<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] 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 0-21212
-------
SECURITY FIRST CORP.
(Exact name of registrant as specified in its charter)
Delaware 34-1724675
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1413 Golden Gate Boulevard
Mayfield Heights, Ohio 44124-1800
---------------------- ----------
(Address of principal executive (Zip Code)
offices)
(216) 449-3700
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed since
last report)
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
-
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Common stock,$0.01 par value 4,929,612
- ---------------------------- ---------
(Class) (Outstanding at August 7, 1996)
</TABLE>
<PAGE> 2
SECURITY FIRST CORP.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements:
Consolidated Statements of Financial Condition as of
June 30, 1996, March 31, 1996, and June 30, 1995...... 3
Consolidated Statements of Income for the three months
ended June 30, 1996 and 1995.......................... 4
Consolidated Statements of Cash Flows for the three
months ended June 30, 1996 and 1995................... 5-6
Notes to Consolidated Financial Statements.............. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 8-17
PART II. OTHER INFORMATION ....................................... 18
Computation of Earnings Per Share....................... 19
SIGNATURES......................................................... 20
</TABLE>
<PAGE> 3
Part I. - Financial Information
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATE)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31, JUNE 30,
1996 1996 1995
-----------------------------------
<S> <C> <C> <C>
ASSETS:
Cash and deposits with banks $ 6,659 $ 6,886 $ 7,947
Interest bearing deposits with banks 2,595 3,812 2,487
Federal funds sold and short term investments 14,284 2,959 3,464
-----------------------------------
Total cash and cash equivalents 23,538 13,657 13,898
-----------------------------------
Investment securities - held to maturity (market values of
$6,987, $9,264, and $34,441 at June 30, 1996, March 31, 1996,
and June 30, 1995) 7,000 9,250 34,430
Investment securities - available for sale (amortized cost of
$25,188, $24,379, and $4,000 at June 30, 1996, March 31, 1996,
and June 30, 1995, respectively) 24,832 24,189 4,011
Mortgage-backed securities - held to maturity (market values
of $4,097 at June 30, 1995) -- -- 3,989
Mortgage-backed securities - available for sale (amortized
cost of $2,917 at June 30, 1996 and $3,173 at March 31, 1996) 2,992 3,275 --
Loans - net (including allowance for loan losses of
$4,661 at June 30, 1996, $4,572 at March 31, 1996,
and $4,277 at June 30, 1995) 508,028 475,631 445,934
Accrued interest receivable 3,645 3,466 3,224
Federal Home Loan Bank stock - at cost 5,559 3,864 2,957
Premises and equipment - net 8,681 8,451 7,913
Real estate owned 154 39 215
Cost in excess of fair value of net
assets acquired (goodwill) 1,108 1,135 1,218
Prepaid expenses and other assets 3,055 4,270 3,520
-----------------------------------
TOTAL ASSETS $ 588,592 $ 547,227 $ 521,309
===================================
LIABILITIES:
Deposits $ 416,314 $ 410,737 $ 401,784
Advances from Federal Home Loan Bank - short term 89,500 59,300 34,587
Advances from Federal Home Loan Bank - long term 12,468 8,784 19,703
Convertible subordinated debentures 8,774 8,774 8,804
Advance payments by borrowers for taxes
and insurance (escrow) 2,729 1,345 2,442
Accrued interest payable 1,350 1,473 991
Accounts payable and other accrued expenses 1,725 2,434 1,569
-----------------------------------
Total liabilities 532,860 492,847 469,880
-----------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock (1,000,000 shares authorized,
none issued) -- -- --
Common stock, par value $.01 per share; 10,000,000
shares authorized; 4,929,612 shares issued and
outstanding at June 30, 1996, 4,928,968 at
March 31, 1996 and 4,851,780 at June 30, 1995 49 49 49
Capital in excess of par value 14,487 14,453 14,117
Net unrealized gain (loss) on investments and mortgage-backed
securities (net of tax of $96 at June 30, 1996, $30 at
March 31, 1996, and $4 at June 30, 1995) (185) (59) 8
Unearned compensation (273) (293) (345)
Unearned employee stock ownership plan shares (424) (447) (519)
Retained earnings (substantially restricted) 42,078 40,677 38,119
-----------------------------------
Total shareholders' equity 55,732 54,380 51,429
-----------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 588,592 $ 547,227 $ 521,309
===================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
Part I. - Financial Information
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1996 1995
---------------------
<S> <C> <C>
INTEREST INCOME:
Loans $10,865 $ 9,724
Mortgage-backed securities 62 83
Investment securities 580 635
Short-term investments 107 119
---------------------
Total interest income 11,614 10,561
---------------------
INTEREST EXPENSE:
Deposits 4,565 4,514
Short-term FHLB advances 1,004 450
Long-term FHLB advances 105 313
Convertible subordinated debentures 148 147
---------------------
Total interest expense 5,822 5,424
---------------------
Net interest income 5,792 5,137
Provision for loan losses 96 84
---------------------
Net interest income after provision
for loan losses 5,696 5,053
OTHER INCOME:
Service charges and other fees 401 361
Other 33 62
---------------------
Other income 434 423
---------------------
OTHER EXPENSES:
Salaries and employee benefits 1,409 1,419
Occupancy and equipment 430 426
Federal deposit insurance 236 223
Marketing 101 142
Professional fees 114 134
Data processing 130 103
Printing and supplies 69 68
Amortization of goodwill 27 28
Supervisory assessment 32 30
Other 613 500
---------------------
Other expenses 3,161 3,073
Income before federal income taxes 2,969 2,403
Federal income taxes 1,035 795
---------------------
NET INCOME $ 1,934 $ 1,608
=====================
EARNINGS PER SHARE:
Primary $ 0.39 $ 0.33
=====================
Fully diluted $ 0.35 $ 0.30
=====================
CASH DIVIDENDS PER SHARE $ 0.11 $ 0.10
=====================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
Part I. - Financial Information
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1996 1995
---------------------
<S> <C> <C>
OPERATING ACTIVITIES:
- ---------------------
Net Income $ 1,934 $ 1,608
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for losses on loans and real
estate owned 96 84
Accretion of discounts, amortization of
premiums, and other deferred yield items 418 87
Depreciation and amortization 176 162
Amortization of goodwill 27 28
Amortization of unearned compensation 20 9
Effect of change in accrued interest
receivable and payable (302) (169)
FHLB stock dividends (67) (48)
Net change in accounts payable, accrued expenses,
and other assets 602 699
Other 48 --
---------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,952 2,460
---------------------
INVESTING ACTIVITIES:
- ---------------------
Loans originated (74,034) (43,739)
Increase (decrease) in loans in process 6,508 4,024
Loan principal repayments and maturities 39,670 27,816
Proceeds from:
Sales of:
Loan participations 132 444
Real estate owned 1 111
Mortgage-backed security principal
repayments and maturities 257 224
Investment security maturities 3,443 6,500
Purchases of:
Loans (5,333) (3,800)
Investment securities (2,000) (7,300)
Premises and equipment (408) (231)
FHLB stock (1,628) --
---------------------
NET CASH USED IN INVESTING ACTIVITIES ($33,392) ($15,951)
---------------------
</TABLE>
<PAGE> 6
Part 1. - Financial Information
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1996 1995
---------------------
<S> <C> <C>
FINANCING ACTIVITIES:
- ---------------------
Net increase in savings deposits $ 5,577 $ 8,470
Proceeds from additional FHLB advances 82,000 23,550
Payment of FHLB advances (48,116) (19,803)
Net increase in mortgage escrow funds 1,384 545
Payment of dividends on common stock (533) (485)
Proceeds from exercise of stock options 9 3
---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 40,321 12,280
---------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,881 (1,211)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,657 15,109
---------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,538 $ 13,898
=====================
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest on deposits and borrowings $ 5,945 $ 5,594
Income taxes 643 161
Noncash investing activities -
Transfers from loans to real estate acquired
through foreclosure 124 128
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
1. FINANCIAL STATEMENTS
SECURITY FIRST CORP.
Notes to Consolidated Financial Statements (Unaudited)
1. ACQUISITION
Effective April 10, 1996, Security First Corp. ("Security First" or
"Company") acquired all of the 822,064 outstanding shares of common stock of
First Kent Financial Corporation ("First Kent"), the parent holding company of
First Federal Savings Bank of Kent ("First Federal") by exchanging 1.70 shares
of Security First stock for each share of First Kent with any resulting
fractional shares paid in cash at a rate of $25.075 per share times the
fractional share interest. This transaction has been accounted for as a pooling
of interests, and all prior period financial statements herein have been
restated to show the effect of the acquisition.
2. BASIS OF PRESENTATION
The consolidated financial statements of Security First include the
accounts of the Company and the accounts of its wholly owned subsidiaries,
Security Federal Savings and Loan Association ("Security Federal" or
"Association"), First Federal, and SF Development Corp. All significant
inter-company transactions have been eliminated. In the opinion of management,
the accompanying unaudited financial statements include all adjustments
(consisting only of normal recurring accruals) which the Company considers
necessary for a fair presentation of (a) the results of operations for the three
months ended June 30, 1996 and 1995; (b) the financial condition at June 30,
1996, March 31, 1996, and June 30, 1995; and (c) the statement of cash flows for
the three month periods ended June 30, 1996 and 1995. The results of operations
for the three month period ended June 30, 1996 are not necessarily indicative of
the results that may be expected for a full year.
3. EARNINGS PER SHARE
Earnings per share for each period presented is calculated using the
weighted average number of shares of common stock and common stock equivalents
outstanding during each period. (See calculation in Exhibit 11.)
Fully diluted earnings per share is computed giving appropriate
consideration to the dilutive effect of stock options and shares issuable upon
conversion of the 6.25% convertible subordinated debentures. In computing fully
diluted net income per share, net income has been adjusted to eliminate interest
expense associated with the debentures, net of estimated income taxes.
4. NEW ACCOUNTING STANDARD
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." This standard is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. This statement supersedes SFAS
No. 122. The impact of adopting this statement on the financial condition and
results of operations of the Company is not expected to be significant.
<PAGE> 8
ITEM 2.
SECURITY FIRST CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Security First's net income increased 20% to $1,934,000 for the first
quarter ended June 30, 1996 compared with $1,608,000 for the same period in
1995. The Company's total assets increased approximately 8%, from $547.2 million
at fiscal year-end March 31, 1996 to $588.6 million at June 30, 1996,
principally due to a $32.4 million net increase in loans outstanding, funded
mainly by increased borrowings from the Federal Home Loan Bank of Cincinnati
("FHLB").
Shareholders' equity (capital) at June 30, 1996 increased by $1.4 million
since March 31, 1996, mainly as a result of the retention of $1.4 million of net
earnings after the payment of cash dividends totalling $533,000. Other changes
in capital were related to 1) the net unrealized loss (net of tax) on
investments and mortgage-backed securities classified as available for sale and
the effect of the Employee Stock Ownership Plan ("ESOP") and 2) the Recognition
and Retention Plan ("RRP") recognized in the pooling of interests as a result of
the acquisition of First Kent. The ESOP will be terminated upon receipt of
approval from the Internal Revenue Service and shares of common stock of
Security First will be sold in order to pay the remaining amount which the ESOP
borrowed at the inception of the Plan. The remainder shares will be allocated
among participants in the Plan. First Kent issued 22,216 shares of common stock
to fund the RRP; as adjusted for the merger conversion factor of 1.70, these
shares total 37,767. The RRP shares vest at a rate of 20% per year beginning
January 1996. The cost of the RRP will be reflected as compensation expense in
the consolidated statement of operations as vesting occurs.
As noted in the "Capital" section, both Security Federal's and First
Federal's regulatory capital ratios at June 30, 1996 exceed all regulatory
capital requirements, and both have been categorized as well-capitalized by the
Office of Thrift Supervision ("OTS").
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"project," "believe" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made, and to advise readers that various factors, including regional
and national economic conditions, changes in levels of market interest rates,
credit risks of lending activities, and competitive and regulatory factors could
affect the company's financial performance and could cause the Company's actual
results for future periods to differ materially from those anticipated or
projected.
<PAGE> 9
The Company does not undertake -and specifically disclaims any obligation-
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
ASSET QUALITY
The Company's provision for loan losses was $96,000 for the three months
ended June 30, 1996 compared with $84,000 for the same period last year. The
allowance for loan losses of $4,661,000 at June 30, 1996 increased nearly 9%
from the $4,277,000 at June 30, 1995; while nonperforming loans fell to $1.7
million at June 30, 1996 from $3.2 million at June 30, 1995.
The provision and allowance for loan losses are based on management's
ongoing assessment of the adequacy of the allowance for loan losses. Systematic
detailed reviews of the Company's multi-family and commercial loan portfolios
are performed regularly in order to evaluate any potential credit losses. For
loan categories which are significant in total dollars but individual loan
amounts are not material and are well collateralized, the categories are
reviewed in total. These reviews consider, among other factors, economic
conditions, delinquency patterns and historic loss experience in the loan
portfolio in order to assess potential credit losses.
<PAGE> 10
The following table provides information concerning non-performing assets
(non-accrual loans as well as those loans accruing but delinquent more than 90
days, and real estate owned) and the allowance for loan losses at the respective
dates (dollars in thousands):
NON-PERFORMING ASSETS:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31, JUNE 30,
1996 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Non-accrual loans $ 1,318 $ 2,006 $ 3,077
Accruing loans past due
90 days 342 522 105
Real estate owned 154 39 215
--------- --------- ---------
Total non-performing
assets $ 1,814 $ 2,567 $ 3,397
========= ========= =========
Allowance for loan losses $ 4,661 $ 4,572 $ 4,277
========= ========= =========
RATIOS:
Non-performing assets
to total assets .31% 0.47% 0.65%
========= ========= =========
Non-performing loans
to total loans (before
allowance for loan losses) .32% 0.53% 0.71%
========= ========= =========
Allowance for loan losses
to non-performing loans 280.78% 180.85% 134.41%
========= ========= =========
Allowance for loan losses to
period-end loans (before
allowance for loan losses) 0.91% 0.95% 0.95%
========= ========= =========
Net charge offs to average
loans for the period (a) 0.01% 0.02% 0.08%
========= ========= =========
<FN>
(a) Annualized based on net charge-offs for the three months ended June 30, 1996
and 1995, respectively.
</TABLE>
As noted above, non-performing loans at June 30, 1996 decreased nearly
$900.000, or 34%, since fiscal year-end due to the resolution of a severely
delinquent loan which also resulted in $192,000 cash recovery of delinquent
interest. Real estate owned ("REO"), acquired in settlement of loans, at June
30, 1996 was $154,000 and consists of three single-family residences and two
developed sub-lots.
Management is of the opinion that the allowance for loan losses at June 30,
1996, which represents 281% of total non-performing loans, is adequate to meet
potential losses in the loan portfolio. It must be understood, however, that
there are inherent risks and uncertainties related to the operation of a
financial institution. By necessity, the Company's presentation of loans and REO
in the consolidated financial statements is dependent upon estimates,
appraisals, and evaluations of loans. Therefore, the possibility exists that
abrupt changes in economic and other market circumstances can change such
estimates, appraisals, and evaluations and require them to be revised.
<PAGE> 11
LIQUIDITY
The term "liquidity" refers to the ability of the Company to generate
adequate amounts of cash to meet its needs, typically for the funding of loan
originations. The Company's liquidity is a measure of its ability to fund loans
and meet withdrawals of deposits and other cash outflows in a cost-effective
manner. The principal sources of funds for the Company's operations are cash
flows generated from earnings, savings deposits, scheduled amortization and
prepayment of loans and mortgage-backed securities, maturities of investment
securities, and borrowings from the FHLB. Because a significant portion of the
Company's loan originations consist of relatively short-term construction and
development loans, the funding source for new loan originations is frequently
derived from maturities and prepayments of other construction loans. In
addition, Security Federal and First Federal also have the ability to borrow up
to 25% of their total assets, or an additional $22 million and $11 million,
respectively (as of June 30, 1996) from the FHLB, if the need arises.
Management regularly reviews the Company's need for cash to fund its
operations and believes that the aforementioned sources of funds are adequate
for its projected requirements. Federal regulations require that a savings
institution maintain an average daily balance of liquid assets of at least 5% of
the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For the quarter ended June 30, 1996,
Security Federal's average liquid asset ratio was 7.13% compared to 7.34% for
the quarter ended June 30, 1995. First Federal's liquidity ratios were 12.62%
and 22.43% for the quarter ended June 30, 1996 and 1995, respectively.
CAPITAL
Regulatory capital for Security Federal and First Federal at June 30, 1996
exceeded all the minimum capital requirements specified by federal regulations.
In addition, both subsidiaries exceeded the capital level required by OTS to be
classified as a well-capitalized institution as demonstrated in the following
table (dollar amounts in thousands):
<TABLE>
<CAPTION>
SECURITY FEDERAL
----------------
Tier 1 Tier 1 Total
Core Risk- Risk-
Leverage Based Based Tangible
Capital Capital Capital Capital
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Capital amount - actual $ 39,853 $ 39,853 $ 44,105 $ 39,853
- required 24,761 21,442 35,737 7,428
-------- -------- -------- --------
- excess $ 15,092 $ 18,411 $ 8,368 $ 32,425
======== ======== ======== ========
Capital ratio - actual 8.05% 11.15% 12.34% 8.05%
- required 3.00 4.00 8.00 1.50
-------- -------- -------- --------
- excess 5.05% 7.15% 4.34% 6.55%
======== ======== ======== ========
Capital ratio - actual 8.05% 11.15% 12.34%
Well-capitalized level 5.00 6.00 10.00
-------- -------- --------
- excess 3.05% 5.15% 2.34%
======== ======== ========
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
FIRST FEDERAL
-------------
Tier 1 Tier 1 Total
Core Risk- Risk-
Leverage Based Based Tangible
Capital Capital Capital Capital
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Capital amount - actual $ 10,318 $ 10,318 $ 10,656 $ 10,318
- required 2,366 2,102 4,204 1,183
-------- -------- -------- --------
- excess $ 7,952 $ 8,216 $ 6,452 $ 9,135
======== ======== ======== ========
Capital ratio - actual 13.08% 19.63% 20.27% 13.08%
- required 3.00 4.00 8.00 1.50
-------- -------- -------- --------
- excess 10.08% 15.63% 12.27% 11.58%
======== ======== ======== ========
Capital ratio - actual 13.08% 19.63% 20.27%
Well-capitalized level 5.00 6.00 10.00
-------- -------- --------
- excess 8.08% 13.63% 10.27%
======== ======== ========
</TABLE>
Management anticipates that, under the current regulations, Security
Federal and First Federal will each continue to meet their minimum capital
requirements in the foreseeable future. However, events beyond the control of
such savings associations, such as increased interest rates or a downturn in the
economy in areas where they have most of their loans, could adversely affect
future earnings and, consequently, the ability of such savings associations to
meet their future capital requirements.
ASSET AND LIABILITY MANAGEMENT
The Company's asset and liability committee, which includes senior
management representatives, monitors the level and relative mix of Security
First's interest-sensitive assets and liabilities.
Security First's asset and liability management program is designed to
minimize the impact of significant changes in interest rates on net interest
income. The key components of successful interest rate and credit risk
management include the monitoring and management of rate sensitivity and
repricing characteristics of the balance sheet components as well as the
creditworthiness of borrowers and the quality of assets.
Both Security Federal and First Federal, like other financial institutions,
are subject to interest rate risk to the extent that interest-bearing
liabilities mature or reprice on a different basis than interest-earning assets.
The Office of Thrift Supervision ("OTS") provides a Net Portfolio Value ("NPV")
approach to the quantification of interest rate risk. This approach calculates
the difference between the present value of expected cash flows from assets and
<PAGE> 13
the present value of expected cash flows from liabilities, as well as cash flows
from off-balance sheet contracts. Under OTS regulations, an institution's
"normal" level of interest rate risk in the event of an assumed change in
interest rates is a decrease in the institution's NPV in an amount not exceeding
2% of the present value of its assets.
Presented below is an analysis of both Security Federal's and First
Federal's interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in the yield curve, in 100 basis point increments, up
and down 400 basis points in accordance with OTS regulations. This analysis is
presented as of March 31, 1996, which is the most recent available information.
As illustrated in the table, NPV is more sensitive to rising rates than
declining rates. This occurs principally because, as rates rise, the market
value of fixed-rate loans declines due to both the rate increase and slowing
prepayments. When rates decline, Security Federal and First Federal do not
experience a significant rise in market value for these loans because borrowers
prepay at relatively high rates. OTS assumptions are used in calculating the
amounts in this table.
SECURITY FEDERAL
----------------
<TABLE>
<CAPTION>
CHANGE IN
INTEREST RATE ESTIMATED AT MARCH 31, 1996
(BASIS POINTS) NPV $ CHANGE % CHANGE
-------------- --------- ----------------------
<S> <C> <C> <C>
+400 $35,362 ($24,667) -41.00%
+300 41,994 (18,035) -30.00%
+200 48,460 (11,569) -19.00%
+100 54,498 (5,532) -9.00%
-- 60,030 0 0.00%
-100 65,107 5,077 8.00%
-200 69,852 9,822 16.00%
-300 75,383 15,353 26.00%
-400 82,156 22,126 37.00%
</TABLE>
FIRST FEDERAL
-------------
<TABLE>
<CAPTION>
CHANGE IN
INTEREST RATE ESTIMATED AT MARCH 31, 1996
(BASIS POINTS) NPV $ CHANGE % CHANGE
-------------- --------- ----------------------
<S> <C> <C> <C>
+400 $7,523 ($2,719) -26.55%
+300 8,778 (1,465) -14.30%
+200 9,883 (359) -3.51%
+100 10,159 (83) -0.81%
-- 10,242 0 0.00%
-100 10,080 (163) -1.59%
-200 10,447 205 2.00%
-300 11,045 802 7.83%
-400 11,773 1,530 14.94%
</TABLE>
<PAGE> 14
SECURITY FIRST CORP.
AVERAGE BALANCE SHEETS
The following table presents the total dollar amounts of interest income and
interest expense on the indicated amounts of average interest-earning assets or
interest-bearing liabilities together with the weighted average interest rates
for the three month periods ended June 30, 1996 and 1995. Average balance
calculations were based on daily and monthly balances. (Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended June 30,
/------------------1996----------------\ /--------------------1995---------------\
---------------------------------------- -----------------------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $488,355 $10,865 8.90% $435,274 $9,724 8.94%
Mortgage-backed
securities 3,084 62 8.04% 4,101 83 8.14%
Investment securities 35,683 580 6.50% 41,006 635 6.19%
Short-term investments 9,292 107 4.61% 8,267 119 5.76%
-------- ------- -------- ------
Total interest-
earning assets 536,414 11,614 8.66% 488,649 10,561 8.64%
------- ------
Noninterest-earning
assets 23,215 20,799
-------- --------
Total assets $559,629 $509,447
======== ========
Interest-bearing liabilities:
Deposits $410,494 $4,565 4.45% $394,453 $4,514 4.58%
Short-term FHLB advances 70,681 1,004 5.68% 28,624 450 6.29%
Long-term FHLB advances 7,643 105 5.50% 20,828 313 6.00%
Convertible subordinated
debentures 8,774 148 6.75% 8,804 147 6.70%
-------- ------- -------- ------
Total interest-
bearing liabilities 497,592 5,822 4.68% 452,709 5,424 4.79%
------- ------
Noninterest-bearing
liabilities 7,112 5,982
-------- --------
Total liabilities 504,704 458,691
Shareholders' equity 54,925 50,756
-------- --------
Total liabilities and
shareholders'equity $559,629 $509,447
======== ========
NET INTEREST INCOME/
INTEREST RATE SPREAD $5,792 3.98% $5,137 3.85%
====== ====== ====== ======
NET INTEREST-EARNING
ASSETS/NET YIELD ON
INTEREST-EARNING ASSETS $38,822 4.32% $35,941 4.21%
======== ====== ======== ======
RATIO OF INTEREST-EARNING
ASSETS TO INTEREST-BEARING
LIABILITIES 107.80% 107.94%
====== ======
</TABLE>
<PAGE> 15
SECURITY FIRST CORP.
RATE/VOLUME ANALYSIS
The changes in net interest income for the three months ended June 30, 1996, as
compared to the same period in the prior year, are analyzed in the following
table. The table shows the changes by major component, distinguishing between
changes related to volume as opposed to changes in interest rates and the net
effect of both. Changes not solely attributable to volume or rate changes have
been allocated in proportion to the changes due to volume and rate. (Dollars in
thousands)
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
-----------------------------------------------
1996 vs. 1995
-----------------------------------------------
Increase
(Decrease) Total
Due to Increase
Volume Rate (Decrease)
------- -------- ---------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans $1,181 ($40) $1,141
Mortgage-backed securities (20) (1) (21)
Investment securities (89) 34 (55)
Short-term investments 20 (32) (12)
------ ------ -------
Total interest-earning
assets $1,092 ($39) $1,053
====== ====== ======
INTEREST-BEARING LIABILITIES:
Deposits 167 (116) 51
Short-term FHLB advances 593 (39) 554
Long-term FHLB advances (184) (24) (208)
------ ------ -------
Total deposits and advances 576 (179) 397
Convertible subordinated
debentures 0 1 1
------ ------ -------
Total interest-bearing
liabilities $576 ($178) $398
====== ====== ======
CHANGE IN NET INTEREST INCOME $655
======
</TABLE>
<PAGE> 16
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income of $5.8 million for the quarter ended June 30, 1996,
was up nearly 13% from the $5.1 million for the comparable quarter last year, as
a result of greater loan volume in the current year. The Company's interest rate
spread (which represents the difference between the rate earned on assets and
the rate paid on liabilities) was 3.98% for the current quarter compared with
3.85% for the June 30 quarter last year. The Company's interest rate spread
improved based on lower overall cost of funds.
Total interest income for the current quarter increased $1.1 million over
the prior year's same period. These increases were almost exclusively related to
increased volume in the loan portfolio. Average loans outstanding were $488
million in the current quarter vs. $435 million for the quarter ended June 30,
1995. The weighted average rate on loans 8.90% for the current three months
compared with 8.94% for the same period last year. The overall average rate on
interest-earning assets was 8.66% for the June 30, 1996, quarter compared with
8.64% for the June 30, 1995, quarter.
The decrease in interest income on mortgage-backed securities during the
current periods was due to the decline in the average balance outstanding
resulting from principal repayments and prepayments received on the underlying
mortgages.
During the three months ended June 30, 1996, interest income on investment
securities and short-term investments, which included interest-earning deposits
and Federal funds sold, decreased to $687,000 in the current quarter from
$754,000 in the prior period, principally due to a decrease in average
investments outstanding as a result of the redeployment of cash into loan
fundings. The average rates earned on investment securities increased to 6.50%
for the three months ended June 30, 1996 from 6.19% for the same period in the
prior year. Conversely, rates on short-term investments averaged 4.61% in the
current period compared with 5.76% for the comparable period last year.
Total interest expense increased approximately $400,000 in the current
quarter, the majority of which related to greater volume of FHLB advances
required to fund loan activity. Interest expense on deposits was comparable to
the prior year based on a lower cost of funds offset by approximately $16
million higher average balances outstanding. Interest expense related to FHLB
advances increased $346,000 for the current quarter as a result of $78 million
in average outstanding advances compared with $49 million for the quarter ended
June 30, 1995.
Interest expense on the Company's convertible subordinated debentures was
comparable to the prior year. The debentures, which have a coupon interest rate
of 6.25%, have a final maturity of May 1, 2008. The effective cost of funds is
increased by the amortization of related deferred issuance costs.
OTHER INCOME
Other income in the current quarter increased slightly, to $434,000, from
$423,000 in last year's first quarter largely due to recovery of late charges in
connection with the resolution of certain delinquent loans.
<PAGE> 17
OTHER EXPENSES
Other operating expenses for the current quarter were up 2.9% over the
quarter ended June 30, 1995. Operating expenses were affected by annual
increases in compensation, increased Federal deposit insurance due to a larger
deposit base, and increased data processing fees and franchise taxes.
FEDERAL INCOME TAXES
Federal income taxes were comparable for the three months ended June 30,
1996, with the same quarter in 1995 based on earnings for the respective
periods.
SELECTED OPERATING RATIOS
<TABLE>
<CAPTION>
Three months ended
June 30,
------------------
1996 1995
------------------
<S> <C> <C>
Return on average assets
(annualized) 1.38% 1.26%
Return on average equity
(annualized) 14.08 12.67
Yield on average interest-
earning assets 8.66 8.64
Cost of average interest-bearing
liabilities 4.68 4.79
Interest rate spread during period 3.98 3.85
Net yield on interest-earning assets 4.32 4.21
Efficiency ratio (a) 50.3 54.8
<FN>
(a) Calculated as other operating expenses (excluding amortization of goodwill
and terminated merger costs) divided by the sum of net interest income and other
income, not including non-recurring items and securities gains and losses.
</TABLE>
<PAGE> 18
SECURITY FIRST CORP.
Part II. Other Information
Items 1 - 5 are not applicable
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Part 1. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -------------------------------
<S> <C>
11 Statement regarding computation
of per share earnings
27 Financial Data Schedule
</TABLE>
On April 11, 1996, the Company filed a current report on Form 8-K
announcing the consummation of the merger of First Kent with
and into Security First.
There were no other reports on Form 8-K filed during the
Registrant's first quarter ended June 30, 1996.
<PAGE> 19
SECURITY FIRST CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SECURITY FIRST CORP.
Date: August 7, 1996 /s/ Charles F. Valentine
---------------------------------------
Charles F. Valentine, Chairman of the
Board and Chief Executive Officer
Dated: August 7, 1996 /s/ Austin J. Mulhern
---------------------------------------
Austin J. Mulhern, President and
Chief Operating Officer
Dated: August 7, 1996 /s/ Mary H. Crotty
--------------------------------------
Mary H. Crotty, Vice President,
Treasurer, and Chief Financial Officer
<PAGE> 1
SECURITY FIRST CORP. Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended
June 30,
1996 1995
---------- ----------
<S> <C> <C>
PRIMARY:
Earnings:
Net income applicable
to primary shares $1,934,000 $1,608,000
========== ==========
Shares:
Weighted average number
of common shares
outstanding 4,790,607 4,712,714
Shares issuable from
assumed exercise of
stock options 86,773 142,406
Shares issuable from
Employee Stock Option Plan and
Recognition and Retention Plan 138,203 48,232
---------- ----------
Total primary shares 5,015,583 4,903,352
========== ==========
Primary earnings per share $ 0.39 $ 0.33
========== ==========
FULLY DILUTED:
Earnings:
Net income $1,934,000 $1,608,000
Adjustment for interest
expense on convertible
subordinated debentures,
net of tax 98,000 98,000
---------- ----------
Net income applicable to
fully diluted shares $2,032,000 $1,706,000
========== ==========
Shares:
Weighted average number
of common shares
outstanding 4,790,607 4,712,714
Shares issuable from
assumed exercise of
stock options 100,882 144,945
Shares issuable from
assumed conversion of
convertible subordinated
debentures 751,230 753,798
Shares issuable from
Employee Stock Option Plan and
Recognition and Retention Plan 138,203 48,232
---------- ----------
Total fully diluted shares 5,780,922 5,659,689
========== ==========
Fully diluted earnings
per share $ 0.35 $ 0.30
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENT OF FINANCIAL CONDITION AT 6-30-96 CONSOLIDATED STATEMENT OF INCOME FOR
THE THREE MONTHS ENDED 6/30/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,659
<INT-BEARING-DEPOSITS> 2,595
<FED-FUNDS-SOLD> 14,284
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,824
<INVESTMENTS-CARRYING> 7,000
<INVESTMENTS-MARKET> 6,987
<LOANS> 508,028
<ALLOWANCE> 4,661
<TOTAL-ASSETS> 588,592
<DEPOSITS> 416,314
<SHORT-TERM> 89,500
<LIABILITIES-OTHER> 5,804
<LONG-TERM> 21,242
<COMMON> 49
0
0
<OTHER-SE> 55,683
<TOTAL-LIABILITIES-AND-EQUITY> 588,592
<INTEREST-LOAN> 10,865
<INTEREST-INVEST> 687
<INTEREST-OTHER> 62
<INTEREST-TOTAL> 11,614
<INTEREST-DEPOSIT> 4,565
<INTEREST-EXPENSE> 5,822
<INTEREST-INCOME-NET> 5,792
<LOAN-LOSSES> 96
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,161
<INCOME-PRETAX> 2,969
<INCOME-PRE-EXTRAORDINARY> 2,969
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,934
<EPS-PRIMARY> .39
<EPS-DILUTED> .35
<YIELD-ACTUAL> 4.32
<LOANS-NON> 1,318
<LOANS-PAST> 342
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,572
<CHARGE-OFFS> 16
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 4,661
<ALLOWANCE-DOMESTIC> 3,387
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,274
</TABLE>
