<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 December 31, 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 December 31, 1995
$0.01 Par Value 413,184
<PAGE>
INDEX
SECURITY FEDERAL CORPORATION
PART I - FINANCIAL INFORMATION (UNAUDITED) PAGE
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheet at
December 31, 1995 and March 31, 1995 1
Consolidated Statement of Income for the
Three months ended December 31, 1995 and 1994 2
Consolidated Statement of Income for Nine
months ended December 31, 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
Financial Condition and Results of Operations 11-14
PART II. OTHER INFORMATION
Other Information 15
Signatures 16
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 Sheet (unaudited)
December 31 March
31
1995 1995
ASSETS
<S>
<C> <C> <C>
Cash and cash equivalents $ 8,931,202 $ 5,697,391
Investments and mortgage-backed
securities:
Available for Sale 31,547,038 3,930,626
Held to Maturity 11,136,971 38,596,245
Loans Receivable net:
Held for Sale 1,190,749 776,631
Held for Investment 151,071,57 148,200,563
6
152,262,32 148,977,194
5
Accrued interest receivable:
Loans 928,782 755,265
Mortgage-backed securities 21,839 22,328
Investments 526,974 464,229
Premises and equipment, net 2,877,028 3,251,171
Federal Home Loan Bank stock, at 1,572,000 1,415,100
cost
Real estate acquired in settlement 976,128 1,531,251
of loans
Real estate held for development 1,343,415 1,442,723
and sale
Other assets 3,852,232 3,865,211
Total Assets 215,975,93 209,948,734
4
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Deposit Accounts $ 168,184,81 $ 166,274,637
7
Advances from Federal Home Loan 27,790,000 26,033,000
Bank
Other borrowed money 350,000 0
Advance payments by borrowers
for taxes and insurance 412,944 442,456
Other Liabilities 4,273,371 2,709,171
Total liabilities $ 201,011,13 $ 195,459,264
2
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 at March 31
and 413,184 at December 31, 4,132 4,092
1995
Additional paid-in capital 3,919,262 3,879,922
Unrealized net loss on
securities available
for sale, net of income (115,166) (51,155)
taxes
Retained earnings, 11,156,574 10,656,611
substantially restricted
Total stockholders' equity 14,964,802 14,489,470
Total liabilities and stockholders' $ 215,975,93 $ 209,948,734
equity 4
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Consolidated Statement of Income (Unaudited)
Three Months Ended
December 31
1995 1994
<S> <C> <C>
Interest Income:
Loans $ 3,459,221 $ 3,202,525
Mortgage-backed securities 27,098 32,297
Investment securities 522,411 565,102
Other 22,421 29,699
Total interest income 4,031,151 3,829,623
Interest expense:
NOW and money market accounts 247,780 258,931
Passbook accounts 82,071 94,403
Certificate accounts 1,391,830 998,353
Advances and other borrowed money 473,489 405,980
Total interest expense 2,195,170 1,757,667
Net interest income 1,835,981 2,071,956
Provision for loan losses 30,000 75,000
Net interest income after provision
for
loan losses 1,805,981 1,996,956
Other income:
Gain on sale of loans 37,743 27,594
Loan servicing fees 78,519 82,516
Service fees on deposit accounts 161,912 141,360
Income from real estate (57,980) 3,566
operations
Other 61,407 48,833
Total other income 281,601 303,869
General and administrative expenses:
Salaries and employee benefits 824,617 905,210
Occupancy 90,680 98,917
Advertising 69,367 30,108
Depreciation and maintenance of 159,286 166,539
equipment
Amortization of intangibles 89,007 112,944
FDIC insurance premiums 116,310 116,310
Other 372,709 403,695
Total general and 1,721,976 1,833,723
administrative expenses
Income before income taxes 365,606 467,102
Provision for income taxes 120,740 133,274
Net income $ 244,866 333,828
Net income per common share $ 0.59 $ 0.82
Cash dividend on common stock $ 0.05 $ 0.05
Weighted average shares outstanding $ 412,071 $ 408,515
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Consolidated Statement of Income (Unaudited)
Three Months Ended
December 31
1995 1994
<S>
<C> <C> <C>
Interest Income:
Loans $ 10,098,787 $ 8,735,912
Mortgage-backed securities 83,942 106,408
Investment securities 1,583,454 1,737,902
Other 64,174 68,287
Total interest income 11,830,357 10,648,509
Interest expense:
NOW and money market accounts 837,743 822,434
Passbook accounts 273,816 304,382
Certificate accounts 3,976,831 2,837,400
Advances and other borrowed money 1,369,048 888,374
Total interest expense 6,457,438 4,852,590
Net interest income 5,372,919 5,795,919
Provision for loan losses 180,000 225,000
Net interest income after provision
for
loan losses 5,192,919 5,570,919
Other income:
Gain on sale of loans 82,590 195,434
Loan servicing fees 232,898 240,667
Service fees on deposit accounts 422,494 424,820
Income from real estate 23,010 76,566
operations
Other 141,673 174,321
Total other income 902,665 1,111,808
General and administrative expenses:
Salaries and employee benefits 2,567,144 2,665,751
Occupancy 276,552 306,183
Advertising 151,051 100,280
Depreciation and maintenance of 491,550 512,841
equipment
Amortization of intangibles 295,611 310,008
FDIC insurance premiums 348,930 348,930
Other 1,141,031 1,122,132
Total general and 5,271,869 5,366,125
administrative expenses
Income before income taxes 823,715 1,316,602
Provision for income taxes 262,175 440,804
Net income $ 561,540 875,798
Net income per common share $ 1.37 $ 2.17
Cash dividend on common stock $ 0.15 $ 0.15
Weighted average shares outstanding $ 410,184 $ 403,237
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Consolidated Statement of Shareholders' Equity
For the nine months ended December 31, 1995
(unaudited)
<S>
<C> <C> <C> <C> <C> <C>
Unrealiz
ed
Net Loss
Additiona on
l Securiti
es
Common Paid-In Availabl Retained
e
Stock Capital for Sale Earnings Total
Beginning
balance
March 31, 4,092 3,879,922 (51,155) 10,656,6 14,489,4
1995 11 70
Net income ----- ----- ----- 561,540 561,540
Cash dividend ----- ----- ----- (61,577) (61,577)
Exercise of 40 39,340 39,380
stock options
Change in
unrealized
net loss
on securities ----- ----- (64,011) ----- (64,011)
available for
sale
Ending
balance
December 31, 4,132 3,919,262 (115,166 11,156,5 14,964,8
1995 ) 74 02
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Consolidated Statement of Cash Flows
Nine Months Ended
December 31
1995 1994
<S>
<C> <C> <C>
Cash flows from operating activities:
Net Income 561,540 875,798
Adjustments to reconcile net income
to net
cash provided by operating
activities:
Depreciation Expense 446,827 440,602
Gain (Loss) on disposal of 1,192
premises and equipment
Amortization of purchase 348,930 348,930
accounting adjustments
Discount accretion and premium 157,737 181,596
amortization
Provisions for losses on loans and 225,000 225,000
real estate
Gain on sale of loans (82,590) (195,434)
Gain on sale of Real Estate (36,722) (123,460)
Amortization of deferred fees on (134,400) (143,624)
loans
Proceeds from sale of loans held 7,090,322 16,219,422
for sale
Origination of loans for sale (7,421,85 (7,930,485
0) )
(Increase) decrease in accrued
interest
receivable:
Loans (173,517) (46,170)
Mortgage-backed securities 489 (2,132)
Investments (62,745) (36,927)
Increase (Decrease) in advance
payments
by borrowers (29,512) 5,417
Other, net 704,651 (1,207,493
)
Net cash provided by operating 1,594,160 8,612,232
activities
Cash flows from investing activities
Proceeds from maturities of interest 0 95,000
bearing deposits
Principal repayments on mortgage- 136,476 481,060
backed securities
Purchase of investment securities 0 (500,000)
Purchase of Mortgage-backed (1,054,52 0
securities 9)
Proceeds from maturities of 500,000 5,200,000
investment securities
Proceeds from sale of investments 0 1,500,000
Purchase of FHLB Stock (299,600) (520,100)
Redemption of FHLB Stock 142,700 340,000
(Increase) Decrease in loans to (2,977,81 (27,748,88
customers 8) 6)
Investment in real estate held for (196,091) (339,671)
development
Proceeds from sale of real estate 293,240 548,859
held for development
Proceeds from sale of real estate
acquired
through foreclosure 1,172,974 229,750
Purchase of premises and equipment (72,684) (213,011)
Proceeds form sale of premises and 0 564
equipment
Net cash used by investing activities (2,355,33 (20,926,43
2) 5)
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Consolidated Statement of Cash Flows
Nine Months Ended
December 31
1995 1994
<S>
<C> <C> <C>
Cash flows from financing activities:
Increase(Decrease) in deposit 1,910,180 (7,370,758
accounts )
Proceeds from FHLB advances 93,255,00 109,260,00
0 0
Repayment of FHLB advances (91,498,0 (92,450,00
00) 0)
Proceeds of other borrowings 350000 0
Dividends to share holders (61,577) (60,416)
Exercise of stock options 39,380 194,640
Net cash provided by financing 3,994,983 9,573,466
activities
Net increase in cash and cash 3,233,811 (2,740,737
equivalents )
Cash and cash equivalents at 5,697,391 8,631,817
beginning of period
Cash and cash equivalents at end of 8,931,202 5,891,080
period
Supplemental disclosure of cash flow
information:
Cash paid during the period for :
Interest 6,573,644 5,094,342
Income taxes 209,000 265,000
Additions to real estate acquired
through foreclosure 623,970 134,096
Unrealized net gain/(loss) on
securities
available for sale, net of (64,011) (39,297)
taxes
Transfer of Investments Held to
Maturity to
Investments Available for 27,867,17 0
Sale 0
</TABLE>
6
<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 December 31, 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") 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. Securities
In November 1995, the Financial Accounting Standards Board
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.
7
<PAGE>
<TABLE>
<CAPTION>
Security Federal Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
Securities (continued)
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:
December 31, 1995
<S>
<C> <C> <C> <C> <C>
Gross Gross
Amortize Unreal Unrealiz Market
d Cost ized ed Value
Gains Losses
US Government and
agency
obligations 8,509,14 9,360 166,630 8,351,87
0 0
Mortgage-backed
securities 2,627,83 34,674 4,583 2,657,92
1 2
March 31, 1995
Gross Gross
Amortize Unreal Unrealiz Market
d ized ed Value
Cost Gains Losses
US Government and
agency 36,885,6 35,369,2
obligations 40 0 1,516,40 33
7
Mortgage-backed
securities 1,710,60 18,979 18,179 1,711,40
5 5
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:
December 31, 1995
<S>
<C> <C> <C> <C> <C>
Gross Gross
Amortize Unreal Unrealiz Market
d ized ed Value
Cost Gains Losses
US Government and
agency $31,732,6 $ $ $
obligations 70 6,679 192,311 31,547,0
38
Mortgage-backed
securities 0 0 0 0
March 31, 1995
Gross Gross
Amortize Unreal Unrealiz Market
d ized ed Value
Cost Gains Losses
US Government and
agency $ $ $ $
obligations 4,013,08 0 82,454 3,930,62
0 6
Mortgage-backed
securities 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
8
Security Federal Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
4. Loans Receivable, Net
Loans receivable, net at December 31, 1995, consisted of the
following:
Loans held for sale:
Loans held for sale were $1,190,749 and $776,631 at December
31, 1995 and March 31, 1995 respectively.
Loans held for investment December 31, 1995March 31, 1995
<S>
<C> <C> <C>
Residential real estate $ 60,843,637 $ 66,226,289
Consumer 45,240,452
44,089,104
Commercial real estate 11,881,263 13,007,516
Commercial business 35,880,734 29,718,456
$153,846,086 $ 153
,041,365
Less:
Allowance for loan loss $ 2,052,459 $ 1,955,119
Loans in process 297,339 2,419,433
Deferred loan fees 424,712 466,250
2,774,510 4,840,802
$151,071,576 $
148,200,563
The following is a reconciliation of the allowance for
possible loan losses:
December 31, 1995
Beginning balance $ 1,955,119
Provision 180,000
Charge-offs (95,821)
Recoveries 13,161
Ending balance $ 2,052,459
5. Deposits
A summary of deposit accounts by type with weighted average
rates are as follows:
December 31, 1995 March
31, 1995
<S>
<C> <C> <C> <C>
<C>
Demand Accounts: Balance RateBalance
Rate
Checking 44,566,492 1.27%41,211,492
1.40%
Money Market 13,458,475 3.02% 16,776,207
3.27%
Regular Savings 13,236,726 2.48% 14,491,809
2.61%
Total demand accounts 71,261,693 1.83% 72,479,508
2.07%
Certificate Accounts:
0 - 4.99% 3,079,560 44,023,933
5.00 - 6.99% 93,118,675 48,182,486
7.00 - 8.99% 724,889 1,588,710
Total certificates of deposit96,923,124 5.81%93,795,129
5.17%
Total deposit accounts168,184,817 4.13% 166,274,637
3.82%
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
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 December 31,
1995 March 31, 1995
<S>
<C> <C> <C> <C> <C>
Balance Rate Balance Rate
1996 5,376,000 6.46%19,951,000 6.40%
1997 16,764,000 5.93% 3,414,000
6.56%
1998 3,452,000 6.60% 452,000
8.60%
1999 490,0008.65% 490,000
8.65%
2000/thereafter 1,708,000 8.58% 1,726,000
8.59%
27,790,000 6.33% 26,033,000
6.65%
7. Regulatory Matters
The following table reconciles the Bank's Stockholders'
equity to its various regulatory capital positions:
(Dollars in Thousands)
December 31, 1995 March
31, 1995
<S>
<C> <C> <C>
Bank's Stockholders' Equity 14,503 13,981
Unrealized loss on available for sale
securities, net of tax 115 51
Reduction for nonqualifying assets
(1,119)
Reduction for goodwill and other
intangibles (3,031)
(3,376)
Tangible capital 11,587 9,537
Qualifying core deposits and
intangible assets 1,180
1,361
Core capital 12,767
10,898
Supplemental capital 1,670 1,756
Risk-based capital 14,437
12,654
The following table compares the Bank's capital levels
relative to the requirements applicable under FIRREA at
December 31, 1995. (dollars in thousands)
<S>
<C> <C> <cc> <C> <C> <C>
<C>
Amount Perce Actua Exce
Requir nt Amoun l Exces ss
ed Requi t Perce s Perc
red nt ent
Tangible
capital 3,179 1.5% 11,58 5.47% 8,408 3.97
7 %
Core capital
6,393 3.0% 12,76 5.99% 6,374 2.99
7 %
Risk-based
capital 11,365 8.0% 14,43 10.16 3,072 2.16
7 % %
</TABLE>
10
<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 a
significantly lower amount for deposit insurance premiums
than thrifts, including Security Federal, who primarily hold
SAIF insured deposits. The current proposal calls for a one-
time assessment of approximately 85 to 90 basis points per
$100 of SAIF deposits on March 31, 1995. 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.
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 will open in February 1996.
Changes in Financial Condition
Total assets of the Company increased $6.0 million or 2.9%
during the nine months ended December 31, 1995 primarily due
to an increase of $2.9 million in loans held for investment
and a $3.2 million increase in cash and cash equivalents.
Investments and mortgage-backed securities increased
$157,138 due to the securitization of $1.1 million of single
family home loans into mortgage-backed securities offset in
part by maturities and principal repayments on mortgage-
backs.
Federal Home Loan Bank stock increased 11.1% during the nine
months ended December 31, 1995 due to an increase in Federal
Home Loan Bank advances. Real estate acquired through
foreclosure decreased by $555,123 mainly due to lot sales in
an acquired real estate development. Real estate acquired
for development decreased $99,308 during the period due to
sales of real estate and an increase of $45,000 in the
valuation allowance on real estate acquired for development.
Deposits increased $1.9 million or 1.2% during the nine
months ended December 31, 1995, while Federal Home Loan Bank
advances grew $1.8 million or 6.8% in order to fund the
Bank's growth.
The Board of Directors declared the eighteenth, nineteenth,
and twentieth consecutive quarterly dividends of $.05 per
share in May, August, and November 1995 respectively, which
totaled $61,577. Cash realized from the exercise of stock
options increased paid in capital by $39,380 during the
period. Unrealized net losses on securities available for
sale increased by $64,011 during the nine months ended
December 31, 1995 due to the transfer of $27.9 million in
Treasuries from investments held to maturity to investments
available for sale during the "one-time reclassification"
allowed by FASB in December 1995 under Statement of
Financial Accounting Standard 115. Net income for the nine
month period was $561,540. These items combined to increase
the Company's stockholders' equity by $475,332 or 3.3%
during the nine months ended December 31, 1995. Book value
per share stood at $36.22 at December 31, 1995 compared to
$35.40 at March 31, 1995.
Liquidity and Capital Resources
In accordance with Office of Thrift Supervision regulation,
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 nine months ended December
31, 1995, Security Federal maintain an average liquidity of
6.25% compared to 8.14% for the same period in 1994. This
decrease is due to an 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 loans
demand while still allowing for optimal investment of funds
and return on assets.
11
<PAGE>
Security Federal Corporation and Subsidiary
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Liquidity and Capital Resources (continued)
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 nine months ended December 31, 1995, loan
disbursements exceeded loan repayments resulting in a $3.3
million or 2.2% increase in total net loans receivable.
Deposits and other borrowings are also an important source
of funds for the Bank. During the nine months ended
December 31, 1995, deposits increased $1.9 million while
Federal Home Loan Bank advances increased $1.8 million. At
December 31, 1995, Security Federal had $78.3 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 December 31, 1995, were sufficient to
meet outstanding mortgage loan commitments of $14,400 and
unused lines of credit of $26.9 million at that time.
Management believes 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
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 impact on the
financial condition of results of operation of the Bank.
In October 1994, the FASB issued SFAS 119, "Disclosure about
Derivative financial Instruments and Fair Value of Financial
Instruments." The Statement requires disclosures about
amount, nature, and terms of derivative financial
instruments. The statement amend 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 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, this Statement is not expected to have a
material impact on the Bank.
12
<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 $88,962 or 26.7% and
$314,258 or 35.9% for the three months and nine months ended
December 31, 1995, compared to the same periods in 1994.
The decreases are attributable to decreases in net interest
income and other income offset partially by a decrease in
general and administrative expenses.
Net Interest Income
Net interest income decreased by $235,975 or 11.4% for the
three months and $423,000 or 7.3% for the nine months ended
December 31, 1995, compared to the same periods last year
primarily due to increases in interest paid on certificates
of deposit and Federal Home Loan Bank (FHLB) advances,
offset in part by an increase in interest earned on loans
receivable.
Total interest income increased $201,528 or 5.3% and $1.2
million or 11.1% for the three and nine months ended
December 31, 1995, compared to the same periods in 1994.
Interest income on loans increased $256,696 or 8.0% and $1.4
million or 15.6% during the three and nine month periods due
to higher yields and a larger average loan portfolio.
Interest income on investments decreased $42,691 or 7.6% and
$154,448 or 8.9% due to some adjustable rate securities
adjusting downward in rate and a lower average balance
outstanding in securities during the periods.
For the three and nine month periods, total interest expense
increased $437,503 or 24.9% and $1.6 million or 33.1% over
1994. Interest on NOW, Money Market and regular savings
accounts decreased $23,483 for the three months and $15,257
for the nine months ended December 31, 1995. Interest
expense on certificates of deposit increased by $393,477 or
39.4% and $1,139,431 or 40.2% in 1995 compared to the three
and nine month periods in 1994 due to increased rates paid
on renewing and new certificates and larger outstanding
average balances in certificates during the periods.
Interest expense on FHLB advances increased by $67,509 or
16.6% and $480,674 or 54.1% due to an increase in average
advances outstanding and interest rates paid on advances
during the three and nine months ended December 31, 1995.
Provision for Loan Losses
Security Federal's provision for loan losses decreased
$45,000 for the three months ended December 31, 1995 to
$30,000. The provision decreased by $45,000 to $180,000 for
the nine months ended December 31, 1995 compared to the same
period in 1994. During the nine months ended December 31,
1995, the Bank had net charge-offs of $82,660 compared to
$61,316 one year ago. The Bank stops accruing interest on
any loan that is 60 or more days delinquent. Loans
delinquent 60 or more days at December 31, 1995
13
<PAGE>
Security Federal Corporation and Subsidiary
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Provision for Loan Losses (continued)
were 1.0% of loans outstanding compared to .55% at March 31,
1995. The allowance for loan losses as a percentage of
total loans outstanding was 1.33% at December 31, 1995,
compared to 1.30% at March 31, 1995. The Aiken area's
largest employer, the Savannah River Site, has begun
reducing its work force which has let 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 $22,268 or 7.3% and $209,143 or
18.8% for the three and nine months ended December 31, 1995,
compared to the same periods last year primarily due to a
decrease in the income from real estate operations and for
the nine month period only, a decrease in the gain on sale
of loans.
The Bank's gain on sale of loans increased $10,149 or 36.8%
during the three months ended December 31, 1995 compared to
the same quarter in 1994. Gain on sale of loans for the
nine months ended December 31, 1995 decreased by $112,844 or
57.7% compared to 1994 due to a decreased volume in fixed
rate loan originations in 1995. Service fees on deposit
accounts increased $20,552 or 14.5% for the three months and
decreased by $2,326 or 0.6% for the nine months ended
December 31, 1995 compared to the same time frames in 1994.
Income from real estate operation decreased $61,456 and
$53,556 for the three and nine months ended December 31,
1995 compared to the 1994 periods respectively. The
decrease is primarily caused by an increase of $45,000 in
the valuation allowance for real estate acquired for
development. Other income, which encompasses commissions on
credit life insurance, safe deposit box rental income, and
miscellaneous fees, increased by $12,574 or 25.8% for the
three months but decreased $32,648 or 18.7% for the nine
months ended December 31, 1995 compared to the periods ended
December 31, 1994.
General and Administrative Expenses
For the three months ended December 31, 1995, compared to
the same period in 1994, general and administrative expenses
decreased $111,747 or 6.1%. The reduction was caused by an
$80,593 or 8.9% decrease in compensation and benefits
expense, an $8,237 or 8.3% decrease in occupancy expense, a
$7,253 or 4.4% reduction in depreciation and maintenance of
equipment, a $23,937 or 21.2% reduction in FDIC premiums,
and a $30,986 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 $39,259 in advertising expense to promote new checking
account products.
For the nine months ended December 31, 1995, compared to the
same period a year ago, general and administrative expenses
decreased $94,256 or 1.8%. The decrease was due to
decreases of $98,607 or 3.7% in compensation and benefits
expense, a $29,631 or 9.7% reduction in occupancy, a
reduction in depreciation and maintenance of equipment of
$21,291 or 4.2%, and a decrease of $14,397 or 4.6% in FDIC
premiums, offset in part by increases of $50,771 in
advertising expense and $18,899 in other miscellaneous
expenses.
Amortization of intangibles expense arising from the October
1993 branch acquisitions from NationsBank of South Carolina,
NA were $116,310 for the quarter and $348,930 for nine
months ended December 31 in both 1994 and 1995. The balance
of goodwill stood at $1.8 million and the core deposit
intangible at $1.2 million at December 31, 1995.
14
<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
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
None
15
<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
16
<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 DECEMBER 31,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 8,931,202
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,732,670
<INVESTMENTS-CARRYING> 11,136,971
<INVESTMENTS-MARKET> 0
<LOANS> 152,262,325
<ALLOWANCE> 0
<TOTAL-ASSETS> 215,975,934
<DEPOSITS> 168,184,817
<SHORT-TERM> 21,726,000
<LIABILITIES-OTHER> 4,273,371
<LONG-TERM> 6,064,000
<COMMON> 4,132
0
0
<OTHER-SE> 14,964,802
<TOTAL-LIABILITIES-AND-EQUITY> 215,975,934
<INTEREST-LOAN> 10,098,787
<INTEREST-INVEST> 1,667,396
<INTEREST-OTHER> 64,174
<INTEREST-TOTAL> 11,830,357
<INTEREST-DEPOSIT> 5,088,390
<INTEREST-EXPENSE> 1,369,048
<INTEREST-INCOME-NET> 5,372,919
<LOAN-LOSSES> 180,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,271,869
<INCOME-PRETAX> 823,715
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 561,540
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 1,524,000
<LOANS-PAST> 594,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,955,119
<CHARGE-OFFS> 95,821
<RECOVERIES> 13,161
<ALLOWANCE-CLOSE> 2,052,459
<ALLOWANCE-DOMESTIC> 2,052,459
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
