SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10 - QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
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: 0-16120
SECURITY FEDERAL CORPORATION
South Carolina 57-0858504
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification)
1705 WHISKEY ROAD, AIKEN, SOUTH CAROLINA 29801
(Address of Principal Executive Office)(Zip code)
(803) 641-3000
(Registrant's telephone number, including area code)
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 90 days.
YES X NO
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practical date.
CLASS: OUTSTANDING SHARES AT: $0.01 PAR VALUE:
------ ---------------------- ----------------
Common Stock January 31, 2001 1,670,012
INDEX
==============================================================================
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE
NO.
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statement of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis Results of Operations
and Financial Condition 11
==============================================================================
PART II. OTHER INFORMATION
Other Information 16
Signatures 17
==============================================================================
SCHEDULES OMITTED
All schedules other than those indicated above are omitted because of the
absence of the conditions under which they are required or because the
information is included in the consolidated financial statements and related
notes.
i
Security Federal Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 2000 March 31, 2000
----------------- -----------------
Assets: (Unaudited) (Audited)
Cash and Cash Equivalents $ 8,074,671 $ 7,416,702
Investment And Mortgage-Backed
Securities:
Available For Sale: (Amortized
cost of $83,765,330 at
December 31, 2000 and
$91,446,235 at March 31, 2000) 83,208,030 88,820,651
Held To Maturity: (Fair value of
$2,572,966 at December 31, 2000
and $2,634,400 at March 31, 2000) 2,564,126 2,710,103
----------------- -----------------
Total Investment and Mortgage-Backed
Securities 85,772,156 91,530,754
----------------- -----------------
Loans Receivable Net:
Held For Sale 2,290,195 1,295,676
Held For Investment: (Net of allow-
ance of $2,450,298 at December 31,
2000 and $2,120,767 at March 31,
2000) 224,076,247 191,704,890
----------------- -----------------
Total Loans Receivable Net $ 226,366,442 $ 193,000,566
----------------- -----------------
Accrued Interest Receivable:
Loans 1,267,689 963,219
Mortgage-Backed Securities 186,904 204,003
Investments 572,909 761,428
Premises And Equipment, Net 5,166,487 4,284,693
Federal Home Loan Bank Stock, At Cost 3,431,000 2,605,600
Real Estate Acquired In Settlement
Of Loans 259,000 332,000
Real Estate Held For Development
And Sale 272,673 535,878
Other Assets 1,918,050 3,167,115
----------------- -----------------
Total Assets $ 333,287,981 $ 304,801,958
================= =================
Liabilities And Shareholders' Equity
Liabilities:
Deposit Accounts $ 235,568,545 $ 228,823,331
Advances From Federal Home Loan Bank 68,620,000 50,611,000
Other Borrowed Money 3,397,821 2,210,500
Advance Payments By Borrowers For
Taxes and Insurance 269,305 373,660
Other Liabilities 3,149,034 3,024,766
----------------- -----------------
Total Liabilities $ 311,004,705 $ 285,043,257
----------------- -----------------
Shareholders' Equity:
Serial Preferred Stock, $.01 Par
Value; Authorized Shares - 200,000;
Issued And Outstanding Shares - None
Common Stock, $.01 Par Value;
Authorized Shares - 5,000,000;
Issued And Outstanding Shares -
1,670,012 At December 31, 2000 And
838,524 At March 31, 2000 $ 16,842 $ 8,421
Additional Paid-In Capital 3,985,312 3,993,733
Indirect Guarantee of Employee Stock
Ownership Trust Debt (380,555) (186,803)
Accumulated Other Comprehensive Loss (345,749) (1,629,150)
Retained Earnings, Substantially
Restricted 19,007,426 17,572,500
----------------- -----------------
Total Shareholders' Equity $ 22,283,276 $ 19,758,701
----------------- -----------------
Total Liabilities And Shareholders'
Equity $ 333,287,981 $ 304,801,958
================= =================
See accompanying notes to consolidated financial statements.
1
Security Federal Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended December 31,
-------------------------------------
2000 1999
------------------ ----------------
Interest Income:
Loans $ 4,874,332 $ 3,647,245
Mortgage-Backed Securities 554,754 576,026
Investment Securities 830,953 824,813
Other 22,501 12,814
------------------ ----------------
Total Interest Income 6,282,540 5,060,898
------------------ ----------------
Interest Expense:
NOW And Money Market Accounts 686,393 726,512
Passbook Accounts 75,926 79,391
Certificate Accounts 1,819,846 1,356,829
Advances And Other Borrowed Money 1,146,083 542,384
------------------ ----------------
Total Interest Expense 3,728,248 2,705,116
------------------ ----------------
Net Interest Income 2,554,292 2,355,782
Provision For Loan Losses 150,000 175,000
Net Interest Income After Provision
For Loan Losses 2,404,292 2,180,782
Other Income:
Gain On Sale Of Loans 144,326 71,302
Loan Servicing Fees 80,781 70,438
Service Fees On Deposit Accounts 259,009 305,332
Income (Loss) From Real Estate
Operations (14,328) 6,063
Other 121,061 129,396
------------------ ----------------
Total Other Income 590,849 582,531
------------------ ----------------
General And Administrative Expenses:
Salaries And Employee Benefits 1,206,099 1,027,533
Occupancy 185,580 133,876
Advertising 53,085 50,301
Depreciation And Maintenance Of
Equipment 259,118 230,560
FDIC Insurance Premiums 11,479 23,406
Amortization Of Intangibles 116,310 116,310
Other 370,524 402,824
------------------ ----------------
Total General And Administrative
Expenses 2,202,195 1,984,810
------------------ ----------------
Income Before Income Taxes 792,946 778,503
Provision For Income Taxes 284,886 280,499
------------------ ----------------
Net Income $ 508,060 $ 498,004
================== ================
Basic Net Income Per Common Share $ 0.30 $ 0.30
================== ================
Diluted Net Income Per Common Share $ 0.30 $ 0.29
================== ================
Cash Dividend Per Share On Common
Stock $ 0.02 $ 0.02
================== ================
Basic Weighted Average Shares
Outstanding 1,670,434 1,677,048
================== ================
Diluted Weighted Average Shares
Outstanding 1,702,206 1,692,206
================== ================
See accompanying notes to consolidated financial statements.
2
Security Federal Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
Nine Months Ended December 31,
-------------------------------------
2000 1999
------------------ ----------------
Interest Income:
Loans $ 13,559,577 $ 10,236,015
Mortgage-Backed Securities 1,722,231 1,514,499
Investment Securities 2,544,883 2,576,080
Other 59,261 51,560
------------------ ----------------
Total Interest Income 17,885,952 14,378,154
------------------ ----------------
Interest Expense:
NOW And Money Market Accounts 1,990,095 2,129,046
Passbook Accounts 237,594 239,429
Certificate Accounts 5,016,988 3,968,501
Advances And Other Borrowed Money 3,049,969 1,171,592
------------------ ----------------
Total Interest Expense 10,294,646 7,508,568
------------------ ----------------
Net Interest Income 7,591,306 6,869,586
Provision For Loan Losses 475,000 475,000
------------------ ----------------
Net Interest Income After Provision
For Loan Losses 7,116,306 6,394,586
------------------ ----------------
Other Income:
Net Gain On Sale Of Investments - 3,022
Gain On Sale Of Loans 286,633 256,238
Loan Servicing Fees 217,943 215,506
Service Fees On Deposit Accounts 772,058 809,938
Income From Real Estate Operations 46,661 110,762
Other 456,150 393,285
------------------ ----------------
Total Other Income 1,779,445 1,788,751
------------------ ----------------
General And Administrative Expenses:
Salaries And Employee Benefits 3,489,678 3,130,931
Occupancy 488,159 390,974
Advertising 151,011 118,407
Depreciation And Maintenance Of
Equipment 754,192 673,359
FDIC Insurance Premiums 34,635 67,019
Amortization Of Intangibles 348,930 348,930
Other 1,204,809 1,174,254
------------------ ----------------
Total General And Administrative
Expenses $ 6,471,414 $ 5,903,874
------------------ ----------------
Income Before Income Taxes 2,424,337 2,279,463
Provision For Income Taxes 888,358 797,097
------------------ ----------------
Net Income $ 1,535,979 $ 1,482,366
================== ================
Basic Net Income Per Common Share $ 0.92 $ 0.88
================== ================
Diluted Net Income Per Common Share $ 0.90 $ 0.88
================== ================
Cash Dividend Per Share On Common
Stock $ 0.06 $ 0.06
================== ================
Basic Weighted Average Shares
Outstanding 1,672,798 1,680,644
================== ================
Diluted Weighted Average Shares
Outstanding 1,702,206 1,692,206
================== ================
See accompanying notes to consolidated financial statements.
3
Security Federal Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity (Unaudited)
Accumu-
lated
Other
Indirect Compre-
Additional Guarantee hensive
Common Paid-In of Income Retained
Stock Capital ESOP Debt (Loss) Earnings Total
-------- ---------- ---------- ----------- ------------ ------------
Beginning Balance At
March 31, 1999 $ 8,421 $3,993,733 $ - $ (127,738) $ 15,686,026 $ 19,560,442
Net Income - - - - 1,482,366 1,482,366
Other Comprehensive
Income, Net Of Tax:
Unrealized Holding
Losses On Securities
Available For Sale - - - (1,298,781) - (1,298,781)
------------
Comprehensive Income 183,585
Increase in Indirect
Guarantee of ESOP
Debt - - (186,803) - - (186,803)
Cash Dividends - - - - (101,054) (101,054)
Balance at -------- ---------- ---------- ----------- ------------ ------------
December 31, 1999 $ 8,421 $3,993,733 $ (186,803) $(1,426,519) $ 17,067,338 $ 19,456,170
======== ========== ========== =========== ============ ============
Beginning Balance At
March 31, 2000 $ 8,421 $3,993,733 $ (186,803) $(1,629,150) $ 17,572,500 $ 19,758,701
Net Income - - - - 1,535,979 1,535,979
Other Comprehensive
Income, Net Of Tax:
Unrealized Holding
Gains On Securities
Available For Sale - - - 1,283,401 - 1,283,401
------------
Comprehensive Income 2,819,380
Effect of Stock Split 8,421 (8,421) -
Increase in Indirect
Guarantee of ESOP
Debt - - (193,752) - - (193,752)
Cash Dividends (101,053) (101,053)
Balance at -------- ---------- ---------- ----------- ------------ ------------
December 31, 2000 $ 16,842 $3,985,312 $ (380,555) $ (345,749) $ 19,007,426 $ 22,283,276
======== ========== ========== =========== ============ ============
See accompanying notes to consolidated financial statements.
4
Security Federal Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended December 31,
-------------------------------------
2000 1999
------------------ ----------------
Cash Flows From Operating Activities:
Net Income $ 1,535,979 $ 1,482,366
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating
Activities:
Depreciation Expense $ 654,941 $ 583,431
Amortization Of Intangibles 348,930 348,930
Discount Accretion And Premium
Amortization 20,532 132,338
Provisions For Losses On Loans And
Real Estate 475,000 475,000
Gain On Sale Of Securities Available
For Sale - (3,022)
Gain On Sale Of Loans (286,633) (256,238)
Gain On Sale Of Real Estate (78,967) (110,762)
Amortization Of Deferred Fees On Loans (108,794) (38,016)
Proceeds From Sale Of Loans Held
For Sale 16,067,773 13,643,214
Origination Of Loans For Sale (16,775,659) (12,877,313)
(Increase) Decrease In Accrued
Interest Receivable:
Loans (304,470) (126,061)
Mortgage-Backed Securities 17,099 (51,139)
Investments 188,519 162,610
Increase In Advance Payments By
Borrowers (104,355) (39,467)
Loss On Disposition Of Premises And
Equipment 195 6,538
Other, Net 45,768 (162,130)
------------------ ----------------
Net Cash Provided By Operating
Activities $ 1,695,858 $ 3,170,279
------------------ ----------------
Cash Flows From Investing Activities:
Principal Repayments On Mortgage-
Backed Securities Held To Maturity $ 145,991 $ 708,897
Principal Repayments On Mortgage-
Backed Securities Available For Sale 4,948,570 5,468,357
Purchase Of Investment Securities
Available For Sale - (10,953,938)
Purchase Of Mortgage-Backed
Securities Available For Sale (943,380) (14,796,335)
Maturities Of Investment Securities
Available For Sale 3,655,169 11,828,978
Maturities Of Investment Securities
Held To Maturity - 71,115
Proceeds From Sale of Securities
Available For Sale - 1,502,422
Purchase Of FHLB Stock (825,400) (2,593,500)
Redemption Of FHLB Stock - 1,412,800
Increase In Loans To Customers (33,038,766) (32,913,839)
Investment In Real Estate Held For
Development (402,534) (482,703)
Proceeds From Sale Of Real Estate Held
For Development 712,400 736,618
Proceeds From Sale Of Real Estate
Acquired Through Foreclosure 406,509 31,000
Purchase And Improvement Of Premises
And Equipment (1,536,930) (504,744)
Proceeds From Sale Of Premises And
Equipment - 10,175
------------------ ----------------
Net Cash Used By Investing Activities $ (26,878,371) $ (40,474,697)
------------------ ----------------
Cash Flows From Financing Activities:
Increase In Deposit Accounts $ 6,745,214 $ 7,298,007
Proceeds From FHLB Advances 78,645,000 122,825,000
Repayment Of FHLB Advances (60,636,000) (90,111,000)
Proceeds Of Other Borrowings 1,187,321 577,347
Repayment Of Other Borrowings - (34,765)
Dividends To Shareholders (101,053) (101,054)
------------------ ----------------
Net Cash Provided By Financing
Activities $ 25,840,482 $ 40,453,535
------------------ ----------------
(Continued)
5
Security Federal Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended December 31,
-------------------------------------
2000 1999
------------------ ----------------
Net Increase In Cash And Cash
Equivalents $ 657,969 $ 3,149,117
Cash And Cash Equivalents At
Beginning Of Period 7,416,702 6,951,347
------------------ ----------------
Cash And Cash Equivalents At End
Of Period $ 8,074,671 $ 10,100,464
================== ================
Supplemental Disclosure Of Cash
Flows Information:
Cash Paid During The Period For
Interest $ 9,959,311 $ 7,432,649
Cash Paid During The Period For
Income Taxes $ 1,188,183 $ 951,350
Additions To Real Estate Acquired
Through Foreclosure $ 301,203 $ 21,000
(Increase) Decrease In Unrealized
Net Loss On Securities Available
For Sale, Net Of Taxes $ 1,283,401 $ (1,298,781)
See accompanying notes to consolidated financial statements.
6
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions from Form 10-QSB and generally accepted
accounting principles; therefore, they do not include all disclosures
necessary for a complete presentation of financial condition, results of
operations, and cash flows. Such statements are unaudited but, in the opinion
of Management, reflect all adjustments, all of which are of a normal recurring
nature and necessary for a fair presentation of results for the selected
interim periods. Users of financial information produced for interim periods
are encouraged to refer to the footnotes contained in the Annual Report to
Shareholders when reviewing interim financial statements. The results of
operations for the three and nine-month periods ended December 31, 2000 are
not necessarily indicative of the results that may be expected for the entire
fiscal year. This Form 10-QSB contains certain forward-looking statements
with respect to the financial condition, results of operations, and business.
These forward-looking statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially from those
anticipated by such forward-looking statements include, but are not limited
to, changes in interest rates, changes in the regulatory environment, changes
in general economic conditions and inflation, changes in the securities
market. Management cautions readers of this Form 10-QSB not to place undue
reliance on forward-looking statements contained herein.
2. Principles of Consolidation
The accompanying unaudited consolidated financial statements include the
accounts of Security Federal Corporation (the "Company") and its wholly owned
subsidiary, Security Federal Bank (the "Bank"), and the Bank's wholly owned
subsidiary Security Financial Services Corporation ("SFSC"). The Bank is
primarily engaged in the business of accepting savings and demand deposits and
originating mortgage loans and other loans to individuals and small businesses
for various personal and commercial purposes. SFSC engages primarily in
investment brokerage services. Also included in the consolidation is a real
estate partnership.
3. Loans Receivable, Net
Loans Receivable, Net, at December 31, 2000 and March 31, 2000 consisted of
the following:
Loans held for sale were $2,290,195 and $1,295,676 at December 31, 2000 and
March 31, 2000, respectively.
Loans Held For Investment: December 31, 2000 March 31, 2000
------------------- -------------------
Residential Real Estate $ 119,246,132 $ 98,151,348
Consumer 45,579,233 41,719,221
Commercial Business & Real Estate 72,279,549 62,062,134
------------------- -------------------
$ 237,104,914 $ 201,932,703
------------------- -------------------
Less:
Allowance For Possible Loan Loss $ 2,450,298 $ 2,120,767
Loans In Process 10,335,499 7,832,280
Deferred Loan Fees 242,870 274,766
------------------- -------------------
$ 13,028,667 $ 10,227,813
------------------- -------------------
$ 224,076,247 $ 191,704,890
=================== ===================
The following is a reconciliation of the allowance for loan losses for the
nine months ending:
December 31, 2000 December 31, 1999
------------------- -------------------
Beginning Balance $ 2,120,767 $ 1,715,068
Provision 475,000 475,000
Charge-offs (203,376) (228,306)
Recoveries 57,907 31,370
------------------- -------------------
Ending Balance $ 2,450,298 $ 1,993,132
=================== ===================
7
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited), Continued
4. Securities
Investment and Mortgage-Backed Securities, Held to Maturity
- -----------------------------------------------------------
The amortized cost, gross unrealized gains, gross unrealized losses, and fair
values of investment and mortgage-backed securities held to maturity are as
follows:
Gross Gross
December 31, 2000 Amortized Unrealized Unrealized
- ----------------- Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
US Government and
Agency Obligations $ 265,707 $ 2,301 $ - $ 268,008
Mortgage-Backed Securities 2,298,419 14,120 7,581 2,304,958
---------- ---------- ---------- ----------
Total $2,564,126 $ 16,421 $ 7,581 $2,572,966
========== ========== ========== ==========
March 31, 2000
- --------------
US Government and
Agency Obligations $ 265,707 $ 3,034 $ - $ 268,741
Mortgage-Backed Securities 2,444,396 2,966 81,703 2,365,659
---------- ---------- ---------- ----------
Total $2,710,103 $ 6,000 $ 81,703 $2,634,400
========== ========== ========== ==========
Investment And Mortgage-Backed Securities, Available For Sale
- -------------------------------------------------------------
The amortized cost, gross unrealized gains, gross unrealized losses, and fair
values of investment and mortgage-backed securities available for sale are as
follows:
Gross Gross
December 31, 2000 Amortized Unrealized Unrealized
- ----------------- Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
US Government and
Agency Obligations $52,151,797 $ 20,689 $ 465,183 $51,707,303
Mortgage-Backed Securities 31,613,533 126,502 239,308 31,500,727
----------- ---------- ---------- -----------
Total $83,765,330 $ 147,191 $ 704,491 $83,208,030
=========== ========== ========== ===========
March 31, 2000
- --------------
US Government and
Agency Obligations $55,783,474 $ 1,017 $1,618,734 $54,165,757
Mortgage-Backed Securities 35,662,761 1,293 1,009,160 34,654,894
----------- ---------- ---------- -----------
Total $91,446,235 $ 2,310 $2,627,894 $88,820,651
=========== ========== ========== ===========
8
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited), Continued
5. Deposit Accounts
A summary of deposit accounts by type with weighted average rates is as
follows:
December 31, 2000 March 31, 2000
------------------------ ------------------------
Demand Accounts: Balance Rate Balance Rate
------------- --------- ------------- --------
Checking $ 55,663,233 0.62% $ 58,304,679 0.89%
Money Market 46,240,536 5.07% 51,636,465 4.60%
Regular Savings 11,919,202 2.45% 13,203,395 2.50%
------------- -------------
Total Demand Accounts $ 113,822,971 2.63% $ 123,144,539 2.62%
============= =============
Certificate Accounts:
0 - 4.99% $ 3,051,937 $ 15,575,152
5.00 - 6.99% 108,069,763 90,103,640
7.00 - 8.99% 10,623,874 -
------------- -------------
Total Certificate
Accounts $ 121,745,574 6.19% $ 105,678,792 5.41%
============= =============
Total Deposit Accounts $ 235,568,545 4.47% $ 228,823,331 3.90%
============= =============
6. Advances From Federal Home Loan Bank
Federal Home Loan Bank Advances are summarized by year of maturity and
weighted average interest rate in the table below:
December 31, 2000 March 31, 2000
------------------------ ------------------------
Fiscal Year Due: Balance Rate Balance Rate
------------- --------- ------------- --------
2001 $ 35,476,000 6.76% $ 35,431,000 5.88%
2002 - -% 5,000,000 5.71%
2003 5,000,000 6.36% 5,000,000 6.36%
2004 - -% - -%
Thereafter 28,144,000 6.04% 5,180,000 6.60%
------------- -------------
Total Advances $ 68,620,000 6.44% $ 50,611,000 5.99%
============= =============
7. Regulatory Matters
The following table reconciles the Bank's Shareholders' Equity to its various
regulatory capital positions:
December 31, 2000 March 31, 2000
(Dollars in Thousands)
----------------------------------------
Bank's Shareholders' Equity $ 22,233 $ 19,414
Unrealized Loss On Available For
Sale Of Securities, Net Of Tax 345 1,629
Reduction For Goodwill And Other
Intangibles (767) (1,116)
------------------ ----------------
Tangible Capital 21,811 19,927
Qualifying Core Deposits And
Intangible Assets 492 559
------------------ ----------------
Core Capital 22,303 20,486
Supplemental Capital 2,450 2,121
Assets Required To Be Deducted (216) (103)
------------------ ----------------
Risk-Based Capital $ 24,537 $ 22,504
================== ================
The following table compares the Bank's capital levels relative to the
applicable regulatory requirements at December 31, 2000.
(Dollars in Thousands)
-------------------------------------------------------
Amt. % Actual Actual Excess Excess
Required Required Amt. % Amt. %
-------------------------------------------------------
Tangible Capital $ 6,659 2.0% $21,811 6.55% $15,152 4.55%
Tier 1 Leverage
(Core) Capital 13,338 4.0% 22,303 6.69% 8,965 2.69%
Total Risk-Based
Capital 16,519 8.0% 24,537 11.88% 8,018 3.88%
Tier 1 Risk-Based
(Core) Capital 8,260 4.0% 22,303 10.80% 14,043 6.80%
9
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited), Continued
7. Regulatory Matters, Continued
The Company's regulatory capital amounts and ratios at December 31, 2000 are
as follows:
To Be
Well Capitalized
For Under Prompt
(Dollars in Thousands) Capital Adequacy Corrective Action
Actual Purposes Provisions
-------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------
Tier I Risk-Based
Core Capital $22,303 10.8% $ 8,260 4.0% $12,389 6.0%
Risk-Based Capital
(To Risk Weighted
Assets) 24,537 11.9% 16,519 8.0% 20,649 10.0%
Core Capital (To
Adjusted Tangible
Assets) 22,303 6.7% 13,338 4.0% 16,672 5.0%
Tangible Capital (To
Tangible Assets) 21,811 6.6% 6,659 2.0% 16,648 5.0%
10
Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Changes in Financial Condition
Total assets of the Company increased $28.5 million during the nine months
ended December 31, 2000, due primarily to an increase of $33.4 million or
17.3% in total net loans receivable offset partially by a $5.8 million or 6.3%
decrease in total investment securities.
Residential real estate loans, net of loans in process, increased $18.6
million or 20.6% during the nine months ended December 31, 2000 while other
loans increased $14.1 million or 13.6%.
Premises and equipment, net, increased $882,000 during the nine months ended
December 31, 2000 due primarily to leasehold improvements and equipment
purchased for the West Columbia branch, which opened December 4, 2000.
Real estate acquired in settlement of loans (REO) decreased $73,000 while real
estate held for development and sale decreased $263,000 during the nine months
ended December 31, 2000 due to sales of lots in Willow Woods.
Other assets decreased $1.2 million during the nine months ended December 31,
2000 due to decreases in goodwill and other intangible assets and net deferred
tax assets.
Deposits increased $6.7 million or 3.0% during the nine months ended December
31, 2000 and advances from Federal Home Loan Bank (FHLB) grew $18.0 million to
fund the Company's 9.4% growth in assets.
The Board of Directors declared the 38th, 39th and 40th consecutive quarterly
dividend of $.02 per share in May, August, and November 2000, which totaled
$101,000. The employee stock ownership trust of the Company borrowed $194,000
to purchase stock for the plan during the nine months ending December 31,
2000. Unrealized losses on securities available for sale decreased $1.3
million during the nine months ended December 31, 2000 due to the recent
decrease in U.S. Treasury and agency bond yields. Net income for the nine
months was $1.5 million for the Company. These items combined to increase
shareholders' equity by $2.5 million or 12.8% during the nine months ended
December 31, 2000. Book value per share was $13.34 at December 31, 2000
compared to $11.78 at March 31, 2000.
At its November 2000 Board of Directors meeting, the Board declared a 2-for-1
stock split of the Company's common stock. The stock split was accomplished
through a 100% stock dividend that was issued on or about December 20, 2000 to
shareholders of record as of November 30, 2000.
Liquidity and Capital Resources
In accordance with Office of Thrift Supervision (OTS) regulations, the Company
is required to maintain a liquidity ratio at specified levels that are subject
to change. Currently, a minimum of 4.0% of the combined total of deposits and
certain borrowings must be maintained in the form of cash or eligible
investments. The Company's average liquidity during the nine months ended
December 31, 2000 was approximately 24%. The Company's current liquidity
level is deemed adequate to meet the requirements of normal operations,
potential deposit outflows, and loan demand while still allowing for optimal
investment of funds and return on assets.
Loan repayments and maturities of investments are a significant source of
funds, whereas loan disbursements are a primary use of the Company's funds.
During the nine months ended December 31, 2000, loan disbursements exceeded
loan repayments resulting in a $33.4 million or 17.3% increase in total net
loans receivable.
Deposits and other borrowings are also an important source of funds for the
Company. During the nine months ended December 31, 2000, deposits increased
$6.7 million while FHLB advances increased $18.0 million. At December 31,
2000, the Bank had $99.6 million of certificates of deposit maturing within
one year. Based on previous experience, the Bank anticipates a major portion
of these certificates will be renewed.
Liquidity resources at December 31, 2000 are sufficient to meet outstanding
mortgage loan commitments of $722,000 and unused lines of credit of $25.2
million. Management believes that the Company's liquidity needs will continue
to be supported by the Company's deposit base and borrowing capacity.
11
Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Accounting and Reporting Changes
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) 133, Accounting for Derivative
Instrument and Hedging Activities. All derivatives are to be measured at fair
value and recognized in the balance sheet as assets or liabilities. Statement
of Financial Accounting Standard (SFAS) 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities was issued in June 2000 and amends
the accounting and reporting standards of SFAS No. 133 for certain derivative
instruments and hedging activities. The two statements are to be adopted
concurrently and are effective for fiscal years and quarters beginning after
June 15, 2000. The Company does not expect that the adoption of SFAS No. 133
and SFAS No. 138 will have a material impact on the presentation of the
Company's financial results or financial position.
Other accounting standards that have been issued or proposed by FASB that do
not require adoption until a future date are not expected to have a material
impact on the consolidated financial statements upon adoption.
Impact of Inflation and Changing Prices
The consolidated financial statements, related notes, and other financial
information presented herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in relative purchasing power over time due to inflation.
Unlike industrial companies, substantially all of the assets and liabilities
of a financial institution are monetary in nature. As a result, interest
rates generally have a more significant impact on a financial institution's
performance than does inflation.
12
Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of Operations
and Financial Condition
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000
- ------------------------------------------------------------------
Net Income
Net income was $508,000 for the three months ended December 31, 2000,
representing an increase in earnings of $10,000 or 2.0% compared to the same
period in 1999.
Net Interest Income
Net interest income increased $199,000 or 8.4% during the three months ended
December 31, 2000 due to an increase in total interest income offset in part
by an increase in interest expense.
Interest income on loans increased $1.2 million or 33.6% during the period as
a result of total net loans significantly increasing in the portfolio.
Investment, mortgage-backed, and other securities interest income decreased
$5,000 or 0.4% due to a decrease in the total average balance of the
investment portfolio for the three months ended December 31, 2000, although
the average yield in the investment portfolio increased 16 basis points.
Total interest income rose $1.2 million or 24.1% compared to the same period
in 1999.
Total interest expense increased $1.0 million or 37.8% during the three months
ended December 31, 2000 compared to the same period in 1999. Interest expense
on deposits increased $419,000 or 19.4% during the period as the average
balance and the average cost of deposits increased during the quarter ended
December 31, 2000. Interest expense on advances and other borrowings
increased $604,000 as the average amount of debt outstanding and the cost of
those borrowings both increased for the three months ended December 31, 2000
compared to same period in 1999.
Provision for Loan Losses
The Bank's provision for loan losses was $150,000 and $175,000 during the
three months ended December 31, 2000 and 1999, respectively. The amount of
the provision is determined by Management's on-going monthly analysis of the
loan portfolio. Non-accrual loans, which are loans delinquent 90 days or
more, were $556,000 at December 31, 2000 compared to $890,000 at March 31,
2000. The ratio of the allowance for possible loan losses to the Company's
total loans was 1.08% at December 31, 2000 compared to 1.09% at March 31,
2000.
Other Income
Total other income increased $8,000 or 1.4% during the three months ended
December 31, 2000 compared to the same period in 1999. Gain on sale of loans
increased $73,000 during the three months ended December 31, 2000. Loan
servicing fees increased $10,000 while service fees on deposit accounts
decreased $46,000. Income from real estate operations related to the Willow
Woods partnership decreased $20,000 during the three months ended December 31,
2000. Other miscellaneous income including credit life insurance commissions,
net gain on sale of repossessed assets, safe deposit rental income, annuity
and stock brokerage commissions through SFSC, and other miscellaneous fees
decreased $8,000 during the three months ended December 31, 2000.
13
Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of Operations
and Financial Condition
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000, Continued
- -----------------------------------------------------------------------------
General and Administrative Expenses
General and administrative expenses increased $217,000 or 11.0% during the
three months ended December 31, 2000 compared to the same period in 1999.
Salaries and employee benefits expense grew $179,000 or 17.4% due to an
increase in staff in customer service positions to handle increased business
and due to normal annual salary increases. Occupancy expense increased
$52,000 or 38.6% during this period as a result of a new lease on the building
that houses the new West Columbia branch office. Advertising expense increased
$3,000 while the depreciation and maintenance of equipment expense increased
$29,000 during this period. FDIC insurance premiums decreased $12,000.
Amortization of intangibles expense was $116,000 during the three months ended
December 31, 2000 and 1999 during this period. Other miscellaneous expense,
consisting of legal, professional, and consulting expenses, stationery and
office supplies, and other sundry expenses, decreased $32,000 or 8.0% for the
three months ended December 31, 2000 compared to the three months ended
December 31, 1999.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 2000
- -----------------------------------------------------------------
Net Income
Net income was $1.5 million for the nine months ended December 31, 2000,
representing an increase in earnings of $54,000 or 3.6% compared to the same
period in 1999.
Net Interest Income
Net interest income increased $722,000 or 10.5% during the nine months ended
December 31, 2000 as a result of an increase in total interest income offset
in part by an increase in interest expense.
Interest income on loans increased $3.3 million or 32.5% during the nine
months ended December 31, 2000 as a result of total net loans increasing
during the period. Investment, mortgage-backed, and other securities interest
income increased $184,000 or 4.4% during this period due to an increase of 19
basis points in the average yield of the investment portfolio. Total interest
income increased $3.5 million or 24.4% during the nine months ended December
31, 2000 compared to the same period in 1999.
Total interest expense increased $2.8 million or 37.1% during the nine months
ended December 31, 2000 compared to the same period in 1999. Interest expense
on deposits increased $908,000 or 14.3% during the three months ended December
31, 2000 as deposits grew compared to the average balance during the same
period in 1999 and the cost of deposits also increased. Interest expense on
advances and other borrowings increased $1.9 million as the average amount of
debt outstanding increased during the three months ended December 31, 2000
compared to the same period in 1999.
Provision for Loan Losses
The Bank's provision for loan losses was $475,000 during both nine months
ended December 31, 2000 and 1999. The amount of the provision is determined
by Management's on-going monthly analysis of the loan portfolio. Non-accrual
loans, which are loans delinquent 90 days or more, were $556,000 at December
31, 2000 compared to $890,000 at March 31, 2000. The ratio of allowance for
loan losses to the Company's total loans was 1.08% at December 31, 2000
compared to 1.09% at March 31, 2000. Net charge-offs were $145,000 during the
nine months ended December 31, 2000 compared to $197,000 during the same
period in 1999.
14
Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of Operations
and Financial Condition
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 2000, Continued
- ----------------------------------------------------------------------------
Other Income
Total other income decreased $9,000 or 0.5% during the nine months ended
December 31, 2000 compared to the same period in 1999. Gain on sale of loans
increased $30,000 during this period as more mortgage loan customers chose a
fixed rate loan, which are generally sold as opposed to an adjustable rate
loan which are held in portfolio. Loan-servicing fees increased $2,000 during
this period while the service fees on deposit accounts decreased $38,000.
Income from real estate operations originating from the Willow Woods
partnership decreased $64,000 during this same period. Other miscellaneous
income including credit life insurance commissions, net gain on sale of
repossessed assets, safe deposit rental income, annuity and stock brokerage
commissions through SFSC, and other miscellaneous fees increased $63,000
during the nine months ended December 31, 2000.
General and Administrative Expenses
General and administrative expenses increased $568,000 or 9.6% during the nine
months ended December 31, 2000 compared to the same period in 1999.
Salaries and employee benefits expense increased $359,000 or 11.5% as a result
of an increase in staff in customer service positions to handle increased
business and due to normal annual salary increases. Occupancy expense
increased by $97,000 or 24.9% during this period as a result of a new lease on
the building that houses the new West Columbia branch office. Advertising
expense increased $33,000 while the depreciation and maintenance of equipment
expense increased $81,000 during the nine-months ended December 31, 2000
compared to the same period in 1999. FDIC insurance premiums decreased
$32,000 during this period. Amortization of intangibles expense was $349,000
during the six months ended December 31, 2000 and 1999, respectively. Other
miscellaneous expense, consisting of legal, professional, and consulting
expenses, stationery and office supplies, and other sundry expenses, increased
$31,000 or 2.6% for the nine months ended December 31, 2000 compared to the
nine months ended December 31, 1999.
15
Security Federal Corporation and Subsidiaries
Other Information
Item 1 Legal Proceedings
-----------------
The Company is not engaged in any legal proceedings of a material
nature at the present time. From time to time, the Company is a
party to legal proceedings in the ordinary course of business
wherein it enforces its security interest in mortgage loans it has
made.
Item 2 Changes In Securities And Use Of Proceeds
-----------------------------------------
Not applicable.
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:
3.1 Articles Of Incorporation*
3.2 Articles Of Amendment, Dated August 28, 1998, To Articles Of
Incorporation
3.3 Bylaws**
10 Executive Compensation Plans And Arrangements:
Salary Continuation Agreements***
Amendment One To Salary Continuation Agreements****
Stock Option Plan***
Incentive Compensation Plan***
* Filed as an exhibit to the Company's June 23, 1998 proxy statement and
incorporated herein by reference.
** Filed as an exhibit to the Company's Form 8-K dated August 31, 1998 and
incorporated herein by reference.
*** Filed on June 28, 1993, as an exhibit to the Company's Annual Report on
Form 10-KSB pursuant to Section 12(g) of the Securities Exchange Act of
1934. All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-B.
**** Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1993 pursuant to Section 12(g) of the
Securities Exchange Act of 1934. All of such previously filed documents
are hereby incorporated herein by reference in accordance with Item 601
of Regulation S-B.
16
Security Federal Corporation and Subsidiaries
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to the signed on its behalf by the
undersigned thereunto duly authorized.
SECURITY FEDERAL CORPORATION
Date: February 9, 2001 By: /s/ Roy G. Lindburg
-----------------------------------
Roy G. Lindburg
Treasurer/CFO
Duly Authorized Representative
17