<PAGE>
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, 1995
( ) 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
Delaware 57-0858504
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
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
Common Stock September 30, 1995
$0.01 Par Value 409,246
<PAGE>
INDEX
SECURITY FEDERAL CORPORATION
PART I - FINANCIAL INFORMATION (UNAUDITED) PAGE
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheet at
September 30, 1995 and March 31, 1995 1
Consolidated Statement of Income for the
Three months ended September 30, 1995 and 1994 2
Consolidated Statement of Income for the Six
months ended September 30, 1995 and 1994 3
Consolidated Statement of Shareholders' Equity 4
Consolidated Statement of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-17
PART II. OTHER INFORMATION
Other Information 18
Signatures 19
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 financial statements and
related notes.
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<TABLE>
<CAPTION> Security Federal Corporation and Subsidiary
CONSOLIDATED BALANCE SHEET
(unaudited)
SEPTEMBER 30 MARCH 31
1995 1995
<S> <C> <C>
ASSETS Cash and cash equivalents $ 6,340,322 $ 5,697,391
Investments and mortgage-backed securities:
Available for Sale 3,982,128 3,930,626
Held to Maturity 37,894,130 38,596,245
Loans Receivable net:
Held for Sale 424,833 776,631
Held for Investment 152,157,797 148,200,563
152,582,630 148,977,194
Accrued interest receivable:
Loans 862,818 755,265
Mortgage-backed securities 21,438 22,328
Investments 458,347 464,229
Premises and equipment, net 3,011,049 3,251,171
Federal Home Loan Bank stock, at cost 1,471,700 1,415,100
Real estate acquired in settlement of loans 1,287,162 1,531,251
Real estate held for development and sale 1,288,136 1,442,723
Other assets 4,019,967 3,865,211
Total Assets 213,219,827 209,948,734
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit Accounts $ 164,323,096 $166,274,637
Advances from Federal Home Loan Bank 28,715,000 26,033,000
Advance payments by borrowers
for taxes and insurance 673,571 442,456
Other Liabilities 4,707,394 2,709,171
Total liabilities $ 198,419,061 $195,459,264
Stockholders' Equity:
Serial preferred stock, $.01 par value;
authorized shares - 200,000
issued and outstanding, none
Common stock, $.01 par value;
authorized shares 1,000,000
issued and outstanding shares 409,246 4,092 4,092
Additional paid-in capital 3,879,922 3,879,922
Unrealized net loss on securities available
for sale, net of income taxes (15,615) (51,155)
Retained earnings, substantially restricted 10,932,367 10,656,611
Total stockholders' equity 14,800,766 14,489,470
Total liabilities and stockholders' equity $ 213,219,827 $209,948,734
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Three Months Ended
September 30
1995 1994
<S> <C> <C>
Interest Income: Loans $ 3,380,877 $ 2,879,908
Mortgage-backed securities 28,334 23,356
Investment securities 528,054 592,781
Other 21,515 20,772
Total interest income 3,958,780 3,516,817
Interest expense:
NOW and money market accounts 253,377 278,517
Passbook accounts 97,103 105,832
Certificate accounts 1,371,658 884,642
Advances and other borrowed money 457,894 299,228
Total interest expense 2,180,032 1,568,219
Net interest income 1,778,748 1,948,598
Provision for loan losses 75,000 75,000
Net interest income after provision for
loan losses 1,703,748 1,873,598
Other income:
Gain on sale of loans 27,440 90,320
Loan servicing fees 76,687 78,728
Service fees on deposit accounts 134,332 144,436
Income from real estate operations 29,565 32,581
Other 15,315 37,249
Total other income 283,339 383,314
General and administrative expenses:
Compensation and employee benefits 849,377 896,354 Occupancy 90,666
103,013
Advertising 53,956 26,654
Depreciation and maintenance of equipment 166,585 162,672
Amortization of intangibles 116,310 116,310
FDIC insurance premiums 97,575 112,938
Other 346,224 387,624
Total general and administrative expenses 1,720,693 1,805,565
Income before income taxes 266,394 451,347
Provision for income taxes 86,567 177,066
Net income $ 179,827 274,281
Net income per common share $ 0.44 $ 0.68
Cash dividend on common stock $ 0.05 $ 0.05
Weighted average shares outstanding $ 409,246 $ 405,309
</TABLE>
See accompanying notes to consolidated financial statements
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<TABLE>
<CAPTION> Security Federal Corporation and Subsidiary
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Six Months Ended
September 30
1995 1994
<S> <C> <C> Interest Income:
Loans $ 6,639,566 $ 5,533,387
Mortgage-backed securities 56,844 74,111
Investment securities 1,061,043 1,172,800
Other 41,753 38,588
Total interest income 7,799,206 6,818,886
Interest expense:
NOW and money market accounts 529,045 563,503
Passbook accounts 191,766 209,979
Certificate accounts 2,645,898 1,839,047
Advances and other borrowed money 895,559 482,394
Total interest expense 4,262,268 3,094,923
Net interest income 3,536,938 3,723,963
Provision for loan losses 150,000 150,000
Net interest income after provision for
loan losses 3,386,938 3,573,963
Other income:
Gain on sale of loans 44,847 167,840
Loan servicing fees 154,379 158,151
Service fees on deposit accounts 260,582 283,460
Income from real estate operations 80,990 73,000
Other 80,266 125,488
Total other income 621,064 807,939
General and administrative expenses:
Compensation and employee benefits 1,742,527 1,760,541
Occupancy 185,872 207,266
Advertising 81,684 70,172
Depreciation and maintenance of equipment 332,264 346,302
Amortization of intangibles 232,620 232,620
FDIC insurance premiums 206,604 197,064
Other 768,322 718,437
Total general and administrative expenses 3,549,893 3,532,402
Income before income taxes 458,109 849,500
Provision for income taxes 141,435 307,530
Net income $ 316,674 541,970
Net income per common share $ 0.77 $ 1.34
Cash dividend on common stock $ 0.10 $ 0.10
Weighted average shares outstanding $ 409,246 $ 405,309
</TABLE>
See accompanying notes to consolidated financial statements
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<TABLE>
<CAPTION> Security Federal Corporation and Subsidiary
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the six months ended September 30, 1995
(unaudited)
Unrealized
Net Loss
Additional on Securities
Common Paid-In Available Retained
Stock Capital for Sale Earnings Total
<S> <C> <C> <C> <C> <C>
Beginning balance
March 31, 1995 $ 4,092 3,879,922 (51,155) 10,656,611 14,489,470
Net income ----- ----- ----- 316,674 316,674
Cash dividend ----- ----- ----- (40,918) (40,918)
Change in unrealized
net loss on
on securities
available for sale ----- ----- 35,540 ----- 35,540
Ending balance
September 30, 1995 $ 4,092 3,879,922 (15,615) 10,932,367 14,800,766
</TABLE>
See accompanying notes to consolidated financial statements
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<TABLE>
<CAPTION>
Security Federal Corporation And Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Six Months Ended
September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 316,674 $ 541,970
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation Expense 302,658 291,009
Amortization of purchase accounting adjustments 232,620 232,620
Discount accretion and premium amortization 103,348 125,067
Provisions for loan losses 150,000 150,000
Gain on sale of loans (44,847) (167,840)
Gain on sale of Real Estate (45,917) (67,141)
Amortization of deferred fees on loans (41,731) 111,422
Proceeds from sale of loans held for sale 3,875,089 6,024,991
Origination of loans for sale (3,478,444) (1,021,471)
(Increase) decrease in accrued interest
receivable:
Loans (107,553) (40,493)
Mortgage-backed securities 890 (1,659)
Investments 5,882 18,367
Increase (Decrease) in advance payments
by borrowers 231,115 255,547
Other, net 1,086,595 915,810
Net cash provided by operating activities $ 2,586,379 7,368,199
Cash flows from investing activities
Principal repayments on mortgage-backed securities 104,549 410,576
Purchase of investment securities 0 (1,312,757)
Proceeds from maturities of investment securities 500,000 3,200,000
Proceeds from sale of investments 0 1,500,000
Purchase of FHLB Stock (135,300) (344,600)
(Increase) Decrease in loans to customers (4,092,708) (24,544,881)
Investment in real estate held for development (82,358) 0
Proceeds from sale of real estate held for development 274,430 314,308
Proceeds from sale of real estate acquired
through foreclosure 782,234 103,194
Purchase of premises and equipment (62,536) (160,834)
Redemption of FHLB Stock 78,700 0
Net cash used by investing activities $ (2,632,989) $ (20,834,994)
</TABLE>
(continued)
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<TABLE>
<CAPTION>
(Continued)
<S> <C> <C>
Cash flows from financing activities:
Increase(Decrease) in deposit accounts $ (1,951,541) $ (6,702,310)
Proceeds from FHLB advances 61,200,000 72,100,000
Repayment of FHLB advances (58,518,000) (51,600,000)
Dividends to share holders (40,918) (39,955)
Exercise of stock options 0 155,270
Net cash provided by financing activities 689,541 13,913,005
Net increase in cash and cash equivalents 642,931 446,210
Cash and cash equivalents at beginning of period 5,697,391 8,631,817
Cash and cash equivalents at end of period 6,340,322 9,078,027
Supplemental disclosure of cash flow information:
Cash paid during the period for :
Interest $ 3,280,682 $ 2,777,805
Income taxes $ 36,249 $ 233,213
Additions to real estate acquired
through foreclosure $ 529,713 $ 785,692
Unrealized net gain/(loss) on securities
available for sale, net of income taxes $ 35,540 $ (30,601)
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
Security Federal Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and
therefore do not include all disclosures necessary for a complete
presentation of financial condition, results of operations and cash
flows in conformity with general accepted accounting principles.
Such statements are unaudited but, in the opinion of management,
reflect all adjustments, all of which are of a normal recurring
nature, 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 Stockholders when reviewing interim financial
statements. The results of operations for the period ended September
30, 1995 are not necessarily indicative of the results which may be
expected for the entire fiscal year.
2. Principles of Consolidation
The accompanying unaudited consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary, Security
Federal Savings Bank of South Carolina (the "Bank or Security
Federal") and its wholly owned subsidiary Security Financial Services
Corporation. The principal business activity of the service
corporation is real estate sales and development. In consolidation,
all significant intercompany items and transactions have been
eliminated.
3. Acquisition
On October 21, 1993, the Bank acquired certain assets and certain
deposits and other liabilities of four branch offices of NationsBank
of South Carolina, NA (the "branches"). In connection with the
purchase, the Bank paid a deposit premium of approximately $4.4
million. The Bank accounted for the acquisition under the purchase
method of accounting. The purchase method of accounting resulted in
the adjustment of the assets and the liabilities acquired based
upon their fair market values on the date of acquisition. The Bank's
consolidated statements of income include the operating results of
the acquired branches.
At October 31, 1993, the respective branch locations had total assets
of $22.0 million and deposits and other liabilities of $61.1 million.
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<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
4. Investments and Mortgage-backed Securities, Held to Maturity
The amortized cost, gross unrealized gains, gross unrealized losses and market
values of investment securities held to maturity are as follows:
September 30, 1995
Gross Gross
AmortizedUnrealizedUnre alized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C> U S Government and agency
obligations 36,288,675 300 571,400 35,717,575
Mortgage-backed securities 1,605,455 31,924 9,633 1,627,746
Marc h 31, 1995
Gross Gross
AmortizedUnrealizedUnre alized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U S Government and agency
obligations 36,885,640 0 1,516,407 35,369,233
Mortgage-backed securities 1,710,605 18,979 18,179 1,711,405
5. Investments and Mortgage-backed Securities, Available for Sale
The amortized cost, gross unrealized gains, gross unrealized losses and market
values of investment securities available for sale are as follows:
September 30, 1995
Gross Gross
AmortizedUnrealizedUnre alized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U S Government and agency
obligations 4,007,297 0 25,169 3,982,128
Mortgage-backed securities 0 0 0 0
Marc h 31, 1995
Gross Gross
AmortizedUnrealizedUnre alized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U S Government and agency
obligations 4,013,080 0 82,454 3,930,626
Mortgage-backed securities 0 0 0 0
</TABLE>
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<TABLE>
<CAPTION> Security Federal Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
6. Loans Receibable, Net
Loans receivable, net at September 30, 1995, consisted of the following:
Loans held for sale:
Loans held for sale were $424,833 and $776,631 at September 30, 1995 and
March 31, 1995 respectively.
Loans held for investment: September 30, 1995 March 31, 1995
<S> <C> <C> Residential real estate
64,558,172 66,226,289
Consumer 44,135,169 44,089,104
Commercial real estate 12,228,890 13,007,516
Commercial business 34,501,286 29,718,456
155,423,517 153,041,365
Less:
Allowance for loan loss 2,085,372 1,955,119
Loans in process 731,754 2,419,433
Deferred loan fees 448,594 466,250
3,265,720 4,840,802
152,157,797 148,200,563
The following is a reconciliation of the allowance for possible loan losses:
September 30, 1995
Beginning balance 1,955,119
Provision 150,000
Charge-offs (28,754)
Recoveries 9,007
Ending balance 2,085,372
7. Deposits
A summary of deposit accounts by type with weighted average rates are as follows:
September 30, 1995 March 31, 1995
Balance Rate Balance Rate
<S> <C> <C> <C> <C>
Demand Accounts:
Now 39,169,157 1.36% 41,211,492 1.40%
Money Market 14,358,882 3.32% 16,776,207 3.27%
Regular Savings 14,956,850 2.63% 14,491,809 2.61%
Total demand accounts 68,484,889 2.05% 72,479,508 2.07%
Certificate Accounts:
0 - 4.99% 6,928,562 44,023,933
5.00 - 6.99% 88,057,416 48,182,486
7.00 - 8.99% 852,229 1,588,710
Total certificates of deposit 95,838,207 5.83% 93,795,129 5.17%
Total deposit accounts 164,323,096 4.27% 166,274,637 3.82%
</TABLE>
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<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
8. 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, 1995 March 31, 1995
Balance Rate Balance Rate
<S> <C> <C> <C> <C>
Fiscal
Year Due
1996 12,876,000 6.24% 19,951,000 6.40%
1997 10,189,000 6.32% 414,000 8.45%
1998 3,452,000 6.60% 3,452,000 6.60%
1999 490,000 8.65% 490,000 8.65%
2000 and thereafter 1,708,000 8.58% 1,726,000 8.58%
28,715,000 6.50% 26,033,000 6.65%
9. Regulatory Matters
The following table reconciles the Bank's stockholders' equity to its various
regulatory capital positions: (dollars in thousands)
September 30, 1995 March 31, 1995
<S> <C> <C>
Bank's Stockholders' equity 14,351 13,981
Unrealized loss on available for sale
securities, net of tax 16 51
Reduction for nonqualifying assets (790) (1,119)
Reduction for goodwill and other
intangibles (3,146) (3,376)
Tangible capital 10,431 9,537
Qualifying core deposits and
intangible assets 1,240 1,361
Core capital 11,671 10,898
Supplemental capital 1,768 1,756
Risk-based capital 13,439 12,654
The following table compares the Bank's capital levels relative to the requirements
applicable under FIRREA at September 30, 1995. (dollars in thousands)
Amount Percent Actual Excess
Required Required Amount Percent Excess Percent
<S> <C> <C> <C> <C> <C> <C>
Tangible capital 3,133 1.5% 10,431 4.99% 7,298 3.49%
Core capital 6,302 3.0% 11,671 5.56% 5,369 2.56%
Risk-based capital 11,316 8.0% 13,439 9.50% 2,123 1.50%
</TABLE>
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<PAGE>
Security Federal Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Recent Developments
Congress currently has various proposals or bills they are evaluating
concerning the premium differential between BIF and SAIF funds in the
FDIC. Commercial banks who primarily have BIF insured deposits are
currently paying approximately nineteen cents per $100 of deposits
less than thrifts, including Security Federal, who primarily hold
SAIF insured deposits. The proposals call for a one-time assessment
of approximately 85 to 90 basis points per $100 of SAIF deposits.
Both funds would then, going forward, have the same, lower deposit
premiums. If this should become law, Security Federal would incur a
one-time charge of approximately $600,000 if the expense were to be
tax deductible. Future FDIC premium expense would then be reduced in
future periods. Management anticipates the Bank, after consideration
of the one-time assessment, would continue to exceed all regulatory
minimum capital levels. No assurance can be given as to whether the
proposed legislation will be passed, or, if passed its final form.
In October 1995, Security Federal received permission from the Office
of Thrift Supervision to open a full service banking facility at the
Wal*Mart Superstore on Whiskey Road in Aiken, SC. The branch is
expected to open in February 1996.
Changes in Financial Condition
Total assets of the Company increased $3.3 million or 1.6% during the
six months ended September 30, 1995, primarily due to an increase of
$4.0 million in loans held for investment. Cash and cash equivalents
increased $642,931, while investments and mortgage-backed securities
decreased by $650,613 during the six month period.
Federal Home Loan Bank stock increased 4.0% during the six months
ended September 30, 1995, due to an increase in the required stock
amount caused by an increase in FHLB advances. Real estate acquired
through foreclosure decreased by $244,089 mainly due to lot sales in
an acquired real estate development. Real estate acquired for
development decreased $154,587 during the period due to sales of real
estate.
Deposits decreased $2.0 million or 1.2% during the six months ended
September 30, 1995, while Federal Home Loan Bank advances grew $2.0
million of 10.3% in order to fund the Banks's growth.
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Security Federal Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Changes in Financial Condition (continued)
The Board of Directors declared the eighteenth and nineteenth
consecutive quarterly dividends of $.05 per share in May and August
1995 respectively, which totalled $40,918. Unrealized net losses on
securities available for sale decreased by $35,540 during the six
months ended September 30, 1995. Net income for the six month period
was $316,674. These items combined to increase the Company's
stockholders' equity by $311,296 or 2.2% during the six months ended
September 30, 1995. Book value per share stood at $36.17 at
September 30, 1995 compared to $35.40 at March 31, 1995.
Liquidity and Capital Resources
In accordance with the Office of Thrift Supervision regulations, the
Bank is required to maintain a liquidity ratio at specified levels
which are subject to change. Currently, a minimum of 5.0% of the
combined total of deposits and certain borrowings must be maintained
in the form of cash or eligible investments. During the six months
ended September 30, 1995, Security Federal maintained an average
liquidity of 6.26% compared to 8.57% for the same period in 1994.
This decrease is due to the increase in loans held for investment.
The Bank's current liquidity is in line with management's objectives
and deemed adequate to meet 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 to the Bank, whereas loan disbursements are a primary
use of Security Federal's funds. During the six months ended
September 30, 1995, loan disbursements exceeded loan repayments
resulting in a $3.6 million or 2.4% increase in total net loans
receivable.
Deposits and other borrowings are also an important source of funds
for the Bank. During the six months period ended September 30, 1995,
deposits decreased $2.7 million while Federal Home Loan Bank advances
increased $2.0 million. At September 30, 1995, Security Federal had
$79 million of certificates of deposit coming due within one year.
Based on previous experience, a major portion of these certificates
will be redeposited.
Capital resources at September 30, 1995, are sufficient to meet
outstanding mortgage loan commitments of $22,300 and unused lines of
credit of $25.8 million. Management believes that the Bank's
short-term and long-term liquidity needs will continue to be
supported by the Bank's deposit base and borrowing capacity.
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Security Federal Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Accounting and Reporting Changes
FASB Statement 107, "Disclosure about Fair Value Instruments"
became effective for the Bank for the fiscal year ending March 31,
1996. FASB No. 107 will require the Bank to disclose the fair value
of financial instruments.
In May 1993, the FASB issued Statement No. 114 "Accounting by
Creditors for Impairment of a Loan" which became effective for
the Bank beginning April 1, 1995. This statement requires a lender
to consider a loan to be impaired if the lender believes it is
probable that it will be unable to collect all principal and interest
due according to the contractual terms of the loan. If a loan is
impaired, the lender will be required to record a loan valuation
allowance equal to the present value of the estimated future cash
flows discounted at the loan's effective rate. This accounting
change will significantly change the troubled debt restructuring
accounting by lenders presently allowed under FASB Statement 15.
Adoption of this statement did not have a material adverse effect on
the financial condition or results of operation of the Bank.
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Security Federal Corporation and Subsidiary
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Accounting and Reporting Changes (continued)
In October 1994, the FASB issued SFAS 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments." The Statement requires disclosures about amounts,
nature, and terms of derivative financial instruments. The statement
amends SFAS 105 "Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments."
The statement is effective for the Association for the fiscal year
ending March 31, 1996. In light of the Bank's current portfolio,
this statement is not expected to have a significant impact on the
Bank.
In May, 1995, the FASB issued Statement 122, "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65." The
Statement requires that rights to service mortgage loans for others
be recognized as a separate asset, however those rights are acquired.
The Statement also requires that an entity assess its capitalized
mortgage servicing rights for impairment based on the fair value of
those rights. The Statement applies prospectively in the Bank's
fiscal year ended March 31, 1997 to transactions in which an
enterprise sells or securitizes mortgage loans with servicing rights
retained and to impairment evaluations of all amounts capitalized as
mortgage servicing rights, including those purchased prior to
adoption of the Statement. Based on the Bank's current mortgage
banking activities, this Statement is not expected to have a material
impact on the Bank.
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<PAGE>
Security Federal Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 most
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 the effect of
inflation.
RESULTS OF OPERATIONS
Net Income
Security Federal's net income decreased $94,454 or 34.4% and $225,296
or 41.6% for the three months and six months ended September 30,
1995, compared to the same periods in 1994. The decreases are
attributable to decreases in net interest income and other income and
was offset partially in the quarter period only by a decrease in
general and administrative expenses.
Net Interest Income
Net interest income decreased by $169,850 or 8.7% during the three
months and $187,025 or 5% for the six months ended September 30,
1995, compared to the same periods last year primarily due to
increases in interest paid on certificates of deposit and FHLB
advances, offset in part by an increase in interest earned on loans
receivable.
Total interest income increased $441,963 or 12.6% and $980,320 or
14.4% for the three and six months ended September 30,1995, compared
to the same periods in 1994. Interest income on loans increased
$500,696 or 17.4% and $1,106,179 or 20% during the three and six
month periods due to higher yields and larger loan balances
outstanding. Interest income on investments decreased $64,727 and
$111,757 or about 10% due to maturities of investments with no new
additional purchases of securities.
- 15 -
<PAGE>
Security Federal Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Net Interest Income (continued)
For the three and six month periods, total interest expense increased
$611,813 or 39% and $1,167,345 or 37.8% over 1994. Interest on NOW,
money market, and regular savings accounts decreased by $33,869 for
the three months and $52,671 for the six months ended September 30,
1995. Interest expense on certificates of deposit increased by
$487,016 or 55% and $806,851 or 43.8% in 1995 compared to the three
and six month periods in 1994 due to increased rates paid on renewing
and new certificates. Interest expense on FHLB advances increased by
$158,666 or 53% and $413,165 or 85.7% due to increases in average
advances outstanding and interest rates paid on advances during the
three and six months ended September 30, 1995.
Provision for Loan Losses
Security Federal's provision for loan losses remained the same at
$75,000 for the quarter and $150,000 for the six months ended
September 30, 1995 compared to the same time frames in 1994. During
the six months ended September 30, 1995, the Bank had net charge-offs
of $19,747 compared to $21,813 one year ago. The Bank stops accruing
interest on any loan that is 60 or more days delinquent. Loans
delinquent 90 or more days at September 30, 1995 were .31% of loans
outstanding compared to .51% at March 31, 1995. The allowance for
loan losses as a percentage of total loans outstanding was 1.35% at
September 30, 1995, compared to 1.30% at March 31, 1995. The Aiken
area's largest employer, the Savannah River Site, has begun reducing
it work force which has led to some uncertainties for the local
economy and slower real estate sales. Future additions to the Bank's
allowance for loan losses are dependent on the performance of the
Bank's loan portfolio, the economy, changes in real estate values,
and interest rates. There can be no assurance that additions to the
allowance will not be required in future periods. Management
continues to monitor its loan portfolio for the impact of local
economic changes.
Other Income
Total other income decreased $99,975 or 26.1% and $186,875 or 23.1%
for the three and six months ended September 30, 1995, compared to
the same periods last year primarily due to decreases in the gain on
sale of loans.
The Bank's gain on sale of loans decreased $62,880 or 69.6% and
$122,993 or 73.3% during these periods. This is due to a decrease
in volume of originations in fixed rate loans, which are generally
sold.
- 16 -
<PAGE>
Security Federal Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Other Income (continued)
Service fees on deposit accounts decreased by $10,104 or 7.0% and
$22,878 or 8.1% during the three and six months ended September 30,
1995. Other income, which encompasses commissions on credit life
insurance, safe deposit box rental income, and miscellaneous fees,
decreased by $21,934 or 58.9% and $45,222 or 36% during the three and
six month periods in 1995 compared to the periods ended September 30,
1994.
General and Administrative Expenses
For the three months ended September 30, 1995, compared to the same
period in 1994, general and administrative expenses decreased $84,872
or 4.7%. The reduction was caused by a $46,977 or 5.2% decrease in
compensation and benefits expense, a $12,347 decrease in occupancy
expense, a $15,363 reduction in FDIC premiums, a $41,400 decrease in
other expenses which consist of data processing, legal, loan and real
estate owned expenses, and miscellaneous expenses, offset partially
by an increase of $27,302 in advertising expense to promote new
checking account products.
For the six months ended September 30, 1995, compared to the same
period a year ago, general and administrative expenses increased
slightly by $17,491 or .50%. The increase was due to increases in
data processing and legal expense in the other expense category,
and increases in advertising and FDIC premiums, offset in part by
decreases in compensation and employee benefits, occupancy, and
depreciation and maintenance of equipment expenses.
Amortization of intangible expense arising from branch acquisitions
in October 1993 were $116,310 for the quarter and $232,620 for
six months ended September 30, 1994 and 1995. The balance
of goodwill stood at $1.9 million and the core deposit intangible
at $1.3 million at September 30, 1995.
- 17 -
<PAGE>
SECURITY FEDERAL CORPORATION AND SUBSIDIARY
OTHER INFORMATION
Item 1 Legal Proceedings
The Corporation is not engaged in any legal proceedings of a
material nature at the present time. From time to time, it 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
Not applicable.
Item 3 Defaults upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
None.
Item 5 Other Information
None.
Item 6 Exhibits and Reports on Form 8-K
None.
- 18 -
<PAGE>
Security Federal Corporation and Subsidiary
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: By:
Roy G. Lindburg
Treasurer/CFO
Duly authorized representative
- 19 -
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10QSB FOR THE FISCAL QUARTER ENDED SEPTEMBER 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 6,340,322
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,982,128
<INVESTMENTS-CARRYING> 37,894,130
<INVESTMENTS-MARKET> 0
<LOANS> 152,582,630
<ALLOWANCE> 0
<TOTAL-ASSETS> 213,219,827
<DEPOSITS> 164,323,096
<SHORT-TERM> 22,651,000
<LIABILITIES-OTHER> 4,707,394
<LONG-TERM> 6,064,000
<COMMON> 4,092
0
0
<OTHER-SE> 14,800,766
<TOTAL-LIABILITIES-AND-EQUITY> 213,218,827
<INTEREST-LOAN> 6,639,566
<INTEREST-INVEST> 1,117,887
<INTEREST-OTHER> 41,753
<INTEREST-TOTAL> 7,799,206
<INTEREST-DEPOSIT> 3,366,709
<INTEREST-EXPENSE> 895,559
<INTEREST-INCOME-NET> 3,536,938
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,549,893
<INCOME-PRETAX> 458,109
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 316,674
<EPS-PRIMARY> .77
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 1,173
<LOANS-PAST> 498
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,955,119
<CHARGE-OFFS> 27,754
<RECOVERIES> 9,007
<ALLOWANCE-CLOSE> 2,085,372
<ALLOWANCE-DOMESTIC> 2,085,372
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
