<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 September 30, 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 September 30, 1998 and December 31, 1997 3
Consolidated Statements of Income (unaudited) for
three and nine months ended September 30, 1998 and 1997 4
Consolidated Statements of Changes in
Stockholders' Equity (unaudited) for the
nine months ended September 30, 1998 5
Consolidated Statement of Cash Flows (unaudited)
for the nine months ended September 30, 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 13
Signatures 14
<PAGE>
SECURITY FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET (Unaudited)
September 30, December 31,
1998 1997
ASSETS ------------- -------------
Cash and due from banks $ 6,832,297 $ 7,416,457
Federal funds sold 1,096,000 1,090,000
Interest-bearing deposits in other banks 4,645,000 400,000
Investment securities available for sale 43,198,615 41,638,502
Loans 107,821,220 112,428,694
Less allowance for loan losses 2,517,095 1,677,651
------------- -------------
Net loans 105,304,125 110,751,043
Premises and equipment 4,720,484 3,833,325
Accrued interest and other assets 2,611,465 2,128,857
------------- -------------
TOTAL ASSETS $ 168,407,986 $ 167,258,184
============= ==============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 17,594,506 $ 18,047,213
Interest-bearing demand 7,712,395 7,873,059
Money market 7,931,607 4,017,442
Savings 26,928,044 27,119,276
Time 84,704,680 88,295,471
------------- -------------
Total deposits 144,871,232 145,352,461
Short-term borrowings 8,436,347 6,523,560
Accrued interest and other liabilities 712,517 749,280
------------- -------------
TOTAL LIABILITIES 154,020,096 152,625,301
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, no par value; 1,500,000 shares authorized;
333,164 shares issued 832,910 832,910
Capital surplus 5,107,565 4,977,246
Retained earnings 8,298,600 8,695,696
Net unrealized gain on securities 148,815 127,031
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 14,387,890 14,632,883
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 168,407,986 $ 167,258,184
============= ==============
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
SECURITY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,467,132 $ 2,700,140 $ 7,410,990 $ 8,023,692
Interest bearing deposits in other banks 5,839 3,356 14,293 15,693
Federal funds sold 77,039 51,181 166,223 102,816
Investment securities:
Taxable 524,058 478,807 1,608,941 1,297,704
Exempt from federal income tax 116,325 51,913 298,356 128,953
----------- ----------- ----------- -----------
Total interest income 3,190,393 3,285,397 9,498,803 9,568,858
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 1,548,785 1,544,374 4,638,037 4,414,261
Short-term borrowings 96,277 54,526 227,843 152,890
Other borrowings - 15,453 - 97,800
----------- ----------- ----------- -----------
Total interest expense 1,645,062 1,614,353 4,865,880 4,664,951
----------- ----------- ----------- -----------
NET INTEREST INCOME: 1,545,331 1,671,044 4,632,923 4,903,907
PROVISION FOR LOAN LOSSES 1,390,000 300,000 2,027,000 900,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 155,331 1,371,044 2,605,923 4,003,907
----------- ----------- ----------- -----------
OTHER INCOME
Service charges and fees 151,900 163,560 429,841 460,891
Investment securities gains, net 0 3,757 31,682 7,177
Other income 31,219 41,439 153,318 228,955
----------- ----------- ----------- -----------
Total other income 183,119 208,756 614,841 697,023
----------- ----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits 683,815 563,027 1,908,047 1,715,285
Occupancy expense 204,012 153,186 541,827 461,810
Other expense 433,644 344,805 1,161,894 1,079,340
----------- ----------- ----------- -----------
Total other expense 1,321,471 1,061,018 3,611,768 3,256,435
----------- ----------- ----------- -----------
Income before income taxes (983,021) 518,782 (391,004) 1,444,495
Applicable income taxes (365,740) 153,629 (207,436) 439,242
----------- ----------- ----------- -----------
NET INCOME $ (617,281) $ 365,153 $ (183,568) $ 1,005,253
=========== =========== =========== ===========
EARNINGS PER SHARE $ (1.84) $ 1.10 $ (0.55) $ 3.01
AVERAGE SHARES OUTSTANDING 335,306 331,538 330,920 334,364
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
<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 (183,568) (183,568) $ (183,568)
Cash dividends (213,528) (213,528)
Dividend reinvestment plan 130,319 130,319
Other comprehensive income:
Unrealized gain on available
for sale securities 21,784 21,784 21,784
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1998 $ 832,910 $ 5,107,565 $ 8,298,600 $ 148,815 $ 14,387,890 $ (161,784)
============ ============ ============ ============ ============ ============
Components of comprehensive income:
Change in net unrealized gain on investment
securities held for sale $ 42,694
Realized gains included in net income net
of tax (20,910)
------------
Total $ 21,784
============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
5
<PAGE>
SECURITY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended September 30,
1998 1997
------------- -------------
OPERATING ACTIVITIES
Net income $ (183,568) $ 1,005,253
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization 835,419 557,639
Provision for loan losses 2,027,000 900,000
Mortgage loans originated for sale (1,631,600) (2,357,662)
Proceeds from sales of mortgage loans 1,662,259 2,404,302
Investment securities (gains) losses, net (31,682) (7,177)
Increase in accrued interest receivable (61,269) (112,516)
Increase (decrease) in accrued
interest payable (21,263) 299,009
Other, net (302,891) (395,388)
------------- -------------
Net cash provided by operating activities 2,292,405 2,293,460
------------- -------------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sales 932,259 2,282,245
Proceeds from maturities and principal
repayments 9,031,241 3,861,669
Purchases (11,788,974) (14,335,020)
Net decrease (increase) in loans 2,952,591 (1,614,150)
Purchase of premises and equipment (1,139,159) (98,874)
Proceeds from sale of other real estate owned 39,254 -
------------- -------------
Net cash provided by (used for) investing
activities 27,212 (9,904,130)
------------- -------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (481,229) 12,382,549
Increase (decrease) in short-term borrowings 1,911,661 (67,230)
Repayment of other borrowings - (4,400,000)
Cash dividends (213,528) (180,560)
Proceeds from dividend reinvestment plan 130,319 88,121
Proceeds from sale of common stock - 2,599,293
------------- -------------
Net cash provided by financing activities 1,347,223 10,422,173
------------- -------------
Increase in cash and cash equivalents 3,666,840 2,811,503
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,906,457 7,073,483
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 12,573,297 $ 9,884,986
============= =============
See accompanying notes to the 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 - STOCK OPTION PLAN
On December 30, 1997, the Board of Directors adopted a Stock Option Plan for
the directors, officers, and employees which was approved by stockholders at
the annual meeting held on April 21, 1998. An aggregate of 33,000 shares of
authorized but unissued common stock of the Company were reserved for future
issuance under the plan. The stock options typically have expiration terms of
ten years subject to certain extensions and early terminations. The per
share exercise price of a stock option shall be, at a minimum, equal to the
fair value of a share of common stock on the date the option is granted.
NOTE 3 - 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.
NOTE 4 - 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 AND ANALYSIS OF RECENT DEVELOPMENTS
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
- -----------------------------------------------------------------------------
Total assets increased by approximately $1,150,000 to $168,408,000 at
September 30, 1998 from $167,258,000 at December 31, 1997.
Interest-bearing deposits with other banks increased from $400,000 at
December 31, 1997 to $4,645,000 at September 30, 1998. Investment securities
increased from $41,639,000 at December 31, 1997 to $43,199,000 at September
30, 1998, or 3.8%. The increases were primarily funded by a decline in loans
during the period.
Net loan receivables decreased $5,447,000 or 4.9% from $110,751,000 at
December 31, 1997 to $105,304,000 at September 30, 1998. The decline in loans
is primarily in the installment loan portfolio and more specifically in the
indirect automobile loan portfolio. As discussed below, the Company has
experienced significant loan losses in relation to this portfolio and
management has been stringently enforcing existing underwriting guidelines
which has resulted in a reduction in loan origination's. Indirect automobile
loans have relatively short average lives and the repayment of these loans
have outpaced the new loan origination's.
Net office properties and equipment increased $887,000 or 23.1%. This is
directly related to new operations center located in Niles, OH opening in
November 1998.
Short-term borrowings increased $1,913,000 or 29.3% from $6,523,560 at
December 31, 1997 to $8,436,347 at September 30, 1998 due entirely to an
increase in repurchase agreements as management believes such accounts are
a stable source of funds as they represent substitutes for core deposits
for larger commercial and governmental agency customers.
Equity capital decreased by $245,000 for the nine months ended September 30,
1998, as a result of the net loss of $184,000 recorded for the period and
dividend payments of $214,000. These reductions to equity capital were offset
by the purchase of shares of common stock through the dividend reinvestment
plan amounting to $130,000. Future dividend policies will be determined by
the Board of Directors in light of the earnings and financial condition of
the Company, including governmental regulations and policies.
8
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
- -----------------------------------------------------------------
SEPTEMBER 30, 1998 AND 1997
- ---------------------------
Net income decreased $1.2 million to a loss of $184,000 for the nine months
ended September 30, 1998 from a net income of $1.0 million for the same period
ended 1997. This decrease was primarily due to an increase in provision for
loan losses of $1.1 million coupled with a decline in net interest income of
$201,000 and an increase in other expenses of $355,000 offset with a decline
in income tax expense of $647,000.
Net interest income decreased $201,000 or 4.1%, to $4,633,000 for the nine
months ended September 30, 1998 compared to $4,904,000 for the same period
ended 1997. The decrease in net interest income resulted primarily from a
decrease in earnings on loans of $613,000 or 7.6% and an increase in interest
expense on deposits of $224,000. The decrease in interest income on loans
was due to a decrease in the average principal balances for loans coupled
with an slight decline in yields on loans, while the increase the interest
expense on deposits is almost entirely a result of increased average balance
for the period. Offsetting this decrease of interest income was an increase
on investment securities of $481,000 and on federal funds sold of $63,000.
During 1997 and 1998 the Company's earnings have been adversely effected by
significant provisions for loan losses. In 1995 the Company initiated an
indirect automobile loan program within its immediate market area. This
program experienced significant growth in 1996 and continued through May 1997.
During this period, management and the Board of Directors initiated and
modified certain policies and procedures to protect asset quality in this
volatile industry. A former officer of the Bank continually circumvented the
policies and procedures initiated and modified to protect asset quality,
thereby allowing loans to be granted that were outside the policy guidelines
implemented. The significant provisions for loan losses recorded in 1997 and
1998 have primarily been attributed to the indirect automobile loans.
Management has been monitoring and continually implementing additional control
procedures to protect asset quality. Management has performed a recent study,
which indicates that 93 percent of all automobile repossession have occurred
in loans that were granted on terms and conditions that were outside of the
policy limits established, resulting in approximately $1.5 million in losses.
These losses were provided for from current earnings of the Company which
reduced the earnings for 1997 and 1998. Based on this study management
believes there is the potential for additional losses on such loans of
approximately $1,000,000 and has provided for these potential losses in the
third quarter of 1998 by increasing the loan loss reserve accordingly. The
recent provision to the loan loss reserve will fund the losses if and when
they occur in the future.
The former officer of the Bank was dismissed in 1997 and the Company has filed
civil litigation against this individual along with others who were believed
to be involved with these transactions. The Company has also initiated a
claim with its blanket bond insurance carrier asserting wrongful conduct on
part of the Bank officer in making these loans. The Board of Directors
intends to pursue both these actions vigorously to recover losses realized and
to recover any future charge-offs that may occur in association with the loans
granted outside the limitations established by the Board of Directors.
The Company has continued to participate in the indirect dealer automobile
loan market as it provides a desired product in the market it serves. The
Company has originated $5.5 million in indirect automobile loans since August
1997. These loans have a remaining outstanding balance of approximately $4.6
million and as of September 1998, are experiencing zero delinquencies and no
charge-offs.
Management's evaluation of the allowance for loan losses encompasses the
overall risk characteristics of the various portfolio segments, past
experience with losses, the impact of economic conditions on borrowers, and
other relevant factors. The provision for loan losses increased by $1.1
million for the nine months ended September 30, 1998 compared to the same
period ended 1997. See "Risk Elements".
Noninterest income, which is comprised principally of service charges on
deposit accounts decreased $82,000 or 11.8%. Service charges on deposit
accounts decreased $31,000, a result of fewer transactions requiring service
charges. Other income decreased $75,000 or 33.0% primarily due to a $45,000
decline in credit card merchant fees as the Company is no longer participating
in the merchant segment and a $35,000 decline in annuity fee income as a
result of lower level of activity in this product
Noninterest expense overall increased by $355,000. There was an increase in
salaries and employee benefits of $193,000 or 11.2%. This increase is the
result of normal pay increases coupled with the an increase in the number of
full time equivalent employees of ten in 1998. The increase in full time
equivalent employees is considered normal considering the growth of the
Company of the past two years.
Occupancy expense increased by $80,000 or 17.3%, a combined result of added
costs of additional properties and service contracts relating to the computer
systems. The Company has acquired and remodeled a property in Niles, OH to
house the operation center. The facility will be opened in November 1998.
Other expense increased $83,000 for the nine months ended September 30, 1998
compared to the same period ended 1997. Professional fees increased $74,000
due to outside assistance in complying with increased levels of regulatory
compliance of a public reporting company. There was also an increase of
Ohio intangible tax of $40,000 due to an increase in stockholders' equity
resulting from a stock offering in 1997, as well as 1997 net income. These
increases were offset by smaller dollar decreases in numerous other expenses.
Income tax expense decreased $647,000 to a benefit of $207,000 for the nine
months ended September 30, 1998 compared to a expense of $439,000 for the same
period ended September 30, 1997 due to the lower level of pre-tax income.
9
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
- ------------------------------------------------------------------
SEPTEMBER 30, 1998 AND 1997
- ---------------------------
Net income decreased $982,000 to a loss of $617,000 for the three months ended
September 30, 1998 from net income of $365,000 for the same period ended 1997.
This decrease was primarily due to an increase in the provision for loan
losses of $1.1 million coupled an increase in other expenses of $260,000.
Net interest income decreased $31,000 or 1.8% for the three months ended
September 30, 1998 compared to same period ended 1997. Interest income on
loans decreased $233,000 while interest income on federal funds sold and
investment securities increased $26,000 and $110,000, respectively. In
addition, interest expense on deposits and borrowings decreased $4,000 and
$27,000, respectively. These fluctuations were primarily the result of
changes in the average balances outstanding within as the yields on earning
assets and cost of funds on interest-bearing liabilities remained relatively
constant during the year.
As discussed above the provision for loan losses increased $1.1 million for
the three months ended September 30, 1998 compared to the same period ended
September 30, 1997. This increase is derived from management's continual
monitoring of the quality of its loan portfolio and its determination of the
adequacy of the allowance for loan losses.
Noninterest income decreased $26,000 for the three months ended September 30,
1998. As discussed above there have been fewer service charges on deposit
accounts due to volume of transactions for which fees are collected.
Additionally, the merchant credit card program was discontinued resulting in
reductions of other income.
Noninterest expense increased $260,000 or 24.5%. There was an increase of
$121,000, $51,000 and $89,000 to compensation and employee benefits, occupancy
expense, and other expense for those same reasons as discussed previously.
Income taxes decreased $519,000. This increase was the result of an decrease
in pretax income of $1.4 million.
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 Bank's primary sources of
funds are deposits, amortization and prepayment of loans, maturities and sales
of investment securities, and funds provided from operations. While scheduled
loan repayments are a relatively predictable source of funds, deposit flows
and loan prepayments are greatly influenced by general interest rates,
economic conditions, and competition. In addition, the Bank invests excess
funds in overnight deposits which provide liquidity to meet lending
requirements.
The Bank has other sources of liquidity if a need for additional funds arises.
Additional sources of funds include lines of credit with the Federal Home Loan
Bank ("FHLB") of Cincinnati for $17.0 million and other commercial banks
totalling $3.1 million. As of September 30, 1998, the Bank did not have any
outstanding advances.
As of September 30, 1998 the Company had commitments to fund loans of
approximately $9,536,000 as a direct result of the economic health of the
Bank's market area and the competitive pricing of the Bank's loan products.
Management monitors both the Company's and the Bank's total risk-based, Tier I
risk-based and Tier I leverage capital ratios in order to assess compliance
with regulatory guidelines. At September 30, 1998, both the Company and the
Bank exceeded the minimum risk-based and leverage capital ratios
requirements. The Company's and Bank's total risk-based, Tier I risk-based
and Tier I leverage ratios are 14.1%, 12.8%, 8.3%, and 13.2%, 11.9%, and 7.7%
respectively at September 30, 1998.
10
<PAGE>
DATA PROCESSING ISSUES FOR THE YEAR 2000
- ----------------------------------------
Many older computer systems use two digits to identify the year. These
systems, if not adapted to accurately identify years beyond 1999, could fail or
produce erroneous results for the year 2000 and beyond. The Company's primary
computer processing system was purchased from and is maintained by a national
computer software vendor that produces software for financial institutions.
During the third quarter of 1998, the Company successfully performed Year 2000
testing of its mission critical core processing applications. Testing of
ancillary applications will continue throughout the remainder of 1998.
The Company also has solicited its various vendors for evidence of their Year
2000 preparedness. In addition, the Company, through the use of
questionnaires and Company sponsored seminars, solicited information about
Year 2000 preparedness from its own loan and deposit customers. Management
does not believe that any exposure to the Company from its vendors or customer
base as they relate to Year 2000 issues pose any significant risk to the
Company.
Management anticipates costs of approximately $30,000 over the course of the
project. These costs do not include costs for reallocation of existing
resources toward the resolution of the issue.
Given the results of testing performed to date, management does not anticipate
the Year 2000 issue to have a material effect upon the future earnings,
capital or liquidity of the Company.
The Bank has continually monitored its Year 2000 situation by thoroughly
assessing its systems and programs. Although the Bank anticipates its
systems and programs to be Year 2000 compliant, the contingency plan
stipulates distribution of reports from processing at the Bank's hotsite.
11
<PAGE>
Risk Elements
- -------------
The following schedule presents information concerning nonperforming assets
including nonaccrual loans, loans 90 days or more past due, and other real
estate owned at September 30, 1998 and December 31, 1997. A loan is
classified as nonaccrual 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.
September 30, December 31,
1998 1997
-------- --------
(Dollars in Thousands)
Loans on nonaccrual basis $2,218 $2,291
Loans past due 90 days or more 439 494
------ ------
Total non-performing loans 2,657 2,785
------ ------
Real estate owned 214 39
------ ------
Total non-performing assets 2,871 2,824
====== ======
Total non-performing loans to
total loans 2.46% 2.48%
====== ======
Total non-performing assets to
total assets 1.70% 1.85%
====== ======
Allowance for loan losses to
non-performing loans 94.73% 60.25%
====== ======
During the nine month period ended September 30, 1998, loans decreased
$4,607,000 and nonperforming loans decreased $128,000 while the allowance for
loan losses increased $839,000 for the same period. See "Comparison of the
Results of Operations for the Nine Months Ended September 30, 1998 and 1997"
for discussion of increased provision. Nonperforming loans are primarily
made up of one to four family residential mortgages and indirect auto loans.
The collateral requirements on such loans reduce the risk of potential losses
to an acceptable level in management's opinion.
Management believes the level of the allowance for loan losses at September
30, 1998 is sufficient; however, there can be no assurance that the current
allowance for loan losses will be adequate to absorb all future loan losses.
The relationship between the allowance for loan losses and outstanding loans
is a function of the credit quality and known risk attributed to the loan
portfolio. The on-going loan review program and credit approval process is
used to determine the adequacy of the allowance for loan losses. In addition,
our determination of the amount of the allowance for loan losses is subject
to review by the Regulatory Authorities, as part of their examination process.
After review of the information available, the Regulatory Authorities might
require the establishment of an additional allowance. Any increase in the loan
loss allowance required by the Regulatory Authorities would have a negative
impact on our earnings.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in the 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
13
<PAGE>
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 Financial Corp.
(Registrant)
Date: November 11, 1998 By: /s/ Glenn Griffiths
-----------------------
Glenn Griffiths,
President & CEO
Date: November 11, 1998 By: /s/ Donald Stacy
-----------------------
Donald Stacy,
Vice President &
Treasurer
14
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 6,832,297
<INT-BEARING-DEPOSITS> 1,096,000
<FED-FUNDS-SOLD> 4,645,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43,198,615
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 107,821,220
<ALLOWANCE> 2,517,095
<TOTAL-ASSETS> 168,407,986
<DEPOSITS> 154,020,096
<SHORT-TERM> 8,436,347
<LIABILITIES-OTHER> 712,517
<LONG-TERM> 0
0
0
<COMMON> 832,910
<OTHER-SE> 13,554,980
<TOTAL-LIABILITIES-AND-EQUITY> 168,407,986
<INTEREST-LOAN> 7,410,990
<INTEREST-INVEST> 1,907,297
<INTEREST-OTHER> 180,516
<INTEREST-TOTAL> 9,498,803
<INTEREST-DEPOSIT> 4,638,037
<INTEREST-EXPENSE> 4,865,880
<INTEREST-INCOME-NET> 4,632,923
<LOAN-LOSSES> 2,027,000
<SECURITIES-GAINS> 31,682
<EXPENSE-OTHER> 3,611,768
<INCOME-PRETAX> (391,004)
<INCOME-PRE-EXTRAORDINARY> (183,568)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (183,568)
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
<YIELD-ACTUAL> 0
<LOANS-NON> 2,218,000
<LOANS-PAST> 439,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,667,651
<CHARGE-OFFS> 1,267,000
<RECOVERIES> 79,444
<ALLOWANCE-CLOSE> 2,517,095
<ALLOWANCE-DOMESTIC> 2,517,095
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
