<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 SEPTEMBER 30, 1996
[ ] 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 Number)
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 change
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 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.
Common stock, $0.01 par value 4,971,820
- ----------------------------- ---------
(Class) (Outstanding at November 5, 1996)
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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 September 30, 1996, March 31, 1996 and
September 30, 1995............................ 3
Consolidated Statements of Income for the three
and six months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
six months ended September 30, 1996 and 1995..... 5-6
Notes to Consolidated Financial Statements.... 7-8
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations. 9-22
PART II. OTHER INFORMATION............................. 23
Computation of Earnings Per Share............. 24
SIGNATURES................................................. 25
</TABLE>
PG 2
<PAGE> 3
Part I. - Financial Information
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1996 1996 1995
-------------------------------------------
ASSETS:
<S> <C> <C> <C>
Cash and deposits with banks $ 4,955 $ 6,886 $ 6,164
Interest bearing deposits with banks 2,371 3,812 3,770
Federal funds sold and short term investments 2,235 2,959 3,317
---------------------------------------
Total cash and cash equivalents 9,561 13,657 13,251
---------------------------------------
Investment securities - held to maturity (market values of $6,993,
$9,264, and $29,976 at September 30, 1996, March 31, 1996,
and September 30, 1995) 7,000 9,250 29,964
Investment securities - available for sale (amortized cost of
$25,156, $24,379, and $8,000 at September 30, 1996, March 31, 1996,
and September 30, 1995, respectively) 24,858 24,189 8,013
Mortgage-backed securities - held to maturity (market values
of $3,866 at September 30, 1995 ) -- -- 3,756
Mortgage-backed securities - available for sale (amortized
cost of $2,749 at September 30, 1996 and $3,173 at March 31, 1996)) 2,824 3,275 --
Loans - net (including allowance for loan losses of
$4,786 at September 30, 1996, $4,572 at March 31, 1996
and $4,306 at September 30, 1995) 531,267 475,631 457,492
Accrued interest receivable 3,755 3,466 3,535
Federal Home Loan Bank stock - at cost 5,656 3,864 3,584
Premises and equipment - net 8,909 8,451 8,214
Real estate owned 6 39 39
Cost in excess of fair value of net
assets acquired (goodwill) 1,081 1,135 1,190
Prepaid expenses and other assets 4,905 4,270 4,160
---------------------------------------
TOTAL ASSETS $ 599,822 $ 547,227 $ 533,198
=======================================
LIABILITIES:
Deposits $ 420,061 $ 410,737 $ 403,022
Advances from Federal Home Loan Bank-short term 69,215 59,300 38,528
Advances from Federal Home Loan Bank-long term 38,182 8,784 25,401
Convertible subordinated debentures 8,759 8,774 8,774
Advance payments by borrowers for taxes
and insurance (escrow) 1,791 1,345 1,517
Accrued interest payable 1,686 1,473 1,443
Accounts payable and other accrued expenses 4,516 2,434 1,809
---------------------------------------
Total liabilities 544,210 492,847 480,494
---------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock (1,000,000 shares authorized,
none issued) -- -- --
Common stock, par value $.01 per share; 10,000,000
shares authorized; 4,971,820 shares issued and
outstanding at September 30, 1996, 4,928,968 at
March 31, 1996 and 4,854,348 at September 30, 1995 50 49 49
Capital in excess of par value 14,570 14,453 14,179
Net unrealized gain (loss) on investments and mortgage-backed
securities, (net of tax of $78 at September 30,1996,
$30 at March 31, 1996, and $4 at September 30, 1995) (147) (59) 9
Unearned compensation (254) (293) (331)
Unearned employee stock ownership plan shares (424) (447) (494)
Retained earnings (substantially restricted) 41,817 40,677 39,291
---------------------------------------
Total shareholders' equity 55,612 54,380 52,703
---------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 599,822 $ 547,227 $ 533,197
=======================================
</TABLE>
See notes to consolidated financial statements.
PG 3
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Part I. - Financial Information
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
1996 1995 1996 1995
------------------ --------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans $11,337 $10,053 $22,203 $19,779
Mortgage-backed securities 58 80 119 163
Investment securities 597 640 1,159 1,275
Short-term investments 114 121 239 240
------------------- -------------------
Total interest income 12,106 10,894 23,720 21,457
------------------- -------------------
Interest Expense:
Deposits 4,670 4,689 9,237 9,203
Short-term FHLB advances 1,274 534 2,279 984
Long-term FHLB advances 174 308 278 621
Convertible subordinated debentures 147 148 294 295
------------------- -------------------
Total interest expense 6,265 5,679 12,088 11,103
------------------- -------------------
Net interest income 5,841 5,215 11,632 10,354
Provision for loan losses 84 84 180 168
------------------- -------------------
Net interest income after provision
for loan losses 5,757 5,131 11,452 10,186
Other Income:
Service charges and other fees 369 405 766 766
Gain on sale of loans 49 -- 49 --
Other 23 37 59 99
------------------- -------------------
Other income 441 442 874 865
------------------- -------------------
Other Expenses:
Salaries and employee benefits 1,410 1,384 2,820 2,804
Occupancy and equipment 434 428 865 854
Federal deposit insurance 235 225 470 448
SAIF assessment 2,567 -- 2,567 --
Marketing 112 119 214 261
Professional fees 117 114 229 248
Data processing 124 104 254 208
Printing and supplies 78 75 148 143
Amortization of goodwill 27 28 54 56
Supervisory assessment 34 30 66 60
Other 583 532 1,193 1,032
------------------- -------------------
Other expenses 5,721 3,039 8,880 6,114
------------------- -------------------
Income before federal income taxes 477 2,534 3,446 4,937
Federal income taxes 191 886 1,226 1,681
------------------- -------------------
Net Income $ 286 $ 1,648 $ 2,220 $ 3,256
=================== ===================
Earnings Per Share:
Primary $ 0.06 $ 0.33 $ 0.44 $ 0.66
=================== ===================
Fully diluted $ 0.06 $ 0.31 $ 0.42 $ 0.61
=================== ===================
Cash Dividends Per Share $ 0.11 $ 0.10 $ 0.22 $ 0.20
=================== ===================
</TABLE>
See notes to consolidated financial statements.
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Part I. - Financial Information
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1996 1995
----------------------------
OPERATING ACTIVITIES:
------------------------------------------------
<S> <C> <C>
Net Income $ 2,220 $ 3,256
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for losses on loans and real
estate owned 180 168
Accretion of discounts, amortization of
premiums, and other deferred yield items 705 12
Depreciation and amortization 370 340
Amortization of goodwill 54 56
Amortization of unearned compensation 89 146
Effect of change in accrued interest
receivable and payable (76) (28)
FHLB stock dividends (155) (102)
Net change in accounts payable, accrued expenses,
and other assets 1,499 235
Other 34 --
---------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,920 4,083
---------------------------
INVESTING ACTIVITIES:
-----------------------------------------------
Loans originated (161,204) (95,398)
Increase in loans in process 20,342 7,759
Loan principal repayments and maturities 78,761 67,889
Proceeds from:
Sales of:
Loan participations 12,242 778
Real estate owned 157 324
Mortgage-backed security principal
repayments and maturities 424 457
Investment security maturities 3,479 12,488
Purchases of:
Loans (6,811) (7,918)
Investment securities (2,000) (12,800)
Premises and equipment (831) (716)
FHLB stock (1,637) (573)
---------------------------
NET CASH USED IN INVESTING ACTIVITIES ($ 57,078) ($ 27,710)
===========================
</TABLE>
PG 5
<PAGE> 6
Part I. - Financial Information
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1996 1995
-------------------------
FINANCING ACTIVITIES:
------------------------------------------------
<S> <C> <C>
Net increase in savings deposits $ 9,324 $ 9,709
Proceeds from additional FHLB advances 224,250 56,800
Payment of FHLB advances (184,937) (43,414)
Net increase (decrease) in mortgage escrow funds 446 (380)
Payment of dividends on common stock (1,089) (950)
Cash paid for fractional shares (1) --
Proceeds from exercise of stock options 69 4
------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 48,062 21,769
------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,096) (1,858)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,657 15,109
------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,561 $ 13,251
========================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 12,301 $ 10,822
Income taxes 2,048 1,624
Noncash investing activities -
Transfers from loans to real estate acquired
through foreclosure 124 128
Conversion of convertible subordinated debentures
to common stock 15 30
</TABLE>
See notes to consolidated financial statements.
PG 6
<PAGE> 7
1. Financial Statements
SECURITY FIRST CORP.
Notes to Consolidated Financial Statements (Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements of Security First Corp. ("Security
First" or "Company") include the accounts of the Company (a multiple savings &
loan holding company) and the accounts of its wholly owned subsidiaries,
Security Federal Savings and Loan Association ("Security Federal" or
"Association"), First Federal Savings Bank of Kent ("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 and six months ended September 30, 1996
and 1995; (b) the financial condition at September 30, 1996, March 31, 1996 and
September 30, 1995; and (c) the statement of cash flows for the six month
periods ended September 30, 1996 and 1995. The results of operations for the six
month period ended September 30, 1996 are not necessarily indicative of the
results that may be expected for a full year.
2. SAVINGS ASSOCIATION INSURANCE FUND (SAIF)
On September 30, 1996, legislation was enacted to recapitalize the SAIF,
which provides government insurance on deposits at savings and loan
institutions. As a result, all thrifts have been assessed a one-time special
charge of 65.7 basis points on their total adjusted deposits as of March 31,
1995. Security Federal's and First Federal's combined assessment was $2,567,000
($1,694,000 or $.29 per fully diluted share, after tax). As of October 1, 1996,
deposit insurance premiums for highly rated institutions, such as Security
Federal and First Federal, have been eliminated. However, Security Federal and
First Federal will continue to be subject to an assessment to fund repayment of
the FICO obligations. Beginning January 1, 1997, it is anticipated that the FICO
assessment for SAIF insured institutions will be 6.5 cents per $100 of deposits
until the year 2000, when the assessment will be imposed at the same rate on all
FDIC insured institutions.
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 the 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.
PG 7
<PAGE> 8
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 operation of the Company is not expected to be significant.
PG 8
<PAGE> 9
ITEM 2.
SECURITY FIRST CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Security First's net income was $286,000 and $2,220,000 for the second
quarter and six months ended September 30, 1996, respectively, as compared with
$1,648,000 and $ 3,256,000 for the same periods in 1995. The decrease in net
earnings for the current period was primarily due to the assessment for the
recapitalization of the FDIC insurance fund (SAIF); otherwise, net income would
have been $1,980,000 and $3,914,000, respectively. The Company's total assets
increased 9.6%, from $547.2 million at fiscal year-end March 31, 1996 to $599.8
million at September 30, 1996, principally due to a $55.6 million net increase
in loans outstanding, funded mainly by increased borrowings from the Federal
Home Loan Bank of Cincinnati ("FHLB").
Shareholders' equity (capital) at September 30, 1996 increased by $1.1
million since March 31, 1996, mainly as a result of the retention of $1.1
million of net earnings after the payment of cash dividends totalling
$1,089,000. Other significant 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 2) the capital effect of the Recognition
and Retention Plan ("RRP") recognized in the pooling of interests as a result of
the acquisition of First Kent Financial Corporation ("First Kent")in April 1996.
The Company has received approval from the Internal Revenue Service to
terminate the First Kent ESOP. It is anticipated that, before fiscal year-end,
sufficient shares of common stock of Security First will be sold in order to
repay the remaining Employee Stock Option Plan ("ESOP") loan balance, after
which the remaining ESOP shares will be distributed to the partcipants.
As noted in the "Capital" section, both Security Federal's and First
Federal's regulatory capital ratios at September 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 phases "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.
PG 9
<PAGE> 10
The Company does not undertake -- and specifically disclaims any
obligation -- to publicly release the results 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 $84,000 and $180,000 for the
second quarter and six months ended September 30, 1996, respectively, compared
with $84,000 and $168,000 for the same periods last year. The allowance for loan
losses of $4,786,000 at September 30, 1996 increased nearly 11% from $4,306,000
at September 30, 1995; while nonperforming loans fell 39% to $1.3 million at
September 30, 1996 from $2.1 million at September 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 historical loss experience in the loan
portfolio in order to assess potential credit losses.
PG 10
<PAGE> 11
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):
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS:
SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1996 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Non-accrual loans $1,118 $2,006 $1,936
Accruing loans past due
90 days 144 522 127
Real estate owned 6 39 39
------- ------- -------
Total non-performing
assets $1,268 $2,567 $2,102
======== ======= =======
Allowance for loan loss $4,786 $4,572 $4,306
======== ======= =======
RATIOS:
Non-performing assets
to total assets .21% 0.47% 0.39%
==== ===== =====
Non-performing loans
to total loans (before
allowance for loan losses) .24% 0.53% 0.45%
==== ===== =====
Allowance for loan losses
to non-performing loans 379.24% 180.85% 208.73%
====== ====== ======
Allowance for loan losses
to period-end loans (before
allowance for loan losses) 0.89% 0.95% 0.93%
===== ===== =====
Net charge offs (recoveries)
to average loans for
the period (a) ( 0.01%) 0.02% 0.07%
===== ===== =====
<FN>
(a) Annualized based on net charge-offs for the six months ended September 30,
1996 and 1995, respectively.
</TABLE>
As noted above, non-performing assets at September 30, 1996 decreased
$1,299,000, or 51%, since fiscal year-end due to the resolution of two severely
delinquent loans which also resulted in $235,000 cash recovery of delinquent
interest as well as a sale of one real estate owned ("REO") property.
POTENTIAL PROBLEM LOANS:
Potential problem loans as of September 30, 1996, were $1.1 million of
impaired loans, which are not reflected in the above table, where known
information about possible credit problems of the borrower caused management to
have some doubts as to the ability of the borrower to comply with present loan
repayment terms and may result in disclosure of such loans in the future.
Although, presently these loans are current and management believes that these
loans are adequately secure and no material loss is expected, they are subject
to allowance for credit losses of $ 274,000.
PG 11
<PAGE> 12
Management is of the opinion that the allowance for loan losses at
September 30, 1996, which represents 379% 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.
PG 12
<PAGE> 13
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
prepayments 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 $32 million and $10 million,
respectively (as of September 30, 1996) from the FHLB, if the need arises.
Management regularly reviews the Company's need for cash to fund its
operation 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 balance of net withdrawable deposits accounts and
borrowings payable in one year or less. For the quarter ended September 30,
1996, Security Federal's average liquid ratio was 6.99% compared to 7.55% for
the quarter ended September 30, 1995. First Federal's liquidity ratios were
12.32% and 19.23% for the quarters ended September 30, 1996 and 1995,
respectively.
CAPITAL
Regulatory capital for Security Federal and First Federal at September 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 thousand):
<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 $39,661 $39,661 $43,922 $39,661
well-capitalized level 25,167 22,814 38,023 7,550
------ ------ ------ ------
- excess $14,494 $16,847 $5,899 $32,111
====== ====== ====== ======
Capital ratio - actual 7.88% 10.43% 11.55% 7.88%
- required 3.00 4.00 8.00 1.50
----- ----- ----- -----
- excess 4.88% 6.43% 3.55% 6.38%
Capital ratio - actual 7.88% 10.43% 11.55%
well-capitalized level 5.00 6.00 10.00
----- ----- -----
- excess 2.88% 4.43% 1.55%
===== ===== =====
</TABLE>
PG 13
<PAGE> 14
<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 $10,203 $10,203 $10,550 $10,203
well capitalized level 4,091 3,246 5,410 1,227
------ ------ ------ ------
- excess $6,112 $6,957 $5,140 $8,976
====== ====== ====== ======
Capital ratio - actual 12.47% 18.86% 19.50% 12.47%
- required 3.00 4.00 8.00 1.50
----- ----- ----- -----
- excess 9.47% 14.86% 11.50% 10.97%
Capital ratio - actual 12.47% 18.86% 19.50%
well capitalized level 5.00 6.00 10.00
----- ----- -----
- excess 7.47% 12.86% 9.50%
===== ===== =====
</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 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 the present value of expected cash flows from
liabilities, as well as cash flows from off-balance contracts.
PG 14
<PAGE> 15
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 June 30, 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.
<TABLE>
<CAPTION>
SECURITY FEDERAL
----------------
CHANGE IN
INTEREST RATE ESTIMATED AT JUNE 30, 1996
(BASIS POINTS) NPV $ CHANGE % CHANGE
-------------- ---------- ----------------------
<S> <C> <C> <C>
+ 400 $25,846 ($33,516) -56.00%
+ 300 34,221 (25,142) -42.00%
+ 200 42,678 (16,684) -28.00%
+ 100 51,284 (8,079) -14.00%
-- 59,363 0 0.00%
- 100 66,938 7,576 13.00%
- 200 74,847 15,484 26.00%
- 300 82,410 23,048 39.00%
- 400 90,632 31,270 53.00%
FIRST FEDERAL
-------------
CHANGE IN
INTEREST RATE ESTIMATED AT JUNE 30, 1996
(BASIS POINTS) NPV $ CHANGE % CHANGE
-------------- ---------- ----------------------
+ 400 $6,409 ($3,782) -37.11%
+ 300 7,965 (2,225) -21.84%
+ 200 9,271 (919) -9.02%
+ 100 9,955 (235) -2.31%
-- 10,190 0 0.00%
- 100 10,322 132 1.29%
- 200 10,711 521 5.11%
- 300 11,404 1,213 11.90%
- 400 12,397 2,207 21.66%
</TABLE>
PG 15
<PAGE> 16
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 September 30, 1996 and 1995. Average balance
calculations were based on daily and monthly balances. (Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended September 30,
/----------1996-----------------\ /-----------1995-------------\
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
-------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $515,203 $11,337 8.80% $447,126 $10,053 8.99%
Mortgage-backed
securities 2,831 58 8.13% 3,866 80 8.28%
Investment securities 37,195 597 6.42% 40,171 640 6.37%
Short-term investments 8,578 114 5.32% 9,248 121 5.23%
-------- ------- -------- ------
Total interest-
earning assets 563,807 12,106 8.59% 500,411 10,894 8.71%
------- ------
Noninterest-earning
assets 23,252 20,530
-------- -------
Total assets $587,059 $520,941
======== ========
Interest-bearing liabilities:
Passbook accounts $58,962 $401 2.72% $59,712 $400 2.68%
Money market/NOW accounts 82,566 375 1.82% 79,021 389 1.97%
Certificates of deposit 273,468 3,894 5.70% 261,058 3,900 5.98%
-------- ------- -------- ------
Total deposits 414,996 4,670 4.50% 399,791 4,689 4.69%
Short-term FHLB advances 88,349 1,274 5.77% 34,875 533 6.11%
Long-term FHLB advances 11,640 174 5.99% 20,171 308 6.11%
-------- ------- -------- ------
Total advances 99,989 1,448 5.79% 55,046 841 6.11%
Convertible subordinated
debentures 8,767 147 6.72% 8,804 148 6.72%
-------- ------- -------- ------
Total interest-
bearing liabilities 523,752 6,265 4.79% 463,641 5,679 4.90%
------- ------
Noninterest-bearing
liabilities 7,150 5,272
-------- --------
Total liabilities 530,902 468,913
Shareholders' equity 56,157 52,028
-------- --------
Total liabilities and
shareholders' equity $587,059 $520,941
======== ========
NET INTEREST INCOME/
INTEREST RATE SPREAD $5,841 3.80% $5,215 3.81%
====== ===== ====== =====
NET INTEREST-EARNING
ASSETS/NET YIELD ON
INTEREST-EARNING ASSETS $40,055 4.14% $36,770 4.17%
======= ===== ======= =====
RATIO OF INTEREST-EARNING
ASSETS TO INTEREST-BEARING
LIABILITIES 107.65% 107.93%
======= =======
</TABLE>
PG 16
<PAGE> 17
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 six month periods ended September 30, 1996 and 1995. Average balance
calculations were based on daily and monthly balances. (Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended September 30,
/-------------1996------------------\ /------------1995------------------\
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
--------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $501,778 $22,203 8.85% $440,727 $19,779 8.98%
Mortgage-backed
securities 2,957 119 8.08% 3,983 163 8.18%
Investment securities 36,440 1,159 6.35% 40,590 1,275 6.28%
Short-term investments 8,935 239 5.30% 8,758 240 5.48%
------- ------- -------- -------
Total interest-
earning assets 550,110 23,720 8.62% 494,058 21,457 8.69%
------- -------
Noninterest-earning
assets 23,235 21,137
------- -------
Total assets $573,345 $515,195
======== ========
Interest-bearing liabilities:
Passbook accounts $59,688 $806 2.70% $60,058 $798 2.66%
Money market/NOW accounts 81,920 750 1.83% 78,812 785 1.99%
Certificates of deposit 271,137 7,681 5.66% 258,253 7,620 5.90%
------- ----- ------- -----
Total deposits 412,745 9,237 4.48% 397,123 9,203 4.63%
Short-term FHLB advances 79,515 2,279 5.73% 31,749 983 6.19%
Long-term FHLB advances 9,641 278 5.77% 20,499 621 6.06%
------- ----- ------- -----
Total advances 89,156 2,557 5.74% 52,248 1,604 6.14%
Convertible subordinated
debentures 8,771 294 6.72% 8,804 295 6.70%
------- ----- ------- -----
Total interest-
bearing liabilities 510,672 12,088 4.73% 458,175 11,103 4.85%
------ ------
Noninterest-bearing
liabilities 7,132 5,629
------- -------
Total liabilities 517,804 463,804
Shareholders' equity 55,541 51,392
------- -------
Total liabilities and
shareholders' equity $573,345 $515,196
======== ========
NET INTEREST INCOME/
INTEREST RATE SPREAD $11,632 3.89% $10,354 3.84%
======= ===== ======= =====
NET INTEREST-EARNING
ASSETS/NET YIELD ON
INTEREST-EARNING ASSETS $39,438 4.23% $35,883 4.19%
======= ===== ======= =====
RATIO OF INTEREST-EARNING
ASSETS TO INTEREST-BEARING
LIABILITIES 107.72% 107.83%
======= =======
</TABLE>
PG 17
<PAGE> 18
SECURITY FIRST CORP.
RATE/VOLUME ANALYSIS
The changes in net interest income for the three months ended September 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 September 30,
-----------------------------------------------------------------------------
1996 vs. 1995
-----------------------------------------------------------------------------
Increase
(Decrease) Total
Due to Increase
Volume Rate (Decrease)
---------------- ---------------- ---------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans $1,494 ($209) $1,284
Mortgage-backed securities (21) (1) (22)
Investment securities (48) 5 (43)
Short-term investments (9) 2 (7)
---------------- ---------------- ---------------
Total interest-earning
assets $1,416 ($203) $1,212
================ ================ ===============
INTEREST-BEARING LIABILITIES:
Passbook accounts (9) 10 1
Money market/NOW accounts 46 (60) (14)
Certificates of deposit (414) 408 (6)
---------------- ---------------- ---------------
Total deposits (377) 358 (19)
Short-term FHLB advances 769 (28) 740
Long-term FHLB advances (128) (6) (134)
---------------- ---------------- ---------------
Total advances 641 (34) 606
Convertible subordinated
debentures (1) 0 (1)
---------------- ---------------- ---------------
Total interest-bearing
liabilities $263 $324 $586
================ ================ ===============
CHANGE IN NET INTEREST INCOME $626
===============
</TABLE>
PG 18
<PAGE> 19
SECURITY FIRST CORP.
RATE/VOLUME ANALYSIS
The changes in net interest income for the six months ended September 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 Six Months Ended September 30,
-----------------------------------------------------------------------------
1996 vs. 1995
-----------------------------------------------------------------------------
Increase
(Decrease) Total
Due to Increase
Volume Rate (Decrease)
---------------- ---------------- ---------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans $2,698 ($273) $2,424
Mortgage-backed securities (42) (2) (44)
Investment securities (129) 14 (116)
Short-term investments 2 (3) (1)
---------------- ---------------- ---------------
Total interest-earning
assets $2,529 ($264) $2,263
================ ================ ===============
INTEREST-BEARING LIABILITIES:
Passbook accounts (33) 41 7
Money market/NOW accounts 113 (148) (35)
Certificates of deposit 310 (248) 62
---------------- ---------------- ---------------
Total deposits 390 (355) 34
Short-term FHLB advances 1,363 (67) 1,295
Long-term FHLB advances (314) (30) (343)
---------------- ---------------- ---------------
Total advances 1,049 (97) 952
Convertible subordinated
debentures (2) 1 (1)
---------------- ---------------- ---------------
Total interest-bearing
liabilities $1,437 ($451) $985
================ ================ ===============
CHANGE IN NET INTEREST INCOME $1,278
===============
</TABLE>
PG 19
<PAGE> 20
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income increased to $5.8 million and $11.6 million for the
three and six months ended September 30, 1996, respectively, from $5.2 million
and $ 10.4 million for the comparable periods 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 3.80% for the current quarter and 3.89% for the six months
ended September 30, 1996, compared with 3.81% and 3.84%, respectively, for the
same periods in the prior year. The Company's interest rate spread improved
based on lower overall cost of interest-bearing liabilities.
Total interest income increased $1.2 million for the current quarter and
$2.3 million for the current six months over the prior year's same period. These
increases were almost exclusively related to increased volume in the loan
portfolio. Loan originations increased $65.8 million, or 69%, during the current
six months compared with the prior year due to $24.3 million greater
originations of construction and acquisition/development loans, $18.8 million
higher commercial real estate loans and $16.4 million higher on permanent
one-to-four family mortgage loans. Average loans outstanding were 15% (or $68
million) higher in the current quarter and 14% (or $61 million) higher for the
current six months compared to prior year. The weighted average rate on loans
8.80% for the current quarter and 8.85% for the six months ended September 30,
1996 compared to 8.99% and 8.98%, respectively, for the same periods last year.
In addition, rates on short-term and other investments were higher in the
current quarter compared to last year. The short-term investment rate was,
however, slightly lower for the six month comparative period. As a result of
slightly lower average loan rates with increased short-term and other investment
average rates, the overall average rate on interest-earning assets was 8.59% for
the quarter and 8.62% for the current six months ended September 30, 1996
compared with 8.71% and 8.69%, respectively, for the same periods in fiscal
1996.
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 and six 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 $711,000 and
$1,398,000 in the current quarter and six months,respectively, from $761,000 and
$1,514,000 in the prior periods, 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 6.42%
for the quarter and 6.35% for the six months ended June 30, 1996 from 6.37% and
6.28%, respectively, for the same periods in the prior year. Conversely, rates
on short-term investments averaged 5.32% and 5.30% in the current periods
compared with 5.23% and 5.48% for the comparable period last year.
PG 20
<PAGE> 21
Total interest expense increased approximately $587,000 in the current
quarter and $986,000 in the current six months over the same periods last year,
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 $15 million higher
average balances outstanding. Interest expense related to FHLB advances
increased $607,000 and $952,000 for current periods, principally related to the
greater average balance outstanding.
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 for the current quarter $441,000 was comparable to the same
period last year $442,000, whereas the six month current period was slightly
higher at $874,000 compared to $865,000 for the six months last year. A
component of this income was related to the gain on sale of loans and the
favorable effect of the adoption of Statement of Financial Accounting Standards
("SFAS") No. 122, "Accounting for Mortgage Servicing Rights," which requires
lenders who sell originated loans and retain the servicing rights to recognize
as a separate asset the rights to service mortgage loans for others. The sale of
lower yielding fixed rate loans was part of an asset/liability restructuring of
the balance sheet.
OTHER EXPENSES
Other operating expenses for the current quarter and six months ended
September 30, 1996 were $2.7 million and $ 2.8 million higher than the prior
year. 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. The major cause for the increase in
other expenses was related to the special FDIC insurance assessment of $2.6
million recorded on September 30, 1996. This one-time assessment required from
all federally insured institutions was for the recapitalization of the SAIF
insurance fund (refer to footnote #2).
FEDERAL INCOME TAX
The Company's provision for Federal income taxes decreased to $191,000 and
$1,226,000 for the three and six months ended September 30, 1996 from $886,000
and $1,681,000, respectively, for the comparable periods last year due mainly to
the reduction of pre-tax income.
PG 21
<PAGE> 22
SELECTED OPERATING RATIOS
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
-------------------------------------
1996 1995 1996 1995
-------------------------------------
<S> <C> <C> <C> <C>
Return on average assets
(annualized) 0.19% 1.27% 0.77% 1.26%
w/o SAIF assessment 1.35% 1.27% 1.37% 1.26%
Return on average equity
(annualized) 2.04% 12.67% 7.99% 12.67%
w/o SAIF assessment 14.10% 12.67% 14.09% 12.67%
Yield on average interest-
earning assets 8.59% 8.71% 8.62% 8.69%
Cost of average interest-bearing
liabilities 4.79% 4.90% 4.73% 4.85%
Interest rate spread during
period 3.80% 3.81% 3.89% 3.84%
Net yield on interest-earning
assets 4.14% 4.17% 4.23% 4.19%
Efficiency ratio (a) 50.2% 53.2% 50.2% 54.0%
<FN>
(a) Calculated as other operating expenses (excluding amortization of goodwill,
terminated merger costs and one time recapitalization SAIF assessment) divided
by the sum of net interest income and other income, not including non-recurring
items and securities gains and losses.
</TABLE>
PG 22
<PAGE> 23
SECURITY FIRST CORP.
Part II. Other Information
Item 1 - 5 are not applicable
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Part 1. Exhibits
Exhibit
Number Description
-------- -----------------------------------
11 Statement regarding computation
of per share earnings
27 Financial Data Schedule - EDGAR only
There were no reports on Form 8-K filed during the Registrant's
second quarter ended September 30, 1996.
PG 23
<PAGE> 24
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: November 7, 1996 /s/ Charles F. Valentine
------------------------------------
Charles F. Valentine, Chairman of
the Board and Chief Executive Officer
Dated: November 7, 1996 /s/ Austin J. Mulhern
------------------------------------
Austin J. Mulhern, President and
Chief Operating Officer
Dated: November 7, 1996 /s/ Mary H. Crotty
------------------------------------
Mary H. Crotty, Vice President,
Treasurer, & Chief Financial Officer
PG 24
<PAGE> 1
Exhibit 11
SECURITY FIRST CORP.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
1996 1995 1996 1995
-------------------------------------- -------------------------------
<S> <C> <C> <C> <C>
PRIMARY:
Earnings:
Net Income applicable
to primary shares $286,000 $1,648,276 $2,220,000 $3,256,605
====================================== ===============================
Shares:
Weighted average number
of common shares
outstanding 4,939,726 4,765,965 4,934,268 4,762,946
Shares issuable from
assumed exercise of
stock options 94,876 155,106 90,824 150,726
-------------------------------------- -------------------------------
Total primary shares 5,034,602 4,921,071 5,025,092 4,913,672
====================================== ===============================
Primary earnings per share $0.06 $0.33 $0.44 $0.66
====================================== ===============================
FULLY DILUTED:
Earnings:
Net income $286,000 $1,648,276 $2,220,000 $3,256,605
Adjustment for interest
expense on convertible
subordinated debentures
net of tax 98,000 98,000 196,000 196,000
-------------------------------------- -------------------------------
Net income applicable to
fully diluted shares $384,000 $1,746,276 $2,416,000 $3,452,605
====================================== ===============================
Shares:
Weighted average number
of common shares
outstanding 4,939,726 4,768,096 4,939,726 4,767,754
Shares issuable from
assumed exercise of
stock options 97,618 159,278 97,618 156,235
Shares issuable from
assumed conversion of
convertible subordinated
debentures 749,946 753,742 749,946 753,770
-------------------------------------- -------------------------------
Total fully diluted shares 5,787,290 5,681,116 5,787,290 5,677,759
====================================== ===============================
Fully diluted earnings
per share (a) $0.06 $0.31 $0.42 $0.61
====================================== ===============================
<FN>
(a) Fully diluted earnings per share are the same as primary because of
anti-dilutive effective of the earnings adjustment for interest expense on
convertible debentures.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY
REPORT ON FORM 10Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,955
<INT-BEARING-DEPOSITS> 2,371
<FED-FUNDS-SOLD> 2,235
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,682
<INVESTMENTS-CARRYING> 7,000
<INVESTMENTS-MARKET> 6,993
<LOANS> 531,267
<ALLOWANCE> 4,786
<TOTAL-ASSETS> 599,822
<DEPOSITS> 420,061
<SHORT-TERM> 69,215
<LIABILITIES-OTHER> 7,993
<LONG-TERM> 46,941
<COMMON> 50
0
0
<OTHER-SE> 55,562
<TOTAL-LIABILITIES-AND-EQUITY> 599,822
<INTEREST-LOAN> 22,203
<INTEREST-INVEST> 1,398
<INTEREST-OTHER> 119
<INTEREST-TOTAL> 23,720
<INTEREST-DEPOSIT> 9,237
<INTEREST-EXPENSE> 12,088
<INTEREST-INCOME-NET> 11,632
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,880
<INCOME-PRETAX> 3,446
<INCOME-PRE-EXTRAORDINARY> 3,446
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,220
<EPS-PRIMARY> .44
<EPS-DILUTED> .42
<YIELD-ACTUAL> 4.23
<LOANS-NON> 1,118
<LOANS-PAST> 144
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,100
<ALLOWANCE-OPEN> 4,661
<CHARGE-OFFS> 7
<RECOVERIES> 45
<ALLOWANCE-CLOSE> 4,786
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
