<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 DECEMBER 31, 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 4,976,580
- ------ ------------ --- ----- ---------
(Class) (Outstanding at February 10, 1997)
<PAGE> 2
SECURITY FIRST CORP.
TABLE OF CONTENTS
----- -- --------
Part I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Financial Condition
as of December 31, 1996, March 31, 1996 and
December 31, 1995............................. 3
Consolidated Statements of Income for the three
and nine months ended December 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
nine months ended December 31, 1996 and 1995..... 5-6
Notes to Consolidated Financial Statements.... 7
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations. 8-21
Part II. OTHER INFORMATION............................. 22
Computation of Earnings Per Share............. 23
SIGNATURES................................................. 24
<PAGE> 3
Part 1. - Financial Information
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, March 31, December 31,
1996 1996 (a) 1995
(Unaudited) (Unaudited)
-----------------------------------------
ASSETS:
<S> <C> <C> <C>
Cash and deposits with banks $ 6,970 $ 6,886 $ 7,983
Interest bearing deposits with banks 2,501 3,812 3,077
Federal funds sold and short term investments 5,815 2,959 4,282
--------- --------- ---------
Total cash and cash equivalents 15,286 13,657 15,342
--------- --------- ---------
Investment securities - held to maturity (market values of $7,012, $9,264, and
$11,214 at December 31, 1996, March 31, 1996,
and December 31, 1995) 7,000 9,250 11,125
Investment securities - available for sale (amortized cost of
$24,968, $24,379, and $17,396 at December 31, 1996, March 31, 1996,
and December 31, 1995, respectively) 24,782 24,189 17,563
Mortgage-backed securities - available for sale (amortized cost of
$2,587 at December 31, 1996, $3,173 at March 31, 1996 and
$3,358 at December 31, 1995, respectively) 2,679 3,275 3,491
Loans - net (including allowance for loan losses of
$4,902 at December 31, 1996, $4,572 at March 31, 1996
and $4,379 at December 31, 1995) 550,925 475,631 468,694
Accrued interest receivable 3,842 3,466 3,431
Federal Home Loan Bank stock - at cost 5,780 3,864 3,693
Premises and equipment - net 9,091 8,451 8,438
Cost in excess of fair value of net
assets acquired (goodwill) 1,054 1,135 1,162
Prepaid expenses and other assets 3,857 4,309 3,999
--------- --------- ---------
TOTAL ASSETS $ 624,296 $ 547,227 $ 536,938
========= ========= =========
LIABILITIES:
Deposits $ 446,137 $ 410,737 $ 412,753
Advances from Federal Home Loan Bank-short term 69,755 59,300 33,566
Advances from Federal Home Loan Bank-long term 35,257 8,784 22,095
Convertible subordinated debentures 8,759 8,774 8,774
Advance payments by borrowers for taxes
and insurance (escrow) 2,533 1,345 2,374
Accrued interest payable 1,726 1,473 1,521
Accounts payable and other accrued expenses 2,458 2,434 1,557
--------- --------- ---------
Total liabilities 566,625 492,847 482,640
--------- --------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock (1,000,000 shares authorized,
none issued) -- -- --
Common stock, par value $.01 per share; 10,000,000
shares authorized; 4,973,820 shares issued and
outstanding at December 31, 1996, 4,928,968 at
March 31, 1996 and 4,876,868 at December 31, 1995 50 49 49
Capital in excess of par value 14,609 14,453 14,329
Net unrealized gain (loss) on investments and mortgage-backed
securities, (net of tax of $37 at December 31,1996,
$30 at March 31, 1996, and $45 at December 31, 1995) (63) (59) 199
Unearned compensation (235) (293) (312)
Unearned employee stock ownership plan shares -- (447) (471)
Retained earnings (substantially restricted) 43,310 40,677 40,504
--------- --------- ---------
Total shareholders' equity 57,671 54,380 54,298
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 624,296 $ 547,227 $ 536,938
========= ========= =========
<FN>
(a) Derived from audited financial statements at March 31, 1996.
</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 Nine months ended
December 31, December 31,
1996 1995 1996 1995
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans $11,833 $10,352 $34,035 $30,130
Mortgage-backed securities 54 71 174 234
Investment securities 592 619 1,752 1,896
Short-term investments 104 123 342 363
--------------------------- ---------------------------
Total interest income 12,583 11,165 36,303 32,623
--------------------------- ---------------------------
Interest Expense:
Deposits 4,965 4,722 14,200 13,926
Short-term FHLB advances 986 592 3,266 1,576
Long-term FHLB advances 582 369 860 991
Convertible subordinated debentures 147 148 442 443
--------------------------- ---------------------------
Total interest expense 6,680 5,831 18,768 16,936
--------------------------- ---------------------------
Net interest income 5,903 5,334 17,535 15,687
Provision for loan losses 84 84 264 252
--------------------------- ---------------------------
Net interest income after provision
for loan losses 5,819 5,250 17,271 15,435
Other Income:
Service charges and other fees 380 397 1,154 1,163
Gain (loss) on sale of loans (12) -- 37 --
Other 91 34 142 133
--------------------------- ---------------------------
Other income 459 431 1,333 1,296
--------------------------- ---------------------------
Other Expenses:
Salaries and employee benefits 1,419 1,375 4,237 4,177
Occupancy and equipment 456 420 1,321 1,273
Federal deposit insurance 181 230 651 678
SAIF assessment -- -- 2,567 ---
Marketing 119 125 332 387
Professional fees 143 114 371 361
Data processing 129 120 384 327
Printing and supplies 80 75 226 217
Amortization of goodwill 27 28 81 84
Supervisory assessment 33 31 99 92
Other 562 570 1,760 1,605
--------------------------- ---------------------------
Other expenses 3,149 3,088 12,029 9,201
--------------------------- ---------------------------
Income before federal income taxes 3,129 2,593 6,575 7,530
Federal income taxes 1,089 901 2,315 2,581
--------------------------- ---------------------------
Net Income $2,040 $1,692 $4,260 $4,949
=========================== ===========================
Earnings Per Share:
Primary $0.40 $0.34 $0.85 $1.01
=========================== ===========================
Fully diluted $0.37 $0.31 $0.78 $0.92
=========================== ===========================
Cash Dividends Per Share $0.11 $0.10 $0.33 $0.30
=========================== ============================
</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>
Nine Months Ended
December 31,
1996 1995
----------------------------------
OPERATING ACTIVITIES:
- -----------------------------
<S> <C> <C>
Net Income $4,260 $4,949
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for losses on loans and real
estate owned 264 252
Accretion of discounts, amortization of
premiums, and other deferred yield items 660 27
Depreciation and amortization 577 518
Amortization of goodwill 81 84
Amortization of unearned compensation 58 218
Effect of change in accrued interest
receivable and payable (123) 155
FHLB stock dividends (272) (166)
Net change in accounts payable, accrued expenses,
and other assets 443 267
----------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,948 6,304
----------------------------------
INVESTING ACTIVITIES:
- -----------------------------
Loans originated (230,011) (141,917)
Increase in loans in process 19,471 7,522
Loan principal repayments and maturities 116,610 103,199
Proceeds from:
Sales of:
Loan participations 29,189 958
Real estate owned 157 324
Mortgage-backed security principal
repayments and maturities 596 722
Investment security maturities 4,663 22,933
Purchases of:
Loans (11,617) (7,918)
Investment securities (2,993) (13,800)
Premises and equipment (1,217) (1,119)
FHLB stock (1,644) (618)
----------------------------------
NET CASH USED IN INVESTING ACTIVITIES ($76,796) ($29,714)
==================================
</TABLE>
<PAGE> 6
Part 1. - Financial Information
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
1996 1995
----------------------------------
FINANCING ACTIVITIES:
- -----------------------------
<S> <C> <C>
Net increase in savings deposits $35,400 $19,439
Proceeds from additional FHLB advances 266,400 73,100
Payment of FHLB advances (229,472) (67,983)
Net increase in mortgage escrow funds 1,188 477
Payment of dividends on common stock (1,627) (1,430)
Proceeds from exercise of stock options 588 41
----------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 72,477 23,644
----------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,629 233
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,657 15,109
----------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $15,286 $15,342
==================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $19,021 $16,577
Income taxes 2,054 2,404
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.
<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. Amounts have been restated to reflect a pooling of interests.
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 nine months ended December 31, 1996 and 1995; (b) the financial
condition at December 31, 1996, March 31, 1996 and December 31, 1995; and (c)
the statement of cash flows for the nine month periods ended December 31, 1996
and 1995. The results of operations for the nine month period ended December 31,
1996 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.)
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 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
standard, which supersedes SFAS No. 122, is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996. The FASB has issued FASB Statement 127 that defers the
effective date of certain provisions of Statement 125 related to secured
borrowings and collateral, repurchase agreements, dollar rolls, securities
lending and similar transactions until after December 31, 1997. The impact of
adopting these statements on the financial condition and results of operation of
the Company has not been evaluated by the Company at this time.
<PAGE> 8
Item 2.
SECURITY FIRST CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's total assets increased 14.1%, from $547.2 million at fiscal
year-end March 31, 1996 to $624.3 million at December 31, 1996, principally due
to a $75.3 million net increase in loans outstanding, funded mainly by increased
borrowings from the Federal Home Loan Bank of Cincinnati ("FHLB") and deposits.
Shareholders' equity (capital) at December 31, 1996 increased by $3.3
million since March 31, 1996, mainly as a result of 1) the retention of $2.6
million of net earnings after the payment of cash dividends totalling $1,636,000
and 2) the termination of the Company's Employee Stock Ownership Plan ("ESOP")
after the repayment of the ESOP loan.
As noted in the "Capital" section, both Security Federal's and First
Federal's regulatory capital ratios at December 31, 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.
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 $264,000 for the
third quarter and nine months ended December 31, 1996, respectively, compared
with $84,000 and $252,000 for the same periods last year. The allowance for loan
losses of $4,902,000 at December 31, 1996 increased nearly 12% from $4,379,000
at December 31, 1995, while nonperforming assets fell 31% to $1.5 million at
December 31, 1996 from $2.3 million at December 31, 1995.
<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. In
consideration of general accepted accounting principles including SFAS 114
"Accounting by Creditors for Impairment of a Loan" as amended by SFAS 118.
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):
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS:
DECEMBER 31, MARCH 31, DECEMBER 31,
1996 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Non-accrual loans $1,430 $2,006 $2,060
Accruing loans past due
90 days 107 522 151
Real estate owned 6 39 39
------- ------- -------
Total non-performing
assets $1,543 $2,567 $2,250
======== ======= =======
Allowance for loan loss $4,902 $4,572 $4,379
======== ======= =======
RATIOS:
Non-performing assets
to total assets .25% 0.47% 0.42%
==== ===== =====
Non-performing loans
to total loans (before
allowance for loan losses) .28% 0.53% 0.47%
==== ===== =====
Allowance for loan losses
to non-performing loans 318.93% 180.85% 198.06%
====== ====== ======
Allowance for loan losses
to period-end loans (before
allowance for loan losses) 0.88% 0.95% 0.93%
===== ===== =====
Net charge offs (recoveries)
to average loans for
the period (a) ( 0.02%) 0.02% 0.05%
===== ===== =====
<FN>
(a) Annualized based on net charge-offs (recoveries) for the nine months ended
December 31, 1996 and 1995, respectively.
</TABLE>
As noted above, non-performing assets at December 31, 1996 decreased
$1,024,000, or 40%, 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.
<PAGE> 10
POTENTIAL PROBLEM LOANS:
Potential problem loans as of December 31, 1996, were $520,503, 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 secured and no
material loss is expected, they are subject to allowance for credit losses of
$159,000.
Management is of the opinion that the allowance for loan losses at
December 31, 1996, which represents 319% 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.
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 $37 million and $11 million,
respectively, (as of December 31, 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 December 31, 1996,
Security Federal's average liquidity ratio was 7.00% compared to 7.5% for the
quarter ended December 31, 1995. First Federal's liquidity ratios were 11.95%
and 15.53% for the quarters ended December 31, 1996 and 1995, respectively.
<PAGE> 11
CAPITAL
Regulatory capital for Security Federal and First Federal at December 31,
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):
SECURITY FEDERAL
----------------
<TABLE>
<CAPTION>
Tier 1 Tier 1 Total
Core Risk- Risk-
Leverage Based Based Tangible
Capital Capital Capital Capital
------- ------- ------- --------
<S> <C> <C> <C> <C>
Capital amount - actual $40,816 $40,816 $45,219 $40,816
well-capitalized level 26,106 23,710 39,516 7,832
------ ------ ------ ------
- excess $14,710 $17,106 $5,703 $32,984
====== ====== ====== ======
Capital ratio - actual 7.82% 10.33% 11.44% 7.82%
- required 3.00 4.00 8.00 1.50
----- ----- ----- -----
- excess 4.82% 6.33% 3.44% 6.32%
==== ==== ==== ====
Capital ratio - actual 7.82% 10.33% 11.44%
well-capitalized level 5.00 6.00 10.00
----- ----- -----
- excess 2.82% 4.33% 1.44%
===== ===== =====
<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 $10,446 $10,446 $10,802 $10,446
well capitalized level 4,340 3,548 5,914 1,302
------ ------ ------ ------
- excess $6,106 $6,898 $4,888 $9,144
====== ====== ====== ======
Capital ratio - actual 12.03% 17.66% 18.26% 12.03%
- required 3.00 4.00 8.00 1.50
----- ----- ----- -----
- excess 9.03% 13.66% 10.26% 10.53%
===== ===== ===== =====
Capital ratio - actual 12.03% 17.66% 18.26%
well capitalized level 5.00 6.00 10.00
----- ----- -----
- excess 7.03% 11.66% 8.26%
===== ===== =====
</TABLE>
<PAGE> 12
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 the present value of expected cash flows from
liabilities, as well as cash flows from off-balance sheet contracts.
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 September 30, 1996, which is the most recent available
information. As illustrated in the table, a decline in NPV occurs as rates rise.
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 September 30, 1996
(Basis Points) NPV $ Change % Change
-------------- ---------- ----------------------
<S> <C> <C> <C>
+ 400 $29,059 ($39,969) -58.00%
+ 300 38,691 (30,337) -44.00%
+ 200 48,668 (20,361) -29.00%
+ 100 58,905 (10,123) -15.00%
-- 69,028 0 0.00%
- 100 79,049 10,021 15.00%
- 200 90,193 21,165 31.00%
- 300 102,086 33,058 48.00%
- 400 115,717 46,689 68.00%
</TABLE>
<PAGE> 13
FIRST FEDERAL
-------------
Change in
Interest Rate Estimated at September 30, 1996
(Basis Points) NPV $ Change % Change
-------------- ---------- ----------------------
+ 400 $5,586 ($4,169) -42.74%
+ 300 7,108 (2,647) -27.13%
+ 200 8,475 (1,280) -13.12%
+ 100 9,560 (195) -2.00%
-- 9,755 0 0.00%
- 100 9,871 56 0.57%
- 200 9,760 6 0.06%
- 300 10,508 754 7.73%
- 400 11,391 1,637 16.78%
<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 December 31, 1996 and 1995. Average balance
calculations were based on daily and monthly balances.
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended December 31,
/----------1996---------\ /----------1995----------\
----------------------------------- ------------------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $540,878 $ 11,833 8.75% $464,752 $10,352 8.91%
Mortgage-backed
securities (a) 2,673 54 8.08% 3,559 71 7.98%
Investment securities (a) 37,145 592 6.38% 37,995 619 6.52%
Short-term investments 7,823 104 5.32% 8,900 123 5.53%
------- -------- -------- -------
Total interest-
earning assets 588,519 12,583 8.55% 515,206 11,165 8.67%
-------- -------
Noninterest-earning
assets 25,290 21,618
------- --------
Total assets $613,809 $536,824
======== ========
Interest-bearing liabilities:
Passbook accounts $ 58,031 $ 396 2.73% $ 59,581 $ 402 2.70%
Money market/NOW accounts 84,192 364 1.73% 81,527 388 1.90%
Certificates of deposit 291,885 4,205 5.76% 263,702 3,932 5.96%
------- -------- -------- -------
Total deposits 434,108 4,965 4.57% 404,810 4,722 4.67%
Short-term FHLB advances 65,086 986 6.06% 38,403 592 6.17%
Long-term FHLB advances 39,372 582 5.91% 25,198 369 5.86%
------- -------- -------- -------
Total advances 104,458 1,568 6.00% 63,601 961 6.04%
Convertible subordinated
debentures 8,759 147 6.71% 8,774 148 6.75%
------- -------- -------- -------
Total interest-
bearing liabilities 547,325 6,680 4.88% 477,185 5,831 4.89%
-------- -------
Noninterest-bearing
liabilities 9,789 6,197
----- -----
Total liabilities 557,114 483,382
Shareholders' equity 56,695 53,442
------- -------
Total liabilities and
shareholders' equity $613,809 $536,824
======== ========
NET INTEREST INCOME/
INTEREST RATE SPREAD $5,903 3.67% $5,334 3.78%
====== ==== ====== ====
NET INTEREST-EARNING
ASSETS/NET YIELD ON
INTEREST-EARNING ASSETS $41,194 4.01% $38,021 4.14%
======= ==== ======= ====
RATIO OF INTEREST-EARNING
ASSETS TO INTEREST-BEARING
LIABILITIES 107.53% 107.97%
====== ======
<FN>
(a) Yield information does not give effect to changes
in fair value that are reflected as a component of
stockholders' equity.
</TABLE>
<PAGE> 15
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 nine month periods ended December 31, 1996 and 1995. Average balance
calculations were based on daily and monthly balances.
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended December 31,
/------------------1996------------\ /------------1995------------\
------------------------------------------ -------------------------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
----------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $514,812 $34,035 8.81% $449,051 $30,130 8.95%
Mortgage-backed
securities (a) 2,862 174 8.11% 3,842 234 8.12%
Investment securities (a) 36,675 1,752 6.37% 39,723 1,896 6.36%
Short-term investments 8,564 342 5.32% 8,806 363 5.50%
--------- -------- --------- --------
Total interest-
earning assets 562,913 36,303 8.60% 501,422 32,623 8.67%
-------- --------
Noninterest-earning
assets 23,920 20,983
--------- ---------
Total assets $586,833 $522,405
========= =========
Interest-bearing liabilities:
Passbook accounts $59,136 $1,202 2.71% $60,503 $1,200 2.64%
Money market/NOW accounts 82,677 1,114 1.80% 79,113 1,173 1.98%
Certificates of deposit 278,053 11,884 5.70% 260,069 11,552 5.92%
--------- -------- --------- --------
Total deposits 419,866 14,200 4.51% 399,685 13,925 4.65%
Short-term FHLB advances 74,705 3,266 5.83% 33,967 1,576 6.19%
Long-term FHLB advances 19,552 860 5.86% 22,066 991 5.99%
--------- -------- --------- --------
Total advances 94,257 4,126 5.84% 56,033 2,567 6.11%
Convertible subordinated
debentures 8,767 442 6.72% 8,794 443 6.72%
--------- -------- --------- --------
Total interest-
bearing liabilities 522,890 18,768 4.79% 464,512 16,936 4.86%
-------- --------
Noninterest-bearing
liabilities 8,017 5,817
--------- ---------
Total liabilities 530,907 470,329
Shareholders' equity 55,926 52,076
--------- ---------
Total liabilities and
shareholders' equity $586,833 $522,405
========= =========
NET INTEREST INCOME/
INTEREST RATE SPREAD $17,535 3.81% $15,687 3.81%
======== ===== ======== ======
NET INTEREST-EARNING
ASSETS/NET YIELD ON
INTEREST-EARNING ASSETS $40,023 4.15% $36,910 4.17%
========= ===== ========= ======
RATIO OF INTEREST-EARNING
ASSETS TO INTEREST-BEARING
LIABILITIES 107.65% 107.95%
======= =======
<FN>
(a) Yield information does not give effect to changes
in fair value that are reflected as a component of
stockholders' equity.
</TABLE>
<PAGE> 16
SECURITY FIRST CORP.
RATE/VOLUME ANALYSIS
The changes in net interest income for the three months ended December 31, 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 December 31,
--------------------------------------------------------------------------------
1996 vs. 1995
--------------------------------------------------------------------------------
Increase
(Decrease) Total
Due to Increase
Volume Rate (Decrease)
-------------- ---------------- -------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans $1,662 ($181) $1,481
Mortgage-backed securities (18) 1 (17)
Investment securities (14) (13) (27)
Short-term investments (14) (5) (19)
------- ------ -------
Total interest-earning
assets $1,616 ($198) $1,418
======= ====== =======
INTEREST-BEARING LIABILITIES:
Passbook accounts (11) 5 (6)
Money market/NOW accounts 13 (37) (24)
Certificates of deposit 399 (126) 273
------- ------ -------
Total deposits 401 (158) 243
Short-term FHLB advances 404 (10) 394
Long-term FHLB advances 209 4 213
------- ------ -------
Total advances 613 (6) 607
Convertible subordinated
debentures 0 (1) (1)
------- ------ -------
Total interest-bearing
liabilities $1,014 ($165) $849
======= ====== =======
CHANGE IN NET INTEREST INCOME $569
=======
</TABLE>
<PAGE> 17
*
SECURITY FIRST CORP.
RATE/VOLUME ANALYSIS
The changes in net interest income for the nine months ended December 31, 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 Nine Months Ended December 31,
--------------------------------------------------------------------------------
1996 vs. 1995
--------------------------------------------------------------------------------
Increase
(Decrease) Total
Due to Increase
Volume Rate (Decrease)
----------------- ----------------- -------------
INTEREST-EARNING ASSETS:
<S> <C> <C> <C>
Loans $4,340 ($435) $3,905
Mortgage-backed securities (60) 0 (60)
Investment securities (146) 2 (144)
Short-term investments (10) (11) (21)
------- ------ -------
Total interest-earning
assets $4,124 ($444) $3,680
======= ====== =======
INTEREST-BEARING LIABILITIES:
Passbook accounts (20) 22 2
Money market/NOW accounts 58 (117) (59)
Certificates of deposit 732 (400) 332
------- ------ -------
Total deposits 770 (495) 274
Short-term FHLB advances 1,775 (85) 1,690
Long-term FHLB advances (111) (20) (131)
------- ------ -------
Total advances 1,664 (105) 1,559
Convertible subordinated
debentures (1) 0 (1)
------- ------ -------
Total interest-bearing
liabilities $2,433 ($600) $1,832
======= ====== =======
CHANGE IN NET INTEREST INCOME $1,848
=======
</TABLE>
<PAGE> 18
RESULTS OF OPERATIONS
NET INCOME
Security First's net income was $2,040,000 for the third quarter ended
December 31, 1996, a 21% increase over the $1,692,000 earned in the comparable
quarter last year. Net income of $4,260,000 for the nine months ended December
31, 1996 was impacted by the one-time charge for the Savings Association
Insurance Fund ("SAIF") special assessment totalling $2,567,000 or $1,694,000
after tax. Without the special assessment, current earnings would have been
$5,954,000, for a 20% increase over the $4,949,000 net income for the nine
months ended December 31, 1995.
NET INTEREST INCOME
Net interest income totalled $5.9 million and $17.5 million for the three
and nine months ended December 31, 1996, respectively, compared to $5.3 million
and $ 15.7 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 3.67% for the current quarter and 3.81% for the nine months
ended December 31, 1996, compared with 3.78% and 3.81%, respectively, for the
same periods in the prior year. The Company's interest rate spread for the
current quarter decreased based on lower overall yield on interest-earning
assets.
Total interest income increased $1.4 million for the current quarter and
$3.7 million for the current nine months over the prior year's same period.
These increases were almost exclusively related to increased volume in the loan
portfolio. Loan originations increased $87 million, or 61%, during the current
nine months compared with the prior year due to an increase of $42.3 million in
originations of construction and acquisition/development loans, an $26.2 million
increase in commercial real estate loans and an $18.3 million increase in
permanent one-to-four family mortgage loans. Average loans outstanding were 16%
(or $76 million) higher in the current quarter and 15% (or $66 million) higher
for the current nine months compared to the prior year period. The weighted
average rate on loans was 8.75% for the current quarter and 8.81% for the nine
months ended December 31, 1996 compared to 8.91% and 8.95%, respectively, for
the same periods last year.
In addition, rates on short-term and other investments were slightly lower
in the current quarter compared to last year. As a result of slightly lower
average loan rates and short-term and other investment average rates, the
overall average rate on interest-earning assets was 8.55% for the quarter and
8.60% for the current nine months ended December 31, 1996 compared with 8.67%
for both 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.
<PAGE> 19
During the three months and nine months ended December 31, 1996,
interest income on investment securities and short-term investments, which
included interest-earning deposits and Federal funds sold, decreased to
$696,000 and $2,094,000 in the current quarter and nine months,respectively,
from $742,000 and $2,259,000 in the prior year periods, principally due to a
decrease in average investments outstanding as a result of the redeployment of
cash into loan fundings. The average rates on investment securities was 6.38%
for the quarter and 6.37% for the nine months ended December, 1996 compare to
6.52% and 6.36%, respectively, for the same periods in the prior year.
Additionally, rates on short-term investments averaged 5.32% in the current
quarter and nine months compared with 5.53% and 5.50% for the comparable
periods last year.
Total interest expense increased approximately $849,000 in the current
quarter and $1,832,000 in the current nine months over the same periods 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 $29 million higher average
balances outstanding somewhat offset by lower rates paid on certificates of
deposit. Interest expense related to FHLB advances increased $607,000 and
$1,559,000 for current periods, respectively, 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 these
funds is increased by the amortization of related deferred issuance costs.
OTHER INCOME
Other income for the current quarter of $459,000 was 6% higher compared to
$431,000 for the same period last year, whereas other income for the current
nine months period was $1,333,000 or 3% higher compared to $1,296,000 for the
nine month period last year. The increase in other income for the current
quarter was attributable to the recognition of profits from joint ventures in SF
Development Corporation. A non-recurring component of this income for the
current nine month period 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 nine months ended
December 31, 1996 were $ 61,000 and $ 2,828,000 higher, respectively, than the
prior year. Operating expenses were affected by annual increases in
compensation, expenses related to the opening of a new branch office, and
increased data processing fees and franchise taxes. The major cause for the
increase in other expenses for the nine months was related to the special SAIF
insurance assessment of $2.6 million recorded on September 30, 1996. This
one-time assessment required from all SAIF insured institutions was for the
recapitalization of the SAIF insurance fund.
<PAGE> 20
FEDERAL INCOME TAX
The Company's provision for Federal income taxes was $1,089,000 and
$2,315,000 for the three and nine months ended December 31, 1996, respectively,
as compared with $901,000 and $2,581,000 for the comparable periods last year,
consistent with the changes in pre-tax income.
<PAGE> 21
SELECTED OPERATING RATIOS
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
-------------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Return on average assets
(annualized) 1.33% 1.26% 0.97% 1.26%
w/o SAIF assessment 1.35% 1.26%
Return on average equity
(annualized) 14.39% 12.66% 10.16% 12.67%
w/o SAIF assessment 14.19% 12.67%
Yield on average interest-
earning assets 8.55% 8.67% 8.60% 8.67%
Cost of average interest-bearing
liabilities 4.88% 4.89% 4.79% 4.86%
Interest rate spread during
period 3.67% 3.78% 3.81% 3.81%
Net yield on interest-earning
assets 4.01% 4.14% 4.15% 4.17%
Efficiency ratio (a) 48.9% 53.1% 49.8% 53.7%
<FN>
(a) Calculated as other operating expenses (excluding amortization of goodwill,
terminated merger costs and one time SAIF assessment) divided by the sum of net
interest income and other income, not including non-recurring items and
securities gains and losses.
</TABLE>
<PAGE> 22
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
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
third quarter ended December 31, 1996.
<PAGE> 23
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: February 6, 1997 /s/ Charles F. Valentine
------------------------------------
Charles F. Valentine, Chairman of
the Board and Chief Executive Officer
Dated: February 6, 1997 /s/ Austin J. Mulhern
------------------------------------
Austin J. Mulhern, President and
Chief Operating Officer
Dated: February 6, 1997 /s/ Mary H. Crotty
------------------------------------
Mary H. Crotty, Vice President,
Treasurer, and Chief Financial Officer
<PAGE> 1
Exhibit 11
SECURITY FIRST CORP.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
1996 1995 1996 1995
---------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
PRIMARY:
Earnings:
Net Income applicable
to primary shares $2,040,000 $1,692,000 $4,260,000 $4,949,000
============================== ================================
Shares:
Weighted average number
of common shares
outstanding 4,972,229 4,789,146 4,946,922 4,771,786
Shares issuable from
assumed exercise of
stock options 85,510 145,970 89,053 149,148
------------------------------ --------------------------------
Total primary shares 5,057,739 4,935,116 5,035,975 4,920,934
============================== ================================
Primary earnings per share $0.40 $0.34 $0.85 $1.01
============================== ================================
FULLY DILUTED:
Earnings:
Net income $2,040,000 $1,692,000 $4,260,000 $4,949,000
Adjustment for interest
expense on convertible
subordinated debentures
net of tax 98,000 98,000 293,000 293,000
------------------------------ --------------------------------
Net income applicable to
fully diluted shares $2,138,000 $1,790,000 $4,553,000 $5,242,000
============================== ================================
Shares:
Weighted average number
of common shares
outstanding 4,972,229 4,789,146 4,946,922 4,771,786
Shares issuable from
assumed exercise of
stock options 103,279 145,970 123,207 154,933
Shares issuable from
assumed conversion of
convertible subordinated
debentures 749,946 751,230 750,374 752,923
------------------------------ --------------------------------
Total fully diluted shares 5,825,454 5,686,346 5,820,503 5,679,642
============================== ================================
Fully diluted earnings
per share $0.37 $0.31 $0.78 $0.92
============================== ================================
</TABLE>
<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 DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,970
<INT-BEARING-DEPOSITS> 2,501
<FED-FUNDS-SOLD> 5,815
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,461
<INVESTMENTS-CARRYING> 7,000
<INVESTMENTS-MARKET> 7,012
<LOANS> 550,925
<ALLOWANCE> 4,902
<TOTAL-ASSETS> 624,296
<DEPOSITS> 446,137
<SHORT-TERM> 69,755
<LIABILITIES-OTHER> 6,717
<LONG-TERM> 44,016
<COMMON> 50
0
0
<OTHER-SE> 57,621
<TOTAL-LIABILITIES-AND-EQUITY> 624,296
<INTEREST-LOAN> 34,035
<INTEREST-INVEST> 2,094
<INTEREST-OTHER> 174
<INTEREST-TOTAL> 36,303
<INTEREST-DEPOSIT> 14,200
<INTEREST-EXPENSE> 18,768
<INTEREST-INCOME-NET> 17,535
<LOAN-LOSSES> 264
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 12,029
<INCOME-PRETAX> 6,575
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,260
<EPS-PRIMARY> .85
<EPS-DILUTED> .78
<YIELD-ACTUAL> 4.15
<LOANS-NON> 1,403
<LOANS-PAST> 107
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 521
<ALLOWANCE-OPEN> 4,786
<CHARGE-OFFS> 0
<RECOVERIES> 32
<ALLOWANCE-CLOSE> 4,902
<ALLOWANCE-DOMESTIC> 3,975
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 927
</TABLE>
