SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10 - QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
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
South Carolina 57-0858504
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification)
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: $0.01 PAR VALUE:
------------ ---------------------- ----------------
Common Stock September 30, 2000 836,336
<PAGE>
INDEX
==============================================================================
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE
NO.
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statement of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis Results of Operations
and Financial Condition 11
==============================================================================
PART II. OTHER INFORMATION
Other Information 16
Signatures 18
==============================================================================
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 consolidated financial statements and related
notes.
i
<PAGE>
Security Federal Corporation and Subsidiaries
Consolidated Balance Sheets
September 30, 2000 March 31, 2000
------------------ -----------------
Assets: (Unaudited) (Audited)
Cash and Cash Equivalents $ 7,336,942 $ 7,416,702
Investment And Mortgage-Backed
Securities:
Available For Sale: (Amortized cost
of $85,568,768 at September 30, 2000
and $91,446,235 at March 31, 2000) 83,771,505 88,820,651
Held To Maturity: (Fair value of
$2,564,484 at September 30, 2000
and $2,634,400 at March 31, 2000) 2,607,031 2,710,103
------------------ -----------------
Total Investment and Mortgage-Backed
Securities 86,378,536 91,530,754
------------------ -----------------
Loans Receivable Net:
Held For Sale 1,515,367 1,295,676
Held For Investment: (Net of
allowance of $2,307,377 at
September 30, 2000 and
$2,120,767 at March 31, 2000) 216,274,501 191,704,890
------------------ -----------------
Total Loans Receivable Net $ 217,789,868 $ 193,000,566
------------------ -----------------
Accrued Interest Receivable:
Loans 1,135,213 963,219
Mortgage-Backed Securities 196,519 204,003
Investments 701,924 761,428
Premises And Equipment, Net 4,501,590 4,284,693
Federal Home Loan Bank Stock, At Cost 3,240,900 2,605,600
Real Estate Acquired In Settlement Of Loans 284,603 332,000
Real Estate Held For Development And Sale 254,679 535,878
Other Assets 2,620,094 3,167,115
------------------ -----------------
Total Assets $ 324,440,868 $ 304,801,958
================== =================
Liabilities And Shareholders' Equity
Liabilities:
Deposit Accounts $ 233,403,133 $ 228,823,331
Advances From Federal Home Loan Bank 62,838,000 50,611,000
Other Borrowed Money 3,294,346 2,210,500
Advance Payments By Borrowers For
Taxes and Insurance 668,292 373,660
Other Liabilities 3,124,318 3,024,766
------------------ -----------------
Total Liabilities $ 303,328,089 $ 285,043,257
------------------ -----------------
Shareholders' Equity:
Serial Preferred Stock, $.01 Par
Value; Authorized Shares -
200,000; Issued And Outstanding
Shares - None
Common Stock, $.01 Par Value;
Authorized Shares - 5,000,000;
Issued And Outstanding Shares -
836,336 At September 30, 2000
And 838,524 At March 31, 2000 $ 8,421 $ 8,421
Additional Paid-In Capital 3,993,733 3,993,733
Indirect Guarantee of Employee Stock
Ownership Trust Debt (307,405) (186,803)
Accumulated Other Comprehensive Loss (1,115,020) (1,629,150)
Retained Earnings, Substantially
Restricted 18,533,050 17,572,500
------------------ -----------------
Total Shareholders' Equity $ 21,112,779 $ 19,758,701
------------------ -----------------
Total Liabilities And Shareholders'
Equity $ 324,440,868 $ 304,801,958
================== =================
See accompanying notes to consolidated financial statements.
1
<PAGE>
Security Federal Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended September 30,
-------------------------------------
2000 1999
------------------ ----------------
Interest Income:
Loans $ 4,524,913 $ 3,369,395
Mortgage-Backed Securities 582,417 455,674
Investment Securities 844,771 913,608
Other 19,458 13,180
------------------ ----------------
Total Interest Income 5,971,559 4,751,857
------------------ ----------------
Interest Expense:
NOW And Money Market Accounts 630,056 706,813
Passbook Accounts 79,841 82,463
Certificate Accounts 1,697,815 1,309,665
Advances And Other Borrowed Money 1,026,973 370,348
------------------ ----------------
Total Interest Expense 3,434,685 2,469,289
------------------ ----------------
Net Interest Income 2,536,874 2,282,568
Provision For Loan Losses 150,000 150,000
Net Interest Income After Provision ------------------ ----------------
For Loan Losses 2,386,874 2,132,568
Other Income: ------------------ ----------------
Net Gain On Sale Of Investments - 3,022
Gain On Sale Of Loans 91,390 71,432
Loan Servicing Fees 69,487 72,052
Service Fees On Deposit Accounts 252,879 266,160
Income From Real Estate Operations 29,330 69,856
Other 156,750 155,641
------------------ ----------------
Total Other Income 599,836 638,163
------------------ ----------------
General And Administrative Expenses:
Salaries And Employee Benefits 1,148,799 1,076,096
Occupancy 168,649 131,758
Advertising 37,869 35,646
Depreciation And Maintenance Of
Equipment 253,034 233,049
FDIC Insurance Premiums 11,636 22,442
Amortization Of Intangibles 116,310 116,310
Other 428,478 375,440
------------------ ----------------
Total General And Administrative
Expenses 2,164,775 1,990,741
------------------ ----------------
Income Before Income Taxes 821,935 779,990
Provision For Income Taxes 303,022 270,969
------------------ ----------------
Net Income $ 518,913 $ 509,021
================== ================
Basic Net Income Per Common Share $ 0.62 $ 0.61
================== ================
Diluted Net Income Per Common Share $ 0.61 $ 0.60
================== ================
Cash Dividend Per Share On Common Stock $ 0.04 $ 0.04
================== ================
Basic Weighted Average Shares
Outstanding 836,859 838,524
================== ================
Diluted Weighted Average Shares
Outstanding 848,536 846,103
================== ================
See accompanying notes to consolidated financial statements.
2
<PAGE>
Security Federal Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
Six Months Ended September 30,
-------------------------------------
2000 1999
------------------ ----------------
Interest Income:
Loans $ 8,685,245 $ 6,588,770
Mortgage-Backed Securities 1,167,477 938,473
Investment Securities 1,713,930 1,751,267
Other 36,760 38,746
------------------ ----------------
Total Interest Income 11,603,412 9,317,256
------------------ ----------------
Interest Expense:
NOW And Money Market Accounts 1,303,702 1,402,534
Passbook Accounts 161,668 160,038
Certificate Accounts 3,197,142 2,611,672
Advances And Other Borrowed Money 1,903,886 629,208
------------------ ----------------
Total Interest Expense 6,566,398 4,803,452
------------------ ----------------
Net Interest Income 5,037,014 4,513,804
Provision For Loan Losses 325,000 300,000
------------------ ----------------
Net Interest Income After Provision
For Loan Losses 4,712,014 4,213,804
------------------ ----------------
Other Income:
Net Gain On Sale Of Investments - 3,022
Gain On Sale Of Loans 142,307 184,936
Loan Servicing Fees 137,162 145,068
Service Fees On Deposit Accounts 513,049 504,606
Income From Real Estate Operations 60,989 104,699
Other 335,089 263,889
------------------ ----------------
Total Other Income 1,188,596 1,206,220
------------------ ----------------
General And Administrative Expenses:
Salaries And Employee Benefits 2,283,579 2,103,398
Occupancy 302,579 257,098
Advertising 97,926 68,106
Depreciation And Maintenance Of
Equipment 495,074 442,799
FDIC Insurance Premiums 23,156 43,613
Amortization Of Intangibles 232,620 232,620
Other 834,285 771,430
------------------ ----------------
Total General And Administrative
Expenses $ 4,269,219 $ 3,919,064
------------------ ----------------
Income Before Income Taxes 1,631,391 1,500,960
Provision For Income Taxes 603,472 516,598
------------------ ----------------
Net Income $ 1,027,919 $ 984,362
================== ================
Basic Net Income Per Common Share $ 1.23 $ 1.17
================== ================
Diluted Net Income Per Common Share $ 1.21 $ 1.16
================== ================
Cash Dividend Per Share On Common
Stock $ 0.08 $ 0.08
================== ================
Basic Weighted Average Shares
Outstanding 837,553 840,322
================== ================
Diluted Weighted Average Shares
Outstanding 848,536 846,103
================== ================
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
Security Federal Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity (Unaudited)
Accumu-
lated
Other
Indirect Compre-
Additional Guarantee hensive
Common Paid-In of Income Retained
Stock Capital ESOP Debt (Loss) Earnings Total
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance At
March 31, 1999 $ 8,421 $3,993,733 $ - $ (127,738) $ 15,686,026 $ 19,560,442
Net Income - - - - 984,362 984,362
Other Comprehensive
Income, Net Of Tax:
Unrealized Holding
Losses On Securities
Available For Sale - - - (984,374) - (984,374)
------------
Comprehensive Loss (12)
Increase in Indirect
Guarantee of ESOP
Debt - - (180,000) - - (180,000)
Cash Dividends - - - - (67,370) (67,370)
Balance at -------- ---------- ---------- ----------- ------------ ------------
September 30, 1999 $ 8,421 $3,993,733 $ (180,000) $(1,112,112) $ 16,603,018 $ 19,313,060
======== ========== ========== =========== ============ ============
Beginning Balance At
March 31, 2000 $ 8,421 $3,993,733 $ (186,803) $(1,629,150) $ 17,572,500 $ 19,758,701
Net Income - - - - 1,027,919 1,027,919
Other Comprehensive
Income, Net Of Tax:
Unrealized Holding
Gains On Securities
Available For Sale - - - 514,130 - 514,130
------------
Comprehensive Income 1,542,049
Increase in Indirect
Guarantee of ESOP
Debt - - (120,602) - - (120,602)
Cash Dividends (67,369) (67,369)
Balance at -------- ---------- ---------- ----------- ------------ ------------
September 30, 2000 $ 8,421 $3,993,733 $ (307,405) $(1,115,020) $ 18,533,050 $ 21,112,779
======== ========== ========== =========== ============ ============
See accompanying notes to consolidated financial statements.
4
</TABLE>
<PAGE>
Security Federal Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended September 30,
-------------------------------------
2000 1999
------------------ ----------------
Cash Flows From Operating Activities:
Net Income $ 1,027,919 $ 984,362
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating
Activities:
Depreciation Expense $ 431,994 $ 384,068
Amortization Of Intangibles 232,620 232,620
Discount Accretion And Premium
Amortization 15,276 25,628
Provisions For Losses On Loans And
Real Estate 325,000 300,000
Gain On Sale Of Securities Available
For Sale - (3,022)
Gain On Sale Of Loans (142,307) (184,936)
Gain On Sale Of Real Estate (93,387) (104,699)
Amortization Of Deferred Fees On Loans (71,241) (18,236)
Proceeds From Sale Of Loans Held For
Sale 7,030,954 10,716,676
Origination Of Loans For Sale (7,108,338) (9,499,123)
(Increase) Decrease In Accrued
Interest Receivable:
Loans (171,994) (194,649)
Mortgage-Backed Securities 7,484 (42,612)
Investments 59,504 (57,332)
Increase In Advance Payments By
Borrowers 294,632 243,060
Loss On Disposition Of Premises
And Equipment 195 6,738
Other, Net (20,838) 299,794
------------------ ----------------
Net Cash Provided By Operating
Activities $ 1,817,473 $ 3,088,337
------------------ ----------------
Cash Flows From Investing Activities:
Principal Repayments On Mortgage-
Backed Securities Held To Maturity $ 103,082 $ 542,172
Principal Repayments On Mortgage-
Backed Securities Available For Sale 3,191,144 3,784,081
Purchase Of Investment Securities
Available For Sale - (9,953,938)
Purchase Of Mortgage-Backed Securities
Available For Sale (943,380) (11,130,040)
Maturities Of Investment Securities
Available For Sale 3,614,416 7,121,971
Maturities Of Investment Securities
Held To Maturity - 71,115
Proceeds From Sale of Securities
Available For Sale - 1,502,422
Purchase Of FHLB Stock (635,300) (1,483,500)
Redemption Of FHLB Stock - 1,267,800
Increase In Loans To Customers (25,124,573) (19,498,858)
Investment In Real Estate Held For
Development (330,162) (380,727)
Proceeds From Sale Of Real Estate
Held For Development 672,350 568,420
Proceeds From Sale Of Real Estate
Acquired Through Foreclosure 380,998 21,000
Purchase And Improvement Of Premises
And Equipment (649,086) (232,671)
Proceeds From Sale Of Premises
And Equipment - 9,975
------------------ ----------------
Net Cash Used By Investing Activities $ (19,720,511) $ (27,790,778)
------------------ ----------------
Cash Flows From Financing Activities:
Increase In Deposit Accounts $ 4,579,802 $ 6,848,656
Proceeds From FHLB Advances 59,445,000 77,750,000
Repayment Of FHLB Advances (47,218,000) (60,818,000)
Proceeds Of Other Borrowings 1,083,846 674,194
Repayment Of Other Borrowings - (34,765)
Dividends To Shareholders (67,370) (67,370)
------------------ ----------------
Net Cash Provided By Financing
Activities $ 17,823,278 $ 24,352,715
------------------ ----------------
(Continued)
5
<PAGE>
Security Federal Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended September 30,
-------------------------------------
2000 1999
------------------ ----------------
Net Decrease In Cash And Cash
Equivalents $ (79,760) $ (349,726)
Cash And Cash Equivalents At Beginning
Of Period 7,416,702 6,951,347
------------------ ----------------
Cash And Cash Equivalents At End Of
Period $ 7,336,942 $ 6,601,621
================== ================
Supplemental Disclosure Of Cash Flows
Information:
Cash Paid During The Period For
Interest $ 4,681,138 $ 4,655,810
Cash Paid During The Period For
Income Taxes $ 833,183 $ 641,350
Additions To Real Estate Acquired
Through Foreclosure $ 301,203 $ 21,000
(Increase) Decrease In Unrealized
Net Loss On Securities Available
For Sale, Net Of Taxes $ 514,130 $ (984,374)
See accompanying notes to consolidated financial statements.
6
<PAGE>
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions from Form 10-QSB and generally accepted
accounting principles; therefore, they do not include all disclosures
necessary for a complete presentation of financial condition, results of
operations, and cash flows. Such statements are unaudited but, in the opinion
of Management, reflect all adjustments, all of which are of a normal recurring
nature and 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
Shareholders when reviewing interim financial statements. The results of
operations for the three and six-month periods ended September 30, 2000 are
not necessarily indicative of the results that may be expected for the entire
fiscal year. This Form 10-QSB contains certain forward-looking statements
with respect to the financial condition, results of operations, and business.
These forward-looking statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially from those
anticipated by such forward-looking statements include, but are not limited
to, changes in interest rates, changes in the regulatory environment, changes
in general economic conditions and inflation, changes in the securities
market. Management cautions readers of Form 10-QSB not to place undue
reliance on forward-looking statements contained herein.
2. Principles of Consolidation
The accompanying unaudited consolidated financial statements include the
accounts of Security Federal Corporation (the "Company") and its wholly owned
subsidiary, Security Federal Bank (the "Bank"), and the Bank's wholly owned
subsidiary Security Financial Services Corporation ("SFSC"). The Bank is
primarily engaged in the business of accepting savings and demand deposits and
originating mortgage loans and other loans to individuals and small businesses
for various personal and commercial purposes. SFSC engages primarily in
investment brokerage services. Also included in the consolidation is a real
estate partnership.
3. Loans Receivable, Net
Loans Receivable, Net, at September 30, 2000 and March 31, 2000 consisted of
the following: Loans held for sale were $1,515,367 and $1,295,676 at September
30, 2000 and March 31, 2000, respectively.
Loans Held For Investment: September 30, 2000 March 31, 2000
------------------- -------------------
Residential Real Estate $ 118,123,285 $ 98,151,348
Consumer 43,706,162 41,719,221
Commercial Business & Real Estate 69,665,939 62,062,134
------------------- -------------------
$ 231,495,386 $ 201,932,703
------------------- -------------------
Less:
Allowance For Possible Loan Loss $ 2,307,377 $ 2,120,767
Loans In Process 12,600,851 7,832,280
Deferred Loan Fees 312,657 274,766
------------------- -------------------
$ 15,220,885 $ 10,227,813
------------------- -------------------
$ 216,274,501 $ 191,704,890
=================== ===================
The following is a reconciliation of the allowance for loan losses for the six
months ending:
September 30, 2000 September 30, 1999
------------------- -------------------
Beginning Balance $ 2,120,767 $ 1,715,068
Provision 325,000 300,000
Charge-offs (159,659) (127,547)
Recoveries 21,269 16,114
------------------- -------------------
Ending Balance $ 2,307,377 $ 1,903,635
=================== ===================
7
<PAGE>
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited), Continued
4. Securities
Investment and Mortgage-Backed Securities, Held to Maturity
-----------------------------------------------------------
The amortized cost, gross unrealized gains, gross unrealized losses, and fair
values of investment and mortgage-backed securities held to maturity are as
follows:
Gross Gross
September 30, 2000 Amortized Unrealized Unrealized
------------------ Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
US Government and
Agency Obligations $ 265,707 $ 595 $ - $ 266,302
Mortgage-Backed Securities 2,341,324 2,112 45,254 2,298,182
---------- ---------- ---------- ----------
Total $2,607,031 $ 2,707 $ 45,254 $2,564,484
========== ========== ========== ==========
March 31, 2000
--------------
US Government and
Agency Obligations $ 265,707 $ 3,034 $ - $ 268,741
Mortgage-Backed Securities 2,444,396 2,966 81,703 2,365,659
---------- ---------- ---------- ----------
Total $2,710,103 $ 6,000 $ 81,703 $2,634,400
========== ========== ========== ==========
Investment And Mortgage-Backed Securities, Available For Sale
-------------------------------------------------------------
The amortized cost, gross unrealized gains, gross unrealized losses, and fair
values of investment and mortgage-backed securities available for sale are as
follows:
Gross Gross
September 30, 2000 Amortized Unrealized Unrealized
------------------ Cost Gains Losses Fair Value
----------- ---------- ---------- -----------
US Government and
Agency Obligations $52,184,782 $ - $1,161,435 $51,023,347
Mortgage-Backed Securities 33,383,986 2,661 638,489 32,748,158
----------- ---------- ---------- -----------
Total $85,568,768 $ 2,661 $1,799,924 $83,771,505
=========== ========== ========== ===========
March 31, 2000
--------------
US Government
and Agency Obligations $55,783,474 $ 1,017 $1,618,734 $54,165,757
Mortgage-Backed
Securities 35,662,761 1,293 1,009,160 34,654,894
----------- ---------- ---------- -----------
Total $91,446,235 $ 2,310 $2,627,894 $88,820,651
=========== ========== ========== ===========
8
<PAGE>
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited), Continued
5. Deposit Accounts
A summary of deposit accounts by type with weighted average rates is as
follows:
September 30, 2000 March 31, 2000
------------------------ ------------------------
Demand Accounts: Balance Rate Balance Rate
------------- --------- ------------- --------
Checking $ 58,921,225 0.76% $ 58,304,679 0.89%
Money Market 45,411,580 5.07% 51,636,465 4.60%
Regular Savings 12,492,119 2.50% 13,203,395 2.50%
------------- -------------
Total Demand Accounts $ 116,824,924 2.62% $ 123,144,539 2.62%
============= =============
Certificate Accounts:
0 - 4.99% $ 4,295,830 $ 15,575,152
5.00 - 6.99% 103,489,098 90,103,640
7.00 - 8.99% 8,793,281 -
------------- -------------
Total Certificate
Accounts $ 116,578,209 6.07% $ 105,678,792 5.41%
============= =============
Total Deposit Accounts $ 233,403,133 4.34% $ 228,823,331 3.90%
============= =============
6. Advances From Federal Home Loan Bank
Federal Home Loan Bank Advances are summarized by year of maturity and
weighted average interest rate in the table below:
September 30, 2000 March 31, 2000
------------------------ ------------------------
Fiscal Year Due: Balance Rate Balance Rate
------------- --------- ------------- --------
2001 $ 52,676,000 6.77% $ 35,431,000 5.88%
2002 5,000,000 5.71% 5,000,000 5.71%
2003 - 0% 5,000,000 6.36%
2004 - 0% - 0%
Thereafter 5,162,000 6.60% 5,180,000 6.60%
------------- --------- ------------- --------
Total Advances $ 62,838,000 6.67% $ 50,611,000 5.99%
============= =============
7. Regulatory Matters
The following table reconciles the Bank's Shareholders' equity to its various
regulatory capital positions:
September 30, 2000 March 31, 2000
(Dollars in Thousands)
----------------------------------------
Bank's Shareholders' Equity $ 20,952 $ 19,414
Unrealized Loss On Available For
Sale Of Securities, Net Of Tax 1,115 1,629
Reduction For Goodwill And
Other Intangibles (883) (1,116)
------------------ ----------------
Tangible Capital 21,184 19,927
Qualifying Core Deposits And
Intangible Assets 515 559
------------------ ----------------
Core Capital 21,699 20,486
Supplemental Capital 2,307 2,121
Assets Required To Be Deducted (171) (103)
================== ================
Risk-Based Capital $ 23,835 $ 22,504
================== ================
The following table compares the Bank's capital levels relative to the
applicable regulatory requirements at September 30, 2000.
(Dollars in Thousands)
-------------------------------------------------------
Amt. % Actual Actual Excess Excess
Required Required Amt. % Amt. %
-------------------------------------------------------
Tangible Capital $ 6,494 2.0% $21,184 6.52% $14,690 4.52%
Tier 1 Leverage
(Core) Capital 13,009 4.0% 21,699 6.67% 8,690 2.67%
Total Risk-Based
Capital 16,034 8.0% 23,835 11.89% 7,801 3.89%
Tier 1 Risk-Based
(Core) Capital 8,017 4.0% 21,699 10.83% 13,682 6.83%
9
<PAGE>
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited), Continued
7. Regulatory Matters, Continued
The Company's regulatory capital amounts and ratios at September 30, 2000 are
as follows:
To Be
Well Capitalized
For Under Prompt
(Dollars in Thousands) Capital Adequacy Corrective Action
Actual Purposes Provisions
-------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------
Tier I Risk-Based
Core Capital $21,699 10.8% $ 8,017 4.0% $12,025 6.0%
Risk-Based Capital
(To Risk Weighted
Assets) 23,835 11.9% 16,034 8.0% 20,042 10.0%
Core Capital (To
Adjusted Tangible
Assets) 21,699 6.7% 13,009 4.0% 16,261 5.0%
Tangible Capital
(To Tangible
Assets) 21,184 6.5% 6,494 2.0% 16,236 5.0%
10
<PAGE>
Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Changes in Financial Condition
Total assets of the Company increased $19.6 million during the six months
ended September 30, 2000, due primarily to an increase of $24.8 million or
12.8% in total net loans receivable offset partially by a $5.2 million or 5.6%
decrease in total investment securities.
Residential real estate loans, net of loans in process, increased $15.2
million or 16.8% during the period while other loans increased $9.6 million or
9.2%.
Real estate acquired in settlement of loans (REO) decreased $47,000 while real
estate held for development and sale decreased $281,000 during the six-month
period due to sales of lots in Willow Woods.
Deposits increased $4.6 million or 2.0% during the six months ended September
30, 2000 and advances from Federal Home Loan Bank (FHLB) grew $12.2 million to
fund the Company's 6.4% growth in assets.
The Board of Directors declared the 38th and 39th consecutive quarterly
dividend of $.04 per share in May and August 2000, which totaled $67,000. The
employee stock ownership trust of the Company borrowed $121,000 to purchase
stock for the plan during the six-month period. Unrealized losses on
securities available for sale decreased $514,000 during the six months ended
September 30, 2000 due to the recent decrease in U.S. Treasury and agency bond
yields. Net income for the six months was $1.0 million for the Company.
These items combined to increase shareholders' equity by $1.4 million or 6.9%
during the six months ended September 30, 2000. Book value per share was
$25.24 at September 30, 2000 compared to $23.56 at March 31, 2000.
Liquidity and Capital Resources
In accordance with Office of Thrift Supervision (OTS) regulations, the Company
is required to maintain a liquidity ratio at specified levels that are subject
to change. Currently, a minimum of 4.0% of the combined total of deposits and
certain borrowings must be maintained in the form of cash or eligible
investments. The Company's average liquidity during the six months ended
September 30, 2000 was approximately 25%. The Company's current liquidity
level is deemed adequate to meet the requirements of normal operations,
potential deposit outflows, and loan demand while still allowing for optimal
investment of funds and return on assets.
Loan repayments and maturities of investments are a significant source of
funds, whereas loan disbursements are a primary use of the Company's funds.
During the six months ended September 30, 2000, loan disbursements exceeded
loan repayments resulting in a $24.8 million or 12.8% increase in total net
loans receivable.
Deposits and other borrowings are also an important source of funds for the
Company. During the six months ended September 30, 2000, deposits increased
$4.6 million while FHLB advances increased $12.2 million. At September 30,
2000, the Bank had $77.0 million of certificates of deposit maturing within
one year. Based on previous experience, the Bank anticipates a major portion
of these certificates will be renewed.
Liquidity resources at September 30, 2000 are sufficient to meet outstanding
mortgage loan commitments of $713,000 and unused lines of credit of $24.3
million. Management believes that the Company's liquidity needs will continue
to be supported by the Company's deposit base and borrowing capacity.
11
<PAGE>
Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Accounting and Reporting Changes.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) 133, Accounting for Derivative
Instrument and Hedging Activities. All derivatives are to be measured at fair
value and recognized in the balance sheet as assets or liabilities. Statement
of Financial Accounting Standard (SFAS) 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities was issued in June 2000 and amends
the accounting and reporting standards of SFAS No. 133 for certain derivative
instruments and hedging activities. The two statements are to be adopted
concurrently and are effective for fiscal years and quarters beginning after
June 15, 2000. The Company does not expect that the adoption of SFAS No. 133
and SFAS No. 138 will have a material impact on the presentation of the
Company's financial results or financial position.
Other accounting standards that have been issued or proposed by the Financial
Accounting Standards Board that do not require adoption until a future date
are not expected to have a material impact on the consolidated financial
statements upon adoption.
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 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 inflation.
12
<PAGE>
Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of Operations
and Financial Condition
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
-------------------------------------------------------------------
Net Income
Net income was $519,000 for the three months ended September 30, 2000,
representing an increase in earnings of $10,000 or 1.9% compared to the same
period in 1999.
Net Interest Income
Net interest income increased $254,000 or 11.1% during the three months ended
September 30, 2000 due to an increase in total interest income offset in part
by an increase in interest expense.
Interest income on loans increased $1.2 million or 34.3% during the period as
a result of total net loans significantly increasing in the portfolio.
Investment, mortgage-backed, and other securities interest income increased
$64,000 or 4.6% due to an increase in the average yield in the investment
portfolio of 19 basis points. Total interest income rose $1.2 million or
25.7% compared to the same period in 1999.
Total interest expense increased $965,000 or 39.1% during the three months
ended September 30, 2000 compared to the same period one-year earlier.
Interest expense on deposits increased $309,000 or 14.7% during the period as
the average balance and the average cost of deposits increased during the
quarter ended September 30, 2000. Interest expense on advances and other
borrowings increased $657,000 as the average amount of debt outstanding
increased and the cost of those borrowings increased during the 2000 period
compared to same period in 1999.
Provision for Loan Losses
The Bank's provision for loan losses was $150,000 during both the three months
ended September 30, 2000 and 1999. The amount of the provision is determined
by Management's on-going monthly analysis of the loan portfolio. Non-accrual
loans, which are loans delinquent 90 days or more, were $233,000 at September
30, 2000 compared to $890,000 at March 31, 2000. The ratio of allowance for
loan losses to the Company's total loans was 1.06% at September 30, 2000
compared to 1.09% at March 31, 2000.
13
<PAGE>
Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of Operations
and Financial Condition
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000, Continued
------------------------------------------------------------------------------
Other Income
Total other income decreased $38,000 or 6.0% during the three months ended
September 30, 2000 compared to the same period one-year earlier. Gain on sale
of loans increased $20,000 during the period. Loan servicing fees decreased
$3,000 as the portfolio of loans serviced for others decreased. Service fees
on deposit accounts decreased $13,000. Income from real estate operations
related to the Willow Woods partnership decreased $41,000 during the period.
Other miscellaneous income including credit life insurance commissions, net
gain on sale of repossessed assets, safe deposit rental income, annuity and
stock brokerage commissions through SFSC, and other miscellaneous fees
increased $1,000 during the three months ended September 30, 2000.
General and Administrative Expenses
General and administrative expenses increased $174,000 or 8.7% during the
three months ended September 30, 2000 compared to the same period in 1999.
Salaries and employee benefits expense grew $73,000 or 6.8% due to an increase
in staff in customer service positions to handle increased business and due to
normal annual salary increases. Occupancy expense increased $37,000 or 28.0%
during the period as a result of a new lease on the building that will house
the new West Columbia branch office. Advertising expense increased $2,000
while the depreciation and maintenance of equipment expense increased $20,000
during the quarterly period. FDIC insurance premiums decreased $11,000.
Amortization of intangibles expense was $116,000 during the three months ended
September 30 in fiscal 2000 and 1999. Other miscellaneous expense, consisting
of legal, professional, and consulting expenses, stationery and office
supplies, and other sundry expenses, increased $53,000 or 14.1% for the three
months ended September 30, 2000 compared to the three months ended September
30, 1999.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------
Net Income
Net income was $1.0 million for the six months ended September 30, 2000,
representing an increase in earnings of $44,000 or 4.4% compared to the same
period in 1999.
Net Interest Income
Net interest income increased $523,000 or 11.6% during the six months ended
September 30, 2000 as a result of an increase in total interest income offset
in part by an increase in interest expense.
Interest income on loans increased $2.1 million or 31.8% during the six months
in 2000 as a result of total net loans increasing during the period.
Investment, mortgage-backed, and other securities interest income increased
$192,000 or 7.1% due to an increase of 19 basis points in the average yield of
the investment portfolio. Total interest income increased $2.3 million or
24.5% during the six months compared to the same period in 1999.
Total interest expense increased $1.8 million or 36.7% during the six months
ended September 30, 2000 compared to the same period one-year earlier.
Interest expense on deposits increased $488,000 or 11.7% during the period as
deposits grew compared to the average balance in 1999 and the cost of deposits
also increased. Interest expense on advances and other borrowings increased
$1.3 million as the average amount of debt outstanding increased during the
2000 period compared to 1999.
14
<PAGE>
Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of Operations
and Financial Condition
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000, Continued
----------------------------------------------------------------------------
Provision for Loan Losses
The Bank's provision for loan losses was $325,000 during the six months ended
September 30, 2000 compared to $300,000 during the six months ended September
30, 1999. The amount of the provision is determined by Management's on-going
monthly analysis of the loan portfolio. Non-accrual loans, which are loans
delinquent 90 days or more, were $233,000 at September 30, 2000 compared to
$890,000 at March 31, 2000. The ratio of allowance for loan losses to the
Company's total loans was 1.06% at September 30, 2000 compared to 1.09% at
March 31, 2000. Net charge-offs were $138,000 during the six months ended
September 30, 2000 compared to $111,000 during the same period in 1999.
Other Income
Total other income decreased $18,000 or 1.5% during the six months ended
September 30, 2000 compared to the same period one-year earlier. Gain on sale
of loans decreased $43,000 as more mortgage loan customers chose an adjustable
rate loan as opposed to a fixed rate loan, which are generally sold.
Loan-servicing fees decreased $8,000 as the portfolio of loans serviced for
others decreased. Service fees on deposit accounts grew $8,000 as the number
of commercial and personal demand deposit accounts increased. Income from
real estate operations originating from the Willow Woods partnership decreased
$44,000 during the period. Other miscellaneous income including credit life
insurance commissions, net gain on sale of repossessed assets, safe deposit
rental income, annuity and stock brokerage commissions through SFSC, and other
miscellaneous fees increased $71,000 during the six months ended September 30,
2000.
General and Administrative Expenses
General and administrative expenses increased $350,000 or 8.9% during the six
months ended September 30, 2000 compared to the same period in 1999.
Salaries and employee benefits expense increased $180,000 or 8.6% as a result
of an increase in staff in customer service positions to handle increased
business and due to normal annual salary increases. Occupancy expense
increased by $45,000 or 17.7% during the period. Advertising expense
increased $30,000 while the depreciation and maintenance of equipment expense
increased $52,000 during the six-month period. FDIC insurance premiums
decreased $20,000. Amortization of intangibles expense was $233,000 during
the six months ended September 30 in fiscal 2000 and 1999, respectively.
Other miscellaneous expense, consisting of legal, professional, and consulting
expenses, stationery and office supplies, and other sundry expenses, increased
$63,000 or 8.2% for the six months ended September 30, 2000 compared to the
six months ended September 30, 1999.
15
<PAGE>
Security Federal Corporation and Subsidiaries
Other Information
Item 1 Legal Proceedings
-----------------
The Company is not engaged in any legal proceedings of a material
nature at the present time. From time to time, the Company 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 And Use Of Proceeds
-----------------------------------------
Not applicable.
Item 3 Defaults Upon Senior Securities
-------------------------------
None
Item 4 Submission Of Matters To A Vote Of Security Holders
---------------------------------------------------
The election of directors was presented for vote to shareholders at
the Annual Meeting on July 18, 2000. Votes for Timothy W. Simmons
were as follows: 659,281 votes for, 20,203 votes withheld. Votes
for T. Clifton Weeks were as follows: 659,281 votes for, 20,203
votes withheld.
Item 5 Other Information
-----------------
None
Item 6 Exhibits And Reports On Form 8-K
--------------------------------
Exhibits:
3.1 Articles Of Incorporation*
3.2 Articles Of Amendment, Dated August 28, 1998, To Articles Of
Incorporation
3.3 Bylaws**
10 Executive Compensation Plans And Arrangements:
Salary Continuation Agreements***
Amendment One To Salary Continuation Agreements****
Stock Option Plan***
Incentive Compensation Plan***
27 Financial Data Schedule
* Filed as an exhibit to the Company's June 23, 1998 proxy statement and
incorporated herein by reference.
** Filed as an exhibit to the Company's Form 8-K dated August 31, 1998 and
incorporated herein by reference.
*** Filed on June 28, 1993, as an exhibit to the Company's Annual Report on
Form 10-KSB pursuant to Section 12(g) of the Securities Exchange Act of
1934. All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-B.
**** Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1993 pursuant to Section 12(g) of the
Securities Exchange Act of 1934. All of such previously filed documents
are hereby incorporated herein by reference in accordance with Item 601
of Regulation S-B.
16
<PAGE>
Security Federal Corporation and Subsidiaries
Signatures
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SECURITY FEDERAL CORPORATION
Date: November 13, 2000 By: s/s Roy G. ,Lindburg
-----------------------------------
Roy G. Lindburg
Treasurer/CFO
Duly Authorized Representative
<PAGE>
