SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10-KSB/A
[X] AMENDED ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-16120
SECURITY FEDERAL CORPORATION
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 57-08580504
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1705 Whiskey Road South, Aiken, South Carolina 29803
- ---------------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (803) 641-3000
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
---------------------------------------
(Title of Class)
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
---- ----
Indicate by check mark whether disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B is not contained herein, and will not
be contained, to the best of the Registrant's knowledge, in definitive proxy
or other information statements incorporated by reference in Part III of this
Form 10-KSB or any amendments to this Form 10-KSB. [ ]
The registrant's revenues for the fiscal year ended March 31, 1996
were $17,290,356.
As of June 14, 1996, there were issued and outstanding 413,184 shares
of the registrant's Common Stock. The aggregate market value of the voting
stock held by non-affiliates of the registrant, computed by reference to the
average of the bid and asked price of such stock as of June 14, 1996, was $8.3
million. (The exclusion from such amount of the market value of the shares
owned by any person shall not be deemed an admission by the registrant that
such person is an affiliate of the registrant).
DOCUMENTS INCORPORATED BY REFERENCE
Part III of Form 10-KSB - Proxy Statement for 1996 Annual Meeting of
Shareholders.
Transitional Small Business Disclosure Format (check one) Yes No X
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Item 7. Financial Statements
--------------------
The audited financial statements of the Company and its subsidiary and
the independent auditor's report thereon are set forth on the following pages.
1
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Independent Auditors' Report
The Board of Directors
Security Federal Corporation:
We have audited the consolidated balance sheets of Security Federal
Corporation and Subsidiary (the "Company") as of March 31, 1996 and 1995 and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company at March 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the years in the three-year period ended March 31, 1996
in conformity with generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," on April 1, 1993 and adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" on March 31, 1994.
/s/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Greenville, South Carolina
May 9, 1996
2
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SECURITY FEDERAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 1996 and 1995
Assets 1996 1995
---- ----
Cash and cash equivalents $ 9,823,664 5,697,391
Investment and mortgage-backed securities:
Available for sale (amortized cost of
$31,170,866 and $4,013,080 in 1996
and 1995, respectively) 30,972,406 3,930,626
Held to maturity (market value of
$9,913,951, and $37,080,638 in 1996
and 1995, respectively) 10,040,724 38,596,245
------------ -----------
41,013,130 42,526,871
------------ -----------
Loans receivable, net:
Held for sale 612,919 776,631
Held for investment (net of allowance
of $1,758,688 and $1,955,119 in 1996
and 1995, respectively) 151,526,807 148,200,563
------------ -----------
152,139,726 148,977,194
------------ -----------
Accrued interest receivable:
Loans 882,274 755,265
Mortgage-backed securities 23,799 22,328
Investments 450,952 464,229
------------ -----------
1,357,025 1,241,822
------------ -----------
Premises and equipment, net 3,187,185 3,251,171
Federal Home Loan Bank stock, at cost 1,233,200 1,415,100
Real estate acquired in settlement of loans 718,763 1,531,251
Real estate held for development and sale 1,389,579 1,442,723
Other assets 3,953,859 3,865,211
------------ -----------
Total assets $214,816,131 209,948,734
============ ===========
Liabilities and Shareholders' Equity
Liabilities:
Deposits 172,374,727 166,274,637
Advances from Federal Home Loan Bank 22,864,000 26,033,000
Other borrowings 350,000 --
Advance payments by borrowers for taxes
and insurance 385,708 442,456
Other liabilities 3,407,478 2,709,171
------------ -----------
Total liabilities 199,381,913 195,459,264
------------ -----------
Commitments and contingencies
Shareholders' equity:
Serial preferred stock, $.01 par value;
authorized 200,000 shares; issued and
outstanding shares, none -- --
Common stock, $.01 par value; authorized
1,000,000 shares; issued and outstanding
shares, 413,184 in 1996 and 409,246
in 1995 4,132 4,092
Additional paid-in capital 3,919,262 3,879,922
Unrealized net loss on securities
available for sale, net of income taxes (123,125) (51,155)
Retained earnings, substantially
restricted 11,633,949 10,656,611
------------ -----------
Total shareholders' equity 15,434,218 14,489,470
------------ -----------
Total liabilities and shareholders'
equity $214,816,131 209,948,734
============ ===========
See accompanying notes to consolidated financial statements.
3
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SECURITY FEDERAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
For the years ended March 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Interest income:
Loans $ 13,494,840 11,903,824 9,237,564
Mortgage-backed securities 109,998 134,901 265,534
Investment securities 2,123,667 2,276,122 1,289,521
Other 93,789 87,295 197,173
------------ ---------- ----------
Total interest income 15,822,294 14,402,142 10,989,792
------------ ---------- ----------
Interest expense:
NOW and money market 976,423 1,141,084 931,426
Passbook 347,937 398,600 277,841
Certificates of deposit 5,529,003 3,957,123 3,395,896
Advances and other borrowed money 1,769,178 1,326,248 521,107
------------ ---------- ----------
Total interest expense 8,622,541 6,823,055 5,126,270
------------ ---------- ----------
Net interest income 7,199,753 7,579,087 5,863,522
Provision for loan losses (230,000) (300,000) (335,000)
------------ ---------- ----------
Net interest income after
provision for loan losses 6,969,753 7,279,087 5,528,522
------------ ---------- ----------
Other income:
Gain (loss) on sales of
investment securities -- (2,504) 61,775
Gain on sales of loans 124,677 161,922 625,960
Loan servicing fees 312,653 318,695 290,850
Service fees on deposits 584,420 509,181 384,913
Income from real estate operations 34,068 168,795 123,941
Other 412,244 156,254 311,943
------------ ---------- ----------
Total other income 1,468,062 1,312,343 1,799,382
------------ ---------- ----------
General and administrative expenses:
Compensation and employee benefits 3,181,844 3,446,231 3,079,072
Occupancy 368,731 373,519 379,209
Advertising 197,575 130,748 154,820
Depreciation and maintenance
of equipment 651,676 705,787 723,944
Amortization of intangibles 465,240 465,240 302,158
Federal insurance premiums 387,722 419,040 232,397
Other 1,586,756 1,548,982 1,651,505
------------ ---------- ----------
Total general and adminis-
trative expenses 6,839,544 7,089,547 6,523,105
------------ ---------- ----------
Income before income taxes and
cumulative effect of change in
accounting for income taxes 1,598,271 1,501,883 804,799
Income taxes 538,697 499,729 265,906
------------ ---------- ----------
Income before cumulative effect
of change in accounting for
income taxes 1,059,574 1,002,154 538,893
Cumulative effect of change in
accounting for income taxes -- -- 30,000
------------ ---------- ----------
Net income $ 1,059,574 1,002,154 568,893
============ ========== ==========
Net income per common share:
Before cumulative effect of
change in accounting for
income taxes $ 2.58 2.48 1.36
Cumulative effect of change in
accounting for income taxes -- -- .08
------------ ---------- ----------
Net income per common share $ 2.58 2.48 1.44
============ ========== ==========
Cash dividend per common share $ .20 .20 .20
============ ========== ==========
Weighted average shares
outstanding 410,937 404,750 393,772
============ ========== ==========
See accompanying notes to consolidated financial statements.
4
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SECURITY FEDERAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
For the years ended March 31, 1996, 1995 and 1994
Indirect
Guarantee of Unrealized
Employee Net Loss
Additional Stock on Securities
Common Paid-in Ownership Available Retained
Stock Capital Trust Debt for Sale Earnings Total
----- ---------- ---------- ---------- -------- -----
Balance at
March 31,
1993 $3,938 3,685,436 (15,779) -- 9,245,198 12,918,793
Principal
repayment
of ESOP
note -- -- 15,779 -- -- 15,779
Net income -- -- -- -- 568,893 568,893
Cash dividend -- -- -- -- (78,754) (78,754)
Unrealized net
loss on
securities
available for
sale, net of
tax -- -- -- (44,116) -- (44,116)
----- --------- ------- -------- ---------- ----------
Balance at
March
31, 1994 3,938 3,685,436 -- (44,116) 9,735,337 13,380,595
Exercise of
stock
options 154 194,486 -- -- -- 194,640
Net income -- -- -- -- 1,002,154 1,002,154
Cash dividend -- -- -- -- (80,880) (80,880)
Change in un-
realized net
loss on
securities
available for
sale, net of
tax -- -- -- (7,039) -- (7,039)
----- --------- ------- -------- ---------- ----------
Balance at
March
31, 1995 4,092 3,879,922 -- (51,155) 10,656,611 14,489,470
Exercise of
stock options 40 39,340 -- -- -- 39,380
Net income -- -- -- -- 1,059,574 1,059,574
Cash dividend -- -- -- -- (82,236) (82,236)
Change in unreal-
ized net loss
on securities
available for
sale, net of
tax -- -- -- (71,970) -- (71,970)
----- --------- ------- -------- ---------- ----------
Balance at
March 31,
1996 $4,132 3,919,262 -- (123,125) 11,633,949 15,434,218
====== ========= ======= ======== ========== ==========
See accompanying notes to consolidated financial statements.
5
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SECURITY FEDERAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the years ended March 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $ 1,059,574 1,002,154 568,893
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Depreciation 596,677 588,825 526,764
Amortization of purchase
accounting adjustments 465,240 465,240 224,290
Discount accretion and
premium amortization 210,445 235,467 (93,265)
Provisions for losses on loans and
real estate 175,000 300,000 395,000
Gain on sale of loans (124,677) (161,922) (625,960)
Gain on sale of mortgage-
backed securities -- -- (158,433)
(Gain) loss on sale of investments -- (2,504) 96,658
(Gain) loss on sale of real estate (180,030) (155,342) (299,211)
FHLB stock dividends -- -- (43,300)
Amortization of deferred fees
on loans (115,867) 110,274 (498,631)
Loss on disposition of premises
and equipment -- 5,452 89,859
Proceeds from sale of loans held
for sale 12,527,406 16,219,422 64,776,520
Origination of loans for sale (12,239,017) (12,979,526) (61,604,678)
(Increase) decrease in accrued
interest receivable:
Loans (127,009) 459,596 (67,744)
Mortgage-backed securities (1,471) (3,453) 117,449
Investments 13,277 70,180 (461,745)
Increase (decrease) in advance
payments by borrowers (56,748) 87,610 14,312
Other, net (419,255) (1,152,180) 3,137,425
----------- ----------- -----------
Net cash provided (used) by
operating activities 1,783,545 5,089,296 6,294,203
----------- ----------- -----------
Cash flows from investing activities:
Increase in cash from branch
acquisitions -- -- 39,117,870
Principal repayments on mortgage-
backed securities 221,819 561,015 2,265,351
Purchase of investment securities (3,034,529) (500,000) (69,878,442)
Proceeds from sales of investment
securities -- 1,500,000 7,406,875
Proceeds from sale of mortgage-backed
securities -- -- 2,997,318
Proceeds from maturities of investment
securities 4,000,000 7,205,155 21,508,342
Purchase of FHLB stock (389,600) (1,053,900) --
Redemption of FHLB stock 571,500 750,000 --
(Increase) decrease in loans to
customers (3,544,427) (27,779,097) (6,164,053)
Investment in real estate held
for development (262,968) (355,155) (242,744)
Proceeds from sale of real estate
held for development 350,180 625,674 464,035
Proceeds from sale of real estate
acquired through foreclosure 1,725,210 804,714 385,717
Increase (decrease) in interest-
bearing deposits with banks -- 95,000 --
Proceeds from sales of premises
and equipment -- 2,522 --
----------- ----------- -----------
Net cash provided (used) by
investing activities (895,506) (18,396,427) (3,847,670)
----------- ----------- -----------
(Continued)
6
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SECURITY FEDERAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the years ended March 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Cash flows from financing
activities:
Increase (decrease) in deposit
accounts $ 6,100,090 (7,158,055) (2,984,047)
Proceeds from FHLB advances 100,904,000 153,775,000 17,000,000
Repayment of FHLB advances (104,073,000) (136,358,000) (15,186,000)
Proceeds from other borrowings 350,000 -- --
Dividends to shareholders (82,236) (80,880) (78,754)
Proceeds from exercise of
stock options 39,380 194,640 --
----------- ----------- -----------
Net cash provided (used) by
financing activities 3,238,234 10,372,705 (1,248,801)
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents 4,126,273 (2,934,426) 1,197,732
Cash and cash equivalents at
beginning of period 5,697,391 8,631,817 7,434,085
----------- ----------- -----------
Cash and cash equivalents at
end of period $ 9,823,664 5,697,391 8,631,817
============ =========== ===========
Supplemental disclosure of
cash flow information:
Cash paid during the period for:
Interest $ 8,402,928 5,398,792 4,559,022
Income taxes $ 424,000 545,242 881,240
Supplemental schedule of non
cash transactions:
Additions to real estate acquired
through foreclosure, net $ 711,760 661,650 1,255,720
Transfer of securities held
to maturity to available
for sale $ 27,867,170 -- 9,543,589
Change in unrealized net
loss on securities
available for sale $ 71,970 7,039 44,116
See accompanying notes to consolidated financial statements.
7
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Notes to Consolidated Financial Statements
(1) Significant Accounting Policies
-------------------------------
The following is a description of the more significant accounting and
reporting policies used in the preparation and presentation of the
accompanying consolidated financial statements. All significant
intercompany transactions have been eliminated in consolidation.
(a) Basis of Consolidation
----------------------
The accompanying consolidated financial statements include the
accounts of Security Federal Corporation (the "Company") and its wholly owned
subsidiary, Security Federal Bank (the "Bank") and its wholly subsidiary,
Security Financial Services Corporation ("SFSC"). SFSC consists primarily of
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.
(b) Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash equivalents
include cash and due from banks, interest-bearing balances in other banks, and
federal funds sold. Cash equivalents have maturities of three months or less.
(c) Investment and Mortgage-Backed Securities
-----------------------------------------
In May 1993 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 115 (Statement 115), "Accounting
for Certain Investments in Debt and Equity Securities". Under Statement 115
investment securities, including mortgage-backed securities, are classified into
one of three categories, held to maturity, available for sale or trading.
Management determines the appropriate classification of debt securities at the
time of purchase.
Investment securities are classified as held to maturity when the
Company has the positive intent and ability to hold the securities to maturity.
These securities are recorded at cost, adjusted for amortization of premiums and
accretion of discounts over the estimated life of the security using a method
that approximates a level yield. Prepayment assumptions on mortgage-backed
securities are anticipated.
Management classifies investment securities not considered as held
to maturity as available for sale, which are stated at fair value, with
unrealized gains and losses, net of tax, reported in a separate component of
shareholders' equity. Gains and losses from sales of investments and
mortgage-backed securities available for sale are determined using the specific
identification method. The Company has no trading securities. As permitted by
Statement 115, the Company initially adopted the statement as of March 31, 1994,
the effect of which was to decrease shareholders' equity by $44,116.
In November 1995, the FASB issued a guide to implementation of SFAS
No. 115 on accounting for certain investments in debt and equity securities
which allows for the one-time transfer of certain investments classified as held
to maturity to available for sale. The Bank transferred $27.9 million of
investments to available for sale.
At March 31, 1995, the Bank maintained liquid assets in excess of
the amount required by regulations. The required amount is 5% of the average
daily balances of deposits and short-term borrowings. Liquid assets consist
primarily of cash, including time deposits and investment securities with
remaining maturities of less than five years.
8
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(1) Significant Accounting Policies, Continued
------------------------------------------
(d) Allowance for Loan Losses
-------------------------
The Company provides for loan losses on the allowance method.
Accordingly, all loan losses are charged to the related allowance and all
recoveries are credited to the allowance for loan losses. Additions to the
allowance for loan losses are provided by charges to operations based on various
factors which, in management's judgment deserve current recognition in
estimating possible losses. Such factors considered by management include the
market value of the underlying collateral, stated guarantees by the borrower if
applicable, the borrower's ability to repay from other economic resources,
growth and composition of the loan portfolios, the relationship of the allowance
for loan losses to outstanding loans, loss experience, delinquency trends, and
general economic conditions. Management evaluates the carrying value of the
loans periodically and the allowance is adjusted accordingly. While management
uses the best information available to make evaluations, future adjustment to
the allowance may be necessary if economic conditions differ substantially from
the assumptions used in making the evaluations. Allowances 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.
On April 1, 1995, the Bank adopted the provisions of SFAS No. 114
Accounting by Creditors for Impairment of a Loan, and SFAS No. 118 Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures. SFAS
No. 114 requires creditors to evaluate loans for impairment and value those
loans for which it is probable that the creditor will be unable to collect all
amounts due according to the terms of the loan agreement at the present value of
expected cash flows, market price of the loan, if available, or value of the
underlying collateral. Expected cash flows are required to be discounted at the
loan's effective interest rate. SFAS No. 118 amends SFAS No. 114 to allow a
creditor to use existing methods for recognizing interest income on an impaired
loan, and requires disclosure of income recognition methods used. The adoption
of this standard required no increase to the allowance for loan losses and had
no impact on net income for fiscal year 1996.
(e) Loans Held for Sale
-------------------
Loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are provided for in a valuation allowance by charges to
operations.
(f) Real Estate Acquired in Settlement of Loans
-------------------------------------------
Real estate acquired in settlement of loans represents real estate
acquired through foreclosure and is initially recorded at the lower of cost
(principal balance of the former mortgage loan less any specific valuation
allowances) or estimated fair value less costs to sell. Subsequent improvements
are capitalized. Costs of holding real estate, such as property taxes,
insurance, general maintenance and interest expense, are expensed as a period
cost. Fair values are reviewed regularly and allowances for possible losses are
established when the carrying value of the real estate owned exceeds the fair
value less estimated costs to sell. Fair values are generally determined by
reference to an outside appraisal.
(g) Real Estate Held for Development and Sale
-----------------------------------------
Real estate purchased for development and sale and investments in
real estate partnerships are stated at the lower of cost or estimated net
realizable value. Costs directly related to such real estate are capitalized
until construction required to bring these properties to a saleable condition is
completed. Capitalized costs include direct costs incurred during the
improvement period.
9
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(1) Significant Accounting Policies, Continued
------------------------------------------
Gains on the sale of real estate purchased for development and sale are
recorded at the time of sale provided certain criteria relating to property
type, cash down payment, loan terms, and other factors are met. If these
criteria are not met at the date of sale, the gain is deferred and recognized
using the installment or cost recovery method until they are satisfied, at which
time the remaining deferred gain is recorded as income.
Market values of real estate purchased for development and sale are
reviewed regularly and allowances for losses are established when the carrying
value exceeds the estimated net realizable value. In determining the estimated
net realizable value, the Company deducts from the estimated selling price the
projected cost to complete and dispose of the property and the estimated cost to
hold the property to an expected date of sale.
(h) Premises and Equipment
----------------------
Premises and equipment are carried at cost, net of accumulated
depreciation. Depreciation of premises and equipment is provided principally on
a straight-line method over the estimated useful life of the related asset.
Estimated lives are seven to thirty years for buildings and improvements and
generally five to ten years for furniture, fixtures and equipment.
(i) Income Taxes
------------
The Bank adopted SFAS No. 109 "Accounting for Income Taxes effective
April 1, 1993." Under SFAS No. 109 deferred tax expense or benefit is recognized
for the net change during the year in the deferred tax liability or asset. That
amount together with income taxes currently payable is the total amount of
income tax expense or benefit for the year. Upon adoption of SFAS No. 109 the
Bank realized an addition to net income of $30,000. Deferred taxes are provided
for differences in financial reporting bases for assets and liabilities as
compared with their tax bases. Basically, a current tax liability or asset is
established for taxes presently payable or refundable and a deferred tax liabil-
ity or asset is established for future tax items. A valuation allowance, if
applicable, is established for deferred tax assets that may not be realized.
Tax bad debt reserves in excess of the base year amount (established as taxable
years ending March 31, 1988 or later), would create a deferred tax liability.
Deferred income taxes are provided for differences between the provision for
loan losses for financial statement purposes and those allowed for income tax
purposes.
Effective April 1, 1993, the Company adopted Statement 109 and has
reported the cumulative effect of that change in the method of accounting for
income taxes in the 1994 consolidated statement of income.
(j) Loan Fees and Costs Associated with Originating Loans
-----------------------------------------------------
The net of loan fees received and direct incremental costs of
originating loans are deferred and amortized over the contractual life of the
related loan. The net fees are recognized as yield adjustments by applying the
interest method. Prepayments are not anticipated.
10
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(1) Significant Accounting Policies, Continued
------------------------------------------
(k) Intangible Assets
-----------------
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line basis over the
expected periods to be benefited. The Company assesses the recoverability of
this intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through projected undiscounted
future results. The amount of goodwill impairment, if any, is measured based on
projected discounted future results using a discount rate reflecting the
Company's average cost of funds.
Deposit based premiums, representing the cost of acquiring deposits
from other financial institutions, are being amortized by charges to operations
over the expected periods to be benefited. The effective amortization period
for intangible assets is approximately 10 years.
(l) Interest Income
---------------
Interest on loans is accrued and credited to income monthly based on
the principal balance outstanding and the contractual rate on the loan. The
Company places loans on non-accrual status when they become greater than sixty
days delinquent or when in the opinion of management, full collection of
principal or interest is unlikely. The Company provides an allowance for
uncollectible accrued interest on loans which are sixty days delinquent for all
interest accrued prior to the loan being placed on non-accrual status. The loans
are returned to an accrual status when full collection of principal and interest
appears likely.
(m) Fair Value of Financial Instruments
-----------------------------------
SFAS No. 107 "Disclosures about Fair Value of Financial Instruments"
requires disclosure in the financial statements regarding the fair value of on
and off-balance sheet financial instruments for which it is practicable to do
so. Fair values are based on quoted market prices where available and on esti-
mates of present value or other valuation techniques. These estimates are made
at a specific point in time and are subjective in nature involving uncertainties
and significant judgment. In addition, SFAS No. 107 excludes all non-financial
instruments and certain financial instruments from its disclosure requirements.
Accordingly, the aggregate fair values presented do not represent the underlying
fair value of the Bank.
Fair values for consolidated financial statement reporting purposes
are estimated for loans with similar financial characteristics. These loans are
segregated by type of loan, considering credit risk, interest rate and pre-
payment characteristics. Each loan category is further segmented into fixed and
adjustable rate categories.
The fair value of performing loans is calculated by discounting
scheduled cash flows through estimated maturity dates. Expected cash flows are
discounted using the Bank's current rates that reflect the credit and interest
rate risks inherent in each category of loans. A prepayment assumption is used
as an estimate of the portion of loans that will be repaid prior to their
scheduled maturity.
(n) Earnings Per Share
------------------
Net income per share is computed by dividing consolidated net income
by the weighted average number of shares of common stock equivalents outstanding
during the period. Common share equivalents include, if applicable, dilutive
stock option share equivalents determined by using the treasury stock method.
11
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(o) Reclassifications
-----------------
Certain amounts in prior years' consolidated financial statements
have been reclassified to conform with current year classifications.
(2) Branch 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,
N.A. (the "branches"). In connection with the purchase, the Bank paid a deposit
premium of approximately $4.4 million. The Company accounted for the acquisition
under the purchase method of accounting. The application of the purchase method
of accounting resulted in the adjustment of the assets and liabilities acquired
based upon their fair market values on the date of acquisition. The Company's
consolidated statements of income include the operating results of the acquired
branches after October 21, 1993.
The assets acquired and liabilities assumed (after purchase accounting
adjustments) of the branches at the acquisition date are summarized as follows:
Assets acquired:
Loans receivable, net $ 15,969,139
Building and equipment 916,155
Premium on deposits and goodwill 3,926,792
Other assets 1,203,799
------------
Total assets $ 22,015,885
============
Liabilities assumed:
Deposit accounts 61,123,824
Other liabilities 9,931
------------
Total liabilities 61,133,755
------------
Cash received $ 39,117,870
============
At March 31, 1996, the Bank's remaining balances in goodwill and core
deposit intangible were $1,693,074 and $1,119,641, respectively.
12
<PAGE>
<PAGE>
(3) Investment 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:
March 31, 1996
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
FNMA securities $ 1,006,250 7,030 2,016 1,011,264
FHLB securities 5,492,366 -- 138,422 5,353,944
FHLMC bond 1,000,000 -- 10,900 989,100
Mortgage-backed
securities 2,542,108 32,651 15,116 2,559,643
----------- ------ ------- ---------
$10,040,724 39,681 166,454 9,913,951
=========== ====== ======= =========
March 31, 1995
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury
obligations $27,867,170 -- 992,492 26,874,678
FNMA securities 2,017,770 -- 77,676 1,940,094
FHLB securities 5,500,700 -- 376,029 5,124,671
FFCB securities 500,000 -- 650 499,350
FHLMC bond 1,000,000 -- 69,560 930,440
Mortgage-backed
securities 1,710,605 18,979 18,179 1,711,405
----------- ------ --------- ----------
$38,596,245 18,979 1,534,586 37,080,638
=========== ====== ========= ==========
The amortized cost and market value of investments securities held to
maturity at March 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers have the
right to prepay obligations with or without call or prepayment penalties.
Amortized Fair
Cost Value
---- -----
In one year or less $ 506,250 504,234
After one year through five years 6,992,366 6,850,074
------------ ---------
Mortgage-backed securities 2,542,108 2,559,643
------------ ---------
$ 10,040,724 9,913,951
============ =========
At March 31, 1996 investment securities of $4,852,500 were pledged as
collateral for certain deposit accounts and Federal Home Loan Bank of Atlanta
borrowings.
13
<PAGE>
<PAGE>
(4) Investment and Mortgage-Backed Securities, Available for Sale
-------------------------------------------------------------
The amortized cost, gross unrealized gains, gross unrealized losses and
market value of investment and mortgage-backed securities available for sale are
as follows:
March 31, 1996
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury
notes $31,170,866 1,782 200,242 30,972,406
=========== ===== ======= ==========
March 31, 1995
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury
notes $ 4,013,080 -- 82,454 3,930,626
=========== ===== ======= ==========
The amortized cost and market value of investment securities available for
sale at March 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers have the
right to prepay obligations with or without call or prepayment penalties.
Amortized Fair
Cost Value
---- -----
In one year or less $ 23,617,943 23,537,490
After one year through five years 7,552,923 7,434,916
------------ ----------
$ 31,170,866 30,972,406
============ ==========
14
<PAGE>
<PAGE>
(4) Investment and Mortgage-Backed Securities, Available for Sale,
Continued
--------------------------------------------------------------
Proceeds from the sales of investment and mortgage-backed securities
during the years ended March 31, 1996, 1995 and 1994, as well as the gross gains
and losses realized are summarized as follows:
1996 1995 1994
---- ---- ----
Investments:
Proceeds from sales $ -- 1,498,085 7,406,875
========= ========= =========
Gross gains $ -- 1,523 --
========= ========= =========
Gross losses $ -- 4,027 96,658
========= ========= =========
Mortgage-backed securities:
Proceeds from sales $ -- -- 2,997,318
========= ========= =========
Gross gains $ -- -- 158,433
========= ========= =========
Gross losses $ -- -- --
========= ========= =========
(5) Loans Receivable, Net
---------------------
Loans receivable, net at March 31, consisted of the following:
1996 1995
---- ----
Residential real estate $ 59,951,018 66,226,289
Consumer 44,810,133 44,089,104
Commercial real estate 10,629,652 13,007,516
Commercial business 38,764,035 29,718,456
Loans held for sale 612,919 776,631
------------ -----------
154,767,757 153,817,996
------------ -----------
Less:
Allowance for loan losses 1,758,688 1,955,119
Loans in process 474,575 2,419,433
Deferred loan fees 394,768 466,250
------------ -----------
2,628,031 4,840,802
------------ -----------
$152,139,726 148,977,194
============ ===========
15
<PAGE>
<PAGE>
(5) Loans Receivable, Net, Continued
--------------------------------
Changes in the allowance for loan losses for the years ended March 31,
are summarized as follows:
1996 1995 1994
---- ---- ----
Balance at beginning of year $ 1,955,119 1,735,073 1,190,793
Provision for loan losses 230,000 300,000 335,000
Allowance on acquired loans -- -- 324,479
Charge-offs (471,938) (105,073) (124,689)
Recoveries 45,507 25,119 9,490
----------- --------- ---------
Balance at end of year $ 1,758,688 1,955,119 1,735,073
=========== ========= =========
The following table sets forth the amount of the Company's non-accrual
loans and the status of the related interest income at March 31:
1996 1995
---- ----
Non-accrual loans $ 2,572,000 812,000
Interest income which would have
been recognized under original terms 82,670 55,308
Interest income actually recognized 54,200 10,303
Loans serviced for others at March 31, 1996, 1995, and 1994, were
$93,309,923, $97,636,672, and $100,284,182 respectively.
At March 31, 1996, impaired loans amounted to $2,572,000. These loans are
well secured and no loss is estimated at this time. For the year ended March 31,
1996, the average recorded investment in impaired loans was $1,879,000 and
$54,200 of interest income was recognized on loans while they were impaired.
All of this income was recognized using the accrual method of accounting.
The Bank originates residential and commercial real estate loans
throughout its primary market area located in the south and central regions of
South Carolina. Although this region has a diverse economy, much of the area is
dependent on the nearby Savannah River Site. Employment at the Savannah River
Site is expected to decline in the future. The future impact on the local
economy and real estate market could affect the financial status of the Bank's
customers. The degree of impact will be affected by the timing and terms
associated with the Savannah River Site employment reduction, growth of other
sectors of the local economy, etc. 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.
16
<PAGE>
<PAGE>
(6) Premises and Equipment, Net
---------------------------
Premises and equipment, net at March 31, are summarized as follows:
1996 1995
---- ----
Land $ 440,323 371,313
Buildings and improvement 2,998,995 2,711,637
Furniture and equipment 2,936,904 3,337,682
6,376,222 6,420,632
Less accumulated depreciation (3,189,037) (3,169,461)
----------- ----------
$ 3,187,185 3,251,171
=========== ==========
Depreciation expense for the years ended March 31, 1996, 1995, and 1994,
was $596,677, $588,825, and $526,764, respectively.
The Bank has entered into noncancelable operating leases related to
buildings and land. At March 31, 1996, future minimum payments under
noncancelable operating leases with initial or remaining terms of one year or
more are as follows (by fiscal year):
1997 $ 62,980
1998 61,390
1999 48,777
2000 30,165
2001 26,138
Thereafter 6,500
----------
$ 235,950
==========
Total rental expense amounted to $53,778, $65,127 and $57,081 for the
years ended March 31, 1996, 1995 and 1994, respectively. Rental expense has been
reduced by sublease revenue of $4,349 in 1994. Five lease agreements with
monthly expenses of $1,978, $2,014, $500, $407 and $350 have renewal options of
10, 10, 60, 20 and 10 years, respectively.
(7) FHLB Stock
----------
Investment in the stock of the Federal Home Loan Bank is required by law
for every Federally insured savings institution. No ready market exists for this
stock and it has no quoted market value. However, because redemption of this
stock has been at par it is carried at cost.
The Bank, as a member of the FHLB of Atlanta, is required to acquire and
hold shares of capital stock in the FHLB of Atlanta in an amount equal to the
greater of (i) 1.0% of the aggregate outstanding principal amount of residential
mortgage loans, home purchase contracts and similar obligations at the beginning
of each year, or (ii) 1/20 of its advances (borrowings) from the FHLB of
Atlanta. The Bank is in compliance with this requirement with an investment in
FHLB of Atlanta stock of $1,233,200 as of March 31, 1996.
17
<PAGE>
<PAGE>
(8) Real Estate Operations
----------------------
The Company participates in two real estate joint ventures. The Company
owns 50 percent (in 1994 SFSC sold 10 percent of its interest in the operations
but retained the controlling interest) and 62.5 percent of the joint ventures
which have been consolidated into the Company's financial statements. Income
from real estate operations was as follows:
1996 1995 1994
---- ---- ----
Real estate acquired for
development and sale:
Sales $ 350,180 625,674 1,280,480
Cost of sales (296,508) (460,299) (1,105,515)
---------- --------- -----------
Gross profit 53,672 165,375 174,965
Amortization (deferral)
of gain on sale of
real estate 25,396 3,420 8,976
Provision for real
estate losses (45,000) -- (60,000)
---------- --------- -----------
Income from real estate
operations 34,068 168,795 123,941
Other expenses, net 38,535 115,236 37,590
---------- --------- -----------
Net income $ (4,467) 53,559 86,351
========== ========= ===========
The following is a summary of the allowance for estimated losses on real
estate:
1996 1995 1994
---- ---- ----
Balance at beginning of year $150,000 150,000 90,000
Provision for real estate
losses 45,000 -- 60,000
-------- ------- -------
Balance at end of year $195,000 150,000 150,000
======== ======= =======
Condensed combined financial information for the joint ventures as of
March 31 is as follows:
1996 1995
---- ----
Real estate held for development, net $ 1,389,579 1,442,723
Other assets 71,129 240,400
----------- ---------
Total assets 1,460,708 1,683,123
Liabilities (principally a loan
payable to the Bank 277,339 479,394
----------- ---------
Partners equity $ 1,183,369 1,203,729
=========== =========
18
<PAGE>
<PAGE>
(9) Deposits
--------
Deposits outstanding by type of account at March 31 are summarized as
follows:
1996 1995
--------------------------- -------------------------
Weighted Weighted
Amount Rate Range Amount Rate Range
------ ---- ----- ------ ---- -----
Checking $42,251,949 1.35% 0 - 1.75% 41,211,492 1.40% 0 - 1.88%
Money Market 13,769,693 2.81% 2.75 - 3.00% 16,776,207 3.27 2.20 - 3.44
Passbook
accounts 13,615,436 2.50% 0 - 3.00% 14,491,809 2.61 0 - 2.62
----------- ---- ----------- ---------- ---- -----------
69,637,078 1.86% 0 - 3.00% 72,479,508 2.07% 0 - 3.44%
----------- ---- ----------- ---------- ---- -----------
Certificate
accounts:
0 - 4.99% 5,116,366 44,023,933
5.00 - 6.99% 97,046,823 48,182,486
7.00 - 8.99% 574,460 1,588,710
9.00 - 12.99% -- --
----------- ---- ----------- ---------- ---- -----------
Total
certificates
of deposit 102,737,649 5.65% 3.30 - 7.75% 93,795,129 5.17 3.45 - 8.10%
----------- ---- ----------- ---------- ---- -----------
$172,374,727 4.12% 0 - 7.75% 166,274,637 3.82% 0 - 8.10%
============ ==== =========== =========== ==== ===========
The aggregate amount of short-term certificates of deposit with a minimum
denomination of $100,000 was $9,846,903 and $13,704,756 at March 31, 1996 and
1995, respectively.
The amounts and scheduled maturities of certificates of deposit at March
31, are as follows:
1996 1995
---- ----
Within 1 year $ 83,523,749 65,839,088
After 1 but within 2 years 16,010,769 19,407,870
After 2 but within 3 years 1,659,385 6,548,849
After 3 but within 4 years 1,237,789 1,253,421
After 4 but within 5 years 305,957 745,901
Thereafter -- --
------------ ----------
$102,737,649 93,795,129
============ ==========
19
<PAGE>
<PAGE>
(10) Advances From Federal Home Loan Bank
------------------------------------
Advances from the Federal Home Loan Bank at March 31 are summarized by
year of maturity and weighted average interest rate below:
1996 1995
--------------------- ------------------------
Weighted Weighted
Amount Rate Amount Rate
------ ---- ------ ----
1996 $ - --% 19,969,000 6.40%
1997 17,214,000 5.94 414,000 8.45
1998 3,452,000 6.60 3,452,000 6.60
1999 490,000 8.65 490,000 8.65
2000 528,000 8.70 528,000 8.70
Thereafter 1,180,000 8.53 1,180,000 8.53
------------ ---- ---------- ----
$ 22,864,000 6.29% 26,033,000 6.65%
============ ==== ========== ====
Pursuant to collateral agreements with the FHLB, the Company has pledged
all of its stock in the FHLB and qualifying first mortgage loans as collateral
for these advances. Advances are subject to prepayment penalties.
(11) Income Taxes
------------
Income tax expense for the years ended March 31, is comprised of the
following:
1996 1995 1994
---- ---- ----
Current:
Federal $ 571,810 660,413 440,568
State -- -- 16,417
--------- ------- -------
571,810 660,413 456,985
--------- ------- -------
Deferred:
Federal (27,879) (122,537) (163,892)
State (5,234) (38,147) (27,187)
--------- ------- -------
(33,113) (160,684) (191,079)
--------- ------- -------
$ 538,697 499,729 265,906
========= ======= =======
20
<PAGE>
<PAGE>
(11) Income Taxes, Continued
-----------------------
The Company's income taxes differ from those computed at the statutory
federal income tax rate, as follows:
1996 1995 1994
---- ---- ----
Tax at statutory income tax rate $ 543,412 510,640 273,632
State income tax expense
(benefit),net (3,454) (25,177) (7,108)
Other (1,261) 14,266 (618)
--------- ------- -------
$ 538,697 499,729 265,906
========= ======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31 are
presented below.
1996 1995
---- ----
Deferred tax assets:
Provision for loan losses $ 500,572 474,150
Net fees deferred for
financial reporting 35,712 176,989
Unrealized loss on securities
available for sale 44,036 31,299
Other real estate basis for
tax purposes over
financial statement basis 74,022 56,940
Other 137,667 79,125
--------- -------
Total gross deferred tax assets 792,009 818,503
--------- -------
Deferred tax liabilities:
FHLB stock basis over tax basis 178,999 178,999
Depreciation 193,791 296,960
Other 44,811 13,986
--------- -------
Total gross deferred tax liability 417,601 489,945
--------- -------
Net deferred tax asset $ 374,408 328,558
========= =======
A portion of the change in the net deferred tax asset relates to
unrealized gains and losses on securities available for sale. The related
current period deferred tax benefit of $12,737 has been recorded directly to
shareholder's equity. The balance of the change in the net deferred tax asset
results from the current period deferred tax benefit of $33,113. The net
deferred tax asset is included in other assets in the accompanying consolidated
balance sheets.
No valuation allowance for deferred tax assets was required at April 1,
1995, and for the years ended March 31, 1995 and 1996. The realization of net
deferred tax assets may be based on utilization of carrybacks to prior taxable
periods, anticipation of future taxable income in certain periods, and the
utilization of tax planning strategies. Management has determined that it is
more likely than not that the net deferred tax asset can be supported based upon
these criteria.
21
<PAGE>
<PAGE>
(11) Income Taxes, Continued
-----------------------
Retained earnings at March 31, 1996 includes tax bad debt reserves of
approximately $2.2 million, for which no provision for federal income tax has
been made. If, in the future, these amounts are used for any purpose other than
to absorb bad debt losses, including dividends, stock redemptions, or
distributions in liquidation, or the Company ceases to be qualified as a savings
and loan, they may be subject to federal income tax at the then prevailing
corporate tax rate.
(12) Employee Benefit Plans
----------------------
The Company participates in a multi-employer defined benefit plan. The
plan provides defined benefits to substantially all full-time employees of the
Company with one or more years of service. Separate actuarial valuations are not
available for each participating employer, nor are plan assets segregated. There
were no contributions to the plan required for the years ended March 31, 1996,
1995 and 1994. Plan assets exceed the present value of accumulated plan benefits
at June 30, 1995, the latest actuarial valuation date.
The Company participates in a multiple employer defined contribution em-
ployee benefit plan covering substantially all employees with one or more years
of service. The Company matches a portion of employees contributions, and the
related expenses were $47,116, $96,905, and $77,666 for the years ended March
31, 1996, 1995 and 1994, respectively. The annual contribution is determined at
the discretion of the Company's Board of Directors.
The Company established an Employee Stock Ownership Plan ("ESOP") to
acquire shares of the Company's common stock for the exclusive benefit of the
employee participants. The ESOP borrowed $196,880 from a savings institution
and purchased 19,688 shares of the Company's common stock. These shares were
pledged as collateral for the ESOP debt which was paid in full in fiscal 1994.
For the years ended March 31, 1995, 1994 and 1993 the Company recorded expenses
related to the ESOP trust of $70,931, $51,291 and $68,472, respectively; of
these amounts $518 and $3,190, was for interest on the ESOP note in 1994 and
1993, respectively. During the years ended March 31, 1994 and 1993 the plan
repaid $15,779 and $91,138, respectively, of the note payable.
Since the plan currently has no unallocated stock, there was no
contribution for the year ended March 31, 1996.
22
<PAGE>
<PAGE>
(12) Employee Benefit Plans, Continued
---------------------------------
Certain officers of the Company participate in an incentive stock option
plan. Options are granted at exercise prices not less than the fair market value
of the Company's common stock on the date of grant. No new options were granted
during 1996. A total of 39,377 shares have been granted, exercisable over a
period from one to ten years from the date of grant at $10.00 per share. During
fiscal 1996, 3,938 options were exercised at $10.00 per share. There were 3,938
options granted but unexercisable at March 31,1996.
(13) Commitments
-----------
In conjunction with its lending activities, the Bank enters into various
commitments to extend credit and issue letters of credit. Loan commitments
(unfunded loans and unused lines of credit) and letters of credit are issued to
accommodate the financing needs of the Bank's customers. Loan commitments are
agreements by the Bank to lend at a future date, so long as there are no
violations of any conditions established in the agreement. Letters of credit
commit the Bank to make payments on behalf of customers when certain specified
events occur.
Financial instruments where the contract amount represents the Bank's
credit risk include commitments under pre-approved but unused lines of credit of
$16,700,000, and $23,129,798 and letters of credit of $129,000 and $124,000 at
March 31, 1996 and 1995, respectively.
These loan and letter of credit commitments are subject to the same credit
policies and reviews as loans on the balance sheet. Collateral, both the amount
and nature, is obtained based upon management's assessment of the credit risk.
Since many of the extensions of credit are expected to expire without being
drawn, the total commitment amounts do not necessarily represent future cash
requirements. In addition to these loan commitments noted above, the Bank had
unused credit card loan commitments of $885,000 and $963,497 at March 31, 1996
and 1995, respectively.
Outstanding commitments on mortgage loans not yet closed amounted to
$603,745 at March 31, 1996. Such commitments, which are funded subject to
certain limitations, extend over varying periods of time with the majority being
funded within 90 days. At March 31, 1996, the Bank had outstanding commitments
to sell approximately $613,000 of loans.
23
<PAGE>
<PAGE>
(14) Regulatory Matters
------------------
Federal regulations require savings institutions to have a minimum
regulatory tangible capital equal to 1.5% of adjusted total assets, a minimum
core capital ratio equal to 3.0% of adjusted total assets, and risk-based
capital equal to 8.0% of risk-weighted assets. As of March 31, 1996, the
Bank had regulatory tangible capital equal to 5.82% of total adjusted assets,
regulatory core capital equal to 6.32% of total adjusted assets, and risk-based
capital equal to 10.57% of risk-weighted assets. As a result, the Bank meets
all three of the aforementioned capital requirements. OTS regulations impose
various restrictions or requirements on institutions with respect to their
ability to pay dividends or make other distributions of capital.
(15) Related Party Transactions
--------------------------
At March 31, 1996, the total aggregate indebtedness to the Bank by
executive officers and directors of the Bank whose individual indebtedness
exceeded $60,000 at any time over the period since April 1, 1994 was $440,017.
There were no additions to loans to executive officers over $60,000 during
fiscal 1996. Repayments on these loans totaled approximately $11,600. Loans
to allemployees, officers and directors of the Bank, in the aggregate,
constituted approximately 8.2% of the total shareholders' equity of the Bank at
March 31, 1996.
The Company paid insurance premiums to an insurance agency in which three
directors of the Company are also officers, directors and shareholders. The
Company incurred expense in the amount of $79,208, and $90,877 for the years
ended March 31, 1995 and 1994, respectively, which represented insurance and
bond premiums for insurance coverage written for the Company. Of these amounts,
$8,062, and $10,874 were the actual commissions earned by the agency. Also, the
Bank paid $875, and $1,412 during these years to the agency out of escrow
accounts maintained for customers of the Bank. The Company paid approximately
$2,000 in premiums in fiscal 1996.
The Company rents office space from a company in which a director and an
officer of the Company and the Bank have an ownership interest. The Bank
incurred expenses of $23,625, $22,995 and $25,511 respectively, for rent and
taxes for the years ended March 31, 1996, 1995 and 1994.
Management is of the opinion that the transactions with respect to
insurance coverage and office rent are made on terms that are comparable to
those which would be made with unaffiliated persons.
24
<PAGE>
<PAGE>
(16) Security Federal Corporation Condensed Financial Statements (Parent
Company Only)
-------------------------------------------------------------------
The following is condensed financial information of Security Federal
Corporation (parent company only); the primary asset of which is its investment
in the bank subsidiary, and the principal source of income for the Company is
equity in undistributed earnings from the Bank.
Condensed Balance Sheet Data
March 31, 1996 and 1995
1996 1995
---- ----
Assets
Cash $ 71,795 490,147
Investment in Security Federal Bank 5,007,910 13,981,572
Investment in Real Estate Partnerships 567,726 --
Furniture and equipment, net 0 290
Income tax receivable from Bank 39,654 18,691
Other assets 97,133 --
----------- ----------
Total assets $15,784,218 14,490,700
=========== ==========
Liabilities and Shareholders' Equity
Loans Payable $ 350,000 --
Accounts payable -- 1,230
Shareholders' equity 15,434,218 14,489,470
----------- ----------
Total liabilities and
shareholders' equity $15,784,218 14,490,700
=========== ==========
Condensed Statements of Income Data
For the years ended March 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Income:
Equity in undistributed earnings
of Security Federal Bank $ 1,098,307 1,038,428 545,022
Equity in undistributed earnings
of Real Estate Partnerships 889 -- --
Dividend income -- -- 50,000
Miscellaneous income 927 10 2,595
----------- --------- -------
1,100,123 1,038,438 597,617
Expenses:
Miscellaneous 40,549 36,284 28,724
----------- --------- -------
Net income $ 1,059,574 1,002,154 568,893
=========== ========= =======
25
<PAGE>
<PAGE>
(16) Security Federal Corporation Condensed Financial Statements (Parent
Company Only) Continued
-------------------------------------------------------------------
Condensed Statements of Cash Flow Data
For the years ended March 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Operating activities:
Net income $ 1,059,574 1,002,154 568,893
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 290 348 348
Equity in undistributed earnings
of Security Federal Bank (1,098,307) (1,038,428) (545,022)
Equity in undistributed earnings
of real estate partnership (889) -- --
(Increase) decrease in income
taxes receivable and other
assets (118,096) (3,896) 1,408
Increase (decrease) in
accounts payable (1,230) (14,160) (9,394)
----------- --------- --------
Net cash provided by
operating activities (158,658) (53,982) 16,233
----------- --------- --------
Investing activities:
Purchase of Real Estate
Partnerships from Bank (561,000) -- --
Investment in Real Estate (5,838) -- --
----------- --------- --------
Net cash used in
investing activities (566,838) -- --
----------- --------- --------
Financing activities:
Proceeds of loan 350,000 -- --
Dividends paid (82,236) (80,880) (78,754)
Exercise of stock options 39,380 194,640 --
----------- --------- --------
Net cash used in
financing activities 307,144 113,760 (78,754)
----------- --------- --------
Net increase (decrease)
in cash and cash equivalents (418,352) 59,778 (62,521)
Cash and cash equivalents
at beginning of year 490,147 430,369 492,890
----------- --------- --------
Cash and cash equivalents
at end of year $ 71,795 490,147 430,369
=========== ========= ========
26
<PAGE>
<PAGE>
(17) Carrying Amounts and Fair Value of Financial Instruments
--------------------------------------------------------
The carrying amounts and fair value of financial instruments as of March
31, are summarized below:
(In Thousands)
1996
--------------------------
Carrying Estimated
Amount Fair Value
------ ----------
Financial Assets
Cash and cash equivalents $ 9,824 $ 9,824
Investment and mortgage
backed securities 41,013 40,886
Loans receivable, net 152,140 152,537
Federal Home Loan Bank Stock 1,233 1,233
Financial Liabilities
Deposits:
Checking, Savings, and MMDA
accounts $ 69,637 69,637
Certificate accounts 102,738 103,091
Advances from Federal Home
Loan Bank 22,864 21,082
Other borrowed money 350 350
The Bank had, at March 31, 1996 $18.2 million of off-balance sheet
financial commitments. These commitments are to originate loans and unused
consumer lines of credit and credit card lines. Since these obligations are
based on current market rates, if funded, the original principal is considered
to be a reasonable estimate of fair market value.
Fair value estimates are made at a specific point in time, based on
relevant market data and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale the Bank's entire holdings of a particular financial instrument. Be-
cause no active market exists for a significant portion of the Bank's financial
instruments fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, current interest rates
and prepayment trends, risk characteristics of various financial instruments,
and other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in any of these assumptions used in
calculating fair value would also significantly affect the estimates. Further,
the fair value estimates were calculated as of March 31, 1996.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For example, the Bank has significant assets and
liabilities that are not considered financial assets or liabilities including
deposit franchise value, loan servicing portfolio, deferred tax liabilities, and
premises and equipment. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in any of these estimates.
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(18) Contingencies
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The United States Congress is currently proposing a plan under which the
Bank Insurance Fund (BIF), hich 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.
In the normal course of business, the Company and subsidiary are
periodically involved in litigation. In the opinion of the Company's management
none of these cases should have a material adverse effect on the consolidated
financial statements.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this amended report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SECURITY FEDERAL CORPORATION
Date: April 24, 1997 By: /s/ Roy G. Lindburg
-------------------------------------
Roy G. Lindburg
Its:Treasurer and Chief Financial Officer
-------------------------------------
(Duly Authorized Representative)
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