SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
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 September 30, 2002 1,673,138
INDEX
==============================================================================
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE
NO.
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements 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 12
Item 3. Quantitative and Qualitative Disclosure about Market Risk 17
Item 4. Controls and Procedures 17
==============================================================================
PART II. OTHER INFORMATION
Other Information 18
Certifications 20
==============================================================================
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
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Security Federal Corporation and Subsidiaries
Consolidated Balance Sheets
September 30, 2002 March 31, 2002
------------------ --------------
Assets: (Unaudited) (Audited)
Cash And Cash Equivalents $ 9,434,240 $ 11,528,411
Investment And Mortgage-Backed Securities:
Available For Sale: (Amortized cost of
$152,608,740 at
September 30, 2002 and
$117,657,245 at March
31, 2002) 155,245,974 117,361,736
Held To Maturity: (Fair value of
$1,518,700 at Septem-
ber 30, 2002 and
$1,571,667 at March
31, 2002) 1,446,570 1,536,656
------------ ------------
Total Investment And Mortgage-Backed
Securities 156,692,544 118,898,392
------------ ------------
Loans Receivable, Net:
Held For Sale 4,536,125 2,165,918
Held For Investment: (Net of allowance
of $4,422,901 at
September 30, 2002
and $3,689,079 at
March 31, 2002) 233,469,425 232,152,950
------------ ------------
Total Loans Receivable Net 238,005,550 234,318,868
------------ ------------
Accrued Interest Receivable:
Loans 1,130,538 1,249,273
Mortgage-Backed Securities 366,949 283,775
Investments 752,119 650,034
Premises And Equipment, Net 4,976,047 4,859,140
Federal Home Loan Bank Stock, At Cost 2,377,400 2,669,300
Real Estate Acquired In Settlement Of Loans 43,000 98,157
Other Assets 1,080,756 1,764,980
------------ ------------
Total Assets $414,859,143 $376,320,330
============ ============
Liabilities And Shareholders' Equity
Liabilities:
Deposit Accounts $332,600,390 $309,037,602
Advances From Federal Home Loan Bank 45,065,000 33,108,000
Other Borrowed Money 5,749,483 6,169,411
Advance Payments By Borrowers For Taxes
and Insurance 469,583 247,149
Other Liabilities 2,257,363 2,357,605
------------ ------------
Total Liabilities $386,141,819 $350,919,767
------------ ------------
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 - 1,684,200
And Outstanding Shares - 1,673,138 At
September 30, 2002 And 1,671,459 At
March 31, 2002 16,842 16,842
Additional Paid-In Capital 3,985,312 3,985,312
Indirect Guarantee of Employee Stock Owner-
ship Trust Debt (324,583) (358,297)
Accumulated Other Comprehensive Gain 1,636,140 (183,335)
Retained Earnings, Substantially Restricted 23,403,613 21,940,041
------------ ------------
Total Shareholders' Equity $ 28,717,324 $ 25,400,563
------------ ------------
Total Liabilities And Shareholders' Equity $414,859,143 $376,320,330
============ ============
See accompanying notes to consolidated financial statements.
1
Security Federal Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended September 30,
-------------------------------
2002 2001
------------ ------------
Interest Income:
Loans $ 4,325,173 $ 5,096,914
Mortgage-Backed Securities 848,410 751,300
Investment Securities 813,864 480,170
Other 13,810 10,302
------------ ------------
Total Interest Income 6,001,257 6,338,686
------------ ------------
Interest Expense:
NOW And Money Market Accounts 635,061 579,296
Passbook Accounts 64,332 81,274
Certificate Accounts 1,281,974 2,117,664
Advances And Other Borrowed Money 557,218 570,778
------------ ------------
Total Interest Expense 2,538,585 3,349,012
------------ ------------
Net Interest Income 3,462,672 2,989,674
Provision For Loan Losses 450,000 250,000
------------ ------------
Net Interest Income After Provision For
Loan Losses 3,012,672 2,739,674
------------ ------------
Other Income:
Net Gain On Sale Of Investments 4,245 1,125
Gain On Sale Of Loans 336,149 321,019
Loan Servicing Fees 50,260 43,922
Service Fees On Deposit Accounts 319,960 267,576
Other 171,812 84,356
------------ ------------
Total Other Income 882,426 717,998
------------ ------------
General And Administrative Expenses:
Salaries And Employee Benefits 1,457,204 1,425,439
Occupancy 204,909 207,699
Advertising 41,677 36,484
Depreciation And Maintenance Of Equipment 249,584 291,393
FDIC Insurance Premiums 13,084 11,957
Amortization Of Intangibles 68,900 116,310
Other 543,768 461,900
------------ ------------
Total General And Administrative Expenses 2,579,126 2,551,182
------------ ------------
Income Before Income Taxes 1,315,972 906,490
Provision For Income Taxes 502,181 337,692
------------ ------------
Net Income $ 813,791 $ 568,798
============ ============
Basic Net Income Per Common Share $ 0.49 $ 0.34
============ ============
Diluted Net Income Per Common Share $ 0.48 $ 0.33
============ ============
Cash Dividend Per Share On Common Stock $ 0.02 $ 0.02
============ ============
Basic Weighted Average Shares Outstanding 1,673,138 1,671,459
============ ============
Diluted Weighted Average Shares Outstanding 1,710,646 1,707,680
============ ============
See accompanying notes to consolidated financial statements.
2
Security Federal Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
Six Months Ended September 30,
-------------------------------
2002 2001
------------ ------------
Interest Income:
Loans $ 8,685,901 $ 10,054,433
Mortgage-Backed Securities 1,647,036 1,421,451
Investment Securities 1,649,041 981,644
Other 20,960 66,132
------------ ------------
Total Interest Income 12,002,938 12,523,660
------------ ------------
Interest Expense:
NOW And Money Market Accounts 1,258,309 1,289,661
Passbook Accounts 133,616 159,359
Certificate Accounts 2,543,768 4,174,839
Advances And Other Borrowed Money 1,114,586 1,131,712
------------ ------------
Total Interest Expense 5,050,279 6,755,571
------------ ------------
Net Interest Income 6,952,659 5,768,089
Provision For Loan Losses 900,000 425,000
------------ ------------
Net Interest Income After Provision For
Loan Losses 6,052,659 5,343,089
------------ ------------
Other Income:
Net Gain On Sale Of Investments 4,245 1,125
Gain On Sale Of Loans 626,000 615,572
Loan Servicing Fees 101,052 101,479
Service Fees On Deposit Accounts 601,562 565,038
Other 348,698 256,500
------------ ------------
Total Other Income 1,681,557 1,539,714
------------ ------------
General And Administrative Expenses:
Salaries And Employee Benefits 2,947,748 2,908,577
Occupancy 400,223 397,842
Advertising 118,067 67,876
Depreciation And Maintenance Of Equipment 518,589 569,676
FDIC Insurance Premiums 25,850 23,068
Amortization Of Intangibles 185,210 232,620
Other 1,067,407 920,245
------------ ------------
Total General And Administrative Expenses 5,263,094 5,119,904
------------ ------------
Income Before Income Taxes 2,471,122 1,762,899
Provision For Income Taxes 940,181 656,843
------------ ------------
Net Income $ 1,530,941 $ 1,106,056
============ ============
Basic Net Income Per Common Share $ 0.92 $ 0.66
============ ============
Diluted Net Income Per Common Share $ 0.90 $ 0.65
============ ============
Cash Dividend Per Share On Common Stock $ 0.04 $ 0.04
============ ============
Basic Weighted Average Shares Outstanding 1,672,431 1,670,820
============ ============
Diluted Weighted Average Shares Outstanding 1,710,255 1,705,688
============ ============
See accompanying notes to consolidated financial statements.
3
Security Federal Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity (Unaudited)
Accumulated
Additional Indirect Other
Common Paid-In Guarantee of Comprehensive Retained
Stock Capital ESOP Debt Income (Loss) Earnings Total
-------- ---------- ---------- ---------- ------------ ------------
<s> <c> <c> <c> <c> <c> <c>
Beginning Balance At
March 31, 2001 $ 16,842 $3,985,312 $ (415,000) $ 348,015 $ 19,565,195 $ 23,500,364
Net Income - - - - 1,106,056 1,106,056
Other Comprehensive
Income, Net Of Tax:
Unrealized Holding
Gains On Securities
Available For Sale - - - 676,551 - 676,551
------------
Comprehensive Income 1,782,607
Increase In Indirect
Guarantee of ESOP Debt - - 56,703 - - 56,703
Cash Dividends ($.04 per
share) - - - - (67,371) (67,371)
-------- ---------- ---------- ---------- ------------ ------------
Balance at
September 30, 2001 $ 16,842 $3,985,312 $ (358,297) $1,024,566 $ 20,603,880 $ 25,272,303
======== ========== ========== ========== ============ ============
Beginning Balance At
March 31, 2002 $ 16,842 $3,985,312 $ (358,297) $ (183,335) $ 21,940,041 $ 25,400,563
Net Income - - - - 1,530,941 1,530,941
Other Comprehensive
Income, Net Of Tax:
Unrealized Holding
Gains On Securities
Available For Sale - - - 1,819,475 - 1,819,475
------------
Comprehensive Income 3,350,416
Increase In Indirect
Guarantee of ESOP Debt - - 33,714 - - 33,714
Cash Dividends ($.04 per
share) - - - - (67,369) (67,369)
-------- ---------- ---------- ---------- ------------ ------------
Balance at
September 30, 2002 $ 16,842 $3,985,312 $ (324,583) $1,636,140 $ 23,403,613 $ 28,717,324
======== ========== ========== ========== ============ ============
See accompanying notes to consolidated financial statements.
4
Security Federal Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended September 30,
-------------------------------
2002 2001
------------ ------------
Cash Flows From Operating Activities:
Net Income $ 1,530,941 $ 1,106,056
Adjustments To Reconcile Net Income To Net
Cash Provided By Operating Activities:
Depreciation Expense 401,276 498,202
Amortization Of Intangibles 185,210 232,620
Discount Accretion And Premium Amortization (72,787) (72,501)
Provisions For Losses On Loans And Real Estate 900,000 425,000
Gain On Sale Of Investment Securities
Available For Sale (4,245) (1,125)
Gain On Sale Of Loans (626,000) (431,083)
(Gain) Loss On Sale Of Real Estate (44,467) 1,681
Amortization Of Deferred Fees On Loans (100,052) (94,486)
Proceeds From Sale Of Loans Held For Sale 34,438,586 35,048,559
Origination Of Loans For Sale (36,182,793) (34,085,257)
(Increase) Decrease In Accrued Interest
Receivable:
Loans 118,735 (73,732)
Mortgage-Backed Securities (83,174) (91,710)
Investments (102,085) 182,538
Increase In Advance Payments By Borrowers 222,434 202,633
(Gain) Loss On Disposition Of Premises And
Equipment - (1,367)
Other, Net (638,624) (187,804)
------------ ------------
Net Cash Provided By Operating Activities (57,225) 2,658,224
------------ ------------
Cash Flows From Investing Activities:
Principal Repayments On Mortgage-Backed
Securities Held To Maturity 37,644 453,883
Principal Repayments On Mortgage-Backed
Securities Available For Sale 10,199,004 8,362,447
Purchase Of Investment Securities Avail-
able For Sale (35,020,625) (26,434,157)
Purchase Of Mortgage-Backed Securities
Available For Sale (33,542,209) (24,825,040)
Maturities Of Investment Securities
Available For Sale 22,503,614 22,098,169
Maturities of Investment Securities Held
To Maturity 52,437 -
Proceeds From Sale of Securities Available
For Sale 985,938 1,870,844
Purchase Of FHLB Stock - -
Redemption Of FHLB Stock 291,900 761,700
Increase In Loans To Customers (2,600,823) (16,868,653)
Investment In Real Estate Held For
Development - -
Proceeds From Sale Of Real Estate Held
For Development - -
Proceeds From Sale Of Real Estate Acquired
Through Foreclosure 541,867 75,800
Purchase And Improvement Of Premises And
Equipment (518,183) (198,632)
------------ ------------
Net Cash Used By Investing Activities (37,069,436) (34,703,639)
------------ ------------
Cash Flows From Financing Activities:
Increase In Deposit Accounts 23,562,788 31,102,582
Proceeds From FHLB Advances 46,125,000 37,250,000
Repayment Of FHLB Advances (34,168,000) (42,378,000)
Proceeds Of Other Borrowings (419,928) 489,591
Dividends To Shareholders (67,370) (67,371)
------------ ------------
Net Cash Provided By Financing Activities 35,032,490 26,396,802
------------ ------------
(Continued)
5
Security Federal Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended September 30,
-------------------------------
2002 2001
------------ ------------
Net Decrease In Cash And Cash Equivalents (2,094,171) (5,648,613)
Cash And Cash Equivalents At Beginning
Of Period 11,528,411 12,616,129
------------ ------------
Cash And Cash Equivalents At End Of Period $ 9,434,240 $ 6,967,516
============ ============
Supplemental Disclosure Of Cash Flows
Information:
Cash Paid During The Period For Interest $ 5,181,206 $ 6,984,816
Cash Paid During The Period For Income Taxes $ 1,362,575 $ 891,253
Additions To Real Estate Acquired Through
Foreclosure $ 484,400 $ 40,981
Increase (Decrease) In Unrealized Net Gain
On Securities Available For Sale, Net
Of Taxes $ 1,819,475 $ (676,551)
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-Q and accounting principles
generally accepted in the United States of America; 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 2002 Annual Report to Shareholders when reviewing interim
financial statements. The results of operations for the three and six-month
periods ended September 30, 2002 are not necessarily indicative of the results
that may be expected for the entire fiscal year. This Form 10-Q 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 Form 10-Q
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
subsidiaries, Security Federal Insurance ("SFINS"), Security Federal
Investments ("SFINV"), Security Federal Trust ("SFT"), and 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. SFINS, SFINV, and SFT were formed during fiscal 2002 and
began operation during the December 2001 quarter. SFINS is an insurance
agency offering business, health, home and life insurance. SFINV engages
primarily in investment brokerage services. SFT offers trust, financial
planning and financial management services. SFSC is currently inactive.
3. Loans Receivable, Net
Loans Receivable, Net, at September 30, 2002 and March 31, 2002 consisted of
the following:
Loans held for sale were $4,536,125 and $2,165,918 at September 30, 2002 and
March 31, 2002, respectively.
Loans Held For Investment: September 30, 2002 March 31, 2002
------------------ --------------
Residential Real Estate $ 99,338,509 $100,065,942
Consumer 47,906,676 49,851,549
Commercial Business & Real Estate 100,731,464 97,396,184
------------ ------------
247,976,649 247,313,675
------------ ------------
Less:
Allowance For Possible Loan Loss 4,422,901 3,689,079
Loans In Process 9,923,395 11,287,518
Deferred Loan Fees 160,928 184,128
------------ ------------
14,507,224 15,160,725
------------ ------------
$233,469,425 $232,152,950
============ ============
The following is a reconciliation of the allowance for loan losses for the six
months ending:
September 30, 2002 September 30, 2001
------------------ ------------------
Beginning Balance $ 3,689,079 $ 2,784,117
Provision 900,000 425,000
Charge-offs (314,383) (299,300)
Recoveries 148,205 70,467
------------ ------------
Ending Balance $ 4,422,901 $ 2,980,284
============ ============
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
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---------- ---------- --------- ----------
September 30, 2002
- ------------------
US Government and Agency
Obligations $ 110,919 $ 665 $ - $ 111,584
Mortgage-Backed Securities 1,335,651 71,465 - 1,407,116
---------- ---------- --------- ----------
Total $1,446,570 $ 72,130 $ - $1,518,700
========== ========== ========= ==========
March 31, 2002
- --------------
US Government and Agency
Obligations $ 163,356 $ 2,771 $ - $ 166,127
Mortgage-Backed Securities 1,373,300 32,240 - 1,405,540
---------- ---------- --------- ----------
Total $1,536,656 $ 35,011 $ - $1,571,667
========== ========== ========= ==========
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
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---------- ---------- --------- ----------
September 30, 2002
- ------------------
US Government and Agency
Obligations $ 73,438,134 $1,228,284 $ 14,973 $ 74,651,445
Mortgage-Backed Securities 79,170,606 1,552,669 128,746 80,594,529
------------ ---------- --------- ------------
Total $152,608,740 $2,780,953 $ 143,719 $155,245,974
============ ========== ========== ============
March 31, 2002
- --------------
US Government and Agency
Obligations $ 61,983,824 $ 239,410 $ 866,931 $ 61,356,303
Mortgage-Backed Securities 55,673,421 594,414 262,402 56,005,433
------------ ---------- --------- ------------
Total $117,657,245 $ 833,824 $1,129,333 $117,361,736
============ ========== ========== ============
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:
September 30, 2002 March 31, 2002
-------------------- --------------------
Balance Rate Balance Rate
-------------------- --------------------
Demand Accounts:
Checking $ 74,517,915 0.55% $ 71,906,832 0.58%
Money Market 86,479,876 2.40% 74,074,781 2.73%
Regular Savings 15,800,848 1.51% 15,106,897 1.75%
------------ ------------
Total Demand Accounts 176,798,639 1.54% 161,088,510 1.68%
------------ ------------
Certificate Accounts:
0 - 4.99% $139,629,069 $127,067,831
5.00 - 6.99% 15,668,026 19,982,399
7.00 8.99% 504,656 898,862
------------ ------------
Total Certificate Accounts 155,801,751 3.25% 147,949,092 3.59%
------------ ------------
Total Deposit Accounts $332,600,390 2.34% $309,037,602 2.60%
============ ============
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:
September 30, 2002 March 31, 2002
-------------------- --------------------
Balance Rate Balance Rate
-------------------- --------------------
Fiscal Year Due:
2003 $ 11,975,000 3.80% $ 5,000,000 6.40%
2004 - - - -
2005 10,090,000 6.15% 10,108,000 6.15%
2006 18,000,000 5.98% 18,000,000 5.98%
Thereafter 5,000,000 2.82% - -
------------ ------------
Total Advances $ 45,065,000 5.09% $ 33,108,000 6.09%
============ ============
7. Regulatory Matters
The following table reconciles the Bank's Shareholders' equity to its various
regulatory capital positions:
September 30, 2002 March 31, 2002
(Dollars in Thousands)
-----------------------------------
Bank's Shareholders' Equity $ 28,815 $ 25,463
Unrealized Loss On Available For Sale
Of Securities, Net Of Tax (1,636) 183
Reduction For Goodwill And Other Intangibles - (185)
----------- -----------
Tangible Capital 27,179 25,461
Qualifying Core Deposits And Intangible
Assets - 185
----------- -----------
Core Capital 27,179 25,646
Supplemental Capital 2,907 2,879
Assets Required To Be Deducted (215) (237)
----------- -----------
Risk-Based Capital $ 29,871 $ 28,288
=========== ===========
The following table compares the Bank's capital levels relative to the
applicable regulatory requirements at September 30, 2002.
(Dollars in Thousands)
---------------------------------------------------------
Amt. % Actual Excess
Required Required Amt. Actual % Amt. Excess %
---------------------------------------------------------
Tangible Capital $ 8,274 2.0% $ 27,179 6.57% $18,905 4.57%
Tier 1 Leverage
(Core) Capital 16,547 4.0% 27,179 6.57% 10,632 2.57%
Total Risk-Based
Capital 18,611 8.0% 29,871 12.84% 11,260 4.84%
Tier 1 Risk-Based
(Core) Capital 9,300 4.0% 27,179 11.69% 17,879 7.69%
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 September 30, 2002 are
as follows:
To Be Well
Capitalized
For Capital Under Prompt
(Dollars in Thousands) Adequacy Corrective Action
Actual Purposes Provisions
----------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------
Tier I Risk-Based
Core Capital $27,179 11.7% $ 9,300 4.0% $13,950 6.0%
Risk-Based Capital
(To Risk Weighted
Assets) 29,871 12.8% 18,611 8.0% 23,264 10.0%
Core Capital (To
Adjusted Tangible
Assets) 27,179 6.6% 16,547 4.0% 20,684 5.0%
Tangible Capital (To
Tangible Assets) 27,179 6.6% 8,274 2.0% 20,684 5.0%
8. Earnings Per Share
The Company calculates earnings per share in accordance with SFAS No. 128,
"Earnings Per Share." SFAS 128 specifies the computation, presentation and
disclosure requirements for earnings per share (EPS) for entities with
publicly held common stock or potential common stock such as options,
warrants, convertible securities or contingent stock agreements if those
securities trade in a public market.
This standard specifies computation and presentation requirements for both
basic EPS and, for entities with complex capital structures, diluted EPS.
Basic earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share is
similar to the computation of basic earnings per share except that the
denominator is increased to include the number of additional common shares
that would have been outstanding if the dilutive potential common shares had
been issued. The dilutive effect of options outstanding under the Company's
stock option plan is reflected in diluted earnings per share by application of
the treasury stock method.
RECONCILIATION OF THE NUMERATORS AND DENOMINATORS OF THE BASIC AND DILUTED EPS
COMPUTATIONS:
For the Quarter Ended
---------------------------------------
September 30, 2002
---------------------------------------
Income
(Numerator) Shares
Amount (Denominator) Per Share
--------- ------------- ---------
Basic EPS $ 813,791 1,673,138 $ 0.49
Effect of Diluted
Securities:
Stock Options - 24,720 (0.01)
ESOP - 12,788 0.00
--------- --------- -------
Diluted EPS $ 813,791 1,710,646 $ 0.48
For the Quarter Ended
---------------------------------------
September 30, 2001
---------------------------------------
Income
(Numerator) Shares
Amount (Denominator) Per Share
--------- ------------- ---------
Basic EPS $ 568,798 1,671,459 $ 0.34
Effect of Diluted
Securities:
Stock Options - 23,480 (0.01)
ESOP - 12,741 0.00
--------- --------- -------
Diluted EPS $ 568,798 1,707,680 $ 0.33
10
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited), Continued
8. Earnings Per Share, Continued
For the Six Months Ended
---------------------------------------
September 30, 2002
---------------------------------------
Income
(Numerator) Shares
Amount (Denominator) Per Share
---------- ------------- ---------
Basic EPS $1,530,941 1,672,431 $ 0.92
Effect of Diluted
Securities:
Stock Options - 25,036 (0.02)
ESOP - 12,788 0.00
---------- ------------- ---------
Diluted EPS $1,530,941 1,710,255 $ 0.90
For the Six Months Ended
---------------------------------------
September 30, 2001
---------------------------------------
Income
(Numerator) Shares
Amount (Denominator) Per Share
---------- ------------- ---------
Basic EPS $1,106,056 1,670,820 $ 0.66
Effect of Diluted
Securities:
Stock Options - 21,488 (0.01)
ESOP - 13,380 (0.00)
---------- ------------- ---------
Diluted EPS $1,106,056 1,705,688 $ 0.65
11
Security Federal Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Changes in Financial Condition
Total assets of the Company increased $38.5 million or 10.2% during the six
months ended September 30, 2002 due primarily to increases of $37.8 million or
31.8% in total investment securities offset in part by a $2.1 million, or
18.2% decrease in cash and cash equivalents.
Residential real estate loans, net of loans in process, increased $637,000 or
1.0% during the period while consumer and commercial loans increased a total
of $1.4 million or 1.0%.
Repossessed assets decreased $55,000 to $43,000 during the six months ended
September 30, 2002.
Non-accrual loans totaled $1.0 million at September 30, 2002 compared to $1.4
million at March 31, 2002. The Bank classifies all loans as non-accrual when
they become 90 days or more delinquent. The Bank had five loans totaling
$709,000 at September 30, 2002 that were troubled debt restructurings within
the meaning of SFAS No. 115 compared to $622,000 at March 31, 2002. Two loans
that were troubled debt restructuring consist of a $489,000 commercial loan
secured by commercial real estate and a $16,000 commercial loan secured by a
second mortgage on a residence, were more than 30 days delinquent. The other
three loans, a $61,000 consumer loan secured by a residential dwelling, a
$87,000 consumer loan also secured by a residential dwelling, and a $56,000
commercial loan secured by two rental properties were current as of September
30, 2002. All troubled debt restructurings are also considered impaired. At
September 30, 2002, the Bank held $1.0 million in impaired loans compared to
$897,000 at March 31, 2002.
Deposits increased $23.6 million or 7.6% during the six months ended September
30, 2002 due to competitive rates offered by the Bank. Federal Home Loan Bank
(FHLB) advances increased $12.0 million or 36.1% due to some investment
leverage employed to increase net interest income.
The Board of Directors declared the 46th and 47th consecutive quarterly
dividend of $.02 per share per quarter in May and August 2002, which totaled
$67,000. The employee stock ownership trust of the Company paid $34,000 in
principal on the employee stock ownership plan loan during the six-month
period. Unrealized net gains on securities available for sale, net of tax,
increased $1.8 million during the six months ended September 30, 2002. The
Company's net income for the six months was $1.5 million. These items
combined to increase shareholders' equity by $3.3 million or 13.1% during the
six months ended September 30, 2002. Book value per share was $17.16 at
September 30, 2002 compared to $15.20 at March 31, 2002.
Liquidity and Capital Resources
In accordance with Office of Thrift Supervision (OTS) regulations, the Company
is required to maintain sufficient liquidity to operate in a safe and sound
manner. The Company's average liquidity during the six months ended September
30, 2002 was approximately 35%. 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 and the purchase of investments are a
primary use of the Company's funds. During the six months ended September 30,
2002, loan disbursements exceeded loan repayments resulting in a $3.7 million
or 1.6% increase in total net loans receivable.
Deposits and other borrowings are also an important source of funds for the
Company. During the six months ended September 30, 2002, deposits increased
$23.6 million while FHLB advances increased $12.0 million. The Bank had $58.6
million in additional borrowing capacity at the FHLB at the end of the period.
At September 30, 2002, the Bank had $126.4 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.
12
Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Liquidity and Capital Resources, Continued
Through the operations of the Bank, we have made contractual commitments to
extend credit in the ordinary course of our business activities. These
commitments are legally binding agreements to lend money to our customers at
predetermined interest rates for a specified period of time. At September 30,
2002, we had issued commitments to extend credit of $30.5 million through
various types of lending arrangements. We evaluate each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by us upon extension of credit, is based on our credit
evaluation of the borrower. Collateral varies but may include accounts
receivable, inventory, property, plant and equipment, commercial and
residential real estate. We manage the credit risk on these commitments by
subjecting them to normal underwriting and risk management processes.
Management believes that the Company's liquidity will continue to be supported
by the Company's deposit base and borrowing capacity during the next year.
Accounting and Reporting Changes.
Accounting standards that have been issued or proposed by the FASB that do not
require adoption until a future date are not expected to have a material
impact on the Company's 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. See "Item 3. Quantitative and Qualitative
Disclosures about Market Risk" for additional discussions of changes in
interest rates.
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 SEPTEMBER 30, 2002
- -------------------------------------------------------------------
Net Income
Net income was $814,000 for the three months ended September 30, 2002,
representing an increase in earnings of $245,000 or 43.1% from $569,000 for
the same period in 2001.
Net Interest Income
Net interest income increased $473,000 or 15.8% to $3.5 million during the
three months ended September 30, 2002 as a result of a decrease in total
interest expense offset in part by a decrease in interest income. Interest
earning assets increased an average of $50.1 million while interest bearing
liabilities increased $44.6 million. The interest rate spread increased 15
basis points to 3.35% during the three months ending September 30, 2002
compared to the same period in 2001.
Interest income on loans decreased $772,000 or 15.1% to $4.3 million during
the three months ended September 30, 2002 as a result of the yield in the loan
portfolio decreasing 105 basis points and the loan portfolio average balance
decreasing by $7.3 million. Investment, mortgage-backed, and other securities
interest income increased $434,000 or 35.0% due to an increase in the average
balances of approximately $57.5 million in the investment portfolio despite a
96 basis points decrease in the average yield in the portfolio. Total
interest income decreased $337,000 or 5.3% to $6.0 million from $6.3 million
for the same period in 2001.
Total interest expense decreased $810,000 or 24.2% to $2.5 million during the
three months ended September 30, 2002 compared to $3.3 million for the same
period one-year earlier. Interest expense on deposits decreased $797,000 or
28.7% during the period as average deposits grew $41.8 million compared to the
average balance in 2001 and the cost of deposits decreased 162 basis points.
Interest expense on advances and other borrowings decreased $14,000 or 2.4% as
the cost of debt outstanding decreased 53 basis points during the 2002 period
compared to 2001 despite the average debt outstanding increasing approximately
$2.8 million.
Provision for Loan Losses
The Bank's provision for loan losses was $450,000 during the three months
ended September 30, 2002 compared $250,000 for the quarter ending September
30, 2001 due to higher than normal net charge-offs during the last two
quarters of the year ending March 31, 2002, the entrance into a new lending
market, a slight increase in the percentage of consumer and commercial loans
as compared to residential mortgage loans, and the cyclical nature of the
economy. 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 $1.0 million at September 30, 2002 compared
to $1.4 million at March 31, 2002. The ratio of allowance for loan losses to
the Company's total loans was 1.82% at September 30, 2002 compared to 1.55%
March 31, 2002. Net charge-offs were $69,000 during the three months ended
September 30, 2002 compared to $109,000 during the same period in 2001.
Other Income
Total other income increased $164,000 or 22.9% to $882,000 during the three
months ended September 30, 2002 from $718,000 for to the same period a year
ago. Gain on sale of loans increased $15,000 to $336,000, loan servicing fees
increased $6,000 and service fees on deposit accounts decreased $52,000.
Other miscellaneous income including credit life insurance commissions, net
gain on sale of repossessed assets, safe deposit rental income, annuity and
stock brokerage commissions, and trust fees, and other miscellaneous fees
increased $87,000 during the three months ended September 30, 2002.
14
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 SEPTEMBER 30, 2002, CONTINUED
- ------------------------------------------------------------------------------
General and Administrative Expenses
General and administrative expenses increased $28,000 or 1.1% to $2.6 million
during the three months ended September 30, 2002 compared to the same period
in 2001. Salaries and employee benefits expense grew $32,000 due to normal
salary increases. Occupancy expense decreased $3,000, advertising expense
increased $5,000 while the depreciation and maintenance of equipment expense
decreased $42,000 during the quarterly period. FDIC insurance premiums
increased slightly to $13,000 during the current quarter. The amortization of
intangibles expense decreased $47,000 to $69,000 during the quarter. At
September 30, 2002, the Company has no further intangibles on the balance
sheet. Other miscellaneous expense, consisting of legal, professional, and
consulting expenses, stationery and office supplies, and other sundry
expenses, increased $82,000 or 17.7% for the three months ended September 30,
2002 compared to the three months ended September 30, 2001.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002
- -----------------------------------------------------------------
Net Income
Net income was $1.5 million for the six months ended September 30, 2002,
representing an increase in earnings of $425,000 or 38.4% from $1.1 million
for the same period in 2001.
Net Interest Income
Net interest income increased $1.2 million or 20.5% to $7.0 million during the
six months ended September 30, 2002 as a result of a decrease in total
interest expense offset in part by a decrease in interest income. Interest
earning assets increased an average of $52.0 million while interest bearing
liabilities increased $46.6 million. The interest rate spread increased 28
basis points to 3.43% during the six months ending September 30, 2002 compared
to the same period in 2001.
Interest income on loans decreased $1.4 million or 13.6% to $8.7 million
during the six months ended September 30, 2002 as a result of the yield in the
loan portfolio decreasing 103 basis points, as the loan portfolio average
balances decreased $3.8 million. Investment, mortgage-backed, and other
securities interest income increased $847,000 or 34.3% due to an increase in
the average balance of approximately $62.3 million in the investment portfolio
despite a 108 basis points decrease in the average yield in the portfolio.
Total interest income decreased $521,000 or 4.2% to $12.0 million during the
six months compared to the same period in 2001.
Total interest expense decreased $1.7 million or 25.2% to $5.1 million during
the six months ended September 30, 2002 compared to the same period one-year
earlier. Interest expense on deposits decreased $1.7 million or 30.0% during
the period as deposits grew $42.4 million compared to the average balance in
2001 and the cost of deposits decreased 176 basis points. Interest expense on
advances and other borrowings decreased $17,000 as the cost of debt
outstanding decreased 66 basis points during the 2002 period compared to 2001
despite the average debt outstanding increasing approximately $4.2 million.
Provision for Loan Losses
The Bank's provision for loan losses was $900,000 during the six months ended
September 30, 2002 compared to $425,000 during the six months ended September
30, 2001. 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 $1.0 million at September 30, 2002 compared
to $1.4 million at March 31, 2002. The ratio of allowance for loan losses to
the Company's total loans was 1.82% at September 30, 2002 and 1.55% at March
31, 2002. Net charge-offs were $166,000 during the six months ended September
30, 2002 compared to $229,000 during the same period in 2001.
15
Security Federal Corporation and Subsidiaries
Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002, CONTINUED
- ----------------------------------------------------------------------------
Other Income
Total other income increased $142,000 or 9.2% to $1.7 million during the six
months ended September 30, 2002 compared to the same period one-year earlier.
Gain on sale of loans increased $10,000 as the volume of fixed rate mortgage
loans sold during the period increased due to mortgage loan rates falling.
Service fees on deposit accounts grew $37,000 as the number of commercial and
personal demand deposit accounts increased. Other miscellaneous income
including credit life insurance commissions, net gain on sale of repossessed
assets, safe deposit rental income, annuity and stock brokerage commissions,
and other miscellaneous fees increased $92,000 during the six months ended
September 30, 2002.
General and Administrative Expenses
General and administrative expenses increased $143,000 or 2.8% during the six
months ended September 30, 2002 compared to the same period in 2001. Salaries
and employee benefits expense increased $39,000 or 1.4% due to normal annual
salary increases. Occupancy expense increased by $2,000, advertising expense
increased $50,000 while the depreciation and maintenance of equipment expense
decreased $51,000 during the six-month period. FDIC insurance premiums
increased slightly to $26,000 during the six-month period ending September 30,
2002. The amortization of intangibles expense decreased $47,000 during the
six months period. At September 30, 2002, the Company had no further
intangible assets on the balance sheet. Other miscellaneous expense,
consisting of legal, professional, and consulting expenses, stationery and
office supplies, and other sundry expenses, increased $147,000 or 16.0% for
the six months ended September 30, 2002 compared to the six months ended
September 30, 2001.
16
Security Federal Corporation and Subsidiaries
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises principally from interest rate risk
inherent in its lending, investment, deposit and borrowing activities.
Management actively monitors and manages its interest rate risk exposure.
Although the Company manages other risks such as credit quality and liquidity
risk in the normal course of business, management considers interest rate risk
to be its most significant market risk that could potentially have the largest
material effect on the Company's financial condition and results of
operations. Other types of market risks such as foreign currency exchange
rate risk and commodity price do not arise in the normal course of the
Company's business activities.
The Company's profitability is affected by fluctuations in the market interest
rate. Management's goal is to maintain a reasonable balance between exposure
to interest rate fluctuations and earnings. A sudden and substantial increase
or decrease in interest rates may adversely impact the Company's earnings to
the extent that the interest rates on interest-earning assets and
interest-bearing liabilities do not change at the same rate, to the same
extent or on the same basis. The Company monitors the impact of changes in
interest rates on its net interest income using a test that measures the
impact on net interest income and net portfolio value of an immediate change
in interest rates in 100 basis point increments and by measuring the Bank's
interest sensitivity gap ("Gap"). Net Portfolio value is defined as the net
present value of assets, liabilities, and off-balance sheet contracts. Gap is
the amount of interest sensitive assets repricing or maturing over the next
twelve months compared to the amount of interest sensitive liabilities
maturing or repricing in the same time period. Recent net portfolio value
reports furnished by the Office of Thrift Supervision indicate that the Bank's
interest sensitivity has improved in recent quarters over the past year. The
Bank has rated favorably compared to Thrift peers concerning interest rate
sensitivity.
For the three and six month periods ended September 30, 2002, the Bank's
interest rate spread, defined as the average yield on interest bearing assets
less the average rate paid on interest bearing liabilities was 3.35% and
3.43%, respectively. As of the year ended March 31, 2002, the interest rate
spread was 3.48%. The interest rate spread has decreased slightly due to
investment securities growing faster than loan receivables. Loan receivables
earn a higher interest rate than investment securities. Also, loan yields are
falling due to refinancing of residential and commercial loans. If interest
rates were to increase suddenly and significantly, the Bank's net interest
income and net interest spread would be compressed.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures: An evaluation of the
Company's disclosure controls and procedures (as defined in Section 13(a) -
14(c) of the Securities Exchange Act of 1934 (the "Act")) was carried out
under the supervision and with the participation of the Company's Chief
Executive Officer, Chief financial Officer and several other members of the
Company's senior management within the 90-day period preceding the filing date
of this quarterly report. The Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures as currently in effect are effective in ensuring that the
information required to be disclosed by the Company in the reports it files or
submits under the Act is (i) accumulated and communicated to the Company's
management (including the Chief Executive Officer and Chief Financial Officer)
in a timely manner, and (ii) recorded, processed, summarized and reported
within the time period specified in the SEC's rules and forms.
(b) Changes in Internal Controls: In the quarter ended September 30, 2002,
the Company did not make any significant changes in, nor take any corrective
actions regarding, its internal controls or other factors that could
significantly affect these controls.
17
Security Federal Corporation and Subsidiaries
Part II. 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
---------------------------------------------------
The election of directors was presented for vote to shareholders
at the Annual Meeting on July 16, 2002. Votes for Harry O. Weeks
were as follows: 1,406,046 votes for, 6,800 votes withheld. Votes
for Robert E. Alexander were as follows: 1,405,174 votes for,
8,672 votes withheld. Votes for William Clyburn were as follows:
1,401,046 votes for, 12,800 votes withheld. Votes for J. Chris
Verenes were as follows: 1,405,046 votes for, 8,800 votes
withheld. Votes for Thomas C. Clark were as follows: 1,407,044
votes for, 6,802 votes withheld.
Item 5 Other Information
-----------------
None
Item 6 Exhibits And Reports On Form 8-K
--------------------------------
Exhibits:
3.1 Articles Of Incorporation (1)
3.2 Articles Of Amendment, Dated August 28, 1998, To Articles Of
Incorporation
3.3 Bylaws (2)
10 Executive Compensation Plans And Arrangements:
Salary Continuation Agreements (3)
Amendment One To Salary Continuation Agreements (4)
Stock Option Plan (3)
1999 Stock Option Plan (5)
2002 Stock Option Plan (6)
Incentive Compensation Plan (3)
99.1 Certifications Pursuant to Section 906 of the Sarbanes-Oxley
Act.
(1) Filed as an exhibit to the Company's June 23, 1998 proxy statement and
incorporated herein by reference.
(2) Filed as an exhibit to the Company's Form 8-K dated August 31, 1998 and
incorporated herein by reference.
(3) 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-K.
18
Security Federal Corporation and Subsidiaries
Other Information, Continued
(4) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended December 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-K.
(5) Filed on March 2, 2002, as an exhibit to the Company's Registration
Statement on Form S-8 and incorporated herein by reference.
(6) Filed as an exhibit to the Company's June 19, 2002 proxy statement and
incorporated herein by reference.
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: November 5, 2002 By: /s/Timothy W. Simmons
-------------------------------------
Timothy W. Simmons
President
Duly Authorized Representative
Date: November 5, 2002 By: /s/Roy G. Lindburg
-------------------------------------
Roy G. Lindburg
Treasurer/CFO
Duly Authorized Representative
19
Certification Required
By Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934
I, Timothy W. Simmons, certify that:
1. I have received this quarterly report on Form 10-Q of Security Federal
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statement made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the period presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
the internal controls; and
b) any fraud, whether or mot material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
and corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 5, 2002
/s/Timothy W. Simmons
-------------------------------------
Timothy W. Simmons
President and Chief Executive Officer
21
Certification Required
By Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934
I, Roy G. Lindburg, certify that:
1. I have received this quarterly report on Form 10-Q of Security Federal
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statement made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the period presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
the internal controls; and
b) any fraud, whether or mot material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
and corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 5, 2002
/s/Roy G. Lindburg
-------------------------------------
Roy G. Lindburg
Chief Financial Officer
22
EXHIBIT 99.1
Certification Pursuant to Section 906 of the Sarbanes Oxley Act
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
OF SECURITY FEDERAL CORPORATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and in connection with this Quarterly Report on Form 10-Q that:
1. the report fully complies with the requirements of Section 13(a)
and 15(d) of the Securities Exchange Act of 1934, as amended, and
2. the information contained in the report fairly presents, in all
material respects, the company's financial condition and results
of operations.
/s/Timothy W. Simmons /s/Roy G. Lindburg
- ---------------------------------- -----------------------------------
Timothy W. Simmons Roy G. Lindburg
Chief Executive Officer Chief Financial Officer
Dated: November 5, 2002