SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 June 30, 2000 837,429
<PAGE>
INDEX
Security Federal Corporation and Subsidiaries
==============================================================================
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 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis Results of
Operations and Financial Condition 10
==============================================================================
PART II. OTHER INFORMATION
Other Information 13
Signatures 14
Exhibit 27
==============================================================================
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.
<PAGE>
Security Federal Corporation and Subsidiaries
Consolidated Balance Sheets
June 30, 2000 March 31, 2000
----------------- --------------
Assets: (Unaudited) (Audited)
Cash and Cash Equivalents $ 11,284,932 $ 7,416,702
Investment And Mortgage-Backed
Securities:
Available For Sale: (Amortized cost
of $88,857,586 at
June 30, 2000 and
$91,446,235 at
March 31, 2000) 86,227,968 88,820,651
Held To Maturity: (Fair value of
$2,585,091 at June
30, 2000 and
$2,634,400 at March
31, 2000) $ 2,655,616 $ 2,710,103
----------------- --------------
Total Investment And Mortgage-Backed
Securities 88,883,584 91,530,754
----------------- --------------
Loans Receivable Net:
Held For Sale 817,491 1,295,676
Held For Investment: (Net of allowance
of $2,190,913 at
June 30, 2000 and
$2,120,767 at
March 31, 2000) 202,276,456 191,704,890
----------------- --------------
Total Loans Receivable, Net $ 203,093,947 $ 193,000,566
----------------- --------------
Accrued Interest Receivable:
Loans 1,009,104 963,219
Mortgage-Backed Securities 209,697 204,003
Investments 639,574 761,428
Premises And Equipment, Net 4,425,904 4,284,693
Federal Home Loan Bank Stock, At Cost 3,019,700 2,605,600
Real Estate Acquired In Settlement
Of Loans 570,799 332,000
Real Estate Held For Development
And Sale 413,401 535,878
Other Assets 2,989,865 3,167,115
----------------- --------------
Total Assets $ 316,540,507 $ 304,801,958
================= ==============
Liabilities And Shareholders' Equity
Liabilities:
Deposit Accounts $ 229,955,708 $ 228,823,331
Advances From Federal Home Loan Bank 60,393,000 50,611,000
Other Borrowed Money 2,433,517 2,210,500
Advance Payments By Borrowers For
Taxes and Insurance 512,141 373,660
Other Liabilities 3,073,961 3,024,766
----------------- --------------
Total Liabilities $ 296,368,327 $ 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 - 837,429 At
June 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 (246,380) (186,803)
Accumulated Other Comprehensive Loss (1,631,416) (1,629,150)
Retained Earnings, Substantially
Restricted 18,047,822 17,572,500
----------------- --------------
Total Shareholders' Equity $ 20,172,180 $ 19,758,701
----------------- --------------
Total Liabilities And Shareholders'
Equity $ 316,540,507 $ 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 June 30, 2000
------------------------------------
2000 1999
----------------- --------------
Interest Income:
Loans $ 4,160,332 $ 3,219,375
Mortgage-Backed Securities 585,060 482,799
Investment Securities 869,159 837,659
Other 17,302 25,566
----------------- --------------
Total Interest Income $ 5,631,853 $ 4,565,399
----------------- --------------
Interest Expense:
NOW And Money Market Accounts 673,646 695,721
Passbook Accounts 81,827 77,575
Certificate Accounts 1,499,327 1,302,007
Advances And Other Borrowed Money 876,913 258,860
----------------- --------------
Total Interest Expense $ 3,131,713 $ 2,334,163
----------------- --------------
Net Interest Income 2,500,140 2,231,236
Provision For Loan Losses 175,000 150,000
Net Interest Income After Provision ----------------- --------------
For Loan Losses $ 2,325,140 $ 2,081,236
----------------- --------------
Other Income:
Gain On Sale Of Loans 50,917 113,504
Loan Servicing Fees 67,675 73,016
Service Fees On Deposit Accounts 260,170 238,446
Income From Real Estate Operations 31,659 34,843
Other 178,339 108,248
----------------- --------------
Total Other Income $ 588,760 $ 568,057
----------------- --------------
General And Administrative Expenses:
Salaries And Employee Benefits 1,134,780 1,027,302
Occupancy 133,930 125,340
Advertising 60,057 32,460
Depreciation And Maintenance Of Equipment 242,040 209,750
FDIC Insurance Premiums 11,520 21,171
Amortization Of Intangibles 116,310 116,310
Other 405,807 395,990
----------------- --------------
Total General And Administrative
Expenses $ 2,104,444 $ 1,928,323
----------------- --------------
Income Before Income Taxes 809,456 720,970
Provision For Income Taxes 300,450 245,629
----------------- --------------
Net Income $ 509,006 $ 475,341
================= ==============
Basic Net Income Per Common Share $ 0.61 $ 0.56
================= ==============
Diluted Net Income Per Common Share $ 0.60 $ 0.56
================= ==============
Cash Dividend Per Share On Common Stock $ 0.04 $ 0.04
================= ==============
Basic Weighted Average Shares Outstanding 838,247 842,120
================= ==============
Diluted Weighted Average Shares
Outstanding 846,836 846,052
================= ==============
See accompanying notes to consolidated financial statements.
2
<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 - - - - 475,341 475,341
Other Comprehensive
Income, Net Of Tax:
Unrealized Holding
Losses On Securities
Available For Sale - - - (823,316) - (823,316)
------------
Comprehensive Income (347,975)
Cash Dividends - - - - (33,685) (33,685)
-------- ---------- ---------- ---------- ------------ ------------
Balance At
June 30, 1999 $ 8,421 $3,993,733 $ 0 $ (951,054) $ 16,127,682 $ 19,178,782
======== ========== ========== ========== ============ ============
Beginning Balance At
March 31, 2000 $ 8,421 $3,993,733 $ (186,803) (1,629,150) $ 17,572,500 $ 19,758,701
Net Income - - - - 509,006 509,006
Other Comprehensive
Income, Net Of Tax:
Unrealized Holding
Losses On Securities
Available For Sale - - - (2,266) - (2,266)
------------
Comprehensive Income 506,740
Increase in Indirect
Guarantee of ESOP
Debt (59,577) (59,577)
Cash Dividends - - - - (33,684) (33,684)
-------- ---------- ---------- ---------- ------------ ------------
Balance at
June 30, 2000 $ 8,421 $3,993,733 $ (246,380) (1,631,416) $ 18,047,822 $ 20,172,180
======== ========== ========== ========== ============ ============
See accompanying notes to consolidated financial statements.
3
</TABLE>
<PAGE>
Security Federal Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended June 30, 2000
------------------------------------
2000 1999
----------------- --------------
Cash Flows From Operating Activities:
Net Income $ 509,006 $ 475,341
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating
Activities:
Depreciation Expense $ 211,436 $ 186,582
Amortization Of Intangibles 116,310 116,310
Discount Accretion And Premium
Amortization 9,227 28,329
Provisions For Losses On Loans
And Real Estate 175,000 150,000
Gain On Sale Of Loans (50,917) (113,504)
Gain On Sale Of Real Estate (43,477) (34,843)
Amortization Of Deferred Fees On
Loans (31,038) (38,159)
Proceeds From Sale Of Loans Held For
Sale 2,834,675 6,688,586
Origination Of Loans For Sale (2,305,573) (6,492,592)
(Increase) Decrease In Accrued Interest
Receivable:
Loans (45,885) (62,831)
Mortgage-Backed Securities (5,694) (39,125)
Investments 121,854 103,370
Increase In Advance Payments By Borrowers 138,481 99,354
Loss On Disposition Of Premises And
Equipment 195 7,131
Other, Net 52,327 529,379
----------------- --------------
Net Cash Provided By Operating
Activities $ 1,685,927 $ 1,603,328
----------------- --------------
Cash Flows From Investing Activities:
Principal Repayments On Mortgage-
Backed Securities Held To Maturity $ 54,492 $ 334,749
Principal Repayments On Mortgage-
Backed Securities Available For Sale 1,483,937 2,069,903
Purchase Of Investment Securities
Available For Sale - (7,998,438)
Purchase Of Mortgage-Backed Securities
Available For Sale (943,380) (8,650,117)
Maturities Of Investment Securities
Available For Sale 2,038,860 5,210,003
Maturities Of Investment Securities
Held To Maturity - 56,149
Purchase Of FHLB Stock (414,100) (475,900)
Redemption Of FHLB Stock - 599,300
Increase In Loans To Customers (11,016,731) (5,585,092)
Investment In Real Estate Held For
Development (152,714) (129,637)
Proceeds From Sale Of Real Estate
Held For Development 306,850 169,800
Proceeds From Sale Of Real Estate
Acquired Through Foreclosure 74,222 -
Purchase And Improvement Of Premises
And Equipment (352,842) (107,655)
Proceeds From Sale Of Premises And
Equipment - 9,975
----------------- --------------
Net Cash Used By Investing Activities $ (8,921,406) $ (14,496,960)
----------------- --------------
Cash Flows From Financing Activities:
Increase In Deposit Accounts $ 1,132,377 $ 4,567,115
Proceeds From FHLB Advances 30,800,000 27,675,000
Repayment Of FHLB Advances (21,018,000) (20,493,000)
Proceeds Of Other Borrowings 223,017 473,529
Repayment Of Other Borrowings - (13,804)
Dividends To Shareholders (33,685) (33,685)
----------------- --------------
Net Cash Provided By Financing
Activities $ 11,103,709 $ 12,175,155
----------------- --------------
(Continued)
4
<PAGE>
Security Federal Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended June 30, 2000
------------------------------------
2000 1999
----------------- --------------
Net Increase (Decrease) In Cash And
Cash Equivalents $ 3,868,230 $ (718,477)
Cash And Cash Equivalents At Beginning
Of Period 7,416,702 6,951,347
----------------- --------------
Cash And Cash Equivalents At End Of
Period $ 11,284,932 $ 6,232,870
================= ==============
Supplemental Disclosure Of Cash Flows
Information:
Cash Paid During The Period For Interest $ 3,239,696 $ 2,253,561
Cash Paid During The Period For
Income Taxes $ 135,000 $ 350
Additions To Real Estate Acquired
Through Foreclosure $ 301,203 $ 21,000
Increase In Unrealized Net Loss On
Securities Available For Sale,
Net Of Taxes $ 2,266 $ 823,316
See accompanying notes to consolidated financial statements.
5
<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-month period ended June 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, and changes in the securities market.
Management cautions readers of this Form 10-QSB not to place undue reliance on
forward-looking statements contained herein.
2. Basis of Consolidation and Nature of Operations
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 consists primarily of
investment brokerage services. Also included in the consolidation is a real
estate partnership.
3. Loans Receivable, Net
Loans Receivable, Net, at June 30, 2000 and March 31, 2000 consisted of the
following:
Loans held for sale were $817,491 and $1,295,676 at June 30, 2000 and March
31, 2000, respectively.
Loans Held For Investment: June 30, 2000 March 31, 2000
----------------- --------------
Residential Real Estate $ 108,018,306 $ 98,151,348
Consumer 41,529,302 41,719,221
Commercial Business And Real Estate 67,947,162 62,062,134
----------------- --------------
$ 217,494,770 $ 201,932,703
----------------- --------------
Less:
Allowance For Possible Loan Loss 2,190,913 2,120,767
Loans In Process 12,700,787 7,832,280
Deferred Loan Fees 326,614 274,766
----------------- --------------
$ 15,218,314 $ 10,227,813
----------------- --------------
$ 202,276,456 $ 191,704,890
================= ==============
The following is a reconciliation of the allowance for loan losses for the
nine months ending:
June 30, 2000 June 30, 1999
----------------- --------------
Beginning Balance $ 2,120,767 $ 1,715,068
Provision 175,000 150,000
Charge-offs (110,332) (64,261)
Recoveries 5,478 8,628
----------------- --------------
Ending Balance $ 2,190,913 $ 1,809,435
================= ==============
6
<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
June 30, 2000 Amortized Unrealized Unrealized
------------- Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
U.S. Government and
Agency Obligations $ 265,707 $ 2,787 $ - $ 268,494
Mortgage-Backed
Securities 2,389,909 2,186 75,498 2,316,597
---------- ---------- ---------- ----------
Total $2,655,616 $ 4,973 $ 75,498 $2,585,091
========== ========== ========== ==========
March 31, 2000
--------------
U.S. 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
June 30, 2000 Amortized Unrealized Unrealized
------------- Cost Gains Losses Fair Value
----------- ---------- ---------- -----------
U.S. Government and
Agency Obligations $53,752,326 $ - $1,653,623 $52,098,703
Mortgage-Backed
Securities 35,105,260 3,429 979,424 34,129,265
----------- ---------- ---------- -----------
Total $88,857,586 $ 3,429 $2,633,047 $86,227,968
=========== ========== ========== ===========
March 31, 2000
--------------
U.S. 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
=========== ========== ========== ===========
7
<PAGE>
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited), Continued
5. Deposits
A summary of deposit accounts by type with weighted average rates is as
follows:
June 30, 2000 March 31, 2000
-------------------- --------------------
Demand Accounts: Balance Rate Balance Rate
-------------------- --------------------
Checking $ 58,698,849 0.78% $ 58,304,679 0.89%
Money Market 47,898,458 4.58% 51,636,465 4.60%
Regular Savings 12,927,373 2.46% 13,203,395 2.50%
------------ ------------
Total Demand Accounts $119,524,680 2.48% $123,144,539 2.62%
============ ============
Certificate Accounts:
0 - 4.99% $ 7,942,212 $ 15,575,152
5.00 - 6.99% 99,308,406 90,103,640
7.00 - 8.99% 3,180,410 -
------------ ------------
Total Certificate Accounts $110,431,028 5.79% $105,678,792 5.41%
============ ============
Total Deposit Accounts $229,955,708 4.06% $228,823,331 3.90%
============ ============
6. Federal Home Loan Bank Advances
FHLB Advances are summarized by year of maturity and weighted average interest
rate in the table below:
June 30, 2000 March 31, 2000
-------------------- --------------------
Balance Rate Balance Rate
-------------------- --------------------
Checking $ 58,698,849 0.78% $ 58,304,679 0.89%
Fiscal Year Due:
2001 $ 50,231,000 6.53% $ 35,431,000 5.88%
2002 5,000,000 5.71% 5,000,000 5.71%
2003 - -% 5,000,000 6.36%
2004 - - - -%
Thereafter 5,162,000 6.59% 5,180,000 6.60%
------------ ------------
Total Advances $ 60,393,000 6.47% $ 50,611,000 5.99%
============ ============
7. Regulatory Matters
The following table reconciles the Bank's shareholders' equity to its various
regulatory capital positions:
June 30, 2000 March 31, 2000
-------------------- --------------------
(Dollars in Thousands)
-------------------------------------------
Bank's Shareholders' Equity $ 19,920 $ 19,414
Unrealized Loss On Available
For Sale Of Securities, Net
Of Tax 1,631 1,629
Reduction For Goodwill And
Other Intangibles (999) (1,116)
-------------------- --------------------
Tangible Capital 20,552 19,927
Qualifying Core Deposits And
Intangible Assets 537 559
-------------------- --------------------
Core Capital 21,089 20,486
Supplementary Capital 2,191 2,121
Assets Required To Be Deducted (125) (103)
-------------------- --------------------
Risk-Based Capital $ 23,155 $ 22,504
==================== ====================
The following table compares the Bank's capital levels relative to the
applicable regulatory requirements at June 30, 2000:
(Dollars in Thousands)
-------------------------------------------------------
Amt. % Actual Actual Excess Excess
Required Required Amt. % Amt. %
-------------------------------------------------------
Tangible Capital $ 6,335 2.0% $20,552 6.49% $14,217 4.49%
Tier 1 Leverage
(Core) Capital 12,692 4.0% 21,089 6.65% 8,397 2.65%
Total Risk-Based
Capital 15,045 8.0% 23,155 12.31% 8,110 4.31%
Tier 1 Risk-Based
(Core) Capital 7,523 4.0% 21,089 11.21% 13,566 7.21%
8
<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 June 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 $21,089 11.2% $ 7,523 4.0% $11,284 6.0%
Risk-Based Capital
(To Risk Weighted
Assets) 23,155 12.3% 15,045 8.0% 18,807 10.0%
Core Capital (To
Adjusted Tangible
Assets) 21,089 6.7% 12,692 4.0% 15,865 5.0%
Tangible Capital
(To Tangible Assets) 20,552 6.5% 6,335 2.0% 15,838 5.0%
9
<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 $11.7 million or 3.9% during the three
months ended June 30, 2000, due primarily to increases of $10.1 million or
5.2% in total net loans receivable, and an increase of $3.9 million in cash
and cash equivalents, offset in part by a $2.6 million decrease in total
investment securities.
Residential real estate loans, net of loans in process, increased $5.0 million
or 5.5% during the period while other loans increased $5.8 million or 5.5%.
Real estate acquired in settlement of loans (REO) increased $239,000 due to
foreclosures. Real estate acquired for development decreased $122,000 during
the three-month period due to sales of lots in Willow Woods.
Non-accrual loans totaled $580,000 at June 30, 2000 compared to $890,000 at
March 31, 2000. The Bank classifies all loans as non-accrual when they become
90 days or more delinquent. The Bank had 2 loans totaling $493,000 at June
30, 2000 that where troubled debt restructurings compared to $784,000 at March
31, 2000. One loan of $54,000 is a commercial loan secured by two
single-family rental properties. The other troubled debt restructuring was a
$439,000 commercial loan secured by commercial real estate. Both loans were
current as of June 30, 2000. All troubled debt restructurings are also
considered impaired. At June 30, 2000, the Bank held $523,000 in impaired
loans compared to $ 897,000 compared to March 31, 2000.
Deposits increased $1.1 million during the three months ended June 30, 2000.
Federal Home Loan Bank (FHLB) advances grew $9.8 million or 19.3% to fund the
Company's 3.9% growth in assets.
The Board of Directors declared the 38th consecutive quarterly dividend of
$.04 per share per quarter in May 2000, which totaled $34,000. The employee
stock ownership plan of the Company borrowed an additional $60,000 to purchase
stock for the plan during the three-month period. Unrealized losses on
securities available for sale increased $2,000 during the three months ended
June 30, 2000. The Company's net income for the three months was $509,000.
These items combined to increase shareholders' equity by $413,000 or 2.1%
during the three months ended June 30, 2000. Book value per share was $24.09
at June 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 three months ended
June 30, 2000 was approximately 30%. 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. Although the Company's available for sale
investment portfolio had an unrealized net loss at June 30, 2000, the Company
plans to hold the majority of those investments until called or maturity.
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 three months ended June 30, 2000, loan disbursements exceeded loan
repayments resulting in a $10.1 million or 5.2% increase in total net loans
receivable.
Deposits and other borrowings are also an important source of funds for the
Company. During the three months ended June 30, 2000, deposits increased $1.1
million while FHLB advances increased $9.8 million. At June 30, 2000, the
Bank had $73.2 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 June 30, 2000 are sufficient to meet outstanding
mortgage loan commitments of $1.0 million and unused lines of credit of $22.7
million. Management believes that the Company's liquidity needs will continue
to be supported by the Company's deposit base and borrowing capacity during
the next year.
10
<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. This
statement's effective date is delayed by the issuance of SFAS 137 (Accounting
for Derivative Instruments and Hedging Activities-Deferral of the Effective
Date of FASB Statement No. 133-an amendment of the FASB Statement No. 133) and
is effective for fiscal years and quarters beginning after June 15, 2000.
Because the Company has limited use of derivative transactions at this time,
Management does not expect this standard to have a significant effect on the
Company.
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.
11
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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 JUNE 30, 2000
--------------------------------------------------------------
Net Income
Net income was $509,000 for the three months ended June 30, 2000, representing
an increase in earnings of $34,000 or 7.2% compared to the same period in
1999.
Net Interest Income
Net interest income increased $269,000 or 12.1% during the three months ended
June 30, 2000 due to an increase in total interest income offset in part by an
increase in interest expense.
Interest income on loans increased $941,000 or 29.2% during the quarter as a
result of total net loans significantly increasing in the portfolio.
Investment, mortgage-backed, and other securities interest income increased
$125,000 or 9.3% due to an increase in the average balance in the investment
portfolio and a 20 basis points increase in the average yield in the
portfolio. Total interest income rose $1.1 million or 23.4% compared to the
same period in 1999.
Total interest expense increased $798,000 or 34.3% during the three months
ended June 30, 2000 compared to the same period a year ago. Interest expense
on deposits increased $179,000 or 8.7% during the period as deposits grew
compared to the average balance in 1999 and the cost of deposits increased
approximately 18 basis points. Interest expense on advances and other
borrowings increased $618,000 as the average amount of debt outstanding
increased during the 2000 period compared to 1999 and as the average cost of
the borrowings increased in the 2000 period.
Provision for Loan Losses
The Company's provision for loan losses increased $25,000 to $175,000 during
the three months ended June 30, 2000 compared to the same quarter in 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 $580,000 at June 30, 2000 compared to $890,000 at March
31, 2000. The ratio of allowance for loan losses to the Company's total loans
was 1.07% at June 30, 2000 compared to 1.09% at March 31, 2000.
Other Income
Total other income increased $21,000 or 3.6% during the three months ended
June 30, 2000 compared to the same period a year ago. Gain on sale of loans
decreased $63,000 during the period due to more mortgage customers opting for
adjustable rate loans which are retained in the Bank's portfolio as opposed to
fixed rate mortgages which are sold to investors. Loan servicing fees
decreased $5,000 as the portfolio of loans serviced for others decreased.
Service fees on deposit accounts grew $22,000 as the number of commercial and
personal demand deposit accounts increased. Income from real estate
operations stemming from the Willow Woods partnership decreased $3,000 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 $70,000 during the three months ended June 30,
2000.
General and Administrative Expenses
General and administrative expenses increased $176,000 or 9.1% during the
three months ended June 30, 2000 compared to the same period in 1999.
Salaries and employee benefits expense grew $107,000 or 10.5% due to normal
annual salary increases and an increase in customer service positions.
Occupancy expense increased $9,000 or 6.9% during the period. Advertising
expense increased $28,000 while the depreciation and maintenance of equipment
expense increased $32,000 during the quarterly period. FDIC insurance
premiums decreased $10,000 while the amortization of intangible expense was
$116,000 during the three months ended June 30, 2000 and June 30, 1999. Other
miscellaneous expense, consisting of legal, professional, and consulting
expenses, stationery and office supplies, and other sundry expenses, increased
$10,000 or 2.5% for the three months ended June 30, 2000 compared to the three
months ended June 30, 1999.
12
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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
---------------------------------------------------
None
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 December 31, 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.
13
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Security Federal Corporation and Subsidiaries
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to the signed on its behalf by the
undersigned thereunto duly authorized.
SECURITY FEDERAL CORPORATION
Date: August 8, 2000 By: /s/ Roy G. Lindburg
---------------------------------
Roy G. Lindburg
Treasurer/Chief Financial Officer
Duly Authorized Representative
14
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