1
<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 June 30, 1996
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 June 30, 1996
$0.01 Par Value 413,184
<PAGE>
INDEX
SECURITY FEDERAL CORPORATION
PART I - FINANCIAL INFORMATION (UNAUDITED) PAGE
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets at
June 30, 1996 and March 31, 1996 2
Consolidated Statements of Income for the
Three months ended June 30, 1996 and 19953-4
Consolidated Statement of Shareholders' Equity 5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis
Financial Condition and Results of Operations 12-15
PART II. OTHER INFORMATION
Other Information 16
Signatures 17
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.
<PAGE>
<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Consolidated Balance Sheets (unaudited)
June 30,1996March 31, 1996
Assets
<S> <C> <C>
Cash and cash equivalents $ 7,478,76 $ 9,823,66
5 4
Investments and mortgage-backed securities:
Available for sale:(Amortized cost of 30,362,9 30,972,4
$30,607,206 09 06
at June 30, 1996
$31,170,866 at
March 31, 1996)
Held to maturity: (Fair market value of 14,642,3 10,040,7
$14,271,017 92 24
at June 30, 1996 and
$9,913,951
at March 31, 1996)
Loans receivable net:
Held for sale 344,916 612,919
Held for investment: (Net of 151,091, 151,526,
allowanceof$1,773,633 752 807
at June 30, 1996
and
$1,758,688 at March
31, 1996)
151,436, 152,139,
668 726
Accrued interest receivable:
Loans 898,284 882,274
Mortgage-backed securities 38,679 23,799
Investments 521,486 450,952
Premises and equipment, net 3,071,11 3,187,18
4 5
Federal Home Loan Bank stock, at cost 1,207,25 1,233,20
0 0
Real estate acquired in settlement of loans 600,019 718,763
Real estate held for development and sale 1,255,72 1,389,57
5 9
Other assets 3,701,39 3,953,85
7 9
Total Assets 215,214, 214,816,
688 131
Liabilities and Stockholders' Equity
Liabilities:
Deposit accounts $ 170,901, $ 172,374,
385 727
Advances from Federal Home Loan Bank 23,521,0 22,864,0
00 00
Other borrowed money 350,000 350,000
Advance payments by borrowers
for taxes and insurance 372,337 385,708
Other liabilities 4,406,34 3,407,47
3 8
Total liabilities 199,551, 199,381,
065 913
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, 413,184 4,132 4,132
at March 31 and June 30, 1996
Additional paid-in capital 3,919,26 3,919,26
2 2
Unrealized net loss on securities (151,562 (123,125
available for sale, net of income taxes ) )
Retained earnings, substantially 11,891,7 11,633,9
restricted 91 49
Total stockholders' equity 15,663,6 15,434,2
23 18
Total liabilities and stockholders' equity $ 215,214, $ 214,816,
688 131
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Consolidated Statements of Income (Unaudited)
Three Months Ended
June 30,
1996 1995
<S>
<C> <C> <C>
Interest Income:
Loans $ 3,375,487 $ 3,258,689
Mortgage-backed securities 25,089 28,510
Investment securities 583,736 532,989
Other 20,332 20,238
Total interest income 4,004,644 3,840,426
Interest expense:
NOW and money market accounts 232,102 275,668
Passbook accounts 87,679 94,663
Certificate accounts 1,403,452 1,274,240
Advances and other borrowed money 348,127 437,665
Total interest expense 2,071,360 2,082,236
Net interest income 1,933,284 1,758,190
Provision for loan losses 75,000 75,000
Net interest income after provision
for
loan losses 1,858,284 1,683,190
Other income:
Gain on sale of loans 30,091 17,407
Loan servicing fees 83,126 77,692
Service fees on deposit accounts 185,637 126,250
Income from real estate 25,905 51,425
operations
Other 36,640 64,951
Total other income 361,399 337,725
General and administrative expenses:
Salaries and employee benefits 822,667 893,150
Occupancy 96,016 95,206
Advertising 34,819 27,728
Depreciation and maintenance of 160,366 165,679
equipment
FDIC insurance premiums 92,842 109,029
Amortization of intangibles 116,310 116,310
Other 479,512 422,098
Total general and 1,802,532 1,829,200
administrative expenses
Income before income taxes 417,151 191,715
Provision for income taxes 138,651 54,866
Net income $ 278,500 $ 136,847
Net income per common share $ 0.67 $ 0.33
Cash dividend on common stock $ 0.05 $ 0.05
Weighted average shares outstanding $ 413,184 $ 409,246
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Consolidated Statement of Shareholders' Equity
For the three months ended June 30, 1996
(unaudited)
<S>
<C> <C> <C> <C> <C> <C>
Unrealiz
ed
Net Loss
Addition on
al Securiti
es
Common Paid-In Availabl Retained
e
Stock Capital for Sale Earnings Total
Beginning
balance
March 31, $ $ $ $ $
1996 4,132 3,919,26 (123,125 11,633,9 15,434,2
2 ) 49 18
Net income ----- ----- ----- 278,500 278,500
Cash dividend ----- ----- ----- (20,658) (20,658)
Exercise of
stock options ----- ----- ----- ----- -----
Change in
unrealized
net loss
on securities
available for ----- ----- (28,437) ----- (28,437)
sale
Ending
balance
June 30, 1996 $ $ $ $ $
4,132 3,919,26 (151,562 11,891,7 15,663,6
2 ) 91 23
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Consolidated Statement of Cash Flows
(unaudited)
Three
Months Ended
June 30,
1996
1995
<S>
<C> <C> <C>
Cash flows from operating activities:
Net Income $ 278,500 $ 136,847
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense 152,597 151,918
Amortization of purchase accounting 116,310 116,310
adjustments
Discount accretion and premium 50,974 52,023
amortization
Provisions for losses on loans and real 75,000 75,000
estate
Gain on sale of loans (30,091) (17,407)
Gain on sale of real estate (8,413) (25,950)
Amortization of deferred fees on loans (36,895) (19,113)
Proceeds from sale of loans held for 4,327,113 1,589,674
sale
Origination of loans for sale (4,029,01 (1,194,50
9) 5)
Increase in accrued interest
receivable:
Loans (16,010) (18,059)
Mortgage-backed securities (14,880) (179)
Investments (70,534) (78,030)
Increase (decrease) in advance payments (13,371) 98,835
by borrowers
Other, net 1,141,427 583,414
Net cash provided by operating activities $ 1,922,708 $ 1,450,778
Cash flows from investing activities
Principal repayments on mortgage-backed 185,010 27,872
securities
Purchase of investment securities (4,477,93 0
0)
Proceeds from maturities of investment 3,000,000 0
securities
Purchase of FHLB Stock 0 (94,800)
Redemption of FHLB Stock 25,950 0
(Increase) decrease in loans to customers (2,399,11 (3,278,53
2) 2)
Investment in real estate held for (51,429) (104,632)
development
Proceeds from sale of real estate held for 211,188 187,750
development
Proceeds from sale of real estate acquired 112,242 0
through foreclosure
Purchase of premises and equipment (36,526) (20,763)
Net cash used by investing activities $ (3,430,60 $ (3,283,10
7) 5)
</TABLE>
(Continued)
<PAGE>
<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Consolidated Statement of Cash Flows
(unaudited)
Three Months
Ended
June
30,
1996
1995
<S>
<C> <C> <C>
Cash flows from financing activities:
Increase(decrease) in deposit accounts $ (1,473,34 $ (403,877)
2)
Proceeds from FHLB advances 20,725,00 41,300,00
0 0
Repayment of FHLB advances (20,068,0 (37,435,0
00) 00)
Dividends to share holders (20,658) (20,456)
Exercise of stock options 0 0
Net cash provided by financing activities $ (837,000) $ 3,440,667
Net increase in cash and cash equivalents (2,344,89 1,608,340
9)
Cash and cash equivalents at beginning of 9,823,664 5,697,391
period
Cash and cash equivalents at end of period $ 7,478,765 $ 5,697,391
Supplemental disclosure of cash flow
information:
Cash paid during the period for :
Interest $ 1,862,350 $ 1,630,524
Income taxes $ 58,281 $ 0
Additions to real estate acquired
through foreclosure $ 10,990 $ 193,049
Change in unrealized net gain/(loss) on
securities
available for sale, net of taxes $ 28,437 $ 24,904
Securitization of loans receivable $ 2,796,062 $ 0
</TABLE>
See accompanying notes to consolidated financial statements.
<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 three month period ended June 30, 1996 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") and its wholly owned subsidiary Security Financial
Services Corporation ("SFSC"). SFSC engages primarily in
investment brokerage services. Also included in consolidation
are two real estate partnerships, which the Company purchased
from SFSC in December 1995 at fair market value.
3. Securities
In November 1995, the Financial Accounting Standards Board (FASB)
issued a Special Report, "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity
Securities," which allowed entities a one-time reclassification
of their investment securities without tainting their portfolio.
This was to be done before December 31, 1995. In accordance with
this Special Report, the Company reclassified $27,900,000 of its
held for investment portfolio to its available for sale
portfolio.
<PAGE>
<TABLE>
<CAPTION>
Investments and Mortgage-backed Securities, Held to Maturity
The amortized cost, gross unrealized gains, gross unrealized
losses and market values of investment and mortgage-backed
securities held to maturity are as follows:
June 30, 1996
<S>
<C> <C> <C> <C>
<C>
Gross Gross
Amortize Unrealize Unreali Market
d Cost d Gains zed Value
Losses
US Government and
agency $ $ $ $
obligations 9,490,69 10,155 179,549 9,321,3
5 01
Mortgage-backed
securities 5,151,69 19,941 221,922 4,949,7
7 16
Total $ $ $ $
14,642,3 30,096 401,471 14,271,
92 017
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
Investments and Mortgage-backed Securities, Held to Maturity
(continued)
March 31, 1996
<S>
<C> <C> <C> <C>
<C>
Gross Gross
Amortize Unreal Unreali Market
d ized zed Value
Cost Gains Losses
US Government and
agency $ $ $ $
obligations 7,498,61 7,030 151,338 7,354,3
6 08
Mortgage-backed
securities 2,542,10 32,651 15,116 2,559,6
8 43
Total $ $ $ $
10,040,7 39,681 166,454 9,913,9
24 51
Investments and Mortgage-backed Securities, Available for Sale
The amortized cost, gross unrealized gains, gross unrealized
losses and market values of investment and mortgage-backed
securities available for sale are as follows:
June 30, 1996
<S>
<C> <C> <C> <C>
<C>
Gross Gross
Amortize Unreal Unreali Market
d ized zed Value
Cost Gains Losses
US Government and
agency $ $ $ $
obligations 30,607,2 719 245,016 30,362,
06 909
Mortgage-backed
securities 0 0 0 0
Total $ $ $ $
30,607,2 719 245,016 30,362,
06 909
March 31, 1996
Gross Gross
Amortize Unreal Unreali Market
d ized zed Value
Cost Gains Losses
US Government and
agency $ $ $ $
obligations 31,170,8 1,782 200,242 30,972,4
66 06
Mortgage-backed
securities 0 0 0 0
Total $ $ $ $
31,170,8 1,782 200,242 30,972,4
66 06
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
4. Loans Receivable, Net
Loans receivable, net at June 30, 1996, consisted of the
following:
Loans held for sale:
Loans held for sale were $344,916 and $612,919 at June 30, 1996
and March 31, 1996 respectively.
Loans held for investment June 30, 1996 March 31,
1996
<S>
<C> <C> <C>
Residential real estate $ 55,986,041 $ 59,951,018
Consumer 45,881,585
44,810,133
Commercial real estate 10,870,289 10,629,652
Commercial business 41,581,053 38,764,035
$154,318,968 $ 154,154,838
Less:
Allowance for possible loan loss$1,773,633 $ 1,758,688
Loans in process 1,087,593 474,575
Deferred loan fees 365,990 394,768
3,227,216 2,628,031
$151,091,752 $151,526,807
The following is a reconciliation of the allowance for possible
loan losses:
June 30, 1996
Beginning balance $ 1,758,688
Provision 75,000
Charge-offs (63,190)
Recoveries 3,135
Ending balance $ 1,773,633
5. Deposits
A summary of deposit accounts by type with weighted average rates
are as follows:
June 30, 1996
March 31, 1996
<S>
<C> <C> <C> <C>
<C> Demand Accounts:Balance RateBalance
Rate
Checking $41,595,8621.31% $42,251,949 1.35%
Money Market 13,258,638 2.81% 13,769,693 2.81%
Regular Savings 14,092,260 2.52% 13,615,436
2.50%
Total demand accounts $68,946,7601.84% $69,637,078 1.86%
Certificate Accounts:
0 - 4.99% $5,063,326 $5,116,366
5.00 - 6.99% 96,329,255 97,046,823
7.00 - 8.99% 562,044 574,460
Total certificate accounts101,954,6255.55% 102,737,649
5.65%
Total deposit account $170,901,385 4.02%$172,374,727
4.12%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
6. Federal Home Loan Bank Advances
Federal Home Loan Bank Advances are summarized by year of
maturity and weighted average interest rate in the table below:
Fiscal Year Due June 30, 1996
<S>
<C> <C> <C> <C>
<C>
March 31, 1996
Balance Rate Balance
Rate
1997 $10,414,0005.79% $ 17,214,000
5.94%
1998 10,927,000 5.80% 3,452,000 6.60%
1999 490,0008.65% 490,000 8.65%
2000 528,0008.70% 528,000 8.70%
thereafter 1,162,0008.55% 1,180,000 8.53%
$23,521,0006.07% $ 22,864,000
6.29%
7. Regulatory Matters
The following table reconciles the Bank's Stockholders' equity to
its various regulatory capital positions:
(Dollars in thousands)
June 30, 1996 March 31, 1996
<S>
<C> <C> <C>
Bank's Stockholders' Equity$ 15,266 $15,008
Unrealized loss on available for sale
securities, net of tax 151 123
Reduction for nonqualifying assets 0
Reduction for goodwill and other
intangibles (2,800) (2,916)
Tangible capital 12,617 12,215
Qualifying core deposits and
intangible assets 1,074 1,120
Core capital 13,691
13,335
Supplemental capital 1,673 1,757
Risk-based capital $ 15,364 $15,092
The following table compares the Bank's capital levels relative
to the applicable regulatory requirements
at June 30, 1996. (Dollars in
thousands)
Amount Percen Actual Exces
Requir t Amount Percen Exces s
ed Requir t s Perce
ed nt
Tangible $ $ $
capital 3,174 1.5% 12,617 5.96% 9,443 4.46%
Core capital
6,381 3.0% 13,691 6.44% 7,310 3.44%
Risk-based
capital 10,708 8.0% 15,364 11.48% 4,656
3.48%
</TABLE>
<PAGE>
Security Federal Corporation and Subsidiary
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Recent Developments
The United States Congress is currently proposing a plan under
which the Bank Insurance Fund ("BIF"), which is the primary
deposit insurance fund for commercial banks, would be merged with
the Savings Association Insurance Fund ("SAIF"), which is the
primary insurance fund for thrifts and savings banks. In
connection with this merger, all members of the SAIF fund would
be required to pay a one-time assessment of between 80 and 90
basis points per every $100 of SAIF insured deposit balances as
of March 31, 1995. Based on the Bank's deposit balances as of
March 31, 1995, the one-time assessment would be approximately
$950,000 before tax and approximately $600,000 after tax, if that
expense would be tax deductible. In exchange for this one-time
assessment, qualifying members of the SAIF fund would receive a
reduction in their annual premiums. The measure has not yet
passed Congress, and the final provisions and payment date are as
yet unknown.
Changes in Financial Condition
Total assets of the Company increased $398,557 or 0.2% during the
three months ended June 30, 1996, primarily due to an increase of
$4.0 million in investments and mortgage-backed securities offset
partially by a decrease of $2.3 million in cash and cash
equivalents and a $703,058 decrease in total net loans
receivable.
The increase in investments and mortgage backed securities was
caused primarily by a $2.8 million securitization of mortgage
loans. Real estate acquired through foreclosure decreased
$118,744 due to sales of real estate and real estate acquired for
development decreased $133,854 during the period also due to
sales of real estate.
Deposits decreased $1.5 million during the June 1996 quarter,
while Federal Home Loan Bank advances grew $657,000 or 2.9%.
The Board of Directors declared the twenty-second consecutive
quarterly dividend of $.05 per share in May 1996, which totaled
$20,658. Unrealized net losses on securities available for sale
increased by $28,437 during the three months ended June 30, 1996.
Net income for the quarter was $278,500. These items combined to
increase the Company's stockholders' equity by $229,405 or 1.5%
during the three months ended June 30, 1996. Book value per
share stood at $37.91 compared to $37.35 at March 31, 1996.
Liquidity and Capital Resources
In accordance with 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 three months ended June 30, 1996, Security Federal maintained
an average liquidity of 6.64% compared to 6.38% for the same
period in 1995. The Bank's current liquidity level 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 three months
ended June 30, 1996, loan repayments and securitizations exceeded
loan disbursements resulting in a $703,058 or 0.5% decrease in
total net loans receivable.
<PAGE>
Security Federal Corporation and Subsidiary
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Liquidity and Capital Resources (Continued)
Deposits and other borrowings are also an important source of
funds for the Bank. During the three month period ended June 30,
1996, deposits decreased $1.5 million while Federal Home Loan
Bank advances increased $657,000. At June 30, 1996, Security
Federal had $83.2 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 June 30, 1996 are sufficient to meet
outstanding mortgage loan commitments of $277,195 and unused
lines of credit of $23.0 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.
Accounting and Reporting Changes
In March, 1995 the FASB issued SFAS 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed of." This statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. The Statement is effective for the Bank in
fiscal year ending March 31, 1997. Based on the Bank's present
assets, 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 securitized 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, the adoption of this Statement did not have a
material impact on the Bank.
In October 1995, the FASB issued SFAS No. 123 "Accounting for
Stock Based Compensation". This statement is effective for
financial statements issued for fiscal years beginning after
December 15, 1995. SFAS No. 123 provides guidance on the
valuation of fixed and performance stock compensation plans. The
statement encourages, but does not require entities to account
for stock compensation awards based on the estimated fair value
of the award at the date of the grant. The statement permits
continuation of current accounting practices which generally do
not result in charges to expense for Stock Options. However,
footnote disclosure of the effects on the financial statements as
if the options had been expensed is required. The statement will
have no material impact on future operating results.
In June, 1996, the FASB issued SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. The statement will become effective January 1,
1997. The statement uses a "financial components" approach that
focuses on control to determine the proper accounting for
financial asset transfers. Under that approach, after financial
assets are transferred, an entity would recognize on the balance
sheet all assets is controls and liabilities it has incurred. It
would remove from the balance sheet those assets it no longer
controls and liabilities it has satisfied. The Bank does not
anticipate that adoption of this standard will have a material
effect on the Bank's financial statement in 1997.
<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 increased $141,653 to $278,500 for
the three months ended June 30, 1996, compared to the same period
in 1995 primarily due to an increase in net interest income and a
slight increase in other income combined with a decrease in
general and administrative expenses.
Net Interest Income
Net interest income increased by $175,094 or 10.0% during the
three months ended June 30, 1996, compared to the same period in
1995 due primarily to slightly lower rates paid on certificates
of deposit and decreases in volume and rates on Federal Home Loan
Bank advances, combined with increased yields in investments and
net loans outstanding. Total interest income increased $164,218
or 4.3% during the three months ended June 30, 1996. Interest
income on loans increased $116,798 or 3.6% during the period
while interest income on investment, mortgage-backed, and other
securities increased $47,420 or 8.2%.
Total interest expense decreased $10,876 or 0.5% during the three
month period ended June 30, 1996. Interest expense on deposit
accounts increased by $78,662 due to higher average outstanding
balances in deposits during the June 1996 quarter. Interest
expense on Federal Home Loan Bank advances and other borrowed
money decreased by $89,538 due to a decrease in advance balances
and a decrease in interest rates paid on advances.
Provision for Loan Losses
Security Federal's provision for loan losses remained the same
for the June quarter in both 1996 and 1995 at $75,000. During
the three months ended June 30, 1996, net charge-offs were
$60,055 compared to $908 for the three months ended June 30,
1995. The Bank stops accruing interest on any loan that is 60 or
more days delinquent. Non-accrual loans at June 30, 1996 were
$2.8 million versus $2.6 million at March 31, 1996. The
allowance for loan losses as a percentage of total loans was
1.16% at June 30, 1996 and 1.14% at March 31, 1996. The Aiken
area's largest employer, the Savannah River Site, had a
significant downsizing of its 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.
Allowance for loan losses are subject to periodic evaluations by
various regulatory authorities and may be subject to adjustments
based upon the information that is available to them at the time
of their examinations. 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.
<PAGE>
Security Federal Corporation and Subsidiary
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Other Income
Total other income increased $23,674 or 7.0% in the three months
ended June 30, 1996 compared to the June 1995 period primarily
due to an increase in service fees on deposit accounts.
During the June 1996 quarter, the Bank's gain on sale of loans
increased to $30,091 from $17,407 for the same period in 1995,
for an increase of $12,684. Service fees on deposit accounts
increased by $59,387 or 47.0% during the three months ended June
30, 1996 compared to the same period last year. This increase is
due to an increase in the number of commercial demand deposits
and the introduction of a new consumer checking account package
in August 1995. Income from real estate operations decreased
$25,520 due to slower lot sales. Other income, which encompasses
commissions on credit life insurance, safe deposit box rental
income, and miscellaneous fees, decreased $28,311.
General and Administrative Expenses
General and administrative expenses decreased $26,668 or 13.6%
due mainly to decreases in compensation and benefits and FDIC
premiums, offset partially by an increase in other miscellaneous
expenses during the three month period ended June 30, 1996
compared to the same period last year.
Compensation and employee benefits decreased $70,483 or 7.9%
during the three months ended June 30, 1996, compared to the same
period in 1995 due to employee attrition and a restructuring of
officer positions in September 1995. Advertising expense
increased $7,091 during the period. Depreciation and maintenance
of equipment decreased $5,313 during the June 1996 quarter
compared to 1995, while FDIC premiums on deposits decreased
$16,187. The amortization of intangibles arising from the
October 1993 branch acquisitions were $116,310 in the three
months ended June 30, 1995 and 1996. Other expenses, which
include legal expense, data processing expense, and stationary
and office supplies expense increased by $57,414 during the June
1996 quarter.
<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
None
Item 4 Submission of Matters to a Vote of Security Holders
The election of directors was presented for vote to
Shareholders on July 16, 1996. Votes for Harry O. Weeks,
Jr. were as follows: 362,070 votes for, 1,330 votes
withheld. Votes for Dr. Robert E. Alexander were as
follows: 361,970 votes for, 1,430 votes withheld. Votes
for William Clyburn were as follows: 360,295 votes for,
3,105 votes withheld.
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
None
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.
<PAGE>
Security Federal Corporation
Date:_________________________ By:
______________________
Roy G. Lindburg
Treasurer/CFO
Duly Authorized Representative
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
REPORT ON FOMR 10QSB FOR THE FISCAL QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,478,765
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,362,909
<INVESTMENTS-CARRYING> 14,642,392
<INVESTMENTS-MARKET> 0
<LOANS> 151,436,668
<ALLOWANCE> 0
<TOTAL-ASSETS> 215,214,688
<DEPOSITS> 170,901,385
<SHORT-TERM> 23,521,000
<LIABILITIES-OTHER> 4,406,343
<LONG-TERM> 5,650,000
<COMMON> 4,132,000
0
0
<OTHER-SE> 15,663,623
<TOTAL-LIABILITIES-AND-EQUITY> 215,214,688
<INTEREST-LOAN> 3,375,487
<INTEREST-INVEST> 608,825
<INTEREST-OTHER> 20,332
<INTEREST-TOTAL> 4,004,644
<INTEREST-DEPOSIT> 1,723,233
<INTEREST-EXPENSE> 348,127
<INTEREST-INCOME-NET> 1,933,284
<LOAN-LOSSES> 75,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,802,532
<INCOME-PRETAX> 417,151
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 278,500
<EPS-PRIMARY> .67
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 1,173
<LOANS-PAST> 498
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,758,688
<CHARGE-OFFS> 63,190
<RECOVERIES> 3,135
<ALLOWANCE-CLOSE> 1,773,633
<ALLOWANCE-DOMESTIC> 1,773,633
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
