<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, 1997
[ ] 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 7,582,067
- ------ ------------ --- ----- ---------
(Class) (Outstanding at August 7, 1997)
<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, 1997, March 31, 1997 and
June 30, 1996................................. 3
Consolidated Statements of Income for the three
months ended June 30, 1997 and 1996............ 4
Consolidated Statements of Cash Flows for the
three months ended June 30, 1997 and 1996........ 5-6
Notes to Consolidated Financial Statements.... 7
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations. 8-15
PART II. OTHER INFORMATION............................. 16
Computation of Earnings Per Share............. 17
SIGNATURES................................................. 18
</TABLE>
2
<PAGE> 3
Part I. - Financial Information
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, March 31, June 30,
1997 1997 1996
(Unaudited) (Unaudited)
-----------------------------------------
<S> <C> <C> <C>
ASSETS:
Cash and deposits with banks $ 8,933 $ 4,685 $ 6,659
Interest bearing deposits with banks 1,050 1,826 2,595
Federal funds sold and short term investments 2,100 2,153 14,284
-----------------------------------------
Total cash and cash equivalents 12,083 8,664 23,538
-----------------------------------------
Investment securities - held to maturity (market values of
$7,001, $6,986, and $6,987 at June 30, 1997, March 31, 1997,
and June 30, 1996) 7,000 7,000 7,000
Investment securities - available for sale (amortized cost of
$24,927, $24,969, and $25,188 at June 30, 1997, March 31, 1997,
and June 30, 1996, respectively) 24,773 24,576 24,832
Mortgage-backed securities - available for sale (amortized cost of
$2,258 at June 30, 1997, $2,469 at March 31, 1997 and
and $4,097 at June 30, 1996) 2,324 2,523 2,992
Loans - net (including allowance for loan losses of
$5,018 at June 30, 1997, $4,968 at March 31, 1997
and $4,661 at June 30, 1996) 583,772 567,975 508,028
Accrued interest receivable 4,222 4,032 3,645
Federal Home Loan Bank stock - at cost 6,649 6,400 5,559
Premises and equipment - net 8,702 8,853 8,681
Cost in excess of fair value of net
assets acquired (goodwill) 1,001 1,028 1,108
Prepaid expenses and other assets 2,700 3,710 3,209
-----------------------------------------
TOTAL ASSETS $ 653,226 $ 634,761 $ 588,592
=========================================
LIABILITIES:
Deposits $ 464,976 $ 445,182 $ 416,314
Advances from Federal Home Loan Bank-at cost 112,189 115,221 101,968
Convertible subordinated debentures 7,911 8,479 8,774
Advance payments by borrowers for taxes
and insurance (escrow) 2,376 1,498 2,729
Accrued interest payable 1,952 2,058 1,350
Accounts payable and other accrued expenses 2,281 2,888 1,725
-----------------------------------------
Total liabilities 591,685 575,326 532,860
-----------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock (1,000,000 shares authorized,
none issued) -- -- --
Common stock, par value $.01 per share; 20,000,000
shares authorized; 7,577,594 shares issued
at June 30, 1997, 7,504,649 at March 31, 1997
and 7,394,418 at June 30, 1996 (a) 76 50 49
Capital in excess of par value 15,547 14,915 14,487
Net unrealized (loss) on investments and mortgage-backed
securities, (net of tax of $35 at June 30,1997,
$111 at March 31, 1997, and $96 at June 30, 1996) (a) (57) (224) (185)
Unearned compensation (197) (216) (273)
Unearned employee stock ownership plan shares -- -- (424)
Treasury stock (3,120 shares at June 30, 1997), at cost (38) -- --
Retained earnings (substantially restricted) (a) 46,210 44,910 42,078
-----------------------------------------
Total shareholders' equity 61,541 59,435 55,732
-----------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 653,226 $ 634,761 $ 588,592
=========================================
</TABLE>
(a) Adjusted to reflect the three-for-two stock split distributed on July 31,
1997
See notes to consolidated financial statements.
3
<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,
1997 1996
--------------------
<S> <C> <C>
Interest Income:
Loans $12,641 $10,865
Mortgage-backed securities 46 62
Investment securities 625 580
Short-term investments 103 107
--------------------
Total interest income 13,415 11,614
--------------------
Interest Expense:
Deposits 5,220 4,565
Short-term FHLB advances 1,135 1,004
Long-term FHLB advances 640 105
Convertible subordinated debentures 138 148
--------------------
Total interest expense 7,133 5,822
--------------------
Net interest income 6,282 5,792
Provision for loan losses 59 96
--------------------
Net interest income after provision
for loan losses 6,223 5,696
Other Income:
Service charges and other fees 397 401
Other 45 33
--------------------
Other income 442 434
--------------------
Other Expenses:
Salaries and employee benefits 1,618 1,409
Occupancy and equipment 468 430
Federal deposit insurance 74 236
Marketing 122 101
Professional fees 127 114
Data processing 125 130
Printing and supplies 81 69
Amortization of goodwill 26 27
Supervisory assessment 33 32
Other 638 613
--------------------
Other expenses 3,312 3,161
--------------------
Income before federal income taxes 3,353 2,969
Federal income taxes 1,164 1,035
--------------------
Net Income $ 2,189 $ 1,934
====================
Earnings Per Share:(a)
Primary $ 0.28 $ 0.26
====================
Fully diluted $ 0.26 $ 0.23
====================
Cash Dividends Per Share (a) $ 0.08 $ 0.07
====================
</TABLE>
(a) Earnings per share and cash dividends per share calculations for all
periods were restated to reflect the three-for-two stock split distributed
on July 31, 1997.
See notes to consolidated financial statements.
4
<PAGE> 5
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
JUNE 30, JUNE 30,
1997 1996
-----------------------
<S> <C> <C>
OPERATING ACTIVITIES:
- ---------------------
Net Income $ 2,189 $ 1,934
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 59 96
Net loss from sale of mortgage-backed
securities and real estate owned -- --
Accretion of discounts, amortization of
premiums, and other deferred yield items 31 418
Depreciation and amortization 218 176
Amortization of goodwill 26 27
Effect of change in accrued interest
receivable and payable (296) (302)
Equity income from joint ventures (27) 7
FHLB stock dividends (117) (67)
Amortization of unearned compensation 19 20
Net change in accounts payable, accrued expenses,
and other assets 402 602
Other -- 41
-----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,504 $ 2,952
-----------------------
INVESTING ACTIVITIES:
- ---------------------
Loans originated ($62,859) ($74,034)
Increase in loans in process 2,836 6,508
Loan principal repayments and maturities 43,690 39,670
Proceeds from:
Sales of:
Loans and Loan participations 453 132
Real estate owned -- 1
Mortgage-backed security principal
repayments and maturities 213 257
Investment security maturities 1,047 3,443
Purchases of:
Loans -- (5,333)
Investment securities (1,000) (2,000)
Premises and equipment (70) (408)
FHLB stock (132) (1,628)
-----------------------
NET CASH USED IN INVESTING ACTIVITIES ($15,822) ($33,392)
-----------------------
</TABLE>
5
<PAGE> 6
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
JUNE 30, JUNE 30,
1997 1996
-----------------------
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase in savings deposits $ 19,794 $ 5,577
Proceeds from additional FHLB advances 50,600 82,000
Payment of FHLB advances (53,632) (48,116)
Proceeds from termination of employee
stock ownership plan -- --
Net increase in mortgage escrow funds 878 1,384
Payment of dividends on common stock (606) (533)
Proceeds from exercise of stock options 68 9
Purchase of treasury stock (365) --
-----------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,737 40,321
-----------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,419 9,881
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,664 13,657
-----------------------
CASH AND CASH EQUIVALENTS AT AT END OF PERIOD 12,083 23,538
=======================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 7,027 $ 5,945
Income taxes 1,255 643
Noncash investing and financing activities:
Transfers from loans to real estate acquired
through foreclosure -- 128
Effect of conversion of convertible subordinated
debentures 568 --
</TABLE>
See notes to consolidated financial statements.
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 months ended June 30, 1997 and 1996; (b)
the financial condition at June 30, 1997, March 31, 1997 and June 30, 1996; and
(c) the statement of cash flows for the three month periods ended June 30, 1997
and 1996. The results of operations for the three month period ended June 30,
1997 are not necessarily indicative of the results that may be expected for a
full year.
2. 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.) Earnings per
share and cash dividends calculations were restated to reflect the three-for-two
stock split distributed on July 31, 1997.
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.
3. NEW ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income". This statement establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains,
losses) in a full set of general-purpose financial statements. This statement is
effective for fiscal years beginning after December 15, 1997.
The Securities and Exchange Commission has expanded the requirements
regarding disclosure of derivative financial instruments, other financial
instruments and derivative commodity instruments by requiring enhanced
disclosure of accounting policies for these financial instrument contracts in
the footnotes to financial statements. The Company has not typically entered
into financial instrument contracts that involve derivative financial and
commodity instruments. The Company has entered into fixed and variable interest
rate loan contracts for which its policy is to record these financial
instruments in the financial statements when they are funded or related fees are
incurred or received.
7
<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 was $2,189,000 for the first quarter ended
June 30, 1997, a 13% increase over the $1,934,000 earned in the comparable
quarter last year. The Company's total assets increased 2.9%, from $634.8
million at fiscal year-end March 31, 1997, to $653.2 million at June 30, 1997,
principally due to a $15.8 million net increase in loans outstanding, funded
mainly by increased savings deposits.
Shareholders' equity (capital) at June 30, 1997 increased by $2.1 million
since March 31, 1997, mainly as a result of $2.2 million in net income and
increased paid-in-capital from bond conversions and tax benefits relating to the
exercise of stock options, offset by the payment of $606,000 in cash dividends.
As noted in the "Capital" section, both Security Federal's and First
Federal's regulatory capital ratios at June 30, 1997 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 forwardlooking 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.
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 $59,000 for the three months
ended June 30, 1997 compared with $96,000 for the same period last year. The
allowance for loan losses of $5,018,000 at June 30, 1997 increased nearly 8%
from $4,661,000 at June 30, 1996, due to growth in the loan portfolio, while
nonperforming assets of $1.8 million at June 30, 1997 were at the same level as
nonperforming assets at June 30, 1996.
8
<PAGE> 9
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.
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,
1997 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Non-accrual loans $1,828 $1,643 $1,318
Accruing loans past due
90 days -- -- 342
Real estate owned 4 5 154
------ ------ ------
Total non-performing
assets $1,832 $1,648 $1,814
====== ====== ======
Allowance for loan loss $5,018 $4,968 $4,661
====== ====== ======
RATIOS:
Non-performing assets
to total assets .28% 0.26% 0.31%
====== ====== ======
Non-performing loans
to total loans (before
allowance for loan losses) .31% 0.29% 0.32%
====== ====== ======
Allowance for loan losses
to non-performing loans 275% 302% 281%
====== ====== ======
Allowance for loan losses
to period-end loans (before
allowance for loan losses) 0.85% 0.87% 0.91%
====== ====== ======
Net charge offs (recoveries)
to average loans for
the period (a) 0.01% (0.01)% 0.01%
====== ====== ======
</TABLE>
(a) Annualized based on net charge-offs (recoveries) for the three months ended
June 30, 1997 and 1996, respectively.
9
<PAGE> 10
POTENTIAL PROBLEM LOANS:
As of June 30, 1997, the Company had $1.6 million of potential problem
loans, 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. Presently these loans are current and, therefore, not
reflected in the above table. Management believes that these loans are
adequately secured and no material loss is expected; however, such loans are
subject to allowance for credit losses of approximately $156,000.
Management is of the opinion that the allowance for loan losses at June
30, 1997, which represents 275% 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
real estate owned 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.
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
against their eligible collateral, or an additional $22.0 million and $8.9
million, respectively, (as of June 30, 1997) 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. Current 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. The Office of Thrift Supervision
recently announced that it plans to lower the liquid asset requirement to 4%.
For the quarter ended June 30, 1997, Security Federal's average liquidity ratio
was 6.59% compared to 7.13% for the quarter ended June 30, 1996. First Federal's
liquidity ratios were 11.18% and 12.62% for the quarters ended June 30, 1997 and
1996, respectively.
10
<PAGE> 11
CAPITAL
Regulatory capital for Security Federal and First Federal at June 30, 1997
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 $ 43,545 $ 43,545 $ 48,020 $ 43,545
well-capitalized level 27,497 25,280 42,133 8,249
---------- ---------- ---------- ----------
- excess $ 16,048 $ 18,265 $ 5,887 $ 35,296
========== ========== ========== ==========
Capital ratio - actual 7.92% 9.68% 11.40% 7.92%
- required 3.00 4.00 8.00 1.50
---------- ---------- ---------- ----------
- excess 4.92% 5.68% 3.40% 6.42%
========== ========== ========== ==========
Capital ratio - actual 7.92% 9.68% 11.40%
well-capitalized level 5.00 6.00 10.00
---------- ---------- ----------
- excess 2.92% 3.68% 1.40%
========== ========== ==========
</TABLE>
<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 $ 8,213 $ 8,213 $ 8,587 $ 8,213
well capitalized level 4,393 3,615 6,025 1,318
--------- --------- --------- ---------
- excess $ 3,820 $ 4,598 $ 2,562 $ 6,895
========= ========= ========= =========
Capital ratio - actual 9.35% 13.63% 14.25% 12.03%
- required 3.00 4.00 8.00 1.50
--------- --------- --------- ---------
- excess 6.35% 9.63% 6.25% 10.53%
========= ========= ========= =========
Capital ratio - actual 9.35% 13.63% 14.25%
well capitalized level 5.00 6.00 10.00
--------- --------- ---------
- excess 4.35% 7.63% 4.25%
========= ========= =========
</TABLE>
11
<PAGE> 12
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 The changes in net interest income for the three months ended June
30, 1997, as compared month periods ended June 30, 1997 and 1996. Average
balance calculations were based on daily and monthly balances.
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended June 30,
/-----------------1997-----------------\ /-----------------1996-----------------\
---------------------------------------- ----------------------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 576,944 $ 12,641 8.76% $ 488,355 $ 10,865 8.90%
Mortgage-backed
securities 2,322 46 7.91% 3,084 62 8.04%
Investment securities 37,689 625 6.63% 35,683 580 6.50%
Short-term investments 7,716 103 5.34% 9,292 107 4.61%
---------- ---------- ---------- ---------
Total interest-
earning assets 624,671 13,415 8.59% 536,414 11,614 8.66%
---------- ---------
Noninterest-earning
assets 25,099 23,215
----------- -----------
Total assets $ 649,770 $ 559,629
=========== ===========
Interest-bearing liabilities:
Passbook accounts $ 57,554 $ 391 2.72% $ 60,413 $ 405 2.68%
Money market/NOW accounts 83,712 353 1.69% 81,275 375 1.85%
Certificates of deposit 312,503 4,476 5.73% 268,806 3,785 5.63%
---------- ---------- ---------- ---------
Total deposits 453,769 5,220 4.60% 410,494 4,565 4.45%
Short-term FHLB advances 77,735 1,135 5.84% 70,681 1,004 5.68%
Long-term FHLB advances 40,649 640 6.30% 7,643 105 5.50%
---------- ---------- ---------- ---------
Total advances 118,384 1,775 6.00% 78,324 1,109 5.66%
Convertible subordinated
debentures 8,197 138 6.77% 8,774 148 6.75%
---------- ---------- ---------- ---------
Total interest-
bearing liabilities 580,350 7,133 4.92% 497,592 5,822 4.68%
---------- ---------
Noninterest-bearing
liabilities 9,099 7,112
----------- -----------
Total liabilities 589,449 504,704
Shareholders' equity 60,321 54,925
----------- -----------
Total liabilities and
shareholders' equity $ 649,770 $ 559,629
=========== ===========
NET INTEREST INCOME/
INTEREST RATE SPREAD $ 6,282 3.67% $ 5,792 3.98%
========= ======== ========= ========
NET INTEREST-EARNING
ASSETS/NET YIELD ON
INTEREST-EARNING ASSETS $ 44,321 4.02% $ 38,822 4.32%
========== ======== ========== ========
RATIO OF INTEREST-EARNING
ASSETS TO INTEREST-BEARING
LIABILITIES 107.64% 107.80%
======== =======
</TABLE>
12
<PAGE> 13
SECURITY FIRST CORP.
RATE/VOLUME ANALYSIS
The changes in net interest income for the three months ended June 30, 1997, 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,
-----------------------------------
1997 vs. 1996
-----------------------------------
Increase
(Decrease) Total
Due to Increase
Volume Rate (Decrease)
--------- ------ ----------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans $ 1,938 ($162) $ 1,776
Mortgage-backed securities (15) (1) (16)
Investment securities 33 12 45
Short-term investments (65) 61 (4)
--------- ------- ---------
Total interest-earning
assets $ 1,891 ($ 90) $ 1,801
========= ======= =========
INTEREST-BEARING LIABILITIES:
Passbook accounts (20) 6 (14)
Money market/NOW 12 (34) (22)
Certificates of Deposit 625 66 691
--------- ------- ---------
Total deposits 617 38 655
Short-term FHLB advances 102 29 131
Long-term FHLB advances 517 18 535
--------- ------- ---------
Total advances 619 47 666
Convertible subordinated
debentures (11) 1 (10)
--------- ------- ---------
Total interest-bearing
liabilities $ 1,225 $ 86 $ 1,311
========= ======= =========
CHANGE IN NET INTEREST INCOME $ 490
=========
</TABLE>
13
<PAGE> 14
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income of $6.3 million for the quarter ended June 30, 1997
was up 8.5% from the $5.8 million for the comparable quarter last year, as a
result of greater loan volume and outstanding loan portfolio balance as compared
to the prior year's quarter. The Company's interest rate spread (which
represents the difference between the rate earned on assets and the rate paid on
liabilities) was 3.67% for the current quarter compared with 3.98% for the June
quarter last year. The Company's interest rate spread for the current quarter
decreased mainly as a result of increased costs on interest-bearing liabilities.
Total interest income for the current quarter increased $1.8 million over
the prior year's same period. This increase was almost exclusively related to
increased volume in the loan portfolio. Average loans outstanding were $577
million in the current quarter compared to $488 million for the quarter ended
June 30, 1996. The weighted average yield on loans was 8.76% for the current
quarter compared to 8.90% for the same period last year. The overall average
yield on interest-earning assets was 8.59% for the June 30, 1997, quarter
compared with 8.66% for the June 30, 1996, 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, 1997, interest income on investment
securities and short-term investments, which included interest-earning deposits
and Federal funds sold, increased to $728,000 from $687,000 in the prior year
period, principally due to higher average rates in the current period.
Total interest expense increased approximately $1.3 million in the current
quarter over the same period last year, the majority of which related to greater
volume of time deposits and FHLB advances required to fund loan activity.
Interest expense on deposits was higher compared to the prior year due to
approximately $44 million higher average balances outstanding and somewhat
higher rates paid on certificates of deposit. Interest expense related to FHLB
advances increased $666,000 for the quarter ended June 30, 1997 as a result of
$118 million in average outstanding advances compared with $78 million in
average outstanding advances for the quarter ended June 30, 1996.
Interest expense on the Company's convertible subordinated debentures
decreased slightly from the prior year due to the effect of conversions to
common stock. The debentures, which have a coupon interest rate of 6.25%, have a
final maturity of May 1, 2008. The effective cost of these funds is increased by
the amortization of related deferred issuance costs.
OTHER INCOME
Other income in the current quarter increased slightly, to $442,000, from
$434,000 in last year's first quarter largely due to the recognition of profits
from joint ventures in SF Development Corporation.
14
<PAGE> 15
OTHER EXPENSES
Other operating expenses for the current quarter were up 4.8% over the
same period last year. Operating expenses were affected by annual increases in
compensation and a larger employee base, along with increases in occupancy,
marketing and professional services expenses offset by a decrease in the Federal
Deposit Insurance premium.
FEDERAL INCOME TAX
The Company's provision for Federal income taxes were at comparable tax
rates for the three months ended June 30, 1997 and 1996.
SELECTED OPERATING RATIOS
<TABLE>
<CAPTION>
Three months ended
June 30,
---------------------
1997 1996
---------------------
<S> <C> <C>
Return on average assets
(annualized) 1.35% 1.38%
Return on average equity
(annualized) 14.52% 14.08%
Yield on average interest-
earning assets 8.59% 8.66%
Cost of average interest-bearing
liabilities 4.92% 4.68%
Interest rate spread during
period 3.67% 3.98%
Net yield on interest-earning
assets 4.02% 4.32%
Efficiency ratio (a) 48.9% 50.3%
</TABLE>
(a) Calculated as other operating expenses (excluding amortization of goodwill)
divided by the sum of net interest income and other income, not including
non-recurring items and securities gains and losses.
15
<PAGE> 16
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
first quarter ended June 30, 1997.
16
<PAGE> 17
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 11, 1997 /s/ Charles F. Valentine
------------------------------------
Charles F. Valentine, Chairman of the
Board and Chief Executive Officer
Dated: August 11, 1997 /s/ Austin J. Mulhern
------------------------------------
Austin J. Mulhern, President and
Chief Operating Officer
Dated: August 11, 1997 /s/ Mary H. Crotty
------------------------------------
Mary H. Crotty, Vice President,
Treasurer, and Chief Financial Officer
18
<PAGE> 1
Exhibit 11
SECURITY FIRST CORP.
COMPUTATION OF EARNINGS PER SHARE (a)
<TABLE>
<CAPTION>
Three months ended
June 30,
1997 1996
--------------------------
<S> <C> <C>
PRIMARY:
Earnings:
Net Income applicable
to primary shares $2,189,000 $1,934,000
Shares:
Weighted average number
of common shares
outstanding 7,525,280 7,393,215
Shares issuable from
assumed exercise of
stock options 163,369 130,160
--------------------------
Total primary shares 7,688,649 7,523,375
==========================
Primary earnings per share $ 0.28 $ 0.26
==========================
FULLY DILUTED:
Earnings:
Net income $2,189,000 $1,934,000
Adjustment for interest
expense on convertible
subordinated debentures
net of tax 91,000 98,000
--------------------------
Net income applicable to
fully diluted shares $2,280,000 $2,032,000
==========================
Shares:
Weighted average number
of common shares
outstanding 7,525,280 7,393,215
Shares issuable from
assumed exercise of
stock options 185,005 151,323
Shares issuable from
assumed conversion of
convertible subordinated
debentures 1,048,860 1,126,845
--------------------------
Total fully diluted shares 8,759,145 8,671,383
==========================
Fully diluted earnings
per share $ 0.26 $ 0.23
==========================
</TABLE>
(a) Adjusted to reflect the three-for-two stock split distributed on July 31,
1997.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,933
<INT-BEARING-DEPOSITS> 1,050
<FED-FUNDS-SOLD> 2,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,773
<INVESTMENTS-CARRYING> 7,000
<INVESTMENTS-MARKET> 7,001
<LOANS> 583,772
<ALLOWANCE> 5,018
<TOTAL-ASSETS> 653,226
<DEPOSITS> 464,976
<SHORT-TERM> 84,973
<LIABILITIES-OTHER> 6,609
<LONG-TERM> 27,216
<COMMON> 76
0
0
<OTHER-SE> 61,541
<TOTAL-LIABILITIES-AND-EQUITY> 653,226
<INTEREST-LOAN> 12,641
<INTEREST-INVEST> 728
<INTEREST-OTHER> 46
<INTEREST-TOTAL> 13,415
<INTEREST-DEPOSIT> 5,220
<INTEREST-EXPENSE> 7,133
<INTEREST-INCOME-NET> 6,282
<LOAN-LOSSES> 59
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,312
<INCOME-PRETAX> 3,353
<INCOME-PRE-EXTRAORDINARY> 2,189
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,189
<EPS-PRIMARY> .28
<EPS-DILUTED> .26
<YIELD-ACTUAL> 4.02
<LOANS-NON> 1,828
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,600
<ALLOWANCE-OPEN> 4,968
<CHARGE-OFFS> 10
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 5,018
<ALLOWANCE-DOMESTIC> 4,307
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 711
</TABLE>
