FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-25728
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Security Federal Bancorp, Inc.
- ------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 63-1134627
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2301 University Boulevard, Tuscaloosa, Alabama 35401
- ---------------------------------------------- ----------
(Address of principal executive offces) (Zip Code)
Registrant's telephone number,
including area code: (205) 345-8800
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
ninety 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. 671,469
-----------
SECURITY FEDERAL BANCORP, INC., AND SUBSIDIARY
Tuscaloosa, Alabama
June 30, 1996
- --------------------------------------------------------------
CONTENTS
PART I. FINANCIAL INFORMATION
---------------------
Page
-----
Item 1. Financial Statements
Independent Accountant's Report 1
Consolidated Statements of Financial Condition 2-3
Consolidated Statements of Income 4-6
Consolidated Statements of Cash Flows 7-8
Notes to Consolidated Financial Statements 9-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-17
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART 1 - ITEM 1
August 1, 1996
To the Board of Directors
Security Federal Bancorp, Inc., and Subsidiary
Tuscaloosa, Alabama
INDEPENDENT ACCOUNTANT'S REPORT
We have reviewed the accompanying consolidated statement of
financial condition and the related statements of income and cash
flows of Security Federal Bancorp, Inc., and Subsidiary as of
June 30, 1996, and for the three month and nine month periods then
ended. These financial statements are the responsibility of the
company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion. The
consolidated financial statements of Security Federal Bancorp, Inc.,
and Subsidiary as of June 30, 1995, were reviewed by other
accountants whose report dated July 27, 1995, stated that they were
not aware of any material modifications needed to be made to the
financial statements in order for them to be in conformity with
generally accepted accounting principles.
Based on our review, we are not aware of any material
modifications that should be made to the financial statements as of
June 30, 1996, in order for them to be in conformity with generally
accepted accounting principles.
/s/ Jamison, Money, Farmer & Co., P.C.
Certified Public Accountants
Tuscaloosa, Alabama
SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY
Tuscaloosa, Alabama
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1996, and September 30, 1995
__________________________________________________________________
ASSETS
(Unaudited)
June 30, September 30,
1996 1995
----------- -------------
Cash and Cash Equivalents $1,894,833 $ 813,264
Investment Securities:
Securities held-to-maturity (Fair value of
$-0- at June 30, 1996, and $996,875
at September 30, 1995) - 1,000,000
Securities available-for-sale, at fair value 4,942,345 6,146,859
Federal Home Loan Bank - Overnight Deposits 414,109 243,713
Loans Held for Sale, Net of Deferred Fees - 175,000
Loans Receivable (Net of allowance for losses
of $330,003 at June 30, 1996 and September 30,
1995) 66,905,831 59,635,779
Real Estate Owned 117,217 162,072
Office Properties and Equipment 1,166,362 1,220,003
Federal Home Loan Bank Stock - at Cost 539,000 507,900
Accrued Interest and Dividends Receivable 395,815 488,552
Other Assets 442,686 82,124
----------- -----------
TOTAL ASSETS $76,818,198 $70,475,266
=========== ===========
See Accountant's Report.
See Notes to Consolidated Financial Statements.
2
SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY
Tuscaloosa, Alabama
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
June 30, 1996, and September 30, 1995
______________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
June 30, September 30,
1996 1995
----------- -------------
Deposits $60,225,207 $56,975,131
Advances from Federal Home Loan Bank 3,085,000 1,285,000
Advances from Borrowers for Taxes and
Insurance 619,119 731,404
Income and Excise Tax Payable 282,919 206,041
Unremitted Collections on Mortgage Loans
Serviced 1,506,775 377,099
Mortgage Note Payable 40,230 42,055
Accrued Expenses and Other Liabilities 219,931 73,526
Commitments and Contingencies - -
----------- -----------
Total Liabilities 65,979,181 59,690,256
----------- -----------
Stockholders' Equity:
Common stock - at par 6,714 6,714
Additional paid-in capital 6,144,956 6,144,956
Retained earnings, substantially restricted 4,762,734 4,581,583
Net unrealized gain (loss) on investment
securities available-for-sale, net of
deferred tax (75,387) 51,757
----------- -----------
Total Stockholders' Equity 10,839,017 10,785,010
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $76,818,198 $70,475,266
=========== ===========
See Accountant's Report.
See Notes to Consolidated Financial Statements.
3
SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY
Tuscaloosa, Alabama
CONSOLIDATED STATEMENTS OF INCOME
_________________________________________________________________
(Unaudited) (Unaudited)
For the Nine Months Ended For the Three Months Ended
June 30, June 30,
------------------------- --------------------------
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
---------- ----------- ----------- ----------
Interest Income:
Mortgage loans $4,065,386 $3,367,705 $1,424,789 $1,185,660
Consumer and other
loans 31,139 29,192 11,054 9,633
Investment securities,
mortgage backed
securities, and
Federal Home Loan
Bank Deposits 373,486 366,198 115,165 158,544
---------- ---------- ---------- ----------
Total Interest
Income 4,470,011 3,763,095 1,551,008 1,353,837
---------- ---------- ---------- ----------
Interest Expense:
Deposits - savings 100,522 121,594 34,633 33,013
Deposits - certificates 2,505,383 2,194,253 838,482 788,332
Mortgage note payable 2,475 2,615 813 860
Borrowed funds 47,351 18,305 32,532 4,383
---------- ---------- ---------- ---------
Total Interest
Expense 2,655,731 2,336,767 906,460 826,588
---------- ---------- ---------- ---------
Net Interest Income 1,814,280 1,426,328 644,548 527,249
Provision for Losses
on Loans - - - -
Net Interest Income after
Provision for Losses 1,814,280 1,426,328 644,548 527,249
(continued)
See Accountant's Report.
See Notes to Consolidated Financial Statements.
4
SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY
Tuscaloosa, Alabama
CONSOLIDATED STATEMENTS OF INCOME(Continued)
______________________________________________________________
(Unaudited) (Unaudited)
For the Nine Months Ended For the Three Months Ended
June 30, June 30,
------------------------- --------------------------
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
---------- ----------- ----------- ----------
Non-Interest Income:
Servicing fees $ 187,559 $ 127,328 $ 70,491 $ 35,070
Income from late
charges 25,161 19,970 7,602 6,782
Other operating
revenue 8,275 16,572 892 8,098
Gain (loss) on sale
of real estate
owned 829 4,125 829 (203)
Gain (loss) on sale
of loans (69,974) (17,384) (48,011) (5,456)
Gain on sales of
other assets 36,960 6,237 - 6,237
--------- --------- --------- ----------
Total Non-
Interest
Income 188,810 156,848 31,803 50,528
--------- --------- --------- ----------
Non-Interest Expense:
Salaries and employee
benefits 646,164 514,074 172,772 155,102
Net occupancy expenses 91,587 104,448 24,600 33,637
Equipment expenses 74,461 50,987 22,068 17,262
OTS/FDIC premiums 121,609 118,411 40,517 39,532
Net expenses of real
estate owned 3,892 3,253 2,058 (886)
Other operating expenses 278,084 177,821 101,103 66,448
--------- --------- --------- ---------
Total Non-Interest
Expense 1,215,797 968,994 363,118 311,095
---------- --------- --------- ---------
(continued)
See Accountant's Report.
See Notes to Consolidated Financial Statements.
5
SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY
Tuscaloosa, Alabama
CONSOLIDATED STATEMENTS OF INCOME(Continued)
__________________________________________________________________
(Unaudited) (Unaudited)
For the Nine Months Ended For the Three Months Ended
June 30, June 30,
------------------------- --------------------------
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
---------- ----------- ----------- ----------
Income before Income
Taxes $787,293 $614,182 $ 313,233 $ 266,682
Income Tax Expense 270,409 227,247 95,005 98,672
-------- -------- --------- ---------
Net Income $516,884 $386,935 $ 218,228 $ 168,010
======== ======== ========= =========
Earnings Per Share $ .77 $ .58 $ .33 $ .25
======== ======== ========= =========
See Accountant's Report.
See Notes to Consolidated Financial Statements.
6
SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY
Tuscaloosa, Alabama
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 1996 and 1995
__________________________________________________________________
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited) (Unaudited)
1996 1995
----------- -------------
Cash Flows from Operating Activities:
Net income $ 516,884 $ 386,935
Adjustments to reconcile net income to net
cash provided by operating activities:
(Gain) loss on sale of assets 32,564 (10,362)
Depreciation expense 53,641 64,371
Amortization of premium/discounts on
investments (1,400) (11,440)
(Increase) decrease in accrued interest
and dividends receivable 92,737 (78,399)
(Increase) decrease in other assets (360,562) 158,175
Increase in deferred loan fees 82,713 48,312
Increase in accounts payable and
other liabilities 146,405 11,543
Increase in income tax payable 161,640 57,945
----------- -----------
Net Cash Provided by Operating
Activities 724,622 627,080
----------- -----------
Cash Flows from Investing Activities:
Sales (purchases) of U. S. government
treasuries and agencies 2,029,008 (3,797,125)
Purchases of Federal Home Loan Bank stock (31,100) (10,400)
Proceeds from sales of real estate owned 79,829 520,396
(Purchase) sales of Federal Home Loan
Bank Overnight Deposits (170,396) 4,072,381
Loan originations, net of repayments (18,784,835) (9,257,081)
Purchases of property, plant and
equipment - (1,657)
Proceeds from sales of loans 11,504,532 5,236,520
Net Cash (Used in) Investing
Activities (5,372,962) (3,236,966)
(continued)
See Accountant's Report.
See Notes to Consolidated Financial Statements.
7
SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY
Tuscaloosa, Alabama
CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)
For the Nine Months Ended June 30, 1996 and 1995
__________________________________________________________________
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (Continued)
(Unaudited) (Unaudited)
1996 1995
----------- -------------
Cash Flows from Financing Activities:
Net increase in advances from Federal
Home Loan Bank $1,800,000 $ -
Cash dividends paid (335,734) -
Net proceeds from sale of stock - 6,151,671
Net increase (decrease) in advances from
borrowers for tax and insurance (112,285) 47,727
Repayments of mortgage notes payable (1,825) (1,685)
Net increase from unremitted collections
on mortgage loans serviced 1,129,676 109,683
Net increase (decrease) in savings accounts 222,073 (1,408,984)
Net increase (decrease) in certificates
of deposit 3,028,004 (1,300,938)
---------- -----------
Net Cash Provided by Financing
Activities 5,729,909 3,597,474
---------- -----------
Net Increase in Cash and Cash Equivalents 1,081,569 987,588
Cash and Cash Equivalents, Beginning of Period 813,264 855,324
---------- -----------
Cash and Cash Equivalents, End of Period $1,894,833 $ 1,842,912
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-------------------------------------------------
1 9 9 6 1 9 9 5
------- -------
Interest paid $2,665,805 $2,319,181
Income taxes paid 169,302 169,302
See Accountant's Report.
See Notes to Consolidated Financial Statements.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
________________________________________________________________
1. Stock Conversion
----------------
On March 31, 1995, Security Federal Bank (the "Bank"),
formerly known as Security Federal Bank, a Federal Savings Bank,
completed its conversion from a federally chartered mutual
savings bank to a federally chartered stock bank and was
simultaneously acquired by Security Federal Bancorp, Inc. (the
"Company"), a Delaware corporation, which was formed to act as
the holding company of the Bank. On the date of the conversion,
the Company completed the sale of 671,469 shares of common stock,
$.01 par value per share, to depositors at $10 per share. Net
proceeds from the above transactions, after deducting offering
expenses, were $6.15 million.
2. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements
were prepared in accordance with instructions for Form 10QSB and,
therefore, do not include information or notes necessary for a
complete presentation of financial position, results of
operations, retained earnings, and cash flows in conformity with
generally accepted accounting principles. However, all
adjustments which, in the opinion of management, are necessary
for a fair presentation of the consolidated financial statements
for the three and nine months ended June 30, 1996 and 1995, have
been recorded. Such adjustments were of a normal recurring
nature. The results of operations for the interim period are not
necessarily indicative of the results that may be expected for
the full fiscal year.
3. Principles of Consolidation
---------------------------
The accompanying unaudited consolidated financial statements
include the accounts of Security Federal Bancorp, Inc., and
Security Federal Bank. All significant intercompany items have
been eliminated.
4. Retained Earnings
-----------------
The Bank is required to maintain certain levels of
regulatory capital. At June 30, 1996, the Bank was in compliance
with all regulatory capital requirements. In addition to these
requirements, the Bank must maintain sufficient capital for the
"liquidation account" for the benefit of eligible account
holders. In the event of a complete liquidation of the Bank,
eligible depositors would have an interest in the account.
(continued)
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
June 30, 1996
________________________________________________________________
5. Cash Flow Presentation
----------------------
For purposes of the statements of cash flows, cash and cash
equivalents include cash and amounts due from depository institu-
tions, and certificates of deposit with maturities of 90 days or
less.
6. Deposit Insurance
-----------------
The Bank's savings deposits are insured by the Savings
Association Insurance Fund ("SAIF"), which is administered by the
Federal Deposit Insurance Corporation ("FDIC"). The assessment
rate currently ranges from .23% of deposits for well capitalized
institutions to .31% of deposits for undercapitalized institu-
tions. The FDIC also administers the Bank Insurance Fund
("BIF"), which has the same designated reserve ratio as the SAIF.
On August 8, 1995, the FDIC adopted an amendment to the BIF
risk-based assessment schedule which lowered the deposit
insurance assessment rate for most commercial banks and other
depository institutions with deposits insured by the BIF as low
as $2,000 for well-capitalized institutions, which constitute
over 90% of BIF-insured institutions. The amendment creates a
substantial disparity in the deposit insurance premiums paid by
BIF and SAIF members and could place SAIF-insured savings
institutions at a significant competitive disadvantage to
BIF-insured institutions.
A proposal being considered to recapitalize the SAIF in
order to eliminate the premium disparity provides for a one time
assessment of from approximately .90% of insured deposits to be
imposed on all SAIF-insured deposits held as of a specified date,
possibly March 31, 1995. Under this proposal, the BIF and SAIF
would be merged into one fund as soon as practicable after they
both reach their designated reserve ratios, but no later than a
specified date, possibly January 1, 1998. Management believes
that this particular proposal may be implemented during 1996. It
is not known how premiums for either BIF or SAIF members will be
adjusted in the future by the FDIC or by legislative action. If
a special assessment as described above were to be required, it
would result in a one-time charge to the Bank of approximately
$494,000, which would have the effect of reducing the Bank's
tangible and core capital to $7.34 million, or 9.6% of adjusted
total assets, and risk-based capital to $7.68 million, or 19.5%
of risk-weighted assets, on a pro forma basis as of June 30,
1996. If such a special assessment were required and the SAIF as
a result was fully recapitalized, it could have the effect of
reducing the Bank's deposit insurance premiums to the SAIF,
thereby increasing net income in future periods.
7. Benefit Plans
-------------
The Board of Directors of the Company, at a special
shareholders meeting held November 20, 1995, approved the
adoption of an employee stock ownership plan, a management
recognition plan, and a stock option and incentive plan.
(continued)
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
June 30, 1996
________________________________________________________________
7. Benefit Plans (Continued)
------------------------
Under the employee stock ownership plan, a trust will be
established to purchase, on the open market, a number of shares
of stock equal to 8% of the Company's common stock issued in the
conversion. The Company will loan the trust an amount sufficient
to allow it to purchase the shares. Generally, all employees
completing one year of service and having attained age 21 will be
eligible to participate in the plan. An amount sufficient to
repay the loan over a ten year period will be paid to the trust
and expensed by the Company. Vesting occurs at the end of the
five years of service and accelerates to 100% upon death,
disability or attainment of age 65.
The management recognition plan provides for the purchase of
outstanding shares of Company common stock equal to 4% of the
shares issued in the conversion. Nonemployee and employee
directors will be entitled to plan share awards at the plan's
effective date totaling 10,743 shares. Future awards will be
made by a committee consisting of three non-employee directors.
Vesting will occur at the rate of 20% per year over five years
and accelerate to 100% upon a participant's death or disability.
The stock option and incentive plan provides for the
issuance of shares of Company common stock equal to 10% of the
shares issued in the conversion. As of the plan's effective
date, the non- employee and employee directors were granted
options totaling 26,857 shares. The options are exercisable at
the rate of 20% per year following the date of the grant, and
have a term of ten years. The options become immediately
exercisable upon death or disability. The plan also contains
provisions for expiration of the options following termination of
services.
As of June 30, 1996, $18,466 of expense is reflected in the
financial statements for accrued benefits payable under the
management recognition plan due to the death of a participant.
During the quarter ended March 31, 1996, purchases were made
of the holding company stock on the open market at a cost of
$354,690 to be used for plan share awards under the management
recognition plan. These purchases will be used for future plan
share awards, as none were granted at June 30, 1996.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- ---------------------------------------------------------------
Financial Condition
- -------------------
The company's total assets increased by $6.34 million, or
9%, from $70.5 million at September 30, 1995, to $76.8 million at
June 30, 1996, primarily as a result of an increase in loans
receivable of $7.09 million, or 11.9%, from $59.8 million at
September 30, 1995, to $66.9 million at June 30, 1996, and an
increase in other assets of $360,000, or 439%, from $82,000 at
September 30, 1995, to $442,000 at June 30, 1996, due to open
market purchases of company stock for future plan share awards
under the management recognition plan. These were partially
offset by a decrease in securities held-to- maturity of $1.0
million at September 30, 1995, to zero at June 30, 1996, due to
maturity of the security and a decrease in securities
held-for-sale of $1.21 million, or 19.7%, from $6.15 million at
September 30, 1995, to $4.94 million at June 30, 1996. This was
a result of sales of securities available for sale due to
favorable market conditions. This decrease was also a result of
the recent decline in the value of the overall bond market.
The company's total liabilities increased by $6.29 million,
or 10.54%, from $59.7 million at September 30, 1995, to $66
million at June 30, 1996, primarily as a result of an increase in
deposits of $3.25 million, or 5.7%, from $56.98 million at
September 30, 1995, to $60.23 million at June 30, 1996, and an
increase in short-term advances from Federal Home Loan Bank
(FHLB) of $1.8 million, or 140%, from $1.29 million at September
30, 1995, to $3.09 million at June 30, 1996, borrowed by
management for liquidity purposes. The increase in total
liabilities was also caused by a temporary increase in unremitted
collections on mortgage loans serviced of $1.13 million, or 300%
from $377,000 at September 30, 1995, to $1.51 million at June 30,
1996.
Results of Operations
- ---------------------
The earnings of the company depend primarily on its level of
net interest income, which is the difference between interest
earned on the company's interest-earning assets, consisting
primarily of mortgage loans, consumer loans, and investment
securities, and the interest paid on interest-bearing
liabilities. Net interest income totaled $1.81 million and
$645,000 for the nine month and three month periods ended June
30, 1996, respectively, which is an increase of $388,000 and
$117,000 over the respective nine month and three month periods
ended June 30, 1995.
Interest Income
- ---------------
Total interest income increased by $707,000, or 18.79%, from
$3.76 million for the nine month period ended June 30, 1995, to
$4.47 million for the nine month period ended June 30, 1996.
This is primarily due to an increase in interest income on
mortgage loans of $698,000 from $3.37 million for the nine month
period ended June 30, 1995, to $4.07 million for the nine month
period ended June 30, 1996. The increase in interest income on
loans generally reflects the availability of additional funds due
to the stock conversion and advances from the FHLB, growth of
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
- ---------------------------------------------------------------
Interest Income (Continued)
- ---------------
loans receivable, and a higher average yield on loans receivable
for the nine month period ended June 30, 1996, compared to the
nine month period ended June 30, 1995.
Total interest income increased by $197,000, or 14.56%, from
$1.35 million for the three month period ended June 30, 1995, to
$1.55 million for the three month period ended June 30, 1996.
This is primarily due to an increase in interest income on
mortgage loans of $239,000 from $1.19 million for the three month
period ended June 30, 1995, to $1.42 million for the three month
period ended June 30, 1996. This is partially offset by a
decrease in interest income on investments of $43,000 from
$158,000 for the three month period ended June 30, 1995, to
$115,000 for the three month period ended June 30, 1996. The
increase in interest income on loans generally reflects the
availability of additional funds due to the stock conversion and
advances from the FHLB, growth of loans receivable, and a higher
average yield on loans receivable for the three month period
ended June 30, 1996, compared to the three month period ended
June 30, 1995.
Interest Expense
- ----------------
Total interest expense increased by $319,000, or 13.65%,
from $2.34 million for the nine month period ended June 30, 1995,
to $2.65 million for the nine month period ended June 30, 1996.
This is primarily due to an increase in interest expense on
deposits of $290,000 from $2.32 million for the nine month period
ended June 30, 1995, to $2.6 million for the nine month period
ended June 30, 1996. The increase in interest expense on
deposits generally reflects growth of deposits for the nine month
period ended June 30, 1996, compared to the nine month period
ended June 30, 1995.
Total interest expense increased by $80,000, or 9.67%, from
$826,000 for the three month period ended June 30, 1995, to
$906,000 for the three month period ended June 30, 1996. This is
primarily due to an increase in interest expense on deposits of
$52,000 from $821,000 for the three month period ended June 30,
1995, to $873,000 for the three month period ended June 30, 1996.
The increase in interest expense on deposits generally reflects
growth of deposits for the three month period ended June 30,
1996, compared to the three month period ended June 30, 1995. In
addition, the increase in interest expense was caused by an
increase in interest expense on borrowed funds of $28,000, or
642% from $4,000 for the three month period ended June 30, 1995,
to $32,000 for the three month period ended June 30, 1996.
Net Interest Income
- -------------------
Net interest income increased by $388,000, or 27.2%, for the
nine month period ended June 30, 1996, compared to the nine month
period ended June 30, 1995, primarily due to the availability of
additional funds due to the stock conversion and advances from
the FHLB, and the growth of loans receivable.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS(Continued)
- -----------------------------------------------------------------
Net Interest Income (Continued)
- -------------------
Net interest income increased by $117,000, or 22.5%, for the
three month period ended June 30, 1996, compared to the three
month period ended June 30, 1995, primarily due to the
availability of additional funds due to the stock conversion and
advances from the FHLB, and the growth of loans receivable.
Provision for Losses
- --------------------
There were no additions made to the provision for loan
losses for the nine month and three month periods ended June 30,
1996. Management periodically reviews the need to increase the
provision for loan losses based upon their evaluation of known
and inherent risk characteristics of the loan portfolio. Total
non-performing assets were $154,000 and $569,000 at June 30, 1996
and 1995, respectively, which represents .20% and .82% of total
assets as of these dates, respectively. Management believes that
the existing provision for loan losses is adequate based on their
evaluation of known and inherent risk characteristics of the loan
portfolio.
Non-Interest Income
- -------------------
Non-interest income increased by $32,000, or 20.38%, to
$189,000 for the nine month period ended June 30, 1996, from
$157,000 for the nine month period ended June 30, 1995. This is
primarily due to an increase in servicing fee income by $60,000
from $127,000 for the nine month period ended June 30, 1995, to
$187,000 for the nine month period ended June 30, 1996, and due
to an increase in gains on sales of securities to $37,000 for the
nine month period ended June 30, 1996, from $6,000 for the nine
month period ended June 30, 1995. These were partially offset by
an increase in (losses) on sale of loans by $(53,000) for the
nine month period ended June 30, 1996, compared to the nine month
period ended June 30, 1995. Non-interest income decreased by
$19,000, or 37.06%, to $32,000 for the three month period ended
June 30, 1996, from $51,000 for the three month period ended June
30, 1995. This is the result primarily of an increase in
servicing fee income by $35,000 to $70,000 for the three month
period ended June 30, 1996, from $35,000 for the three month
period ended June 30, 1995, offset by an increase in (losses) on
sales of loans of $(43,000) for the three month period ended June
30, 1996, compared to the three month period ended June 30, 1995.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS(Continued)
- ---------------------------------------------------------------
Non-Interest Expense
- --------------------
Non-interest expense increased by $247,000 or 25.47%, to
$1,216,000 for the nine month period ended June 30, 1996, from
$969,000 for the nine month period ended June 30, 1995, primarily
due to an increase in salaries and employee benefits as a result
of accrued benefits due under the directors retirement plan and
the management recognition plan and an increase in other
operating expenses resulting from costs incurred in the stock
conversion.
Non-interest expense increased by $52,000 or 16.72%, to
$363,000 for the three month period ended June 30, 1996, from
$311,000 for the three month period ended June 30, 1995,
primarily due to an increase in salaries and employee benefits as
a result of accrued benefits under the directors retirement plan
and the management recognition plan, and increases in other
operating expenses.
Income Taxes
- ------------
Income tax provisions for the nine and three month periods
ended June 30, 1996 and 1995, are generally reflective of the
amounts of the company's pre-tax income and the effective income
tax rate then in effect.
Liquidity and Capital Resources
- -------------------------------
The Bank is required to maintain minimum levels of liquid
assets as defined by OTS regulations. This requirement, which
varies from time to time depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-
term borrowings. The required ratio currently is 5.0%. The
Bank's liquidity ratio averaged 10.45% for the nine month period
ended June 30, 1996. The Bank adjusts its liquidity levels in
order to meet funding needs of deposit outflows, payment of real
estate taxes on mortgage loans and repayment of borrowings and
loan commitments. The Bank also adjusts liquidity as appropriate
to meet its asset and liability management objectives.
The Bank's primary sources of funds are deposits, sale of
mortgage loans, amortization and prepayment of loans, maturities
of investment securities and other investments, borrowings
through advances from the FHLB, and earnings and funds provided
from operations. While scheduled principal repayments on loans
are a relatively predictable source of funds, deposit flows and
loan prepayments are greatly influenced by interest rates,
economic conditions, and competition. The Bank manages the
pricing of its deposits to maintain a desired deposit balance.
In addition, the Bank invests in short-term interest-earning
assets, which provide liquidity to meet lending requirements.
The Bank periodically uses advances from the FHLB of Atlanta for
liquidity purposes.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS(Continued)
- ----------------------------------------------------------------
Liquidity and Capital Resources (Continued)
- -------------------------------
During the nine months ended June 30, 1996, the company's
cash and cash equivalents (cash and short-term investments with
maturities less than 90 days) increased by $1.1 million. Cash
was provided by operating activities of $725,000, net proceeds
from sales and maturities of securities of $2.03 million,
proceeds from sales of loans of $11.5 million, an increase in
advances from FHLB of $1.8 million, net increases in deposit
accounts of $3.25 million, unremitted collections on mortgage
loans serviced of $1.1 million, and proceeds from sales of real
estate owned of $80,000. These were offset by an increase in
loan originations, net of repayments of $18.8 million, decreases
in advances from borrowers for tax and insurance of $112,000, and
cash dividends paid of $336,000.
Management monitors projected liquidity needs and determines
the level desirable based in part on commitments to make loans
and management's assessments of their ability to generate funds.
Loan commitments at June 30, 1996, were $3.11 million. These
commitments are expected to be funded from liquid assets, cash
flow from loan repayments, and, if needed, advances from FHLB of
Atlanta.
Under the regulatory capital requirements of the OTS, the
Bank is required to maintain minimal capital requirements by
satisfying three capital standards: a tangible capital
requirement, a leverage ratio requirement, and a risk-based
capital requirement. Under the tangible capital requirement, the
Bank's tangible capital (the amount of capital computed under
generally accepted accounting principles) must be equal to 1.5%
of adjusted total assets. Under the leverage ratio requirement,
the Bank's core capital must be equal to 3.0% of adjusted total
assets. In addition, under the risk-based capital requirement,
the Bank must maintain core and supplemental capital (core
capital plus any general loss reserves) equal to 8% of
risk-weighted assets (total assets, plus off- balance-sheet items
multiplied by the appropriate risk weight).
The following table presents the Bank's capital position
based on the June 30, 1996, financial statements:
Percent Percent Percent
Actual of Required of Excess of
Amount Assets Amount Assets Amount Assets
------ ------ ------- ------- ------- --------
Tangible $7,837,000 10.20 $1,152,000 1.50 $6,685,000 8.70
Core 7,837,000 10.20 2,305,000 3.00 5,532,000 7.20
Risk-weighted 8,176,000 20.74 3,154,000 8.00 5,022,000 12.74
16
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
Exhibit 27 Financial Data Schedule
Reports on Form 8-K:
None
17
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 1996 Security Federal Bancorp, Inc.
Registrant
/s/ Marlin D. Moore, Jr.
Marlin D. Moore, Jr.
Chairman and Chief Executive Officer
(The Duly Authorized Representative)
Date: August 13, 1996 /s/ John F. Harvard
John F. Harvard
President and Chief Financial Officer