<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________ .
Commission file Number: 0-24157
SECURITY FINANCIAL CORP.
(Exact Name of small business issuer as specified in its charter)
DELAWARE 34-1579662
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One South Main Street
Niles, Ohio 44446-0228
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (330) 544-7400
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirement for the past 90 days. YES X NO
<PAGE>
Security Financial Corp.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
Part I Financial Information Page
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet,(unaudited)
as of March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income (audited)
for the three months ended March 31, 1998 and 1997 4
Consolidated Statements of Changes in
Stockholders' Equity (unaudited) for the
Three months ended March 31, 1998 5
Consolidated Statement of Cash Flows (unaudited)
for the three months ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II Other Information 12
Signatures 13
<PAGE>
SECURITY FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET (Unaudited)
March 31, December 31,
1998 1997
------------- -------------
ASSETS
Cash and due from banks $ 6,822,553 $ 7,416,457
Federal funds sold 4,446,000 1,090,000
Interest-bearing deposits in other banks 300,000 400,000
Investment securities available for sale 40,761,422 41,638,502
Loans 109,616,622 112,428,694
Less allowance for loan losses 1,627,747 1,677,651
------------- -------------
Net loans 107,988,875 110,751,043
Premises and equipment 3,848,251 3,833,325
181768
Accrued interest and other assets 2,352,054 2,128,857
------------- -------------
TOTAL ASSETS $ 166,519,155 $ 167,258,184
============= =============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 17,803,322 $ 18,047,213
Interest-bearing demand 8,025,684 7,873,059
Money market 3,530,905 4,017,442
Savings 28,067,265 27,119,276
Time 87,533,534 88,295,471
------------- -------------
Total deposits 144,960,710 145,352,461
Short-term borrowings 6,085,028 6,523,560
Accrued interest and other liabilities 721,161 749,280
------------- -------------
TOTAL LIABILITIES 151,766,899 152,625,301
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, no par value;
1,500,000 shares authorized;
333,164 shares issued 832,910 832,910
Capital surplus 4,977,246 4,977,246
Retained earnings 8,932,891 8,695,696
Net unrealized gain on securities 9,209 127,031
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 14,752,256 14,632,883
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 166,519,155 $ 167,258,184
============= =============
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
SECURITY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Three Months Ended March 31,
1998 1997
------------- -------------
INTEREST INCOME
Interest and fees on loans $ 2,495,494 $ 2,622,582
Interest bearing deposits in other banks 4,537 6,864
Federal funds sold 37,742 6,732
Investment securities:
Taxable 549,279 398,349
Exempt from federal income tax 83,732 36,335
------------- -------------
Total interest income 3,170,784 3,070,862
------------- -------------
INTEREST EXPENSE
Deposits 1,552,351 1,386,849
Short-term borrowings 64,801 59,253
Other borrowings - 49,858
------------- -------------
Total interest expense 1,617,152 1,495,960
------------- -------------
NET INTEREST INCOME 1,553,632 1,574,902
PROVISION FOR LOAN LOSSES 337,000 300,000
------------- -------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,216,632 1,274,902
------------- -------------
OTHER INCOME
Service charges and fees 137,604 139,655
Investment securities gains, net 10,769 -
Other income 59,678 70,388
------------- -------------
Total other income 208,051 210,043
------------- -------------
OTHER EXPENSE
Salaries and employee benefits 628,015 608,797
Occupancy expense 167,840 158,029
Other expense 311,856 310,140
------------- -------------
Total other expense 1,107,711 1,076,966
------------- -------------
Income before income taxes 316,972 407,979
Applicable income taxes 79,777 126,349
------------- -------------
NET INCOME $ 237,195 $ 281,630
============= =============
EARNINGS PER SHARE $ 0.71 $ 1.01
AVERAGE SHARES OUTSTANDING 333,164 279,422
See accompanying notes to the unaudited consolidated financial statements.
4
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<TABLE>
<CAPTION>
SECURITY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Net
Unrealized
Common Capital Retained Gain (Loss) Comprehensive
Stock Surplus Earnings on Securities Total Income
--------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 832,910 $ 4,977,246 $ 8,695,696 $ 127,031 $14,632,883
Net income 237,195 237,195 $ 237,195
Net unrealized loss on securities (117,822) (117,822) (117,822)
--------- ----------- ----------- --------- ----------- ------------
Balance, March 31, 1998 $ 832,910 $ 4,977,246 $ 8,932,891 $ 239,209 $14,752,256 $ 119,373
========= =========== =========== ========= =========== ============
Components of comprehensive income:
Change in net unrealized gain on investment
securities held for sale $ (110,774)
Realized gains included in net income net
of tax (7,048)
-----------
Total $ (117,822)
===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
SECURITY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended March 31,
1998 1997
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 237,195 $ 281,630
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 332,082 120,254
Provision for loan losses 337,000 300,000
Mortgage loans originated for sale (1,256,600) (560,840)
Proceeds from sales of mortgage loans 1,279,478 566,250
Investment securities gains, net (10,769) -
Decrease (increase) in accrued interest receivable 10,857 (26,712)
Increase (decrease) in accrued interest payable (19,924) 296,918
Other, net (28,602) (475,186)
------------ ------------
Net cash provided by operating activities 880,717 502,314
------------ ------------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sales 216,108 -
Proceeds from maturities and principal repayments 3,044,356 1,608,514
Purchases (2,718,828) (1,329,477)
Net decrease (increase) in loans 2,130,824 (2,310,435)
Purchase of premises and equipment (98,926) (24,098)
Proceeds from sale of other real estate owned 39,254 -
------------ ------------
Net cash provided by (used for) investing activities 2,612,788 (2,055,496)
------------ ------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (391,751) 9,096,676
Increase (decrease) in short-term borrowings (439,658) (1,918,708)
Repayment of other borrowings - (3,400,000)
Proceeds from sale of common stock - 1,894,319
------------ ------------
Net cash provided by (used for) financing activities (831,409) 5,672,287
------------ ------------
Increase in cash and cash equivalents 2,662,096 4,119,105
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,906,457 7,073,483
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,568,553 $ 11,192,588
============ ============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
6
<PAGE>
Security Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and, therefore, do
not necessarily include all information which would be included in audited
financial statements. The information furnished reflects all normal recurring
adjustments which are, in the opinion of management, necessary for fair
statement of the results of the period. The results of operations for the
interim periods are not necessarily indicative of the results to be expected
for the full year.
NOTE 2 - EARNINGS PER SHARE
There are no convertible securities which would affect the net income required
to be used in calculating basic and diluted earnings per share, as such, net
income as presented on the consolidated statement of income is used for
computation purposes.
The average shares outstanding for both basic and diluted earnings per share
are 333,164 at March 31, 1998 and 279,422 at March 31, 1997.
NOTE 3 - COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." In adopting statement
No. 130, the Company is required to present comprehensive income and its
components in a full set of general purpose financial statements. The Company
has elected to report the effects of statement No. 130 as part of the
statement of changes in stockholders' equity.
7
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION
&
RESULTS OF OPERATIONS
Financial Condition
Total assets decreased by $39,000 or 0.44% from December 31, 1997 to March
31,1998, primarily as a result of the decrease in the loan portfolio. Gross
loans decreased $2,812,000 or 2.5% during the first three months of 1998.
Decreases occurred in the real estate and installment portfolios which
combined to decrease $2,788,000 during the first three months of 1998. The
Bank experienced significant rate competition in the commercial lending area
from larger institutions and strategically decided not to negatively impact
net interest margin by offering comparable rates. The decrease in the
installment portfolio was due to the continued slowdown in funding the
indirect portfolio.
Total securities declined by $877,000 or 2.1% to $40,761,000 at March 31, 1998
from $41,638,000 at December 31, 1997. The decline was primarily the result
of normal principal repayments during the three months. Mortgage-backed
securities are typically being used to supplement the loan portfolio in
periods of inadequate demand. Principal repayments from mortgage-backed
securities are being used to fund loans and to meet operating expenses.
Total deposits decreased $392,000 or .27%, during the first three months of
1998 . Non-interest bearing deposits decreased $244,000 for the period ended
March 31,1998.
Stockholders' equity increased $119,000 for the three month period ended March
31, 1998, due to net income of $237,000 which was offset by a decreased net
unrealized gains on securities of $117,000.
Results of Operations
Net income for the three-month period ending March 31, 1998 amounted to
$237,100compared to $281,000 during the same period in 1997. Discussed below
are the major factors which have influenced these operating results. Net
interest income, the primary source of earnings, is the amount by which
interest and fees on loans and investments exceed the interest cost of
deposits and other borrowings obtained to fund them. Net interest income is
affected by the volume and composition of earning assets and interest-bearing
liabilities as well as the level of non-interest-bearing demand deposits and
stockholders' equity. Also impacting net interest income is the
susceptibility of interest-earning assets and interest-bearing liabilities to
changes in the general market level of interest rates. Management attempts to
manage the repricing of assets and liabilities so as to achieve a stable level
of net interest income and reduce the effect of significant changes in the
market level of interest rates. This is accomplished through the pricing and
promotion of various loan and deposit products as well as the active
management of the Bank's portfolio of investment securities available for
sale.
8
<PAGE>
Interest income for the first quarter 1998 amounted to $3,171,000 as compared
to$3,071,000 during the same period 1997, an increase of $100,000. During the
same time period, interest expense increased $121,000 from $1,496,000 in 1997
to$1,617,000 in 1998. The increase in interest income is the result of an
increase in the yield of the investment portfolio over the 12 month period.
The increase in the interest expense for the period is mainly due to a change
in the deposit structure in the first quarter of 1997 from short-term
borrowing to large certificates of deposits.
Provision for Possible Loan Losses The provision for possible loan losses for
the three months ended March 31, 1998 was $337,000, compared to $300,000 for
the three months ended March 31, 1997. The increase in the provision, related
primarily to an increase in net loan charge-offs for the three months ended
March 31, 1998 compared to the same period in 1997, as well as management's
overall evaluation of the adequacy of the level of the allowance, in relation
to non-performing loans and total loans The adequacy of the allowance for
possible loan losses is evaluated by management on a quarterly basis. This
review includes an assessment of problem loans and potential unknown losses
based on current economic conditions, the regulatory environment and
historical experience. The provision for possible loan losses represents
charges to operations necessary to maintain the allowance at a level which
management believes will be adequate to absorb possible losses. Management
believes that the allowance for possible loan losses is adequate. While
management evaluates the allowance for possible loan losses based upon
available information, future additions to the allowance may be necessary.
Additionally, regulatory agencies review the Company's allowance for possible
loan losses as part of their examination process. Such agencies may require
the Company to recognize additions to the allowance based on judgments which
may be different from those of management.
Non-interest income, which is comprised principally of service charges on
deposit accounts, remained constant when comparing 1st quarters of 1997 to
1998.
Non-interest expense increased $30,745 or 2.85% to $1,107,711 for 1998 from
$1,076,966 for 1997. The increase was the result of operating a larger
organization. Compensation and benefits increased $19,218 or 3.15%.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of the Company's ability to efficiently meet normal
cash flow requirements of both borrowers and depositors. To maintain proper
liquidity, the Company uses asset liability management policies along with its
investment policies to assure it can meet its financial obligations to
depositors, credit customers and shareholders. Liquidity is needed to meet
depositors' withdrawal demands, extend credit to meet borrowers' needs,
provide funds for normal operating expenses and cash dividends, and fund other
capital expenditures.
Liquidity management is influenced by cash generated by operating activities,
investing activities and financing activities. The most important source of
funds is the deposits which are primarily core deposits (deposits from
customers with other relationships). Short-term debt from the Federal Home
Loan Bank supplements the Company's availability of funds.
9
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data 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 consideration for changes in the relative purchasing power of money
over time caused by inflation.
Unlike industrial companies, nearly all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates
have a more significant impact on a financial institution's performance than
general levels of inflation. Interest rates do not necessarily move in the
same direction or in the same magnitude as the price of goods and services,
since such goods and services are affected by inflation. In the current
interest rate environment, liquidity and the maturity structure of the Bank's
assets and liabilities are critical to the maintenance of acceptable
performance levels.
YEAR 2000 COMPLIANCE
Management has developed a year 2000 compliance program to prepare the Bank's
computer systems and applications for the year 2000. The Bank has completed
the planning and assessment phases of the plan and has begun the testing
phase. Critical applications are scheduled to be tested by December 31, 1998
and all applications are scheduled to be completed by March 31, 1999. The
Bank expects to incur internal staff costs as well as consulting and other
expense related to testing and enhancements to prepare the systems for the
year 2000. Although these costs cannot be fully determined at this time, they
are not considered to be material. A significant portion of these costs are
not likely to be incremental costs to the Bank, but rather will represent the
redeployment of existing resources.
10
<PAGE>
RISK ELEMENTS
Nonperforming Assets
The following schedule presents information concerning nonperforming assets
including nonaccrual loans, loans 90 days or more past due, and other real
estate owned at March 31, 1998 and December 31, 1997. A loan is classified as
nonaccural when, in the opinion of management, there are serious doubts about
collectibility of interest and principal. At the time the accrual of interest
is discontinued, future income is recognized only when cash is received.
March 31, December 31,
1998 1997
------ ------
(Dollars in Thousands)
Loans on nonaccrual basis $2,130 $2,291
Loans past due 90 days or more 350 494
------ ------
Total non-performing loans 2,480 2,785
------ ------
Real estate owned 214 39
------ ------
Total non-performing assets $2,694 $2,824
====== ======
Total non-performing loans to
total loans 2.16% 2.48%
====== ======
Total non-performing loans to
total assets 1.49% 1.67%
====== ======
Total non-performing assets to
total assets 1.62% 1.69%
====== ======
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in rights of the Company's Security holders.
None.
Item 3. Defaults by the Company on its senior securities.
None.
Item 4. Results of votes of security holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
None.
12
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Security Dollar
(Registrant)
Date: August 14, 1998 By: /s/ Glenn Griffiths
----------------------------
Glenn Griffiths,
President & CEO
Date: August 14, 1998 By: /s/ Donald Stacy
----------------------------
Donald Stacy,
Vice President & Treasurer
13
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,822,553
<INT-BEARING-DEPOSITS> 300,000
<FED-FUNDS-SOLD> 4,446,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,761,422
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 109,616,622
<ALLOWANCE> 1,627,747
<TOTAL-ASSETS> 166,519,155
<DEPOSITS> 144,960,710
<SHORT-TERM> 6,085,028
<LIABILITIES-OTHER> 721,161
<LONG-TERM> 0
0
0
<COMMON> 832,910
<OTHER-SE> 13,919,346
<TOTAL-LIABILITIES-AND-EQUITY> 166,519,155
<INTEREST-LOAN> 2,495,494
<INTEREST-INVEST> 633,011
<INTEREST-OTHER> 42,279
<INTEREST-TOTAL> 3,170,784
<INTEREST-DEPOSIT> 1,552,351
<INTEREST-EXPENSE> 1,617,152
<INTEREST-INCOME-NET> 1,553,632
<LOAN-LOSSES> 337,000
<SECURITIES-GAINS> 10,769
<EXPENSE-OTHER> 1,107,711
<INCOME-PRETAX> 316,972
<INCOME-PRE-EXTRAORDINARY> 316,972
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 237,195
<EPS-PRIMARY> .71
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.00
<LOANS-NON> 2,130,000
<LOANS-PAST> 350,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,677,651
<CHARGE-OFFS> 406,904
<RECOVERIES> 20,000
<ALLOWANCE-CLOSE> 1,627,747
<ALLOWANCE-DOMESTIC> 1,627,747
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
