U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
- - --- of 1934
For the quarterly period ended September 30, 1998.
Transition report under Section 13 or 15(d) of the Exchange Act
- - ---
For the transition period from to
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Commission file number 0-22553
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SECURITY BANCORP, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Tennessee 62-1682697
- - --------------------------------------- ------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
306 West Main Street, McMinnville, TN 37110
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(Address of Principal Executive Offices)
(931) 473-4483
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(Issuer's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
X Yes No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date:
436,425 shares outstanding on September 30, 1998
Transitional Small Business Disclosure Format (check one):
Yes X No
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1
Security Bancorp, Inc. and Subsidiary
McMinnville, Tennessee
INDEX
PART I Page(s)
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FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated Balance Sheets - (Unaudited)
as of December 31, 1997 and September 30, 1998 . . . . . . . . . . . 3
Consolidated Statements of Income (Unaudited)
for the nine month periods
ended September 30, 1997 and 1998. . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Stockholders' Equity (Unaudited). . . . . . 5
Consolidated Statements of Cash Flows - (Unaudited)
for the nine months ended September 30, 1997 and 1998. . . . . . . . 6
Notes to (Unaudited) Consolidated Financial Statements . . . . . . . 7-9
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . .9-14
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . .15
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . .15
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . .15
Item 4. Submission of Matters to a Vote of Security Holders. . . . . .15
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . .15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . .15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
2
ITEM 1. Financial Statements
Security Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
(Unaudited)
(in thousands except share information)
ASSETS December 31, September 30,
1997 1998
Cash & Noninterest earning deposits $ 1,896 $ 2,863
Investment Securities: held to maturity 2,455 2,574
Available for sale 1,379 1,007
Loans receivable, net 43,102 48,728
Real estate owned 5 0
Premises and equipment, net 1,103 1,586
Federal Home Loan Bank stock 550 580
Accrued interest receivable 363 523
Prepaid expenses and other assets 75 181
-------- --------
TOTAL ASSETS $ 50,928 $ 58,042
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 37,061 $ 43,636
FHLB Borrowings 6,500 6,500
Advances from Borrowers for property taxes
& insurance 59 388
Accrued interest payable 32 39
Accrued expenses and other liabilities 172 212
Federal income taxes payable 369 402
-------- --------
Total Liabilities 44,193 51,177
STOCKHOLDERS' EQUITY
Common stock (436,425 shares, $.01 par value,
issued and outstanding) 4 4
Paid-in capital 4,076 4,101
Treasury stock, at cost 0 (295)
Retained earnings 2,763 3,088
Unrealized gain on securities available for sale,
net of income taxes 230 278
Employee Stock Ownership Plan (ESOP) borrowing (338) (311)
-------- --------
Total stockholders' equity 6,735 6,865
-------- --------
Total Liabilities and stockholders' equity $ 50,928 $ 58,042
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3
Security Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)
(in thousands, except per share information)
For Three Months For Nine Months
Ended September 30, Ended September 30,
1997 1998 1997 1998
INTEREST INCOME:
Loans $ 908 $ 1,058 $2,595 $3,064
Investments 65 66 200 183
Interest earning deposits 3 9 7 23
----- ------ ------ ------
Total interest income 976 1,133 2,802 3,270
INTEREST EXPENSE:
Deposits 430 478 1,292 1,366
Advances 82 107 290 323
----- ------ ------ ------
Interest Expense 512 585 1,582 1,689
Provision for loan losses 15 15 45 45
----- ------ ------ ------
Net interest income after
provision for loan losses 449 533 1,175 1,536
NON-INTEREST INCOME:
Other 112 203 265 460
----- ------ ------ ------
Total non-interest income 112 203 265 460
NON-INTEREST EXPENSES
Compensation 118 187 326 472
Other employee benefits 43 69 113 166
Net occupancy expense 52 66 128 223
Deposit insurance premiums 6 6 17 17
Data processing 26 38 83 117
Other 98 135 279 286
----- ------ ------ ------
Total non-interest expenses 343 501 946 1,281
Income before income taxes 218 235 494 715
Income tax expense 85 92 183 280
----- ------ ------ ------
Net income 133 143 311 435
Other comprehensive income, net
of tax: (See Note 4)
Unrealized gains (losses) on
securities:
Unrealized holding gains
(losses) arising for the
three month period, before
tax $10 for 1997 and $27
for 1998, and for the nine
month period, before tax
$74 for 1997 and $77 for
1998 6 17 46 48
----- ------ ------ ------
Comprehensive income $ 139 $ 160 $ 357 $ 483
===== ====== ====== ======
Weighted average shares
outstanding: (See Note 3) 401,511 403,257 N/A 403,257
Basic earnings per share .33 $ .35 N/A $ 1.08
The accompanying notes are an integral part of these consolidated financial
statements.
4
SECURITY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
(Unaudited)
(in thousands, except share information)
Unrealized
Common Paid-in Retained Gain on ESOP Treasury
Stock Capital Earnings Securities Borrowing Stock Total
Balance at
12/31/97
$4 $4,076 $2,763 $230 $ (338) $0 $6,735
Treasury Stock,
at cost -- -- -- -- -- (295) (295)
Net Income -- -- 435 -- -- -- 435
Unrealized gain
On securities
Available for -- -- -- 48 -- -- 48
Sale, net of
Income taxes
Dividend -- -- (110) -- -- -- (110)
ESOP shares
Earned -- 25 -- -- 27 -- 52
---- ------ ------ ---- ----- ----- ------
Balance at
9/30/98 $ 4 $4,101 $3,088 $278 $(311) $(295) $6,865
==== ====== ====== ==== ===== ===== ======
The accompanying notes are an integral part of these consolidated financial
statements.
5
Security Bancorp. Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Nine months Ended September 30,
1997 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 311 $ 435
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 43 57
Dividend on FHLB stock (28) (30)
Provision for loan losses 45 45
(Increase) decrease in interest receivable 104 (160)
(Increase) decrease in other assets (14) (106)
Increase (decrease) in accrued liabilities (40) 47
Increase (decrease) in income taxes payable 128 (25)
Increase (decrease) in deferred taxes payable 28 58
Sale of mortgage loans held for sale 4,289 8,864
Originations of mortgage loans held for sale (4,477) (9,348)
Total adjustments 78 (598)
------ ------
Net cash provided by operating activities 389 (163)
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations net of principal payments (4,974) (5,177)
Purchase of:
Available for sale - investment securities (250) -
Held to maturity - investment securities (748) (3,134)
Proceeds from sale of:
Available for sale - investment securities - 450
Available for sale - mortgage-backed securities - -
Proceeds from maturities and repayments of:
Held to maturity investment securities 1,000 2,500
Held to maturity mortgage-backed securities 227 532
Cash payments for the purchase of property (117) (541)
------ ------
Net cash provided (used) by investing activities (4,862) (5,370)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts 654 6,575
Repayment of FHLB advances (150) -
Net increase (decrease) in escrow accounts 307 329
Net proceeds from issuance of capital stock 3,715 -
Payment of cash dividend - (109)
Treasury stock purchased - (295)
------ ------
Net cash provided (used) by financing activities 4,526 6,500
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 53 967
CASH AND EQUIVALENTS, BEGINNING OF YEAR 1,098 1,896
------ ------
CASH AND EQUIVALENTS, END OF PERIOD $ 1,151 $ 2,863
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest expense $ 1,581 $ 1,689
Income taxes $ 84 $ 273
The accompanying notes are an integral part of these consolidated financial
statements.
6
Security Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
1. SECURITY BANCORP, INC.
Security Bancorp, Inc. (the "Company"), a Tennessee corporation, is the
savings and loan holding company for Security Federal Savings Bank of
McMinnville, TN (the "Savings Bank"). The Savings Bank converted from a
federally chartered mutual savings bank to a federally chartered stock savings
bank effective June 30, 1997 (the "Conversion").
The consolidated financial statements included herein are for the Company and
the Savings Bank.
2. BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and, therefore, do not include
all disclosures necessary for a complete presentation of the consolidated
balance sheets, consolidated statements of income, consolidated statements of
stockholders' equity, and consolidated statements of cash flows in conformity
with generally accepted accounting principles. However, all adjustments which
are, in the opinion of management, necessary for the fair presentation of the
interim financial statements have been included. All such adjustments are of
a normal recurring nature. The statements of income for the three and nine
month period ended September 30, 1998 are not necessarily indicative of the
results which may be expected for the entire year.
The unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto for the
Company for the year ended December 31, 1997.
3. EARNINGS PER SHARE
Earnings per share has been computed for the three and nine months ended
September 30, 1998 based upon weighted average common shares outstanding of
403,257. Earnings per share for the nine months ended September 30, 1997 is
not meaningful because the Company did not complete its initial stock offering
until June 30, 1997.
Statement of Financial Accounting Standards No. 128, Earnings Per Share,
established new standards for computing and presenting earnings per share.
The standard is effective for annual and interim periods ending after December
15, 1997. This standard had no impact on the computation of the Company's
earnings per share upon adoption.
4. COMPREHENSIVE INCOME
The Company has adopted FASB Statement No. 130, Reporting Comprehensive
Income. Statement No. 130 requires the reporting of comprehensive income in
addition to net income from operations. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income.
7
5. STOCKHOLDERS' EQUITY
In connection with the Conversion, the Company issued and sold 436,425 shares
of common stock at a price of $10.00 per share for total net proceeds of
approximately $4.1 million after conversion expenses of approximately
$300,000. The Company retained $406,000 of the net proceeds and used the
remaining net proceeds to purchase the newly issued capital stock of the
Savings Bank.
The ability of the company to pay dividends depends primarily on the ability
of the Savings Bank to pay dividends to the Company. The Savings Bank may not
declare or pay a cash dividend if the effect thereof would cause its net worth
to be reduced below either the amounts required for the liquidation account
discussed below or the regulatory capital requirements imposed by federal and
state regulations. An annual cash dividend of 25 cents per share was declared
for shareholders of record as of the close of business on May 31, 1998. The
cash dividend was paid on July 1, 1998 and represented the first dividend
since becoming a public company. On September 9, 1998, the holding company
repurchased 17,457 shares of its outstanding common stock at a total cost of
$294,589 to be reissued in future periods as awards to participants in the
Company's Management Development and Recognition Plan, which was approved by
stockholders at the Company's Annual Meeting of Stockholders this past April.
In addition, on July 1, 1998 and September 9, 1998, the Board of Directors of
the Savings Bank declared an upstream dividend of $150,000 and $300,000,
respectively to the Company.
As required by the regulations of the Office of Thrift Supervision (OTS), at
the time of Conversion, the Savings Bank established a liquidation account in
an amount equal to its retained earnings as reflected in the latest balance
sheet used in the final conversion prospectus. The liquidation account is
maintained for the benefit of eligible account holders who continue to
maintain their deposit accounts in the Savings Bank after conversion. In the
event of a complete liquidation of the Savings Bank (and only in such an
event), eligible depositors who continue to maintain accounts shall be
entitled to receive a distribution from the liquidation account before any
liquidation may be made with respect to the Company's common stock.
6. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
As part of the Conversion discussed in Note 5, the Savings Bank established an
Employee Stock Ownership Plan (ESOP) for the benefit of all employees who have
attained the age of 21 and have been credited with at least 1000 hours of
service during a 12-month period. The ESOP borrowed approximately $349,000
from the Company and used the funds to purchase 34,914 shares of common stock
of the Company issued in the Conversion. The loan will be repaid principally
from the Company's discretionary contributions to the ESOP over a period of 10
years. On September 30, 1998, the loan had an outstanding balance of
approximately $311,000 and an interest rate of 8.50%. The loan obligation of
the ESOP is considered unearned compensation and, as such, recorded as a
reduction of the Company's stockholders' equity. Both the loan obligation and
the unearned compensation are reduced by an amount of the loan repayments made
by the ESOP. Shares purchased with the loan proceeds are held in a suspense
account for allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account are
allocated among participants on the basis of compensation in the year of
allocation. Benefits become fully vested at the end of six years of service
under the terms of the ESOP Plan. Benefits may be payable upon retirement,
death, disability, or separation from service.
Since the Savings Bank's annual contributions are discretionary, benefits
payable under the
8
ESOP cannot be estimated. Compensation expenses are recognized to the extent
of the fair value of shares committed to be released. For the three and nine
months ending September 30, 1998, compensation expense was approximately
$15,000 and $43,000, respectively. Compensation is recognized at the average
fair value of the ratably released shares during the accounting period as the
employees performed services. At September 30, 1998, the ESOP had 1,746
allocated shares and 33,168 unallocated shares.
The ESOP administrators will determine whether dividends on allocated and
unallocated shares will be used for debt service. Any allocated dividends
used will be replaced with common stock of equal value. For the purpose of
computing earnings per share, all ESOP shares committed to be released have
been considered outstanding.
7. ASSET QUALITY
At September 30, 1998, the Company had total nonperforming loans (i.e., loans
which are contractually past due 90 days or more) of approximately $276,000.
As a percentage of net loans receivable at September 30, 1998, nonperforming
loans was .6%. Total nonperforming assets as a percentage of total assets at
September 30, 1998 were .5%.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The following discussion and analysis is intended to assist in understanding
the consolidated financial condition and the consolidated results of
operations of the Company. References to the "Company" include Security
Bancorp, Inc. and/or Security Federal Savings Bank of McMinnville, TN, as
appropriate.
Comparison of Financial Condition at December 31, 1997 and September 30, 1998
The Company's total consolidated assets increased by approximately $7.1
million or 14.0%, from $50.9 million at December 31, 1997 to $58.0 million at
September 30, 1998. The increase in assets for the period was primarily
attributable to an increase in loans receivable.
Loans receivable, net, were $48.7 million at September 30, 1998 compared to
$43.1 million at December 31, 1997, a 13.0% increase. This increase was
attributable to an increase in first mortgage residential loans of $2.5
million, an increase in commercial business and real estate loans of $2.2
million, and an increase in consumer loans of $1 million. The largest loan
originated during this period was a commercial line of credit loan for
$500,000 at 8.5% fixed for one year.
Deposits increased $6.6 million or 17.7%, from $37.1 million at December 31,
1997 to $43.6 million at September 30, 1998. The increase in deposits was
primarily attributable to an increase in certificates of deposit and personal
checking accounts and reflects the Company's successful focus on offering full
service banking.
9
Comparison of Results of Operations for the Three months Ended September 30,
1997 and 1998.
Net Income. Net income for the three months ended September 30, 1998 was
$143,000 compared to $133,000 for the same quarter last year. The increase
resulted from an increase in net interest income and non-interest income,
offset to a lesser degree by an increase in other expenses. The return on
average assets was 1.02% for the three months ended September 30, 1998.
Net Interest Income. Net interest income increased $84,000 or 18.7% from
$449,000 for the three months ended September 30, 1997 to $533,000 for the
three months ended September 30, 1998. The interest rate spread increased
from 3.67% for three months ending September 30, 1997 to 3.91% for the three
months ending September 30, 1998 as a result of the weighted average yield on
the loan portfolio increasing while the weighted average rate of deposits and
borrowings declined from the period a year ago.
Total interest income increased $157,000 from $976,000 for the three months
ended September 30, 1997 to $1.1 million for the three months ended September
30, 1998. Interest on loans increased $150,000 or 16.5% as a result of a $6.8
million increase in average loans outstanding substantially in residential
mortgage loans, commercial business loans, and consumer loans
Interest expense increased $73,000 from $512,000 for the three months ended
September 30, 1997 to $585,000 for the three months ended September 30, 1998.
The increase for the three months ending September 30, 1998 was the result of
an increase in the average balance of deposits which were used to fund loan
demand.
Provision for Loan Losses. Provisions for loan losses are charges to earnings
to bring the total allowance for loan losses to a level considered adequate by
management to provide for estimated loan losses based on management's
evaluation of the collectability of the loan portfolio, including past loan
loss experience, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral, and current economic
conditions. The provision for loan losses for each of the three month
periods ended September 30, 1997 and 1998 was $15,000. Historically,
management has emphasized the Company's loss experience over other factors in
establishing provisions for loan losses. Management deemed the allowance for
loan losses adequate at September 30, 1998.
Noninterest Income. Noninterest income increased 81.3% to $203,000 for the
three months ended September 30, 1998 from $112,000 for the three months ended
September 30, 1997. This increase is primarily due to gains from the sale of
residential loans increasing $28,000 in the third quarter of 1998 due to
selling $1.1 million more residential loans in the third quarter of 1998
compared to the same quarter for 1997. Noninterest income also increased as a
result of increased mortgage servicing income on loans sold and increased
service charges on deposit accounts. Additionally, noninterest income
increased as a result of management establishing a trust department that began
operations in the third quarter. Income from the trust operations was $29,000
for the three months ended September 30, 1998.
Noninterest Expense. Noninterest expenses increased 46.1% to $501,000 for the
three months ended September 30, 1998 from $343,000 for the three months ended
September 30, 1997. Compensation and benefits increased to $256,000 for the
three months ended September 30, 1998 from $161,000 for the three months ended
September 30, 1997 as a result of hiring additional personnel for the Trust
Department and hiring a Senior Consumer Lending
10
Officer. Compensation and benefits also increased as a result of the costs
associated with the ESOP and Management Recognition Program. Occupancy and
equipment expense increased to $66,000 for the three months ended September
30, 1998 from $52,000 for the same three months a year earlier as a result of
increased depreciation expense due to the opening of a new branch office.
Data processing and other expenses increased to $173,000 for the three months
ended September 30, 1998 from $124,000 for the three months ended September
30, 1997 primarily as a result of increased service bureau expense for the new
branch office and the cost associated with the formation and operation of the
Trust Department.
Income Taxes. Income tax expense for the three months ending September 30,
1998 was $92,000 compared to $85,000 for the three months ending September 30,
1997. This increase was the result of pre-tax income increasing for the
three months ending September 30, 1998.
Comparison of Results of Operations for the Nine Months Ended September 30,
1997 and 1998
Net Income. Net income for the nine months ended September 30, 1998 was
$435,000 compared to $311,000 for the nine months ended September 30, 1997, a
39.9% increase. The increase resulted from an increase in net interest income
and noninterest income, offset to a lesser degree by an increase in other
expenses. The return on average assets was 1.06% for the nine months ended
September 30, 1998 compared to .89% for the nine months ended September 30,
1997.
Net Interest Income. Net interest income increased 30.7% to $1.5 million for
the nine months ended September 30, 1998 from $1.2 million for the nine months
ended September 30, 1997, as a result of an increase in total interest income
that more than offset an increase in total interest expense.
Total interest income increased 16.7% to $3.3 mllion for the nine months ended
September 30, 1998 from $2.8 million for the same 1997 period primarily as a
result of increases in the average balance of and average yield on loans
receivable, net. The average balance on loans receivable, net increased to
$45.9 million from $39.1 million. The increases was attributable to the
increases in first mortgage residential loans, commercial business loans, and
consumer loans.
Interest expense increased 6.8% to $1,689,000 for the nine months ended
September 30, 1998 from $1,582,000 for the same 1997 period, primarily as a
result of an increase in average balances of interest-bearing deposits which
were used to fund loan demand.
Provision for Loan Losses. The provision for loan losses for each of the nine
month periods ended September 30, 1997 and 1998 was $45,000. Historically,
management has emphasized the company's loss expense over other factors in
establishing provisions for loan losses. Management deemed the allowance for
loan losses adequate at September 30, 1998.
Noninterest Income. Noninterest income increased 73.6% to $460,000 for the
nine months ended September 30, 1998 from $265,000 for the same 1997 period.
This increase is primarily due to gains from the sale of residential loans
increasing by $96,000 for the nine months ended September 30, 1998 due to
selling $2.4 million more residential loans for the nine months of 1998
compared to the same period a year ago. Noninterest income also increased as
a result of increased mortgage servicing income on loans sold and increased
service charges on deposit accounts. Additionally, noninterest income
increased as a result of management establishing a Trust Department that began
operations in the third quarter. Income from the
11
trust operations was $29,000 for the three months ended September 30, 1998.
Noninterest Expense. Noninterest expenses increased 35.4% from $1,281,000 for
the nine months ended September 30, 1998 from $946,000 for the nine months
ended September 30, 1997. Compensation and benefits increased to $638,000 for
the nine months ended September 30, 1998 from $439,000 for the nine months
ended September 30, 1997 as a result of hiring additional personnel for the
Trust Department and hiring a Senior Consumer Lending Officer. Compensation
and benefits also increased as a result of costs associated with the ESOP and
Management Recognition Program. Occupancy and equipment expense increased to
$223,000 for the nine months ended September 30, 1998 from $128,000 for the
same nine months a year earlier as a result of increased depreciation expense
due to the opening of a new branch office. Data Processing and other expenses
increased to $403,000 for the nine months ended September 30, 1998 from
$362,000 for the nine months ended September 30, 1997 primarily as a result of
increased service bureau expense for the new branch office and the cost
associated with the formation and the operating of the Trust Department.
Income Tax Expense. Income tax expense for the nine months ended September
30, 1998 was $280,000 compared to $183,000 for the same period in 1997. The
increase was the result of pre-tax income increasing by $221,000 for the nine
months ending September 30, 1998.
Liquidity and Capital Resources. The Company's primary sources of funds are
deposits and proceeds from principal and interest payments on loans. While
maturities and scheduled amortization of loans are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by
general interest rates, economic conditions and competition. The Company's
primary investing activity is loan originations. The Company maintains
liquidity levels adequate to fund loan commitments, investment opportunities,
deposit withdrawals and other financial commitments. At September 30, 1998,
the Savings Bank's liquidity ratio was 11.05% (required ratio at that date was
4% pursuant to OTS regulations). At September 30, 1998, there were no material
commitments for capital expenditures and the Company had unfunded loan
commitments of approximately $2.4 million and unfunded letters of credit of
$438,000. At September 30, 1998, management had no knowledge of any trends,
events or uncertainties that will have or are reasonably likely to have
material effects on the liquidity, capital resources or operations of the
Company. Further at September 30, 1998, management was not aware of any
current recommendations by the regulatory authorities which, if implemented,
would have such an effect.
The Company is not subject to any separate regulatory capital requirements.
The Savings Bank exceeded all of its regulatory capital requirements at
September 30, 1998. The Savings Bank had the following regulatory capital
ratios at September 30, 1998:
12
Security Federal Savings Bank
(Unaudited)
As of September Actual For Capital Categorized as
30, 1998 Adequacy Purposes "Well Capitalized" 1
Amount Ratio Amount Ratio Amount Ratio
Total Capital
(to risk weighted
assets) $ 6,523 15.96% $ 3,270 8.00% $ 4,087 10.00%
Tier I Capital
(to risk weighted
assets) 6,136 15.01% 1,635 4.00% 2,452 6.00%
Tier 1 Capital
(to adjusted total
assets) 6,136 10.62% 1,723 3.00% 2,888 5.00%
Tangible Capital
(to tangible assets) 6,136 10.62% 866 1.50% N/A ---
1. As categorized under the OTS Prompt Corrective Action Provisions.
The Year 2000 Issue. As the Year 2000 approaches, a significant undertaking
for all financial institutions exists in addressing the impact this event will
have on information systems and overall operations as the consequences for
noncompliance would be significant. The Bank has developed a plan to analyze
how the Year 2000 will impact its operations and related vendors given the
service bureau environment that the Bank operates. The Bank will continue to
monitor its status as well as its service providers' status in their efforts
to become Year 2000 compliant. Given the service bureau environment under
which the Bank operates, management does not believe the internal costs to
address the Year 2000 issue will have a material impact on future operations
other than the impact such event will have on the cost of services provided by
its vendors which is unknown at this time. Management believes that the
company has limited exposure and expects the cost of addressing the Year 2000
issue to be approximately $20,000. The Bank has implemented a contingency
plan to handle certain situations that may occur with the Year 2000.
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time, the Company and any subsidiaries may be a party to various
legal proceedings incident to its or their business. At September 30, 1998,
there were no legal proceedings to which the Company or any subsidiary was a
party, or to which of any of their property was subject, which were expected
my management to result in a material loss.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
Exhibits
3.1 Charter of Security Bancorp, Inc.*
3.2 Bylaws of Security Bancorp, Inc.*
10.1 Employment Agreement with Joe H. Pugh**
10.2 Severance Agreement with John W. Duncan**
10.3 Severance Agreement with Ray Talbert**
10.4 Security Federal Savings Bank of McMinnville, TN
401(k) Plan*
10.5 Security Federal Savings Bank of McMinnville, TN
Employee Stock Ownership Plan***
10.6 Security Bancorp, Inc. Management Recognition and
Development Plan****
10.7 Security Bancorp, Inc. 1998 Stock Option Plan****
27 Financial Data Schedule
No reports on Form 8-K were filed during the quarter ended September
30, 1998.
_____________________
* Incorporated by reference to Registrant's Registration
Statement on Form SB-2, as amended (File No. 333-6670)
** Incorporated by reference to Registrant's Form 10-QSB for the
quarter ended September 30, 1997.
*** Incorporated by reference to Registrant's Form 10-KSB for the year
ended December 31, 1997.
**** Incorporated by reference to Registrant's Annual Meeting Proxy
Statement dated March 16, 1998.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Security Bancorp, Inc.
Date: November 12, 1998 By /s/ Joe H. Pugh
-------------------------------------
Joe H. Pugh
President and Chief Executive Officer
Security Bancorp, Inc.
Date: November 12, 1998 By /s/ John W. Duncan
-------------------------------------
John W. Duncan
Chief Financial Officer
16