in total interest expense offset in part by a decrease in interest income. Interest earning assets increased an average of $52.0 million while interest bearing liabilities increased $46.6 million. The interest rate spread increased 28 basis points to 3.43% during the six months ending September 30, 2002 compared to the same period in 2001. Interest income on loans decreased $1.4 million or 13.6% to $8.7 million during the six months ended September 30, 2002 as a result of the yield in the loan portfolio decreasing 103 basis points, as the loan portfolio average balances decreased $3.8 million. Investment, mortgage-backed, and other securities interest income increased $847,000 or 34.3% due to an increase in the average balance of approximately $62.3 million in the investment portfolio despite a 108 basis points decrease in the average yield in the portfolio. Total interest income decreased $521,000 or 4.2% to $12.0 million during the six months compared to the same period in 2001. Total interest expense decreased $1.7 million or 25.2% to $5.1 million during the six months ended September 30, 2002 compared to the same period one-year earlier. Interest expense on deposits decreased $1.7 million or 30.0% during the period as deposits grew $42.4 million compared to the average balance in 2001 and the cost of deposits decreased 176 basis points. Interest expense on advances and other borrowings decreased $17,000 as the cost of debt outstanding decreased 66 basis points during the 2002 period compared to 2001 despite the average debt outstanding increasing approximately $4.2 million. Provision for Loan Losses The Bank's provision for loan losses was $900,000 during the six months ended September 30, 2002 compared to $425,000 during the six months ended September 30, 2001. 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 $1.0 million at September 30, 2002 compared to $1.4 million at March 31, 2002. The ratio of allowance for loan losses to the Company's total loans was 1.82% at September 30, 2002 and 1.55% at March 31, 2002. Net charge-offs were $166,000 during the six months ended September 30, 2002 compared to $229,000 during the same period in 2001. 15 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, 2002, CONTINUED - ---------------------------------------------------------------------------- Other Income Total other income increased $142,000 or 9.2% to $1.7 million during the six months ended September 30, 2002 compared to the same period one-year earlier. Gain on sale of loans increased $10,000 as the volume of fixed rate mortgage loans sold during the period increased due to mortgage loan rates falling. Service fees on deposit accounts grew $37,000 as the number of commercial and personal demand deposit accounts increased. Other miscellaneous income including credit life insurance commissions, net gain on sale of repossessed assets, safe deposit rental income, annuity and stock brokerage commissions, and other miscellaneous fees increased $92,000 during the six months ended September 30, 2002. General and Administrative Expenses General and administrative expenses increased $143,000 or 2.8% during the six months ended September 30, 2002 compared to the same period in 2001. Salaries and employee benefits expense increased $39,000 or 1.4% due to normal annual salary increases. Occupancy expense increased by $2,000, advertising expense increased $50,000 while the depreciation and maintenance of equipment expense decreased $51,000 during the six-month period. FDIC insurance premiums increased slightly to $26,000 during the six-month period ending September 30, 2002. The amortization of intangibles expense decreased $47,000 during the six months period. At September 30, 2002, the Company had no further intangible assets on the balance sheet. Other miscellaneous expense, consisting of legal, professional, and consulting expenses, stationery and office supplies, and other sundry expenses, increased $147,000 or 16.0% for the six months ended September 30, 2002 compared to the six months ended September 30, 2001. 16 Security Federal Corporation and Subsidiaries Item 3. Quantitative and Qualitative Disclosures about Market Risk Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises principally from interest rate risk inherent in its lending, investment, deposit and borrowing activities. Management actively monitors and manages its interest rate risk exposure. Although the Company manages other risks such as credit quality and liquidity risk in the normal course of business, management considers interest rate risk to be its most significant market risk that could potentially have the largest material effect on the Company's financial condition and results of operations. Other types of market risks such as foreign currency exchange rate risk and commodity price do not arise in the normal course of the Company's business activities. The Company's profitability is affected by fluctuations in the market interest rate. Management's goal is to maintain a reasonable balance between exposure to interest rate fluctuations and earnings. A sudden and substantial increase or decrease in interest rates may adversely impact the Company's earnings to the extent that the interest rates on interest-earning assets and interest-bearing liabilities do not change at the same rate, to the same extent or on the same basis. The Company monitors the impact of changes in interest rates on its net interest income using a test that measures the impact on net interest income and net portfolio value of an immediate change in interest rates in 100 basis point increments and by measuring the Bank's interest sensitivity gap ("Gap"). Net Portfolio value is defined as the net present value of assets, liabilities, and off-balance sheet contracts. Gap is the amount of interest sensitive assets repricing or maturing over the next twelve months compared to the amount of interest sensitive liabilities maturing or repricing in the same time period. Recent net portfolio value reports furnished by the Office of Thrift Supervision indicate that the Bank's interest sensitivity has improved in recent quarters over the past year. The Bank has rated favorably compared to Thrift peers concerning interest rate sensitivity. For the three and six month periods ended September 30, 2002, the Bank's interest rate spread, defined as the average yield on interest bearing assets less the average rate paid on interest bearing liabilities was 3.35% and 3.43%, respectively. As of the year ended March 31, 2002, the interest rate spread was 3.48%. The interest rate spread has decreased slightly due to investment securities growing faster than loan receivables. Loan receivables earn a higher interest rate than investment securities. Also, loan yields are falling due to refinancing of residential and commercial loans. If interest rates were to increase suddenly and significantly, the Bank's net interest income and net interest spread would be compressed. Item 4. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures: An evaluation of the Company's disclosure controls and procedures (as defined in Section 13(a) - 14(c) of the Securities Exchange Act of 1934 (the "Act")) was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief financial Officer and several other members of the Company's senior management within the 90-day period preceding the filing date of this quarterly report. The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time period specified in the SEC's rules and forms. (b) Changes in Internal Controls: In the quarter ended September 30, 2002, the Company did not make any significant changes in, nor take any corrective actions regarding, its internal controls or other factors that could significantly affect these controls. 17 Security Federal Corporation and Subsidiaries Part II. 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 16, 2002. Votes for Harry O. Weeks were as follows: 1,406,046 votes for, 6,800 votes withheld. Votes for Robert E. Alexander were as follows: 1,405,174 votes for, 8,672 votes withheld. Votes for William Clyburn were as follows: 1,401,046 votes for, 12,800 votes withheld. Votes for J. Chris Verenes were as follows: 1,405,046 votes for, 8,800 votes withheld. Votes for Thomas C. Clark were as follows: 1,407,044 votes for, 6,802 votes withheld. Item 5 Other Information ----------------- None Item 6 Exhibits And Reports On Form 8-K -------------------------------- Exhibits: 3.1 Articles Of Incorporation (1) 3.2 Articles Of Amendment, Dated August 28, 1998, To Articles Of Incorporation 3.3 Bylaws (2) 10 Executive Compensation Plans And Arrangements: Salary Continuation Agreements (3) Amendment One To Salary Continuation Agreements (4) Stock Option Plan (3) 1999 Stock Option Plan (5) 2002 Stock Option Plan (6) Incentive Compensation Plan (3) 99.1 Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act. (1) Filed as an exhibit to the Company's June 23, 1998 proxy statement and incorporated herein by reference. (2) Filed as an exhibit to the Company's Form 8-K dated August 31, 1998 and incorporated herein by reference. (3) 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-K. 18 Security Federal Corporation and Subsidiaries Other Information, Continued (4) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the quarter ended December 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-K. (5) Filed on March 2, 2002, as an exhibit to the Company's Registration Statement on Form S-8 and incorporated herein by reference. (6) Filed as an exhibit to the Company's June 19, 2002 proxy statement and incorporated herein by reference. 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: November 5, 2002 By: /s/Timothy W. Simmons ------------------------------------- Timothy W. Simmons President Duly Authorized Representative Date: November 5, 2002 By: /s/Roy G. Lindburg ------------------------------------- Roy G. Lindburg Treasurer/CFO Duly Authorized Representative 19 Certification Required By Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934 I, Timothy W. Simmons, certify that: 1. I have received this quarterly report on Form 10-Q of Security Federal Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in the internal controls; and b) any fraud, whether or mot material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including and corrective actions with regard to significant deficiencies and material weaknesses. Date: November 5, 2002 /s/Timothy W. Simmons ------------------------------------- Timothy W. Simmons President and Chief Executive Officer 21 Certification Required By Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934 I, Roy G. Lindburg, certify that: 1. I have received this quarterly report on Form 10-Q of Security Federal Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in the internal controls; and b) any fraud, whether or mot material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including and corrective actions with regard to significant deficiencies and material weaknesses. Date: November 5, 2002 /s/Roy G. Lindburg ------------------------------------- Roy G. Lindburg Chief Financial Officer 22 EXHIBIT 99.1 Certification Pursuant to Section 906 of the Sarbanes Oxley Act CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER OF SECURITY FEDERAL CORPORATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with this Quarterly Report on Form 10-Q that: 1. the report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, and 2. the information contained in the report fairly presents, in all material respects, the company's financial condition and results of operations. /s/Timothy W. Simmons /s/Roy G. Lindburg - ---------------------------------- ----------------------------------- Timothy W. Simmons Roy G. Lindburg Chief Executive Officer Chief Financial Officer Dated: November 5, 2002 -----END PRIVACY-ENHANCED MESSAGE-----