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 DECEMBER 31, 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
------- -------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
------- -------
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 December 31, 2002 1,674,433
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.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Security Federal Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 2002 March 31, 2002
---------------- -------------
Assets: (Unaudited) (Audited)
Cash And Cash Equivalents $ 7,118,871 $ 11,528,411
Investment And Mortgage-Backed
Securities:
Available For Sale: (Amortized cost of
$171,973,954 at December 31, 2002 and
$117,657,245 at March 31, 2002) 175,011,571 117,361,736
Held To Maturity: (Fair value of
$1,088,542 at December 31, 2002 and
$1,571,667 at March 31, 2002) 1,030,582 1,536,656
------------- -------------
Total Investment And Mortgage-Backed
Securities 176,042,153 118,898,392
------------- -------------
Loans Receivable, Net:
Held For Sale 1,958,284 2,165,918
Held For Investment: (Net of allowance
of $4,696,061 at December 31, 2002 and
$3,689,079 at March 31, 2002) 235,707,944 232,152,950
------------- -------------
Total Loans Receivable, Net 237,666,228 234,318,868
------------- -------------
Accrued Interest Receivable:
Loans 1,119,989 1,249,273
Mortgage-Backed Securities 426,543 283,775
Investments 758,930 650,034
Premises And Equipment, Net 5,070,774 4,859,140
Federal Home Loan Bank Stock, At Cost 2,653,600 2,669,300
Repossessed Assets Acquired In Settlement
Of Loans 125,500 98,157
Other Assets 812,200 1,764,980
------------- -------------
Total Assets $ 431,794,788 $ 376,320,330
============= =============
Liabilities And Shareholders' Equity
Liabilities:
Deposit Accounts $ 341,623,041 $ 309,037,602
Advances From Federal Home Loan Bank 53,072,000 33,108,000
Other Borrowed Money 4,964,254 6,169,411
Advance Payments By Borrowers For Taxes
And Insurance 147,244 247,149
Other Liabilities 2,149,517 2,357,605
------------- -------------
Total Liabilities $ 401,956,056 $ 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 - 1,686,512
And Outstanding Shares 1,674,433 At
December 31, 2002 And 1,671,459 At March
31, 2002 16,865 16,842
Additional Paid-In Capital 4,003,785 3,985,312
Indirect Guarantee Of Employee Stock
Ownership Trust Debt (363,254) (358,297)
Accumulated Other Comprehensive Gain(Loss) 1,884,538 (183,335)
Retained Earnings, Substantially
Restricted 24,296,798 21,940,041
------------- -------------
Total Shareholders' Equity $ 29,838,732 $ 25,400,563
------------- -------------
Total Liabilities And Shareholders' Equity $ 431,794,788 $ 376,320,330
============= =============
See accompanying notes to consolidated financial statements.
1
Security Federal Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended December 31,
--------------------------------
2002 2001
-------------- --------------
Interest Income:
Loans $ 4,276,984 $ 4,907,767
Mortgage-Backed Securities 871,076 662,920
Investment Securities 805,799 618,811
Other 17,749 7,044
-------------- --------------
Total Interest Income 5,971,608 6,196,542
-------------- --------------
Interest Expense:
NOW And Money Market Accounts 588,866 491,682
Passbook Accounts 54,520 62,193
Certificate Accounts 1,295,183 1,807,157
Advances And Other Borrowed Money 608,019 562,253
-------------- --------------
Total Interest Expense 2,546,588 2,923,285
-------------- --------------
Net Interest Income 3,425,020 3,273,257
Provision For Loan Losses 450,000 500,000
-------------- --------------
Net Interest Income After Provision For
Loan Losses 2,975,020 2,773,257
-------------- --------------
Other Income:
Net Gain On Sale Of Investments - 1,487
Gain On Sale Of Loans 550,879 556,542
Loan Servicing Fees 47,958 45,394
Service Fees On Deposit Accounts 346,400 310,099
Other 162,513 140,814
-------------- --------------
Total Other Income 1,107,750 1,054,336
-------------- --------------
General And Administrative Expenses:
Salaries And Employee Benefits 1,488,493 1,504,688
Occupancy 194,220 219,309
Advertising 65,680 31,978
Depreciation And Maintenance Of Equipment 265,082 279,999
FDIC Insurance Premiums 13,210 12,411
Amortization Of Intangibles - 116,310
Other 570,254 544,732
-------------- --------------
Total General And Administrative Expenses 2,596,939 2,709,427
-------------- --------------
Income Before Income Taxes 1,485,831 1,118,166
Provision For Income Taxes 558,936 426,665
-------------- --------------
Net Income $ 926,895 $ 691,501
============== ==============
Basic Net Income Per Common Share $ 0.55 $ 0.41
============== ==============
Diluted Net Income Per Common Share $ 0.54 $ 0.40
============== ==============
Cash Dividend Per Share On Common Stock $ 0.02 $ 0.02
============== ==============
Basic Weighted Average Shares Outstanding 1,672,989 1,671,459
============== ==============
Diluted Weighted Average Shares Outstanding 1,706,199 1,708,146
============== ==============
See accompanying notes to consolidated financial statements.
2
Security Federal Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
Nine Months Ended December 31,
--------------------------------
2002 2001
-------------- --------------
Interest Income:
Loans $ 12,962,885 $ 14,962,200
Mortgage-Backed Securities 2,518,112 2,084,371
Investment Securities 2,454,840 1,600,455
Other 38,709 73,176
-------------- --------------
Total Interest Income 17,974,546 18,720,202
-------------- --------------
Interest Expense:
NOW And Money Market Accounts 1,847,175 1,781,343
Passbook Accounts 188,136 221,552
Certificate Accounts 3,838,951 5,981,996
Advances And Other Borrowed Money 1,722,605 1,693,965
-------------- --------------
Total Interest Expense 7,596,867 9,678,856
-------------- --------------
Net Interest Income 10,377,679 9,041,346
Provision For Loan Losses 1,350,000 925,000
-------------- --------------
Net Interest Income After Provision
For Loan Losses 9,027,679 8,116,346
-------------- --------------
Other Income:
Net Gain On Sale Of Investments 4,245 2,612
Gain On Sale Of Loans 1,176,879 1,172,114
Loan Servicing Fees 149,010 146,873
Service Fees On Deposit Accounts 947,962 875,137
Other 511,211 397,314
-------------- --------------
Total Other Income 2,789,307 2,594,050
-------------- --------------
General And Administrative Expenses:
Salaries And Employee Benefits 4,436,241 4,413,265
Occupancy 594,443 617,151
Advertising 183,747 99,854
Depreciation And Maintenance Of Equipment 783,671 849,675
FDIC Insurance Premiums 39,060 35,479
Amortization Of Intangibles 185,210 348,930
Other 1,637,661 1,464,977
-------------- --------------
Total General And Administrative Expenses 7,860,033 7,829,331
-------------- --------------
Income Before Income Taxes 3,956,953 2,881,065
Provision For Income Taxes 1,499,117 1,083,508
-------------- --------------
Net Income $ 2,457,836 $ 1,797,557
============== ==============
Basic Net Income Per Common Share $ 1.47 $ 1.08
============== ==============
Diluted Net Income Per Common Share $ 1.44 $ 1.05
============== ==============
Cash Dividend Per Share On Common Stock $ 0.06 $ 0.06
============== ==============
Basic Weighted Average Shares Outstanding 1,672,614 1,671,034
============== ==============
Diluted Weighted Average Shares Outstanding 1,708,903 1,706,500
============== ==============
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 - - - - 1,797,557 1,797,557
Other Comprehensive
Income, Net Of Tax:
Unrealized Holding
Gains On Securities
Available For Sale - - - 261,131 - 261,131
------------
Comprehensive Income 2,058,688
Decrease In Indirect
Guarantee of ESOP Debt - - 56,703 - - 56,703
Cash Dividends ($.04 per
share) - - - - (101,055) (101,055)
-------- ---------- ---------- ---------- ------------ ------------
Balance at
December 31, 2001 $ 16,842 $3,985,312 $ (358,297) $ 609,146 $ 21,261,697 $ 25,514,700
======== ========== ========== ========== ============ ============
Beginning Balance At
March 31, 2002 $ 16,842 $3,985,312 $ (358,297) $ (183,335) $ 21,940,041 $ 25,400,563
Net Income - - - - 2,457,836 2,457,836
Other Comprehensive
Income, Net Of Tax:
Unrealized Holding
Gains On Securities
Available For Sale - - - 2,067,873 - 2,067,873
------------
Comprehensive Income 4,525,709
Increase In Indirect
Guarantee of ESOP Debt - - (4,957) - - (4,957)
Exercise Of Stock
Options 23 18,473 - - - 18,496
Cash Dividends ($.04 per
share) - - - - (101,079) (101,079)
-------- ---------- ---------- ---------- ------------ ------------
Balance at
December 31, 2002 $ 16,865 $4,003,785 $ (363,254) $1,884,538 $ 24,296,798 $ 29,838,732
======== ========== ========== ========== ============ ============
See accompanying notes to consolidated financial statements.
4
Security Federal Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended December 31,
--------------------------------
2002 2001
-------------- --------------
Cash Flows From Operating Activities:
Net Income $ 2,457,836 $ 1,797,557
Adjustments To Reconcile Net Income To Net
Cash Provided By Operating Activities:
Depreciation Expense 666,358 737,844
Amortization Of Intangibles 185,210 348,930
Discount Accretion And Premium
Amortization 140,907 (3,878)
Provisions For Losses On Loans And Real
Estate 1,350,000 925,000
Gain On Sale Of Investment Securities
Available For Sale (4,425) (2,612)
Gain On Sale Of Loans (1,176,879) (806,943)
(Gain) Loss On Sale Of Real Estate (52,467) 1,681
Amortization Of Deferred Fees On Loans (153,665) (163,602)
Proceeds From Sale Of Loans Held For Sale 58,799,638 68,600,336
Origination Of Loans For Sale (57,415,125) (67,575,035)
(Increase) Decrease In Accrued Interest
Receivable:
Loans 129,284 112,446
Mortgage-Backed Securities (142,768) (68,331)
Investments (108,896) 72,901
Decrease In Advance Payments By Borrowers (99,905) (215,724)
(Gain) Loss On Disposition Of Premises
And Equipment 681 (330)
Other, Net (668,571) (831,514)
-------------- --------------
Net Cash Provided By Operating Activities 3,907,213 2,928,726
-------------- --------------
Cash Flows From Investing Activities:
Principal Repayments On Mortgage-Backed
Securities Held To Maturity 419,609 528,311
Principal Repayments On Mortgage-Backed
Securities Available For Sale 20,026,904 13,373,497
Purchase Of Investment Securities
Available For Sale (67,041,485) (47,731,254)
Purchase Of Mortgage-Backed Securities
Available For Sale (61,090,188) (27,228,672)
Maturities Of Investment Securities
Available For Sale 52,666,270 26,927,070
Maturities of Investment Securities
Held To Maturity 85,835 -
Proceeds From Sale of Securities
Available For Sale 985,938 3,075,600
Purchase Of FHLB Stock (276,200) -
Redemption Of FHLB Stock 291,900 761,700
Increase In Loans To Customers (5,398,479) (10,613,084)
Proceeds From Sale Of Real Estate
Acquired Through Foreclosure 630,117 75,800
Purchase And Improvement Of Premises
And Equipment (878,673) (260,484)
-------------- --------------
Net Cash Used By Investing Activities (59,578,452) (41,091,516)
-------------- --------------
Cash Flows From Financing Activities:
Increase In Deposit Accounts 32,585,439 37,211,580
Proceeds From FHLB Advances 77,525,000 59,000,000
Repayment Of FHLB Advances (57,561,000) (63,046,000)
Net Proceeds Of Other Borrowings (1,205,157) 871,771
Dividends To Shareholders (101,079) (101,055)
Proceeds From Excise of Stock Options 18,496 -
-------------- --------------
Net Cash Provided By Financing Activities 51,261,699 33,936,296
-------------- --------------
(Continued)
5
Security Federal Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended December 31,
--------------------------------
2002 2001
-------------- --------------
Net Decrease In Cash And Cash Equivalents (4,409,540) (4,226,494)
Cash And Cash Equivalents At Beginning
Of Period 11,528,411 12,616,129
-------------- --------------
Cash And Cash Equivalents At End Of Period $ 7,118,871 $ 8,389,635
============== ==============
Supplemental Disclosure Of Cash Flows
Information:
Cash Paid During The Period For Interest $ 7,733,268 $ 10,084,131
Cash Paid During The Period For Income Taxes $ 2,086,455 $ 1,397,883
Additions To Repossessed Acquired Through
Foreclosure $ 593,900 $ 242,981
Increase (Decrease) In Unrealized Net Gain
On Securities Available For Sale, Net
Of Taxes $ 2,067,873 $ 261,131
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 nine-month
periods ended December 31, 2002 are not necessarily indicative of the results
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 this 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 December 31, 2002 and March 31, 2002 consisted of
the following:
Loans held for sale were $1,958,284 and $2,165,918 at December 31, 2002 and
March 31, 2002, respectively.
Loans Held For Investment: December 31, 2002 March 31, 2002
----------------- --------------
Residential Real Estate $ 101,131,183 $ 100,065,942
Consumer 46,780,480 49,851,549
Commercial Business & Real Estate 104,263,756 97,396,184
----------------- --------------
252,175,419 247,313,675
----------------- --------------
Less:
Allowance For Possible Loan Loss 4,696,061 3,689,079
Loans In Process 11,612,658 11,287,518
Deferred Loan Fees 158,756 184,128
----------------- --------------
16,467,475 15,160,725
----------------- --------------
$ 235,707,944 $ 232,152,950
================= ==============
The following is a reconciliation of the allowance for loan losses for the
nine months ending:
December 31, 2002 March 31, 2002
----------------- --------------
Beginning Balance $ 3,689,079 $ 2,784,117
Provision 1,350,000 925,000
Charge-offs (593,505) (506,460)
Recoveries 250,487 115,118
----------------- --------------
Ending Balance $ 4,696,061 $ 3,317,775
================= ==============
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, 2002 Amortized Unrealized Unrealized
- ----------------- Cost Gains Losses Fair Value
------------ ---------- ---------- ------------
US Government and Agency
Obligations $ 77,521 $ 361 $ - $ 77,882
Mortgage-Backed Securities 953,061 57,599 - 1,010,660
------------ ---------- ---------- ------------
Total $ 1,030,582 $ 57,960 $ - $ 1,088,542
============ ========== ========== ============
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
December 31, 2002 Amortized Unrealized Unrealized
- ----------------- Cost Gains Losses Fair Value
------------ ---------- ---------- ------------
US Government and Agency
Obligations $ 75,569,550 $1,020,153 $ 25,866 $ 76,563,837
Mortgage-Backed Securities 96,404,404 2,056,570 13,240 98,447,734
------------ ---------- ---------- ------------
Total $171,973,954 $3,076,723 $ 39,106 $175,011,571
============ ========== ========== ============
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:
December 31, 2002 March 31, 2002
------------------- --------------------
Demand Accounts: Balance Rate Balance Rate
------------------- --------------------
Checking $ 74,466,303 0.50% $ 71,906,832 0.58%
Money Market 88,537,832 2.21% 74,074,781 2.73%
Regular Savings 15,471,216 1.22% 15,106,897 1.75%
------------ ------------
Total Demand Accounts 178,475,351 1.41% 161,088,510 1.68%
------------ ------------
Certificate Accounts:
0 - 4.99% 148,870,651 127,067,831
5.00 - 6.99% 14,139,623 19,982,399
7.00 - 8.99% 137,416 898,862
------------ ------------
Total Certificate Accounts 163,147,690 3.07% 147,949,092 3.59%
------------ ------------
Total Deposit Accounts $341,623,041 2.20% $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:
December 31, 2002 March 31, 2002
------------------- --------------------
Fiscal Year Due: Balance Rate Balance Rate
------------------- --------------------
2003 $ 5,000,000 6.40% $ 5,000,000 6.40%
2004 10,000,000 1.45% - -
2005 10,072,000 6.14% 10,108,000 6.15%
2006 18,000,000 5.98% 18,000,000 5.98%
Thereafter 10,000,000 3.09% - -
------------ ------------
Total Advances $ 53,072,000 4.65% $ 33,108,000 6.09%
============ ============
7. Regulatory Matters
The following table reconciles the Bank's Shareholders' equity to its various
regulatory capital positions:
December 31, 2002 March 31, 2002
(Dollars in Thousands)
-----------------------------------
Bank's Shareholders' Equity $ 29,990 $ 25,463
Unrealized Loss On Available For Sale
Of Securities, Net Of Tax (1,884) 183
Reduction For Goodwill And Other
Intangibles - (185)
------------ ------------
Tangible Capital 28,106 25,461
Qualifying Core Deposits And Intangible
Assets - 185
------------ ------------
Core Capital 28,106 25,646
Supplemental Capital 2,972 2,879
Assets Required To Be Deducted (158) (237)
------------ ------------
Risk-Based Capital $ 30,920 $ 28,288
============ ============
The following table compares the Bank's capital levels relative to the
applicable regulatory requirements at December 31, 2002.
(Dollars in Thousands)
----------------------------------------------------
Amt. % Actual Actual Excess Excess
Required Required Amt. % Amt. %
----------------------------------------------------
Tangible Capital $ 8,608 2.0% $28,106 6.53% $19,498 4.53%
Tier 1 Leverage (Core)
Capital 17,217 4.0% 28,106 6.53% 10,889 2.53%
Total Risk-Based Capital 19,013 8.0% 30,920 13.01% 11,907 5.01%
Tier 1 Risk-Based (Core)
Capital 9,511 4.0% 28,106 11.82% 18,595 7.82%
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, 2002 are
as follows:
To Be
Well Capitalized
(Dollars in Thousands) For Capital Under Prompt
Adequacy Corrective Action
Actual Purposes Provisions
-----------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------
Tier I Risk-Based Core
Capital $28,106 11.8% $ 9,511 4.0% $14,267 6.0%
Risk-Based Capital (To
Risk Weighted Assets) 30,920 13.0% 19,013 8.0% 23,766 10.0%
Core Capital (To Ad-
justed Tangible Assets) 28,106 6.5% 17,217 4.0% 21,521 5.0%
Tangible Capital (To
Tangible Assets) 28,106 6.5% 8,608 2.0% 21,521 5.0%
8. Earnings Per Share
The Company calculates earnings per share in accordance with Statement of
Accounting Standards ("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.
THE FOLLOWING TABLE PROVIDES A RECONCILIATION OF THE NUMERATORS AND
DENOMINATORS OF THE BASIC AND DILUTED EPS COMPUTATIONS:
For the Quarter Ended
----------------------------------------
December 31, 2002
----------------------------------------
Income
(Numerator) Shares
Amount (Denominator) Per Share
---------- --------- ---------
Basic EPS $ 926,895 1,672,989 $ 0.55
Effect of Diluted
Securities:
Stock Options - 21,297 (0.01)
ESOP - 11,913 -
---------- --------- ---------
Diluted EPS 926,895 1,706,199 $ 0.54
For the Quarter Ended
----------------------------------------
December 31, 2001
----------------------------------------
Income
(Numerator) Shares
Amount (Denominator) Per Share
---------- --------- ---------
Basic EPS $ 691,501 1,671,459 $ 0.41
Effect of Diluted
Securities:
Stock Options - 23,946 (0.01)
ESOP - 12,741 -
---------- --------- ---------
Diluted EPS $ 691,501 1,708,146 $ 0.40
10
Security Federal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited), Continued
8. Earnings Per Share, Continued
For the Nine Months Ended
----------------------------------------
December 31, 2002
----------------------------------------
Income
(Numerator) Shares
Amount (Denominator) Per Share
---------- --------- ---------
Basic EPS $2,457,836 1,672,989 $ 1.47
Effect of Diluted
Securities:
Stock Options - 24,094 (0.02)
ESOP - 11,820 (0.01)
---------- --------- ---------
Diluted EPS $2,457,836 1,708,903 $ 1.44
For the Nine Months Ended
----------------------------------------
December 31, 2001
----------------------------------------
Income
(Numerator) Shares
Amount (Denominator) Per Share
---------- --------- ---------
Basic EPS $1,797,557 1,671,034 $ 1.08
Effect of Diluted
Securities:
Stock Options - 22,300 (0.02)
ESOP - 13,166 (0.01)
---------- --------- ---------
Diluted EPS $1,797,557 1,706,500 $ 1.05
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 $55.5 million or 14.7% during the nine
months ended December 31, 2002 as a result of primarily to increases of $57.1
million or 48.1% in total investment securities offset in part by a $4.4
million, or 38.3% decrease in cash and cash equivalents.
Residential real estate loans, net of loans in process, increased $740,000 or
1.0% during the period while consumer and commercial loans increased a total
of $3.8 million or 2.6%.
Repossessed assets increased $27,000 to $126,000 during the nine months ended
December 31, 2002.
Non-accrual loans totaled $1.1 million at December 31, 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. At December 31, 2002, the Bank held
$1.5 million in impaired loans compared to $897,000 at March 31, 2002. The
Bank includes troubled debt restructuring ("TDR") within the meaning of SFAS
No. 114 in impaired loans. At December 31, 2002, the Bank had seven loans
totaling $962,000 in TDR's compared to $622,000 at March 31, 2002. At
December 31, 2002 two commercial loan TDR's totaling $512, 000 were more than
30 days delinquent. The other five TDR's, a $60,000 consumer loan secured by
a residential dwelling, an $87,000 consumer loan also secured by a residential
dwelling, a $217,000 consumer loan secured primarily by a residential
dwelling, a $25,000 commercial unsecured line of credit and a $61,000
commercial loan secured by two rental properties were current as of December
31, 2002.
Deposits increased $32.3 million or 10.5% during the nine months ended
December 31, 2002 as a result of competitive rates offered by the Bank.
Federal Home Loan Bank (FHLB) advances increased $20.0 million or 60.3% due
to investment leverage strategies employed to increase net interest income.
The Board of Directors declared the 46th, 47th and 48th consecutive quarterly
dividend of $.02 per share per quarter in May, August, and November 2002,
which totaled $101,000. The employee stock ownership trust of the Company
borrowed a net of $5,000 in principal on the employee stock ownership plan
loan during the nine-month period. Unrealized net gains on securities
available for sale, net of tax, increased $2.1 million during the nine months
ended December 31, 2002. The Company's net income for the nine months was
$2.5 million. These items combined to increase shareholders' equity by $4.4
million or 17.5% during the nine months ended December 31, 2002. Book value
per share was $17.82 at December 31, 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 nine months ended December
31, 2002 was approximately 38%. 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 nine months ended December 31,
2002, loan disbursements exceeded loan repayments resulting in a $3.3 million
or 1.4% 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, 2002, deposits increased
$32.3 million while FHLB advances increased $20.0 million. The Bank had $54.7
million in additional borrowing capacity at the FHLB at the end of the period.
At December 31, 2002, the Bank had $128.9 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 December 31,
2002, we had $24.4 million in unused consumer lines of credit, including home
equity lines and unsecured lines. The Bank also had $6.8 million in unused
commercial lines of credit committed to customers. The majority of the $31.2
million will never be drawn at the same time. 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.
In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123.
This Statement amends FASB Statement 123, Accounting for Stock Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
of Statement 123 to require prominent disclosure in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
Company adopted this statement effective December 31, 2002. The disclosure
required by this standard will be included in the Company's next quarterly
filing. SFAS No. 148 had no impact upon adoption as the Company has not
elected the fair value treatment of stock-based compensation.
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 DECEMBER 31, 2002
- ------------------------------------------------------------------
Net Income
Net income was $927,000 for the three months ended December 31, 2002,
representing an increase in earnings of $235,000 or 34.0% from $692,000 for
the same period in 2001.
Net Interest Income
Net interest income increased $152,000 or 4.6% to $3.4 million during the
three months ended December 31, 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 $57.5 million while interest bearing
liabilities increased $52.8 million. The interest rate spread decreased 28
basis points to 3.13% during the three months ending December 31, 2002
compared to the same period in 2001.
Interest income on loans decreased $631,000 or 12.9% to $4.3 million during
the three months ended December 31, 2002 as a result of the yield in the loan
portfolio decreasing 76 basis points and the loan portfolio average balance
decreasing by $9.0 million. Investment, mortgage-backed, and other securities
interest income increased $406,000 or 31.7% due to an increase in the average
balances of approximately $66.5 million in the investment portfolio despite a
103 basis points decrease in the average yield in the portfolio. Total
interest income decreased $225,000 or 3.6% to $6.0 million from $6.2 million
for the same period in 2001.
Total interest expense decreased $377,000 or 12.9% to $2.5 million during the
three months ended December 31, 2002 compared to $2.9 million for the same
period one-year earlier. Interest expense on deposits decreased $617,000 or
26.1% during the period as average interest bearing deposits grew $44.9
million compared to the average balance in 2001 while the cost of deposits
decreased 102 basis points. Interest expense on advances and other borrowings
increased $46,000 or 8.1% as the cost of debt outstanding decreased 52 basis
points during the 2002 period compared to 2001 while the average debt
outstanding increased approximately $7.9 million.
Provision for Loan Losses
The Bank's provision for loan losses was $450,000 during the three months
ended December 31, 2002 compared $500,000 for the quarter ending December 31,
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 $1.1 million at December 31, 2002 compared to
$1.4 million at March 31, 2002. The ratio of allowance for loan losses to the
Company's total loans was 1.94% at December 31, 2002 compared to 1.55% March
31, 2002. Net charge-offs were $177,000 during the three months ended
December 31, 2002 compared to $162,000 during the same period in 2001.
Other Income
Total other income increased $53,000 or 5.1% to $1.1 million during the three
months ended December 31, 2002 compared to the same period a year ago. Gain
on sale of loans decreased $6,000 to $551,000, loan servicing fees increased
$3,000 and service fees on deposit accounts increased $36,000. 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
$22,000 during the three months ended December 31, 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 DECEMBER 31, 2002, CONTINUED
- -----------------------------------------------------------------------------
General and Administrative Expenses
General and administrative expenses decreased $112,000 or 4.2% to $2.6 million
during the three months ended December 31, 2002 compared to the same period in
2001. Salaries and employee benefits expense declined $16,000 due to a
decrease in full time equivalents. Occupancy expense decreased $25,000,
advertising expense increased $34,000 while the depreciation and maintenance
of equipment expense decreased $15,000 during the quarterly period. FDIC
insurance premiums increased slightly to $13,000 during the current quarter.
The amortization of intangibles expense decreased $116,000 to $0 during the
quarter. At December 31, 2002, the Company had 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 $26,000 or 4.7% for the three months ended
December 31, 2002 compared to the three months ended December 31, 2001.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 2002
- -----------------------------------------------------------------
Net Income
Net income was $2.5 million for the nine months ended December 31, 2002,
representing an increase in earnings of $660,000 or 36.7% from $1.8 million
for the same period in 2001.
Net Interest Income
Net interest income increased $1.3 million or 14.8% to $10.4 million during
the nine months ended December 31, 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 $53.8 million while interest bearing
liabilities increased $48.7 million. The interest rate spread increased 8
basis points to 3.32% during the nine months ending December 31, 2002 compared
to the same period in 2001.
Interest income on loans decreased $2.0 million or 13.4% to $13.0 million
during the nine months ended December 31, 2002 as a result of the yield in the
loan portfolio decreasing 94 basis points, as the loan portfolio average
balances decreased $5.5 million. Investment, mortgage-backed, and other
securities interest income increased $1.3 million or 33.4% due to an increase
in the average balance of approximately $62.0 million in the investment
portfolio despite a 106 basis points decrease in the average yield in the
portfolio. Total interest income decreased $746,000 or 4.0% to $18.0 million
during the nine months compared to the same period in 2001.
Total interest expense decreased $2.1 million or 21.5% to $7.6 million during
the nine months ended December 31, 2002 compared to the same period one-year
earlier. Interest expense on deposits decreased $2.1 million or 26.4% during
the period as interest bearing deposits grew $43.2 million compared to the
average balance in 2001 while the cost of deposits decreased 150 basis points.
Interest expense on advances and other borrowings increased $29,000 as the
cost of debt outstanding decreased 62 basis points during the 2002 period
compared to 2001 despite the average debt outstanding increasing approximately
$5.5 million.
Provision for Loan Losses
The Bank's provision for loan losses was $1.4 million during the nine months
ended December 31, 2002 compared to $925,000 during the nine months ended
December 31, 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 $1.1 million at December 31, 2002
compared to $1.4 million at March 31, 2002. The ratio of allowance for loan
losses to the Company's total loans was 1.94% at December 31, 2002 and 1.55%
at March 31, 2002. Net charge-offs were $343,000 during the nine months ended
December 31, 2002 compared to $391,000 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 NINE MONTHS ENDED DECEMBER 31, 2002, CONTINUED
- ----------------------------------------------------------------------------
Other Income
Total other income increased $195,000 or 7.5% to $2.8 million during the nine
months ended December 31, 2002 compared to the same period one-year earlier.
Gain on sale of loans increased $5,000 at $1.2 million as the volume of fixed
rate mortgage loans originated and sold remained high as the low interest rate
environment continued. Service fees on deposit accounts grew $73,000 as the
number of commercial and personal demand deposit accounts increased. The Bank
has concentrated on reducing the number of waived service charges. 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 $114,000 during
the nine months ended December 31, 2002.
General and Administrative Expenses
General and administrative expenses increased $31,000 during the nine months
ended December 31, 2002 compared to the same period in 2001. Salaries and
employee benefits expense increased $23,000 or 1.0% due to normal annual
salary increases. Occupancy expense decreased by $23,000, advertising expense
increased $84,000 while the depreciation and maintenance of equipment expense
decreased $66,000 during the nine month period. FDIC insurance premiums
increased slightly to $39,000 during the nine month period ending December 31,
2002. The amortization of intangibles expense decreased $164,000 during the
nine months period. At December 31, 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 $173,000 or 11.8% for
the nine months ended December 31 2002 compared to the nine months ended
December 31, 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 OTS 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 nine month periods ended December 31, 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 3.13% and
3.32%, respectively. As of the year ended March 31, 2002, the interest rate
spread was 3.48%. The interest rate spread has decreased due to investment
securities growing faster than loan receivables. Loan receivables earn a
higher yield 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 December 31, 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
---------------------------------------------------
None
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.
(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.
18
Security Federal Corporation and Subsidiaries
Other Information, Continued
(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
/s/Timothy W. Simmons
Date: February 7, 2003 By: ------------------------------------
Timothy W. Simmons
President
Duly Authorized Representative
/s/Roy G. Lindburg
Date: February 7, 2003 By: ------------------------------------
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
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 not 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: February 6, 2003
/s/Timothy W. Simmons
---------------------------------
Timothy W. Simmons
President and Chief Executive Officer
20
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
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 not 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: February 6, 2003
/s/Roy G. Lindburg
---------------------------------
Roy G. Lindburg
Chief Financial Officer
21
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: February 6, 2003