1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] 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 0-21212
-------
SECURITY FIRST CORP.
(Exact name of registrant as specified in its charter)
Delaware 34-1724675
------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1413 Golden Gate Boulevard
Mayfield Heights, Ohio 44124-1800
---------------------- ----------
(Address of principal executive (Zip Code)
offices)
(216) 449-3700
----- --------
(Registrant's telephone number, including area code)
Not Applicable
--- ----------
(Former name, former address and former fiscal year, if change since last
report)
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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $0.01 par value 7,576,270
- ------------------- --- ----- ---------
(Class) (Outstanding at November 7, 1997)
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SECURITY FIRST CORP.
TABLE OF CONTENTS
----- -- --------
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Financial Condition
as of September 30, 1997, March 31, 1997 and
September 30, 1996............................. 3
Consolidated Statements of Income for the three
and six months ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
six months ended September 30, 1997 and 1996... 5-6
Notes to Consolidated Financial Statements..... 7-8
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations. 9-19
PART II. OTHER INFORMATION.............................. 20
SIGNATURES................................................ 21
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Part I. - Financial Information
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1997 1997 1996
(Unaudited) (Unaudited)
-----------------------------------------
ASSETS:
Cash and deposits with banks $ 7,716 $ 4,685 $ 4,955
Interest bearing deposits with banks 3,326 1,826 2,371
Federal funds sold and short term investments 2,200 2,153 2,235
-----------------------------------------
Total cash and cash equivalents 13,242 8,664 9,561
-----------------------------------------
Investment securities - held to maturity (market values
of $11,995, $6,986, and $6,993 at September 30, 1997, March 31,
1997, and September 30, 1996) 12,000 7,000 7,000
Investment securities - available for sale (amortized cost of
$25,362, $24,969, and $25,156 at September 30, 1997, March 31,
1997, and September 30, 1996, respectively) 25,392 24,576 24,858
Mortgage-backed securities - available for sale (amortized cost of
$2,131 at September 30, 1997, $2,469 at March 31, 1997 and
$2,749 at September 30, 1996) 2,197 2,523 2,824
Loans held for sale 14,800 - -
Loans - net (including allowance for loan losses of
$5,092 at September 30, 1997, $4,968 at March 31, 1997
and $4,786 at September 30, 1996) 588,481 567,975 531,267
Accrued interest receivable 4,219 4,032 3,755
Federal Home Loan Bank stock - at cost 6,788 6,400 5,656
Premises and equipment - net 8,685 8,853 8,909
Cost in excess of fair value of net
assets acquired (goodwill) 975 1,028 1,081
Prepaid expenses and other assets 4,048 3,710 4,911
-----------------------------------------
TOTAL ASSETS $ 680,827 $ 634,761 $ 599,822
=========================================
LIABILITIES:
Deposits $ 479,961 $ 445,182 $ 420,061
Advances from Federal Home Loan Bank-at cost 123,629 115,221 107,397
Convertible subordinated debentures 7,398 8,479 8,759
Advance payments by borrowers for taxes
and insurance (escrow) 1,954 1,498 1,791
Accrued interest payable 2,407 2,058 1,686
Accounts payable and other accrued expenses 2,419 2,888 4,516
-----------------------------------------
Total liabilities 617,768 575,326 544,210
-----------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock (1,000,000 shares authorized,
none issued) - - -
Common stock, par value $.01 per share; 20,000,000
shares authorized; 7,591,777 shares outstanding
at September 30, 1997, 7,504,649 at March 31, 1997
and 7,457,730 at September 30, 1996 (a) 76 50 50
Capital in excess of par value 16,037 14,915 14,570
Net unrealized gain (loss) on investments and mortgage-backed
securities, (net of tax of $32 at September 30,1997,
($111) at March 31, 1997, and ($78) at September 30, 1996) 63 (224) (147)
Unearned compensation (178) (216) (254)
Unearned employee stock ownership plan shares - - (424)
Treasury stock (51,591 shares at September 30, 1997), at cost (816) - -
Retained earnings (substantially restricted) 47,877 44,910 41,817
-----------------------------------------
Total shareholders' equity 63,059 59,435 55,612
-----------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 680,827 $ 634,761 $ 599,822
=========================================
<FN>
(a) Adjusted to reflect the three-for-two stock split distributed on July 31, 1997.
See notes to consolidated financial statements.
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Part I. - Financial Information
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
Three months ended Six months ended
September 30, September 30,
1997 1996 1997 1996
----------------------- -----------------------
Interest Income:
Loans $ 13,013 $ 11,337 $ 25,655 $ 22,203
Mortgage-backed securities 45 58 91 119
Investment securities 647 597 1,272 1,160
Short-term investments 121 114 224 238
----------------------- -----------------------
Total interest income 13,826 12,106 27,242 23,720
----------------------- -----------------------
Interest Expense:
Deposits 5,609 4,670 10,830 9,236
Short-term FHLB advances 1,208 1,274 2,343 2,279
Long-term FHLB advances 438 174 1,078 279
Convertible subordinated debentures 132 147 270 294
----------------------- -----------------------
Total interest expense 7,387 6,265 14,521 12,088
----------------------- -----------------------
Net interest income 6,439 5,841 12,721 11,632
Provision for loan losses 84 84 142 180
----------------------- -----------------------
Net interest income after provision
for loan losses 6,355 5,757 12,579 11,452
Other Income:
Service charges and other fees 400 368 798 770
Gain (loss) on loan sales (51) 49 (51) 49
Other 65 24 109 55
----------------------- -----------------------
Other income 414 441 856 874
----------------------- -----------------------
Other Expenses:
Salaries and employee benefits 1,593 1,410 3,211 2,819
Occupancy and equipment 463 434 931 864
Federal deposit insurance 70 2,802 144 3,038
Marketing 78 112 200 213
Professional fees 119 117 246 231
Data processing 127 124 252 254
Printing and supplies 87 78 168 147
Amortization of goodwill 26 27 52 54
Supervisory assessment 37 34 70 66
Other 630 583 1,268 1,194
----------------------- -----------------------
Other expenses 3,230 5,721 6,542 8,880
----------------------- -----------------------
Income before federal income taxes 3,539 477 6,893 3,446
Federal income taxes 1,234 191 2,398 1,226
----------------------- -----------------------
Net Income $ 2,305 $ 286 $ 4,495 $ 2,220
======================= =======================
Earnings Per Share:(a)
Primary $ 0.30 $ 0.04 $ 0.58 $ 0.29
======================= =======================
Fully diluted $ 0.27 $ 0.04 $ 0.53 $ 0.28
======================= =======================
Cash Dividends Per Share (a) $ 0.08 $ 0.07 $ 0.16 $ 0.14
======================= =======================
<FN>
(a) Earnings per share and cash dividends per share calculations for all
periods were restated to reflect the three-for-two stock split distributed
on July 31, 1997.
See notes to consolidated financial statements.
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Part I. - Financial Information
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Six Months Ended
September 30,
1997 1996
-------------------------
OPERATING ACTIVITIES:
- ---------------------
Net Income $ 4,495 $ 2,220
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 142 180
Accretion of discounts, amortization of
premiums, and other deferred yield items 105 705
Depreciation and amortization 435 370
Amortization of goodwill 53 54
Effect of change in accrued interest
receivable and payable 162 (76)
Equity income from joint ventures (65) -
FHLB stock dividends (238) (155)
Amortization of unearned compensation 38 89
Net change in accounts payable, accrued expenses,
and other assets (890) 1,499
Other 33 34
-------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,270 4,920
-------------------------
INVESTING ACTIVITIES:
- ---------------------
Loans originated (131,412) (161,204)
Increase (decrease) in loans in process (1,406) 20,342
Loan principal repayments and maturities 95,851 78,761
Proceeds from:
Sales of:
Loans and loan participations 1,417 12,242
Real estate owned - 157
Mortgage-backed security principal
repayments and maturities 338 424
Investment security maturities 2,160 3,479
Purchases of:
Loans - (6,811)
Investment securities (7,545) (2,000)
Premises and equipment (271) (831)
FHLB stock (150) (1,637)
-------------------------
NET CASH USED IN INVESTING ACTIVITIES ($ 41,018) ($ 57,078)
=========================
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Part I. - Financial Information
SECURITY FIRST CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Six Months Ended
September 30,
1997 1996
-------------------------
FINANCING ACTIVITIES:
Net increase in savings deposits $ 34,779 $ 9,324
Proceeds from additional FHLB advances 116,900 224,250
Payment of FHLB advances (108,492) (184,937)
Net increase in mortgage escrow funds 456 446
Payment of dividends on common stock (1,213) (1,089)
Proceeds from exercise of stock options 147 68
Purchase of treasury stock (1,251) ---
-------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 41,326 48,062
-------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,578 (4,096)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,664 13,657
-------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,242 $ 9,561
=========================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 14,172 $ 11,875
Income taxes 2,150 2,048
Noncash investing and financing activities:
Transfers from loans to real estate acquired
through foreclosure --- 124
Effect of conversion of convertible subordinated
debentures 1,081 15
See notes to consolidated financial statements.
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1. Financial Statements
SECURITY FIRST CORP.
Notes to Consolidated Financial Statements (Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements of Security First Corp. ("Security
First" or "Company") include the accounts of the Company (a multiple savings &
loan holding company) and the accounts of its wholly owned subsidiaries,
Security Federal Savings and Loan Association ("Security Federal" or
"Association"), First Federal Savings Bank of Kent ("First Federal"), and SF
Development Corp. All significant inter-company transactions have been
eliminated. In the opinion of management, the accompanying unaudited financial
statements include all adjustments (consisting only of normal recurring
accruals) which the Company considers necessary for a fair presentation of (a)
the results of operations for the three and six months ended September 30, 1997
and 1996; (b) the financial condition at September 30, 1997, March 31, 1997 and
September 30, 1996; and (c) the statement of cash flows for the six month
periods ended September 30, 1997 and 1996. The results of operations for the six
month period ended September 30, 1997 are not necessarily indicative of the
results that may be expected for a full year.
2. EARNINGS PER SHARE
Earnings per share for each period presented is calculated using the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period. (See calculation in Exhibit 11.) Earnings per
share and cash dividends calculations were restated to reflect the three-for-two
stock split distributed on July 31, 1997.
Fully diluted earnings per share is computed giving appropriate
consideration to the dilutive effect of stock options and shares issuable upon
conversion of the 6.25% convertible subordinated debentures. In computing fully
diluted net income per share, net income has been adjusted to eliminate interest
expense associated with the debentures, net of estimated income taxes.
3. STOCK REPURCHASE PROGRAM
In December 1996, the Board of Directors of the Company authorized
management to repurchase up to 300,000 shares (as adjusted for the July 31, 1997
three-for-two stock split) of the Company's outstanding common stock. The
authorization provides that shares will be purchased in the open market at
prevailing market prices from time to time over a 12-month period commencing in
January, 1997. The repurchased shares will become treasury shares and will be
used for general corporate purposes, including the issuance of shares in
connection with grants and awards under the Company's stock-based benefit plans.
Under this authorization, 86,000 shares were repurchased during the six months
ended September 30, 1997, for an aggregate price of $1,251,000. A portion of the
shares were reissued in connection with the exercise of stock options. The
difference between the repurchase and reissuance prices was treated as a
reduction of retained earnings.
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4. NEW ACCOUNTING STANDARD
The Securities and Exchange Commission has expanded the requirements
regarding disclosure of derivative financial instruments, other financial
instruments and derivative commodity instruments by requiring enhanced
disclosure of accounting policies for these financial instrument contracts in
the footnotes to financial statements. The Company has not typically entered
into financial instrument contracts that involve derivative financial and
commodity instruments. The Company has entered into fixed and variable interest
rate loan contracts for which its policy is to record these financial
instruments in the financial statements when they are funded or related fees are
incurred or received.
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ITEM 2.
SECURITY FIRST CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Security First's net income was $2,305,000 and $4,495,000 for the second
quarter and six months ended September 30, 1997, respectively, as compared with
$286,000 and $2,220,000 for the same periods in 1996. The 1996 earnings figure
reflects a one-time assessment for the recapitalization of the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC"); without this charge, net income for the three and six months ended
September 30, 1996 would have been $1,980,000 and $3,914,000, respectively. The
Company's total assets increased 7.3%, from $634.8 million at fiscal year-end
March 31, 1997, to $680.8 million at September 30, 1997, principally due to a
$35.3 million net increase in loans outstanding, which were funded by increases
in both savings deposits, including approximately $10 million in brokered
certificates of deposit, and advances from the Federal Home Loan Bank. Also
during the current quarter, the Company classified $14.8 million in loans as
held for sale; these loans are accounted for at lower of cost or market.
Shareholders' equity (capital) at September 30, 1997 increased $3.6
million since March 31, 1997, mainly as a result of $4.5 million in net income
and increased paid-in-capital from bond conversions and tax benefits relating to
the exercise of stock options, offset by the payment of $1.2 million in cash
dividends.
As noted in the "Capital" section, both Security Federal's and First
Federal's regulatory capital ratios at September 30, 1997 exceeded all
regulatory capital requirements, and both have been categorized as
"well-capitalized" by the Office of Thrift Supervision ("OTS").
ASSET QUALITY
The Company's provision for loan losses was $84,000 and $142,000 for the
second quarter and six months ended September 30, 1997, respectively, compared
with $84,000 and $180,000 for the same periods last year. The allowance for loan
losses of $5,092,000 at September 30, 1997 increased nearly 6.4% from $4,786,000
at September 30, 1996. Nonperforming loans increased from $1.3 million at
September 30, 1996 to $2.2 million at September 30, 1997.
The provision and allowance for loan losses are based on management's
ongoing assessment of the adequacy of the allowance for loan losses. Systematic
detailed reviews of the Company's multi-family and commercial loan portfolios
are performed regularly in order to evaluate any potential credit losses. For
loan categories which are significant in total dollars but individual loan
amounts are not material and are well collateralized, the categories are
reviewed in total. These reviews consider, among other factors, economic
conditions, delinquency patterns and historical loss experience in the loan
portfolio in order to assess potential credit losses.
9
10
The following table provides information concerning non-performing assets
(non-accrual loans as well as those loans accruing but delinquent more than 90
days, and real estate owned) and the allowance for loan losses at the respective
dates (dollars in thousands):
NON-PERFORMING ASSETS:
AT OR FOR THE AT OR FOR THE AT OR FOR THE
QUARTER ENDED YEAR ENDED QUARTER ENDED
SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1997 1997 1996
------ ------ -------
Non-accrual loans $2,248 $1,643 $ 1,118
Accruing loans past due
90 days --- --- 144
Real estate owned 3 5 6
------ ------ -------
Total non-performing
assets $2,251 $1,648 $ 1,268
====== ====== =======
Allowance for loan loss $5,092 $4,968 $ 4,786
====== ====== =======
RATIOS:
Non-performing assets
to total assets .33% 0.26% 0.21%
====== ====== =======
Non-performing loans
to total loans (before
allowance for loan losses) .37% 0.29% 0.24%
====== ====== =======
Allowance for loan losses
to non-performing loans 227% 302% 379%
====== ====== =======
Allowance for loan losses
to period-end loans (before
allowance for loan losses) 0.84% 0.87% 0.89%
====== ====== =======
Net charge offs (recoveries)
to average loans --- (0.01)% (0.01%)
====== ====== =======
POTENTIAL PROBLEM LOANS:
As of September 30, 1997, the Company had $2.3 million of potential
problem loans, where known information about possible credit problems of the
borrower caused management to have some doubts as to the ability of the borrower
to comply with present loan repayment terms and may result in disclosure of such
loans in the future. Presently these loans are current and, therefore, not
reflected in the above table. Management believes that these loans are
adequately secured and no material loss is expected; however, such loans are
subject to allowance for credit losses of approximately $110,000.
Management is of the opinion that the allowance for loan losses at
September 30, 1997, which represents 227% of total non-performing loans, is
adequate to meet potential losses in the loan portfolio. It must be understood,
however, that there are inherent risks and uncertainties related to the
operation of a financial
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institution. By necessity, the Company's presentation of loans and real estate
owned in the consolidated financial statements is dependent upon estimates,
appraisals and evaluations of loans. Therefore, the possibility exists that
abrupt changes in economic and other market circumstances can change such
estimates, appraisals, and evaluations and require them to be revised.
LIQUIDITY
The term "liquidity" refers to the ability of the Company to generate
adequate amounts of cash to meet its needs, typically for the funding of loan
originations. The Company's liquidity is a measure of its ability to fund loans
and meet withdrawals of deposits and other cash outflows in a cost-effective
manner. The principal sources of funds for the Company's operations are cash
flows generated from earnings, savings deposits, scheduled amortization and
prepayments of loans and mortgage-backed securities, maturities of investment
securities and borrowings from the FHLB. Because a significant portion of the
Company's loan originations consist of relatively short-term construction and
development loans, the funding source for new loan originations is frequently
derived from maturities and prepayments of other construction loans. In
addition, Security Federal and First Federal also have the ability to borrow
against their eligible collateral, or an additional $11.2 million and $9.9
million, respectively, (as of September 30, 1997) from the FHLB, if the need
arises.
Management regularly reviews the Company's need for cash to fund its
operation and believes that the aforementioned sources of funds are adequate for
its projected requirements. Current federal regulations require that a savings
institution maintain an average daily balance of liquid assets of at least 5% of
the sum of its average balance of net withdrawable deposits accounts and
borrowings payable in one year or less. The OTS recently announced that it plans
to lower the liquid asset requirement to 4%. For the quarter ended September 30,
1997, Security Federal's average liquidity ratio was 6.50%, compared to 6.99%
for the quarter ended September 30, 1996. First Federal's liquidity ratios were
11.68% and 12.32% for the quarters ended September 30, 1997 and 1996,
respectively.
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CAPITAL
Regulatory capital for Security Federal and First Federal at September 30,
1997 exceeded all the minimum capital requirements specified by federal
regulations. In addition, both subsidiaries exceeded the capital level required
by OTS to be classified as a "well-capitalized" institution as demonstrated in
the following table (dollar amounts in thousand):
SECURITY FEDERAL
----------------
Tier 1 Tier 1 Total
Core Risk- Risk-
Leverage Based Based Tangible
Capital Capital Capital Capital
------- ------- ------- --------
Capital amount - actual $44,974 $44,974 $49,492 $44,974
well-capitalized level 28,431 26,489 44,149 8,529
------ ------ ------ ------
- excess $16,543 $18,485 $ 5,343 $36,445
====== ====== ====== ======
Capital ratio - actual 7.91% 10.19% 11.21% 7.91%
- required 3.00 4.00 8.00 1.50
----- ----- ----- -----
- excess 4.91% 6.19% 3.21% 6.41%
==== ==== ==== ====
Capital ratio - actual 7.91% 10.19% 11.21%
well-capitalized level 5.00 6.00 10.00
----- ----- -----
- excess 2.91% 4.19% 1.21%
===== ===== =====
FIRST FEDERAL
-------------
Tier 1 Tier 1 Total
Core Risk- Risk-
Leverage Based Based Tangible
Capital Capital Capital Capital
------- ------- ------- --------
Capital amount - actual $8,297 $8,297 $8,680 $8,297
well capitalized level 4,737 3,712 6,186 1,421
------ ------ ------ ------
- excess $3,560 $4,585 $2,494 $6,876
====== ====== ====== ======
Capital ratio - actual 8.76% 8.76% 13.50% 8.76%
- required 3.00 4.00 8.00 1.50
----- ----- ----- -----
- excess 5.76% 4.76% 5.50% 7.26%
===== ===== ===== =====
Capital ratio - actual 8.76% 8.76% 13.50%
well capitalized level 5.00 6.00 10.00
---- ---- -----
- excess 3.76% 2.76% 3.50%
===== ===== =====
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SECURITY FIRST CORP.
AVERAGE BALANCE SHEETS
The following table presents the total dollar amounts of interest income and
interest expense on the indicated amounts of average interest-earning assets or
interest-bearing liabilities together with the weighted average interest rates
for the three month periods ended September 30, 1997 and 1996. Average balance
calculations were based on daily and monthly balances. (Dollars in thousands)
Three months ended September 30,
/----------1997----------\ /---------1996---------\
---------------------------------------- -----------------------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------------------------------------- -----------------------------------------
Interest-earning assets:
Loans $588,014 $13,013 8.85% $515,203 $11,337 8.80%
Mortgage-backed
securities 2,206 45 8.16% 2,831 58 8.19%
Investment securities 39,815 647 6.50% 37,195 597 6.42%
Short-term investments 8,849 121 5.47% 8,578 114 5.32%
--------- -------- ---------- ---------
Total interest-
earning assets 638,884 13,826 8.66% 563,807 12,106 8.59%
-------- ---------
Noninterest-earning
assets 25,577 23,252
--------- ----------
Total assets $664,461 $587,059
========= ==========
Interest-bearing liabilities:
Passbook accounts $57,345 $396 2.76% $58,962 $401 2.72%
Money market/NOW accounts 86,746 359 1.66% 82,566 375 1.82%
Certificates of deposit 333,317 4,854 5.82% 273,468 3,894 5.70%
--------- -------- ---------- ---------
Total deposits 477,408 5,609 4.70% 414,996 4,670 4.50%
Short-term FHLB advances 80,621 1,208 5.99% 88,349 1,274 5.77%
Long-term FHLB advances 28,049 438 6.25% 11,640 174 5.98%
--------- -------- ---------- ---------
Total advances 108,670 1,646 6.06% 99,989 1,448 5.79%
Convertible subordinated
debentures 7,754 132 6.81% 8,767 147 6.71%
--------- -------- ---------- ---------
Total interest-
bearing liabilities 593,832 7,387 4.98% 523,752 6,265 4.79%
-------- ---------
Noninterest-bearing
liabilities 8,550 7,150
--------- ----------
Total liabilities 602,382 530,902
Shareholders' equity 62,079 56,157
--------- ----------
Total liabilities and
shareholders' equity $664,461 $587,059
========= ==========
NET INTEREST INCOME/
INTEREST RATE SPREAD $6,439 3.68% $5,841 3.80%
======== =========== ========= =========
NET INTEREST-EARNING
ASSETS/NET YIELD ON
INTEREST-EARNING ASSETS $45,052 4.03% $40,055 4.14%
========= =========== ========== =========
RATIO OF INTEREST-EARNING
ASSETS TO INTEREST-BEARING
LIABILITIES 107.59% 107.65%
=========== =========
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SECURITY FIRST CORP.
AVERAGE BALANCE SHEETS
The following table presents the total dollar amounts of interest income and
interest expense on the indicated amounts of average interest-earning assets or
interest-bearing liabilities together with the weighted average interest rates
for the six month periods ended September 30, 1997 and 1996. Average balance
calculations were based on daily and monthly balances. (Dollars in thousands)
Six months ended September 30,
/---------1997---------\ /---------1996---------\
--------------------------------------- -----------------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
--------------------------------------- -----------------------------------
Interest-earning assets:
Loans $582,479 $25,655 8.81% $501,778 $22,203 8.85%
Mortgage-backed
securities 2,264 91 8.04% 2,957 119 8.05%
Investment securities 38,751 1,272 6.56% 36,440 1,160 6.37%
Short-term investments 8,283 224 5.41% 8,935 238 5.33%
---------- --------- --------- --------
Total interest-
earning assets 631,777 27,242 8.62% 550,110 23,720 8.62%
--------- --------
Noninterest-earning
assets 25,339 23,235
---------- ---------
Total assets $657,116 $573,345
========== =========
Interest-bearing liabilities:
Passbook accounts $57,449 $787 2.74% $59,688 $806 2.70%
Money market/NOW accounts 85,229 712 1.67% 81,920 750 1.83%
Certificates of deposit 322,910 9,331 5.77% 271,137 7,680 5.66%
---------- --------- --------- --------
Total deposits 465,588 10,830 4.65% 412,745 9,236 4.48%
Short-term FHLB advances 79,179 2,343 5.92% 79,515 2,279 5.73%
Long-term FHLB advances 34,348 1,078 6.28% 9,641 279 5.79%
---------- --------- --------- --------
Total advances 113,527 3,421 6.03% 89,156 2,558 5.74%
Convertible subordinated
debentures 7,976 270 6.77% 8,771 294 6.70%
---------- --------- --------- --------
Total interest-
bearing liabilities 587,091 14,521 4.95% 510,672 12,088 4.73%
--------- --------
Noninterest-bearing
liabilities 8,825 7,132
---------- ---------
Total liabilities 595,916 517,804
Shareholders' equity 61,200 55,541
---------- ---------
Total liabilities and
shareholders' equity $657,116 $573,345
========== =========
NET INTEREST INCOME/
INTEREST RATE SPREAD $12,721 3.67% $11,632 3.89%
========= ======= ======== ==========
NET INTEREST-EARNING
ASSETS/NET YIELD ON
INTEREST-EARNING ASSETS $44,686 4.03% $39,438 4.23%
========== ======= ========= ==========
RATIO OF INTEREST-EARNING
ASSETS TO INTEREST-BEARING
LIABILITIES 107.61% 107.72%
======== ==========
14
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SECURITY FIRST CORP.
RATE/VOLUME ANALYSIS
The changes in net interest income for the three months ended September 30,
1997, as compared to the same period in the prior year, are analyzed in the
following table. The table shows the changes by major component, distinguishing
between changes related to volume as opposed to changes in interest rates and
the net effect of both. Changes not solely attributable to volume or rate
changes have been allocated in proportion to the changes due to volume and rate.
(Dollars in thousands)
For the Three Months Ended September 30,
---------------------------------------
1997 vs. 1996
---------------------------------------
Increase
(Decrease) Total
Due to Increase
Volume Rate (Decrease)
------- ------- -------
INTEREST-EARNING ASSETS:
Loans $ 1,611 $ 65 $ 1,676
Mortgage-backed securities (13) --- (13)
Investment securities 42 8 50
Short-term investments 4 3 7
------- ------- -------
Total interest-earning
assets $ 1,644 $ 76 $ 1,720
======= ======= =======
INTEREST-BEARING LIABILITIES:
Passbook accounts (11) 6 (5)
Money market/NOW 21 (37) (16)
Certificates of Deposit 870 90 960
------- ------- -------
Total deposits 880 59 939
Short-term FHLB advances (119) 53 (66)
Long-term FHLB advances 256 8 264
------- ------- -------
Total advances 137 61 198
Convertible subordinated
debentures (17) 2 (15)
------- ------- -------
Total interest-bearing
liabilities $ 1,000 $ 122 $ 1,122
======= ======= =======
CHANGE IN NET INTEREST INCOME $598
=======
15
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SECURITY FIRST CORP.
RATE/VOLUME ANALYSIS
The changes in net interest income for the six months ended September 30, 1997,
as compared to the same period in the prior year, are analyzed in the following
table. The table shows the changes by major component, distinguishing between
changes related to volume as opposed to changes in interest rates and the net
effect of both. Changes not solely attributable to volume or rate changes have
been allocated in proportion to the changes due to volume and rate.
(Dollars in thousands)
For the Six Months Ended September 30,
--------------------------------------
1997 vs. 1996
--------------------------------------
Increase
(Decrease) Total
Due to Increase
Volume Rate (Decrease)
------- ------- ---------
INTEREST-EARNING ASSETS:
Loans $ 3,554 ($ 102) $ 3,452
Mortgage-backed securities (28) --- (28)
Investment securities 75 37 112
Short-term investments (18) 4 (14)
------- ------- -------
Total interest-earning
assets $ 3,583 ($ 61) $ 3,522
======= ======= =======
INTEREST-BEARING LIABILITIES:
Passbook accounts (31) 12 (19)
Money market/NOW 33 (71) (38)
Certificates of Deposit 1493 158 1,651
------- ------- -------
Total deposits 1495 99 1594
Short-term FHLB advances (10) 74 64
Long-term FHLB advances 773 26 799
------- ------- -------
Total advances 763 100 863
Convertible subordinated
debentures (27) 3 (24)
------- ------- -------
Total interest-bearing
liabilities $ 2,231 $ 202 $ 2,433
======= ======= =======
CHANGE IN NET INTEREST INCOME $ 1,089
=======
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RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income increased to $6.4 million and $12.7 million for the
three and six months ended September 30, 1997, respectively, from $5.8 million
and $11.6 million for the comparable periods last year, as a result of greater
average loan balances as compared to the prior year's quarter. The Company's
interest rate spread (which represents the difference between the rate earned on
assets and the rate paid on liabilities) was 3.68% for the current quarter and
3.67% for the six months ended September 30, 1997, compared with 3.80% and
3.89%, respectively, for the same periods in prior year. The Company's interest
rate spread has decreased as a result of increased costs on interest-bearing
liabilities due to higher market rates in the current year combined with
increased use of FHLB borrowings.
Total interest income increased $1.7 million for the current quarter and
$3.5 million for the current six months compared to the same periods in 1996.
This increase was almost exclusively related to increased volume in the loan
portfolio. Average loans outstanding were $588 million and $582 million for the
three month and six month periods ended September 30, 1997, respectively,
compared to $515 million and $502 million for the same periods in 1996. The
overall average yield on interest-earning assets increased to 8.66% for the
current quarter, compared to 8.59% for the quarter ended September 30, 1996. The
overall average yield on interest-earning assets was 8.62% for both six month
periods ending September 30, 1997 and 1996.
The decrease in interest income on mortgage-backed securities during the
current periods was due to the decline in the average balance outstanding
resulting from principal repayments and prepayments received on the underlying
mortgages.
During the three months and six months ended September 30, 1997, interest
income on investment securities and short-term investments, which included
interest-earning deposits and Federal funds sold, increased to $768,000 and
$1,496,000, respectively, from $711,000 and $1,398,000 in the prior periods, due
to a combination of higher average market rates and higher average balances
outstanding in the current periods.
Total interest expense increased approximately $1.1 million in the current
quarter and $2.4 million in the current six months over the same periods last
year; these increases were related mainly to the greater volume of time deposits
and FHLB advances which were required to fund loan activity. The average
balances of deposits outstanding for the three months and six months ended
September 30, 1997, increased by $62.4 million and $52.8 million, respectively,
compared to the same periods in 1996. Interest expense related to FHLB advances
increased $198,000 for the quarter ended September 30, 1997 compared to the same
period in 1996, mainly as a result an $8.7 million increase in the average
balance of outstanding advances. For the six months ended September 30, 1997,
FHLB advance interest increased $863,000 compared to the same period last year,
mainly as a result of a $24.4 million increase in the average balance of
advances outstanding.
Interest expense on the Company's convertible subordinated debentures
decreased slightly from the prior year due to the effect of conversions to
common stock. The debentures, which have a
17
18
coupon interest rate of 6.25%, have a final maturity of May 1, 2008. The
effective cost of these funds is increased by the amortization of related
deferred issuance costs.
OTHER INCOME
Other income for the three months and the six months ended September 30,
1997 decreased slightly, as increases in service charges and income from
subsidiaries were offset by losses on loan sales.
OTHER EXPENSES
Other operating expenses for the current quarter and the current six
months were $3.2 million and $6.5 million, respectively, compared to $5.7
million and 8.9 million for the same periods in 1996. The 1996 expense figures
include $2.6 million for the special one-time assessment which was required from
all federally insured institutions for the recapitalization of the SAIF
insurance fund. Excluding this one-time charge, operating expenses were slightly
higher in 1997, mainly due to increases in employee compensation and occupancy
expenses, offset by a decrease in federal deposit insurance premiums.
SELECTED OPERATING RATIOS
Three months ended Six months ended
September 30, September 30,
------------------------------------
1997 1996 1997 1996
------------------------------------
Return on average assets
(annualized) 1.39% 0.19% 1.37% 0.77%
without SAIF assessment 1.39% 1.35% 1.37% 1.37%
Return on average equity
(annualized) 14.85% 2.04% 14.69% 7.99%
without SAIF assessment 14.85% 14.10% 14.69% 14.09%
Yield on average interest-
earning assets 8.66% 8.59% 8.62% 8.62%
Cost of average interest-
bearing liabilities 4.98% 4.79% 4.95% 4.73%
Interest rate spread during
period 3.68% 3.80% 3.67% 3.89%
Net yield on interest-earning
assets 4.03% 4.14% 4.03% 4.23%
Efficiency ratio (a) 46.4% 50.2% 47.6% 50.2%
<FN>
(a) Calculated as other operating expenses (excluding amortization of goodwill
and one-time recapitalization SAIF assessment) divided by the sum of net
interest income and other income, not including non-recurring items and
securities gains and losses.
18
19
FEDERAL INCOME TAX
The Company's provision for Federal income taxes for the three months and
the six months ended September 30, 1997 increased to $1,234,000 and $2,398,000,
respectively, compared to $191,000 and $1,226,000 for the same periods in 1996,
due to the increase in pre-tax income.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public r shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result," are expected to," "will continue," "is anticipate," "estimate,"
"project," "believe," or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made, and to advise readers that various factors, including regional
and national economic conditions, changes in levels of market interest rates,
credit risks of lending activities, and competitive and regulatory factors could
affect the Company's financial performance and could cause the Company's actual
result or future periods to differ materially from those anticipated or
projected.
The Company does not undertake -and specifically disclaims any
obligation- to publicly release the results of any revisions which may be made
to any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
19
20
SECURITY FIRST CORP.
Part II. Other Information
Item 1 - 5 are not applicable
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Part 1. Exhibits
Exhibit
Number Description
-------- -----------------------------------
11 Statement regarding computation
of per share earnings
27 Financial Data Schedule - EDGAR only
There were no reports on Form 8-K filed during the
Registrant's second quarter ended September 30, 1997.
20
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SECURITY FIRST CORP.
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 FIRST CORP.
Date: November 7, 1997 /s/ Charles F. Valentine
------------------------------------
Charles F. Valentine, Chairman of the
Board and Chief Executive Officer
Dated: November 7, 1997 /s/ Austin J. Mulhern
------------------------------------
Austin J. Mulhern, President and
Chief Operating Officer
Dated: November 7, 1997 /s/ Mary H. Crotty
------------------------------------
Mary H. Crotty, Vice President and
Chief Financial Officer
21