U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 2001
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[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission file number 0-22553
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SECURITY BANCORP, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Tennessee 62-1682697
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
306 West Main Street, McMinnville, TN 37110
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(Address of Principal Executive Offices)
(931) 473-4483
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(Issuer's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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.
[X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
429,119 shares outstanding on July 31, 2001
Transitional Small Business Disclosure Format (check one):
[ ] Yes [X] No
1
SECURITY BANCORP, INC. AND SUBSIDIARY
McMINNVILLE, TENNESSEE
INDEX
PART I Page(s)
- ------
FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated Balance Sheets - (Unaudited)
as of December 31, 2000 and June 30, 2001. . . . . . . . . . . . . . 3
Consolidated Statements of Income (Unaudited)
for the three and six month periods
ended June 30, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Stockholders' Equity (Unaudited). . . . . . 5
for the six month period ended June 30, 2001
Consolidated Statements of Cash Flows - (Unaudited)
for the six months ended June 30, 2000 and 2001. . . . . . . . . . . 6
Notes to (Unaudited) Consolidated Financial Statements . . . . . . . 7-9
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . .9-13
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . .14
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . .14
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . .14
Item 4. Submission of Matters to a Vote of Security Holders. . . . . .14
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . .14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . .15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
2
ITEM 1. Financial Statements
Security Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
(Unaudited)
(in thousands except share information)
ASSETS December 31, June 30,
2000 2001
Cash and noninterest earning deposits $ 5,069 $ 6,804
Investment securities: Held to maturity 165 132
Available for sale 5,771 5,721
Loans receivable, net 66,730 68,451
Real estate owned 138 69
Premises and equipment, net 1,806 1,806
Federal Home Loan Bank stock 680 705
Accrued interest receivable 683 665
Prepaid expenses and other assets 319 294
------ ------
Total Assets $ 81,361 $ 84,647
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 64,776 $ 71,097
FHLB borrowings 7,500 4,000
Advances from borrowers for property taxes and insurance 53 356
Accrued expenses and other liabilities 313 144
Federal income taxes payable 208 217
------ ------
Total Liabilities 72,850 75,814
STOCKHOLDERS' EQUITY
Common stock (431,425 shares, $.01 par value,
issued and outstanding) 4 4
Paid-in capital 4,162 4,169
Treasury stock, at cost (194) (214)
Retained earnings 4,541 4,808
Unrealized gain on securities available for sale,
net of income taxes 230 282
Employee Stock Ownership Plan (ESOP) borrowing (232) (216)
------ ------
Total stockholders' equity 8,511 8,833
------ ------
Total Liabilities and Stockholders' Equity $ 81,361 $ 84,647
====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
3
SECURITY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
(in thousands, except per share information)
For Three Months For Six Months
Ended June 30, Ended June 30,
2000 2001 2000 2001
INTEREST INCOME:
Loans $1,361 $1,501 $2,681 $3,008
Investments 91 83 184 170
Interest earning deposits 27 26 43 44
----- ----- ----- -----
Total interest income 1,479 1,610 2,908 3,222
INTEREST EXPENSE:
Deposits 675 799 1,305 1,593
Advances 74 75 156 168
----- ----- ----- -----
Interest expense 749 874 1,461 1,761
Provision for loan losses 45 46 90 91
Net interest income after ----- ----- ----- -----
provision for loan losses 685 690 1,357 1,370
NON-INTEREST INCOME:
Trust department income 115 112 224 223
Deposit account fees 73 84 137 171
Other 98 139 179 271
----- ----- ----- -----
Total non-interest income 286 335 540 665
NON-INTEREST EXPENSES
Compensation 263 292 523 570
Other employee benefits 78 85 162 169
Net occupancy expense 67 69 138 145
Deposit insurance premiums 3 3 6 6
Data processing 84 104 176 205
Other 138 161 249 287
----- ----- ----- -----
Total non-interest expenses 633 714 1,254 1,382
Income before income taxes 338 311 643 653
Income tax expense 131 122 250 256
----- ----- ----- -----
Net income 207 189 393 397
Other comprehensive income, net of tax:
(See Note 4)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising for the three month
period, before tax $(16) for
2000 and $17 for 2001, and
for the six month period, before tax
$(30) for 2000 and $52 for 2001. (10) 11 (19) 34
----- ----- ----- -----
Comprehensive income $197 $200 $374 $431
===== ===== ===== =====
Weighted average shares outstanding: 400,641 403,466 399,768 403,067
Basic earnings per share $ .52 $ .47 $ .98 $ .98
The accompanying notes are an integral part of these consolidated financial
statements.
4
SECURITY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
(Unaudited)
(in thousands, except share information)
Unrealized
Common Stock Paid-in Retained Gain on ESOP Treasury
Shares Amount Capital Earnings Securities Borrowing Stock Total
<s> <c> <c> <c> <c> <c> <c>
Balance at
12/3100 436,425 $4 $4,162 $4,541 $230 $(232) $(194) $8,511
Treasury Stock
At cost - - -- - -- (70) (70)
Allocation of
earned MRP
Stock -- (2) -- -- -- 50 48
Net Income -- -- 397 -- -- -- 397
Unrealized gain
on securities
available for
sale, net of
Income taxes - -- -- 52 -- -- 52
Dividend -- -- (130) -- -- -- (130)
ESOP shares
Earned -- 9 -- -- 16 -- 25
---- ------ ------ ----- ----- ----- ------
Balance at
6/30/01 436,425 $4 $4,169 $4,808 $ 282 $(216) $(214) $8,833
======= ==== ====== ====== ===== ===== ===== ======
The accompanying notes are an integral part of these consolidated financial
statements.
5
SECURITY BANCORP. INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six months Ended June 30,
2000 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 393 $ 397
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 43 28
Dividend on FHLB stock (23) (25)
Provision for loan losses 90 91
(Increase) decrease in interest receivable (47) 18
(Increase) decrease in other assets 4 25
Increase (decrease) in accrued liabilities (139) (169)
Increase (decrease) in income taxes payable (9) 3
Increase (decrease) in deferred taxes payable 11 6
Sale of mortgage loans held for sale 1,974 4,953
Originations of mortgage loans held for sale (2,031) (4,953)
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Total adjustments (127) (23)
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Net cash provided by operating activities 266 374
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations net of principal payments (2,476) (1,735)
Purchase (Sale) of:
Available for sale - investment securities - (3,007)
Held to maturity - investment securities - -
Proceeds from maturities and repayments of:
Held to maturity investment securities - -
Available for sale - investment securities - 3,000
Held to maturity - mortgage-backed securities 39 33
Available for sale - mortgage-backed securities 125 132
Cash payments for the purchase of property (527) (56)
------ ------
Net cash provided (used) by investing activities (2,839) (1,633)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts 6,006 6,321
Proceeds (repayment) of FHLB advances (1,800) (3,500)
Payment of cash dividend (120) (130)
Net increase (decrease) in escrow accounts 300 303
------ ------
Net cash provided (used) by financing activities 4,386 2,994
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 1,813 1,735
CASH AND EQUIVALENTS, BEGINNING OF YEAR 3,051 5,069
------ ------
CASH AND EQUIVALENTS, END OF PERIOD $ 4,864 $ 6,804
====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest expense $ 1,460 $ 1,762
Income taxes $ 277 $ 320
The accompanying notes are an integral part of these consolidated financial
statements.
6
SECURITY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
1. SECURITY BANCORP, INC.
Security Bancorp, Inc. (the "Company"), a Tennessee corporation, is the savings
and loan holding company for Security Federal Savings Bank of McMinnville, TN
(the "Savings Bank"). The Savings Bank converted from a federally chartered
mutual savings bank to a federally chartered stock savings bank effective June
30, 1997 (the "Conversion").
The consolidated financial statements included herein are for the Company and
the Savings Bank.
2. BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and, therefore, do not include all
disclosures necessary for a complete presentation of the consolidated balance
sheets, consolidated statements of income, consolidated statements of
stockholders' equity, and consolidated statements of cash flows in conformity
with generally accepted accounting principles. However, all adjustments, which
are, in the opinion of management, necessary for the fair presentation of the
interim financial statements have been included. All such adjustments are of a
normal recurring nature. The statements of income for the three and six month
period ended June 30, 2001 are not necessarily indicative of the results which
may be expected for the entire year.
The unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto for the
Company for the year ended December 31, 2000.
3. EARNINGS PER SHARE
Earnings per share has been computed for the three months ended June 30, 2000
and June 30, 2001 based upon weighted average common shares outstanding of
400,641 and 403,466, respectively, and for the six months ended June 30, 2000
and June 30, 2001 of 399,768 and 403,067, respectively.
4. COMPREHENSIVE INCOME
The Company has adopted FASB Statement No. 130, Reporting Comprehensive Income.
Statement No. 130 requires the reporting of comprehensive income in addition to
net income from operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net income.
5. STOCKHOLDERS' EQUITY
In connection with the Conversion, the Company issued and sold 436,425 shares of
common stock at a price of $10.00 per share for total net proceeds of
approximately $4.1 million after
7
conversion expenses of approximately $300,000. The Company retained $406,000 of
the net proceeds and used the remaining net proceeds to purchase the newly
issued capital stock of the Savings Bank.
The ability of the Company to pay dividends depends primarily on the ability of
the Savings Bank to pay dividends to the Company. The Savings Bank may not
declare or pay a cash dividend if the effect thereof would cause its net worth
to be reduced below either the amounts required for the liquidation account
discussed below or the regulatory capital requirements imposed by federal
regulations. An annual cash dividend of 30 cents per share was declared
for shareholders of record as of the close of business on May 31, 2001. The
cash dividend was paid on June 30, 2001.
In February, 2001, the Savings Bank upstreamed $150,000 to the Company for the
purpose of repurchasing stock to be held as treasury stock. During the
six-month period ending June 30, 2001, the Company had repurchased 5,000 shares
of its common stock.
As required by the regulations of the Office of Thrift Supervision (OTS), at the
time of Conversion, the Savings Bank established a liquidation account in an
amount equal to its retained earnings as reflected in the latest balance sheet
used in the final conversion prospectus. The liquidation account is maintained
for the benefit of eligible account holders who continue to maintain their
deposit accounts in the Savings Bank after Conversion. In the event of a
complete liquidation of the Savings Bank (and only in such an event), eligible
depositors who continue to maintain accounts shall be entitled to receive a
distribution from the liquidation account before any liquidation may be made
with respect to the Company's common stock.
6. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
As part of the Conversion discussed in Note 5, the Savings Bank established an
Employee Stock Ownership Plan (ESOP) for the benefit of all employees who have
attained the age of 21 and have been credited with at least 1000 hours of
service during a 12-month period. The ESOP borrowed approximately $349,000 from
the Company and used the funds to purchase 34,914 shares of common stock of the
Company issued in the Conversion. The loan will be repaid principally from the
Company's discretionary contributions to the ESOP over a period of 10 years. On
June 30, 2001, the loan had an outstanding balance of approximately $216,000 and
an interest rate of 8.50%. The loan obligation of the ESOP is considered
unearned compensation and, as such, recorded as a reduction of the Company's
stockholders' equity. Both the loan obligation and the unearned compensation
are reduced by an amount of the loan repayments made by the ESOP. Shares
purchased with the loan proceeds are held in a suspense account for allocation
among participants as the loan is repaid. Contributions to the ESOP and shares
released from the suspense account are allocated among participants on the
basis of compensation in the year of allocation. Benefits become fully vested
at the end of six years of service under the terms of the ESOP Plan. Benefits
may be payable upon retirement, death, disability, or separation from service.
Since the Savings Bank's annual contributions are discretionary, benefits
payable under the ESOP cannot be estimated. Compensation expenses are
recognized to the extent of the fair value of shares committed to be released.
For the three and six months ending June 30, 2001, the ESOP related compensation
expense was approximately $13,000 and $25,000, respectively. Compensation is
recognized at the average fair value of the ratably released shares during the
accounting period as the employees performed services. At June 30, 2001, the
ESOP had 13,963 allocated shares and 20,951 unallocated shares.
8
The ESOP administrators have determined dividends on unallocated shares will be
used for debt service. Any allocated dividends used will be replaced with
common stock of equal value. For the purpose of computing earnings per share,
all ESOP shares committed to be released have been considered outstanding.
7. MANAGEMENT RECOGNITION PLAN AND STOCK OPTION PLAN
The Company's stockholders approved the Company's 1998 Stock Option Plan and the
Management Recognition and Development Plan (the "MRP"), effective July 1, 1998.
The Stock Option Plan reserves for issuance up to 43,642 stock options to
certain officers, directors, and employees either in the form of incentive stock
options or nonincentive stock options. The exercise price of the stock options
may not be less than the fair value of the Company's stock options at date of
grant. The options granted in 1998 vest at the rate of 20% annually beginning
at date of grant and will expire in 2008. The number and weighted average fair
value of the options on the grant date was 37,095 stock options at $17.25 per
share. An additional 4,364 stock options were granted in 2000 and vest at a
rate of 20% annually beginning on the date of grant and will expire in 2010.
The weighted average fair value of the additional options was $15.50 per share.
As permitted under the generally accepted accounting principles, grants under
the plan will be accounted for following the provisions of APB Opinion No. 25
and its related interpretations. Accordingly, no compensation cost has been
recognized for grants made to date.
At June 30, 2001, options totalling 37,095 had been granted with an exercise
price of $17.25 and 4,364 options with an exercise price of $15.50, of which
41,459 options are currently unexercisable and all options granted are
outstanding at June 30, 2001.
The Company purchased 17,457 common shares in the open market to fund the MRP on
September 9, 1998. The restricted common stock under the MRP vests at the rate
of 20% annually beginning at the date of grant. The expense related to the
vesting of the MRP was $12,000 and $24,000, respectively, for the three and six
months ended June 30, 2001.
8. ASSET QUALITY
At June 30, 2001, the Company had total nonperforming loans (i.e., loans which
are contractually past due 90 days or more) of approximately $195,000. As a
percentage of net loans receivable at June 30, 2001, nonperforming loans were
.3%. Total nonperforming assets were $264,000 or .3% of total assets at June
30, 2001.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
The following discussion and analysis is intended to assist in understanding the
consolidated financial condition and the consolidated results of operations of
the Company. References to the "Company" include Security Bancorp, Inc. and/or
Security Federal Savings Bank of McMinnville, TN, as appropriate.
9
This section contains forward-looking statements that have been prepared on the
basis of the Company's best judgments and currently available information.
These forward-looking statements are inherently subject to significant business,
economic, and competitive uncertainties and contingencies, many of which are
beyond the control of the Company. In addition, these forward-looking
statements are subject to assumptions with respect to future business strategies
and decisions that are subject to changes. Accordingly, there can be no
assurance that many of these strategies will be implemented or, if implemented,
achieve the amounts described or within the time periods currently estimated.
Comparison of Financial Condition at December 31, 2000 and June 30, 2001
The Company's total consolidated assets increased by approximately $3.3 million
or 4.0%, from $81.4 million at December 31, 2000 to $84.6 million at June 30,
2001. The increase in assets for the period was primarily attributable to an
increase in loans receivable and noninterest earning deposits.
Loans receivable, net, were $68.4 million at June 30, 2001 compared to $66.7
million at December 31, 2000, a 2.6% increase. This increase was attributable
to an increase in first mortgage residential loans of $1.4 million and an
increase in commercial business and real estate loans of $300,000.
Deposits increased $6.3 million or 9.8%, from $64.8 million at December 31, 2000
to $71.1 million at June 30, 2001. The increase in deposits was primarily
attributable to an increase in personal and business checking accounts.
Comparison of Results of Operations for the Three Months Ended June 30, 2000 and
2001
NET INCOME. Net income for the three months ended June 30, 2001 was $189,000
compared to $207,000 for the same quarter last year, a decrease of $18,000, or
8.7%. The decrease resulted from an increase in personnel and data processing
cost. The return on average assets was .90% for the three months ended June 30,
2001.
NET INTEREST INCOME. Net interest income increased $6,000 or .8% from $730,000
for the three months ended June 30, 2000 to $736,000 for the three months ended
June 30, 2001. The interest rate spread increased from 3.76% for three months
ending June 30, 2000 to 3.93% for the three months ending June 30, 2001. The
increase was attributable to cost of funds decreasing 43 basis points while
yield on earning assets decreased 26 basis points.
Total interest income increased $131,000 or 8.9% from $1.5 million for the three
months ended June 30, 2000 to $1.6 million for the three months ended June 30,
2001. Interest on loans increased $140,000, or 10.3% from $1.4 million for the
three months ended June 30, 2000 to $1.5 million for the three months ended June
30, 2001. The increase resulted from a $1.7 million increase in loans
outstanding substantially in residential mortgage loans and commercial business
loans since December 31, 2000.
Interest expense increased $125,000, or 16.7% from $749,000 for the three months
ended June 30, 2000 to $874,000 for the three months ended June 30, 2001. The
increase for the three months ending June 30, 2001 was the result of an increase
in the average balance of deposits, which were used to fund loan demand.
PROVISION FOR LOAN LOSSES. Provisions for loan losses are charges to earnings
to bring the
10
total allowance for loan losses to a level considered adequate by management to
provide for estimated loan losses based on management's evaluation of the
collectability of the loan portfolio, including past loan loss experience,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, and current economic conditions.
The provision for loan losses was $46,000 for the three months ended June 30,
2001 compared to $45,000 for the three months ended June 30, 2000. Management
deemed the allowance for loan losses adequate at June 30, 2001.
NONINTEREST INCOME. Noninterest income increased $49,000, or 17.1% to $335,000
for the three months ended June 30, 2001 from $286,000 for the three months
ended June 30, 2000. The increase was attributable to an increase in service
charges on deposit accounts and revenues from secondary market loan operations.
NONINTEREST EXPENSE. Noninterest expense increased $81,000, or 12.8% to
$714,000 for the three months ended June 30, 2001 from $633,000 for the three
months ended June 30, 2000. Compensation and benefits increased to $377,000 for
the three months ended June 30, 2001 from $341,000 for the three months ended
June 30, 2000 as a result of increases in pay rates and benefit costs. Data
processing and other expenses increased to $265,000 for the three months ended
June 30, 2001 from $222,000 for the three months ended June 30, 2000 primarily
as a result of increased service bureau expense for the Savings Bank and data
processing for the trust department.
INCOME TAXES. Income tax expense for the three months ending June 30, 2001 was
$122,000 compared to $131,000 for the three months ending June 30, 2000. This
decrease was the result of pre-tax income decreasing for the three months ending
June 30, 2001.
Comparison of Results of Operations for the Six Months Ended June 30, 2000 and
2001.
NET INCOME. Net income for the six months ended June 30, 2001 was $397,000
compared to $393,000 for the six months ended June 30, 2000, an increase of
$4,000, or 1.0%. The increase resulted from an increase in net interest income
offset to a lesser degree by an increase in other expenses. The return on
average assets was .96% for the six months ended June 30, 2001 compared to 1.05%
for the six months ended June 30, 2000.
NET INTEREST INCOME. Net interest income increased $14,000, or 1.0% to $1.5
million for the six months ended June 30, 2001 from $1.4 million for the six
months ended June 30, 2000 as a result of an increase in total interest income
that more than offset an increase in total interest expense.
Total interest income increased $314,000, or 10.8% to $3.2 million for the six
months ended June 30, 2001 from $2.9 million for the same period a year ago as a
result of an increase in the average balance of loans receivable. The average
balance on loans receivable increased to $67.6 million from $61.6 million. The
increase was attributable to the substantial increase in first mortgage
residential loans and commercial business loans.
Interest expense increased $300,000, or 20.5% to $1.8 million for the six months
ended June 30, 2001 from $1.5 million for the same period a year ago, primarily
as a result of an increase in average balances of interest-bearing deposits
which were used to fund loan demand.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the six months
ended June 30, 2001 was $91,000 compared to $90,000 for the same period a year
ago. Historically,
11
management has emphasized the Company's loss expense over other factors in
establishing provisions for loan losses. Management deemed
the allowance for loan losses adequate at June 30, 2001.
NONINTEREST INCOME. Noninterest income increased $125,000, or 23.2% to $665,000
for the six months ended June 30, 2001 from $540,000 for the same period a year
ago. This increase is primarily due to revenues from secondary market loans
operations. Additionally, noninterest income increased as a result of an
increase in service charges on deposit accounts.
NONINTEREST EXPENSE. Noninterest expenses increased $128,000, or 10.2% to $1.4
million for the six months ended June 30, 2001 from $1.3 million for the six
months ended June 30, 2000. Compensation and benefits increased to $739,000 for
the six months ended June 30, 2001 from $685,000 for the six months ended June
30, 2000 primarily as a result of increases in pay rates and benefits. Data
processing and other expenses increased to $492,000 for the six months ended
June 30, 2001 from $425,000 for the six months ended June 30, 2000 primarily as
a result of increased service bureau expense for the Savings Bank and data
processing for the trust department.
INCOME TAX EXPENSE. Income tax expense for the six months ended June 30, 2001
was $256,000 compared to $250,000 for the same period a year ago. The increase
was the result of pre-tax income increasing by $10,000 for the six months ending
June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES. The Company's primary sources of funds are
deposits and proceeds from principal and interest payments on loans. While
maturities and scheduled amortization of loans are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Company's primary
investing activity is loan originations. The Company maintains liquidity levels
adequate to fund loan commitments, investment opportunities, deposit withdrawals
and other financial commitments. At June 30, 2001, the Savings Bank's liquidity
ratio was 11.2% (required ratio at that date was 4% pursuant to OTS
regulations). At June 30, 2001, there were no material commitments for capital
expenditures and the Company had unfunded loan commitments of approximately $4.7
million and unfunded letters of credit of $359,000. At June 30, 2001,
management had no knowledge of any trends, events or uncertainties that will
have or are reasonably likely to have material effects on the liquidity,
capital resources or operations of the Company. Further at June 30, 2001,
management was not aware of any current recommendations by the regulatory
authorities, which, if implemented, would have such an effect.
The Company is not subject to any separate regulatory capital requirements. The
Savings Bank exceeded all of its regulatory capital requirements at June 30,
2001 with the following regulatory capital ratios:
12
SECURITY FEDERAL SAVINGS BANK
(Unaudited)
As of June 30, 2001 Actual For Capital Categorized as
Adequacy Purposes "Well Capitalized"(1)
Amount Ratio Amount Ratio Amount Ratio
<s> <c> <c> <c> <c> <c> <c>
Total Capital
(to risk weighted assets) $ 9,105 15.72% $ 4,633 8.00% $ 5,791 10.00%
Tier I Capital
(to risk weighted assets) 7,926 13.69 2,316 4.00 3,475 6.00
Tier 1 Capital
(to adjusted total assets) 7,926 9.42 2,524 3.00 4,207 5.00
Tangible Capital
(to tangible assets) 7,926 9.42 1,262 1.50 N/A ---
(1) As categorized under the OTS Prompt Corrective Action Provisions.
13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time, the Company and any subsidiaries may be a party to various
legal proceedings incident to its or their business. At June 30, 2001, there
were no legal proceedings to which the Company or any subsidiary was a party, or
to which of any of their property was subject, which were expected my management
to result in a material loss.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual meeting of Stockholders of Security Bancorp, Inc. was held on April
18, 2001. The results of the vote on the election of directors, the first
proposal presented at the meeting, is as follows:
The following individuals were elected as directors, each to serve for a
three-year term:
FOR WITHHELD
---------------------- ----------------------
Number Number
of Votes Percentage of Votes Percentage
-------- ---------- -------- ----------
Joe H. Pugh 280,595 100.0 - -
------- ------ ------ ------
Dr. R. Neil Schultz 279,395 99.6 1,200 .4
------- ------ ------ ------
The results of the vote on the approval of the appointment of Housholder, Artman
and Associates, P.C. as independent auditors for the fiscal year ending December
31, 2001, the second proposal presented at the meeting, is as follows:
FOR 279,469 Shares 99.6%
------- ------
AGAINST 0 Shares 0.0%
------- ------
ABSTAIN 1,126 Shares 0.4%
------- ------
Item 5. Other Information
-----------------
None
14
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
Exhibits
--------
3.1 Charter of Security Bancorp, Inc.*
3.2 Bylaws of Security Bancorp, Inc.*
10.1 Employment Agreement with Joe H. Pugh**
10.2 Severance Agreement with John W. Duncan**
10.3 Severance Agreement with Ray Talbert**
10.4 Severance Agreement with Kenneth W. Smith*****
10.5 Severance Agreement with Shannon L. Haston*****
10.6 Security Federal Savings Bank of McMinnville, TN
401(k) Plan*
10.7 Security Federal Savings Bank of McMinnville, TN
Employee Stock Ownership Plan***
10.8 Security Bancorp, Inc. Management Recognition and
Development Plan****
10.9 Security Bancorp, Inc. 1998 Stock Option Plan****
No reports on Form 8-K were filed during the quarter ended June 30, 2001.
- ---------------
* Incorporated by reference to Registrant's Registration
Statement on Form SB-2, as amended (File No. 333-6670)
** Incorporated by reference to Registrant's Form 10-QSB for the quarter
ended September 30, 1997.
*** Incorporated by reference to Registrant's Form 10-KSB for the year ended
December 31, 1997.
**** Incorporated by reference to Registrant's Annual Meeting Proxy Statement
dated March 16, 1998.
***** Incorporated by reference to Registrant's Form 10-KSB for the year ended
December 31, 1998.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Security Bancorp, Inc.
Date: August 13, 2001 By /s/ Joe H. Pugh
----------------------------------
Joe H. Pugh
President and Chief Executive Officer
Security Bancorp, Inc.
Date: August 13, 2001 By /s/ John W. Duncan
----------------------------------
John W. Duncan
Vice President and Chief Financial Officer
16