SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-25728
---------
Security Federal Bancorp, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 63-1134627
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2301 University Boulevard, Tuscaloosa, Alabama 35401
- ---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 345-8800
--------------
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 ninety days. Yes X No _____
-----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date. 671,469 [CONFIRM]
-----------
CONTENTS
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements Page
Independent Accountant's Report 1
Consolidated Statements of Financial Condition 2-3
December 31, 1996 (Unaudited) and September 30, 1996
Consolidated Statements of Income (Unaudited) 4-5
Three Months Ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows (Unaudited) 6-7
Three Months Ended December 31, 1996 and 1995
Notes to (Unaudited) Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial 11-16
Condition and Results of Operations
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
None [CONFIRM]
Item 2. Changes in Securities
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
Exhibit 27 Financial Data Schedule
[LETTERHEAD OF JAMISON, MONEY, FARMER & CO., P.C. APPEARS HERE]
FEBRUARY 5, 1997
BOARD OF DIRECTORS
SECURITY FEDERAL BANCORP, INC., AND SUBSIDIARY
TUSCALOOSA, ALABAMA
INDEPENDENT ACCOUNTANT'S REPORT
-------------------------------
We have reviewed the accompanying consolidated statement of financial
condition of Security Federal Bancorp, Inc., and Subsidiary, as of
December 31, 1996, and the related statements of income and cash flows
for the three month period then ended. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion. The consolidated financial statements of
Security Federal Bancorp, Inc., and Subsidiary as of December 31, 1995,
were reviewed by other accountants whose report dated January 29, 1996,
stated that they were not aware of any material modifications needed to
be made to the financial statements in order for them to be in conformity
with generally accepted accounting principles.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements as of December 31, 1996,
in order for them to be in conformity with generally accepted accounting
principles.
/s/ Jamison, Money, Farmer & Co., P.C.
--------------------------------------
Jamison, Money, Farmer & Co., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
TUSCALOOSA, ALABAMA
SECURITY FEDERAL BANCORP, INC., AND SUBSIDIARY 2
TUSCALOOSA, ALABAMA
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996, AND SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
ASSETS
------
(Unaudited)
December 31, September 30,
1 9 9 6 1 9 9 6
----------- -----------
Cash and Cash Equivalents $ 740,553 $ 611,576
Federal Home Loan Bank - Interest-Bearing Deposits 256,079 426,084
Investment Securities:
Securities available-for-sale, at fair value 3,052,813 2,984,586
Loans Held for Sale, Net of Deferred Fees 1,247,000 1,514,050
Loans Receivable - Net 66,442,284 68,510,569
Real Estate Owned - 117,217
Office Properties and Equipment 1,139,355 1,155,670
Federal Home Loan Bank Stock - at Cost 539,000 539,000
Accrued Interest and Dividends Receivable 331,476 421,300
Deferred Tax Asset 629 258,109
Other Assets 549,636 456,635
----------- -----------
TOTAL ASSETS $74,298,825 $76,994,796
=========== ===========
SEE INDEPENDENT ACCOUNTANT'S REPORT.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SECURITY FEDERAL BANCORP, INC., AND SUBSIDIARY 3
TUSCALOOSA, ALABAMA
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1996, and September 30, 1996
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
(Unaudited)
December 31, September 30,
1 9 9 6 1 9 9 6
----------- -----------
Deposits $62,728,807 $61,252,015
Checks Outstanding in Excess of Deposits - 174,177
Advances from Federal Home Loan Bank 1,585,000 2,835,000
Advances from Borrowers for Taxes and Insurance 327,923 662,689
Income and Excise Tax Payable - Current 208,485 338,073
Unremitted Collections on Mortgage Loans Serviced 203,226 299,630
Mortgage Note Payable 38,951 39,597
Accrued Expenses and Other Liabilities 327,512 771,371
----------- -----------
Total Liabilities 65,419,904 66,372,552
----------- -----------
Stockholders' Equity:
Common stock, $.01 par value, 1,900,000
shares authorized, 671,469 shares
issued and outstanding 6,714 6,714
Additional paid-in capital 6,144,956 6,144,956
Net unrealized gain loss on equity securities
available-for-sale, net of deferred tax (15,551) (58,800)
Retained earnings, substantially restricted 2,742,802 4,529,374
----------- -----------
Total Stockholders' Equity 8,878,921 10,622,244
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $74,298,825 $76,994,796
=========== ===========
SEE INDEPENDENT ACCOUNTANT'S REPORT.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SECURITY FEDERAL BANCORP, INC., AND SUBSIDIARY 4
TUSCALOOSA, ALABAMA
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
(Unaudited)
1 9 9 6 1 9 9 5
---------- ----------
Interest Income
- ---------------
Mortgage Loans $1,433,862 $1,301,248
Consumer and Other Loans 9,336 9,765
Investment Securities, Mortgage Backed Securities
and Federal Home Loan Bank Deposits 84,893 137,537
---------- ----------
Total Interest Income 1,528,091 1,448,550
---------- ----------
Interest Expense
- ----------------
Deposits - Savings 34,478 32,430
Deposits - Certificates 867,077 834,789
Mortgage Note Payable 788 837
Borrowed Funds 26,147 10,479
---------- ----------
Total Interest Expense 928,490 878,535
---------- ----------
Net Interest Income 599,601 570,015
Provision for Losses on Loans - -
---------- ----------
Net Interest Income After Provision for Losses on Loans 599,601 570,015
---------- ----------
Non-Interest Income
- -------------------
Servicing Fees 52,700 58,511
Income from Late Charges 9,341 8,915
Other Operating Revenue 2,115 2,675
Gain (Loss) on Sale of Loans 90,404 (16,835)
Gain on Sales of Other Assets - 36,960
---------- ----------
Total Non-Interest Income 154,560 90,226
---------- ----------
(continued)
SEE INDEPENDENT ACCOUNTANT'S REPORT.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SECURITY FEDERAL BANCORP, INC., AND SUBSIDIARY 5
TUSCALOOSA, ALABAMA
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
For the Three Months Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
(Unaudited)
1 9 9 6 1 9 9 5
-------- --------
Non-Interest Expense
- --------------------
Salaries and Employee Benefits $226,974 $316,960
Net Occupancy Expenses 24,216 38,905
Equipment Expense 24,873 28,116
OTS/FDIC Premiums 18,277 40,403
Net Expenses of Real Estate Owned 378 (4,525)
Other Operating Expenses 95,290 90,620
-------- --------
Total Non-Interest Expense 390,008 510,479
-------- --------
Income Before Income Taxes 364,153 149,762
Income Tax Expense 136,318 42,969
-------- --------
Net Income $227,835 $106,793
======== ========
Net Income Per Share $ .34 $ .16
======== ========
SEE INDEPENDENT ACCOUNTANT'S REPORT.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SECURITY FEDERAL BANCORP, INC., AND SUBSIDIARY 6
TUSCALOOSA, ALABAMA
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
------------------------------------------------
(Unaudited)
1 9 9 6 1 9 9 5
---------- -----------
Cash Flows from Operating Activities:
Net income $ 227,835 $ 106,793
Adjustments to reconcile net income to net
cash provided by operating activities:
(Gain) on sale of assets (90,404) (20,125)
Depreciation expense 17,398 20,446
Amortization of premiums/discounts on
investments 96 (322)
Decrease in accrued interest and dividends
receivable 89,824 136,283
Decrease in deferred tax asset 257,480 -
(Increase) decrease in other assets (93,001) 36,682
Decrease in loans held for sale 267,050 -
Increase (decrease) in accounts payable and
other liabilities (443,859) 125,351
Increase (decrease) in deferred loan fees (25,735) 9,966
(Decrease) in income tax payable (154,662) (24,892)
---------- -----------
Net Cash Provided by Operating
Activities 52,022 390,182
---------- -----------
Cash Flows from Investing Activities:
Sales of U. S. government treasuries and agencies - 1,042,436
Proceeds from sales of real estate owned 116,902 -
Sales of Federal Home Loan Bank Overnight Deposits 170,005 198,463
Loan originations, net of repayments (4,529,946) (5,196,782)
Purchases of property, plant and equipment (1,083) -
Proceeds from sales of loans 6,714,685 4,743,545
---------- -----------
Net Cash Provided by Investing
Activities 2,470,563 787,662
---------- -----------
(continued)
SEE INDEPENDENT ACCOUNTANT'S REPORT.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SECURITY FEDERAL BANCORP, INC. AND SUBSIDIARY 7
TUSCALOOSA, ALABAMA
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Three Months Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (CONTINUED)
------------------------------------------------
(Unaudited)
1 9 9 6 1 9 9 5
----------- -----------
Cash Flows from Financing Activities:
Net (decrease) in advances from Federal Home Loan Bank $(1,250,000) $ (700,000)
Cash dividends paid (2,014,407) (134,294)
Net (decrease) in advances from borrowers for tax and
insurance (334,766) (293,629)
(Decrease) in bank overdraft (174,177) -
Repayments of mortgage notes payable (646) (596)
Net (decrease) from unremitted collections on mortgage
loans serviced (96,404) (197,241)
Net increase (decrease) in savings accounts 581,501 (120,075)
Net increase in certificates of deposit 895,291 85,185
----------- ----------
Net Cash (Used in) Financing
Activities (2,393,608) (1,360,650)
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 128,977 (182,806)
Cash and Cash Equivalents, Beginning of Period 611,576 813,264
----------- -----------
Cash and Cash Equivalents, End of Period $ 740,553 $ 630,458
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-------------------------------------------------
1 9 9 6 1 9 9 5
-------- --------
Interest paid $917,730 $867,580
Income taxes paid 33,500 89,805
SEE INDENPENDENT ACCOUNTANT'S REPORT.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SECURITY FEDERAL BANCORP, INC., AND SUBSIDIARY 8
TUSCALOOSA, ALABAMA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
1. Organization
------------
Security Federal Bancorp, Inc. (the "Company"), a Delaware corporation,
was incorporated in June, 1994, for the purpose of acting as a savings and
loan holding company with the Bank as its sole subsidiary. On March 31,
1995, the Company acquired all of the common stock of the Bank upon its
conversion from mutual to stock form. The Company's principal business is
the business of the Bank. The Bank is a federally chartered stock savings
bank and a member of the Federal Home Loan Bank System.
2. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10QSB and, therefore, do
not include information or notes necessary for a complete presentation of
financial position, results of operations, retained earnings, and cash flows
in conformity with generally accepted accounting principles. However, all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the consolidated financial statements for the three months
ended December 31, 1996 and 1995, have been recorded. Such adjustments were
of a normal recurring nature. The results of operations for the interim
period are not necessarily indicative of the results that may be expected for
the full fiscal year.
3. Principles of Consolidation
---------------------------
The accompanying unaudited consolidated financial statements include the
accounts of Security Federal Bancorp, Inc., and Security Federal Bank. All
significant intercompany items have been eliminated.
4. Retained Earnings
-----------------
The Bank is required to maintain certain levels of regulatory capital.
At December 31, 1996, the Bank was in compliance with all regulatory capital
requirements. In addition to these requirements, the Bank must maintain
sufficient capital for the "liquidation account" for the benefit of eligible
account holders. In the event of a complete liquidation of the Bank,
eligible depositors would have an interest in the account.
5. Cash Flow Presentation
----------------------
For purposes of the statements of cash flows, cash and cash equivalents
include cash and amounts due from depository institutions, and certificates
of deposit with maturities of 90 days or less.
(continued)
SECURITY FEDERAL BANCORP, INC., AND SUBSIDIARY 9
TUSCALOOSA, ALABAMA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
6. Benefit Plans
-------------
The Board of Directors of the Company, at a special stockholders' meeting
held November 20, 1995, approved the adoption of a management recognition
plan and a stock option and incentive plan.
The management recognition plan provides for the purchase of outstanding
shares of Company common stock equal to 4% of the shares issued in the
conversion. Non-employee and employee directors will be entitled to plan
share awards as of the plan's effective date totaling 10,743 shares. Future
awards will be made by a committee consisting of three non-employee
directors. Vesting will occur at the rate of 20% per year over five years
and accelerates to 100% upon a participant's death or disability. During the
quarter ending December 31, 1996, $22,700 was accrued for rights that vested
in the current period. In addition, $34,306 of expense is reflected in the
financial statements for accrued benefits payable under the management
recognition plan due to the death of two participants.
During the quarter ended March 31, 1996, purchases were made of the
holding company stock on the open market at a cost of $354,690 to be used for
plan share awards under the management recognition plan. These purchases
will be used to pay out plan share awards as participants vest.
The stock option and incentive plan provides for the issuance of newly-
issued shares of Company common stock equal to 10% of the share issued in the
conversion. At the plan's effective date, the non-employee and employee
directors were granted options at an option price of $13.75, totaling 26,857
shares. The options are exercisable at the rate of 20% per year following
the date of the grant and have a term of ten years. The options become
immediately exercisable upon death or disability. The plan also contains
provisions for expiration of the options following termination of services.
7. Mortgage Servicing Rights
-------------------------
In May, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights, an Amendment of FASB 65," effective for fiscal years beginning after
December 15, 1995. When a company has a definitive plan to sell or
securitize mortgage loans it originated and intends to retain the mortgage
servicing rights, Statement No. 122 requires that the cost of mortgage
servicing rights are capitalized separately from the cost of originating the
loan. Under Statement No. 65, only mortgage servicing rights that are
purchased are capitalized. Statement No. 122 eliminates the
(continued)
SECURITY FEDERAL BANCORP, INC., AND SUBSIDIARY 10
TUSCALOOSA, ALABAMA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
7. Mortgage Servicing Rights (Continued)
-------------------------
disparity between the treatment of mortgage servicing rights obtained through
loan origination and those that are purchased from other parties. In
addition, Statement No. 122 requires that capitalized mortgage servicing
rights should be amortized in proportion to and over the period of estimated
servicing income and should be evaluated for impairment based on their fair
value. The Company adopted Statement No. 122 for the quarter ended December
31, 1996.
8. Special Distribution
--------------------
On December 10, 1996, the Board of Directors of the Company declared a one-
time cash distribution in the amount of $3.00 per share to all stockholders
of record on December 19, 1996. The total distribution of approximately
$2.02 million was paid on December 27, 1996. The Company has received a
favorable ruling from the Internal Revenue Service and expects that
substantially all of the distribution will qualify as a non-taxable return of
capital to the stockholders.
SEE INDEPENDENT ACCOUNTANT'S REPORT.
SECURITY FEDERAL BANCORP, INC., AND SUBSIDIARY 11
TUSCALOOSA, ALABAMA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
December 31, 1996
- --------------------------------------------------------------------------------
Financial Condition
- -------------------
The company's total assets decreased by $2.70 million, or 3.5%, from $77.0
million at September 30, 1996, to $74.3 million at December 31, 1996, primarily
as a result of a decrease in loans receivable of $2.07 million, or 3.0%, from
$68.5 million at September 30, 1996, to $66.4 million at December 31, 1996, due
to the sale of mortgage loans. In addition, deferred tax assets decreased
$257,000, or 99.6%, primarily due to the payment of the SAIF assessment and
benefits payable under the director's retirement plan. Real estate owned
decreased $117,000, or 100%, as a result of the sale of the remaining properties
held. These were partially offset by an increase in other assets of $93,000
from $457,000 at September 30, 1996, to $550,000 at December 31, 1996, primarily
due to the adoption of SFAS No. 122 relating to the increase in mortgage
servicing rights of $104,000.
The company's total liabilities decreased by $953,000, or 1.4%, from $66.4
million at September 30, 1996, to $65.4 million at December 31, 1996, primarily
as a result of a decrease in short-term advances from Federal Home Loan Bank
(FHLB) of $1.25 million, or 44%, from $2.84 million at September 30, 1996, to
$1.59 million at December 31, 1996, borrowed by management for liquidity
purposes. The decrease in total liabilities was also caused by a temporary
increase in advances from borrowers for taxes and insurance of $335,000, or
50.5% from $663,000 at September 30, 1996, to $328,000 at December 31, 1996. In
addition, accrued expenses and other liabilities decreased by $443,000, or
57.5%, from $771,000 at September 30, 1996, to $328,000 at December 31, 1996,
due to the payment of the SAIF assessment. These decreases were partially
offset by an increase in deposits of $1.5 million, or 2.5%, from $61.2 million
at September 30, 1996, to $62.7 million at December 31, 1996.
Results of Operations
- ---------------------
The earnings of the company depend primarily on its level of net interest
income, which is the difference between interest earned on the company's
interest-earning assets, consisting primarily of mortgage loans, consumer loans,
and investment securities, and the interest paid on interest-bearing
liabilities. Net interest income totaled $600,000 for the three month period
ended December 31, 1996, which is an increase of $30,000 over the respective and
three month periods ended December 31, 1995.
(continued)
SECURITY FEDERAL BANCORP, INC., AND SUBSIDIARY 12
TUSCALOOSA, ALABAMA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
Interest Income
- ---------------
Total interest income increased by $80,000, or 5.5%, from $1.45 million for
the three month period ended December 31, 1995, to $1.53 million for the three
month period ended December 31, 1996. This is primarily due to an increase in
interest income on mortgage loans of $133,000 from $1.30 million for the three
month period ended December 31, 1995, to $1.43 million for the three month
period ended December 31, 1996. The increase in interest income on loans
generally reflects the growth of loans receivable for the three month period
ended December 31, 1996, compared to the three month period ended December 31,
1995. This was partially offset by a decrease in interest income on investments
of $53,000 from $138,000 for the three month period ended December 30, 1995 to
$85,000 for the three month period ended December 31, 1996 due to a decrease in
the amount of securities held during the period.
Interest Expense
- ----------------
Total interest expense increased by $50,000, or 5.7%, from $878,000 for the
three month period ended December 31, 1995, to $928,000 for the three month
period ended December 31, 1996. This is primarily due to an increase in
interest expense on deposits of $34,000 from $867,000 for the three month period
ended December 31, 1995, to $901,000 for the three month period ended December
31, 1996. The increase in interest expense on deposits generally reflects
growth of deposits for the three month period ended December 31, 1996, compared
to the three month period ended December 31, 1995. In addition, the increase in
interest expense was caused by an increase in interest expense on borrowed funds
of $16,000 from $10,000 for the three month period ended December 31, 1995, to
$26,000 for the three month period ended December 31, 1996.
Net Interest Income
- -------------------
Net interest income increased by $30,000, or 5.2%, for the three month period
ended December 31, 1996, compared to the three month period ended December 31,
1995, primarily due to the growth of loans receivable.
(continued)
SECURITY FEDERAL BANCORP, INC., AND SUBSIDIARY 13
TUSCALOOSA, ALABAMA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
Provision for Losses
- --------------------
There were no additions made to the provision for loan losses for the three
month period ended December 31, 1996. Management periodically reviews the need
to increase the provision for loan losses based upon their evaluation of known
and inherent risk characteristics of the loan portfolio. Total non-performing
assets were $874,000 and $1.02 million at December 31, 1996 and 1995, which
represents 1.18% and 1.48% of total assets as of these dates. Management
believes that the existing provision for loan losses is adequate based on their
evaluation of known and inherent risk characteristics of the loan portfolio.
Non-Interest Income
- -------------------
Non-interest income increased by $64,000, or 71.1%, to $154,000 for the three
month period ended December 31, 1996, from $90,000 for the three month period
ended December 31, 1995. This is the result primarily of an increase in gains
on sale of loans by $107,000 to $90,000 for the three month period ended
December 31, 1996, from $(17,000) for the three month period ended December 31,
1995, offset by a decrease in (losses) on sales of investments of $(37,000) for
the three month period ended December 31, 1996, compared to the three month
period ended December 31, 1995.
Non-Interest Expense
- --------------------
Non-interest expense decreased by $120,000 or 23.5%, to $390,000 for the
three month period ended December 31, 1996, from $510,000 for the three month
period ended December 31, 1995, primarily due to a decrease in salaries and
employee benefits related to accrued benefits for the directors retirement plan
and the management recognition plan and a decrease in deposit insurance due to
the restructuring of the Savings Association Insurance Fund.
Income Taxes
- ------------
Income tax provisions for three month periods ended December 31, 1996 and
1995, are generally reflective of the amounts of the company's pre-tax income
and the effective income tax rate then in effect.
(continued)
SECURITY FEDERAL BANCORP, INC., AND SUBSIDIARY 14
TUSCALOOSA, ALABAMA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
The Bank is required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which varies from time to time depending
upon economic conditions and deposit flows, is based upon a percentage of
deposits and short-term borrowings. The required ratio currently is 5.0%. The
Bank's liquidity ratio averaged 7.19% for the period ended December 31, 1996.
The Bank adjusts its liquidity levels in order to meet funding needs of deposit
outflows, payment of real estate taxes on mortgage loans and repayment of
borrowings and loan commitments. The Bank also adjusts liquidity as appropriate
to meet its asset and liability management objectives.
The Bank's primary sources of funds are deposits, sale of mortgage loans,
amortization and prepayment of loans, maturities of investment securities and
other investments, borrowings through advances from the FHLB, and earnings and
funds provided from operations. While scheduled principal repayments on loans
are a relatively predictable source of funds, deposit flows and loan prepayments
are greatly influenced by interest rates, economic conditions, and competition.
The Bank manages the pricing of its deposits to maintain a desired deposit
balance. In addition, the Bank invests in short-term interest-earning assets,
which provide liquidity to meet lending requirements. The Bank periodically
uses advances from the FHLB of Atlanta for liquidity purposes.
During the three months ended December 31, 1996, the company's cash and cash
equivalents (cash and short-term investments with maturities less than 90 days)
increased by $129,000. Cash was provided by operating activities of $52,000,
net proceeds from sales of loans of $6.71 million, net increases in deposit
accounts of $1.48 million, and proceeds from sales of real estate owned of
$117,000. These were offset by an increase in loan originations, net of
repayments of $4.53 million, decreases in advances from borrowers for tax and
insurance of $335,000, a decrease in advances from FHLB of $1.25 million, and
cash dividends paid of $2.01 million.
Management monitors projected liquidity needs and determines the level
desirable based in part on commitments to make loans and management's
assessments of their ability to generate funds. Loan commitments at December
31, 1996, were $2.04 million. These commitments are expected to be funded from
liquid assets, cash flow from loan repayments, and, if needed, advances from
FHLB of Atlanta.
Under the regulatory capital requirements of the OTS, the Bank is required to
maintain minimal capital requirements by satisfying three capital standards: a
tangible capital requirement, a leverage ratio requirement, and a risk-based
capital requirement. Under the tangible capital requirement, the Bank's
tangible capital (the amount of capital computed under generally accepted
accounting principles) must be equal to 1.5% of adjusted total assets. Under
the leverage ratio requirement, the Bank's core capital must be equal to 3.0% of
adjusted total assets. In addition, under the risk-based capital requirement,
the Bank must maintain core and supplemental capital (core capital plus any
general loss reserves) equal to 8% of risk-weighted assets (total assets, plus
off-balance-sheet items multiplied by the appropriate risk weight).
(continued)
SECURITY FEDERAL BANCORP, INC., AND SUBSIDIARY 15
TUSCALOOSA, ALABAMA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
Liquidity and Capital Resources (Continued)
- -------------------------------
The following table presents the Bank's capital position based on the
December 31, 1996, financial statements:
Percent Percent Percent
Actual of Required of Excess of
Amount Assets Amount Assets Amount Assets
---------- ------ ---------- ------- ----------- -------
Tangible $8,107,000 10.91 $1,114,000 1.50 $6,993,000 9.41
Core 8,107,000 10.91 2,229,000 3.00 5,878,000 7.91
Risk-weighted 8,436,000 21.51 3,138,000 8.00 5,298,000 13.51
(continued)
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
SECURITY FEDERAL BANCORP, INC.
Registrant
Date: February 13, 1997 /s/ Marlin D. Moore
----------------------------------------------
Marlin D. Moore
Chairman and Chief Executive Officer
(The Duly Authorized Representative)
Date: February 13, 1997 /s/ John F. Harvard
-----------------------------------------------
John F. Harvard
President and Chief Financial Officer