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: June 30, 1999
Commission File No: 0-22911
SOUTHERN SECURITY BANK CORPORATION
Delaware 65-0325364
(State or other jurisdiction (IRS Employer Identification
of incorporation) Number)
3475 Sheridan Street, Hollywood, FL 33021
(954) 985-3900
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 _____
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the June 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
June 30, 1999 and December 31, 1998
ASSETS June 30, 1999 December 31, 1998
------ ------------- -----------------
Cash and due from banks $ 1,170,274 $ 1,012,269
Federal Funds sold 4,305,000 4,845,000
----------- -----------
Total cash and cash equivalents 5,475,274 5,857,269
Securities held to maturity 335,923 350,883
Securities available for sale 475,926 277,970
Federal Reserve Bank stock, at cost 88,600 84,300
Loans, net 13,980,082 14,612,998
Premises and equipment 378,789 344,592
Other real estate owned 353,106 414,298
Accrued interest receivable 114,775 136,854
Other assets 252,262 181,677
----------- -----------
Total Assets $ 21,454,737 $ 22,260,841
=========== ===========
See Notes to Consolidated Condensed Financial Statements
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS - UNAUDITED
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
LIABILITIES June 30, 1999 December 31, 1998
- ----------- ------------- -----------------
<S> <C> <C>
Liabilities
Noninterest bearing deposits $ 4,936,498 $ 5,138,392
Interest-bearing deposits 14,498,447 15,105,654
----------- -----------
Total deposits 19,434,945 20,244,046
Federal funds purchased 0 0
Securities sold under repurchase agreements 0 0
Notes payable 100,000 100,000
Other liabilities 633,885 661,184
---------- ----------
Total liabilities 20,168,830 21,005,230
----------- ----------
Commitments and Contingencies 0 0
Minority interest in subsidiary 37,930 39,491
---------- -----------
Stockholders' equity
Series A Preferred Stock 0 0
(Authorized: 5,000,000; Outstanding: 0
And 0, respectively)
Class A Common Stock 59,130 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 (4,755,957) (4,370,251)
Accumulated other comprehensive income (1,511) 3,426
----------- ----------
Total stockholders' equity 1,247,977 1,216,120
----------- ----------
Total liabilities & stockholders equity $ 21,454,737 $22,260,841
============ ==========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
June 30, 1999 June 30,1998
------------- ------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 659,117 $ 745,354
Interest and dividends on securities 26,488 90,033
Interest on federal funds sold & repurchase agreement 90,730 99,280
------- ---------
776,335 934,667
Interest Expense:
Deposits 280,858 427,029
Other 4,248 4,089
------- ----------
285,106 431,118
Net interest income 491,229 503,549
Provisions for loan losses 0 0
-------- ---------
Net interest income after provision for loan losses 491,229 503,549
-------- ----------
Other Income:
Service charges on deposit accounts 57,917 56,467
Securities gains (losses), net 0 0
Other 12,819 30,310
-------- ---------
Total other income 70,736 86,777
-------- ---------
Other Expenses:
Salaries and employee benefits 455,923 449,502
Occupancy and equipment 161,544 172,911
Data and item processing 61,454 41,168
Professional Fees 116,837 55,694
Insurance 25,925 26,160
Other 128,254 152,742
-------- ---------
Total other expenses 949,937 898,177
-------- ---------
Net Profit (loss) before minority
interest in net profit (loss) of subsidiary (387,972) (307,851)
Minority interest in net (profit) loss of subsidiary 2,266 (61)
------- --------
Net Income (loss) $ (385,706) $ (307,912)
---------- ---------
Basic earnings (loss)per share $ (0.07) $ (0.07)
---------- ---------
Diluted earnings (loss) per share $ (0.07) $ (0.07)
========== =========
Weighted average number of shares & common
equivalent shares 5,240,346 4,456,656
--------- ---------
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
Three Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
June 30, 1999 June 30,1998
------------- ------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 336,074 $ 406,144
Interest and dividends on securities 14,110 51,783
Interest on federal funds sold & repurchase agreement 50,452 51,290
------- ---------
400,636 509,217
Interest Expense:
Deposits 138,615 224,405
Other 2,000 4,089
------- ----------
140,615 228,494
Net interest income 260,021 280,723
Provisions for loan losses 0 0
-------- ---------
Net interest income after provision for loan losses 260,021 280,723
-------- ----------
Other Income:
Service charges on deposit accounts 27,733 29,246
Securities gains (losses), net 0 0
Other 6,472 13,895
-------- ---------
Total other income 34,205 43,141
-------- ---------
Other Expenses:
Salaries and employee benefits 227,381 244,654
Occupancy and equipment 82,513 98,022
Data and item processing 35,088 26,540
Professional Fees 105,402 22,589
Insurance 12,963 13,080
Other 46,650 65,860
-------- ---------
Total other expenses 509,997 470,745
-------- ---------
Net Profit (loss) before minority
interest in net profit (loss) of subsidiary (215,771) (146,881)
Minority interest in net (profit) loss of subsidiary 927 (641)
------- --------
Net Income (loss) $ (214,844) $ (147,522)
---------- ---------
Basic earnings per share $ (0.04) $ (0.03)
---------- ----------
Diluted earnings per share $ (0.04) $ (0.03)
========== ==========
Weighted average number of shares & common
equivalent shares 5,240,346 4,456,656
---------- ---------
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income (loss) $ (385,706) $(307,912)
Adjustments to reconcile net profit (loss)
to net cash used in operating activities:
Net accretion on securities (1,638) (19,314)
Provision for loan losses 0 0
Depreciation and amortization 47,162 62,266
Securities (gains) losses, net 0 0
Minority interest in net income (loss) of subsidiary (2,266) 61
(Increase) decrease in accrued interest receivable 22,079 (22,942)
(Increase) decrease in other assets (73,348) (69,160)
Increase (decrease) in other liabilities (27,299) 379,575
-------------- -----------
Net cash provided by (used in) operating activities (421,016) (22,574)
-------------- -----------
Cash Flows from Investing Activities
Net cash flows from securities (186,418) 895,810
(Purchase) Sale of Federal Reserve Bk/Federal Home Loan Bk stock (4,300) (15,450)
Loan originations & principal collections on loans - net 632,916 1,544,151
Purchase of loans - net 0 (5,723,793)
Purchase of premises and equipment - net (78,596) (14,555)
(Increase) Decrease of other real estate owned 61,192 (7,999)
Increase (Decrease) in minority interest 828 13,233
--------- ----------
Net cash provided by (used in) investing activities 456,622 (3,308,603)
--------- -----------
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 (809,101) 7,762,348
Net increase (decrease) in notes payable 0 0
Proceeds from issuance of stock 422,500 784,834
Dividends paid on stock 0 0
------------ ----------
Net cash provided by (used in) financing activities (386,601) 8,341,182
------------ -----------
Net increase (decrease) in cash and cash equivalents (381,995) 5,055,153
Cash and cash equivalents, Beginning 5,857,269 1,107,669
------------ -----------
Cash and cash equivalents, Ending $ 5,475,274 $ 6,162,822
============ ==========
</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 CONDENSED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C>
Net Income (loss) $ (385,705) $ (307,912)
Other comprehensive Income (loss):
Unrealized holding gains arising during period (4,937) 1,712
----------- -----------
Comprehensive income (loss) $ (390,643) (306,200)
----------- ----------
Three Months Ended
June 30, 1999 June 30, 1998
------------- -------------
Net Income (loss) $ (214,843) $(147,522)
Other comprehensive Income (loss):
Unrealized holding gains arising during period (293) (662)
----------- -----------
Comprehensive income (loss) $ (215,137) (148,184)
----------- -----------
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
ANALYSIS OF ALLOWANCE FOR LOAN AND LEASE LOSSES - UNAUDITED
Six Months Ended June 30, 1999 and Year Ended December 31, 1998
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Balance, beginning of year $ 271,498 $ 288,802
Total charge-offs (51,791) (65,096)
Recoveries 5,194 7,792
Provision for loan & lease losses 0 40,000
--------- -----------
Allowance balance at end of period $ 224,901 $ 271,498
========= ===========
Total loans and discount $ 14,204,983 $14,884,496
=========== ===========
Allowance to total loans and discount 1.58% 1.82%
========= =========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CAPITAL ADEQUACY REVIEW - UNAUDITED
June 30, 1999
SOUTHERN SECURITY BANK CORPORATION
REGULATORY
SSB Corp MINIMUM
-------- --------
TIER 1 LEVERAGE RATIO:
Tier 1 Capital $ 1,247,977 5.82% 4.00%
------------
Consolidated Assets $21,454,737 =
ADEQUATELY
SOUTHERN SECURITY BANK BANK CAPITALIZED
---- -----------
TOTAL RISK-WEIGHTED RATIO:
Tier 2 Capital + ALLL $ 1,768,487 12.32% 8.00%
------------
Risk Weighted Assets $ 14,349,001 =
TIER 1 RISK WEIGHTED RATIO:
Tier 1 Capital $ 1,588,562 11.07% 4.00%
------------
Risk Weighted Assets $ 14,349,001 =
TIER 1 LEVERAGE RATIO:
Tier 1 Capital $ 1,588,562 7.41% 4.00%
------------
Average Quarterly Assets $ 21,432,120 =
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 June 30, 1999, have been included. Operating results for the six
month period ended June 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 June 30, 1999 and June 30, 1998.
Per-Share
Numerator Denominator Amounts
Six Months Ended June 30, 1999
Net Profit (loss) $(385,706)
Basic and diluted earnings per share,
income available to common
shareholders
$(385,706) 5,240,346 $ (0.07)
---------- --------- --------
Six Months Ended June 30, 1998
Net Profit (loss) $(307,912)
Basic and diluted earnings per share,
income available to common
shareholders
$(307,912) 4,456,656 $(0.07)
---------- --------- -------
Options for the purchase of 1,173,749 shares at June 30, 1999 and 810,207 shares
at June 30, 1998 have not been included in the computation of diluted earnings
per share for June 30, 1999 and June 30, 1998 because their inclusion would have
been antidilutive as a result of losses being reported for these periods.
The Company's application to the Federal Reserve Board for a merger based on a
non binding letter of intent with First Colonial Securities Group, Inc. was
withdrawn at the Company's request in May 1999, when negotiations for the merger
were terminated.
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 six month period ended June 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 JUNE 30,
1999
FINANCIAL CONDITION
Total assets decreased by $.8 million, or 3.6%, from $22.3 million at December
31, 1998, to $21.5 million at June 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 $.3 million to
$4.8 million at June 30, 1999, from $5.1 million at December 31, 1998. This
decrease in short-term investments is the result of decreased deposits as
discussed below.
The Company's net loans receivable decreased by $.6 million or 4.1%, to $14.0
million at June 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. The
ratio of the allowance for credit losses to total loans decreased at June 30,
1999 in comparison to the year ended December 31, 1998 as a result of $46,600 in
net charge offs.
Deposits decreased by $.8 million, or 4.0%, to $19.4 million at June 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 offering rates above general market rates.
CAPITAL
The Company's total stockholders' equity was $1,247,977 at June 30, 1999, an
increase of $31,857 or 2.6%, from $1,212,120 at December 31, 1998. The increase
is due primarily to the issuance of 845,000 shares of common stock during the
first three months of 1999 under an offering to warrant holders that resulted in
net proceeds of $422,500. In addition, on June 30, 1999 the Company exchanged
500,409 shares of its common stock in order to retire warrants to purchase
166,803 shares of its common stock, based on an exchange of three shares of
common stock for each outstanding warrant.
The Company received net proceeds of $422,500 upon the issuance of 845,000
shares of Class A Common Stock to certain warrant holders in connection with an
offer for the early exercise of their warrants during the first quarter of 1999.
In June 1999, the Company issued 500,409 shares of Class A Common Stock in
exchange for all remaining outstanding warrants.
The Company and the Bank are subject to various regulatory capital requirements
administered by the regulatory banking 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Company Capital Ratios June 30, 1999 December 31, 1998 Minimum
Leverage: 5.82% 4.95% 4.00%
Bank Capital Ratios June 30, 1999 December 31, 1998 Adequate
Total risk-weighted capital: 12.32% 11.78% 8.00%
Tier I risk-weighted capital: 11.07% 10.53% 4.00%
Leverage: 7.41% 6.25% 4.00%
</TABLE>
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 after January 1,1999 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 Southern Security Bank ("Bank") 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 liquidity at June 30, 1999, consisted of $5.5 million in cash and
cash equivalents and $.5 million in available-for-sale investments, for a total
of $6.0 million, compared with a total of $6.1 million at year-end 1998, a
decrease of approximately $.1 million.
RESULTS OF OPERATIONS
Comparison of results in this section are for the six month periods ended June
30, 1999 and June 30, 1998.
The net loss recognized for the six months ended June 30, 1999 was $385,706
compared to a loss of $307,912 for the six month period ended June 30, 1998.
This was a negative change of $77,794. Earnings for the six months as compared
to the same period last year were primarily impacted by an increase in
operating expenses consisting primarily of professional fees and data processing
expenses.
NET INTEREST INCOME
Net interest income before provision for loan losses for the six months ended
June 30, 1999 was $491,229 as compared to $503,549 for the six months ended June
30, 1998, a decrease of $12,320 or 2.4%.
The decrease in interest income for the six months ended June 30, 1999 was due
primarily to the decrease in consumer loan balances and securities held to
maturity in the first six months of 1999 as compared to the first six months of
1998. In addition, yields on earning assets were lower in 1999.
Interest expense on deposits decreased $146,171 from $431,118 at June 30, 1998
to $280,858 at June 30, 1999. The actual interest expense decrease was the
result of a reduction in certificates of deposits in the first half of 1999 as
compared to the first half of 1998.
OPERATING EXPENSES
Operating expenses increased by $51,759, or 5.8% from $898,177 at June 30, 1998
to $949,936 at June 30, 1999. The increase for the six months ended June 30,
1999 as compared to the six months ended June 30, 1998 consists primarily of
increases in professional fees and data processing expenses. There was a
decrease in occupancy and equipment of $11,367 for the six months ended June 30,
1999 as compared to the six months ended June 30, 1998. The category Other,
which includes all not elsewhere classified, decreased from $152,742 for the six
months ended June 30, 1998 to $128,254 for the six months ended June 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 $224,901 at June 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 June 30, 1999,
and no additional provision was expensed during the first six 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 six months ending June 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
In 1996, the Company and the Bank began the process of assessing and preparing
its computer systems and applications to be functional on January 1, 2000.
The Company uses extensive electronic data processing hardware and software in
its banking operations for, among other things, processing and recording
customer transactions, determining and collecting revenue to be earned and
expenses to be paid in connection with customer transactions, maintaining and
reporting customer transaction information, recording and managing the Company's
short-term and long-term investments, accounting and financial management, and
managing risk. 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 hardware and software to the extent necessary
to ensure their compliance with Year 2000 issues. Both of the Company's third
party service bureaus are working with the Company to convert its customer
transaction software to a more advanced version which was expected to be
completed by June 1999, and which will also be Year 2000 compliant (final
results of testing are currently pending). 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 reports on their progress in becoming year 2000 ready. Based on
their most recent reports, each asserts it has completed the assessment and
evaluation phases. The Bank's service bureaus, major telecommunication providers
and correspondent banking vendors assure management that they will achieve year
2000 compliance by the end of July 1999. 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. Consequently, the Bank has contacted other providers of such
services, who assert they are year 2000 ready, to determine the latest possible
date the Bank could convert to their systems.
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. 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 who is coordinating the Company's efforts to
become Year 2000 compliant. Additionally, the Company and the Bank are subject
to regulation and supervision by Federal and State Banking Regulators who
regularly conduct reviews of the safety and soundness of their 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 year 2000 restrictions exist at this time, and the Company
does not expect to have any restrictions imposed upon it as a result of failure
to address Year 2000 issues.
The Bank's use of third party vendors minimizes the direct expense of year 2000
compliance. Management has concluded that the total cost of upgrading the
Company's non-compliant personal computers and desktop software will be $10,000,
which has already been incurred. These costs are being capitalized and expensed
in conformity with generally accepted accounting principles. The Company is
unable at this time to estimate the amount of third party cost but 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.
RECENT EVENTS
The Company's application to the Federal Reserve Board for a merger based on a
non binding letter of intent with First Colonial Securities Group, Inc. was
withdrawn at the Company's request in May 1999, when negotiations for the merger
were terminated.
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
1. During 1998, the Company sold a total of 251,303 units at a price of
$5.00 per unit to 40 accredited investors in a private offering. Each unit
consisted of one share of Class A common stock and one warrant to purchase one
share of Class A common stock at $7.50 per share at any time prior to September
30, 2001. On March 25, 1999, the Company completed a conversion offering to the
holders of the warrants. Under the terms of the conversion offering, the Company
permitted each warrant holder to purchase 10 shares of Class A common stock for
each warrant at a price of $.50 per share. Under the conversion offering, the
Company sold 845,000 shares of Class A common stock to 23 of the original
investors in exchange for 84,500 of their warrants and $422,500. The conversion
offering was made through officers of the Company without commissions or other
additional consideration. The conversion offering was made in reliance upon the
exemptions from registration under the Securities Act of 1933 under Section
3(a)(9), Section 4(2), Section 4(6) of the Securities Act and Rule 506 of the
SEC.
2. On June 30, 199, the Company exchanged 504,409 shares of Class A common
stock for the remaining warrants to purchase 166,803 shares of common stock with
the 17 accredited investors who did not participate in the March 25, 1999
conversion offering. The exchange was made on the basis of three shares of Class
A common stock for each warrant. The exchange was made through officers of the
Company without commissions or other additional consideration. This exchange
offering was made in reliance upon the exemptions from registration under the
Securities Act of 1933 provided by Section 3(a)(9), Section 4(2), Section 4(6)
of the Securities Act and Rule 506 of the SEC.
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.
10.6 Agreements, dated June 30, 1999, between James G. Wilson
and Southern Security Bank Corporation concerning compensation
under his Employment Agreement -- filed herewith.
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, and
incorporated herein by reference.
(2) Filed as an exhibit to Form 10-SB of the registrant filed on July 1997, and
incorporated herein by reference.
(3) Filed as an exhibit to Form 10-SB of the registrant filed on April 2, 1998,
and incorporated herein by reference.
(4) Filed as an exhibit to Form 10-SB/A of the registrant filed on June 10,
1998, and incorporated herein by reference.
* 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:
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: August 16, 1999 By: /s/ James L. Wilson
-------------------------------------
James L. Wilson,
Chief Executive Officer
Dated: August 16, 1999 By: /s/ Floyd D. Harper
------------------------------------
Floyd D. Harper
Vice President and Secretary
(chief financial officer)
<PAGE>
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.
10.6 Agreements, dated June 30, 1999, between James G. Wilson and Southern
Security Bank Corporation concerning compensation under his Employment
Agreement -- filed herewith.
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, and
incorporated herein by reference.
(2) Filed as an exhibit to Form 10-SB of the registrant filed on July 1997, and
incorporated herein by reference.
(3) Filed as an exhibit to Form 10-SB of the registrant filed on April 2, 1998,
and incorporated herein by reference.
(4) Filed as an exhibit to Form 10-SB/A of the registrant filed on June 10,
1998, and incorporated herein by reference.
* Management compensation plan or arrangement.
EXHIBIT 10.5
June 30, 1999
Southern Security Bank Corporation
3475 Sheridan Street
Hollywood, FL 33021
Please be advised that effective July 1, 1999, I voluntarily and forever waive
certain elements expressed in the Executive Employment Agreement of June 11,
1992, and amended June 30, 1997, as follows:
1) Salary: Reduce salary from $175,000 per year to $150,000 per year;
2) Insurance: Reduce the insurance requirement from $1,750,000 Whole Life
Annuity Insurance Policy to a Term Life Insurance Policy with a $2,000,000
death benefit;
3) Other Benefit: Eliminate the membership for executive and family in any
country club(s).
Sincerely,
s/ PHILIP C. MODDER
- -------------------
Philip C. Modder
Chairman of the Board
Southern Security Bank Corporation
<PAGE>
To: Floyd D. Harper, SSBC VP
From: Philip C. Modder
MEMORANDUM
Subject: Stock Option Price Adjustment
Date: June 30, 1999
This is to confirm that as of today's date this writer voluntarily adjusts the
exercise price of all options for the purchase of Class A Common Stock granted
to me between January 1, 1999 and June 30, 1999 to $1.25 per share in lieu of
the amount stipulated in my employment agreement contract.
s/ PHILIP C. MODDER
- -------------------
Philip C. Modder
EXHIBIT 10.6
June 30, 1999
Southern Security Bank Corporation
3475 Sheridan Street
Hollywood, FL 33021
Please be advised that effective July 1, 1999, I voluntarily and forever waive
certain elements expressed in the Executive Employment Agreement of June 11,
1992, and amended June 30, 1997, as follows:
1) Salary: Reduce salary from $175,000 per year to $150,000 per year;
2) Insurance: Reduce the insurance requirement from $1,750,000 Whole Life
Annuity Insurance Policy to a Term Life Insurance Policy with a $2,000,000
death benefit;
3) Other Benefit: Eliminate the membership for executive and family in any
country club(s).
Sincerely,
s/ JAMES L. WILSON
- ------------------
James L. Wilson
Chief Executive Officer
Southern Security Bank Corporation
<PAGE>
To: Floyd D. Harper, SSBC VP
From: James L. Wilson
MEMORANDUM
Subject: Stock Option Price Adjustment
Date: June 30, 1999
This is to confirm that as of today's date this writer voluntarily adjusts the
exercise price of all options for the purchase of Class A Common Stock granted
to me between January 1, 1999 and June 30, 1999 to $1.25 per share in lieu of
the amount stipulated in my employment agreement contract.
s/ JAMES L. WILSON
- ------------------
James L. Wilson
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