-----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, VF30F4vIBKdia4zD2VMZny1kRGlk9ah8HB2SjQeqw4IP1xmKuQEsxVcJcbBbPW4k c2FCp9Qz0EQ50Wg0TQr7IQ== 0000939057-99-000109.txt : 19991111 0000939057-99-000109.hdr.sgml : 19991111 ACCESSION NUMBER: 0000939057-99-000109 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991110 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: 99746023 BUSINESS ADDRESS: STREET 1: 1705 WHISKEY RD SOUTH CITY: AIKEN STATE: SC ZIP: 29803 BUSINESS PHONE: 8036413000 MAIL ADDRESS: STREET 1: 1705 WHISKEY RD SOUTH CITY: AIKEN STATE: SC ZIP: 29803 10QSB 1 SECURITY FEDERAL CORPORATION FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10 - QSB (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD: FROM: TO: --------------- --------------- COMMISSION FILE NUMBER: 0-16120 SECURITY FEDERAL CORPORATION South Carolina 57-0858504 (State or other (IRS jurisdiction of Employer incorporation or Identification) organization) 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, 1999 838,524 INDEX SECURITY FEDERAL CORPORATION AND SUBSIDIARIES ============================================================================== PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE NO. Item 1. Financial Statements (Unaudited): Consolidated Balance Sheets 1 Consolidated Statements of Income 2 Consolidated Statement of Shareholders' Equity 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis -Results of Operations and Financial Condition 11 ============================================================================== PART II. OTHER INFORMATION Other Information 16 Signatures 18 ============================================================================== SCHEDULES OMITTED All schedules other than those indicated above are omitted because of the absence of the conditions under which they are required or because the information is included in the consolidated financial statements and related notes. i Security Federal Corporation and Subsidiaries Consolidated Balance Sheets September 30, 1999 March 31, 1999 ------------------ -------------- Assets: (Unaudited) (Audited) Cash and Cash Equivalents $ 6,601,621 $ 6,951,347 Investment And Mortgage-Backed Securities: Available For Sale: (Amortized cost of $90,893,655 at September 30, 1999 and $82,240,153 at March 31, 1999) 89,101,084 82,035,772 Held To Maturity: (Fair value of $2,893,811 at September 30, 1999 and $3,579,500 at March 31, 1999) 2,918,972 3,532,863 Loans Receivable Net: Held For Sale 571,683 1,604,300 Held For Investment:(Net of allowance of $1,903,635 at September 30, 1999 and $1,715,068 at March 31, 1999) 169,577,395 150,381,301 ------------------ -------------- $ 170,149,078 $ 151,985,601 ------------------ -------------- Accrued Interest Receivable: Loans 861,028 657,153 Mortgage-Backed Securities 189,351 146,739 Investments 851,802 803,696 Premises And Equipment, Net 4,030,664 4,198,774 Federal Home Loan Bank Stock, At Cost 1,460,700 1,245,000 Real Estate Acquired In Settlement Of Loans 154,143 154,143 Real Estate Held For Development And Sale 469,117 552,111 Other Assets 2,937,390 2,454,724 ------------------ -------------- Total Assets $ 279,724,950 $ 254,717,923 ================== ============== Liabilities And Shareholders' Equity Liabilities: Deposit Accounts $ 223,381,339 $ 216,532,683 Advances From Federal Home Loan Bank 31,532,000 14,600,000 Other Borrowed Money 1,508,699 869,270 Advance Payments By Borrowers For Taxes and Insurance 517,127 274,067 Other Liabilities 3,472,725 2,881,461 ------------------ -------------- Total Liabilities $ 260,411,890 $ 235,157,481 ------------------ -------------- Shareholders' Equity: Serial Preferred Stock, $.01 Par Value; Authorized Shares - 200,000 Issued; Outstanding Shares - None Common Stock, $.01 Par Value; Authorized Shares - 5,000,000 Issued; Outstanding Shares - 838,524 At September 30, 1999 And 842,120 At March 31, 1999 $ 8,421 $ 4,211 Additional Paid-In Capital 3,993,733 3,997,943 Indirect Guarantee of Employee Stock Ownership Trust (180,000) 0 Debt Accumulated Other Comprehensive Loss (1,112,112) (127,738) Retained Earnings, Substantially Restricted 16,603,018 15,686,026 ------------------ -------------- Total Shareholders' Equity $ 19,313,060 $ 19,560,442 ------------------ -------------- Total Liabilities And Shareholders' Equity $ 279,724,950 $ 254,717,923 ================== ============== See accompanying notes to consolidated financial statements. 1 Security Federal Corporation and Subsidiaries Consolidated Statements of Income (Unaudited) Three Months Ended September 30, ------------------------------- 1999 1998 --------------- --------------- Interest Income: Loans $ 3,369,395 $ 3,278,212 Mortgage-Backed Securities 455,674 143,162 Investment Securities 913,608 845,295 Other 13,180 17,910 --------------- --------------- Total Interest Income $ 4,751,857 $ 4,284,579 --------------- --------------- Interest Expense: NOW And Money Market Accounts 706,813 504,877 Passbook Accounts 82,463 73,749 Certificate Accounts 1,309,665 1,280,175 Advances And Other Borrowed Money 370,348 266,103 --------------- --------------- Total Interest Expense $ 2,469,289 $ 2,124,904 --------------- --------------- Net Interest Income 2,282,568 2,159,675 Provision For Loan Losses 150,000 150,000 --------------- --------------- Net Interest Income After Provision For Loan Losses $ 2,132,568 $ 2,009,675 --------------- --------------- Other Income: Net Gain On Sale Of Investments 3,022 0 Gain On Sale Of Loans 71,432 189,521 Loan Servicing Fees 72,052 79,475 Service Fees On Deposit Accounts 266,160 210,373 Income From Real Estate Operations 69,856 5,090 Other 155,641 140,681 --------------- --------------- Total Other Income $ 638,163 $ 625,140 --------------- --------------- General And Administrative Expenses: Salaries And Employee Benefits 1,076,096 1,018,180 Occupancy 131,758 127,735 Advertising 35,646 139,483 Depreciation And Maintenance Of Equipment 233,049 201,836 FDIC Insurance Premiums 22,442 19,879 Amortization Of Intangibles 116,310 116,310 Other 375,440 443,255 --------------- --------------- Total General And Administrative Expenses $ 1,990,741 $ 2,066,678 --------------- --------------- Income Before Income Taxes 779,990 568,137 Provision For Income Taxes 270,969 192,848 -------------- -------------- Net Income $ 509,021 $ 375,289 ============== ============== Basic Net Income Per Common Share $ 0.61 $ 0.45 ============== ============== Diluted Net Income Per Common Share $ 0.60 $ 0.44 ============== ============== Cash Dividend Per Share On Common Stock $ 0.04 $ 0.03 ============== ============== Basic Weighted Average Shares Outstanding 838,524 842,120 ============== ============== Diluted Weighted Average Shares Outstanding 846,103 845,354 ============== ============== See accompanying notes to consolidated financial statements. 2 Security Federal Corporation and Subsidiaries Consolidated Statements of Income (Unaudited) Six Months Ended September 30, ------------------------------- 1999 1998 --------------- --------------- Interest Income: Loans $ 6,588,770 $ 6,310,067 Mortgage-Backed Securities 938,473 246,005 Investment Securities 1,751,267 1,926,481 Other 38,746 45,762 --------------- --------------- Total Interest Income $ 9,317,256 $ 8,528,315 --------------- --------------- Interest Expense: NOW And Money Market Accounts 1,402,534 947,442 Passbook Accounts 160,038 148,365 Certificate Accounts 2,611,672 2,560,142 Advances And Other Borrowed Money 629,208 544,959 --------------- --------------- Total Interest Expense $ 4,803,452 $ 4,200,908 --------------- --------------- Net Interest Income 4,513,804 4,327,407 Provision For Loan Losses 300,000 300,000 --------------- --------------- Net Interest Income After Provision For Loan Losses $ 4,213,804 $ 4,027,407 --------------- --------------- Other Income: Net Gain On Sale Of Investments 3,022 0 Gain On Sale Of Loans 184,936 287,984 Loan Servicing Fees 145,068 161,917 Service Fees On Deposit Accounts 504,606 412,848 Income From Real Estate Operations 104,699 72,168 Other 263,889 284,959 --------------- --------------- Total Other Income $ 1,206,220 $ 1,219,876 --------------- --------------- General And Administrative Expenses: Salaries And Employee Benefits 2,103,398 1,993,316 Occupancy 257,098 245,096 Advertising 68,106 239,977 Depreciation And Maintenance Of Equipment 442,799 395,346 FDIC Insurance Premiums 43,613 39,541 Amortization Of Intangibles 232,620 232,620 Other 771,430 836,966 --------------- --------------- Total General And Administrative Expenses $ 3,919,064 $ 3,982,862 --------------- --------------- Income Before Income Taxes 1,500,960 1,264,421 Provision For Income Taxes 516,598 433,734 --------------- --------------- Net Income $ 984,362 $ 830,687 =============== =============== Basic Net Income Per Common Share $ 1.17 $ 0.99 =============== =============== Diluted Net Income Per Common Share $ 1.16 $ 0.98 =============== =============== Cash Dividend Per Share On Common Stock $ 0.08 $ 0.06 =============== =============== Basic Weighted Average Shares Outstanding 840,322 842,120 =============== =============== Diluted Weighted Average Shares Outstanding 846,103 845,354 ============== =============== 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 $ 4,211 $ 3,997,94 $ 0 75,713 $ 13,998,174 $ 18,076,041 March 31, 1998 Net Income 0 0 0 0 830,687 830,687 Other Comprehensive Income, Net Of Tax: Unrealized Holding Losses On Securities Available For Sale 0 0 0 212,711 0 212,711 ------------ Comprehensive Income 1,043,398 Cash Dividends 0 0 0 0 (50,527) (50,527) -------- ---------- ---------- ---------- ------------ ------------ Balance At September 30, 1998 $ 4,211 $ 3,997,94 $ 0 288,424 $ 14,778,334 $ 19,068,912 ======== ========== ========== ========== ============ ============ Beginning Balance At $ 8,421 $ 3,993,73 $ 0 (127,738) $ 15,686,026 $ 19,560,442 March 31, 1999 Net Income 0 0 0 0 984,362 984,362 Other Comprehensive Income, Net Of Tax: Unrealized Holding Losses On Securities Available For Sale 0 0 0 (984,374) 0 (984,374) ----------- Comprehensive Income (12) Increase in Indirect Guarantee of ESOP Debt (180,000) (180,000) Cash Dividends 0 0 0 0 (67,370) (67,370) -------- ---------- ---------- ---------- ------------ ----------- Balance at September 30, 1999 $ 8,421 $ 3,993,73 $ (180,000) (1,112,112) $ 16,603,018 $ 19,313,060 ======== ========== ========== ========== ============ ============ See accompanying notes to consolidated financial statements. 4
Security Federal Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Six Months Ended September 30, ------------------------------- 1999 1998 --------------- --------------- Cash Flows From Operating Activities: Net Income $ 984,362 $ 830,687 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation Expense $ 384,068 $ 311,722 Amortization Of Intangibles 232,620 232,620 Discount Accretion And Premium Amortization 25,628 (13,175) Provisions For Losses On Loans And Real Estate 300,000 300,000 Gain On Sale Of Securities Available For Sale (3,022) 0 Gain On Sale Of Loans (184,936) (287,984) Gain On Sale Of Real Estate (104,699) (126,543) Amortization Of Deferred Fees On Loans (18,236) (123,502) Proceeds From Sale Of Loans Held For Sale 10,716,676 13,455,549 Origination Of Loans For Sale (9,499,123) (13,669,487) (Increase) Decrease In Accrued Interest Receivable: Loans (194,649) 38,189 Mortgage-Backed Securities (42,612) (20,777) Investments (57,332) (17,761) Increase In Advance Payments By Borrowers 243,060 122,040 Loss On Disposition Of Premises And Equipment 6,738 0 Other, Net 299,794 203,345 --------------- --------------- Net Cash Provided By Operating Activities $ 3,088,337 $ 1,234,923 --------------- --------------- Cash Flows From Investing Activities: Principal Repayments On Mortgage- Backed Securities $ 542,172 $ 473,623 Held To Maturity Principal Repayments On Mortgage- Backed Securities Available For Sale 3,784,081 274,926 Purchase Of Investment Securities Available For Sale (9,953,938) (14,999,375) Purchase Of Mortgage-Backed Securities Available For Sale (11,130,040) (7,261,743) Maturities Of Investment Securities Available For Sale 7,121,971 14,162,829 Maturities Of Investment Securities Held To Maturity 71,115 1,878,049 Proceeds From Sale of Securities Available For Sale 1,502,422 0 Purchase Of FHLB Stock (1,483,500) 0 Redemption Of FHLB Stock 1,267,800 89,400 Increase In Loans To Customers (19,498,858) (5,640,563) Investment In Real Estate Held For Development (380,727) (272,214) Proceeds From Sale Of Real Estate Held For Development 568,420 377,620 Proceeds From Sale Of Real Estate Acquired Through Foreclosure 21,000 329,545 Purchase And Improvement Of Premises And Equipment (232,671) (505,990) Proceeds From Sale Of Premises And Equipment 9,975 7,000 --------------- --------------- Net Cash Used By Investing Activities $ (27,790,778) $ (11,086,893) --------------- --------------- Cash Flows From Financing Activities: Increase In Deposit Accounts $ 6,848,656 $ 6,827,709 Proceeds From FHLB Advances 77,750,000 56,725,000 Repayment Of FHLB Advances (60,818,000) (52,893,000) Proceeds Of Other Borrowings 674,194 135,436 Repayment Of Other Borrowings (34,765) (39,430) Dividends To Shareholders (67,370) (50,527) --------------- --------------- Net Cash Provided By Financing Activities $ 24,352,715 $ 10,705,188 --------------- --------------- (Continued) 5 Security Federal Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Six Months Ended September 30, ------------------------------- 1999 1998 --------------- --------------- Net Increase (Decrease) In Cash And Cash Equivalents $ (349,726) $ 853,218 Cash And Cash Equivalents At Beginning Of Period 6,951,347 4,658,681 --------------- --------------- Cash And Cash Equivalents At End Of Period $ 6,601,621 $ 5,511,899 =============== =============== Supplemental Disclosure Of Cash Flows Information: Cash Paid During The Period For Interest $ 4,655,810 $ 3,845,891 Cash Paid During The Period For Income Taxes $ 641,350 $ 16,936 Additions To Real Estate Acquired Through Foreclosure $ 21,000 $ 457,335 Increase In Unrealized Net Loss On Securities Available For Sales, Net Of Taxes $ 984,374 $ 212,711 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 six-month period ended September 30, 1999 are not necessarily indicative of the results that may be expected for the entire fiscal year. This Form 10-QSB contains certain forward-looking statements with respect to the financial condition, results of operations, and business. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those anticipated by such forward-looking statements include, but are not limited to, changes in interest rates, changes in the regulatory environment, changes in general economic conditions and inflation, changes in the securities market, and Year 2000 if not effectively corrected. Management cautions readers of Form 10-QSB not to place undue reliance on forward-looking statements contained herein. 2. Principles of Consolidation The accompanying unaudited consolidated financial statements include the accounts of Security Federal Corporation (the "Company") and its wholly owned subsidiary, Security Federal Bank (the "Bank"), and the Bank's wholly owned subsidiary Security Financial Services Corporation ("SFSC"). SFSC engages primarily in investment brokerage services. Also included in the consolidation is a real estate partnership. 3. Loans Receivable, Net Loans Receivable, Net, at September 30, 1999 and March 31, 1999 consisted of the following: Loans held for sale were $571,683 and $1,604,300 at September 30, 1999 and March 31, 1999 respectively. September 30, 1999 March 31, 1999 Loans Held For Investment: ------------------ ---------------- Residential Real Estate $ 85,909,039 $ 65,489,233 Consumer 41,570,536 41,631,602 Commercial Business & Real Estate 55,606,619 52,325,690 ------------------ ---------------- $ 183,086,194 $ 159,446,525 ------------------ ---------------- Less: Allowance For Possible Loan Loss 1,903,635 1,715,068 Loans In Process 11,323,850 7,150,607 Deferred Loan Fees 281,314 199,549 ------------------ ---------------- $ 13,508,799 $ 9,065,224 ------------------ ---------------- $ 169,577,395 $ 150,381,301 ================== ================ The following is a reconciliation of the allowance for loan losses for the six months ending: September 30, 1999 September 30, 1999 ------------------ ------------------ Beginning Balance $ 1,715,068 $ 1,512,038 Provision 300,000 300,000 Charge-offs (127,547) (251,789) Recoveries 16,114 17,312 ------------------ ---------------- Ending Balance $ 1,903,635 $ 1,577,561 ================== ================ 7 Security Federal Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited), Continued 4. Securities Investment and Mortgage-Backed Securities, Held to Maturity - ----------------------------------------------------------- The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of investment and mortgage-backed securities held to maturity are as follows: Gross Gross September 30, 1999 Amortized Unrealized Unrealized - ------------------ Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- US Government and Agency $ 265,707 $ 4,589 $ 0 $ 270,296 Obligations Mortgage-Backed Securities 2,653,265 10,354 40,104 2,623,515 ---------- ---------- ---------- ---------- Total $2,918,972 $ 14,943 $ 40,104 $2,893,811 ========== ========== ========== ========== March 31, 1999 - -------------- US Government and Agency $ 336,822 $ 542 $ 0 $ 337,364 Obligations Mortgage-Backed Securities 3,196,041 46,652 557 3,242,136 ---------- ---------- ---------- ---------- Total $3,532,863 $ 47,194 $ 557 $3,579,500 ========== ========== ========== ========== Investment And Mortgage-Backed Securities, Available For Sale - ------------------------------------------------------------- The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of investment and mortgage-backed securities available for sale are as follows: Gross Gross September 30, 1999 Amortized Unrealized Unrealized - ------------------ Cost Gains Losses Fair Value ----------- ---------- ---------- ----------- US Government and Agency $58,789,537 $ 23,776 $1,178,380 $57,634,933 Obligations Mortgage-Backed Securities 32,104,118 3,967 641,934 31,466,151 ----------- ---------- ---------- ----------- Total $90,893,655 $ 27,743 $1,820,314 $89,101,084 =========== ========== ========== =========== March 31, 1999 - -------------- US Government and Agency $57,459,009 $ 165,373 $ 264,488 $57,359,894 Obligations Mortgage-Backed Securities 24,781,144 23,850 129,116 24,675,878 ----------- ---------- ---------- ----------- Total $82,240,153 $ 189,223 $ 393,604 $82,035,772 =========== ========== ========== =========== 8 Security Federal Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited), Continued 5. Deposits A summary of deposit accounts by type with weighted average rates is as follows: September 30, 1999 March 31, 1999 -------------------- -------------------- Demand Accounts: Balance Rate Balance Rate -------------------- -------------------- Checking $ 51,914,283 0.84% $ 53,435,702 0.84% Money Market 53,359,796 4.59% 49,369,915 4.70% Regular Savings 13,131,719 2.49% 11,847,962 2.47% ------------ ------------ Total Demand Accounts $118,405,798 2.71% $114,653,579 2.67% ============ ============ Certificate Accounts: 0 - 4.99% $ 42,124,059 $ 31,100,943 5.00 - 6.99% 62,713,670 70,640,349 7.00 - 8.99% 137,812 137,812 ------------ ------------ Total Certificate Accounts $104,975,541 5.06% $101,879,104 5.18% ============ ============ Total Deposit Accounts $223,381,339 3.81% $216,532,683 3.85% ============ ============ 6. Federal Home Loan Bank Advances Federal Home Loan Bank Advances are summarized by year of maturity and weighted average interest rate in the table below: September 30, 1999 March 31, 1999 -------------------- -------------------- Balance Rate Balance Rate Fiscal Year Due: -------------------- -------------------- 2000 $ 12,478,000 5.40% $ 528,000 8.70% 2001 13,856,000 5.56% 856,000 8.75% 2002 5,000,000 5.71% 0 0% 2003 0 0 5,000,000 5.69% Thereafter 198,000 7.97% 8,216,000 5.42% ------------ ------------ Total Advances $ 31,532,000 5.54% $ 14,600,000 5.82% ============ ============ 7. Regulatory Matters The following table reconciles the Bank's Shareholders' equity to its various regulatory capital positions: September 30, 1999 March 31, 1999 (Dollars in Thousands) ------------------------------------ Bank's Shareholders' Equity $ 18,861 $ 18,879 Unrealized Loss On Available For Sale Of Securities, Net of Tax 1,112 128 Reduction For Goodwill And Other Intangibles (1,348) (1,581) ------------------ --------------- Tangible Capital 18,625 17,426 Qualifying Core Deposits And Intangible Assets 611 664 ------------------ -------------- Core Capital 19,236 18,090 Supplemental Capital 1,903 1,715 ------------------ -------------- Risk-Based Capital $ 21,139 $ 19,805 ================== ============== The following table compares the Bank's capital levels relative to the applicable regulatory requirements at September 30, 1999. (Dollars in Thousands) ------------------------------------------------------- Amt. % Actual Actual Excess Excess Required Required Amt. % Amt. % ------------------------------------------------------- Tangible Capital $ 5,581 2.0% $18,625 6.67% $13,044 4.67% Tier 1 Leverage (Core) 11,187 4.0% 19,236 6.88% 8,049 2.88% Capital Total Risk-Based Capital 12,790 8.0% 21,139 13.22% 8,349 5.22% Tier 1 Risk-Based (Core) Capital 6,395 4.0% 19,236 12.03% 12,841 8.03% 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, 1999 are as follows: To Be Well Capitalized For Under Prompt Capital Adequacy Corrective Action Actual Purposes Provisions ------------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio ------------------------------------------------------- Tier I Risk-Based Core Capital $19,236 12.0% $ 6,395 4.0% $ 9,592 6.0% Risk-Based Capital (To Risk Weighted Assets) 21,139 13.2% 12,790 8.0% 15,987 10.0% Core Capital (To Adjusted Tangible Assets) 19,236 6.9% 11,187 4.0% 13,984 5.0% Tangible Capital (To Tangible Assets) 18,625 6.7% 5,581 2.0% 13,954 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 $25.0 million during the six months ended September 30, 1999, due primarily to increases of $18.2 million or 12.0% in total net loans receivable and $6.5 million or 7.5% in investment securities. Residential real estate loans, net of loans in process, increased $15.1 million or 25.3% during the period while other loans increased $3.2 million or 3.4%. Combined with higher coupon loans prepaying, this led to a decrease in the overall yield of the loan portfolio. Real estate acquired in settlement of loans (REO) remained constant at $154,000 while real estate acquired for development decreased $83,000 during the six-month period. Deposits increased $6.8 million or 3.2% during the six months ended September 30, 1999 and Federal Home Loan Bank (FHLB) advances grew $16.9 million to fund the Company's 9.8% growth in assets. The Board of Directors declared the 34th and 35th consecutive quarterly dividend of $.04 per share in May and August 1999, which totaled $67,000. The employee stock ownership trust of the Company borrowed $180,000 to purchase stock for the plan during the six month period. Unrealized losses on securities available for sale increased $984,000 during the six months ended September 30, 1999 due to the recent rise in U.S. Treasury and agency yields. Net income for the six months was $984,000 for the Company. These items combined to decrease shareholders' equity by $247,000 or 1.3% during the six months ended September 30, 1999. Book value per share was $23.03 at September 30, 1999 compared to $23.23 at March 31, 1999. At its October 1998 Board of Directors meeting, the Board declared a 2-for-1 stock split of the Company's common stock. The stock split was accomplished through a 100% stock dividend that was issued on or about December 15, 1998 to shareholders of record as of November 30, 1998. Liquidity and Capital Resources In accordance with Office of Thrift Supervision (OTS) regulations, the Company is required to maintain a liquidity ratio at specified levels that are subject to change. Currently, a minimum of 4.0% of the combined total of deposits and certain borrowings must be maintained in the form of cash or eligible investments. The Company's average liquidity during the six months ended September 30, 1999 was approximately 37%. The Company's current liquidity level is deemed adequate to meet the requirements of normal operations, potential deposit outflows, and loan demand while still allowing for optimal investment of funds and return on assets. Loan repayments and maturities of investments are a significant source of funds, whereas loan disbursements are a primary use of the Company's funds. During the six months ended September 30, 1999, loan disbursements exceeded loan repayments resulting in a $18.2 million or 12.0% 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, 1999, deposits increased $6.8 million while FHLB advances increased $16.9 million. At September 30, 1999, the Bank had $88.9 million of certificates of deposit maturing within one year. Based on previous experience, the Bank anticipates a major portion of these certificates will be renewed. Liquidity resources at September 30, 1999 are sufficient to meet outstanding mortgage loan commitments of $583,000 and unused lines of credit of $22.5 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 FASB issued SFAS 133, Accounting for Derivative Instrument and Hedging Activities. All derivatives are to be measured at fair value and recognized in the balance sheet as assets or liabilities. This statement's effective date is delayed by the issuance of SFAS 137 (Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133-an amendment of the FASB Statement No. 133) and is effective for fiscal years and quarters beginning after June 15, 2000. Because the Company has limited use of derivative transactions at this time; management does not expect this standard to have a significant effect on the Company. In October 1998, the FASB issued SFAS 134, Accounting for Mortgage- Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise. The new statement establishes accounting and reporting standards for certain activities of mortgage banking enterprises. The statement is effective for the first quarter beginning after December 15, 1998. The statement has no effect on the financial statements of the Company. In February 1999, the FASB issued SFAS 135, Rescission of FASB Statement No. 75 and Technical Corrections. The SFAS provides technical corrections for previously issued statements and rescinds SFAS 75, which provides guidance related to pension plans of state and local governmental units. SFAS 135 is effective for fiscal years ending after February 15, 1999. This statement will not have a material effect on the financial statements of the Company. In June 1999, the FASB issued SFAS 136, Transfers of Assets to a Not-for- Profit Organization or Charitable Trust that Raises or Holds Contributions for Others. This statement establishes standards for transactions in which an entity makes a contribution by transferring assets to a not-for-profit organization or a charitable trust and then requires these contributions to be used in a specified manner. This statement is not expected to have a material impact on the financial statements of the Company. Impact of Inflation and Changing Prices The consolidated financial statements, related notes, and other financial information presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in relative purchasing power over time due to inflation. Unlike industrial companies, substantially all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than does inflation. 12 Security Federal Corporation and Subsidiaries Management's Discussion and Analysis of Results of Operations and Financial Condition Year 2000 Considerations The Company recognizes that there is a business risk in computerized systems as the calendar rolls over into the next century. If the computer systems misinterpret the date, items such as interest calculations on loans and deposits will be incorrect. This problem is commonly called the "Year 2000 Problem." A number of computer systems used by the Company in its day-to-day operations will be affected by this problem. Management has established a committee (the "Y2K Project Team") which has identified all affected systems and is currently working to ensure that this event will not disrupt operations. The Y2K Project Team reports regularly to the Company's Board of Directors. The Company is also working closely with outside computer vendors to ensure that all software corrections and warranty commitments are obtained and to arrange mock conversion testing. Testing of the Company's core processing systems occurred in December 1998. The test was evaluated and appears to have been successful. The Company's contingency plan has been completed and tested and will be re-tested. The Company's Year 2000 project costs are not expected to have a material impact on its results of operations, liquidity or capital resources. The Company has funded approximately $350,000 in preparing for Y2K. Further expenditures for Y2K compliance are estimated to be $50,000 through the end of the calendar year. The impact of Year 2000 noncompliance by all outside parties with whom the Company may transact business cannot be fully gauged at this time. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 - ------------------------------------------------------------------- Net Income Net income was $509,000 for the three months ended September 30, 1999, representing an increase in earnings of $134,000 or 35.6% compared to the same period in 1998. Net Interest Income Net interest income increased $123,000 or 5.7% during the three months ended September 30, 1999 due to an increase in total interest income offset in part by an increase in interest expense. Interest income on loans increased $91,000 or 2.8% during the quarter as a result of total net loans increasing as the average yield in the loan portfolio decreased. Investment, mortgage-backed, and other securities interest income increased $376,000 or 37.4% due to an increase in the average balance in the investment portfolio despite a 20 basis points decline in the average yield in the portfolio. Total interest income rose $467,000 or 10.9% compared to the same period in 1998. Total interest expense increased $344,000 or 16.2% during the three months ended September 30, 1999 compared to the same period one-year earlier. Interest expense on deposits increased $240,000 or 12.9% during the period as deposits grew significantly compared to the average balance in 1998. Interest expense on advances and other borrowings increased $104,000 as the average amount of debt outstanding increased during the 1999 period compared to 1998 although the average cost of the borrowings decreased in the 1999 period. Provision for Loan Losses The Bank's provision for loan losses was $150,000 during both the three months ended September 30, 1999 and 1998. The amount of the provision is determined by Management's on-going monthly analysis of the loan portfolio. Non-accrual loans, which are loans delinquent 90 days or more, were $1.8 million at September 30, 1999 compared to $1.2 million at March 31, 1999. The ratio of allowance for loan losses to the Company's total loans was 1.11% at September 30, 1999 compared to 1.12% at March 31, 1999. 13 Security Federal Corporation and Subsidiaries Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999, CONTINUED - ------------------------------------------------------------------------------ Other Income Total other income increased $13,000 or 2.1% during the three months ended September 30, 1999 compared to the same period one-year earlier. Gain on sale of loans decreased $118,000 during the period due to more mortgage customers opting for adjustable rate loans as fixed loan rates increased. Loan servicing fees decreased $7,000 as the portfolio of loans serviced for others decreased. Service fees on deposit accounts grew $56,000 as the number of commercial and personal demand deposit accounts increased. Income from real estate operations stemming from the Willow Woods partnership increased $65,000 during the period. Other miscellaneous income including credit life insurance commissions, net gain on sale of repossessed assets, safe deposit rental income, annuity and stock brokerage commissions through SFSC, and other miscellaneous fees increased $15,000 during the three months ended September 30, 1999. General and Administrative Expenses General and administrative expenses decreased $76,000 or 3.7% during the three months ended September 30, 1999 compared to the same period in 1998. Salaries and employee benefits expense grew $58,000 or 5.7% due to an increase in staff in customer service positions to handle increased business and due to normal annual salary increases. Occupancy expense increased $4,000 or 3.2% during the period. Advertising expense decreased $104,000 while the depreciation and maintenance of equipment expense increased $32,000 during the quarterly period. FDIC insurance premiums rose $3,000 as deposit account balances increased. Amortization of intangible expense was $116,000 during the three months ended September 30 in fiscal 1999 and 1998. Other miscellaneous expense, consisting of legal, professional, and consulting expenses, stationery and office supplies, and other sundry expenses, decreased $68,000 or 15.3% for the three months ended September 30, 1999 compared to the three months ended September 30, 1998 due primarily to a decrease in repossessed assets expense. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 - ----------------------------------------------------------------- Net Income Net income was $984,000 for the six months ended September 30, 1999, representing an increase in earnings of $154,000 or 18.5% compared to the same period in 1998. Net Interest Income Net interest income increased $186,000 or 4.3% during the six months ended September 30, 1999 due to an increase in total interest income offset in part by an increase in interest expense. Interest income on loans increased $279,000 or 4.4% during the six months in 1999 as a result of total net loans increasing although the average yield in the loan portfolio decreased. Investment, mortgage-backed, and other securities interest income increased $510,000 or 23.0% due to an increase in the average balance in the investment portfolio despite a 21 basis points decline in the average yield in the portfolio. Total interest income rose $789,000 or 9.3% during the six months compared to the same period in 1998. Total interest expense increased $603,000 or 14.3% during the six months ended September 30, 1999 compared to the same period one-year earlier. Interest expense on deposits increased $518,000 or 14.2% during the period as deposits grew significantly compared to the average balance in 1998 despite a decline in the cost of deposits during the 1999 six month period. Interest expense on advances and other borrowings increased $84,000 as the average amount of debt outstanding increased during the 1999 period compared to 1998. 14 Security Federal Corporation and Subsidiaries Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999, CONTINUED - ---------------------------------------------------------------------------- Provision for Loan Losses The Bank's provision for loan losses was $300,000 during the six months ended June 30, 1999 and 1998. The amount of the provision is determined by Management's on-going monthly analysis of the loan portfolio. Non-accrual loans, which are loans delinquent 90 days or more, were $1.8 million at September 30, 1999 compared to $1.2 million at March 31, 1999. The ratio of allowance for loan losses to the Company's total loans was 1.11% at September 30, 1999 compared to 1.12% at March 31, 1999. Net charge-offs were $111,000 during the six months ended September 30, 1999 compared to $234,000 during the same period in 1998. Other Income Total other income decreased $14,000 or 1.1% during the six months ended September 30, 1999 compared to the same period one-year earlier. Gain on sale of loans decreased $103,000 as more mortgage loan customers chose an adjustable rate loan as opposed to a fixed rate loan which are generally sold, due to the rise in mortgage rates. Loan-servicing fees decreased $17,000 as the portfolio of loans serviced for others decreased. Service fees on deposit accounts grew $92,000 as the number of commercial and personal demand deposit accounts increased. Income from real estate operations originating from the Willow Woods partnership increased $33,000 during the period. Other miscellaneous income including credit life insurance commissions, net gain on sale of repossessed assets, safe deposit rental income, annuity and stock brokerage commissions through SFSC, and other miscellaneous fees decreased $21,000 during the six months ended September 30, 1999. General and Administrative Expenses General and administrative expenses decreased $64,000 or 1.6% during the six months ended September 30, 1999 compared to the same period in 1998. Salaries and employee benefits expense increased $110,000 or 5.5% due to an increase in staff in customer service positions to handle increased business and due to normal annual salary increases. Occupancy expense grew by $12,000 or 4.9% during the period. Advertising expense decreased $172,000 while the depreciation and maintenance of equipment expense increased $47,000 during the six-month period. FDIC insurance premiums rose $4,000 as total deposits increased. Amortization of intangible expense was $233,000 during the six months ended September 30 in fiscal 1999 and 1998. Other miscellaneous expense, consisting of legal, professional, and consulting expenses, stationery and office supplies, and other sundry expenses, decreased $66,000 or 7.8% for the six months ended September 30, 1999 compared to the six months ended September 30, 1998. 15 Security Federal Corporation and Subsidiaries Other Information Item 1 Legal Proceedings ----------------- The Company is not engaged in any legal proceedings of a material nature at the present time. From time to time, the Company is a party to legal proceedings in the ordinary course of business wherein it enforces its security interest in mortgage loans it has made. Item 2 Changes In Securities And Use Of Proceeds ----------------------------------------- Not applicable. Item 3 Defaults Upon Senior Securities ------------------------------- None Item 4 Submission Of Matters To A Vote Of Security Holders --------------------------------------------------- The election of directors was presented for vote to shareholders at the Annual Meeting on July 20, 1999. Votes for Robert E. Alexander were as follows: 620,970 votes for, 27,780 votes withheld. Votes for William Clyburn were as follows: 620,370 votes for, 28,380 votes withheld. Votes for Harry O. Weeks, Jr. were as follows: 620,570 votes for, 28,180 votes withheld. The votes for the approval of the Security Federal Corporation 1999 Stock Option Plan were as follows: 610,970 votes for, 33,880 votes against, 3,900 votes abstained. Item 5 Other Information ----------------- None Item 6 Exhibits And Reports On Form 8-K -------------------------------- Exhibits: 3.1 Articles Of Incorporation* 3.2 Articles Of Amendment, Dated August 28, 1998, To Articles Of Incorporation 3.3 Bylaws** 10 Executive Compensation Plans And Arrangements: Salary Continuation Agreements*** Amendment One To Salary Continuation Agreements**** Stock Option Plan*** Incentive Compensation Plan*** 27 Financial Data Schedule * Filed as an exhibit to the Company's June 23, 1998 proxy statement and incorporated herein by reference. ** Filed as an exhibit to the Company's Form 8-K dated August 31, 1998 and incorporated herein by reference. *** Filed on June 28, 1993, as an exhibit to the Company's Annual Report on Form 10-KSB pursuant to Section 12(g) of the Securities Exchange Act of 1934. All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B. **** Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1993 pursuant to Section 12(g) of the Securities Exchange Act of 1934. All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B. 16 Security Federal Corporation and Subsidiaries Signatures Pursuant to the requirement of the Securities 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 10, 1999 By: /s/ Roy G. Lindburg -------------------- ----------------------------------- Roy G. Lindburg Treasurer/CFO Duly Authorized Representative EX-27 2
9 6-MOS MAR-31-2000 SEP-30-1999 6601621 0 0 0 89101084 2918972 2893811 170149078 1903635 279724950 223381339 13986699 3762152 19054000 0 0 4002154 15310906 279724950 6588770 2689740 38746 9317256 4174244 4803452 4513804 300000 0 3919064 1500960 516598 0 0 984362 1.17 1.16 3.55 1803000 0 710000 0 1715068 127547 16114 1903635 0 0 1903635
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