<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period ended March 31, 2000
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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 (IRS Employer
incorporation or organization) Identification No.)
One South Main Street, Niles, Ohio 44446-0228
---------------------------------------------
(Address of principal executive offices)
(330) 544-7400
--------------
(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class: Outstanding at May 1, 2000
Common stock, no par value 361,780 common shares
Transitional Small Business Disclosure Format (check one): Yes [ ] No[X]
1.
<PAGE> 2
SECURITY FINANCIAL CORP.
FORM 10-QSB
Quarter ended March 31, 2000
Part I - Financial Information
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. - Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999 ........................................................ 3
Consolidated Statements of Income for the three months ended
March 31, 2000 and 1999 .................................................. 4
Consolidated Statement of Changes in Stockholders' Equity for the
three months ended March 31, 2000 ........................................ 6
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999 .................................................. 7
Notes to Consolidated Financial Statements ............................... 8
Item 2. - Management's Discussion and Analysis of Operations ................... 13
Part II - Other Information .................................................... 19
Signatures ..................................................................... 21
</TABLE>
2.
<PAGE> 3
SECURITY FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ---
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,010,894 $ 8,110,768
Federal funds sold 9,999,000 8,950,000
Short-term interest-bearing deposits -- 298,000
------------- -------------
Cash and cash equivalents 17,009,894 17,358,768
Long-term interest-bearing deposits 398,000 199,000
Securities available for sale 40,659,511 40,543,732
Loans 107,600,287 109,117,665
Less allowance for loan losses 1,729,009 1,649,815
------------- -------------
Net loans 105,871,278 107,467,850
Premises and equipment, net 4,886,792 4,899,155
Accrued interest and other assets 2,284,474 2,198,788
------------- -------------
Total assets $ 171,109,949 $ 172,667,293
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non interest-bearing demand $ 19,768,073 $ 18,319,669
Interest-bearing demand 11,528,546 9,894,059
Money market 16,812,407 17,052,311
Savings 25,528,833 25,085,927
Time 71,561,877 75,014,008
------------- -------------
Total deposits 145,199,736 145,365,974
Short-term borrowings 10,282,945 9,405,994
FHLB advances 1,000,000 3,000,000
Accrued interest payable and other liabilities 374,964 554,697
------------- -------------
Total liabilities 156,857,645 158,326,665
Commitments and contingencies
Common stock, without par value
1,500,000 shares authorized;
361,780 shares issued 7,860,674 7,860,674
Retained earnings 7,082,465 7,124,702
Accumulated other comprehensive loss (690,835) (644,748)
------------- -------------
Total stockholders' equity 14,252,304 14,340,628
------------- -------------
Total liabilities and stockholders' equity $ 171,109,949 $ 172,667,293
============= =============
</TABLE>
See accompanying notes to financial statements.
3.
<PAGE> 4
SECURITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------
2000 1999
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $2,330,692 $2,360,445
Securities:
Taxable 510,612 505,537
Tax exempt 110,313 110,411
Interest-bearing deposits in other banks 6,138 16,929
Federal funds sold 135,394 38,914
---------- ----------
Total interest income 3,093,149 3,032,236
INTEREST EXPENSE
Deposits 1,427,576 1,414,817
Short-term borrowings 105,073 58,919
FHLB borrowings 22,981 16,247
---------- ----------
Total interest expense 1,555,630 1,489,983
---------- ----------
NET INTEREST INCOME 1,537,519 1,542,253
Provision for loan losses 150,000 300,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,387,519 1,242,253
OTHER INCOME
Service charges on deposit accounts 138,127 144,711
Investment securities gains, net -- 7,112
Gain on sale of loans, net 1,688 2,420
Other income 63,948 39,055
---------- ----------
Total other income 203,763 193,298
OTHER EXPENSE
Salaries and employee benefits 723,084 645,950
Occupancy and equipment 168,105 185,059
Other expense 612,063 508,864
---------- ----------
Total other expense 1,503,252 1,339,873
========== ==========
</TABLE>
(Continued)
4.
<PAGE> 5
SECURITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
2000 1999
---- ----
<S> <C> <C>
INCOME BEFORE INCOME TAX $ 88,030 $ 95,678
Income tax expense (benefit) 14,500 (5,065)
--------- ---------
NET INCOME $ 73,530 $ 100,743
========= =========
Basic and diluted earnings per share $ 0.20 $ 0.28
</TABLE>
See accompanying notes to financial statements.
5.
<PAGE> 6
SECURITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Income (Loss) Total
---------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 2000 $7,860,674 $7,124,702 $(644,748) $14,340,628
Cash dividends ($.32
per share) (115,767) (115,767)
Comprehensive income:
Net income 73,530 73,530
Net unrealized loss on
securities available for
sale, net of tax (46,087) (46,087)
-----------
Total comprehensive
income 27,443
---------- ---------- --------- -----------
Balance, March 31, 2000 $7,860,674 $7,082,465 $(690,835) $14,252,304
========== ========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
6.
<PAGE> 7
SECURITY FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash from operating activities $ 142,663 $ 314,073
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in long-term interest-bearing deposits (199,000) -
Investment securities available for sale:
Proceeds from sales - 1,947,447
Proceeds from maturities and principal repayments 997,179 1,191,912
Purchases (1,250,000) (835,931)
Net decrease in loans 1,446,572 4,060,473
Purchase of premises and equipment (81,234) (61,952)
------------ ------------
Net cash from investing activities 913,517 6,301,949
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (166,238) (5,659,102)
Increase in short-term borrowings 876,951 901,133
Increase in FHLB advances - 3,000,000
Repayment of FHLB advances (2,000,000) -
Proceeds from stock options - 16,614
Cash dividends paid on common stock (115,767) -
------------ ------------
Net cash from financing activities (1,405,054) (1,741,355)
------------ ------------
Net increase (decrease) in cash and cash equivalents (348,874) 4,874,667
Cash and cash equivalents at beginning of period 17,358,768 11,131,009
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,009,894 $ 16,005,676
============ ============
</TABLE>
See accompanying notes to financial statements.
7.
<PAGE> 8
SECURITY FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Presentation
- ----------------------------------------------
The consolidated financial statements include Security Financial Corp.
("Company") and its wholly-owned subsidiary, Security Dollar Bank ("Bank").
Significant intercompany transactions and balances are eliminated in
consolidation.
These interim financial statements reflect all adjustments of a normal recurring
nature which, in the opinion of management, are necessary to present fairly the
consolidated financial position of Security Financial Corp. at March 31, 2000,
and its results of operations and cash flows for the periods presented. The
accompanying consolidated financial statements do not purport to contain all the
necessary financial disclosures required by generally accepted accounting
principles that might otherwise be necessary in the circumstances and are not
necessarily indicative of the results to be expected for the full year. The
Annual Report for Security Financial Corp. for the year ended December 31, 1999,
contains consolidated financial statements and related notes which should be
read in conjunction with the accompanying consolidated financial statements.
The Company is a Delaware corporation organized as holding company of the Bank.
The Bank is a state-chartered commercial bank located in Northeast Ohio. The
Company and its subsidiary derive substantially all their income from banking
and bank-related services which include interest earnings on commercial and
consumer loan financing as well as interest on securities and a variety of
deposit services to its customers through five locations. The Company and the
Bank are supervised by the Federal Reserve Board, while the Bank is also subject
to regulation and supervision by the Ohio Division of Financial Institutions.
Use of Estimates
- ----------------
To prepare financial statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the
financial statements and the disclosures provided, and future results could
differ. The allowance for loan losses and status of contingencies are
particularly subject to change.
Securities
- ----------
The Company has classified debt and equity securities as available for sale to
serve principally as a source of liquidity. Unrealized holding gains and losses
for available for sale securities are reported as a separate component of
stockholders' equity, net of tax, until realized. Realized securities gains and
losses are computed using the specific identification method. Interest and
dividends on investment securities are recognized as income when earned.
Interest income includes amortization of purchase premiums or discounts.
Common stock of the Federal Home Loan Bank, Federal Reserve Bank, and
Independent State Bank of Ohio are accounted for at cost and are classified with
equity securities available for sale.
(Continued)
8.
<PAGE> 9
SECURITY FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Loans
- -----
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff are reported at the principal balance
outstanding, net of deferred loan fees and costs and an allowance for loan
losses. Loans held for sale are reported at the lower of cost or market, on an
aggregate basis.
Interest on loans is recognized as income when earned on the accrual method. The
Company's general policy has been to stop accruing interest on loans when it is
determined that reasonable doubt exists as to the collectibility of additional
interest. Interest payments received on nonaccrual loans is recorded as income
or applied against principal according to management's judgment as to the
collectibility of the related loans. Loan origination fees and certain direct
loan origination costs are being deferred and the net amount amortized as an
adjustment of the related loan yield. The Company is amortizing these amounts
over the contractual lives of the related loans.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is a valuation allowance for probable incurred
credit losses, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
using past loan loss experience, the nature and volume of the portfolio,
information about specific borrower situations and estimated collateral values,
economic conditions, and other factors. Allocations of the allowance may be made
for specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
A loan is considered impaired when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage and consumer loans, and on an individual
loan basis for other loans. If a loan is impaired, a portion for the allowance
is allocated so that the loan is reported, net, at the present value of
estimated future cash flows using the loan's exiting rate or at the fair value
of collateral if repayment is expected solely from the collateral. The
definition of "impaired loans" is not the same as the definition of "nonaccrual
loans," although the two categories overlap. The Company may choose to place a
loan on nonaccrual status due to payment delinquency or uncertain
collectibility, while not classifying the loan impaired. Factors considered by
management in determining impairment include payment status and collateral
value.
Earnings Per Common Share
- -------------------------
Basic earnings per common share is net income divided by the weighted average
number of common shares outstanding during the period. Diluted earnings per
common share includes the dilutive effect of additional potential common shares
issuable under stock options. Earnings and dividends per share have been
restated for all stock dividends. The basic weighted average shares were 361,776
and 347,082 and diluted weighted average shares were 362,478 and 347,784 for
March 31, 2000 and 1999.
(Continued)
9.
<PAGE> 10
SECURITY FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Comprehensive Income
- --------------------
Comprehensive income consists of net income and other comprehensive income.
Other comprehensive income includes unrealized gains and losses on securities
available for sale which are also recognized as separate components of equity.
Loss Contingencies
- ------------------
Loss contingencies, including claims and legal actions arising in the ordinary
course of business, are recorded as liabilities when the likelihood of loss is
probable and an amount or range of loss can be reasonably estimated. Management
does not believe there now are such matters that will have a material effect on
the financial statements.
Dividend Restriction
- --------------------
Banking regulations require maintaining certain capital levels and may limit the
dividends paid by the bank to the holding company or by the holding company to
shareholders.
Income Taxes
- ------------
Income tax expense is based on the effective tax rate expected to be applicable
for the entire year. The Corporation follows the liability method of accounting
for income taxes. The liability method provides that deferred tax assets and
liabilities are recorded at enacted tax rates based on the difference between
the tax basis of assets and liabilities and their carrying amounts for financial
reporting purposes, referred to as "temporary differences." A valuation
allowance, if needed, reduces deferred tax assets to the amount expected to be
realized.
(Continued)
10.
<PAGE> 11
SECURITY FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 -SECURITIES
The amortized cost and estimated market values of securities available for sale
are summarized as follows:
<TABLE>
<CAPTION>
March 31, 2000
--------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and
Government agency
securities $ 8,386,448 $ 16,609 $ (182,937) $ 8,220,121
Obligations of states and
political subdivisions 9,108,000 7,068 (448,879) 8,666,189
Corporate obligations 195,299 - (9,924) 185,375
Mortgage-backed securities 22,671,555 22,197 (628,073) 22,065,678
------------ ------------ ------------ ------------
Total debt securities 40,361,302 45,874 (1,269,813) 39,137,363
Equity securities 1,344,929 177,219 - 1,522,148
------------ ------------ ------------ ------------
$ 41,706,231 $ 223,093 $ (1,269,813) $ 40,659,511
============ ============ ============ ============
<CAPTION>
December 31, 1999
--------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and
Government agency
securities $ 7,145,502 $ 16,952 $ (139,750) $ 7,022,704
Obligations of states and
political subdivisions 9,117,043 4,590 (613,220) 8,508,413
Corporate obligations 195,109 - (7,296) 187,813
Mortgage-backed securities 23,618,028 27,176 (509,988) 23,135,216
------------ ------------ ------------ ------------
Total debt securities 40,075,682 48,718 (1,270,254) 38,854,146
Equity securities 1,444,938 244,648 - 1,689,586
------------ ------------ ------------ ------------
$ 41,520,620 $ 293,366 $ (1,270,254) $ 40,543,732
============ ============ ============ ============
</TABLE>
(Continued)
11.
<PAGE> 12
SECURITY FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - LOANS RECEIVABLE
Loans receivable are summarized as follows:
March 31, December 31,
2000 1999
---- ----
Real estate mortgages:
Residential $ 51,662,730 $ 51,759,229
Commercial 32,932,138 32,560,547
Commercial, financial, and agricultural 6,555,558 6,060,456
Consumer loans 14,283,501 16,619,461
Other 2,166,360 2,117,972
------------ ------------
107,600,287 109,117,665
Less allowance for loan losses 1,729,009 1,649,815
------------ ------------
$105,871,278 $107,467,850
============ ============
Activity in the allowance for loan losses is summarized as follows:
Three months ended
March 31,
---------------------
2000 1999
---- ----
Balance at beginning of period $ 1,649,815 $ 1,802,773
Provision charged to income 150,000 300,000
Recoveries 74,907 38,567
Charge-offs (145,713) (288,460)
------------ ------------
Balance at end of period $ 1,729,009 $ 1,852,880
============ ============
NOTE 4 - REGULATORY AGREEMENT
On March 17, 2000, the Board of Directors approved and entered into a written
regulatory agreement between Security Dollar Bank and the Federal Reserve Bank
of Cleveland and the Ohio Division of Financial Institutions. The agreement was
executed in accordance with current banking regulations and will remain
enforceable until terminated or suspended by the Bank's regulators. The
agreement restricts the payment of dividends by the Bank without the prior
approval of its primary regulators. In addition, the agreement requires specific
actions by the Bank's management and the Board of Directors which are intended
to improve and strengthen the Bank's operations, oversight, risk management and
internal control.
12.
<PAGE> 13
SECURITY FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Financial Condition
- -------------------
Total assets decreased by approximately $1.6 million or 0.9% from December 31,
1999 to March 31, 2000, primarily as a result of the decrease in the loan
portfolio. Gross loans decreased by approximately $1.5 million or 1.39% during
the first three months of 2000. Decreases occurred in the consumer portfolio
which decreased approximately $2.3 million during the first three months of
2000. The decrease in the consumer portfolio is due to management's plan to
change the mix of the loan portfolio and de-emphasize indirect lending.
Total securities increased by approximately $116,000 or 0.3% to $40,659,511 at
March 31, 2000 from $40,543,732 at December 31, 1999.
Total deposits decreased by approximately $166,000 or 0.1%, during the first
three months of 2000. Decreases occurred in the time deposit portfolios during
the first three months of 2000, and were partially offset by an increase in
non-interest and interest bearing deposit accounts. During the first quarter of
2000, Management restructured the interest rates offered on its time deposits in
order to extend the duration of its liabilities, thus reducing the Bank's level
of interest rate risk. Interest rates are generally set to be competitive in the
local market for the desired maturity ranges, without leading the market. While
this decision has resulted in a decrease in the overall level of time deposits,
Management considers this course of action to be in the Bank's best interests in
terms of interest rate risk, future earnings potential and liquidity.
During the first quarter of 1999, the Bank borrowed a total of $3 million in
three separate transactions from the Federal Home Loan Bank of Cincinnati
("FHLB"). Each of these $1 million borrowings carried a low fixed rate for an
initial time period, after which the interest rate would become variable. Two of
these borrowings converted to variable rates during the first quarter of 2000,
and Management elected to repay these borrowings at that time. The remaining $1
million will convert to a variable rate in the first quarter of 2001. Management
will continue to utilize FHLB borrowings when they represent the best available
funding source.
Stockholders' equity decreased by approximately $88,000 for the three month
period ended March 31, 2000, due to net income of approximately $74,000 which
was offset by net unrealized losses on securities increasing by approximately
$46,000 and payment of cash dividends of approximately $116,000.
13.
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
Results of Operations
- ---------------------
Net income for the three-month period ending March 31, 2000 amounted to $73,530
March 31, 2000 compared to $100,743 during the same period in 1999. 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.
Interest income for the first quarter 2000 totaled $3,093,000 compared to
$3,032,000 during the same period 1999, an increase of $61,000. During the same
time period, interest expense increased $66,000 from $1,490,000 in 1999 to
$1,556,000 in 2000. The increase in interest income is primarily the result of
the increase in the average balance and rate earned on federal funds compared to
the same period in 1999 which was partially offset by a decline in the yield on
loans from 1999 to 2000. The primary increase in interest expense was due to the
increase in the average balance and rate for money market accounts and
repurchase agreements. The increase was partially offset by the decrease in the
average balance of time deposits from the same period in 1999.
The provision for loan losses for the three months ended March 31, 2000 was
$150,000, compared to $300,000 for the three months ended March 31, 1999. The
decrease in the provision, related primarily to a decrease in net loan
charge-offs for the three months ended March 31, 2000 compared to the same
period in 1999, 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 overall level of non-performing loans declined from $2.6 million at March
31, 1999 to $961,000 at March 31, 2000. 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 probable unknown losses based
on current economic conditions, the regulatory environment and historical
experience. The provision for loan losses represents charges to operations
necessary to maintain the allowance at a level which management believes will be
adequate to absorb losses. Management believes that the allowance for possible
loan losses is adequate. While management evaluates the allowance for loan
losses based upon available information, future additions to the allowance may
be necessary. Additionally, regulatory agencies review the Company's allowance
for 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.
14.
<PAGE> 15
SECURITY FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
Non-interest income, which is comprised principally of service charges on
deposit accounts, increased 5.7%, or $11,000 from $193,000 for the three months
ended March 31, 1999 to $204,000 for the three months ended March 31, 2000.
Brokerage fee income increased from $29,000 for the three months ended March 31,
1999 to $53,000 during the same period in the current year. Transaction volume
is expected to continue to increase in this area, which would generate
additional fee income to the Bank.
Non-interest expense increased $163,000 or 12.2% to $1,503,000 for the three
months ended March 31, 2000 from $1,340,000 for the three months ended March 31,
1999. Of the increase, $77,000 related to increases in salaries and benefits
expenses the three months ended March 31, 2000 when compared to the same period
in 1999. The remaining amount of the increase in non-interest expense is due to
the general increase in other general operating expenses including increases in
professional fees, collection expense and FDIC insurance.
15.
<PAGE> 16
SECURITY FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR 2000 COMPLIANCE
As of March 31, 2000, the Company has experienced no Year 2000 related problems.
Management continues to monitor systems for problems which may be related to the
Year 2000 issue.
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, 2000 and December 31, 1999. 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
2000 1999
---- ----
(Dollars in Thousand)
Loans on nonaccrual basis $ 837 $1,041
Loan past 90 days or more and still accruing 124 184
------ ------
Total non-performing loans 961 1,225
Other non-performing assets 24 22
------ ------
Total non-performing assets $ 985 $1,247
====== ======
Total non-performing loans to
total loans .89% 1.12%
Total non-performing loans to
total assets .56% .71%
Total non-performing assets to
total assets .58% .72%
LIQUIDITY
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 stockholders. Liquidity is needed to
16.
<PAGE> 17
SECURITY FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
LIQUIDITY (continued)
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 borrowings and Federal Home Loan Bank
advances supplements the Company's availability of funds.
REGULATORY ACTION
On March 17, 2000, the Board of Directors entered into a written regulatory
agreement between Security Dollar Bank and the Federal Reserve Bank of Cleveland
and the Ohio Division of Financial Institutions. The agreement remains
enforceable until terminated or suspended by the regulatory agencies and
requires prior regulatory approval before any dividends can be paid by the Bank.
In addition, the agreement requires specific actions be undertaken by management
and the Bank's Board of Directors which are intended to improve and strengthen
the Bank's operations, oversight, risk management and internal control. The
agreement establishes specific time frames for the completion of various action
items and requires written progress reports be furnished to the Bank's
regulators on a quarterly basis detailing the actions taken to secure compliance
with the agreement. Management anticipates that both Company management and the
Board of Directors will devote significant time and attention during 2000 to
complete the detailed requirements of the agreement. In addition, management
anticipates the Company will incur costs for outside consulting engagements
required under specific terms of the agreement. The cost for those services is
not currently known.
CAPITAL RESOURCES
Under regulations issued by federal banking agencies, banks and bank holding
companies are required to maintain certain minimum capital ratios known as the
risk-based capital ratio and the leverage ratio. At March 31, 2000, the
Company's Tier 1 Capital (to average assets), Tier 1 Capital (to risk-weighted
assets) and total risk-based capital ratios were 8.43%, 13.82% and 15.16%,
respectively, compared to 7.94%, 12.61% and 13.86% at December 31, 1999,
respectively. The Company has exceeded all required regulatory capital ratios
for each period presented and is considered "well capitalized" under all federal
banking agency regulations.
17.
<PAGE> 18
SECURITY FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
FORWARD LOOKING STATEMENTS
Certain statements contained in this report that are not historical facts are
forward looking statements that are subject to certain risks and uncertainties.
When used herein, the terms "anticipates," "plans," "expects," "believes," and
similar expressions as they relate to the Company or its management are intended
to identify such forward looking statements. The Company's actual results,
performance or achievements may materially differ from those expressed or
implied in the forward looking statement. Risks and uncertainties that could
cause or contribute to such material differences include, but are not limited
to, general economic conditions, interest rate environment, competitive
conditions in the financial services industry, changes in law, governmental
policies and regulations, and rapidly changing technology affecting financial
services.
18.
<PAGE> 19
SECURITY FINANCIAL CORP.
FORM 10-QSB
Quarter ended March 31, 2000
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. - Legal Proceedings.
The nature of the Company's business results in a certain amount of litigation.
Accordingly, the Company and its subsidiaries are subject to various pending and
threatened lawsuits in which claims for monetary damages are asserted in the
ordinary course of business. While any litigation involves an element of
uncertainty, in the opinion of management, liabilities, if any, arising from
such litigation or threat thereof will not have a material effect on the
Company.
Item 2. - Changes in rights of the Company's Security holders.
None.
Item 3. - Defaults upon senior securities.
None.
Item 4. - Submission of Matters to a Vote of Security Holders.
During the quarter ended March 31, 2000, there were no matters submitted to a
vote of stockholders.
Item 5 - Other information.
None.
Item 6. - Exhibits and Reports on Form 8-K
(a.) Exhibit
Number Exhibit
------ -------
27 Financial Data Schedule for the three months ended
March 31, 2000 (1)
(b.) Reports on Form 8-K - on March 22, 2000, the issuer filed a Form 8-K.
The information reported is as follows:
Registrant's sole banking subsidiary, The Security Dollar Bank (the "Bank")
entered into a formal Written Agreement with the Ohio Division of Financial
Institutions ("ODFI") and the Board of governors of the Federal Reserve System
("FRS") on March 17, 2000 (the "Written Agreement.") The Written Agreement
requires the Bank to undertake certain actions designed to correct deficiencies
noted by the ODFI and the FRS in the most recent examination of the Bank.
19.
<PAGE> 20
SECURITY FINANCIAL CORP.
FORM 10-QSB
Quarter ended March 31, 2000
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
The Board of Directors has appointed C. James Bess as Interim President and CEO
of the Bank. The Bank's President and CEO, Glenn E. Griffiths, is on indefinite
medical leave.
Gary E. Clayman and Douglas J. Neuman have resigned their positions as members
of the Board of Directors of the Bank.
(1.) Filed only in electronic format
20.
<PAGE> 21
SECURITY FINANCIAL CORP.
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: May 10, 2000 /s/C. James Bess
------------------------- ----------------
C. James Bess
President and Chief Executive Officer
Date: May 10, 2000 /s/Stephen K. Miller
----------------------- --------------------
Stephen K. Miller
Treasurer
21.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION QUARTERLY REPORT ON FORM
10-QSB FOR THE FISCAL QUARTER IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH A LEGEND
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,010,894
<INT-BEARING-DEPOSITS> 398,000
<FED-FUNDS-SOLD> 9,999,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,659,511
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<LOANS> 107,600,287
<ALLOWANCE> 1,729,009
<TOTAL-ASSETS> 171,109,949
<DEPOSITS> 145,199,736
<SHORT-TERM> 10,282,945
<LIABILITIES-OTHER> 374,964
<LONG-TERM> 1,000,000
0
0
<COMMON> 7,860,674
<OTHER-SE> 6,391,630
<TOTAL-LIABILITIES-AND-EQUITY> 171,109,949
<INTEREST-LOAN> 2,330,692
<INTEREST-INVEST> 620,925
<INTEREST-OTHER> 141,532
<INTEREST-TOTAL> 3,093,149
<INTEREST-DEPOSIT> 1,427,576
<INTEREST-EXPENSE> 1,555,630
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<LOAN-LOSSES> 150,000
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<EXPENSE-OTHER> 1,503,252
<INCOME-PRETAX> 88,030
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<LOANS-NON> 837,000
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