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 March 31, 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.
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(Exact name of registrant as specified in its charter)
Delaware 63-1134627
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2301 University Boulevard, Tuscaloosa, Alabama 35401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 345-8800
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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 _____
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Indicate the number of shares outstanding of each of the issuers classes of
common stock as of the latest practicable date. 671,469.
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SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY ----------- TUSCALOOSA, ALABAMA
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TABLE OF CONTENTS -------------------------------------------- MARCH 31, 1996
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DESCRIPTION PAGE NO.
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Part I - Financial Information
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ITEM 1: Financial Statements
Independent Accountant's Report.......................................... 1
Consolidated Statement of Financial Condition............................ 2
Consolidated Statements of Income........................................ 3
Consolidated Statements of Cash Flows.................................... 4
Notes to Unaudited Consolidated Financial Statements................... 5-7
ITEM 2:
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 8-11
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings............................................... 12
Item 2. Changes in Securities........................................... 12
Item 3. Defaults upon Senior Securities................................. 12
Item 4. Submission of Matters to a Vote of Security Holders............. 12
Item 5. Other Information............................................... 12
Item 6. Exhibits and Reports on Form 8-K................................ 12
SIGNATURES.................................................................. 13
INDEPENDENT ACCOUNTANT'S REPORT
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To the Board of Directors
Security Federal Bancorp, Inc.
Tuscaloosa, Alabama
We have reviewed the accompanying consolidated statement of financial
condition and the related consolidated statements of income and cash flows of
Security Federal Bancorp, Inc. and subsidiary as of March 31, 1996 and for each
of the six month and three month periods ended March 31, 1996 and 1995. 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 primarily 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 accounting 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.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
/s/ Morrison and Smith
MORRISON AND SMITH
Certified Public Accountants
May 7, 1996
Tuscaloosa, Alabama
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SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY ------- TUSCALOOSA, ALABAMA
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CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
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A S S E T S
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(UNAUDITED)
MARCH 31, SEPTEMBER 30,
1996 1995
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Cash and Cash Equivalents $ 1,000,618 $ 813,264
Investment Securities:
Securities Held-to-Maturity (Fair Value of $0 at
March 31, 1996, $996,875 at Sept. 30, 1995,
respectively) 0 1,000,000
Securities Available-for-Sale, at Fair Value 5,061,469 6,146,859
Federal Home Loan Bank - Overnight Deposits 183,926 243,713
Loans Held for Sale, Net of Deferred Fees 0 175,000
Loans Receivable - Net of allowance for losses of $330,003
and $330,003 at 3/31/96 and 9/30/95, respectively 63,545,397 59,635,779
Real Estate Owned 117,217 162,072
Office Properties and Equipment 1,182,959 1,220,003
Federal Home Loan Bank Stock - At Cost 539,000 507,900
Accrued Interest and Dividends Receivable 455,523 488,552
Other Assets 439,592 82,124
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TOTAL ASSETS $ 72,525,701 $ 70,475,266
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LIABILITIES AND STOCKHOLDERS' EQUITY
====================================
Deposits $ 58,223,311 $ 56,975,131
Advances from Federal Home Loan Bank 2,585,000 1,285,000
Advances from Borrowers for Taxes and Insurance 484,299 731,404
Income and Excise Tax Payable 238,169 206,041
Unremitted Collections on Mortgage Loans Serviced 100,706 377,099
Mortgage Note Payable 40,850 42,055
Accrued Expenses and Other Liabilities 164,253 73,526
Commitments and Contingencies 0 0
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TOTAL LIABILITIES 61,836,588 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 4,544,507 4,581,583
Net Unrealized Gain (Loss) on Investment Securities
Available for Sale, Net of Deferred Tax (7,064) 51,757
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TOTAL STOCKHOLDERS' EQUITY 10,689,113 10,785,010
- - -------------------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 72,525,701 $ 70,475,266
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(SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS)
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SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY --------- TUSCALOOSA, ALABAMA
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CONSOLIDATED STATEMENTS OF INCOME
=================================
(UNAUDITED) (UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
INTEREST INCOME 1996 1995 1996 1995
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Loans:
Mortgage Loans $2,640,597 $2,182,045 $1,339,349 $1,117,006
Consumer and Other Loans 20,085 19,558 10,320 9,587
Investment Securities, Mortgage Backed
Securities, & FHLB Overnight Deposits 258,321 207,654 120,784 91,239
---------- ---------- ---------- ----------
Total Interest Income 2,919,003 2,409,257 1,470,453 1,217,832
--------------------- ---------- ---------- ---------- ----------
INTEREST EXPENSE
- - ----------------
Deposits - Savings 65,889 88,582 33,459 45,453
Deposits - Certificates 1,666,901 1,405,921 832,112 696,552
Mortgage Note Payable 1,662 1,755 825 872
Borrowed Funds 14,819 13,922 4,340 9,547
---------- ---------- ---------- ----------
Total Interest Expense 1,749,271 1,510,180 870,736 752,424
---------------------- ---------- ---------- ---------- ----------
NET INTEREST INCOME 1,169,732 899,077 599,717 465,408
- - -------------------
PROVISION FOR LOSSES ON LOANS 0 0 0 0
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NET INTEREST INCOME AFTER PROVISION
- - -----------------------------------
FOR LOSSES 1,169,732 899,077 599,717 465,408
- - ---------- ---------- ---------- ---------- ----------
NONINTEREST INCOME
- - ------------------
Servicing Fees 117,068 92,258 58,557 54,675
Income from Late Charges 17,559 13,189 8,644 7,149
Other Operating Revenue 7,383 8,424 4,708 3,191
Gain (Loss) on Sale of Real Estate Owned 0 4,329 0 0
Gain (Loss) on Sale of Loans (21,963) (11,877) (5,128) (10,812)
Gain on Sales of Securities 36,960 0 0 0
---------- ---------- ---------- ----------
Total Noninterest Income 157,007 106,323 66,781 54,203
------------------------ ---------- ---------- ---------- ----------
NONINTEREST EXPENSE
- - -------------------
Salaries and Employee Benefits 473,392 358,971 232,196 148,386
Net Occupancy Expense 66,990 45,207 28,085 23,607
Equipment Expense 52,393 59,328 24,277 32,370
OTS/FDIC Premiums 81,092 78,879 40,689 39,531
Net Expenses of Real Estate Owned 1,834 4,139 6,359 929
Other Operating Expenses 176,978 111,376 10,594 52,685
---------- ---------- ---------- ----------
Total Noninterest Expense 852,679 657,900 342,200 297,508
------------------------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 474,060 347,500 324,298 222,103
- - --------------------------
INCOME TAX EXPENSE 175,401 128,575 132,432 85,939
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NET INCOME $ 298,659 $ 218,925 $ 191,866 $ 136,164
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(SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS)
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SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY -------- TUSCALOOSA, ALABAMA
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(UNAUDITED)
SIX MONTHS ENDED
MARCH 31,
--------------------------
1996 1995
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Net Income $ 298,659 $ 218,925
- - ----------
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities:
(Gain) Loss on Sale of Assets (14,997) (4,329)
Decrease (Increase) in Accrued Interest &
Dividend Receivable 33,029 (37,394)
Depreciation Expense for Property & Equipment 37,044 44,277
Decrease (Increase) in Other Assets (357,468) 147,977
Increase (Decrease) in Accrued Interest Payable (23,796) 9,865
Increase (Decrease) in Accounts Payable (31,130) 39,298
Increase (Decrease) in Deferred Loan Fees 51,171 31,722
Increase (Decrease) in Other Liabilities 145,653 528
Increase (Decrease) in Income Tax Payable 32,128 68,377
Amortization of Premium/Discounts on Investments (871) (640)
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Net Cash Provided By Operating Activities 169,422 518,606
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Sales & Maturities of U.S. Government Treasuries & Agencies 2,042,436 0
Purchases of Federal Home Loan Bank Stock (31,100) (10,400)
Received on Sales of Real Estate Owned 79,829 483,757
(Purchase) Sales of Federal Home Loan Bank - Overnight
Deposit 59,787 (2,321,483)
Loan Originations, Net of Repayments (10,565,376) (6,212,756)
Purchases of Office Properties & Equipment 0 (1,246)
Proceeds from Sales of Loans 6,744,613 3,243,103
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Net Cash (Used) In Investing Activities (1,669,811) (4,819,025)
--------------------------------------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- - -------------------------------------
Net Increase in Advances from FHLB 1,300,000 0
Cash Dividends Paid (335,734) 0
Net Proceeds From Sale of Stock 0 6,151,671
Net Increase (Decrease) in Advances from Borrowers
for Tax & Insurance (247,105) (67,681)
Repayments of Mortgage Notes Payable (1,205) (1,112)
Net Increase (Decrease) from Unremitted Collections
on Mortgage Loans Serviced (276,393) 122,298
Net Increase (Decrease) in Savings Accounts 514,327 484,732
Net Increase (Decrease) in Certificates of Deposit 733,853 (2,145,981)
------------ -----------
Net Cash Provided By Financing Activities 1,687,743 4,543,927
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NET INCREASE IN CASH AND CASH EQUIVALENTS 187,354 243,508
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CASH & CASH EQUIVALENTS - BEGINNING 813,264 855,324
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CASH & CASH EQUIVALENTS - ENDING $ 1,000,618 $ 1,098,832
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SUPPLEMENTAL DISCLOSURES:
- - -------------------------
Cash Paid For:
Interest on Deposits, Advances & Other Borrowings $ 1,773,067 $ 1,500,315
============ ===========
Income Taxes $ 143,273 $ 46,982
============ ===========
Additions to Real Estate Acquired in Settlement of
Loans or through Foreclosure $ 34,974 $ 35,995
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(SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS)
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SECURITY FEDERAL BANCORP, INC. --------------------------- TUSCALOOSA, ALABAMA
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
====================================================
QUARTER ENDED MARCH 31, 1996
============================
NOTE 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 conversion the Company completed the sale of
671,469 shares of common stock, $.01 par value per share, to
depositors at $10.00 per share. Net proceeds from the above
transactions, after deducting offering expenses, were $6.15 million.
NOTE 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 footnotes 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 six months ended
March 31, 1996 and 1995 have been recorded. Such adjustments were of a
normal recurring nature. The results of operations for the interim
periods are not necessarily indicative of the results that may be
expected for the full fiscal year.
Prior to its acquisition of the Bank on March 31, 1995, the Company
had not issued any stock, had no assets or liabilities, and had not
engaged in any business activities other than of an organizational
nature. Accordingly, the financial data prior to March 31, 1995
included herein reflects the operations of the Bank only.
NOTE 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.
NOTE 4: Retained Earnings
-----------------
The Bank is required to maintain certain levels of regulatory capital.
At March 31, 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.
NOTE 5: Cash Flow Presentation
----------------------
For purposes of the statements of cash flows, cash and cash
equivalents include cash and amounts due from depository institutions,
and certificates of deposit with maturities of 90 days or less.
(CONTINUED)
(SEE ACCOUNTANT'S REPORT)
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SECURITY FEDERAL BANCORP, INC. --------------------------- TUSCALOOSA, ALABAMA
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================
QUARTER ENDED MARCH 31, 1996
============================
NOTE 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 0.23% of deposits for well capitalized institutions to 0.31% of
deposits for undercapitalized institutions. 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
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 $7.29 million, or 10.1% of
adjusted total assets, and risk-based capital to $7.55 million, or
20.66% of risk-weighted assets, on a pro forma basis as of March 31,
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.
NOTE 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.
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.
(CONTINUED)
(SEE ACCOUNTANT'S REPORT)
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SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY ------------ TUSCALOOSA, ALABAMA
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================
QUARTER ENDED MARCH 31, 1996
============================
NOTE 7: (Continued)
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. Non-employee 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 share 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 10 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 March 31, 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 March 31, 1996.
(SEE ACCOUNTANT'S REPORT)
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SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY ---------- TUSCALOOSA, ALABAMA
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
==========================================================================
OPERATIONS
==========
FINANCIAL CONDITION
- - -------------------
The Company's total assets increased by $2.05 million, or 2.91%, from $70.5
million at September 30, 1995 to $72.5 million at March 31, 1996, primarily
as a result of an increase in loans receivable of $3.91 million, or 6.54%,
from $59.8 million at September 30, 1995 to $63.5 million at March 31,
1996, and an increase in other assets of $357,000, or .5%, from $82,000 at
September 30, 1995 to $440,000 at March 31, 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 March 31, 1996 due to maturity of a security, a decrease in securities
held-for-sale of $1.09 million, or 17.7%, from $6.15 million at September
30, 1995 to $5.06 million at March 31, 1996 as a result of sales of
securities available for sale due to favorable market conditions.
The Company's total liabilities increased by $2.15 million, or 3.60%, from
$59.7 million at September 30, 1995 to $61.8 million at March 31, 1996,
primarily as a result of an increase in deposits of $1.25 million, or
2.19%, from $56.98 million at September 30, 1995 to $58.22 million at March
31, 1996 and an increase in short-term advances from Federal Home Loan Bank
of $1.3 million, or 101.17%, from $1.29 million at September 30, 1995 to
$2.59 million at March 31, 1996 borrowed by management for liquidity
purposes. These were partially offset by a decrease in advances from
borrowers for taxes and insurance of $247,000, or 33.79%, from $731,000 at
September 30, 1995 to $484,000 at March 31, 1996 as a result of payments of
borrowers' ad valorem taxes, and a decrease in unremitted collections on
mortgage loans serviced of $276,000, or 73.29%, from $377,000 at September
30, 1995 to $101,000 at March 31, 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 $1.17 million and $600,000 for the
six month and the three month periods ended March 31, 1996, respectively.
INTEREST INCOME
- - ---------------
Total interest income increased by $510,000, or 21.16%, from $2.41 million
for the six month period ended March 31, 1995 to $2.92 million for the six
month period ended March 31, 1996. This is primarily due to an increase in
interest income on mortgage loans of $459,000 from $2.18 million for the
six month period ended March 31, 1995 to $2.64 million for the six month
period ended March 31, 1996 and due to an increase in interest income on
investments of $51,000 from $208,000 for the six month period ended March
31, 1995 to $258,000 for the six month period ended March 31, 1996. The
increase in interest income on loans and investments generally reflects the
availability of additional funds due to the stock conversion, growth of
loans receivable, and a higher average yield on loans receivable for the
six month period ended March 31, 1996 compared to the six month period
ended March 31, 1995.
Total interest income increased by $253,000, or 20.74, from $1.22 million
for the three month period ended March 31, 1995 to $1.47 million for the
three month period ended March 31, 1996. This is primarily due to an
increase in interest income on mortgage loans of $222,000 from $1.12
million for the three month period ended March 31, 1995 to $1.34 million
for the three month period ended March 31, 1996 and due to an increase in
interest income on investments of $30,000 from $91,000 for the three month
period ended March 31, 1995 to $121,000 for the three month period ended
March 31, 1996. The increases in interest income on loans and investments
generally reflects the availability of additional funds due to the stock
conversion, growth of loans receivable, and a higher average yield on loans
receivable for the three month period ended March 31, 1996 compared to the
three month period ended March 31, 1995.
(CONTINUED)
(SEE ACCOUNTANT'S REPORT)
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SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY --------- TUSCALOOSA, ALABAMA
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
==========================================================================
OPERATIONS
==========
(CONTINUED)
===========
INTEREST EXPENSE
- - ----------------
Total interest expense increased by $239,000, or 15.83%, from $1.51 million
for the six month period ended March 31, 1995 to $1.17 million for the six
month period ended March 31, 1996. This is primarily due to an increase in
interest expense on deposits of $238,000 from $1.49 million for the six
month period ended March 31, 1995 to $1.73 million for the six month period
ended March 31, 1996. The increase in interest expense on deposits
generally reflects growth of deposits and a higher interest cost on
deposits for six month period ended March 31, 1996, compared to the six
month period ended March 31, 1995.
Total interest expense increased by $118,000, or 15.72%, from $752,000 for
the three month period ended March 31, 1995 to $871,000 for the three month
period ended March 31, 1996. This is primarily due to an increase in
interest expense on deposits of $124,000 from $742,000 for the three month
period ended March 31, 1995 to $866,000 for the three month period ended
March 31, 1996. The increases in interest expense on deposits generally
reflects growth of deposits and a higher interest cost on deposits for the
three month period ended March 31, 1996 compared to the three month period
ended March 31, 1995.
NET INTEREST INCOME
- - -------------------
Net interest income increased by $271,000, or 30.10%, for the six month
period ended March 31, 1996 compared to the six month period ended March
31, 1995, primarily due to the availability of additional funds due to the
stock conversion.
Net interest income increased by $134,000, or 28.86%, for the three month
period ended March 31, 1996 compared to the three month period ended March
31, 1995, primarily due to the availability of additional funds due to the
stock converstion.
PROVISION FOR LOSSES
- - --------------------
There were no additions made to the provision for loan losses for the six
month and three month periods ended March 31, 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 $720,000 and $964,000 at March
31, 1996 and 1995, respectively, which represents .99% and 1.37% 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 $51,000, or 47.67%, to $157,000 for the
six month period ended March 31, 1996 from $106,000 for the six month
period ended March 31, 1995. This is primarily due to a decrease in
servicing fee income by $25,000 to $117,000 for the six month period ended
March 31, 1996 from $92,000 for the six month period ended March 31, 1995
and due to an increase in gains on sales of securities to $37,000 for the
six month period ended March 31, 1996 from $-0- for the six month period
ended March 31, 1995. These were partially offset by an increase in
(losses) on sale of loans by $(10,000) for the six month period ended March
31, 1996 compared to the six month period ended March 31, 1995.
Non-interest income increased by $13,000, or 23.21%, to $67,000 for the
three month period ended March 31, 1996 from $54,000 for the three month
period ended March 31, 1995. This is primarily due to an increase in
servicing fee income by $3,900 to $59,000 for the three month period ended
March 31, 1996 from $55,000 for the three month period ended March 31, 1995
and due to a decrease in (losses) on sales of loans by $5,700 for the three
month period ended March 31, 1996 compared to the three month period ended
March 31, 1995.
(CONTINUED)
(SEE ACCOUNTANT'S REPORT)
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SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY --------- TUSCALOOSA, ALABAMA
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
==========================================================================
OPERATIONS
==========
(CONTINUED)
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NON-INTEREST EXPENSE
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Non-interest expense increased by $195,000 or 29.61%, to $853,000 for the
six month period ended March 31, 1996 from $658,000 for the six month
period ended March 31, 1995 primarily due to a increase in salaries and
employee benefits as a result of accrued benefits due under the directors
retirement plan and the management recognition plan, increases in net
occupancy expense, and an increase in other operating expenses.
Non-interest expense increased by $45,000, or 15.02%, to $342,000 for the
three month period ended March 31, 1996 from $298,000 for the three month
period ended March 31, 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, offset by decreases in
other operating expenses.
INCOME TAXES
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Income tax provisions for the six and three month periods ended March 31,
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
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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 11.99% for the six
month period ended March 31, 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, 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.
During the six months ended March 31, 1996, the Company's cash and cash
equivalents (cash and short-term investments with maturities less than 90
days) increased by $187,000. Cash was provided by operating activities of
$169,000, net proceeds from sales and maturities of securities of $2.04
million, proceeds from sales of loans of $6.7 million, an increase in
advances from FHLB of $1.3 million, net increases in deposit accounts of
$1.25 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
$10.6 million, decreases in advances from borrowers for tax and insurance
of $247,000, decreases in unremitted collections on mortgage loans serviced
of $277,000, 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 March
31, 1996 were $2.19 million. These commitments are expected to be funded
from liquid assets, cash flow from loan repayments and, if needed, advances
from FHLB of Atlanta.
(CONTINUED)
(SEE ACCOUNTANT'S REPORT)
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SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY --------- TUSCALOOSA, ALABAMA
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
==========================================================================
OPERATIONS
==========
(CONTINUED)
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LIQUIDITY AND CAPITAL RESOURCES (Continued)
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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 March
31, 1996 financial statements.
PERCENT PERCENT PERCENT
ACTUAL OF REQUIRED OF EXCESS OF
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
---------- -------- ---------- -------- ---------- --------
Tangible $7,780,000 10.73% $1,088,850 1.50% $6,692,000 9.23%
Core 7,780,000 10.73 2,176,000 3.00 5,604,000 7.73
Risk-weighted 8,043,000 21.72 2,962,000 8.00 5,081,000 13.72
(SEE ACCOUNTANT'S REPORT)
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PART II. OTHER INFORMATION
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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
27 Financial Data Schedule
REPORTS ON FORM 8-K
None
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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.
Security Federal Bancorp, Inc.
Registrant
Date: May 13, 1996 /s/ Marlin D. Moore
----------------------------------------
Marlin D. Moore
Chairman and Chief Executive Officer
(The Duly Authorized Representative)
/s/ John F. Harvard
-----------------------------------------
John F. Harvard
President and Chief Financial Officer
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