SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1999
COMMISSION FILE NO: 0-22911
SOUTHERN SECURITY BANK CORPORATION
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION)
65-0325364
(IRS EMPLOYER IDENTIFICATION NUMBER)
3475 SHERIDAN STREET, HOLLYWOOD, FL 33021
(954) 985-3900
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE
ISSUER'S CLASSES OF COMMON EQUITY, AS OF THE
SEPTEMBER 30, 1999 (LATEST PRACTICABLE DATE):
(A) CLASS A VOTING COMMON STOCK: 5,913,050 SHARES
(B) CLASS B NON-VOTING COMMON STOCK: -0-
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES____; NO X
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS - UNAUDITED
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
ASSETS SEPTEMBER 30, 1999 DECEMBER 31, 1998
- ------ ------------------ -----------------
Cash and due from banks $ 1,513,037 $ 1,012,269
Federal Funds sold 3,955,000 4,845,000
------------ -----------
Total cash and cash equivalents 5,468,037 5,857,269
Securities held to maturity 326,585 350,883
Securities available for sale 461,620 277,970
Federal Reserve Bank stock, at cost 88,600 84,300
Loans, net 13,891,964 14,612,998
Premises and equipment 360,957 344,592
Other real estate owned 279,902 414,298
Accrued interest receivable 99,760 136,854
OTHER ASSETS 232,137 181,677
------------ ------------
TOTAL ASSETS $ 21,209,562 $ 22,260,841
=========== ===========
See Notes to Consolidated Condensed Financial Statements
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS - UNAUDITED
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
LIABILITIES SEPTEMBER 30, 1999 DECEMBER 31, 1998
- ----------- ------------------ -----------------
<S> <C> <C>
Liabilities
Noninterest bearing deposits $ 4,229,103 $ 5,138,392
Interest-bearing deposits 15,161,814 15,105,654
----------- -----------
Total deposits 19,390,917 20,244,046
Federal funds purchased 0 0
Securities sold under repurchase agreements 0 0
Notes payable 100,000 100,000
Other Liabilities 584,237 661,184
----------- ----------
Total Liabilities 20,075,154 21,005,230
----------- ----------
Commitments and Contingencies 0 0
Minority interest in subsidiary 40,321 39,491
----------- -----------
Stockholders' equity
Series A Preferred Stock 0 0
(Authorized: 5,000,000; Outstanding: 0
And 0, respectively)
Class A Common Stock 59,131 45,676
(Authorized: 30,000,000; Outstanding: 5,913,050)
And 4,567,641, respectively)
Class B Common Stock 0 0
(Authorized: 5,000,000; Outstanding: 0)
And 0, respectively)
Surplus 5,946,315 5,537,269
Accumulated Profit/Loss (4,908,539) (4,370,251)
Accumulated other comprehensive income (2,820) 3,426
----------- -------------
TOTAL STOCKHOLDERS' EQUITY 1,094,087 1,216,120
------------ -------------
TOTAL LIABILITIES & STOCKHOLDERS EQUITY $ 21,209,562 $ 22,260,841
============= =============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30,1998
------------------ -----------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 1,003,178 $ 1,128,276
Interest and dividends on securities 40,247 108,429
Interest on federal funds sold & repurchase agreement 138,761 180,723
--------- ----------
1,182,186 1,417,428
Interest Expense:
Deposits 413,268 658,972
Other 6,248 8,213
--------- ----------
419,516 667,185
Net interest income 762,670 750,243
Provisions for loan losses 0 0
--------- ----------
Net interest income after provision for loan losses 762,670 750,243
--------- ----------
Other Income:
Service charges on deposit accounts 87,527 88,688
Securities gains (losses), net 0 543
Other 18,202 47,092
--------- ----------
TOTAL OTHER INCOME 105,729 136,323
--------- ----------
Other Expenses:
Salaries and employee benefits 670,494 519,449
Occupancy and equipment 250,263 265,298
Data and item processing 91,318 64,308
Professional Fees 172,249 68,466
Insurance 38,887 39,257
Other 186,138 200,749
--------- ----------
TOTAL OTHER EXPENSES 1,409,349 1,157,527
--------- ----------
Net Profit (loss) before minority
interest in net profit (loss) of subsidiary (540,950) (270,961)
Minority interest in net (profit) loss of subsidiary 2,662 101
--------- ----------
Net income (loss) $ (538,288) $ (270,860)
---------- ----------
Basic earnings per share $ (0.10) $ (0.06)
---------- ----------
Diluted earnings per share $ (0.10) $ (0.06)
========= ==========
Weighted average number of shares
& common equivalent shares 5,240,346 4,486,976
--------- ----------
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30,1998
------------------ -----------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 344,061 $ 382,922
Interest and dividends on securities 13,759 18,396
Interest on federal funds sold & repurchase agreement 48,031 81,443
------- ---------
405,851 482,761
Interest Expense:
Deposits 132,410 231,943
Other 2,000 4,124
------- ---------
134,410 236,067
Net interest income 271,441 246,694
Provisions for loan losses 0 0
-------- ---------
Net interest income after provision for loan losses 271,441 246,694
-------- ---------
Other Income:
Service charges on deposit accounts 29,610 32,221
Securities gains (losses), net 0 543
Other 5,383 16,782
-------- ---------
Total other income 34,993 49,546
-------- ---------
Other Expenses:
Salaries and employee benefits 214,571 69,947
Occupancy and equipment 88,719 92,387
Data and item processing 29,864 23,140
Professional Fees 55,412 12,772
Insurance 12,962 13,097
Other 57,884 48,007
-------- ---------
Total other expenses 459,412 259,350
-------- ---------
Net Profit (loss) before minority
interest in net profit (loss) of subsidiary (152,978) 36,890
Minority interest in net (profit) loss of subsidiary 397 162
------- ---------
Net Income (loss) $ (152,581) $ 37,052
---------- ---------
Basic earnings per share $ (0.03) $ 0.01
---------- ---------
Diluted earnings per share $ (0.03) $ 0.01
========== =========
Weighted average number of shares
& common equivalent shares 5,913,050 4,486,976
---------- ---------
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income (loss) $ (538,288) $ (270,860)
Adjustments to reconcile net profit (loss)
to net cash used in operating activities:
Net accretion on securities (2,161) (2,060)
Provision for loan losses 0 0
Depreciation and amortization 78,530 93,367
Securities (gains) losses, net 0 (543)
Minority interest in net income (loss) of subsidiary (2,662) (101)
(Increase) decrease in Accrued Interest Receivable 37,094 (9,945)
(Increase) decrease in Other Assets (60,627) (82,412)
Increase in other liabilities (76,947) 462,612
------ -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (565,061) 190,058
Cash Flows from Investing Activities
Net cash flows from securities (163,594) 1,535,628
(Purchase) Sale of Federal Reserve Bk/Federal Home Loan Bk stock (4,300) (15,450)
Loan originations & principal collections on loans - net 721,034 2,674,138
Purchase of loans - net 0 (5,723,793)
Purchase of premises and equipment - net (84,727) (20,902)
(Increase) Decrease of other real estate owned 134,396 (7,999)
Increase (decrease) in minority interest 3,642 15,005
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 606,451 (1,543,373)
-------- ----------
Cash Flows From Financing Activities
Net increase (decrease) in federal funds purchased and
securities sold under repurchase agreements 0 (206,000)
Net increase (decrease) in deposits (853,128) 7,628,360
Net increase (decrease) in notes payable 0 0
Proceeds from issuance of stock 422,500 936,435
Dividends paid on stock 0 0
-------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (430,622) 8,358,795
-------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (389,232) 7,005,480
CASH AND CASH EQUIVALENTS, BEGINNING 5,857,269 1,107,669
--------- ---------
CASH AND CASH EQUIVALENTS, ENDING $ 5,468,037 $ 8,113,149
========= ==========
</TABLE>
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
See Notes to Consolidated Condensed Financial Statements
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Common Stock Paid-In Accumulated Comprehensive
Income Shares Amount Capital (Deficit) Income Total
------ ------ ------ ------- ----------- --------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 4,299,673 $42,997 $4,215,371 $(3,786,230) $ 692 $472,830
Comprehensive income (loss): - - -
Net loss $ (584,021) - - - (584,021) - (584,021)
Other Comprehensive income,
net of tax:
Change in unrealized gain
(loss) on securities available
for sale 2,734 - - - - 2,734 2,734
------
Comprehensive income (loss) $ (581,287)
=========
Issuance of stock in
private placements 267,968 2,679 1,321,898 - - 1,324,577
Issuance of stock in
--------- --------- --------- --------- ----- ---------
Balance, December 31, 1998 4,567,641 45,676 5,537,269 (4,370,251) 3,426 1,216,120
Comprehensive income (loss):
Net loss $ (538,288) - - - (538,288) - (538,288)
Other comprehensive income,
net of tax:
Change in unrealized gain
(loss) on securities available
for sale (6,246) - - - - (6,246) (6,246)
Comprehensive income (loss) $ (544,534)
=======
Issuance of stock 1,345,409 13,455 409,046 - - 422,501
Balance September 30, 1999 5,913,050 59,131 5,946,315 $(4,908,539) ($2,820) 1,094,087
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Net Income (loss) $ (538,288) $ (270,860)
Other comprehensive Income (loss):
Unrealized holding gains arising during period (6,246) 2,974
----------- ---------
COMPREHENSIVE INCOME (LOSS) $ (544,534) (267,886)
=========== =========
THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
Net Income (loss) $ (152,582) $ 37,052
Other comprehensive Income (loss):
Unrealized holding gains arising during period 2,117 2,974
----------- --------
COMPREHENSIVE INCOME (LOSS) $ (150,466) 40,026
=========== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
ANALYSIS OF ALLOWANCE FOR LOAN AND LEASE LOSSES - UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND YEAR ENDED DECEMBER 31, 1998
NINE MONTHS ENDED YEAR ENDED
----------------- ----------
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
Balance, beginning of year $ 271,498 $ 288,802
Total charge-offs 67,040 65,096
Recoveries 13,881 7,792
PROVISION FOR LOAN & LEASE LOSSES 0 40,000
------- -------
ALLOWANCE BALANCE AT END OF PERIOD $ 218,339 271,498
======= =======
TOTAL LOANS AND DISCOUNT $14,110,304 $14,884,496
========== ==========
ALLOWANCE TO TOTAL LOANS AND DISCOUNT 1.55% 1.82%
======== =========
see Notes to Consolidated Condensed Financial Statements
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CAPITAL ADEQUACY REVIEW - UNAUDITED
SEPTEMBER 30, 1999
SOUTHERN SECURITY BANK CORPORATION
<TABLE>
<CAPTION>
FOR CAPITAL ADEQUACY
PURPOSES UNDER PROMPT
SSB CORP CORRECTIVE ACTION PROVISIONS
-------- ----------------------------
<S> <C> <C> <C>
TIER 1 LEVERAGE RATIO:
TIER 1 CAPITAL $ 1,094,085 5.16% >4.00%
------------
Consolidated Assets $21,209,561 =
FOR CAPITAL ADEQUACY
PURPOSES UNDER PROMPT
BANK CORRECTIVE ACTION PROVISIONS
----- ----------------------------
TOTAL RISK-WEIGHTED RATIO:
TIER 2 CAPITAL + ALLL $ 1,760,000 11.76% >8.00%
------------
Risk Weighted Assets $ 14,961,000=
TIER 1 RISK WEIGHTED RATIO:
TIER 1 CAPITAL $ 1,571,943 10.51% >4.00%
------------
Risk Weighted Assets $ 14,961,000 =
TIER 1 LEVERAGE RATIO:
TIER 1 CAPITAL $ 1,571,943 7.49% >4.00%
------------
Average Quarterly Assets $ 20,986,000=
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying unaudited consolidated condensed financial statements of
Southern Security Bank Corporation (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation of the results for the interim
period ended September 30, 1999, have been included. Operating results for the
nine month period ended September 30, 1999, are not necessarily indicative of
the results that may be expected for the full year. For further information,
refer to the consolidated financial statements and the notes to consolidated
financial statements included in the Company's annual report on Form 10-KSB for
the year ended December 31, 1998, as filed with the Securities and Exchange
Commission, which are incorporated herein by reference. All capitalized terms
used in these notes to consolidated condensed financial statements that are not
defined herein have the meanings given to them in such consolidated condensed
financial statements and notes to consolidated condensed financial statements.
All material intercompany balances and transactions have been eliminated.
The Company is a bank holding company that owns 97.61% of the outstanding
capital stock of Southern Security Bank ("Bank"). The Company is organized under
the laws of the State of Delaware, while the Bank is a Florida State Chartered
Commercial Bank that is a member of the Federal Reserve System whose deposits
are insured by the Federal Deposit Insurance Corporation. The Bank provides a
full range of commercial banking and consumer banking services to businesses and
individuals. The Company is regulated by the Federal Reserve, its affiliate Bank
is regulated by the Florida Department of Banking and Finance and the Federal
Reserve.
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income or stockholders' equity. SFAS 130 requires unrealized gain
or losses on the Company's available-for-sale investments, which prior to
adoption were reported separately in stockholders' equity, to be included in
other comprehensive income. All of the Company's other comprehensive income
relates to net unrealized gain (losses) on available-for-sale investments.
Effective for the year ended December 31, 1997, the Company adopted the
Statement of Financial Standards No. 128, "Earnings Per Share" ("SFAS 128"). In
accordance with SFAS 128, the Company is required to provide basic and dilutive
earnings per common share information.
Following is information about the computation of earnings per share data for
the periods ended September 30, 1999 and September 30, 1998.
Per-Share
Numerator Denominator Amounts
Nine Months Ended September 30, 1999
Net Profit (loss) $(538,287)
Basic and diluted earnings per share,
income available to common
shareholders
$(538,287) 5,240,346 $ (0.10)
---------- --------- --------
Nine Months Ended September 30, 1998
Net Profit (loss) $ (270,860)
Basic and diluted earnings per share,
income available to common
shareholders
$(270,860) 4,486,976 $(0.06)
---------- --------- -------
Options for the purchase of 1,221,479 shares at September 30, 1999 and 863,687
shares at September 30, 1998 have not been included in the computation of
diluted earnings per share for September 30, 1999 and September 30, 1998 because
their inclusion would have been antidilutive as a result of losses being
reported for these periods.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis presents a review of the consolidated
condensed operating results and financial condition of Southern Security Bank
Corporation ("Company") and its subsidiary Southern Security Bank ("Bank") for
the nine month period ended September 30, 1999 and 1998. This discussion and
analysis should be read in conjunction with the Consolidated Condensed Financial
Statements and Notes thereto contained in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998.
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM DECEMBER 31, 1998
TO SEPTEMBER 30, 1999
FINANCIAL CONDITION
Total assets decreased by $1.1 million, or 4.7%, from $22.3 million at December
31, 1998, to $21.2 million at September 30, 1999, with the decrease consisting
principally of consumer loans and federal funds sold.
The Company's short-term investments, primarily consisting of Federal Funds Sold
("fed funds") and available-for-sale investments, decreased by $.7 million to
$4.4 million at September 30, 1999, from $5.1 million at December 31, 1998. This
decrease in short-term investments is the result of decreased deposits of $.8
million or 4.2% since December 31, 1998.
The Company's net loans receivable decreased by $.7 million or 4.9%, to $13.9
million at September 30, 1999, from $14.6 million at December 31, 1998.
The Allowance For Credit Losses reflects management's judgement of the level of
allowance adequate to provide for reasonably foreseeable losses, based upon the
following factors: (i) the general economic conditions; (ii) the credit
condition of its customers, as well as the underlying collateral, if any; (iii)
historical experience; and (iv) the average maturity of its loan portfolio.
Deposits decreased by $.8 million, or 4.2%, to $19.4 million at September 30,
1999 from $20.2 million at December 31, 1998. Management believes this decrease
is attributable to the offering of competitive interest rates in a market area
dominated by super-regional banks and others offering rates above general market
rates.
ASSET QUALITY AND NON-PERFORMING ASSETS
The Company's classified loans and discount decreased from $517,445 at December
31, 1998 (3.48% of total loans) to $43,582 at September 30, 1999 (0.31% of total
loans). Assets which are classified are those deemed by management as
inadequately protected by the current sound worth and paying capacity of the
obligor or of the collateral pledged, if any. Assets which are classified have a
well-defined weakness or weaknesses that jeopardize the liquidation of the debt.
They are characterized by the distinct possibility that the Company will sustain
some loss if the deficiencies are not corrected.
The Company's other real estate and repossessed assets decreased from $414,297
at December 31, 1998 (2.78% of total loans) to $279,902 at September 30, 1999
(1.98% of total loans).
In management's best judgement, all non-performing assets are either fully
collateralized or reserved based on circumstances known at this time.
CAPITAL
The Company's total stockholders' equity was $1,094,087 at September 30, 1999, a
decrease of $122,000 or 10.0%, from $1,216,120 at December 31, 1998. The
decrease is due primarily to operating losses.
The Company and the Bank are subject to various regulatory capital requirements
administered by banking regulatory agencies. Failure to meet minimum capital
requirements can result in certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. The regulations require
the Company and the Bank to meet specific capital adequacy guidelines that
involve quantitative measures of their assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Company's and the Bank's capital classification is also subject to qualitative
judgement by the regulators about interest rate risk, concentration of credit
risk and other factors.
In accordance with risk-based capital guidelines issued by the Federal Reserve
Board, the Company and the Bank are each required to maintain a minimum ratio of
total capital to weighted risk assets as well as maintaining minimum leverage
ratios (set forth in the table below). Holding Companies and Member banks
operating at or near the minimum ratio levels are expected to have well
diversified risks, including no undue interest rate risk exposure, excellent
control systems, good earnings, high asset quality, high liquidity, and well
managed on- and off-balance sheet activities, and in general be considered
strong organizations with a composite 1 rating under the CAMEL rating system of
banks and BOPEC rating system for holding companies. For all but the most highly
rated banks and bank holding companies meeting the above conditions, the minimum
leverage ratio may require an additional 100 to 200 basis points. The Leverage
Ratio of the Company as well as the Tier 1 Capital, Total Capital, and Leverage
Ratio of the Bank are set forth in the table below.
Company Capital Ratios September 30, 1999 December 31, 1998 Minimum
Leverage: 5.16% 4.95% 4.00%
Bank Capital Ratios September 30, 1999 December 31, 1998 Adequate
Total risk-weighted capital: 11.76% 11.78% 8.00%
Tier I risk-weighted capital: 10.51% 10.53% 4.00%
Leverage: 7.49% 6.25% 4.00%
The Bank entered into a written agreement ("Agreement") with the Federal Reserve
Bank of Atlanta (the "FRB") and the State of Florida Department of Banking and
Finance (the "Department") on November 13, 1998. The Agreement includes the
requirement that, the Bank's leverage ratio must be maintained at a level not
less than 7.0%
LIQUIDITY
The Company's principal sources of liquidity and funding are generated by the
operations of its subsidiary through its diverse deposit base as well as loan
participations. For banks, liquidity represents the ability to meet loan
commitments, withdrawals of deposit funds, and operating expenses. The level and
maturity of deposits necessary to support the Company's lending and investment
activities is determined through monitoring loan demand and through its
asset/liability management process. Considerations in managing the Company's
liquidity position include scheduled cash flows from existing assets,
contingencies and liabilities, as well as projected liquidity conducive to
efficient operations and is continuously evaluated as part of the
asset/liability management process.
Historically, the Company has increased its level of deposits to allow for its
planned asset growth. The level of deposits is influenced by general interest
rates, economic conditions and competition, among other things.
The Company's liquid assets at September 30, 1999, consisted of $5.5 million in
cash and cash equivalents and $.4 million in available-for-sale investments, for
a total of $5.9 million, compared with a total of $6.1 million at year-end 1998,
a decrease of approximately $.2 million.
<PAGE>
RESULTS OF OPERATIONS
Comparison of results in this section are for the nine month periods ending
September 30, 1999 and 1998.
The net loss recognized for the nine months ended September 30, 1999 was
$538,288 compared to a loss of $270,860 for the nine month period ended
September 30, 1998. This was a negative change of $267,428. Earnings for the
nine months as compared to the same period last year were primarily impacted by
an increase in operating expenses consisting primarily of professional fees (the
result of work performed on the Companies private placement) as well as data
processing expenses. Additionally, earnings for the period ending September 30,
1998 were positively impacted by a decrease in operating expenses due in large
part to a waiver of $125,000 in accrued but unpaid salaries due to Chairman
Philip C. Modder.
NET INTEREST INCOME
Net interest income before provision for loan losses for the nine months ended
September 30, 1999 was $762,670 as compared to $750,243 for the nine months
ended September 30, 1998, an increase of $12,427 or 1.7%.
The increase in net interest income for the nine months ended September 30, 1999
was in significant part due to lower rates on deposits. Yields were also lower
on loans, income and dividends on securities and mortgage-backed related
securities (available-for-sale and held-to-maturity) and Federal Reserve Bank
stock. Total interest income decreased by $235,242 (16.7%) from $1,417,428 for
the nine month period ended September 30, 1998, compared to $1,182,186 for the
nine month period ended September 30, 1999, due to decreases in the average
balance of total loans as compared to the same period of the prior year and of
the yield on these assets.
Interest expense on deposits decreased $245,704 from $658,972 at September 30,
1998 to $413,268 at September 30, 1999. The actual interest expense decrease was
the result of a corresponding decrease in the average balance of certificates of
deposit as compared to the same period of the prior year.
OPERATING EXPENSES
Operating expenses increased by $251,822, or 21.8% from $1,157,527 at September
30, 1998 to $1,409,349 at September 30, 1999. The increase for the nine months
ended September 30, 1999 as compared to the nine months ended September 30, 1998
consists primarily of increases in professional fees (the result of work
performed on the Companies private placement) as well as data processing
expenses. Earnings for the period ending September 30, 1998 were impacted by a
decrease in operating expenses due in large part to a waiver of $125,000 in
accrued but unpaid salaries due to Chairman Philip C. Modder. There was a
decrease in occupancy and equipment of $15,035 for the nine months ended
September 30, 1999 as compared to the nine months ended September 30, 1998. The
category Other, which includes all not elsewhere classified, decreased from
$200,749 for the nine months ended September 30, 1998 to $186,138 for the nine
months ended September 30, 1999.
PROVISION FOR LOAN LOSSES
Although management uses its best judgement in underwriting each loan, industry
experience indicates that a portion of the Bank's loans will become delinquent.
Regardless of the underwriting criteria utilized by financial institutions,
losses may be experienced as a result of many factors beyond their control
including among other things, changes in market conditions affecting the value
of security and unrelated problems affecting the credit of the borrower. Due to
the concentration of loans in South Florida, adverse economic conditions in this
area could result in a decrease in the value of a significant portion of the
Bank's collateral. In the normal course of business, the Bank has recognized and
will continue to recognize losses resulting from the inability of certain
borrowers to repay loans and the insufficient realizable value of collateral
securing such loans. Accordingly, management has established an allowance for
loan losses, which totaled $218,339 at September 30, 1999. The allowance for
credit losses is maintained at a level believed adequate by management to absorb
estimated credit losses. Management's periodic evaluation of the adequacy of the
allowance is based on the Company's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay (including the timing of future payments), the
estimated value of any underlying collateral, composition of the loan portfolio,
current economic conditions, and other relevant factors. This evaluation is
inherently subjective as it requires material estimates including the amounts
and timing of future cash flows expected to be received on impaired loans that
may be susceptible to significant change. The Bank's allowance for loan and
credit losses was analyzed and deemed to be adequate at September 30, 1999, and
no additional provision was expensed during the first nine months of 1999.
PROVISION FOR INCOME TAXES
The Company has recorded a valuation allowance on the deferred tax assets to
reduce the total to an amount that management believes is more likely than not
to be realized. Realization of deferred tax assets is dependent upon sufficient
future taxable income during the period that deductible temporary differences
and carry forwards are expected to be available to reduce taxable income. No
income tax benefits have been provided for the nine months ending September 30,
1999 and 1998 because the results of operations do not provide evidence that the
net operating losses available for carryforward will be utilized in the future.
YEAR 2000
The Company and the Bank began the process of assessing and preparing its
computer systems and applications to be functional on January 1, 2000 in 1996.
The Company utilizes extensive electronic data processing hardware and software
in its banking operations, among other things, to process and record customer
transactions, determine and collect revenue to be earned and expenses to be paid
in connection with customer transactions, maintain and report customer
transaction information, record and manage the Company's short-term and
long-term investments, accounting and financial management, and risk management.
The Company also relies on certain vendors to provide critical services to the
Company's banking operations, including telecommunications and correspondent
banking. Failure of the electronic data processing hardware or software of the
Company, its third party service bureaus, or certain vendors to properly
recognize the Year 2000 could result in a significant disruption of the
Company's banking operations.
The Company's customer transactions are processed through a network of
electronic data processing workstations in its banking office and loan servicing
department and are recorded on electronic data processing hardware and software,
a substantial portion of which are maintained by two third party service
bureaus. The Company has replaced noncompliant hardware and software to ensure
compliance with Year 2000 issues, while both of the Company's third party
service bureaus have been confirmed that they are Year 2000 compliant. The
Company is also seeking Year 2000 compliance certifications from its major
telecommunications and correspondent banking vendors. Management of the Bank is
in regular contact with its service bureaus, major telecommunication providers
and correspondent banking vendors and closely monitors their continuing progress
in confirming Year 2000 readiness. Based on their most recent reports, each
asserts it has completed the assessment and evaluation phases. The Bank's
correspondent banking vendors have assured management that each is year 2000
compliant. Management is unable to predict whether each will achieve year 2000
readiness on a timely basis or the magnitude of the financial consequences to
the Bank in the event of their failure to achieve such readiness. The Bank is
currently working on contingency plans which address operational policies and
procedures in the event of data processing, electrical power supply and other
mission critical system failures. Consequently, the Bank has contacted other
providers of such services, who assert they are year 2000 ready, to determine
the availability of conversion to their systems, if required. While a portion of
the Company's financial assets and liabilities are with commercial businesses
and government sponsored entities, the Company's loans and deposits are
primarily with individuals. As a result, the Company does not expect any
significant disruptions resulting from customers that may not be Year 2000
compliant.
The Company has designated a Year 2000 task force under the direction of a
senior officer of the Company which is identifying and coordinating the
Company's efforts to become Year 2000 compliant. Additionally, the Company and
its banking subsidiary are subject to regulation and supervision by Federal and
State Banking Regulators which regularly conduct reviews of the safety and
soundness of the Company's operations, including the Company's progress in
becoming Year 2000 compliant. Failure by the Company to adequately prepare for
Year 2000 issues could negatively impact the Company's banking operations
resulting in restrictions on its banking operations by the regulators. No such
restrictions exist at this time, nor does the Company expect any such
restrictions resulting from failure to address Year 2000 issues.
The bank's utilization of third party vendors minimizes the direct expense of
year 2000 compliance. Management has concluded that the cost of upgrading
non-compliant personal computers and desktop software was $10,000 which has
already been incurred. These costs were capitalized or expensed in conformity
with generally accepted accounting principles. Accordingly, management does not
anticipate that the total costs to be Year 2000 compliant will be material to
the Company's financial condition or results of operations.
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits. The following exhibits are filed as part of this report.
2.1 Agreement and Plan of Merger by and between Southern Security
Financial Corporation and Southern Security Bank Corporation,
dated October 31, 1997 (1)
2.2 Certificate of Merger of Southern Security Bank Corporation into
Southern Security Financial Corporation, under Florida law, dated
November 10, 1997 (1)
2.3 Articles of Merger of Southern Security Bank Corporation into
Southern Security Financial Corporation, under Florida law, dated
November 12, 1997 (1)
3.(i) Articles of Incorporation
(a) Certificate of Incorporation of Southern Security Bank
Corporation, dated October 3, 1996 (2)
(b) Certificate of Amendment of Certificate of Incorporation of
Southern Security Bank Corporation, dated January 17, 1998
(2)
(c) Certificate of Amendment of Certificate of Incorporation of
Southern Security Financial Corporation, dated November 12,
1997 (changing name to Southern Security Bank Corporation
(1)
(ii) By-laws of the registrant (3)
4.1 Stock Certificate for Class A Common Stock (3)
10.1 Executive Employment Agreement of Philip C. Modder, dated
June 11, 1992, together with Amendment No.1 thereto (3) *
10.2 Executive Employment Agreement of James L. Wilson, dated June 11,
1992, together with Amendment No. 1 thereto (3) *
10.3 Minutes of Meeting of June 6, 1997, of the Board of Directors of
the registrant relating to modification of the compensation
arrangements for Philip C. Modder and James L. Wilson (3) *
10.4 Agreements between Southern Security Bank Corporation and the
Federal Reserve Bank of Atlanta, dated February 13, 1995 (4)
10.5 Agreements, dated June 30, 1999, between Philip C. Modder and
Southern Security Bank Corporation, concerning compensation under
his Employment Agreement -- filed herewith (5)
10.6 Agreements, dated June 30, 1999, between James L. Wilson and
Southern Security Bank Corporation, concerning compensation under
his Employment Agreement -- filed herewith (5)
11.0 Statement of Computation of Per Share Earnings -- N/A
15.0 Letter on Unaudited Interim Financial Information -- N/A
18.0 Letter re change in accounting principles --N/A
19.0 Reports furnished to security holders --N/A
22.0 Published report re matters submitted to vote N/A
23.0 Consent of experts and counsel -- N/A
24.0 Power of attorney -- N/A
27.0 Financial Data Schedule -- filed herewith.
99.0 Additional Exhibits -- N/A
(1) Filed as an exhibit to Form 8-K of the registrant on November 25, 1997.
(2) Filed as an exhibit to Form 10-SB of the registrant filed on July 1997.
(3) Filed as an exhibit to Form 10-SB of the registrant filed on April 2, 1998.
(4) Filed as an exhibit to Form 10-SB/A of the registrant filed on June 10,
1998.
(5) Filed as an exhibit to Form 10-QSB of the registrant filed on August 16,
1999.
* Management compensation plan or arrangement.
(b) Reports on Form 8-K. The following reports on Form 8-K were filed
during the period covered by this report:
EXHIBIT INDEX
2.1 Agreement and Plan of Merger by and between Southern Security Financial
Corporation and Southern Security Bank Corporation, dated October 31, 1997
(1)
2.2 Certificate of Merger of Southern Security Bank Corporation into Southern
Security Financial Corporation, under Florida law, dated November 10, 1997
(1)
2.3 Articles of Merger of Southern Security Bank Corporation into Southern
Security Financial Corporation, under Florida law, dated November 12, 1997
(1)
3.(i) Articles of Incorporation
(a) Certificate of Incorporation of Southern Security Bank Corporation,
dated October 3, 1996 (2)
(b) Certificate of Amendment of Certificate of Incorporation of Southern
Security Bank Corporation, dated January 17, 1998 (2)
(c) Certificate of Amendment of Certificate of Incorporation of Southern
Security Financial Corporation, dated November 12, 1997 (changing name
to Southern Security Bank Corporation (1)
(ii) By-laws of the registrant (3)
4.1 Stock Certificate for Class A Common Stock (3)
10.1 Executive Employment Agreement of Philip C. Modder, dated June 11, 1992,
together with Amendment No.1 thereto (3) *
10.2 Executive Employment Agreement of James L. Wilson, dated June 11, 1992,
together with Amendment No. 1 thereto (3) *
10.3 Minutes of Meeting of June 6, 1997, of the Board of Directors of the
registrant relating to modification of the compensation arrangements for
Philip C. Modder and James L. Wilson (3) *
10.4 Agreements between Southern Security Bank Corporation and the Federal
Reserve Bank of Atlanta, dated February 13, 1995 (4)
10.5 Agreements, dated June 30, 1999, between Philip C. Modder and Southern
Security Bank Corporation, concerning compensation under his Employment
Agreement -- filed herewith (5)
10.6 Agreements, dated June 30, 1999, between James L. Wilson and Southern
Security Bank Corporation, concerning compensation under his Employment
Agreement -- filed herewith (5)
11.0 Statement of Computation of Per Share Earnings -- N/A
15.0 Letter on Unaudited Interim Financial Information -- N/A
18.0 Letter re change in accounting principles --N/A
19.0 Reports furnished to security holders --N/A
22.0 Published report re matters submitted to vote N/A
23.0 Consent of experts and counsel -- N/A
24.0 Power of attorney -- N/A
27.0 Financial Data Schedule -- filed herewith.
99.0 Additional Exhibits -- N/A
(1) Filed as an exhibit to Form 8-K of the registrant on November 25, 1997.
(2) Filed as an exhibit to Form 10-SB of the registrant filed on July 1997.
(3) Filed as an exhibit to Form 10-SB of the registrant filed on April 2, 1998.
(4) Filed as an exhibit to Form 10-SB/A of the registrant filed on June 10,
1998.
(5) Filed as an exhibit to Form 10-QSB of the registrant filed on August 16,
1999.
* Management compensation plan or arrangement.
<PAGE>
SIGNATURES
Pursuant to the Requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SOUTHERN SECURITY BANK CORPORATION
DATED: NOVEMBER 12, 1999 BY:s/JAMES L. WILSON
------------------------
James L. Wilson,
Chief Executive Officer
DATED: NOVEMBER 12, 1999 BY:s/FLOYD D. HARPER
------------------------
Floyd D. Harper
Vice President and Secretary
(chief financial officer)
<TABLE> <S> <C>
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